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US Employment Litigation Round-Up for February 2017

A Review of Key Cases and New Laws Affecting Employers
15 March 2017
Mayer Brown Newsletter

Ninth Circuit Holds That Including Liability Waiver in Background Check Disclosure Violates FCRA

Decision: In Syed v. M-I, LLC , a case of first impression in the federal courts of appeals, the US Court of Appeals for the Ninth Circuit determined that a prospective employer willfully violates the Fair Credit Reporting Act (FCRA) when it procures a job applicant’s consumer report after including a liability waiver in the same document as the statutorily mandated disclosure that the employer will procure the applicant’s consumer report. The FCRA requires entities that want to obtain a consumer report for employment purposes make a “clear and conspicuous disclosure” in writing in a document that “consists solely of the disclosure” that a consumer report may be obtained for employment purposes. 15 U.S.C. § 1681b(b)(2)(A). The court reasoned that FCRA’s use of the word “solely” was unambiguous and, therefore, the employer’s inclusion of a liability waiver in the same document as the disclosure violated the statute. The court also held that the employer’s violation was willful as a matter of law because the terms of the statutory provision at issue were not subject to a range of plausible interpretations but rather unambiguously barred the employer’s interpretation that including a liability waiver was permissible. Accordingly, the court reasoned, the employer acted recklessly in including the waiver in the same document as the disclosure and a finding of willfulness was warranted.

Impact: Although the Ninth Circuit is the first federal appeals court to rule on FCRA’s stand-alone disclosure requirement, employers inside and outside the Ninth Circuit should review their FCRA consumer report disclosure forms—whether in paper or online form—to ensure that they do not contain any extra language. This is particularly important given the Ninth Circuit’s ruling that, as a matter of law, violation of the stand-alone disclosure requirements is willful. A finding of willfulness allows plaintiffs to recover statutory damages ranging from $100-$1,000 and punitive damages. Accordingly, successful class actions alleging willful FCRA violations can result in large damage awards.


Fourth Circuit Establishes New Joint Employer Test Under the FLSA

Decision: In Salinas v. Commercial Interiors, Inc., employees of a construction subcontractor filed a putative class action for unpaid overtime wages against the project’s general contractor. The district court entered summary judgment in favor of the general contractor, holding that it was not the putative class members’ employer and thus not liable.

The US Court of Appeals for the Fourth Circuit reversed, finding the general contractor liable for overtime wages because the contractor and subcontractor were not “completely disassociated” and therefore “jointly employed” the subcontractor’s employees. The appellate court articulated a two-step framework for determining whether two entities are joint employers, one that focuses on the relationship between the two putative employers: “courts must first determine whether two entities should be treated as joint employers and then analyze whether the worker constitutes an employee or independent contractor of the combined entity.” The first step of the framework determines “whether a purported joint employer shares or codetermines the essential terms and conditions of a worker's employment” by considering (1) whether the two employers jointly determine, share or allocate the power to direct, control or supervise the workers; (2) whether the employers determine, share or allocate the power to hire or fire the workers or modify their terms or conditions of employment; (3) the degree of permanency and duration of the relationship between the two entities; (4) whether through shared management or ownership interest, one employer controls, is controlled by or is under common control of the other; (5) whether the work is performed on the premises owned or controlled by one or more of the joint employers; and (6) whether the two entities jointly determine, share or allocate responsibility over functions ordinarily carried out by an employer, such as handling payroll, providing workers’ compensation insurance, paying payroll taxes or providing the facilities, equipment or tools necessary to complete the work.

Applying these factors to the relationship between the contractor and subcontractor in Salinas, the appellate court determined that the two entities were joint employers as a matter of law. For its holding, the court relied upon the facts that plaintiffs performed nearly all of their work on the contractor’s jobsites; that the contractor provided the workers tools and other equipment necessary for their work; that the contractor actively supervised the plaintiffs' work on a daily basis by having foremen walk the jobsite and check the plaintiffs' progress; that the contractor required the plaintiffs to sign in and out with the contractor’s foremen upon reporting to and leaving the jobsite each day; that the contractor’s foremen told certain plaintiffs to work additional hours or additional days; that the plaintiffs wore labels and work clothes bearing the contractor’s name while working on the contractor’s sites; and that the subcontractor’s supervisors instructed the plaintiffs to tell anyone who asked that they worked for the contractor.

