As the Supreme Court looks ahead to its next term, the Court granted certiorari in three cases of particular significance to employers. In these cases, the Court will address the impact of offers of judgment on federal wage and hour collective actions, the scope of vicarious liability for acts of supervisors under Title VII, and the type of equitable relief available to plan fiduciaries regarding the enforcement of reimbursement provisions.

Fair Labor Standards Act—Effect of Offer of Judgment Before Conditional Certification

Under Section 216(b) of the Fair Labor Standards Act of 1938 (“FLSA”), an employee may file a “collective action” against an employer “on behalf of himself * * * and other employees similarly situated.” 29 U.S.C. § 216(b). But the FLSA specifies that the other “similarly situated” employees must choose to join the litigation: “No employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought.” Id. On June 26, 2012, the Supreme Court granted certiorari in Genesis Healthcare Corp. v. Symczyk, No. 11-1059, to decide whether an FLSA collective action becomes moot when the defendant makes an offer of judgment under Federal Rule of Civil Procedure 68 that would fully satisfy the named plaintiff’s claims before any additional employees have opted into the action.

The action commenced when respondent, the plaintiff below, filed a collective action under the FLSA, alleging that the petitioners, her employers, automatically deducted her pay for meal breaks, regardless of whether she took them. The employers answered the complaint and served the plaintiff with a Rule 68 offer of judgment for the full amount of her claims, including costs and attorneys’ fees. Arguing that the offer to pay her claims in full deprived her of the ongoing personal stake in the litigation required by Article III of the U.S. Constitution, the employers moved to dismiss the complaint. The district court granted the motion, noting that an offer of full satisfaction ordinarily moots a plaintiff’s claims and that no other employees had opted into the suit because the plaintiff had not yet sought conditional certification of the collective action.

The Third Circuit reversed, explaining that “conventional mootness principles do not fit neatly within the representative action paradigm.” 656 F.3d 189, 195. The court analogized FLSA collective actions to class actions, in which it is settled that a defendant cannot “frustrate” the objectives of class adjudication by “pick[ing] off” a plaintiff’s suit with a tender of judgment before the class can be certified. Id. at 197-201. The Third Circuit therefore reversed the dismissal and remanded in order to allow the plaintiff to file a motion for conditional certification, which would be deemed to “relate back” to the filing of the original complaint and thus preserve the district court’s subject matter jurisdiction. Id. at 201. In so holding, the Third Circuit agreed with the Fifth, Tenth, and Eleventh Circuits and parted company with the Fourth, Seventh, and Eighth Circuits.

Absent extensions, which are likely, amicus briefs in support of the petitioners will be due on August 16, 2012, and amicus briefs in support of the respondent will be due on September 17, 2012. Any questions about the case should be directed to Evan Tager (+1 202 263 3240) or Kevin Ranlett (+1 202 263 3217) in our Washington, DC office.

Title VII—Employer’s Vicarious Liability for Acts of Supervisor

Under Title VII of the Civil Rights Act of 1964, an employer may be held vicariously liable for a supervisor’s acts of workplace discrimination. The Supreme Court established the supervisor liability rule in a pair of 1998 cases, Faragher v. City of Boca Raton, 524 U.S. 775 (1998), and Burlington Industries, Inc. v. Ellerth., 524 U.S. 742 (1998). In a case of co-employee harassment, by contrast, employer liability requires a Title VII plaintiff to show more, such as that the employer was negligent in responding to the plaintiff’s complaints. 

On June 26, 2012, the Supreme Court granted certiorari in Vance v. Ball State University, No. 11-556, to decide whether the supervisor liability rule applies to harassment by those whom the employer vests with authority to direct and oversee the employee’s daily work or, instead, is limited to harassers who have the power to “hire, fire, demote, promote, transfer, or discipline” their victim. In granting certiorari, the Court rejected the recommendation of the Solicitor General, whose views the Court had solicited, that certiorari be denied. 

The Court’s decision in this case will be important—particularly to businesses with numerous employees—because it has the potential to expand dramatically the types of workplace harassment claims that can survive summary judgment.

Petitioner Maetta Vance, the plaintiff below, was an African-American employee in respondent Ball State University’s catering department. A co-worker who had been given the authority to direct the work of several employees, including Vance, allegedly subjected Vance to severe and pervasive racial harassment. Vance sued the university under Title VII, asserting hostile environment and retaliation claims. The district court granted Ball State’s motion for summary judgment. It relied on Seventh Circuit precedent holding that, for purposes of an employer’s vicarious liability, “supervisor” status turned on “the power to hire, fire, demote, promote, transfer, or discipline an employee,” which was absent here. The Seventh Circuit affirmed. 

