Employers Fared Well, Even on Major Cases

The U.S. Supreme Court’s big decisions on same- sex marriage have important implications for many employer policies and programs. In striking down the federal Defense of Marriage Act (DOMA) and an attempt by California voters to ban same-sex marriage (Proposition 8), the Court paved the way for greater workplace rights and benefits for gay and lesbian couples. In the closely watched affirmative action case in university admissions, the Court upheld the practice, contrary to what some expected, leaving workplace affirmative action initiatives, both mandatory and voluntary, unaffected by the decision.

Ten other decisions from the Court’s 2012-2013 term also affect employers’ decisions relating to human resources management. In three separate decisions, the Court continued to endorse arbitration as a means of resolving workplace disputes. Another three decisions generally favor employers in defending class and collective actions, while several others limit employees’ ability  to sue employers for discrimination, retaliation, and denial of reimbursement under ERISA  benefit plans.

This issue of Preventive Strategies reviews the U.S. Supreme Court’s recently concluded term and looks ahead to four important workplace law cases on the Court’s docket for 2013-2014. Undoubtedly, the list of pending cases of interest to employers will grow once theCourt reconvenes in October.

Federal Recognition of Same-Sex Marriage Has Implications for FMLA, Taxation of Benefits

In the first of two decisions expanding same- sex marriage rights, the Supreme Court struck down Section 3 of the federal Defense of Marriage Act, holding that it violated the equal protection component of the U.S. Constitution’s Fifth Amendment Due Process Clause by denying federal recognition of legally married same-sex couples. The case arose from the imposition of more than   $350,000 in federal estate taxes on the survivor of a legally married same-sex couple in New York, where, but for DOMA’s definition of marriage as strictly between a man and a woman, state law would have entitled her to an estate tax exemption for married couples. United States v. Windsor, No. 12-307 (June 26, 2013). In the second decision, the Supreme Court effectively permitted same-sex marriage in California by ruling that the proponents of Proposition 8, which also defined marriage as strictly between a man and a woman, did not have standing to defend it in a legal challenge that state officials refused to defend. Hollingsworth v. Perry, No. 12-144 (June 26, 2013).

These decisions have wide-ranging implications for employers, and guidance on the implications of the change in federal law is expected. For example, employers covered by the Family and Medical Leave Act of 1993, which grants qualifying employees time off to care for their sick spouses, now will have to extend the same guarantee of unpaid leave and job protection to same-sex spouses in states that recognize same-sex marriage. The ruling also extends to same-sex spouses mandated rights under tax-qualified retirement plans and COBRA continuation coverage.

There are other federal tax consequences for employers. Under DOMA’s definition of marriage, spousal benefits for employees in opposite-sex marriages were not taxed, while those for employees in same-sex marriages were taxed. Employers were required to impute the value of an employee’s same-sex spouse’s coverage into the employee’s income. Under the Internal Revenue Code, an employee is not taxed for the value of employer-provided spousal benefits, and the Internal Revenue Service now will defer to each state’s law defining the term “spouse.” If an employee’s same-sex partner is considered a “spouse” under state law, the partner’s benefits are not to be considered part of the employee’s gross income, and the IRS will not tax that partner’s health benefits.

Same-sex marriage is now legal in 13 states California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, and Washington; the District of Columbia; and three Native American tribes (Coquille Tribe, Suquamish Tribe, and the Little Traverse Bay Bands of Odawa Indians).

Employers with operations in multiple states have to deal with a patchwork of state laws defining a spouse. All employers should continue to monitor the changing laws on same-sex marriage, examine benefit plans to ensure consistency with applicable laws and company goals, and consult with counsel regarding additional workplace implications of the federal recognition of same-sex marriage.