Impact: The Fourth Circuit’s expansive new joint employer test is less favorable to employers than tests articulated by other circuits. Employers in the Fourth Circuit should evaluate their relationships with staffing agencies, subcontractors, independent contractors and other entities with which they share workers to assess whether they could be deemed joint employers under this new test and should monitor the practices of those entities to ensure that they comply with applicable wage and hour laws.


Third Circuit Holds That ADEA Disparate Impact Claim Is Cognizable Based on Discrimination Against Subset of Protected Group

Decision: On January 10, 2017, in Karlo v. Pittsburgh Glass Works, LLC, the US Court of Appeals for the Third Circuit held that a disparate impact case under the Age Discrimination in Employment Act (ADEA) may be based on discrimination against a subset of the protected group. The plaintiffs were former employees, all over the age of 50, whose employment was terminated as part of a staff reduction. They produced evidence that their former employer’s reduction in force policy disproportionally impacted employees older than 50. Because the policy favored ADEA-protected employees between the ages of 40 and 49, adding those younger individuals into the statistical analysis masked the statistical evidence of a disparity. In awarding summary judgment to the defendant, the district court held that “plaintiffs’ fifty-and-older disparate-impact claim is not cognizable under the ADEA” and that the statistical evidence did not support an age discrimination claim based on the reduction in force policy’s impact on the entire class of protected employees (i.e., those over 40 years of age).

The Third Circuit reversed the district court’s summary judgment ruling in substantial part, holding that the 50-and-older subgroup claim was cognizable. In doing so, the appellate court relied on the fact that the ADEA makes it unlawful for an employer to adversely affect an employee's status “because of such individual's age." The Third Circuit reasoned that the statutory language supports subgroup claims because (1) the focus is on age as the relevant protected trait and evidence that a policy disfavors older-than-50 individuals is probative of whether there is disparate impact based on age, and (2) the right to not be discriminated against on the basis of age is a personal rather than collective one.

Impact: The Third Circuit’s decision on this issue conflicts with decisions in the Second, Sixth and Eighth Circuits. The Third Circuit panel noted this conflict but determined that the policy considerations used to support the decisions in other circuits were not persuasive. Thus, employers with workers in the Third Circuit must now conduct more nuanced analyses when considering workforce reductions or the implementation of systemic employment policies in order to ensure their actions do not disparately impact sub-groups of age-protected workers.


President Trump’s Recent Labor-Related Nominations and Appointments

President Donald Trump made several nominations and appointments in recent weeks that have the potential to shape the legal landscape for employers in the coming years.

Secretary of Labor: Alexander Acosta

On February 16, 2017, President Trump nominated Alexander Acosta for secretary of labor. Acosta currently is the chairman of the board of U.S. Century Bank and the dean of Florida International University’s law school. Acosta previously served as a member of the National Labor Relations Board, as assistant attorney general for the Civil Rights Division of the US Department of Justice, and as United States Attorney for the Southern District of Florida. Acosta is also a former law clerk to Supreme Court Justice (then Third Circuit Judge) Samuel Alito. If Acosta is confirmed, he would be the first Hispanic to serve in President Trump's cabinet.

Potential Impact: Although Acosta has ties to conservative groups such as the Ethics and Public Policy Center and the Federal Society, he has publicly defended the civil rights of Muslim Americans in his capacity as assistant attorney general and as dean of Florida International University’s law school. Additionally, several prominent labor unions have publicly supported Acosta’s nomination. Given his background and the support Acosta has garnered, it remains an open question whether the Department of Labor will continue its aggressive approach to protecting workers through new rules and enforcement actions with Acosta at the helm.

