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EEOC Challenge to CVS Severance Agreement Dismissed Due to Agency’s Failure to Engage in Conciliation

October 13, 2014

By Scott J. Wenner

Late last year the United States Equal Employment Opportunity Commission (EEOC) sued CVS in the Northern District of Illinois claiming that the retail pharmacy’s standard form severance agreement and release violated Title VII. More specifically, the agency claimed that the CVS agreement failed adequately to inform separating employees that they were not waiving their rights to file a charge of discrimination with the EEOC and/or a state or local agency, and that they could still support discrimination claims of others being investigated by the Commission.

Especially of concern to the agency appeared to be routine non-disclosure and non-disparagement clauses, and a cooperation clause that required the signatory to advise the company if he or she were subpoenaed or otherwise contacted about matters being released. Because CVS’s agreement resembled garden-variety separation agreements in common use, and as it indeed notified employees of their continued right to complain to and assist the EEOC, the case caused considerable concern among  employers.

In the CVS Severance Opinion filed last week, the court dismissed the EEOC’s action. Unfortunately, the ruling was not based on the merits of the claim. Thus, it fails to provide guidance to employers on how, if at all, their standard form severance agreements should be changed to withstand legal challenge. Because the EEOC has continued to maintain that the CVS agreement interfered unlawfully with its enforcement of Title VII by deterring employees from exercising their rights, it seems unlikely that the issue will go away until the courts bring clarity to what had been thought to be a reasonably clear set of rules embodied in guidance the agency provided years ago.  See, Enforcement Guidance on Non-Waivable Employee Rights, EEOC Notice No. 915.002 (Apr. 10, 1997).

The court’s dismissal of the EEOC’s complaint against CVS nevertheless had a silver lining for employers, however. CVS’s motion to dismiss was in part founded on the agency’s admitted failure to engage in conciliation before suing CVS. The EEOC contended that it was not required statutorily to conciliate before bringing an action under the section of Title VII on which it sued CVS – §707(a). The court roundly rejected the Commission’s position based on the Act’s legislative history and because “the EEOC’s own regulations require the agency to use informal methods of eliminating an unlawful employment practice where it has reasonable cause to believe that such a practice has occurred or is occurring. See 29 C.F.R. § 1601.24(a).” Declaring that “The EEOC may sue only after it has attempted to secure a conciliation agreement acceptable to the Commission,” and as the Commission admitted that it did not conciliate, the court granted the CVS motion to dismiss.

This dismissal will resonate with employers that have experienced high-handed tactics by the Commission in refusing to engage in good faith conciliation before bringing an action against an employer. The issue the court addressed was slightly different from the question presented in EEOC v. Mach Mining, LLC, which the Supreme Court agreed to review this term. In Mach Mining, the Court will decide whether inadequate conciliation efforts constitute an affirmative defense to an action brought by the agency. In CVS, there was no dispute over the EEOC’s failure to engage in conciliation. The court found as a matter of law that the Commission’s conceded failure to conciliate with the employer was grounds for dismissal of the action.

For more information regarding this or other labor and employment issues, please contact Scott J. Wenner, past chair of Schnader’s Labor and Employment Practices Group. 

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation

No Right to Jury Trial Under Pennsylvania’s Whistleblower Statute

August 21, 2014

 By Anne Kane

On August 19, 2014, the Pennsylvania Superior Court held that individuals bringing suit under the Pennsylvania Whistleblower Law have no right to a jury trial.  Writing for the court, Judge Judith Olson explains that “the plain language of the statute makes clear that Appellant did not possess a statutory right to a jury trial.”  Bensinger v. University of Pittsburgh Medical Center t/a/d/b/a Western Psychiatric Institute and Clinic, 2014 Pa. Super. LEXIS 2861 (August 19, 2014).  Because a whistleblower claim has no common law analogue that would give rise to a right to jury trial under the Pennsylvania Constitution, the court held that the trial court properly denied plaintiff John Bensinger’s jury demand.

The Bensinger decision is good news for Pennsylvania employers because it places decisions on liability and damages into the hands of judges who often are better qualified to decide complex employment cases, and who are usually less apt to be swayed by facts unrelated to the claims or defenses.

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For more information regarding this or other labor and employment issues, please contact Anne Kane, Co- Chair of Schnader’s Labor and Employment Practices Group. 

 The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

 

NJ “Ban the Box” Law Restricts Employers from Inquiring about Criminal Records of Prospective Employees During Initial Application Process

August 12, 2014

By Harris Neal Feldman

New Jersey Governor Chris Christie signed The Opportunity to Compete Act (A-1999) on August 11, 2014, barring private employers from asking prospective employees about their criminal records during the initial job application process – whether as a part of the employment application or by oral inquiry.

