PTC Legal Update

11/19/2018 9:54 AM | Anonymous

Authors: Ryan O’Leary, Brian O’Leary, & Cliff Haimann

In a recent review for the International Personnel Assessment Council (IPAC), Ryan O’Leary and Brian O’Leary wrote about various court cases that are relevant to HR professionals and I/O psychologists. Their overview is below along with additional updates about the EEOC and OFCCP.

The Supreme Court

Class Action Cases

China Agritech, Inc. v. Resh. China Agritech manufactures and sells farming products. It began listing shares on the NASDAQ in 2005 and in 2011 issued a public financial filing that resulted in several lawsuits. A market research company reported that the filing made grossly inflated claims of China Agritech’s revenue and value. Shareholders sued for having been misled and China Agritech faced a series of class actions. The third was by filed Resh (after the first two) and has relevance for employment law. The issue in this case was whether Resh could take advantage of a tolling rule, a rule allowing more time to file a case. If not, the Resh case would have been filed too late and would have to be dismissed. In a unanimous decision, the Court ruled that the filing of a putative class action (a lawsuit brought by one or more named plaintiffs on behalf of a potential group of similarly situated individuals [known as a class] who allegedly suffered a common claim) does not toll (i.e., pause) the statute of limitations for follow-on class action when class certification is denied. In other words, this means that plaintiffs may not resurrect a failed class action by filing another class action after the limitation period has expired.

In this decision, the Court distinguished its precedent from two earlier cases (American Pipe and Construction Co. v. Utah, 1974; Crown, Cork & Seal Co. v. Parker, 1983) which held that the filling of a class action does toll the limitations period for individuals who are seeking to intervene in the suit or to file their own individual claims after class certification is denied. Legal analysis suggests that these two rulings were meant to encourage class action cases. Class action cases generally help the courts save time and money. As such, courts would rather hear one big case on the same issue than many, smaller individual cases on the same issue. If there is a class action going on that would include an individual’s claim but the individual is considering otherwise filing an individual lawsuit, the individual can wait to see how the class action turns out – the time period during which one must file is paused (i.e., tolled) while the class action is ongoing. Court efficiency appears key and class actions which save the court resources should go first. Individuals are encouraged to see what happens in the class action case before pursuing their individual claims. Class claims should be ruled earlier and the Court will not allow class claims to be filed later.

As it relates to employment law, in their opinion the Court noted that following the denial of nationwide class certification in Wal-Mart Stores, Inc. v. Dukes (2011) (the class of approximately 1.6 million women who claimed gender discrimination in pay and promotions at Wal-Mart which was denied certification because they did not have enough in common), numerous plaintiffs had either amended the original complaint to repeal subclasses or separately asserted geographically regional subclasses within the limitation period. The China Agritech, Inc. v. Resh suggests we may see future plaintiffs file multiple parallel complaints raising different possible putative subclasses with employers moving to stay the subclass actions until the court resolves whether to certify the larger class.

Epic Systems Corp. v. Lewis. In May 2018, the Court ruled that companies can use arbitration clauses in employment contracts to prohibit workers from banding together and taking legal action over workplace issues. This means that employees who sign arbitration agreements can be precluded from participating in class action lawsuits and must therefore litigate their cases on individual bases. The 5 to 4 vote upheld the use of arbitration agreements in the workplace. The court majority stated that the ruling was a logical reading of the law and reflected Congress’ preference for using arbitration to avoid costly and time-consuming litigation. The Court had earlier ruled that companies doing business with consumers may require arbitration and forbid class actions in their contracts. Arbitration clauses with class action waivers are now commonplace in contracts for things like cellphones, credit cards, and rental cars. The issue in Epic Systems Corp v. Lewis was whether these same principles apply to employment contracts.

The decision applies to three separate cases relating to three employers: Epic Systems, Ernst and Young, and Murphy Oil. In all three cases, plaintiffs filed in federal court stating that their employers violated the Fair Labor Standards Act by not paying them overtime. However, in each case employees all signed arbitration agreements stating that they would arbitrate any disputes before a single arbitrator whose decision would be final and binding. Claims relating to different employees had to be heard in separate hearings.

Writing for the majority, Justice Gorsuch stated that in the Federal Arbitration Act (FAA) Congress has instructed the federal courts to enforce arbitration agreements according to their terms – including terms providing for individual proceedings. Plaintiffs had asserted that the National Labor Relations Act (NLRA) makes illegal any contract that denies employees the right to engage in “concerted activities” for the purpose of “mutual aid and protection” and therefore some form of collective action cannot be prohibited. The Court asserted that since the NLRA does not expressly approve or disapprove of arbitration, the FAA prevails. Some legal scholars predict the impact of the Court’s ruling will be to largely eliminate the threat of employee class actions in cases such as a failure to pay overtime or systemic discrimination.