Affirmative Action Ruling Has No Effect on Private Employers’ Diversity Initiatives

Despite the speculation of many experts in advance of the Supreme Court’s recent ruling in Fisher v. University of Texas at Austin, No. 11-345 (2013), corporate America will see no change to the applicable standards or valid- ity of diversity and inclusion programs that many have determined are vital to their success. Although the Court reiterated the tough “strict scrutiny” standard for race-conscious admissions programs in public higher edu- cation, private sector employers are not subject to the same constitutional constraints. The Court’s decision will have no effect on enforcement of Title VII of the Civil Rights Act of 1964 by the U.S. Equal Employment Opportunity Commission or responsibilities under Executive Order 11246, requiring affirmative action by government contractors, enforced by the Department of Labor’s Office of Federal Contract Compliance Programs.

Outside the public sector, organizations may continue to implement and enhance their diversity   and   inclusion   programs, sometimes referred to as “voluntary affirmative action,” unimpeded by the Supreme Court’s ruling. Jackson Lewis counsels clients on the benefits, design, implementation and expansion of such programs through the Firm’s Corporate Diversity Counseling and Affirmative Action and OFCCP Diversity Planning  practice groups.

Despite EEOC Interpretation,  Definition of “Supervisor” Is Narrowed Along with Scope of Employer Liability

Rejecting the Equal Employment Opportunity Commission’s broader definition,, the Supreme Court determined an employee is a “super- visor”  for  purposes  of  imposing  vicarious liability on an employer under Title VII of  the Civil Rights Act of 1964 only if the employee is empowered by the employer to take tangible employment actions against the victim. The Court defined “supervisory” authority to include having the power to make “a significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing  a significant change in benefits.” Vance v. Ball State University, No. 11-556 (June 24, 2013). The Court in Ball State affirmed summary judgment for the employer because the alleged harasser had not been vested with such power over the victim, whose recourse would be limited to proceeding against the school for allegedly having been negligent in allowing the harassment to occur.

The Court’s decision upends the enforcement guidance issued by the EEOC following the landmark decisions in Burlington Industries, Inc. v. Ellerth, 524 U.S. 742 (1998), and Faragher v. City of Boca Raton, 524 U.S. 775 (1998). Rejecting the EEOC’s interpretation as “nebulous,” “ill-defined” and overly fact-specific, the Court found its “tangible employment action” standard to be “easily workable.” A significant advantage of its bright-line test, the Court said, was that supervisory status can “usually be readily determined, generally by written documentation” and done so at the summary judgment stage or earlier.

The Court’s invitation to establish Title VII “supervisory” status by documentation should impel employers to review job descriptions for employees who assume quasi-leadership roles and to make sure they are accurate. Efforts to prevent workplace harassment through training and aggressive investigation of alleged misconduct remain critical to minimize employers’ risk of hostile environment liability as a result of negligence.

IRS Circular 230 disclosure:

Any tax advice contained in this communication (including any attachments or enclosures) was 
not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties 
under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication. (The foregoing disclaimer has been affixed pursuant to U.S. Treasury regulations governing tax practitioners.)
Strike Two for the EEOC: Court Rejects Agency’s More Lenient Standard on Retaliation Claims

Putting a potential damper on the increase of retaliation claims under Title VII of the Civil Rights Act of 1964, the Supreme Court has established a rigorous standard for plaintiffs  to prove that an employer’s actions were retaliatory and unlawful. The Court rejected an employee’s argument that he could establish liability by showing that retaliation was a “motivating   factor”  for  a  prospective  employer’s withdrawal of a job offer. Instead, the Court   said the employee must show that “but for” the employer’s retaliatory motive, the offer would not have been withdrawn. University of Texas Southwestern Medical Ctr. v. Nassar, No. 12-484 (June  24,  2013).

With this ruling, plaintiffs seeking to avail themselves of Title VII’s protection for complaining about or opposing discrimination will have to show retaliation was the reason for the employer to take adverse action against them. In so deciding, the Court distinguished between Title VII’s dual guarantees of protection against“status discrimination” (which requires only that the unlawful employer conduct be a “motivating factor” in proving liability) and retaliation (where there is no liability “but for” the unlawful conduct). In the Court’s words, “Title VII retaliation claims must be proved according to traditional principles of but-for causation …. This requires proof that the unlawful retaliation would not have occurred in the absence of the alleged wrongful action or actions of the employer.”

