Divided Supreme Court Enforces FAA Over NLRA Challenge

In a widely anticipated result, a 5-4 divided Supreme Court rejected the Obama-era challenge to the Federal Arbitration Act brought under the National Labor Relations Act.   Epic Systems Corp. v. Lewis, No. 16-285 (5-21-18) a/k/a Murphy Oil v. NLRB No. 16-307.   Just as the Court had rejected prior challenges brought under the Sherman Act, FLSA, ADEA and Title VII, the Court found that employees can be required to arbitrate their employment claims (such as the FLSA and state law claims brought in this case) in individual arbitration cases and rejected the argument that the NLRA required employers to permit employees to bring class actions in federal court.   Indeed, it had already rejected a similar objection to consumer contracts in its 2011 opinion in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 and that arbitration was inconsistent with the Norris LaGuardia Act, Boys Markets, Inc. v. Retail Clerks, 398 U. S. 235 back in 1970 when it found that the NLA’s anti-injunction provisions do not bar enforcement of arbitration agreements.  Observing that the FAA has always been interpreted this way and that the NLRB did not change its interpretation until the Obama Administration, the Court refused to give any deference to the NLRB’s “new” position, particularly because it lacked statutory authority to interpret the FAA. “In the Federal Arbitration Act, Congress has instructed federal courts to enforce arbitration agreements according to their terms—including terms providing for individualized proceedings.”  The FAA’s savings clause only applies to defenses to “any” contract (such as fraud and duress), not just defenses to employment contracts that would be arguably covered by the NLRA.  

The Court’s opinion concerns three consolidated cases.  In one, an accountant who had signed an arbitration agreement nonehtless brought a nationwide class action claiming that E&Y misclassified junior accountants as exempt professionals and did not pay them overtime compensation under the FLSA and state law.  The Ninth Circuit found that the FAA created an exception when arbitration would violate a federal law, which it found to apply because the NLRA provides that employees may engage in concerted (i.e., collective) activities.   Only in one – Murphy Oil – did the lower courts reject the NLRB’s position.

The savings clause of the FAA provides an exception to enforcing arbitration agreements when there exists a defense that applies to any contract, such as fraud or duress.   However, the plaintiffs were asserting a specialized defense for only certain arbitration agreements:  those that required individual proceedings for employment claims.  This is not a generalized defense that applies to “any contract.”  As explained by the Court:

This is where the employees’ argument stumbles. They don’t suggest that their arbitration agreements were extracted, say, by an act of fraud or duress or in some other unconscionable way that would render any contract unenforceable. Instead, they object to their agreements precisely because they require individualized arbitration proceedings instead of class or collective ones.  And by attacking (only) the individualized nature of the arbitration proceedings, the employees’ argument seeks to interfere with one of arbitration’s fundamental attributes.

                . . . .

The employees’ efforts to distinguish Concepcion fall short. They note that their putative NLRA defense would render an agreement “illegal” as a matter of federal statutory law rather than “unconscionable” as a matter of state common law. But we don’t see how that distinction makes any difference in light of Concepion’s rationale and rule. Illegality, like unconscionability, may be a traditional, generally applicable contract defense in many cases, including arbitration cases.  But an argument that a contract is unenforceable just because it requires bilateral arbitration is a different creature.  A defense of that kind, Concepcion tells us, is one that impermissibly disfavors arbitration whether it sounds in illegality or unconscion- ability. The law of precedent teaches that like cases should generally be treated alike, and appropriate respect for that principle means the Arbitration Act’s saving clause can no more save the defense at issue in these cases than it did the defense at issue in Concepcion. At the end of our encounter with the Arbitration Act, then, it appears just as it did at the beginning: a congressional command requiring us to enforce, not override, the terms of the arbitration agreements before us.

The Court also rejected the argument that the NLRA’s right to engage in concerted action necessarily included the right to file a federal class action lawsuit because such a right did not exist when the NRLA was enacted:

The notion that Section 7 confers a right to class or collective actions seems pretty unlikely when you recall that procedures like that were hardly known when the NLRA was adopted in 1935.  Federal Rule of Civil Procedure 23 didn’t create the modern class action until 1966; class arbitration didn’t emerge until later still; and even the Fair Labor Standards Act’s collective action provision postdated Section 7 by years.

As the Court earlier observed:

The NLRA secures to employees rights to organize unions and bargain collectively, but it says nothing about how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum. This Court has never read a right to class actions into the NLRA—and for three quarters of a century neither did the National Labor Relations Board. Far from conflicting, the Arbitration Act and the NLRA have long enjoyed separate spheres of influence and neither permits this Court to declare the parties’ agreements unlawful.

                 . . .

Although the Arbitration Act and the NLRA have long coexisted—they date from 1925 and 1935, respectively— the suggestion they might conflict is something quite new. Until a couple of years ago, courts more or less agreed that arbitration agreements like those before us must be enforced according to their terms. . . .

                . . .

