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Fifth Circuit refuses to reconsider DR Horton en banc – class action waivers resistant to NLRB attack


Yesterday, the Fifth Circuit denied the NLRB’s petition for en banc review of its December 3, 2013 decision wherein the Fifth Circuit refused to enforce the NLRB’s decision invalidating class action waivers in mandatory employee arbitration agreements. See D.R. Horton, Inc. v. NLRB, --- F.3d ---, 2013 WL 6231617 (5th Cir. Dec. 3, 2013). In the NLRB decision overturned by the Fifth Circuit (In re D.R. Horton, Inc., 357 NLRB No. 184 (Jan. 3, 2012), the NLRB held that D.R. Horton’s mandatory arbitration agreement, which prohibited employees from filing class or collective action claims in any judicial or arbitral forum, violated Sections 7 and 8(a)(1) of the National Labor Relations Act (“NLRA”) by prohibiting employees’ ability to engage in collective action. In reversing the NLRB’s decision, the Fifth Circuit held 2-1 that the NLRB failed to give appropriate weight to the Federal Arbitration Act (“FAA”) and Congressional policies favoring arbitration. In sum, the court concluded that class action waivers in employment agreements are lawful.

Section 7 of the NLRA states that employees have the right to “engage in [ ] concerted activities for the purpose of collective bargaining or other mutual aid or protection.” 29 U.S.C. § 157. Section 8(a)(1) of the NLRA prohibits employers “interfer[ing] with, restrain[ing], or coerc[ing] employees in the exercise of their rights” granted in Section 7. 29 U.S.C. § 158. In a widely discussed 2012 decision, the NLRB found that D.R. Horton’s arbitration agreement, and specifically the restrictions on class or collective actions, violated these provisions. D.R. Horton appealed, arguing that the NLRA does not grant employees a substantive right to class action procedures and that the decision impermissibly conflicted with the FAA. In large part (but not entirely) the Fifth Circuit agreed.

The Fifth Circuit held that prohibiting class action waivers would conflict with the FAA. The Fifth Circuit, applying the U.S. Supreme Court’s reasoning in AT&T Mobility, LLC v. Concepcion, 131 S. Ct. 1740 (2011), found that the NLRB’s prohibition on class action waivers had the effect of disfavoring arbitration because “employers would be discouraged from using individual arbitration,” and requiring class arbitration would “interfere[ ] with fundamental attributes of arbitration and thus create[ ] a scheme inconsistent with the FAA].” D.R. Horton did not completely carry the day, however. The Fifth Circuit affirmed the NLRB’s holding that the language of D.R. Horton’s arbitration agreement would lead employees to reasonably believe that they were prohibited from filing charges of unfair labor practices with the NLRB itself. Accordingly, the court enforced the NLRB’s decision requiring D.R. Horton to rescind or revise its agreement to clarify that employees are not prohibited from filing unfair labor charges with the NLRB.

The NLRB's decision in D.R. Horton, has been rejected by all of the circuit courts of appeals (Fifth, Second, Ninth and Eighth) and nearly all of the district courts which have considered the issue. Appeals from Board decisions go to the Circuit Courts of Appeal. District court decisions arise where an employee seeks to set aside an arbitration agreement containing a class action waiver on the ground that it conflicts with NLRB law. The district courts in those cases also tend to reject the Board’s position. Of the few cases that went the Board’s way, most are from one of the circuits that later rejected D.R. Horton and, thus, those decisions are now bad law and would go the opposite way if decided today. The few Florida federal courts that mention D.R. Horton held that it was required to follow pre-D.R. Horton Eleventh Circuit law which affirmed use of class action waivers in an FLSA overtime claim. See Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359 (11th Cir. 2005).  The Eleventh Circuit recently sidestepped the issue in Walthour v. Chipio Windshield Repair, LLC, 2014 WL 1099286 (11th Cir., March 21, 2014) in a decision generally viewed as pro-arbitration. 

Will the NLRB petition the Supreme Court to grant certiorari? Probably not until there is a circuit split. Will the NLRB acquiesce and abandon efforts to attack class action waivers? They will one day run out of circuits to peddle this theory.

Therefore what?

Employers should recognize that the issue still is not settled. Although several federal courts of appeal now agree that the Board's position is incorrect, the Board is not bound by those decisions, and even if it does not seek review by the Supreme Court (which is pro arbitration), the Board may ignore the decisions and continue issuing complaints. The final outcome of this issue is tied up in a pending case before the Supreme Court that will be issued in the next few weeks. If the Supreme Court affirms the lower court ruling that the NLRB was improperly constituted at the time D.R. Horton was issued, this could potentially wipe the entire case away. And while that may initially sound attractive, it might only mean that the current Board could take up the issue again starting from square one.

Another potential variable is whether the NLRB will appeal the DR Horton decision to the Supreme Court. I suspect that the NLRB will not appeal. The current Supreme Court (or at least five members of the Court) has expressed an unfailing affection of arbitration. The NLRB may be inclined to defer seeking Supreme Court review until it believes that it has a more favorable majority. The NLRB may simply ignore the court's decision outside the Circuits where it had not prevailed. Or it may ignore the federal court decisions regardless of the jurisdiction in which a case arises. The Board tends to view itself as bound only by Supreme Court decisions, and (on some occasions) views the circuit courts as simply an interesting distraction. The risk exists that the NLRB will issue a complaint against an employer that requires employees to execute class action action arbtration agreements. The NLRB has been accused of operating a rogue agency that will harass employers despite having no legal basis for doing so. In the interim, it is likely that a district court will enforce an otherwise enforceable arbitration agreement containing a class action waiver if the court is presented with a motion to compel arbitration.

The bottom line

While the Fifth Circuit's rejection of D.R. Horton is encouraging, the Board may very well ignore the Fifth Circuit (and the Second, Eighth and Ninth Circuits, which have also rejected D.R. Horton) and continue to issue complaints against employers that use class waivers in mandatory arbitration agreements.

