The US Supreme Court began its new 2010-2011 term on October 4, 2010 with a number of employment-related cases on the docket, many of which have already been orally argued, that could potentially impact employers concerning such matters as arbitration, retaliation, immigration, and employee benefits.

While the Supreme Court welcomes a new member for the second consecutive year, rookie Justice Elena Kagan has recused herself in six of the eight employment-related cases because of her work as the U.S. Solicitor General for the Obama administration. Kagan’s absence raises the prospect of deadlock in at least some of the cases, with an evenly divided court keeping the lower court’s ruling in place. The ultimate result of a four-four tie will be the lack of a national precedent and, consequently, lack of consistent guidance for employers.

Immigration. Perhaps one of the most publicized cases before the Supreme Court this term is Chamber of Commerce v. Whiting, the Arizona immigration case testing the power of states to regulate the hiring of illegal aliens. The Supreme Court will decide whether federal immigration law preempts the Legal Arizona Workers Act, which revokes the business licenses of employers that hire illegal aliens and mandates that employers use E-Verify, the federal pilot program for electronically checking a worker’s legal status. Specifically, the Court will determine the following issues: (i) whether the Arizona statute is expressly preempted by the federal Immigration Reform and Control Act (“IRCA”), which preempts state regulation “other than through licensing and similar laws;” (ii) whether a state may require employers to enroll in E-Verify when the federal Illegal Immigration Reform and Immigrant Responsibility Act (“IIRIRA”) makes E-Verify voluntary; and (iii) whether the Arizona statute is impliedly preempted because it undermines the comprehensive scheme that Congress created to regulate the employment of aliens.

The Ninth Circuit upheld the Arizona statute, finding that it was neither expressly nor impliedly preempted by federal immigration law. Interestingly, parties that are often opponents, such as the U.S. Chamber of Commerce, local chambers of commerce, civil rights groups, immigrants’ right groups, unions, and the Obama administration, have joined forces to seek the Court’s invalidation of the statute on preemption grounds. Ultimately, the main legal question will be whether the Arizona statute can be deemed a “licensing” law covered by IRCA’s saving clause. The Court will hear oral argument on December 8, 2010, without Kagan, who recused herself.

Retaliation. The Supreme Court will decide two retaliation cases this term concerning the scope of anti-retaliation protections under federal employment laws. On October 13, 2010, the Supreme Court heard oral argument in Kasten v. Saint-Gobain Performance Plastics Corp., a case from the Seventh Circuit addressing whether an employee’s oral complaint of a Fair Labor Standards Act (“FLSA”) violation is protected activity under the FLSA’s anti-retaliation provision.

The Seventh Circuit held that internal company complaints are protected activity under the FLSA’s anti-retaliation provision if written, but purely verbal complaints – whether in person or by telephone – are not. According to the Seventh Circuit, the statutory phrase “filed any complaint” means to file a written complaint, not to merely submit an oral complaint to one’s supervisor as the plaintiff did in Kasten. The Supreme Court’s resolution of this issue is important because a current split exists among the circuits. If the Supreme Court decides that intra-company oral complaints are protected activity under the FLSA, the Court’s interpretation will align with the interpretations of other labor and employment anti-retaliation provisions. Further, such a decision will incentivize employees to report FLSA violations by removing the formality of filing a written complaint.

The second retaliation case, Thompson v. North American Stainless LP, deals with whether Title VII covers retaliation by association. The Sixth Circuit ruled that a male employee, who alleged that his employer fired him because his fiancée filed a sex discrimination charge against their mutual employer, did not have a cognizable Title VII retaliation claim. The Sixth Circuit reasoned that Title VII’s anti-retaliation provision limits the class of claimants to those employees who actually engaged in the protected activity – the employee personally opposed the unlawful employment practice or participated in an investigation – not third parties closely associated with the employee. The en banc panel emphasized that the text of Title VII cannot be read to encompass “piggyback” protection of employees who admittedly did not engage in protected activity.