This law follows a trend among multiple jurisdictions in the United States to “ban the box” – meaning prohibiting employers from asking a prospective employee to check the box on an employment application as to whether the person has a criminal history. After the “initial” application process, which includes the first interview, the employer is free to inquire about an applicant’s criminal history. Thus, careful timing is key.

The law provides certain exceptions, such as jobs requiring high levels of security or where a criminal background check is otherwise required by law. Notably, should an applicant voluntarily disclose criminal record information during the initial application, then an employer may “make inquiries regarding the applicant’s criminal record during the initial employment application.”

Also, under this new law, employers will be prohibited from posting job advertisements that “explicitly provide that the employer will not consider any applicant who has been arrested or convicted of one or more crimes or offenses.”

While the law does not provide a private cause of action for violations, employers may face fines up to $1,000 for the first violation, $5,000 for the second, and $10,000 for subsequent violations. The law preempts any local/municipal laws that address criminal record inquiries in the employment context.

What Should NJ Employers Do?

With the new law’s effective date of March 1, 2015, employers have time for counsel to (1) review existing job advertisements, application forms, and related documents and (2) help train management who participate in the hiring process.

For more information regarding this or other labor and employment issues, please contact Harris Neal Feldman of Schnader’s Labor and Employment Practices Group. 

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

NJ Appellate Courts Permit Employers to Shorten Statute of Limitations Period Through Employment Applications

July 31, 2014

By Michael J. Wietrzychowski

A New Jersey Appellate Court recently held that a provision in an employment application shortening the statute of limitation from two years to six months was enforceable under New Jersey law. As a result, the employee’s discrimination and retaliation claims that were filed nine months after his termination were dismissed. Subject to appeal, this decision encourages all employers to include similar provisions in their applications for employment.

In Rodriguez v. Raymours Furniture Co., the plaintiff sued his employer, alleging that he was fired in retaliation for filing a workers’ compensation claim and because of discrimination based on his disability. The plaintiff filed his complaint nine months after his alleged wrongful termination by his employer. The statute of limitations for each claim is normally two years, and therefore the plaintiff appeared to have filed his claims on time. However, the employer argued that the plaintiff filed his lawsuit too late, relying on a provision contained in the Plaintiff’s application for employment – part of which read:

 I AGREE THAT ANY CLAIM OR LAWSUIT RELATING TO MY SERVICE WITH RAYMOUR & FLANIGAN MUST BE FILED NO MORE THAN SIX (6) MONTHS AFTER THE DATE OF THE EMPLOYMENT ACTION THAT IS THE SUBJECT OF THE CLAIM OR LAWSUIT. I WAIVE ANY STATUTE OF LIMITATIONS TO THE CONTRARY.”

Looking at the totality of the application language (the above is an excerpt of the entire application language that the Court considered), and the circumstances surrounding the applicant’s signing of the application, the Rodriguez Court held that the language limiting the applicable statute of limitations to six months was enforceable. The Court stated that the language, its prominence, and circumstances regarding the signing of the application made it clear, conspicuous, reasonable, voluntary, and not contrary to public policy. In so holding, the Court upheld the lower court’s dismissal of the plaintiff’s complaint.

What Employers Should Do

As of the time of this posting, the Rodriguez decision is the law of New Jersey, and therefore, employers are encouraged to include waiver language in employment applications and contracts to shorten the statutes of limitation applicable to state employment actions. However, employers must take care to draft proper language and create an environment that will ensure enforcement and defend against claims of unconscionability, involuntariness, lack of clarity, and lack of consideration. Also, this holding applies only to state claims. It is not expected that federal courts will reverse decisions holding that the statute of limitations for certain federal claims, such as EEOC discrimination claims, cannot be shortened by agreement. Finally, this decision may be subject to further appeal or amendment to the law.

For more information regarding this or other labor and employment issues, please contact Michael J. Wietrzychowski, Co-Chair of Schnader’s Labor and Employment Practices Group.   

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

 

 

Senate Finance Committee Considering Measure to Largely Repeal IRC Section 530 Safe Harbor for Most Businesses Using Independent Contractors

July 8, 2014

By Scott J. Wenner

Sen. Sherrod Brown (D.Ohio) reintroduced the “Fair Playing Field Act,” S.1706, in November 2013. The bill, which first appeared in 2010 under then-Senator John Kerry’s sponsorship, purports to close an ostensible loophole in the application of the common law test generally used by the Internal Revenue Service to determine whether a worker is properly classified as an independent contractor. The purported loophole referred to by Sen. Brown and his predecessor sponsors is Section 530 of the Internal Revenue Code, which the bill would repeal for workers who do not provide professional services. The bill defines “professional services” as services performed in the fields of health, law, engineering, architecture, accounting, actuarial science, consulting, or financial services and insurance.

