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US Employment Litigation Round-Up for July 2014

A Review of Key Cases and New Laws Affecting Employers
24 July 2014
Mayer Brown Newsletter

Hobby Lobby—The US Supreme Court Invalidates ACA Contraceptive Access Requirements for Closely Held Corporations with Religious Objections

Decision: The US Supreme Court recently decided two cases concerning contraception and the Affordable Care Act (ACA). Both Burwell v. Hobby Lobby Stores, Inc.,and Conestoga Wood v. Burwell involved owners of closely held for-profit corporations that alleged they have “sincere Christian beliefs that life begins at conception” and that “it would violate their religion to facilitate access to contraceptive drugs or devices that operate after that point.” The owners in both cases asserted that four of the 20 contraceptive methods that are required to be covered under the ACA fell within that category.

While the Court’s decisions encompass a number of nuances, the primary holdings are that: (i) the Religious Freedom Restoration Act (RFRA) applies to regulations that govern the activities of closely held for-profit corporations; (ii) the contraception coverage regulations promulgated under the ACA “substantially burden” the plaintiffs’ exercise of religion; and (iii) the government failed to show that the contraceptive mandate is the least restrictive means of guaranteeing cost-free access to the challenged contraceptive methods despite there being a compelling governmental interest in doing so. Although Conestoga also raised the issue whether the contraceptive mandate was unconstitutional under the First Amendment, the Court did not reach that question because it decided the cases completely on RFRA grounds. The majority’s opinion was the subject of a lengthy and pointed dissent written by Justice Ginsburg.

Impact: The full impact of the Court’s decision remains to be seen. For example, while the Court limited its decision to closely held for-profit corporations, the Court did not provide much reasoning for its limitation, stating only that it would be “improbable” for a publicly traded corporation to be operated according to religious beliefs. The limited reasoning stated for the closely held corporation distinction will undoubtedly lead to more cases that test the limits of the Court’s holdings.

Noel Canning Decision Means NLRB Must Review Social Media Decisions

Decision: President Obama’s January 2012 appointments of Terence Flynn, Richard Griffin and Sharon Block to the National Labor Relations Board (NLRB or Board) were ruled unconstitutional by the US Supreme Court in National Labor Relations Board v. Noel Canning et al. The appointments occurred while the Senate was holding pro forma sessions every few days, which meant that the Senate was not on a sufficiently long break for the President’s nominations to fall within the scope of the US Constitution’s appointments clause.

Impact: Because the NLRB cannot conduct business without a three-member quorum, the Supreme Court’s ruling means that the Board’s decisions made while Flynn, Griffin and Block were members are invalid and may need to be reconsidered by the newly constituted Board. Many of these decisions involve novel legal issues or overturn long-standing Board precedent. Among the affected decisions are Banner Health System, Costco Wholesale and Hispanics United of Buffalo. These three decisions deal with two issues that have played a prominent role in recent NLRB decisions: employer confidentiality policies and social media.

In Banner Health System, the NLRB addressed an employer confidentiality policy. The Board held that Banner violated the National Labor Relations Act by maintaining a policy prohibiting employees from discussing ongoing investigations into potential employee misconduct. In Costco Wholesale, the NLRB found that the retailer’s social media policy was overbroad because employees might interpret it as prohibiting criticisms of the company or working conditions. In Hispanics United of Buffalo, the NLRB determined that the company’s termination of five employees as a result of their postings on Facebook was unlawful because the posts constituted protected concerted action. The Supreme Court’s decision in Noel Canning means that the NLRB may have to reconsider these cases, which could result in new standards being applied to employer policy and social media cases going forward. In the meantime, however, employers would be prudent to treat these cases as if they are still good law.

California Supreme Court Eases the Way for Certification in Independent Contractor Misclassification Cases

Decision: In Ayala v. Antelope Valley Newspapers, Inc., the plaintiffs sought certification of a class of newspaper home delivery carriers, alleging that they were deprived of wage and hour protections by being misclassified as independent contractors rather than employees. The trial court denied class certification, holding that individual issues predominated because of variations in how the carriers performed their jobs. The California Supreme Court reversed the decision and provided a roadmap for class certification in independent contractor misclassification cases.

According to the court, when deciding whether workers are independent contractors or employees, “what matters under the common law is not how much control a hirer exercises, but how much control the hirer retains the right to exercise.” The California Supreme Court found that the relevant inquiry at the class certification stage is whether there is a common way to show that the hirer possessed the same legal right to control with respect to each of its service providers. The employer in Ayala,like many employers, used a form contract with all its carriers. Because the degree of control spelled out in the form contract was uniform across the class, this led the court to find that the misclassification was susceptible to class-wide proof. Ultimately, once common and individual factors are identified by the court, the costs and benefits of jointly trying the issues must be weighed; individual issues do not render class certification inappropriate, so long as they can be effectively managed.

Impact: Ayala eases the way for employees in independent contractor misclassification cases to achieve class certification in California. The decision reflects a continued effort by California courts to take an evidence-based approach to class certification and to leave the liability/merits portion of the case to the post-certification stage of the litigation. Employers may consider implementing an arbitration agreement with a class action waiver as a part of their independent contractor agreements, with the partial goal of reducing the likelihood of class certification.


  • Andrea Maldonado Weiss
    T +1 213 229 5123
  • Ruth Zadikany
    T +1 213 621 3916
  • Lori A. Zahalka
    T +1 312 701 7921

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