President Barack Obama's reelection, a newly active National Labor Relations Board, and important decisions pending before the U.S. Supreme Court promise to make 2013 an interesting year in labor and employment law. Here is a summary of key issues we will see in the New Year.
Hostile Environment Harassment
One case before the Supreme Court, Vance v. Ball State University,1 may resolve a circuit split concerning how to identify which employees qualify as supervisors whose actions can result in vicarious Title VII liability for hostile environment, including sexual harassment.
Under established precedent, an employer is vicariously liable for severe or pervasive workplace harassment by a supervisor of the victim. If the supervisor took a tangible adverse employment action against the victim, the employer may be held strictly liable, but if the supervisor did not take a tangible adverse employment action, the employer may be vicariously liable. Under the latter scenario, the employer may avoid liability if it can prove it exercised reasonable care to prevent and correct harassing behavior, and the employee claiming harm unreasonably failed to take advantage of any preventive or corrective opportunities that could have avoided or reduced the harm.
The Second, Fourth, and Ninth circuits have held that the "supervisor" liability rule applies to harassment by those whom the employer vests with authority to direct and oversee their victim's daily work. The First, Seventh, and Eighth circuits have articulated a "bright-line" rule, finding supervisor liability limited to those harassers who have the power to "hire, fire, demote, promote, transfer, or discipline" their victim.
If the Supreme Court decides to adopt the broader definition of "supervisor" used by the Second, Fourth, and Ninth Circuit Courts of Appeal, employers could find those employees whom they place in charge of a project, however minor, or deputize to dole out shift assignments for the day, deemed supervisors. Employers would favor a bright-line definition, meaning that only individuals who have the power to hire, fire, demote, promote, transfer, or discipline are supervisors.
Also pending before the Supreme Court is Fisher v. University of Texas,2 an affirmative action case with the potential to upend thinking about affirmative action and employers' diversity initiatives. In Fisher, a white female student denied admission to the University of Texas at Austin alleges that the university discriminated against her on the basis of her race in violation of the Equal Protection Clause of the 14th Amendment. The question presented is whether public universities may use affirmative action policies that take a student's race into consideration in admissions decisions.
In Grutter v. Bollinger,3 the Supreme Court rejected an equal-protection challenge to the University of Michigan's use of race as a factor in student admissions. Grutter was a 5-4 decision, with Justice Sandra Day O'Connor writing for the majority; Justices Kennedy, Scalia and Thomas dissented. If the Supreme Court rules against the university, it may overturn Grutter and hinder affirmative action policies at public universities.
While it has never been lawful for an employer to make decisions concerning the terms and conditions of employment solely on the basis of minority status, employers have implemented employment practices aimed at increasing their racial and ethnic diversity, in the belief that doing so strengthens their business. While not an employment case, Fisher could reshape the perception of affirmative action even in private industry.
Mandatory arbitration of FLSA collective actions came under fire in a big way from the NLRB in 2012. In D.R. Horton Inc.,4 the board held that an arbitration agreement requiring "as a condition of employment" all employees to agree to waive the right to bring class or collective actions in any forum violated section 8(a)(1) of the National Labor Relations Act (NLRA), which protects the rights of employees to engage in concerted, protected activity. An appeal is pending before the U.S. Court of Appeals for the Fifth Circuit. Meanwhile, a strong tension between the NLRB and federal courts will continue.
A few recent NLRB cases have followed and expanded D.R. Horton. In Advanced Services,5 the ALJ invalidated an arbitration procedure requiring all employees to waive the right to bring class/collective actions unless both the employee and employer agreed to the class/collective action, even though this procedure allowed employees to "act concertedly to challenge the terms of the arbitration policy and class waiver itself."
