Supreme Court deals another blow to employees on arbitration

Earlier this year Denver Labor Law reported on the Supreme Court’s position on mandatory arbitration of independent contractors in New Prime. At the end of April the nation’s highest court issued another employment arbitration decision on the subject of class arbitrations. In Lamps Plus the Supreme Court resolved that employees (and presumably other classes) are not entitled to arbitrate as a class unless the arbitration agreement provides for that form of arbitration in its text. Lamps Plus is another case in recent Supreme Court jurisprudence strengthening the power of businesses to force individuals into private arbitration proceedings out of the public view of the courts.

What is class arbitration in employment law?

Arbitration is a private form of conflict resolution created by contract but enforced as a special type of contract by federal and state laws that require parties to forego their right to bring a lawsuit in court and instead bring claims covered by the arbitration agreement into an arbitration proceeding. Under the governing law, such as the Federal Arbitration Act, parties can generally create any rules they wish for arbitration but as arbitration become more prominent as a compelled condition of consumer and employment relationships courts set minimal standards that require some degree of fairness and due process.

Neither federal nor state arbitration law requires parties to individually arbitrate every claim. Parties could form agreements that allow for class arbitrations in which claims of many parties are brought in a single arbitration action, much like a class action lawsuit in Colorado or federal courts. For example, if several employees alleged workplace harassment by a single employer then they might bring a class action against the employer under federal and Colorado employment law. An arbitration agreement in the workplace may require the parties to arbitrate and the employees could arbitrate as a class if permitted by the agreement.

When does an arbitration agreement allow for class arbitration under Lamps Plus?

Prior to Lamps Plus the Supreme Court had mostly closed the door on class arbitrations unless the arbitration agreement explicitly permitted it. In 2010 the Supreme Court rejected a Ninth Circuit opinion in Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U. S. 662 (2010) authorizing class arbitrations if it was “sound policy.” In Stolt-Nielson the arbitration agreement was silent on the subject of employees arbitrating as a class. Lawyers for both sides stipulated to that fact. The Ninth Circuit decided the agreement could include class arbitrations essentially if it made sense under the circumstances. The Supreme Court disagreed and held the Federal Arbitration Agreement did not allow for such a reformation of the contract.

In Lamps Plus the Ninth Circuit took a different approach. In this case the arbitration agreement did not textually include an authorization for class arbitration. The court applied state contract law to the agreement and held the employees could arbitrate as a class because basic contract law construes ambiguity in the contract against the drafter–the employer. The Ninth Circuit held, as the Supreme Court dissenters agreed, the Federal Arbitration Act did not create a federal contract law that overruled state contract law on the interpretation of a contract.

The Supreme Court majority agreed that the agreement was ambiguous but class arbitration holds a special place in arbitration law that allows it to preempt state contract law interpretations. The conservative majority relied on primarily its own opinions on class waivers in arbitration agreements to decide that an arbitration agreement only allows for class arbitrations if the text specifically allows it.

Why this matters for labor and employment law

For employees Lamps Plus is another step forward in the assault on access to the judicial forum and the ability to cast the bad acts of employers into the sunlight. It was a foregone conclusion that the Court would reject the Ninth Circuit’s position in this case given the conservative majority’s open hostility towards class actions and arbitration. Nevertheless, these decisions make it more difficult for employees to use their collective power to effect change in the workplace–which is another right deeply under attack by right-wing political forces in this country.

Employees should not give up fighting for their rights and pursue remedies of those violations under federal and Colorado law. Labor and employment law still gives employees rights and remedies and fighting for them raises the cost for every other employer to participate in unlawful and appalling behavior. If you believe your employer violated your workplace rights then you should contact Denver employment attorneys right away.

SCOTUS rejects mandatory arbitration for transportation workers classified as independent contractors

Last week the Supreme Court dropped its unanimous decision in New Prime v. Oliveira penned by Justice Gorsuch, weighing in on the application of the Federal Arbitration Act to independent contractors of a transportation company. Many liberal media outlets describe the opinion as a win for workers because the court held in favor of the workers rather than the employer. Even articles taking issue with Justice Gorsuch’s textualist approach to the Federal Arbitration Act consider the opinion a win without considering its broader effect that employer-side employment lawyers will surely grasp. Viewed from its broader consequences, New Prime is not without collateral damage.

A brief history of employment law and the Federal Arbitration Act

Mandatory arbitration became commonplace in employment contracts and employment agreements as a condition of employment after the Supreme Court heavily rewrote the Federal Arbitration Act in the 1980s.

In 1925 Congress passed the Federal Arbitration Act which enforces arbitration clauses in contracts covered by the act. The Federal Arbitration Act was designed to create a meaningful dispute resolution framework between businesses that conducted transactions across the country. It intended to avoid situations in which a dispute arose over a purchase agreement and the parties might end up fighting in court for a long period of time or maneuvering a dispute into a local court that might heavily favor one party over the other. Instead the parties could agree to have a dispute resolved quickly by an arbitrator who was impartial and likely had familiarity with transactions in that industry.

Everybody seemed to agree with this history until we reached the excess capitalism of the 1980s. In the late 1970s and early 1980s enterprising businesses, primarily in banking and lending, fought to repurpose the Federal Arbitration Act to apply to consumer transactions. Courts agreed and mandatory arbitration agreements became part of many consumer agreements for credit cards, bank accounts, utility services and sometimes even retail purchases.

Arbitration in consumer agreements provides businesses several advantages over litigation. Arbitration proceedings are often cheaper and result in smaller adverse judgments. Companies have less incentive to settle and even when they lose they lose less. Arbitration proceedings are framed by the party demanding arbitration so it is often a friendly environment and avoids courts which may be more impartial. Arbitration decisions are often not published so even when companies suffer adverse judgments they are concealed from the public which makes it harder for consumers to assess their potential relief in this forum.

