A Review of Key Cases and New Laws Affecting Employers
Ninth Circuit Confirms That Prior Salary Alone Can Justify Pay Disparities between Genders
Decision: On April 27, 2017, a unanimous Ninth Circuit Court of Appeals panel in Aileen Rizo v. Jim Yovino, No. 16-15372, vacated a district court’s ruling that prior salary alone cannot be used as a “factor other than sex” sufficient to establish an affirmative defense to a claim of pay inequity under the federal Equal Pay Act (“Act”). In Rizo, the plaintiff, a math consultant, sued the defendant county office of education (“County”) for, among other things, a violation of the Act after she learned that the County paid her less money than it paid to her male colleagues. The County conceded that it did in fact pay the plaintiff less than male math consultants but asserted as an affirmative defense that the disparity was a result of a factor other than sex, namely that math consultants’ salaries were based on the compensation they received from their previous employers. The district court denied the County’s summary judgment motion based on this affirmative defense, holding that prior salary alone can never qualify as a “factor other than sex” because “a pay structure based exclusively on prior wages is so inherently fraught with the risk that it will perpetuate a discriminatory wage disparity between men and women that it cannot stand even if motivated by a legitimate non-discriminatory business purpose.”
The Ninth Circuit disagreed, holding that under Kouba v. Allstate Ins. Co., 691 F.2d 873, 876-77 (9th Cir. 1982), prior salary alone can in fact be a “factor other than sex” under the Act if the defendant can show that its use of prior salary was reasonable and effectuated a business policy. The panel remanded the case to the district court for evaluation of the County’s asserted business reasons for its use of prior salary alone to determine math consultants’ compensation and determination of whether the County used prior salary reasonably in light of those stated purposes as well as its other practices.
Impact: This decision deepens the existing circuit split on the issue of whether prior salary alone is a “factor other than sex” for purposes of an affirmative defense to claims made under the Act. The Fifth, Tenth and Eleventh Circuits have ruled differently than the Ninth Circuit on this issue, holding that the Act bars employers from using salary history as the sole justification for a pay disparity. The Seventh Circuit has held that salary history could be a “factor other than sex,” but it criticized the Kouba court for directing judges to weigh employers’ business justifications for policies that set compensation based on employees’ prior salaries. Given this circuit split, it is important for employers to stay abreast of the developments under Act, particularly if the Supreme Court decides to review the issue.
At the same time, state and local laws that specifically limit or prohibit employers’ use of salary history in compensation decisions have proliferated, further underscoring the changing landscape concerning how pay equity is measured. For example, California state law bars private employers from using salary history as the only justification for a pay disparity. Additionally, Massachusetts, New York City, the District of Columbia and Philadelphia are among a number of jurisdictions that have laws barring employers from asking job applicants about their salary history, aiming to increase pay equity.
DC Circuit Affirms NLRB’s Ruling That Employer’s Restrictive Covenants Violate NLRA
Decision: In Minteq Int’l Inc. v. NLRB, No. 16-1276 (D.C. Cir. Apr. 28, 2017), a panel of the U.S. Court of Appeals for the DC Circuit held that an employer’s use of a noncompetition and nonsolicitation agreement was a mandatory subject of collective bargaining and, further, that the agreement violated employees’ right to engage in concerted activity under the National Labor Relations Act (NLRA). In 2012, Minteq, a unionized employer, implemented a noncompete and confidentiality agreement for all new employees. The agreement prohibited employees from working for competitors, soliciting customers or suppliers to terminate their relationships with Minteq, or disclosing confidential information. The agreement also stated that it was not intended to affect the employees’ at-will employment status. Following threatened enforcement of the noncompete against a former employee, the union filed an unfair labor practice charge claiming that (i) Minteq violated the NLRA by unilaterally implementing the agreement and (ii) the terms of the noncompete interfered with employees’ rights to engage in concerted activity for their mutual aid and protection under NLRA Section 7. The NLRB found for the union on both claims, and Minteq appealed.
The DC Circuit held that Minteq had violated the NLRA by unilaterally implementing the noncompete agreement. It reasoned that because the agreement “effectively imposed a cost in lost economic opportunities on employees” and so had “a clear and direct economic impact on employees,” it was a mandatory subject of collective bargaining and could not be unilaterally imposed.
The DC Circuit further held that the terms of the noncompete violated Section 8(a)(1) of the NLRA, which prohibits employment practices “that would reasonably tend to chill employees in the exercise of their statutory rights.” Specifically, the court held that the nonsolicitation language would interfere with the employees’ right to encourage boycotts in support of labor disputes. Further, the at-will language was held to contradict the collective bargaining agreement’s requirement that nonprobationary employees could be discharged or disciplined only for “just cause” and so interfered with the employees’ statutory rights. According to the DC Circuit, even if Minteq had properly bargained with the union over the noncompete, these clauses would have violated the NLRA.
