Supreme Court Again Rejects Attempts to Compel Class Claims Into Arbitration Without Consent of Both Parties to Agreement

This week, the Supreme Court again addressed arbitration agreements of employment claims.  Lamps Plus, Inc. v. Varela, No. 17-988 (4-24-19).  The plaintiff employee brought a class action based on a breach of the HRIS system by a hacker and subsequent filing of fraudulent tax returns by identity thieves.   The employer moved to compel the arbitration agreement signed by the plaintiff, which provided for individual arbitration and made no reference to class action arbitration.  The trial and appellate courts compelled only class action arbitration and the employer appealed.   The Court reiterated that arbitration is a matter of contractual consent and courts cannot insert terms into the agreements that are fundamentally inconsistent with simple and expedient arbitration.  The Court had previously held that class action arbitrations could not be compelled where the agreement was silent on that issue.  In this case, the Court held that class arbitrations could not be compelled from an ambiguous agreement either: “Like silence, ambiguity does not provide a sufficient basis to conclude that parties to an arbitration agreement agreed to ‘sacrifice[] the principal advantage of arbitration.’” In other words, “[c]ourts may not infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis.”


The Court had previously rejected attempts to force class claims into arbitration “unless there is a contractual basis for concluding that the party agreed to do so,” because class arbitration fundamentally changes the nature of the “traditional individualized arbitration” envisioned by the FAA.  Epic Systems Corp. v. Lewis, 584 U. S. ___, ___ (2018) (slip op., at 8); Stolt-Nielsen S. A. v. Animal Feeds Int’l Corp., 559 U. S. 662 (2010).  Nonetheless, even though the arbitration agreement at issue made no reference to class action arbitration (and was silent on that issue), the Ninth Circuit distinguished this case from Stolt-Nielsen on the grounds that the parties had not stipulated to the “silence.”   Applying state law, the Ninth Circuit construed the agreement of adhesion against the drafter (i.e., the employer) and found the agreement to be “ambiguous” because it explicitly covered employment claims (which could be subject to class action treatment) and did not explicitly exclude class actions.  Under California law, agreements susceptible to two interpretations are treated as ambiguous and courts may imply terms based on public policy.


The Court noted that class actions constitute a fundamental change in the nature of arbitration and cannot be implied as a term without agreement of the parties.  Arbitration is a matter for contractual consent and not coercion: “Parties may generally shape such agreements to their liking by specifying with whom they will arbitrate, the issues subject to arbitration, the rules by which they will arbitrate, and the arbitrators who will resolve their disputes.”


Courts enforce the intent of the parties when compelling arbitrations and do not imply terms that were not consented to by the parties.  

In carrying out that responsibility, it is important to recognize the “fundamental” difference between class arbitration and the individualized form of arbitration envisioned by the FAA. . . . . In individual arbitration, “parties forgo the procedural rigor and appellate review of the courts in order to realize the benefits of private dispute resolution: lower costs, greater efficiency and speed, and the ability to choose expert adjudicators to resolve specialized disputes. . . . . Class arbitration lacks those benefits. It “sacrifices the principal advantage of arbitration—its informality—and makes the process slower, more costly, and more likely to generate procedural morass than final judgment.

                 . . .

For example, we presume that parties have not authorized arbitrators to resolve certain “gateway” questions, such as “whether the parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a certain type of controversy.”   . . . Although parties are free to authorize arbitrators to resolve such questions, we will not conclude that they have done so based on “silence or ambiguity” in their agreement, because “doing so might too often force unwilling parties to arbitrate a matter they reasonably would have thought a judge, not an arbitrator, would decide.