If the Supreme Court finds in favor of Thompson, ruling that associational retaliation claims are actionable under Title VII, the Court effectively will conclude that the opposition clause of Section 704(a) (“opposed any practice made an unlawful employment practice”) includes silent opposition – that an individual closely associated with an employee who engages in protected activity implicitly opposes the employer’s unlawful practice based on the closeness of the relationship. The Court ultimately will have to decide whether to base its opinion on statutory interpretation – rejecting associational retaliation claims – or policy – continuing down the path of expanding employees’ retaliation rights.

Cat’s Paw. In Staub v. Proctor Hospital, another one of the cases that has been argued, the Supreme Court will tackle the application of the “cat’s paw” theory of liability to employment discrimination claims. Derived from the 17th Century French fable “The Monkey and the Cat” in which a monkey uses an unwitting cat to pull chestnuts from a hot fire, the cat’s paw theory captures the notion of one person using another to accomplish his ulterior motives. In employment cases, the cat’s paw theory is used to prove discrimination when the actual decision maker is unbiased by imputing on the decision maker the discriminatory animus of a non-decision maker. The question presented to the Supreme Court, therefore, is: “In what circumstances may an employer be held liable based on the unlawful intent of officials who caused or influenced but did not make the ultimate employment decision?”

In the lower court decision, the Seventh Circuit reversed a jury verdict under the Uniform Services Employment and Reemployment Rights Act (“USERRA”) for a U.S. army reservist who alleged he was fired because his two immediate supervisors resented his military service. The hospital executive who fired the reservist harbored no antimilitary animus; nevertheless, the trial court allowed the introduction of cat’s paw evidence that the reservist’s supervisors were biased and influenced the decision. On appeal, the Seventh Circuit defined the threshold determination that a trial judge must make when a plaintiff invokes the cat’s paw theory of liability: the judge must determine whether a reasonable jury could find that an allegedly biased non-decision maker exerted a “singular influence” over the unbiased decision maker before admitting evidence of the non-decision maker’s animus. The Seventh Circuit further held that if the unbiased decision maker conducts an independent investigation before acting, the necessary singular influence is lacking and the employer is not liable.

The Supreme Court’s resolution of the standard for admitting cat’s paw evidence is crucial given the circuit split on the level of control a biased non-decision maker must exert over the employment decision. As employers continue to implement workforce reductions in a down economy, employers must be aware of their potential liability for hidden motives of supervisors and managers who lack final authority for employment decisions.

Privacy Rights. In NASA v. Nelson, a case in which the Supreme Court already heard oral argument, the Court will consider the constitutional limits of the federal government’s ability to inquire into the backgrounds of federal contractors’ employees.1 The Supreme Court will address whether the government violates a federal contract employee’s constitutional right to information privacy when it asks, in the course of a background investigation, whether the employee has received counseling or treatment for illegal drug use in the prior year. The Court will also determine whether the government violates a federal contract employee’s constitutional right to information privacy when it asks the employee’s references for any adverse information bearing on the employee’s suitability to work at a federal facility. Both questions before the Supreme Court are predicated on (i) the employer using the response for employment purposes; and (ii) the information obtained falling within the Privacy Act’s protections.

Several scientists and engineers employed by the California Institute of Technology as contract employees at NASA’s Jet Propulsion Laboratory sued on behalf of a potential class of 9,000 NASA contract employees after NASA extended its background checks into low-risk contract employees. The Ninth Circuit granted a preliminary injunction barring the government from implementing its background checks, finding that the background investigations potentially violated the employees’ information privacy rights under the U.S. Constitution.

While the Supreme Court’s decision will only directly impact public sector employers Nelson provides the Court with the opportunity to unequivocally recognize the obscure constitutional right to information privacy.2 Even though the questions presented to the Court are narrowly posed, the Supreme Court may decide, as a threshold matter, whether the Constitution even protects a right to information privacy. Explicitly recognized by a majority of the federal circuit courts, only the D.C. Court of Appeals has expressed doubt on the existence of the constitutional right to information privacy. Because the Supreme Court has reserved judgment twice on the existence of this constitutional right, it may finally address the Constitution’s protection of the right to information privacy in Nelson.

Employee Benefits. In CIGNA Corp. v. Amara, the Court will determine what ERISA pension plan participants and beneficiaries must demonstrate to recover benefits based on an alleged inconsistency between the explanation of benefits in the summary plan description (“SPD”) and the actual benefit plan terms.

