Unanimous Supreme Court Rejects Another Non-Statutory Exception to FAA Enforcement

Yesterday, the Supreme Court unanimously reversed  an arbitration decision that will affect non-competition litigation between employees and employers who have incorporated arbitration clauses into their agreements.  The Court ruled that the Federal Arbitration Act requires the arbitrability of a dispute to be resolved by the arbitrator even if the trial court finds the request for arbitration to be “wholly groundless” if the parties’ agreement reserved questions of arbitrability to the arbitrator.  Henry Schein, Inc. v. Archer & White Sales, Inc., No 17-1272 (1-9-19).  In that case, the parties’ contract provided for arbitration of disputes, except when the party was seeking injunctive relief.  While the contract did not specifically address the question of arbitrability, its brief two-sentence arbitration clause referred to the AAA rules, which provides that arbitrators can decide arbitrability.  The plaintiff filed suit seeking damages and injunctive relief and the defendant sought to have the entire matter referred to arbitration.  The plaintiff objected on the grounds that the defendant’s request was “wholly groundless” (because of the contract’s exception for injunction requests) so that the trial court could resolve the arbitrability question.  The trial and appellate court agreed, but the Supreme Court reversed and found that the FAA does not contain an exception for “wholly groundless” arguments as to arbitrability.  However, because the contract was silent about the question of arbitrability, the Court remanded the matter to determine if the parties’ contract reserved the question of arbitrability to be decided by the arbitrator or the trial court.

The Court rejected the defendant’s argument that Sections 3 and 4 of the FAA only require a court to stay litigation pending arbitration and to refer a matter to arbitration after an initial evaluation of arbitrability.

This Court has consistently held that parties may delegate threshold arbitrability questions to the arbitrator, so long as the parties’ agreement does so by “clear and unmistakable” evidence. First Options, 514 U. S., at 944 (alterations omitted); see also Rent-A-Center, 561 U. S., at 69, n. 1.  To be sure, before referring a dispute to an arbitrator, the court determines whether a valid arbitration agreement exists. See 9 U. S. C. §2.  But if a valid agreement exists, and if the agreement delegates the arbitrability issue to an arbitrator, a court may not decide the arbitrability issue.

The Court also refused to impose a common law exception into the FAA to prevent a waste of the parties’ resources.   Moreover, it was doubtful that systematic resources would be spared when there was likely to be collateral litigation over arbitrability regardless of whether the arbitrator or trial court decided the issue.

Under the Act, arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms. Rent-A-Center, 561 U. S., at 67.  Applying the Act, we have held that parties may agree to have an arbitrator decide not only the merits of a particular dispute but also “‘gateway’ questions of ‘arbitrability,’ such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy.”  Id., at 68–69; see also First Options, 514 U. S., at 943.  We have explained that an “agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the party seeking arbitration asks the federal court to enforce, and the FAA operates on this additional arbitration agreement just as it does on any other.”  Rent-A-Center, 561 U. S., at 70.

                 . . .

We must interpret the Act as written, and the Act in turn requires that we interpret the contract as written. When the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract. In those circumstances, a court possesses no power to decide the arbitrability issue.  That is true even if the court thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless.

That conclusion follows not only from the text of the Act but also from precedent. We have held that a court may not “rule on the potential merits of the underlying” claim that is assigned by contract to an arbitrator, “even if it appears to the court to be frivolous.”  AT&T Technologies, Inc. v. Communications Workers, 475 U. S. 643, 649–650 (1986). A court has “‘no business weighing the merits of the grievance’” because the “‘agreement is to submit all grievances to arbitration, not merely those which the court will deem meritorious.’” Id., at 650 (quoting Steelworkers v. American Mfg. Co., 363 U. S. 564, 568 (1960)).

                 . . . .

The [wholly groundless] exception is inconsistent with the statutory text and with our precedent. It confuses the question of who decides arbitrability with the separate question of who prevails on arbitrability.  When the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract

 Ultimately, however, the Court expressed

no view about whether the contract at issue in this case in fact delegated the arbitrability question to an arbitrator. The Court of Appeals did not decide that issue.  Under our cases, courts “should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.”  First Options, 514 U. S., at 944 (alterations omitted).  On remand, the Court of Appeals may address that issue . . .

This decision will affect employers because many employment agreements contain non-competition and non-solicitation clauses as well as arbitration clauses that similarly carve out exceptions for when the employer seeks injunctive relief.  The reason for such carve-outs is so that the employer can obtain speedy preliminary injunctive relief when damages will be inadequate for the harm caused by the improper competition or solicitation.  However, if the employee seeks to have the entire matter referred to arbitration, resolution of the dispute could be delayed while the parties select an arbitrator, etc. to resolve the arbitrability issue.   

