week 8 final project

Chapter 14 The Employee’s Right to Privacy and Management of Personal Information

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Learning Objectives

When you finish this chapter, you should be able to:

1. LO1Describe the nature of privacy as a fundamental right.

2. LO2Explain the three general ways in which privacy is legally protected in the United States.

3. LO3Define the legal concept of a “reasonable expectation of privacy” and its application to the workplace.

4. LO4Identify and apply the standard for unreasonable searches and seizures under the Fourth Amendment.

5. LO5Explain the distinctions between the protections for public- and private-sector privacy.

6. LO6Describe the legal framework that applies to private-sector privacy cases.

7. LO7Identify and differentiate the prima facie cases for common-law claims of privacy invasions (intrusion into seclusion, public disclosure of private facts, publication in a false light, and breach of contract/defamation).

8. LO8Explain the extent to which an employer can legally dictate the off-work acts of its employees.

9. LO9Discuss how advances in technology have impacted employee privacy.

10. LO10State the key business justifications for employee monitoring.

11. LO11Explain the most effective means by which to design and implement a technology use policy.

12. LO12Describe the legal environment that surrounds employee use of social media technologies.

page 711

Opening Scenarios

SCENARIO 1

Cherita runs a small family medical practice in rural Montana and is concerned about the skyrocketing costs of medical malpractice insurance, which her office provides for all of its full-time physicians. She worries that her five-physician medical group would suffer a financial disaster if one of its workers inadvertently transferred the disease to one of their patients. Therefore, she wants to conduct a confidential HIV test of each of her present employees and also all future applicants. Cherita has several questions. First, what if a physician refuses to take the test claiming an invasion of privacy? Second, if someone’s test returns a positive result, can Cherita refuse to hire that individual or can she discharge an employee without violating federal laws protecting employees with disabilities? Third, if an employee’s tests return with a negative result, but Cherita decides to terminate the employee anyway, is she liable for the appearance that the employee is HIV positive and that Cherita terminated her or him as a consequence of the test results? Fourth, what is the most effective way for Cherita to ensure that the test results are kept confidential?

SCENARIO 2

Abraham, a real estate agent, has three children, two of whom are in college. In order to earn extra money to help with college tuition payments, Abraham (who studied modern dance during his college career) finds a job dancing in a club that caters specifically to women. While not exactly erotic dancing (he keeps all of his clothes on), it is not ballroom dancing either. Celebrating during a bachelorette party, one of the partners of the real estate firm for which Abraham works catches sight of him dancing. When he arrives at the office the next day, she calls him into her office and orders him to quit his night job. She claims that both clients and potential clients might see him there and he would lose all credibility as a real estate agent. Does she have a right to require Abraham to do this as a condition of future employment? (Presume that he is an employee and not an independent contractor.)

SCENARIO 3

Kanani receives what appears to be a legitimate email asking her to click on an embedded link to learn more about new solar technologies. Though she does not recognize the name of the sender, she clicks on the link because she works at a solar panel installation company and is always excited to learn about the latest technology. She is also on several listservs so it is not uncommon for her to receive emails such as this one. Kanani finds herself looking at a website with photos of Leonardo DiCaprio that are “not safe/suitable for work” (NSFW), which may have been Photoshopped images. She is so annoyed by this occurrence that she spends a few moments looking around the website trying to figure out how to unsubscribe from its list. After searching for several minutes with no luck, she leaves the website and goes back to reading her email. She responds quickly to a question from her intern and then sends an email to her teenage daughter reminding her to pick up the dog from puppy day care on her way home from school. She then returns to preparing for her upcoming presentation.

A few days later, she receives a warning from her manager for using employer-owned computer equipment for personal use, including looking at NSFW materials online and emailing her daughter. She learns that her manager was using a program that alerted him any time an employee viewed certain inappropriate websites. He also was monitoring her work email account for key words and her puppy day care was flagged. Kanani is furious at the invasion of her privacy posed by this computer monitoring. Does her employer have a right to monitor her computer use in this way, and how might you suggest she respond? If you were her manager, how might you distinguish in your monitoring between appropriate technology use (if you consider this to be appropriate) and inappropriate use?

Are There Guarantees in Life? Privacy is a surprisingly vague and disputed value in contemporary society. With the tremendous increase in computer technology in recent decades, calls for greater protection of privacy have increased. Yet, there is widespread confusion page 712concerning the nature, extent, and value

of privacy. Philosophers have argued that our society cannot maintain its core values without simultaneously guaranteeing the privacy of the individual. Edward Bloustein writes that “an individual deprived of privacy merges with the mass. His opinions, being public, tend never to be different; his aspirations, being known, tend always to be conventionally accepted ones; his feelings, being openly exhibited, tend to lose their quality of unique personal warmth and to become the feelings of every man. Such a being, although sentient, is fungible; he is not an individual.”1

Recent inventions and business methods call attention to the next step that must be taken for the protection of the person and for securing to the individual what Judge Cooley calls the right “to be let alone.” Instantaneous photographs and newspaper enterprises have invaded the sacred precincts of private and domestic life, and numerous mechanical devices threaten to make good the prediction that “what is whispered in the closet shall be proclaimed from the house-tops.”2

Philosopher Chris MacDonald explains that privacy is about having a realm of personal control from which others can be excluded at will. In other words, it has to do with freedom of action, freedom from the prying eyes of neighbors, governments, or employers. The more such freedom we have, the more privacy we have.3

Europeans generally view employee rights using a different perspective from that in the United States. While Americans view rights of employees in terms of the protection of their privacy, Europeans are more likely to perceive their protection with regard to human dignity, the employee’s right to be free from embarrassment and humiliation.4 The result of this distinction is that European employees generally enjoy a wider range of freedom from employer intrusion in the workplace than do U.S. employees. Indeed, some U.S. firms that engage in business internationally have found themselves in violation of EU standards, and subject to hefty fines, when they applied their privacy rules to employees who were located in the European Union.

LO1

The concept of privacy as a fundamental right certainly is not limited to the United States and Europe. Islamic thought recognizes a fundamental right to privacy based in the Qur’an, which instructs: “Do not spy on one another” (49:12); and “Do not enter any houses except your own homes unless you are sure of their occupants’ consent” (24:27). Hadiths (recorded sayings of the Prophet Mohammed) report that he instructed his followers that a man should not even enter his own house suddenly or surreptitiously.5 Ancient Greece already had laws protecting privacy, and the Jewish Talmud considers privacy an aspect of one’s sanctity, providing rules for protecting one’s home. In fact, the Talmud contains reference to “harm caused by seeing” (hezeq re’iyyah) when one intrudes upon another.

But do employees actually have a “fundamental right to privacy” as many believe? The answer to this question is not as easy as one might presume, given the wide recognition of employee rights in the workplace. The right to privacy may not be as fundamental as employees generally believe it to be, which makes it all the more important in these days of advancing information technology. Computer technology, though largely beneficial, can have a negative effect on employees if the easily obtained information is misused, incorrect, or misleading. Employers now have a greater capacity to invade an employee’s privacy than ever before. Among other devices, there are chairs that can sense and record the time an employee spends page 713at his or her

desk, computer programs that measure employees’ computer keystrokes to ensure they are as productive as they should be, phones that monitor employees’ phone calls, and policies related

to workplace communication to make sure all communications are work-related. Monitoring is only increasing in power, ability, and frequency. Worldwide security and computer monitoring software revenue totaled $22.1 billion in 2015, a 3.7 percent increase from 2014.6 But perhaps there is a greater employer need to monitor employees in the workplace: according to a study by the National Retail Federation, in 2014, employee theft cost retailers nearly $15.2 billion, accounting for around 34.5 percent of total “retail shrinkage” (loss of inventory due to employee theft, shoplifting, paperwork errors, or supplier fraud), compared with 33.8 percent from shoplifting.7 Employers may even have good reasons for seeking seemingly private information about employees and their activities outside of work: in 2013 there were 22.4 million illicit drug users aged 18 or older in the United States. The rate of illicit drug use among those who were employed ranged from almost 10 percent (those employed on a full-time basis) to almost 14 percent (those employed on a part time basis).8 Drug use in American industry costs employers approximately $250 billion per year in lost productivity, absenteeism, attrition, safety issues, workers’ compensation claims, and hidden health care expenditures.9 and failure to perform an intensive reference and background check of an applicant may cost the employer enormous amounts in litigation fees defending claims of negligent hiring, easily outweighing the cost of a drug test, usually less than $50. In this time of increased competition in the global marketplace, each employee becomes all the more crucial to the workings of the company. An employer has a justified basis for attempting to choose the most appropriate and qualified person for the job; the means by which the employer obtains that information, however, may be suspect.

