Much publicity has been given to the Wal-Mart Stores v. Dukes case, which challenges the Rule 23 class certification of the largest class action and largest employment case in history. On December 6, 2010, the U.S. Supreme Court granted certiorari and oral arguments were heard on March 29, 2011 on a narrow question involving a class of 1.5 million women alleging that Walmart systematically discriminated against women in its promotion and compensation practices. The landmark and most-recently issued Dukes decision is highlighted below. The Court, however, has issued multiple decisions throughout its term of which labor and employment lawyers should be aware.
Rule 23 Class Certification of Disparate Treatment Claim
On June 20, 2011, the U.S. Supreme Court issued its decision in the long-anticipated Wal-Mart Stores, Inc. v. Dukes case, which garnered enormous attention as the company faced billions of dollars of potential liability if the Court upheld certification of the class. No. 10-277, slip op. (U.S. June 20, 2011). In a divided ruling, the Court reversed a 9th Circuit Court of Appeals decision that certified the massive Title VII sex discrimination class action and it ruled that the female plaintiffs failed to satisfy the Federal Rule of Civil Procedure's Rule 23(a) requirements.
Justice Scalia, writing for five members of the Court, emphasized that the plaintiffs failed to show that Wal-Mart's corporate policy of giving local supervisors discretion regarding pay and promotion decisions produced common factual or legal issues that could be best addressed in a class action rather than in individual suits. He wrote "[i] n a company of Wal-Mart's size and geographical scope, it is quite unbelievable that all managers would exercise their discretion in a common way without some common discretion." The majority further found that the plaintiffs' "attempt to make that showing by means of statistical and anecdotal evidence ... falls well short."
Justice Ginsburg, however, in a partial dissent joined by Justices Breyer, Sotomayor, and Kagan, wrote that the plaintiffs satisfied Rule 23(a)'s requirement to make a preliminary showing of common questions of law or fact. The dissenting judges would have remanded the issue of whether the specific requirements of Rule 23(b)(3) had been met – which permits certification if common questions "predominate" over issues affecting individuals and if a class action is a "superior" mode of adjudication – rather than "disqualify[ing] the class at the gate." The Court unanimously agreed that the plaintiffs' claims for potentially billions as back pay were improperly certified and all agreed that the appellate court erred in certifying the class under Rule 23(b)(2).
Employers, particularly large, multinational corporations, may breathe a sigh of relief in light of Dukes. Dukes shows that enormous class actions alleging wide-spread and systemic discrimination must be narrowly tied to specific policies or practices and the best defense against such a massive class action might be a policy that directs decision makers to follow the law. Of course, employers should remain prepared to defend smaller class actions and individual suits and should anticipate that plaintiffs' lawyers will focus on disparate impact class actions or other methods to distinguish Dukes in years to come.
Background Investigations
In NASA v. Nelson, 131 S.Ct. 746 (Jan. 19, 2011), the Supreme Court addressed whether the federal government violates an employee's constitutional right to informational privacy when it asks questions during the course of a background investigation regarding whether the employee received counseling or treatment for illegal drug use within the past year and whether the employee's references have any adverse information that may have a bearing on his or her suitability for employment. The Supreme Court unanimously held such background investigation questions did not violate an employee's constitutional right to privacy. Rather, the Court reasoned that the federal government has an interest in conducting basic background checks to ensure the security of its facilities and to employ a competent, reliable work force. The Court rejected the argument that the federal government has a burden to demonstrate that its questions are "necessary" to further its interests.
Although the NASA case focused on the extent to which background investigations may be conducted by the federal government, private sector employers are also well-served in evaluating their background check policies and ensuring that they have a clear nexus with their security and/or legitimate business interests.
Retaliation by Third Party
In another unanimous decision, the Supreme Court held that the fiancé of an employee had a viable cause of action and standing to sue for retaliation under Title VII. Thompson v. North American Stainless, 131 S.Ct. 863 (Jan. 24, 2011) (Justice Kagan not participating).1 Both Thompson and his fiancé were employed by North American Stainless. Shortly after Thompson's fiancé filed a gender discrimination claim with the EEOC, Thompson was discharged. Thompson then filed his own EEOC charge alleging his termination was direct retaliation for his fiancée's protected activity under Title VII. Although the lower courts dismissed the lawsuit on the ground that Thompson did not personally engage in the protected activity, the Supreme Court disagreed. The Court reasoned that it was "obvious that a reasonable worker might be dissuaded from engaging in protected activity if she knew her fiancée would be fired." The Court further explained that a "close family member will almost always" be within the zone of interests protected by Title VII, and thus, is a "person aggrieved" under the statute.
Employers should be aware that retaliation charges may now be filed by not only an employee who complains of discrimination, but also by another who has some close relationship with a complaining employee. Now, more than ever, employers should ensure that they can articulate legitimate, credible reasons for any adverse employment action.
Effect of "Cat 's Paw"
In a unanimous decision, the U.S. Supreme Court issued its long-anticipated opinion in a "cat's paw" case. Staub v. Proctor Hospital, 131 S.Ct. 1186 (March 1, 2011).2 The Court held that, in certain circumstances, an employer could be held liable for unlawful discrimination based upon the bias of a supervisor who influenced, but did not make, the ultimate adverse employment decision. In Staub, the Court struck down a narrow version of this so-called "cat's paw" argument, under which the employer could be held liable only if the biased supervisor exerted a "singular influence" over the disputed employment decision.