How would this play out?

A plaintiff files a class action lawsuit. The employer moves to compel arbitration. The plaintiff claims the class action waiver is unlawful. It is unlikely that a court would refuse to force the class action waiver based on D.R. Horton. An adverse ruling could be appealed to the Eleventh Circuit. A plaintiff’s attorney may elect not to do so.

Alternatively, the NLRB could issue a complaint based on an unfair labor practice charge. That could be ruled upon by an ALJ in an administrative hearing, and then appealed to the NLRB (although if the case is clean, it could go directly to the Board on a stipulated record, which seems likely on these facts – there would be no litigation other than briefing). The appeal would sit there for a few months or years. The Board will rule against the employer (unless there is some intervening Supreme Court decision) whereupon the decision would be appealed to the Circuit Court of Appeal – either the D.C. Circuit or the Eleventh Circuit (assuming the cases starts in Florida). The appellate court would likely refuse to enforce the NLRB’s order. It would take years for the issue to play out and class actions would be disabled in the interim.

Of course, the risk exists that the courts change directions and start affirming the Board’s decision in D.R. Horton. If the NLRB charge is based on simply requiring the agreement as a condition of employment (i.e., the demand by itself is unlawful), the Board’s remedy would be to require employers to stop doing it, post a notice, but not much more. If the charge is based on an allegedly unlawful termination arising from a refusal to sign, there could be backpay liability for the affected persons. In general, employment law firms are advising employers who want protection from class actions to require the employees to sign arbitration agreements containing class action wiavers, and in the unlikely event that it results in a NLRB charge, fight it out in court.

There is another option, but few recommend it. Employers can permit employees to opt out of the arbitration clause by notifying the company within 30 days. Inertia will work in the employer’s favor. It is comes at the price of allowing employees to opt out, which defeats the objective, and the NLRB disapproves of these agreements too. Employers give up a lot, and get very little protection. But such agreements are slightly easier to defend, and hence, a slightly less attractive target for the NLRB’s enforcement efforts.

 
 
 
 

Severance Payments Are Taxable Wages Under FICA


The U.S. Supreme Court ruled on March 25, 2014, that severance payments made to employees terminated against their will are taxable wages under the Federal Insurance Contributions Act (FICA).

In a decision with far-reaching implications, the court voted 8-0 to overturn a Sixth Circuit opinion that Quality Stores' severance payments to its former employees were not wages and, thus, were not taxable under FICA.

Quality Stores, Inc., an agricultural-specialty retailer, declared bankruptcy in 2001 and made severance payments to thousands of employees who were involuntarily terminated as part of Quality Stores' Chapter 11 bankruptcy. Quality Stores paid, and withheld, taxes required under FICA. After later coming to believe that the payments should not have been taxed as wages under FICA, Quality Stores sought a refund on behalf of itself and several former employees. The Internal Revenue Service (IRS) declined to either allow or deny the refund. Quality Stores then initiated proceedings in the Bankruptcy Court, which granted summary judgment in Quality Stores' favor. The District Court and the Court of Appeals for the Sixth Circuit affirmed.

In reversing, and concluding that the severance payments at issue are taxable wages for purposes of FICA, the high court focused on the broad definition of "wages" and the historical treatment of severance pay. The Supreme Court noted that Congress chose to define wages under FICA "broadly." Specifically, FICA defines "wages" as "all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash." The term "employment" encompasses "any service, of whatever nature, performed … by an employee for the person employing him." The Court explained that, under this definition, and as a matter of plain meaning, severance payments made to terminated employees are "remuneration for employment." The Court further explained that severance payments are made to employees only, and that "[i]t would be contrary to common usage to describe as a severance payment remuneration provided to someone who has not worked for the employer."

The court dismissed Quality Stores' contention that its severance payments were exempt from FICA taxation under the supplemental compensation benefits (SUBs) definition in the Internal Revenue Code. In doing so, the Court explained that the relevant chapter of the code governing income tax withholding has a broad definition of the term "wages," and that the definitional section for income-tax withholding, like the definitional section for FICA, contains a series of specific exemptions that reinforce the broad scope of its definition of wages.

The Court's ruling may be viewed as a triumph for the government, effectively rendering all existing (or contemplated) claims invalid. As noted in the petition for a writ of certiorari, the unknowns surrounding the treatment of severance payments had resulted in 11 similar cases and more than 2,400 administrative refund claims, with a total amount at stake of more than $1 billion.

 
 
 
 

EEOC FY 2013 Statistics a Mixed Bag For Employers


Each year around this time we employment lawyers anxiously await the EEOC's release of it's fiscal year statistics.  We want to know whether our warnings to our clients that the EEOC is "increasingly active" and that the number of charges filed is "up" still ring true.  Well, this week the EEOC released its 2013 fiscal year (Oct. 1 - September 30) numbers.  And the numbers are a mixture of good and bad news for employers.

The good news (if you can call it that)  is that there was a significant decrease in the number of charges filed.  In FY 2013, 93,727 charges were filed, which is about 6,000 less than in both 2011 and 2012.  This decline may be an indication that the economy is on the right track, because, in general, the worse the economy the more charges are filed.  Employees who are out of work are obviously more likely to bring claims than those who remain employed. 

The bad news is that the EEOC secured a record amount of settlement dollars from private sector employers - $372.1 million.  This tells me that the EEOC is more agressively investigating charges and bringing lawsuits on behalf of employees.  This is a trend that is likely to continue through the remainder of the Obama presidency. 

 
 
 
 

Duane Morris Miami Breakfast Briefing Series


We are hosting a series of labor and employment law breakfast briefings in our Miami office, including one on December 5.  The topic for December 5 is “Labor and Employment Law Outlook for 2014”.  Below is the invitation.  I hope that you and/or your coworkers can attend some or all of the sessions.

