Tag Archives: Supreme Court

June 26, 2014

Recess Appointments to NLRB Invalid, Rules U.S. Supreme Court in Noel Canning Opinion

In a unanimous decision, the U.S. Supreme Court ruled today that President Obama lacked the authority to make three recess appointments to the National Labor Relations Board (NLRB) while the Senate was in pro forma session in early January 2012. While affirming the decision of the D.C. Circuit that the appointments fell outside the scope of the Recess Appointments Clause, the Supreme Court came to that conclusion on different grounds. NLRB v. Noel Canning, No. 12-1281 (June 26, 2014). The decision effectively invalidates the rulings made by the three NLRB members who were improperly appointed via recess appointment.

Recess Appointments Clause

The Recess Appointments Clause gives the President the power “to fill up all Vacancies that may happen during the Recess of the Senate.” This power essentially allows the President to fill vacant federal positions without obtaining Senate confirmation of the appointments and is intended to ensure the continued functioning of the government at those times when the Senate is not in session.

At issue in the Noel Canning case was whether President Obama’s appointment of three members of the NLRB while the Senate was on a three-day intra-session break in which the Senate was in pro forma session fell within his authority under the Recess Appointments Clause. The Supreme Court said no.

Vacancies May Be Filled During Intra-Session and Inter-Session Recesses

Unlike the D.C. Circuit, the Supreme Court ruled that the Recess Appointments Clause applies during intra-session recesses (breaks in the midst of a formal Senate session) as well as during inter-session recesses (breaks between formal sessions of the Senate). The Court stated that the Senate is equally away and unavailable to conduct business during both types of breaks. The Court also looked carefully at the history of recess appointments and found that Presidents have made intra-session recess appointments going all the way back to President Andrew Johnson in 1867. During that time, the Senate has never taken any formal action to deny the validity of intra-session recess appointments. Accordingly, the Court gave great weight to the long-standing practice of allowing recess appointments during both intra- and inter-session recesses.

Recess Must Be Of Sufficient Length

Although the Recess Appointments Clause does not establish how long a recess must be in order to trigger the President’s recess appointment power, the Court held that the Senate’s recess must be of sufficient duration as to be a significant interruption of legislative business. Noting that the government’s attorney conceded that a three-day recess would be too short and that throughout history, no recess appointments had been made during an intra-session recess of less than ten days, the Court wrote that a recess of more than three days but less than ten days is presumptively too short to fall within the Clause.

Vacancies Filled As Recess Appointments Need Not Arise During the Recess

The Court interpreted the Recess Appointments Clause to allow the President to fill vacancies that existed prior to the start of the Senate’s recess. The D.C. Circuit had interpreted the Clause differently, applying only to vacancies that first come into existence during a recess. The Supreme Court chose a broader interpretation to ensure that offices that need to be filled can be filled, even if the vacancy arose before the Senate went into recess. Again, the Court looked at historical practices and found that nearly every President since James Buchanan (term: 1857-1861) has made recess appointments to pre-existing vacancies. Unwilling to counter this long-accepted practice, the Court ruled that any vacancy, whether pre-existing or one that arises during the recess, may be filled under the Recess Appointments Clause.

Applying the Clause to the 2012 NLRB Recess Appointments

The Court ruled that the President lacked the authority to appoint the three members of the NLRB in early 2012 because the Senate was still in session during that time. Although the Senate was meeting just every three days in pro forma sessions, it retained the power to conduct business. Consequently, because the Senate was in session and the three-days between its pro forma sessions was too short of a break to bring it within the scope of the Recess Appointments Clause, the President lacked the authority to make the three NLRB member appointments in January of 2012.

Big Picture – Effect of Noel Canning

There are two primary effects that will come out of today’s Noel Canning decision. First, the NLRB rulings that were made by the improperly appointed members will need to be revisited. Numerous challenges have already been made in some of the affected cases and the current NLRB, which now has five Senate-confirmed members, may need to revisit those rulings.

