Divided Supreme Court Upholds Arbitrator’s Contractual Authority to Determine Arbitrability of Arbitration Agreement

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

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

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

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

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

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

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

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

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

Supreme Court Invalidates Decisions of Two-Member NLRB

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

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

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

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

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

. . . .

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

. . . .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ohio Appeals Court Holds Community Support Specialist Is Not Exempt from Overtime as An Administrator or Professional

Last week, the Court of Appeals for Cuyahoga County reversed summary judgment in favor of a non-profit community mental health center employer on a claim for unpaid overtime brought by a Community Support Specialist (CSS) formerly employed by the center. White v. Murtis M. Taylor Multi-Serv. Ctr., 2010-Ohio-2602. The trial court had found that the plaintiff was exempt from overtime under both the Fair Labor Standards Act and Ohio Revised Code § 4111.03 law as an administrative and/or learned professional employee. Both courts agreed that Ohio law follows the same standards as the FLSA in evaluating an employee's exempt status and that the burden was on the employer to justify by clear and affirmative evidence that the employee was exempt from overtime pay when working more than 40 hours in a week. However, the appellate court concluded that his job duties did not fit within the administrative exemption; he did not exercise enough independent judgment or discretion to fit within either exemption; and his job did not require a specialized academic degree as required to fit within the learned professional exemption.

According to the Court's opinion, the plaintiff filed suit in January 2008 -- just over three years after he left the non-profit employer -- seeking compensatory and punitive damages. While the employer contended that the plaintiff's job required him to perform managerial duties, the Court found that the employer failed to present any evidence to support its argument. The plaintiff denied that he possessed any authority over other employees. The Court then examined the regulatory examples of duties at 29 CFR §541.201(b) which typically would be performed by an administratively exempt employee and concluded that they indicated policy-making responsibilities which were not reflected in the plaintiff's job. Moreover, the employer failed to present evidence showing that the plaintiff's job required the exercise of judgment and independent discretion over matters of significance.

The exercise of independent judgment requires "the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered. . . .[The plaintiff] simply assisted his clients in learning and completing everyday tasks, such as grocery shopping and locating community resources. Clearly, these are not matters of significance as contemplated by the FLSA. [The plaintiff] did not exercise independent judgment in the general business operations of [the non-profit employer]. He did not supervise anyone, nor did he perform any administrative functions such as human resources procurement or management decisions.

The Court rejected evidence that he was not required to routinely seek his supervisor's approval and that he sometimes worked unsupervised because " he was still required to submit all of his notes and case plans to [his supervisor] for approval." While most of his case plans were approved, his supervisor still impliedly rejected "some" of them.

Similarly, the Court concluded that the plaintiff did not fit within the learned professional exemption:

The first element [the employer] must satisfy to establish that [the plaintiff] is a learned professional, is that [the plaintiff] performs work that requires advanced knowledge. The work must either require advanced knowledge, or be of an artistic or creative nature. Specifically, the work is as follows:

"[P]redominately intellectual in character, and which includes work requiring the consistent exercise of discretion and judgment, as distinguished from performance of routine mental, manual, mechanical, or physical work. An employee who performs work requiring advanced knowledge generally uses the advanced knowledge to analyze, interpret, or make deductions from varying facts or circumstances. Advanced knowledge cannot be attained at the high school level." . . .

29 CFR § 301(b). "While a degree is not always required, a degree is the best prima facie evidence that an employee is a learned professional." However, the plaintiff's job description did not require any advanced knowledge or education. Rather, it only required:

some course work in social work, counseling, psychology,or related disciplines beyond high school. Bachelor's degree in Social Work, Counseling, Psychology, or related field preferred. At least one year of experience in a mental health organization with a background in substance abuse[,] abuse treatment and/or prevention essential.

"Thus, the evidence showed that the employer did not require a specialized academic degree or experience. " Indeed, the job did not require the applicant to possess any degree.

The Court found that the trial court had erred by placing "significant weight on the actual education [a bachelors degree in research biology and theology] and training [that the plaintiff] has obtained, when the proper inquiry is the education that is actually required of the position." Although the plaintiff possessed experience and training "in chemical dependency and addiction counseling, he was instructed not to provide clients with counseling; therefore, such training was similarly irrelevant to his position as a CSS 1. Courts have concluded that highly trained individuals [ like pilots] who do not possess an academic degree are not learned professionals."

Moreover, the plaintiff testified that "his work included accompanying clients to appointments and referring them to community resources" and "he did not provide treatment to his clients." His duties also

consisted of teaching daily living skills to his clients. He accompanied them on legal and medical appointments, and assisted them in completing everyday tasks such as managing their finances and grocery shopping. Such duties clearly do not fall into the category of science and learning, as these duties do not require any specialized knowledge.

