Supreme Court Upholds Mandatory E-Verify Required by Arizona

This morning, the Supreme Court upheld a controversial Arizona law which requires employers operating in the state – as part of its business licensing law – to comply with the federal 1986 Immigration Reform and Control Act and to utilize the federal E-Verify program to confirm the eligibility of employees to legally work in the United States. Chamber of Commerce of the United States v. Whiting, No. 09-115 (2011). The Chamber of Commerce and civil rights groups had united to oppose the Arizona law, which they contended violated Congressional supremacy to govern immigration and was both explicitly and implicitly preempted. However, the District Court, the Ninth Circuit and the Supreme Court each concluded that the ICRA had left an explicit exception for states to regulate the hiring of immigrants through business licensing laws and that the Arizona statute paralleled the federal statute in its requirements in order to avoid any conflict with federal law.

Prior to the 1986 passage of the IRCA, the Supreme Court had held that immigration control was a federal power, but the states still had the authority under their sovereign policing powers to prohibit the knowing employment of individuals not entitled to reside or work in their state. However, the IRCA explicitly preempts states from imposing any civil or criminal sanctions upon employers for hiring unauthorized aliens, except through licensing and other similar laws. 8 U. S. C. §1324a(h)(2). The "Legal Arizona Workers Act provides that the licenses of state employers that knowingly or intentionally employ unauthorized aliens may be, and in certain circumstances must be, suspended or revoked. The law also requires that all Arizona employers use a federal electronic verification system [i.e., E- verify] to confirm that the workers they employ are legally authorized workers."

The challenged Arizona statute required the state attorney general or county attorney, upon receipt of a complaint, to verify with the federal government the work eligibility status of the challenged employee. Only the federal government could determine work eligibility, not local government. In addition, every employer is required to utilize e-verify upon hiring a new employee. Further, good faith compliance with the I-9 requirements of the IRCA and the e-verify system create an affirmative defense for the employer. Once unauthorized aliens are identified, the statute requires the local government to notify ICE or local police and to bring an enforcement action against the employer. The first violation of the statute can result in a suspension of the employer's business license, an order to terminate all unauthorized aliens, and quarterly reporting requirements. A second violation can lead to revocation of the employer's business license.

The Court easily dismissed the argument that the Arizona statute was not a licensing scheme and that the federal exemption was limited to licensing of migrant workers. The Court also rejected the argument that the Arizona statute conflicted with the federal IRCA because the Arizona statute incorporated IRCA definitions and standards and explicitly provided that determinations of work authorization were to be made exclusively by the federal government. Only when the federal government confirms that the individual is an unauthorized alien can the state government prove its burden that the individual is not authorized to work in Arizona. Finally, the Court rejected the argument that the state law upset the balance struck by the IRCA to avoid over-burdening employers and discouraging employment discrimination. The Arizona law did not impose any material additional burdens on employers and state law already prohibited national origin discrimination.

In 1996, Congress authorized the creation of the pilot e-verify program, but precluded making it mandatory outside the federal government. (However, federal contractors are required to utilize it pursuant to a 2008 Executive Order). Employers who verify the employment eligibility of newly hired employees establish a rebuttable presumption that they have complied with the IRCA. There is no provision in the 1996 enabling statute precluding states from making mandatory the use of e-verify. Indeed, when the 2008 Executive Order was challenged by government contractors and the Chamber of Commerce, the federal government pointed out that its use was already mandatory in Arizona and a few other states. Since that time, the federal government has expanded the e-verify program and encouraged its use. Indeed, the United States, in its amicus brief, disputed that the e-verify system could not handle the use by all employers in all 50 states. The United States also disputed any challenge to the accuracy of the e-verify system.

IRCA expressly reserves to the States the authority to impose sanctions on employers hiring unauthorized workers, through licensing and similar laws. In exercising that authority, Arizona has taken the route least likely to cause tension with federal law. It uses the Federal Government's own definition of "unauthorized alien," it relies solely on the Federal Government's own determination of who is an unauthorized alien, and it requires Arizona employers to use the Federal Government's own system for checking employee status. If even this gives rise to impermissible conflicts with federal law, then there really s no way for the State to implement licensing sanctions, contrary to the express terms of the savings clause.

In light of this decision, it can be expected that additional states will adopt their own version of the Arizona statute. This decision does not resolve the additional challenges to other provisions of Arizona's immigration control laws which are still working their way through the courts.

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 change or be 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

Supreme Court: When the Contract Was Formed is Disputable and Not Arbitrable Even If It Seems Inconsistent

There's nothing like inconsistency to keep lawyers employed. On Friday, the Supreme Court issued yet another arbitration decision in which it reversed the Ninth Circuit (which uncharacteristically found the dispute to be subject to the arbitration clause). Granite Rock Co. v. International Brotherhood of Teamsters, No. 08-1214 (6/24/10). However, despite what the Court harped on last week in Rent-a-Center (that objections to the contract as a whole cannot prevent arbitration), in this case, the Court found that a dispute involving when the contract was formed had to be decided by the trial court instead of the arbitrator because the dispute was not arbitrable under the union's theory, but was arbitrable under the employer's. In other words, disputes over the formation of the arbitration clause (and the contract as a whole) may be decided by the trial court instead of the arbitrator. Moreover, the scope the arbitration clause did not include disputes over whether a contract was even formed. Finally, the Court rejected the employer's attempt to create a federal cause of action for tortious interference with contract under § 301.

According to the Court's opinion, the employer's CBA with the local union expired on April 30 and, following an impasse in negotiations, the union went on strike in June until July 2 when the members ratified a new CBA. The new CBA contained arbitration and no-strike provisions and required the employees to return to work on July 5. Prior to the ratification vote, the local's business manager requested the employer to consider a return-to-work agreement which would hold harmless any union member who was responsible for any damages incurred during the strike and picketing. The employer refused. The international union had advised the local union during negotiations and the strike and had objected to the members' returning to work without a back to work agreement protecting the members and the local union from damages caused during the strike. Thus, the international union convinced the local union to continue the strike beyond July 5, expanded the strike beyond the single facility at issue and informed the employer that it would permit the employees to return to work only after the employer agreed to the requested return-to-work agreement. On July 9, the employer filed a lawsuit in federal court under § 301 of the LMRA to enjoin the strike (as a violation of the parties' CBA) and for strike-related damages. In its defense, the union contended that the CBA had never been ratified (and, thus, could not be breached) and the trial court refused to enjoin the strike. Subsequently, 12 union members testified to the July 2 ratification vote and the employer moved for a new trial. The union then held another ratification vote on August 22 (when the members again voted to approve the new CBA) and announced the vote and the cessation of the strike on September 12 in order to render the employer's motion moot as the trial court was preparing to hear it. Although the employer's request for the injunction was now moot, the court agreed to hold a new trial on the employer's motion for strike damages. The unions then demanded arbitration of the dispute and moved the court for an order compelling arbitration. The employer then amended its complaint to add a claim against the international union for tortiously interfering with its contract by convincing the local union to breach the new CBA by extending the strike beyond July 5.

The trial court refused to recognize a new federal claim under § 301 for tortious interference and dismissed that claim. It also refused the unions' request to refer the question about when the CBA was ratified to the arbitrator. Instead, a jury concluded that the CBA was ratified on July 2 (instead of August 22) and the breach of contract claim was sent to the arbitrator to determine damages. On appeal, the Ninth Circuit affirmed dismissal of the tortious interference claim, but held that the ratification dispute should have been resolved in arbitration because any ambiguity in the scope of the arbitration clause was to be resolved in favor of arbitration and because the employer conceded the applicability of the arbitration clause by filing suit for breach of the arbitration clause in the parties' contract. The Supreme Court reversed.

The primary dispute in this case centered on whether the arbitrator or the trial court should have determined the date when the CBA was ultimately ratified: Was it July 2 or August 22? The Court held that the trial court was correct to determine the date when the CBA was ratified instead of permitting an arbitrator to do so. "[W]here, as here, the date on which an agreement was ratified determines the date the agreement was formed, and thus determines whether the agreement's provisions were enforceable during the period relevant to the parties' dispute."