The scope of the supervisor liability rule has divided the courts of appeals. Like the Seventh Circuit, the First and Eighth Circuits have taken the position that only a supervisor’s power over formal employment status implicates the supervisor liability rule. The Second, Fourth, and Ninth Circuits, by contrast, have held that harassment by personnel overseeing the victim’s daily work assignments and performance warrants vicarious employer liability. The EEOC has also argued for the broader rule.

Absent extensions, which are likely, amicus briefs in support of the petitioner will be due on August 16, 2012, and amicus briefs in support of the respondents will be due on September 17, 2012. Any questions about this case should be directed to Dan Himmelfarb (+1 202 263 3035) in our Washington, DC office.

Employee Retirement Income Security Act—Reimbursement of Benefits Paid out of Funds Recovered from Third Parties

Section 502(a)(3) of the Employee Retirement Income Security Act (“ERISA”) authorizes a plan fiduciary to enforce the plan against beneficiaries by seeking an injunction or “other appropriate equitable relief.” 29 U.S.C. § 1132(a)(3). Under this provision, when a beneficiary obtains a benefits payment for injuries caused by the negligent or willful acts of a third party, the fiduciary may enforce a right to subrogation established in the plan by imposing an equitable lien or constructive trust on any funds the beneficiary subsequently recovers from the responsible party. On June 26, 2012, the Supreme Court granted certiorari in U.S. Airways, Inc. v. McCutchen, No. 11-1285, to decide whether Section 502(a)(3)’s reference to “appropriate” equitable relief prevents plan fiduciaries from enforcing reimbursement provisions according to their express terms when an equitable defense (such as unjust enrichment) would otherwise apply.

Because the Court’s decision will determine whether ERISA plan beneficiaries can assert equitable defenses to avoid their contractual obligation to reimburse the plan for benefits paid, it should be of interest to all businesses that offer such plans to their employees or administer them on behalf of other entities.   

Respondent James McCutchen, a defendant below, was injured in a car accident. Petitioner, the plaintiff below, paid approximately $67,000 for McCutchen’s medical expenses while acting in its capacity as the administrator of McCutchen’s ERISA benefits plan (“the Plan”). McCutchen then engaged the services of a law firm—respondent Rosen, Louik & Perry, P.C., also a defendant below—to recover a total of $110,000 from the other driver involved in the accident and under McCutchen’s automotive insurance policy. This recovery, however, was subject to a 40% contingency fee imposed by McCutchen’s attorneys, leaving him with a net benefit of less than $66,000. Petitioner nevertheless sued McCutchen and the law firm—which held a portion of McCutchen’s third-party recovery in trust—for reimbursement of the full $67,000 in benefits, seeking to enforce a provision in the Plan obligating McCutchen “to reimburse the Plan for amounts paid for claims out of any monies recovered from a third party.” The district court granted summary judgment to petitioner and ordered respondents to reimburse the Plan according to its terms.

The Third Circuit vacated the district court’s judgment, agreeing with respondents that enforcement of the Plan’s subrogation provision would “effectively be reaching into its beneficiary’s pocket, putting him in a worse position than if he had not pursued a third-party recovery at all.” 663 F.3d 671, 674. The court reasoned that, by authorizing plan fiduciaries to bring suits for “appropriate” equitable relief, “Congress intended to limit the equitable relief available [to plan fiduciaries] through the application of equitable defenses and principles that were typically available in equity.” Id. at 676. Because the court determined that requiring McCutchen to reimburse the plan for the full value of his benefits claim violated principles of unjust enrichment, it remanded the case to the district court with instructions to fashion an equitable remedy that fairly apportioned McCutchen’s third-party recovery between him and the Plan. The Third Circuit’s decision conflicts with decisions of the Fifth, Seventh, Eighth, Eleventh, and D.C. Circuits holding that courts should not apply common-law theories to alter the express terms of a written ERISA plan, but it is consistent with a recent decision of the Ninth Circuit.

Absent extensions, which are likely, amicus briefs in support of the petitioner will be due on August 16, 2012, and amicus briefs in support of the respondents will be due on September 17, 2012. Any questions about the case should be directed to Andrew Tauber (+1 202 263 3324) in our Washington, DC office.