This decision is welcome news for employers confronted with increasing numbers of retaliation claims. As noted in Preventive Strategies, 2nd Quarter 2013,, more than one-third of all claims filed with the EEOC in 2012 were for retaliation — nearly 38,000. In fact, Justice Anthony Kennedy, who authored the Court’s majority opinion in Nassar, indicated that  the  heightened  standard of proof will assist in obtaining the dismissal of “dubious claims at the summary judgment stage.”

Two Decisions Rein in Class Action Litigation at Critical Certification Stage

Two non-employment decisions from the Supreme Court’s latest term may assist employers when defending against class action lawsuits at the crucial certification stage of the litigation.

How these decisions might be applied to employment class actions remains to be seen. At a minimum, however, they instruct lower courts not to “rubber stamp” questions of class certification or jurisdiction that frequently are the major hurdles for plaintiffs in class action litigation. Employers should consider all avail- able procedural arguments to obtain the most favorable forum for resolving class action claims. Jackson Lewis attorneys can assist both in pre- venting and defending class action and group litigation. The Class Actions and Complex Litigation practice group assists clients in assessing their vulnerability and identifying early warning signs of group activity.

IN THE FIRST CASE, involving allegations by  cable television subscribers of possible antitrust violations, the Supreme Court struck down the rulings of two lower courts and found that the class should not have been certified under the federal procedural rules for class action litigation.

Before certifying a class, the trial court must conduct a “rigorous analysis” of any models offered by the plaintiffs that show damages can be calculated on a classwide basis, the Court said, even if this requires touching on the merits of the case. Damage calculations “need not be exact,” the Court held in a 5-4 vote, but they must be consistent with the plaintiffs’ theory of liability to meet the requirements for class certification.  In laying out the need for rigorous analysis at the pre-certification stage, the Court has imposed a high standard for demonstrating the appropriate- ness for class action litigation. Comcast Corp. v. Behrend, No. 11-864 (Mar. 27, 2013).

IN THE SECOND DECISION, the Supreme Court ruled unanimously that class action plaintiffs purposely cannot  avoid  a  procedural  requirement  under the federal Class Action Fairness Act (CAFA) that establishes a monetary threshold for claims to be litigated in federal, rather than state, court. By stipulating before certification of the class that damages would not exceed the threshold amount of $5 million, the plaintiff hoped to avoid the restrictions of CAFA and litigate the case in state court. However, the Supreme Court found that, since the class had not yet been certified, the plaintiff had no authority to bind future class members to the damages cap. Standard Fire Insurance Co. v. Knowles, No. 11-1450 (Mar. 19, 2013).

Trend of Enforcing Agreements to Arbitrate Disputes  Continues

Three decisions of this Supreme Court term involved arbitration agreements. In the only one arising in the employment context, the Court decided that a state supreme court had refused to apply well-established precedent under the Federal Arbitration Act and improperly had enjoined an arbitration   proceeding  under  a  non-compete agreement. Nitro-Lift Technologies, LLC v. Howard, No. 11-1377 (Nov. 26, 2012) (per curiam).

The parties did not dispute the validity of the arbitration provision. Instead, after the employer sought to compel arbitration and enforce the non-compete agreement, the plaintiffs filed a lawsuit seeking to nullify the agreement. The trial court ruled for the employer, but the Supreme Court of Oklahoma disagreed, determining that the arbitration provision was not enforceable and that the non-compete agreement violated state law.

On review, the U.S. Supreme Court found that the validity of the non-compete agreement should have been decided by the arbitrator, not by the state court. In refusing to follow FAA precedent, the state court had violated the Supremacy Clause of the U.S. Constitution. The Supreme Court reiterated, “When state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.”

In two other cases outside the employment arena, the Supreme Court continued its support for agreements to arbitrate disputes. Both cases raised questions about class action arbitrations, an issue that has been litigated frequently in the employment setting.

