Hunton Employment & Labor Law Perspectives

"Reasonable Factor Other Than Age": EEOC Proposes New Rule On ADEA Defense

Hunton & Williams LLP — Mon, 08 Mar 2010 09:09:23 -0500

A new proposed rule by the Equal Employment Opportunity Commission provides new guidance in determining what constitutes a “reasonable factor other than age” in defending against a claim under the Age Discrimination in Employment Act. The EEOC introduced the proposed rule on February 18, 2010 and is currently soliciting comments until Monday, April 19, 2010.

The EEOC took this action in light of two relatively recent decisions by the U.S. Supreme Court relating to claims of disparate impact under the ADEA. In Smith v. City of Jackson, 544 U.S. 228 (2005), the Court confirmed that an employer can defend against such a claim by showing that the challenged decision was based on a reasonable factor other than age (“RFOA”). In Meacham v. Knolls Atomic Power Laboratory, 128 S.Ct. 2395 (2008), the Court held that the burden falls on the defendant to prove the affirmative defense of an RFOA. Neither case specifically stated what factors are “reasonable.”

The proposed rule explains that a reasonable factor is one that is objectively reasonable when viewed from the position of a reasonable employer under like circumstances. It is one that would be used in a like manner by a prudent employer mindful of its responsibilities under the ADEA. The proposed rule lists six considerations as potentially relevant to the reasonableness determination:

whether the employment practice and the manner of its implementation are common business practices;
the extent to which the factor is related to the employer’s stated business goal;
the extent to which the employer took steps to define the factor accurately and to apply the factor fairly and accurately;
the extent to which the employer took steps to assess the adverse impact of its employment practice on older workers;
the severity of the harm to individuals within the protected group, in terms of both the degree of injury and the number of persons adversely affected, and the extent to which the employer took preventative or corrective steps to minimize the severity of the harm, in light of the burden of undertaking such steps; and
whether other options were available and the reasons the employer selected the option it did.

Not all criteria must point to reasonableness to establish the RFOA defense; the rule states that the list is illustrative, not exhaustive. The rule also provides guidance regarding whether the factors considered by the employer were age-related. The considerations for this inquiry include:

whether supervisors are given unchecked discretion to subjectively evaluate employees;
the extent to which supervisors were to evaluate employees based on factors known to be subject to age-based stereotypes; and
the extent of training received by supervisors in applying evaluative factors and avoiding discrimination.

Assuming that the proposed rule will become final (after the public comment period expires), these considerations can serve as a filter for decision making. Employers and their counsel who apply these considerations on the front end likely will find that risk is reduced, more sound decisions are reached, and challenges are more likely to be resolved in their favor.

Wage and Hour Litigation: Can Class Actions And Collective Actions Coexist?

Hunton & Williams LLP — Wed, 03 Mar 2010 15:42:01 -0500

Both the Third and the Seventh Circuits are set to address the issue of whether collective actions under the Fair Labor Standards Act are compatible with class actions under state wage and hour laws. In the Third Circuit, briefing is underway in Parker v. NutriSystem, Inc., No. 09-3545. And argument is set in the Seventh Circuit for April 2, 2010 in Ervin v. OS Restaurant Servs., Inc., No. 09-3029. Both courts will address what some have called the “inherent incompatibility” of FLSA collective actions and state law wage and hour class actions that are pursued in the same case.

Various states have enacted wage and hour laws that are very similar to the FLSA, yet allow for class—as opposed to collective—treatment. The FLSA limits class members to those who “opt in” to the class, while under Rule 23 all eligible class members are part of the suit unless they “opt out” of the class. If a plaintiff initiates suit alleging minimum wage violations, for example, under both the FLSA and a state law allowing for class treatment, the non-plaintiff employees potentially could receive two seemingly conflicting notices, one requiring them to opt in to pursue claims and the other requiring them to opt out. The mechanics of such an arrangement also can be tricky for courts and employers.

In both Parker and Ervin, the district courts found an incompatibility between the two types of actions, with the result that no class was certified to pursue the state law claims. However, there is a split of authority on this issue, and it is hotly contested. The Secretary of Labor and others have filed amicus briefs in each case. The Secretary of Labor’s position is that the two types of actions are compatible.

Employers should be aware that, even though the FLSA allows only for collective actions, they may nonetheless face class challenges to their wage and hour practices under operable state law. The difference is more than technical. Because a class action automatically encompasses claims of all members unless they affirmatively opt out, a class action typically brings about much greater exposure. The outcomes of the Parker and Ervin cases, therefore, could have a substantial impact for employers.

California's Kin Care Benefits Do Not Apply to Uncapped Sick Leave Plans

Hunton & Williams LLP — Mon, 01 Mar 2010 10:48:54 -0500

California employers should take note that this week, the California Supreme Court limited benefits offered under California's kin care laws and held that kin care benefits do not apply to uncapped sick leave plans.

California Labor Code section 233 requires California employers that provide sick leave to allow an employee to use a portion of this leave to care for a sick child, parent, spouse, or domestic partner. At issue in McCarther v. Pac. Telesis Group (S164692, February 18, 2010), was Pacific Bell's "sickness absence" policy that provided an unlimited amount of sick leave, pursuant to a collective bargaining agreement. That policy provided a maximum of five days in a seven-day period, with the entitlement renewing each time the employee returned to work. Other than this restriction, the policy had no cap on the amount of sick days an employee could use.

The suit was filed in the Alameda County Superior Court in 2005 by two Pacific Bell employees, on behalf of themselves and all others similarly situated. The plaintiffs argued that the company violated California employment law by refusing to let them use paid sick time to care for ill family members. Pacific Bell argued that its policy did not cover absences due to the illness of family members, nor did it include language giving employees paid absences for that reason. Furthermore, the company argued that state law applies to "traditional accrual-based sick leave policies" only and that the company's policy, in contrast, does not allow for "accrued increments" because employees do not "bank" a particular number of allowed sick days earned over the course of the year.

