Monthly Archives: July 2015

July 23, 2015

EEOC Concludes Sexual Orientation Discrimination Violates Title VII – Will Courts Agree?

According to an opinion from the Equal Employment Opportunity Commission (EEOC) last week, Title VII’s bar on sex discrimination also forbids employment discrimination based on sexual orientation. It is unclear, however, whether courts facing Title VII sexual orientation or gender identity discrimination claims will agree with the EEOC’s conclusion.

Federal Employee Alleged He Was Denied Permanent Position Because He Is Gay

An employee of the Federal Aviation Administration (FAA) filed a complaint alleging that he was denied a permanent position as a Front Line Manager at the Miami Tower TRACON facility because he is gay. He alleged that his supervisor, who was involved in the selection process, had made several negative comments about his sexual orientation, such as “We don’t need to hear about that gay stuff.”

The FAA declined to process the employee’s claim under rules that govern federal employee complaints of Title VII. The employee appealed to the EEOC. This teed up the issue of whether Title VII covers claims of sexual orientation discrimination.

Three Reasons Why Sexual Orientation Already Covered As Sex Discrimination

In its decision, the EEOC details three reasons why it concludes that sexual orientation discrimination is sex discrimination prohibited by Title VII:

Sexual orientation discrimination necessarily entails treating a worker less favorably because of that person’s sex. As an example, the EEOC states that if an employer suspends a lesbian employee for having a picture of her female spouse on her desk but does not suspend a male employee for displaying a photo of his female spouse, the employer took an adverse action against the lesbian employee that it would not have taken if she were male.
Sexual orientation discrimination is associational discrimination on the basis of sex. The EEOC views sexual orientation discrimination as treating a worker differently for associating with a person of the same sex. It opines that if associating with a person of a different race, such as an interracial marriage or a biracial child, constitutes race discrimination, as numerous courts have ruled, then discrimination based on associating with a person of the same sex constitutes sex discrimination.
Sexual orientation discrimination involves discrimination based on gender stereotypes. In its 1989 Price Waterhouse v. Hopkins decision, the U.S. Supreme Court ruled that Title VII prohibited an employer from discriminating against a female employee who the employer deemed was not “feminine enough” and did not conform to the female stereotype. Pointing to numerous court cases from the past decade, the EEOC stated that discrimination against LGBT employees based on gender stereotypes constitutes prohibited sex discrimination under Title VII.

No New Protected Class Needed

The EEOC acknowledges that Title VII does not specifically prohibit employment discrimination based on sexual orientation. It doesn’t have to, says the EEOC.

The EEOC asserts that interpreting Title VII as not covering sexual orientation as part of prohibited sex discrimination would insert a limitation into the text of Title VII that Congress had not included. It suggests that nothing in the text of Title VII supports the conclusion that Congress intended to “confine the benefits of [the] statute to heterosexual employees alone.” Instead, the EEOC states that even if Congress did not envision the application of Title VII to protect LGBT employees, the interpretation of the law should not be limited only to what Congress had in mind when it passed the law in 1964.

To dispel claims that the EEOC’s interpretation creates a new class of covered persons, the EEOC points to other expanded interpretations of Title VII which did not result in a new protected category. For example, when courts held that Title VII protected employees based on their association with persons of a different race, it did not create a new protected class of “people in interracial relationships.” Similarly, when the Ninth Circuit ruled that religious discrimination under Title VII extended to protect an employee who lacked religious beliefs, no new class of “non-believers” was created. Instead, the EEOC asserts that “courts have gone where the principles of Title VII have directed.”

What Does This Mean?

Sexual orientation and/or gender identity discrimination is already prohibited by law in many states and municipalities. In addition, federal contractors are prohibited from discriminating on those bases as well. If your organization is a federal contractor or is covered by a state or local law prohibiting employment discrimination on those grounds, you should already have updated your equal employment opportunity policies and practices to prohibit harassment, discrimination and retaliation based on sexual orientation and gender identity.

If your organization is not covered by those laws, but is subject to Title VII (which covers employers with 15 or more employees), consider whether to adopt the EEOC’s position. The courts may interpret Title VII differently and ultimately may reject the EEOC’s inclusion of sexual orientation as a form of sex discrimination.

