Littler Lightbulb – May Employment Appellate Roundup

This Littler Lightbulb highlights some of the more significant employment law developments at the U.S. Supreme Court and federal courts of appeal in the last month.

At the Supreme Court

  • Intent Requirement Under Sarbanes-Oxley Anti-Relation Provision. The Supreme Court granted certiorari in Murray v. UBS Sec., LLC, U.S., No. 22-660 to determine whether the plaintiff in a Sarbanes-Oxley whistleblower retaliation case must prove the employer acted with "retaliatory intent" in taking an adverse employment action to resolve an apparent split between the circuits. The underlying case involves an appeal by a securities firm research strategist who claims he was fired in violation of the whistleblower protection provision of the Sarbanes-Oxley Act after allegedly complaining he was pressured to skew his research. The former employee is challenging the Second Circuit’s decision, which overturned a jury verdict in his favor because the district court failed to instruct the jury that the plaintiff had to prove the employer’s retaliatory intent to prevail on his claim. Interpreting what it called the plain, ordinary meaning of the statute, the Second Circuit held that to prevail on a whistleblower retaliation claim the employee must prove the employer took an adverse employment action with intent to “‘discriminate against an employee . . . because of’ lawful whistleblowing activity.” The deadline to file briefs on the merits is set for the summer of 2023 and the oral argument will likely occur during the Court’s October 2023 – 2024 term. We will continue to report on developments in the case.
  • Court Declines to Hear Reverse Discrimination Case. The Supreme Court declined to hear a case by two white former state police officers alleging they were retaliated against for complaining about the police department’s diversity initiative that was dismissed at the district court level. Caldwell v. Gasper, 2023 U.S. LEXIS 1864 (May 1, 2023).  The plaintiffs sought review of the Sixth Circuit’s decision in Caldwell v. Gasper, No. 22-1031, 22-1032, 2022 U.S. App. LEXIS 30418 (6th Cir. 2022), which found that plaintiffs did not make out a prima facie case of retaliation because they did not engage in protected activity. The plaintiffs’ criticism was comprised of general complaints about unfairness and dissatisfaction with the police department’s reactions to the public outcry over the lack of diversity within the police force.  The Sixth Circuit held these criticisms, however, were too vague to constitute allegations of discrimination necessary to constitute protected activity in order to make prima facie case of retaliation.  The Sixth Circuit further held that the plaintiffs failed to show that the adverse employment actions taken against the plaintiffs were pretext for retaliation before affirming the grant of summary judgment.

In the Federal Appellate Courts

  • Limitations on EEOC Subpoena. In a significant case involving the limitations on the EEOC’s subpoena power, the Eleventh Circuit held in EEOC v. Eberspaecher North America Inc., No. 21-13799, 2023 U.S. App. LEXIS 11466 (11th Cir. 2023) that an EEOC subpoena for nationwide information in the investigation of a discrimination claim against a local facility was too broad in scope. The complainant in the case alleged that he was terminated in violation of the ADA following a series of disability-related absences. In support of its nationwide subpoena for detailed information about all employee terminations related to attendance, regardless of whether the employees were disabled or had taken FMLA leave, the EEOC claimed, among other things, that even if the charge is brought by one employee, directed at one facility, the nationwide data was relevant because the company’s attendance policy applied to all its U.S. facilities.

The Eleventh Circuit rejected this argument, reiterating its holding in EEOC v. Royal Caribbean Cruises, Ltd., 771 F.3d 757, 761 (11th Cir. 2014) that a subpoena for the investigation of an individual charge must be relevant “to the contested issues that must be decided to resolve that charge, not relevan[t] to issues that may be contested when and if future charges are brought by others.”

  • Stricter Standard for Notice to Potential Opt-Ins in FLSA Collective Actions. The Sixth Circuit provided a significant win to employers in Clark v. A&L Homecare & Training Ctr., LLC, 2023 U.S. App. LEXIS 12365, (6th Cir. 2023), becoming the second appellate court to establish stricter standards for sending notice to potential opt-in plaintiffs in FLSA collective actions. Noting that “the decision to send notice of an FLSA suit to other employees is often a dispositive one, in the sense of forcing a defendant to settle—because the issuance of notice can easily expand the plaintiffs’ ranks a hundredfold,” the court rejected the use of “conditional certification” allowing a district court to facilitate notice of an FLSA suit to other employees upon a “modest factual showing” that they are “similarly situated” to the original plaintiffs. Instead, the court held, “for a district court to facilitate notice of an FLSA suit to other employees, the plaintiffs must show a ‘strong likelihood’ that those employees are similarly situated to the plaintiffs themselves.”

