SCOTUS Approves Class Action Waivers in Employment Arbitration Agreements

By:  Kara Maciel and Dan Deacon

The U.S. Supreme Court ruled on Monday that class/collective action waiver clauses in employment agreements that compel employees to settle disputes individually with a third-party arbitrator are enforceable.  In a landmark 5-4 ruling, the Justices in the majority rejected the National Labor Relations Board’s position and held that a class/collective action waiver in an arbitration agreement – which effectively prohibit employees from joining together in a class or collective action lawsuit to settle disputes – do not violate the Federal Arbitration Act (“FAA”) or the National Labor Relations Act (“NLRA”).

Background

Arbitration agreements – requiring employees to submit claims to an arbitrator instead of filing in court – are relatively common in the workplace.  Many employers favor arbitration because it tends to lower the cost of litigation and streamlines a resolution.

The legal issue that percolated through the federal Courts of Appeals over the past several years was whether a class/collective action waiver in an arbitration agreement is enforceable.  An arbitration agreement that includes a class/collective action waiver benefits an employer because it prevents employees from banning together to file costly class or collective actions and it forces employees to utilize the arbitration process rather than filing a lawsuit.  Thus, the only form of redress for an employee is a single action that must be worked out before a neutral, third-party arbitrator.

Over the past five years, the Courts of Appeals issued conflicting opinions on whether class action waivers are enforceable.   Notably, between 2013 and 2014, employers were provided favorable opinions from the U.S. Courts of Appeals for the Fifth, Second, and Eleventh Circuit which concluded that the NLRA does not invalidate class action waivers in arbitration agreements.  In contrast, in 2016, the U.S. Courts of Appeals for the Ninth and Seventh Circuit adopted the NLRB’s position that class and collective action waivers violate Section 7 of the NLRA.

The Supreme Court’s Decision

The Supreme Court’s ruling brings finality to an issue that sparked years of debate and caused significant uncertainty for employers.  Oral arguments took place in October 2017 with the justices appearing split along ideological lines – except for Justices Clarence Thomas and Neil Gorsuch who did not speak at all during the session.  Interestingly, however, it was Justice Gorsuch who wrote the opinion – which was his first major opinion since joining the Court last spring.

As alluded to in our prior blog post, President Trump’s ability to fill Justice Scalia’s vacancy was ultimately a deciding factor in what appears to have been a partisan showdown.  Speaking for the conservative wing on the bench, Justice Gorsuch explained that the law is clear that Congress in enacting the FAA instructed federal courts to enforce arbitration as written, including those terms calling for individualized proceedings, and that the “decision does nothing to override” what Congress has done.  In a lengthy dissent, Justice Ginsburg criticized the majority for overturning 80 years of NLRB precedent.  Justice Ginsburg commented that the majority’s decision is “egregiously wrong” and expressed concerns that many employees with small claims, such as minimum wage and overtime violations, will be disinclined to pursue potential claims individually.

The expected fall-out and the future of this ruling now rests with Congress.  Congress certainly has the ability to revise the FAA and the NLRA through legislation.  Given the deep split amongst party lines, however, it is unlikely that Congress will act any time soon.

Take Aways for Employers 

In light of the Court’s decision, employers should immediately review their practices and policies governing employment agreements with arbitration clauses.  For those employers who do not require arbitration of disputes, now may be the time to reconsider whether to implement such an agreement with current employees.  For those employers who have arbitration agreements in place already, now is the time to ensure the agreement contains an enforceable class/collective action waiver, especially for wage and hour disputes.  Employers may want to evaluate whether to restrict class/collection actions for other types of disputes, such as discrimination or harassment cases.  Importantly, any arbitration agreement must be drafted with the company culture in mind.

In short, employers now have the ability to utilize a new forum to resolve legal disputes on an individual basis.  In some circumstances, especially for class/collection claims, an arbitration may be less expensive than lawsuits, take less time, and do not typically result in years of appeals.  Ultimately, the Supreme Court’s decision is welcome news for employers.  Employers can proactively mitigate litigation risk through carefully drafted employment agreements and more effectively manage legal disputes.