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

Ohio Supreme Court Applies Tort Cap to $800K Defamation Judgment Against Employer

This morning, a divided Ohio Supreme Court remanded a $1.55M defamation judgment entered against an employer which a jury found had defamed a nurse who had been involved with a union organization effort.  Wayt v. DHSC, L.L.C., Slip Opinion No. 2018-Ohio-4822.  The Court found that the jury’s $800K compensatory damages award was subject to the $250K non-economic damages cap under Ohio Revised Code §2315.18 because its prior precedent had found defamation to be a personal injury.  

According to the Court’s opinion, the plaintiff nurse was fired by her hospital employer for neglecting her duties and falsifying a medical record. The  head of nursing then reported the plaintiff to the Board of Nursing for patient neglect.  The plaintiff was unable to find another nursing job.   In the meantime, a nursing union filed an unfair labor practice charge with the NLRB asserting that the defendant hospital had  violated the NLRA by refusing to bargain with it and had terminated the plaintiff because of her involvement with the union. After an ALJ ruled in favor of the union, the NLRB successfully petitioned a federal court to order the reinstatement of the plaintiff to her former job at the hospital and the hospital to retract the complaint made to the Nursing Board about the plaintiff.  Nonetheless, one of the plaintiff’s co-workers stated to other nursing that the court order did not make the plaintiff a good nurse or mean that she deserved reinstatement. 

The plaintiff filed a defamation action against the hospital.  A jury awarded her $800K in compensatory damages and $750K in punitive damages.  The hospital sought to have the damages reduced under Ohio’s tort reform act, but was denied by both the trial and appellate courts.  The Ohio Supreme Court agreed only to decide the hospital’s appeal of the amount of compensatory damages.  In particular: whether the cap in R.C. 2315.18 that applies to tort actions seeking noneconomic loss as a result of an alleged injury or loss to person or property also applies to defamation.

The Court initially appeared to agree that injuries to reputation are different than personal injuries. 

R.C. 2315.18(A)(7) provides: “ ‘Tort action’ means a civil action for damages for injury or loss to person or property.”  R.C. 2315.18(B)(2) provides that the maximum noneconomic damages that can be awarded to a plaintiff in a tort action is, barring certain exceptions that do not apply here, $ 250,000.

{¶ 17} Property “means real and personal property.”  R.C. 1.59(E).  The term “property” as used in R.C. 2315.18(A)(7) does not include reputation, and neither party argues to the contrary.

The plaintiff asserted that the Ohio Constitution recognizes the four separate types of injuries. Article I, Section 16 of the Ohio Constitution, provides that courts shall be open to redress injuries to “land, goods, person, or reputation.”

That being said, the Court’s majority held that its decision was not resolved by the plain meaning of the statute because

 We have held for 90 years, however, that defamation is an injury to a person.  See Smith v. Buck, 119 Ohio St. 101, 162 N.E. 382 (1928), paragraph two of the syllabus.

                 . . . .

                We hold that under the plain language of R.C. 2315.18(A)(7), defamation is a “civil action for damages for injury or loss to person.”  This holding, as explained above, is in accord with prior decisions of this court and several other courts that were interpreting similar language.  We see no reason to overturn the well-established precedent that defamation is a “personal injury” according to the plain meaning of the term.

                 . . .

                Assuming arguendo only that the court must look to the canons of statutory construction to determine what the legislature intended by using the phrase “injury or loss to person or property,” the result in this case would be the same.  It is well established that the legislature is presumed to have full knowledge of prior judicial decisions. . . . Moreover, the legislature could easily have drafted the statute to prevent the holding from that case from affecting the outcome of this case; the legislature merely needed to add “defamation” to the list of actions enumerated in R.C. 2315.18(A)(7) to which the caps do not apply.

In addition, the Court declined the plaintiff’s invitation to only apply the damages cap to negligence cases.

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

Sixth Circuit Blames Employee’s Physician For Year Delay In Reinstatement Following Stroke and Dismisses Disability Discrimination Claim

On Tuesday, the Sixth Circuit affirmed the summary judgment dismissal of an Ohio disability discrimination claim brought by a current employee who wanted to return to work following rehabilitation of a severe stroke before the company’s physician agreed.  Stanley v. BP Products North America, Inc., No. 18-3303 (6^th Cir. 12-4-18).   Although the plaintiff had been released to return to work without restrictions by his physician’s office in August 2011, the company’s physician disagreed after conducting his own medical assessment and the plaintiff’s physician provided a signed note in November 2011 agreeing with the company’s physician.  The plaintiff did not provide a contrary note from his personal physician releasing him without restrictions until July 2012 and he was returned to work the following month when the company’s physician conducted another assessment and agreed.  The Court rejected the plaintiff’s argument that the employer could be found to have discriminated against him without knowledge that his own physician’s November 2011 was flawed and not based on any medical assessment.  Employers are generally entitled to accept an employee's doctor’s restrictions at face value.