The right to privacy is not only balanced with the arguably legitimate interests of the employer but also with the employer’s responsibility to protect employees’ and customers’ personal information. Theft of computerized customer and employee records has increased dramatically over the last decade; and the costs associated can be enormous. The hacking of Sony’s PlayStation Network in 2011 cost the company more than $71 million in direct clean-up costs; and analysts estimate that the cumulative costs of investigations, compensation, additional data security investments, and lost business could exceed a billion dollars. By one estimate, in 2011, there were 1,037 publicly reported incidents of the loss, theft, or exposure of personally identifiable information, a 30 percent increase on the previous year, and up from only 21 in 2003.10 Yet, the fact that only the largest and most audacious data breaches are reported in the media means that publicly reported breaches greatly underestimate the extent of the problem. A 2012 survey of over 1,200 U.S. small businesses (with annual revenues of less than $10 million) found that 55 percent had experienced a data breach, and of those only 33 percent notified the people affected, although 46 states require that individuals are notified when their private information is exposed.11 As of 2015, there were 34,529 known computer security incidents per day in the United States, with each breach costing around $690,000 in legal fees.12

Whereas erosion of at-will employment was the dominant issue of the 1980s, scholars predicted that privacy would be the main theme for the 1990s and beyond. This chapter will address the employee’s rights regarding personal information page 714and the employer’s

responsibilities regarding that information, as well as the employer’s right to find out both job- related and nonrelated personal information about its employees. Chapter 4 previously addressed other issues regarding the legality of information gathering through testing procedures. This chapter will not address issues relating to consumer privacy since they fall outside the scope of the chapter’s and the text’s primary focus.

Background

LO2

There are three ways in which privacy may be legally protected: by the Constitution (federal or state), by federal and/or state statutes, and by the common law. The U.S. Constitution does not

actually mention privacy, but privacy has been inferred as a necessary adjunct of other constitutional rights we hold. The right to privacy was first recognized by the Supreme Court in Griswold v. Connecticut,13 when the Court held that a Connecticut statute restricting a married couple’s use of birth control devices unconstitutionally infringed on the right to marital privacy.

The Court held a constitutional guarantee of various zones of privacy as a part of the fundamental rights guaranteed by the Constitution, such as the right to free speech and the right to be free from unreasonable searches and seizures. The latter right is that on which many claims for privacy rights are based; the Court has held that under certain circumstances the required disclosure of certain types of personal information should be considered an unreasonable search. It has protected against the mandatory disclosure of personal papers, and it decided in favor of the right to make procreation decisions privately. fundamental right A right that is guaranteed by the Constitution, whether stated or not.

While baseless or unjustified intrusions, at first blush, may appear to be completely abhorrent in our society, proponents of the argument that employers can ask whatever they please argue that if an employee does not want to offer a piece of information, there is something the employee is trying to hide. For example, why would an employee refuse to submit to a drug test if that employee is not abusing drugs? Do private-sector employers have the right to ask their employees any question they choose and take adverse employment actions against the employee if she or he refuses to answer since they are not necessarily constrained by constitutional protections? (See Exhibit 14.1, “Realities about Employee Privacy Rights.”) private sector That segment of the workforce represented by private companies (companies that are not owned or managed by the government or one of its agencies).

Exhibit 14.1 Realities about Employee Privacy Rights

1. Employees do not have an absolute right to privacy in their workplace.

2. It is not a breach of an employee’s right to privacy for an employer to ask with whom the employee lives.

3. In the private sector, the Constitution does not protect employees’ right to be free from unreasonable searches and seizures.

4. Without constitutional protection, employees are safeguarded to some extent by common-law protections against invasions of privacy.

5. Though an employee may give information to an employer, the employer is still bound to use that information only for the purpose for which it was collected.

page 715Additionally, employees are concerned about the type of information gathered in the

course of applying for and holding a job. Who has access to that information? What information may be deemed “confidential,” and what does that mean to the employee? Evidently, employers perceive challenging issues among these and others with regard to privacy. According to a 2016 survey, 54 percent of firms now report that they have appointed a chief data officer. This figure represents an increase from just 12 percent in 2012; and the International Society of Chief Data Officers launched their inaugural kickoff in January 2016, with a strong commitment to carry this momentum forward on a global basis.14

Workplace Privacy, Generally

LO3

Privacy protections in the workplace are a completely different animal than other types of workplace protections, such as those against discrimination on the basis of gender, disability, and age. Simply put, employees in the private-sector workplace do not have broad rights to personal privacy. Why? To begin, unlike the other areas, no comprehensive federal workplace privacy legislation exists. The protections that do exist, as discussed previously, arise from a motley collection of inferences from the Constitution, limited-purpose federal laws, assorted state laws, and some common law (court-created through case law). common law Law made and applied by judges, based on precedent (prior case law).

Second, in almost every state, employees are hired at will, which means that employers can fire them for good reasons, for bad reasons, or for no reason at all (but not for an illegal reason), as we shall discuss in more detail later. If an employer legitimately can fire an employee for “bad reasons,” you can see quite clearly why an employee is not going to be successful in stating a case against the employer for violating the employee’s privacy unless the employee can fit his or her complaint specifically into one of the protections guaranteed by the federal, state, and common laws, thus turning a “bad reason” into an “illegal reason.”

Perhaps the most effective way to understand workplace privacy protections is to examine where the protections do exist. Courts have recognized an employee’s right to privacy in the workplace where there is a “reasonable expectation of privacy.”15 However, they have also held that a work area, unlike, for instance, a bedroom, is not a place of solitude or seclusion; so, there is no expectation of privacy in that environment.16 In addition, anything that the employer provides to employees—a telephone, computer, desk, chair, or other business-related instrument— contains no expectation of privacy because it belongs to the employer, not to the employees. Thus, the content of emails, telephone calls, and computer activity conducted on employer- provided equipment is not private.

Is there any reasonable expectation of privacy in the workplace? (See Exhibit 14.2, “‘Reasonable’ Areas in Which to Expect Privacy in the Workplace, Subject to Exceptions.”) Yes, employees have an expectation of privacy with regard to their body, including what they carry in their pockets. Their employer generally does not have the right to frisk them or to require them to disclose what they are carrying in their pockets; although, as we shall see later, there are situations in which such as invasion of privacy would be appropriate. This expectation extends page 716to company-provided bathrooms, changing rooms, and showers. But, should this

expectation cover drug testing? We will explore that question later in this chapter.

Exhibit 14.2 “Reasonable” Areas in Which to Expect Privacy in the Workplace, Subject to Exceptions

Second, employees have an expectation of privacy in connection with items that are contained

in other normally private locations, such as a purse or briefcase; however, these locations, also, are subject to exceptions under certain circumstances. For example, if an employee puts a purse in a company-provided desk drawer, the employer generally has the right to examine the desk drawer but likely not the contents of their purse. Similarly, employees have an expectation of privacy in the contents of their car that sits in the company parking lot, assuming that it is not a company car or that they are not using the car for company purposes other than to go to and from work. Their employer generally cannot go and search their car, with some exceptions.

Third, employees have an expectation of privacy in their personal (not personnel) records and information. For example, they have the right to assume that their employer has no right to access their credit history, their driving record, or their family’s medical records without their permission; but, we can all imagine situations in which that rule may not apply or may be excepted. Their

employer, for example, could reasonably expect to access their driving history if they were applying for a job operating a company vehicle, although the employer needs their permission to do so.

Finally, workers have an expectation of privacy in what they choose to do in their free time, when they are away from work. However, this expectation is not quite as extensive as one might anticipate. Plenty of employers have tried to restrict what employees do in their free time, some successfully.

While the list may seem broad, the scope of workplace privacy rights is actually quite limited. The vast majority of the time during which employees are present at their employers’ offices, they are subject to monitoring and other intrusions. Employers are free to monitor their movements, the keystrokes they make on their employer-provided computers, and the time they spend communicating with co-workers. Technological improvements have not only made their task that much easier but have also generated new ideas for intruding on employee privacy never before imagined (iris scans, voice prints, and face geometry, to name three).

page 717Now we shall examine the specifics, first exploring public-sector employee privacy,

then continuing to private-sector employee privacy.

Public-Sector Employee Privacy With regard to the public sector, the Constitution protects individuals from wrongful invasions by the state or by anyone acting on behalf of the government. The personal privacy of federal, state, and local employees is therefore protected from governmental intrusion and excess. As we will see later in this chapter, private-sector employees are subject to different—and often fewer— protections. public sector That segment of the workforce represented by governmental employers and governmental agency employers. In some situations, this term may include federal contractors.

Constitutional Protection

The Fourth Amendment and Its Exceptions For the Fourth Amendment’s protection against unreasonable search and seizure to be applicable to a given situation, there must first exist a “search or seizure.” The Supreme Court has liberally interpreted “search” to include a wide variety of activities such as the retrieval of blood samples and other bodily invasions, including urinalyses, as well as the collection of other personal information. One might imagine how this umbrella gets wider as technology advances.

