SUPREME COURT WRAP UP
In the term just completed, the U.S. Supreme Court issued a variety of decisions that significantly affect workplace law. They include a challenge to the President’s authority in making several recess appointments to the National Labor Relations Board. Overall, employers fared well in rulings affecting both the private and public sectors.
Three Obama Recess Appointments Invalidated, Affecting Hundreds of Labor Board Decisions
President Barack Obama’s three recess appointments to the National Labor Relations Board in January 2012 were invalid, the U.S. Supreme Court held unanimously. Affirming the judgment of the U.S. Court of Appeals for the D.C. Circuit, the Court struck down the President’s appointments of Sharon Block, Richard Griffin and Terence Flynn made during a three-day Senate recess. With only two valid members from January 2012 to August 2013, the Labor Board lacked the quorum necessary to issue decisions and perhaps take other actions during that period. National Labor Relations Board v. Noel Canning,
No. 12-1281 (June 26, 2014).
From a constitutional law perspective, Noel Canning is a “blockbuster” decision that makes it harder for a sitting President to make recess appointments. It also will result in immediate and significant work for the NLRB as it revisits a large number of cases that are still pending.
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Cases Pending Appeal to Be Handled Expeditiously,
Says General Counsel
LRB General Counsel Richard Griffin (one of the invalid recess appointees) told participants of an American Bar Association webinar that 98 cases pending review in the federal appeals courts were affected by the Court’s decision; 34 cases awaiting review had raised the same challenge to the validity of the appointments. In nearly half of the 98 cases, according to Griffin, the Board was able to set aside its decisions, which enables the current five-member Board to process them without further orders of the courts. In the remaining 55 cases, the Board has asked the courts to send the cases back to the Board for further action.
Meanwhile, President Obama’s re-nomination of Sharon Block, one of the invalidated recess appointees, may spark congressional fireworks, but her confirmation likely would not change the Board’s actions going forward.
The decision likely will result in the denial
of enforcement of many Labor Board decisions.
Three-Day Recess Too Short
When the Labor Board issued an unfair labor practice decision against Noel Canning, the Board had two sitting confirmed members and three recess appointees. The company appealed the Board’s ruling to the D.C. Circuit, raised the question of the constitutionality of the recess appointment, and disputed the valid-
ity of the Board’s ability to act. Siding with the company, the appeals court found the President’s appointment of the three members had been constitutionally invalid.
Clarifying the recess appointment process, the Supreme Court agreed with that result in a
5-4 opinion. The President has the right to make recess appointments, regardless of whether the recess is one between Senate sessions or during
a Senate session, the Court ruled. Additionally, the recess appointment power applies both to vacancies that first arise during a recess and those that arise before a recess and continue to exist during a recess.
In calculating the length of a recess,
pro forma Senate sessions cannot be ignored, and “it is the Senate that decides when it is in session by retaining the power to conduct
business pursuant to its own rules,” the Court added. However, according to the majority, the recess must be of substantial duration
to permit the President to exercise the recess
appointment power, sidestepping the consti- tutionally preferred procedure of seeking Sen- ate confirmation. A recess of fewer than 10 days “is presumptively too short” to permit the President to make a recess appointment, except in “unusual circumstances,” such as a “national catastrophe,” the Court held.
The Court invalidated the NLRB appoint- ments. According to the Court, Senate breaks of three days or less are not recesses covered by the constitutional provision; Senate breaks of at least four days but fewer than 10 days are pre- sumptively not covered, but that presumption can be rebutted in unusual circumstances.
The Supreme Court’s decision in Noel Canning likely will result in the denial
of enforcement of many Board decisions based on the lack of a valid quorum of voting members. On the release of Noel Canning, NLRB Chairman Mark Gaston Pearce stated, “[The Board is] committed to resolving any cases affected by today’s decision as expeditiously as possible.” That may mean the current Board, composed of five confirmed members, will move swiftly to reconsider those decisions still pending
before the appeals courts and essentially seek to reconfirm them, as happened in connection with the Supreme Court’s 2010 New Process Steel decision. See our article, Supreme Court Rules Labor Board Had No Authority to Issue Hundreds of Decisions.