His employment offer letter also "clearly indicated that [his] position as a CSS 1 was a level 1, primary support position." The Court concluded that "[s]uch a vague description does not merit the type of specialized knowledge required of a learned professional."

Finally, the Court examined an opinion letter from the Department of Labor which indicated that social worker positions which require a master's degree in social work are exempt while case workers who were not required to have a specific degree were not. "The Ohio Supreme Court has previously recognized that opinion letters are persuasive authority in interpreting federal 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 Enforces Employee’s Waiver of USERRA Claims

This morning, the federal Sixth Circuit Court of Appeals affirmed summary judgment in favor of an employer in a claim brought under USERRA on the grounds that the plaintiff had signed a waiver of all claims, including those based on "veteran status" in his separation agreement. Wysocki v. IBM, No. 09-5161 (6^th Cir. 6/16/10). The plaintiff alleged that he had been terminated on account of his military service in Afghanistan. In particular, he claimed that IBM refused to provide him training to update his job skills when he returned to work and then terminated him without cause. The Court found that his USERRA claim was waived in his separation agreement even though it did not specifically refer to USERRA.

IBM responded to the complaint with a motion to dismiss, which the court converted to a summary judgment motion. The plaintiff argued that USERRA claims were not waivable under 38 USC § 4302(b). The Court reviewed the statutory text at 38 U.S.C. § 4302, which establishes that:

(a) Nothing in this chapter shall supersede, nullify or diminish any Federal or State law (including any local law or ordinance), contract, agreement, policy, plan, practice, or other matter that establishes a right or benefit that is more beneficial to, or is in addition to, a right or benefit provided for such person in this chapter.

(b) This chapter supersedes any State law (including any local law or ordinance), contract, agreement, policy, plan, practice, or other matter that reduces, limits, or eliminates in any manner any right or benefit provided by this chapter, including the establishment of additional prerequisites to the exercise of any such right or the receipt of any such benefit.

. . . .

While § 4302(b) supercedes any law, plan or agreement that "reduces, limits, or eliminates in any manner any right or benefit provided by this chapter," its application is limited by § 4302(a), which exempts any law, plan or agreement that is "more beneficial to, or is in addition to, a right or benefit provided for such person in this chapter" from the operation of § 4302(b). Therefore, the critical inquiry is whether the Release is exempted from the operation of § 4302(b) by § 4302(a), because the rights it provided to [the plaintiff] were more beneficial than the rights that he waived.

While some authorities and courts have contended that USERRA rights may not be waived, the Sixth Circuit cited legislative history to the contrary. "Clearly, the ability to waive their USERRA rights

without unnecessary court interference, if they believe that the consideration they will receive for waiving those rights is more beneficial than pursuing their rights through the

courts, is both valuable and beneficial to veterans." It also concluded that veterans should be able to decide for themselves whether the consideration they are receiving for a release is more valuable than their USERRA rights. Therefore, it found that waivers were not conceptually barred by the USERRA statute and could be enforced, as was the plaintiff's waiver enforced in this case.

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.

Ohio Supreme Court Gives Employers Another Reason to Ban Moonlighting

There are several reasons why employers ban employees from holding second jobs. Some do it because the second job robs the employee of rest and vitality and creates potential scheduling conflicts. Others do it because the employee may decide to take FMLA from their "hard" job while continuing to work their "easy" job. Others do it to discourage union activities or "salters" from taking a job in order to organize their co-workers. However, a significant reason to prohibit employees from taking a second job is that the employer could become liable for paying the wages for that second job if the employee gets injured at your workplace and is unable to work either job. This is not a new concept, but it is a rule that the Ohio Supreme Court confirmed this week. State ex rel. FedEx Ground Package Sys., Inc. v. Indus. Comm., Slip Opinion No. 2010-Ohio- 2451. In that decision, the Court found that the Industrial Commission did not err in including the claimant's wages from his second job in his average weekly wage for purposes of his temporary total disability claim.

According to the Court decision, the claimant "began working part-time for appellant FedEx Ground Package System, Inc., in 2004. [He] generally made between $190 and $250 per week. In April 2006, [he] took a second job with Integrated Pest Control that paid considerably more than the job at FedEx. [He] was also operating a side business, Affordable Animal Removal, concurrently with the other two jobs." After he was injured at work, FedEx, a self-insured employer, set his average weekly wage and full weekly wage based solely on the wages he earned at FedEx. The Claimant appealed on the grounds that his wages from his second, higher-paying job also should have been considered. The district hearing officer agreed that special circumstances applied based on Ohio Revised Code § 4123.61, which provides in relevant part that:

The average weekly wage of an injured employee at the time of the injury or at the time disability due to the occupational disease begins is the basis upon which to compute benefits.