This case arose out of CIGNA’s conversion of its defined benefit plan to a cash balance plan. Plan beneficiaries sued CIGNA, claiming that the company violated ERISA by failing to disclose information about the effects of the plan conversion.3 The Second Circuit summarily affirmed the trial court’s use of a “likely harm” standard in which plan participants or beneficiaries may recover if they were likely to have been harmed as a result of a deficient SPD. This “likely harm” standard conflicts with the standards adopted by other circuits. For example, in the Fifth Circuit, a plan beneficiary suing based on a discrepancy between the SPD and the actual plan terms must only demonstrate a “clear and material conflict between the SPD and the plan,” not that the beneficiary was likely harmed (Second Circuit) or relied on the SPD or was prejudiced by the conflict (First, Fourth, Seventh, Eighth, Tenth, and Eleventh Circuits).

CIGNA presents the Supreme Court with the opportunity to decide the reliance interests, if any, ERISA plan participants and beneficiaries must show when suing based on alleged inconsistencies between an SPD and the plan’s terms. Those employers who maintain benefit plans for their employees should pay close attention to this decision as it could affect the costs and liabilities associated with creating, maintaining, and amending ERISA plans.

Student Exception Under FICA. The question presented to the Supreme Court in Mayo Foundation for Medical Education & Research v. United States, is whether the Treasury Department can categorically exclude all medical residents and other full-time employees from the definition of “student” under Section 3121(b)(10) of the Federal Insurance Contributions Act (“FICA”), which exempts from Social Security taxes “services performed in the employ of a school, college, or university” by a “student who is enrolled and regularly attending classes at such school, college, or university.” The Court’s decision will resolve a nearly twenty-year-old legal dispute over whether medical residents are students whose stipends are exempt from FICA or employees subject to FICA employment taxes.

While the two teaching hospitals at issue in Mayo Foundation argued that their medical residents fit within FICA’s student exception regardless of how many hours they work, the Eighth Circuit disagreed, holding that the hospitals must deduct payroll taxes for their medical residents. In 2005, new regulations from the Treasury Department went into effect, declaring that medical residents are employees rather than students during their post-medical school period of training and mandating that the residents and their teaching institutions pay the Social Security taxes on the residents’ stipends. The Eighth Circuit in Mayo Foundation upheld the Treasury Department’s regulations as a reasonable interpretation of the FICA student exception.

If the Supreme Court leaves the Eighth Circuit’s decision intact, teaching hospitals could be responsible for millions of dollars in annual FICA taxes – a potentially devastating economic impact on the administration of teaching hospitals.

Arbitration. In AT&T Mobility LLC v. Concepcion, the full Court, including Kagan, will decide whether the Federal Arbitration Act (“FAA”) preempts states from conditioning the enforcement of an arbitration agreement on the availability of particular procedures, namely, class-wide arbitration, when those procedures are not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims. The plaintiffs sought to litigate their claims as a consumer class action, but AT&T demanded that the plaintiffs’ claims be submitted to individual arbitration, citing an arbitration clause that prohibited class actions. The Ninth Circuit invalidated the class arbitration waiver in the AT&T consumer contract as unconscionable under California state contract law.

The case addresses whether class action waivers in arbitration clauses are immune from unconscionability challenges and, assuming they are not, how courts should decide whether such waivers are unconscionable. If the Supreme Court rules broadly in favor of AT&T by finding that the FAA preempts states from preserving class claims in arbitration, consumers and employees covered by mandatory arbitration clauses can expect a contractual ban on class arbitration. Companies and employers will seek to insulate themselves from class action claims by including class action waivers in their arbitration clauses, which could adversely affect wage and hour claims typically brought as class actions.

Conclusion. The Supreme Court has a full docket of employment-related cases for its current term. While Kagan’s recusal could result in the lack of Supreme Court precedent on various issues, the Court will likely resolve crucial circuit splits affecting the employment law arena. Employers should continue to stay abreast of the Supreme Court’s review of these cases and seek guidance from counsel after the Court issues its opinions.