Ohio Court Affirms Employer's Right to Fire HR Employee for Enforcing Non-binding CDC and ODH COVID Guidelines.

Last week, the Ohio Court of Appeals affirmed the Civil Rule 12(B)(6) dismissal of a wrongful discharge claim where the plaintiff had allegedly been fired for telling an employee to stay off work for 10 days per the CDC’s COVID guidelines and because the employer believed that she would report him to the CDC for requiring the employee to return to work despite a positive COVID test. Dudley v. Siler Excavation Services, LLC, 2023-Ohio-666 (3/6/23).  The Court found that the plaintiff failed to cite a sufficiently clear statutory or regulatory source to support her wrongful discharge claim.  The Court found that there was no specific OSHA or Ohio standard applying to this situation after the Supreme Court had concluded that concerns with public health (i.e., a virus) were not specific workplace safety risks.   The concurring opinion also emphasized that public health recommendations, suggestions and guidance were not binding or legal requirements, like statutes and regulations. 

According to the Court’s opinion, the plaintiff was hired into an HR role.  When an employee told her that he tested positive for COVID, she advised him to stay off work for 10 days per the CDC guidelines at the time.  The defendant’s owner, however, told him to report back to work the following Monday.  When the plaintiff then told the owner why the employee “’should not come to work, [he] became upset and told [her] that ‘[i]t's my f---ing company and I'll do what I want.’ [He] then told [her] that ‘he could not trust her to go to the CDC’ and that she needed to pack her things and leave.”  She filed suit for wrongful discharge in violation of public policy.  Because she was an at will employee, the trial court found that she could not sue for wrongful discharge when she failed to identify a sufficiently clear source of public policy which the employer had violated by firing her and dismissed her claim.  The Court of Appeals affirmed. 

Under the common law doctrine of at-will employment, [she] could be fired at the will of [the employer]. "However, if an employee is discharged in contravention of a clear public policy articulated in the Ohio or United States Constitution, federal or state statutes, administrative rules and regulations, or common law, a cause of action for wrongful discharge in violation of public policy may exist as an exception to the general rule."

In order to prove a public policy wrongful discharge claim the employee must allege (and ultimately prove) a number of things, including “That clear public policy existed and was manifested in a state or federal constitution, statute or administrative regulation, or in the common law (known as the clarity element).”  The rule being violated by the employer must be specific; "[a] general reference to workplace safety is insufficient to meet the clarity requirement."  In other words, “an employee cannot simply allege that clear public policy exists because of a "general societal interest," but rather must set forth a specific law evincing public policy.”

In her complaint, the plaintiff referenced to the OSH Act’s general hazard clause and the Ohio Department of Health recommendations that employee quarantine for 10 days.  The Court found that these were insufficient sources of clear public policy or requirements and were more similar to concerns of general, non-specific workplace safety issues found insufficiently clear in prior cases.

the Court emphasized the "crucial distinction" "between occupational risk and risk more generally."  . . .  To be enforceable, workplace safety standards must address occupation-specific risks that employees face at work. The risks must be related in a "causal sense" to the workplace and these risks differ from everyday risks that all people face.  . . . Thus, a rule addressing the risks posed by COVID-19 is a permissible workplace  safety standard under the OSH Act only "[w]here the virus poses a special danger because of the particular features of an employee's job or workplace," such as where the employee is a researcher working with the COVID-19 virus.  . . .

{¶22} In contrast, public health measures addressing universal risks, like "crime, air pollution, or any number of communicable diseases" are not occupational hazards.  . . . Such threats do not have a causal relationship to the workplace but, instead, are "hazards of daily life."  . . . They do not become workplace hazards "simply because most Americans have jobs and face those same risks while on the clock."  . . . Because "permitting OSHA to regulate the hazards of daily life" would "significantly expand OSHA's regulatory authority without clear congressional authorization," the U.S. Supreme Court concluded that the vaccine mandate "extend[ed] beyond the agency's legitimate reach."  . . .