 

Having trouble reading this email? View it in your browser

 

 

 

 

 

 

Please join us for the first Miami Employment Law
Breakfast Briefing session:

 

Labor and Employment Law Outlook for 2014

 


 

 

 

Thursday, December 5, 2013

 

 

 

 

 

 

 

Registration and Breakfast: 8:30 a.m. to 9:00 a.m.
Program: 9:00 a.m. to 10:00 a.m.
Q-&-A: 10:00 a.m. to 10:15 a.m.

 

 

 

 

 

 

 

Duane Morris LLP
200 South Biscayne Boulevard, Suite 3400 | Miami, FL 33131-2318

 

 

 

 

 

 

 

Click here to R.S.V.P. by November 27.

 

 

 

 

 

 

 

1.00 HRCI credit will be provided.

 

 

 

 

 

 

 


 

 

 

 

 

 

Mark your calendar for upcoming sessions in the
Miami Employment Law Breakfast Briefing series:

 

 

 

 

 

 

 

 

February 6, 2014: Social Media – Employment Law
Implications from Hiring to Firing

 

 

 

 

 

 

 

 

April 3, 2014: Alphabet Soup – The Interplay of ADA,
FMLA and the Florida Workers’ Compensation Statute

 

 

 

 

 

 

 

 

May 7, 2014: Wage-and-Hour Cutting-Edge Issues –
The Rise of More Sophisticated Lawsuits in Florida

 

 

 

 

 


About the Program

 

 

2014 promises to be a busy year for labor and employment attorneys, as well as human resources executives. Important new legislation, court decisions and increased administrative enforcement hold the potential to once again change the legal landscape of employment law. In this seminar, Kevin E. Vance, Michael W. Casey III, Teresa M. Maestrelli and Mark J. Beutler will discuss these emerging issues and share strategies that businesses can implement to prepare for the changes in the coming year.

 

 

The Miami Employment Law Breakfast Briefing series focuses on emerging issues and legislative developments that affect employers in Miami and beyond. Presented by Duane Morris attorneys from the Employment, Labor, Benefits and Immigration practice, each session offers detailed examples of current workplace and employment challenges, along with practical solutions that employers can quickly and effectively implement.

 

 

About Duane Morris’ Employment, Labor, Benefits and Immigration Group

 

 

Duane Morris’ Employment, Labor, Benefits and Immigration attorneys provide clients with a wide spectrum of global services—from timely advice on regulatory issues through litigation developments. Our clients benefit from the integration of employment, labor, benefits and immigration services in order to meet the complexities of today’s business environment. Duane Morris’ employment lawyers offer practical counseling designed to help clients achieve their business objectives and resolve potentially disruptive labor and employment disputes.

 

 


 

 

 

 

 

 

www.duanemorris.com

 

 

 

 

 

 

 

 

 

 

 

 
 
 
 

Florida Minimum Wage to Increase to $7.93


A quick note - effective January 1, 2014, the Florida minimum wage will increase to $7.93 per hour.  This is a $.14 increase of the 2013 minimum wage.  The Florida minimum wage is recalculated each year to keep in step with the federal Consumer Price Index.  The federal minimum wage remains at $7.25.
 
 
 
 

Florida Bill Would Protect Employee Social Media Passwords


There is a growing legislative movement to pass laws that prohibit employers from requiring employees to turn over their social media (i.e., Facebook) passwords.  Such a bill was introduced in the Florida Senate on September 25, 2013 by Senator Jeff Clemens, a Democrat from Lake Worth.  A number of other states have either already passed such laws, or have similar bills pending.

In technical terms, the Florida bill would prohibit employers from asking or requiring employees to provide the username and password to social media accounts, from basing hiring decisions on a candidate's refusal to provide such information, and from retaliating against employees who refuse to provide the information.  The bill provides employees and applicants a private right of civil action in court against companies who allegedly break the law.

I am unsure if such a law is necessary or even a good idea, mainly because I'm not aware of any trend by employers to seek or use such information.  If a client were to ask me whether it was a good idea to require their employees to provide access to the private portions of the employees' social media accounts, I would generally say no.  Requiring employees or applicants to provide such information is likely to decrease morale and harm the company's efforts to hire and retain good employees.

Perhaps more important, it is doubtful that employers should even want this type of access.  Too much access can mean too much information about "protected characteristics" or "protected activity" on which employees can bring some type of discrimination or retaliation claim.  For example, we may think we know a lot about our coworkers, but access to a coworker's private Facebook page is likely to open up an entirely different realm of information, such as information about the person's religious and political beliefs, social behaviors (drinking, drugs, sexual activities), and other similar private information.  Employers are generally better off not knowing about this type of information when it comes time to make personnel decisions.

Due to the nationwide trend for passing such laws, I would say this bill has a good chance of passing.  If it does, the law would go into effect on October 1, 2014.  As always, stay tuned for updates on this and other pending employment legislation.

 
 
 
 

DOL Extends FLSA Coverage to Home Health Workers


The home healthcare industry has become big business in South Florida, as our population ages.  People want to stay in their homes - and out of assisted living facilities - longer, and thus more and more healthcare is home-based. 

Home health workers have always been exempt from the overtime and minimum wage provisions of the Fair Labor Standards Act ("FLSA").  But, yesterday the U.S. Department of Labor ("DOL") announced a rule that will change that.  Labor unions supported this DOL action, while many in the healthcare business community opposed because of the added costs associated with the change.   

Here's the background information.  The FLSA requires the payment of overtime and minimum wages to non-exempt employees who work in interstate commerce.  In 1974, Congress amended the FLSA to include coverage for "domestic service" workers such as maids.  But, that amendment specifically excluded employees who provide “companionship services for individuals who (because of age or infirmity) are unable to care for themselves.”  This language makes babysitters exempt from the FLSA and has, in recent years, been interpreted to make home health aides also exempt.  That has been true for home health workers employed directly by the individuals or families they work for, as well as third-party home health providers.