But recently things have shifted. In 2012, the Board— for the first time in the 77 years since the NLRA’s adoption—asserted that the NLRA effectively nullifies the Arbitration Act in cases like ours. . . . More recently still, the disagreement has grown as the Executive has disavowed the Board’s (most recent) position, and the Solicitor General and the Board have offered us battling briefs about the law’s meaning.

The Court also observed that the NLRA’s detailed structure for addressing different types of concerted activities (such as organizing and bargaining and grievances) does not address any issues related to federal court class actions:

But missing entirely from this careful regime is any hint about what rules should govern the adjudication of class or collective actions in court or arbitration.  Without some comparably specific guidance, it’s not at all obvious what procedures Section 7 might protect.  Would opt-out class action procedures suffice?  Or would opt-in procedures be necessary?  What notice might be owed to absent class members? What standards would govern class certification? Should the same rules always apply or should they vary based on the nature of the suit?  Nothing in the NLRA even whispers to us on any of these essential questions. And it is hard to fathom why Congress would take such care to regulate all the other matters mentioned in Section 7 yet remain mute about this matter alone— unless, of course, Section 7 doesn’t speak to class and collective action procedures in the first place.

                  . . . .

Perhaps worse still, the employees’ theory runs afoul of the usual rule that Congress “does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions—it does not, one might say, hide elephants in mouseholes.”

Finally, the Court rejected any Chevron deference: “And on no account might we agree that Congress implicitly delegated to an agency authority to address the meaning of a second statute it does not administer.” While the NLRB is clearly authorized to interpret and administer the NLRA, it has absolutely no authority relating to the FAA.

The Court’s majority observes that the dissenting justices cannot reconcile their position with the Court’s precedent and, instead, rely on policy arguments.  While policy arguments may be appropriate for Congress, they are not statutory interpretation or legal arguments:

The policy may be debatable but the law is clear: Congress has instructed that arbitration agreements like those before us must be enforced as written. While Congress is of course always free to amend this judgment, we see nothing suggesting it did so in the NLRA—much less that it manifested a clear intention to displace the Arbitration Act.  Because we can easily read Congress’s statutes to work in harmony, that is where our duty lies.

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.

Sometimes It’s a Mistake to Leave the Office

Earlier this month, the Sixth Circuit Court of Appeals affirmed summary judgments for two employers against employees who requested or took a medical leave of absence.   Both cases also rejected "stray remarks" as evidence of discrimination.   In Bailey v. Oakwood Healthcare, Inc., No. 17-2158 (6^th Cir. 4-23-18), the Court found that resume fraud by a relatively new senior human resources professional justified her immediate termination on her first day back to work from maternity leave.  The fraud had been discovered when her manager discovered a number of significant performance errors during her leave which caused her to examine her resume more closely.  The court rejected arguments that events seven months earlier could have motivated the employer over more recent events.  Also, it was irrelevant if the employer had determined to discharge her before meeting with her and confronting her in the termination meeting.  In Tillotson v. Manitowoc Co., No. 17-1640 (6^th Cir. 4-4-18), the plaintiff objected to the employer’s reliance on a nine-factor rubric in selecting him for termination during a RIF because several of the factors were based on subjective criteria, such as his future potential.  The Court found that there is nothing inherently unlawful in utilizing some subjective criteria and the plaintiff failed to conduct any discovery so as to introduce any substantive evidence showing that the criteria were inaccurate or rigged against him.   Further, because the plaintiff had not actually required medical leave or even a reduced work schedule or reasonable accommodation and had not asserted an ADA claim, evidence about negative remarks made about his medical condition were essentially irrelevant to show his termination in a RIF was a pretext for unlawful discrimination or retaliation.

In Bailey, the plaintiff human resources employee had been fired eight months after being hired on her first day back from maternity leave.   While her duties were being handled by her supervisor during her maternity leave, her supervisor discovered several material mistakes, and this caused her to question the plaintiff’s basic competence and re-examine her resume and job application.   In doing so, the manager discovered that the plaintiff had applied for a similar job with the employer a few years earlier and that the dates of employment, among other things, on her resumes did not match.  Instead, the plaintiff had falsified and exaggerated her experience and qualifications on her latter resume.  When confronted, the plaintiff could not deny the falsifications, but preferred to describe them as “embellishments.”   Although she argued that these “embellishments” were insufficient to justify immediate termination of her employment, the trial court found that they would be a sufficient reason to terminate a senior human resources professional.   It also rejected her argument that she should have received progressive counseling before being hired for resume fraud.

As for the performance deficiencies, the manager had assembled 28 pages of email messages and a list of 12 other mistakes, in addition to problems with chronic tardiness.  The Court rejected the plaintiff’s over-reliance on her positive probationary period performance evaluation because it had noted her need to pay more attention to details, it gave her an overall rating of just “competent” and she had conceded some of her performance mistakes.   While it tended to agree that many of the issues should have been handled with progressive discipline, it could not ignore that the resume fraud, by itself, was sufficient grounds for immediate termination of a senior HR professional.