Highlights of the Spring 2018 Regulatory Agenda – Part 2: Initiatives of the DOL and EEOC

DOL WHDOn Monday, we reviewed some of the rulemaking initiatives identified by the National Labor Relations Board (“NLRB”) in the Trump Administration’s Spring 2018 Unified Regulatory and Deregulatory Actions (Agenda).  In this post, we take a look at some highlights from the Agenda for the Department of Labor (“DOL”) – particularly the Wage and Hour Division – and the Equal Employment Opportunity Commission (“EEOC”).

Initiatives from the Department of Labor

The Spring 2018 Agenda also included many rulemaking initiatives from the DOL.  One item of note is the DOL’s intent to issue a Notice of Proposed Rulemaking to “clarify, update, and define” the requirements for “regular rate of pay” under Section 7(e)(2) of the Fair Labor Standards Act (“FLSA”).  The FLSA requires that employees who work more than 40 hours in a work week be paid overtime at a rate of time and a half their regular rate of pay.  The FLSA explains that the regular rate of pay often includes more than just the employee’s hourly rate where the employee receives other types of compensation, such as bonuses or commissions.  But it is not always clear exactly which types of compensation must be factored into determining the regular rate of pay and how it should be calculated.  The DOL has set a proposed deadline of September 2018 to issue its Notice of Proposed Rulemaking. Continue reading

Highlights of the Spring 2018 Regulatory Agenda – Part 1: Initiatives of the NLRB

Spring 2018 Regulatory AgendaOn Wednesday, the Office of Information and Regulatory Affairs released the Trump Administration’s Unified Regulatory and Deregulatory Actions (Agenda).  This Agenda lays out the short-term and long-term regulatory and, pursuant to the Trump Administration’s focus on rolling back regulation, deregulatory priorities for all the different Federal Government Agencies, including the National Labor Relations Board (“NLRB”), Department of Labor (“DOL”), and Equal Employment Opportunity Commission (“EEOC”).  Specifically, the Agenda identifies and briefly explains the rulemaking activities in which each Agency plans to engage over the remainder of 2018 and into the next year.  Below, we have highlighted the major initiatives the NLRB has taken and intends to undertake as outlined in this Agenda.  We will address highlights from the Agenda for the DOL and EEOC in Part Two of this post.

NLRB’s Intent to Establish Joint-Employer Standard

One of the initiatives that came as a surprise to many when it appeared in the Spring 2018 Agenda is a rulemaking to establish a standard to assess joint-employer status.  This rulemaking has been initiated by the NLRB and is currently on the Long-term Actions list.  Although agencies usually include items on the Long-term Actions list that they do not plan to act on within the next year, the press release issued by the NLRB in conjunction with the Spring 2018 Agenda indicates an intent to move on this rulemaking promptly.  In the press release, Chairman John F. Ring states, “In my view, notice-and-comment rulemaking offers the best vehicle to fully consider all views on what the [joint-employer] standard ought to be.  I am committed to working with my colleagues to issue a proposed rule as soon as possible…” (emphasis added).  The press release also reveals that certain members of the NLRB – Chairman Ring and Members Emanuel and Kaplan – have already begun the internal process required to consider rulemaking on the standard. Continue reading

Bucking the Gig Economy, the California Supreme Court Places Steep Hurdle on Classifying Workers as Independent Contractors

california-flagHistorically, California has applied a multi-factor test for evaluating whether a worker is an employee or independent contractor.  These factors – all of which must be considered with no single controlling factor – were developed almost 30 years ago by the California Supreme Court in S.G. Borello & Sons v. Department of Indus. Relations (Borello).  Under this test, consideration was given to the business’ right of control over the manner and means of completing the work, the method of payment, duration of the relationship, and the kind of work being performed, among other factors.  Although Borello examined these factors in the context of workers’ compensation laws, its multi-factor test has been applied to other types of legal claims.

In the new economy, businesses have considered arrangements outside of an employment relationship such as hiring freelancers or contract workers.  Based on an individualized analysis with no bright line rule, Borello’s multi-factor test has afforded businesses flexibility in structuring positions to support an independent contractor  relationship.  Yet, the consequences of misclassification are severe, exposing businesses to liability for minimum and overtime wages, denied rest and meal breaks, unreimbursed work-related expenses and tax liability.  While Uber and other gig economy companies have become embroiled in high-profile litigation over independent contractor issues, businesses across the spectrum are affected as well.