In cases of temporary total disability the compensation for the first twelve weeks for which compensation is payable shall be based on the full weekly wage of the claimant at the time of the injury or at the time of the disability due to occupational disease begins; when a factory, mine, or other place of employment is working short time in order to divide work among the employees, the bureau of workers' compensation shall take that fact into consideration when determining the wage for the first twelve weeks of temporary total disability.

Compensation for all further temporary total disability shall be based as provided for permanent disability claims.

. . . . .

In cases where there are special circumstances under which the average weekly wage cannot justly be determined by applying this section, the administrator of workers' compensation, in determining the average weekly wage in such cases, shall use such method as will enable the administrator to do substantial justice to the claimants, provided that the administrator shall not recalculate the claimant's average weekly wage for awards for permanent total disability solely for the reason that the claimant continued working and the claimant's wages increased following the injury.

The decision was affirmed on appeal and the employer filed suit. The Industrial Commission argued that the regular AWW benefit included wages from a second job even without special circumstances. In addition to the unfairness, FedEx argued "that inclusion of wages from other, concurrent employment discourages claimants from continuing to work at the second job if they are medically able." The Court disagreed.

"R.C. 4123.61 refers to wages earned in the year prior to injury without qualification or exclusion." Indeed, R.C. 4123.61 . . . specifically states that the AWW includes wages for the year preceding injury without qualification or exclusion." Moreover, the Court did not believe that it was unfair because "if a claimant is so severely hurt at one job as to disable him or her from both, it is not unfair to compensate the individual for that cumulative loss. Second, the inclusion of two sets of wages was not considered unfair by the General Assembly when it promulgated R.C. 4123.61." Finally, the Court found the Industrial Commission's calculation of benefits to be within its expertise and discretion.

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.

Persistence Pays Off in Cuyahoga County Age Discrimination Claim When Only the Plaintiff Was Fired for Failing to Meet Sales Goals

Last week, the Cuyahoga County Court of Appeals reversed summary judgment in favor of an employer in an age discrimination claim when the plaintiff's evidence showed that he was fired in 2003 for alleged poor sales performance (in not meeting his sales goals for five consecutive years) even though the employer maintained the employment of younger salespersons whose sales quota were similar or worse, he was replaced by newly hired younger salespeople and the employer had taken away hi four largest accounts and reassigned them to younger salespeople before claiming his performance was unacceptable. Pattison v. W.W. Grainger Inc., 2010-Ohio-2484. The case bounced up and down the appellate chain on various procedural motions involving whether there was a final appealable order and timely appeal. However, when the merits of the trial court's summary judgment decision finally reached the court of appeals, it reversed the decision.

The Court of Appeals found two errors by the trial court. First, the trial court erred in finding that the plaintiff failed to satisfy his prima facie burden of proving that he was qualified for his position when it relied on the evidence asserted by the employer to justify his termination. The prima facie burden is not supposed to be difficult and the plaintiff had been employed in his sales position for more than 25 years before his termination. Former customers also spoke highly of him and several customers decreased the amount of their business with the employer after he was terminated. Thus, he was clearly "qualified" for purposes of his prima facie case.

Second, the Court of Appeals found that the plaintiff produced more than sufficient evidence of pretext to justify sending the case to a jury to resolve the factual disputes. To raise a genuine issue of fact as to pretext and defeat a summary judgment motion under this position, [a plaintiff] must show one of the following: "(1) that the proffered reason had no basis in fact, (2) that the proffered reason did not actually motivate the action, or (3) that the proffered reason was insufficient to motivate the action." First, the plaintiff produced evidence that he had been fired for failing to meet sales goals when at least five younger salespeople had similarly failed to meet the same goals and had not been terminated. Indeed, he showed that he had received performance warnings and reprimands from his new, younger, supervisor when similarly situated younger employees had similarly failed to meet the same sales goals, but were not reprimanded. On the contrary, one of the younger salespeople had been promoted even though his sales volume was less than plaintiff's volume and others were simply transferred. "Given that [the employer] transferred or promoted significantly younger TM's, who were not meeting sales goals, while terminating [the plaintiff], who was by no means the least productive, raises an inference that [the employer's] stated reason for terminating [the plaintiff] was pretextual." In fact, the court found that the employer's stated reason for his termination was false. It was also arbitrary in that the decision of when to fire a salesperson based on poor performance was left to the discretion of the manager instead of a formula.

