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Murphy (Oil)’s Law: Any class action that can be individually arbitrated, will be individually arbitrated

By: Ryan McGinty

Arbitration agreements, used to avoid the often heightened costs associated with litigation in a courtroom, are not uncommon in the world of commercial disputes and employment contracts.[1]  A major form of alternative dispute resolution (“ADR”), employers have abandoned what was initially a voluntary process.[2] The new desire was for a more deliberate forced arbitration clause, which has become a necessary condition for many formal employment agreements.[3]  In 2011, and again in 2015, the Supreme Court reaffirmed a company’s right to bar consumers from uniting together in a class action suit against the company, as permitted by the Federal Arbitration Act of 1925 (“FAA”).[4]  This blog post is concerned with the future applicability of that bar or waiver power as a means to block employee’s collective action suits distinguished from class actions without the employer-employee relation.[5]

Specifically, the issue surrounding arbitration agreements has been reignited in conjunction with the still pending change to the U.S. Supreme Court, which last month agreed to review the validity of class action waiver clauses in employer-employee arbitration agreements.[6] In doing so, our nation’s highest court granted petitions for writ of certiorari in three major cases; Epic Systems Corp. v. Lewis,[7] Ernst & Young v. Morris,[8] and the Fifth Circuit appeal of NLRB v. Murphy Oil USA Inc.[9]

Focusing on the controversial Murphy Oil decision, the question presented is whether or not courts will follow this case as appropriate precedent after its upcoming review with the addition of a new Supreme Court Justice?  After the National Labor Relations Board (“NLRB”) concluded that Murphy Oil had “unlawfully required employees at its Alabama facility to sign an arbitration agreement waiving their right to pursue class and collective actions,” Murphy Oil successfully petitioned the Court which reversed the Board’s ruling in part. [10] With reference to a D.R. Horton analysis,[11] the NLRB was found to have disregarded conflicting evidence and previous rulings before it originally held that Murphy Oil violated section 8(a)(1) of the National Labor Relations Act (“NLRA”).[12]  Creating a further split from the Seventh and Ninth Circuits, the Fifth Circuit Court reasoned that arbitration agreements must be enforced under the FAA since the later enacted NLRA does not contain any overriding congressional mandate as it pertains to arbitrations.[13]  On review, the court will hone in on the legality of companies to include collective action waivers that force plaintiffs to sue individually.[14]  The problem, many argue, is that without larger collective action, corporations will not change their behavior in bad faith.[15]

Currently, eight justices are sitting on the high court, split 4-4 between writing opinions with a more liberal verse conservative brush.[16] Without Justice Antonin Scalia, who authored the 5-4 opinion in AT&T Mobility v. Concepcion,[17] employers are left wondering whether the new Supreme Court Justice will follow in Scalia’s footsteps while inevitably ending the 4-4 deadlock we have become familiar with.[18] If confirmed in time, the conservative approach carried out famously by Scalia may be echoed by a ninth justice to apply not only to consumers but collective action by employees on a federal level.[19]  According to Gerald Maatman, co-chair of the class action defense group at Seyfarth Shaw, “[f]or many CFO’s, this may be the most important thing happening on the law front in 2017.”[20]

President Donald Trump promptly moved to nominate Tenth Circuit Judge Neil M. Gorsuch to fill the vacant Supreme Court seat.[21]  At age forty-nine, Judge Gorsuch has a disciplined approach to labor issues, but has considered the NLRB statutory interpretation to be expansive in certain cases, and might be inclined to favor employers if present during a review of Murphy Oil.[22]  Professor Sample from the Maurice A. Deane School of Law at Hofstra University, has touched on the nomination of Gorsuch calling him a “cautious, very careful, very studious [and] scholarly jurist.”[23]  Further, Professor Sample notes that the consequences of what he has deemed an inevitable confirmation will shape the Supreme Court for decades, especially with how the Supreme Court sits with Justice Ginsberg turning eighty-four and Justice Kennedy entertaining the possibility of stepping down.[24] Presumably, Gorsich being a Trump-nominated justice will be pro-business and uphold the Murphy Oil reversal.[25] This potential change of law would give large companies huge leverage in employer-employee relations, and will essentially stop plaintiff’s lawyers from bringing larger class action cases.[26] Only time will tell if employees will lose the right to act collectively in employment disagreements, so stay tuned.

 

 

[1] Arbitration Agreements, Work Place Fairness (Last visited Feb. 11, 2017) http://www.workplacefairness.org/forced-arbitration-agreements.

[2] Id.

[3] Id.

[4] David McCann, Can Companies Bar Workers from Filing Class-Action Claims?, CFO (Feb. 2, 2017) http://ww2.cfo.com/legal/2017/02/can-companies-bar-workers-from-class-action-claims-arbitration/.

[5] Id.

[6] Jessica Karmasek, SCOTUS To Decide Arbitration Issue; Unclear If Trump Pick Will Be On Bench In Time, FORBES (Jan. 29, 2017) http://www.forbes.com/sites/legalnewsline/2017/01/19/scotus-to-decide-arbitration-issue-unclear-if-trump-pick-will-be-on-bench-in-time/#fd741437ccb9.

[7] Lewis v. Epic Sys. Corp., 823 F.3d 1147 (7th Cir. 2016), cert. granted, No. 16-285, 2017 WL 125664 (U.S. Jan. 13, 2017) ( stating that health care software company agreement, requiring certain groups of employees to bring “wage-and-hour claims” though individual arbitration only, violated NLRA and is unenforceable under FAA.).

[8] Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016), cert. granted, No. 16-300, 2017 WL 125665 (U.S. Jan. 13, 2017).

[9] Karmasek, supra note 5.

[10] Murphy Oil USA, Inc. v. N.L.R.B., 808 F.3d 1013 (5th Cir. 2015), cert. granted, No. 16-307, 2017 WL 125666 (U.S. Jan. 13, 2017).

[11] In Re D. R. Horton, Inc., 357 NLRB 2277 (2012) (holding that an arbitration agreement under which employees were required to waive their right to bring a class action violated NLRA).

[12] 29 U.S.C. §§ 151-169 (stating that agreements which “requir[ed] . . . employees to agree to resolve all employment-related claims through individual arbitration” were not lawful).

[13] Murphy Oil, 808 F.3d 1013, 1016.

[14] Karmasek, supra note 5.

[15] McCann, supra note 3.

[16] Karmasek, supra note 5.

[17] Karmasek, supra note 5 (citing AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 131 S. Ct. 1740 (2011)). This is touted as a “game-changer” for class action suits that ruled in favor of companies requiring consumers to bring claims solely through individual arbitration.

[18] Karmasek, supra note 5.

[19] Karmasek, supra note 5.

[20] McCann, supra note 3.

[21] Ilyse Schuman & Michael J. Lotito, Who is Neil Gorsuch and Where Does He Stand on Labor and Employment Issues?, LITTLER (Jan. 31, 2017) https://www.littler.com/publication-press/publication/who-neil-gorsuch-and-where-does-he-stand-labor-and-employment-issues.

[22] Id.

[23] Marvin Scott, News Closeup: A look at Trump’s travel ban and pick for Supreme Court Justice, PIX11 (Feb. 4, 2017) http://pix11.com/2017/02/04/news-closeup-a-look-at-trumps-travel-ban-and-pick-for-supreme-court-justice/.

[24] Id.

[25] Schuman & Lotito, supra note 21.

[26] McCann, supra note 3.

Pushback on Form 5500 Proposed Changes

By: Taylor Napoli

In July 2016, the Department of Labor (“DOL”), the Internal Revenue Service (“IRS”), and the Pension Benefit Guaranty Corporation (“PBGC”) proposed changes to the Form 5500 Series in order to modernize and improve the current Forms.[1]  The comment period on such changes was extended to mid-December, after originally being set for the beginning of October, to appease the many organizations that requested a longer comment period in order to fully understand and analyze the proposed changes.[2]  The majority of organizations that chose to send in comment letters had mainly negative things to say about what the DOL, IRS, and PBGC have proposed.