Acting Chair of the EEOC: Victoria Lipnic

On January 25, 2017, President Trump appointed current Equal Employment Opportunity Commission (EEOC) Commissioner Victoria Lipnic to serve as acting chair of the EEOC. Lipnic is currently serving her second term as EEOC commissioner, having been first nominated by former President Barack Obama and confirmed by the Senate in April 2010 and reconfirmed for a second term in November 2015. Before joining the EEOC, Lipnic was the assistant secretary of labor for employment standards from 2002-2009. In that role, Lipnic oversaw the Wage and Hour Division, the Office of Federal Contract Compliance Programs (OFCCP), the Office of Workers' Compensation Programs and the Office of Labor Management Standards.

Potential Impact: Lipnic is a Republican but was appointed by a Democratic president to serve as EEOC commissioner and has worked closely with her Democratic colleagues. Lipnic has yet to indicate whether under her leadership the EEOC will press forward with its use of new EEO-1 reports, set to take effect in March 2018, that would require employers to report detailed compensation data. In this regard, it is notable that while Lipnic was assistant labor secretary, the OFCCP issued the first regulations to evaluate compensation discrimination. During her tenure with the EEOC, Lipnic was one of two commissioners who voted against the EEOC’s July 2015 decision that sexual orientation discrimination is prohibited gender discrimination under Tile VII of the Civil Rights Act of 1964. She also voted against the EEOC’s pregnancy discrimination guidance issued in July 2014.

Acting Chair of the NLRB: Philip A. Miscimarra

On January 26, 2017, President Trump named current National Labor Relations Board (“NLRB” or “the Board”) member Phillip A. Miscimarra acting chairman of the NLRB. Miscimarra replaces former Chairman Mark Gaston Pearce, a Democrat who will continue to serve as a member of the Board. Miscimarra has been a member of the NLRB since August 2013, when he was nominated by former President Obama and confirmed by the Senate. Before joining the NLRB, Miscimarra was a senior fellow at the University of Pennsylvania’s Wharton Business School and previously practiced employment law in Chicago.

Potential Impact: Miscimarra remains the lone Republican nominee on the Board. Miscimarra has routinely criticized Board decisions he deems as overly hostile to business, including the 2011 Specialty Healthcare decision (changing the standing for evaluating proposed bargaining units to make it easier for micro units to organize), the 2012 D.R. Horton decision (holding that arbitration clauses prohibiting class or collective actions are unenforceable) and the 2015 Browning-Ferris Industries decision (revising the standard for evaluating joint employer liability). There currently are two vacancies on the Board and the remaining two Board members are Democrats whose terms expire in 2018 and 2019. Accordingly, while Miscimarra’s appointment will not have an immediate impact on recent NLRB decisions, the selection signals the Trump administration’s plans to guide the NLRB back to being more employer-friendly as current Board members finish their terms and new members are appointed.


Seventh Circuit Strikes Down Employee’s Racial Harassment Suit Based on Employer’s Timely and Reasonable Steps to Address Complaints

Decision: In Cable v. FCA US LLC, an employee filed suit for racial harassment under Title VII of the Civil Rights Act of 1964, alleging claims of a hostile work environment and retaliation based on five purported incidents of harassment. The district court granted the employer’s motion for summary judgment, holding, inter alia, that the employee could not establish a basis for employer liability where the alleged harasser was not the employee’s supervisor and the employer had taken timely action that was reasonably likely to prevent the harassment from recurring.

The US Court of Appeals for the Seventh Circuit affirmed, holding that the employee’s supervisor had immediately taken action to address the alleged incidents of discrimination by speaking with the perpetrator and advising him to correct his behavior, thereby promptly stopping the conduct from recurring, and by interviewing the employee’s co-workers regarding the incident. The Seventh Circuit explained that “[i]t would push the role of deterrence too far to blame [the employer] for a response which [was] within the realm of reasonableness at the time that [the employee had] reported” the discriminatory incident.

Impact: This case reaffirms the importance of employers being proactive in addressing complaints of hostile or discriminatory behavior in the workplace. Properly addressing a complaint can insulate an employer from liability for discriminatory conduct, even if the employer’s efforts to prevent the discriminatory conduct are not initially successful. It is therefore important for employers to have a well-formulated policy in place concerning action to be taken in the event that an employee lodges a discrimination, harassment or retaliation complaint—and to adequately train their workforce regarding that policy—to ensure that managers and supervisors promptly and effectively investigate and address the complaint.


