Ninth Circuit Invalidates Class Waiver in Arbitration Agreement

In a ruling that widens the divide between federal appellate courts, the Ninth Circuit sided today with the Seventh Circuit and the National Labor Relations Board (“NLRB”) in holding that the class action waiver provision of a company’s arbitration agreement with employees violates the National Labor Relations Act (“NLRA”). Prior to this decision, the Seventh Circuit was alone in its dissention from the federal majority with respect to this issue.

The United States Supreme Court in AT&T Mobility v. Concepcion made clear that class waivers are enforceable under the Federal Arbitration Act (“FAA”), at least in the context of consumer class actions, and that state laws that inhibit the full effectuation of the FAA are void. The NLRB, however, in its continuing bid to establish its relevance in the contemporary workplace, has challenged class waivers executed by employees; in D.R. Horton, Inc. v. NLRB, the NLRB held in 2012 that employees’ Section 7 rights are violated by such waivers, and that the FAA does not override this right. The NLRB’s ruling in D.R. Horton spawned a great deal of commentary and litigation – the NLRB’s ruling that class waivers are unenforceable was itself rejected by an appellate court in the Fifth Circuit. A host of federal appellate courts, as well as lower courts, have also criticized the NLRB’s ruling and refused to adopt its reasoning. Notably, the Fifth Circuit decision emphasized that the use of class action litigation is a procedural, rather than a substantive right, and that prohibiting class action waivers would discourage arbitration and, thus, violate the spirit and purpose of the FAA.

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What the Seventh Circuit’s Recent Title VII Ruling Means for Sexual Orientation Discrimination in the Workplace

On July 28, 2015, the United States Court of Appeals for the Seventh Circuit (“Seventh Circuit”) ruled that Title VII does not protect against sexual orientation discrimination.  See, Hively v. Ivy Tech Cmty. Coll., 2016 BL 244172, 7th Cir., No. 15-1720, 7/28/16.  The Seventh Circuit ruling is the first by a federal circuit to address the question since the EEOC held in an administrative ruling that bias based on sexual orientation is sex discrimination violating Title VII.

The Seventh Circuit did not discuss the merits of Ms. Hively’s case, who alleged Ivy Tech Community College did not promote her because she is a lesbian.  Instead, the Court discussed the “paradoxical legal landscape in which a person can be married on Saturday and then fired on Monday for just that act.”  Judge Rovner wrote:

For although federal law now guarantees anyone the right to marry another person of the same gender, Title VII, to the extent it does not reach sexual orientation discrimination, also allows employers to fire that employee for doing so….Many citizens would be surprised to learn that under federal law any private employer can summon an employee into his office and state, “You are a hard‐working employee and have added much value to my company, but I am firing you because you are gay.” And the employee would have no recourse whatsoever—unless she happens to live in a state or locality with an anti‐discrimination statute that includes sexual orientation. . .

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What You Need to Know About Recent Amendments to Illinois’s Equal Pay Act

As of January 1, 2016, Illinois’s Equal Pay Act (the “Act”) expanded to prohibit all employers, regardless of size, from paying unequal wages to men and women for doing the same or substantially similar work, except if the wage difference is based upon a seniority system, a merit system, a system measuring earnings by quantity or quality of production, or factors other than gender.  The previous version of the Act only applied to employers with four or more employees.

The recent amendments to the Act also increase the civil penalties for violation of the law as follows:

  1. For employers with four or more employees:  For a first offense, a fine not to exceed $2,500; for a second offense, a fine not to exceed $3,000; and for a third or subsequent offense, a fine not to exceed $5,000; and
  2. For employers with fewer than four employees:  For a first offense, a fine not to exceed $500; for a second offense, a fine not to exceed $2,500; and for a third or subsequent offense, a fine not to exceed $5,000.

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Sandquist v. Lebo Automotive, Inc.: California’s Cautionary Tale About the Importance of Drafting Arbitration Agreements with Precision

Ambiguities in employee arbitration agreements may force employers to litigate putative class action claims in arbitration. The California Supreme Court delivered this cautionary message by its recent holding in Sandquist v. Lebo Automotive, Inc. In Sandquist, the plaintiff, an African-American male, filed a discrimination class action on behalf of “current and former employees of color” following his separation from the company. The company filed a motion to compel individual arbitration, relying on an arbitration clause the plaintiff signed in three separate documents upon commencing his employment. The trial court granted the company’s motion, concluding that the existing case precedent required the court – rather than the arbitrator – to determine whether class arbitration was available. Ultimately, the trial court interpreted the arbitration agreements’ as impliedly prohibiting class arbitration and, on that basis, struck the class allegations.