Two major plan sponsor organizations, the American Benefits Council (“ABC”) and the ERISA Industry Committee (“ERIC”), are asking the DOL to withdraw the proposed Form 5500 changes.[3]  Both ABC and ERIC believe that these changes would cause “administrative burdens” for plan sponsors and providers, as well as substantially increasing the operating costs of such plans.[4]  ERIC submitted a joint comment with the Committee on Investment of Employee Benefit Assets (“CIEBA”) and the Society for Human Resource Management (“SHRM”) to discuss the proposed changes to the reporting requirements for two supplemental schedules that go along with Form 5500, Schedules C and H.[5]  The Organizations cite four predominant issues with the proposed changes regarding Schedules C and H: (1) substantial additional costs with unclear benefits; (2) consistency in disclosure; (3) Schedule H in its entirety; and (4) biased reporting.[6]

The Organizations are predominantly concerned about the substantial costs, both monetary and otherwise.[7]  They believe that the new requirement will greatly increase “legal, compliance, and audit costs” and require many more resources from plan administrators in order to compile the new data that is being proposed.[8]  The Organizations are worried that the costs will eventually be pushed onto the plan participants because the plan administrators may not be able to cover the increased costs.[9]  Additionally, CIEBA, SHRM, and ERIC believe that the Agencies’ proposal severely underestimates the additional hours of work that will need to be put in by plan sponsors and administrators to comply with the new reporting requirements.[10]  While the IRS, DOL, and PBGC believe that the new reporting requirements will only increase the work of large employers by approximately ninety hours, the Organizations have estimated an additional 2,000 hours to complete the form, and another 4,000 hours to be able to adjust to the form changes and comply with them by 2019, which would be the first year that they’re in effect if accepted.[11]

ABC also submitted their own comment letter to the IRS, DOL, and PBGC voicing their concerns regarding the increased administrative burdens they believe will result from the proposed changes.[12]  ABC is specifically concerned with the reporting requirements being extended to all group health plans no matter the size, the increase of detail reported on every plan’s financial information, and the expansion of information collected for service provider compensation.[13]  Rather than giving feedback regarding the problems ABC has with each of the changes, they instead suggested that the Agencies completely withdraw the proposal, take into full consideration all comments received, and re-propose a new, revised proposal at a later date.[14]  Knowing a complete withdrawal is unlikely, ABC has requested that the IRS, DOL, and PBGC push back the date the proposed changes would become effective to 2020.[15]

While there is much backlash regarding the proposed changes, one of the Big Four accounting firms, PricewaterhouseCoopers, seems to be supporting the Agencies’ proposal.[16]  PricewaterhouseCoopers has drafted their own summary of changes to reach out to those who may be affected by the proposal.[17]  The accounting firm believes that the DOL, IRS, and PBGC will use the new data they are asking for within the proposed changes to help in their enforcement of benefit plans, which will be helpful to plan administrators and participants alike.[18]

At this time, the Agencies are taking into consideration all comments received.  If the proposed changes had been able to be approved and passed before President Trump had taken office, it is likely that the final, accepted changes would have closely mirrored those that were proposed.  However, because there will likely be a lot of changes to health care plans and the Agencies who propose such changes, the chances of the July 2016 proposed changes to the Form 5500 Series getting approved greatly decreases.

[1] Proposed Revision of Annual Information Return/Reports, 81 Fed. Reg. 47533 (proposed July 21, 2016) (to be codified at 26 C.F.R pt. 301, 29 C.F.R. pts. 2520 &2590, 29 C.F.R. pt. 4065).

[2] Proposed Revision of Annual Information Return/Reports; Proposed Rule, 81 Fed. Reg. 65594 (proposed Sept. 23, 2016) (to be codified at 29 C.F.R. pts. 2520 &2590).

[3] Plan Sponsor Groups Call on DOL to Withdraw Proposed Form 5500 Changes, HR Daily Advisor (Dec. 21, 2016), http://hrdailyadvisor.blr.com/2016/12/27/plan-sponsor-groups-call-dol-withdraw-proposed-form-5500-changes/.

[4] Id.

[5] Letter from Ray Kanner, Acting Exec. Director, CIEBA Inc., Will Hansen, Senior VP, Retirement Policy, ERIC, and Michael Aitken, VP, Government Affairs, SHRM, to Assistant Secretary Borzi, Director Choi, and Director Reeder, Employee Benefits Security Administration (Dec. 5, 2016) (on file with ERIC at http://www.eric.org/uploads/doc/retirement/Form%205500%20Letter%20to%20DOL%20IRS%20%20PBGC%20(RIN%201210-AB63)%20–%2012-5-2016.pdf).

[6] Id.

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] Letter from Jan Jacobson, Senior Couns., Retirement Pol’y, ABC and Kathryn Wilber, Senior Couns., Health Pol’y, ABC, to the Office of Regulations and Interpretations, Employee Benefits Security Administration (Dec. 5, 2016) (on file with the American Benefits Council at http://www.americanbenefitscouncil.org/pub/29025d79-d89d-b636-87d6-3fd99e0cd176) (stating that ABC is a “national nonprofit organization dedicated to protecting and fostering privately sponsored employee benefit plans.” They have about 400 members that provide benefits to active and retired workers and their families).

[13] Id.

[14] Id.

[15] Id.

[16]Agencies Propose Significant Changes to Form 5500, PwC: Insights from People and Organization (Oct. 11, 2016), https://www.pwc.com/us/en/tax-services/publications/insights/assets/pwc-significant-changes-proposed-to-form-5500.pdf.

[17] Id.

[18] Id.

UberEATS; About To Chow Down On Another Lawsuit

By: Samantha Barbere

A controversial issue that has existed in the Uber community for years circles around the classification of Uber drivers.[1]  Uber has made it clear that they believe its driver “partners” fit the definition of independent contractors rather than employees.[2] Uber drivers on the other hand, refuse to accept the stance taken by the company, and assert they are best described as employees.[3] Lawsuits which addressed the issue in California and Massachusetts ended in a settlement.[4] The settlement awarded over $100 million to workers, and in exchange the company will be allowed to categorize them as independent contractors.[5]

After the settlement the tension between the company and their drivers seemed to quiet down for some time.[6] However recently, to the company’s dismay, the issue has resurfaced.[7] The issue reemerged in connection with the creation of Uber’s new sister company UberEATS.[8] UberEATS is a food delivery service which was created by Uber.[9] Users download the Uber app on their phones and once they open the app they are provided with a list of restaurants in their location.[10] They then choose their meal and track the status of its preparation and delivery, all through the app.[11]

The disagreement over the status of its drivers, which caused many issues for Uber in the past, is now spilling over to affect their new project.[12] UberEATS drivers are starting to make assertions that are not unfamiliar to Uber.[13] They are claiming that the company erroneously classifies its drivers as freelancers.[14] The classification disagreement goes deeper than just a dispute between the company and its workers.[15] The way the workers are classified decides what benefits the workers will be allowed to enjoy.[16]

UberEATS workers recently filed a class action lawsuit against Uber regarding their categorization as freelancers.[17] In the suit they claim that the title as “freelancers” deprives them of numerous benefits that they would enjoy as employees. [18] Some benefits they believe they are entitled to include, “minimum wage, worker’s compensation insurance, unemployment insurance, disability insurance and social security.”[19] The claims asserted by the drivers mimic much of the language in the claims that were made in one of the first cases originally brought by drivers in 2015.[20] The complaint accuses the company of using some obscure formula in order to underpay the drivers.[21] The relief sought includes an array of things, but most notably, drivers are seeking “unpaid back wages at the applicable minimum wage rate” dating back three years.[22]

UberEATS driver’s biggest issue is that being classified as freelancers deprives them of receiving the minimum wage that is mandated under the Fair Labor Standards Act.[23] The plaintiff in the suit, Manny Crespo, states that although the company refuses to recognize its drivers as employees, they continue to treat them like employees.[24] For Manny, that’s where the problem lies.[25] He says the company sets their pay rates, retains the right to fire them at their discretion, and requires them to use their personal phones and emails to receive work information.[26]  He believes that if the company is going to treat them like employees, then it’s only fair they receive the benefits that come along with being categorized as such.[27]

The San Francisco based company has faced numerous attacks by drivers all centering on this one classification issue.[28] Other than the most recent case brought by UberEat drivers, Uber is facing five additional suits regarding the same exact issue.[29] It’ll be interesting to see if Uber will finally swallow their pride and categorize their drivers as employees. However, it is foreseeable that the company stands their ground and maintains that the drivers are independent contractors. If they choose to take that route and stand their ground, I think it’s fair to say that this will not be the last suit Uber faces on this classification issue.

