Undeterred NLRB continues to attack class action waivers
Missouri Appellate Court clarifies punitive damages standard

Desperate Housewives actress need not exhaust administrative remedies
Third Circuit adopts 'predominant benefit' test for meal breaks

Ninth Circuit clarifies complaint standard in human resources manager case


Undeterred NLRB continues to attack class action waivers

Decision
In the latter half of 2015 the National Labour Relations Board (NLRB) continued to attack class action waivers in accordance with its DR Horton and Murphy Oil USA decisions, despite the fact that both decisions were reversed by the Fifth Circuit.

On November 10 2015 the NLRB held in Amex Card Services Co(1) that American Express had violated the National Labor Relations Act by forcing its employees to sign arbitration agreements that included class action waivers. Then, on November 30 2015 in US Express Enterprises, Inc,(2) the NLRB held that US Express's arbitration agreement – which also included a class action waiver – ran afoul of the act even though an opt-out provision allowed employees to pursue legal disputes through a class action by providing written notice to the employer.

In both decisions, the NLRB concluded that the respective arbitration agreement violated the employees' protected right to engage in concerted activity under DR Horton and Murphy Oil USA. The board emphasised its view that arbitration policies that require individual arbitration rather than class actions violate the act. In addition, the board held in US Express Enterprises, Inc that even if an opt-out provision makes an arbitration agreement voluntary for each individual who does not opt out, any arbitration agreement that precludes collective action "is unlawful even if entered into voluntarily because it requires employees to prospectively waive their Section 7 right to engage in concerted activity". Thus, according to the NLRB, even a voluntary arbitration agreement is prohibited if it contains a class action waiver that requires claims to be arbitrated on an individual, rather than a class, basis.

Comment
To date, the only federal court of appeals to consider the issue has rejected the NLRB's view, as has the California Supreme Court. However, the NLRB appears to persist in its policy of refusing to acquiesce in court rulings rejecting DR Horton and similar board decisions. Although the NLRB's stance on arbitration agreements containing class waivers has been reversed on several occasions, Amex Card Services Co and United Express Enterprises, Inc demonstrate that the board will continue to push its interpretation of the act until forced to do otherwise. Anecdotal evidence suggests that the board is also using its position to persuade companies to abandon arbitration policies with class waivers in settlement of NLRB charges under the radar.

Amex Card Services Co and United Express Enterprises, Inc represent potential opportunities for another federal court of appeals to weigh in because Section 10(f) of the act permits an aggrieved party to seek relief:

  • in the circuit where the alleged unfair labour practice took place (the Ninth Circuit in Amex and the Sixth Circuit in United Express Enterprises);
  • where the party resides or transacts business (in the case of Amex, this could be almost any circuit); or
  • in the DC Circuit (which always has jurisdiction to hear NLRB challenges).

That said, given the NLRB's persistence, employers can reasonably expect that the NLRB will continue to apply DR Horton and Murphy Oil USA – making it necessary for employers to seek judicial review – for the foreseeable future unless the Supreme Court intervenes in an appropriate case.

Missouri Appellate Court clarifies punitive damages standard

Decision
On November 10 2015 in Diaz v AutoZoners, LLC(3) the Missouri Court of Appeals upheld a jury award of punitive damages against an employee's direct employer but reversed the verdict against the employer's parent company because that company did not qualify as an 'employer' under Missouri law. In Diaz the plaintiff sued her employer, AutoZoners, and its parent company, AutoZone, Inc, under the Missouri Human Rights Act, alleging that both companies failed to respond adequately to pervasive sexual harassment by a commercial customer and that they retaliated against her when she complained. The jury found both entities liable and awarded the plaintiff compensatory damages of $75,000. In addition, the plaintiff was awarded punitive damages of $1 million against AutoZoners and $1.5 million against AutoZone, Inc.