Indeed, for many years, as advocates of the right to same-sex marriage pressed their cases in courts, many courts rejected the argument that discrimination based on sexual orientation was a form of discrimination based on sex. However, as the EEOC observes in its opinion, many courts that have taken up this question more recently have been willing to conclude that discrimination based on sexual orientation is a form of sex discrimination. The EEOC points to both the Ninth Circuit’s landmark Perry decision and the U.S. Supreme Court’s recent same-sex marriage decision in Obergefell as signaling that courts are ready for this interpretation.

While it may take some time for the federal appellate courts to provide more definitive rulings, be aware that the EEOC will pursue claims on behalf of, or in support of, allegedly aggrieved LGBT employees and applicants. You’ll need to weigh your risk tolerance to determine how to respond. We will keep you posted on further developments.

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July 20, 2015

Unpaid Internships Permitted Under New Test

By Brad Williams

A federal circuit court has adopted a new test permitting employers to use unpaid interns where the “tangible and intangible benefits provided to the intern are greater than the intern’s contribution to the employer’s operation.” In Glatt v. Fox Searchlight Pictures, Inc., 2015 WL 4033018 (2nd Cir. July 2, 2015), the U.S. Court of Appeals for the Second Circuit rejected a stringent and outdated six-part test promoted by the Department of Labor (DOL) for determining whether “interns” are actually “employees” within the meaning of federal wage and hour law. Glatt will have a significant impact on intern-initiated litigation, including by making class or collective actions more difficult to prosecute in jurisdictions that adopt the test.

Background to Glatt

Internships have become a hot-button topic in recent years. In 2010, the DOL issued “Fact Sheet #71” to educate private sector, for-profit employers about unpaid interns and to dissuade their use. Derived from a 1947 U.S. Supreme Court case that addressed the use of “trainees” hoping to become railroad brakemen, the Fact Sheet listed six criteria that the DOL believed must be satisfied for interns to be excluded from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime requirements. Most notably, these criteria included requirements that employers derive “no immediate advantage” from interns’ activities and that interns not “displace” regular employees (e.g., by preventing their hiring, or by absorbing overtime hours). The DOL took the position that all six criteria must be satisfied for the “trainee” / “intern” exception to apply. However, because most employers receive at least some benefit from unpaid interns, the DOL’s rule would effectively preclude all private sector, for-profit businesses from using unpaid interns, except in unusual cases involving bona fide educational programs and job shadowing.

Based largely on the DOL’s position, interns initiated a wave of class and collective actions across the country alleging that they had been wrongly classified as “interns” rather than “employees.” Despite ambiguity in the controlling case law, employers settled many of these lawsuits at great expense and out of fear that satisfying the DOL’s six-factor test would prove impossible. For instance, Condé Nast settled a class action involving 7,500 interns for $5.8 million in 2014, and Saturday Night Live settled a similar lawsuit involving thousands of interns for $6.4 million that same year. Other employers elected to discontinue their internship programs altogether to avoid the threat of litigation.

Case Law Response to DOL’s Six-Factor Test

Despite employers’ capitulation in the face of class and collective action threats, the actual test for distinguishing between “interns” and “employees” under the FLSA has always been ambiguous. Although the DOL has long promoted its six-part test, it has vacillated in opinion letters and other administrative guidance regarding whether all six criteria must be satisfied. For their part, courts have afforded the DOL’s test some deference, but have rarely held that all six criteria must be met. Instead, they have considered the “totality of the circumstances” or the “economic realities” of interns’ and employers’ relationships in determining whether interns (or similar workers) are actually “employees.” Many of these cases are based upon U.S. Supreme Court cases like Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947), and Tony & Susan Alamo Found. v. Sec’y of Labor, 471 U.S. 290 (1985). Other courts – most notably the U.S. Court of Appeals for the Sixth Circuit in Solis v. Laurelbrook Sanitarium & Sch.. Inc., 642 F.3d 518 (6th Cir. 2011) – have eschewed the DOL’s six-part test altogether, favoring a “primary beneficiary” test which looks at which party receives the primary benefit of an internship. In Solis, the Sixth Circuit concluded that the “primary beneficiary” test was supported by Walling v. Portland Terminal Co., 330 U.S. 148 (1947), the very same 1947 U.S. Supreme Court case on which the DOL purported to base its six-factor test.