[1] O’Connor v. Uber Techs., 2015 U.S. Dist. LEXIS 116482 *5 (N.D Cal. 2015)

[2] Id.

[3] Id.

[4] Rich McCormick, Uber settles lawsuits to keep drivers independent contractors in California and Massachusetts , theVerge (Apr. 21, 2016, 11:57 PM), http://www.theverge.com/2016/4/21/11485424/uber-suit-california-Massachusetts-drivers-employee-contractor.

[5] Id.

[6] See Andrew J. Hawkins, Uber’s labor fight spills over into food delivery service, theVerge (Jan. 25, 2017, 2:39 PM), http://www.theverge.com/2017/1/25/14387256/ubereats-lawsuit-worker-misclassification-benefits-florida.

[7] See Id.

[8] See Id.

[9] What is UberEats- All You Need To Know, rideordriveuber (Sept. 29, 2016), http://rideordriveuber.com/what-is-ubereats-all-you-need-to-know/#.

[10] Id.

[11] Id.

[12] Hawkins, supra note 6.

[13] Id.; see also O’Connor v. Uber Techs., 82 F. Supp 1133 (N.D. Cal. 2015).

[14] Id.

[15] See Id.

[16] Id.

[17] Id.; see also Suevon Lee, UberEATS Drivers Sue Over Alleged Wage Violations, Law360 (Jan. 25, 2017, 5:36 PM), https://www.law360.com/articles/884786/ubereats-drivers-sue-over-alleged-wage-violations.

[18] Id.

[19] Id.

[20] See O’Connor v. Uber Techs., 82 F. Supp 1133 (N.D. Cal. 2015); see also Complaint at 1-4, Manny Crespo v. Uber Tech. Inc., (M.D Fla. 2017)(No.8:17-00187).

[21] Hawkins, supra note 6.

[22] Andrew J. Hawkins, Uber’s labor fight spills over into food delivery service, theVerge (Jan. 25, 2017, 2:39 PM), http://www.theverge.com/2017/1/25/14387256/ubereats-lawsuit-worker-misclassification-benefits-florida.

[23] Id.

[24] Id.

[25] Id.

[26] Id.

[27] See Id.

[28] See Id.

[29] Suevon Lee, UberEATS Drivers Sue Over Alleged Wage Violations, Law360 (Jan. 25, 2017, 5:36 PM), https://www.law360.com/articles/884786/ubereats-drivers-sue-over-alleged-wage-violations.

Costco Seas Victory in Court on Case about False Prawn Advertisement

Deborah Kick

Retail giant Costco is known for selling appliances and home furnishings, selling products in bulk, and their commitment to employees and “outstanding business ethics.”[1] However, their method of harvesting prawns (shrimp) has come under attack in the past year and half by a class action suit claiming that the prawns are harvested using slave-labor.[2] This class action proved to be unsuccessful.[3]

The class action suit commenced on August 19, 2015, in a federal court in California, with the allegation that Costco “knowingly sold shrimp farmed in Thailand with slave labor, and failed to notify customers about the allegedly illegal practices.”[4] Included as a defendant in the lawsuit is the Thai company that consumers allege “rel[ied] on slave labor.”[5] The other issues in the complaint, according to the representative plaintiff Monica Sud, are not only the manner in which the prawns are harvested, but also that they “come from…human trafficking and other allegedly illegal labor abuses…the feed meal for farmed prawns is the product of pirate fishing….”[6]

The case was heard twice in the Northern District of California, with each case, in part, involving Costco and the other defendants filling a motion to dismiss.[7] In the first case, the defendants (referred to as “CP defendants”) moved to dismiss on various grounds, “for lack of Article III standing.”[8] The court granted the Article III motion to dismiss.[9] However, the court also granted Ms. Sud’s “leave to file an amended complaint.”[10] In the second case, the court granted the CP defendant’s motion to dismiss the entire claim because the plaintiffs failed to show that they relied on a statement Costco made about their shrimps not being slave-farmed.[11]

I believe this case, in terms of legal claims brought forward, to be a fair result. It is standard knowledge that to bring a successful claim, in civil or criminal law, you need to prove all the elements required of that claim. As the lawyers for the class action failed to do so, it was reasonable for the court to ultimately dismiss the claim. As for the social and political conflicts of this case, I do admit I have some bias. I am a big fan of Costco. I am a fan of their products, but I also appreciate that they treat their employees well.[12] Of course, no company, especially one as large as Costco, will ever be without some labor controversy. This is not to say Costco should not be scrutinized for these harvesting practices.[13] For the plaintiffs of the suit, I would suggest exercising their First Amendment rights as opposed to a lawsuit. After all, this worked for with the cage-free chicken eggs Costco now sells.[14]

[1] About Us, COSTCO, https://www.costco.com/about.html (last visited Jan. 30, 2017).

[2] Erik Larson, Costco Sued Over Claims Shrimp Harvested with Slave Labor, BLOOMBERG (Aug. 19, 2015, 11:57 AM EDT) https://www.bloomberg.com/news/articles/2015-08-19/costco-sued-over-claims-shrimp-is-harvested-with-slave-labor.

[3] Nicholas Iovino, Costco Ducks Suit Over Slave-Harvested Prawns, COURTHOUSE NEWS SERVICE (Jan. 25, 2017), http://courthousenews.com/costco-ducks-suit-over-slave-harvested-prawns/.

[4] Kurt Orzeck, Costco Sells Shrimp Farmed By Thai Slaves, Suit Says, LAW360 (Aug. 19, 2015, 5:42PM EDT), https://www.law360.com/articles/692892/costco-sells-shrimp-farmed-by-thai-slaves-suit-claims.

[5] Id.

[6] Id.

[7] See generally Sud v. Costco Wholesale Corp., No. 15-cv-03783-JSW, 2016 U.S. Dist. LEXIS 5524 (N.D. Cal. Jan. 15, 2016) and Sud v. Costco Wholesale Corp., No. 15-cv-03783-JSW, 2017 U.S. Dist. LEXIS 9943 (N.D. Cal. Jan. 24, 2017) (both cases involve Costco and the other defendants attempting to dismiss the claim of the suit).

[8] Sud v. Costco Wholesale Corp., No. 15-cv-03783-JSW, 2016 U.S. Dist. LEXIS 5524 (N.D. Cal. Jan. 15, 2016).

[9] Id. Specifically, the motion was about standing. “[T]o demonstrate she has standing, Sud alleges that she “has purchased and paid for farmed prawns at Costco, which were imported from Thailand…Costco, in turn, puts forth evidence that while Sud was a card-holding Costco member, she did not purchase any farmed prawns.” Id.

[10] Id. The leave was granted so Ms. Sud can “amend her complaint to cure that deficiency” about standing.