Second, the future of Presidential recess appointments will hinge on the length of a Senate recess. Political analysts are already stating that both the House and Senate have mechanisms to force the Senate out of a recess into a pro forma session so if those mechanisms are exercised, Congress could limit or block a President’s ability to make recess appointments. We will likely learn a great deal about the scheduling powers of Congress in the days to come.

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March 6, 2014

SOX Whistleblower Protection Extends to Employees of Private Contractors, According to Supreme Court

By Jude Biggs and Jeff Johnson

On March 4, 2014, the U.S. Supreme Court ruled that employees of private contractors and subcontractors who contract with public companies are protected under the whistleblower provisions of the Sarbanes-Oxley Act of 2002 (SOX). Lawson v. FMR LLC, 571 U.S. ___ (2014). The ruling means that private employers who have a contract with a public company may not retaliate against their employees who report a potential fraud. As pointed out in the dissenting opinion, the holding by the six-justice majority creates the potential for increased litigation as it offers private sector employees another avenue to bring retaliation claims. In addition, it implies private sector employers with such contracts may need to strengthen their corporate compliance and complaint procedures to discover and fix problems early.

Whistleblowers Reported Potential Fraud In Mutual Fund Operations

Two former employees of private companies that contracted to advise and manage mutual funds filed separate administrative complaints alleging retaliation under 18 U.S.C. §1514A, the whistleblower provision of SOX. The mutual funds themselves were public companies, but they did not have any employees. Instead, the funds contracted with private companies to handle the day-to-day operation of the funds, including making investment decisions, preparing reports for shareholders and filing reports with the Securities and Exchange Commission (SEC).

Jackie Hosang Lawson was the Senior Director of Finance for a private advisory firm that contracted to provide services to the Fidelity family of mutual funds. Lawson alleged that she suffered a series of adverse employment actions that resulted in her constructive discharge after she raised concerns about certain cost accounting methods being used with the funds. She alleged that she believed that expenses associated with operating the funds were being overstated.

The second petitioner, Jonathan M. Zang, was a portfolio manager for a different division of the company that advised Fidelity mutual funds. Zang alleged that he was fired after he expressed concerns about inaccuracies contained in a draft SEC registration statement concerning some of the mutual funds.

After pursuing their administrative complaints, both whistleblowers filed retaliation lawsuits under §1514A in federal court in Massachusetts. Their employers, collectively referred to as FMR, moved to dismiss the suits, arguing that §1514A only protects employees of public companies, and because FMR is a private company, neither plaintiff had a viable claim under §1514A. The District Court denied FMR’s motion to dismiss. FMR sought an interlocutory appeal to the First Circuit, which reversed, ruling that §1514A only refers to employees of public companies, not a contractor’s own employees. The Supreme Court agreed to hear the case to resolve a division of opinion on the issue. The question before the Supreme Court was whether the SOX whistleblower provision shields only those employed by a public company itself, or also shields employees of privately held contractors and subcontractors who perform work for the public company.

“Employee” Presumes an Employer-Employee Relationship Between the Retaliator and the Whistleblower

Section 1514A provides: “No [public] company . . ., or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of [whistleblowing or other protected activity].” FMR argued that the prohibition against retaliating against “an employee” meant an employee of the public company. The Court (in an opinion by Justice Ginsburg) disagreed. It looked at the provision as stating that “no . . . contractor . . . may discharge . . . an employee” and found that the ordinary meaning of “an employee” in that context was the contractor’s own employee. The Court stated that contractors are not ordinarily in a position to take adverse actions against employees of the public company for which they contract so to interpret the provision as FMR did would “shrink to insignificance the provision’s ban on retaliation by contractors.” The Court rejected FMR’s argument that Congress included contractors in §1514A’s list of governed parties only to prevent companies from hiring contractors to carry out retaliatory terminations, such as the “ax-wielding specialist” portrayed by George Clooney in the movie “Up in the Air.” The majority believed that Congress presumed that there must be an employer/employee relationship between the retaliating company and the whistleblower.