Dynamex Imposes Inflexible Standard

In Dynamex Operations West, Inc. v. Superior Court (Dynamex), the California Supreme Court has just upended Borello, by recognizing a different standard for determining whether workers should be classified as employees or independent contractor for purposes of California’s wage orders.  These wage orders impose obligations relating to minimum and overtime wages, reporting time pay, uniforms and meal and rest periods.

In Dynamex, delivery drivers filed a class action against defendant claiming that Dynamex had misclassified its delivery drivers as independent contractors, rather than employees, in violation of the applicable wage order.  Based on the definition of “employ” contained in the wage orders, the Court recognized that a worker is considered an employee of an entity that has “suffered or permitted” the worker to work in its business. The suffer or permit to work definition is broader and more inclusive than the traditional test adopted by Borello.

The Supreme Court interpreted the suffer and permit to work standard as placing the burden on the hiring entity to establish that the worker is an independent contractor who was not intended to be covered by the wage order.  The Court concluded that, in order to meet this burden, the hiring entity must establish each of these three factors:

(1) that the worker is free from the control and direction of the hiring entity in performing the work;
(2) that the worker performs work that is outside the usual course of the hiring entity’s business; and
(3) that the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.

The first factor is similar to the control factor recognized as a primary consideration under Borello’s common law test.  While businesses may structure the work arrangement in a manner to demonstrate an absence of control, the same is the not true under the second factor.  Even if the worker has a specialized skill, works from home and does not perform work under the direction or control of the hiring entity (factors considered under Borello), the mere fact that the worker’s services are part of the entity’s usual course of business defeats independent contractor status.  The Court cited as an example a bakery that hires cake decorators to work on a regular basis on its custom-designed cakes, which it found to be part of the hiring entity’s usual business operation.  On the other extreme, the Court found that a plumber hired by a retail store to repair a bathroom leak would not be considered to perform services that are part of the store’s usual course of business.  There are numerous consulting arrangements that are now vulnerable under this factor.

Similarly, the third factor places another significant hurdle to establishing independent contractor status because it requires the worker to independently decide to engage in this business relationship, as opposed to being designated as an independent contractor by the hiring entity.  The Court found that an individual meeting this requirement “generally takes the usual steps to establish and promote his or her independent business – for example, through incorporation, licensure, advertisements, routine offerings to provide the services of the independent business to the public or to a number of potential business, and the like.”  Accordingly, this factor suggests that the worker would need to establish some sort of independent business entity or identity.

The Supreme Court has recognized that its ruling marks a major departure from past cases and defies guidance by the California Labor Commissioner following the Borello multi-factor test.  In adopting this broad standard for the employment relationship, the Court considered the economic consequences of classifying workers as independent contractors, with businesses avoiding payroll taxes and workers’ compensation obligations, and workers assuming financial burdens.

Takeaways for Business Owners

While this newly recognized standard provides greater clarity than the Borello multi-factor balancing test, it imposes a very high burden for employers seeking to classify workers as independent contractors.  It should be noted that the Borello test for now will continue to apply in contexts outside of California’s wage orders and should be evaluated as well.  Yet, Dynamex may effectively end up being the benchmark because it imposes a higher, more rigid standard applying to wage and hour violations that typically are the greatest source of exposure for businesses misclassifying workers as independent contractors.

Business owners and management should immediately, through the advice of employment counsel, review all current independent contractor arrangements to ensure proper classification under this new standard.  Before classifying a worker as a “consultant,” i.e., independent contractor, businesses will need to consider primarily whether the worker has an independent business and whether the nature of worker’s services is similar to the business’.  Decisions to treat a worker as a consultant motivated by financial reasons alone or because the individual works from home will now be suspect. Under appropriate circumstances, however, the California courts will likely continue to recognize independent contractor status for traditionally recognized independent contractors such as attorneys, accountants and construction trades who perform services independent of the hiring entity’s business.