[11] Sud v. Costco Wholesale Corp., No. 15-cv-03783-JSW, 2017 U.S. Dist. LEXIS 9943 (N.D. Cal. Jan. 24, 2017) (stating that “given Plaintiffs’…reliance was based on product packaging, rather than on any of Costco’s statements in other contexts….).

[12] See Brian Sozzi, Why Costco Won’t Have Any Problems Handling California’s New $15 Minimum Wage, THESTREET (Mar. 29, 2016, 2:02PM EDT), https://www.thestreet.com/story/13510704/1/why-costco-won-t-have-any-problems-handling-california-s-new-15-minimum-wage.html; see also Kevin Short, 11 Reasons To Love Costco That Have Nothing To Do With Shopping, HUFFINGTON POST BUSINESS, (Nov. 19, 2013, 11:32AM ET), http://www.huffingtonpost.com/2013/11/19/reasons-love-costco_n_4275774.html.

[13] See Margie Mason, Robin McDowell, Esther Htusan, & Martha Mendoza, Shrimp sold by global supermarkets is peeled by slave labourers, THE GUARDIAN (Dec. 14, 2015 13:16 EST), https://www.theguardian.com/global-development/2015/dec/14/shrimp-sold-by-global-supermarkets-is-peeled-by-slave-labourers-in-thailand (the article gives a description in the daily life of the farmers mentioned in the case, and international efforts to curtail the use of such labor).

[14] See Deena Shanker, After months of pressure, Costco commits to a cage-free egg supply, QUARTZ (Dec. 28, 2015), https://qz.com/582427/after-months-of-pressure-costco-commits-to-a-cage-free-egg-supply/; see generally Kim LaCapria, You Gotta Fake a Few Eggs, SNOPES (Apr. 20, 2016), http://www.snopes.com/costco-lying-about-cage-free-eggs/ (even after Costco made the public announcement they were switching to cage-free eggs, there were rumors that this was not followed through by the company; these rumors are “mostly false.”).

Not Much Confidence in Confidentiality: Settling FLSA Claims in the Post-Cheeks Era

By: Alex Reinauer

 

The Hofstra Labor & Employment Law Journal hosted a roundtable discussion at the Harvard Club on January 25, 2017 consisting of nine panelists (the “Panel”). [1] The topic, Post-Cheeks Wage and Hour Settlements, brought the discussion of several issues. The first topic addressed by the Panel, one that also garnered the lengthiest discussion, was the topic of confidentiality agreements.[2] The Panel discussed the framework set forth in Wolinsky v. Scholastic,[3] a framework that is most commonly used by New York Courts but has also been cited in other jurisdictions.[4] While the Wolinksy case was not cited in the Second Circuit Court of Appeals case, Cheeks v. Freeport Pancake House, Inc., the Wolinksy framework is continually used by New York Federal Courts.[5]

In the Southern District of New York, Sarah Wolinksy brought a claim against her former employer, Scholastic Inc., under the Fair Labor Standards Act (“FLSA”) and New York Labor Law alleging that the defendant “misclassified her as an independent contractor during the course of her employment in order to avoid granting her benefits or paying her overtime wages.”[6] Wolinksy and Scholastic did eventually reach a settlement agreement (the “Agreement”) and submitted it to the court for approval,[7] but the Court found issue with the Agreement’s confidentiality provision, one that “prohibit[ed] Wolinksy from disclosing, discussing, or otherwise publishing the existence or terms of the Agreement.”[8] The Wolinksy Court ultimately concluded that “the common law right of access to judicial documents requires that the Agreement be made public.”[9]

As one piece of commentary described the ruling, “Wolinsky reflects the difficult dilemma faced by employers in wage-hour cases: even where the parties are able to agree to amicably resolve their dispute (and thereby avoid a public trial), the agreement cannot receive judicial approval without forcing the parties to air those disagreements in public filings.”[10] Both the Wolinksy Court and the Panel discussed the importance of considering “the totality of circumstances” in determining whether or not a settlement is considered fair and reasonable.[11]

The discussion of confidentiality and the protective nature of the FLSA in the Wolinksy case moved the Panel discussion to settlement approval and the need for some form of oversight in order to prevent employers from taking advantage of employees in a manner that the FLSA was intended to prevent. The Cheeks Court held that the FLSA fell within the “applicable federal statute” exception under the Federal Rules of Civil Procedure section 41.[12] In turn, settlements and dismissals of FLSA claims with prejudice require approval by the district court or the Department of Labor (“DOL”).[13] In the absence of an approved settlement by a proper authority, members of the panel contended that employees are less likely to receive the compensation they are entitled to.[14] The need to enforce minimum wage standards in disputes between the employee and employer, much like the dispute that occurred in Cheeks, cannot be done in the absence of some form of oversight.[15] Some on the Panel proposed the possibility that an employee could negotiate for a larger settlement by agreeing to a confidentiality provision, but others were of the opinion that, much like an employee’s inability to contract for wages under the minimum standards, an employee cannot contract for a lesser settlement than he or she is entitled to.[16]

Since the Cheeks decision, settling FLSA claims in the Second Circuit has become far more difficult.[17] However, the Cheeks court did leave two looming questions concerning the  approval of FLSA settlements: “whether parties may settle without court or DOL approval by dismissing the case without prejudice, and whether court or DOL . . . approval is needed for a dismissal with prejudice before the opposing party serves either an answer or a motion for summary judgment.”[18] The future of FLSA settlements appear even more uncertain in light of a previous decision in the Fifth Circuit Court of Appeals.[19] An agreement to settle employees’ FLSA claims was enforced by the Fifth Circuit in Martin v. Spring Break ’83 Prods., LLC, absent approval by a court or the DOL, finding that a “‘bona fide dispute’ existed and the employees were represented by counsel.”[20] The decision provides a more lenient approach to private FLSA settlements than the one laid out in Cheeks.[21] Only time will tell if the Supreme Court decides to step in to resolve the question between the Circuits.

[1] Judge Seybert is a United States District Judge for the Eastern District of New York. Judge Sullivan is a United States District Judge for the Southern District of New York. Judge Ellis is a United States Magistrate Judge for the Southern District of New York. Judge Locke is a United States Magistrate Judge for the Eastern District of New York. Allan Bloom is a partner at Proskauer Rose LLP. A. Jonathan Trafimow is a partner at Moritt Hock & Hamroff LLP. Molly Brooks is a partner at Outten & Golden LLP. D. Maimon Kirschenbaum is a partner a Joseph & Kirschenbaum LLP. David B. Feldman, a shareholder at Ogletree Deakins Nash Smoak and Stweart P.C. served as the moderator.

[2] Panel at Hofstra Labor and Employment Law Journal Roundtable Discussion: Post-Cheeks Wage & Hour Settlements (Jan. 25, 2017).

[3] Wolinsky v. Scholastic, 900 F.Supp.2d 332, 334 (S.D.N.Y. 2012).

[4] Singleton v. AT&T Mobility Servs., LLC, 146 F. Supp. 3d 258 (D. Mass. 2015).

[5] See, e.g., Vasquez v. 701 W. 135th Café, Inc., No. 16cv692, 2016 U.S. Dist. LEXIS 171464 (S.D.N.Y. Dec. 12, 2016); Xu Chen v. Zaza Japan, Inc., No. 15-CV-3073 (SIL), 2017 U.S. Dist. LEXIS 900 (E.D.N.Y. Jan. 4, 2017).

[6] Wolinsky, 900 F.Supp.2d at 334.

[7] Id.

[8] Id.

[9] Id. at 335.

[10] Robert S. Whitman & Robert T. Szyba, Only one way out of this mess: settlement of FLSA lawsuit may need to be public to receive court’s approval, Lexology (July 23, 2012) (“Although some courts have been willing to approve such settlements on a confidential or in camera basis, this case adds to the line of authority rejecting such a practice.”) http://www.lexology.com/library/detail.aspx?g=bc29fe76-3ad5- 4b00-b786-8cda8b6da1d1.