Purpose of SOX Supports Extending Whistleblower Protections to Employees of Private Contractors

The Court emphasized that SOX was enacted to safeguard investors in public companies and to restore trust in the financial markets after the collapse of Enron Corporation. The Court found that because outside professionals, such as accountants, lawyers and consultants, have great responsibility for reporting fraud by the public companies with which they contract, such employees of contractors and subcontractors must be afforded protection from retaliation by their employers when they comply with SOX’s reporting requirements. The fear of retaliation was a major deterrent to the employees of Enron’s contractors in reporting fraud. Consequently, the Court’s reading of §1514A extending whistleblower protection to the employees of private contractors is consistent with the purpose for which SOX was enacted.

Mutual Fund Industry Should Not Escape Ban on Retaliation

Because virtually all mutual funds are structured as public companies without any employees of their own, the Court expressed the need to protect the employees of the investment advisors who are often the only firsthand witnesses to shareholder fraud in the mutual fund industry. To rule otherwise, said the Court, would insulate the entire mutual fund industry from §1514A.

Dissent Worries About Opening the Floodgates to More Retaliation Claims

Justice Sotomayor, joined by Justices Kennedy and Alito, dissented from the majority, believing that the Court’s holding creates an “absurd result” that subjects “private companies to a costly new front of employment litigation.” According to Sotomayor, the Court’s ruling means that any employee of an officer, employee, contractor or subcontractor of a public company, including housekeepers, nannies and gardeners, can sue in federal court under §1514A if they suffer adverse consequences after reporting potential fraud, such as mail fraud by their employer’s teenage kids. The majority dispels this concern, stating that there is “scant evidence that [this] decision will open any floodgates for whistlelowing suits outside §1514A’s purposes” given that FMR did not identify a single case in the past decade in which an employee of a private contractor had asserted a §1514A claim based on anything other than shareholder fraud. Still, the dissent believes that only employees of a public company should be protected from retaliation for whistleblowing activities under §1514A.

Private Employer Take-Aways

Despite the majority’s reassurances that employers will not see a substantial increase in new whistleblower retaliation cases, only time will tell if they are right. Private employers who contract with public companies should review their employment policies to ensure that employees are protected from retaliation as a result of reporting concerns or unlawful activities involving the public companies with whom they do business. Employers also should train their managers, supervisors and human resources professionals on this new development so that decision-makers do not inadvertently expose their company to the risk of a whistleblower retaliation claim under §1514A.

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July 1, 2013

Affirmative Action by State University Requires Strict Scrutiny and No Workable Race-Neutral Alternatives

By Jude Biggs

In a highly anticipated opinion regarding the future of affirmative action, the U.S. Supreme Court ruled that to avoid violating the Equal Protection Clause, the University of Texas’ consideration of race in its admissions process must meet a strict scrutiny standard where its affirmative action efforts are narrowly tailored to meet its diversity goal. Fisher v. University of Texas at Austin, No. 11-345 (U.S. June 24, 2013). Because the Fifth Circuit Court of Appeals gave the University substantial deference in deciding whether its affirmative action plan was narrowly tailored to meet its stated goal, the Supreme Court vacated the lower court’s decision in favor of the University and sent the case back to the lower court with instructions to apply the tougher strict scrutiny standard.

Rejected Caucasian Applicant Alleges School Violated Constitution by Considering Race

In 2008, Fisher applied for admission to the University of Texas at Austin. Fisher, who is white, was denied admission. For years, the University had considered race as one of various factors in its undergraduate admissions process. Under the affirmative action plan in place when Fisher applied, the University remained committed to increasing racial minority enrollment on campus but did not assign a numerical value based on race for each applicant. Instead, the University included an applicant’s race as one of numerous components that made up the applicant’s Personal Achievement Index. When Fisher was rejected, she sued the University and various school officials alleging that the University violated the U.S. Constitution’s Equal Protection Clause by considering race.