But, now the DOL has announced that, effective January 1, 2015, "direct care workers who perform medically-related services for which training is typically a prerequisite are not companionship workers and therefore are entitled to the minimum wage and overtime."  This new rule will not affect the FLSA status of aides who work directly for individuals/families.  Those workers will remain exempt.  But, those home health aides who work for third party agencies will now be entitled to the federal minimum wage, plus overtime.

 
 
 
 

Fair Labor Standards Act settlements must be supervised by a court or the Department of Labor even in cases where the employee no longer works for the employer.


In Nall v. Mal-Motels, Inc., the 11th Circuit held that the rule of Lynn’s Food Stores establishing that Fair Labor Standards Act (“FLSA”) settlements must be supervised by a court or the Department of Labor (“DOL”) applies to former employees. 

The plaintiff in Mal-Motels claimed that she periodically worked more than forty hours per week but was not paid one and one-half times her regular hourly wage for that overtime work, in violation of the FLSA.  Wal-Motels conceded that it owed Nall some unpaid overtime, but Wal-Motels disputed the number of hours that Nall worked and the amount of damages owed.   Nall eventually quit her job and filed a lawsuit against Mal-Motels. 

Mohammad Malik (owner of Mal-Motels) then contacted Nall to discuss a settlement of her lawsuit.  The two agreed to meet at a hotel.  Malik told Nall not to bring her attorney, and Nall complied.  During the meeting, Malik proposed a settlement of a certain sum in exchange for Nall’s dismissal of her lawsuit.  Nall accepted and signed a voluntary dismissal with prejudice and a letter to her attorney informing him that the case had been settled.  

The district court rejected the dismissal because it had not been filed by Nall’s lawyer.  Malik then hired a lawyer who filed a motion to enforce the settlement agreement.  After a hearing on the motion, the magistrate judge issued a report recommending that the district court approve the settlement and dismiss the case because the agreement that Nall and Malik had reached was “a fair and reasonable resolution of a bona fide dispute under the FLSA.”  The district court adopted the magistrate judge’s report and dismissed Nall’s complaint with prejudice.

On appeal, the 11th Circuit Court reversed.  In doing so, the court revisited its holding in Lynn’s Food Stores.  In that case, the court held that “[t]here are only two ways in which back wage claims arising under the FLSA can be settled or compromised by employees.”  679 F.2d at 1352.  The first is under the supervision of the Secretary of Labor.  Id. at 1353.  The second, which is “[t]he only other route for compromise of FLSA claims[,] is provided in the context of suits brought directly by employees against their employer . . . to recover back wages for FLSA violations.”  Id. at 1353.

The Mal-Motels court noted that although Lynn’s Food Stores involved a settlement agreement between employees and their current employer, the reasoning behind the Lynn’s Food Stores decision was applicable to the present case.  The court explained as follows:

“An employee is subject to the supervision and personnel decisions of her employer and the possibility of retaliation may pervade the negotiations.  That is not the case, however, because Nall no longer worked for Mal-Motels when she negotiated the settlement agreement with Malik, or when she filed the lawsuit for that matter.  Still, we believe that the rule of Lynn’s Food applies to settlements between former employees and employers . . . Ensuring that each FLSA plaintiff receives the damages, including liquidated damages, to which she is statutorily entitled is no less important when the plaintiff is a former employee . . . The purposes of the FLSA are undermined whenever an employer is allowed to escape liability for violations of the statute, regardless of whether those who were victimized by those violations are still employees.”

Although the holding in Mal-Motels comes as no surprise to many employment attorneys, it nonetheless reinforces the importance of obtaining court or DOL supervision of any settlements under the FLSA.  Additionally, Mal-Motels serves as a reminder that employers should involve an attorney in the settlement process.  As the court noted in Mal-Motels, “a few dollars saved can lead to a lot more dollars spent.”  Last, employers would be wise to include language in their settlement agreements to the effect that the employee has received all wages due and is owed nothing more than the consideration paid under the agreement.

 
 
 
 

Supreme Court Affirms Class Action Waiver Even Where Litigation of Separate Claims Economically Infeasible


On June 20, 2013, the U.S. Supreme Court in American Express Co. v. Italian Colors Restaurant, upheld a provision in an arbitration agreement that barred class actions, even where litigation of individual claims would be economically infeasible. 

Several merchants who accept American Express credit cards sued American Express and a subsidiary alleging that American Express  used its monopoly power in the charge card market to force merchants to agree to pay excessive rates for transactions in violation of the Sherman Antitrust Act.   The agreement between American Express and each of the merchants contained an arbitration clause which provided that “there shall be no right or authority for any Claims to be arbitrated an a class action basis.” 

American Express sought to enforce the agreement and compel individual arbitrations.  In opposing the motion, the  merchants submitted a declaration from an economist who estimated that the expert analysis necessary to prove the antitrust claims could exceed $1 million, while the maximum recovery for an individual plaintiff would be less than $40,000, even when damages were trebled. 

The Second Circuit Court of Appeals had previously held that because the merchants had established that they would incur prohibitive costs if compelled to arbitrate individually, the class action waiver was unenforceable and the arbitration could not proceed.   American Express sought review by the Supreme Court. 

In a 5-3 decision authored by Justice Scalia, the Court upheld the class action waiver despite the high cost incident to litigating the individual claims separately.  The Court began its analysis by recognizing the Federal Arbitration Act’s (“FAA’s”) “overarching” principle that arbitration is a matter of contract and that, absent contrary congressional command, courts must rigorously enforce arbitration agreements according to their terms, including the rules under which arbitration will be conducted.   The Court held that antitrust laws do not guarantee an affordable path to vindicate every claim and do not preclude a waiver of the class action.  In fact, the Sherman Act predates by decades the class action rule  (Fed. R. Civ. P. 23) invoked in the case.  The Court further held that Rule 23 does not create an entitlement to a class proceeding.  