According to the Court’s opinion, the plaintiff suffered a severe stroke in November 2010 and collected short-term disability.  However, after his STD was exhausted and he completed his rehabilitation, his application for long term disability was denied after his personal physician – the villain in this story --  failed to submit some required documentation.  His physician told him that he would release him to return to work if he passed a driving assessment, which he did.  He was then examined by a Certified Nurse Practitioner which found him to be physically fit as of August 2011, but did not conduct a cognitive assessment.  At that point, the employer’s collective bargaining agreement provided that he had to pass a physical examination by the company’s physician.   The Company’s physician agreed with the CNP that the plaintiff had good strength and reflexes, but had issues with balance, fine motor skills, coordination and some cognitive skills.  For instance, he could not stand long on one leg, had difficulty with heel to toe walking and could not subtract 7 from 93.   Concerned, the company’s physician studied the plaintiff’s medical file and determined that his physician had failed to conduct certain necessary tests or to understand the requirements of the plaintiff’s job.  The company’s physician then restricted the plaintiff to office work, for which there were no open positions.

The bargaining agreement then required the two physicians to consult with each other about their disagreement and, if not resolved, select a specialist to resolve the dispute.   The company’s physician faxed information about the issue to the plaintiff’s physician and called him in October and November without success.   Apparently, the plaintiff’s physician never reviewed faxes, or returned calls and delegated these issues to his office staff.  The union then pursued the issue with HR, who called the plaintiff’s physician office to complain about the lack of response, pointing out that the plaintiff was about to have his utilities shut off when he was earning neither wages nor LTD. At that point, the plaintiff’s physician provided a signed note restricting plaintiff’s return to work and suggesting LTD.  The plaintiff was not provided with a copy.  However, he was awarded LTD, which he rejected because he contended that he was able to return to work in August.

In March 2012, the plaintiff’s physician signed a second note saying that he only signed the first note because of information about the plaintiff’s finances and indicated that the plaintiff could immediately return to work without restrictions.  However, this second note was not provided to the employer until July 2012.  There is no indication in the record whether the plaintiff’s physician conducted any medical assessment in either November 2011 or March 2012 and the physician denied recalling signing either note.  The plaintiff was evaluated again by the company’s physician in August (in the presence of an assistant and union representative) and passed all of the physical and cognitive tests.  He was immediately returned to work and remained there when the lawsuit was filed challenging the year delay in reinstating him to work.

The plaintiff argued that the employer should have realized that his physician’s November 2011 note was flawed and not based on any medical assessment or review of his medical file.  However, the Court found that employers are generally entitled to rely on a doctor’s restrictions at face value.  There was no evidence presented that the employer knew – or should have known -- that the plaintiff’s physician was simply providing a note as requested earlier in the day by HR affirming the restrictions so that the plaintiff could collect LTD.

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

Sixth Circuit: No ADA Duty to Immediately Grant Requested Accommodation

On Friday, the Sixth Circuit Court of Appeals affirmed an employer’s summary judgment dismissing an ADA failure-to-accommodate claim brought by a current employee.  Brumley v. UPS, No. 18-5453 (6^th Cir. Nov. 30, 2018).   The plaintiff could not show that her employer had failed to engage in the ADA accommodation process when she had voluntarily abandoned the interactive process and instead convinced her physician to lift her medical restrictions so that she could return to her former position.  The plaintiff could not satisfy her burden of proof by pointing to her supervisor’s refusal to immediately reinstate her when she submitted permanent medical restrictions because the “ ADA does not obligate employers to make on-the-spot accommodations of the employee’s choosing . . . . An employer’s refusal to provide an accommodation to the position of the employee’s choice immediately upon the employee’s request is not, in and of itself, a failure to accommodate under the ADA.” The plaintiff also could not prove that she had been coerced to abandon the process by her supervisor’s initial refusal because (1) she had later admitted during workers compensation proceedings that the supervisor had told her that the employer attempted to accommodate permanent restrictions and  (2) she been contacted about the interactive process within two weeks  and told that her employer would attempt to find her another position within her medical restrictions.

According to the Court’s opinion, the plaintiff employee suffered a work-related injury and on July 29 her doctor medically restricted her from lifting over 30 pounds, which was apparently an essential job requirement for a sorter.  Her supervisor refused to reinstate her with these permanent medical restrictions and the employer commenced the interactive process in mid-August by requesting additional medical information after she filed a grievance with her union.  After she delayed a month in providing the requested information and the employer delayed a month in scheduling a face-to-face meeting, she ultimately withdrew her accommodation request in mid-October when the employer indicated that it would try to transfer into another position.   Instead, she convinced her physician at the end of October to remove her medical restrictions and she returned to her former position as a sorter by November.   