Companies liked arbitration so much that they expanded mandatory arbitration to employment agreements. Employers in the 1980s and 1990s began requiring employees to sign forced arbitration agreements for employee claims under a wide range of employment law and labor law claims. This was different from labor arbitration under a collective bargaining agreement in which the union and employer negotiated the terms of arbitration proceedings. Under these forced arbitration agreements, employers held absolute control over arbitration terms. Employees signed the agreements or lost their jobs.

Circuit City v. Adams and the FAA in employment agreements

In 2001 the Supreme Court rendered judgment in Circuit City v. Adams holding that the FAA applied to employment agreements. Adams applied for a job with Circuit City in which the employment application contained a unilateral agreement to arbitrate all employment claims. Adams later filed an employment discrimination lawsuit against Circuit City, which attempted to move the lawsuit into arbitration pursuant to this agreement.

The Supreme Court majority took on a tortured reading of the Federal Arbitration Act to reach this conclusion. Within the FAA are two relevant passages:

Section 1: “…nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.

Section 2: “A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”

At issue in Circuit City is how expansively Section 1 limits the FAA’s application to employment contracts and the extent any employment agreement not exempted by Section 1 falls within Section 2. The majority applies two different cannons of statutory construction to give the word “commerce” two opposing definitions in the same statute. According to the majority, commerce in Section 1 must be narrowly defined because the section describes some of the workers. The applicable cannon of statutory construction mandates when a general term follows specific terms, the general term is interpreted as including items like the specific. As a result, the employees exempted by Section 1 only include employees involved in transportation (like railway workers and seamen). All other employee contracts are not exempt. Conversely, commerce in Section 2 must be expansively defined because it lacks any limiting language and the FAA intended to expansively cover the extent of Congress’s power under the Commerce Clause.

(The reasoning here is awful and well excoriated by the dissenting opinions. It is well worth exploring but beyond the scope of this post.)

As a result of Circuit City we have expansive legal protection for forced arbitration in employment with very little limitation.

New Prime v. Oliveira and forced arbitration of independent contractors

New Prime deals with relationship between the FAA and non-employee workers. Here Justice Gorsuch’s majority opinion provides further confusion into interpreting the FAA in the employment context although he finds an interpretation that favors the workers in this particular situation.

New Prime is a transportation company that hires truck drivers as independent contractors. As part of their contracts the drivers agree to arbitrate claims related to their work on an individual basis. Oliveira filed a class action lawsuit on behalf of himself and his co-workers alleging wage-based claims. New Prime sought to remove the lawsuit to arbitration and chop up the class action into individual actions under its arbitration agreement.

Justice Gorsuch applies a supposed textualist approach to determine the drivers have contracts of employment under the Federal Arbitration Agreement. He advances the position that language of the act must be interpreted within the ordinary meaning of its time. He finds that in 1925 there was no distinction between independent contractor and employee and the term employment applied to all employment relationships. Truck drivers are as well employees like railway workers and sea workers therefore they are the types of workers covered even among Circuit City‘s limited scope of Section 1. Therefore, although New Prime did not employ the drivers as employees their employment agreement fell within the FAA’s contract of employment language.

New Prime gives us an even more confusing view of the Federal Arbitration Act. Combining New Prime and Circuit City we have no consistent standard to interpret the statute. On one hand, New Prime tells us to read the statute in the context of its time but Circuit City tells us to read the statute in its modern setting in which commerce is defined in a much broader term than at the time the FAA was enacted. We are forced to read Section 2 in a post-Wickard, everything-is-commerce interpretation but read section 2 in a pre-Wickard interpretation where commerce is narrowly defined. It’s almost like this kind of textualism is goal-oriented.

Why New Prime isn’t worth quite the praise it gets

Across liberal and legal press one can quickly find piece after piece congratulating Justice Gorsuch for overlooking his traditionally pro-business position to give the day to the workers in New Prime. (For example, here, here, here, here and here.) That oversells the inevitable impact of this opinion for labor law and employment law.

Sure, New Prime is a win for workers engaged in transportation jobs like those covered by Circuit City‘s interpretation of workers covered by Section 1’s exemption. Employers may no longer get away with properly or improperly defining these workers as independent contractors, rather than employees, to force them into mandatory arbitration agreements. It does not help them gain any other protections as employees but it does avoid mandatory arbitration. This is certainly a tremendous win for transportation workers regardless of their classification as employee or independent contractor.

However, New Prime‘s interpretation of Section 1 is not without collateral damage. Although all transportation workers may fall within New Prime‘s interpretation of Section 1’s exemption it does not mean those same workers may receive exemption under state law. In the end, all these workers may find themselves in mandatory arbitration anyway. It also does not help that New Prime doubles down on the narrow interpretation of Section 1 found in Circuit City. The greatest problem with New Prime is that it leaves little question that SCOTUS definitely views independent contractor relationships as well within the FAA’s scope. Enterprising plaintiff-side employment lawyers are likely to find reason to challenge applying the FAA to independent contractor relationships particularly in light of last year’s Epic Systems opinion (and its basis in AT&T Mobility v. Concepcion) upholding class action waivers in mandatory arbitration employment agreements.

Tenth Circuit rules ADA failure to accommodate claims must prove adverse employment action

This month the federal Tenth Circuit held in Exby-Stolley v. Board of County Commissioners, Weld County, Colorado that a failure to accommodate claim under the ADA must prove an adverse employment action. In a 2-1 decision exploring the divide among federal circuits the majority came down in favor of the employer, extending defensive opportunities to this form of disability discrimination claim. Eventually this issue may rise to the Supreme Court but for now Colorado employees are subject to the explicit holding by the Tenth Circuit in this case.

The facts in Exby-Stolley v. Board of County Commissioners, Weld County, Colorado

Ms. Exby-Stolley was a health inspector for Weld County, Colorado. She suffered a broken arm which made it difficult for her to perform her normal job duties. The parties disagree over the facts that follow.