The Court next addressed, and rejected, the main argument urged by the plaintiffs -- that if enforcement of the class action waiver prevents the “effective vindication” of substantive federal rights, the class action waiver is contrary to public policy and cannot be enforced.   The majority acknowledged that prior cases suggested that there was an “effective vindication exception” to the FAA. The Court reasoned, however, that this judge-made exception originated as non-binding dictum in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. opinion (a 1985 Supreme Court case).   Although acknowledged in several subsequent cases, the “effective vindication” rule had never been applied to invalidate an arbitration agreement. 

The Court focused on the on the language in Mitsubishi Motors indicating that the exception identified in that case was designed to protect the “right to pursue statutory remedies.”   This language from Mitsubishi Motors , the majority concluded, barred contract provisions “forbidding the assertion of certain statutory rights” but did not apply to class action waivers or other provisions that simply increase the cost of proving a claim.  In other words, an arbitration agreement cannot eliminate substantive rights (e.g., a limitation on the right to recover attorney’s fees where the statute provides for the recovery of attorney’s fees), but the arbitration agreement can alter procedural rules that adversely affect the economics of pursuing a claim so long as the right to pursue the claim is not eliminated.   

The Court suggests that a contrary rule would be unworkable.  Courts and parties would be forced to preliminarily litigate the costs associated with proving the elements of plaintiffs’ claims and the potential damages that might be recovered on those claims in order to assess the resulting economic feasibility of the claim and determine whether an arbitration agreement could be enforced.  The Court held that such a regimen “would undoubtedly destroy the prospect of speedy resolution that arbitration . . . was meant to secure” and chided the dissent for seeking to impose that burden on federal courts. 

In an dissenting opinion, Justice Kagan (joined by two justices) expressed concern that the majority’s approach was a green light to future litigants to create impediments to the effective vindication of rights through artful drafting of limitations in arbitration agreements.  For instance, arbitration agreements might (a) impose high filing fees, (b) provide a one-day statute of limitations, or (c) prohibit economic testimony in antitrust cases, among other things.  Justice Kagan argued that the “effective vindication rule” barred not just limitations of substantive rights in arbitration agreements, but also barred enforcement of any term in an arbitration agreement that would effectively  “confer immunity from potentially meritorious federal claims.”  

The decision in American Express continues the Court’s recent trend of giving parties to an arbitration agreement great latitude in limiting procedural rights and strictly enforcing the terms of arbitration agreements regardless of the disparity in bargaining power and regardless of the practical effect such procedural limitations may have on the economics of litigating low-value claims.  The Court’s view of the effective vindication exception is so narrow that it may no longer serve any meaningful  purpose.  The only provision in an arbitration agreement that would clearly be barred by the exception is an express prohibition on the assertion of substantive statutory rights.

One might think from at least some of the majority’s language that, where a party is litigating a claim under a statute that provides for collective litigation (e.g., the Fair labor Standards Act), a class action waiver would be unenforceable.   An agreement containing a class action waiver would confront a “contrary congressional command,” – a situation where the majority indicated courts should reject and refrain from enforcing the class action waiver.    However, that door was closed long ago by the Supreme Court’s decision in Gilmer v. Interstate/Johnson Lane Corp., a 1991 case where the Supreme Court enforced a class action waiver in an arbitration agreement even though it was applied to an age discrimination claim.  The ADEA, like the FLSA, expressly allows for collective actions.  That case held, and American Express repeats, that class action waivers will survive even where collective litigation is authorized by the same statute creating the right being litigated.  A class action waiver must be expressly barred before the courts can disregard the waiver. 

The Court’s opinion makes class action waivers virtually unassailable absent specific federal legislation to the contrary or evidence that such contracts are unconscionable under general principles of unconscionabilty (The FAA forbids state-created rules that impose requirements on arbitration agreements not imposed on contracts generally).   Unconscionability still exists as a defense to a class action waiver if one can show that the agreement is unconscionable for reasons other than the existence of the class action waiver and a finding of unconscionability would in no way frustrate the primary purposes of the FAA.   Companies should be able to craft arbitration agreements that will survive such challenges although the arbitration agreement must clearly indicate that class arbitration is not permitted.  Ambiguous language has been held to constitute an agreement to engage in class arbitration. 

In sum, as a result of the decision in American Express, a court will provide no relief from an arbitration agreement just because individual arbitration is expensive or inconvenient, even if federal statutory rights are involved.   But a class action waiver will not provide de facto immunity from the law.  The class action waiver will offer American Express no protection from an enforcement action on behalf of a class by the Federal Trade Commission or the Department of Justice.   Similarly, a class action waiver in an employment agreement will provide employers no protection from an enforcement action on behalf of a class by the Department of Labor, the EEOC, or the NLRB (although liability can be substantially limited through careful drafting).  Moreover, in a 2012 decision, D.R. Horton v. NLRB, the NLRB ruled that class action waivers in employment agreements are unlawful under the National Labor Relations Act because they prevent employees from engaging in protected concerted activity.  Several courts have rejected the NLRB’s position and refused to enjoin use of arbitration agreements containing class action waivers.   In view of the Supreme Court’s pro arbitration and anti-class action leanings, the judicial resistance to the NLRB’s efforts to restrain use of class action waivers in employment agreements will ultimately be resolved against the NLRB and in favor of the employer. 

Judge Rules That Fox Should Have Paid Interns


A New York federal district judge recently ruled that Fox Searchlight Pictures Inc. (“Fox”) violated federal and state (New York) minimum wage laws by failing to pay two interns who worked on production of the film “Black Swan”.  The case was the first in a series of recent lawsuits filed by unpaid interns to be decided by a court.  

In the decision, the Court held that Fox should have paid the interns because they were regular employees entitled to be paid at least the minimum wage.  In so ruling, the Court looked closely at the Department of Labor’s (“DOL”) Fact Sheet #71: “Internship Programs Under The Fair Labor Standards Act,” and rejected the argument that a “primary benefit test” should be used to determine whether an intern should be paid. 

