United States: A Review of Key Cases and New Laws Affecting Employers (US Employment Litigation Round-Up for November/December 2015)

A Review of Key Cases and New Laws Affecting Employers

Undeterred NLRB Continues To Attack Class Action Waivers

Decision: In the later half of 2015, the National Labor Relations Board has continued to attack class action waivers in accordance with its D.R. Horton and Murphy Oil USA decisions despite the fact that both decisions were reversed by the Fifth Circuit (and the NLRB's en banc petition in Murphy Oil USA was denied without recorded dissent).

On November 10, 2015, the Board held, in Amex Card Services Co., 363 NLRB No. 40, that American Express violated the National Labor Relations Act (the Act) by forcing its employees to sign arbitration agreements that included class action waivers. Then, on November 30, 2015, in U.S. Express Enterprises, Inc., 363 NLRB No. 46, the Board held that U.S. Express's arbitration agreement—which also included a class action waiver—ran afoul of the Act even though an opt-out provision allowed employees to pursue legal disputes through a class action by providing written notice to the employer.

In both decisions, the Board concluded that the respective arbitration agreement violated the employees' protected right to engage in concerted activity under D.R. Horton and Murphy Oil USA. The Board emphasized its view that arbitration policies that require individual arbitration rather than class actions violate the Act. In addition, the Board held in U.S. Express Enterprises, Inc., that even if an opt-out provision makes an arbitration agreement voluntary for each individual who does not opt out, any arbitration agreement that precludes collective action "is unlawful even if entered into voluntarily because it requires employees to prospectively waive their Section 7 right to engage in concerted activity." Thus, according to the Board, even a voluntary arbitration agreement is prohibited if it contains a class action waiver that requires claims to be arbitrated on an individual, rather than a class, basis.

Impact: To date, the only federal court of appeals to consider the issue has rejected the NLRB's view, as has the California Supreme Court. But the NLRB appears to persist in its policy of refusing to acquiesce in court rulings rejecting D.R. Horton and similar Board decisions. (We addressed this pattern more than a year ago when discussing the Murphy Oil USA case). Although the NLRB's stance on arbitration agreements containing class waivers has been reversed on several occasions, Amex Card Services Co. and United Express Enterprises, Inc., demonstrate that the Board will continue to push its interpretation of the Act until forced to do otherwise. Anecdotal evidence suggests that the Board is also using its position to forcefully persuade companies to abandon arbitration policies with class waivers in settlement of NLRB charges, under the radar.

Amex Card Services Co. and United Express Enterprises, Inc., represent potential opportunities for another federal court of appeals to weigh in because section 10(f) of the Act permits an aggrieved party to seek relief in the circuit where the alleged unfair labor practice took place (Ninth Circuit in Amex and Sixth Circuit in United Express Enterprises), where the party resides or transacts business (in the case of Amex, this could be almost any circuit), or the DC Circuit (which always has jurisdiction to hear NLRB challenges).That being said, given the NLRB's persistence, employers can reasonably expect that the NLRB will continue to apply D.R. Horton and Murphy Oil USA—making it necessary for employers to seek judicial review—for the foreseeable future unless the US Supreme Court intervenes in an appropriate case.

Missouri Appellate Court Clarifies Punitive Damages Standard

Decision: On November 10, 2015, in Diaz v. AutoZoners, LLC, No. WD77861, the Missouri Court of Appeals upheld a jury award of punitive damages against an employee's direct employer but reversed the verdict against the employer's parent company because that company did not qualify as an "employer" under Missouri law. In Diaz, the plaintiff sued her employer, AutoZoners, and its parent, AutoZone, Inc., under the Missouri Human Rights Act (MHRA), alleging that both companies failed to adequately respond to pervasive sexual harassment by a commercial customer and that they retaliated against her when she complained. The jury found both entities liable and awarded the plaintiff compensatory damages of $75,000. In addition, the plaintiff was awarded punitive damages in the amount of $1 million against AutoZoners and $1.5 million against parent company, AutoZone, Inc.

On appeal, the Missouri Court of Appeals drew an important line that precluded the parent company from being held liable for the subsidiary's acts. Although the parent, AutoZone, Inc., created the Store Handbook and Code of Conduct for its subsidiaries' employees, provided documents used for HR investigations and responded to the plaintiff's discrimination charge, the court concluded that the conduct "d[id] not demonstrate that AutoZone, Inc., was responsible for training employees; receiving, investigating, and responding to complaints; or disciplining noncompliant employees."