The Court also rejected the plaintiff’s argument that the decision to terminate her employment had been made before she was informed of the issues and given a chance to respond. “Speculation as to when, precisely, Oakwood, through its decision makers, formulated the resolve to terminate Bailey’s employment is of little consequence.”

Regardless of the wisdom of the criticism of her job performance, the court concluded that the plaintiff could not show that age or race were the actual reason for her termination because the termination decision had been made by the same people who hired her just 8 months earlier when she was the same age and race.

While the plaintiff’s pregnancy discrimination claims were stronger, they were still rejected.  She argued that she suffered pregnancy discrimination because she had been fired seven months after revealing her pregnancy, had been required to report to work a half-hour earlier after she announced her pregnancy, her supervisor had questioned the wisdom of her having a baby at her age, she had been given more work to do after her pregnancy announcement and she was assigned more work than her peers.  The Court rejected each of these arguments.  If an adverse action taken two months or even two weeks after a pregnancy announcement were found to be too remote to create, by itself, an inference of discrimination, then a delay of seven months (and three months after the pregnancy itself) were too long to support a causation argument. “It is well established that temporal proximity alone is insufficient to support an inference of retaliation.”  While her work time had changed and she was criticized for chronic tardiness,  the same criticism existed when she was chronically tardy with a latter starting time.   Her statistics concerning workloads was not supported by credible evidence and her extra work assignments followed her own invitation to take on more work.  Lastly, her manager’s comment was found to be merely insensitive instead of reflecting an unlawful bias.

Finally, her retaliation claim was ultimately rejected because she could not show that the reasons for her termination were pretextual.  She alleged that she had a verbal disagreement with her African-American manager about the hiring of African-American applicants before her maternity leave.   In her deposition, she admitted that some of these applicants had flaws (such as recent criminal records) that disqualified them from employment.  Her subjective belief that her manager was biased was insufficient to overcome her lack of evidence to show that the reasons for her termination – poor work performance and resume fraud – more than seven months after the verbal disagreement were the actual reasons for her termination. “Such an intervening legitimate reason for discipline tends to defeat any inference of retaliation based on the proximity of the discipline to an earlier event.”

In Tillotson, the plaintiff challenged his termination during a reduction in force as retaliatory under the FMLA and state age discrimination laws.   He suffered from what his physician described as IBS and could not travel more than two consecutive hours.  While he had requested time off work, his physician did not certify that this was necessary.  Further, his job did not need to be restructured at that time because all of his sales territory was already within two hours.    When the VP of Sales, however, heard about the restriction, he stated that the company could not have a “sales guy” who could not travel.  Later, that VP was responsible for selecting which of his four salespeople would be terminated in the reduction in force.  Relaying on a nine-factor “rubric” that had been assembled during an earlier annual performance evaluation process, the VP selected the plaintiff for termination because he was the lowest rated of the four.

The plaintiff objected to the company’s reliance on the rubric because some of the factors were subjective, such as who was rated higher for future potential.  However, the plaintiff conducted no discovery on the issue and did not submit any evidence that the rubric or subjective evaluations were inaccurate or even unfair.

The company needed some criteria to determine which of the four product sales managers at Delfield would be terminated, and Tillotson presents no basis for a juror to conclude that the 9-Box was altered, misused, or erroneously or unfairly filled in after the company became aware of Tillotson’s FMLA leave request.

 . . . . We have recognized the need to scrutinize evaluations that utilize subjective criteria because of “the problems inherent in selection procedures which rely solely upon . . . subjective evaluations,”  . . . but “a plaintiff can not ultimately prove discrimination merely because his/her employer relied upon highly subjective qualities (i.e. ‘drive’ or ‘enthusiasm’) in making an employment decision,”  . . .  First, the company did not rely solely on subjective criteria.  Willoughby testified that objective metrics such as “monthly sales targets and feedback from customers and reps” were employed to evaluate a product sales manager’s “performance rating” in the 9-Box rubric, and Wilczak testified that performance scores were based largely on objective sales reports.  More importantly, however, to the extent the 9-Box utilized subjective criteria to evaluate product sales managers’ “future potential,” Tillotson has offered no evidence from which a reasonable juror could infer that the company manipulated, abused, or misapplied that criteria to affect Tillotson’s ranking.

The plaintiff had incorrectly argued that the rubric had been created for the RIF decision (and, thus, had been impliedly rigged against him), but the uncontested evidence was that the rubric was completed well before the RIF had even been contemplated, and thus, could not have been “rigged” to cause his termination.  There was no evidence introduced that the rubric had been created or completed after he exercised his FMLA rights, so no speculative inference could be implied against the employer on that count.