Following the criteria set forth by the DOL for unpaid internships, the Court found that: (1) the interns received no formal training or education during their internships; (2) although the interns received some benefit from their internships, those benefits were incidental to working in the office like any other employee and were not the result of internships intentionally structured to benefit the interns; (3) the interns performed routine tasks that would otherwise have been performed by regular employees; and, (4) Fox obtained an immediate advantage from the interns’ work.

Additionally, the Court concluded that although the interns understood that they would not be paid, employees are not allowed to waive their wages under the federal Fair Labor Standards Act (the “Act”).  “The purpose of the Act requires that it be applied even to those who would decline its protections,” the Court opined.

The ruling affects employers who rely on the use of unpaid interns especially during the summer months.  If your company uses unpaid interns, you should make sure that your internship program complies with the law.

The case is Glatt et al. v. Fox Searchlight Pictures, Inc., case number 1:11-cv-06784, in the U.S. District Court for the Southern District of New York.

 

 

 
 
 
 

Florida Statute Preempts Local Wage and Benefit Laws


Florida Governor Rick Scott signed into law H.B. 655 (linked below), which preempts laws enacted by counties, cities and other local governmental units that require employers to pay wages and provide employee benefits more favorable than those required under federal and state laws.  The measure thus preempts local laws affecting: minimum wage; health benefits; disability benefits; death benefits; group accidental death and dismemberment benefits; paid or unpaid days off for holidays, sick leave, vacation, and personal necessity; retirement benefits; and profit-sharing benefits. 

Some local laws are carved out and thus survive.  These include laws requiring in certain cases time off for domestic violence victims (Miami-Dade County has such an ordinance).  In addition, the new law does not affect employment laws enacted by federally recognized tribal governments.   

Most importantly, in most situations, Miami-Dade County’s and Broward County’s living wage ordinances will survive.  The new law preserves local minimum wage laws for employees of political subdivisions, and for employers who contract with political subdivisions for goods and services (along with subcontractors of such employers where the contract requires that subcontractors pay the local minimum wage).  

There is one potentially big change for Miami-Dade County’s living wage law. Miami-Dade County’s living wage law, like many such ordinances,  applies to County employees and county contractors.  The law also applies to employers providing services under aeronautical services permits issued by the Miami-Dade Airport.  Thus, aviation service providers must pay a living wage to airport workers.  These covered airport workers include wheelchair assistants, baggage handlers, fuelers, in-flight caterers, among others.  (Skycaps that receive tips are exempt under Miami-Dade County’s living wage ordinance and typically are not paid the living wage.)    With some exceptions, aviation support services  are not provided under contracts or subcontracts with the county; the services are provided under contracts with the airlines.   These workers’ pay does not come from county funds.  But for the requirement that permit holders pay their employees the living wage for services provided pursuant to the permit, the living wage ordinance would be inapplicable.  But the carve out in H.B. 655 does not reach services provided under aeronautical service permits.  An argument can be made that these aviation services providers will no longer be required to pay their workers the living wage. 

This law is good for employers because it provides clarity and uniformity.  The local laws were often obscure, making it difficult for employers with facilities in different localities to comply.

The measure takes effect on July 1, 2013. 

new law.pdf  

 
 
 
 

Supreme Court's Oxford Decision Demonstrates that Careful Drafting of Arbitration Agreement is Key


In recent years, the changing litigation landscape has caused many employers to roll out binding arbitration programs that apply to all employees.  The primary impetus for this is the threat of runaway juries.  Many employers would rather take their chances with an arbitrator than leave their case up to jurors who often identify more closely with employees than they do with management.

 

Another advantage of arbitration is the ability to avoid employee class actions and collective actions, which can turn a relatively insignificant single employee case into high stakes, "bet the company" litigation.  Employers can require employees (and their attorneys) who otherwise would be able to bring a class action in court, to bring multiple single plaintiff claims in arbitration.  The end result is that employees will be less likely to find attorneys who will be willing to take their case.

 

Courts in recent years have been amenable to the concept that properly worded arbitration agreements can bar class actions and collective action claims in arbitration.  Indeed, as a result of Stolt-Nielsen v. Animal Feeds International Corp., a 2009 U.S. Supreme Court case, it appeared that class/collective action arbitrations were prohibited in arbitration unless the arbitration agreement at issue explicitly provided for them.   

 

But, yesterday the Supreme Court in Oxford Health Plans LLC v. Sutter emphasized that careful drafting is the key.  If the arbitration agreement is ambiguous regarding whether class action arbitrations are allowed, then the issue is left up to the interpretation of the arbitrator.  And, as happened in Oxford, if the arbitrator decides that class action arbitrations are allowed, his decision will likely be final.

 

The lesson here is that employers must make sure that their arbitration agreements are drafted carefully and correctly, so as to explicitly prohibit the arbitration of class and collective action claims.  If an employer’s currently operational arbitration agreement leaves any doubt about this issue, the employer should have a labor and employment attorney revise it.

 
 
 
 

D.C. Circuit Court Vacates the NLRB's Notice Posting Rule


May 9, 2013

On May 7, 2013, the U.S. Court of Appeals for the District of Columbia Circuit held in National Association of Manufacturers, et al. v. National Labor Relations Board, et al., No. 12-5068, that the National Labor Relations Board's (NLRB) August 2011 rule requiring most private-sector employers to post notices of worker rights violated the free-speech rights of employers under federal labor law—and is therefore invalid.

Background and Procedural History

The NLRB issued a rule in 2011 requiring all employers subject to the Board's jurisdiction to post a notice in the workplace and on their websites informing employees of their rights under federal labor law, including the right to join unions and engage in other forms of concerted activity. (Unsurprisingly, the NLRB did not issue a rule requiring that unions post any notice advising employees of their legal rights with respect to unions.) The NLRB invoked Section 6 of the National Labor Relations Act (NLRA) as authority for the notice posting rule.