Pacific Bell won summary judgment, which was overturned by the Court of Appeal on the basis that the word "accrued" in Labor Code section 233 had a broader legal definition than that proposed by Pacific Bell and refers to something that is earned but not yet due or paid. The California Supreme Court disagreed and reversed the ruling. The California Supreme Court found that the kin care provisions of Labor Code section 233 only apply to employers who provide "accrued increments of compensated leave" and that "the reach of the statute is limited to employers that provide a measurable, banked amount of sick leave." Of note, the court recognized that where the sick leave policy was indefinite, kin care cannot be applied as it would be "impossible to determine the amount of compensated time off for illness to which an employee might be entitled in a six-month period."

California employers should review their sick leave policies and consult outside counsel to determine if an amendment is necessary.

Flawed Documentation About Layoff Selections Works to Reverse Summary Judgment Victory For Employer

Hunton & Williams LLP — Thu, 25 Feb 2010 12:39:20 -0500

In another case in which better employer documentation could have made the difference, the U.S. Court of Appeals for the Sixth Circuit reversed earlier this month a district court's grant of summary judgment in favor of employer Kmart. Based largely upon contradictory and unclear documentation, the court found that Kmart’s former employee, Susan Cutcher, presented sufficient evidence to allow a reasonable juror to find that Kmart terminated Ms. Cutcher in retaliation for taking leave under the Family and Medical Leave Act.

In late 2005, Ms. Cutcher--a 20-year Kmart employee--learned that she would need surgery, and that she would need six weeks off of work for recovery. Ms. Cutcher submitted the proper paperwork, and, on December 5, 2005, she began her FMLA leave of absence. While Ms. Cutcher was on leave, Kmart terminated her employment as part of a nation-wide reduction in force. Ms. Cutcher was one of six employees selected for termination from her store, and Kmart argued that Ms. Cutcher was selected based upon her low score on a final performance appraisal that the company used as a tool to determine which employees should be terminated. This final performance appraisal was somewhat inconsistent with prior appraisals, and the announcement that Ms. Cutcher was one of the individuals selected for termination came just twenty days after Cutcher received a performance appraisal stating that she "exceeded expectations." The evaluation form that identified Ms. Cutcher's as an employee selected for the RIF contained a notation next to Ms. Cutcher's name, indicating that she was on leave of absence.

In determining that the lower court erred when it concluded that Kmart was entitled to judgment as a matter of law, the Sixth Circuit stated that, although Cutcher did not have any direct evidence to support her argument that her FMLA leave played a role in her selection for RIF, there was enough circumstantial evidence to prevent the court from dismissing the suit. For instance, the court felt that a reasonable juror could be persuaded that the LOA notation on her appraisal form was, in fact, a reason for the lower final appraisal scores. Additionally, the court found that a reasonable jury could find in favor of Ms. Cutcher because none of Kmart's asserted reasons for her lower RIF appraisal had been documented.

There has not yet been a determination on the merits of Ms. Cutcher's claims. In the meantime, the primary lesson from the Sixth Circuit's recent ruling is that employers should be consistent and complete in documenting concerns with employee job performance, and careful not to include any unnecessary or extraneous information on termination paperwork. If performance issues are not consistently and accurately documented, an employer may be hard-pressed to rely upon them down the road as a justification for an employment decision. And, if a certain piece of information about an employee plays no role in a termination decision, that piece of information should not appear on the termination paperwork.

EEOC Stung by $5 Million Fee Award For Failing to Adequately Investigate or Engage in Good Faith Conciliation

Hunton & Williams LLP — Tue, 23 Feb 2010 09:41:21 -0500

In an order issued on February 9, 2010, a United States District Judge in Iowa sent a stark reminder to the EEOC that its statutory obligations to investigate and conciliate Title VII claims are not to be ignored. More than three years after the EEOC filed its complaint alleging systemic sex harassment, the court, in its February 9 order, awarded Defendant CRST Van Expedited, Inc. ("CRST") $4.5 million in attorneys' fees and $460,000.00 in expenses as a prevailing party, following a finding that the EEOC abandoned its statutory obligations under Title VII.

Prior to issuing its February 9 order, the district court dismissed the EEOC's Complaint, which asserted that 270 women had been sexually harassed by CRST. By the time the EEOC's Complaint was dismissed, the court had disposed of the claims of all but 67 of the claimants on whose behalf the EEOC had brought suit. In dismissing the EEOC's Complaint on behalf of the remaining 67 claimants, the court found that the EEOC "did not conduct any investigation of the specific allegations [of the 67 remaining claimants]...let alone issue a reasonable cause determination as to th[eir] allegations or conciliate them." Specifically, the court found that with respect to the remaining claimants the EEOC failed to: interview any of them or subpoena any documents to determine the veracity of their claims; make a reasonable cause determination as to their specific allegations; or attempt to conciliate any of their claims prior to filing the Complaint. According to the court, the EEOC's failure to investigate the claims of the remaining claimants "deprived CRST of a meaningful opportunity to engage in conciliation and foreclosed any possibility that the parties might settle all or some of the dispute without the expense of a federal suit."

In awarding nearly $5 million in attorneys' fees and expenses to CRST, the court held that the substantial award to CRST was necessary to guarantee the observance by the EEOC of Title VII's procedures, particularly in the face of the EEOC's unreasonable conduct, which the court found imposed unnecessary burdens on CRST and the court.

This matter underscores the importance of formulating a sound litigation strategy, particularly as it relates to conciliation, during the EEOC's investigation of Title VII-related claims. In the absence of such a strategy, an employer may miss a rare opportunity to recoup defense costs that are needlessly increased due to the agency’s failure to fulfill its statutory duties, and investigate the matter responsibly and fairly. Conciliation should never be used or offered for any purpose other than to reach fair resolution of a case. But an additional benefit of the conciliation position is that, if the EEOC declines to participate reciprocally, and in good faith, its position may expose the wholesale deficiencies of its litigation approach. The result, as illustrated above, can be very satisfying to the employer.

Obama Announces Major Budget Increases for EEOC and DOJ Civil Rights Division

Hunton & Williams LLP — Fri, 19 Feb 2010 12:07:47 -0500

The Obama Administration announced on February 1, 2010, that it requested $385.3 million for the Equal Employment Opportunity Commission for fiscal year 2011. In addition, the administration requested $162 million for the Civil Rights Division of the Department of Justice. Significantly, the requests represent an $18 million dollar budget increase for the EEOC and a $17 million dollar budget increase for the DOJ Civil Rights Division.