New York’s Governor Signs Executive Orders Intended to Eliminate Wage Gap

Executive Orders: On January 11, 2017, New York Governor Andrew Cuomo signed two executive orders intended to reduce the wage gap between men and women in New York.

Executive Order 161 prohibits all state entities from requesting or requiring an applicant to disclose his or her previous compensation or prior wage history until after a conditional offer of employment with compensation has been made. The order also provides that if a state entity is already in possession of an applicant’s prior compensation, it may not rely on such information in determining the applicant’s salary unless required by law or a collective bargaining agreement.

Executive Order 162 requires state agencies and authorities to include a provision in all state contracts, agreements and procurements that requires state contractors (and subcontractors) to provide a detailed workforce utilization report including equal employment opportunity information (i.e., race, gender and age) as well job title and salary for every employee working on the state contract.

The Governor’s Office of Employee Relations will provide training on the new executive orders and is also charged with monitoring employers to ensure compliance.

Impact: The new executive orders and Governor Cuomo’s signing of the comprehensive Women’s Equality Act in 2015 have strengthened pay protections for women employees and are examples of New York continuing to take a lead role in expanding protections for workers beyond those required by federal law. Accordingly, New York employers should carefully review their existing policies regularly to ensure that they comply with evolving state and local requirements.


Third Circuit Holds Employer’s Honest Belief of Employee FMLA Leave Misuse Is Sufficient to Defeat Retaliation Claim

Decision: On January 31, 2017, in Capps v. Mondelez Global, LLC, the US Court of Appeals for the Third Circuit held that an employer’s honest belief that its employee misused Family Medical Leave Act (FMLA) leave time suffices to defeat an FMLA retaliation claim. The plaintiff suffered from periodic flare-ups of severe pain in connection with a medical condition. He was certified to take intermittent FMLA leave, and his healthcare certification form stated that he required “full bedrest” when experiencing flare-ups. On a day that he was scheduled to work, the employee called his employer to inform it that he would be taking a day of FMLA leave because he was experiencing leg pain. At approximately 6:00 p.m. that evening, he met friends at a local bar where he consumed alcohol. On his way home, he was arrested for driving under the influence (DUI) and was released from jail the following morning. The plaintiff was scheduled to work at 1:00 p.m. that day but once again called his employer to state that he would be using another day of FMLA leave because of leg pain.

Several months later, the employer learned through the local newspaper that the employee had been convicted of DUI. After investigating and determining that the employee used FMLA leave on the relevant dates and also on dates when the court docket indicated that he had court appearances, the company terminated his employment for violation of the company’s FMLA and Dishonest Acts policies. The employee then brought claims for FMLA interference and retaliation, as well as for violations of the Americans with Disabilities Act.

The Third Circuit affirmed the district court’s grant of summary judgment to the employer. With regard to the plaintiff’s FMLA retaliation claim, the appellate court relied for its holding on evidence from the employer that it held an honest belief that the employee had misused his FMLA leave, including its investigation of the docket in the plaintiff’s DUI court case. The Third Circuit held that the employee was unable to establish that the employer had a retaliatory intent or that the employee was denied a benefit to which he was entitled under FMLA.

Impact: The Third Circuit’s adoption of the honest belief rule in FMLA retaliation cases provides employers in that jurisdiction another way to protect against FMLA leave abuse. However, employers are advised to appropriately investigate and document suspicions of such abuse so that their honest belief defense is well supported with concrete evidence. It also is advisable for employers, where possible, to delay taking adverse action or denying leave based on suspicions of abuse until those suspicions have been adequately investigated and confirmed in order to help insulate the employer against FMLA retaliation or interference claims. This case also underscores the importance of policies providing for discipline or termination when employees provide false information in support of a request for leave.

Authors

  • Grant T. Miller
    T +1 213 229 5130
  • Richard E. Nowak
    T +1 312 701 8809
  • Andrea Maldonado Weiss
    T +1 213 229 5123
  • Ruth Zadikany
    Associate
    T +1 213 621 3916
  • Lori A. Zahalka
    T +1 312 701 7921

Related People

  • Marcia E. Goodman
    T +1 312 701 7953
  • John Zaimes
    T +1 213 229 9545
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