Mandatory Waiver of Employee Class Actions Up for Supreme Court Review

Employers will soon have much more clarity on how far they can go to require employees to sign binding arbitration agreements that prohibit employees from participating in class action lawsuits against their employers.

Earlier this month, the U.S. Supreme Court agreed to review a set of appellate court decisions that have split on the issue of whether class action (and collective action) waivers in employment agreement arbitration clauses violate the National Labor Relations Act (“NLRA”). The cases are captioned National Labor Relations Board v. Murphy Oil USA, Epic Systems Corp. v. Lewis, and Ernst & Young LLP v. Morris.

Most courts over the past decade have ruled that the Federal Arbitration Act, and supporting decisions by the Supreme Court, gave employers great leeway to mandate that employees agree to arbitrate all disputes as a way of avoiding the expense and uncertainty of court litigation.  The Federal Arbitration Act provides that written contracts to arbitrate a dispute generally shall be “valid, irrevocable, and enforceable,” except when there are grounds “at law or in equity” to revoke such an agreement.

Following the Federal Arbitration Act’s support of arbitration of employment disputes, many employers expanded their employees’ binding arbitration clauses to include provisions that prohibit participation in any class or collective action lawsuits.  This has been an effective tool for employers to fight back against the recent boom in class action overtime and discrimination litigation, which, in some cases, has mushroomed into lawsuits involving thousands of employees and tens of millions of dollars in damages and settlement payments.  Encouraged by the success of such provisions, many employers expanded the prohibitions even further, to preclude any type of “collective” action in employment disputes, requiring instead that employees must arbitrate their disputes on an individual basis only.

Such class action and collective action waivers have been approved by the Supreme Court in non-employment contexts, such as consumer goods and services contracts, in which the purchasers of goods or services agree not to participate in class or collective actions against the seller, but, instead, agree to arbitrate their individual claims.

The employment agreements, however, will be reviewed by the Supreme Court against a more complicated legal backdrop: the NLRA has provided since 1935 that employees have the right to form unions, bargain collectively, and, importantly here, “to engage in other concerted activities for the purpose of . . . mutual aid or protection.”  These “Section 7 rights” of  employees to engage in “concerted activities” have long been interpreted by the Supreme Court to nullify contracts that require employees to renounce such rights.

So, the basic question before the Supreme Court now is whether binding arbitration clauses that include a waiver of the right to bring a class action or collective action violate the NLRA’s mandate that employees be free to engage in “concerted activities” with other employees.  In the Epic Systems decision, the Seventh Circuit Court of Appeals held that the provision did impermissibly violate the NLRA, noting that the Supreme Court has previously ruled that the use of administrative and judicial forums is a protected concerted activity, and that other courts have held that  participation in a collective or class action lawsuit is a protected concerted activity.  The Ninth Circuit Court of Appeals agreed with this argument in the Ernst & Young case.  The Fifth Circuit disagreed in the Murphy Oil USA decision, and an earlier D.R. Horton, Inc. v. NLRB ruling.

From our review, there certainly is no question that an employer can require its employees to arbitrate their disputes, pursuant to the Federal Arbitration Act and prior Supreme Court rulings.  At issue now is the second part of the contract clauses at issue, which requires that employees only arbitrate their claims individually, and not through any collective or class action process.

It is difficult and dangerous to predict what the Supreme Court will do with these cases, especially with the likelihood that the ninth Justice to decide the matter soon will be appointed by newly elected President Trump, who is undeniably pro-business.

As a result, employers that have such mandatory arbitration/class action waiver clauses in their employment agreements must understand that those provisions may soon be nullified or limited, requiring new agreements in the future.  In addition, employers contemplating imposing such restrictions on employees in the next few months should consider whether they want to take the risk that the Supreme Court will uphold the clauses under the Federal Arbitration Act, or consider more limited provisions that do not run afoul of the NLRA.