On appeal, the Missouri Court of Appeals drew an important line that precluded the parent from being held liable for the subsidiary's acts. Although AutoZone, Inc created the Store Handbook and Code of Conduct for its subsidiaries' employees, provided documents used for human resources investigations and responded to the plaintiff's discrimination charge, the court concluded that the conduct did not "demonstrate that AutoZone, Inc., was responsible for training employees; receiving, investigating, and responding to complaints; or disciplining noncompliant employees".

The court declined the opportunity to invalidate the $1 million punitive damages award against AutoZoners, determining that the award was not unconstitutionally excessive. Applying the guideposts articulated by the Supreme Court in BMW of North America v Gore,(4) the Missouri Court of Appeals first held that the third guidepost – legislatively established penalties for comparable conduct – was "inconsequential", before addressing the other two guideposts: the degree of reprehensibility of the conduct and the ratio of punitive to compensatory damages.

The court opined that even without physical harm or active wrongdoing, "there was a sufficient degree of reprehensibility on the part of AutoZoners, LLC, to justify a sizeable award". The court based this decision almost entirely on the repugnance of the customer's conduct and the court's belief that the jury could have reasonably concluded that AutoZoner's managerial employees had an economic motivation to violate the company's zero-tolerance rule in order to maintain the customer's account. In effect, the court did not analyse the amount of the award or the ratio of punitive to compensatory damages, but simply blessed the jury's verdict based on conduct it found sufficient to justify a punitive damages award.

Comment
While Diaz is another example of a state appellate court paying little attention to the BMW due process guideposts, the silver lining for employers is that the decision provides a helpful precedent in screening a parent company from liability as an 'employer'. Courts have often given short shrift to such arguments, holding a corporate parent jointly liable even where it has no substantive involvement in its subsidiary's alleged misconduct.

Diaz also highlights the importance of a strong focus on combating punitive damages early in a case, before trial, during trial and in all steps leading to appeal, since an errant punitive damages award has the potential to transform a trivial case into a significant risk for a corporate employer.

Desperate Housewives actress need not exhaust administrative remedies

Decision
On October 20 2015 the California Court of Appeal held in Sheridan v Touchstone Television Productions, LLC that an employee need not exhaust his or her administrative remedies before filing suit under Section 6310 of the California Labour Code, which prohibits retaliation against an employee who makes a bona fide complaint of "unsafe working conditions or work practices".

In 2004 Touchstone hired actress Nicollette Sheridan to play the character Edie Britt on the television series Desperate Housewives. The contract was for one season, with the option to renew each year for an additional six seasons. The contract was renewed for five seasons, but after Sheridan complained to Touchstone that Marc Cherry, the show's creator, struck her during a rehearsal in September 2008, Touchstone chose not to renew her contract for the sixth season. In April 2010 Sheridan sued Touchstone for, among other things, wrongful termination, alleging that Touchstone had fired her because of her complaint about the alleged battery, later amending to add a claim under Section 6310. That claim was dismissed due to Sheridan's failure to exhaust administrative remedies, as required by the California Court of Appeal's opinion in MacDonald v State of California. During the Sheridan case the Labour Code was amended to specify that exhaustion was not required, and the MacDonald case was ordered de-published.

The appeal court reversed the trial court's decision, holding that the plain language of the statute did not require exhaustion. The panel considered the post-amendment language expressly stating that exhaustion was not required, stating that the amendment simply clarified the existing statutory intent.

Comment
The California Court of Appeal's decision highlights the effect that amendments to the Labour Code may have on pending cases when seen as clarifying, rather than changing, existing statutory language.

Third Circuit adopts 'predominant benefit' test for meal breaks

Decision
On November 24 2015 in Babcock v Butler County a divided Third Circuit panel adopted the 'predominant benefit' test to determine whether a meal period is compensable under the Fair Labour Standards Act. The test weighs up the benefits that the employer and employees receive from the break.

The case arose from a collective action brought by a corrections officer who alleged that she and other prison guards were owed overtime pay by their employer, Butler County, because 15 minutes of their one-hour meal break were unpaid and during the break the guards had to remain on call for emergencies and were not allowed to leave the prison without express permission. The district court dismissed the case, agreeing with the county's arguments that the meal period was not compensable work because the guards received the predominant benefit of the meal period.