In 24 Hour Fitness,6 the ALJ ruled that the arbitration policy of 24 Hour Fitness violated the NLRA, despite the fact that its arbitration policy expressly allows employees to opt out of the agreement to arbitrate. 24 Hour Fitness argued that the arbitration was not a condition of employment since employees could opt out if they wanted to preserve their right to engage in concerted, collective action. The ALJ disagreed and found the opt-out provision "illusory," because the policy prohibited non opt-out employees from disclosing "the existence, content or results of any arbitration" to opt-outs, and therefore effectively prevented concerted employee activity between opt-outs and non-opt outs. The NLRB extended D.R. Horton to a class action waiver in an employment application in Convergys.7
However, a majority of federal district courts have refused to follow D.R. Horton, most recently this week in Owen v. Bristol Care,8 ruling that D.R. Horton conflicts with Supreme Court precedents, including the Supreme Court's recent decision in AT&T Mobility v. Concepcion.9 2013 should bring more guidance on the impact of D.R. Horton, particularly once the Fifth Circuit issues its opinion.
With the increasing use of social media by employees, employers often adopt social media policies to guide and regulate employees' personal social media usage. In Costco Wholesale,10 the NLRB found that the employer's policies violate Section 8(a)(1) of the NLRA. The board found unlawful a policy prohibiting employees from posting statements which "damage the Company, defame any individual or damage any person's reputation, or violate the policies outlined in the [Company] Employee Agreement…."
The NLRB also found unlawful provisions which prohibited employees from discussing private matters of other employees (such as sick calls, leaves of absence, Workers' Compensation injuries and personal health information), sharing, transmitting, or storing for personal or public use, without prior management approval, sensitive information (such as membership, payroll, confidential financial and Social Security numbers), and sharing confidential information (such as employees' names, addresses, telephone numbers and email addresses).
However, "curing" language, including examples clarifying that a policy does not relate to Section 7 activity, may save an otherwise unlawful policy.
The NLRB recently ruled that comments posted on Facebook are protected in the same manner and to the same extent as comments made at the "water cooler." In Hispanics United of Buffalo,11 five employees posted messages, while off duty, on a Facebook page to express their strong discontent with the criticism on their job performance by one of their coworkers. The employer investigated and then terminated the five employees for their violation of the company's "zero tolerance" policy against "bullying and harassment." The NLRB found that the termination was a violation of the NLRA and awarded the employees full reinstatement and back pay.
In 2013, the NLRB will likely issue additional rulings that continue to shape this important new issue.
The year 2012 was marked by a number of favorable developments for whistleblower lawsuits. The U.S. Department of Justice had a record year in False Claims Act collections, and the U.S. Securities and Exchange Commission and Internal Revenue Service (IRS) Whistleblower Offices issued significant and record awards.
Under President Obama, the U.S. Department of Labor has dramatically strengthened whistleblower protection available under the Sarbanes-Oxley Act of 2002 (SOX) and the Dodd-Frank Wall Street Reform and Consumer Protection Act, reversing many years of prior rulings which limited those rights. The Labor Department's Administrative Review Board (ARB) has been ruling in favor of SOX whistleblowers and interpreting that law in a manner that is far more claimant-oriented in the decade since SOX became law.
With a full complement of Democratic appointees, the ARB is committed to expanding SOX coverage, broadening the concept of protected activity, restricting employer defenses, and generally making the Labor Department a friendlier place for whistleblowers.
Interpretations of critical aspects of SOX will likely be in flux for a time as the solidly Democratic ARB moves to broaden both the scope of SOX and the remedies available to a complainant. Obama can be expected to further strengthen the hand of the NLRB, to move forward a pro-whistleblower agenda, and to look for other ways to counter the resistance of business, whether in the financial services industry or elsewhere, to what it views as unreasonable government regulation of their employment practices.
Health Care Reform
President Obama's victory secures the political future of the ACA for at least the next four years and brings renewed focus on and urgency to employers' preparations for implementing the law.
With the effective date of the Pay-or-Play provision coming in 2014, employers must carefully consider whether they will continue to provide health care coverage to employees, and, if so, to whom it will be offered and how it will be structured. The calculation involves much more than a simple comparison of the cost of health coverage versus the cost of the Pay-or-Play penalty. Those employers taking a broader and longer-term approach to this analysis will be better positioned.