Further, the employer was not required to prove at the pretext stage the basis for its ratings, such as the plaintiff’s “medium” rating for potential. “’The defendant need not persuade the court that it was actually motivated by the proffered reasons.  It is sufficient if the defendant’s evidence raises a genuine issue of fact as to whether it discriminated against the plaintiff.’” Instead, it is the plaintiff’s burden to prove discrimination.    The plaintiff could have conducted discovery on these issues, but he failed to do so.

As for the comments by the VP and an HR employee about his medical restrictions on travel, the Court concluded that they were not evidence of FMLA retaliation because the plaintiff never required a leave of absence, or even a reduced work schedule, under the FMLA.  He did not even request an ADA accommodation or initiate an ADA claim in this litigation.  His travel schedule never required any modification either. That both the ADA and FMLA related to employee medical conditions does not make comments about medical restrictions probative of both types of claims:

Tillotson’s request for travel accommodations is not protected conduct under the FMLA because “the FMLA does not appear to have a freestanding reasonable-accommodations provision,”  . . . .and “the leave provisions of the [FMLA] are wholly distinct from the reasonable accommodations obligations of employers covered under the [ADA],”

Because the negative comments about his medical restrictions were not related to any FMLA leave that he took and he failed to purse an ADA claim, those comments were insufficient to prove that he was retaliated against under the FMLA so as to prevent summary judgment.

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.

A Flurry of FLSA Activity

If you blinked this week, you will have missed an unusual amount of activity concerning the Fair Labor Standards Act.  First, there were two Administrator Opinion Letters.  Opinion Letter 2018-19 provided that employers are not required to compensate employees for frequent short rest breaks that are required by the employees’ medical condition and covered as intermittent leave under the FMLA, except to the extent that other employees are provided to paid rest breaks.  Opinion Letter 2018-18 discussed the non-compensability of travel time an employee spends outside of his or her regular working hours and to commute to and from home to a job site or regular work location.    Yesterday, a unanimous Sixth Circuit reversed a trial court judgement and admonished the DOL for prosecuting a church for spiritually coercing its members during Sunday sermons to volunteer without any expectation of compensation in the church’s for-profit restaurant side-by-side with paid staff.  Finally, ten days ago, the DOL issued brief enforcement guidance to its staff in Field Assistance Bulletin 2018-3 about how it will interpret the recent FLSA amendments concerning tip pooling until formal regulations are issued and to terminate its temporary non-enforcement period of the tip-pooling rules.

Opinion Letter on Medical Accommodation Rest Breaks. Last Thursday, the DOL issued Administrator Opinion Letter 2018-19 recognizing an exception to the general rule that short rest breaks (of under 20 minutes) are generally considered to be compensable time when those rest breaks are frequent, are covered by the FMLA and, thus, primarily benefit the employee instead of the employer.   As most employers know, short rest breaks (of up to 20 minutes in duration) are generally considered to be too short to give the employee an opportunity to use the time for his or her own benefit, and thus, those breaks primarily benefit the employer by keeping the employee’s mind and body fresh for work.  Thus, is it common for employers to provide for a couple of paid rest breaks during an 8-hour shift.   In the Opinion Letter, however, the employer asked about a non-exempt employee whose physician certified that the employee needed to have a fifteen minute rest break every hour.  This meant that the employee only worked 6 hours out of an 8-hour shift.   Based on a prior court opinion, the Acting Administrator concluded that the frequency of the accommodation rest breaks primarily benefitted the employee and not the employer.  Further, the FMLA provides that FMLA intermittent leave – which would cover such frequent rest breaks necessitated by a serious medical condition – need not be paid.   Accordingly, where an employee’s medical condition requires frequent short rest breaks, the employer need not compensate the employee for those rest breaks except to the extent that other employees are compensated for short rest breaks.   Thus, when an employer provides each employee two short paid rest breaks per shift, but the employee requires 7 short rest breaks per shift, the employer need not pay for five of those rest breaks.  What is left for interpretation and handwringing by employers and employees, however, is whether there is a clear dividing line between when frequency of the rest break breaks stop being for the primary benefit of the employer and become for primarily for the accommodation benefit of the employee.   The “primary benefit” analysis should also apply whether or not the employer is governed by the FMLA, but one can probably expect that to be litigated, as well as claims that other employees are provided with more than two paid rest breaks per day, etc.

Spiritual Coercion is Not Economic Coercion.  A northeast Ohio church operated a wholly-owned, but separately incorporated, for-profit restaurant in its community which employed and paid thirty-five individuals.  Accosta v. Cathedral Buffet, Inc., No. 17-3427 (4-16-18).   The church also pressured its members to volunteer at the restaurant (which never turned a profit and was substantially subsidized by the church) and to preach the good news to the restaurant’s patrons.   It was stipulated that not a single volunteer expected any form of compensation or was in any way economically dependent upon the church or restaurant. “Put simply, there was no economic relationship between the restaurant and the church member volunteers.“  The DOL prosecuted the restaurant for failing to maintain records of working hours or minimum wages paid to the volunteers and obtained a judgment in federal court of $388,508 in back pay and liquidated damages.  This forced the restaurant to close, laying off all of its 35 employees.  The church appealed and the Sixth Circuit reversed.   Adults who volunteer without any expectation of any sort of economic compensation are not employees under the FLSA and are not required to be paid any compensation. 