The plaintiff alleged this set of events. She received a poor evaluation for being behind in work. After disclosing her physical condition she met with her supervisors and human resources. The parties agreed to transition her to part time office work. The pay difference in work hours was made up by workers compensation. After this first meeting, her supervisors’ manager asked plaintiff why she did not take disability and expressed anger that she would not. Eventually plaintiff grew dissatisfied with the part time position and requested a second meeting. At this meeting all of plaintiff’s proposed accommodations were rejected. At the end of the meeting her supervisors’ manager talked to her and plaintiff understood the conversation to mean she needed to resign. Plaintiff met with human resources and looked at other job opportunities and long term disability. Days later, plaintiff sent an email to colleagues announcing her resignation because she could not perform her job duties.

Weld County, Colorado alleged similar events with some key differences. The employer alleged at the second meeting plaintiff requested a job should be created for her out of the job duties she could do and that she could not perform all of the normal job duties of her position. Nobody recalled discussing resignation. Instead, no final decision had been made and the defendant expected to continue the interactive process to accommodate her disability.

At the conclusion of a five day trial the jury sided with the employer. Plaintiff appealed that the trial court improperly instructed the jury that she had to prove she suffered an adverse employment action.

Adverse employment actions and failure to accommodate under the ADA

The appellate court wrestled with whether a failure to accommodate claim under the ADA requires the plaintiff to prove she suffered an adverse employment action. Under the Americans with Disabilities Act, an employer has a duty to provide a reasonable accommodation to a qualified individual with a disability. Failure to provide a reasonable accommodation violates the statute and creates a claim for disability discrimination. Federal circuits disagree whether the failure to accommodate is itself a discriminatory act or whether an adverse employment action must follow the failure to accommodate.

An adverse employment action in employment discrimination law is a serious and material change in the terms, conditions, or privileges of employment. The meaning of this term is well analyzed in employment discrimination law. Whether an employer’s act qualifies as an adverse employment action is fact specific and may be a disputed issue in the course of litigation.

Disability discrimination claims in Colorado

The majority opinion holds an adverse employment action must follow the failure to accommodate

The majority rests its position primarily upon analogizing failure to accommodate claims to disparate treatment claims under the ADA and other federal employment discrimination statutes. The majority fills in the ADA statutory language with analogies to Title VII and case law to assert the statute requires proof of an adverse employment action. It indicates the McDonnell-Douglas framework must be modified to omit the requirement that the employee show he or she was treated less favorably than a non-disabled employee because the failure to accommodate is a discriminatory act under the statute.

The majority spends little to no space explaining why its position is correct; instead it devotes time to explaining that it is correct (and why the dissent is wrong) and that the McDonnell-Douglas framework is appropriately flexible to apply here. The majority fails to draw a compelling case why a failure to accommodate claim is sufficiently indistinguishable from a disparate treatment claim or why a failure to accommodate is not itself an adverse employment action.

The majority dismisses contrary case law with much hand-waiving. It dismisses the dissent’s position that prior Tenth Circuit case law disagrees with the majority by insisting opposing prior case law consists of non-binding dicta and crafts alternative explanations for non-dicta contentions. It provides similar machinations to explain away other circuit disagreement. It instead points to cases from the First, Second, Seventh, Eighth and Ninth circuits as agreement with its position.

The dissent

The dissent alternatively distinguishes between failure to accommodate claims from disparate treatment claims. The dissenting judge asserts failure to accommodate are uniquely different types of claims in which the failure to accommodate serves as an adverse act by itself. The dissent relies upon prior Tenth Circuit opinions distinguishing the two types of claims in addition to agreeing circuits of the Third, Fifth and Seventh.

While the dissent raises a less tortured analysis of binding and persuasive precedent, it also fails to make a compelling case why not requiring an additional adverse employment action makes sense within the objectives of the ADA. It makes more sense for the dissent to draw a brief argument that binding precedent requires an alternative result to the majority; however, an argument why precedent is correct certainly could have helped.

Where Colorado employees go from here

Until the Tenth Circuit or Supreme Court revisits this opinion, employees in the Tenth Circuit are stuck following the majority’s position here. It’s unknown whether the plaintiff will request a rehearing en banc to let the entire court hear the case or ask the Supreme Court to weigh in. The apparent circuit split on this issue will almost certainly be addressed by the Supreme Court at some point soon but that may be years away.

The biggest problem with the majority’s position is that it forces disabled employees who are denied reasonable accommodations to endure the absence of an accommodation until the problem compounds into something a court might agree is an adverse employment action. In between the failure to accommodate and the adverse employment action, disabled employees are likely to fall behind at work and generate a less favorable reputation for his or her work that will not be cured simply by remedying an adverse employment action. The long term implications go far beyond the immediate adverse employment action. The mere refusal to provide a reasonable accommodation in many cases results in a less favorable employment situation than the disabled employee’s able colleagues. That is the type of discriminatory impact laws like the ADA were enacted to combat.

From a litigation standpoint the majority’s position makes cases more difficult for employees. Requiring the employee to prove an adverse employment action gives employers two additional defensive opportunities. First, employers obtain the opportunity to assert the alleged adverse act fails to meet the legal threshold to qualify as an adverse employment action. This helps employers in close cases where the adverse act is less obvious, like a termination. Second, it gives employers the opportunity to allege the adverse employment action occurred due to a non-discriminatory reason. That puts employees in the strange position to argue the employee underperforms and every possible reason for underperformance relates to the unaccommodated disability.

Pursuing failure to accommodate claims with Denver employment lawyers

The decision in Exby-Stolley will make pursuing failure to accommodate claims under the ADA more difficult and more necessary to hire a Denver employment lawyer to represent you. Employees with failure to accommodate claims will have to look closely at what adverse employment action occurred and properly allege it in the lawsuit. Plaintiffs may allege under the ADA that the failure to accommodate deprived the employee of enjoyment of the benefits of employment as an adverse employment action but it is not yet clear how the Tenth Circuit will treat those arguments. Each of these claims must be carefully reviewed and alleged from the administrative charge through filing a lawsuit.