Impact: Minteq suggests that unionized employers cannot unilaterally impose noncompete agreements or other restrictive covenants without going through the collective bargaining process. More broadly, however, Minteq represents a potential threat to all employers, as Section 8(a)(1) of the NLRA applies to employers generally, not just those with unionized workforces. At its broadest, Minteq might indicate that traditionally “boilerplate” language in noncompete agreements violates federal labor laws. To the extent that Minteq represents a trend, employers should consider reviewing noncompete agreements (and other restrictive covenant agreements) to modify language that could be construed to inadvertently limit protected activities.
Florida & Texas Enact Laws Classifying Rideshare Drivers as Independent Contractors
Legislation: On May 9, 2017, Florida Governor Rick Scott signed into law HB 221, which ensures that almost all rideshare drivers in Florida are properly classified as independent contractors under Florida state law. Consistent with the organizational practices of many rideshare companies, rideshare drivers in Florida will be independent contractors under the new law if four basic conditions are met: (1) they are not required to work specific hours; (2) they are permitted to work for other rideshare companies; (3) they may engage in another occupation or business; and (4) the rideshare company and the driver agree in writing that the driver is an independent contractor. In addition, the new law requires rideshare companies to carry insurance to cover injuries and property damage, conduct certain criminal background checks on drivers and adopt certain non-discrimination policies. The law takes effect on July 1, 2017.
Subsequently, on May 29, 2017, Texas Governor Greg Abbott signed a similar law applying to ridesharing companies. Under the Texas law, which preempts any local ordinances in Texas that had previously regulated ridesharing businesses, rideshare drivers will be independent contractors provided that: (1) they are not required to work specific hours; (2) they are permitted to work for other ridesharing services; (3) they can engage in any other occupation or business they desire; and (4) the territory in which they are allowed to provide rides is not limited by the ridesharing service. The law became effective upon its signing.
Impact: These new laws directly address the ongoing debate about a third category of employment for the so-called “gig economy.” They are a significant victory for rideshare companies, which in recent years have been the target of class action lawsuits alleging that they have misclassified their drivers as independent contractors and failed to pay them appropriate wages under state and federal law. Rideshare companies will now be able to rely on the statutes to demonstrate that they have properly classified their employees under Florida and Texas law.
Georgia Becomes Latest State to Pass “Kin Care” Law for Employees
Law: On May 8, 2017, Georgia Governor Nathan Deal signed SB 201 into effect, requiring private employers with more than 25 employees to allow employees who work 30 hours or more in a week but do not have the option to participate in a stock ownership plan to use accrued sick leave to care for immediate family members. Importantly, the new law (and Georgia law generally) does not require employers to provide sick leave to their employees. Instead, the new law requires employers who already provide sick leave to allow their employees to use their accrued sick leave for an additional purpose. The law allows employers to cap the time that an employee uses to care for a sick family member at five days. It is set to take effect on July 1, 2017, and will phase out on July 1, 2020, if not extended.
Impact: Georgia is the latest in a line of states—including California, Illinois, Maryland and Washington—to pass laws allowing employees to use accrued sick leave to care for immediate family members. Sick leave laws affirmatively requiring employers to provide with employees with sick leave have been passed by states such as Arizona, California, Connecticut, Massachusetts, Oregon, Vermont and Washington. In addition, cities such as Los Angeles, San Francisco, New York City, and the District of Columbia have passed sick leave laws with varying amounts of coverage. National employers with employees in multiple jurisdictions should monitor the emerging patchwork of sick leave laws and consider any additional steps necessary to stay in compliance.
Second Circuit Rejects Argument That a Single Use of a Racial Epithet Could Not Create a Hostile Work Environment
Decision: In Daniel v. T&M Protection Resources LLC, No. 15-560-cv (2d Cir. Apr. 25, 2017), the Second Circuit Court of Appeals held that a supervisor’s one-time use of a racial slur (in this case the “n-word”) directed at a subordinate could potentially form the basis of a claim for a hostile work environment under Title VII of the Civil Rights Act of 1964. In so holding, the Second Circuit vacated a grant of summary judgment by a Southern District of New York court, rejecting the district court’s interpretation of the Second Circuit’s decision in Schwapp v. Town of Avon, 118 F.3d 106, 110 (2d Cir. 1997) as eliminating the possibility that a one-time use of a racial slur could support a hostile work environment claim. The Second Circuit reiterated that Schwapp “did not foreclose the possibility that the one-time use of a severe racial slur could, by itself, support a hostile work environment claim when evaluated in the cumulative reality of the work environment.” The panel declined, however, to “confront the issue of whether the one-time use of the slur ‘[expletive deleted]’ by a supervisor to a subordinate can, by itself, support a claim for a hostile work environment” and emphasized that its holding was simply that the district court improperly relied on the Second Circuit’s precedents when it rejected this possibility as a matter of law. The panel remanded the case to the district court for reconsideration.
Impact: This ruling underscores the difficulty of winning summary judgment for the employer when there is any use of racially derogatory language, as well as the need to properly investigate all claims of a hostile work environment, especially those alleging even a one-time use by a supervisor of a racial slur or other derogatory language. Further, employers should be able to demonstrate they regularly provide comprehensive training to inform all employees that any racially offensive language in the workplace is unacceptable.