The Supreme Court held as much in Portland Terminal when it defined a volunteer as a “person who, without promise or expectation of compensation, but solely for his personal purpose or pleasure, worked in activities carried on by other persons either for their pleasure or profit.”  Portland Terminal, 330 U.S. at 152 (emphasis added).  The Alamo Court reiterated this test, making clear that when a religious organization undertakes a commercial endeavor, its workers are only covered under the FLSA if they “engage in those activities in expectation of compensation.”  Alamo, 471 U.S. at 302.

Further, the Court rejected the DOL argument that spiritual coercion could be substituted for the lack of compensation expectation and found that the FLSA only covered economic coercion, not spiritual admonishment or coercion.  Thus, it did not matter if the church members were afraid of going to hell if they failed to volunteer.

But although the FLSA might aim to curb the societal ills caused by low wages, it does so through a comprehensive system of economic regulations.  The Act does not go so far as to regulate when, where, and how a person may volunteer her time to her church.  After all, the giving of one’s time and money through religious obligation is a common tenet of many faiths.  For instance, the Bible calls upon Christians to “use whatever gift you have received to serve others, as faithful stewards of God’s grace in its various forms.”  1 Peter 4:10 (NIV).  In the Islamic faith, believers are instructed to “show kindness unto parents, and unto near kindred, and orphans, and the needy.”  The Qur’an, An-Nisa 4:36.

The Court distinguished this case from Alamo Foundation v. Secretary of Labor, where the individuals resided for long periods of time at the employer, were economically dependent on the Foundation and were compensated with clothing, room and board instead of with money.   Those individuals expected to be compensated, just not in cash, and, thus, were employees.   Further, a for-profit farm with an understanding with a church to provide “volunteer’ child labor was still covered when the children were coerced by their parents, church and community to pick nuts.

Finally, the Court rejected the DOL argument that permitting the church to use volunteer labor gave it an economic advantage over secular businesses.  Pointedly, the Court noted that the Supreme Court had specifically observed in the Alamo Foundation case that true volunteers are never covered by the FLSA even if they volunteer for a for-profit business and gave as examples:

“driv[ing] the elderly to church, serv[ing] church suppers, or help[ing] remodel a church home for the needy.”   . . .  These activities could all be seen as competing with other businesses, yet they are still exempted from FLSA coverage because the workers do not expect to receive an economic benefit in return for their service.  A church van competes with a taxi service.  A Catholic fish fry competes with a fast food restaurant.  A volunteer homebuilding project competes with a construction company.  Granted, Cathedral Buffet was organized to turn a profit (although there is little evidence that the restaurant ever generated revenue for the church).  But, as the Court made clear in Portland Terminal, what matters is not the object of the enterprise, but instead the purpose of the worker.  Portland Terminal, 330 U.S. at 152-53 (emphasis added).

The concurring opinion admonished the DOL for applying the FLSA when a “pastor spiritually ‘coerced’” his flock to volunteer and attempting to “regulate the spiritual dialogue between pastor and congregation” in violation of “the Free Exercise Clause of the First Amendment.”

One can agree that the Reverend’s comments were in poor taste, and yet see that the Department [of Labor] has no business regulating them.  For the power that the Department purports to exercise here is out of bounds even under Employment Div. v. Smith, 494 U.S. 872 (1990).  There, of course, the Court held that a neutral law of general applicability does not violate the Free Exercise Clause when the law burdens religious exercise only incidentally.   . . .  But here the Department’s actions meet none of those criteria.  The Department seeks to regulate spiritual conduct qua spiritual conduct, and to impose significant liability as a result.  The very criterion by which the Department would impose liability is expressly spiritual.  Hence this is not a case, like Smith, where illegal conduct (there, smoking peyote) remained illegal even though it was religiously motivated.  Instead, the Department’s position here is that otherwise legal conduct—such as volunteering at a church restaurant—becomes illegal if the worker’s pastor spiritually pressures her to engage in it.  (Under this regime, one supposes, whether a pastor can invoke the Book of James—“a person is justified by works and not by faith alone[,]” James 2:24—might be determined on a case-by-case basis.)  The Department’s actions therefore “target[] religious conduct for distinctive treatment[,]”  . . . and their burdens upon religious exercise would come by design.

Nor is the Department even competent to make the spiritual judgment it purported to make here.   . . . .  Hence it is beyond the ken of federal agencies, or the courts, to determine that congregants were spiritually coerced even though the congregants themselves say they were not—which is what 134 members of Grace Cathedral said under oath here.

