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SCOTUS Holds that Class Action Waivers in Employment Contracts Must be Enforced

May 22, 2018

By Stephen A. Fogdall

In a landmark decision, the U.S. Supreme Court has ruled 5-4 that arbitration clauses in employment contracts requiring individual dispute resolution procedures and prohibiting class actions and other collective litigation procedures must be enforced under the Federal Arbitration Act.  The Court rejected the position taken by the National Labor Relations Board and some private plaintiffs that employees’ right to engage in “concerted activities” for their “mutual aid or protection” recognized in Section 7 of the National Labor Relations Act makes such class and collective action waivers unenforceable.  The Court issued its ruling in three consolidated cases:  Epic Systems Corp. v. Lewis, Ernest & Young LLP v. Morris and National Labor Relations Board v. Murphy Oil USA, Inc.  In the latter case, the Fifth Circuit reversed the NLRB’s determination that the employer violated Section 7 by including an individual arbitration clause in its employment contract.  In the former two cases, the Seventh and Ninth Circuits respectively adopted the NLRB’s position and allowed private plaintiffs to pursue collective actions under the Fair Labor Standards Act notwithstanding that they had agreed to individual arbitration clauses in their employment contracts.

The Court, in a majority opinion written by Justice Gorsuch, began its analysis by noting that arbitration clauses in employment contracts fall squarely within the FAA’s command that all arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”  The Court then rejected the argument that the final clause of this command, called the “savings clause,” implicates Section 7 of the NLRA.  The Court explained that the savings clause permits a party to oppose arbitration based on defenses, such as fraud in the inducement or duress, that might apply to “any contract.”  However, the savings clause does not allow a court to refuse to enforce an arbitration agreement based on defenses that specifically target arbitration.   The Court reasoned that a putative defense to enforcement of an individual arbitration clause on the theory that such a clause violates employees’ right to engage in “concerted activities” under Section 7 is precisely the type of defense that is not preserved by the savings clause because it specifically targets the alleged illegality of such clauses in the employment setting.  It is, by definition, not a defense of general applicability.

The Court likewise rejected the argument that there is a “conflict” between the FAA and Section 7 of the NLRA such that Section 7 overrides or impliedly repeals the FAA to the extent the FAA would require enforcement of an individual arbitration clause in an employment contract.  The Court held that there could be no conflict between Section 7 and the FAA because “Section 7 doesn’t speak to class and collective action procedures” and contains no “hint about what rules should govern the adjudication of class or collective actions in court or arbitration.”  The Court reasoned that “[u]nion organization and collective bargaining in the workplace are the bread and butter of the NLRA,” and it is “more than a little doubtful that Congress would have tucked into the mousehole” of Section 7 “an elephant that tramples the work done by” the FAA and other laws governing “the particulars of dispute resolution procedures in Article III courts or arbitration procedures.”

Lastly, the Court rejected the argument that the NLRB’s position was entitled to deference under the Chevron doctrine (which requires courts to defer to a federal agency’s interpretation of the statute it administers in certain circumstances).  The Court explained that Chevron was inapplicable because the NLRB did not confine itself to interpreting NLRA, the statue it administers, but rather “sought to interpret this statute in a way that limits the work of a second statute,” the FAA.  If an agency’s “reconciliation” of allegedly competing statutes were subject to deference under Chevron, then “[a]n agency eager to advance its statutory mission, but without any particular interest in or expertise with a second statute, might (as here) seek to diminish the second statute’s scope in favor of a more expansive interpretation of its own,” thus “bootstrapping itself into an area in which it has no jurisdiction.”

The decision is a significant win for employers seeking to limit the costs and risks of class and collective litigation by employees.

Chief Justice Roberts and Justices Kennedy, Thomas and Alito joined Justice Gorsuch’s majority opinion.  Justice Ginsburg wrote a dissenting opinion, joined by Justices Breyer, Sotomayor and Kagan.  The Schnader firm submitted an amicus brief in support of the enforceability of class action waivers in employment contracts in all three cases on behalf of the Mortgage Bankers Association and several state mortgage lending associations.

For more information regarding this or other labor and employment issues, please contact Jo Bennettco-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 Enacts Equal Pay Law

April 27, 2018

By Jo Bennett

On April 24, New Jersey Governor Phil Murphy signed the Diane B. Allen Equal Pay Act into law.  Most commentators consider it the strongest equal pay law in the nation.

The law amends New Jersey’s Law Against Discrimination to make it illegal to pay employees of protected classes rates of compensation, including benefits, less than the rate paid to employees not of the protected class for “substantially similar work when viewed as a composite of skill, effort and responsibility.”  The protected classes are broad and include characteristics such as age, disability, gender, race, sex, and sexual orientation.

The phrase “substantially similar work” in New Jersey’s law is a departure from most laws aimed at the gender wage gap, which tend to require “equal pay for equal work.”  While it remains to be seen how the courts will apply this phrase, employers should assume that it would cover workers with different titles in different departments who have similar levels of responsibility.  The Act does carve out limited exceptions for circumstances such as seniority, education level, or quantity/quality of production. However, the statute prohibits an employer from justifying a lower salary based on an employee’s past salary at a prior employer.   