In light of NFIB, we reject [Plaintiff’s] broad interpretation of state and federal law as applying generally to COVID-19 hazards in the workplace. Notably, [she] does not claim that her employment involved an occupational risk more than can be characterized as a hazard of daily life. "COVID-19 can and does spread at home, in schools, during sporting events, and everywhere else that people gather."  . . . There is nothing to suggest COVID-19, or any other communicable disease or virus, poses a special danger because of her job or workplace. COVID-19 is simply a hazard of daily life. The mere citation to Pytlinski and Kulch, along with other OSHA provisions and regulations are insufficient to meet the burden of articulating a clear public policy specific to workplace safety in context of COVID-19. As the plaintiff, [she] has the obligation to identify the specific source of law that supports the public policy she relies upon in his claim. . . .

{¶24} In so holding, we find [Plaintiff’s] reliance on recommendations published as "guidance" from the Ohio Department of Health's "Responsible Restart" is an insufficient basis to support a clear public policy for purposes of meeting the clarity requirement. . . .

{¶25} While the guidance provided by the Ohio Department of Health and the CDC may have called for 10 days of isolation from employees with COVID-19, nothing in the guidance cited by [Plaintiff] required businesses to adopt any particular protocol. Rather, the guidance is comprised of "Universal Recommended Best Practices."  In efforts to slow the spread of COVID-19, the Ohio Department of Health also stated that employers could choose to require masking, social distancing, and other COVID-19 mitigation measures, such as testing.  . . . . In other words, "businesses were and are empowered to make their own choices" with respect to COVID-19 mitigation measures.  . . . Nothing that [Plaintiff] cites mandates any COVID-19 response—each workplace is unique and free to respond as deemed appropriate.

                . . .

 . . .For the reasons listed above, [Plaintiff] has not established that the guidance provided by the CDC or the Ohio Department of Health amounted to a sufficient articulation of public policy. [She] was not terminated for reporting Blake's illness, but upon her disagreement with her employer's COVID-19 response. As a result, we find the federal authorities cited by [Plaintiff], namely 29 U.S.C. § 651, 29 U.S.C. § 654, 29 U.S.C. § 660(c), 29 C.F.R. 1904.35, and 29 C.F.R. 1904.36 do not support her claim for meeting the public policy exception to the employment at-will doctrine.

The plaintiff also cited O.R.C. §§4101.11 and O.R.C. 4101.12 to support her public policy claim.  “The first, O.R.C. §4101.11, is titled "Duty of employer to protect employees and frequenters" and the other O.R.C. §4101.12 is titled "Duty of employer to furnish safe place of employment.”  Ohio courts have divided whether these statutes are sufficiently clear sources to support a public policy claim involving workplace safety.  This Court refused to decide the issue “because the facts in this case do not involve even a questionable occupational safety hazard or workplace safety issue. As discussed,  . . . . "[a] general reference to workplace safety is insufficient to meet the clarity requirement."   Instead, the Court determined that this situation involved a general health risk, not a specific workplace safety risk.

 For reasons stated above, providing a safe workplace does not mean the elimination of every outside illness that could potentially enter the workplace.  . . . Creation of such a broad public policy exception would be unworkable and significantly undercut the doctrine of at-will employment. . . . . As such, any claimed public policy exception must be sufficiently clear and narrowly applied. . . . . [Plaintiff] has failed to identify specific, clear, and applicable statutes, rules or constitutional provisions to support her public policy claim and has, therefore, failed to establish the clarity element.

A concurring opinion emphasized that guidance, suggestions and recommendations issued by public health authorities are not equivalent to binding statutes and regulations.  Among other things, they have not undergone public review, debate and comment like statutes and regulations.   

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.

Sixth Circuit Holds Compliance With Federal Law Governing Federal Contractors Does Not Convert Private Entities Into State Actors

Yesterday, the Sixth Circuit unanimously affirmed the Civil Rule 12(b)(6) dismissal of a Free Exercise constitutional claim brought by former employees against a government contractor based on the COVID vaccine mandate.  Ciraci v. J.M. Smucker Co., No. 22-3462 (6^th Cir. 3-14-23).  The plaintiffs were apparently terminated after their request for a religious exemption from the COVID vaccination mandate imposed on federal contractors was denied by the defendant employer, a federal contractor. “So long as a private company’s actions turn on compliance with a state or federal law, that does not by itself make the company a state actor.” In short, an employer does “not become a state actor merely by complying with a generally applicable law.” Because constitutional claims can only be brought against state actors and not private entities, the claims were properly dismissed.

