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Supreme Court Faces Variety of Employment Issues in 2013-14 Term

By Christin Choi and Christina Michael © Fisher & Phillips  10/2/2013

The upcoming Supreme Court term promises a series of significant decisions for employers. The high court will hear at least eight workplace-related cases.

ADEA: Will the Court Tire of Administrative Exhaustion?

In Madigan v. Levin, the court will consider whether state and local government employees can bypass the procedures set forth in the Age Discrimination in Employment Act (ADEA) and go straight to court to pursue claims for age discrimination under 42 U.S.C. §1983. Whereas the ADEA sets forth requirements that employees “exhaust their administrative remedies” before filing a lawsuit (including participation by the Equal Employment Opportunity Commission, prompt notice, and informal dispute resolution), §1983 does not require the same. In addition, employees can seek punitive damages under §1983, a form of relief that is not available under the ADEA.

The outcome of the case will primarily affect state and local employers and employees, but may be significant for private employers because the court is expected to examine whether Congress, in enacting a law with comprehensive remedies such as the ADEA, must explicitly prohibit recourse to other statutory remedies, or whether such intent to do so can be implied. The court has previously held that when remedial devices provided in a particular statute are “sufficiently comprehensive,” they may demonstrate congressional intent to preclude employees from suing under section §1983.

FLSA: “Changing Clothes” in Unionized Industries

Do you have a unionized workforce? Does your business require your employees to wear any type of protective gear? If your answer to these questions is “yes,” you may be affected by the court’s decision in Sandifer v. United States Steel Corporation.

In certain circumstances under the Fair Labor Standards Act (FLSA), employers can be required to pay employees for time spent changing into and out of work clothes. Under a collective bargaining agreement, however, an employer and a union can agree that the time spent by employees “changing clothes” will be excluded from the calculation of the number of hours worked. The question the court will be considering is the definition of “changing clothes” under the FLSA.

This particular case arose in the context of the unionized steel industry in Gary, Ind. Since 1947, collective bargaining agreements between U.S. Steel and the United Steelworkers Union provided that employees’ time spent in preparatory or closing activities would not be compensated. The Steelworker employees sued U.S. Steel – notably, without participation by the union – to assert that they should be paid for the time that they spend changing into and out of the safety clothing, which they are required to wear.

The Steelworkers claim that their work clothes do not fall within the meaning of “changing clothes” because the work clothing constitutes safety equipment. Companies in unionized industries in which workers must wear protective gear could see an impact on their current collective bargaining agreements, future collective-bargaining strategies, pay and overtime practices, and scheduling practices. In addition, the outcome of the case could significantly affect employers’ exposure in class and collective actions.

SOX: Will the Court Blow the Whistle?

In Lawson v. FMR LLC, the court will consider whether an employee of a privately-held contractor or subcontractor of a public company is protected from retaliation by the Sarbanes-Oxley Act of 2002 (SOX).

The section in question, entitled “Whistleblower Protection for Employees of Publicly Traded Companies,” states that no publicly-traded company, mutual fund, or “any officer, employee, contractor, subcontractor, or agent of such company or nationally recognized statistical rating organization” may retaliate “against an employee in the terms and conditions of employment because of” certain protected activity.

In this case, the 1st U.S. Circuit Court of Appeals held that the statute does not protect whistleblowers at the privately-held firms that are contractors or subcontractors for publicly-traded companies or mutual funds. The U.S. Department of Labor has rejected the 1st Circuit’s interpretation and held that an employee of a privately held auditing firm was covered by SOX. The company accurately captured the potential far-reaching impact of the case: “Expanding coverage to private contractors . . . would expose many partnerships and small businesses to a particularly expensive and potentially destructive form of civil liability.”

Should the court side with the employees, employers who do business with public companies will need to familiarize themselves with the complex regulations governing public companies, including when those regulations have been violated and the specific whistleblower protections contained within SOX.

Neutrality Agreements: Business Basics or Bribery?

In UNITE HERE Local 355 v. Mulhall, the court will determine whether an employer and union violate the Labor-Management Relations Act (LMRA) by entering into an agreement under which the employer promises to remain neutral to union organizing and grants union representatives access to the employer’s property and employees, in exchange for the union’s promise not to picket, boycott, or otherwise put pressure on the employer’s business. The LMRA makes it unlawful for an employer “to pay, lend, or deliver . . . any money or other thing of value” to a labor union that seeks to represent its employees and prohibits the labor union from receiving the same.

In this case, a federal district court in Florida reasoned that the purpose of the LMRA is to prevent the corruption of union officers and found “no indication of corruption or bribery of UNITE HERE officials.” On appeal, the 11th U.S. Circuit Court of Appeals, conflicting with other circuits that have examined the issue, concluded that “innocuous ground rules can become illegal payments if used as valuable consideration in a scheme to corrupt a union or to extort a benefit from an employer.”