Experienced employment lawyers in Denver, Colorado can make it an even battle on your behalf. If you believe your employer failed to reasonably accommodate a disability then you should talk to a Denver employment lawyer right away. What you do from the beginning may help avoid a difficult situation at work or help prepare a strong case from the outset. You also may need to begin work on your case right away due to time limitations under the ADA and state law. Failure to act properly within these time limits may impair your ability to pursue a meritorious case. Talk to Denver employment lawyers about your workplace situation right away.

 

Supreme Court overturns forty years of precedent to trash public union agency fees

At the end of June the Supreme Court dropped its expected ruling in Janus v. AFSCME which garnered minimal discussion in mainstream press despite likely having an enormous impact on our political system and many employees. Janus is in many ways a demonstration of the cumulative effect of the past twenty years of right wing politics in this county and its continued war on labor unions. Although the case mostly flew under the radar for most of the nation’s press, labor law observers have paid close attention and mostly uniformly predicted the Court’s conclusion. Let’s talk about the labor law issue involved and what impact the case will likely have for Colorado and its employees.

(I delayed writing about this case with the holiday but you can find earlier coverage on the topic here, here, here, here, here, here and here.)

Labor law and agency fees

The issue in Janus involves state laws requiring employees of a public employer (such as the City and County of Denver, or a Colorado school district) who are part of a bargained unit but not union members to pay partial fees for the benefits received from the union’s bargaining activity. Let’s break this down.

Union representation: right to work vs. closed shop laws

Under federal labor law, employees in covered employers can elect a union to represent the workforce as a unit to bargain over the conditions and benefits of employment. Labor law defines groups of employees eligible for representation by a single representative union as a bargained unit. These are employees who share work duties for which it makes sense to have a single representative. For example, all teachers in a school district might be a bargained unit or the machinists in a manufacturing shop might be a unit while the office staff is a separate unit. If the employees within the unit vote in favor of union representation then the union represents all employees within the unit–even if all employees do not voluntarily join the union.

States handle this aspect in a couple ways. In supposed “right to work” states employees do not have to join the union or pay union dues even if the union represents them and the employees receive all the benefits of the collective bargaining agreement struck by the union and employer. In “closed shop” states the employees within a bargained unit must be dues-paying members of the union. Although this can seem unfair, keep in mind that employees receive the benefits of the union’s bargaining of the CBA plus continued representation when issues arise under the agreement. The union has no choice under the NLRA but to represent all employees. So either state law requires the employees to pay for the benefits received from the union or the union eats the cost of helping its dues-paying members.

Right to work laws and agency fees

As a compromise solution in right to work states, unions can charge non-members within their bargained units agency fees. Agency fees are a reduced payment from full dues paid by non-union employees in the bargained unit to cover the costs incurred by the union for work performed on behalf of the non-members. Payment of agency fees means the union receives at least compensation for work performed but does not collect full dues that might also be used for other union purposes such as lobbying for employee-friendly laws or campaigning in representation elections in other bargaining units. These agency fees are at issue in Janus.

The Supreme Court first approved the use of agency fees in public employment in Abood v. Detroit Board of Education in 1977, which itself draws from case law twenty years earlier holding the same position under the Railway Labor Act. A series of cases since that time confirmed their constitutionality in light of the First Amendment. Writing in an opinion years later, Justice Alito questioned the constitutionality of the agency fees, signaling to right wing allies that it might be a good time to raise a new suit challenging them.

Enter Janus

Janus is an employee of a state agency in Illinois who worked in a bargained unit and paid agency fees under state law. With the backing of right-wing and anti-union groups, Janus filed suit to avoid payment of agency fees. The primary thrust of the lawsuit alleged the agency fees violated Janus’s First Amendment rights because the state law requiring agency fees is a government action requiring him to give money to a group that takes political action against his particular views. In other words, it is compelled speech. The lawsuit alleged that there is no way to really distinguish between how the union uses money collected from agency fees and union dues so he is forced by state law through his public employment to finance the union’s other political activities.

The lawsuit further alleged the agency fee issue is a matter of importance that rises to a First Amendment issue because the union’s bargaining is a matter of public importance. When unions bargain on behalf of public employees the union affects government decision-making and financing; therefore, the issue of agency fees is one of public concern and rises to the significance of speech protected by the First Amendment.

Supreme Court weighs in, overruling Abood

With a conservative majority, labor law observers expected the Supreme Court to overrule Abood and strike down agency fee laws, which is exactly what the Court did. The Janus majority opinion reads as a barely disguised criticism of public unions and sets up what is the beginning of a broader attack on unions under the First Amendment. The conservative majority on the bench have spent the past six years inching towards this position and finally get their win.

The majority casually overrules forty years of precedent with merely a handwaiving towards any concern about stare decisis. The bulk of Justice Alito’s majority opinion is spent making equally casual dismissals of Abood‘s reasoning and a union’s legal duty to represent non-members without payment of fair-share fees.

The bulk of the majority opinion relies on this chain of thinking:

  • The First Amendment protects an individual from compelled speech on behalf of ideas with which the individual disagrees;
  • Matters involving public employee compensation are budgetary issues and therefore significant enough that activity involving them implicate First Amendment protections;
  • Agency fees contribute to the union’s speech on those issues;
  • If the individual disagrees with the union’s position or tactics then the individual is compelled to support disagreeable political speech;
  • There is an “‘exacting’ standard” to analyze whether a law compelling speech violates the First Amendment;
  • Now casually dismiss all the reasons why agency fees might not violate the First Amendment.