Section 530 of the Internal Revenue Code

Far from a mere “loophole” that permits big companies to cheat, Section 530 provides important protections for businesses, many of which are small, whose business model was and remains built around legitimate use of independent contractors, including independent sales representatives and mystery shoppers. Many of these businesses maintain that they have relied on Section 530 in growing their businesses, and that its repeal would have devastating consequences for them because, e.g., they cannot afford to employ a national network of workers who may work just a few hours at a time, two or three times per year, distributing surveys or undertaking some similar task. Moreover, because in many cases entire industries treat workers in a specific position as independent contractors using Section 530, one central thesis of the legislation – that some companies gain an unfair competitive advantage by misclassifying a position – in fact fails to justify repeal of Section 530.

Section 530 was added by Congress to the Internal Revenue Code by the Revenue Act of 1978. Under the Section 530 safe harbor, a qualifying employer is not responsible for payment of past employment taxes for workers who the IRS determines have been misclassified. Further, that employer is not required to reclassify such workers. The safe harbor permits an employer to continue to treat workers the IRS finds to have been misclassified as independent contractors for purposes of federal employment taxes so long as the employer satisfies the requirements of the safe harbor:

  • The employer consistently must have filed Forms 1099 for all those whom it classified as independent contractors.
  • The employer must treat each group of workers that holds similar positions consistently. That is, it must treat all workers holding substantially similar positions as independent contractors.
  • The taxpayer must have a “reasonable basis” for treating the workers in those positions as independent contractors. “Reasonable basis” includes reliance on court cases, published IRS rulings, an IRS ruling received by the employer, a past IRS audit that made no assessment on the class of workers at issue, by showing that a significant segment of the taxpayer’s industry treats similar workers as independent contractors, or some other reasonable basis.

Fair Playing Field Act

In addition to the repeal of Section 530’s safe harbor with respect to most positions, the Fair Playing Field Act would

  • Repeal the existing moratorium on IRS guidance addressing worker classification;
  • Permit the IRS to prospectively reclassify workers as employees;
  • Limit the IRS’s discretion to reduce penalties for misclassifying employees where a “reasonable basis” (defined above) does not exist. Presumably, this would affect the IRS’s authority to continue its Voluntary Classification Settlement Program, which we discussed here.

The bill, which has been stalled in the Senate Finance Committee, will be taken up in the form of an amendment by Sen. Brown to a bill entitled Preserving American’s Transit and Highway Act (PATH). PATH was introduced to provide revenue and authorize expenditures for the Highway Trust Fund, which purportedly will run out of money this year. Sen. Brown has linked the Fair Playing Field Act to PATH by making the increased misclassification penalties to be collected – estimated at $5.8 billion over ten years – a source of funding for the highway trust.

The Senate Finance Committee has scheduled a July 10 mark up session for PATH, including making decisions on which of the plethora of amendments to include. If the committee adopts the Fair Playing Field amendments and PATH is favorably reported out, it will go to the Senate floor for a vote. If passed with the Fair Playing Field amendments included, it still must gain House approval, which appears unlikely. Nonetheless, it is important to know that the Democrats’ effort on this legislation continues, and that monitoring of the campaign to narrow the lawful use of independent contractors continues to be a good idea.

For more information regarding this or other labor and employment issues, please contact Scott J. Wenner, past chair of Schnader’s Labor and Employment Practices Group. 

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation

Supreme Court Deals NLRB and Administration Another Legal Setback

June 27, 2014

By Scott J. Wenner

The United States Supreme Court yesterday ruled unanimously that three recess appointments made to the National Labor Relations Board by President Obama on January 4, 2012 were an invalid exercise of the power to make recess appointments found in Art. II, §2, cl. 3 of the United States Constitution. National Labor Relations Board v. Noel Canning, No. 12-1281.

Summarizing the view of all nine Justices, Justice Breyer’s majority opinion stated: “we conclude that the President lacked the power to make the recess appointments here at issue.”  Four of the Justices arrived at the same result by a different route, explained in Justice Scalia’s concurring opinion.

This is the second time in the past several years that the Supreme Court has invalidated NLRB action for what might be termed administrative or procedural irregularity.  In New Process Steel v. NLRB, the Court found that action in deciding more than 600 cases by an NLRB with only two sitting members from January 2008 until July 2010 was invalid because the agency lacked a quorum, which it held to be at least three members.

While Noel Canning was decided on constitutional law principles having little to do with the substance of labor and employment law, the potential impact of the Supreme Court’s decision on labor law is substantial.   The fact that three of the five Members of the NLRB were appointed without authority means that from January 2012 until July 2013, the Board lacked the three-member quorum needed to make valid decisions for that eighteen-month period.  One thousand or more decisions were made in that period and are rendered invalid by the Noel Canning decision.