District Court Decisions in Glatt and Hearst

The Glatt case was originally filed in 2011 in New York by former interns of Fox Searchlight Pictures who had worked on the film Black Swan. A similar lawsuit was filed in 2012 in New York by former interns of Hearst Corp. who had worked on magazines including Harper’s Bazaar and Marie Claire. Both cases were high-profile and amongst the first wave of intern-initiated lawsuits to work their way through the courts. Both were closely watched by employers concerned about the legality of internships.

In 2013, the district court in Glatt held that two of plaintiffs were “employees” rather than “interns”/ “trainees” under the FLSA and state law. The court applied a version of the DOL’s six-factor test but did not expressly hold that all six factors must be satisfied. The court also granted class and conditional collective action certifications to a third plaintiff.

Also in 2013, the district court in Hearst held that the magazine interns were not “employees” under the FLSA and state law based on a “totality of the circumstances” test. The court denied the plaintiffs’ motion for class certification. Because Glatt and Hearst addressed the same issues, but reached different results, they were eventually consolidated for argument on appeal to the U.S. Court of Appeals for the Second Circuit.

Second Circuit’s Adoption of “Primary Beneficiary” Test in Glatt

On July 2, 2015, the Second Circuit issued its long-awaited decision in Glatt. That same day, it issued a summary order in the companion case, Hearst. In Glatt, the court rejected both the DOL’s six-factor test, and the plaintiffs’ insistence that they were automatically “employees” of Fox Searchlight Pictures because the company had received an “immediate advantage” from their work. The court found the DOL’s six-factor test unpersuasive, and afforded it virtually no deference because it was based upon the DOL’s reading of Walling, which the Second Circuit concluded it was equally competent to construe (along with other U.S. Supreme Court cases).

Accepting Fox Searchlight Pictures’ argument, the Second Circuit adopted a “primary beneficiary” test, holding that “the proper question is whether the intern or the employer is the primary beneficiary of the relationship.” Although not fully articulated in the court’s decision, this test is supported by both a defensible reading of Walling, and later U.S. Supreme Court cases mandating consideration of the “totality of the circumstances” and the “economic realities” of the parties’ relationships. To help lower courts apply the new test, the Second Circuit listed seven non-exclusive factors to consider in determining whether an intern or an employer is the “primary beneficiary” of an internship:

The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

Because the district court in Glatt had not expressly considered these factors, the Second Circuit vacated the lower court’s decision and remanded for further proceedings. Given its holding in Glatt, the Second Circuit also vacated the district court’s decision in Hearst and remanded for further proceedings.

Glatt’s Impact in the Second Circuit and Beyond

Glatt’s “primary beneficiary” test is more favorable to employers than the DOL’s six-factor test. The fact that employers receive some benefit from interns’ work no longer means that internships are automatically illegal. In addition, the individualized assessment required to determine whether an intern – as opposed to an employer – benefits more from an internship under the test means that class and collective actions might now prove impossible to certify. In fact, the Second Circuit vacated the district court’s class and conditional collective action certifications in Glatt, and affirmed the district court’s denial of class certification in Hearst. This strongly suggests that class and collective actions may no longer be appropriate vehicles for resolving intern classification disputes in jurisdictions that apply the new test. To the extent that Glatt or Hearst proceed in the courts below, the defendants will likely face liability only as to individual interns, not entire classes.

Glatt’s new test is currently only the law in the Second Circuit, which covers Connecticut, New York, and Vermont. However, the test for distinguishing between “interns” and “employees” remains in flux in many jurisdictions, and other federal circuit courts may adopt similar tests as more intern-initiated lawsuits work their way through the courts. For instance, the U.S. Court of Appeals for the Tenth Circuit – which covers Colorado, Kansas, New Mexico, Oklahoma, Utah, and Wyoming – currently applies a “totality of the circumstances” test based on Reich v. Parker Fire Prot. Dist., 992 F.2d 1023 (10th Cir. 1993). However, like Glatt, Reich recognized that the DOL’s six-factor test was unpersuasive, and the case contains language consonant with Glatt’s “primary beneficiary” test.
The Tenth Circuit may eventually adopt a more favorable standard if and when it revisits intern classification. Regardless of how the case law develops, however, Glatt plainly illustrates the weakness in the DOL’s six-factor test, and shows that employers may profitably resist intern class or collective actions, even when it requires making new law.