These budget increases will allow the EEOC and DOJ to increase enforcement efforts. EEOC Chairman Stuart Ishimaru noted that budget increases would “allow [the EEOC] to build on the progress [ ] made in hiring frontline staff, reducing a burgeoning inventory of charges, and increasing productivity.” BNA 20 Daily Labor Report AA-8. Furthermore, Ishimaru, who has made the EEOC’s nationwide systemic enforcement program a top priority, noted that increased funding would enable the agency to “continue [its] focus on systemic enforcement.” BNA 20 DLR AA-8

Systemic discrimination cases typically involve an employer policy or practice that results in a disparate impact upon a group of persons in a protected class or a class action. Such cases often focus on employer hiring and promotion policies or practices. Both the EEOC and the DOJ’s Civil Rights Division have authority to litigate systemic discrimination or pattern or practice cases under Title VII of the 1964 Civil Rights Act. The EEOC handles systemic discrimination cases on behalf of employees in the private and federal sector while the Civil Rights Division litigates pattern or practice cases on behalf of persons employed by state and local governments. In addition, the EEOC also has the ability to litigate systemic discrimination cases under many of the other laws that it enforces, such as the Age Discrimination in Employment Act and the Americans with Disabilities Act.

Systemic discrimination cases are important to the EEOC’s goal of eliminating employment discrimination because such cases often gain nationwide attention, can lead to large settlements or damage awards, and can impact a broad section of an industry or a profession. Private employers should be aware that the EEOC often utilizes information that it gathers from individual charges and requests for information to build a case for potential systemic discrimination claims.

Third Circuit Affirms FLSA Administrative Exemption for Pharmaceutical Sales Reps

Hunton & Williams LLP — Tue, 16 Feb 2010 11:25:13 -0500

In a short and simple opinion by Judge Morton Greenberg, the U.S Court of Appeals for the Third Circuit affirmed summary judgment in favor of Johnson & Johnson against pharmaceutical sales representative Patti Lee Smith, finding that the FLSA’s administrative employee exemption applied to her. The Third Circuit is the first court of appeals to examine the FLSA exempt status of pharmaceutical sales representatives. The ruling in favor of the employer represents a significant development for pharmaceutical companies around the country, many of whom are facing similar FLSA lawsuits brought by their pharmaceutical sales representatives.

In affirming summary judgment for Johnson & Johnson, the Court relied heavily on the deposition testimony of the plaintiff that she worked unsupervised 95% of the time, that it was up to her to run her territory as she wished and that she was the expert on her own territory for the development of a strategic plan for higher sales. Her attorney tried to disavow all such testimony at oral argument as “mere puffery.”

As the court observed, certain facts weighed against the finding of exempt status, including the fact that plaintiff worked from a list of “target doctors” the company provided. She also was expected to complete an average of ten visits per day and to visit every doctor on her target list at least once a quarter. She was directed to “extol the benefit of the pharmaceutical drug she promoted using materials pre-approved by the company and she was prohibited from using other materials that were not approved.”

Nevertheless, the Third Circuit relied on Smith’s deposition testimony to find that her primary duty in this “non manual position” required her to form a strategic plan to maximize sales, and a description of her duties that demonstrated a “high level of planning and foresight.” Her testimony also supported a finding that she engaged in the development of a strategic plan” that guided the execution of her remaining duties. 29 CFR § 541.203(e). Based on that testimony, the court found she was an exempt administrative employee. Turning to the question of plaintiff’s “exercise of discretion and independent judgment with respect to matters of significance,” the next element of the administrative exemption, the court found that her testimony showed she executed “nearly all of her duties without direct oversight.” She developed her own schedule, was free to apply the budget for expenses the company gave her at her discretion and was “the expert” on her territory.

The court declined to address Johnson & Johnson’s cross-appeal of the district court’s holding that the FLSA’s outside sales exemption was not applicable to pharmaceutical sales representatives. As the court observed, that issue is pending in the Second and Ninth Circuits in cases involving Novartis, AstraZeneca, and Orth-McNeil, among others. In some of those cases, the lower courts found the outside sales exemption applied, while in others, the district courts found the exemption did not apply. The Ninth Circuit appeals also involve the scope of the outside sales exemption under California’s wage and hour statute.

In addition to the significance that the Third Circuit’s decision has for pharmaceutical companies currently facing FLSA lawsuits, the court’s central reliance on the deposition testimony of this plaintiff provides an important subtext for this decision. The court disapproved of the plaintiff’s counsel’s attempt to disavow her testimony as puffery. The court cited to the “sham affidavit” doctrine under which a court will not consider an affidavit of a deponent who tries to change testimony previously given in a deposition by submitting a “clarifying” affidavit or declaration. While the plaintiff had not submitted such an actual affidavit, the Third Circuit applied the principle behind that doctrine and refused to allow plaintiff to retreat from testimony of which she surely “understood the significance” in the context of her case.

Proposed Federal Budget Targets Misclassification of Contractors

Hunton & Williams LLP — Fri, 12 Feb 2010 10:56:03 -0500

President Obama’s proposed $3.8 trillion federal budget for 2011 includes $117 billion for the U.S. Department of Labor. The Department’s Wage and Hour Division, which will receive $244 million under the new budget (an increase of almost $20 million from last year), pledges to use the money to increase its number of investigators, to train investigators to detect misclassification of workers as independent contractors, and to focus on industries where misclassification is most prevalent.

Misclassification of employees as independent contractors is expected to cost the Treasury Department over $7 billion in lost payroll tax revenue over the next ten years. To help make up for this shortfall, the proposed budget includes a joint proposal by the Departments of Labor and Treasury. The joint proposal, a $25 million initiative, would enhance the ability of both agencies to penalize employers who misclassify their employees and would attempt to eliminate or reduce opportunities under current law for employers to misclassify workers. The initiative also provides for competitive grants to boost states’ incentives to address the problem, as well as the hiring of 100 new enforcement personnel to target worker misclassification.