Justice Kagan’s dissent dismantles the house of cards constructed by the majority to explain why Abood must be overruled; but its strength lies in attacking why claiming state budgets are federal constitutional issues is a ridiculous standard. Justice Kagan correctly points out that if public employment budget issues elevate agency fees to First Amendment protections then the same would have to be true for any other public employment budget issue. Any time an employee or group of employees raise compensation or workplace issues and suffer criticism or discipline (real or perceived) the employees could launch First Amendment lawsuits which will cause financial harm to states and interfere with their ability to act as employers–inconsistent with decades of other Supreme Court precedent.

Or–what will inevitably happen–the reactionary majority will carve out a union-only rule that only attacks unions.

The political impact of Janus

It’s hard to consider Janus anything more than a political favor to conservative political forces. The majority asserts one reason why the agency fee issue is of political importance is that states and cities are experiencing budgetary shortfalls for which public employee benefits are a significant issue. Although true, the vulnerability of public employees to budgetary issues is one reason why public employees and their unions have become important to protecting their own jobs. The drive to undermine public employee benefits and wages has led to greater growth in the importance and activity of public unions.

The divide between political forces seeking to cut public employee compensation and public unions is blatantly partisan. One only needs to look at the standoff only a few years ago between Wisconsin Governor Scott Walker and the state teacher’s union for the most visible example. By drawing funding away from the unions the Supreme Court majority puts its thumb on the scales for their political allies.

The reach of Janus is not just political for public unions. Diminishing the power and visibility of public unions will have the same effect on private employer unions. It will diminish resources available for other union fights like raising minimum wage and protecting employee benefits. Disabling public unions will allow politicians to cut state agency employment which in turn will make regulatory enforcement of important laws less effective. It will also allow them to cut public employee pay and benefits which in turn will lower compensation across all employers. In short, this is bad for employees everywhere.

Janus is another step forward for the reactionary Court majority which uses the First Amendment as a tool to rollback democratic forces in the country. The majority took its first big step with Citizens United–equating money with speech–and extends that forward here with Janus. We will likely continue to see the Supreme Court use the First Amendment as a tool to dismantle public accountability in the political system and further dismantle opposition to right wing political forces.

The effect on unions from Janus

The larger effect for unions is equally as obvious. Public unions in states with agency fee laws will lose out on not just immediate funding from the agency fees. The absence of any fees to receive the benefits of representation without paying a fair share for it will entice free riding and further reduce the union’s dues-paying membership. As a result, the ability for unions to successfully represent and lobby for working people will decline.

Although this suit deals directly with public union issues, the majority’s First Amendment analysis is so broad that it calls into question significant private employer issues under the National Labor Relations Act (NLRA) involving the federal law’s requirement for employees to pay agency fees under the same premise. The majority is, at least, signaling to private employers and their allies to take a shot at whittling away at private unions as well.

Observers on both sides of the issue have asserted unions will have to work harder to be accountable to their members and do a better job pitching why employees in bargained units why their should join the union. Although true, this is hardly a solution to the political and labor scale-tipping provided by the Supreme Court. Unions certainly could do a better job in many instances but in practice this does not happen and in a union-hostile environment it’s not always easy to sway people to pay dues when they can get many of the benefits for free. We certainly see that in right to work states where union membership is low. Moreover, the Janus decision sets up decades of undermining unions which will hardly be met by more persuasion in the workplace.

 

 

sexual harassment confidentiality agreement

Bill O’Reilly sexual harassment settlements to be revealed

Bill O’Reilly was once at the top of the food chain at Fox News until the focus on President Trump’s sexual harassment crashed into allegations of O’Reilly’s own harassment and the cable network cut ties. In the course of litigating O’Reilly’s current sexual harassment allegations it has become public that he settled several prior sexual harassment claims with other female co-workers although until now the terms of those settlement agreements remained concealed beneath confidentiality provisions. The terms of these settlement agreements are unusual and potentially unethical to the employment lawyers representing the plaintiffs.

One such settlement agreement resolved a harassment claim by Andrea Mackris, a former Fox News producer, who settled a 2004 lawsuit. Among the terms of the settlement agreement entered into the court record in the current lawsuit are two unusual provisions:

  1. Mackris must deny the validity of the allegations and insist they are false, even under oath; and
  2. Her attorney would represent O’Reilly and Fox News regarding sexual harassment allegations.

Deny, deny, deny the sexual harassment allegations

It’s not unusual for employment lawyers to agree to resolve sexual harassment and other employment discrimination lawsuits with agreements that contain various confidentiality provisions. Often employers require plaintiffs to not only maintain confidentiality of the underlying allegations but also to alert the employer if a reason ever arises in which the employee must discuss the allegations or settlement agreement in a legal proceeding or investigation. An employee might be called to participate in an EEOC investigation of another allegation of discrimination or subpoenaed by an attorney to testify in a lawsuit about his or her experiences with the company. In these situations, attorneys for the employer want the opportunity to try to prevent the plaintiff from providing testimony.

However, it is unusual for an agreement to require Mackris to give false testimony under oath or in any other situation which might expose the plaintiff to criminal or civil liability. There are several problems that could exist with this settlement agreement. The agreement may be void under its state law because it is an agreement to commit a future crime. If Mackris gives false testimony in an EEOC or judicial proceeding that exposes her to liability for perjury then it might also expose O’Reilly or Fox News as conspirators in the perjury.

The liability might not fall solely on the parties. The employment lawyers on both sides may share liability as co-conspirators and certainly there could be ethical issues raised by advising their respective clients to enter into this agreement. Mackris’s former attorney may be more at risk because he likely advised his client to accept the terms of the settlement agreement and at least implicitly advised her to commit future perjury. Yikes.