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: Being Unable to Work for Mean Supervisor Is Not a Substantial Limitation in the Ability to Work

Last month, the Sixth Circuit affirmed the summary judgment dismissal of an ADA claim that the defendant employer failed to accommodate the plaintiff’s PTSD by transferring her away from her supervisor, which was apparently her only trigger.  Tinsley v. Caterpillar Financial Svs. Corp., No. 18-5303 (6^th Cir. 3/20/19).  The plaintiff claimed to only be disabled in the ability to work with that particular supervisor and did not claim to be impaired outside of the workplace or in her job duties.  However, the Court concluded that being disabled from working requires being unable to work in a broad class or range of jobs, not just with one job, in one workplace or for one particular supervisor.  Because she was not “disabled” under the ADA, the employer was not required to provide her with any accommodation and did not constructively discharge her.  Because the employer failed to address her FMLA retaliation claim on appeal, the case was remanded for that issue.


According to the Court’s opinion, the plaintiff reported in mid-April that her changed family and work responsibilities were stressing her out and requested to be removed from a team assignment. She then took three days of FMLA medical leave.  Some of her assignments were reassigned and she indicated that this improved her mental health.  Two months later, her work performance was criticized as well as her leaving early without approval and four months later she was placed on a performance improvement plan.  She claimed that the PIP was in retaliation because she complained about co-workers bouncing stress balls at work.  She then protested the PIP, claimed a hostile work environment created by co-worker horseplay, and said the unreasonable deadlines from a new assignment created too much stress, although other steps taken since her first complaint had improved her stress level.  An investigation of her concerns did not substantiate them.  She took another month of medical leave and was returned to work without restrictions with the recommendation that she be transferred to a different manager.   Instead, the employer granted her another 8 weeks of medical leave – putting her at 18 weeks of time off.  By January, the plaintiff was informed that she would not be transferred and would not be approved for more medical leave.  The plaintiff then retired and filed suit.

This Court has previously held that to be substantially limited from working––and thus eligible for ADA protection––an individual must be significantly restricted in the ability to perform either a class of jobs or a broad range of jobs in various classes as compared to the average  person having comparable training, skills and abilities.”  Swanson, 268 F.3d at 317 (citation  omitted).  Following this Court’s decision in Swanson, Congress enacted the ADA Amendments  Act of 2008, which relaxed the definition of “substantially limited” and noted that establishing a  qualifying disability is not meant to be a demanding standard. . . . Additionally, due to the broader definition of “substantially limited” under the Amendments, the interpretative guide produced by the Equal Employment Opportunity Commission (“EEOC”) notes that the major life activity of working “will be used in only very targeted situations” to determine whether an individual is disabled.

In such “targeted situations,” however, the EEOC has largely endorsed the pre-Amendments analysis for determining whether a person’s claimed impairment sufficiently impacts the major life activity of “working.”  Specifically, the EEOC’s interpretive guide explains that an individual who asserts that she is disabled because she is unable to perform the major life activity of “working” must still show that “the impairment substantially limits . . . her ability to perform a class of jobs or broad range of jobs in various classes.”  Id.  The EEOC further states that “[d]emonstrating a substantial limitation in performing the unique aspects of a single specific job is not sufficient to establish that a person is substantially limited in the major life activity of working.”  Id.  Thus, to the extent the Amendments have altered the scope of the ADA’s protections, a plaintiff who asserts that her impairment substantially limits the major life activity of “working” is still required to show that her impairment limits her ability to “perform a class of jobs or broad range of jobs.”           

      . . . .

                the record is replete with undisputed evidence showing that Tinsley’s issues stemmed directly from Kaikaris’ management style as opposed to the responsibilities of a broad range of jobs.  The clearest example of this is when Tinsley told Human Resources that she would be able to continue in the same position so long as she was under the direction of a different supervisor because her disability was triggered by “the way [Kaikaris] managed . . . with all the ball bouncing.”   . . .  For instance, on August 19, when Tinsley emailed Human Resources to request a new position, she explained that “the work itself was not the primary issue.”  And in the Charge of Discrimination, Tinsley wrote that the company could have accommodated her disability by switching her supervisor.  Last, her doctor cleared her to return to work at one point “at full capacity,” suggesting only that the company switch her supervisor to alleviate any medical concerns.  Tinsley’s diagnosis does not limit her ability to work a broad class of jobs; rather, it relates solely to her ability to work under a specific manager.  Accordingly, she is not “disabled” pursuant to the ADA and was thus not entitled to a reasonable accommodation of additional time off or a transfer.