The President’s proposal also is likely to build momentum for legislation, already introduced called the Taxpayer Responsibility, Accountability, and Consistency Act of 2009, that would revise the Revenue Act of 1978’s safe harbor provision (which allows an employer to treat a worker as a contractor if certain requirements are met) to make it more difficult for employers to classify workers as independent contractors for employment tax purposes. The legislation also would significantly increase employer penalties in the event of misclassification. In addition, states also are enacting new laws to impose harsher penalties for misclassification. Colorado, for example, passed a law in 2009 that included penalties of up to $5,000 per employee for the first offense and up to $25,000 per employee for subsequent violations. Other states have passed similar laws.

In light of these developments, which continue a trend that has been building for the past several years, employers will need to be vigilant to ensure that their independent contractor relationships will pass muster. Misclassifying an employee as an independent contractor will be a very costly mistake.

Nominee Craig Becker's Appointment to the NLRB is Blocked in Senate

Hunton & Williams LLP — Thu, 11 Feb 2010 11:28:58 -0500

National Labor Relations Board (NLRB) Nominee Craig Becker needed 60 Senate votes to overcome the Republican-led filibuster blocking his confirmation, but he only received 52 votes on Tuesday. Two Democrats, Sen. Blanche Lincoln (Ark.) and Ben Nelson (Neb.), went against their party to vote him down in the cloture vote, which failed 52-33.

Becker could still be appointed to the NLRB if the President makes a recess appointment. Currently, the Board has only two of its five seats filled, and requires a third to meet the quorum requirement. However, given the controversy surrounding the Becker nomination, it would be a bold move for the President to fill the quorum by giving Becker the seat. Two other current nominees, Mark Gaston Pearce (D.) and Bryan Hayes (R.) are less controversial than Becker and their nominations are also before the Senate for consideration. The controversy surrounding the Becker nomination is due principally to Becker’s background, which many believe displays an anti-free-market and pro-union bent. Becker is a labor lawyer who has served as associate general counsel to the Service Employees International Union (SEIU) and the AFL-CIO. For the past 27 years, Becker has taught and practiced labor law and written articles expressing extremely pro-union, anti-business views.

It appears that the Senate can confirm both Pearce and Hayes at any time. However, should the Senate attempt to confirm Pearce (the Democrat) without Hayes (the Republican), it is predicted that Senate Republicans will object or resist.

As for a recess appointment, it is unclear whether there will be a recess next week, given the blizzards this week that have resulted in snow days in Washington, D.C. If the Senate takes off three (3) days or more next week, as originally planned, the President will have the opportunity to use his recess appointment power. If so, the President could appoint Becker, Pearce, or Hayes, or any combination, including all three nominees to the NLRB. If any of them receives the recess appointment, the appointment must be approved by the Senate by the end of the next session (which in current practice would likely be some time in December of 2011, although it is not certain), or the position becomes vacant again.

It is not clear why Senate Majority Leader Reid pushed the cloture vote when he knew last week that it would fail after Senators Enzi (R. Wyo.) and Murkowski (R. Alaska) of the Senate Health, Education, Labor, and Pensions Committee changed their votes to oppose Becker’s nomination. However, after the cloture vote, labor organizations are now more informed about who it should support, with Senators Lincoln and Nelson likely no longer on its list of supportive candidates.

An ADA Retaliation Claim Does Not Warrant Compensatory and Punitive Damages

Hunton & Williams LLP — Wed, 10 Feb 2010 09:20:23 -0500

A panel of the U.S. Court of Appeals for the Ninth Circuit recently held in Alvarado v. Cajun Operating Company, that compensatory and punitive damages are unavailable to a plaintiff who brings an ADA retaliation claim. Consistent with a prior Seventh Circuit ruling in Kramer v. Banc. of Am. Sec., 355 F.3d 961 (2004), the Alvarado Court found that the ADA specifically excludes a retaliation claim under Section 12203 from awards of compensatory and punitive damages. The court reasoned that Section 1981(a)(2) of the ADA does not list claims brought under section 12203 as one of the enumerated categories of claims meriting compensatory and punitive damages. Since the statute specifically enumerated other claims under the ADA where punitive and compensatory damages are proper remedies, the court found that Congress intended for those claims, and not those under Section 12203, to get punitive and compensatory damages as a remedy. In addition, the court held that since ADA retaliation claims are only subject to equitable relief, no jury trial is available.

This Ninth Circuit ruling on remedies for an ADA retaliation claim is significant for several reasons. The Ninth Circuit is generally one of the most pro-employee jurisdictions. It is, therefore, noteworthy that the Alvarado Court declined an opportunity to expand the kinds of relief awarded for an ADA retaliation claim. The court had a relatively easy opportunity to read into the ADA statute the remedy of punitive and compensatory damages for a retaliation claim, but instead used the tools of statutory construction and avoided reading language into the statute that is not already there. In doing so, the Ninth Circuit overruled several district court decisions that previously found punitive and compensatory damages for ADA retaliation claims when it could easily have opted to uphold those pro-employee decisions. This holding suggests that at least one panel of the court is receptive to arguments for strict statutory interpretation. Here, the court properly followed the tenets of statutory construction -- where a statute is unambiguous, the court must interpret it as written. The decision is an encouraging sign that strict construction arguments remain a robust defense to expansive damages claims, even in traditionally plaintiff-friendly jurisdictions.

Cleaning up Workplace Banter

Hunton & Williams LLP — Mon, 08 Feb 2010 09:22:18 -0500

In a decision issued last week, the U.S. Court of Appeals for the 11th Circuit held that gender-derogatory words and conduct that are either severe or pervasive may state a claim of a hostile work environment, even when the words at issue are not directed specifically at the plaintiff. Reeves v. C.H. Robinson Worldwide Inc., 11th Cir. (en banc), No. 07-10270, January 20, 2010.

The case involved a female employee working in a male dominated field. Her coworkers blasted offensive radio shows in shared workspaces. One coworker displayed an explicit picture of a naked woman on his computer screen. And the men in the workplace frequently used derogatory terms to refer to women generally. Even though her coworkers never directly insulted or threatened the Plaintiff, the Court held that the their actions created an objectively hostile work environment for any woman. With this decision, the 11th Circuit joins the majority of Circuits in holding that a hostile work environment may be created in violation of Title VII, even when the plaintiff is not individually targeted.

Courts have uniformly held that Title VII is not a general civility code. It does not protect against isolated sexually-tinged remarks. Nor does it protect against pervasive harassment that is non-discriminatory. But while the law tolerates general vulgarity, and even boorishness, liability arises when employers abide the frequent use of gender-derogatory language.