The Court made little attempt to harmonize its primary analysis with the Prima Paint line of cases (as typified by last week's Rent-a-Center decision). As a general rule, the trial court determines the arbitrability of a dispute, not the arbitrator (unless, of course, the parties' clearly and unmistakably delegate the decision to the arbitrator). Once a dispute is found to be within the scope of an arbitration clause by a court, then it is referred to arbitration. To succeed in avoiding arbitration, the opposing party must challenge the validity and/or scope of the arbitration clause itself. Just last week, the Court reaffirmed that when a party raises a defense that goes to the validity of the contract as a whole, but not to the validity of only the arbitration clause, then the arbitrator decides the dispute instead of the court. That being said, the Court still rejected the Ninth Circuit's application of these rules in this case:

The second principle the Court of Appeals invoked is that this presumption of arbitrability applies even to disputes about the enforceability of the entire contract containing the arbitration clause, because at least in cases governed by the Federal Arbitration Act (FAA), 9 U. S. C. §1 et seq.,
courts must treat the arbitration clause as severable from the contract in which it appears, and thus apply the clause to all disputes within its scope "'[u]nless the [validity] challenge is to the arbitration clause itself'" or the party "disputes the formation of [the] contract." (emphasis added).

According to the Court: "These principles would neatly dispose of this case if the formation dispute here were typical. But it is not." This was supposedly because the plaintiff both conceded the formation and validity of the arbitration clause. Moreover, the Court concluded that the unions,

like the Court of Appeals, over-reads our precedents. The language and holdings on which Local and the Court of Appeals rely cannot be divorced from the first principle that underscores all of our arbitration decisions: Arbitration is strictly "a matter of consent . . . ., our precedents hold that courts should order arbitration of a dispute only where the court is satisfied that neither the formation of the parties' arbitration agreement nor (absent a valid provision specifically committing such disputes to an arbitrator) its enforceability or applicability to the dispute is in issue. Ibid. Where a party contests either or both matters, "the court" must resolve the disagreement.

To start, the Court said it was the trial court's duty to determine whether the particular dispute at issue was subject to the parties' arbitration clause. Interestingly, it states that "[t]o satisfy itself that such agreement exists, the court must resolve any issue that calls into question the formation or applicability of the specific arbitration clause that a party seeks to have the court enforce . . . . these issues typically concern the scope of the arbitration clause and its enforceability. In addition, these issues always include whether the clause was agreed to, and may include when that agreement was formed." (emphasis added).

The Court rejected any argument that the LMRA's rules concerning the arbitration of labor disputes differs materially from the FAA's rules concerning arbitration of commercial and other disputes. "We, like the Court of Appeals, discuss precedents applying the FAA because they employ the same rules of arbitrability that govern labor cases. "[E]ven in LMRA cases, "courts" must construe arbitration clauses because "a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit."

Our cases invoking the federal "policy favoring arbitration" of commercial and labor disputes apply the same framework. They recognize that, except where "the parties clearly and unmistakably provide otherwise," . . . , it is "the court's duty to interpret the agreement and to determine whether the parties intended to arbitrate grievances concerning" a particular matter, id., at 651. They then discharge this duty by: (1) applying the presumption of arbitrability only where a validly formed and enforceable arbitration agreement is ambiguous about whether it covers the dispute at hand; and (2) adhering to the presumption and ordering arbitration only where the presumption is not rebutted.

Interestingly, this case is not materially different from any other case where one party disputes that a contract was ever formed – and by extension – an arbitration clause. One could argue that this decision will apply with equal force to future disputes under the FAA. Nonetheless, the Court concedes that not every case will require the same conclusion:

In reaching this conclusion [about the arbitrability of the formation date dispute] we need not, and do not, decide whether every dispute over a CBA's ratification date would require judicial resolution. We recognize that ratification disputes in labor cases may often qualify as "formation disputes" for contract law purposes because contract law defines formation as acceptance of an offer on specified terms, and in many labor cases ratification of a CBA is necessary to satisfy this formation requirement. See App. 349−351. But it is not the mere labeling of a dispute for contract law purposes that determines whether an issue is arbitrable. The test for arbitrability remains whether the parties consented to arbitrate the dispute in question.

In its essence, the Court refused to let the unions speak out of both sides of their mouth and be too cute by half: The unions were contending that they could not be liable for breach of the no-strike clause because the CBA was not ratified until August 22, but the unions were still seeking to compel the dispute to arbitration even though the arbitration clause likewise would not have been ratified (or enforceable) until August 22. On the other hand, if the CBA were ratified on July 2, then the unions breached the no-strike clause and the dispute would be subject to arbitration. It was this central question-- that there was no valid arbitration clause unless the CBA were ratified on July 2 -- that prompted the Court to rule in favor of the trial court's jurisdiction. When the unions attempted to fix their "cute" argument by pointing out that the CBA became effective on May 1 after it was ratified (regardless of the date), the majority rejected the argument on the grounds that it had not been raised below or to contest certiorari.

The Court's secondary analysis makes more sense: a dispute about the ratification dates did not "arise under" the CBA or fit neatly within the CBA's arbitration clause. "Section 20 of the CBA provides in relevant part that '[a]ll disputes arising under this agreement shall be resolved in accordance with the [Grievance] procedure,' which includes arbitration."

First, we do not think the question whether the CBA was validly ratified on July 2, 2004—a question that concerns the CBA's very existence—can fairly be said to "arise under" the CBA. Second, even if the "arising under" language could in isolation be construed to cover this dispute, Section 20's remaining provisions all but foreclose such a reading by describing that section's arbitration requirement as applicable to labor disagreements that are addressed in the CBA and are subject to its requirement of mandatory mediation.

The Court of Appeals erred in examining only whether the parties' dispute about the no-strike clause arose under the CBA instead of examining whether the ratification date dispute "arose under" the CBA:

The issue is whether the formation-date defense that Local raised in response to [the employer]'s no-strike suit can be characterized as "arising under" the CBA. It cannot for the reasons we have explained, namely, the CBA provision requiring arbitration of disputes "arising under" the CBA is not fairly read to include a dispute about when the CBA came into existence.

Finally, the unions argued that the employer waived its objection to arbitration when it filed suit seeking to enforce the CBA which requires the dispute to be compelled to arbitration. Although I generally do not like it when parties get too cute, this argument is at least appealing on its face. However, the Court still neatly disposed of it because it hadn't forgotten that the unions were being "too cute:"

We do not agree that by seeking an injunction against the strike so the parties could arbitrate the labor grievance that gave rise to it, [the employer] also consented to arbitrate the ratification (formation) date dispute we address above. . . . [The employer's] decision to sue for compliance with the CBA's grievance procedures on strike-related matters does not establish an agreement, "implicit" or otherwise, to arbitrate an issue (the CBA's formation date) that [the employer] did not raise, and that [the employer] has always (and rightly, . . . ) characterized as beyond the scope of the CBA's arbitration clause. The mere fact that Local raised the formation date dispute as a defense to [the employer's] suit does not make that dispute attributable to [the employer] in the waiver or estoppel sense the Court of Appeals suggested, see 546 F. 3d, at 1178, much less establish that [the employer] agreed to arbitrate it by suing to enforce the CBA as to other matters.

Justices Sotomayor and Stevens dissented from the arbitrability discussion on the grounds that when the CBA was finally executed in December, it was explicitly retroactive to May 1. (This argument had been rejected by the majority on the grounds it had not been raised before the Ninth Circuit or when challenging certiorari). It also seems a little weird to me that it would matter since the same language would typically have been present in the CBA when it was ratified – either in July or August. Any "constructive" effective date would not seem to cover the unions' defense to the breach of contract claim being asserted by the employer when that defense concerned the actual effective dates based on the actual ratification date.

The secondary holding of the Court was to reject the employer's attempt to bring a tortious interference claim under § 301. This argument was unanimously rejected by the Court. Section 301 grants the federal courts jurisdiction over difficult-to-prove breach of contract claims between employers and unions and pre-empts many (even most) state law claims. The employer sought to expand federal jurisdiction so that it could reach the international union's immoral conduct in inducing the local union to breach the CBA when it could not sue the international union for full relief under § 301 because it was not a party to the CBA. However, all of the courts of appeals have refused to expand § 301 to encompass federal tort rights. The Court was also unconvinced that alternative remedies were unavailable.

In reaching this conclusion, we emphasize that the question before us is a narrow one. It is not whether the conduct [the employer] challenges is remediable, but whether we should augment the claims already available to [The employer] by creating a new federal common-law cause of action under §301(a). That we decline to do so does not mean that we approve of IBT's alleged actions. [The employer] describes a course of conduct that does indeed seem to strike at the heart of the collective bargaining process federal labor laws were designed to protect. As the record in this case demonstrates, however, a new federal tort claim is not the only possible remedy for this conduct. [The employer]'s allegations have prompted favorable judgments not only from a federal jury, but also from the NLRB. In proceedings that predated those in which the District Court entered judgment for [the employer] on the CBA's formation date,¹⁷ the NLRB concluded that a "complete agreement" was reached on July 2, and that Local and the [ international union] violated federal labor laws by attempting to delay the CBA's ratification pending execution of a separate agreement favorable to [the international union].