As an enforcement mechanism, the rule provides that an employer's failure to post the notice is an "unfair labor practice"—that is, merely failing to post the notice may be found to interfere with, restrain or coerce employees in the exercise of their rights under the NLRA, in violation of Section 8(a)(1) of the NLRA.

The rule contains two additional enforcement devices: The NLRB may suspend the running of the six-month limitations period for filing any unfair labor practice charges, and the NLRB may consider an employer's knowing and willful failure to post the notice as evidence of unlawful motive in unfair labor practice cases.

Several employer associations challenged the notice posting rule by filing a lawsuit in federal court in the District of Columbia. The District Court issued a ruling invalidating certain aspects of the notice posting rule, but upholding other aspects of the rule. Both the employer associations and the NLRB appealed the District Court's ruling to the U.S. Court of Appeals for the District of Columbia Circuit.

U.S. Court of Appeals for the District of Columbia Circuit

Although the parties devoted large parts of their briefs to the question of whether Section 6 of the NLRA gives the NLRB authority to promulgate the notice posting rule, the court focused its analysis on Section 8(c) of the NLRA, which states that the expression or dissemination of any views cannot constitute an unfair labor practice provided that the expression contains no threat of reprisal or force or promise of benefit.

Writing for the court, Senior Circuit Judge Randolph opined that Section 8(c) of the NLRA "precludes the Board from finding noncoercive employer speech to be an unfair labor practice, or evidence of an unfair labor practice." Judge Randolph further opined that requiring employers to post an NLRB statement of employee rights "does both."

Analogizing Section 8(c) of the NLRA to the First Amendment, Judge Randolph concluded that: "Like the freedom of speech guaranteed in the First Amendment, § 8(c) necessarily protects . . . the right of employers (and unions) not to speak."

Accordingly, the court concluded that the NLRB's notice posting rule violates Section 8(c) because the rule makes an employer's failure to post the notice an unfair labor practice, and because it treats such a failure as evidence of anti-union animus.

The court also rejected the Board's alternate method of enforcing the notice posting rule—namely, the tolling provision. Judge Randolph concluded that the NLRB failed to show that Congress had intended to allow such tolling when it enacted in 1947 the six-month limitation on the filing of unfair labor practice charges.

Because the court determined that all of the means for enforcing the Board's notice posting requirement were invalid, it refrained from deciding whether the Board lacked the regulatory authority to require employers to post the notice in the first place. The court determined, however, that since the NLRB's requirement for the notice posting was not severable from its invalid enforcement provisions, it "must therefore fall along with the rest of the Board’s posting rule."

In the concurring opinion, Judges Henderson and Brown held that the Board does not have authority to promulgate the posting rule under Section 6 of the NLRA.

What This Decision Means for Employers

The NLRB in 2011 suspended enforcement of the notice posting rule because of legal challenges. A federal court in South Carolina previously held that the NLRB lacked the authority to promulgate the rule. The appeal in that case is currently pending before the Fourth Circuit Court of Appeals.

The D.C. Circuit's ruling can be viewed as a triumph for employers. However, more litigation can be anticipated. For now, and for the foreseeable future, there is no obligation on the part of employers to post the notice.

 
 
 
 

U.S. Supreme Court Endorses Employer Efforts to “Pick Off” Named Plaintiff in FLSA Collective Action, but Declines to Resolve Circuit Split Regarding Mootness Issue


 

 

On April 16, 2013, The United States Supreme Court held that a trial court properly dismissed as moot a Fair Labor Standards Act (“FLSA”) overtime collective action where the employer had made an offer of judgment to the named plaintiff for all amounts she sought on her individual claim.  However, the Supreme Court declined to resolve a circuit split regarding when and how an employer may “moot” an FLSA plaintiff’s claims by offering full relief.  Thus, though the decision will be of some benefit to employers located in certain appellate circuits, its overall import remains unclear. 

 

The case is Genesis Healthcare Corp. v. Symczyk, ___ U.S.___  (2013)(No. 11-1059). 

 

Background and Procedural History

 

In Genesis, a nurse employed by a Philadelphia nursing home filed an FLSA overtime suit alleging that her employer failed to pay her all wages she was due.  The FLSA allows a worker with such a complaint to sue, not only for herself, but for her “similarly-situated” co-workers, in what is called a “collective action”.  An FLSA collective action bears some similarity to a class action. 

 

Before the plaintiff in Genesis filed a motion for conditional class certification, the employer served the plaintiff with a Rule 68 offer of judgment for $7,500, which represented full relief for the plaintiff’s individual claim.  The plaintiff ignored the offer and it expired.  The defendant then moved to dismiss the lawsuit on the basis that the plaintiff’s claim was moot because there was no longer any actual controversy. 

 

Under the Third Circuit precedent that governed the Genesis matter, a plaintiff cannot keep a claim alive by rejecting an offer of judgment that provides full relief.  The District Court therefore dismissed the plaintiff’s claim as moot, and dismissed her collective action. 

 

On appeal, the Third Circuit agreed that the Plaintiff’s individual claim was rendered moot, but nonetheless held that the collective action was not moot since the plaintiff had an interest in representing unnamed potential class members.  The employer sought review by the Supreme Court.   

 

The Supreme Court Decision

 

The Supreme Court, in a 5-4 decision written by Justice Thomas, held for the employer.  Chief Justice Roberts, and Justices Scalia, Kennedy, and Alito joined Justice Thomas’s majority opinion.  Justice Kagan dissented, and was joined by Justices Ginsburg, Breyer, and Sotomayor. 