Applying the Federal Arbitration Act to require parties to arbitrate rather than take their claims to court, the Supreme Court foreclosed a lower court from invalidating  an agreed-upon waiver of class arbitration because the cost of arbitrating an individual claim would exceed any potential recovery. The Court reiterated that arbitration is a matter of contract and that the FAA requires arbitration agreements be “rigorously enforced” according to their terms, even for claims alleging a violation of a federal statute, as was the case here. American Express Co. v. Italian Colors Restaurant,  No.  12-133  (June  20,  2013).

In the second case, the Supreme Court upheld the decision of an arbitrator who had interpreted the terms of an arbitration agreement to allow class claims. The parties had agreed the arbitrator, and not a reviewing court, should interpret  the scope of the agreement. Thus, the arbitrator had not “exceeded his powers” by finding the agreement included class claims even though the reviewing court considered the interpretation to  be wrong. Oxford Health Plans LLC v. Sutter, No. 12-135 (June 10, 2013).

In these and prior cases, the Supreme Court has held that contractual arbitration agreements are  to be enforced according to their express terms, even if the effect of these agreements is to limit the ability of plaintiffs to bring class action claims, or an arbitrator’s interpretation of the agreement is thought to be erroneous. Nevertheless, challenges to the enforceability of arbitration agreements will continue to be made, but most likely on narrower grounds, such as lack of contract formation, excessive arbitration fees, unfair or overreaching provisions, and improper limitations on the right to pursue statutory rights or remedies otherwise available in litigation. Jackson Lewis attorneys have defended arbitration agreements on behalf of employers at all levels of state and federal courts, including the United States Supreme Court (see Alternative Dispute Resolution).

In ERISA Case, Court Backs Employers Plan Language

The U.S. Supreme Court has ruled that an ERISA health plan provision permitting the  plan to seek reimbursement from a plan participant overrides such equitable defenses as unjust enrichment. The Court held that the terms of the plan document are at the “center of ERISA”– extrinsic equitable doctrines cannot over- ride explicit plan language. US Airways, Inc. v. McCutchen, No. 11-1285 (April 16, 2013).

This decision accords with earlier Supreme Court rulings and leaves employers room to structure relations with and obligations of participants and beneficiaries through plan language. The Supreme Court’s decision in McCutchen provides substantial guidance to plan sponsors on the need for explicitness and clarity in plan pro- visions of their intent regarding reimbursement, and by clear implication, other plan matters.       

Careful  and  profession- al  attention   to   the   drafting   of plan terms is key. Jackson Lewis  Employee Benefits Counseling and Litigation  practice   attorneys   are   experienced in   drafting   plan   documents,   defending   benefit  claims,  and  pursuing  recoveries  for  plans.

Rejected Settlement Offer Produces Wage and Hour Collective Action Anomaly

In a unique situation involving a potential collective action under the Fair Labor Standards Act, the Supreme Court ruled that an employee’s rejection of her employer’s “offer of judgment,” which would have provided full relief for her claim, effectively “mooted” her case. Without the employee’s own claim, the Court determined that no collective action could proceed because the  employee  had  no  continuing  personal interest  in  the  case.  Although  various  federal appeals courts differ as to whether an FLSA collective action survives an offer to settle fully the named plaintiff’s  claim, here, the plaintiff  did  not  dispute  that  her  claim  was moot. Genesis Healthcare Corp. v. Symczyk, No. 11-1059 (April 16, 2013).

This decision, which commentators agree is likely to be a “one off,” con­cerns highly technical issues relating to the Federal Rules of Civil Procedure and “mootness.” However, collective actions under the FLSA continue to vex employers.

  • Jackson Lewis Wage and Hour Compliance practice attorneys regularly litigate wage and hour cases, including single-plaintiff, class, collective, and hybrid actions in federal and state courts. Our defense of wage and hour class actions is bolstered by realistic assessments of liability and damages as early as possible in the litigation

Developing Law of the Workplace

Laws, Regulators Impose Limits on Employers’ Intrusion Into Personal Affairs

Concerns about personal privacy and non-consensual intrusion appear to be the motivation behind a number of state laws and agency guidance limiting employers from gathering certain types of information about the private affairs of employees and job applicants.