According to the Court’s opinion, after President Biden ordered employees of federal contractors to be vaccinated, the employer requested – but did not require – its employees to get vaccinated.  A month later, it required its employees to be vaccinated pursuant to the Executive Order, subject to religious and health accommodations.  The plaintiffs sought religious accommodations and were denied.  The opinion makes no mention of other litigation stays on the Executive Order by federal courts or whether the plaintiffs were terminated (other than to note that they all sought reinstatement through the lawsuit).   Instead of filing suit against President Biden or the OFCCP, the employees sued their employer under the U.S. Constitution, not Title VII.

Constitutional claims only apply to government entities.  The Court had no difficulty finding that the company failed to become a government actor simply by selling products to the federal government.

[It] does not perform a traditional, exclusive public function; it has not acted jointly with the government or entwined itself with it; and the government did not compel it to deny anyone an exemption. That [it] acted in compliance with a federal law and that [it] served as a federal contractor—the only facts alleged in the claimants’ complaint—do not by themselves make the company a government actor.

Constitutions simultaneously empower and constrain. At the same time that they authorize various branches of government to exercise sovereign power, they limit that power in lots of ways, including through election requirements, tenure provisions, process-based requirements for making laws, and, most relevant for today, explicit constraints on the exercise of power. The first eight provisions of the Bill of Rights offer the most prominent example of constraints on government. Whether it is the Bill of Rights in general or the First Amendment in particular, these constraints typically protect citizens from the government, not from each other. . . . . It is the rare federal constitutional guarantee—the prohibition on involuntary servitude counts as a glaring exception, see U.S. Const. amend. XIII—that regulates solely private conduct.

               . . .

By way of contrast, many federal statutes regulate private conduct and some even protect certain values that the Free Exercise Clause protects. The claimants, for example, could have separately filed a claim under Title VII of the 1964 Civil Rights Act, . . . . It bars private employers from discriminating against employees based on their faith, among other protected categories. 42 U.S.C. § 2000e-2(a). The claimants, notably, filed complaints with the EEOC under Title VII.  At the same time, the claimants could have sued the federal government, which created the vaccine mandate for federal contractors. But they did not, requiring us to determine whether Smucker’s counts as a government actor.

The Court discussed a number of factors to consider in whether a private company may be considered to be a government actor subject to constitutional limitations.  First, is “the specific conduct of which [a] plaintiff complains” is “fairly attributable” to the government”?  Second, is the defendant entity’s conduct “entwined with” government decisions or fairly attributable to the government based on a close “nexus” between the state and the challenged conduct?  Third, is the defendant company involved with a “traditionally exclusive government function?” Finally, did the government compel the defendant company’s actions? Compliance with a state or federal law does not, by itself, convert a private entity into a government or state actor. 

Clearly, the defendant was not involved in a traditionally exclusive government function, like conducting elections.  “We have never relied on the government to make jelly, peanut butter, and other products in the Smucker’s lineup. . . . Making jam simply is not a government function, whether by tradition or by the most up-to-date notions of what our governments should do.”

That Smucker’s carried out the government’s vaccine mandate in the course of making jam does not change anything. In the first place, the inquiry focuses on the entity’s underlying service, not the government’s regulatory mandate. Otherwise, the inquiry would collapse into a public function each time a regulation covered the topic. In the second place, claimants cannot satisfy even this friendly re-framing of the issue. A vaccine mandate does not count as “a public function traditionally handled just by the State.” . . . .It is hardly unheard of for private companies to make vaccination a condition of employment.

The Court also rejected any argument that the government and defendant employer had become so entwined as to form collective state action. 

Entwinement may arise when a private entity partners with, directs, or is controlled by government officials. Consider some examples. A merchant becomes entwined with the government when it directs a county sheriff to attach a customer’s property. . . . . An athletic association becomes entwined with the government when public schools govern, operate, and fund it. . . . .  And a private store becomes entwined with the government when it conspires with government officials to segregate its facilities or acts in accordance with unofficial, unlawful, and state-enforced customs of segregation. . . . .

Again, nothing of the sort happened here. Smucker’s has not partnered, conspired, or entered into a “joint venture[]” with federal officials. . . . .  It did not deny the claimants’ request for an exemption using federal officials’ assistance. . . . . Nor has it connected itself to joint action with the government in some other cognizable way. Yes, it has contracted with the federal government. But federal contracts by themselves do not create the requisite entwinement.