This holding bears special significance for work environments where curse words are part of the everyday vernacular of the employees. Employers wishing to avoid this kind of litigation should pay careful attention to address employee complaints. Training supervisors to reign in gender derogatory words and conduct could prevent a situation where an employee feels he or she has to complain in the first place.

Controversy Over NLRB Nominee Craig Becker Heats up as Proponents and Opponents Race to the Finish Line

Hunton & Williams LLP — Fri, 05 Feb 2010 09:19:37 -0500

On Tuesday, February 4th, the United States Senate Health, Education, Labor, and Pensions (“HELP”) Committee called a rare hearing to question Craig Becker, President Barack Obama’s nominee for the National Labor Relations Board (“NLRB”). While Becker was approved by the HELP Committee last year in a 15-8 vote, Arizona Senator John McCain (R.) placed a hold on his nomination, keeping a Senate vote from taking place. Therefore, the White House resubmitted his nomination and the Committee voted on Becker again yesterday, before a confirmation vote in the full Senate.

Although the Committee approved his nomination again, it did so with a 13-10 party line vote. The confirmation vote could take place as early as next week.

Anticipating another hold would be placed on Becker’s nomination, proponents were pushing hard for a cloture vote before Massachusetts Senator-elect Scott Brown took his seat. However, Brown was sworn in by Vice President Biden shortly after 5 p.m. ET yesterday, ending the Democrats' supermajority and becoming the Republican's "41st vote" on health care. Late yesterday, a cloture vote petition with seventeen (17) signatures was filed on Becker, and the vote will take place Monday evening. With Brown seated, Becker’s proponents are unlikely to obtain the 60 votes need to override any hold placed on the nomination.

The controversy surrounding the nomination is due principally to Becker’s background, which many believe displays an anti-free-market and pro-union bent. Becker is a labor lawyer who has served as associate general counsel to the Service Employees International Union (SEIU) and the AFL-CIO. For the past 27 years, Becker has taught and practiced labor law and written articles expressing extremely pro-union, anti-business views.

The Senate HELP Committee received a letter from 23 major trade organizations last week expressing concern that the NLRB would be able to “radically interpret existing labor law should Becker be confirmed.” The Committee received a separate letter from 600 manufacturing employers urging members to oppose the confirmation.

Senator Johnny Isakson (R., Ga.) expressed concern that Becker's writings "have indicated a belief that the NLRB has the power to make some of the dramatic changes in the card-check bill." This legislation would permit unions to bypass secret-ballot elections and instead organize in workplaces by collecting signed cards from workers.

In an attempt to distance himself from his writings, during Tuesday’s hearing, Becker suggested that he doesn't believe the Board could take such a step. "The law is clear that the decision...(of) an alternative route to certification rests with Congress and not the board," Becker said, adding that his writings were "intended to be provocative and to ask fundamental questions in order for scholars and others to re-evaluate."

In a Huffington Post article posted Thursday, February 4, Stewart Acuff, Chief of Staff and Assistant to the President of the Utility Workers Union of America, illustrates these concerns as he states:

The Employee Free Choice Act has the support of a majority of the US Senate. But under the current rules in the Senate you need not a majority -- 50 votes-- but a super-majority of 60 votes to move legislation to where a vote to pass it can even take place. We are very close to the 60 votes we need. If we aren't able to pass the Employee Free Choice Act, we will work with President Obama and Vice President Biden and their appointees to the National Labor Relations Board to change the rules governing forming a union through administrative action…

(emphasis added).

At Tuesday’s hearing, Senator McCain grilled Becker over whether he would recuse himself from cases before the NLRB involving the SEIU, where Becker most recently worked. Becker said he would recuse himself from cases involving the SEIU for two years; however, he would not commit to doing so in a case mentioned by McCain involving a local chapter of the union.

Protecting Jane Doe's Privacy: How far must employers go?

Hunton & Williams LLP — Wed, 03 Feb 2010 09:56:58 -0500

A recent decision out of the Pennsylvania courts is a caution to employers who are required to produce employee personnel information in responding to court or agency proceedings. Jane Doe v. Wyoming Valley Health Care System, Inc., (PA Super., December 18, 2009) raised the issue of how much privacy employees can expect in the information provided to their employers and kept in their company personnel files.

Following an NLRB hearing in which “Jane Doe’s” personnel records were used to determine whether “Clinical Care Coordinators” qualified as “supervisors,” Doe sued the company for invasion of her privacy. She claimed that a document from her confidential personnel record was improperly disseminated during the hearing in violation of her privacy rights. A Pennsylvania trial judge allowed her claim to go to a jury that found in her favor.

But can releasing personnel files during a court proceeding really put a company at risk for invasion of privacy liability? The answer is probably not, if handled carefully. The appeals court in Jane Doe reversed the jury verdict and held that the use of the personnel files in the NLRB hearing was privileged. The record made clear that the purpose of the disclosure was genuine and related to the NLRB proceeding. The court focused on the fact that the lawyers, not the company’s management, selected which files to present, and that the information presented from the files was relevant to the issue in the hearing.

This appellate ruling offers comfort, but perhaps not to the company that had to defend the case (unsuccessfully) to a jury before obtaining a reversal on appeal. That the matter commanded this much process suggests great care in protecting the personal information of employees when companies are required to produce records in litigation or agency investigations. For example, in Salt River Valley Water Users Association v. NLRB, 769 F.2d 639 (9th Cir. 1985), the court held it was not an abuse of discretion to limit the union’s access to only disciplinary actions and performance reviews.

Recent amendments to the court rules require redaction of social security numbers, but the experience of the employer in Jane Doe suggests real care be taken in protecting any information not relevant to the case and that might create privacy issues for the employees whose records are produced. It is also advisable to request from the court or agency requiring or admitting records an order that protects the affected employees’ interests.

California DLSE Issues Opinion Letter Regarding Deductions for Partial-Day Absences for Exempt Employees

Hunton & Williams LLP — Mon, 01 Feb 2010 09:50:47 -0500

Companies doing business in California should note that, on November 23, 2009, the Chief Counsel of the California Division of Labor Standards Enforcement (“DLSE”) issued an Opinion Letter on behalf of Labor Commissioner Angela Bradstreet, in which the DLSE modified its position on the issue of making deductions from vacation and sick leave balances accrued by exempt employees for the purpose of covering partial-day absences. The Opinion Letter brings California law more in line with the federal Fair Labor Standards Act regarding the “salary basis test” and deductions from exempt employee paid time-off accounts for partial-day absences.