Second, the plaintiff showed that his accounts were distributed among younger salespeople (two of whom were newly hired and one was hired four months earlier), which was evidence of setting up the plaintiff to fail and discriminatory animus. Third, he showed that in the year before his termination only 1 of the 13 territory managers (his position) met his sales goal for the prior year and that person had just been hired and did not have any performance goals. Indeed, the supervisor testified that the territory had failed to meet sales goals in five of the last seven years. Finally, the plaintiff alleged that the supervisor had forced out other, older salespeople like himself.

In light of the plaintiff's factual evidence, the court remanded the case back to the trial court for a jury trial.

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: Retired Employee Can Assert ERISA Claim Based on False Information Provided in Written Benefit Estimate

Last week, the federal Sixth Circuit Court of Appeals in Cincinnati issued a decision recognizing for the first time that a plaintiff can assert an estoppel claim against a pension plan under ERISA when the plaintiff relied to his detriment upon a written and certified estimate of his monthly retirement benefit in making his decision to retire and then was then told two years later that his actual benefits were substantially lower than the prior estimate, that his future benefits would be reduced accordingly and that he was requested to repay approximately $11,000 to the retirement plan. Bloemker v. Laborers Local 265 Pension Fund, No. 09-3536 (6^th Cir. 5/19/10). However, the Court affirmed the dismissal of the plaintiff's statutory and breach of contract claims.

According to the Court's opinion, the plaintiff's 2005 annual statement of status estimated that he "would be entitled to to a monthly benefit pension of

$2,666.99." Interested, he contacted the third-party administrator of his pension plan "to discuss the possibility of early retirement. He received a letter from her

stating that if he were to retire on April 1, 2005, he would be eligible for "approximately $2,564.00 per month, single life annuity, payable for your lifetime only."

Based on this, the plaintiff applied for early retirement benefits on February 10, 2005" and on March 1, 2005, he received a Benefit Election Form which was stamped by the TPA, stated that he would receive $2,339.47 per month for his life, and contained a certification stating:

Based on our records of your hours worked under the Plan and the contributions which have been made on your behalf, we hereby certify that you are entitled to receive the retirement benefit specified above, and that the amount shown for any optional forms of payment are equivalent to your basic benefit.

The plaintiff retired and in 2006 received a letter from the TPA indicating that a computer error caused it to miscalculate his early retirement benefits, that he was entitled to $500/month less than previously indicated and that he needed to repay the approximately $11,000 he had been overpaid to date. The plaintiff filed suit after exhausting his administrative remedies under the plan. In his suit, he alleged that the Plan and the TPA should be equitably estopped from denying him the larger retirement benefit on account of their material misstatements on which he relied to his detriment. He also alleged that the Plan and TPA breached a written contract to him in the application for benefits and that the TPA breached its statutory fiduciary duties to him. The trial court dismissed his claims

In the past, the Sixth Circuit has – unlike other circuit courts -- been reluctant to recognize estoppels claims against pension plans because estoppel "cannot be applied to vary

the terms of the unambiguous plan documents." In addition,

pension benefits are typically paid out of funds to which both employers and employees contribute. Contributions and pay-outs are determined by actuarial assumptions reflected in the terms of the plan. If the effective terms of the plan may be altered by transactions between officers of the plan and individual plan participants or discrete groups of them, the rights and legitimate expectations of third parties to retirement income may be prejudiced.

The Court remains unwilling to accept estoppels claims based on oral or verbal statements by low level employees which modify the written terms of the plan. "This policy concern is

greatly lessened when the representations at issue are made in writing, and, particularly here, where the representations constituted formal certifications."

Under Sixth Circuit precedent,

the elements of an equitable estoppel claim are: 1) conduct or language amounting to a representation of material fact; 2) awareness of the true facts by the party to be estopped; 3) an intention on the part of the party to be estopped that the representation be acted on, or conduct toward the party asserting the estoppel such that the latter has a right to believe that the former's conduct is so intended; 4) unawareness of the true facts by the party asserting the estoppel; and 5) detrimental and justifiable reliance by the party asserting estoppel on the representation.

The Court found these elements to be satisfied by the plaintiff's allegations in this case. It found the defendants' alleged gross negligence sufficient to constitute constructive fraud. Moreover, while it generally has found that a plaintiff can not prove justifiable reliance on a misrepresentation if the misstatement contradicted unambiguous plan documents, in this case, the plaintiff alleged that "it would have been impossible for him to determine his correct pension benefit given the complexity of the actuarial calculations and his lack of knowledge about the relevant actuarial assumptions."