Affirmative Action Survives, But Is Narrowed

The federal district court and the Fifth Circuit appellate court upheld the University’s admissions plan. The Fifth Circuit, however, gave substantial deference to the University, both in the definition of its compelling interest in creating diversity in its student body and in deciding whether its affirmative action plan was narrowly tailored to meet its goal. When the Supreme Court agreed to hear this case, supporters of affirmative action worried that the more conservative court would rule that consideration of race under affirmative action programs was unconstitutional.

The Fisher decision, however, does not actually decide the constitutionality issue but instead defines the standard by which courts must evaluate a program that considers race as a factor. The Court explained that the University must meet the demanding burden of strict scrutiny and remanded the case to the Fifth Circuit to analyze whether the University has offered sufficient evidence to prove that its admissions policy meets that scrutiny. The Court stated that “the reviewing court must ultimately be satisfied that no workable race-neutral alternatives would produce the educational benefits of diversity.”

Justice Thomas: “Use of Race is Categorically Prohibited”

Justice Clarence Thomas joined in the majority’s decision, agreeing that strict scrutiny should apply to the University’s use of race in its admission program. Writing a separate concurring opinion, however, he went further, stating that he would hold that a state’s use of race in higher education admissions decisions is categorically prohibited by the Equal Protection Clause. Justice Thomas would overrule the 2003 Supreme Court decision in Grutter v. Bollinger, which upheld the use of race as one of many “plus factors” in an admissions program, and abolish the use of race as a factor in affording educational opportunities. He finds that there is no compelling interest that could justify what he calls racial discrimination. He states that there is no doubt that the University’s discrimination injures white and Asian applicants who are denied admission because of their race, but he also believes that those who are admitted under the “discriminatory admissions program” suffer even more harm, stamping them with a “badge of inferiority.”

Justice Thomas’ views differ from those of retired Justice Sandra Day O’Connor, who wrote in 2003 in Grutter, that “classroom discussion is livelier, more spirited, and simply more enlightening and interesting” when students are exposed to the “greatest possible variety of backgrounds.” Justice O’Connor also stated that the Court expected that after 25 more years, the use of racial preferences would no longer be needed. Today, some might say American universities have reached the point when affirmative action is no longer needed; others, however, do not believe the United States has achieved the promise of true equality.

Whether Justice Thomas’ view is adopted or whether Justice O’Connor’s views remain in force in the future – at least for awhile – remains to be seen.

Will Fisher Be Revisited Again?

The Fifth Circuit now must apply the strict scrutiny standard to the evidence provided by the University of Texas to determine whether its consideration of race meets Equal Protection muster. No matter the outcome, it is likely the “losing” party will seek review of that decision by the U.S. Supreme Court. We know how Justice Thomas will rule, but the question remains, will enough other justices join him to throw out any consideration of race in state affirmative action programs?

Private Employers Not Bound by This Decision

Because the Equal Protection clause applies only to state actors (providing that no state shall deny to any person the equal protection of the laws), the analysis of whether an affirmative action program violates the Equal Protection clause does not apply to private companies or organizations. That said, there could be a spillover effect. Generally, discrimination in the workplace is governed by Title VII and analogous state laws. It is unclear whether individuals who feel they have suffered reverse discrimination by a private employer’s affirmative action or diversity efforts will leverage the narrowing scope of affirmative action in the public sector. It is likely private sector litigants will point to Justice Thomas’ concurring opinion to try to abolish any consideration of race in the employment context as discriminatory, and others will point to Justice O’Connor’s rationale for affirmative action. So stayed tuned!

Disclaimer:This article is designed to provide general information on pertinent legal topics. The statements made are provided for educational purposes only. They do not constitute legal advice and are not intended to create an attorney-client relationship between you and Holland & Hart LLP. If you have specific questions as to the application of the law to your activities, you should seek the advice of your legal counsel.