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July 15, 2015

Independent Contractors: New DOL Interpretation Focuses on Economic Dependence of Workers

By Brad Cave

If you hire workers as independent contractors, you need to review that status with fresh eyes in light of a new Administrator’s Interpretation issued by the U.S. Department of Labor (DOL). In his July 15th Interpretation, Wage and Hour Division Administrator David Weil stresses that most workers are employees under the Fair Labor Standards Act (FLSA), not independent contractors. Multiple factors still come into play when determining independent contractor status but the DOL ultimately will look to whether the worker runs his or her own independent business or instead, is economically dependent on the employer.

Broad “Suffer or Permit to Work” Standard

The FLSA defines “employ” as “to suffer or permit to work.” According to Administrator Weil, this broad definition will encompass most workers. He notes that the definition had roots in state child labor laws which sought to ferret out employers who used children as laborers illegally.

He also cites Supreme Court and federal court cases that state that the “suffer or permit to work” standard has broad applicability and extends to the farthest reaches in order to achieve the goals of protecting workers under the FLSA.

Economic Realities Test

Noting that courts have developed a multi-factor “economic realities” test to determine whether a worker is an employee or an independent contractor, the Administrator’s Interpretation goes through each factor, providing examples and cases that help in the analysis. While the factors haven’t really changed, here are some important distinctions made in this Interpretation:

A contract setting forth an independent contractor relationship “is not relevant” in determining whether the worker is properly classified as an independent contractor; the actual working relationship is what matters, not the label given to it by the parties.
The individual’s opportunity to make a profit or realize a loss on the job must include whether the individual’s managerial skills result in that profit or loss; in other words, a worker’s willingness or ability to work more hours or work more efficiently is not enough to suggest independent contractor status, instead the individual must be making managerial decisions about hiring assistants, purchasing materials, advertising, etc., in order to support independent contractor status.
The worker’s investment in tools, equipment and doing the job must be compared to the employer’s investment; a worker who provides a few essential tools to do the job may not be enough to contribute toward independent contractor status; instead, the worker’s investment must be significant, particularly when compared to the entity’s investment in the job.
Being highly skilled in a particular type of work is not sufficient in suggesting independent contractor status as many employees are highly skilled in the services they provide to their employer; instead, an independent contractor must include “business-like initiative.”
The degree to which the entity controls the work of the individual should not play an oversized role in the analysis; many workers today are not under constant supervision of their employers but that lower degree of monitoring and control does not make them independent contractors.

The Administrator’s Interpretation establishes that no single factor in the economic realities test is determinative and each factor should be analyzed in terms of whether the worker is economically dependent on the employing entity or is truly in business for him- or herself.

Time to Review Your Independent Contractor Classifications

The DOL has made misclassification of employees a high priority for the past few years and with this Administrator’s Interpretation, it is signaling its intent to crack down even further on businesses who classify workers as independent contractors. We suggest that you review the Interpretation, study the examples and then audit your independent contractor relationships to determine whether your classifications will pass DOL scrutiny. In difficult cases, consult with your employment counsel for guidance. Conducting the review yourself and making any necessary changes will go a long way in avoiding headaches and potential liability should the DOL appear at your door for an audit. And, keep in mind that this Interpretation does not carry the force of law. The Administrator’s view will undoubtedly be challenged in court as the DOL ramps up its aggressive posture.