Hiring of Federal Administrative Law Judges

In Lucia v. Securities and Exchange Commission, the Court ruled in a case involving federal Administrative Law Judges (ALJs) at the agency. ALJs conduct trial-like hearings within federal agencies related to disputes over decisions such as claims for benefits and enforcement actions against individuals or businesses. This case was brought by a former financial advisor, Raymond Lucia, who promoted a retirement strategy he called “Buckets of Money” through radio shows, books, and seminars. The strategy suggested that retirement investors should first sell safer investments, giving riskier investments time to grow. In 2012 the SEC charged Lucia with violating federal law and SEC rules, claiming he had mislead investors in presentations to potential clients. Lucia and his company were fined $300,000 and he was barred from working as an investment advisor. Lucia challenged the case and argued that the ALJ who heard his case was improperly appointed. 

Central to the case is the Appointments Clause in Article II, Section 2 of the Constitution which states in part “[The President] shall nominate, and by and with the Advice and Consent of the Senate, shall appoint…Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but the Congress may by Law vest the Appointments of such inferior Officers as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.” At issue is whether SEC ALJ’s are “officers” and in particular “inferior officers” who may be appointed by heads of departments. SEC ALJ’s were selected by the Chief Judge and approved by the Commission’s personnel office as opposed to being appointed by the Commissioners.

The Court of Appeals for the D.C. Circuit held that SEC ALJ’s are not “Officers of the United States” but are instead mere employees, officials with lesser responsibilities who are not subject to the Appointments Clause. However, the Department of Justice, who had long contended that the judges were employees and not officers, switched positions and urged the Court to grant review in the case even though it had won in the appeals court.

In a 7 to 2 decision the Supreme Court ruled that SEC ALJ’s are officers rather than mere employees since the judges exercise significant authority in hearing and ruling on disputes. It did not matter to the Court that the judges’ decisions were subject to review by the Commission.  Since the ALJ’s were appointed by staff members rather than by the Commissioners, their selection violate the Constitution’s Appointment Clause which requires “inferior officers” to be appointed by the president, the courts, or heads of departments. The Commission itself is a “head of department”, while its staff members are not. Since the SEC ALJs were not properly appointed, Mr. Lucia was entitled to a new hearing. This decision has a significant impact on how ALJs are selected and appointed.  

Union Dues

In Janus v. AFSCME Council 31, Mark Janus (a child-support specialist at the Illinois Department of Health and Family Services) sued the American Federation of State, County, and Municipal Employees (AFSCME) union. Janis contended that he did not agree with AFSCME’s positions and should not be forced to pay fees to support its work. Under Illinois law, state employees represented in a bargaining unit are not compelled to be members of the union or pay union dues. However they must pay an “agency fee”, an amount equal to that portion of union member dues spent directly on bargaining and administration of the bargaining agreement.

The Court ruled in a 5 to 4 decision that public sector employees who are non-members of a union cannot be legally required to pay an agency or “fair share” fees as a condition of employment. This decision overturned a 40-year-old precedent established in the Abood v. Detroit Board of Education decision that said that states could allow public-employee unions to collect fees from non-members to cover the costs of workplace negotiations over salaries and benefits but not the union’s political activities.

Racial Balancing and Affirmative Action in Academic Admissions

In Students for Fair Admissions Inc. (SFFA) v. Harvard, SFFA (which includes more than a dozen Asian-American students who applied to Harvard and were rejected) has accused Harvard of intentionally discriminating against Asian-American applicants by limiting their admission numbers each year. The suit, initially filed in Federal District Court in 2014, accuses Harvard of “racial balancing” – keeping roughly the same distribution of racial groups year after year despite changes in application rates and qualifications. Harvard denies that it conducts racial balancing or discriminates against Asian-Americans. They claim they use a “whole person evaluation” and that race is one of many factors considered in the pursuit of diversity.

Multiple times the U.S. Supreme Court has affirmed that universities may take race into account as one factor among many to achieve a diverse class. But there are limits on what colleges may do. The Court prohibits racial quotas and encourages colleges to consider whether they can achieve their goals through race-neutral alternatives such as using financial aid and other recruiting tools to ensure socioeconomic and geographical balances.