[11] Wolinsky, 900 F.Supp.2d at 335.

[12] Cheeks v. Freeport Pancake House, Inc. 796 F.3d 199, 206 (2d Cir. 2015).

[13] While the Court in Cheeks acknowledged that the FLSA was silent on the issue, it concluded that previous cases “read in light of the unique policy considerations underlying the FLSA, place the federal statute within Rule 41’s exception.” Id.

[14] Panel at Hofstra Labor and Employment Law Journal Roundtable Discussion: Post-Cheeks Wage & Hour Settlements (Jan. 25, 2017).

[15] Id.

[16] Id.

[17] Robert S. Whiteman, Howard M. Wexler & Meredith A. Berger, District Court Turns the Other “Cheeks” on Parties’ Proposed Stipulation of Dismissal, Seyfarth Shaw LLP: Wage & Hour Litigation Blog (July 11, 2016), http://www.wagehourlitigation.com/settlement/turns-the-other-cheeks/.

[18] Id.

[19] See Martin v. Spring Break ’83 Prods., LLC, 688 F.3d 247 (5th Cir. 2012).

[20] Joshua B. Waxman, Second Circuit Holds that Parties May Not Stipulate to Dismiss With Prejudice FLSA Actions Without Court Approval, Littler (Aug. 14, 2015), https://www.littler.com/publication-press/publication/second-circuit-holds-parties-may-not-stipulate-dismiss-prejudice-flsa.

[21] Id.

Vol. 34 Symposium Overview: Post-Cheeks Wage & Hour Settlements

 

By: Jessica Schild

The Hofstra Labor and Employment Law Journal held a round table discussion that took place on Wednesday, January 25 at the Harvard Club in New York City. The discussion focused on wage and hour settlement agreements after the recent Second Circuit decision of Cheeks v. Freeport Pancake House, Inc. The round table included the author of this landmark decision in the Eastern District of New York, the Honorable Judge Seybert, as well as, the Honorable Judge Sullivan of the Southern District of New York, the Honorable Judge Ellis, the Honorable Judge Locke, Allan Bloom, A. Jonathan Trafimow, Molly Brooks, and D. Maimon Kirchenbaum, (hereinafter, the “Panel”).[1]  David Feldman, a shareholder in the New York City office of Ogletree, Deakins, Nash, Smoak & Stewart, P.C. acted as the moderator for the panel.

Mr. Feldman began the discussion by allowing Judge Seybert to give a brief synopsis of her opinion in Cheeks and its wide-reaching impact on wage and hour settlement agreements. Cheeks worked at Freeport Pancake House as a restaurant server and manager over the course of several years.[2]  In August 2012, Cheeks sued Freeport Pancake House seeking to recover overtime wages, liquidated damages, and attorney’s fees under both the Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”).[3]  Cheeks also alleged he was demoted, and ultimately fired, for complaining about Freeport Pancake House’s failure to pay him the required overtime wages he was entitled to under the FLSA and NYLL.[4]  Cheeks sought back pay, front pay in lieu of reinstatement, and damages for the unlawful retaliation.[5]

The main issue in Cheeks was whether or not the FLSA was an “applicable federal statute” within the meaning of Rule 41(a)(1)(A).[6]  Judge Seybert reasoned that the FLSA did fall within the “applicable federal statute” under the Federal Rules of Civil Procedure (“FRCP”) section 41.[7]  Further, the decision in Cheeks noted that settling FLSA claims with prejudice required the approval of the district court or the Department of Labor to take effect.[8]  The Panel agreed that the best way to resolve the issue presented in Cheeks was to follow the statute.[9]  In doing so, the Panel noted that prior to the decision in Cheeks, courts entered into about 800 wage and hour settlements.[10]  Since the decision in 2015, there have been around 1100 settlements, increasing the number of cases by only 300.[11]

After giving an overview of Cheeks, the Panel then engaged in a discussion about confidentiality provisions in FLSA settlement agreements.[12]  The plaintiffs counsel on the panel expressed the strong value that they place on confidentiality provisions in settlement negotiations; stating that having no confidentiality usually decreases the money in the settlement as a whole.  Some of the Judges on the panel agree that it is not about the individual provision, but rather the totality of the circumstances.  It is important not to lose sight of the fact that each case is about individuals who have been victims of loss of wages.  Many of the practitioners noted however, that the FLSA does not actually impose a per se ban on confidentiality.[13]

The Panel then shifted to a discussion about the difference between confidentiality provisions in individual and class action cases, as well as discrimination cases, and general and mutual releases.[14]  Post Cheeks, the panelists noted that general and mutual releases may need to be handled differently. One practitioner even suggested breaking up the release into two documents to address the FLSA or NYLL claims, as well as a second document to effectuate a more broad general waiver that makes it easier to allocate amounts.[15]  The panel rounded out with a quick look into non-disparagement clauses and Rule 68 offers of judgment in the wake of Cheeks.  A later blog-post will dive more deeply into these issues and their effects.

The Second Circuit affirmed and remanded the district court’s decision in Cheeks and the Supreme Court denied cert., allowing the circuit courts to review settlement agreements that fall under the FLSA.[16]  For now, there is no uniform law governing these types of settlements, but understanding how Judges and practitioners view, dissect, and analyze these agreements is half the battle. The Panel gave valuable insight into their differing approaches and how they value the diverse parts of wage and hour settlements under Cheeks.

[1] Judge Ellis is a United States Magistrate Judge for the Southern District of New York. Judge Locke is a United States Magistrate Judge for the Eastern District of New York. Allan Bloom is a partner at Proskauer Rose LLP, New York office. A. Jonathan Trafimow is a partner at Moritt Hock & Hamroff LLP, Melville, Long Island office. Molly Brooks is a partner at Outten & Golden LLP, New York office. D Maimon Kirschenbaum is a partner at Joseph & Kirschenbaum LLP, New York office.

[2] Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199, 200 (2d. Cir. 2015).

[3] Id. at 201

[4] Id.

[5] Id.

[6] Id.

[7] Id. at 206.

[8] Id.

[9] Panel at Hofstra Labor and Employment Law Journal Round Table Discussion: Post-Cheeks Wage & Hour Settlements (Jan. 25, 2017).

[10] Id.

[11] Id.

[12] Panel at Hofstra Labor & Employment Law Journal Round Table Discussion: Post-Cheeks Wage & Hour Settlements (Jan. 25, 2017).

[13] Id.

[14] Id.

[15] Id.

[16] Cheeks, 796 F.3d at 207.

 

Collective Arbitration to Go Before the Supreme Court

By: Andrew Federico

Back in September I wrote about how the Ninth Circuit declared, in Morris v. Ernst & Young, LLP, that contracts that waive an employee’s right to bring collective actions interfere with employees’ substantive rights guaranteed by the National Labor Relations Act (“NLRA”). To recap, the Ninth Circuit explained that contracts that force employees to bring “separate proceedings” deny employees their right to participate in concerted activity aimed at mutual aid or protection.[1] The Ninth Circuit’s conclusion paralleled a similar conclusion made by the Seventh Circuit, but disagreed with a decision from the Fifth Circuit regarding the same issue.[2]  Thus, due to the differing opinions, the Supreme Court has accepted the three cases on the subject and will decide “whether companies can use employment contracts to prohibit workers from banding together to take legal action over workplace issues.”[3]

The Seventh Circuit in Lewis v. Epic Sys. Corp. held through the history of the NLRA that “concerted activity” under section 7 should be read broadly.[4]  The court highlighted Congress’ recognition that before the NLRA was enacted, individual employees were severely less powerful when dealing with an employer.[5]  Thus, Congress intended the NLRA to “equalize” employees’ power by permitting collective action when terms and conditions of employment are involved.[6]  Most importantly the Seventh Circuit’s decision included a discussion about whether the Federal Arbitration Act (“FAA”) overrides the NLRA.  The employer suggested that the NLRA’s right to collective action is a procedural right and not a substantive right.[7]  The Seventh Circuit expressly rejected such an argument and concluded that “[s]ection 7 is the NLRA’s only substantive provision.  Every other provision of the statute serves to enforce the rights Section 7 protects.”[8]  Furthermore, when arbitration agreements act as “‘prospective waiver[s] of a party’s right to pursue statutory remedies’—that is, of a substantive right—[they] are not enforceable.”[9]

Put succinctly, the Fifth Circuit reads the legislative history of the NLRA completely differently that the Seventh and Ninth circuits.[10]  The Fifth Circuit determined the “NLRA’s language, legislative history, or purpose” does not support a necessary congressional command that would exempt the statute from application of the FAA.[11]  Thus, such a principle was reaffirmed in Murphy Oil USA, Inc. v. NLRB,[12] which will be heard during the Supreme Court hearing.