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July 13, 2015

EEOC’s Conciliation Efforts Must Be Real, Not “For Appearances Only,” After Mach Mining Decision

By Mark Wiletsky

An unsupported demand letter cannot constitute an actual attempt by the Equal Employment Opportunity Commission (EEOC) to engage in the required pre-lawsuit conciliation process, according to a federal judge in Ohio. EEOC v. OhioHealth Corp. (S.D.Ohio June 29, 2015). In one of the first cases to review the sufficiency of EEOC conciliation efforts after that review was authorized by the U.S. Supreme Court in its April Mach Mining decision, it is clear that courts are not willing to rubber stamp the EEOC’s purported conciliation efforts and will delay the lawsuit until actual conciliation takes place.

Insufficient Conciliation Efforts Often Frustrate Employers

If the EEOC finds reasonable cause to believe that employment discrimination occurred, it is required to try to eliminate the alleged discrimination through informal conference and conciliation with the employer. The goal is to get the employer to voluntarily comply with federal discrimination laws and resolve the alleged discrimination privately. In fact, the conciliation process is a necessary precondition to the EEOC filing a discrimination lawsuit against the employer. The EEOC is prohibited from suing the employer until after its conciliation efforts have failed.

At times, employers have been frustrated by a lack of real conciliation efforts, particularly in cases where the EEOC seems to prefer going to court rather than settling with the employer. The Mach Mining decision was a win for employers as it allows an employer to ask a judge to conduct a limited review of the EEOC’s conciliation efforts before a lawsuit goes forward.

EEOC’s Affidavit on Its Conciliation Efforts

The Supreme Court had explained in Mach Mining that a sworn affidavit from the EEOC describing its conciliation efforts would usually suffice to show that it had met its obligations. Many who analyzed that statement feared that an EEOC affidavit would effectively end the employer’s challenge to the sufficiency of the EEOC’s conciliation efforts, resulting in an empty judicial review. But Judge Frost’s decision out of the federal court in the Southern District of Ohio shows that is not the case.

In this case, the EEOC submitted an affidavit that stated that the EEOC had issued a reasonable cause determination letter that invited the parties to join “in reaching a just resolution of this matter” and stating that “conciliation of this matter has now begun.” The affidavit further states that over one month, the EEOC communicated with the employer, OhioHealth, including sending a conciliation proposal which was rejected. The EEOC then sent OhioHealth a final letter stating that conciliation efforts had not been successful.

OhioHealth countered the EEOC’s affidavit by providing its own declaration which stated that the EEOC had made a take-it-or-leave-it demand and failed to provide any information to back up its demand. Even though the EEOC’s determination letter had indicated that a commission representative would prepare a dollar amount that included lost wages and benefits, applicable interest and any appropriate attorney fees and costs, no such calculation was ever provided by the EEOC to OhioHealth. OhioHealth stated that it remained ready and willing to negotiate but that the EEOC instead declared that conciliation efforts had failed.

Judge Frost ruled that the EEOC’s “bookend” letters – first declaring the conciliation process open and then closed — did not constitute an actual attempt at conciliation. He wrote that without the EEOC providing the calculation of the charging party’s damages to OhioHealth, the parties could not shape their positions and the “conciliation process could have been nothing but a sham.” The judge ordered that the EEOC’s lawsuit against OhioHealth be stayed for 60 days while the EEOC engaged in good faith conciliation.

Judge Frost went on to offer a cautionary note to the EEOC. He was disturbed by the EEOC’s statements that it simply would not reach a private resolution of this matter via conciliation and that only a public resolution would be possible. He admonished the EEOC, stating that its position was “ridiculous” and defied the statutory scheme, binding case law, the court and common sense. He wrote that if the EEOC failed to engage in good faith efforts at conciliation as ordered, the court would impose all available consequences, including contempt and dismissal of the lawsuit. Pretty strong words indeed!

Lessons for Employers

Although this is only one court’s review of one conciliation process, employers should be pleased that the Mach Mining decision may have teeth, with courts taking a serious look at the actual conciliation efforts being made. If faced with a reasonable cause determination from the EEOC (and assuming you do not want to go to court), make certain to engage in conciliation by responding to the EEOC’s communications. If the EEOC makes a settlement demand, ask for the calculation of damages that supports the demand. Remain ready and willing to negotiate and document that willingness in writing. And if the EEOC files a lawsuit against you without first making real conciliation efforts, consider seeking a stay of the case by asserting that the EEOC failed to meet a condition precedent to filing the lawsuit.

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