Certainly this means that the Board, which now has a full quorum, will have to re-decide many of the decisions that were invalidated.  Given the similar makeup of the current and invalid Boards, the outcome of many cases may not change on reconsideration.  A particularly pressing question is presented by the dozens of Board decisions that were appealed to one of the federal appellate courts, which largely were stayed while Noel Canning was awaiting decision.  One would expect that the Board would have to reconsider its decisions in those cases on a priority basis.  Further intriguing questions concern the status of regional directors appointed by improperly constituted panels and the fate of cases presently being prosecuted by the General Counsel based on Board decisions that now are invalid.

One thing that is clear is that the Board will have much urgent work to occupy its time simply dealing with the repercussions of Noel Canning.  That could be good news for employers given the Board’s ambitious plans to alter radically the representation election rules and its recent request for briefs from interested parties on what is likely to be an equally radical reworking of the rules on employee use of employer e-mail networks to engage in concerted activity.

Many project that the enormity of the Noel Canning fallout will consume the agency at least through the 2014 elections, after which the Board majority could be up for grabs, depending on the results of the Congressional elections.

For more information regarding this or other labor and employment issues, please contact Scott J. Wenner, past chair of Schnader’s Labor and Employment Practices Group. 

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

California Supreme Court Submits to Federal Preemption, Holds Class Action Waivers Enforceable in Employment Cases – But Not in PAGA Claims

June 24, 2014

By Scott J. Wenner

We have written previously of the back and forth between the United States Supreme Court and the California Supreme Court on questions relating to mandatory binding arbitration and class action waivers in the workplace (see here). While the U.S. Supreme Court has construed the Federal Arbitration Act’s (FAA) policy favoring arbitration expansively, the California Justices have taken the opposite view.

The California Supreme Court consistently has read the limited exceptions to FAA preemption of state laws broadly, while seeming to construe U.S. Supreme Court opinions approving binding arbitration and class action waiver agreements as narrowly as possible – most recently in Sonic-Calabassas A, Inc. v. Moreno, a 2013 opinion that nominally narrowed use of the state’s unconscionability doctrine to invalidate mandatory binding arbitration agreements in response to the U.S. Supreme Court’s Concepcion opinion.

Yesterday, the California Supreme Court took what was for it a giant step in Iskanian v. CLS Transportation.  The following excerpt from the Court’s opinion best summarizes the questions considered and primary holdings of Iskanian:

In this case, we again address whether the Federal Arbitration Act (FAA) preempts a state law rule that restricts enforcement of terms in arbitration agreements. Here, an employee seeks to bring a class action lawsuit on behalf of himself and similarly situated employees for his employer‘s alleged failure to compensate its employees for, among other things, overtime and meal and rest periods. The employee had entered into an arbitration agreement that waived the right to class proceedings. The question is whether a state‘s refusal to enforce such a waiver on grounds of public policy or unconscionability is preempted by the FAA. We conclude that it is and that our holding to the contrary in Gentry v. Superior Court (2007) . . . has been abrogated by recent United States Supreme Court precedent.  We further reject the arguments that the class action waiver at issue here is unlawful under the National Labor Relations Act and that the employer in this case waived its right to arbitrate by withdrawing its motion to compel arbitration after Gentry.

The opinion continued:

The employee also sought to bring a representative action under the Labor Code Private Attorneys General Act of 2004 (PAGA) (Lab. Code, § 2698 et seq.). This statute authorizes an employee to bring an action for civil penalties on behalf of the state against his or her employer for Labor Code violations committed against the employee and fellow employees, with most of the proceeds of that litigation going to the state. . . . [W]e conclude that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy. In addition, we conclude that the FAA‘s goal of promoting arbitration as a means of private dispute resolution does not preclude our Legislature from deputizing employees to prosecute Labor Code violations on the state‘s behalf. Therefore, the FAA does not preempt a state law that prohibits waiver of PAGA representative actions in an employment contract.

California plaintiff-side class action lawyers routinely include PAGA claims in actions they bring for wage-hour and other Labor Code violations, so framing their complaints as PAGA claims will be nothing new.  However, PAGA claims ordinarily are less remunerative for the represented employees because of the shorter one-year limitations period and the fact that only 25 percent of the amount awarded, deemed penalties, is paid to the plaintiff class, with the balance paid to the state. What will drive the answer to whether Iskanian signals the decline of the expensive and, for class counsel very profitable, California Labor Code class action will likely depend on whether these cases remain as profitable for the lawyers who bring them.

For more information regarding this or other labor and employment issues, please contact Scott J. Wenner, past chair of Schnader’s Labor and Employment Practices Group. 

The materials posted on Schnader.com and SchnaderWorks.com are prepared for informational purposes only and should not be considered as providing legal advice or creating an attorney-client relationship. Please see our disclaimer page for a full explanation.

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