The court declined the opportunity to invalidate the $1 million punitive damages award against AutoZoners, determining that the award was not unconstitutionally excessive. Applying the guideposts articulated by the US Supreme Court in BMW of North America v. Gore, 517 U.S. 559 (1996), the Missouri Court of Appeals first held that the third guidepost—legislatively established penalties for comparable conduct—was "inconsequential," before addressing the other two guideposts: the degree of reprehensibility of the conduct and the ratio of punitive to compensatory damages.

The court opined that even without physical harm or active wrongdoing, "there was a sufficient degree of reprehensibility on the part of AutoZoners, LLC, to justify a sizeable award." The court based this decision almost entirely on the repugnance of the customer's conduct and the court's belief that the jury could have reasonably concluded that AutoZoner's managerial employees had an economic motivation to violate the company's zero-tolerance rule in order to maintain the customer's account. In effect, the court did not analyze the amount of the award or the ratio of punitive to compensatory damages, but simply blessed the jury's verdict based on conduct it found sufficient to justify a punitive damages award.

Impact: While Diaz is another example of a state appellate court paying little attention to the BMW due process guideposts, the silver lining for employers is that the decision provides a helpful precedent in screening a parent company from liability as an "employer." Courts have often given short shrift to such arguments, holding a corporate parent jointly liable even where it has no substantive involvement in its subsidiary's alleged misconduct.

Diaz also highlights the importance of a strong focus on combating punitive damages early in a case, before trial, during trial, and in all steps leading to appeal, since an errant punitive damages award has the potential to transform a trivial case into a significant risk for a corporate employer.

Jury Awards Ex-LA Times Sportswriter $7.1M in Wrongful Termination Suit

Verdict: On November 4, 2015, a California jury awarded former Los Angeles Times sports columnist T.J. Simers $7.1 million after finding the newspaper discriminated against him based on his age and disability. The jury deliberated for nearly two days after a six-week trial, ultimately awarding Simers $330,358 for past economic damages, $1.8 million for future economic damages, $2.5 million for past noneconomic damages, and $2.5 million for future noneconomic damages.

Simers worked at the Times for 22 years. After he suffered a transient ischemic attack, also known as a mini-stroke, the paper reduced his workload from three weekly columns to two and later asked him to accept a demotion that would take away his column entirely. The paper said that the demotion was due to poor performance, even though Simers had consistently received positive reviews, before the mini-stroke, during his long tenure at the Times. The paper also accused Simers of an ethical violation for failing to disclose an alleged conflict of interest, though an internal investigation allegedly cleared him of any ethical wrongdoing. The paper suspended Simers for the alleged ethical violation and issued a "final written warning" threatening termination, even though it had never given him a preliminary warning. Simers resigned in the wake of the warning and filed suit one month later.

Commenting on the verdict, the jury foreman explained that the jury's decision was based mostly on the fact that Simers had received consistently positive reviews from the newspaper until he suffered the mini-stroke and that the Times did not follow its own disciplinary policy when it failed to give Simers an initial warning before his final written warning.

The Times, for its part, argued that it had not constructively terminated Simers when it offered him a demotion. Two of Simers's editors testified that they had offered him the ability to keep his column if he acknowledged his ethical error. Simers allegedly refused to do so.

Impact: The $7.1 million verdict should remind employers that significant damage awards are possible even without punitive damages. Employers should be conscious of how an employment decision will be perceived in context. A rapid change in tenor regarding a distinguished employee following a conspicuous health event, appears to have influenced the jury. Even though the jury refused to award punitive damages, it allocated $5 million to past and future noneconomic damages for pain and suffering. Thus, employers should be aware of the possibility of an unanticipated damage award above and beyond the employee's compensation.

Desperate Housewives Actress Need Not Exhaust Administrative Remedies in Pursuing Wrongful Termination Claim Under California Labor Code Section 6310

Decision: On October 20, 2015, the California Court of Appeal held, in Sheridan v. Touchstone Television Productions, LLC, that an employee need not exhaust his or her administrative remedies before filing suit under California Labor Code section 6310, which prohibits retaliation against an employee who makes a bona fide complaint of "unsafe working conditions or work practices."

Touchstone hired actress Nicollette Sheridan in 2004 to play the character Edie Britt on the television series Desperate Housewives. The contract was for one season, with the option to renew each year for an additional six seasons. The contract was renewed for five seasons, but after Sheridan complained to Touchstone that Marc Cherry, the show's creator, struck her during a rehearsal in September 2008, Touchstone chose not to renew her contract for the sixth season. In April 2010, Sheridan sued Touchstone for, inter alia, wrongful termination, alleging that Touchstone fired her because of her complaint about the alleged battery, later amending to add a claim under section 6310. That claim was dismissed due to Sheridan's failure to exhaust administrative remedies, as required by the California Court of Appeal's opinion in MacDonald v. State of California. During the Sheridan case, the Labor Code was amended to specify that exhaustion was not required, and the MacDonald case was ordered de-published.