The Court rejected her argument that her PTSD precluded her from working in a broad range of high-stress jobs because she consistently related her stress to her particular manager’s style and not to the type of work being performed.

Importantly, Tinsley’s physician cleared Tinsley to return to work without restrictions.  The only recommendation that Tinsley’s physician made––to have Tinsley transfer to a different supervisor––related to her stress level under Kaikaris specifically.  This is further illustrated by the fact that, when offered the same position under a different supervisor, Tinsley agreed that she would be able to perform the job duties.  Thus, Tinsley’s limitations were more accurately a product of the “unique aspect” of her “single specific job,” i.e., working as an analyst under Kaikaris’ particular management style.  Id.  Although we can certainly theorize a case in which an employee’s disability actually limited her from engaging in a broad range of similarly high-stress positions, Tinsley has not pointed to any record evidence permitting us to make that necessary inference.

Finally, the Court noted that she had sufficiently alleged a prima facie case of FMLA retaliation when she received her negative performance evaluation within two months of taking three days of FMLA leave.  Because that issue had not been addressed on appeal, it was remanded for further consideration.


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 Finds Insurance Agents Were Not Common Law Employees Under ERISA

In January, the Sixth Circuit again held that insurance agents were independent contractors and not common law employees entitled to ERISA benefits, and reversed a trial court decision holding otherwise.  Jammal v. American Family Ins. Co., No 17-4125 (6^th Cir. 1-29-19).  Because the case was being heard as an interlocutory appeal, the Court only examined the legal conclusions and whether the common law factors were factual or legal conclusions.  The Court concluded that some factors  -- skill required and hiring of assistants -- had been applied incorrectly and favored non-employee status.  It also found that the trial court failed to give sufficient weight to the parties’ written agreement.  Because ERISA focuses on employee benefits, the factors relevant to such a consideration should have been given more weight than other factors.


According to the Court’s opinion, the plaintiffs were hired pursuant to independent contractor agreements, paid their own taxes, hired and paid their own staff, bought their own office furniture and supplies, and did not receive vacation, holiday or sick pay.  Nonetheless, training manuals referred to them as employees, all other individuals working for the company were employees,  and the sales managers were unaware that the agents were not employees.  In addition, the sales managers sometimes interfered in running the offices, and directed some daily activities.  Agents also attended a comprehensive several month training program, receive type of retirement plan, are precluded from selling competing insurance, are subject to non-competition agreements, cannot sell their agencies and are discouraged from other employment.  The case was tried to an advisory jury which found that the agents were employees.


On interlocutory appeal, the Court concluded that the trial court incorrectly weighed the factors of whether the agents required special skills or hired their own assistants. “This circuit has previously held that the skill required of insurance agents weighs in favor of independent-contractor status because ‘the sale of insurance is a highly specialized field” that requires “considerable training, education, and skill.’”

Though American Family preferred hiring untrained, and often unlicensed, agents, the underlying discipline of selling insurance remains the same regardless of American Family’s hiring preferences.   . . . .  The district court therefore misapplied the legal standard to the facts; the correct application would have weighed this factor in favor of independent contractor status, as this circuit has done previously.   

The trial court also found the agent’s hiring and paying of staff was neutral, when the evidence showed otherwise.  While the company imposed certain minimum requirements, would not provide computer access without approval of the candidates and could require the termination of an agent’s employees,

 . . .American Family agents were responsible for paying their own staff, determining and paying for any benefits and taxes associated with that staff, and deciding whether to classify their staff as employees or independent contractors.  While American Family provided “pre-approved” candidates, whom the agents could select as their staff, it did not require the agents to hire these pre-screened candidates.  Agents also had sole discretion in staff-compensation matters and the sole responsibility to withhold and remit taxes to the federal government as the employers of their staff.  