LO4

For the search to violate the Fourth Amendment, that search must be deemed unreasonable, unjustified at its inception, and impermissible in scope. You will read in the seminal Supreme Court case, O’Connor v. Ortega,17 included at the end of the chapter, that a search is justified “at its inception” where the employer has reasonable grounds for suspecting that the search will turn up evidence that the employee is guilty of work-related misconduct, or where the search is necessary for a noninvestigatory work-related purpose such as to retrieve a file.

It is critical to review the O’Connor case at the end of the chapter to understand both the

fundamental basis of public-sector search and seizure law as it applies to the workplace as well as much of current case law today. The Court held that a search is permissible in scope where

“the measures adopted are reasonably related to the objectives of the search and not excessively intrusive in light of . . . the nature of the misconduct being investigated.”

Early in 2012, the U.S. Supreme Court addressed the privacy implications of global positioning systems (“GPS”) in United States v. Jones.18 The Court held that placing a GPS tracking device on a suspect’s car was a “search” under the Fourth Amendment. The concurring opinions in Jones also discussed the permissible scope of using GPS in an investigation with regard to the reasonable expectation of privacy standard. Despite an earlier holding that there is no reasonable expectation of privacy in one’s location while traveling on public roads, the concurring opinions agreed that GPS tracking over an extended period of time (four weeks in this case) went beyond reasonable expectations of privacy under the Fourth Amendment. In addition, Justice Sotomayor noted that long-term GPS monitoring could reveal a wide range of personal information, including familial, political, professional, religious, and sexual associations. Though a growing number of employers are using GPS systems to track employee activity on the job page 718(a topic

discussed below), the effect of the Supreme Court’s decision in the private sector remains unclear.19

Generally, all searches that are conducted without a judicially issued warrant based on a finding of reasonable cause are held to be unreasonable. But there are several exceptions to this rule, including searches that happen as part of an arrest, some automobile searches, pat-down searches with probable cause to believe the subject is armed, and administrative searches of certain regulated industries.

One example of an exception occurred in Shoemaker v. Handel,20 where the Supreme Court held that a drug-related urine test of jockeys without a warrant was acceptable because it satisfied the court’s two-pronged test. The Court held that (1) where there is a strong state interest in conducting the unannounced warrantless search and (2) where the pervasive regulation of the industry reduces the expectation of privacy, the search does not violate the Fourth Amendment. Similarly, in Skinner v. Railway Labor Executives Association,21 decided three years after Shoemaker, the Court again addressed the question of whether certain forms of drug and alcohol testing violate the Fourth Amendment. While this case is discussed in this text in connection with testing, it is relevant here for the Court’s analysis of the privacy right challenged. In Skinner, the defendant justified testing railway workers based on safety concerns: “to prevent accidents and casualties in railroad operations that result from impairment of employees by alcohol or drugs.” The Court held that “[t]he Government’s interest in regulating the conduct of railroad employees to ensure safety, like its supervision of probationers or regulated industries, or its operation of a government office, school, or prison, likewise presents ‘special needs’ beyond normal law enforcement that may justify departures from the usual warrant and probable-cause requirements.”

It was clear to the Court that the governmental interest in ensuring the safety of the traveling public and of the employees themselves “plainly justifies prohibiting covered employees from using alcohol or drugs on duty, or while subject to being called for duty.” The issue then for the Court was whether the means by which the defendant monitored compliance with this prohibition justified the privacy intrusion absent a warrant or individualized suspicion. In reviewing the justification, the Court focused on the fact that permission to dispense with warrants is strongest where “the burden of obtaining a warrant is likely to frustrate the governmental purpose behind the search,” and recognized that “alcohol and other drugs are eliminated from the bloodstream at a constant rate and blood and breath samples taken to measure whether these substances were in the bloodstream when a triggering event occurred must be obtained as soon as possible.” In addition, the Court noted that the railway workers’ expectations of privacy in this industry are diminished given its high scrutiny through regulation to ensure safety. The Court therefore concluded that the railway’s compelling interests outweigh privacy concerns since the proposed testing “is not an undue infringement on the justifiable expectations of privacy of covered employees.” Consider the possible implications of this and related decisions on genetic testing in

governmental workplaces or in employment in heavily regulated industries such as that involved in Skinner.

page 719Finally, the employer may wish to conduct a search of employee lockers. Would this

be acceptable? Under what circumstances is an employer allowed to conduct searches? A search may constitute an invasion of privacy, depending on the nature of the employer and the purpose of the search. The unreasonableness of a search is determined by balancing the extent of the invasion and the extent to which the employee should expect to have privacy in this area against the employer’s interest in the security of its workplace, the productivity of its workers, and other job-related concerns.

Prior to any search of employer-owned property, such as desks or lockers, employees should be given formal written notice of the intent to search without their consent. Where the employer intends to search personal effects such as purses or wallets, employees should be forewarned, consent should be obtained prior to the search, and employees should be made well aware of the procedures involved.22 Consent is recommended under these circumstances because an employee has a greater expectation of privacy in those personal areas. These rights are significantly diminished where the employer is not restrained by constitutional protections.

In an interesting combination of private/public workplace rights, the Ninth Circuit addressed these issues in the 2007 case United States v. Ziegler.23 In that case, Ziegler worked for a private company that had a clear policy in technology use. It explained that equipment and software were company-owned, to be used for business purposes only, and that employees’ emails would be constantly monitored. The FBI received a complaint from the firm’s Internet provider that Ziegler had accessed child pornography from a company computer and requested access to his computer.24 The employer consented to the request. The court held that the employer had the right to consent to the search because the computer was workplace property and the contents of Ziegler’s hard drive were work-related items that contained business information and that were provided to, or created by, the employee in the context of a business relationship. Ziegler’s downloading of personal items (pornography) did not destroy the employer’s common authority over the computer given the company’s policies that informed employees that electronic devices were company-owned and subject to monitoring—two key components necessary to the reasonable expectation element in any employment context.25

When an employee is detained during a search, the employee may have a claim for false imprisonment, which is defined as a total restraint on freedom to move against the employee’s will, such as keeping an employee in one area of an office. The employee need not be “locked” into the confinement to be restrained; but when the employee remains free to leave at any time, there is no false imprisonment.

The Fifth and Fourteenth Amendments The Fifth and Fourteenth Amendments also protect a government employee’s right to privacy in that the state may not restrict one’s rights unless it is justified. For instance, the Supreme Court has consistently held that everyone has a fundamental right to travel, free of government intervention. Where the state attempts to infringe on anything that has been determined to be a fundamental right, that page 720infringement or restriction is subject to the strict scrutiny of the

courts. For the restriction to be allowed, the state must show that the restriction is justified by a compelling state interest. Moreover, the restriction must be the least intrusive alternative available.

On the other hand, for those interests not deemed by the courts to constitute fundamental rights, a state may impose any restrictions that can be shown to be rationally related to a valid state interest, a much more lenient test.

To determine whether the state may restrict or intrude on an employee’s privacy rights, it must first be determined whether the claimed right is fundamental. Two tests are used to make this determination. First, the court may look to whether the right is “implicit in the concept of ordered

liberty, such that neither liberty nor justice would exist if [the rights] were sacrificed.” Second is whether the right is “deeply rooted in this Nation’s history and tradition.”

While conception, child rearing, education, and marriage have been held to be within the area of privacy protected by the Constitution, other issues have not yet been addressed or determined by the Court, including the right to be free from mandatory preemployment medical tests. Moreover, the Court has found no general right of the individual to be left alone.

The Privacy Act of 1974

Governmental intrusion into the lives of federal employees is also restricted by the Privacy Act of 1974. Much of the discussion in the area of employee privacy is framed by governmental response to the issue, both because of limitations imposed on the government regarding privacy and because of the potential for abuse. The Privacy Act of 1974 regulates the release of personal information about federal employees by federal agencies. Specifically, but for 12 stated exceptions, no federal agency may release information about an employee that contains the means for identifying that employee without the employee’s prior written consent. (See Exhibit 14.3, “Privacy Act of 1974.”)

There are four basic principles that underlie the Privacy Act:

1. To restrict disclosure of personally identifiable records maintained by agencies.

2. To grant individuals increased rights of access to agency records maintained on themselves.

3. To grant individuals the right to seek amendment of agency records maintained on themselves upon a showing that the records are not accurate, relevant, timely, or complete.

4. To establish a code of “fair information practices” that requires agencies to comply with statutory norms for collection, maintenance, and dissemination of records.26

By affording the employee with these rights, Congress has effectively put the right of disclosure of personal information in the hands of the employee, at least when none of the 12 specified exceptions applies.

page 721

Exhibit 14.3 Privacy Act of 1974

No Agency shall disclose any record which is contained in a system of records by any means of communication to any person, or to another agency, except pursuant to a written request by, or with the prior written consent of, the individual to whom the record pertains, unless disclosure of the record would be

1. To those officers and employees of the agency which maintains the record who have a need for the record in the performance of their duties.