The Court of Appeal reversed the trial court's decision, holding that the plain language of the statute did not require exhaustion. The panel considered the post-amendment language expressly stating that exhaustion was not required, stating that the amendment simply clarified the existing statutory intent.

Impact: The Court of Appeal's decision highlights the effect that amendments to the Labor Code may have on pending cases when seen as clarifying, rather than changing, existing statutory language.

Third Circuit Adopts "Predominant Benefit" Test For Meal Breaks Under FLSA

Decision: On November 24, 2015, in Babcock, et al. v. Butler County, a divided Third Circuit panel adopted the "predominant benefit" test to determine whether a meal period is compensable under the Fair Labor Standards Act (FLSA). The test weighs the benefits the employer and the employees receive from the break.

The case arose from a collective action brought by a corrections officer who alleged that she and other prison guards were owed overtime pay by their employer, Butler County, because 15 minutes of their one-hour meal break were unpaid and during the break the guards had to remain on call for emergencies and were not allowed to leave the prison without express permission. The district court dismissed the case, agreeing with the county's arguments that the meal period was not compensable work because the guards received the predominant benefit of the meal period.

On appeal, the Third Circuit refused to adopt the "completely relieved from all duties" test and agreed with the district court's application of the "predominant benefit" test. Doing so, the panel found that the guards were not primarily engaged in work duties during the break and also noted the existence of a collective-bargaining agreement that required guards be partially compensated with overtime pay if their break is interrupted by work.

The dissent (Circuit Judge Joseph A. Greenaway Jr.) stated that the majority had misapplied the "predominant benefit" test because the officers have to be prepared to work at a moment's notice and are subjected to other restrictions that "greatly limit their movement." Judge Greenaway rejected the majority's focus on the fact that the guards could ask for permission to leave the prison and would be compensated if work interrupted their break.

Impact: This decision clarifies the applicable test in the Third Circuit. While the rejection of the "completely relieved from all duties" test is a positive development for employers, the "predominant benefit" test is based heavily on the facts at issue and—as is evident from the disagreement between the majority and the dissent—facts are subject to varying interpretations. Employers would benefit from reviewing meal break practices to identify and address circumstances that are vulnerable to interpretation as benefitting the employer.

Ninth Circuit Deems HR Director's Reports FLSA Complaint Under US Supreme Court's Kasten "Fair Notice" Standard

Decision: On December 14, 2015, in Rosenfield v. GlobalTranz Enterprises, a divided Ninth Circuit panel clarified the standard for determining whether an employee has "filed any complaint" in order to trigger the anti-retaliation provisions of the Fair Labor Standards Act (FLSA).

The plaintiff in the case had held managerial positions in the defendant's human resources department before being terminated. She alleged retaliation as a result of her repeated reports that the company was not complying with the FLSA. The district court granted summary judgment for the defendant, holding that, although the plaintiff had "consistently and vigorously" raised the issue of potential FLSA violations, she had never "filed any complaint" for purposes of the FLSA's anti-retaliation provision.

Ninth Circuit Judges Susan B. Graber and Alex Kozinski reversed the district court decision, applying the "fair notice" test announced by the US Supreme Court in Kasten v. Saint-Gobain Performance Plastics Corp. Under that test, the FLSA's anti-retaliation provision is triggered when a complaint is "sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the statute and a call for their protection." Examining the record, the majority held that a jury could find the plaintiff's reports sufficient to give fair notice of potential liability for retaliation. Critically, the majority noted that ensuring compliance with FLSA was not part of the plaintiff's regular duties, so her superiors understood, or should have understood, that she was asserting her rights of anti-retaliation protection under the FLSA.

The dissent (US District Judge Dee V. Benson, sitting by designation), argued that the panel should not have applied the "fair notice" test because Kasten applied only to oral complaints made by non-managerial employees. Instead, following a rule established by sister circuits in cases predating Kasten, Judge Benson stated that it must be shown that the complaining employee stepped outside of his or her normal role to file some type of formal, adversarial complaint, and that there was nothing in the record here to conclude that the plaintiff had done so.

Impact: The majority's decision explicitly avoids a bright line rule for determining when an employee has "filed any complaint" for FLSA purposes, explaining that the determination must be made on a case-by-case basis. Employers should be careful to avoid the appearance of retaliation when any employee, whether managerial or rank-and-file, raises concerns about FLSA compliance.

Originally published December 29, 2015.

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