We will update readers once the Supreme Court renders a decision – expected later this year – but, in the meantime, we offer these options to consider:

  • Instead of barring any type of collective action, employers should consider clauses that require all collective actions to be brought in arbitration.  This would avoid conflicts with the NLRA and, in our experience, greatly reduce the risk and liability of large class actions or collective actions by employees, as most plaintiffs’ lawyers disfavor arbitration.
  • Require that each employee participating in an arbitration, individually or collectively, must voluntarily “opt in” to such a dispute with a written certification, and that state and federal procedural rules as to class and collective actions and notice shall not apply.  This is a procedural restriction, not a substantive one, and thus has a much greater chance of surviving court scrutiny, even under the Epic Systems analysis. Such a clause will protect an employer against state and federal class action rules and written notice and disclosure requirements, which often add significant expense to class action cases and spawn extensive expansion of a single employee’s litigation to hundreds or thousands of employees who otherwise would not voluntarily participate.
  • Provide a savings clause in employment agreements stating that if any portion of the restriction is deemed unlawful, then the remainder of the agreement shall remain enforceable.
  • Instruct your employment counsel to schedule a review of such clauses in your employment agreements once the Supreme Court has issued its decision.  If you don’t have such clauses, that will be the perfect time to add them, with Supreme Court guidance hot off the presses.  If you do have them, that will also be the perfect time to decide whether revision is needed.

Michael Homans is a Labor & Employment attorney and Chair of the Litigation Department at Flaster Greenberg PC. For more employment law updates, including news and links to important information pertaining to legal developments that may affect your business, subscribe to Michael’s blog, or follow him on Twitter @EmployLawUpdate.

Worshiping both God and the Almighty Dollar

Last month we told you about corporations being able to sue if they were victims of race discrimination.  This month, we learned of a case out of Michigan holding that corporations can claim “sincere religious beliefs” that justify discriminating against transgender employees.

In EEOC v. R.G. & G.R. Harris Funeral Home, a federal judge ruled that the Religious Freedom Restoration Act (RFRA) empowers a for-profit corporation to terminate an employee for transitioning from a man into a woman. According to the court, the employer demonstrated that its religious belief that gender is “an immutable God-given gift” would be “substantially burden[ed],” if the funeral home were required to employ a transgender worker. The district court’s ruling extended the reasoning of the U.S. Supreme Court’s decision, Burwell v. Hobby Lobby Stores, Inc. (2014), holding that a privately held corporation can be a protected “person” under RFRA.

The Michigan decision is unprecedented and raises difficult questions as to whose civil rights are more important — those of the employee protected from discrimination based on sexual stereotypes, or those of the employer, claiming religious beliefs.  What if a corporation claims a “sincerely held religious belief” that disfavors disabled persons, older workers, or racial minorities?  Would the court then allow discrimination against employees in those categories?

We shall see. In any event, privately held companies with religiously active owners can be expected to assert more RFRA rights and religious defenses in the future.  For a related discussion of state religious freedom laws at work, please see the attached American Bar Association paper that I co-presented at the Employment Rights and Responsibilities Committee meeting this spring.

Michael Homans is a Labor & Employment attorney and Chair of the Litigation Department at Flaster Greenberg PC. For more employment law updates, including news and links to important information pertaining to legal developments that may affect your business, subscribe to Michael’s blog, or follow him on Twitter @EmployLawUpdate.

Caught on Camera – Zippers, Buttons and an Invasion of Restroom Privacy

While the Update rarely has the opportunity to stoop to the level of bathroom humor, a New Jersey case is flush with facts that beg for a good airing out.

The Kushner Companies hired High Tech Installations to put surveillance cameras in two women’s rooms and two men’s rooms in their building in Fair Lawn, N.J., to deter vandalism.  Later, when employees found out that they were being secretly recorded (monitors were set up in a closet), 36 of them raised a stink – suing for invasion of privacy.

Company management claimed the cameras did not violate employee privacy because they filmed “common areas” in the bathrooms, and not employees inside the toilet stalls.  The employees countered that the captured images showed them zipping zippers, buttoning up, and adjusting garments as they emerged from toilet stalls.

Apparently the New Jersey Superior Court (Appellate Division) agreed that the company had been caught with its pants down. The court reversed an earlier dismissal, and the parties subsequently settled for $1,000,000. We understand that the paperwork is finished on this case.

Michael Homans is a Labor & Employment attorney and Chair of the Litigation Department at Flaster Greenberg PC. For more employment law updates, including news and links to important information pertaining to legal developments that may affect your business, subscribe to Michael’s blog, or follow him on Twitter @EmployLawUpdate.