The absence of regulatory direction on key aspects of the Pay-or-Play penalty leaves many important questions unanswered at this time. The agencies are expected to issue a slew of ACA regulations in the wake of the election, hopefully giving much-needed clarity to employers' obligations under health care reform.
Obama's reelection may bring the reintroduction of the Employee Misclassification Prevention Act, which would require employers to keep records of all workers performing labor or services for them, and to notify each worker of their classification and exemption status.
As reaffirmed by Solicitor of Labor M. Patricia Smith at the ABA Labor and Employment Law Conference in early November 2012, investigating independent contractor misclassification remains a top priority of the Labor Department enforcement initiatives, and the department will continue to work with other federal agencies (such as the IRS) and state agencies to share information and collaborate on investigating worker misclassification claims.
A new trend is employers' use of "cloud computing" to give them access, worldwide, to personnel records of employees who may be on the other side of the world. This practice threatens to expose employers on many levels: to privacy claims, as well as to potential liability as a de facto employer, to the extent that the entity with access to the records (perhaps the foreign parent of a U.S. subsidiary) makes use of those records and imposes personnel related decisions on the subsidiary. More on this topic in an upcoming column.
The year 2012 has been a momentous year in terms of potential liability of employers as fiduciaries against employees and former employees who receive various benefits. The new cases12 have grown out of the Supreme Court's 2011 decision in Cigna v. Amara,13 which expanded the right of the courts to fashion equitable remedies for beneficiaries that go well beyond the mere terms of the governing plan, including possible reformation of the contract, estoppel, as well as monetary compensation.
Other 2012 developments included multimillion dollar awards in class action fiduciary liability cases involving excessive fees in administering 401(k) plans—most significantly, in George v. Kraft Foods Global14 and Tussey v. ABB.15 In George, the court approved a $9.5 million settlement. In Tussey, the court awarded nearly $37 million for the employer's failure to monitor recordkeeping fees, negotiate for rebates, and for a decision to switch from a Vanguard to a Fidelity fund without good reason. These cases effectively mandate that employers put in place comprehensive fiduciary training to help prevent these liabilities.
There are many more topics we could discuss in greater detail, including new international issues, particularly the growth of Mexico as labor source; the increasing attention to corporate social responsibility in China and other emerging markets; and foreign employers as growing targets for employment lawsuits in the United States. We are compelled to leave these for future discussion.
Philip M. Berkowitz is a partner and U.S. cochair of Littler Mendelson's international law practice; he is based in the New York office. Huan Xiong, an associate at the firm in the New York office, assisted in the preparation of this article.
1. Docket No. 11-556.
2. Docket No. 11-345.
3. 539 U.S. 306 (June 23, 2003).
4. 357 NLRB No. 184 (Jan. 3, 2012).
5. Case No. CA-63184-71805 (Nov. 12, 2012).
6. Case No. 20-CA-35419 (Nov. 7, 2012).
7. Case No. 14-CA-075249 (Oct. 25, 2012).
8. Case No. 12-1719 (Jan. 7, 2013).
9. 131 S. Ct. 1740 (2011).
10. 358 NLRB No. 106 (Sept. 7, 2012).
11. 359 NLRB No. 37 (Dec. 14, 2012).
12. E.g., McCravy v. Metro Life Ins., 690 F.3d 176 (2012).
13. 131 S. Ct. 1866 (2011).
14. 641 F.3d 786 (7th Cir. 2011).
15, Tussey v. ABB, No. 2:06-CV-04305, 2010 U.S. Dist. LEXIS 45240 (W.D. Mo. March 31, 2012).
Philip M. Berkowitz is a shareholder and U.S. co-chair of Littler’s International Law Practice Group. He is based in the firm’s New York City office. This article is reprinted with permission from the January 10, 2013 issue of the New York Law Journal. © ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.