June 26, 2013

Employers Benefit From Supreme Court Ruling On Title VII Retaliation Claims

By Jude Biggs

In a favorable ruling for employers, on June 24 the U.S. Supreme Court held that a retaliation claim under Title VII of the Civil Rights Act of 1964 requires an employee to show the employer’s desire to retaliate was the “but-for” cause of the challenged employment action. University of Texas Southwestern Medical Center v. Nassar, No. 12-484 (U.S. June 24, 2013). This establishes a different causation standard for retaliation claims than is required for underlying Title VII discrimination claims, which only require an employee to show the motive to discriminate was one of the employer’s motives in making an adverse decision. Although cumbersome to have two standards, the decision is good news for employers, as often a jury will not find any discrimination by an employer, but may find retaliation after an employee speaks up about alleged discrimination. Making it more difficult to prevail on a retaliation claim will, hopefully, encourage plaintiffs to bring fewer cases or resolve them earlier than going through an expensive trial.

Employee Must Prove Employer Would Not Have Taken Action But For an Improper Motive

In a 5-4 decision, the Supreme Court ruled a plaintiff making a retaliation claim under Title VII must establish that the employer would not have taken the alleged adverse employment action but for the plaintiff having engaged in protected activity. Protected activity that may trigger a retaliation claim includes the employee opposing, complaining of or participating in a proceeding about unlawful discrimination in the workplace. Through this ruling, the Court instructs that retaliation claims should fail if an employer had other reasons or motivations – singly or together — that caused the employer to take the adverse action (even if one other factor was retaliatory in nature). In less legal terms, the employer wins if it can show its non-retaliatory reasons caused it to make the decision, even if a small portion of the decision was based on retaliation against the employee for engaging in protected conduct.

Justice Kennedy, writing for the majority which included Justices Roberts, Scalia, Thomas and Alito, stated that the text of Title VII’s anti-retaliation provision appears in a different section of the law from the provision that prohibits discrimination based on race, color, religion, sex or national origin. When Congress inserted the less rigorous “motivating factor” standard for discrimination cases in 1991, it could have inserted that standard into the anti-retaliation provision. In choosing to omit it, Congress deliberately concluded that retaliation claims are to be treated differently and retaliation is unlawful only when the employer takes adverse action against an employee “because” of their protected activity. The Court pointed to its interpretation of the Age Discrimination in Employment Act of 1967 in Gross v. FBL Financial Services, Inc. to require “but for” causation for retaliation claims.

The Court also stated that this causation standard is essential to the fair and responsible allocation of judicial resources. Recognizing that retaliation claims have been on the rise, the Court recognized that lessening the causation standard could contribute to the filing of frivolous claims, diverting resources from employers, agencies and courts in other efforts to fight workplace harassment.

Dissent Urges Congressional Action

Justices Ginsburg, Breyer, Sotomayor and Kagan dissented, alleging that fear of retaliation is the leading reason why employees do not speak up about discrimination in the workplace. Because Title VII plaintiffs often have been subjected to both discrimination and retaliation, they now will have to litigate their claims under two standards: (1) discrimination under the “motivating factor” test which requires a plaintiff to show only that a prohibited characteristic was a motivating factor in the employer’s adverse action, even if other factors also motivated the action; and (2) retaliation under the “but for” standard which requires a plaintiff to show that the employer would not have taken the adverse action but for a retaliatory motive. The dissent concluded that this decision is at odds with a line of previous decisions that recognize retaliation claims are inextricably bound up with an underlying discrimination claim. Justice Ginsburg, writing the dissenting opinion, stated “the Court appears driven by a zeal to reduce the number of retaliation claims filed against employers.” Calling the majority decision “misguided,” the dissent urges Congress to enact another Civil Rights Restoration Act to counter and remedy the injustice done by the majority opinion.

Employers May Face Fewer Retaliation Claims or At Least, Fewer Successful Claims

In practice, it is questionable how relevant the causation standard may be to potential litigants of retaliation claims. Employees believing they have been wronged after they complain about discrimination will likely still file retaliation claims, no matter what causation standard applies. Juries often will conclude retaliation occurred based on a general “fairness” standard. However, employers may be able to resolve such claims at the summary judgment stage (when a court decides a claim does not merit a trial), because proof of other factors that contributed to the adverse employment decision will defeat the retaliation claim.