The controversy is reaching the Supreme Court because “[e]mployers need to know whether class waivers in arbitration provisions will actually be enforced, [and] [e]mployees need to know whether they are actually bound by these provisions.”[13]  The three cases have been combined into a one-hour hearing scheduled to be before the Court in April.[14]  Whether or not President Trump fills the Court’s vacancy, will play as a crucial variable into how the Court is expected to decide.  In only a few short months, the nation will affirmatively know whether employees may collectively arbitrate or be barred from such a forum.

[1] See Andrew Federico, Employee’s Substantive Rights Trump Contract Agreements, The LEJER Blog (Sept. 11, 2016), https://thelejer.wordpress.com/?S=Andrew&submit=search; Morris v. Ernst & Young, LLP, 834 F.3d 975, 990 (9th Cir. 2016).

[2] See Adam Liptak, Justices Will Hear Challenges to Mandatory Employee Arbitration, N.Y. Times (Jan. 13, 2017), https://www.nytimes.com/2017/01/13/us/politics/scotus-mandatory-employee-arbitration.html?rref=collection%2Ftimestopic%2FNational%20Labor%20Relations%20Board&action=click&contentCollection=timestopics&region=stream&module=stream_unit&version=latest&contentPlacement=1&pgtype=collection.

[3] Id.

[4] Lewis v. Epic Sys. Corp., 823 F.3d 1147, 1153 (2016).

[5] Id. (citing NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1, 33 (1937)).

[6] Id.

[7] Id. at 1160.

[8] Id.

[9] Id. (citing Am. Express Co. v. Italian Colors Rest., 133 S.Ct. 2304, 2310 (2013).

[10] See D.R. Horton, Inc. v. NLRB, 737 F.3d 344, 362 (5th Cir. 2013).

[11] Id.

[12] Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013, 1021 (5th Cir. 2015).

[13] Liptak, supra note 2.

[14] Liptak, supra note 2.

What’s My Age Again?

By: Elle Alfaro

Popular online entertainment database, IMDb, claims newly enacted California Assembly Bill No. 1687 violates the First Amendment.[1] Assembly Bill No. 1687 (hereinafter “AB 1687”) passed by an overwhelming majority in both houses of the California Legislature last year before being approved by Governor Jerry Brown this past September.[2] The bill officially took effect on January 1, 2017.[3]

In part, the bill “prohibit[s] a commercial online entertainment employment service provider, that enters into a contractual agreement to provide specified employment services to an individual paid subscriber, from publishing information about the subscriber’s age.”[4] Meaning that if a paying subscriber makes a request for the removal or nonpublication of their age on an entertainment database that they pay to post resumes, headshots, or other information for prospective employers, the entertainment database must comply with their request.[5] As a result of the bill’s enactment, IMDb made a motion for a preliminary injunction in order to bar the law’s enforcement.[6]

IMDb claims that it is being unfairly singled out by AB 1687 and that they would suffer irreparable constitutional harm unless the Attorney General is stopped from implementing this law.[7] Supporting IMDb’s contentions Floyd Abrams, a distinguished First Amendment lawyer, was quoted saying, “Birth dates are facts. It’s hard to see how the government, consistent with the First Amendment, can bar or punish their disclosure.”[8] However, due to the narrow tailoring of the bill, California Attorney General Kathleen Kenealy (hereinafter “AG Kenealy”) believes it will survive the Constitutional challenge.[9] Specifically, since the bill is limited only to subscribers, AG Kenealy is confident the court will agree that the bill clearly goes to the important government interest of reducing age discrimination, and that this bill is substantially related to that goal.[10] Regarding IMDb in particular, AG Kenealy argues that the reason even the public portion of this electronic database is impacted is due to what has been coined IMDb’s “split personality.”[11]

IMDb has two major features: IMDb.com and IMDbPro.[12] IMDb.com contains filmography data while IMDbPro is specifically designed for entertainment industry professionals.[13] There aspiring actors, actors, and other individuals in the entertainment industry can: (1) showcase their talent; (2) access contact and representation details; (3) view job listings; and (4) apply for roles.[14] AG Kenealy argues that it would be fundamentally unfair for IMDb to be able to post age information on their public site if a subscriber requested they remove that information from the subscribed site.[15]

Since the law came into effect, over 2,300 people have requested that their age information be removed from IMDb.[16] The Screen Actors Guild President, Gabrielle Carteris, expressed that this bill is a positive step towards preventing age discrimination in casting and hiring throughout the entertainment industry.[17] Although the age information of Hollywood’s biggest stars will still available through multiple media and online sources, lesser known actors are likely to be protected from age exposure and therefore, their career opportunities will be less impacted by this factor.[18] Proceedings continue in the U.S. District Court for the Northern District of California and is set for a hearing in the upcoming weeks.[19]

[1] Kat Greene, IMDb Files Suit Against Calif. AG Over Privacy Bill, Law360 (Nov. 10, 2016),

https://0-www.law360.com.libweb.hofstra.edu/employment/articles/883218/calif-ag-says-actor-age-law-no-1st-amendment-threat.

[2] Ryan Parker & Jonathan Handel, California Enacts Law Requiring IMDb to Remove Actor Ages on Request, The Hollywood Rep. (Sept. 24, 2016), http://www.hollywoodreporter.com/news/california-enacts-law-requiring-imdb-932330.

[3] Greene, supra note 1.

[4] Assemb. B. 1687, 2016-2017, ch. 555, 2017 Cal. Stat. https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201520160AB1687.

[5] Parker & Handel, supra note 2.

[6] Greene, supra note 1.

[7] Greene, supra note 1.

[8] Jonathan Handel, New California IMDb Age Law Probably Unconstitutional, Experts Say, The Hollywood Rep. (Sept. 27, 2016) http://www.hollywoodreporter.com/thr-esq/new-california-imdb-age-law-932808.

[9] Parker & Handel, supra note 2.

[10] Parker & Handel, supra note 2.

[11] Greene, supra note 1.

[12] IMDb, http://www.imdb.com (last visited Jan. 22, 2017).

[13] See id.

[14] Id.

[15] Greene, supra note 1.

[16] Greene, supra note 1.

[17] Parker & Handel, supra note 2.

[18] Parker & Handel, supra note 2.

[19] Greene, supra note 1.

Vasquez v. Empress Ambulance Serv., Inc., and the “Cat’s Paw” Approach to Title VII Liability

By: Kyle D. Winnick, Esq.