EDITORIAL BOARD Roger S. Kaplan Mei Fung So Margaret R. Bryant This bulletin is published for clients of the firm to inform them of labor and employment devel- opments. Space limitations prevent exhaustive treatment of matters highlighted. We will be pleased to provide additional details upon request and discuss with clients the effect of these matters on their specific situations. | Copyright: © 2014 Jackson Lewis p.c. Reproduction in whole or in part by any means whatsoever is strictly prohibited without the advance written permission of Jackson Lewis. | This Bulletin may be considered attorney advertising in some states. Furthermore, prior results do not guarantee a similar outcome.
President’s Recess Appointment Power, Holds Three Obama NLRB Recess Appointments Invalid. Hundreds of other decisions were issued during the period when the Board lacked a quorum, between January 2012 and August 2013. Subsequent Board decisions have relied upon those issued without a quorum and are vulnerable to challenge, as may be other actions taken during that period, such as regional director appointments and general counsel authorizations. While not every decision or action taken while the Board lacked a quorum will be litigated or thrown out, the Board’s resources will be strained and require careful prioritizing.
Religious Objections Exempt Closely Held Companies from Affordable Care Act Mandate
In one of the most highly publicized decisions of its term, the Supreme Court ruled that closely held corporations cannot be required to provide contraceptive coverage as mandated by the Affordable Care Act if their owners object on religious grounds. The challenge
to the Department of Health and Human Services ACA regulations was brought under the Religious Freedom Restoration Act of 1993 (RFRA). Burwell v. Hobby Lobby Stores, Inc., No. 13-354 (together with Conestoga Wood Specialties Corp. v. Burwell, No. 13-356
(June 30, 2014)).
In a 5-4 majority opinion, Justice Samuel Alito stated the decision is narrow and limited in scope; however, the dissenting justices raised concerns about applying the majority’s rationale to other ACA insurance mandates (e.g., blood transfusions or vaccinations) and to other
laws prohibiting workplace discrimination (e.g., gender or sexual orientation).
Challenge Upheld under RFRA, Not First Amendment
The contraceptive coverage requirement of the ACA regulations generally requires
group health plans to provide preventive care
The regulatory exemption for
non-profit organiza- tions with religious objections to contraceptive coverage was extended to closely held companies.
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The Court concluded that time spent donning and doffing glasses, earplugs, and respirators may be included within the broad exclusion
for “time spent” changing clothes.
for women without cost-sharing. The HHS regulations specified 20 contraceptive methods approved by the Food and Drug Administration that must be provided by covered employers, including the four methods to which the employers in these cases objected on religious belief grounds. An exemption in the regulations from the contraceptive coverage mandate for religious employers (i.e., churches and other houses of worship) and other non-profit religious organizations (such as schools and hospitals) that object on religious grounds did not include for-profit companies. Organizations eligible
for the exemption or accommodation do not have to contract for, or pay for, contraceptive coverage. The regulations require the insurer or the third-party administrator to provide the coverage at no cost to employees.
The RFRA prohibits the government from “substantially burdening” a person’s exercise of religion, except where the burden is both in “fur- therance of a compelling governmental interest” and is the “least restrictive means of furthering that compelling governmental interest.” The Supreme Court’s ruling in Hobby Lobby extends the protections of the RFRA to closely held cor- porations. The Court held that closely held corpo- rations are “persons” within the meaning of the RFRA, that the ACA’s penalties for failure to com- ply with the contraceptive mandate were a “sub- stantial burden” within the meaning of the RFRA, and that the government had failed to show the contraceptive mandate was the least restrictive method of advancing its interest in guaranteeing access to contraceptive coverage without cost- sharing. Further, the Court ruled HHS, while pro- viding a regulatory accommodation for religious non-profits, had not provided any meaningful rationale for failing to extend a similar accommo- dation to for-profit, closely held corporations that have religious objections to providing coverage
for all or some methods of contraception.
Dissent Sees Slippery Slope
The four dissenting justices sharply criticized the majority for ruling, in their view, that commercial entities could opt out of any law considered incompatible with their owners’ religious beliefs. The dissent characterized the majority opinion as allowing objecting employ- ers to exclude all forms of contraception and opening the door to excluding coverage for services such as vaccines, blood transfusions, antidepressants and other medications deemed objectionable on religious grounds.