Switch hitting lawyers

The settlement agreement also strangely requires Mackris’s then lawyer to become O’Reilly’s and Fox News’s lawyer to advise them on sexual harassment matters. This is one wacky settlement term not just for a sexual harassment lawsuit but for any lawsuit. It’s clear why O’Reilly and Fox News would want this provision but it’s less clear how Mackris’s lawyer thought this would be a good idea. The settlement agreement read into the court record states:

“As an inducement to O’Reilly and Fox News to enter into this Agreement, and as a material condition thereof, the Morelli Firm (i) agrees to provide legal advice to O’Reilly regarding sexual harassment matters, and (ii) warrants and represents to O’Reilly and Fox News that it will not, and will not knowingly permit any of its employees, agents or representatives to represent, assist or cooperate with any other parties or attorneys in any action against O’Reilly, Fox News or the Companies arising out of actual or alleged sexual harassment issues, nor will they encourage any other parties or attorneys to commence any such action or proceeding.”

Here’s why I believe the defendants wanted this provision:

  • If Mackris’s lawyer represents the defendants in related matters then his firm cannot represent any other plaintiff against them;
  • Which means his law firm cannot use prior knowledge of the settlement agreements or past plaintiffs in future suits against defendants;
  • And cannot provide that information to any other prospective plaintiff or investigator in subsequent proceedings; and
  • Cannot advise Mackris about whether the settlement agreement’s seeming requirement to perjure herself is an enforceable provision.

O’Reilly or Fox News likely worried that Mackris’s lawyer might try to find other co-workers with similar allegations and pursue multiple other lawsuits knowing some of the facts behind the case and how much the defendants would be willing to settle. This is not an unreasonable fear, lawyers do this all the time.

However, while the fear may be reasonable, the way they chose to deal with the problem is not as reasonable. It’s not entirely clear from the court record or the settlement agreement why the plaintiff’s lawyer thought this term was a good idea but it raises eyebrows to see lawyers agree to become an opposing party’s lawyer before the current lawsuit is resolved. The lawyers for the plaintiffs in the current lawsuit described this as switching sides in the middle of the case which Morelli disagrees as an inaccurate description of what happened. At a minimum it raises serious ethical questions about whether a lawyer can even agree to represent an adverse party before representation of the current party concludes.

What to do if you are sexually harassed at work

Unfortunately sexual harassment is all too common at work in Colorado. If you believe you are the victim of sexual harassment at work then you should find an employment lawyer right away to discuss your situation. Sexual harassment claims generally require you to take specific acts with your employer and then with government agencies before you can proceed with a lawsuit. Your employment lawyer can advise you how to maneuver these steps to hopefully resolve the conflict or pursue remedies for the harm caused by the harassment. Sexual harassment lawsuits are rarely simple cases so hire a Colorado employment lawyer to give yourself the best chance for justice.

FLSA overtime pay exemption dealership service advisors

Supreme Court veers on Fair Labor Standards Act exemptions

The Fair Labor Standards Act (FLSA) establishes minimum wage and overtime pay protections for all employees in the United States who are not exempt from its provisions by statutory exemption who work for covered employers or they are individually covered by the statute. FLSA contains many exemptions for minimum wage and overtime pay for a range of jobs and job duties (including lawyers). At stake in these exemptions is the right for employers to pay employees on a salary basis, free from overtime pay. As employees continue to work more hours both inside and outside the workplace, employers have an increasing incentive to expand the scope of these exemptions to avoid paying overtime pay. The Supreme Court handed employers a huge signal that it would be an ally to that goal in Encino Motorcars, LLC v. Navarro decided this month.

The details on Encino Motorcars, LLC v. Navarro

Encino Motorcars deals with whether service advisors are exempt under the FLSA exemptions related to car salespeople, mechanics and partsmen at dealerships. Service advisors are the people you talk to when you take a car to a dealership for repairs or maintenance. Although their jobs definitely involve sales on behalf of the mechanic shop, the question before the Supreme Court was whether the service advisors are mechanics or car salespeople within the meaning of the FLSA’s exemption for these roles.

A 5-4 majority of the Supreme Court held service advisors are exempt from minimum wage and overtime pay requirements under the FLSA’s exemption applying to mechanics and car salespeople. The majority opinion, written by silent but deadly Justice Thomas, provides a fairly tortured reading of the statute and casually abandons precedent to reach its decision.

Statutory FLSA exemption for certain dealership employees

The exemption at issue is found at 29 U.S.C. §213(b)(10)(A) which reads:

any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers;

The majority acknowledges that service advisors are neither car salespeople nor mechanics. The majority also acknowledges that they are not partsmen (who manage the parts supply for the dealership) but suggests at least that maybe service advisors are pretty much partsmen. The majority rephrases the statutory exemption to say it applies to, “any salesman…primarily engaged in…servicing automobiles” for which the majority finds they do because they provide service to owners related to their cars.

The core of the majority’s analysis is that:

  1. The service advisor is a salesperson because he or she sells mechanic and maintenance services to car owners; and
  2. The service advisor provides car owners a service by selling repair services and acts as customer service for the mechanic department.

The majority calls this the “best reading” of the statute. Wut.

It’s clear that service advisors are salespeople. They are the sales and customer service face of the mechanic department. However, are they, “primarily engaged in selling or servicing automobiles”? The majority points out that both parties agree they neither sell cars nor repair them. However, the majority insists “servicing automobiles” means anything that services the car physically or customers in seemingly any manner possible–so selling repair services means servicing the automobile.

It’s hard to take the majority’s interpretation with a straight face, especially if you read the sad attempt to change the meaning of the word “or” as the majority does. But let’s pretend the majority is right that the statute really means a “salesman” meets the exemption if he or she is “primarily engaged in…servicing automobiles”. If “servicing automobiles” includes sales and customer service then the statutes doesn’t need to state “selling” as independent of “servicing”. The majority makes part of the statute superfluous in its interpretation which is a statutory interpretation no-no.

The dissent goes into greater detail why the meaning of “servicing” and the roles of the three jobs listed do not find a logical home for the majority’s interpretation. An important aspect raised by the dissent is the legislative history of the FLSA. In 1961 Congress added an exemption for all dealership employees but in 1966 amended the act to just three roles. Unlike many instances where legislative history is plucked over for helpful comments by individual members, here we have the entire body taking a specific act to restrict the exemption within dealerships. Rarely do we get such clear and singular language from Congress. The majority says we don’t need to look at the history when the language is clear. The majority might be right–but the language is clearly not what they say it is.