Under California law, one of the requirements for exempt status is the payment of a fixed, predetermined salary to employees for any day in which the employees perform any work. In short, unlike non-exempt employees, there cannot be an hour-for-hour reduction in pay because the exempt employee works less than his/her typical hours on a particular day. The Opinion Letter states that while an employer cannot reduce an employee’s pay for working a partial day, the employer can implement policies permitting the employer to reduce vacation or sick leave hours an employee had accrued to correspond with the amount of hours the employee took off during the partial day, without endangering the employee’s exempt status.

This Opinion Letter potentially has financial significance for California employers since employers who decide to provide vacation to employees must comply with certain requirements. California law generally treats accrued vacation as deferred wages. Accordingly, employers cannot have a use-it-or-lose-it vacation policy and must pay out any accrued, unused vacation at the termination of an employment relationship. If an employer is permitted to reduce an employee’s vacation hours for partial-day absences, then this could potentially affect how much the employer needs to pay the employee at termination.

While DLSE Opinion Letters are not binding precedent for California courts, and courts do not give deference to DLSE Opinion Letters, the courts do recognize their persuasive value. We will have to wait and see if the California courts adopt the DLSE’s latest position.

ALJ's Decision in Employer's Favor Does Not Preclude Employee's New Sarbanes-Oxley Lawsuit in Federal Court

Hunton & Williams LLP — Fri, 29 Jan 2010 10:03:41 -0500

As a recent decision by the U.S. Court of Appeals for the Fourth Circuit makes clear, the fact that an employer prevailed against an employee’s Sarbanes-Oxley claim in an administrative proceeding cannot be used to bar a new trial of the claim in federal court. The U.S. District Court for the District of Maryland dismissed a former employee’s SOX lawsuit on the ground that it was precluded by an administrative law judge’s granting of the employer’s motion for summary decision. The Court of Appeals, in a ruling of first impression, held that the lower court erred and vacated its dismissal in Stone v. Instrumentation Lab Co., 4th Cir., No. 08-1970, 12/31/09.

Employee’s Administrative Claim and District Court Claim Dismissed
David Stone filed a retaliation claim against his former employer, Instrumentation Laboratory Company, with the Occupational Safety and Health Administration pursuant to the Sarbanes-Oxley Act. After OSHA issued its preliminary findings, Stone timely objected to them and requested a hearing before an ALJ. ILC filed a motion for summary decision before the ALJ, which the ALJ granted. The Administrative Review Board thereafter granted Stone’s petition for review of the ALJ’s order. Before his initial brief to the Administrative Review Board was due, Stone notified the Board that he was going to bring a de novo action in federal district court, and the Board thereafter dismissed the appeal.

ILC filed a motion to dismiss in the district court pursuant to Federal Rule of Civil Procedure 12(b)(6), which the court granted, finding that the ALJ’s ruling was a “final judgment on the merits” for the purposes of collateral estoppel. The court found that permitting Stone to pursue relief in district court would be “wasteful,” required the Administrative Review Board to rule on Stone’s appeal, and stayed Stone’s federal court proceedings. When Stone refused to further prosecute his appeal before the Administrative Review Board, the Board entered a final order of dismissal and the district court entered a final judgment also dismissing his claim.

Court of Appeals Restores Employee’s Claim
Stone appealed the district court’s dismissal of his claim arguing “that as a Sarbanes-Oxley whistleblower complainant, he is entitled to a de novo review in federal district court because the Secretary of Labor did not reach a ‘final decision’ within 180 days, as required by the Sarbanes-Oxley Act. ILC argued the Act does not “abrogate the district court’s long-recognized power to apply principles of preclusion to avoid duplicative litigation.”

The court first looked to the plain language of the statute and concluded that it unambiguously permits a whistleblower complainant to bring an action for de novo review in district court if the Secretary of Labor has not issued a final decision within 180 days of the complainant filing an administrative complaint. The court held that “[i]n applying preclusion principles, the district court strayed from the plain and unambiguous meaning of [the Sarbanes-Oxley Act]” which does not merely give the federal district court jurisdiction over a complainant’s action, but rather gives a complainant a “statutory right” to a federal district court’s de novo review. The court explained that the district court should not have looked to any Department of Labor interpretive regulations or the Secretary’s comments to such regulations to come to a different conclusion because the statute itself is clear. Citing Astoria Federal Sav. & Loan Ass’n v. Solimino, 501 U.S. 104, 108 (1991), the court noted that courts do not have free rein to impose preclusion if it was not intended by the legislature.

The court next considered whether the plain language of the statute would lead to an “absurd result” because of the likely duplication of efforts by the ALJ and district court. The Secretary of Labor had previously commented that it “anticipates that Federal courts will apply [preclusion] principles if a complainant brings a new action in Federal court following extensive litigation before the Department that has resulted in a decision by an administrative law judge or the Secretary.” However, the court ruled that the Secretary’s comments “cannot be squared with the statutory language chosen by Congress,” nor does the Secretary or ILC “present a compelling argument as to why such duplication is ‘absurd.’” The Court explained that Congress purposely chose an “aggressive timetable for resolving whistleblower claims,” a “natural result” of which is duplication if the Department does not resolve the claim within the prescribed timeframe. If the timetable does not work in practice, it must be resolved by Congress, not the courts.

Given the unambiguous language of the Sarbanes-Oxley Act and the absence of the potential for an “absurd result,” the court held that Stone was entitled to de novo review of his whistleblower claim in the district court and, accordingly, vacated the dismissal and remanded to the district court. The result for employers is the proverbial “second bite at the apple” for Sarbanes-Oxley plaintiffs.

Fewer Union Members Does Not Make the Case for EFCA

Hunton & Williams LLP — Wed, 27 Jan 2010 10:14:31 -0500

Late last week the Bureau of Labor Statistics released its numbers concerning the levels of union membership in 2009. As in past years, the number of union members in the private sector has declined, now down to 7.2% from 7.6% in 2008. In December 2009, the NLRB's General Counsel released the Agency's numbers regarding the number of initial union representation elections in FY 2009. Once again, the number of elections initiated by unions has declined, this time by a whopping 19% in just one year.