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 change or be 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 Supreme Court Upholds Arbitrator’s Contractual Authority to Determine Arbitrability of Arbitration Agreement

This morning, a divided Supreme Court again reversed the Ninth Circuit Court of Appeals in California on the enforceability of an arbitration agreement in an employment discrimination dispute. Rent-A-Center, West, Inc. v. Jackson, No. 09-497 (6/21/10). This arbitration dispute centered on whether the court or the arbitrator should determine the arbitrability of the dispute when the arbitration agreement itself provided that an arbitrator should resolve any such controversy over arbitrability. In particular, as Justice Scalia put it, whether under the Federal Arbitration Act, "a district court may decide a claim that an arbitration agreement is unconscionable, where the agreement explicitly assigns that decision to the arbitrator." The Court held that the question of arbitrability is for the arbitrator to decide when the challenge goes to the validity of the entire agreement as a whole or when the agreement clearly and unmistakably empowers the arbitrator to decide arbitrability, but is for the trial court to decide when the challenge goes only to the enforceability of the arbitration clause and there is no clear and unmistakable waiver of the trial court jurisdiction.

According to the Court's opinion, the employer moved to compel arbitration after the plaintiff former employee filed a § 1981 employment discrimination suit in federal court based on the arbitration which the plaintiff had signed. The Agreement provided for arbitration of all "past, present or future" disputes arising out of [the plaintiff's] employment . . . , including claims" for employment discrimination. The arbitration clause also provided that "[t]he Arbitrator, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement including, but not limited to any claim that all or any part of this Agreement is void or voidable." The plaintiff attempted to avoid the arbitration agreement by arguing that it was unconscionable (in that the parties were required to split the arbitration fees and limits were placed on discovery), but the employer asserted that such a challenge was for the arbitrator to decide. The trial court agreed with the employer, but noted that he did not think the agreement was substantively unconscionable merely because the parties were required to split the arbitration fees. A divided Ninth Circuit Court concluded that the trial court was required to determine unconscionability, but agreed that the clause was not unconscionable merely because of the fee splitting provision. A divided Supreme Court reversed.

The FAA provides that arbitration clauses must be enforced just like any other contracts. Nonetheless, unless the parties clearly and unmistakenly provided otherwise, the question of whether the parties agreed to arbitrate is for the court and not the arbitrator. "The validity of a written agreement to arbitrate (whether it is legally binding, as opposed to whether it was in fact agreed to—including, of course, whether it was void for unconscionability) is governed by §2'sprovision that it shall be valid "save upon such grounds as exist at law or equity for the revocation of any contract." Justice Scalia found it irrelevant that prior cases examining the arbitrability question involved agreements where the substantive provisions concerned subjects other than arbitration (such as check-cashing, consulting, talent management, etc), unlike this case where the "contract as a whole" involved only arbitration of any future disputes.

There are two types of validity challenges under §2: "One type challenges specifically the validity of the agreement to arbitrate," and "[t]he other challenges the contract as a whole, either on a ground that directly affects the entire agreement (e.g., the agreement was fraudulently induced), or on the ground that the illegality of one of the contract's provisions renders the whole contract invalid." Buckeye Check Cashing, Inc. v. Cardegna, 546 U. S. 440, 444 (2006). In a line of cases neither party has asked us to overrule, we held that only the first type of challenge is relevant to a court's determination whether the arbitration agreement at issue is enforceable. See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395, 403–404 (1967) . . . That is because §2 states that a "written provision" "to settle by arbitration a controversy" is "valid, irrevocable, and enforceable" without mention of the validity of the contract in which it is contained. Thus, a party's challenge to another provision of the contract, or to the contract as a whole, does not prevent a court from enforcing a specific agreement to arbitrate. "[A]s a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract." . . . . But that agreements to arbitrate are severable does not mean that they are unassailable. If a party challenges the validity under §2 of the precise agreement to arbitrate at issue, the federal court must consider the challenge before ordering compliance with that agreement under §4 [employer parties to seek enforcement of arbitration clauses in federal court].

Nonetheless, Justice Scalia found it irrelevant that prior cases examining the arbitrability question involved agreements where the substantive provisions concerned subjects other than arbitration (such as check-cashing, consulting, talent management, etc) and merely also contained an arbitration clause, unlike this case where the "contract as a whole" involved only the arbitration of any future disputes. Instead, he found that the plaintiff could only prevail in obtaining the trial court's examination of the arbitrability of the dispute if he had challenged only the delegation clause – which empowered the arbitrator to decide arbitrability – instead of attacking the unconscionability of the arbitration contract as a whole:

It may be that had [the plaintiff] challenged the delegation provision by arguing that these common procedures as applied to the delegation provision rendered that provision unconscionable, the challenge should have been considered by the court. To make such a claim based on the discovery procedures, [the plaintiff] would have had to argue that the limitation upon the number of depositions causes the arbitration of his claim that the Agreement is unenforceable to be unconscionable. That would be, of course, a much more difficult argument to sustain than the argument that the same limitation renders arbitration of his fact bound employment-discrimination claim unconscionable. Likewise, the unfairness of the fee-splitting arrangement may be more difficult to establish for the arbitration of enforceability than for arbitration of more complex and fact-related aspects of the alleged employment discrimination. [Plaintiff], however, did not make any arguments specific to the delegation provision; he argued that the fee-sharing and discovery procedures rendered the entire Agreement invalid.

The Court refused to address an additional argument made by the Plaintiff because he failed to raise it below: that the quid pro quo for the delegation provision failed because of the Supreme Court's decision in Hall Street Associates LLC v. Mattel, Inc. entered after he signed the agreement. He claimed that he had agreed to the clause delegating arbitrability to the arbitrator in exchange for the employer's agreement that the arbitration decision would be subject to substantive judicial review (when the FAA and state laws generally provide that courts will only overturn an arbitration decision for fraud, corruption, etc.). However, his consideration for agreeing to the delegation failed when the Hall Court held that parties cannot agree by contract to alter the exclusive judicial review of arbitration decisions provided by the FAA. The Court found that he could have filed a supplemental brief with the Ninth Circuit on this issue following the Hall Court decision, but that it might have been pointless because that was already the rule in the Ninth Circuit even before the Hall decision.

In light of this decision, one can expect that employers across the country will – and even should – amend their arbitration agreements to reserve the question of arbitrability for the arbitrator in the hopes of avoiding long and expensive battles over the enforcement of an arbitration clause or agreement.

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 change or be 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.

Supreme Court Invalidates Decisions of Two-Member NLRB

This morning, in one of the most highly-anticipated decisions of the year, the United States Supreme Court ruled 5-4 that the NLRB does not have the legislatively required quorum to act when it only has two members. New Process Steel v. NLRB, No. 08-1457. Under the 1947 Taft-Hartley Act, the NLRB is supposed to have five members. However, for a variety of reasons – mostly related to the partisan Congress – it only had two members between January 1, 2008 and March 27, 2010 (when President Obama made two recess appointments after it became clear that his appointees would not receive Senate confirmation). During that 27 months, the NLRB had issued approximately 600 decisions when the two remaining members could agree. Two of those decisions involved the employer who appealed enforcement to federal court. The Seventh Circuit ruled that the NLRB could act with only two members, but the Supreme Court reversed in an opinion written by outgoing Justice Stevens. Although the THA permitted the five-member Board to delegate decisions to a three-member panel, that panel could not act with only two members present.

The Board's quorum requirements and delegation procedure are set forth in §3(b) of the NLRA, 49 Stat. 451, as amended by 61 Stat. 139, which provides: "The Board is authorized to delegate to any group of three or more members any or all of the powers which it may itself exercise. . . . A vacancy in the Board shall not impair the right of the remaining members to exercise all of the powers of the Board, and three members of the Board shall, at all times, constitute a quorum of the Board, except that two members shall constitute a quorum of any group designated pursuant to the first sentence hereof." 29 U. S. C. §153(b).

It is undisputed that the first sentence of this provision authorized the Board to delegate its powers to the three member group effective on December 28, 2007, and the last sentence authorized two members of that group to act as a quorum of the group during the next three days if, for example, the third member had to recuse himself from a particular matter. The question we face is whether those two members could continue to act for the Board as a quorum of the delegee group after December 31, 2007,when the Board's membership fell to two and the designated three-member group of "Members Liebman, Schaumber, and Kirsanow" ceased to exist due to the expiration of Member Kirsanow's term. Construing §3(b)as a whole and in light of the Board's longstanding practice, we are persuaded that they could not.