Associate, Maduegbuna Cooper LLP

In Vasquez v. Empress Ambulance Serv., Inc.,[1] the Court of Appeals for the Second Circuit became the latest circuit to hold that the cat’s paw theory (the “Cat’s Paw Theory”) liability is viable under Title VII of the Civil Rights Act of 1964.  The Cat’s Paw Theory references an Aesop fable, “in which a wily monkey flatters a naïve cat into pulling roasting chestnuts out of a roaring fire for their mutual satisfaction; the monkey, however, devours them fast, leaving the cat with a burnt paw and no chestnuts for its trouble.”[2]  In the context of employment discrimination law, Cat’s Paw Theory liability refers to the situation where the discriminatory animus of a non-decision-maker, typically a supervisor, is imputed to the unbiased decision-maker when the former has singular influence over the latter and uses that influence to cause an adverse employment action.[3]  But the Vasquez court took this one step further by also holding that the Cat’s Paw Theory is applicable even if the biased non-decision-maker is a low-level co-worker, as opposed to the plaintiff’s supervisor, if the employer was negligent in relying on the co-worker’s representations.  This comment discusses Vasquez’s implications and offers advice on compliance.

In Vasquez, the plaintiff complained to her superiors about receiving unsolicited sexual photographs from a non-supervisory co-worker.[4]  Alert to the fact that these actions had been reported to management, the offending employee, Gray, “manipulated a text message conversation on his iPhone to make it appear as though a person with whom he had legitimately been engaging in consensually sexual text banter was” the plaintiff, which he showed management.[5]  Management, wholly adopting Gray’s version of events, and without even viewing the sexual photographs Gray texted to the plaintiff, terminated the plaintiff on the ground that she sexually harassed Gray.[6]  The Second Circuit held that the defendant-employer could be found liable under the Cat’s Paw Theory approach, since Gray, though a non-decision-maker and non-supervisor, “became the entire case against [the plaintiff] when [the defendant-employer] negligently chose to credit his, and only his, account.”[7]  The court clarified that liability will not be imputed where an employer “non-negligently and in good faith, relies on a false and malign report of [a biased] employee[.]”[8]  Thus, distilled to its elements, a non-supervisor’s animus will be imputed to an employer in the Second Circuit if: (1) the non-decision-making employee performs an act(s) motivated by impermissible bias that is intended to cause an adverse employment action; (2) that act(s) in fact proximately causes the plaintiff to suffer the adverse employment action (the “proximate cause prong”); and (3) the decision-maker was negligent in relying on the non-decision-maker’s influence (the “negligence prong”).  (If the biased employee is the plaintiff’s supervisor, only the first two prongs need to be met.)

In unpacking Vasquez’s proximate cause prong, it is useful to consider the development of the Cat’s Paw Theory approach by other courts, which similarly require that the non-decision-maker’s animus be the proximate cause of the relevant adverse action.  For example, in the seminal case of Shager v. Upjohn Co.,[9] the plaintiff, a fifty-year-old salesperson, who was supervised by a twenty-nine-year-old (the “supervisor”), was terminated after ostensibly performing inadequately.  At the summary judgment stage, the plaintiff’s case was quite strong, at least when viewed most favorably to him.  Despite the plaintiff covering a far less promising region than the other, younger salesperson at the company, who was not terminated, the plaintiff’s sales performance was “outstanding,” yet “inexplicably rated marginal by his hostile supervisor.”[10]  This evidence was compounded by the supervisor having made comments suggesting he was “uncomfortable with the older workers under his supervision,” as well as plaintiff’s replacement by an inexperienced and much younger salesperson.[11]  But the wrinkle to the case was that the actual decision to terminate the plaintiff was made not by the supervisor, but an allegedly unbiased “Career Path Committee” (the “Committee”).[12]

Relying on the law of agency, the court, in an opinion by Judge Richard Posner, found that liability would be imputed to the defendant-employer because the Committee’s “decision to fire [the plaintiff] was tainted by [the supervisor’s] prejudice.”[13]  Critically, the court found that the Committee merely rubber-stamped the supervisor’s recommendation, as there was evidence that its deliberations were “perfunctory.”[14]  Presumably, then, had the Committee conducted a thorough, independent investigation of the plaintiff’s performance and found legitimate, non-discriminatory reasons to terminate him, the defendant would have won its summary judgment motion.[15]  Other courts, although employing different verbiage, have generally followed Shager’s standard.[16]

A different scenario therefore presents itself when the decision-maker is not wholly dependent on a single source of information, but instead conducts his/her own investigation, which results in an adverse action for reasons unrelated to the biased supervisor’s assertions; in such a scenario, liability will not be imputed.[17]  For example, in Eiland v. Trinity Hosp.,[18] the plaintiff nurse was fired after a staff physician reported that she injected a pregnant woman with a measles-mumps-rubella vaccine without following proper procedure.  The plaintiff sued, claiming that the staff physician had racial animus against her and had made the report to get her fired.[19]  The court held that even assuming the staff physician reported the incident because of racial animus, there had still been no violation of Title VII, because the supervisor who fired her acted only after reading the staff physician’s incident report, speaking with another supervisor, and confronting the plaintiff herself with the allegations. The supervisor had thus “acted independently and only after she evaluated the circumstances, including [the plaintiff’s] version.”[20]

Thus, Vasquez’s proximate cause prong will most readily be met in those situations where decision-makers fail to independently investigate a supervisor’s recommendation of an adverse employment action.[21]  Or, even if they do perform an independent investigation, they only consider the biased employee’s version of events.[22]  This very much animated the decision in Vasquez.  As the court noted, the defendant-employer “blindly credited Gray’s assertions, obstinately refusing to inspect Vasquez’s phone or to receive any other evidence proffered by Vasquez in refutation.”[23]  In this case, the employer was “at fault because one of its agents committed an action based on discriminatory animus that was intended to cause, and did in fact cause, an adverse employment decision.”[24]

But, as explained above, the Vasquez court made clear that causation is not enough if the biased employee is a non-supervisor; in that scenario, “[o]nly when an employer in effect adopts an employee’s unlawful animus by acting negligently with respect to the information provided by the employee, and thereby affords that biased employee an outsize role in its own employment decision, can the employee’s motivation be imputed to the employer and used to support a claim under Title VII.”[25]  In formulating this holding, the court relied on the First Circuit decision of Velazquez-Perez v. Developers Diversified Realty Corp,[26] which is therefore instructive in determining when the negligence prong may or may not be met.

In Velazquez-Perez, a quid pro quo sexual harassment case, the plaintiff was terminated due to the machinations of a scorned human resources employee, Martinez.  Prior to the plaintiff’s termination, he had complained to his supervisors that Martinez had threatened him – often implying that she would have him terminated – after he rejected her romantic overtures.[27]  Martinez eventually complained, in her human resources capacity, about the plaintiff’s alleged misconduct (e.g., being tardy) to his supervisors.[28]  Meanwhile, the plaintiff’s supervisors “began to extensively discuss a number of other accusations against [the plaintiff]” that did not emanate from Martinez.[29]  Eventually, the head of the plaintiff’s office, based on these latter accusations, recommended placing the plaintiff on probation.  But Martinez “was not to be deterred so easily” and after sending management a series of e-mails delineating exaggerated deficiencies in the plaintiff’s performance, he was terminated by one of his supervisors.[30]

In reversing a grant of summary judgment for the defendant-employer, the First Circuit first noted that Martinez’s constant maligning of the plaintiff, which was motivated by quid pro quo harassment, proximately caused his termination.[31]  The court further noted that, although Martinez was not the plaintiff’s supervisor, her animus could be imputed to the defendant-employer because Title VII liability attaches when “an act of discrimination is allowed to cause harm by an employer that knows or reasonably should know of the discrimination.”[32]  In other words, the court found that the defendant-employer was negligent in relying on Martinez’s unverified, tainted representations since it had notice, through the plaintiff’s complaints to his supervisors, that her intentions may have been motivated by impermissible reasons.

The cases discussed, as well as those contained in the endnotes, provide some lessons for employers wishing to comply with Vasquez.  First, an employer should independently investigate an employee’s allegations of illegal bias in their treatment by supervisors or co-workers.  Second, an employer should ensure that an internal complaint procedure exists that allows and requires employees to inform the employer of allegedly illegal bias in employment decisions, even if those decisions are not sufficiently material to rise to the level of an “adverse employment action.”  Third, if the basis for potential discipline and/or termination is predicated on the assertions of a supervisor or co-worker who has been accused of bias, employers should treat those assertions with skepticism and investigate their veracity.  Finally, employers should mandate equal employment opportunity training for its employees.  Taking these steps, especially in combination, should limit employers’ exposure to Cat’s Paw Theory liability.