The Court also rejected the argument that the company had been compelled to deny the plaintiffs’ religious exemption requests.  

In this case, the federal government never required [the employer] to vaccinate the claimants, for the Executive Order did not tell [it] to deny exemptions to anyone. It told [it] to grant religious exemptions to those legally entitled to them, and let [it] decide on its own who qualified. See Guidance at 10. The claimants contend that [it] has exercised its discretion under the Executive Order stingily, not that [it] has been dragooned by the government into denying an exemption.

Constitutional claims may only be brought against government entities or actors (like officials). “When a private company complies with federal law, that does not by itself make the company a government actor. . . . .  Else, every regulated private company would be a public entity, . . . .”

“Numerous private entities in America obtain government licenses, government contracts, or government-granted monopolies. If those facts sufficed to transform a private entity into a state actor, a large swath of private entities in America would suddenly be turned into state actors and be subject to a variety of constitutional constraints on their activities.”  . . . . To be regulated does not make one a regulator. To sell to the government does not make one the government. Not even “extensive regulation” of a private company makes it a “state actor” by itself.

                . . . .

 . . . But compliance with federal law, without more, does not make private firms state actors. Just as Smucker’s acts privately when it requires its suppliers to sell it fit rather than unfit berries, see 21 U.S.C. § 342(a)(3), so too when it requires employees to take vaccines that make them fit for work.

In addition, the plaintiffs could not seek relief with a §1983 claim, which addresses constitutional violations of those acting under color of “state” law.  Here, it was as federal rule, not an Ohio rule, which was at issue.   Further, they were not suing any federal official for violating the U.S. constitution.   The court declined to address whether the plaintiffs were entitled to sue under the constitution for affirmative relief, beyond a mere injunction.

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.

Sixth Circuit Rejects Pregnancy and FMLA Claims and Cat's Paw Theory and Evidence of Alleged Pattern and Practice Discrimination to Show Pretext Despite Temporal Proximity Evidence

Last week, the Sixth Circuit affirmed an employer’s summary judgment on claims of pregnancy discrimination and FMLA interference and retaliation after the plaintiff had been fired in a RIF just 10 days after she disclosed her pregnancy to her new supervisor and a couple of HR employees.  Johnson v. Evolent Health, LLC., No. 22-5574 (6^th Cir. 3/2/23).  The Court agreed that there was no evidence showing that anyone who had been involved in the RIF and decision to terminate her employment knew that she was pregnant.  While temporal proximity is often enough to show causation, “the individuals who decided to terminate [the plaintiff] must still have ‘had actual knowledge of her pregnancy at the time that the adverse employment action was taken’ for a nexus to exist.  “Because [the plaintiff] failed to show that any individual who participated in the RIF process knew she was pregnant at the time of her termination, and because she cannot show that any employee who was aware of her pregnancy showed any animus towards her or influenced the decisions of decision makers [under a cat’s paw theory], she has not established a prima facie case of pregnancy discrimination.” The Court also rejected evidence of alleged pattern and practice discrimination to show pretext because it does not evaluate individual employment decisions.   The Court rejected her FMLA claims on the same grounds.

According to the Court’s opinion, the plaintiff was hired in 2018 and had received only “below expectations” on her first two annual performance evaluations and was about to be placed on a Performance Improvement Plan.  Instead, the company decided to eliminate her department and offered her a transfer to a new team, which she accepted, sometime in 2020.  Her new supervisor reached out to her on February 10, 2020 to let her know that the reorganization would take place in a few weeks.  Meanwhile, on February 5, the Company identified the plaintiff and 67 other employees with poor performance evaluations for a reduction in force.  After analyzing which employees would have the least impact, 33 of them (including the plaintiff) were selected for the RIF on or about February 20.  All of these discussions were held among individuals who did not supervisor or manage the plaintiff.  Rather, her former supervisor was not informed until February 20 and was instructed that he would be the person to inform plaintiff since the reorganization had not yet been completed.  However, a few days earlier – on February 14 – the plaintiff had requested two days off from her new supervisor for doctor’s appointments because she had discovered that she was pregnant with twins.  The supervisor directed the plaintiff to contact Human Resources, but did not tell anyone else about the pregnancy.   The plaintiff then contacted the benefits department, which asked a few questions and put her on a tracking spreadsheet for pregnant employees.  On February 24, different Human Resources employees informed the plaintiff that her role was being eliminated and her employment terminated.  She protested that she had just been transferred and explained that she was pregnant.   No one else performing her duties was hired until the following year.  The plaintiff then filed suit for pregnancy discrimination and FMLA interference and retaliation.

