Employment Law Blog

Salary history not a defense to sex discrimination under Equal Pay Act according to the Ninth Circuit

The Equal Pay Act is a federal law that prohibits pay discrimination on the basis of sex. Unlike Title VII and state anti-discrimination laws that prohibit sex discrimination in the workplace, the EPA only applies to compensation disparity between the sexes. The federal Ninth Circuit issued its decision in a case involving the Equal Pay Act surrounding the use of salary history as a deciding factor in salary and wage rates. The Ninth Circuit ruled in Rizo v. Yovino that the use of salary history does not justify pay disparity between men and women, overturning its own precedent. This broad rule has employer-side employment lawyers around the country in a tizzy.

The details on Rizo v. Yovino

We won’t spend too much time on the facts in this case because the Ninth Circuit staked out a position far beyond the facts of the case but it helps to understand a little about how they got here. Rizo is a teacher hired as a math consultant with the Fresno School District. The school district sets pay on a salary system that sets a consultant’s starting salary as the consultant’s prior salary plus five percent. (Then the salary steps up at set intervals.) Rizo, a woman, discovered the male consultants had higher starting salaries. The school district uniformly applied its salary system so the difference in pay between men and women all arose from the use of past salary as a starting point on the salary track. Rizo sued, alleging the pay disparity violated the Equal Pay Act.

Equal Pay Act and pay disparity

The Equal Pay Act was enacted in 1963 as an amendment to the Fair Labor Standards Act to prohibit wage disparity between men and women. The statute requires employers to pay men and women equal pay for work of the same skill, effort, responsibility and work conditions unless one of four exceptions apply. The Equal Pay Act exceptions allowing wage disparity are:

  1. A seniority system;
  2. A merit system;
  3. A system which measures earnings by quantity or quality of production; or
  4. A differential based on any other factor than sex.

The last exception is a catchall exception that allows for any other nondiscriminatory pay system. The Fresno School District argued, as many employer-side employment lawyers do in blogs discussing this case, that the exception applies because the system does not use sex as a factor.

Not so fast, said the Ninth Circuit.

The Ninth Circuit’s new rule on the Equal Pay Act

The Ninth Circuit looked at the statutory language and the legislative history behind the Equal Pay Act, deciding that if the purpose of the statute is to close the wage gap between men and women then it hardly makes sense to allow one employer to perpetuate a prior employer’s wage differential. The majority explained:

In light of the clear intent and purpose of the Equal Pay Act, it is … clear that we cannot construe the catchall exception as justifying setting employees’ starting salaries on the basis of their prior pay. At the time of the passage of the Act, an employee’s prior pay would have reflected a discriminatory marketplace that valued the equal work of one sex over the other. Congress simply could not have intended to allow employers to rely on these discriminatory wages as a justification for continuing to perpetuate wage differentials.

The majority continued to clarify that the catchall exception, as many circuits agree, requires the nondiscriminatory factors to be job-related (not just business-related). It held that prior salary is not within the catchall because it does not act as a reasonable proxy of an applicant’s or employee’s skills or expertise. The majority continues:

Prior salary does not fit within the catchall exception because it is not a legitimate measure of work experience, ability, performance, or any other job-related quality. It may bear a rough relationship to legitimate factors other than sex, such as training, education, ability, or experience, but the relationship is attenuated. More important, it may well operate to perpetuate the wage disparities prohibited under the Act. Rather than use a second-rate surrogate that likely masks continuing inequities, the employer must instead point directly to the underlying factors for which prior salary is a rough proxy, at best, if it is to prove its wage differential is justified under the catchall exception.

The Ninth Circuit therefore established a rule that prior salary is almost never an acceptable factor to establish a wage differential between the sexes.

[W]e now hold that prior salary alone or in combination with other factors cannot justify a wage differential. To hold otherwise—to allow employers to capitalize on the persistence of the wage gap and perpetuate that gap ad infinitum—would be contrary to the text and history of the Equal Pay Act, and would vitiate the very purpose for which the Act stands.

The court left the door cracked for some situations in which prior salary might be an appropriate factor but did not specify in great detail what they are.

Bottom line: As far as the Ninth Circuit is concerned employers should not establish policies that rely on past salary as a factor to set initial wages or salary.

The impact?

