Unanimous Board Determines Make-Whole Relief Is Fundamental

A Florida food products wholesaler unilaterally changed the health care plan for its bargaining unit employees twice in two years. Each change led to increased premiums and copayments for the unionized employees. The administrative law judge (ALJ) and reviewing bodies that subsequently reviewed these facts agreed that the unilateral change violated Section 8(a)(5) of the National Labor Relations Act, but disagreed about the appropriate remedy. The ALJ ordered the wholesaler to: cease and desist from changing the health plan; restore the health coverage in place prior to the unilateral changes, upon the union’s request; and make the employees whole for losses suffered as a result of the unilateral changes. A two-member National Labor Relations Board (NLRB) modified the remedy to eliminate the make whole relief if the union exercised its option to retain the final unilaterally implemented health insurance plan. The case eventually was argued before the U.S. Supreme Court, which remanded it after ruling that at least three members must convene in order to exercise the delegated authority of the NLRB. On second review, the four-member NLRB unanimously restored the make whole-relief award, regardless of whether the union requested rescission of the health care plan change. In doing so, the NLRB found that its earlier remedy was based on mechanical adherence to Brooklyn Hospital Center, 344 NLRB 404 (2005), a decision that itself ignored 40 years of NLRB precedent, without explanation. The unanimous NLRB held that a make-whole remedy is a fundamental element of the Board’s remedial approach. Make-whole relief fully compensates employees for economic losses caused by unfair labor practices. Also, it operates as a financial disincentive against the commission of unlawful unilateral changes. Employers should note that unlawful unilateral changes that result in economic losses to unit employees are recoverable independent of a union’s judgment on whether to seek rescission.

Eighth Circuit Adopts Narrow Definition of “Mass Layoff” Under the WARN Act

An employer hired more than 100 workers to replace its employees who went on strike. Upon resolution of the strike, the employer fired 123 of the replacement workers and then reinstated 103 of the returning employees. The replacement workers sued, alleging that the employer had failed to provide an adequate termination notice under the Worker Adjustment and Retraining Notification Act (WARN Act). Under the WARN Act, an employer that conducts a “mass layoff” must provide notice to employees 60 days prior to the layoff. Under the Act, a “mass layoff” occurs when an employer terminates at least 33 percent of its active workforce or more than 500 workers. The replacement workers argued that the court had to consider the number of workers the employer fired, rather than the number of positions the employer eliminated to determine whether a “mass layoff” had occurred. The U.S. Court of Appeals for the Eighth Circuit disagreed and held that simply firing one worker and replacing him with another does not result in a reduction in force as required by the WARN Act. Rather, a reduction-in-force requires a net loss in productivity measured by the numerosity requirements set out in the Act. Accordingly, the employer did not conduct a “mass layoff” because it terminated 123 of the replacement workers, and filled their positions with 103 returning employees, meaning only 20 positions were eliminated. This case clarifies the requirements for a “mass layoff” under the WARN Act for both employers and employees in the Eighth Circuit. Employers must be aware that when positions are eliminated for more than 500 employees, or for at least 33 percent of their workforce, the WARN Act’s notice requirements must be followed.

U.S. Supreme Court Evaluates Entitlement to Attorney’s Fees Under 42 U.S.C. 1983

A successful candidate for police chief sued the incumbent chief of police and the town, alleging defamation, federal civil rights claims, and other state law claims. After discovery and investigation concluded that the federal claims had no merit, the federal court dismissed those claims and sent the case back to state court where it originated. Based upon a statutory provision providing for the recovery of fees for the prevailing party in such a claim, the town and incumbent chief asked the court to award attorneys’ fees for their work on the federal court claims. The U.S. Supreme Court reviewed 42 U.S.C. §§ 1983 and 1988, and determined that while defendants may recover fees as the “prevailing party,” defendants may not obtain recovery for fees associated with non-frivolous, successful claims. Thus, when a suit involves both frivolous and non-frivolous claims, under the statute at issue, the courts may award reasonable attorney’s fees to the prevailing party, but only for costs that the prevailing party would not have incurred but for the frivolous claims. The potential for attorney’s fees awards is part and parcel of every lawsuit, and must be considered when undertaking the defense of any employment-related claim, especially where there is the possibility of an award of fees in favor of a prevailing defendant.

Illinois Enacts Major Workers’ Compensation Reform

On June 28, 2011, Illinois Governor Pat Quinn signed into law HB1698, a major workers’ compensation reform package. The bill’s intended effect is to reduce employer medical costs, limit indemnity payouts on certain claims, including loss of trade cases; strengthen rules on fraud; and provide more equity in Commission decisions and awards. Some of the changes apply to accidents that occur on or after September 1, 2011; others apply to existing cases where benefits accrue after September 1, 2011. This is touted as a major piece of business-friendly legislation.