We hold that a plaintiff can invoke equitable estoppel in the case of unambiguous pension plan provisions where the plaintiff can demonstrate the traditional elements of estoppel, including that the defendant engaged in intended deception or such gross negligence as to amount to constructive fraud, plus (1) a written representation; (2) plan provisions which, although unambiguous, did not allow for individual calculation of benefits; and (3) extraordinary circumstances in which the balance of equities strongly favors the application of estoppel.

The Court affirmed the dismissal of his fiduciary duty claims and breach of contract claims.

Section 1132(a)(1)(B) of ERISA provides that a plan beneficiary may bring suit "to recover benefits due to him under the terms of his plan." 29 U.S.C. § 1132(a)(1)(B). As discussed above, the written ERISA plan documents govern the rights and benefits of ERISA plan beneficiaries. . . . . Where a retirement plan creates benefits in excess of those established by ERISA, however, those rights may be enforceable in contract under federal common law. . . . Furthermore, when additional documents operate to modify or amend the plan, a beneficiary can rely on those modifications to determine his benefits. . . . .

However, the Benefit Election form submitted by the plaintiff "did not purport to be an amendment or a modification to the Plan. Nor did it purport to create a separate contract for benefits in addition to those provided by the Plan. Instead, it simply claimed to provide the actuarially certified benefit [the plaintiff] was entitled to, based on the Plan." Thus, there was no basis for asserting a claim for breach of contract.

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

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

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

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

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

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

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

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

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

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

No further remand was deemed necessary.

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

New FLSA Child Labor Regulations Become Effective in July 2010.

Last week, the Wage and Hour Division of the federal Department of Labor released revised regulations governing the use of child labor in the United States. The new rules govern the employment of children under the age of 18, become effective on July 19, 2010 and are the first significant revision of the rules in 30 years. Among other things, the new rules will permit older teenagers to operate table-top mixers (like those used in most home kitchens), but otherwise expands the list of prohibited equipment (which now, for instance, prohibit the use of weed-trimmers and most power tools). With respect to younger teenagers, “[i]f a task is not specifically permitted, it is prohibited.” In general, while the new regulations attempt to prohibit younger teenagers from engaging in dangerous activities and prohibits all peddling, street sales and door-to-door sales (other than for charitable causes, like the Girl Scouts and PTOs), it also specifically permits jobs in all other industries covered the FLSA (other than mining, manufacturing and specifically prohibited activities like laundry, waste disposal, mass mailings, dry cleaning and house painting, etc.), including government, food service, financial, insurance and other white collar establishments.

The revised regulations now permit 15 year old minors to be lifeguards at pools and amusement parks if they are certified by the Red Cross. The new regulations also permit younger teenagers to engage in intellectual or artistically creative work like tutoring, writing software, etc. under certain conditions. Finally, the traditional working hours restrictions still apply based on the schedule of the local public school district, regardless if the particular youth attends a private school with a different schedule or is home schooled. Moreover, the revised regulations clarify that the 3-hour restriction on school days includes Fridays.

The Department of Labor has preared a fact sheet on the current rule, hazardous occupations side-by-side comparison of new final rule and current rule, and Reg. 3 side-by-side comparison of new rule and current rule.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sixth Circuit: Requiring 100% Fit for Duty Precludes Judgment as a Matter of Law for Employer on Perceived Disability Claim

This morning, the Sixth Circuit Court of Appeals in Cincinnati reversed a judgment entered as a matter of law on a perceived disability claim brought under the ADA by a female UPS driver on the grounds that the employer's insistence that she be 100% fit for duty within 30 days of returning to work reflected its judgment that she was physically incapable of performing a wide range of jobs under its light duty program and because it questioned the sincerity of the employer's explanation about the 30-day requirement. Watts v. UPS, No. 08-3779 (6^th Cir. 2010). However, the Court affirmed the dismissal of the plaintiff's sex discrimination claim when the trial court ordered a new trial (where the jury found in favor of the employer) after the jury in the first trial awarded the plaintiff over $200,000 in damages on the sex discrimination claim, but its answers to special interrogatories were contradictory.