The Court construed the first clause "as requiring that the delegee group maintain a membership of three in order for the delegation to remain valid" for three reasons.

First, and most fundamentally, reading the delegation clause to require that the Board's delegated power be vested continuously in a group of three members is the only way to harmonize and give meaningful effect to all of the provisions in §3(b). . . . . Interpreting the statute to require the Board's powers to be vested at all times in a group of at least three members is consonant with the Board quorum requirement, which requires three participating members "at all times" for the Board to act. The interpretation likewise gives material effect to the three-member requirement in the delegation clause. The vacancy clause still operates to provide that vacancies do not impair the ability of the Board to take action, so long as the quorum is satisfied. And the interpretation does not render inoperative the group quorum provision, which still operates to authorize a three member delegee group to issue a decision with only two members participating, so long as the delegee group was properly constituted. Reading §3(b) in this manner, the statute's various pieces hang together—a critical clue that this reading is a sound one.

. . . .

Second, and relatedly, if Congress had intended to authorize two members alone to act for the Board on an ongoing basis, it could have said so in straight forward language. Congress instead imposed the requirement that the Board delegate authority to no fewer than three members, and that it have three participating members to constitute a quorum. Those provisions are at best an unlikely way of conveying congressional approval of a two member Board. Indeed, had Congress wanted to provide for two members alone to act as the Board, it could have maintained the NLRA's original two-member Board quorum provision.

. . . .

Furthermore, if Congress had intended to allow for a two-member Board, it is hard to imagine why it would have limited the Board's power to delegate its authority by requiring a delegee group of at least three members. Nor do we have any reason to surmise that Congress' overriding objective in amending §3(b) was to keep the Board operating at all costs; the inclusion of the three-member quorum and delegation provisions indicate otherwise. Cf. Robert's Rules of Order §3, p. 20 (10th ed. 2001) ("The requirement of a quorum is a protection against totally unrepresentative action in the name of the body by an unduly small number of persons").

In sum, a straightforward understanding of the text, which requires that no fewer than three members be vested with the Board's full authority, coupled with the Board's longstanding practice, points us toward an interpretation of the delegation clause that requires a delegee group to maintain a membership of three.

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 change or be 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.

Supreme Court: Employer’s Review of Employee’s Text Messages Was Reasonable and Did Not Violate Fourth Amendment

This morning, a fairly unanimous United States Supreme Court again reversed the Ninth Circuit Court of Appeals and ruled that a police department's review of the content of text messages sent and received by a police officer on his work pager was reasonable under the circumstances and did not violate the Fourth Amendment. City of Ontario v. Quon, No. 08-1332 (U.S. 6/17/10). The Court found it irrelevant and did not address whether the plaintiff had a reasonable expectation of privacy and did not address (or overrule) the Circuit Court's ruling against the telecommunications provider for giving the message transcripts to the employer under the Stored Communications Act. The employer had asked to review the content of the text messages sent by its employees because they were routinely being assessed extra fees for exceeding their text message ceiling and management wanted to know if the ceiling was reasonable in light of the number of work-related messages being sent/received. Upon reviewing the transcript of the messages, it discovered that few of the messages were work related and some of the messages were sexually explicit. Accordingly, the officer was disciplined and he filed suit alleging that the city's audit of his text messages had violated his right under the Fourth Amendment.

According to the Court's opinion, this decision involved "the assertion by a government employer of the right, in circumstances to be described, to read text messages sent and received on a pager the employer owned and issued to an employee." The city had a policy informing employees that it might monitor their emails and computer usage and disclaiming any right of privacy. The policy did not explicitly apply to pagers or text messages, but the city informed the employees by memorandum that it considered the pagers to be subject to the Policy even though emails were sent via the city's own computer network while the text messages and pagers were operated by a telecommunications company and the messages were stored on the company's servers instead of the city's servers. The City's purchased pagers through a wireless provider which charged the city extra whenever it exceeded its text limit ceiling. The plaintiff exceeded the ceiling every month after he was issued the pager, but when he was given the option of having his use of his pager audited or paying the overage fee, he always chose to pay the overage fee. Nonetheless, the city became tired of having to bill him every month for excessive pager use and decided to audit his use of the pager in order to determine whether it was fair to charge him for work-related message because the text limit ceiling was too low or whether it should renegotiate its contract with the wireless provider.

At the city's request, the provider provided transcripts of the plaintiff's text messages (because the city was the account subscriber, not the plaintiff). A review of the transcripts (which were audited by the union to delete messages sent during non-work time) revealed that many of the plaintiff's messages were not work related and some were sexually explicit. He was referred to Internal Affairs for disciplinary action for pursuing personal matters during work time. The Internal Affairs investigation revealed that the plaintiff

sent or received 456 messages during work hours in the month of August 2002, of which no more than 57 were work related; he sent as many as 80 messages during a single day at work; and on an average workday, [the plaintiff] sent or received 28 messages, of which only 3 were related to police business.

The plaintiff filed suit (along with other individuals who had exchanged text messages with him uncovered by the audit and IA investigation) under state and federal law against the city and the wireless provider. The lawsuit alleged that their fourth amendment rights had been violated by the audit and investigation and that the provider had violated the Stored Communications Act by providing transcripts of the text messages to the city. The trial court granted summary judgment to the provider. It also concluded that the plaintiffs had a reasonable expectation of privacy (in that he had been given the choice of an audit or paying the overage fee), but that it was a jury question whether the city's search was reasonable under the circumstances. The jury found in favor of the city. However, the Ninth Circuit reversed summary judgment in favor of the provider and the jury verdict.

The Court declined to decide whether the plaintiffs had a reasonable expectation of privacy (in that it would affect the decision of whether a city would be reasonable in reviewing the transcripts for other reasons like performance evaluations, litigation or open records laws) and decided to assume for purposes of the appeal that he had such an expectation, that the audit constituted a search and that an employee's privacy interests in electronic communications was as strong as his interest in privacy from physical searches of his person, office, work desk and work locker.

"Although as a general matter, warrantless searches "are per se unreasonable under the Fourth Amendment," there are "a few specifically established and well-delineated exceptions" to that general rule," including an exception for workplaces. Under the approach of the plurality in O'Connor v. Ortega, 480 U. S. 709 (1987), "when conducted for a 'noninvestigatory, work-related purpos[e]'or for the 'investigatio[n] of work-related misconduct,' a government employer's warrantless search is reasonable" if (1) " it is 'justified at its inception'" and (2) "if 'the measures adopted are reasonably related to the objectives of the search and not excessively intrusive in light of' the circumstances giving rise to the search.'" The Court found that the O'Connor test was met by the city employer in this case.

The search was justified at its inception because a jury found that there were "reasonable grounds for suspecting that the search [was] necessary for a noninvestigatory work-related purpose" in order to determine whether the character limit on the City's contract with its wireless provider was sufficient to meet the City's needs. "The City had a legitimate interest in ensuring that employees were not being forced to pay out of their own pockets for work-related expenses, or on the other hand that the City was not paying for extensive personal communications."

" As for the scope of the search, reviewing the transcripts was reasonable because it was an efficient and expedient way to determine whether [the plaintiff's] overages were the result of work-related messaging or personal use." The review was also not "'excessively intrusive'" in that the City had limited its review to two of the several months at issue (in order to have a sufficient sample size) and had excluded messages sent during non-working hours. Moreover, even if the plaintiff

"could assume some level of privacy would inhere in his messages, it would not have been reasonable for [him] to conclude that his messages were in all circumstances immune from scrutiny. [He] was told that his messages were subject to auditing. As a law enforcement officer, he would or should have known that his actions were likely to come under legal scrutiny, and that this might entail an analysis of his on-the-job communications. Under the circumstances, a reasonable employee would be aware that sound management principles might require the audit of messages to determine whether the pager was being appropriately used."

Further, from the perspective of the police department, plaintiff's limited expectation of privacy, "with boundaries that we need not here explore, lessened the risk that the review would intrude on highly private details of [his] life." Its review of messages on his

"employer-provided pager was not nearly as intrusive as a search of his personal e-mail account or pager, or a wiretap on his home phone line, would have been. That the search did reveal intimate details of [his] life does not make it unreasonable, for under the circumstances a reasonable employer would not expect that such a review would intrude on such matters. The search was permissible in its scope."