2. Required under section 552 of this title; (the Freedom of Information Act). (Note that this act does not apply to “personnel, medical, and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.”)

3. For a routine use as defined in subsection (a)(7) of this section and described under subsection (e)(4)(D).

4. To the Bureau of the Census for purposes of planning or carrying out a census or survey or related activity. . . .

5. To a recipient who has provided the agency with advance adequate written assurance that the record will be used solely as a statistical research or reporting record, and the record is to be transferred in a form that is not individually identifiable.

6. To the National Archives and Records Administration as a record which has sufficient historical or other value to warrant its continued preservation by the United States Government, or for evaluation by the Archivist of the United States or the designee of the Archivist to determine whether the record has such value.

7. To another federal agency or to an instrumentality of any government jurisdiction within or under the control of the United States for a civil or criminal law enforcement activity if the activity is authorized by law, and if the head of the agency or instrumentality has made a written request to the agency which maintains the record specifying the particular portion desired and the law enforcement activity for which the record is sought.

8. To a person pursuant to a showing of compelling circumstances affecting the health or safety of an individual if upon such disclosure notification is transmitted to the last known address of such individual.

9. To either House of Congress, or, to the extent of matter within its jurisdiction, any committee or subcommittee thereof, any joint committee of Congress or subcommittee of any such joint committee.

10. To the Comptroller General, or any of his authorized representatives, in the course of the performance of the duties of the Government Accountability Office.

11. Pursuant to the order of a court of competent jurisdiction.

12. To a consumer reporting agency in accordance with section 3711(e) of Title 31.

When one of the Privacy Act exceptions applies, the act dismisses the employee consent requirement, which gives the agency total control over the use of the file. The right to privacy is not absolute; the extent of protection varies with the extent of the intrusion, and the interests of the employee are balanced against the interests of the employer. Basically, the information requested under either the Privacy Act or the Freedom of Information Act is subject to a balancing test weighing the need to know the information against the employee’s privacy interest.

page 722The Ninth Circuit Court of Appeals has developed guidelines to assist in this balancing

test. The court directs that the following four factors be looked to in reaching a conclusion relating to disclosure:

1. The individual’s interest in disclosure of the information sought.

2. The public interest in disclosure.

3. The degree of invasion of personal privacy.

4. Whether there are alternative means of getting the information.27

Critics of the act suggest that it is enormously weakened as a result of one particular exemption that allows disclosure for “routine use” compatible with the reason the information was originally collected. In addition, certain specific agencies are exempted. For instance, in March 2003, the Department of Justice exempted the National Crime Information Center, which is a resource for 80,000 law enforcement agencies.

The Privacy Act grants employees two options for relief: criminal penalties and civil remedies, including damages and injunctive relief. The act also allows employees who are adversely affected by an agency’s noncompliance to bring a civil suit against the agency in federal court.

Privacy Protection Study Commission The Privacy Protection Study Commission was formed by Congress with the purpose of studying the possibility of extending the Privacy Act to the private sector. In 1977, the commission concluded that the Privacy Act should not be extended to private employers but that private-sector employees should be given many new privacy protections. The suggested protections required a determination of current information-gathering practices and their reasons, a limitation on the information that may be collected to what is relevant, a requirement that the employer inform its employees to ensure accuracy, and a limitation on the usage of the information gathered both internally and externally.

The Commission further found that certain issues demanded federal intervention and, for this reason, recommended that (1) the use of polygraph tests in employment-related issues be prohibited; (2) pretext interviews be prohibited; (3) the use of arrest or criminal records in employment decisions be prohibited except where otherwise allowed or required by law; (4) employers be required to use reasonable care in selection of their investigating agencies; and (5) the Federal Fair Credit Reporting Act provisions be strengthened. These recommendations have yet to be implemented by Congress, primarily due to private employers’ vocal rejection of such an extension of federal law due to the cost of the implementation of the recommendations.

Federal Wiretapping—Title III Title III of the Federal Wiretap Act,28 as amended (particularly by the Electronic Communications Privacy Act of 1986, discussed below), provides privacy protection for and governs the interception of oral, wire, and electronic communications. page 723Title III covers all telephone

communications regardless of the medium, except that it does not cover the radio portion of a cordless telephone communication that is transmitted between the handset and base unit. The law authorizes the interception of oral, wire, and electronic communications by investigative and law enforcement officers conducting criminal investigations pertaining to serious criminal offenses, or felonies, following the issuance of a court order by a judge. The Title III law authorizes the interception of particular criminal communications related to particular criminal offenses. In short, it authorizes the acquisition of evidence of crime. It does not authorize noncriminal intelligence gathering, nor does it authorize interceptions related to social or political views.

Forty-four states, plus the District of Columbia, the Virgin Islands and Puerto Rico, have statutes permitting interceptions by state and local law enforcement officers for certain types of criminal investigations.29 All of the state statutes are based upon Title III, from which they derive. These statutes must be at least as restrictive as Title III, and in fact most are more restrictive in their requirements. In describing the legal requirements, we will focus on those of Title III since they define the baseline for all wiretaps performed by federal, state, and local law enforcement agencies. In recent years, state statutes have been modified to keep pace with rapid technological advances in telecommunications.

Wiretaps are limited to the crimes specified in Title III and state statutes. Most wiretaps are large undertakings, requiring a substantial use of resources. In 2015, the average cost of installing intercept devices and monitoring communications was $42,216. The frequency of wiretap requests is also growing. In 2015, the number of federal and state wiretaps grew by 17 percent; of 4,148 federal and state applications for a wiretap, none of the state applications were denied.30

Electronic Communications Privacy Act (ECPA) Title III was created to combat invasion by the government for eavesdropping, in large part due to the Watergate scandal in the 1970s. Originally the federal statutes targeted government eavesdropping on telephone discussion without the consent of the speakers. The federal statute required the government agents to obtain a warrant before they could intercept any oral discussions. In late 1986, Congress increased the coverage by broadening the range of electronic communications, resulting in the ECPA.

The ECPA covers all forms of digital communications, including transmissions of text and digitalized images, in addition to voice communications on the telephone. The law also prohibits unauthorized eavesdropping by all persons and businesses, not only by the government. However, courts have ruled that “interception” applies only to messages in transit and not to messages that have actually reached company computers. Therefore, the impact of the EPCA is to punish electronic monitoring only by third parties and not by employers. Moreover, the ECPA allows interception where consent has been granted. Therefore, a firm that secures employee consent to monitoring at the time of hire is immune from ECPA liability, which means that an

employer does not violate the ECPA when it opens and reads employee emails on its own system.31

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Private-Sector Employee Privacy

LO5

Despite the fact that public and private employers have a similar legitimate need for information about applicants and employees to make informed decisions about hiring, promotion, security, discipline, and termination, privacy rights in the private sector of employment are limited; an employee who is treated arbitrarily, but who is without a union or contract, is generally left with fewer rights in the private-sector environment.

Generally, employment actions by private employers do not trigger constitutional protections because the Constitution is designed mostly to curb government excesses. The term used is State action, which includes actions by both state and federal governments. If no State action is involved, no constitutional protections are triggered. An employment action by a private employer is considered to be a private action.

Whether there should be a right to privacy in both the public and the private sectors, employers suggest that the employee has three choices when faced with objectionable intrusions by employers: quit, comply, or object (and risk being fired). Employees argue that they are defenseless because of their financial condition, and that their privacy in the private sector is subject to greater abuse precisely because there are no protections and that the option to quit is frankly unrealistic.

One explanation offered for the difference between public- and private-sector privacy protections is compliance-related costs. The implementation of the Privacy Act throughout its agencies costs the government relatively little because it is conducting self-regulation.

By contrast, ensuring compliance within the private sector requires administration of the compliance and adjudication of violations. The Privacy Protection Study Commission found that requiring an employer to change its manner of maintaining and using records can drastically increase the cost of operation.

These costs include the costs of changing employment record-keeping practices, removing relevant information from employment decisions, and implementing a social policy of employee privacy protection. These costs are not necessarily burdensome to the employer, however. Employers’ concern for compliance costs may well be an unrealistic barrier to the development of regulations for privacy rights of private-sector employees.

A second distinction between public- and private-sector employers offered to justify different privacy standards is that more stringent regulation is needed for government employees because it is common for federal agencies to be overzealous in surveillance and information gathering. Private-sector employers, in contrast, do not generally have similar resources and, therefore, are unable to duplicate these invasive activities.