Vincent Staub was a member of the Army Reserve and was required to attend military training one weekend per month and two to three weeks per year. The record reflected that his immediate supervisor, and that supervisor's immediate supervisor, were hostile to Staub's military obligations. After receiving disciplinary warnings relating to his work performance, the company's vice president of human resources made the decision to terminate Staub's employment. Staub sued the employer under the Uniformed Services Employment and Reemployment Rights Act (USERRA) and claimed that his supervisors' hostility toward his military obligations influenced the company's decision to terminate his employment. A jury found in favor of the plaintiff, but the 7th Circuit Court of Appeals reversed, holding the company was entitled to judgment as a matter of law because the ultimate decision maker did not depend solely on Staub's supervisors' advice in making her decision. The Supreme Court reversed and held that "if a supervisor performs an act motivated by antimilitary animus that is intended by the supervisor to cause an adverse employment action, and if that act is a proximate cause of the ultimate employment action, then the employer is liable under USERRA." (Emphasis supplied.) While the case addresses a claim under USERRA, the Court's decision makes it clear that the same analysis is likely to apply to other federal laws prohibiting discrimination and retaliation in employment. In light of Staub, employers should understand that having human resources or a higher-level manager review an employment decision will not necessarily absolve an employer of liability for the bias of a subordinate. Meaningful review of employment decisions is even more vital after this decision and the best way to ensure that supervisors' recommendations are well-supported and questionable actions are reversed or postponed until they can be adequately supported.
Oral Complaints and Retaliation
In a 6-2 ruling, the Supreme Court held that oral complaints are included in the anti-retaliation provision of the Fair Labor Standards Act (FLSA). Kasten v. Saint-Gobain Performance Plastics Corp., 131 S.Ct. 1325 (March 22, 2011) (Justice Kagan not participating). During Kasten's employment, Saint- Gobain located its time clocks between the area where employees changed into and out of their work-related protective gear and the area where they worked. The time clock location prevented employees from receiving credit for the time spent putting on and removing their protective gear. Kasten verbally complained about the location of the time clocks and believed that his repeated complaints resulted in his termination.
The Court held that the term "any complaint" included oral complaints and that limiting the FLSA's coverage to written complaints would undermine the Act's basic objectives. Interestingly, however, although the Court discussed the validity of oral complaints at length, it declined to address whether the FLSA covers oral complaints made solely to a private employer instead of a government agency.
Notably, the decision did not resolve the issue of whether an oral complaint must be "filed" with the government in order to be protected under the FLSA. Nonetheless, employers should proceed cautiously when confronted with a possible oral complaint relating to wage and hour issues. As the second employee-friendly retaliation decision issued this term (see Thompson v. North American Stainless above), employers should take steps to ensure that they are documenting the legitimate reasons for any adverse employment decisions.
Class Action Waiver
In AT&T Mobility LLC v. Concepcion, the Supreme Court held that an arbitration agreement in a consumer contract that prohibited classwide arbitration was enforceable. 131 S.Ct. 1740 (April 27, 2011). The case involved an arbitration clause that was contained in a contract for cell phone services between AT&T and two customers. The clause provided for arbitration of all disputes between the parties, but required that claims be brought in the parties' "individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding."
The 5-4 ruling clarified that the Federal Arbitration Act (FAA) preempts states from conditioning enforcement of an arbitration agreement on the availability of classwide arbitration because such a condition stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. The Court emphasized that the FAA embodies the strong federal policy favoring arbitration agreements in accordance with their terms and it further explained that requiring the availability of classwide arbitrations would make arbitration more formal, slower, and more costly — which is inconsistent with the underlying goals of the FAA.
The case is a strong indication that an arbitration agreement that includes a class action waiver would also be enforceable in an employment context. Employers, particularly large employers and those with operations in various states, might consider such a class action waiver in an effort to reduce the exposure and costs associated with employment-related litigation.
Unauthorized Workers
Recently, the Supreme Court issued a 5-3 decision upholding Arizona's Legal Workers Act (Act). Chamber of Commerce v. Whiting, 563 U.S. __ (May 26, 2011) (Justice Kagan did not participate). The Act provides that the business licenses of employers who knowingly or intentionally employ unauthorized aliens may be, and in certain cases must be, suspended or revoked. The Act also requires that all Arizona employers use E-Verify – an Internet-based system employers can use to check the work authorization status of employees. The Supreme Court held that neither of these provisions was preempted by federal immigration law.
The Court specifically found that the Act's licensing provisions fell within the authority that Congress chose to leave to the states in the Immigration Reform and Control Act (IRCA). The Court found that while the IRCA prohibits states from imposing "civil or criminal sanctions" against employers of unauthorized aliens, it preserves state authority to impose sanctions "through licensing and similar laws." The Court further held that the Act's E-Verify provision was not preempted by the Immigration Reform and Immigrant Responsibility Act (IRIRA). Although IRIRA does limit the federal government's ability to mandate the use of E-Verify, it contains no language so limiting states.
The Supreme Court's recent approval of state E-Verify mandates and stricter laws prohibiting the employment of unauthorized aliens underscores the importance of employers taking all legally required steps to ensure that they are properly verifying the ability of their employees to work in the United States. Employers should carefully track legislative activity in the states in which they operate and review existing policies to ensure compliance with applicable laws.
Conclusion
The U.S. Supreme Court has issued multiple employment-related rulings during its 2010-2011 term that could dramatically impact companies' hiring, termination, manager-training, human resources, and complaint investigation processes and that could dictate how such companies account for associated risks. Employers should remain well informed about these and other recent Supreme Court decisions and/or consult outside legal counsel as we continue to monitor, advise, and adjust to ever-evolving case law.
Footnotes
1. For a more complete discussion of Thompson, please see our January 26, 2011 Alert.
2. For a more complete discussion of Staub, please see our March 4, 2011 Alert.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.