 

The majority declined to rule on the underlying issue of whether the unaccepted offer of judgment actually mooted the plaintiff’s claim.  The Circuits are split on that question, but the plaintiff had conceded the point in both the District Court and the Court of Appeals, and thus the plaintiff could not properly raise the issue for the first time before the Supreme Court.  The Third Circuit’s position on the mootness issue thus remains the law in that circuit, as well as the Second, Fourth, Sixth, and Seventh Circuits (and possibly in the Fifth and Eleventh Circuits as well), albeit with some important differences among these circuits. 

 

The majority concluded that because the plaintiff’s claim had become moot, the plaintiff could not serve as a representative of unnamed putative plaintiffs.  Her collective action lawsuit was properly dismissed for lack of subject matter jurisdiction.  The majority noted that Rule 23 class actions are fundamentally different from FLSA collective actions, and that the Rule 23 cases relied upon by the plaintiff were inapposite. 

 

Justice Kagan’s strong dissent argued that the Third Circuit's position --  that an unaccepted offer of judgment that provides complete relief moots the underlying claim -- was in error, and that as a result, the majority opinion was based on a “bogus premise” and addressed a situation that would not be repeated in other cases.   Justice Kagan cautioned lower courts to reject or abandon the Third Circuit rule, and thereby render the majority opinion a nullity. 

 

What this Decision Means for Employers

 

Employment lawyers eagerly awaited the Supreme Court’s decision, primarily because they expected that the Supreme Court would resolve the circuit split regarding the effect of an unaccepted offer of judgment that provides complete relief.  However, the majority provided no clarity on that issue. 

 

Still, Genesis makes clear that courts must dismiss collective actions where the named plaintiff’s claim is moot and no class has been certified.  Contrary decisions are now bad law.  In circuits that permit an employer to moot an individual plaintiff’s claim, Genesis will be useful to employers who seek to “pick off” the named plaintiff’s claims at an early stage in the proceeding. 

 

As with many Supreme Court decisions, the overall significance of the Genesis case will become clearer over time.  The majority put significant weight on the fact that the plaintiff had yet to file a conditional certification motion, and that there were no other plaintiffs involved in the suit.  It is unclear what would happen if the named plaintiff’s claim is mooted after the filing of a conditional certification motion, or after other plaintiffs opt into the suit. 

 

The dissent compared the unaccepted offer of judgment to an unaccepted settlement offer, and argued strongly that neither moots a claim.  Going forward, defense lawyers seeking to moot a claim may be wise to make an unconditional tender of the full amount of money sought by the plaintiff, as opposed to a formal offer of judgment.  An unconditional tender, such as by sending a cashier’s check for that amount to the plaintiff’s counsel, might be viewed differently than a settlement offer. 

 

Finally, it is possible that the true import of Genesis does not involve the mootness issue at all, but rather may be found in the majority’s statement that “there are significant differences between certification” of a collective action and a Rule 23 class action.  That language may prove to be an effective tool for employers seeking to avoid collective action certification on the basis that the claims (or damages claims) of the individual opt-in plaintiffs are too different to qualify for collective treatment. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 
 
 

E-Verify 2012-2013 Update


By Hector A. Chichoni

From an US immigration compliance perspective, 2012 was an extreme busy year for E-Verify.  In light of the upcoming immigration reform, 2013 promises to be no less.  The following are a few E-Verify highlights gathered from a variety of government sources:

Made available on line:

1. Self-Assessment Guides for E-Verify users;

2. Quick Audit Report (which allows employers to quickly review their E-Verify activity);

3. The E-Verify Employers Search Tool (which allow users to see which employers are using E-Verify);

4. Tentative Non-confirmation Notices and Referral Letters in 9 additional languages;

5. E-Verify overview in Spanish.

Expanded the following services:

1. Self-check available nationwide in February 2012, giving access to everyone over the age of 16;

2. Florida became the second state to join "Records and Information from DMVs for E-Verify" (RIDE);

Incorporated the following technical enhancements:

 1. Supports mobile Web browsing as well as four major browsers: Internet Explorer (version 6.0 and above), Firefox (version 3.0 and above), Chrome (version 7.0 and above) and Safari (version 4.0 and above).

Experienced a tremendous growth:

1. E-Verify enrollment increased by 35% in 2012, and it continues to grow by more than 1,500 employers each week;

2. On January 12, 2013, there were more than 424,000 employers enrolled in E-Verify (1.2 million worksites) and, as of March 19, 2013, there are more than 432,000 employers enrolled. 

If you wish to obtain additional information in connection with this post, please contact Hector A. Chichoni at: 305.960.2277 or at hchichoni@duanemorris.com.

This post does not constitute legal advice for, or establish an attorney-client relationship with, the reader. 

 
 
 
 
 

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Michael W. Casey III, Kevin E. Vance, Mark J. Beutler, and Teresa M. Maestrelli practice labor and employment law, with a particular focus on labor and employment litigation, including Title VII, ADEA, ADA, Florida Civil Rights Act, and whistleblower claims, as well as non-compete litigation, in state and federal trial and appellate courts in Florida and throughout the United States. They also represent employers before the National Labor Relations Board (NLRB), the National Mediation Board (NMB), the U.S. Department of Labor, including the Wage and Hour Division and the Occupational Safety and Health Administration (OSHA), the Equal Employment Opportunity Commission (EEOC), and various state and local agencies, as well as in arbitrations, collective-bargaining negotiations and union representation elections. Hector A. Chichoni practices in the area of US and global immigration law. He chairs Duane Morris's Florida Immigration Practice. The editors of Chambers USA 2010 also selected Mr. Chichoni as a "Leader in the Immigration Field." He has represented a vast number of corporate and individual clients throughout his career ranging from premier US health care organizations, Fortune 100 and Fortune 500 companies, multinational corporations and universities to doctors, professors, researchers and students. His international experience includes handling matters relating to export controls and global corporate compliance and business transactions. He has represented clients in a wide variety of cases before the US Immigration Court.
© 2009- Duane Morris LLP. Duane Morris is a registered service mark of Duane Morris LLP.
The opinions expressed on this blog are those of the author and are not to be construed as legal advice.