Legal Framework for Employee Rights in the Private Sector

LO6

In every state but one (Montana),32 employment is considered to be “at will.” Employment-at- will means that the employee serves at the will of the employer. Employers can therefore fire an employee for incompetence, insubordination, or any of the other reasons we might consider valid, as well as because the employee page 725wore red shoelaces to work or because the manager’s

beloved Cavaliers lost an important game in double overtime the night before. The point is that employees serve at the whim of the employer. In the same manner, an employee at will may opt to leave a job at any time for any reason, without offering any notice at all. So the freedom is theoretically mutual; though, of course, the power balance is not always equal. employment-at-will Absent a particular contract or other legal obligation that specifies the length or conditions of employment, all employees are employed “at will.” This means that, unless an agreement specifies otherwise, employers are free to leave the position at any time and for any reason. By virtue of the inherent imbalance of power in the relationship, this mutuality is often only in theory.

Even in at-will states, employees maintain a right to work (see Exhibit 14.4, “Protecting the Right to Work in the At-Will Employment Context”). First, as we have seen in other chapters, federal and state laws protect employees from certain employment actions, such as those based on discrimination against one of the protected classes, including gender or race. Second, an employee who signs an employment contract has those rights stated in the contract. Third, union employees have the protections guaranteed to them by the collectively bargained contract between the employer and the union.

Exhibit 14.4 Protecting the Right to Work in the At-Will Employment Context

Finally, employment-at-will is limited by certain exceptions created either by statute or case

law. Some states recognize one or more exceptions, while others might recognize none at all. In addition, the definition of these exceptions may vary from state to state.

• Bad faith, malicious or retaliatory termination in violation of public policy.

• Termination in breach of the implied covenant of good faith and fair dealing.

• Termination in breach of some other implied contract term, such as those that might be created by employee handbook provisions (in certain jurisdictions).

• Termination in violation of the doctrine of promissory estoppel (where the employee reasonably relied on an employer’s promise, to the employee’s detriment).

• Other exceptions as determined by statutes (such as the Worker Adjustment and Retraining Notification Act [WARN]).

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If an employee wishes to recover against an employer in an at-will relationship, the employee

must be able to point to a law, court decision, or contractual provision that protects her or him. In the area of privacy, given the absence of any comprehensive national privacy law, that task might be quite difficult.

Bases for Right to Privacy in the Private Sector Private-sector employers are not bound by constitutional structures. On a state-by-state basis, however, private-sector employees may have the protection of either common law or by statute.

All but two states provide common-law tort claims to protect individual privacy, such as intrusion into seclusion. Various torts described below have developed to protect individual solitude, the publication of private information, and publications that present personal information in a false light.

Statutory Claims State legislatures have responded to the issue of private-sector employee privacy in one of four ways:

1. Enacting legislation mirroring federal law regarding the compilation and dissemination of information.

2. Recognizing a constitutional right to privacy under their state constitutions, as in California, Illinois, and Arizona. For example, California appellate courts have found that employees terminated for refusing to submit to drug tests were wrongfully discharged in violation of the state’s constitutional guarantee of a right to privacy, which requires employers to demonstrate a compelling interest in invading an employee’s privacy. In Pennsylvania, a court held that a drug test violates that state’s policy against invasions of privacy where the methods used do not give due regard to the employee’s privacy or if the test results disclose medical information beyond what is necessary. Other states that provide constitutional recognition and protection of privacy rights include Alabama, Florida, Hawaii, Louisiana, Montana, South Carolina, and Washington. However, in all states except California, application of this provision to private-sector organizations is limited, uncertain, or not included at all.

3. Protecting employees only in certain areas of employment, such as personnel records or the use of credit information.

4. Leaving private-sector employees to fend for themselves while the federal laws and the Constitution afford protection to federal employees and those subject to state action.

Tort Law Protections/Common Law As mentioned above, courts in almost all states have developed case law, the “common law,” which identifies certain torts in connection with private-sector invasion of privacy. Georgia was the first jurisdiction whose courts recognized a common-law right to privacy. As the court explained in Pavesich v. New England Life Ins. Co.,33 “a right of privacy is derived from natural law, recognized by municipal law, and its existence can be inferred from expressions used by commentators and writers page 727on the law as well as judges in decided cases. The right of

privacy is embraced within the absolute rights of personal security and personal liberty.” Though some states rely on statutory protections rather than common law, only two states—North Dakota and Wyoming—fail to recognize any of the four privacy torts discussed in this chapter.34 A tort is a legal wrong, for which the law offers a remedy. The torts of particular interest in this chapter include intrusion into solitude or seclusion, the publication of private information, and publication that places another in a false light. Defamation also will be discussed. tort A private (civil) wrong against a person or her or his property.

Publication as used in these torts means not only publishing the information in a newspaper or other mass media but generally “bringing it to light” or disseminating the information. In addition, the concept of publication is defined slightly differently depending on the tort. Truth and absence of malice are generally not acceptable defenses by an employer sued for invasion of an employee’s privacy. They are acceptable, however, in connection with claims of defamation.

LO7

Intrusion into Seclusion The prima facie case for the tort of intrusion into seclusion is listed in Exhibit 14.5. (For a more detailed discussion of prima facie cases, please see Chapter 2.)

Exhibit 14.5 The Prima Facie Case for the Tort of Intrusion into Seclusion

The intrusion may occur in any number of ways. An employer may

• Verbally request information as a condition of employment.

• Require that its employees provide information in other ways such as through polygraphs, drug tests, or psychological tests.

• Require an annual medical examination.

• Ask others for personal information about its employees.

• Go into private places belonging to the employee.

page 728Any of these methods may constitute a wrongful invasion that is objectionable to a

reasonable person. On the other hand, if the employer can articulate a justifiable business purpose for the inquiry/invasion, the conduct may be deemed acceptable.

A 2011 case, Lawlor v. North American Corp. of Illinois,35 provides an example of an objectionable intrusion. In this case, North American Corp. hired a private investigator to determine whether a former employee, Kathleen Lawlor, had breached her non-compete agreement when she left to work for a competitor company (see Chapter 1 for discussion of those related legal issues). North American asked the investigator to discover whether Lawlor had called its customers and tried to convince them to move their business to the competitor company, and provided Lawlor’s birth date and social security number. The investigator obtained information on her home phone and cell phone calls—including the date, time, duration, and numbers called— by contacting the phone companies and pretending to be Lawlor requesting her own records, using her personal information to “verify” their identity. Illinois’ Supreme Court explained that, “[o]ne who intentionally intrudes, physically or otherwise, upon the solitude or seclusion of another or his private affairs or concerns, is subject to liability to the other for invasion of his privacy, if the intrusion would be highly offensive to a reasonable person.”

In connection with Opening Scenario 1, Cherita’s decision in connection with the HIV tests may

be governed in part by the law relating to employment testing as discussed in Chapter 4 and in part by the law relating to disability discrimination as discussed in Chapter 13 (since HIV is considered a disability under the Americans with Disabilities Act). On the other hand, the law relating to intrusion into seclusion also would have application here in terms of disclosure of the test results. If Cherita discloses the results to anyone or, through her actions, leads someone to a belief about the employee’s HIV status, she might be liable under this tort. In addition, it is important to consider that it is highly unlikely that Cherita has any right to know any employee’s HIV status since it is unlikely that the information would be job-related, even for physicians. (Can you imagine what employment position might warrant this type of information? Is HIV status ever considered job-related?)

Public Disclosure of Private Facts The prima facie case for the tort of public disclosure of private facts is listed in Exhibit 14.6.

Exhibit 14.6 The Prima Facie Case for the Tort of Public Disclosure of Private Facts

The information disclosed must not already be publicized in any way, nor can it be information

the plaintiff has consented to publish. Therefore, in Pemberton v. Bethlehem Steel Corp.,36 publication of an employee’s criminal record did not constitute public disclosure of private facts because the criminal record did not contain private facts; it was information that was already accessible by the public.

As you shall see at the end of the chapter, in Shoun v. Best Formed Plastics, Inc.,37 the

publication also must be made public, which involves more than mere disclosure to a single third party. The public disclosure must be communication either to the public at large or to so many people that the matter must be regarded as substantially certain to become one of public knowledge or one of knowledge to a particular public whose knowledge of the private facts would be embarrassing to the employee. Therefore, publication to all of the page 729employees in a

company may be sufficient, while disclosure to a limited number of supervisors may not. Several states have enacted legislation codifying this common-law doctrine under the rubric of

“breach of confidentiality.” Connecticut, for instance, has passed legislation requiring employers to maintain employee medical records separate from other personnel records. Other states have limited an employer’s ability to disclose personnel-related information or allowed a cause of action where, through the employer’s negligent maintenance of personnel files, inaccurate employee information is communicated to a third party.

Publication in a False Light The prima facie case of publication in a false light requires that there was a public disclosure of facts that place the employee in a false light before the public if the false light would be highly offensive to a reasonable person and the person providing the information had knowledge of or recklessly disregarded the falsity or false light of the publication.