SFFA is viewed by many as an anti-affirmative–action group and the lawsuit part of an ongoing effort to do away with race-conscious affirmative action. In August 2018, the Department of Justice filed a legal brief in the case lending its support to the plaintiffs. Alternatively, a large number of Harvard supporters have filed briefs in the case, claiming that a failure to consider race would effectively threaten diversity at all American colleges.

The case went to trial in October, and it may have far-reaching implications for the nation’s colleges and universities that consider race in their admission processes. The case may end up at the Supreme Court, which is likely to be more conservative than in 2016, when it upheld narrowly tailored race-conscious admissions in Fisher v. University of Texas at Austin in a 4-3 decision.

Sexual Orientation as a Protected Class Under Title VII

A case that the Society for Human Resource Management (SHRM) cited as one of the top 10 employment cases of 2017 has finally come to an end. Kimberly Hively, the professor in the Seventh Circuit’s landmark ruling that protection under the Civil Rights Act extends to sexual orientation has settled with her former employer, Ivey Tech Community College. The parties filed a joint mediation summary on August 1, 2018 announcing the settlement. The terms of the agreement were not released.

Kimberly Hively was an openly lesbian, part-time adjunct professor at Ivy Tech Community College. In 2014 she claimed that she had been repeatedly denied full-time employment and promotions because of her sexual orientation in violation of Title VII of the Civil Rights Act of 1964. The District Court dismissed her case, ruling that Title VII does not recognize sexual orientation as a protected class. The case then went to the 7th Circuit Court of Appeals where a three judge panel affirmed the District Court’s ruling. Hively filed for a rehearing and the majority of the 7th Circuit found that the Civil Rights Act protection does prohibit discrimination based on sexual orientation and became the first U.S. Court of Appeals to rule that sexual orientation discrimination was prohibited under Title VII.

EEOC Updates

The EEOC’s recent actions relate to many arenas within HR that are important to IO psychologists.

Sexual Harassment.On October 4th, 2018, the EEOC released a statement highlighting its preliminary FY 2018 sexual harassment data. In the release, Acting Chair Vicki Lipnic praised her staff for responding to the increased demand resulting from the #MeToo Movement.  According to the statement, “The EEOC filed 66 harassment lawsuits, including 41 that included allegations of sexual harassment. That reflects more than a 50 percent increase in suits challenging sexual harassment over fiscal year 2017.”

Criminal Background Checks.  In September, the EEOC reached an agreement with Rooms To Go, which resolved race discrimination allegations brought by an African American applicant whose employment offer was rescinded because of the employer’s background check policies. Rooms To Go has now removed blanket exclusions and those with convictions can proceed via an individualized assessment process. This agreement is a reminder to employers that they should consider the EEOC’s 2012 Enforcement Guidance relating to criminal background checks.

Disability Discrimination. Disability discrimination continues to be of the utmost importance to the EEOC, a fact that has resulted in many recent lawsuits. For instance, according to the Agency, Wal-Mart interviewed an applicant with a physical disability but refused to hire her because the employer assumed she could not perform the job duties. Another large employer, Target, failed to interview a qualified candidate because the individual was deaf. Similarly, Safeway Grocery Stores was recently sued for failing to hire a deaf applicant. Aside from these hiring lawsuits, disability discrimination extended to other areas of the employee life cycle according to the EEOC. As an example, the Agency sued Crossmark for failing to accommodate a class of individuals who needed to use a stool during their typical duties as employees who offer samples to customers at stores such as Wal-Mart and Sam’s Club.

Compensation. The Agency continued its fight to ensure equal gender pay, even though compensation lawsuits were not as common as other types of suits (e.g. those relating to hiring). To illustrate, alleging a violation of the Equal Pay Act, the EEOC sued First Metropolitan Financial services for paying female branch managers less than male counterparts. Interim Healthcare of Wyoming and Fastenal Company also faced pay-related suits.

Other Administrative Law Updates

Under the Trump Administration, the Office of Federal Contracts Compliance Programs (OFCCP) has released various new directives, which impact the HR programs of federal contractors. Of note, Directive 2018-08 describes the Agency’s efforts to promote transparency in its work. The Directive highlights many areas, such as the Agency’s scheduling methods and the timelines for finishing audits. Another directive (Directive 2018-09) describes the Agency’s new Ombud Service, which seeks to improve relationships between OFCCP and federal contractors. Last, the Agency released Directive 2018-05, which describes OFCCP’s approach for evaluating contractors’ compensation systems during audits.

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