Other highlights of the new law include:

  • Employers are prohibited from retaliating against workers who discuss their compensation with co-workers;
  • Employers are prohibited from cutting the pay of a higher-paid worker in order to bring salaries in line upon discovering a pay discrepancy;
  • The statute of limitations for claims based on pay equity is six years;
  • Employees may seek up to six years of back pay for alleged violations of the law; and
  • Treble damages may be awarded if an employer is found in violation of the law.

The legislation, which was previously vetoed several times by former Governor Chris Christie, takes effect July 1.  In the meantime, employers are advised to review their hiring and compensation practices to ensure compliance.

For more information regarding this or other labor and employment issues, please contact Jo Bennettco-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 Set to Pass Sick Leave Law

April 23, 2018

By Jo Bennett

On April 12, the New Jersey Senate passed the New Jersey Paid Sick Leave Act. The New Jersey Assembly had passed the bill in March, and Governor Phil Murphy is expected to sign it shortly. The law requires nearly all private employers to provide up to 40 hours of paid sick leave to employees per benefit year. The Act exempts public employees, who already have sick leave benefits, as well as per diem healthcare employees and construction workers covered by collective bargaining agreements. However, small businesses are not exempt.

Under the law, employers must establish a benefit year and allow employees to accrue up to 40 hours of paid sick leave at a rate of one benefit hour per 30 hours worked. Employees may use sick time for a family member’s health issues or to attend a school-related conference, as well as for their own health issues. Carrying sick time over to a new benefit year is not required nor is paying out unused sick time upon the employee’s separation. However, employers will be required to document hours worked and sick leave used by employees and to retain these records for five years. The Act also provides a method for employees to sue for damages for alleged violations of the law. The Act expressly preempts local sick leave ordinances passed by municipalities such as Newark and Trenton.

The Act will take effect 180 days after the Governor signs it into law.  In light of the Bill’s imminent passage, New Jersey employers should review their sick leave or paid time off policies to ensure compliance with the new law.

For more information regarding this or other labor and employment issues, please contact Jo Bennettco-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.

San Francisco Law Would Expand the Bar on Background Checks

April 6, 2018

By Scott J. Wenner

On January 1, 2018, recreational marijuana officially became legal in California. Three months later, on April 3, 2018, the San Francisco Board of Supervisors passed an ordinance that would bar employers from inquiring about any conviction that arises out of conduct that has been decriminalized since the date of [sentencing].  While the ordinance ostensibly seeks to broadly protect conduct that is now decriminalized, the measure, if signed by the Mayor, would bar employers from asking applicants or employees, at any time, about convictions for growing or using marijuana. The ordinance is an amendment to San Francisco’s Fair Chance Ordinance. San Francisco Mayor Mark Farrell now has ten days to sign or veto the ordinance. If he does not act, the ordinance will become law and will take effect October 1.

The Fair Chance Ordinance was enacted in 2014 to restrict the use of criminal records in making employment decisions.  Under the Fair Chance Ordinance, employers, contractors and subcontractors may only conduct a background check on applicants after making a conditional offer of employment. The penalty for noncompliance is $500 for the first offense, $1,000 for the second offense, and $2,000 thereafter, and applicants have the right to sue over violations. However, it is important to reiterate that the prohibition of inquiries into marijuana-related convictions extends beyond the application and pre-employment period, and includes inquiries made during employment as well.

Employers in San Francisco – and throughout California – must also comply with California’s statewide Fair Chance Act, which took effect on January 1, 2018. That legislation is part of the nationwide “ban the box” movement.

The take-aways: Employers in San Francisco should ensure that employees with human resources responsibilities, as well as supervisors and managers, understand that marijuana-related convictions are off limits not just in making decisions affecting terms and conditions of employment, but also in everyday discussion. After all, if an employer is not aware of a marijuana conviction, it cannot have unlawfully considered one in its decision making.

Also note that nothing in the ordinance prevents an employer from taking action against an employee who is under the influence of marijuana while at work, or from investigating a possible marijuana-related connection between an industrial accident and marijuana – so long as the employer does not include inquiry into past marijuana convictions in its investigation.

For more information regarding this or other labor and employment issues, please contact Scott J. Wenner 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 Rules Auto Service Advisors Are Overtime-Exempt

April 2, 2018

By Michael J. Wietrzychowski

On April 2, 2018, the U.S. Supreme Court issued its opinion in Encino Motorcars v. Navarro, holding that service advisors employed at auto dealerships are exempt from overtime pay requirements under the Fair Labor Standards Act (FLSA).