The Supreme Court’s decision is
Time Spent Donning, Doffing Required Protective Gear Not Compensable under Union Contract
In a unanimous decision involving the Fair Labor Standards Act, the Supreme Court held employees need not be paid for their pre-shift and post-shift donning and doffing of required work clothing. In this case, the employer
and the workers’ union had agreed that such activity would not be compensated. Most federal appeals courts have followed this view, but the U.S. Court of Appeals for the Ninth Circuit had found to the contrary. Sandifer v.
U.S. Steel Corp., No. 12-417 (Jan. 27, 2014).
The employees claimed they were unlawfully denied compensation for time spent putting on and taking off necessary protective gear required by their employer. Section 3(o) of the FLSA allows a collective bargaining agreement to exclude from workers’ pay “clothes” changing time, as did the agreement in question. The Court ruled “clothes” means “items that are both designed and used to cover the body and are commonly regarded
as articles of dress.” It rejected the employees’ argument that items designed to protect against workplace hazards could not be “clothes.”
Further, the Court said “changing clothes” means substituting or altering one’s dress. Most of the protective clothing and gear worn by
the workers – flame-retardant jackets, pants, hoods, hardhats, snoods, wristlets, work gloves,
leggings, and metatarsal boots – were “clothes,” the Court determined, removing the periods spent donning and doffing from inclusion in compensable time.
The Supreme Court’s decision is
Workers’ Collective Bargaining Agreement. Interestingly, the Court concluded that time spent donning and doffing glasses, earplugs, and respirators is included within the broad exclusion for “time spent” changing clothes, as long as the vast majority of that time is spent donning or
doffing “clothes.” The lower court hearing the case had determined such items were put on and taken off as needed during the normal and compensable part of the workday.
The Jackson Lewis practice group for the FLSA is “Wage and Hour.”
For information about wage and hour issues generally, go to “Wage and Hour” or contact the Jackson Lewis attorney with whom you regularly work.
Long-Standing Tax Treatment of Severance Pay Upheld
Sustaining the long-standing position of the Internal Revenue Service, the U.S. Tax
Court and several federal appeals courts, the Supreme Court unanimously held severance compensation paid to involuntarily termi- nated employees is taxable wages subject to FICA (Social Security and Medicare) taxes. U.S. v. Quality Stores, Inc., No. 12-1408 (Mar. 25, 2014).
The Supreme Court, in keeping with its own prior rulings, confirmed that the FICA tax definition of wages includes severance payments, regardless of the reason for an employee’s termination. The Court rejected the holding of the U.S. Court of Appeals for the Sixth Circuit – in conflict with the federal tax appellate court and the position taken by the IRS – that FICA taxes did not
apply to severance payments made directly in connection with a reduction-in-force or a discontinuance of a plant or operation.
The conflict was based on different readings of the Internal Revenue Code and Congres- sional intent. There was no way to reconcile the two decisions and the Supreme Court did not attempt to do so.
The Supreme Court’s decision is
Pay. The IRS has ruled severance payments that are linked to state unemployment benefits would be treated as exempt from FICA taxes only if seven qualifying conditions are met and only if a severance benefit is not paid in a lump sum. Further, even the Sixth Circuit had held its ruling did not apply to settlement of employment claims that may include lost back pay and
The Jackson Lewis practice group for severance benefits is “Employee Benefits.”
For information about tax treatments and employee benefits generally, go to “Employee Benefits,” or contact the Jackson Lewis attorney with whom you regularly work.
Contractually Reduced Limitations Periods for ERISA Benefit Claims Permitted
A contractual limitations period in a disability benefits plan covered by the Employee Retire- ment Income Security Act of 1974 that required participants to bring suit within three years after “proof of loss is due” is enforceable, the Supreme Court ruled unanimously. Heimeshoff
v. Hartford Life & Accident Ins. Co., 134 S.Ct. 604,
187 L. Ed. 2d 529 (2013).
While a participant in an employee benefit plan covered by ERISA may bring a civil action to recover benefits, federal courts generally have required participants to exhaust the plan’s administrative remedies before filing such a suit. ERISA does not specify a statute of limita- tions for filing these suits. Whether and under
Absent unreasonable limitations, the terms of a written ERISA- covered plan are paramount and should be enforced.