Social Media, Networking, and Communications

Nevada recently became the 12th state to restrict employer access to personal social media accounts. The other states are Arkansas, Colorado, New Mexico, Oregon, Utah, Vermont and Washington, which adopted similar laws in 2013, and California, Illinois, Maryland, and Michigan, which did so in 2012. Employers doing business in these states will need to review their hiring and employee monitoring practices and educate managers and supervisors who may not be aware of these developments.

Typically, these laws prohibit employers from requesting or requiring employees or job applicants to disclose or alter the means of access to personal accounts or services, such as Facebook, Twitter, LinkedIn, and other social media and networking sites, or personal e-mail accounts. Additionally, such laws prevent an employer from compelling employees or applicants to become a friend, contact or connection of the employer or the employer’s agent. Employers may not fail or refuse to hire applicants, or discipline or otherwise penalize employees, who refuse to provide access to their personal accounts or add employers to their contacts.

Some states allow employers in certain industries and situations to access personal accounts and social media sites in connection with investigations concerning the use of  such accounts and sites or the unauthorized downloading of employer proprietary or financial information. The laws typically provide either for a private right of action or the filing of a complaint with a state agency, such as the labor department.

Credit Information

Colorado and Nevada have joined the ranks of states restricting an employer’s right to obtain and use credit information for making employment decisions. Other states with such restrictions include California, Connecticut, Hawaii, Illinois, Maryland, Oregon,

Vermont, and Washington. Under Colorado’s new law,  the key question a covered employer will have to ask before requesting and using consumer credit information for an employment purpose is whether the information sought is substantially related to the employee’s current or prospective position. A covered employer cannot require an employee to consent to a background check containing credit information unless:

  1. the employer is a bank or financial institution;
  2. the report is required by law; or
  3. the report is “substantially related to the employee’s current or potential job,” and the employer has a bona fide purpose for such information, and this information is disclosed in writing to the employee. Further, such information can be used only if it is “substantially related to the employee’s current or potential job.”

Beginning October 1, employers in Nevada may not “suggest, request, require or cause” employees or applicants to submit a consumer credit report or other credit information as a condition of employment. Additionally, employers may not “use, accept, refer to or inquire” about a consumer credit report or other credit information. The law prohibits employers from failing or refusing to hire applicants, or disciplining or otherwise penalizing employees, based on information contained in a credit report or for refusing to provide their credit report. In addition, a no-retaliation provision ensures employees may exercise their rights under this law without fear of reprisal. Like many of the other states that have passed similar prohibitions, the Nevada law provides specific exceptions for employers in certain industries and circumstances.

What’s Ahead for Employers in the Supreme Court’s 2013 Term?

Looking ahead to the 2013 term opening on October 7, the U.S. Supreme Court has agreed to   resolve issues of interest to employers in four separate  cases:

  • Do the whistleblower protections of the Sarbanes-Oxley Act  extend to employees of privately-held contractors or subcontractors because they do business with publicly-traded companies?

See Does SOX Apply to Employees of Private Contractors? Supreme Court to Give Answer.

  • Does a neutrality agreement between an employer and a union improperly deliver a “thing of value” in violation of the Labor Management Relations Act?

See U.S. Supreme Court to Scrutinize Union Neutrality Agreements.

  • Are the recess appointments of two National Labor Relations Board members invalid because they were not made during a break in session of the U.S. Senate, as required by the U.S. Constitution?

See Supreme Court Will Review Noel Canning Decision.

  • Is time spent by employees donning and doffing certain “protective equipment” (e.g., hard hat, jump suit, protective glasses, boots, and work gloves) compensable under the Fair Labor Standards Act, as opposed to the non-compensable time spent donning and doff ing “clothes” as agreed to under the parties’ collective bargaining agreement?

              See Supreme Court Accepts Review in FLSA ‘Donning/Doffing’ Case: Wage and Hour Law Update.