Voluntary consent to publication of the information constitutes an absolute bar to a false-light action. This type of tort differs from defamation, where disclosure to even one other person than the employer or employee satisfies the requirements. The tort of publicizing someone in a false light requires that the general public be given a false image of the employee. In a false-light action, the damage for which the employee is compensated is the inability to be left alone, with injury to one’s emotions and mental suffering, while defamation compensates the employee for injury to his or her reputation in the public’s perception.

Note that any of the above claims may be waived by the employee if the employee also publishes the information or willingly or knowingly permits it to be published. For example, in Cummings v. Walsh Construction Co.,38 the employee complained of public disclosure of embarrassing private facts, consisting of information relating to a sexual relationship in which she was engaged with her supervisor. The court page 730held that, where the employee had informed

others of her actions, she waived her right not to have her supervisor disclose the nature of their relationship.

As with defamation, an exception to this waiver exists in the form of compelled self-publication, where an employer provides the employee with a false reason as the basis for termination and the employee is compelled to restate this reason when asked by a future employer the basis of departure from the previous job. Therefore, where the employer intentionally misstates the basis for the discharge, that employer may be subject to liability for libel because it is aware that the employee will be forced to repeat (or “publish”) that reason to others.

Breach of Contract An employee also may contest an invasion of privacy by her or his employer on the basis of a breach of contract. The contract may be an actual employment

contract, collective bargaining agreement, or one found to exist because of promises in an employment handbook or a policy manual.

Defamation Libel refers to defamation in a written document, while slander consists of defamation in an oral statement. Either may occur during the course of a reference process. And, while the prima facie case of defamation requires a false statement, even a vague statement that casts doubt on the reputation of an individual by inference can cause difficulties for an employer if it cannot be substantiated.

The elements of a prima facie claim for defamation are included in Exhibit 14.7.

Exhibit 14.7 The Prima Facie Claim for Defamation

One cautious solution to this problem area is to request that all employees fill out an exit

interview form that asks, “Do you authorize us to give a reference?” If the applicant answers yes, she or he should be asked to sign a release of liability for the company.

Ordinarily defamation arises from someone other than the defamed employee making

defamatory statements about an employee; but can you imagine being in a situation where you have to defame yourself? One interesting form of defamation has evolved page 731where an

employee is given a false or defamatory reason for her or his discharge so now the employee is the one who is forced to publicize it to prospective employers when asked for the reason they were fired. These circumstances give rise to a cause of action for defamation, termed compelled self-publication, because the employee is left with no choice but to tell the prospective employer the defamatory reasons for her or his discharge. Barring this result, the employee would be forced to fabricate reasons different from those given by the former employer and run the risk of being reprimanded or terminated for not telling the truth. This cause of action has been recognized, however, only in Colorado, Iowa, Minnesota, Connecticut, and California. (For a more detailed discussion, see Chapter 4.)

An employer may defend against an employee’s claim of defamation by establishing the truth of the information communicated. While truth is a complete defense to defamation, it can be difficult to prove without complex paper management.

Employers also may be immune from liability for certain types of statements because of court- recognized privileges in connection with them. For example, in some states, an employer is privileged to make statements, even if defamatory, where the statement is made in the course of a judicial proceeding or where the statement is made in good faith by one who has a legitimate business purpose in making the communication (e.g., an ex-employer) to one who has a business interest in learning the information (e.g., a prospective employer).39 This privilege would apply where a former employer offers a good-faith reference to an employee’s prospective employer. (See additional discussion of liability for references, below.) “Good faith” means that the employer’s statement, though defamatory, is not made with malice or ill will toward the employee.

Regulation of Employees’ Off-Work Activities

LO8

Can your boss tell you what to do even when you are not at work? in the private sector, the answer generally is yes.

Employers may regulate the off-work or otherwise private activities of their employees where

they believe that the off-work conduct affects the employee’s performance at the workplace. This legal arena is a challenging one since, in the at-will environment, employers can generally impose whatever rules they wish. However, as discussed earlier in this chapter, they may then run afoul of common-law privacy protections. In addition, some states have enacted legislation protecting against discrimination on the basis of various off-work acts. For instance, New York’s lifestyle discrimination statute prohibits employment decisions or actions based on four categories of off- duty activity: legal recreational activities, consumption of legal products, political activities, and membership in a union.

Across the nation, there are other less-broad protections of off-work acts. Thirty states have enacted protections specifically on the basis of consumption or use of legal products off the job, such as cigarettes.40 These statutes originated from the narrower protection for workers who smoked off-duty.

While the following may change after publication of this text, the Affordable Care Act permits employers to charge smokers up to 50 percent more for page 732their premiums, effectively

imposing a “tobacco surcharge.”41 Each state also is allowed to establish more restrictive limits on health insurance for smokers, and insurers can set tobacco surcharges at any level up to those limits. Further, states may choose to impose differential tobacco surcharges based on age. For example, in Nevada, New Hampshire, and Ohio, smokers pay insurance premium rates more than 25 percent higher than those paid by non-smokers. In total, 15 states allow maximum surcharges of up to 50 percent. Other states such as Colorado, Kentucky, and Arkansas limit the maximum allowable surcharge to below 50 percent. Conversely, several states, including California, New Jersey, New York, Massachusetts, Rhode Island, Vermont, and the District of Columbia, prohibit tobacco use surcharges for insurance plans.42

You might be asking yourself, though, how do these firms know? What happens if

employees lie about their habits? Alaska Airlines uses a preemployment urine screening and will not even hire candidates if they are smokers (yes, they can test your urine for that!). Some companies conduct “sniff tests” when employees enter the premises, while others require workers to sign an affidavit, or take periodic urine tests. When 39 Whirlpool employees who had not paid the surcharge, thus claiming to be nonsmokers, were observed smoking in the firm’s designated smoking areas, they were suspended for lying. Presumably, they also owed the surcharge. Since 2006, Weyco Inc., a Michigan-based medical benefits administrator, has extended its no-tobacco policy to include employees’ spouses; workers whose husbands or wives refuse to take a test or come up positive are fined $1,000 a year until their loved one quits.43

On the other hand, the issue of weight is handled slightly differently than smoking. Employers are not prohibited from making employment decisions on the basis of weight, as long as they are not in violation of the Americans with Disabilities Act (ADA) when they do so (see Chapter 13). The issue depends on whether the employee’s weight is evidence of or due to a disability. If so, the employer will need to explore whether the worker is otherwise qualified for the position, with or without reasonable accommodation, if necessary. If the individual cannot perform the essential functions of the position, the employer is not subject to liability for reaching an adverse employment decision. However, employers should be cautious in this regard since the ADA also protects workers who are not disabled but who are perceived as being disabled, a category into which someone might fall based on her or his weight.

One recent trend with regard to weight is to offer incentives to encourage healthy behavior. Some employers have adopted health plans with significantly lower deductibles for individuals who maintain healthier lifestyles (if an employee is not obese or does not smoke, and has yearly

physicals). In one audacious statement along these lines, a hospital in Indiana has begun to require its employees to pay as much as $30 every two weeks unless they meet certain company- determined weight, cholesterol, and blood-pressure guidelines.44 Additionally, a handful of health insurance companies now offer discounts for employees who meet physical goals, such as walking a certain number of steps per day. Several health insurance companies offer incentives to employers that encourage workers to use bands such as a Fitbit or Jawbone.45

page 733Laws that protect against discrimination based on marital status exist in just under half

of the states. However, though a worker might be protected based on marital status, she or he is not necessarily protected against adverse action based on the identity of the person to whom she or he is married. For instance, some companies might have an antinepotism policy under which an employer refuses to hire or terminates a worker based on the spouse working at the same firm, or a conflict-of-interest policy under which the employer refuses to hire or terminates a worker whose spouse works at a competing firm.

Because 57 percent of workers have dated an office colleague, policies and attitudes on workplace dating have the greatest impact.46 Though only about 13 percent of workplaces had policies addressing workplace dating in 2011,47 that number increased to 72 percent reporting similar policies in 2016.48 Even without a policy in place, a New York decision reaffirms the employer’s right to terminate a worker on the basis of romantic involvement. In McCavitt v. Swiss Reinsurance America Corp.,49 the court held that an employee’s dating relationship with a fellow officer of the corporation was not a “recreational activity” within the meaning of a New York statute that prohibited employment discrimination for engaging in such recreational activities. The employee contended that, even though “[t]he personal relationship between plaintiff and Ms. Butler has had no repercussions whatever for the professional responsibilities or accomplishments of either” and “Swiss Re . . . has no written anti-fraternization or anti-nepotism policy,” he was passed over for promotion and then discharged from employment largely because of his dating. The court agreed with the employer and found that dating was not a recreational activity.