Narrow interpretation of the statutory exemption

The majority’s casual rewrite of the language of the statute is perhaps beaten by its casual rewrite of precedent. The majority rejects the intermediate appellate court’s argument that FLSA exemptions should be interpreted narrowly. It says, “gee, we just can’t find a textual message in the statute that we should interpret these exemptions narrowly”. The majority importantly opposes the normal cannon that remedial statutes like the FLSA are interpreted broadly in favor of its protected class to give effect to the remedial purpose.

The majority says the remedial purpose needs balance, so a “fair reading” is necessary, citing to precedent in the court’s regressive posture of the past thirty years undermining remedial statutes. The dissent plucks this argument apart by citing to cases in the years following passage of the FLSA explicitly rejecting the premise that the statute’s exemptions should be read expansively and that they are necessarily narrow.

What this will mean for FLSA overtime and minimum wage protections

Sadly, the Supreme Court’s turn away from narrowly reading FLSA exemptions to minimum wage and overtime pay likely means this is the first, rather than the only, exemption that will receive “fair reading” rather than a narrow interpretation. This case will likely serve as the lighthouse for future cases seeking to expand FLSA minimum wage and overtime pay exemptions, illuminating the way for employers to underpay hard-working employees. The direct impact of this case might be small but its long term effect will likely reach a broad group of workers.

This decision is completely unsurprising in every way. The regressive robes in this country, like Thomas and his allies on the bench, are part of the wave of conservative lawmakers, lobbyists and jurists rolling back worker rights and protective measures in many other areas of law. The willingness to so casually rewrite statutes and ignore precedent as the majority does here will only lower the bar for future cases pursuing expansion of overtime pay exemptions.

 

 

 

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What is a fiduciary and what does it have to do with employment law?

Fiduciary duties are not a substantial component of employment law in the same way they saturate other areas of law like securities law or trust law; however, they play an important role in specific issues in employment such as employee benefits and issues involving employee competition with the employer. Employees should understand the interplay between fiduciary duties under federal and Colorado law and their employment, both on behalf of the employer and employee. As this can involve complex legal issues, employees should talk to a Colorado employment lawyer for advice about specific situations.

What is a fiduciary?

A fiduciary is a person or entity that holds a legal relationship of trust with another. Two  common ways a person can become a fiduciary to another is by:

  1. Creating an agency relationship; and/or
  2. Acting as the trustee of assets.

A party becomes a trustee by holding the assets of another when the trustee is entrusted with the care and control of the beneficiary’s assets. For example, when you deposit your wages in your bank account your bank is a trustee of the account and therefore a fiduciary to those funds. It must act with care to your account and not use your money for its own purposes.

An agency relationship also creates a fiduciary relationship. Agency merely means there is a principal-agent relationship. The agent is a fiduciary to the principal in the relationship. An agent is a person empowered by the principal to act on its behalf as though the principal acted itself. For example, if you hire a lawyer to represent you in an employment lawsuit then the lawyer is your agent in the legal proceedings and must act with care in dealing with your case and pursue the case for your interests rather than her own.

What is a fiduciary duty?

A fiduciary has fiduciary duties to the principal (for an agency relationship) or beneficiary (to a trustee). Fiduciary duties are primarily the duties to act in good faith and loyalty to the person owed those duties. Courts across the country deem fiduciary duties as the highest duties imposed upon a party under the law. In practice courts do not always hold parties to the soaring rhetoric used to describe these duties but at least they tell us they should.

Most people think about fiduciary relationships with relationships between business and consumer such as a bank and its customers or consumers and professionals such as lawyers or real estate agents. These are definitely fiduciary relationships under federal and Colorado law. Fiduciary relationships also exist in other forms of asset entrustment and agency relationships. This is definitely true in the employment relationship. Employers can owe fiduciary duties to their workers and vice versa.

It’s important to point out that fiduciary duties can arise from various legal relationships within the employment context. For example, an employer may have statutory fiduciary duties to employees under the federal Employee Retirement Income Security Act (ERISA) to employee benefit plans protected by ERISA and the employee may have fiduciary duties to the employer under Colorado common law. The specific fiduciary duties owed differ under these relationships and sources of law. Even across states the fiduciary relationship and fiduciary duties can vary significantly.

Defining the specific fiduciary duties in a given situation can be complex and require specific legal analysis under federal and Colorado law. Do not rely upon general information to assess the parameters of a fiduciary relationship or fiduciary duties involved.

What is an employee’s fiduciary duty to his or her employer?

The employee-employer relationship is an agency relationship which means the employee has a duty as the employer’s agent as a fiduciary. An employee’s fiduciary duty primarily revolves around the duty of loyalty. The duty of loyalty of an employee is not really a single duty but rather a collection of duties to the employer. Forgetting the issues of law for a moment, it makes common sense. No sane employer would hire an employee expecting the employee to use the position to harm the employer or compete against the employer. It does not mean the employee is at all times a slave to the employer; but the employee has a responsibility to deal fairly with the employer.

Courts at times disagree with what exactly an employee’s duty of loyalty entails. Often courts hold that an employee’s duty of loyalty is commensurate with the employee’s job duties and level of trust extended by the employer. For example, a front line employee might have a minimal duty of loyalty to the employer; however, a sales executive likely has a greater duty because she has access to confidential client lists, product knowledge and could easily use that information with a competing business.

Broadly an employee’s duty of loyalty to the employer can be broken up into two sub-duties:

  1. Duty to exercise job with care; and
  2. Duty not to compete with the employer.

Duty of care by the employee

The duty to fulfill job duties with care is very simple. An employee is reasonably expected to perform the job duties with diligence and without intentionally causing waste or harm to the employer’s business or property. That does not mean every time an employee underperforms the employee has breached a fiduciary duty to the employer; however, when an employee intentionally performs the job in a manner that is harmful to the employer then the employer may have an argument for a breach.