The Court specifically rejected the approach of the Ninth Circuit that the availability of less intrusive measures made the search unreasonable. The Ninth Circuit had suggested that (i) the plaintiff be told in advance that his usage would be audited going forward; (ii) that the plaintiff be asked to count the words himself and report back to his employer; (iii) that the plaintiff be asked to redact the transcript of personal messages himself before it was reviewed by the employer. "That rationale 'could raise insuperable barriers to the exercise of virtually all
search-and-seizure powers,' because 'judges engaged in post hoc evaluations of
government conduct can almost always imagine some alternative means by which
the objectives of the government might have been accomplished.'" Therefore,
even if the police department "could have performed the search that would
have been less intrusive, it does not follow that the search as conducted was unreasonable." Similarly, even if the wireless provider had violated the SCA by providing the transcript to the employer, it did not follow that the employer's review of the transcript constituted an unreasonable search. "The otherwise
reasonable search by [the police department] is not rendered unreasonable by the assumption that [the wireless provider] violated the SCA by turning over the transcripts."

The plaintiffs did not attempt to argue that the city's review of the text messages violated the senders' privacy rights even if it did not violate the recipient's privacy rights. Therefore, the Court found that they had no Fourth Amendment claim either.

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 change or be 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.

Supreme Court: Even Partially Prevailing Parties Can Win Attorneys Fees in ERISA Litigation

On Monday, an almost unanimous United States Supreme Court held that certain parties can be awarded attorney fees from the opposing party even if they are not "prevailing parties" in the litigation. Hardt v. Reliance Standard Life Ins. Co., No. No.09-448 (5/14/10). In that case, the plaintiff sued the defendant insurance company when it denied her LTD benefits for carpal tunnel syndrome. The trial court found that she had presented compelling evidence that she was totally disabled and that the defendant had acted on incomplete medical evidence. Instead of granting her summary judgment, however, the trial court remanded the case to the insurance company to reconsider its prior decision within 30 days. Not surprisingly under the circumstances, the defendant reversed its decision and awarded the plaintiff benefits. The trial court then awarded her attorney fees under ERISA §1131(g)(1). The Fourth Circuit Court of Appeals reversed on the grounds that the plaintiff had never obtained an enforceable court judgment and, thus, was not a "prevailing party." With Justice Thomas writing the majority opinion, the Supreme Court reversed on the grounds that the specific statutory provision permits the trial court discretion to award attorney fees to either party, not merely prevailing parties. Justice Stevens concurred separately.

The insurance company initial denied the LTD claim based on its evaluation of the results of her functional capacity evaluation (showing she was capable of some sedentary work). After she appealed, it reversed itself and found she was totally disabled from her current occupation (clerical) and could have benefits for 24 months. In the meantime, the plaintiff was diagnosed with "small-fiber neuropathy, a condition that increased her pain and decreased her physical capabilities over the ensuing months." She applied for and received social security benefits on the grounds that she was completely disabled from working. The insurance company notified her that her LTD benefits were about to run out and demanded repayment for about $14K because of her receipt of SSA benefits. She appealed and provided updated medical information. The insurance company again asked for a capacity evaluation, but did not ask the evaluator to consider her neuropathy problems. The evaluators requested two evaluations and complained that the plaintiff was refusing to try out of fear of pain. The defendant then hired a physician and vocational counselor to resolve her appeal, but the physician concluded that she might improve after reviewing only some of her medical records and the counselor opined that there were 8 jobs she was capable of performing based on her 2003 medical condition (before the neuropathy was diagnosed). Thus, the insurance company terminated her benefits in 2006.

After exhausting her administrative remedies, the plaintiff filed suit in federal court. The court denied cross-motions for summary judgment. However, the court found compelling evidence that the plaintiff was completely disabled and the defendant had failed to properly review her medical records. Thus, it remanded the case for 30 days to the insurance company to reconsider its prior decision. After the insurance company reversed itself again, the plaintiff requested to be awarded attorney fees.

ERISA's section 1132(g)(1) provides: "In any action under this subchapter (other than an action described in paragraph (2)[i.e, recovering delinquent contributions on behalf of a multi-employer plan]) by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney's fee and costs of action to either party." Based on the plain text of the statute, the Supreme Court found that it was erroneous to limit the recovery fees to a prevailing party and, instead, held that it is within the trial court's discretion to award fees "as long as the fee claimant has achieved 'some degree of success on the merits.'" Unlike §1132(g)(2) which limits fees to a party who obtains a judgment for the plan, there is no mention of "prevailing party" in that section of the statute.

To guide courts faced with this decision in the future, the court then analyzed when it would be appropriate to award attorney fees under §1132(g)(1). The basic principle of the "American Rule" is that each party pays their own attorney unless provided otherwise by statute or contract. Statutory standards vary widely from prevailing party, to substantially successful litigant, to when appropriate to the court's discretion. The Court found the most analogous situation to involve a similar statute under the Clean Air Act which permits an award of fees "when appropriate." Even in that situation, the Court found that Congress did not intend to completely abandon the American Rule and would still require some success by the party to obtain its aims in the litigation before it would be awarded fees. Thus, fees are available to partially prevailing parties who achieved some success.

A claimant does not satisfy that requirement by achieving "trivial success on the merits" or a "purely procedural victor[y]," but does satisfy it if the court can fairly call the outcome of the litigation some success on the merits without conducting a "lengthy inquir[y] into the question whether a particular party's success was 'substantial' or occurred on a 'central issue.'"

In this case, the plaintiff convinced the court that the defendant insurance company had failed to comply with ERISA in reviewing her request for benefits. Summary judgment in her favor was only denied in order to give the insurance company another chance to evaluate her application – something it had already done several times before she initiate the litigation. Only because of the trial court's instruction did the insurance company reverse itself. Thus, the plaintiff achieved victory even without a court order.

These facts establish that [the plaintiff] has achieved far more than "trivial success on the merits" or a "purely procedural victory." Accordingly, she has achieved "some success on the merits," and the District Court properly exercised its discretion to award [the plaintiff] attorney's fees in this case.

No further remand was deemed necessary.

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 change or be 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.

Supreme Court: Disparate Impact Claims Accrue with Each New Employer Action Regardless of When Policy Was Adopted

This morning, the United States Supreme Court ruled that Title VII disparate impact claims accrue each time the employer uses the facially neutral employment practice which has a disparate impact on a protected class. Lewis v. City of Chicago. No. 08-974 (5/24/10). Accordingly, the class action could proceed with its disparate impact discrimination claims even though the earliest Charge of Discrimination filed by a class member was filed with the EEOC more than 300 days after the challenged policy was adopted and announced and even more than 300 days after it had first been applied because the employer had used the disputed employment practice on other occasions within 300 days of when the Charge had been filed. Writing for a unanimous Court, Justice Scalia noted that to have held otherwise would mean that an employer could indefinitely utilize a discriminatory policy if it were lucky enough not to be challenged within the first 300 days.

According to the Court's opinion, the City of Chicago administered a civil service test in 1995 to select firefighters. In January 1996, it announced that applicants who scored below 65 failed and would not be considered further and that even though applicants with scores between 66 and 88 passed and, thus were qualified, they would not be considered for vacancies until all of the "well qualified" applicants who scored 89 or better were hired or given further consideration. No applicant filed a Charge of Discrimination to challenge the City's stated policy. In May 1996, the City hired its first class of firefighters from the 1995 list based on the policy announced in January 1996 and, again, no applicant filed a Charge of Discrimination to challenge the City's action within 300 days. The City then continued to process candidates off the 1995 list for six years until it ran out of "well qualified" applicants and began processing "qualified" candidates. In March 1997, the first Charge of Discrimination was filed by a qualified applicant who was passed over by the City's January 1996 process, the EEOC completed its investigation in July 1998 and a class action lawsuit was filed later that year. The trial court denied summary judgment to the City on the issue of timeliness while the plaintiff were pursuing a continuing violation theory to avoid the 300-day limitations period issue. There was then an eight-day bench trial which found in favor of the plaintiffs. The City apparently stipulated that the adoption of the 89-point cut off had a severe disparate impact on African-Americans. (There was no evidence presented that the City's use of the policy had a disparate impact each or any time it was utilized.) The Seventh Circuit Court of Appeals had reversed the trial court judgment on the grounds that the City's hiring decisions were merely the affect of a past decision which the plaintiffs had failed to challenge within the 300-day limitations period. The Supreme Court reversed.