The case involved a Mercedes-Benz dealership in California and its current and former service advisors, whose job duties include meeting customers to hear concerns about their cars, suggesting repair and maintenance services, and selling new or replacement parts. In 2012, the service advisors sued for back pay, alleging Encino violated the FLSA by failing to pay them overtime. They relied on a 2011 rule from the Department of Labor which interpreted “salesman” to exclude service advisors. However, the Lower Court dismissed the case, agreeing with Encino that service advisors fall under the “salesman” exemption to the FLSA, which exempts from overtime: “any salesman, partsman or mechanic primarily engaged in selling or servicing automobiles.”  Subsequently, the Ninth Circuit reversed, but the U.S. Supreme Court vacated the decision and remanded the case to the Ninth Circuit, asking the court to decide the case without reference to the 2011 rule that the Supreme Court deemed procedurally defective.

With these instructions, the Ninth Circuit again held that the service advisors were covered under the FLSA overtime requirements.  The decision again was appealed to the U.S. Supreme Court, which overturned the Ninth Circuit, concluding that service advisors fall under the salesman overtime exemption.  The Supreme Court explained that service advisors are “salesmen” because they sell customers services for their vehicles and that they are “primarily engaged in servicing automobiles” because they are integrally involved in the servicing process, even though they do not manually repair the vehicles.

For more information regarding this or other labor and employment issues, please contact Michael J. Wietrzychowskico-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.

Sixth Circuit Decision: Title VII Protects Transgender Workers

March 9, 2018

By Jo Bennett

On March 7, the Court of Appeals for the Sixth Circuit issued an opinion in EEOC v. R.G. & G.R. Harris Funeral Homes, Inc. holding that discrimination based on transgender status and transitioning identity is sex discrimination under Title VII of the Civil Rights Act of 1964.

The case concerns Aimee Stephens, a funeral director at R.G. & G.R. Harris Funeral Homes, Inc., who was terminated after informing owner Thomas Rost that she intended to transition from male to female.  Stephens filed a complaint with the Equal Employment Opportunity Commission (EEOC), and after an investigation, the EEOC brought suit against the funeral home for unlawful sex discrimination in violation of Title VII. The district court granted summary judgment to the funeral home, and this appeal followed.

A large part of the opinion dealt with the Religious Freedom Restoration Act (RFRA), which prohibits the government from burdening an individual’s exercise of religion absent a compelling governmental interest. The district court had agreed with the funeral home that RFRA trumps Title VII, but the Sixth Circuit held otherwise, noting that a religious claimant cannot rely on presumed biases to establish a burden, nor is he burdened by merely employing a transgender person. The court noted, “Bare compliance with Title VII—without actually assisting or facilitating Stephens’s transition efforts—does not amount to an endorsement of Stephens’s views” and “the fact that Rost sincerely believes he is being compelled to make such an endorsement does not make it so.”

The decision is the first in the nation to address the issue of whether Title VII’s prohibition against discrimination based on sex includes gender identity bias without a showing that the worker did not conform to traditional gender stereotypes. This makes it easier for workers in Kentucky, Michigan, Ohio and Tennessee to bring discrimination claims.

This decision follows a Second Circuit opinion filed last week, which held that sexual orientation discrimination is banned under Title VII.

For more information regarding this or other labor and employment issues, please contact Jo Bennettco-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.

2nd Cir Rules Sexual Orientation Discrimination Covered Under Title VII

February 27, 2018

By Jo Bennett

On Monday, in Zarda v. Altitude Express, Inc., the Court of Appeals for the Second Circuit joined the Seventh Circuit in holding that sexual orientation discrimination is banned under Title VII of the Civil Rights Act of 1964.

Donald Zarda was a skydiving instructor employed at Altitude Express. He brought a discrimination charge with the EEOC alleging he was fired after disclosing to a client that he was gay. He subsequently brought a federal lawsuit alleging sex stereotyping in violation of Title VII and sexual orientation discrimination in violation of New York law. The District Court granted summary judgment to the defendants on the Title VII claims.

In resolving this appeal, the court cited evolving legal doctrine, including the EEOC’s 2015 decision holding that sexual orientation is a sex-based consideration as well as Supreme Court decisions that Title VII prohibits discrimination based on traits that are a function of sex, such as life expectancy and non-conformity with gender norms. The court was further guided by the Supreme Court’s view that Title VII covers not only the “principal evils” that Congress was concerned with when it enacted the Civil Rights Act, but also “reasonably comparable evils” as well. Applying that view, the court ruled that sexual orientation discrimination constitutes a form of discrimination “because of … sex,” in violation of Title VII.

Both the Department of Justice and the EEOC filed amicus briefs in the Zarda case. DOJ argued that Title VII does not extend to sexual orientation discrimination, while the EEOC argued that it does. Meanwhile, and as we discussed here, the Supreme Court in December declined to hear a similar case out of the Eleventh Circuit, in effect leaving in place a decision that Title VII does not cover sexual orientation discrimination.

In addition to the Circuit and Executive Branch splits, a patchwork of state and local laws governs sexual orientation discrimination as well.  As we have advised before, employers should continue to enforce policies that protect LGBTQ workers.

For more information regarding this or other labor and employment issues, please contact Jo Bennettco-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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