[1] Vasquez v. Empress Ambulance Serv., Inc., No. 15-3239-CV, 2016 WL 4501673 (2d Cir. Aug. 29, 2016).

[2] Vasquez, 2016 WL 4501673 at *3 (brackets and ellipsis omitted); see also Staub v. Proctor Hosp., 562 U.S. 411, 415 n. 1 (2011).

[3] See Staub, 562 U.S. at 422 (applying the Cat’s Paw Theory to USERRA claims); Cook v. IPC Intern. Corp., 673 F.3d 625, 628 (7th Cir. 2012) (Posner, J.).

[4] Vasquez, 2016 WL 4501673 at *1-2.

[5] Id. at *2.

[6] Id. at *2-3.

[7] Id. at *6.

[8] Id. at *6.

[9] Shager v. Upjohn Co., 913 F.2d 3 98 (7th Cir. 1990).

[10] Id. at 400.

[11] Id. at 401-402

[12] Id. at 404.

[13] Id. at 405.

[14] Id.

[15] Id. at 405 (If the Committee fired the plaintiff “for reasons untainted by any prejudice of [the supervisor’s] against older workers, the causal link between that prejudice and [the plaintiff’s] discharge is severed, and [he] cannot maintain this suit even if [the defendant] is fully liable for [the supervisors] wrongdoing.”).

[16] See, e.g., Laxton v. Gap Inc., 333 F.3d 572, 584 (5th Cir. 2003) (“[T]he discriminatory animus of a manager can be imputed to the ultimate decision-maker if the [manager] … had influence or leverage over” the decision-making process.); Abramson v. William Paterson College of New Jersey, 260 F.3d 265, 285-86 (3d Cir. 2001) (“Under our case law, it is sufficient if those exhibiting discriminatory animus influenced or participated in the decision to terminate.”).

[17] See, e.g., Kregler v. City of New York, 987 F.Supp.2d 357, 368-69 (S.D.N.Y. 2013).

[18] Eiland v. Trinity Hospital, 150 F.3d 747 (7th Cir. 1998).

[19] Id. at 749.

[20] Id. at 752.

[21] See Arendale v. City of Memphis, 519 F.3d 587, 604 n.13 (6th Cir. 2008) (“When an adverse hiring decision is made by a supervisor who lacks impermissible bias, but that supervisor was influenced by another individual who was motivated by such bias, this Court has held that the employer may be held liable under a ‘rubber-stamp’ or ‘cat’s paw’ theory of liability.”); Poland v. Chertoff, 494 F.3d 1174, 1182 (9th Cir. 2007) (“[T]he subordinate’s bias is imputed to the employer if the plaintiff can prove that the allegedly independent adverse employment decision was not actually independent because the biased subordinate influenced or was involved in the decision or decision-making process.”).

[22] See Staub, 562 U.S. at 421 (“We are aware of no principle in tort or agency law under which an employee’s mere conduct of an independent investigation has a claim-preclusive effect.”).

[23] Vasquez, 2016 WL 4501673, at *7.

[24] Staub, 562 U.S. at 421.

[25] Vasquez, 2016 WL 4501673, at *7.

[26] Velasquez-Perez v. Developers Diversified Realty Corp., 753 F.3d 265 (1st Cir. 2014); see also Vance v. Ball State Univ., 133 S. Ct. 2434, 2439 (2013) (In the hostile work environment context, if the harassing employee is the victim’s co-worker, the employer is liable under Title VII only if it was negligent in controlling working conditions.).

[27] Id. at 268.

[28] Id. at 268-69.

[29] Id. at 269.

[30] Id. at 269-70.

[31] Id. at 274.

[32] Id. at 273.

Car Dealership Denied High Court Review of NLRB Decision Ordering Union Bargaining

By: Petra Person

An Illinois federal court held that a closed Chrysler car dealership must pay six unionized mechanics previously missed pension and welfare benefits, after the dealership tried to move the employees to another location.[1]  The federal judge determined that the dealer violated the Employment Retirement Income Security Act (“ERISA”).[2]  The disgruntled mechanics, who were union members of the Automobile Mechanics Industry Welfare and Pension Funds of the International Association of Machinists and Aerospace Workers AFL-CIO, Local 701, sought $575,000 including unpaid pension benefits, welfare payments, interest, damages and attorneys’ fees.[3]

The judge ruled that the participation agreements for the workers’ welfare and pension funds were still valid, and subsequently, the dealership violated ERISA standards.  “The employer admits that it has not made welfare and pension contributions to the trustees on behalf of the union mechanics since October 2010,” the judge said. “Therefore, the court finds Dodge of Naperville and Burke Automotive Group in violation of section 515 of ERISA.”[4]

This matter stems from Chrysler Corp.’s bankruptcy proceedings, which required the owner of the Chrysler dealership to consolidate his holdings and to close the dealership in question.[5]  Specifically, Ed Burke owned two Illinois car dealerships: Burke Automotive Group Inc., which carried out business as Naperville Jeep Dodge in Lisle, Ill., and Dodge of Naperville in Naperville, Ill.[6]  As of June 2009, the Lisle dealership employed fourteen non-union mechanics, in contrast to the Naperville dealership which employed six unionized mechanics.[7]  The union had represented employees at the Naperville dealership for twenty years.

When the Chrysler Group filed for bankruptcy in 2009, a group of trustees formed to oversee the pension and welfare benefits of union members, who were in a division of the AFL-CIO.[8]  The Naperville dealership shut its doors after bankruptcy was entered, and offered employment to the six union mechanics at the other Burke Automotive Group location, provided the mechanics surrendered their union membership.[9]  This gave rise to the union’s cause to file a complaint with the NLRB, asserting that Burke Automotive Group had violated the National Labor Relations Act by moving the six mechanics to the new location without opportunity to remain unionized.[10]  The dealership argued that the unionized mechanics were prohibited from continuing their union membership in the Lisle dealership because they now made up a minority of the relevant bargaining unit, and in furtherance of a single community of interest.[11]  The NLRB ruled the dealership had violated the NLRA by failing to bargain with the union over the move’s effects until after the relocated mechanics began working at the new facility.[12]

[1] Melissa Daniels, Closed Chrysler Dealership Owed Unpaid Employee Benefits, Law360 (Nov. 17, 2016), http://www.law360.com/articles/863863/closed-chrysler-dealership-owes-unpaid-employee-benefits.

[2] Id.

[3] Id.

[4] Id.

[5] Kevin McGowan, Car Dealer Denied High Court Review of NLRB Ruling, BNA (Mar. 22, 2016), http://www.bna.com/car-dealer-denied-n57982068819/.

[6] High Court Refuses to Review Decision Ordering Dealership To Bargain With Union, (Apr. 7, 2016), http://www.lexislegalnews.com/articles/7398/high-court-refuses-to-review-decision-ordering-dealership-to-bargain-with-union.

[7] Id.

[8] Id.

[9] Id.

[10] Kevin McGowan, Car Dealer Denied High Court Review of NLRB Ruling, BNA (Mar. 22, 2016), http://www.bna.com/car-dealer-denied-n57982068819/.

[11] Kali Hays, Ill. Car Dealer Brings Union Recognition Suit To High Court, Law360 (Jan. 15, 2016), http://www.law360.com/articles/747471/ill-car-dealer-brings-union-recognition-suit-to-high-court.

[12] Kevin McGowan, Car Dealer Denied High Court Review of NLRB Ruling, BNA (Mar. 22, 2016), http://www.bna.com/car-dealer-denied-n57982068819/.