Upon review, the Court of Appeal reversed the trial court, holding that the arbitrator, not the trial court, must determine whether an arbitration agreement permits class arbitration. The California Supreme Court granted review and, on July 28, 2016, a narrowly divided Court affirmed the Court of Appeal, holding that the question of whether a court or an arbitrator decides if an arbitration agreement permits class claims should be determined on a case-by-case basis, specifically focusing on the agreement’s terms and resolving any ambiguities in favor of the non-drafting party. By its decision, the Court placed itself at odds with numerous federal appellate courts that have held that such questions are for a court, not an arbitrator, to decide.

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A Conflicted 7th Circuit Holds Title VII Does Not Cover Sexual Orientation Discrimination

In a precedent-setting decision, the U.S. Court of Appeals for the Seventh Circuit ruled on July 28th that Title VII does not protect against sexual orientation discrimination.  The case is Kimberly Hively v. Ivy Tech Community College, No. 15‐1720 (7th Cir. July 28, 2016).

The 7th Circuit upheld a district court’s decision to dismiss a lawsuit brought by Kimberly Hively, a lesbian professor, who had sued Ivy Tech Community College, in August 2014.  Hively claimed that she was repeatedly passed over for promotions and a full-time position because of her sexual orientation.

The 42-page unanimous decision is interesting, as while the Court upheld the dismissal of the case, it clearly felt conflicted over what it described as “a paradoxical legal landscape in which a person can be married on Saturday and then fired on Monday for just that act.”  (Order at 33.)  Indeed, since Obergefell v. Hodges, 135 S. Ct. 2584 (2015), federal law now guarantees anyone the right to marry another person of the same gender.  However, Title VII also permits an employer to fire an employee for exercising this right.

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Supreme Court Stays Fourth Circuit’s Ruling Affirming Transgender Students’ Bathroom Rights

The Supreme Court stayed a Fourth Circuit ruling that requires schools to allow transgender students to use the bathroom of the gender they identify as. We are monitoring the case for its impact on employers going forward. For our past analysis on this issue, please refer to the following posts:

Lessons to be Learned from Uber’s “Wrong Turn” with a Private Investigation

In today’s era of social media and the internet, many of us have an insatiable desire for information and a knee jerk reaction when attacked:

  • What dirt can we find out about our adversary?

This often happens in litigation – someone sues you or your company, and your first reaction is to jump on Google or Facebook to get some bad information on the other side.  What can we find out about him?  What skeletons does she have in her closet?  What bad stuff have they done in the past?

However, in litigation the best defense is often NOT a good offense, and gathering irrelevant, and potentially harmful information about the other side can backfire.

It is also critical to remember that whether in-house or at a firm, as lawyers, our conduct must be above reproach.  That means that even in the heat of battle, you should never forget your ethical obligations and your mandate as an officer of the court to conduct litigation, at all times, within the bounds of the law.

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Barbara Hoey Quoted on Internal Investigations in Compliance Week


I recently sat down with a reporter from Compliance Week to discuss the implications of Gilman v. Marsh & McLennan, a recent federal appeals court ruling affirming that companies have cause to terminate employees who refuse to cooperate in internal investigations.  As I wrote in June, the decision is significant to any company that faces allegations of corporate misconduct and seeks cooperation in a government or internal investigation.

In the article, I pointed out that employers must distinguish between the personal rights of employees and their obligations to the company. The Gilman decision confirms that in many cases, including harassment investigations or other investigations of workplace misconduct, an employee’s refusal to cooperate in an internal investigation will constitute a valid cause for termination. This decision serves as a reminder to have language in the Code of Conduct, employment contracts for senior executives and corporate bylaws about the company’s internal investigation policy. “It’s essential to have those written policies. If you don’t have it in your policies, it’s going to be hard to require the cooperation that you need.”

The full article can be found here.

Workplace Video Monitoring: What Employers Need To Know

sec01The omnipresence of video cameras is a fact of life. The average American, aware or not, is caught on surveillance camera more than 75 times a day.

Given the availability and effectiveness of inexpensive video equipment, many companies use video to monitor their entire operations for safety, security and quality control. But video surveillance can have unintended consequences well beyond its intended purpose. For example, one big-box retailer instructed a breastfeeding employee to use the store’s computer server room for lactation. After using it two or three times a day, she discovered it had a monitored surveillance camera. Now the company is facing a lawsuit.

Employers should develop video monitoring policies that comply with the requirements of state laws as well as with employees’ right to organize.  We recently authored a Law360 article, “Workplace Video Monitoring: What Employers Need To Know” that addresses federal and state limits on video monitoring in the workplace for both unionized and nonunion workers.

The full article can be found here.