Employment decisions may be challenged as intentional discrimination (i.e., disparate treatment) or unintentional discrimination (i.e., disparate impact). The second theory began in the Supreme Court's 1971 decision in Griggs v. Duke Power Co., 401 U. S. 424, 431 (1971). Congress later amended Title VII at 42 U.S.C. § 2003-2(k):

"(1)(A) An unlawful employment practice based on disparate impact is established under this subchapter only if—

"(i) a complaining party demonstrates that a respondent uses a particular employment practice that causes a disparate impact on the basis of race, color, religion, sex, or national origin and the respondent fails to demonstrate that the challenged practice is job related for the position in question and consistent with business necessity . . . ."

Thus, a plaintiff establishes a prima facie disparate impact claim by showing that the employer "uses a particular employment practice that causes a disparate impact" on one of the prohibited bases.

Title VII requires that a Charge of Discrimination be filed with the EEOC within 300 days "after the alleged unlawful employment practice occurred." §2000e–5(e)(1).
In disparate treatment cases, that "practice" is when the employment action is deliberately taken with discriminatory intent. After the passage of 300 days, employees cannot later sue for the current affects of past discriminatory decisions under the disparate treatment theory. However, in disparate impact cases, no discriminatory intent is required. Thus, in disparate impact the question is generally not whether the lawsuit is timely, but whether a valid disparate impact claim can be alleged at all. In other words, if the plaintiff can show that any employment action taken in the prior 300 days has a disparate impact, then the claim can proceed regardless of when the employment practice was first adopted or utilized. In this case, the City's practice of excluding candidates with a score between 66 and 88 from further consideration constituted an employment practice and, apparently, it was stipulated that it had an adverse impact on the plaintiffs on account of their race.

While the Court had sympathy with the plight of the City (and all other employers) that its decision to adopt the policy became lawful when it was not timely challenged, the Court concluded that "it does not follow that no new violation occurred—and no new claims could arise—when the City implemented that decision down the road. If petitioners could prove that the City" use[d]" the "practice" that "causes a disparate impact," they could prevail.

Granted, "[e]mployers may face new disparate-impact suits for practices they have used regularly for years. Evidence essential to their business-necessity defenses might be unavailable (or in the case of witnesses' memories, unreliable) by the time the later suits are brought. And affected employees and prospective employees may not even know they have claims if they are unaware the employer is still applying the disputed practice." However, the alternative was even less satisfactory:

[I]f an employer adopts an unlawful practice and no timely charge is brought, it can continue using the practice indefinitely, with impunity, despite ongoing disparate impact. Equitable tolling or estoppel may allow some affected employees or applicants to sue, but many others will be left out in the cold. Moreover, the City's reading may induce plaintiffs aware of the danger of delay to file charges upon the announcement of a hiring practice, before they have any basis for believing it will produce a disparate impact.

The case was remanded to the Seventh Circuit to determine whether a new trial was necessary and whether the relief ordered by the trial court should be modified (as stipulated by the parties) to exclude consideration of the first round of hiring decisions which were made more than 300 days before the filing of the first Charge.

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 change or be 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.

Supreme Court: Discovery Order Requiring Employer to Disclose Attorney’s Conversation with Employee Is Not Immediately Appealable.

‘Tis the season for discovery and evidentiary rulings involving employers. This week, a pretty unanimous United States Supreme Court affirmed the dismissal of an appeal filed by an employer after the district court ordered it to disclose information about a conversation between its litigation attorney and an employee who later brought a wrongful termination lawsuit claiming he was fired because of that conversation. Although the employer claimed that the conversation was protected by attorney-client privilege and it would be irreparable harmed by disclosing the information, the Court held that it could not appeal the ruling until suffered a sanction for disobeying the court’s order. Mohawk Industries, Inc. v. Carptenter, No. 08-678 (12/8/09).

According to the Court’s opinion, the employer was defending class action litigation which alleged that it was driving down the wages of its legal employees by employing undocumented immigrant workers (or illegal aliens). Unaware of this, the plaintiff emailed the employer’s human resources department that it was employing undocumented workers. Accordingly, he was asked to meet with the employer’s attorney who was defending the class action litigation. The plaintiff claims that he was unlawfully fired after he refused to recant his statement when pressured by the attorney. The district court ordered the employer to produce information about the plaintiff’s meeting with the attorney and the termination decision. Although the court agreed with the employer that the information was privileged, it found that the privileged had been implicitly waived through disclosures in the class action. In particular, when the class action plaintiffs sought information about the plaintiff’s termination, the employer claimed that he had been fired for recommending the hiring of undocumented workers and had been interviewed by the attorney to substantiate the investigation. By revealing the content of the communication and its relation to the plaintiff’s termination in the class action, the court found the employer waived attorney client privilege in the wrongful termination litigation as well. The district court stayed its order, but refused to certify the issue for immediate appeal. The Court of Appeals dismissed the appeal as well. On appeal, all of the Justices affirmed the dismissal, although Justice Thomas wrote his own concurring opinion.

On appeal, the employer conceded that the discovery order was not a final appealable order, but argued that jurisdiction existed nonetheless because it was an appealable collateral order.

The question before us is whether disclosure orders adverse to the attorney-client privilege qualify for immediate appeal under the collateral order doctrine. Agreeing with the Court of Appeals, we hold that they do not. Postjudgment appeals, together with other review mechanisms, suffice to protect the rights of litigants and preserve the vitality of the attorney-client privilege.

The crucial question, however, is not whether an interest is important in the abstract; it is whether deferring review until final judgment so imperils the interest as to justify the cost of allowing immediate appeal of the entire class of relevant orders. We routinely require litigants to wait until after final judgment to vindicate valuable rights, including rights central to our adversarial system.

The Court concluded that the employer could protect its privileged communications in a number of ways:

First, a party may ask the district court to certify, and the court of appeals to accept, a ninterlocutory appeal pursuant to 28 U. S. C. §1292(b). The preconditions for §1292(b) review—“a controlling question of law,” the prompt resolution of which “may materially advance the ultimate termination of the litigation”—are most likely to be satisfied when a privilege ruling involves a new legal question or is of special consequence, and district courts should not hesitate to certify an interlocutory appeal in such cases. Second, in extraordinary circumstances—i.e., when a disclosure order “amount[s] to a judicial usurpation of power or a clear abuse of discretion,” or otherwise works a manifest injustice—a party may petition the court of appeals for a writ of mandamus. . . [Third, a]nother long-recognized option is for a party to defy a disclosure order and incur court-imposed sanctions. District courts have a range of sanctions from which to choose, including “directing that the matters embraced in the order or other designated facts be taken as established for purposes of the action,” “prohibiting the disobedient party from supporting or opposing designated claims or defenses,” or “striking pleadings in whole or in part.” Fed. Rule Civ. Proc. 37(b)(2)(i)–(iii). Such sanctions allow a party to obtain post judgment review without having to reveal its privileged information. [Finally], when the circumstances warrant it, a district court may hold a noncomplying party in contempt. The party can then appeal directly from that ruling, at least when the contempt citation can be characterized as a criminal punishment.

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 change or be 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.

Supreme Court: Fear of Race Discrimination Lawsuit Cannot Justify Reverse or Other Intentional Race Discrimination if Employer Has Valid Defenses.

In a highly anticipated decision, a 5-4 Supreme Court today reversed a summary judgment decision previously approved by the Supreme Court nominee Sonia Sotomayor. Ricci v. DeStafano, No. 07-1428. The lower courts had upheld the City of New Haven, Connecticut in failing to certify the results of a civil service promotional examination for firefighters on the grounds that the City was concerned that it would be sued for disparate impact race discrimination if it promoted any firefighters based on the test because mostly white and Hispanic firefighters passed the exam and only 9 of the 27 African-American firefighters passed. Because the City’s decision was based entirely on the race of the successful and unsuccessful test takers, it necessarily implicated the intentional discrimination provisions of Title VII of the Civil Right Act. The Court held that “race-based action like the City’s in this case is impermissible under Title VII unless the employer can demonstrate a strong basis in evidence that, had it not taken the action, it would have been liable under the disparate-impact statute.” The employer cannot justify its actions based solely on the fact that the potential plaintiffs can prove only a prima facie case of discrimination; rather, the employer must also consider its potential defenses before making a race-conscious decision. Because that “strong evidence” was lacking in this case, the Court not only reversed summary judgment for the City it directed that the plaintiffs were entitled to summary judgment on liability.

The Background

According to the Court’s decision, the City Charter required the City to promote firefighters into officer positions based on how they ranked on promotional examinations. The examination consisted of both written and oral portions and required a certain amount of prior job experience and education. The experienced consulting firm hired to design the test analyzed the jobs at issue by interviewing, questioning and observing the incumbent officers.

At every stage of the job analyses, IOS, by deliberate choice, oversampled minority firefighters to ensure that the results—which IOS would use to develop the examinations—would not unintentionally favor white candidates. . . .