Read the court’s opinion here: Public Act 097-0018

Supreme Court Rejects Massive Class Action Against Wal-Mart

In a highly anticipated ruling, the U.S. Supreme Court recently issued its opinion in Wal-Mart Stores, Inc. v. Dukes, et al. (S. Ct. June 20, 2011). Plaintiffs claimed that the discretion afforded to local store managers over pay and promotions had an unfair, discriminatory impact on female employees. The proposed class in the case covered approximately 1.5 million current and former Wal-Mart employees, and would have involved billions of dollars in potential damages. The Court’s opinion hinged on the application of Fed. R. Civ. P. 23, which regulates class actions. Among other things, Rule 23 requires that the claims of all potential class members share a common issue of law or fact. Here, that would require evidence that women were the victim of one common discriminatory practice. With respect to this issue, the Court recognized that sufficient commonality might be established where an employer operated under a general policy of discrimination through which discrimination occurred via entirely subjective decision-making processes, it made clear that such a showing must rest on “substantial proof.” Moreover, the Court recognized that allowing such discretion is a common, presumptively reasonable business practice that raises no inference of discriminatory conduct. More ›

Title VII Provides Retaliation Claim to son Based upon Father’s Protected Activity

Two employees, a father and son, sued their employer under Title VII of the Civil Rights Act of 1965, as amended (Title VII), which makes it unlawful for an employer to retaliate against an employee for engaging in protected Title VII activity. Both the father and the son alleged that they had been subjected to adverse employment actions because of the father’s prior complaints of discrimination. The district court granted summary judgment to the employer on the son’s claim, relying on earlier federal decision that had interpreted Title VII as requiring a plaintiff to allege retaliation “because of his own protected activity.” The U.S. Court of Appeals for the Fifth Circuit reversed, recognizing that the U.S. Supreme Court had rejected that interpretation of Title VII just months later in the case of Thompson v. North American Stainless, LP, 131 S. Ct. 863 (2011), where the high court found that a husband was entitled to bring a Title VII claim based on retaliation that he suffered because of protected Title VII activity by his wife. Relying on the Supreme Court’s holding in Thompson that Title VII permits an employee to bring a claim based on retaliation suffered because of protected activity by a “close family member” who is also a co-worker, the Fifth Circuit remanded the son’s claim for reconsideration. Employers should remember that in light of Thompson, any adverse actions taken against an employee who has complained of discrimination or against any of that employee’s family members could be grounds for a Title VII retaliation claim.

Drug Abuser Lacks ADA Protection Despite Completion of Rehabilitation Program

In 2004, an employee sales representative voluntarily entered an outpatient drug rehabilitation program with his employer’s knowledge. In June 2005, the employee was asked to submit to a drug test, which he failed. As a result, the employer terminated the sales representative’s employment, but informed the employee that he could return if he “got himself clean.” In July 2005, the employee entered an inpatient drug rehabilitation program. During the intake process for the program, the employee tested positive for cocaine and marijuana. The employee completed the program on August 4, 2005, at which time his rehabilitation counselor described his recovery prognosis as “guarded.” The next day, the employee contacted his former employer about returning to work. The employer informed him that he could return, but only to a position in which he would receive less compensation than his former sales job and that the employee could not service the same accounts he had prior to his discharge. The employee refused the conditions placed on his reinstatement and sued the employer contending that the refusal to reinstate him to his former position constitutes disability discrimination based on his drug addiction in violation of the Americans with Disabilities Act (ADA). The U.S. Court of Appeals for the Tenth Circuit ruled that “an individual is currently engaging in the illegal use of drugs if the ‘drug use was sufficiently recent to justify the employer’s reasonable belief that the drug abuse remained an ongoing problem.’” The court declined to adopt a bright-line rule that 30 days of being drug-free is per se insufficient for a former drug abuser to qualify for ADA protection. But it found that the employer reasonably considered the employee a current user based on his recent history of drug use and his guarded prognosis for recovery. Consequently, the court held that the employee was not protected under the ADA’s safe harbor provision for recovering drug addicts who are no longer abusing drugs. Employers should be mindful that although participating in or completing a drug treatment program may bring an individual within the safe harbor provisions, and therefore, the protection of the ADA, an individual must also be no longer engaging in drug use for a sufficient period of time to demonstrate to the employer that the drug use is no longer an ongoing problem.