The Court closely examined who had been involved in the RIF and termination decision (which had been finalized on February 21) and who had been informed of the plaintiff’s pregnancy on February 14.  It agreed that there was no evidence that anyone involved in the RIF decisions had been informed of the plaintiff’s pregnancy.  Rather, the plaintiff had only informed three people and none of those people share that information with anyone else, let alone anyone who was involved in the RIF decisions. 

Temporal proximity between the announcement of an employee’s pregnancy and that employee’s termination can sufficiently establish a nexus between the events. . . . . Even so, the individuals who decided to terminate [the plaintiff] must still have “had actual knowledge of her pregnancy at the time that the adverse employment action was taken” for a nexus to exist.

The Court rejected the plaintiff’s argument that other HR employees had access to the shared email box or tracking spreadsheet because they denied ever reviewing the information or learning about her pregnancy before her lawsuit.   The plaintiff could only speculate that other HR employees had actual knowledge and no actual evidence.

The Court also rejected the cat’s paw theory because she did not allege – let alone prove – that the individuals with knowledge of her pregnancy had any discriminatory animus whicvh they then used to influence others into taking discriminatory actions.

“In the employment discrimination context, ‘cat’s paw’ refers to a situation in which a biased subordinate, who lacks decisionmaking power, uses the formal decisionmaker as a dupe in a deliberate scheme to trigger a discriminatory employment action.” . . . . But the “predicate to cat’s paw” is a demonstration of discriminatory animus: that “by relying on this discriminatory information flow, the ultimate decisionmakers ‘acted as the conduit of the supervisor's prejudice––his cat's paw.’”  . . . [The plaintiff] does not allege that any subordinate employee, aware of her pregnancy or not, showed any discriminatory animus towards [her].

In any event, the plaintiff also could not show that the employer’s explanation for her termination was pretext for discrimination.   The plaintiff attempted to challenge the termination decision – based on her documented poor performance – because ultimately only half of the employee initially selected on February 6 were actually terminated and no extra supporting comments were offered to support her termination.  However, it was undisputed that she had poor performance scores and she was not the only terminated employee without extra supporting comments. 

The Court also rejected her argument that the employer’s explanation had shifted from position elimination to poor performance.  However, the Court did not find it inconsistent to find that her position had been selected for elimination based on her poor performance.   While the termination script never mentioned her poor performance, it never gave any explanation for how or why she had been selected for termination.

The Court also rejected the plaintiff’s argument that pretext was shown because approximately 10% of pregnant employees were terminated by the Company.

pattern or practice evidence is unavailable to assess an individual plaintiff’s discrimination claim.  . . . Pattern-or-practice evidence is generally “inappropriate as a vehicle for proving discrimination in an individual case” because it does not evaluate individual hiring decisions. . . . It can support, however, an “otherwise-viable individual claim for disparate treatment under the McDonnell Douglas framework,” although a plaintiff must still satisfy the McDonnell Douglas framework to prevail. Id. [The plaintiff] is unable to separately satisfy the McDonnell Douglas framework. Thus, this evidence does not raise a triable issue of fact nor does it allow [her] claims to survive summary judgment.

Similarly, the Court again rejected the temporal proximity of her pregnancy announcement and the termination decision as evidence of pretext:

The temporal proximity of [her] disclosure of her pregnancy and her termination may be indirect evidence of pretext but cannot alone support pretext here. . . . . Even when the timing appears “suspect,” it “must be accompanied by other, independent evidence of pretext for [the plaintiff] to succeed.”

The Court likewise rejected her FMLA arguments because she could not show pretext for the employer’s decision for the reasons discussed above and because at least one other employee had been terminated without requesting FMLA leave.

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.