“If the hired party has the ‘primary authority over hiring and paying its own assistants,’ the Darden factor regarding ‘the hired party’s role in hiring and paying assistants’ should weigh in favor of independent-contractor status.”

Further, given our determination regarding the existence of each of the Darden factors, the district court also erred by not properly weighing those factors that are particularly significant in the legal context of ERISA eligibility.  . . . . But “the relative weight given each [Darden] factor may differ depending upon the legal context of the determination.” . . . Because ERISA cases focus on the financial benefits that a company should have provided, the financial structure of the company-agent relationship guides the inquiry.  Here, the Darden factors that most pertain to that financial structure favor independent-contractor status and, accordingly, carry more weight in the ERISA context.

                . . . . Because this inquiry exists in the legal context of ERISA benefits, this collection of factors—particularly the ones relating to the source of the instrumentalities and tools, the method of payment, the provision of employee benefits, and the agents’ tax treatment—is especially important in determining the parties’ financial structure.  Accordingly, these factors should have carried greater weight in the district court’s final analysis. . . . .

As further evidence of the financial structure of the parties’ relationship, the lower court should have also given greater weight to the parties’ express agreement.  In determining the parties’ relationship in the Darden context, we have several times “look[ed] to any express agreement between the parties as to their status as it is the best evidence of their intent” and placed great weight on that agreement. . . . A written contract shows “how the parties themselves viewed the nature of their working relationship” and therefore carries great— but not dispositive—weight in determining an independent-contractor relationship.

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.

Whirlwind of FLSA Activity

As previously mentioned, the DOL has been busy with the Fair Labor Standards Act and has issued a number of Opinion Letters in the past few months.  Because most of them are very fact specific, they will only be briefly summarized and readers can read their few pages in full by clicking on the links.

l  No. 2019-5: Activities of farm employees to prepare produce for the owners own farmer’s market and to deliver the produce to market can be exempt secondary agricultural activities. 

l  No. 2019-4: County Extension (i.e., 4-H) nutrition and cooking  outreach instructors (who are only required to have a GED) qualify for the exemption for teachers from overtime and minimum wages.

l  No. 2019-3: Could not determine from the facts presented whether a youth residential care facility provided enough medical care to qualify for 8 and 80 overtime system (i.e., overtime is paid when the employee works more than 8 hours in a day or 80 hours in a two week period).

l  No. 2019-2: Employers need not compensate employees for genuinely volunteering for a charity after hours even if they could receive a bonus for doing so:  The employer encouraged its employees to volunteer at sponsored events during the work day (for which they were paid) and during their free time after work.  Teams competed against each other and the winning team could win a prize.   The employer considered the number of hours that each team volunteered and was considering using an app to track employee volunteer hours.  An employer may use an employee’s time spent volunteering as a factor in calculating whether to pay the employee a bonus, without incurring an obligation to treat that time as hours worked, so as long as: 1) volunteering is optional, 2) not volunteering will have no adverse effect on the employee’s working conditions or employment prospects, and 3) the employee is not guaranteed a bonus for volunteering. The employees could select the charity or the employer’s choice.

l  No. 2019-1: Live-in building custodians are subject to the FLSA and it is not a good faith defense to rely on state-law exemptions.  But an employer may enter into reasonable agreement with individuals as to what constitutes working hours.

l  No. 2018-29: Members of religious commune who volunteer their services are not employees.

l  No. 2018-28: Employer’s compensation system complied with minimum wage requirements, but only with overtime requirements when employee’s regular rate was under $10/hour.  The employer calculated their weekly wage by multiplying the employee’s hourly rate by the number of hours the employee spent working time with clients and then divided that number by the total hours worked that week (including travel).  With this system, the employer guaranteed the employee earned above the minimum wage.   If the employee worked over 40 hours in a week, the overtime rate was calculated at the typical wage of $10/hour (even if regular rate was more than $10/hour).  That system only complied with overtime wage requirements if the employee’s regular rate was less than $10/hour. 