According to the Court's opinion, the plaintiff was the only female driver in that county between 1999 and 2004. However, after a work-related injury in 2000, she was off work until 2003. Although there was contradictory evidence, the plaintiff asserted that she was released to return to work with restrictions in Fall 2002, but the employer refused to permit her to return until she was 100% fit for duty within 30 days of reinstatement. It also suggested that she pursue a reasonable accommodation on account of a disability. The employer contended that the seniority provisions of its collective bargaining agreement only permitted light duty assignments of up to 30 days before the assignment became permanent and, thus, employees could only work light duty for 30 days. The plaintiff produced evidence that this 30 day requirement had not been imposed on certain male employees and was not described in the employer's written descriptions of the light duty program. The plaintiff filed a grievance, but it was denied. When the employer refused to reinstate her, she filed Charges with the EEOC that she was being discriminated against on account of her sex and disability. She ultimately filed a lawsuit in federal court, but the trial court entered judgment as a matter of law in favor of the employer on the perceived disability discrimination claim and the jury was not permitted to consider it because the trial court concluded that the plaintiff only proved that the employer considered her temporarily impaired. The jury awarded over $200K in damages to the plaintiff on her sex discrimination claim and answered a special jury interrogatory that she was treated differently than male employees in the light duty program, but denied in other special jury interrogatories that she had proven sex discrimination or pretext in how she was treated. The trial court then ordered a new trial and the second jury ruled in favor of the employer on the plaintiff's sex discrimination claim. The plaintiff then appealed to the Sixth Circuit.

The Sixth Circuit had no difficulty finding sufficient evidence to support the plaintiff's perceived disability discrimination claim under the ADA even though her claim pre-dated the ADA Amendments Act which broadened the scope of the ADA and made alleging such claims easier:

When a defendant flatly bars a plaintiff from working at any job at the defendant's company, that is generally sufficient proof that the employer regards the plaintiff as disabled in the major life activity of working so as to preclude the defendant being awarded judgment as a matter of law.

The Court relied on its prior decisions in Wysong v. Dow Chemical Co., 503 F.3d 441 (6th Cir. 2007) and Henderson v. Ardco, Inc., 247 F.3d 645 (6th Cir. 2001) (where the plant manager told the plaintiff: " You know what company policy is . . . you have to be 100 percent to work here") where the employer refused to permit the plaintiffs to return to work in any capacity or position with any physical or medical restrictions because they were not 100% fit following an injury or illness. Because the employer's light duty program encompassed a wide variety of jobs ("including answering phones, filing, gassing up and washing vehicles,"), its refusal to permit the plaintiff to participate reflected a judgment that she was physically incapable of performing a wide variety of jobs.

In Henderson, this court interpreted an injured employee being told that she had to be "100%" to work there as tending to indicate that the defendant regarded her as disabled in a wide spectrum of jobs sufficient to defeat the defendant's motion for summary judgment. See Henderson, 247 F.3d at 654. Similarly, in Wysong this court interpreted an employer's statement that the plaintiff could not return to work until she had received "a [medical] release to work without restrictions" as evidence that the defendant "perceived Wysong as being unable to work anywhere at the plant, and thus, unable to perform the same broad class of work anywhere else." See Wysong, 503 F.3d at 453. The Kaufmann/Germann statements here – that there was no work for Watts unless she could present a full medical release – present a situation similar to the full-medical-release requirement in Wysong and the 100% rule in Henderson. The jury could have concluded that the statement indicated that UPS perceived Watts as being unable to perform the broad class of jobs available at the UPS Hamilton facility.

Moreover, the Court questioned the legitimacy of the employer's explanation that an employee had to be 100% fit because of the bargaining agreement's seniority provisions because the 30-day rule did not flow from the CBA, was not applied to certain male employees and was not described in the employer's written descriptions of the light duty program. Thus, it concluded that there was evidence that the employer's explanation for not placing the plaintiff in the light duty program was pretexual and a mere disguise for unlawful discrimination.

[Editor's Note: In January 2011, the EEOC announced a $3.2M settlement with Supervalu arising out of the termination of employees following medical leaves of absence under a policy that employees could only return to work if they were medically certified to be 100% fit for duty].

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: Disability Leave and Receipt of Social Security Benefits Do Not Destroy ADEA Claim Following a RIF.

This morning, the Sixth Circuit Court of Appeals in Cincinnati affirmed the dismissal on summary judgment of an age discrimination claim brought by a salesperson who took disability leave shortly after being notified that his position was being eliminated in a reduction in force. Johnson v. Franklin Farmers Cooperative, No. 09-5483 (6^th Cir. 2010). However, it did so for different reasons than the trial court – which had found that the plaintiff failed to show that the employer's explanation was a mere pretext for discrimination. Rather, consistent with similar claims, the Court ultimately agreed that the plaintiff could not show that he had been replaced, or selected for the RIF based on his age, when his duties were reassigned among the remaining employees. However, before reaching this unsurprising conclusion, the Court also rejected several arguments raised by the employer, including: (1) that the plaintiff did not suffer an adverse employment action when he took short-term and long-term disability leave after being notified that his position was being eliminated and (2) that his disability leave and receipt of social security benefits rendered him unqualified for his position. Nonetheless, the Court rejected the trial court's conclusion that the plaintiff had shown that he had been replaced by a younger employee when it found indisputable evidence of a RIF and imposed a higher burden of proof on the plaintiff to show that his age had been a factor in his selection for the RIF. Thus, it affirmed summary judgment for the employer.