 

Much Ado About Something: Recent Appellate Court Decisions Limiting Leave as an Accommodation Are Indeed Significant but Employers Should Still Tread Carefully

By: Aaron Gelb

1 (3)Last fall, the Seventh Circuit Court of Appeals (Illinois, Indiana and Wisconsin) handed down two decisions restricting the amount of leave employers must offer as an accommodation.   (Severson v. Heartland Woodcraft, Inc. and Golden v. IHA).  Management-side employment lawyers celebrated.  Employers breathed a sigh of relief.  The Seventh Circuit had finally given employers some much-needed certainty; a bright line, if you will.  Relying on these decisions, employers in the Seventh Circuit saw little risk rejecting requests for leave extending beyond 4 weeks.  Many employers, though, adopted a wait-and-see approach.  The US Supreme Court might take up the issue and reverse the Seventh Circuit.  To the surprise of many, the Supreme Court declined in April 2018 to weigh in on the issue.  Severson (and Golden) thus remain the law of the land—in the Seventh Circuit.  While these decisions are significant, employers must remain diligent when dealing with employees temporarily unable to do their jobs.

Leave as a Reasonable Accommodation

The US Equal Employment Opportunity Commission (“EEOC”) has long held that an employer must offer leave as a reasonable accommodation.   Typically, the EEOC recommends that employers first explore whether a modification of the workplace, duties or policies will enable the employee to continue doing their job.  If no such accommodation is available, the EEOC expects employers to offer a leave of absence for a definite amount of time so the employee can return to her position at the end of the leave.  When neither option is feasible, the EEOC maintains the employer should reassign the disabled employee to a vacant position for which she is qualified.  Continue reading

Seeking to Pave the Way in the #MeToo Era, the California Legislature Veers off Course

By Andrew J. Sommer

shutterstock_me tooThe #MeToo movement, formed in the wake of sexual misconduct allegations against high profile public figures, has dramatically changed the discourse over harassment. Various politicians, celebrities and business leaders have been implicated in varying degrees, from engaging in sexual misconduct to tolerating a workplace with a pervasive culture of harassment and bias.  With this social movement gaining traction, the California legislature has introduced a flurry of bills seeking to change the perceived culture of workplace harassment but also revamp a host of existing general employment laws to add tools to the arsenal for employees and their attorneys.  As an example, the legislature has introduced the following bills since January 2018

SB 820 – Non-Disclosure Clauses in Settlement Agreements

In the #MeToo movement, the use of non-disclosure agreements to keep harassment allegations from coming to light has drawn significant public criticism. The California legislature has recently stepped into the fray, by introducing Senate Bill (SB) 820 to generally ban non-disclosure provisions in settlement agreements resolving claims of sexual assault or harassment, sex discrimination, or harassment and retaliation for reporting such claims. Specifically, the bill prohibits settlement agreements from containing any provision preventing the “disclosure of factual information” related to these types of lawsuits, except where the provision was included at the request of the claimant. Continue reading

Conn Maciel Carey Welcomes Former CSB Attorney-Investigator to the Firm

beeta lashkariWashington, D.C.-based Labor & Employment and OSHA / Workplace Safety boutique law firm Conn Maciel Carey LLP is pleased to announce that Beeta B. Lashkari has joined the firm as an attorney in its Washington, D.C. office.

Ms. Lashkari, a former attorney-investigator at the U.S. Chemical Safety and Hazard Investigation Board (CSB), has extensive experience handling government investigations and is equipped to defend clients in an array of matters before federal, state, and local government agencies, including OSHA 11(c) and whistleblower retaliation claims and EEOC investigations and enforcement actions.

Ms. Lashkari will assist the Labor and Employment practice group in advising and representing clients in a wide-range of inspections, investigations, and enforcement actions, including those from the EEOC, the Department of Labor’s Wage and Hour Division, the U.S. Occupational Safety and Health Administration (OSHA), the U.S. Environmental Protection Agency, the CSB, and state and local employment agencies.  In addition to her work with the Labor and Employment practice group, Ms. Lashkari will assist the OSHA Workplace Safety practice group in advising and representing clients in a wide-range of inspections, investigations, and enforcement actions before federal OSHA and state OSH agencies.

“We are thrilled to have Beeta join our growing niche practice and look forward to utilizing her government investigation experience to the benefit our employer clients,” said Kara M. Maciel, Chair, Labor & Employment Practice Group.