l  No. 2018-27: When tipped employees wear two hats and when the tip credit can be taken (i.e., if waiter is also bussing or being a janitor).

l  No. 2018-25: An employer can pay a salaried employee too much.  The employer paid its engineers a minimum $2100/week, but also paid an additional $70/hour for all hours worked over 30 each week (because their working hours varied so much throughout the year). Hours were unpredictable and some employees earned $3750 some weeks – almost twice minimum salary.  That could be too much distortion to constitute a regular salary. 150% is close to, but not necessarily, the maximum distortion.  While employers are permitted to pay salaried employees extra pay, there is still a requirement that the extra pay bear some relation to their regularity of salary. 

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.

2019 Is a Busy Year for the FLSA

The federal Department of Labor is making up for lost time with a lot of activity by the Wage and Hour Division.  Three notices of regulatory changes have been proposed, as well as several enforcement actions and five Opinion Letters.  The regulations concern the minimum salary for white collar overtime exemptions, what to include in the regular rate for calculating overtime and who is a joint employer for purposes of the FLSA.  While all of the regulatory proposals could change before final enactment, employers can use the time to prepare for any adjustments.


White Collar Exemptions.  The prior administration proposed to raise the minimum salary to almost $50K (from $23K) and to require an automatic annual increase.  This regulation was enjoined at literally the last second.  Instead of moving to dismiss the litigation, the Trump Administration merely requested that it be stayed while it developed a slightly different proposal:  The proposal released on March 7, 2019 provides:

¡  Raise minimum annual salary from $23K to 35,308/year

¡  Raise highly compensated executive minimum salary from $100K to $134K

¡  No change in duties test

¡  No automatic annual increase

¡  Nondiscretionary bonuses and incentive pay (i.e., commissions) can count up to 10% of salary test if paid at least annually

Joint Employment. The DOL proposed a regulation on April 1 to regulate joint employment for purposes of the FLSA. The DOL would examine whether a business is a “joint employer”—equally liable for liability under federal wage and hour laws—with a simple four-part test, assessing whether the potential joint employer:

¡  hires or fires the employee;

¡  supervises and controls the employee’s work schedule or conditions of employment;

¡  determines the employee’s rate and method of payment; and

¡  maintains the employee’s employment records.

The DOL will ignore right to control, economic dependence, and business model or arrangements.


Regular Rate: The DOL proposed on March 28 a new regulation clarifying (but not necessarily changing) what is and is not included in the “regular rate” for purposes of calculating overtime pay.  This issue is still mostly governed by statute and is defined as any and all remuneration for employment paid to, or on behalf of, an employee. This includes not just cash wages but many other types of compensation (such as meals and lodging, commissions, shift differentials, certain nondiscretionary bonuses, etc.)   Nonetheless, the regular rate does not include other types of compensation, such as paid time off, show-up pay where the employee is paid for hours not worked, and discretionary bonuses.


The proposed regulation clarifies that certain compensation need not be included, such as:

¡  Cost of providing wellness programs, onsite specialist treatment, exercise opportunities, employee discounts on retail goods and services, and certain tuition benefits;

¡  Discretionary bonuses as provided in examples;

¡  “Call-back" pay and other similar payments similar when "infrequent and sporadic," but not when such payments are so regular that they are essentially prearranged;

¡  Reimbursed expenses which are not be incurred "solely" for the employer's benefit;

¡  Unused paid leave, meal periods and PTO pay;

¡  Most travel reimbursements

¡  Benefit plans contributions (like accident, legal services)

Settlements.  The DOL has also investigated two Ohio employers for failing to properly pay overtime, improper deductions and recordkeeping violations and recovered $37,658 from a Lebanon employer and $48,698 from a Dayton employer. 

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.