Even though she had been reinstated, she filed the lawsuit challenging the employer’s refusal to reinstate her to her former position while she had permanent lifting restrictions imposed by her physician.

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

Supreme Court Holds that ADEA Claims Apply to All Government Entities Regardless of Size

This morning a unanimous Supreme Court ruled that the provisions of the Age Discrimination in Employment Act apply to all governmental employers regardless of size.   Mt. Lemmon Fire District v. Guido,  No. 17-587  (11-6-18).   Thus, a fire department with fewer than 20 employees would be subject to ADEA claims challenging its reduction in force.   The Court found that the amendment of the ADEA adding government subdivision liability was more similar to the amendment of the FLSA, which applies to all governmental employers regardless of size, than to the amendment of Title VII, which only applies to employers – including governments – with more than 15 employees.  This is consistent with how the EEOC has traditionally interpreted the statutes, but is contrary to a 1990 Sixth Circuit holding (governing Ohio).  The Court’s holding was based on the different language used to amend the ADEA to include governments because the phrase “the term also means” typically is interpreted to create an additional, separate category than to modify or clarify a prior term.

According to the Court’s opinion, the defendant fire district laid off its two oldest full-time firefighters as part of a budgetary reduction in force.  The plaintiffs filed suit challenging their termination under the ADEA.  The employer moved to dismiss on the grounds that, with fewer than 20 employee, it was not subject to the ADEA.

When originally enacted, neither Title VII nor the ADEA covered state or local governmental entities.  However, Title VII was amended to include governmental employers in 1972.  The ADEA and the FLSA were amended two years later to include local and state governmental entities.   

Following the amendment, Title VII defined employers to include “persons”: “[t]he term ‘employer’ means a person engaged in an industry affecting commerce who has fifteen or more employees . . . .”  42 U. S. C. §2000e(a)–(b).  In turn, “persons” was defined to include governmental employers: “[t]he term ‘person’ includes one or more individuals, governments, governmental agencies, [and] political subdivisions,”  as well as other specified entities.  Thus, all employers must have 15 or more employees and can include governmental entities.

In contrast, the ADEA defines employers differently:

The term ‘employer’ means a person engaged in an industry affecting commerce who has twenty or more employees . . . .  The term also means (1) any agent of such a person, and (2) a State or political subdivision of a State . . . .

29 U. S. C. §630(b) (emphasis added). Thus, the Court was faced with deciding whether the ADEA’s failure to define “person” as it did in Title VII to include governmental entities meant that governmental entities were not subject to the 20-employee threshold that applied to other persons. “Does “also means” add new categories to the definition of “employer,” or does it merely clarify that States and their political subdivisions are a type of “person” included in §630(b)’s first sentence?”  In other words, does the “term” refer to “employer” or to “person” in the preceding sentence?

In further contrast, the FLSA was amended to define covered employers to include: “any person acting directly or indirectly in the interest of an employer in relation to an employee and includes a public agency, but does not include any labor organization (other than when acting as an employer) or anyone acting in the capacity of officer or agent of such labor organization.”  29 U.S.C. §203(d).   Further, “[p]ublic agency” means the Government of the United States;  the government of a State or political subdivision thereof;  any agency of the United States (including the United States Postal Service and Postal Regulatory Commission), a State, or a political subdivision of a State;  or any interstate governmental agency.”  Id. at §203(x).

In interpreting the three different definitions of “employer,” the Court based its ruling on a number of factors.  “First and foremost, the ordinary meaning of ‘also means’ is additive rather than clarifying.”    “Also” is generally understood to mean “in addition to” or “besides” or “likewise.”  It can be read to create an additional category of employer.   In other statutes, “also means” is generally interpreted to recognize separate and additional categories from the earlier categories.   The Court had previously held that the ADEA did not violate state government’s Tenth Amendment immunity and noted in that it applied to employers with so many employees and to state and federal governments as though governments were never subject to the numerical threshold.  

Second, reading the statute otherwise would create a “strange” result by requiring a 20-employee threshold for persons and government entities, but not for agents, “a discrete category that, beyond doubt, carries no numerical limitation.”  Why would “agents” be included as a separate category if they were required to also employ 20 employees?

Third, the Court rejected the argument that the ADEA should be interpreted to be consistent with Title VII because the statutes utilized different language to define their coverage.  Rather, the Court found the ADEA language to be more similar to the FLSA, on which some of the ADEA is based.  Governmental employers are covered by the FLSA regardless of size.   For that matter, however, “persons” are also covered by the FLSA regardless of workforce because the FLSA relies on a different threshold for its coverage (i.e., gross volume of sales) that is unrelated to the number of individuals employed.   Nonetheless, the Court did not seem to consider that fact.  

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