NLRB Prohibits Broad Confidentiality Clauses in Severance Agreements

On Tuesday, the National Labor Relations Board held that a hospital employer violated the NLRA in 2020 by offering laid off non-supervisory employees a separation agreement which, among other things, prohibited them from disparaging or making statements that harm the reputation of the employer.  McLaren Macomb, Case 07–CA– 263041 (2-21-23).  The Board is returning to a legal standard where “unlawful provisions in a severance agreement proffered to employees have a reasonable tendency to interfere with, restrain, or coerce the exercise of employee rights under Section 7 of the Act.”  More broadly, “an employer violates Section 8(a)(1) of the Act when it proffers a severance agreement with provisions that would restrict employees’ exercise of their NLRA rights.”  The Board expanded its analysis by including within this prohibition clauses which require employees to keep confidential the terms of the separation agreement where the only exceptions were for tax advisors, attorneys, spouses and when compelled by law.  “A severance agreement is unlawful if it precludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment.”  This is not a case where the confidentiality clause also carved out statutory rights, such as reporting to or cooperating with government agencies. 

According to the Board’s opinion, the employer temporarily laid off 11 non-supervisory/management  employees when the government restricted medical services during the COVID pandemic.  Without first informing or negotiating with the union, the employer later made those layoffs permanent and offered severance agreements which provided severance pay in return for a release of claims, etc. and promises to not disparage the hospital and to keep confidential the terms of the agreements:

6.  Confidentiality Agreement. The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person, other than spouse, or as necessary to professional advisors for the purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.

7. Non-Disclosure. At all times hereafter, the Employee promises and agrees not to disclose information, knowledge or materials of a confidential, privileged, or proprietary nature of which the Employee has or had knowledge of, or involvement with, by reason of the Employee’s employment. At all times hereafter, the Employee agrees not to make statements to Employer’s employees or to the general public which could disparage or harm the image of Employer, its parent and affiliated entities and their officers, directors, employees, agents and representatives.

The Agreements also made the employees liable for injunctive relief, attorneys’ fees and damages if they violated the provisions.  The Board had no difficulty finding the employer violated the NLRA by failing to first inform or negotiate with the union about the layoffs and severance agreements.  However, the Board also found that the agreements themselves violated the NLRA.

Relying almost exclusively on prior Board precedent that employees may not waive their Section 7 rights and cases which addressed whether employers could interfere with employees’ rights to report allegations to the Board or to assist other employees in asserting their Section 7 rights, then Board then asserts that the confidentiality provision would prevent employees from reporting the employer’s alleged misconduct to the NLRB:

The provision broadly prohibits the subject employee from disclosing the terms of the agreement “to any third person.” . . . The employee is thus precluded from disclosing even the existence of an unlawful provision contained in the agreement. This proscription would reasonably tend to coerce the employee from filing an unfair labor practice charge or assisting a Board investigation into the Respondent’s use of the severance agreement, including the nondisparagement provision. Such a broad surrender of Section 7 rights contravenes established public policy that all persons with knowledge of unfair labor practices should be free from coercion in cooperating with the Board.  The confidentiality provision has an impermissible chilling tendency on the Section 7 rights of all employees because it bars the subject employee from providing information to the Board concerning the Respondent’s unlawful interference with other employees’ statutory rights.

                . . .

The confidentiality provision would also prohibit the subject employee from discussing the terms of the severance agreement with his former coworkers who could find themselves in a similar predicament facing the decision whether to accept a severance agreement. In this manner, the confidentiality provision impairs the rights of the subject employee’s former coworkers to call upon him for support in comparable circumstances. Additionally encompassed by the confidentiality provision is discussion with the Union concerning the terms of the agreement, or such discussion with a union representing employees where the subject employee may gain subsequent employment, or alternatively seek to participate in organizing, or discussion with future co-workers.  A severance agreement is unlawful if it precludes an employee from assisting coworkers with workplace issues concerning their employer, and from communicating with others, including a union, and the Board, about his employment. Id. Conditioning the benefits under a severance agreement on the forfeiture of statutory rights plainly has a reasonable tendency to interfere with, restrain, or coerce the exercise of those rights. unless it is narrowly tailored to respect the range of those rights. (bolding added for emphasis).