The Latest in Labor: NLRB Update, Part Two

Most employers know that the National Labor Relations Board (NLRB) has been on a years-long tear to make it easier for workers to unionize and harder for employers to resist those efforts. This post in two parts is the latest from the battlefront, with two key developments that impact unionization campaigns and employers’ responses to them. (If you missed Part One of the post, it can be found here).

Implementation of Expanded “Persuader Rule” Is Blocked

A federal court has blocked implementation of a new U.S. Department of Labor rule that would require lawyers to report the details of their engagement with clients who hire them to help address unionization efforts, finding that the rule inappropriately curtails employers’ rights to seek confidential counsel when a union is attempting to organize a workforce. Go figure.

One of the most controversial actions taken by the Department of Labor in recent years was to expand the definition of a “persuader” under the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA). For those of you who have a “who cares” reaction to that news, here’s a very brief labor history of the LMRDA and what a “persuader” is:

Congress passed the National Labor Relations Act (NLRA) in 1935. For the first time, workers’ rights to unionize were guaranteed as a matter of federal law. The unions did pretty well; so well, in fact, that in 1947 Congress had to pass the Labor-Management Relations Act (LMRA, also known as the “Taft-Hartley Act”), which curtailed what had come to be viewed as the overreaching power of labor unions. In a similar vein, the LMRDA, passed in 1959, was a reaction to widespread union corruption and racketeering, and it further regulated labor unions’ internal affairs. But the LMRDA also contained rules for employers, since the point was to limit bad behavior: if an employer resisting unionization efforts hired “persuaders” to convince its employees not to unionize, it would need to publicly disclose those paid relationships to the Department of Labor. This became known as the LMRDA’s “persuader rule.”

The idea of the persuader rule was, as I said, to force employers, not just unions, to keep it on the up-and-up and avoid deceit. The deception was this: the original persuaders were paid hacks hired by employers to pose as workers on the shop floor. These “friendly” colleagues would socialize in the workplace and bemoan the evils of the union, gravely assure their “co-workers” that the company would shut down if they unionized, etc. In creating the persuader rule, Congress rightly felt that employees deserved to know that the persuader was not just some guy who had strong opinions, but was actually a mouthpiece for the employer.

Of course, union organizing campaigns aren’t just social events. They are a legal process through NLRB-run elections, with lots of rules, do’s and don’ts, and procedures for which companies usually seek attorney advice. Over the years, many management-side labor attorneys would help companies resist unionization efforts, but the advice went beyond just how to navigate the NLRB legal process. Attorneys would also train managers on what to say and not to say. From the management-side attorney perspective, this is really about ensuring legal compliance: the training has always been mostly about making sure that aggressive or clueless supervisors don’t violate federal labor law by, for example, threatening or coercing employees in their choice to support a union or not.

Back to the LMRDA, attorneys doing this did not have to disclose their paid relationships with the employer under the so-called “advice and counsel” exception. The reason for the exception is obvious: attorneys do not need to disclose (and, in fact, are ethically bound not to disclose) client confidences, so confidential attorney-client communications about unionization efforts were not subject to the reporting requirements of the persuader rule.

In the eyes of organized labor (and a closely-aligned NLRB), these lawyers were just another sub-species of bare-knuckled, union-busting persuaders. And, without naming names, they may have been right about at least some of those lawyers, at least in times past. In the eyes of every sophisticated, management-side labor attorney I know nowadays, this kind of legal representation actually prevents violations of the law by instructing uninitiated employers to keep it clean and play fair. The real-world difference between those points of view is that the NLRB is part of the federal government, which makes the rules, and management-side labor attorneys are not.

The NLRB’s open agenda has been to limit employers’ ability to resist unionization, including by creating rules for much faster union elections. The new persuader rule fits into that agenda. After languishing in controversy for several years, the new rule requires that employer-consultant agreements be reported even if the consultant has no direct contact with employees, like the old-school persuaders, and is merely working behind the scenes.

So, potentially, the new rule covers every management-side labor attorney in the country. What’s more, the rule would require employers not only to report the existence of the relationship, but the details of the paid relationship (read: attorneys’ fees). The new reporting rules would have become fully effective on July 1, 2016.

Three lawsuits were filed immediately after implementation of the rule, which took effect on April 25, 2016. A federal judge in one of the cases, proceeding in Texas, issued an injunction temporarily barring full implementation of the rule. Judge Sam R. Cummings, sitting in the Northern District of Texas, didn’t mince words about the rule, calling it “defective to the core,” and finding that it exceeded the Department of Labor’s authority, was “arbitrary and capricious” and violates free speech rights, among other things. The case is National Federation of Independent Business et al. v. Perez, 16-cv-00066 (N.D. Tex. June 27, 2016).

The injunction is only temporary in nature, and we expect to see more news from the litigation front. Check back with Kelley Drye’s for updates.