Tip Pooling. As previously reported here, Congress amended the FLSA in March concerning the sharing of tips.   Earlier this month, the DOL issued a brief Field Assistance Bulletin to address some of the many questions left open by the statutory amendment.  The DOL indicates that it will proceed with formal APA rulemaking to replace the existing and superseded regulation.   Until that regulation is finalized, however, the DOL indicates:

employers who pay the full FLSA minimum wage are no longer prohibited from allowing employees who are not customarily and regularly tipped—such as cooks and dishwashers—to participate in tip pools.  The Act prohibits managers and supervisors from participating in tip pools, however, as the Act equates such participation with the employer’s keeping the tips.  As an enforcement policy,  WHD will use the duties test at 29 C.F.R. § 541.100(a)(2)-(4) to determine whether an employee is a manager or supervisor for purposes of section 3(m).

In addition, an employer’s administration of

a permissible tip pool does not constitute either unlawful retention of tips or unlawful tip pool participation under the Act by employers, managers, or supervisors.  Additionally, the provisions in WHD Field Operations Handbook 30d05 concerning tips charged on credit cards still apply.

Finally, the DOL announced that end of its temporary period of non-enforcement of the tip-pooling rules that has been in place since July 2017: 

WHD’s July 20, 2017 non-enforcement policy concerning retention of tips by tipped employees paid the full FLSA minimum wage will not apply to new investigations beginning on or after March 23, 2018.  When an investigation covers periods before and after March 23, 2018, and the employee was paid at least the full FLSA minimum wage, violations of section 3(m) may only be cited if they occurred after March 23, 2018.

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.

Divided Sixth Circuit Affirms Dismissal of FMLA Claims But Finds Possible ERISA Claims Based on Same Evidence

Yesterday, a divided Sixth Circuit affirmed summary judgment on FMLA interference and retaliation claims where the plaintiff employee, like 55 employees before him, had been fired under the common company policy for failing to call off for three consecutive days, but on the same facts the Court reversed dismissal of his ERISA interference and retaliation claims on the grounds that the employer’s failure to call him to check on him (like some other employees who had similarly failed to show or call off) prior to terminating his employment could constitute evidence of pretext.   Stein v. Atlas Industries, Inc., No. 17-3737 (6^th Cir. 4-9-18).  The Court found that the employee could not show unlawful interference with his right to take FMLA leave because the FMLA regulations permit employers to enforce call-off policies, which the plaintiff admittedly had failed to observe due to his own confusion about when he had been released to return to work.  His confusion about what his physician had written did not excuse his failure.  The Court also concluded that he could not show unlawful retaliation based only on the passage of 10 weeks between the start of his FMLA leave and his termination because temporal proximity alone is insufficient evidence when the span of time is more than 8 weeks.  Unlike his FMLA claim, however, the employee was able to produce evidence that his self-insured employer was very concerned about the medical bills incurred by his son.   Therefore, the passage of 7 months did not destroy his evidence of causation because he was not relying on temporal proximity alone and it was known that his son would likely require another hospitalization.   This “extra” evidence of employer motivation also apparently made relevant evidence of  pretext that the Court had previously rejected as evidence of pretext in his FMLA claims.

According to the Court’s opinion, the plaintiff had worked for the defendant company for 20 years and even had a year of perfect attendance when his son required hospitalization for a severe, chronic and rare neurological condition that apparently caused the employer’s insurance rates to rise and had been blamed by some employees for the employer’s inability to raise wages.  The employee then required surgery for a work-related injury and was off work on FMLA leave for 10 weeks.   Near the end of July, his doctor told him that he could return to unrestricted duty on  August 10.  However, the employee did not understand or realize that his physician had immediately released him to return to work on light duty on July 20 and had so informed the employer.   Although employees are entitled under the FMLA to reject light duty work, they are still required to adhere to the employer’s attendance policy, which in this case required employees to call off every day that they did not intend to return to work after they have been released to light duty.  When the employer received the physician’s release for light duty, it called the physician to confirm the release because the employee had not called off work.  When the employee did not report to work for three consecutive days or call off, it terminated his employment like it had 55 employees before him.   The employee produce some evidence that the employer had called some other employees before terminating them under the same policy, thereby showing selective enforcement.

First, the Court rejected the FMLA interference claim.  The Court found that the employee’s confusion about his medical release and its ramifications did not constitute “unusual circumstances” to excuse his failure to call off work under the employer’s policy.  The type of “unusual circumstances” that would have justified him not complying with the policy would be a malfunctioning voicemail or telephone system.   While the Court was sympathetic that the doctor told the employee one thing, but wrote something else, the Court also found that the employee should have read the form which his physician gave him.  The Court also rejected the FMLA interference claim because FMLA regulations require employees to comply with their employer’s call off procedures even if they are entitled to be on FMLA leave. 

Here, [the employer’s] policy required employees on medical leave to either return to work or call in once their doctor released them with light-duty restrictions.  And the company’s employee handbook provided that “any associate who is absent three (3) consecutive days without permission or without calling in [would] be automatically discharged.”  . . . So, when [the plaintiff] failed to report for work or call in for three consecutive days after his release, [the employer] was within its rights to terminate him.   