The Court rejected the employer's argument that the plaintiff could not show as part of his prima facie case that he suffered an adverse employment action when he applied for short-term disability benefits (and then received LTD and social security benefits) shortly after being notified on September 5 that his position was to be eliminated in the RIF and before the position was actually eliminated on September 30. The employer denied the plaintiff's request that he be permitted to continue working for another 19 months (when he would qualify for full retirement benefits) and the plaintiff testified that he would have continued working if his position had not been eliminated (regardless of the content of his disability benefit applications). "Viewed in a light most favorable to [the plaintiff], the evidence supports [the plaintiff's] assertion that he involuntarily ceased working two weeks before [the employer] would eliminate his job, and that [the employer] brought about a significant change in his employment status. The prima facie showing is not intended to be onerous." Instead, such an argument would be better evaluated, if at all, at the pretext stage of analysis.

The Court also rejected the employer's argument that the plaintiff could not prove as part of his prima facie case that he was qualified for the salesperson job when he had submitted applications stating that he was completely unable to work. However, the Court found that the plaintiff had adequately explained the apparent inconsistency by, among other things, affidavits from co-workers, the employer's General Manager and former customers about how well he performed his job before he began his disability leave.

The Court rejected the trial court's conclusion that the plaintiff had been replaced by a younger employee. According to the Court's opinion, the employer selected three employees for the September 30 RIF because of a budget deficit, but it rehired one of them in November and delayed the termination of the other until he qualified for retirement on December 30. In addition, the General Manager admitted that some of his business decisions were influenced by the existence of the pending litigation because he did not want to have to admit that he actually needed an outside salesperson, like the plaintiff (thus, implying that he was merely waiting for the conclusion of the litigation to formally name the younger employee as the employer's outside salesperson). The plaintiff's duties had been distributed among two younger employees. The Sixth Circuit found that the employer had legitimately conducted a RIF despite the above facts because the retired employee was not replaced and the rehired employee was brought back to replace another departing employee. Thus, the employer's headcount following December 30 was three less than it had been when it announced the RIF on September 5.

The Court also found that the plaintiff's duties had been assumed by two younger employees, who continued to perform their existing job duties. " An employee is not replaced for purposes of the fourth element of a prima facie case of discrimination when another employee is assigned to perform the plaintiff's duties in addition to other duties, or when the work is redistributed among other existing employees already performing related work."

Because the plaintiff's termination took place in a RIF, the Court imposed a higher burden of proof on him to show that he was impermissibly selected for the RIF on account of his age:

Where . . . there is a reduction in force, a plaintiff must either show that age was a factor in eliminating his position, or, where some employees are shifted to other positions, that he was qualified for another position, he was not given a new position, and that the decision not to place him in a new position was motivated by plaintiff's age. . . . . The purpose of the additional evidence requirement is to ensure, in reduction of force cases, that the plaintiff has presented evidence to show that there is a chance the reduction in force is not the reason for the termination.

Ultimately, the Court concluded that the plaintiff could not meet the higher burden of proof which applies in a RIF. The plaintiff admittedly did not have direct evidence of age discrimination and could not show an inference of age discrimination simply from the fact that two younger employees were retained instead of him. Finally, the General Manager's admission that his business and promotional decisions were influenced by the fact of the litigation was insufficient to carry the plaintiff's burden of proof.

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.

Ohio Court of Appeals Shows that Violating a Non-Compete and Court Order Can Be More Trouble Than It’s Worth

In my experience, there are few industries where employers are more aggressive in enforcing non-competition agreements than in than beauty salons. This week, the Hamilton County Court of Appeals addressed another case involving a hair stylist who just could not say no to his former clients for the non-competition period and ended up paying a steep price for breaching his former employment agreement. Mitchells Salon & Day Spa, Inc. v. Bustle, 2010-Ohio-1880 (4/30/10).

According to the Court’s opinion, the defendant stylist began working for the employer salon soon after graduating from cosmetology school and before he had developed any clients. He signed an employment agreement with a non-competition clause barring him for one year from providing any hair styling, hair care or related services to any client which he had served at the employer at any point during his employment. After working for the employer salon for more than 12 years, he quit in August 2007 and opened his own salon. The employer became suspicious when most of the stylist’s former clients ceased patronizing the employer’s salon and filed suit in January 2008 to enforce the non-competition clause. The trial court entered a TRO in February 2008 prohibiting him from providing any beauty services to the employer’s former clients. The parties then negotiated an injunction which prohibited the stylist from providing for one year – from the date of the February 2008 injunction –any hair styling, hair care or related services to any of the employer’s clients which the stylist had ever served. He also agreed to send each of his clients a letter prepared by the salon informing them that he could no longer serve them and recommending another stylist currently employed by the salon.