On The Move – New Labor & Employment Law Update for the Transportation Sector

On The Move provides streamlined quarterly updates on legal developments in labor and employment in the ground transportation and logistics industries.  If you would like to learn more about any of the items reported, including copies of the court rulings, please let me know.

Click here to read the Fall 2016 edition of On The Move.

Union Whacked with $5.3 Million Verdict for Campaign Lies


Unions have certain free speech rights, just like workers and management.  But a case decided this month is a startling lesson that the limits of such free speech include false and malicious allegations designed to harm the targeted employer.

A Texas jury walloped the Service Employees International Union (SEIU) with a $5.3 million verdict for spreading false and harmful statements about the company, after the business refused to recognize the union without a secret ballot election.  Lawyers for the company said the SEIU used “an intimidating campaign of extortion to try to run the janitorial service out of business,” and targeted the company’s clients with “faked tales of labor complaints,” costing the company millions of dollars in business.  The law recognizes that type of conduct as defamation and tortious interference with contract.  And when that happens, the speaker may be liable for the damages caused.  We assume the SEIU will appeal the ruling.

Michael Homans is a Labor & Employment attorney and Chair of the Litigation Department at Flaster Greenberg PC. For more employment law updates, including news and links to important information pertaining to legal developments that may affect your business, subscribe to Michael’s blog, or follow him on Twitter @EmployLawUpdate.

Labor and Employment Lessons from the Clinton Campaign Trail

Although the Update rarely delves into politics, we practice “equal time” and fairness when we do. Last month, Donald Trump was on the hot seat so this month we bring you the Hillary Clinton edition.  

Hillary Clinton, Pretext, and “18 Million Cracks” 

Like her Republican rival, Democrat Hillary Clinton’s campaign for President provides healthy fodder for discussion of workplace legal issues.

The Scent of the Email Trail

Candidate Clinton (it seems sexist to call her “Secretary Clinton”) has been dogged by the drip-drip-drip leak of her emails, public and private, deleted and non-deleted, relating to her time as Secretary of State.  Her experience provides key reminders for employers and employees:

  • Emails are often the best source of the facts in a legal dispute – be careful what you write, and avoid mixing work and personal emails on one account.
  • Deleting emails rarely accomplishes much, other than to suggest that he who deletes has something to hide (see “Pretext and cover-up” below).  Assume that anything you delete – good or bad – can be recovered by forensic computer examiners.  Automated deletions of emails through a computerized system do not create these pretext concerns.
  • Honor the security and confidentiality requirements of your employer – failing to do so, as alleged with Clinton, suggests you are up to no good, or “extremely careless,” as the FBI put it.
  • If you store electronic data at home relating to work, understand that you could be ordered to produce the computer and data in any legal dispute relating to work.  Do you really want your private data disclosed to your adversary?
  • Destruction or disclosure of employer data may be criminal, in some circumstances.

Pretext and Cover-Up

Richard Nixon learned the hard way that sometimes the cover-up is worse than the alleged crime.  Clinton also is being attacked for not earlier disclosing her home server and the extent of her email deletions.  More recently, she has been criticized for reporting that her health was “fine,” when in fact she was suffering from pneumonia.

Lies and obfuscation to cover up bad facts (a.k.a. “pretext”) not only jeopardize a witness’s credibility, they also may be sufficient in an employment lawsuit to infer discrimination.  As the U.S. Supreme Court noted in Reeves v. Sanderson Plumbing Products, Inc., 530 U.S.133, 147 (2000):

In appropriate circumstances, the trier of fact can reasonably infer from the falsity of the explanation that the employer is dissembling to cover up a discriminatory purpose. Such an inference is consistent with the general principle of evidence law that the factfinder is entitled to consider a party’s dishonesty about a material fact as ‘affirmative evidence of guilt’ . . .”

So, a liar in an employment case can do much worse than be disbelieved – he or she can create liability for discrimination where it might not have existed otherwise.

Avoid trouble; tell the truth – or at least talk to your lawyer before talking about a subject that could land you in court.

Knocking Up Against That ‘Glass Ceiling’

Hillary Clinton’s most famous comment from her losing 2008 campaign probably was her concession that, “Although we weren’t able to shatter that highest, hardest glass ceiling this time, thanks to you, it’s got about 18 million cracks in it.”