In practice, this often becomes an issue when an employee with access to valuable property willfully causes its destruction or loss of value. Most employers do not want to endure the time or cost to hire employment lawyers and pursue a lawsuit against an employee.

Employee’s duty not to compete with the employer

Fiduciary duty claims against employees are far more likely when the employee uses his or her position to compete against the employer. In fact, most breach of fiduciary duties in any fiduciary relationship arise from the fiduciary self-dealing. Employees management positions, sales staff and employees responsible for developing new products or services are most likely to have access to resources that allow them to compete with the employer. Common ways employees compete against the employer include:

  • Taking confidential customer or client lists to use at another employer;
  • Using one employer’s proprietary sales techniques for another employer;
  • Making sales or purchases for the employer that produce a side benefit for the employee;
  • Taking or selling confidential or proprietary research or products to another business;
  • Soliciting other employees to follow them to a competing business; or
  • Owning or working for a competing business without the employer’s approval.

Both federal and state courts assessing fiduciary duty claims in Colorado tend to uphold employer claims when employees compete against their employers in these ways. Practically, the more an employee’s self-dealing or competition with the employer may or has financially harmed the employer the more likely the employer is to pursue a claim against the employee in court.

Non-compete Agreements

Although employers can pursue breaches of fiduciary duty claims in Colorado, an employer may decide that a lawsuit after the breach occurs is not a great remedy. After all, if an employee sends trade secrets like client lists or marketing research to a competing business then it’s effectively impossible to get that information back. Filing a lawsuit may take years to resolve with no guarantee that a jury will be more sympathetic to an employer than employee. To help solve this problem many employers require employees with access to confidential information, client relationship, or high level decision-making to sign non-compete agreements.

Non-compete agreements, under employment law, are contracts between employer and employee that restrict the employee from competing against the employer by:

  • Working for a competitor;
  • Sharing confidential trade secrets with competitors;
  • Self-dealing to the employer’s detriment; or
  • Soliciting clients and employees to join a competing business.

A non-compete agreement in many ways converts fiduciary duties from common law to contract and gives employers contractual remedies against the employee. A non-compete agreement can go farther than an employee’s fiduciary duties by limiting the employee’s ability to quit working for the employer and immediately go to work for a competitor.

Colorado law and non-compete agreements

States differ in how broad they allow non-compete agreements to restrict an employee’s ability to earn a living beyond the employer. Employers have an incentive to use non-compete agreements aggressively to retain employees. Employers may seek broad non-compete agreements as a poison pill to make it difficult for employees to leave and find work elsewhere. That in turn can give the employer a tactical advantage in negotiating compensation to the employee’s detriment.

Colorado greatly limits the enforceability of non-compete agreements to prevent employer overreach. These limits are first statutory under Colorado Revised Statutes 8-2-113 which makes all covenants not to compete void unless they meet an exception involving:

  • The sale of a business;
  • Protection of a trade secret;
  • Executive or managerial employees and their staff.

Colorado, unlike some other states, does not allow a non-compete agreement to bind professionals like physicians to an employer even if the physician has trade secrets or acts in a managerial capacity over a hospital or clinic.

If a covenant not to compete passes the statutory bar it may still fail in the courts. Colorado courts refuse to uphold non-compete agreements if they are not reasonable in duration and scope. A non-compete agreement is unreasonable if it exceeds the bounds necessary to protect the employer’s interests and does not impose a material hardship on the employee. Courts in Denver and other parts of Colorado routinely uphold covenants not to compete up to five years and 100 miles from the business. See Reed Mill & Lumber Co., Inc. v. Jensen, 165 P.3d 733 (Colo. App. 2006).

Do employers have a fiduciary duty to employees?

Generally employers do not have fiduciary duties to employees. Recall that the fiduciary relationship flows unilaterally from fiduciary to beneficiary. It is not a bilateral relationship; however, within a two-party relationship it is possible that the parties are separately fiduciaries in different roles to the other.

The most common way an employer acts as a fiduciary to employees is when it operates retirement benefits for the employee. Retirement plans, such as defined benefit pensions, 401k plans and 403b plans, require employers to hold assets in trust for employees. This requires that the employers act in the interests of employees and exercise care with the assets. The Employee Retirement Income Security Act of 1974 (ERISA) governs most private employee retirement plans and establishes statutory fiduciary duties that limit the employer’s ability to use the plan or plan assets to its own financial gain. ERISA’s thicket of statutory and regulatory duties tightly constrain employers and a breach of these duties can result in costly penalties to the employer.

Some lawyers and other legal experts argue that employers are or should be fiduciaries to employees for wages and other compensation earned but not paid. To date Colorado courts generally have not agreed although there are at least good arguments why employers should have fiduciary duties when they deduct from wages for benefits, child support payments and other legal purposes. In many of these cases Colorado provides statutory remedies when employers unlawfully deduct from wages, do not make timely payment of wages, or otherwise fail to pay wages within the confines of the Colorado Revised Statutes.

When should you hire an employment lawyer in Colorado for a fiduciary duty issue?

Breach of fiduciary duty claims can carry substantial financial recovery for a prevailing employer therefore it is always a good idea to talk to an employment law attorney as soon as an issue arises. Ideally you should talk to an attorney before making any employment or business decision that your employer might perceive as self-dealing or competition. However, if the employer has already filed suit or threatened to file suit then you need to talk to an attorney immediately.

If you believe your employer self-dealt or otherwise abused assets in a retirement plan then you should find an employment law attorney to talk to about potential claims against your employer. Under ERISA and other laws governing employee benefits, an employee or retiree must often follow a specific process before filing suit and must file specific claims in a lawsuit to recover from the employer. ERISA claims are extremely complex claims and employers often hire employment lawyers from big law firms that specialize in ERISA to represent them.