June 25, 2013

Supreme Court Limits Definition of Supervisor for Employer Liability in Workplace Harassment Claims

By Emily Hobbs-Wright

In a huge win for employers, the U.S. Supreme Court today decided that for purposes of determining employer liability for Title VII harassment cases, a “supervisor” is limited to those who are empowered by the employer to take tangible employment actions against the victim. Vance v. Ball State Univ., No. 11-556 (U.S. June 24, 2013). This means that employees who oversee the daily activities of other employees, but do not have the power to discipline, fire, promote, transfer or take other actions against an employee, are not considered “supervisors” in workplace harassment cases under Title VII.

In drawing a sharp line between co-workers and supervisors, the Supreme Court adopted a clear standard that parties and reviewing courts can apply early in a case in order to determine which side has the burden of proof in Title VII harassment litigation.

Supervisor vs. Co-Worker as Harasser – Why It Matters

Determining employer liability for harassment under Title VII of the Civil Rights Act of 1964 depends on whether the alleged harasser is a “supervisor” or a “co-worker” of the individual being harassed. If the harasser is a co-worker, the employer will be liable for the harassing behavior only if the complainant can show that the employer was negligent, meaning that the employer knew or should have known of the conduct and failed to take immediate and appropriate corrective action. See 29 CFR § 1604.11(d).

If the harasser is a supervisor, however, the test for employer liability changes dramatically. If the harassing supervisor caused a tangible employment action such as firing, demoting or reducing the complainant’s pay, the employer will be automatically liable for the harassment. If there was no tangible employment action, the employer may still be liable, unless it can meet a two-pronged affirmative defense known as the Faragher/Ellerth defense.

In order to establish the Faragher/Ellerth defense, outlined by the Supreme Court in the companion cases of Faragher v. City of Boca Raton, 524 U.S. 775 (1998) and Burlington Industries, Inc. v. Ellerth, 24 U.S. 742 (1998), an employer must show: (1) that the employer exercised reasonable care to prevent and promptly correct the harassing behavior; and (2) the plaintiff-employee unreasonably failed to take advantage of preventative or corrective measures established by the employer or to avoid harm otherwise.

The key difference between cases alleging harassment by a co-worker and a supervisor is the burden of proof. With co-worker harassment, the plaintiff-employee bears the burden of demonstrating employer negligence. When trying to avoid liability for supervisor harassment, however, the employer bears the burden of establishing the Faragher/Ellerth affirmative defense. The higher hurdle that must be met by employers when litigating supervisor harassment raises the opportunity for the plaintiff-employee to recover damages for harassment in the workplace. Consequently, an important issue in a harassment case is whether the alleged harasser is a supervisor or a co-worker.

Supreme Court Resolves Split in the Circuits on Definition of “Supervisor”

Lower courts have disagreed on the test for deciding whether an alleged harasser is a “supervisor” or merely a co-worker. Some federal appellate courts, including the First, Seventh and Eighth Circuits, have ruled that an employee is not a supervisor under Title VII unless he or she has the power to hire, fire, demote, promote, transfer, or discipline the victim. Other circuits, including the Second and Fourth Circuits, have followed the more expanded approach urged by the Equal Employment Opportunity Commission (EEOC), which applies “supervisor” status to those who have the ability to exercise significant direction over another employee’s daily work activities.

In a 5-4 decision, the Supreme Court resolved this split in authority by holding that an employer may be vicariously liable for an employee’s unlawful harassment only when the employer has empowered that employee to take tangible employment actions against the victim, that is, to effect a significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits. Calling the EEOC’s definition of supervisor “nebulous,” the Court stated that it was not sufficient to deem an employee a “supervisor” based on his or her ability to direct another employee’s tasks. The Court noted that the EEOC Guidance that looks at the number (and perhaps the importance) of the tasks in question would be a “standard of remarkable ambiguity.” Relying on the Faragher and Ellerth decisions, the Court stated that a supervisor is instead empowered by the company as a distinct class of agent that may make economic decisions affecting other employees under his or her control.