For each test, IOS compiled a list of training manuals, Department procedures, and other materials to use as sources for the test questions. IOS presented the proposed sources to the New Haven fire chief and assistant fire chief for their approval. Then, using the approved sources, IOS drafted a multiple-choice test for each position. [Each test consisted of 100 questions and] was written below a 10th grade reading level. After IOS prepared the tests, the City opened a 3-month study period. It gave candidates a list that identified the source material for the questions, including the specific chapters from which the questions were taken.

IOS developed the oral examinations as well. These concentrated on job skills and abilities. Using the job analysis information, IOS wrote hypothetical situations to test incident-command skills, firefighting tactics, interpersonal skills, leadership, and management ability, among other things. Candidates would be presented with these hypotheticals and asked to respond before a panel of three assessors.

All of the assessors were from outside Connecticut and received special training. “Sixty-six percent of the panelists were minorities, and each of the nine three-member assessment panels contained two minority members” (i.e., one white, one Hispanic and one black).

Following the November 2003 examinations, 34 out of the 77 (or 44%) of the candidates passed the lieutenant examination: 25 out of 43 [58%] whites, 6 out of 19 [ 31.5%] blacks, and 3 out of 15 [20%] Hispanics. Because there were 8 vacancies at the time of the examination, the top ten scores were eligible for immediate promotion. All of them were white.

As for the captain exam, 22 of the 41 (or 54%) of the candidates passed: 16 out of 25 whites (64%), 3 out of 8 blacks (37.5%), and 3 out of 8 Hispanics (37.5%). Because there were seven captain vacancies at the time of the examination, 9 candidates were eligible to be considered for an immediate promotion to captain—7 whites and 2 Hispanics.

Although the City had a contractual right to a technical report from the consultant analyzing the test results, instead the City immediately objected to the facial racial disparity in the results. The City told the Civil Service Board that the test results had a disparate impact. Some firefighters – without knowing how they scored – advocated certifying the test results because they had spent a lot of money buying studying materials and a lot of time studying and a new test would take years to develop and administer. Others objected on the grounds that the study materials were too long and expensive. Some suggested that a validation study be conducted.

The Board ultimately requested the consultant to explain how the test had been developed and conducted and also requested an outside panel of experts to review the situation. One of those experts was a competitor of the consultant and he opined that the test results were not surprising, criticized the lack of local input into the test questions and suggested the use of an assessment center which required the candidates to demonstrate their knowledge instead of merely answering questions on a test or in an interview. Another witness – who was black – from the Department of Homeland Security said that the test reviewed relevant and job related information. He suggested that the disparity was somewhat related to the fact that more white candidates took the exam than black candidates. The final “expert” was a college professor who know nothing about firefighting, but who opined that “regardless of what kind of written test we give in this country . . . we can just about predict how many people will pass who are members of under-represented groups. And your data are not that inconsistent with what predictions would say were the case.” Although the results may have been influenced by the fact that the job analysis surveys were initially completed mostly by white firefighters, “no matter what test the City had administered, it would have revealed “a disparity between blacks and whites, Hispanics and whites,” particularly on a written test.” The Board deadlocked on whether to certify the test results, which meant that the results were not certified.

The Litigation

The plaintiffs – 17 white firefighters and 1 Hispanic firefighter – filed suit under §§ 1983 and 1985 and under Title VII against the City and other defendants. The District Court granted summary judgment to the defendants and it was affirmed on appeal. The Second Circuit then considered whether to reconsider the decision en banc, but voted 7-6 against reconsideration.

The issue as framed by the Supreme Court:

The City’s actions would violate the disparate-treatment prohibition of Title VII absent some valid defense. All the evidence demonstrates that the City chose not to certify the examination results because of the statistical disparity based on race—i.e., how minority candidates had performed when compared to white candidates. As the District Court put it, the City rejected the test results because “too many whites and not enough minorities would be promoted were the lists to be certified . . . Without some other justification, this express, race-based decisionmaking violates Title VII’s command that employers cannot take adverse employment actions because of an individual’s race.

While the lower courts found that intentional discrimination could be excused in order to potentially avoid disparate impact liability under Title VII, the Court did not think that this was necessarily so. The plaintiffs argued that it should never be a defense to intentional racial discrimination that the employer was attempting to avoid unintentional discrimination. The defense argued that good faith efforts to avoid unintentional disparate impact should excuse intentional race discrimination. The court found both parties’ arguments to be simplistic and unrealistic. It rejected racial quotas or employer practices seeking a preferred racial balance. It also refused to prefer the disparate treatment provisions of Title VII over the disparate impact provisions.

If an employer cannot rescore a test based on the candidates’ race, §2000e–2(l), then it follows a fortiori that it may not take the greater step of discarding the test altogether to achieve a more desirable racial distribution of promotion-eligible candidates—absent a strong basis in evidence that the test was deficient and that discarding the results is necessary to avoid violating the disparate impact provision. Restricting an employer’s ability to discard test results (and thereby discriminate against qualified candidates on the basis of their race) also is in keeping with Title VII’s express protection of bona fide promotional examinations.
. . .
We consider, therefore, whether the purpose to avoid disparate-impact liability excuses what otherwise would be prohibited disparate-treatment discrimination. Our task is to provide guidance to employers and courts for situations when these two prohibitions could be in conflict absent a rule to reconcile them. In providing this guidance our decision must be consistent with the important purpose of Title VII—that the workplace be an environment free of discrimination, where race is not a barrier to opportunity.

In reaching a compromise, the Court considered decisions in other areas where it had permitted intentional discrimination. “The Court has held that certain government actions to remedy past racial discrimination—actions that are themselves based on race—are constitutional only where there is a “‘strong basis in evidence’” that the remedial actions were necessary.”

Applying the strong-basis-in-evidence standard to Title VII gives effect to both the disparate-treatment and disparate-impact provisions, allowing violations of one in the name of compliance with the other only in certain, narrow circumstances. The standard leaves ample room for employers’ voluntary compliance efforts, which are essential to the statutory scheme and to Congress’s efforts to eradicate workplace discrimination. . . . And the standard appropriately constrains employers’ discretion in making race-based decisions: It limits that discretion to cases in which there is a strong basis in evidence of disparate-impact liability, but it is not so restrictive that it allows employers to act only when there is a provable, actual violation.

In this case, the City defended its actions on the grounds that the test results had a disparate impact on a racial class (i.e., a neutral practice has a statistically disproportionate affect on a particular group). However, the Court pointed out that the disparate statistics constituted only a prima facie case and that the employer could have defended the results by showing that the test was job related and consistent with business necessity. At that point, the plaintiffs would have had to show that “the employer refuses to adopt an available alternative employment practice that has less disparate impact and serves the employer’s legitimate needs.” In this case, there was no dispute that the group opposing the test results could have met a prima facie case and there was overwhelming evidence that the City could have met its burden of showing the job-related/business necessity defense. There was, however, a question about whether a reasonable alternative existed. The Court rejected challenges that weighing the written and oral portions of the exam differently might have produced different results or that utilizing an assessment center would have been available to the City at the time or produced a different result.

The problem for respondents is that a prima facie case of disparate-impact liability—essentially, a threshold showing of a significant statistical disparity, . . . and nothing more—is far from a strong basis in evidence that the City would have been liable under Title VII had it certified the results. That is because the City could be liable for disparate-impact discrimination only if the examinations were not job related and consistent with business necessity, or if there existed an equally valid, less-discriminatory alternative that served the City’s needs but that the City refused to adopt. §2000e–2(k)(1)(A), (C). We conclude there is no strong basis in evidence to establish that the test was deficient in either of these respects.
. . .
On the record before us, there is no genuine dispute that the City lacked a strong basis in evidence to believe it would face disparate-impact liability if it certified the examination results. In other words, there is no evidence —let alone the required strong basis in evidence—that the tests were flawed because they were not job-related or because other, equally valid and less discriminatory tests were available to the City. Fear of litigation alone cannot justify an employer’s reliance on race to the detriment of individuals who passed the examinations and qualified for promotions. The City’s discarding the test results was impermissible under Title VII, and summary judgment is appropriate for petitioners on their disparate-treatment claim.