Workplace policies on dating co-workers are largely a function of the employer’s corporate culture. Some have banned all interoffice dating, while others permit it. The historical arguments for a ban usually are based on (1) reduced productivity, centered on a belief that such forms of socialization distract the parties involved; (2) potential liability, based on a concern that soured romances may result in harassment charges; or (3) moralistic concerns, particularly in encouraging extramarital affairs. However, to the contrary, some studies suggest that romantically linked employees may be actually more productive, while one study found that couples working in the same location have a divorce rate that is 50 percent lower than the average.50 The trend today is toward more openness and fewer bans.

The majority of states protect against discrimination on the basis of political involvement,

though states vary on the type and extent of protection. Finally, lifestyle discrimination may be unlawful if the imposition of the rule treats one protected group differently from another. For instance, as discussed elsewhere, if an employer imposes a rule restricting the use of peyote in Native American rituals that take place during off-work hours, the rule may be suspect and may subject the employer to liability. Similarly, the rule may be unlawful if it has a disparate impact on a protected group. (For a more detailed discussion of disparate impact and disparate treatment, please see Chapter 2.)

Most statutes or common-law decisions, however, provide for employer defenses for those rules that (1) are reasonably and rationally related to the page 734employment activities of a

particular employee, (2) constitute a bona fide occupational requirement, or (3) are necessary to avoid a conflict of interest or the appearance of conflict of interest. For example, drug testing in positions that affect the public safety, such as bus driver, would not constitute an unlawful intrusion

because the employer’s interest in learning of that information is justified. Where the attempted employer control goes beyond the acceptable realm, courts have upheld an exception to the employment-at-will doctrine based on public policy concerns for personal privacy or, depending on the circumstances, intentional infliction of emotional distress.51

In connection with Opening Scenario 2, does Abraham have to quit his nighttime dancing job?

Recall that Abraham is an at-will employee, making the answer somewhat easier. Since he can be terminated for any reason, as long as it is not a wrongful reason, the partner can impose this condition. But consider Abraham’s arguments and the ethical, as well as the legal, implications. As long as Abraham can show that his dancing truly has no impact on his work (i.e., that the club is located in a different town from that of his clientele or that the club has an excellent reputation for beautiful, artistic dancing styles), then he would not have to quit his night job. On the other hand, if Abraham’s reputation is soiled by his connection with this club and his boss can show that his work has a negative impact on his ability to perform, then she may be justified in her ultimatum.

In fact, in a case (albeit more extreme) from Arizona, a husband and wife who worked as nurses

were fired from a hospital after hospital officials learned that they ran a pornographic website when not at work. The couple explained that they engaged in this endeavor in order to earn more money for their children’s college education. “We thought we could just do this and it really shouldn’t be a big deal,” said the husband.52 Though their dismissal attracted the attention of the American Civil Liberties Union for what it considered to be at-will gone awry, the nurses had no recourse. In Ohio, a high school teacher resigned after it was discovered that she had participated in online video pornography. The teacher had been placed on administrative leave.53 In a third case, a police officer was docked three days’ pay when his wife posted nude pictures of herself on the Internet as a surprise to her husband. However, the pay suspension was justified by the department in that case since police officers could arguably be held to a higher standard of conduct than average citizens.

The City of San Diego v. Roe case,54 provided at the end of this chapter, explores the

controversial topic of regulation of private activities away from work. In this case, the employer, the San Diego Police Department, believed that an officer’s off-duty activities reflected poorly on the department and were entirely inappropriate. A critical component of the case was the fact that the officer’s activities incorporated elements of his duties as a police officer. As you review the case, try to imagine where you would draw the line between appropriate and inappropriate behavior and whether you would have found the employer’s actions proper even if no such incorporation of police activities had been involved. For more information about this issue, see Exhibit 14.8, “Legal Restrictions on Off-Duty Behavior of Private Employees.”

page 735

Exhibit 14.8 Legal Restrictions on Off-Duty Behavior of Private Employees

Off-Duty Behavior of Private Employee

Business Justification State Statutory Restrictions on Employer Policy

Illicit drug use Concern that worker may come to work impaired, jeopardizing the worker’s safety and the safety of other workers Quality of work of impaired worker may affect the product or service provided by the company, which, in turn, can affect the business’s reputation and profitability Conduct is illegal and not deserving of legal protection

All states allow for at least some testing for illicit drug use. Arizona and Delaware have laws.

Alcohol use Same justifications as applied to those who use illicit drugs, except for the issue of legality

29 states have laws that prohibit employers from taking adverse action against an employee based on lawful off-duty activities, such as drinking.

Cigarette smoking Smokers increase employer’s healthcare costs and affect productivity by missing more work due to illness than nonsmokers

30 states have laws that prohibit employers from refusing to hire smokers, unless being a smoker goes against a specific job qualification.

Use of weight standards

Same justifications as apply to smokers

Dating between employees

A romantic relationship between employees may affect their productivity The relationship could lead to sexual harassment charges against the employer, especially if one employee is a supervisor of the other Other employees may believe that an involved supervisor is showing favoritism and may then feel that they are victims of discrimination

Most states, with the exception of California, allow employers to regulate dating between employees

Moonlighting Working too many hours may impair worker’s productivity Working for a competitor could jeopardize privacy of employer information

Most states allow employers to regulate at least some instances of moonlighting

Social relationships with employees of a competitor

Concern that information could be exchanged that would cause harm to the business

Many states allow employers to regulate

Adapted with permission from John D. Pearce II and Dennis Kuhn, “The Legal Limits of Employees’ Off-Duty Privacy Rights,” Organizational Dynamics 32, no. 4 (2003), pp. 372–83, 376.

page 736

Employer’s Information-Gathering Process/Justified Use/Disclosure of Information The above discussion focused on the scope of the privacy rights of the employee in connection with the dissemination of information. Privacy, however, can be invaded not only by a disclosure of specific types of information but also by the process by which the information has been obtained. An employer may be liable for its process of information gathering, storing, or utilization. Improper gathering of information may constitute an invasion where the process of collection constitutes harassment; where improper filing or dissemination of the information collected may leave the employer liable for defamation actions; and/or, where inappropriate use of data for purposes other than those for which the information was collected may inflict other harms.

A final concern is called function creep and may begin with the voluntary transmission of information by an individual for one purpose for which the individual consents. For instance, an individual may offer personal information to her or his employer without understanding or intending that the employer then share more information than required with the Immigration and Naturalization Service. Similarly, information gathered during a preemployment physical for purposes of appropriate job placement may seem perfectly appropriate to share with an employer; but, the employee might have concerns if that information is later shared with her or his manager or co-workers for other purposes.

The collection or retrieval of information may occur in a variety of ways, depending on the stage of employment and the needs of the employer. For example, an employer may merely make use of the information provided by an applicant on her or his application form, or it may telephone prior employers to verify the data provided by the applicant. One employer may feel confident about an employee’s educational background when she sees the employee’s diplomas hung on the office wall, while a different employer may feel the need to contact prior educational institutions to verify attendance and actual graduation. On the more lenient end of the spectrum, the employer may rest assured that the employee is all that he states that he is on the application form, while, in more extreme situations, an employer may subject its employees to polygraph analyses and drug tests.

As is covered extensively in other chapters, employers are limited in the questions that may be asked of a potential employee. For example, an employer may not ask an applicant whether she or he is married or plans to have children, or the nature of her or his family’s origin. These questions are likely to violate Title VII of the Civil Rights Act; in most cases this is not because the employer should not have the information, literally, but instead because an employer is prohibited from reaching any employment decision on the basis of the answers. In addition, employers are limited in their collection of information through various forms of testing, such as polygraphs or medical tests. These are discussed further in Chapter 4, but employers are constrained by a business necessity and relatedness standard or, in the case of polygraphs, by a requirement of reasonable suspicion. With regard to medical information specifically, employer’s decisions are not only governed by the Americans with Disabilities Act but also restricted by the Health Insurance Portability and Accountability Act (HIPAA) (Public Law 104-191). page

737HIPAA stipulates that employers cannot use “protected health information” in making

employment decisions without prior consent. Protected health information includes all medical records or other individually identifiable health information. (See Exhibit 14.9, “Protecting Workers’ Personal Data.”)

Exhibit 14.9 Protecting Workers’ Personal Data

In 1997, the International Labour Organization published a Code of Practice on the Protection of Workers’ Personal Data. Though not binding on employers, it serves to help codify ethical standards in connection with the collection and use of employee personal information and is recognized as the standard among privacy advocates.55 The code includes, among others, the following principles:

5. GENERAL PRINCIPLES 1. 5.1 Personal data should be processed lawfully and fairly, and only for reasons directly relevant to the

employment of the worker. 2. 5.2 Personal data should, in principle, be used only for the purposes for which they were originally collected. .