We know from NLRB numbers over the last ten years that union win rates in these elections have increased from just over 50% in the first half of the decade to about 55% or more in each of the years of the second half. So, let's see what those numbers tell us when compared to the rhetoric over EFCA.

Union membership continues to decline and that's why unions say that EFCA or something like it should be made law. In 2009, as in previous years, unions initiated far fewer elections even though statistics show they win more than half of the ones in which they participate. But absent passage of EFCA, unions can't win new members if they don't organize and hold elections. Their strategy for passage of the EFCA free ride appears to amount to a self fulfilling prophecy. That is, if unions refuse to engage in the election process, their numbers will continue to dwindle, which to some creates a problem in need of EFCA as the solution. And the Obama administration seems to be making the same argument. On January 22nd Hilda Solis, Secretary of Labor, said the membership numbers make "clear why the Administration supports the Employee Free Choice Act. "

The Secretary's adherence to this stance in the face of statistics to the contrary is grounded in her sincere belief that employees are better off with a union. However, with a 55% win rate, why don't unions use the election mechanism available to them? The unions say the deck is stacked against them and they can't win. The numbers reported for the last decade or more refute that claim. They also say that top down, corporate campaigns work better. The continuing drop in membership casts doubt on that assumption as well. But one certainly can believe that, if an employer can be forced into a card check and neutrality agreement through a corporate campaign publicly attacking its corporate image, the union win rate should vault into the 80 to 90% range. EFCA in either its current or modified form will accomplish nearly the same thing.

As has been said from the outset, this proposition is not about better workplace democracy… it is about pre-ordaining union victory irrespective of free choice.

EEOC's Near-Record Number of Discrimination and Retaliation Charges in 2009 Foretells Increased Liability Concerns for Employers

Hunton & Williams LLP — Mon, 25 Jan 2010 16:20:12 -0500

The EEOC reported that workplace discrimination charges reached near-record highs in 2009. According to the EEOC, there were 93,277 charges filed in fiscal year 2009 -- the second-highest level in its history.

The EEOC’s fiscal year data, which ended September 30, 2009, reflects increases in certain types of discrimination and retaliation complaints. Notably, disability complaints increased by 10 percent, from 19,453 to 21,451; national origin complaints increased 5 percent, from 10,601 to 11,134; and religious discrimination claims increased 3 percent, from 3,273 to 3,386. Also, retaliation charges reached a record high of 2009, going from 32,690 to 33,613 over the span of a year. Meanwhile, although the number of age bias claims decreased from 24,582 in 2008 to 22,778 in 2009, it was still the second-highest total ever. The EEOC also reported that it recovered a record high of $294 million through administrative enforcement and mediation.

According to Stuart J. Ishimaru, acting chairman of the EEOC, “[t]he latest data tell us that, as the first decade of the 21st century comes to a close, the commission’s work is far from finished….Employers must step up their efforts to foster discrimination-free and inclusive workplaces, or risk enforcement and litigation by the EEOC.”

Employers will likely see similar rises in liability risks and activity in the area of discrimination and retaliation in year 2010, particularly in light of the ADA Amendments Act of 2008, which went into effect on January 1, 2009, and expands the scope of the Americans with Disabilities Act by reversing or nullifying several Supreme Court rulings that significantly narrowed the scope of protection under the ADA. Similarly, the EEOC’s Fiscal Year 2010 Congressional Budget Justification includes, as the EEOC’s objectives for Year 2010, an increased focus on combating systemic discrimination (unlawful patterns or practices of discrimination which have a broad impact on an industry, profession, company, or geographic location) as well as charges raising priority, novel or emerging legal issues in the context of race discrimination.

To help manage exposure, employers should revisit their handbooks, policies, and day-to-day practices, and should take steps to make certain that their supervisors and human resources staff are trained to both identify and properly address potential discrimination and retaliation issues.

California Supreme Court Upholds Forfeiture Provision In Employee Incentive Plan

Hunton & Williams LLP — Tue, 19 Jan 2010 12:21:03 -0500

A recent decision from the California Supreme Court has provided a rare victory for companies with employees in that state. In Schachter v. Citigroup, Inc., the Court ruled that a forfeiture provision in an employee incentive compensation plan did not violate California wage laws.

Facts Of The Case

The incentive plan at issue in Schachter provided officers and other key employees of Smith Barney (now a subsidiary of Citigroup) the opportunity to elect to receive as much as 25% of their total compensation in the following year as restricted stock. A participating employee could not sell, transfer, pledge, or assign the restricted shares for two years following the date of the award, and the restricted shares would not be reflected in his or her taxable income until after the expiration of the two-year vesting period.

The provision of the plan that led to the lawsuit was its forfeiture provision. If a participating employee resigned or was terminated prior to the expiration of the two-year vesting period, he or she would forfeit the shares. If the employee was terminated without cause, however, he or she would receive a cash payment equal to the portion of his or her annual compensation that had been paid in restricted shares.

The plaintiff, David Schachter, enrolled in the incentive compensation plan and elected to receive a percentage of his total compensation in restricted stock for the years 1995 and 1996. Schachter later resigned in March 1996, before his shares were vested. Accordingly, under the terms of the incentive plan, Schachter forfeited his stock and the portion of his income that had been allocated to purchase the shares.

In 1998, Schachter brought a class action against his former employer, alleging that the plan’s forfeiture provision violated Labor Code Sections 201 and 202, which require the prompt payment of wages upon the employee’s separation from employment, and Labor Code Section 219, which provides that the wage payment statutes cannot be contravened or set aside by private agreement. After years of litigation, the trial court ultimately granted the company’s motion for summary judgment and the Court of Appeal affirmed.

The Court’s Decision And Reasoning

In a unanimous decision, the California Supreme Court upheld the plan’s forfeiture provision, rejecting Schachter’s argument that the portion of compensation he directed be paid to him in the form of restricted stock constituted a wage that remained earned but unpaid following his resignation. (Schachter conceded that the forfeiture of the stock as a result of his resignation during the stock’s restricted period was lawful.)