Bright Line Between Co-Workers and Supervisors Will Aid Employers Facing Harassment Claims

The bright line test that the Court adopted for determining who is deemed a “supervisor” in Title VII cases eliminates murkiness and provides a clear test that reviewing courts can easily apply. The Court noted that it typically will be known before litigation is commenced whether an alleged harasser was a supervisor, and if not, it will become clear to both sides after discovery. The Court goes on to say “once this is known, the parties will be in a position to assess the strength of a case and to explore the possibility of resolving the dispute. Where this does not occur, supervisor status will generally be capable of resolution at summary judgment.” The Court clearly wanted employers to be able to get the supervisor issue resolved early in a lawsuit so that both sides will know who bears the burden of proof and can pursue early resolution of the case based on the strength of the evidence.

Employees Still Protected, but Must Prove Company Negligence

The Court’s majority, which includes Justices Alito, Roberts, Scalia, Kennedy and Thomas, states that employees who face harassment by co-workers who possess the authority to inflict psychological injury by assigning unpleasant tasks or by altering the work environment in objectionable ways will still be protected under Title VII. The Court states that such victims will be able to prevail “simply by showing that the employer was negligent in permitting this harassment to occur, and the jury should be instructed that the nature and degree of authority wielded by the harasser is an important factor to be considered in determining whether the employer was negligent.” According to the majority, the fact that harassing co-workers may possess varying degrees of authority over daily tasks will not be a problem under the negligence standard “which is thought to provide adequate protection for tort plaintiffs in many other situations.”

Dissent Would Follow EEOC’s Guidance and Extend “Supervisor” Status Based on Authority to Direct an Employee’s Daily Activities

Justice Ginsburg, joined by Justices Breyer, Sotomayor and Kagan, wrote a lengthy dissent opining that the majority’s rule diminishes the force of Faragher andEllerth, ignores the reality of the current workplace and strays from the objective of Title VII in preventing discrimination in the workplace. The dissent favors the EEOC’s Guidance, believing that employees who direct subordinates’ daily work are supervisors. Justice Ginsburg wrote that although one can walk away from a fellow employee’s harassment, “[a] supervisor’s slings and arrows, however, are not so easily avoided.” The dissent recites numerous cases in which a person vested with authority to control the conditions of a subordinate’s daily work life used his position to aid his harassment, and then points out that in none of the cases would the majority’s “severely confined definition of supervisor yield vicarious liability for the employer.” The dissent concludes that the majority decision embraces a position that relieves scores of employers of responsibility for the behavior of the supervisors they employ.

Conclusion – Victim Must Prove Employer Negligence When Harassed by a Non-Supervisor

The Vance opinion means that employees alleging harassment by another employee who does not have the power to hire, fire, promote, transfer or discipline them, bear the burden of proving the employer’s negligence in order for the employer to be liable for the harassment. This means the alleged victim must prove that the employer knew or should have known of the conduct and failed to take immediate and appropriate corrective action.

Disclaimer: This article is designed to provide general information on pertinent legal topics. The statements made are provided for educational purposes only. They do not constitute legal advice and are not intended to create an attorney-client relationship between you and Holland & Hart LLP. If you have specific questions as to the application of the law to your activities, you should seek the advice of your legal counsel.

June 21, 2013

Arbitration Agreement Waiving Class Claims Upheld – What it Means for Employers

By Jeffrey T. Johnson

Arbitration is a matter of contract between the parties and courts are not permitted to invalidate an agreed-upon provision that prohibits claims from being arbitrated on a class action basis, the U.S. Supreme Court ruled in its June 20, 2013 opinion in American Express Co. v. Italian Colors Restaurant. Employers can benefit from this ruling by crafting arbitration agreements that limit an employee’s right to pursue employment claims on behalf of a class of employees.

Cost to Pursue Individual Arbitration Not a Factor

At issue in the American Express case was an arbitration agreement between American Express and merchants who accept its charge cards that required the parties to arbitrate all disputes. The agreement further stated that “there shall be no right or authority for any Claims to be arbitrated on a class action basis.”