The theory of a “glass ceiling,” above which women cannot rise at certain companies and institutions, first arose as social commentary in 1986 in the Wall Street Journal.  It remains an oft-cited metaphor today in employment law, although it is not recognized as a distinct legal cause of action apart from sex discrimination.  In August, the U.S. Court of Appeals for the Fourth Circuit ruled in favor of plaintiffs in a “glass ceiling” claim against a major international consulting firm, in Calobrisi v. Booz Allen Hamilton, Inc.  The Court of Appeals ruled that the trial judge should have examined evidence relating to seven other middle-aged women who claimed, like the plaintiff, that they suffered sex discrimination due to a virtual glass ceiling at the firm, directed by its “all-male Leadership Team.”  To determine whether such “me too” evidence was admissible, the trial court should have examined whether the other older women were similarly situated, including closeness in time, decision-makers, and other treatment, the appellate court held.

Similarly, in a case that strikes closer to home for lawyers, Karen Campbell filed a class action suit recently seeking $100 million in damages against the New York law firm of Chadbourne & Parke, claiming it is run by an “all-male dictatorship” and has “a culture of discrimination against female attorneys.”  Campbell’s lawyers alleged in her “glass ceiling” claim that even though she generated more than $5 million in business over two years, males who generated less were paid more.  The law firm has strongly contested the lawsuit as baseless and “riddled with falsehoods.”

Regardless of whether these plaintiffs “crack” the ceiling, employers should be concerned about any patterns of gender or racial discrepancy in their executive suites that could suggest to disgruntled women and minorities an invisible barrier to their promotion to the top.  A serious review or audit may be in order to avoid such lawsuits and erase any vestiges of the “good old boy” system.  However, be forewarned: electing a female President will not clear up the problem – just as electing President Obama did not herald the end of race discrimination.  Rather, such an election would simply shatter one barrier – while perhaps shining light on a million others.

She’s too old to be President, right?

Finally, the fact that more questions have been raised about Clinton’s age, 68, than that of Donald Trump, 70, reminds us that age bias and age-plus-sex bias are alive and well in America.

While anything goes in a presidential race, employers and managers are prohibited from discriminating against employees and candidates for employment based on age – even if they are over 65 years old.  So, the next time you hear someone say that Hillary is “too old” or “too frail,” or has “slowed down” or “just doesn’t have it anymore,” remember that such thinking may be playing out at work – merely because the employee is “up there” in age.  Rather than mindlessly doze into such stereotypes, managers and human resources professionals should guard against unconscious or societal age bias.  Make employment decisions based on verifiable and specific facts, not subjective, improvable characterizations.

Michael Homans is a Labor & Employment attorney and Chair of the Litigation Department at Flaster Greenberg PC. For more employment law updates, including news and links to important information pertaining to legal developments that may affect your business, subscribe to Michael’s blog, or follow him on Twitter @EmployLawUpdate.

The Overtime Rule Clock is Ticking Down

As we previously reported, the newly released Final Rule updating overtime regulations under the Fair Labor Standards Act takes effect December 1, 2016.

Among other changes, these new regulations nearly double the minimum salary for “white collar” exempt executive, administrative and professional workers to $913 per week ($47,476 annually for a full-year worker).  Here are a few key points to keep in mind as your company prepares for the new rules to kick in:

  • Now is the time to reevaluate your overtime exposure. The pending application of the new overtime regulations should prompt each employer to reexamine whether it is properly applying the overtime laws – old and new.  If changes are needed, this is the time to make them, coordinating with the December 1 effective date of the Final Rule.
  • Advance preparation is essential to anticipate and make any adjustments to your workforce to limit the costs of complying with the law.  Taking action to reorganize the workforce, change employees from salary to hourly, limit overtime, and redefine jobs to meet the exemptions can all dramatically reduce overtime risk, cost, and exposure.
  • Job descriptions should be reviewed and revised to fit the job being performed and any exemption being claimed. Job descriptions are often important evidence that the Department of Labor and courts examine to determine whether an exemption applies.

Michael Homans is a Labor & Employment attorney and Chair of the Litigation Department at Flaster Greenberg PC. For more employment law updates, including news and links to important information pertaining to legal developments that may affect your business, subscribe to Michael’s blog, or follow him on Twitter @EmployLawUpdate.

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