The Court did not address the plaintiffs’ Equal Protection arguments and did

not hold that meeting the strong-basis-in-evidence standard would satisfy the Equal Protection Clause in a future case. . . . Nor do we question an employer’s affirmative efforts to ensure that all groups have a fair opportunity to apply for promotions and to participate in the process by which promotions will be made. But once that process has been established and employers have made clear their selection criteria, they may not then invalidate the test results, thus upsetting an employee’s legitimate expectation not to be judged on the basis of race. Doing so, absent a strong basis in evidence of an impermissible disparate impact, amounts to the sort of racial preference

While employers may consider how to make its employment testing and processes more fair, “under Title VII, before an employer can engage in intentional discrimination for the asserted purpose of avoiding or remedying an unintentional disparate impact, the employer must have a strong basis in evidence to believe it will be subject to disparate-impact liability if it fails to take the race-conscious, discriminatory action.”

Insomniacs can read the full decision at http://http://Ricci.

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 change or be 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.

Supreme Court: ADEA Does Not Allow Mixed Motive Theory; Plaintiff Must Prove Age Was “But For” Reason for Adverse Action.

This morning, a 5-4 Supreme Court ruled that the Age Discrimination in Employment Act (ADEA) is different from Title VII in another important respect: While Title VII permits a plaintiff to prove that illegal discrimination was a motivating factor (albeit not the sole factor) in his or her adverse employment action, ADEA requires the plaintiff to prove that s/he would not have suffered the adverse action “but for” his or her age. Gross v. FBL Financial Services, Inc., No. 08-441 (6/18/09).

In Gross, the plaintiff alleged that he was demoted primarily because of his age, although he admitted that his age was not the only factor. This is often known as a mixed-motive case and is a theory that was established in the plurality opinion of the Price-Waterhouse v. Hopkins case. The trial court instructed the jury that it must rule for the employee if he proved that “his age was a motivating factor in the demotion decision,” and “that age was a motivating factor if it played a part in the demotion.” The trial court also instructed the jury to return a verdict for the employer “if it proved that it would have demoted Gross regardless of age.” In other words, the employer bore the burden of proving that age was not the primary motivating factor even if it was a small factor. The jury returned a verdict for Gross, awarding him$46,945 in lost compensation. The employer appealed and the Court of Appeals reversed.

Justice Thomas began his opinion by noting that ‘[t]he question presented by the [employee] in this case is whether a plaintiff must present direct evidence of age discrimination [as opposed to circumstantial evidence] in order to obtain a mixed-motives jury instruction in a suit brought under the” ADEA. However, the Court never needed to reach that question because it held that “such a jury instruction is never proper in an ADEA case.”

“

Unlike Title VII, the ADEA’s text does not provide that a plaintiff may establish discrimination by showing that age was simply a motivating factor. Moreover, Congress neglected to add such a provision to the ADEA when it amended Title VII to add §§2000e–2(m) and 2000e–5(g)(2)(B), even though it contemporaneously amended the ADEA in several ways, see Civil Rights Act of 1991 . . . We cannot ignore Congress’ decision to amend Title VII’s relevant provisions but not make similar changes to the ADEA. When Congress amends one statutory provision but not another, it is presumed to have acted intentionally.”

“The ADEA provides, in relevant part, that ‘[i]t shall be unlawful for an employer . . . to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s age.’ 29 U. S. C. §623(a)(1) (emphasis added). . . . To establish a disparate treatment claim under the plain language of the ADEA, therefore, a plaintiff must prove that age was the “but-for” cause of the employer’s adverse decision.”

“[Nothing in the statute’s text indicates that Congress has carved out an exception to that rule for a subset of ADEA cases. Where the statutory text is ‘silent on the allocation of the burden of persuasion,’ we “begin with the ordinary default rule that plaintiffs bear the risk of failing to prove their claims.”

Moreover, “the burden of persuasion necessary to establish employer liability is the same in alleged mixed-motives cases as in any other ADEA disparate-treatment action. A plaintiff must prove by a preponderance of the evidence (which may be direct or circumstantial), that age was the “but-for” cause of the challenged employer decision.”

Insomniacs can read the full decision at http://www.supremecourtus.gov/opinions/08pdf/08-441.pdf.

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 change or be 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.

Supreme Court: Employers Need Not Recalculate Pension Contributions Following 1978 Passage of Pregnancy Discrimination Act.

Today, in a long-awaited decision, the Supreme Court – in a 7-2 opinion – ruled that AT&T need not recalculate the pension credits or benefits awarded to female retirees based on maternity leave taken prior to the 1978 passage of the Pregnancy Discrimination Act. Hulteen v. AT&T. The Court ruled that the PDA was not retroactive and did not affect pension calculations and pension credits already made to female employees and retirees before its passage. Rather, the pre-PDA pension credits were not discriminatory under § 703(h) of Title VII – which creates a safe harbor for compensation plans based on bona fide seniority systems. Moreover, the Court also ruled that the recently passed Ledbetter Fair Pay Act similarly did not render discriminatory pension credits and pension benefits calculated before the passage of the PDA.

According to the Court’s opinion, AT&T—like many employers -- for many years awarded fewer pension credits to women for pregnancy/maternity leave than it did for other types of medical leave. In the 1960’s and early 1970’s, employees on disability leave received full pension credit, but employees on personal leave or pregnancy leave only received up to 30 days of pension credit. In 1976, the Supreme Court ruled in Gilbert v. General Electric that pension plans which provided less credit for pregnancy leave than other disability leaves did not constitute unlawful sex discrimination under Title VII. The following year, Congress amended Title VII by enacting the Pregnancy Discrimination Act to provide that it constituted sex discrimination to treat pregnancy less favorably than other medical conditions. AT&T immediately amended its pension plans so that all maternity leaves following the PDA’s passage would receive the same pension credits as other disability leaves. However, AT&T did not go back and retroactively award pension credits to current female employees who had previously taken maternity leave under the former pension plan and did not increase the pension benefits of retired female employees who had taken maternity leave under the former pension plan prior to the passage of the PDA.

Lawsuits and EEOC charges ensued against AT&T and the “baby bell companies.” The Courts of Appeal split on this issue (with the Seventh and Sixth Circuits ruling in favor of the employers). In the present case, four women – three retirees and a current employee – filed EEOC Charges because they were disadvantaged by two to six months in the calculation of their pension benefits on account of maternity leaves which they took prior to the passage of the PDA. The EEOC found probable cause of discrimination and issued right-to-sue letters. They filed suit in California and the Ninth Circuit Court of Appeals ultimately ruled that AT&T’s refusal to issue retroactive pension credits violated Title VII and the PDA. The Supreme Court reversed.

The Court found that the pension plan was part of a bona fide seniority system which AT&T had utilized since approximately 1914. “As we have said, ‘[a] ‘seniority system’ is a scheme that, alone or in tandem with non-‘seniority’ criteria, allots to employees ever improving employment rights and benefits as their relative lengths of pertinent employment increase.” California Brewers Assn. v. Bryant, 444 U. S. 598, 605–06 (1980).” Even though it would violate the PDA to have such a seniority system today, “a seniority system does not necessarily violate the statute when it gives current effect to such rules that operated before the PDA. “[S]eniority systems are afforded special treatment under Title VII[‘s]” § 703(h):

“Notwithstanding any other provision of this subchapter, it shall not be an unlawful employment practice for an employer to apply different standards of compensation, or different terms, conditions, or privileges of employment pursuant to a bona fide seniority . . . system . . . provided that such differences are not the result of an intention to discriminate because of race, color, religion, sex, or national origin . . . .” 42 U. S. C. §2000e–2(h).

“Benefit differentials produced by a bona fide seniority based pension plan are permitted unless they are “the result of an intention to discriminate.” TWA v. Hardison, 432 U. S. 63, 81 (1977). The Court declined to treat pregnancy discrimination differently from race, age or national origin discrimination under § 703(h). The Court noted that it had reached a similar decision regarding the arguably racist calculation of pension benefits before the passage of Title VII in Teamsters v. United States, 431 U. S. 324 (1977). Moreover, because Gilbert had already ruled that such pension plans did not violate Title VII, the Court declined to now reverse that decision and find that the pre-PDA pension plan was discriminatory on its face. (This holding effectively also rejected the plaintiffs’ argument that the pension plan also violated the Ledbetter Fair Pay Act.). In addition, because there was nothing in the PDA to indicate that Congress intended a retroactive application of the Act and the general rule is that legislation applies only prospectively, the Court declined to give retroactive affect to the PDA to cover pension calculations made before the passage of the Act. Finally, the Court concluded that it would read § 703(h) out of Title VII to destroy the safe harbor anytime new legislation was enacted.

Justice Ginsburg dissented on the grounds that, among other things, Gilbert had been wrongly decided (based on prior Court of Appeals decisions and EEOC guidelines).

Insomniacs may read the full Supreme Court opinion at http://