The Court returned to specific statutory terms
to define ESOP
what circumstances an applicable state statute
of limitations can be contractually shortened where a claim for benefits is made under a plan subject to ERISA has divided the federal courts of appeals for years.
The Court’s decision in Heimeshoff is significant for a number of reasons having to do with the applicability of state statutes of limitations to contractual limitations periods that are “reasonable” under ERISA-covered employee benefit plans. Further, the decision overturns the law in certain circuits holding a contractual limitations period cannot begin to run until available administrative remedies have been exhausted. In Heimeshoff, the
Court held such a severe rule is inappropriate. Absent unreasonable limitations barring a participant’s ability to assert a claim, it said, the terms of the written plan are paramount and should be enforced.
general language of the ERISA statute
and the common law presumptions that
a prudent fiduciary cannot be obligated to violate the law. The Court rejected
the complex series of presumptions developed in ESOP cases commonly referred to as the Moench presumption. Finding no such presumption exists under ERISA, the Court returned to the specific statutory terms to define the fiduciary obligations under an ESOP.
Fifth Third Bancorp addressed facts involving an ESOP holding publicly traded securities. With the Supreme Court’s reliance on the plain language of ERISA,
its reasoning would apply equally to ESOPs holding non-publicly traded securities,
thus ensuring that the Court’s guidance will be relevant to all ESOPs, their fiduciaries, and plan sponsors.
The Supreme Court’s decision is
For details of the decision, see Supreme Court Affirms Contractually Reduced Limitations Periods for ERISA Benefit Claims.
The Court did not indicate what period of time for bringing a claim “after proof of loss is due” might be unreasonable. The plaintiff in Heimeshoff had about one year left under the plan terms to file a complaint after completing the review of her claim, indicat-
ing that 12 months presumably is not “too short” in the run of cases. Relying upon Heimeshoff, a federal district court in New Jersey has dismissed an ERISA benefits claim as untimely filed, finding a nine-month residual period for filing suit was ample. Barriero v. NJ BAC Health Fund, 2013 U.S. Dist. LEXIS 181277, *12-*13 (D.N.J. Dec. 27, 2013).
Return to Plain Terms of ERISA for
ESOP Fiduciary Actions
The Supreme Court unanimously decided the Employee Retirement Income Security
Act of 1974 does not contain a presumption of prudence for employee stock ownership plan (ESOP) fiduciary actions, rejecting
the presumption adopted by many
(June 25, 2014).
The Supreme Court relied on the
The Supreme Court’s decision is
The Jackson Lewis practice group for ERISA-covered employee benefits, including employee disability and employee stock ownership plans, is “Employee Benefits.”
For information about ERISA matters and employee benefits generally, see “Employee Benefits,” or contact the Jackson Lewis attorney with whom you regularly work.
Sarbanes-Oxley Whistleblower Provisions Reach
Privately owned companies, in addition to publicly traded companies, may be subject to whistleblower liability under the Sarbanes-Oxley Act of 2002 (SOX), the U.S. Supreme Court has ruled in a 6-3 decision. The Court held that the
whistleblower provision under SOX “shelters employees of private contractors and subcontractors, just as it shelters employees of the public company served by the contractors and subcontractors.” Lawson v. FMR LLC, No. 12-3 (Mar. 4, 2014). The case involved former employees of private companies that contract to manage mutual funds; the funds themselves
are public companies but they have no employees of their own. Thus, any
employees involved with the public mutual fund companies are employees of private contractors. However, the decision left unclear the extent of these circumstances, thus generating ongoing debate about the reach of SOX.
Until now, privately owned companies, on their own, generally were not considered subject to SOX whistleblower retaliation claims. Following Lawson, contractors and subcontractors of publicly traded compa- nies with employees performing services for publicly traded companies, in particular, are potential targets for such claims.
What Employers Need to Watch Next Term
The Supreme Court has agreed to resolve a split among the federal appeals courts on whether the Equal Employment Opportunity Commission’s statutorily required efforts at conciliation before bringing a Title VII suit against an employer are open to judicial review. Most circuit courts that have considered
the issue have decided that the EEOC’s conciliatory efforts are fair game for judicial review. One that has disagreed is the U.S. Court of Appeals for the Seventh Circuit, with jurisdiction over Illinois, Indiana and Wisconsin.