Employer-side employment lawyers dumped an avalanche of blog posts last week bemoaning the outcome of this case. (You can read some here, here, here, here, here and here.) The Ninth Circuit’s holding is definitely broad as all of these lawyers complain but breadth by itself is not a reason why the holding is wrong. Prior salary has nothing to do with an employee’s qualifications to perform a given job. Whether an applicant was paid more than another could be a reflection of performance but the employer has no way to confirm the extent performance affected pay rate over other factors such as cost of living differentials, a seniority system, labor market conditions, or sex discrimination. An employer who adopts an applicant’s prior salary implicitly adopts all of the reasons–good or bad–for the wage disparity.

I suspect this broad interpretation will make its way to the Supreme Court because it disagrees with several circuits and even the EEOC. Given the conservative majority on SCOTUS I find it improbable that the majority will rule against giving employers the opportunity to make business-friendly salary decisions. For now, at least, employers within the Ninth Circuit should talk to their employment lawyers about their employment policies under this decision.

The decision in Rizo is part of a set of cases brought across several federal circuits over the catchall exception. Circuits around the country have taken a less than liberal position towards employers but, unsurprisingly, the Ninth Circuit provides employees the greatest help. Ultimately I expect the Supreme Court will adopt a position closer to the Tenth and Eleventh Circuits that allow employers to consider past salary as a factor but not as a sole factor justifying a wage differential.

How this affects Colorado employees

Like other appellate decisions discussed here outside of the Tenth Circuit this case has no direct impact on our employees. Nevertheless, the way the Supreme Court handles the rule set out in this case could change Equal Pay Act analysis in this circuit and require employers to make changes to policies. Enterprising employment lawyers might take up similar cases and see if the Tenth Circuit in Denver wants to agree with its colleagues in San Francisco but it’s highly unlikely.

Here the Tenth Circuit rule is that prior salary cannot by itself justify a wage disparity but prior salary can be a factor in setting wage and salary for employees. The court here sets a high burden on the employer to prove it meets the catchall exception. Its summary judgment standard for employers requires the employer to prove the prior salary policy not only could justify the wage disparity but that it does justify it. If the Supreme Court hears an Equal Pay Act case on prior salary it may rule otherwise; but for now employees have some protection from sex discrimination passing from one employer to the next in Colorado.

As always, if you believe your Colorado employer discriminates in pay on the basis of sex then you should talk to an employment lawyer right away. Delaying talking to an employment lawyer can result in losing opportunities to recover for discriminatory pay systems because each paycheck carries its own statute of limitations.

Denver, Colorado CBD

Find an employment law attorney in Denver, Colorado

Finding an employment lawyer is not always an easy task for Colorado workers. You probably know enough people that have had a divorce or traffic ticket that you could find a referral for a divorce lawyer or criminal defense lawyer without much work; however, you probably know fewer people who hired Colorado employment law attorneys at some point in their career. Often employees do not know much about employment law or where to even begin finding an employment lawyer in Colorado. Today’s post will help demystify some of these issues.

What is employment law and how does it differ from labor law?

There is plenty of confusion to go around about what labor law means and what employment law means. The short answer is that there is no meaningful difference to worry about. Often you will see even legal resources refer to the two as a combined “labor and employment law”. Many attorneys who do not practice in these areas likely could not even tell you a difference. Labor law and employment law both relate to the employee-employer relationship although they deal with the relationship in different ways.

Employment law

Generally what we call employment law deals with an individual employee to employer relationship. These cover medical leave laws, employment discrimination, wrongful termination, unpaid wages or overtime and issues involving individual employment contracts. Even in workplace situations involving multiple workers you could isolate each individual’s relationship with the employer. From there you can determine whether violations of employment law occurred.

Common employment law claims in Colorado include:

  • Employment discrimination
  • Unpaid wages
  • Overtime pay
  • Hostile work environment/harassment
  • Wrongful termination
  • Family and medical leave issues

Labor law

On the other hand, labor law deals with the relationship between the employees as a collective workforce and the employer. Labor law protects the right of individual employees to come together and bargain over work conditions and terms of employment. Most people think about labor law in a formal union setting. Labor law definitely involves unionization and union rights in the workplace; however, employees also have rights under labor law without the presence of a formal or permanent union entity. Employees can act ad hoc to negotiate over individual situations as they arise.