On appeal, the Third Circuit refused to adopt the 'completely relieved from all duties' test and agreed with the district court's application of the predominant benefit test. In doing so, the panel found that the guards were not primarily engaged in work duties during the break and also noted the existence of a collective bargaining agreement that required guards be partially compensated with overtime pay if their break is interrupted by work.

In dissent, Circuit Judge Joseph A Greenaway Jr stated that the majority had misapplied the predominant benefit test because the officers must be prepared to work at a moment's notice and are subjected to other restrictions that "greatly limit their movement". Greenaway rejected the majority's focus on the fact that the guards could ask for permission to leave the prison and would be compensated if work interrupted their break.

Comment
This decision clarifies the applicable test in the Third Circuit. While the rejection of the completely relieved from all duties test is a positive development for employers, the predominant benefit test is based heavily on the facts at issue and – as is evident from the disagreement between the majority and the dissent – facts are subject to varying interpretations. Employers would benefit from reviewing meal break practices to identify and address circumstances that are vulnerable to interpretation as benefitting the employer.

Ninth Circuit clarifies complaint standard in human resources manager case

Decision
On December 14 2015 in Rosenfield v GlobalTranz Enterprises a divided Ninth Circuit panel clarified the standard for determining whether an employee has "filed any complaint" in order to trigger the anti-retaliation provisions of the Fair Labour Standards Act.

The plaintiff had held managerial positions in the defendant's human resources department before being terminated. She alleged retaliation as a result of her repeated reports that the company was not complying with the Fair Labour Standards Act. The district court granted summary judgment for the defendant, holding that although the plaintiff had "consistently and vigorously" raised the issue of potential Fair Labour Standards Act violations, she had never "filed any complaint" for purposes of the anti-retaliation provision.

Ninth Circuit Judges Susan B Graber and Alex Kozinski reversed the district court decision, applying the 'fair notice' test announced by the Supreme Court in Kasten v Saint-Gobain Performance Plastics Corp. Under that test, the Fair Labour Standards Act's anti-retaliation provision is triggered when a complaint is "sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the statute and a call for their protection". Examining the record, the majority held that a jury could find the plaintiff's reports sufficient to give fair notice of potential liability for retaliation. Critically, the majority noted that ensuring compliance with the Fair Labour Standards Act was not part of the plaintiff's regular duties, so her superiors understood, or should have understood, that she was asserting her rights of anti-retaliation protection under the act.

In dissent, US District Judge Dee V Benson argued that the panel should not have applied the fair notice test because Kasten applied only to oral complaints made by non-managerial employees. Instead, following a rule established by sister circuits in cases predating Kasten, Benson stated that it must be shown that the complaining employee stepped outside his or her normal role to file some type of formal, adversarial complaint, and that there was nothing in the record here to conclude that the plaintiff had done so.

Comment
The majority's decision explicitly avoids a bright line rule for determining when an employee has "filed any complaint" for Fair Labour Standards Act purposes, explaining that the determination must be made on a case-by-case basis. Employers should be careful to avoid the appearance of retaliation when any employee, whether managerial or rank-and-file, raises concerns about Fair Labour Standards Act compliance.

For further information on this topic please contact Grant T Miller or Andrea Maldonado Weiss at Mayer Brown LLP's Los Angeles office by telephone (+1 213 229 9500) or email (gtmiller@mayerbrown.com or aweiss@mayerbrown.com). Alternatively contact Richard E Nowak at Mayer Brown LLP's Chicago office by telephone (+1 312 782 0600) or email (rnowak@mayerbrown.com). The Mayer Brown International LLP website can be accessed at www.mayerbrown.com.

Endnotes

(1) 363 NLRB No 40.

(2) 363 NLRB No 46.

(3) No WD77861.

(4) 517 US 559 (1996).

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