The Court observed that “employers and employees are free to prospectively and bilaterally alter the terms of employment.” Therefore, when Schachter enrolled in the plan, he agreed to a restructured compensation package that included a lower annual salary and payment in the form of restricted stock, subject to the terms and conditions of the plan. The Court cited the well established rule that “[o]nly when an employee satisfies the condition(s) precedent to receiving incentive compensation, which often includes remaining employed for a particular period of time, can that employee be said to have earned the incentive compensation.” Because Schachter elected not to remain employed for the duration of the vesting period, he “‘did not earn -- and thus had no right to receive -- either the restricted stock or the funds used to purchase it.’”

Given that no earned wages remained unpaid upon termination for cause or resignation, the Court held that the plan’s forfeiture provision did not violate California Labor Code Sections 201, 202, or 219.

What The Decision Means For California Employers

The decision in Schachter v. Citigroup, Inc. is a reassuring sign that California courts will enforce contracts related to employment even when they are deemed to benefit the employer rather than the employee. To be sure, the overwhelming tilt of laws in California is in favor of the employee. The California Labor Code imposes numerous burdens on employers above and beyond those faced by employers in other states, with onerous penalties and damages obtainable against employers for infractions.

The Schachter decision demonstrates that California courts will not blindly negate any employment agreement under Labor Code Section 219 simply because it turns out to be unfavorable to an employee. Even in employee-friendly California, employers can accomplish the results they need with careful drafting of compensation plans and contracts. That said, the need for experienced and creative counsel is crucial for employers operating in California.

While the benefits of doing business in California abound, there are many challenges, including legal ones, that must be navigated. With a growing presence in California, Hunton & Williams LLP is helping more and more clients make the most of their business opportunities on the West Coast.

Employers Should Ensure COBRA Notices Are Compliant With New Legislation

Hunton & Williams LLP — Fri, 15 Jan 2010 09:43:28 -0500

The American Recovery and Reinvestment Act of 2009 (ARRA), which provides premium reductions for health benefits under COBRA, was recently amended by the Department of Defense Appropriations Act, 2010 (2010 DOD Act). Under this new legislation, those involuntarily terminated through February 28, 2010, a change from the prior cut-off of December 31, 2009, are entitled to COBRA continuation assistance. Furthermore, the legislation extended the length of that assistance to 15 months from 9 months.

The extension is retroactive for those who lost COBRA coverage because they stopped paying the premiums due to the expiration of their subsidy. By way of example, someone who was laid off and began receiving their subsidy in March 1, 2009 was subsidy eligible through November 30, 2009. If that individual did not pay his or her December 2009 premium because the subsidy expired, that person will have an opportunity to pay the lower amount to receive retroactive continuation coverage until May 31, 2010. To obtain this retroactive extension, that individual must pay their share (35%) of the past premium cost by the later of February 17, 2010 or 30 days after the required notice is given by the plan administrator. Any individuals who retained COBRA coverage after exhausting the subsidy must either be reimbursed or credited for the COBRA subsidy amounts that they would have been entitled to.

Plan administrators must be sure to update election notices to ensure they provide updated premium reduction information. Furthermore, the new legislation mandates that individuals who have already been provided a COBRA election notice without the updated information must be notified of the changes in the following manner:

All previously eligible individuals must be notified by February 17, 2010.
Individuals that have been involuntarily terminated on or after October 31, 2009 and lost health coverage must be notified within normal timeframes.
Individuals whose 9-month subsidy period ended before December 19, 2009, and are now eligible for the subsidy period extension must be notified within 60 days after the date on which the 9-month subsidy period ended.

Can Employees Claim Privilege On Work Email Accounts?

Hunton & Williams LLP — Mon, 11 Jan 2010 10:21:09 -0500

A recent decision of the U. S. District Court for the District of Columbia has cast doubt on the view that employees have no reasonable expectation of privacy in work email accounts. Specifically, in Convertino v. United States Department of Justice, Judge Royce C. Lamberth held that an employee’s communications with his attorney, sent to and received on the employee’s work email account, were protected from disclosure by the attorney-client privilege, even though the employer regularly accessed and saved such email communications.

In Convertino, the plaintiff, Assistant U. S. Attorney Richard Convertino, filed suit against his employer, the U. S. Department of Justice (“DOJ”), and against Eastern District of Michigan First Assistant U. S. Attorney Jonathan Tukel. The complaint alleged that Convertino was retaliated against for certain testimony before Congress and that, in violation of the Privacy Act, the DOJ improperly leaked information regarding an investigation into Convertino’s potential prosecutorial misconduct. The retaliation claim (the only claim alleged against Tukel) ultimately was dismissed for lack of subject matter jurisdiction; however, the parties conducted discovery related to the Privacy Act claim.

Although the claim against Tukel was dismissed, a discovery dispute resulted in the Court’s review of 36 emails between Tukel and his personal counsel, sent and received using Tukel’s DOJ email account, to determine whether they were protected by the attorney-client privilege. Tukel intervened in the discovery dispute to assert privilege over the email communications. Plaintiff Convertino took the position that Tukel waived his right to assert the attorney-client privilege because the communications were made using the DOJ’s email account.

Judge Lamberth upheld the privilege. In so doing, he articulated that application of the privilege requires a case by case analysis to determine whether there is a subjective expectation of confidentiality that is objectively reasonable, based on the following: (1) whether the employer maintains a policy banning personal or other objectionable use; (2) whether the employer monitors the use of the employee’s computer or email; (3) whether third parties have a right of access to the computer or email; and (4) whether the employer notified the employee, or whether the employee was aware, of the employer’s use and monitoring policies. The Court found that Tukel’s expectation of privacy was reasonable because, according to the opinion, the DOJ does not ban personal use of its email system, Tukel attempted to delete the email, and Tukel was unaware the DOJ “would be regularly accessing and saving e-mails sent from his account.”

This opinion highlights why employers should develop, maintain, disseminate, and periodically update clear policies regarding acceptable practices for company information technology. Such policies should include, among other things, guidelines governing personal and prohibited uses and statements related to privacy and confidentiality. Taking such steps can reduce any arguable expectation of privacy and prevent employees from shielding their personal use of company resources from discovery in litigation against the company.