Labor law claims often proceed through specific channels rather than lawsuits, such as NLRB complaints or arbitration proceedings under a collective bargaining agreement.

Denver employment lawyers

What kind of lawyer do I need?

Chances are good you do not know exactly what claims you may have or how to find the top labor or employment law attorneys in Colorado for your specific needs. That is ok; the good news is that most employee rights attorneys do not distinguish between one or the other.

Labor lawyers in Colorado tend not to practice exclusively in labor law unless employed by a union or union-related organization. If you need a labor attorney in Denver or other parts of Colorado you most likely will end up talking to an employment lawyer. Not all employment attorneys in Colorado have expertise or experience working with labor law so you may need to search carefully for lawyers who fit that need if you have a labor law issue. Employers searching for labor law attorneys in Colorado may have an easier time hiring big law firms who have labor law departments that they can source from offices around the country. Employees will have to look closely to find labor lawyers in Colorado.

Most employees searching for a labor or employment law attorney have employment law claims and need employment law firms in Denver or other parts of Colorado.

Can I find free employment lawyers in Colorado?

Lawyers have a deserved reputation for being expensive. Many people do not have money to throw around casually on legal representation. That is especially true for many employment law claims in which the employee was fired, not hired, demoted or has unpaid wages for work performed. It is common for people to search out pro bono lawyers in Denver and other parts of Colorado or to seek out Colorado labor and employment attorneys for a free consult.

Pro bono lawyers in Colorado

Pro bono lawyers work for free or what is sometimes called “low bono” which is work at a reduced rate. While it is great to receive free labor, often lawyers provide pro bono services to very low income individuals. For example, in the greater Denver, Colorado area pro bono services are available through the Metro Volunteer Lawyers program through the Denver Bar Association. MVL provides pro bono legal services for specific types of cases or documents if the individual is below the income and asset limits set by the organization.

colorado employment law lawyers

Free consultations with employment lawyers

Lawyers began offering free consultations as a way to get prospective clients in the door. Law firms treat free consultations in different ways. Most often the consult is an opportunity for lawyers to interview prospective clients to determine if there is a worthwhile case and then reach an agreement to proceed with the case. Often legal advice is not offered in the course of a free consultation but some law firms may provide limited legal advise.

Employment attorneys in many parts of the county do not offer free consultations because analyzing whether a labor or employment law claim is worth pursuing is often more complex than making the same determination about a car wreck or divorce. However, personal injury firms, who often provide free consultations, also practice in some areas of employment law and may drive the rest of the legal market towards free or lower cost consultations. If you search for an employment attorney in Denver with a free consultation you will likely find one.

Whether Colorado employment law attorneys provide paid or free consultation is generally not an indication of the qualifications of the lawyer. It is more likely a marketing strategy or a decision by the employment law attorney to only provide legal advice on a paid basis.

Contingency fee lawyers

Many employment law attorneys in Colorado take certain labor and employment law claims on a contingency fee basis. Contingency fee agreements are agreements between lawyer and client to pay the lawyer a percentage of the proceeds of the claims instead of taking payment on an hourly fee or other basis that requires the client to pay out of pocket for the lawyer. Contingency fees allow employees who might not have thousands (or more likely, tens of thousands) of dollars to hire an attorney to represent them in complicated and costly litigation. This fee structure makes it easier for employees to pursue claims they otherwise could not afford.

The percentage paid to the attorney may range from 25% up to as much as 50% depending upon the claims, the law firm and when the case resolves. The contingency fee paid to the labor lawyer or employment lawyer is significant but the law firm essentially takes on the legal work on loan to the client with the risk of nonpayment–even if the law firm does the best possible work. An employment law lawsuit may take over one hundred hours of work to go to trial. At an hourly rate the attorney’s work is extremely expensive and few workers could reasonably afford to pay that out of pocket.

Colorado employment law attorneys typically do not take all cases on contingency. Some labor and employment law work does not lend itself to contingency fee work, like reviewing severance agreements, and sometimes the client’s goal is to avoid litigation which means there is no recovery to divide between lawyer and client. Additionally, employment law attorneys have to carefully screen cases before taking them on contingency; not all cases that could go to trial will produce meaningful recovery. Many employment law claims do not have concrete damages to recover or the facts may not be strong enough to litigate.