If the court upholds the 11th Circuit’s ruling that provisions of these commonly-used neutrality agreements amount to bribery, unions will lose a powerful weapon in their arsenal.

NLRB: Can the Court "Can" Countless Board Decisions?

To exercise its authority under the National Labor Relations Act, the National Labor Relations Board (NLRB), a five-member body, requires a quorum of at least three appointed members. On Jan. 3, 2012, the NLRB was reduced to two members, leaving it with no authority to operate. On Jan. 4, 2012, President Obama appointed Sharon Block, Terence F. Flynn and Richard F. Griffin to sit on the Board. In NLRB v. Noel Canning, the court will grapple with the question of whether President Obama’s appointment of these three members was constitutionally permissible.

Under the Constitution, the President has the power to make appointments to the NLRB without the consent of the Senate, but only if a vacancy happens while Senate is in recess. The underlying dispute arose when Teamsters Union Local 760 filed a complaint with the NLRB against a soft-drink bottling company, Noel Canning, claiming that the company committed an unfair labor practice by refusing to execute a verbal agreement allegedly reached by the parties as part of collective bargaining negotiations.

After the NLRB ruled against the company, the company filed an appeal with the U.S. Court of Appeals for the D.C. Circuit, challenging the validity of the NLRB’s quorum and the recess appointments. Ultimately, the circuit court held that the President’s recess appointments were unconstitutional because the Senate was not in recess at the time of the appointments and because the recess appointment power could not be exercised to fill a vacancy unless the vacancy arose during the recess. As a result, the court held that the appointments were unconstitutional and that the NLRB did not have the quorum or authority to decide the Noel Canning dispute.

If the court finds that the recess appointments are invalid, hundreds of NLRB decisions made by the so-called recess appointees will be invalidated.

Arbitration Awareness

The court has already agreed to answer one question regarding the arbitration process in BG Group PLC v. Republic of Argentina. In that case, the court will determine whether, in disputes involving a multi-staged dispute-resolution process, a court or an arbitrator should determine whether a precondition to arbitration has been satisfied.

The court may also decide to answer the question presented in Toyota Motor Corp. v. Choi: whether a non-signatory defendant can compel arbitration of the arbitrability of the plaintiffs’ claims. Given the court’s recent history of upholding the national policy favoring the business-friendly Federal Arbitration Act, employers should look for decisions in favor of the arbitrator determining whether a precondition to arbitration has been satisfied, and the arbitrability of the case.

ERISA: Time to Review Timing  

In a key case that may impact all Employee Retirement Income Security Act (ERISA) plan sponsors and participants, the court will be considering when a statute of limitations should begin to run for judicial review of an adverse benefits determination under an ERISA disability plan.

In Heimeshoff v. Hartford Life & Accident Insurance Co., an employee filed a claim for long-term disability benefits under her employer’s plan, which required that any lawsuits be filed within three years after the proof of loss was due. The employee proceeded through the internal appeal process, which resulted in a final denial of benefits, but, in the meanwhile, the three-year period ran out. The employee contends that the limitations period should not begin to run until the final denial of benefits.

The 2nd U.S. Circuit Court of Appeals held that the employee’s lawsuit was untimely, finding the policy language unambiguously set out that the limitations period began to run before a final decision is made on a claim for benefits. This case raises a challenge to the general principle that the terms of an ERISA plan govern in ERISA litigation. The court’s ruling could impact the use of a statute of limitations defense in response to claims for benefits. And it’s possible that the Court’s decision could have a broader impact on parties’ agreements to change limitations periods in other contexts.

Taxing Severance Payments Under FICA

In United States v. Quality Stores Inc., the court will examine whether severance payments made to employees whose employment was involuntarily terminated are taxable under the Federal Insurance Contributions Act (FICA).

In this case, a bankrupt company made lump-sum severance payments at the end of an employee’s service. The employer treated the severance payments as taxable under FICA, but filed for a refund of approximately $1 million. Ultimately, the 6th U.S. Circuit Court of Appeals held that the payments were not wages for tax-withholding purposes and, therefore, not subject to taxation under FICA. If the court rules in favor of Quality Stores, all employers that have paid severance in connection with involuntary workforce reductions may be eligible for sizable refunds.

Pregnancy Discrimination Petition Pending

In Young v. United Parcel Service, the court may consider whether, and in what circumstances, the Pregnancy Discrimination Act requires an employer to provide work accommodations to pregnant employees who are similar to other employees in their ability or inability to work. If the court decides to grant Young’s petition, employers should start reexamining their “neutral” policies to be sure that the unintended result is not to exclude pregnant workers from accommodations granted to employees who are similarly limited.

Christin Choi and Christina Michael are attorneys in the Philadelphia office of Fisher & Phillips. Republished with permission. © 2013 Fisher & Phillips. All rights reserved.