It was irrelevant that the employee was legally entitled to reject light duty work under the FMLA. 

Had [the employee] contacted [the employer] to say that he was using his remaining two weeks of FMLA leave and the company subsequently fired him under the attendance policy, [he] would have a claim.  But that is not what happened.  [Its] policy required [him] either to return to work or call in and report his intentions, and [he] did neither.  So the light-duty regulations do not protect him.

Second, the Court rejected the FMLA retaliation claim.   The employee apparently admitted that his only evidence of retaliation was the temporal proximity of the termination – 10 weeks after he began FMLA leave.   There were apparently no stray or other remarks which would show that the employer was motivated to retaliate for his taking FMLA leave.  However, temporal proximity alone cannot constitute sufficient evidence of causation when the lapse of time is greater than 8 weeks.   Accordingly, the Court affirmed dismissal of the FMLA claims. 

Finally, the Court found that there was sufficient evidence for a jury to consider whether the employee was fired in retaliation for, and to prevent him from, using his ERISA benefits to obtain employer-covered medical treatment for his son.  The employer was self-insured for medical coverage and had stop-loss coverage for extraordinary claims.   The company had apparently spent $500K on his son’s care in the prior year (part of which was covered by the stop-loss coverage) and had been publicly lamenting “skyrocketing” health care costs in employee bulletins.  The HR Director was alleged to have complained about this to another employee and attributed the rising employee premiums to his son’s $1M in medical bills.  While the employee’s supervisor made the decision to terminate his employment, he did not act alone because the HR Director and the VP of Operations also participated in the decision, decided to not reconsider or excuse his confusion about his medical release, and were well aware of the cost of his son’s medical expenses.   Further, the passage of seven months between his son’s hospitalization and the termination decision did not destroy the temporal proximity inference because, as just discussed, the employee was not relying on temporal proximity alone (as he did in his FMLA claim).   This was particularly true when it was known and likely that his son would have to return to the hospital again in the future.

The employer again explained that it had fired the employee under its policy of automatically firing employees who fail to show up or call off for three consecutive days and pointed out that it had similarly fired 55 other employees under this policy.  

Thus it is [the employee’s] turn once more.  [The employee] “need not show that the employer’s sole purpose was to interfere with [his] entitlement to benefits” or to retaliate, but instead that a reasonable jury could find that unlawful considerations were a “motivating factor” in its actions.  

The Court then remarkably concluded that while the employer’s rationale was justified under the FMLA, it could constitute pretext under ERISA.   Although the Court rejected the employee’s argument that the employer’s failure to call him to schedule a return-to-work drug test after he had been released to return to light duty was evidence of pretext for his FMLA retaliation claim, it found that evidence relevant for his ERISA retaliation claim.  Finally, it found that the employee’s “suggestion” that the employer had called some workers to find out why they had not returned to work or called off (instead of automatically terminating them) constituted evidence of selective enforcement and ERISA retaliation, but was apparently irrelevant to his FMLA retaliation claim. 

[The plaintiff] had worked at [the defendant company] for nearly twenty years, had won at least one perfect attendance award, and had worked overtime when asked.  He seems to have been a satisfactory employee.  But as the three days after his release to light duty rolled by, [the defendant company] reached out only to [his] doctor and [its]third-party administrator for workers’ compensation claims—just to double-check that [he] had really been released.  And even though [its] employee handbook indicates that [he] had to “complete a return to work fitness exam and drug screen prior to returning to work” that “[would] be scheduled by the Human Resource department,”  . . . the company did not schedule [his] drug screen before it fired him.   . . .   Although [the defendant employer] was not required to reach out to [him, for reasons set out in the FMLA-interference discussion above, the fact that it did not do so could still raise a juror’s suspicions about [its] motives.  And while [the employer] claims that this was all just standard practice—pointing to a list of fifty-five employees that the company terminated under its no-call, no-show policy in the past twenty or so years—[its] list only includes names and dates.  It does not indicate whether these fifty-five terminations are otherwise similar to [the plaintiff’s] in the relevant respects.  And [the plaintiff], for his part, has pointed to evidence suggesting that his superiors selectively enforced the absenteeism policy by calling some employees to “ask what’s up” when they failed to show up for work, but not others.  

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.

Recent Ohio Unemployment Decisions

Here’s a survey of a few recent unemployment compensation decisions.   Last week, the Ohio Court of Appeals reversed the denial of unemployment compensation to a claimant who claimed that he resigned after complaining repeatedly about not being paid promised production bonuses and discomfort with what he found to be unethical and discriminatory sales practices.  Barno v. Dir., Ohio Dept. of Job & Family Servs., 2018-Ohio-1196.  In January, the Court reversed the denial of unemployment compensation to a long-time employee who was fired for admittedly shoving a member because she had been provoked and the employer mostly ignored her concerns about that member.  Smoot v. Dir., Ohio Dept. of Job & Family Servs., 2018-Ohio-270.    The claimants in both of these cases were represented by the Cleveland Marshall Law School clinic.  In the final case, the Court last month upheld denial of unemployment compensation when the court staff attorney resigned because he speculated that he was about to be fired and had never raised his concerns. Kelly v. Stark Cty. Commrs., 2018-Ohio-950.