Colorado wrongful termination lawyers

Do I need to find a Denver employment lawyer for a labor law or employment law claim in Colorado?

Employees searching for a workplace attorney in Colorado want to find the best employment lawyers. As the largest city and state capital, many people will search for employment attorneys in Denver, Colorado. Generally it would not be a poor decision to hire employment law attorneys in Denver; however, there are labor and employment law attorneys in other parts of Colorado. Location alone typically is not the best way to find an employment lawyer. You can find employment attorneys in Colorado Springs and other large cities in the state.

Your case may benefit from finding a lawyer close to your home; however, generally labor law and employment law lawsuits do not require much time in the law firm’s office. Consider other factors in addition to the location of your lawyer. There may be reasons to hire an attorney close to your workplace or home; but this is likely the exception rather than the rule. Consider many factors while finding an employment law attorney including:

  • The attorney’s skills, expertise and experience dealing with labor law and employment law issues;
  • The attorney’s reputation with clients and within the legal community;
  • Fee structures offered for the work you need from the attorney;
  • How the attorney communicates with clients;
  • Location of the law firm;
  • The attorney’s expertise and experience dealing with the unique issues in your case; and
  • The attorney’s comfort dealing with the issues in your case and the size of your employer.

Finding a Denver employment lawyer

Maybe you live in the Denver, Colorado area or feel you will be best served by employment attorneys in Denver. In your search to find the best employment lawyers in Denver you will find many qualified employment attorneys among Denver’s business districts including downtown, Denver Tech Center, Capital Hill and Cherry Creek. Labor lawyers and employment lawyers can also be found outside of the city in Boulder, Broomfield and other northwest suburbs.

Denver is home to employment lawyers who represent employers and employees. In your search to find an employment lawyer or labor lawyer make sure you find attorneys who represent your side. While some lawyers represent both sides, most lawyers practicing in labor and employment law only represent one or the other.

 

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.

 

 

 

workplace harassment lawyer in Colorado

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.

 

 

First Circuit moves towards acknowledging sexual orientation discrimination prohibited by Title VII

Over the past two months I’ve written about federal employment discrimination lawsuits focusing on LGBT-based discrimination as forms of sex discrimination under Title VII of the Civil Rights Act of 1964. The Second Circuit recently joined the Seventh Circuit to hold sexual orientation is a prohibited form of sex discrimination under Title VII and the Sixth Circuit explicitly held transgender discrimination is prohibited under Title VII. This month the First Circuit continues down the path with another lawsuit involving sexual orientation. Although the First Circuit did not go as far as its colleagues in the Second Circuit and Seventh Circuit, it acknowledged that employment discrimination law is evolving in that direction. This decision in Franchina v. City of Providence is the first to address sexual orientation as the “plus” factor in a sex-plus discrimination lawsuit under Title VII.

The backstory on Franchina v. City of Providence

Lori Franchina was a firefighter for the City of Providence, Rhode Island and is a lesbian who suffered a long history of sex discrimination at work. Franchina worked with a male firefighter who often made comments and sexual gestures to Franchina and other firefighters about her sexual orientation. Although she did not complain herself, the coworker’s behavior became known to a superior who disciplined the coworker. In response, Franchina suffered a long history of workplace harassment related to her sex, including vulgar comments, both verbal and written, and foul acts against her. Despite forty written complaints, the department took no action to stop the harassment. Eventually she retired from the department with a diagnosis of PTSD.

Franchina’s lawsuit advanced to an eight day trial in which she asserted the disgusting behavior was unlawful sex-plus harassment. The “plus” factor alleged was her sexual orientation. The jury awarded her over $800,000 in emotional distress and lost wages which unsurprisingly triggered the employer to appeal. After launching a series of weak arguments up on appeal the First Circuit affirmed the trial court’s judgment.

The plaintiff initially pursued a separate sexual orientation discrimination claim which was dismissed upon a motion to dismiss early in the lawsuit because the First Circuit decided in the past not to extend Title VII over sexual orientation claims. The appellate court explicitly acknowledged that other appellate courts had changed their minds on this issue but declined to follow because Franchina did not appeal the dismissal of her claim. Nevertheless, the sex-plus discrimination claim continues an important line of authoritative acknowledgement of sexual orientation discrimination as a component of sex discrimination under Title VII.