This standard expands upon the Fifth Circuit’s holding in Swales v. KLLM Transport Services, LLC, 985 F.3d 430, 434 (5th Cir. 2021), which also rejected a lenient approach by district courts to determine potential opt-in plaintiffs to whom notice of an FLSA case should be sent. In Swales, the Fifth Circuit held that the district court must “rigorously scrutinize” possible “similarly situated” employees at the outset of the case before notice can be sent to them.

  • DOL Tip Rule Enjoined. In Restaurant Law Center v. DOL, No. 22-50145, 2023 U.S. App. LEXIS 10494 (5th Cir. 2023), the Fifth Circuit overturned the district court’s decision denying a preliminary injunction to the plaintiffs who sought to prohibit enforcement of the DOL final rule governing how tipped employees must be paid under the FLSA. The final rule codified the resurrection of the so-called “80/20 rule,” which requires employers to pay the full federal minimum wage of $7.25 an hour to tipped workers if they spend more than 20% of their weekly hours, or more than 30 continuous minutes, performing non-tipped work.  Without reaching the merits of the plaintiffs’ challenge to the rule, the district court concluded plaintiffs failed to show they were irreparably harmed by the costs of complying with the new rule.

On appeal, the Fifth Circuit noted the cost imposed on restaurants to comply with recordkeeping requirements required to comply with the final rule. In addition to the recordkeeping requirements, the court also emphasized the cost of complying with the new 30-minute rule, stating:

[T]he 30-minute limitation is a new constraint on the tip credit that both requires distinct recordkeeping and affects the existing 20-percent standard. Neither the district court nor the Department [of Labor] explains why this new requirement would not impose new costs. To the contrary, the rule itself confirms that employers who want to continue claiming the tip credit—like Plaintiffs’ members—will “incur ongoing management costs” to ensure employees do not spend more than 30 minutes continuously performing directly supporting work.

Based on these issues, the Fifth Circuit rejected the district court’s critique of plaintiffs’ failure to provide concrete evidence, or even rough estimates, of the costs of compliance with the final rule given the costs stated above, even though they remained undefined before the district court.

As stated by the Fifth Circuit, “[s]tringently insisting on a precise dollar figure reflects an exactitude our law does not require.” The Fifth Circuit continued, “[u]nder the proper inquiry for irreparable harm, Plaintiffs have provided sufficient evidence for a finding in their favor.” Accordingly, the Fifth Circuit reversed the order denying a preliminary injunction and sent the case back to the district court to consider the merits of the challenge to the 80/20 rule.

  • Rideshare Drivers Not Exempt from Arbitration.  The Third Circuit recently held that rideshare drivers, defined as those who use “a mobile app or website to collect and transport a fare-paying customer to a chosen destination,” must arbitrate disputes under the Federal Arbitration Act (FAA).  In a consolidated appeal by a putative class of nationwide drivers, Singh v. Uber Technologies Inc., No. 21-3234, 21-3363, 2023 U.S. App. LEXIS 10137 (3d Cir. 2023), the Third Circuit held that the FAA’s exemption for transportation workers “engaged in foreign or interstate commerce” did not apply to rideshare drivers, finding engagement with interstate commerce was not central to their work as drivers.

Following discovery in the case, the district court found that that only 2% of all rides by the drivers were interstate rides. On appeal, the drivers argued that “even a trivial amount of interstate transportation work suffices to bring a worker within the [FAA’s] exception.” Rejecting this argument, the Third Circuit concluded that “[p]laintiffs have not shown that drivers’ infrequent interstate trips are, on the whole, an essential part of their job…. Neither have Plaintiffs shown that drivers’ intrastate duties, such as driving riders to and from airports, are a ‘constituent part’ of the interstate movement of goods or people.”