The employer salon even offered these clients a discount or free service if they returned. However, it was apparently not enough to shake their loyalty to the errant hair stylist. (I can certainly relate to this). When most of the former clients did not return, the employer hired a private investigator in September 2008 which apparently confirmed that the hair stylist was continuing to routinely serve former clients of the employer. Accordingly, in December 2008 the employer filed a motion to hold him in contempt of the agreed injunction. During the April 2009 contempt hearing, the stylist admitted that he had violated the non-compete and unintentionally violated the TRO and agreed injunction because he had trouble saying “no” to his former clients. He produced a list of 180 clients whom he had served since August 2007 which had been former clients of his employer, but argued that 63 of them were procured personally by him and not by any advertising or promotional campaign by the employer. In all, he claimed that he had made a profit of approximately $37K by serving former clients of his employer in violation of the non-compete, the TRO and the injunction. In response, the employer produced evidence of 39 additional clients which were not on the stylist’s list which the PI had found on a paper calendar in the stylist’s trash.

The employer wanted to be paid for the entire lost profit of $74.1K caused by the stylist’s resignation (i.e., by taking the entire profit he had generated during his last year of employment less the cost of his commission and products) and did not limit itself to the profit lost by the 219 clients served in violation of the non-compete agreement. It also asked to be reimbursed for the $52.6K cost of the PI firm hired to uncover and prove his duplicity and $15.8K in legal fees. The trial court found the stylist in contempt, ordered the stylist to reimburse his former employer only $139K (of the requested $142.5K) and again ordered him to cease serving the clients of his former employer for one year from the date of the contempt order – i.e., until April 2010.

On appeal, the Court affirmed the contempt order. It rejected the stylist’s objections to the salon’s calculation of lost profits on the grounds that he was not provided with the underlying original documents. There is no discussion of the fact that the salon could not have lost all of the profit from his resignation when it still continued to serve and profit from some of his former clients. There is also no discussion of the fact that many – if not most -- of the disputed customers would likely refuse to return to the salon under any circumstances after learning that the salon was more interested in its profits than the condition and style of their hair. However, the court found the salon’s estimate was reasonable in light of the fact that the stylist’s list of the employer’s former clients was materially incomplete in leaving off 39 names.

The court also rejected the stylist’s objection to being required to both pay $139K and cease serving the employer’s former clients for a year. A double penalty is not something that would have been enforced if it had merely been an obligation of the contract. He felt that this was a double punishment and he should only have to pay or cease serving the clients; not both. However, the court of appeals saw it differently:

This is exactly what the trial court did here. The trial court required [the stylist] to disgorge his profits and then ordered [the stylist] to comply with the noncompete clause, which was incorporated into the trial court's agreed entry, for the period of time that [the stylist] had disobeyed the TRO and the agreed entry. These sanctions essentially put the parties in the position they would have been in if [the stylist] had abided by his original agreement for a period of one year not to serve clients to whom he had provided hairstyling services while employed at [the salon]. The extension of the agreed entry for an additional 11 months compensates [the salon] for its future loss of profits. The whole point of the noncompete clause was to give [the salon] the opportunity to retain a client base that it had built through its investment of time, money, and training. The extension gives [the salon] the benefit of its bargain. Accordingly, we cannot say that the trial court abused its discretion in ordering [the stylist] to disgorge his profits and in extending the agreed entry for an additional 11 months. The fourth assignment of error is overruled.

Thus, if the stylist had complied with his non-compete, he would have been free to serve anyone and everyone beginning in August 2008 and would not have owed anything to his former employer. Instead, by continuing to violate the non-compete after agreeing to an injunction, he was barred from serving his former clients until April 2010 and required to pay his former employer over $139K. While it is true that an employer cannot have both an injunction and damages as a matter of contract law, the court refused to permit him to benefit from violating both his contract and a court order. Therefore, he was ordered to comply with his contract, to disgorge any profit he made from violating the contract and court order and to compensate the employer for having to enforce the agreement.

Interestingly, one of the appellate judges indicated that he had sympathy for the stylist’s double penalty argument and would have preferred that the employer elect between the two remedies, but could not undo the injunction period once it had already been completed. In other words, the injunction expired before the court of appeals issued its decision.

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.