What is a sex-plus discrimination claim under Title VII?

The sex-plus theory of discrimination is a form of sex discrimination that alleges the employer discriminated on the basis of sex plus another factor that made a discrete group of women the target for discrimination. The “plus” factor can be another protected status or trait, such as race or age, but it can also be a factor not explicitly protected like women who have small children. Sex-plus claims do not set a higher burden of evidence for the employee; the employee does not even have to prove the “plus” factor. An employee only has to show sex or gender was, by itself, at least one motivating factor in an adverse employment action.

Sex-plus discrimination claims acknowledge that sometimes sexual harassment and other forms of sex discrimination target some women but not others because of a second, related trait and the discrimination on the second factor cannot be untangled from the sex discrimination. As a substantive matter, courts have long accepted sex-plus discrimination claims to protect employees from sex discrimination in which only some members of a sex may be targeted because Title VII does not require a perpetrator to discriminate against every member of a sex for the victim to prevail on a claim. Procedurally, when the “plus” factor is not explicitly protected under Title VII the sex-plus discrimination claim makes it difficult for the employer to take the position that it discriminated but only on the unprotected “plus” factor and not on sex or gender.

Sex-plus discrimination and sexual orientation

Nevertheless, that is exactly what the employer attempted to do on appeal in this case. The thrust of the employer’s appeal relies on the argument that the plaintiff only presented sufficient evidence of sexual orientation discrimination and not sex or gender, therefore the jury verdict cannot be upheld. The employer pointed to First Circuit precedent denying sexual orientation as the sole basis for a sex discrimination claim under Title VII. The First Circuit dismantles the employer’s position on two fronts.

First, it acknowledges its own precedent but points out even the employer’s chosen case law the appellate court left open the door to sexual orientation as a “plus” factor. The Court then expresses that no reason exists why sexual orientation cannot be a “plus” factor. The court does not deeply explore this issue but in explicitly thrusting the door fully ajar it took full advantage of the appeal in front of it to expand sexual orientation as an issue related to sex discrimination under Title VII. Not only will this make it easier, at least in this circuit, to bring sex-plus claims with sexual orientation, but also signals the court may be willing to take more progressive steps in future appeals.

Second, the court explored the evidence and found even without looking at the evidence of sexual orientation there was more than sufficient evidence of sexual harassment on plaintiff’s sex and gender given the many offensive comments and acts perpetrated by her coworkers.

Although the First Circuit did not spend much space applying the facts to sexual orientation as a “plus” factor, its clear willingness to do so in any future case has broad and important meaning for future cases in the circuit.

What this case means for Colorado employees

As usual, I like to bring these discussions back to Colorado and what it means for employees in this state. Colorado is not part of the First Circuit so this case does not directly affect employees in this state; however, it is another federal circuit moving sympathetically towards including sexual orientation discrimination as a prohibited act under Title VII which affects Colorado employees. As more circuits reverse precedent opposing its inclusion, the circuits will either settle the matter by reaching agreement or a circuit split will push the Supreme Court to have the final word. Then federal law will join Colorado state law in prohibiting sexual orientation discrimination at work, giving employees another legal avenue to pursue claims for sex discrimination in the workplace. If you believe you suffered employment discrimination at work on the basis of sex or sexual orientation then you should find an employment law attorney in Colorado and schedule a consultation.

2018 likely a big year for employment law in Colorado

We’re closing in on the end of the first quarter of 2018 which means the Colorado legislature is a little over halfway through its legislative session and the state courts are in full swing for the rest of the year. We’ve already seen a flurry of employment law activity in both the legislature and judiciary with more likely to come. Most employment law watchers have their eyes on the labor law appeals at SCOTUS but Colorado has a lot on the schedule for labor and employment law as well.

Colorado legislative employment law activity

Colorado is among several states where conservative lawmakers pursued bills seeking to undermine labor union presence and minimum wage protections. Thankfully in this state these bills appear dead for the session but other bills live on in the session. Among the labor and employment law legislation introduced this session include:

Immigration status. The House is currently perusing a bill to extend legal work status to undocumented workers in the state that meet specific requirements proving the worker’s history in this country has been positive.