The case is EEOC v. Mach Mining, LLC, 738 F.3d 171 (7th Cir. 2013).
For a discussion of the issue, see, Preventive Strategies, First Quarter 2014, “Where the Workplace Action Is,” and Seventh Circuit Agrees with EEOC There Is No Affirmative Defense for the EEOC’s Failure to Conciliate.
The Supreme Court’s decision is
For details of the decision, see
entirely clear after the Supreme Court’s decision in Lawson. While debate over the implication
of this decision will continue, privately owned companies should assess whether they have exposure to possible SOX whistleblower retaliation claims because of the particular work performed and related circumstances
of their employees.
The Jackson Lewis practice group for
Home Health Care Workers in Illinois Not Required to Pay
Nonmember Union Fees
Weighing in on public sector employees’ rights, the Supreme Court invalidated an Illinois statute requiring home-based personal care providers to support a union that has
a collective bargaining relationship with the State where the care providers do not wish to join or support the union. Striking a blow to efforts to unionize home health care workers, the Court ruled in a 5-4 decision that the state statute’s requirement violated the personal care providers’ free speech rights under the First Amendment. Harris v. Quinn, No. 12-861 (June 30, 2014).
The 2003 Illinois law recognized certain home care providers for Medicaid recipients as “public employees.” Following an election, the Service Employees International Union became the exclusive representative of those workers.
Under the state law, workers who decided not to join the union could be required to support it by a compulsory deduction from their paychecks, called a “fair share” fee, as a condition of their employment. The Supreme Court’s decision invalidated the law.
After Harris, health care unions in states allowing home health aides to unionize may reconsider devoting their limited resources to organizing these workers.
Distinguishing between “full-fledged”
public sector employees and “quasi-public employees,” the Supreme Court ruled that unions may continue to require full-fledged public employee non-members to pay an agency fee. See Abood v. Detroit Board of Educ., 431 U.S. 209 (1977), in which the Court ruled state employees who choose not to join a public-sector union may be compelled to pay an agency fee to finance union costs for collective bargaining, contract administration, and grievance handling.
The Supreme Court’s decision is
For details of the decision,
After Harris, health care unions in states allowing home health aides to unionize may reconsider devoting limited resources to organizing
For information about public sec- tor employer matters, go to “Public Sector
Representation,” or contact the Jackson Lewis attorney with whom you regularly work.
First Amendment Speech Rights of Government
In another unanimous ruling, the Supreme Court held a state community college employ- ee’s truthful sworn testimony in a criminal trial was protected by the First Amendment. The Court also unanimously held the former college president, who discharged the employ- ee, was entitled to qualified immunity against the First Amendment retaliation claims brought against him in his individual capacity.
Finally, the Court remanded the case to the lower court to consider the First Amendment retaliation claims against the current col- lege president in her official capacity. Lane v. Franks, No. 13-483 (June 19, 2014).
For government employers, this decision clarifies an unsettled area of law. This opinion makes clear that speech “merely concerning information related to or learned through public employment” does not transform “citizen” speech into “employee” speech, and thus lose First Amendment protection. The Court described its inquiry as finding the bal- ance “between the interests of the [employee], as a citizen, in commenting upon matters of public concern and the interest of the State,
as an employer, in promoting the efficiency of the public services it performs through its employees.” See, Pickering v. Board of Educ., 391 U.S. 563, 568 (1968). Using a two-step inquiry, the Court found that the program
director had acted as a citizen in reporting and testifying in the criminal action, and that his actions involved a matter of public concern. See, Garcetti v. Ceballos, 547 U.S. 410 (2006). The Court concluded there was no government interest tipping the scale in the employer’s favor, and the program director’s speech was protected under the First Amendment.
The Supreme Court’s decision is
Employees.” The federal appeals courts were in disagreement about what actually constituted speaking “pursuant to one’s duties.” This opinion makes clear that speech “merely concerning information related
to or learned through public employment” does not transform citizen speech – which is protected – into employee speech – which is unprotected.