There is no discussion in the case whether the agreements also provided that the confidentiality provision would not apply to prevent the employee from reporting or cooperating with any law enforcement or government agency, including, for instance, the NLRA or EEOC or SEC, etc.  Rather, the Board notes that: “The only exceptions are disclosure to spouse, for obtaining legal counsel or tax advice, or if compelled to do so by a court or administrative agency.”

Section 7 rights are not limited to discussions with coworkers, as they do not depend on the existence of an employment relationship between the employee and the employer, and the Board has repeatedly affirmed that such rights extend to former employees. It is further long-established that Section 7 protections extend to employee efforts to improve terms and conditions of employment or otherwise improve their lot as employees through channels outside the immediate employee - employer relationship . . . These channels include administrative, judicial, legislative, and political forums,  newspapers, the media, social media, and communications to the public that are part of and related to an ongoing labor dispute. Accordingly, Section 7 affords protection for employees who engage in communications with a wide range of third parties in circumstances where the communication is related to an ongoing labor dispute and when the communication is not so disloyal, reckless, or maliciously untrue to lose the Act's protection.

                 . . .

             . . . Where an agreement unlawfully conditions receipt of severance benefits on the forfeiture of statutory rights, the mere proffer of the agreement itself violates the Act, because it has a reasonable tendency to interfere with or restrain the prospective exercise of Section 7 rights, both by the separating employee and those who remain employed. Whether the employee accepts the agreement is immaterial. . . .

The nondisparagement provision on its face substantially interferes with employees’ Section 7 rights. Public statements by employees about the workplace are central to the exercise of employee rights under the Act. Yet the broad provision at issue here prohibits the employee from making any “statements to [the] Employer’s employees or to the general public which could disparage or harm the image of [the] Employer”—including, it would seem, any statement asserting that the Respondent had violated the Act (as by, for example, proffering a settlement agreement with unlawful provisions). This far-reaching proscription—which is not even limited to matters regarding past employment with the Respondent . . .

The Board also ordered the employer to “compensate the employees for any other direct or foreseeable pecuniary harms incurred as a result of the unlawful furloughs, including reasonable search-for-work and interim employment expenses, if any, regard[1]less of whether these expenses exceed interim earnings. Compensation for these harms shall be calculated separately from taxable net backpay . . .”

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 Rejects FLSA Exemption for Highly Compensated Employee Paid Based on Day Rate Instead of Weekly or Annual Salary

This morning, a divided (6-3) Supreme Court vacated an employer’s summary judgment on an FLSA overtime compensation claim brought by a Highly Compensated Employee because the employee’s daily pay rate did not satisfy the salary basis test for the highly paid executive “white collar” exemption in the FLSA regulations.  Helix Energy Solutions Group, Inc. v. Hewitt, No. 21-984 (U.S. 2-22-23).  The Court rejected the employer’s FLSA exemption argument even though the employee was always paid more than $455/week in which he performed any work, was paid more than $200K/year and typically worked 84 hours/week on an oil rig.   The Court held that even though his daily rate was far in excess of $455 and he was highly compensated, the employee was not paid on a salary basis and, therefore was not entitled to the FLSA overtime pay exemption, where he was paid based on the number of days he worked.   In short, the salary basis test applies to both highly compensated and lower income employees. 

According to the Court’s opinion, the plaintiff supervised various aspects of the operations of an oil rig and supervised more than 11 workers. He typically, but not invariably, worked 12 hours a day, seven days a week—so 84 hours a week—during a 28-day “hitch.” He then had 28 days off before reporting back to the vessel.  He was paid every two weeks based on a day rate of over $950/day.  After the plaintiff employee sued for overtime compensation, the District Court granted the employer summary judgment on the grounds that the plaintiff was a Highly Compensated Executive exempt from the FLSA’s overtime compensation requirements.   The en banc Fifth Circuit reversed on the grounds that he was not paid on a salary basis when his compensation was based on a day rate.

The salary basis test has been part of the FLSA white collar exemptions since the 1940’s.   “The basic idea is that . . . an employee can be a bona fide executive only if he receives a “predetermined and fixed salary”—one that does not vary with the precise amount of time he works.”  The other two parts of the test involve a duties analysis and whether the salary exceeds a certain threshold (i.e., over $455/week).   In 2015, the DOL relaxed the duties test for Highly Compensated Employees (who are paid more than $100K/year), but retained the salary basis test and salary threshold.  The salary basis test described in the FLSA regulations at 29 C.F.R. §541.602(a) provides in relevant part that:

An employee will be considered to be paid on a ‘salary basis’ . . . if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. Subject to [certain exceptions], an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked . . .

 . . . .

Another provision, §541.604(b), focuses on workers whose compensation is “computed on an hourly, a daily or a shift basis,” rather than a weekly or less frequent one. That section states that an employer may base an employee’s pay on an hourly, daily, or shift rate without “violating the salary basis requirement” or “losing the [bona fide executive] exemption” so long as two conditions are met. First, the employer must “also” guarantee the employee at least $455 each week (the minimum salary level) “regardless of the number of hours, days or shifts worked.” Ibid. And second, that promised amount must bear a “reasonable relationship” to the “amount actually earned” in a typical week— more specifically, must be “roughly equivalent to the employee’s usual earnings at the assigned hourly, daily or shift rate for the employee’s normal scheduled workweek.” Ibid. Those conditions create a compensation system functioning much like a true salary—a steady stream of pay, which the employer cannot much vary and the employee may thus rely on week after week. See 69 Fed. Reg. 22184 (explaining that §604(b)’s conditions ensure that daily or hourly pay is “[]consistent with the salary basis concept”).

The Court concluded that paying an employee based on a daily rate does not satisfy the salary basis test which requires a rate based on at least one week:

That section applies solely to employees paid by the week (or longer); it is not met when an employer pays an employee by the day, as [the employer] paid [the plaintiff]. Daily-rate workers, of whatever income level, are paid on a salary basis only through the test set out in §604(b) (which, again, [the employer’s] payment scheme did not satisfy).

The employer had argued that it met the salary basis test for HCE employees because the plaintiff always received more than $455/each week whenever he performed work (because his minimum day rate was far in excess of $455/week). 

[A] “basis” of payment typically refers to the unit or method for calculating pay, not the frequency of its distribution. Most simply put, an employee paid on an hourly basis is paid by the hour, an employee paid on a daily basis is paid by the day, and an employee paid on a weekly basis is paid by the week—irrespective of when or how often his employer actually doles out the money. The inclusion of the word “receives” in §602(a) does not change that usual meaning.

                . . .

a worker can be paid on a salary basis even if he additionally gets non-salary compensation, like a bonus. But the employee still must be paid a salary. And [the plaintiff] was not. He received a high day rate (higher than lots of salaries); but he did not get a salary (of $963 or any other amount) because his weekly take-home pay could be as little as $963 or as much as $13,482, depending on how many days he worked.

The Court also rejected the employer’s argument that the daily rate permitted for exempt employees under §641.602 did not apply to HCE.

For §602(a) cannot change meanings depending on whether it applies to the general rule or the HCE rule. It applies to both, and must mean the same thing in either context. So even supposing that the HCE rule incorporates only §602(a), and not §604(b), the two provisions still must be read to complement each other.

             . . . The HCE rule refers to the salary-basis (and salary-level) requirement in the same way that the general rule does.

The Court also rejected the argument that its holding would result in a “windfall” for highly compensated employees and grave liability for employers.

It is in fact [the employer’s] position that would create disturbing consequences, by depriving even workers at the heartland of the FLSA’s protection—those paid less than $100,000 annually—of overtime pay. The problem arises because, as explained above, §602(a) applies not only to the HCE rule but also to the general rule, exempting lower-earning employees as bona fide executives. See supra, at 3–4, 14. And §602(a) must mean the same thing as applied to both rules; not even [the employer] argues otherwise. So on [its] view, any daily-rate employee who meets the general rule’s three-part duties test; gets a paycheck no more frequently than every week; and receives at least $455 per week (about $24,000 per year) is excluded from the FLSA’s overtime protections. . . . Some nurses working on a per-day or per-shift basis are likely to meet the general rule’s duties test; and their employers would assure them $455 per week in a heartbeat if doing so eliminated the need to pay overtime. And nurses, in the Government’s view, are not alone: They “are just one of the many examples” of workers paid less than $100,000 a year who would, if Helix prevailed, lose their entitlement to overtime compensation.

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.