The Third Circuit also rejected plaintiffs’ argument that the contracts they signed, agreeing to arbitration of disputes, were invalid. Applying basic contract principles, the court found the agreements were valid and enforceable for a variety of reasons. Among other things, the court indicated that the drivers’ decision to continue working after signing the agreements constituted acceptance of its terms. Accordingly, the Third Circuit upheld the district court’s decision compelling arbitration.

  • Delivery Drivers Exempt from Arbitration. In contrast to the First Circuit rideshare-driver case discussed above, and prior delivery-driver cases in the First and Second Circuits, the First Circuit affirmed the denial of defendants’ motion to compel arbitration in Canales v. CK Sales Co., No. 22-1268, 2023 U.S. App. LEXIS 11151 (1st Cir. 2023).  In 2017, the plaintiffs created a distribution company through which they purchased delivery routes to distribute the bakery goods purchased from defendants. The distribution agreements between the distribution company and the baking companies contained an arbitration clause providing for arbitration of certain matters, including independent contractor status.  The plaintiffs each signed a "Personal Guaranty" acknowledging that they were subject to the arbitration clause. When the plaintiffs filed suit in 2021 alleging that defendants misclassified them as independent contractors, defendants moved to dismiss on the grounds that plaintiffs’ claims were subject to arbitration.  Defendants claimed that plaintiffs, through their distribution company, purchased baked goods from defendants and resold them to stores for a profit, increasing the value of their routes by soliciting new customers, growing sales, and merchandising effectively and therefore plaintiffs were not exempt from arbitration under the FAA because their work extended beyond the transportation industry.  Rejecting defendants’ argument, the district court denied the motion to dismiss, agreeing with plaintiffs that their work consisted of transporting goods in the stream of interstate commerce.

On appeal, the First Circuit agreed with the district court. Citing Supreme Court and First Circuit precedent, the court held “to determine whether a worker belongs to a class of transportation workers…the inquiry trains ‘on what [the worker] does at [the company], not what [the company] does generally.’” (Alterations in the original).  Because each plaintiff spent a minimum of 50 hours per week driving trucks to deliver goods, they were transportation workers, the court held.  Moreover, the court stated, “workers do not need to be ‘primarily’ devoted to transportation in order to qualify for the section 1 exemption….Workers who frequently perform transportation work do not have their transportation-worker status revoked merely because they also have other responsibilities.”

  • Title VII Discrimination Under RLA Subject to Arbitration. In Polk v. Amtrak National Railroad Passenger Corp., 66 F.4th 500 (4th Cir. 2023), the Fourth Circuit affirmed the district court’s decision that a railroad employee’s Title VII race discrimination claim was subject to arbitration under the Railway Labor Act (RLA). The plaintiff in the case, who was subject to a collective bargaining agreement, claimed that the railroad discriminated against her because of her race when it terminated her for failing a drug test after returning to work following an injury, and required her to undergo excessive drug tests after it reinstated her employment pursuant to a settlement agreement.

Interpreting the dispute resolution provisions of the RLA and the Supreme Court’s decision in Hawaiian Airlines, Inc. v. Norris, 512 U.S. 246, 252–53 (1994), the Fourth Circuit held that disputes “growing out of . . . the interpretation or application” of a collective bargaining agreement are considered “minor disputes” for which arbitration is mandatory. The court rejected plaintiff’s contention that “all Title VII claims are intrinsically different from RLA minor disputes because Title VII ‘rights are guaranteed to employees whether or not a collective bargaining agreement exists,’” and that “arbitration would render her Title VII rights ‘ineffective.’” On the contrary, the court stated, “[A]rbitration is no death knell. In extending an arbitral forum, the RLA serves not to deny [plaintiff] due process but to afford it.”  Moreover, the court noted, disputes about a disciplinary action could be “reframed through artful pleading as a discrimination claim under Title VII” allowing workers to “cavalierly bypass” the grievance process and arbitration and proceed directly to federal court.  

More specifically, the Fourth Circuit found, the essence of plaintiff’s Title VII claim in this case was that Amtrak deviated from its policies, directly implicating the applicable provisions of the collective bargaining agreement. Accordingly, the court held, the plaintiff’s Title VII claim was a “minor dispute,” subject to arbitration under the RLA.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.