When numerous merchants filed a class action lawsuit against American Express alleging violations of federal antitrust laws due to American Express’ alleged high card fees, American Express moved to dismiss the lawsuit and instead force each merchant to arbitrate its claim individually, as required by the arbitration agreement. The District Court agreed with American Express and dismissed the class action lawsuit. The merchants appealed the dismissal to the Second Circuit Court of Appeals, arguing that the cost to prove the antitrust claims by each individual merchant would far exceed the amount they could recover as an individual plaintiff. The merchants submitted a declaration from an economist who estimated that the cost of expert analysis on the antitrust claims would be “at least several hundred thousand dollars, and might exceed $1 million.” The maximum amount of damages that each individual plaintiff could expect to recover was $38,549 as treble damages. The Second Circuit reversed the dismissal, ruling that because the cost for each merchant to arbitrate their claim individually was prohibitive, the class-action waiver in the arbitration agreement was unenforceable and arbitration could not proceed. American Express sought review by the Supreme Court.

In a 5-3 ruling, the Supreme Court held that the Federal Arbitration Act (FAA) does not allow courts to invalidate a contractual waiver of class actions on the ground that the plaintiffs’ cost to arbitrate a federal statutory claim individually exceeds the potential recovery. Justice Antonin Scalia, writing for the majority, rejected the merchants’ argument that cost vs. recovery should factor into the enforceability of an arbitration agreement. He wrote that “the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.” The Court drew a distinction between contract provisions that prohibit an individual from asserting their statutory rights at all (e.g., a waiver of certain claims) and prohibiting class claims. Relying on earlier precedent, the Court reiterated that it may invalidate arbitration agreements that operate as a prospective waiver of a party’s right to pursue statutory remedies, but will not invalidate an agreement because it is not worth the expense involved in a party proving a statutory remedy. The Court also refused to create preliminary hurdles before a plaintiff could be held to contractually-agreed arbitration, such as requiring a court to evaluate the cost to prove claims as well as the damages that could be recovered if the plaintiff is successful. Justice Scalia wrote that “such a judicially created superstructure” would “undoubtedly destroy the prospect of speedy resolution that arbitration in general and bilateral arbitration in particular was meant to secure.”

Dissent: Majority’s Response to Merchants Was “Too Darn Bad”

Justice Elena Kagen, joined by Justices Ruth Bader Ginsburg and Steven Breyer (Justice Sotomayor did not take part in the decision), wrote a stinging dissent in which she characterized the case as small business owners who were forced to accept a form contract by a monopolizing credit card company that violated antitrust laws. The dissent states that if the arbitration clause is enforceable, American Express has insulated itself from antitrust liability because it used its monopoly power to insist on a contract that “effectively deprives its victims of all legal recourse.” Justice Kagen wrote: the “nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad.” The three dissenting justices believe that the FAA was never meant to produce the outcome arrived at by the majority, and that the majority decision blocks the vindication of meritorious federal claims and insulates wrongdoers from liability. The dissent instead would rely on the “effective vindication” rule, namely that an arbitration clause will not be enforced if it prevents the effective vindication of federal statutory rights, however it achieves that result, to invalidate the bar on class arbitration in the American Express agreement.

Employment Arbitration Agreements

Recent Supreme Court decisions upholding arbitration agreements, such as the American Express opinion, may bolster efforts to use arbitration agreements in the employment context. Although there are pros and cons to utilizing arbitration agreements with employees, a significant advantage is the ability to prohibit class actions by requiring employees to arbitrate their employment disputes on an individual basis. In addition, arbitration can be less costly than litigating in court, and more confidential as most arbitration filings are not public records. Perhaps most significantly, arbitration allows employment cases to be heard by arbitrators, not juries, thereby reducing the risk of runaway verdicts. Employers should consult with employment counsel to determine if arbitration agreements are warranted with their workforce and if so, what provisions will best protect the company’s interests.

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