FMLA insurance. Another House bill seeks to introduce an FMLA insurance program for wages. Under the proposed architecture small employee contributions would fund a wage replacement program for Colorado employees who take unpaid family and medical leave. Given the challenges created by the way the Colorado legislature designed its state FMLA statute to sit on top of the federal FMLA passage of this program could create new complications in the state’s family and medical leave law.

Non-compete exception for physicians. Physicians are generally better protected from overreaching non-compete agreements under Colorado law; however, they can be liable for damages caused by terminating the agreement. This Senate bill would create an exemption to damages for physicians to continue to provide care to patients with rare conditions.

Minimum wage waiver. In one of the more ridiculous legislative offerings a House representative offered a bill that would (1) require employers to notify job applicants of the right to negotiate minimum wage and (2) to negotiate a minimum wage less than the Colorado Constitution requires. The House committee quickly laughed at and destroyed this awful legislation.

Right to work bill. Not to limit their terribleness to just one bill, House Republicans introduced a bill to make Colorado a “right to work” state that allows workers to decline representation or membership in a union as a condition of employment. These bills are introduced by the GOP virtually every session but as usual this bill failed to reach a floor vote.

Gig workers are contractors. The Senate passed a bill last week that makes workers who find part-time jobs through online job marketplaces are contractors rather than employees. While many of these workers likely are contractors this bill seems more of a first step in expanding state law to make all workers in the gig economy contractors–surely a move backed by larger players in the field like Uber and Lyft who have been hit with misclassification lawsuits around the country.

Colorado courts employment law activity

If March is any indication how the Colorado Supreme Court feels about employment law it’s not a good sign for employees. This month Colorado’s highest court ruled against employee rights on small but important issues.

Teacher right to hearing before placement on unpaid leave overturned

The Colorado Supreme Court overturned an appeal on public school teacher rights to a hearing before being placed on unpaid leave. The teachers’ union asserted the Teacher Employment, Compensation and Dismissal Act of 1990 (TECDA) required a hearing before a teacher may be placed on unpaid leave. TECDA limits a teacher’s exposure to termination to specific reasons of just cause after a hearing, if the teacher completed the three year probationary period. The teachers’ union argued this created a due process right to a hearing on unpaid leave.

The court disagreed, holding that TECDA does not create a contract between the state and teachers, therefore the teachers lack a property interest in benefits and salary. Without a property interest the teachers do not have a violation of due process rights to assert. The result will be that school districts will obtain greater flexibility to eliminate teachers or force out teachers.

Statute of limitations on unpaid wage claims upon termination under the Colorado Wage Claim Act

In a case with broader implications, the Colorado Supreme Court also interpreted the Colorado Wage Claim Act (CWCA) to reduce the limitations period for claims of wages due upon termination. In Hernandez v. Ray Domenico Farms the court resolved the ambiguity over how far back an employee could seek unpaid wages due upon termination.

The CWCA sets a two year limitations period (extended to three if the violation is willful) for claims brought under the statute. (C.R.S. § 8-4-122.) Among the statutory claims is the right to be paid all due and unpaid wages upon termination. (C.R.S. § 8-4-109). The plaintiffs in this case, along with some Colorado courts, argued the limitations period reset with each instance of unpaid wages so the unpaid wages owed could extend as far back as the beginning of the employment relationship.

The Colorado Supreme Court disagreed, interpreting the CWCA similar to federal interpretations of limitations periods under the Fair Labor Standards Act (FLSA). The court held the limitations period only reaches back two years (or three if willful) before the date of termination. The court noted that the limitations period begins to run with each set of wages due; so it is possible that an employee could pursue a claim under C.R.S. § 8-4-109 as late as three years after the date of termination. The Supreme Court did not clarify this point but it appears to be the intended interpretation of the court’s opinion.

What should we expect for the rest of 2018?

The rest of the year will likely be a mixed bag for employees, particularly with the SCOTUS decisions that will weigh on federal labor law issues. As usual movement on the legislative and judicial fronts will be incremental with judicial decisions drawing narrow interpretations of existing statutes and employer-friendly lawmakers pushing through small changes. Most of these smaller changes receive little attention which allows a long but effective pro-employer shift in labor and employment law.