 In Barno, the claimant made notes during his job interview about the bonus structure and followed up several times about his employer’s failure to pay him pursuant to that structure.  He promoted water purification systems inside Home Depot stores for his employer.  He was supposed to be paid for every lead he generated which resulted in an in-home demonstration and which resulted in a sale.  However, the Company never informed him when his customers followed up with it.  Instead, he only found out when they returned to him to complain about service.  When he asked about the non-payment of his bonus, he was told that they were looking into it.  When he attempted to contact the Company president, his call was not returned.  When he wrote his manager about it, he received no response.  He also claimed to have been told to not service customers with foreign accents, in certain zip codes and the elderly.  He also claimed that customers complained to him that they never received promised discount cards and were ignored when they tried to cancel the service.  While the company admitted during the hearing that they did not want to sell to the elderly (because their children were likely to later complain), they denied in broad terms having any other restrictions.  The employer did not specifically deny the allegations of racial and national origin discrimination.   The employer also claimed during the hearing the bonus structure was much different than alleged by the claimant and claimed that he never seemed to understand it.  The hearing officer and Commission ruled in favor of the employer, but the Court reversed.

The Court found that the only real “evidence” of the bonus structure was the letter and notes provided by the claimant because the employer’s “evidence” had been created only for the hearing.   In other words, the only documentation of the bonus structure that existed prior to the hearing was the claimant’s documents.  If the employer had ever documented its bonus structure prior to the hearing (as every employer should do), it might have won the hearing.  Instead, the Court found that the employee was justified in resigning his employment when he was not being paid as promised when he was initially hired.  Further, the employer’s general denial that it had any other restrictions on sales (other than not selling to the elderly) was found by the Court to be insufficient evidence to rebut the employee’s allegations that he was specifically told to not sell to Russians, Asians, Indians, and others with foreign accents, etc.  The Court also found the employee’s testimony credible that his repeated complaints were ignored and that customers had complained to him about being ignored, etc.   Thus, the employee was justified in resigning his employment and  entitled to receive unemployment compensation.

In Smoot, the employee had worked as a housekeeper for 11 years for the YMCA.  After a spotless disciplinary record, she complained to her supervisor when a female member pushed her into a Christmas tree.  No action was taken to her knowledge.   A month later, the member screamed at her when she asked her to move her car from a no-parking zone so that a disabled member could park there.  Again, no action was taken to her knowledge after she reported the incident to her manager.  A month after that, the member screamed again at the claimant because a maintenance man was parked there while unloading supplies.  Later that same day, that same member elbowed her in the hallway and told her to get out of the way.   Again, the employee complained and this time put her concerns about the member in writing because no action had been taken on her prior complaints.   Her employer warned the member that her membership would be terminated if there were any further incidents.   Nonetheless, the member again shoved the claimant five months later and no action was taken after the employee complained.   Five months after that, the member again provoked the employee and shoved her.  This time, the employee shoved back and was terminated the following day.   The Commission denied unemployment compensation because the employee  engaged in willful misconduct by not removing herself from the situation  instead of following the employee and arguing with her prior to the physical altercation.   The Court reversed and upheld compensation for an employee who admittedly engaged in workplace violence:

[The claimant] gave the YMCA the opportunity to correct the problem with the member, and the YMCA neglected to do so.  The YMCA’s failure to act placed [the employee] in a position where she was subjected to abusive conduct while waiting for her employer to respond.  This isolated incident of [her] physical conduct with the member, when viewed with [her] good record of job performance, the circumstances prior to the altercation, and the lack of the employee handbook in the record, is insufficient evidence to support the Review Commission’s determination that [she] was terminated for just cause. 

In Kelly, the claimant staff attorney told his judge that he would need to be off work due to back surgery and claimed that the judge became very hostile.   Upon his return to work following his surgery, he was called into the judge’s chambers with the bailiff.  Convinced that he was about to be fired, he submitted his two-week notice of resignation before the judge said anything so that he would not have a termination on his work record.  Instead, he was told to go home because he had never produced a medical release to return to work.   Another staff attorney also testified that he similarly resigned because of the judge’s open hostility.  The Commission denied his claim for unemployment compensation because the employee did not give the judge the opportunity before his resignation to correct his concern with his working conditions.  The Court affirmed.  While it sympathized that employee are not always required to give prior notice of their concerns before resigning, in this case he was not subjected to physical abuse and had never received any disciplinary action.  Accordingly, his failure to complain about the judge’s conduct before submitting his resignation was unreasonable.

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.