Employee’s Administrative Tasks Performed at home Outside the Coverage of the FLSA

An employee commuting from his home base to various worksites also completed work tasks at home in the mornings and evenings. The company compensated the employee for his home-to-work travel in excess of one hour. Although the company’s policy was for employees to record time spent on at-home tasks, the company expected employees to finish all their work tasks in a 40-hour week. The employee falsified his timesheets, failing to record his overtime work. When the employee was terminated, he sued alleging that the company failed to pay him for his commuting time and overtime work that he failed to report, in violation of the Fair Labor Standards Act (FLSA) and New York Labor Law. A federal trial court found no basis for employer liability and granted summary judgment to the employer. The U.S. Court of Appeals for the Second Circuit rejected the employee’s first argument, finding that his at-home work did not extend his workday under the U.S. Department of Labor’s “continuous workday” rule. Therefore, the court held that the fact that the employee chose to perform his at-home activities immediately before and after his commutes did not mean that the employer was required to pay him for the first hour of those drives, which was “time that was not part of his continuous weekday and that was, in the end, ‘ordinary home to work travel’ outside the coverage of the FLSA.” The U.S. Court of Appeals disagreed with the district court’s finding that the employer was entitled to summary judgment for unpaid overtime work that the employee admittedly failed to report, holding that a jury could reasonably find in the employee’s favor that the employer had actual or constructive knowledge of his off-the-clock work. The court was clear that, “where the employee’s falsifications were carried out at the instruction of the employer or the employer’s agents, the employer cannot be exonerated by the fact that the employee physically entered the erroneous hours into the timesheets.” When dealing with employees who commute, employers must be mindful that tasks deemed “integral and indispensable” to an employee’s principal activities, but which the employee has flexibility in choosing when to perform, do not extend the employee’s workday under the “continuous workday” rule and thus are not compensable. Employers should also be aware that it is unlawful to direct an employee not to record overtime to avoid payment for hours actually worked by him or her.

Ninth Circuit Allows Employees to be Prosecuted Under Computer Fraud and Abuse Act for Breach of Employer’s Network Policy

After leaving the company, a former executive search firm employee persuaded former co-workers to provide him with certain information from the company’s databases as it pertained to various candidates and employers, in order to help him set up a competing company. The employer had a computer-use policy that placed clear and conspicuous restrictions on the employees’ access to the system and to the information contained in the system. Specifically, the company had taken considerable steps to protect and ensure the privacy of its confidential data, including assigning unique login credentials to employees, controlling access to the computer systems, and requiring employees to execute confidentiality agreements pertaining to these databases and information. The government indicted the former employee and the two current employees for violations of the Computer Fraud and Abuse Act (CFAA) for knowingly accessing a protected computer without authorization or exceeding authorized access with the intent to defraud. The former employee and current employees argued that they had been authorized to access and use the database and the information, and thus did not violate the CFAA. The U.S. Court of Appeals for the Ninth Circuit held that the employees had violated the criminal statute by accessing the database, obtaining information from that database, and using it in a way that violated the employer’s restrictions. The court found that the employer took considerable measures to protect its information and that the employees knew (by virtue of these written protective measures) that they were not authorized to access the database and information in order to defraud the employer. This ruling demonstrates the importance of having computer-use and electronic-communications policies. Such rules are critical so that employers can protect their trade secrets and confidential information by making employees aware of what access is “authorized” versus “unauthorized.”

Vocational Students are not Employees Under the FLSA’s Child Labor Provisions

A boarding school provided its students with “spiritual, academic and vocational training” by placing them in a nursing home where they worked in the kitchen and housekeeping departments and were able to participate in a certified nurse’s aide program. The students typically spent four hours per day in classroom training, and four hours learning practical skills. The students did not receive payment for the duties they performed. The U.S. Secretary of Labor sued the school alleging that the work performed by the students was compensable under the Fair Labor Standards Act (FLSA). The U.S. Court of Appeals for the Sixth Circuit held that the students were the primary beneficiaries of the work they performed because they received valuable vocational training. The court found that the students profited from their work experience, which taught them about responsibility, leadership, and practical work skills. The court further found that the students did not displace compensated workers. Rather, compensated instructors were required to devote their own time to student supervision. Accordingly, the work performed by the students did not violate the FLSA’s child labor provisions. This case illustrates that where students are performing work that is primarily for their own benefit, and the students do not displace compensated workers, they may be considered trainees under the FLSA. However, if a student-worker is performing work that is primarily for the benefit of the employer, he or she must be compensated for all hours worked.