. . 3. 5.4 Personal data collected in connection with technical or organizational measures to ensure the security and

proper operation of automated information systems should not be used to control the behavior of workers. 4. 5.5 Decisions concerning a worker should not be based solely on the automated processing of that worker’s

personal data. 5. 5.6 Personal data collected by electronic monitoring should not be the only factors in evaluating worker

performance. . . .

6. 5.8 Workers and their representatives should be kept informed of any data collection process, the rules that govern that process, and their rights. . . .

1. 5.10 The processing of personal data should not have the effect of unlawfully discriminating in employment or occupation. . . .

2. 5.13 Workers may not waive their privacy rights.

6. COLLECTION OF PERSONAL DATA 1. 6.1All personal data should, in principle, be obtained from the individual worker. 2. 6.2If it is necessary to collect personal data from third parties, the worker should be informed in advance, and

give explicit consent. The employer should indicate the purposes of the processing, the sources and means the employer intends to use, as well as the type of data to be gathered, and the consequences, if any, of refusing consent. . . .

3. 6.5An employer should not collect personal data concerning a worker’s sex life; political, religious, or other beliefs; or criminal convictions. In exceptional circumstances, an employer may collect personal data concerning those in named areas above if the data are directly relevant to an employment decision and in conformity with national legislation.

4. 6.6Employers should not collect personal data concerning the worker’s membership in a workers’ organization or the worker’s trade union activities, unless obliged or allowed to do so by law or a collective agreement.

5. 6.7Medical personal data should not be collected except in conformity with national legislation, medical confidentiality and the general principles of occupational health and safety, and only as needed to determine whether the worker is fit for a particular employment; to fulfill the requirements of occupational health and safety; and to determine entitlement to, and to grant, social benefits. . . .

1. 6.10 page 738Polygraphs, truth-verification equipment or any other similar testing procedure should not be

used. 2. 6.11 Personality tests or similar testing procedures should be consistent with the provisions of this code,

provided that the worker may object to the testing. 3. 6.12 Genetic screening should be prohibited or limited to cases explicitly authorized by national legislation. 4. 6.13 Drug testing should be undertaken only in conformity with national law and practice or international

standards.

11. INDIVIDUAL RIGHTS 1. 11.1Workers should have the right to be regularly notified of the personal data held about them and the

processing of that personal data. 2. 11.2Workers should have access to all their personal data, irrespective of whether the personal data are

processed by automated systems or are kept in a particular manual file regarding the individual worker or in any other file which includes workers’ personal data.

3. 11.3The workers’ right to know about the processing of their personal data should include the right to examine and obtain a copy of any records to the extent that the data contained in the record includes that worker’s personal data. . . .

4. 11.9Workers should have the right to demand that incorrect or incomplete personal data, and personal data processed inconsistently with the provisions of this code, be deleted or rectified. . . .

1. 11.11 If the employer refuses to correct the personal data, the worker should be entitled to place a statement on or with the record setting out the reasons for that worker’s disagreement. Any subsequent use of the personal data should include the information that the personal data are disputed and the worker’s statement.

Source: International Labour Organization, “Protection of workers’ personal data” (1997), http://www.ilo.org/wcmsp5/groups/public/---ed_protect/---protrav/--- safework/documents/normativeinstrument/wcms_107797.pdf (accessed November 20, 2016).

In connection with the storage of the information collected, employers must be careful to ensure that the information is stored in such a manner that it will not fall into the wrong hands. If an improper party has access to the personal information, the employer, again, may be subject to a defamation action by the employee based on the wrongful invasion of her personal affairs, as discussed above. In today’s world of advanced computer data storage, new issues arise that have not been previously litigated. For instance, when an item is stored in a computer, it is crucial either to close the file to all but those who have a correct entry code or to delete private information. Access to computer terminals throughout an office creates a problem concerning the

dissemination of the private information and the control of access. The “Bring Your Own Device” trend, or BYOD, which allows employees to use their personal smartphones, tablets, or laptops for business purposes rather than requiring them to use company-issued equipment—is complicating matters further (see detailed discussion below).56

The employer offering the reference is responsible for its dissemination only to appropriate parties. A fax machine or postcard would be unacceptable means page 739of transmitting a

reference since this would allow access by innumerable others. Similarly, an employer may get caught wrongfully disclosing information to an inappropriate individual in the case of a telephone reference. Failure to confirm the identity of the caller and purpose of the call may allow disclosure to one who otherwise should have no access to this information.

Employee Monitoring: An Old Practice with a New Face While many predicted that privacy would become an increasingly central concern in employment law, little did anyone anticipate the range and scope of dilemmas that would arise as a result of advances in technologies over the past three decades. Who would have thought that the workday might begin with an employee placing a hand on a scanner or having his or her iris scanned to confirm her or his identity and time of arrival at work or that location-based technologies would allow employers to know an employee’s whereabouts at all times?57

Although advances in the information-gathering capacities of 21st century technologies appear monumental, these innovations are actually merely geometric rather than exponential. Employers have always sought out information about their employees; what has changed in recent decades is how that information is collected, not the underlying desire to collect it. For instance, Milton Hershey of Hershey’s Chocolate used to tour Hershey, Pennsylvania, to see how well his employees maintained their homes and hired detectives to spy on Hershey Park dwellers in order to learn who threw trash on their lawns. Henry Ford used to condition wages on his workers’ good behavior outside the factory, maintaining a Sociological Department of 150 inspectors to keep tabs on workers. Technological advances, therefore, do not present us with new ethical dilemmas but, instead, have dramatically increased the range and power of the ways by which to gather the information to which familiar ethical concerns pertain.

LO9

Consider, for example, the question of employer access to employees’ social media activity, a topic that has recently received a great deal of attention in the media, as well as from state legislatures and courts (discussed further below). This issue raises two distinct questions. First, which social media sites should employers be permitted to access in order to obtain information about applicants and employees (and which are they able to access)? Second, to what extent lawfully can employers rely on information obtained from social media sites when making hiring and employment decisions? The first question does indeed present employers with a novel and confusing landscape characterized by rapid technological innovation and a patchwork of new state legislation. The second question is hardly new, posing familiar antidiscrimination concerns that employers have faced off-line for decades.

It is not only technological developments that are driving these changes, but also transformations in social norms around communication and privacy, as well as transformative external events. There is plenty of evidence that technology is altering how people relate to each other, and these changes are particularly pronounced among younger people. One study reveals that age has a significant effect on perceptions of workplace privacy, specifically in connection with technology.58 Or, consider the impact of September 11, 2001, on an employer’s decision to share personal employee page 740information with law enforcement. Private firms may be more

willing today to share private information than they would have previously. Sorting through this

tangle of old and new issues is challenging. Consider the implications of contemporary technology for some traditional workplace challenges. (See Exhibit 14.2.)

New technologies are the primary force driving the emergence of what UCLA Law Professor Kathy Stone has called the “boundary-less workplace,”59 in which the lines between personal and professional time, space, and equipment have become blurred. Email, remote access networks, cloud computing, and video conferencing allow for in-home offices and working remotely, with 37 percent of employed Americans reporting that they telecommuted in 2015. The average worker telecommutes two days per month.60 This raises issues of safety as well as privacy concerns, although efforts by OSHA in the late 1990s to impose workplace safety standards on home offices received huge flack! In this flexible context, what constitutes a “workday”? When is enough, enough? Employers increasingly expect workers to be available outside of normal business hours (for instance, to respond to emails on a company smartphone), and employees expect to be able to conduct some personal tasks at work on company equipment. How should such changing expectations be managed and boundaries redrawn?

Increased monitoring and surveillance in the workplace not only provides the means to prevent or detect employee misconduct, it allows employers to raise the bar for all employees. Research suggests that monitoring may motivate behavioral changes that increase productivity, yet the full impact of these technologies on employee performance is only just beginning to be understood and is likely to have a downside.61 Excessive exertion of power and authority over employees may actually lead to insecurity, feelings of being overwhelmed and powerless, and doubts about worthiness. Short-term productivity gains may be overshadowed by negative effects that accumulate over time. In the longer term, highly intrusive surveillance may increase stress, inhibit creativity, decrease morale, and ultimately generate employee dissatisfaction resulting in higher rates of absenteeism and turnover.62

Technology has greatly expanded the potential for both privacy invasions by employers, as well as employee misconduct. Should the ability of employers to discover information make it relevant, particularly in the case of off-work activities? As supervisors and co-workers increasingly connect on social media sites, how should an employer balance respect for employees’ privacy against potentially competing responsibilities, such as preventing workplace harassment or bullying? In a world where smartphones and social media are pervasively integrated into everyday life, and the personal and the professional are increasingly intertwined, the line between invasions of workers’ privacy and defense of an employer’s legitimate business interests is not always clear.

Blogs and social media sites like Facebook may initially seem to offer a platform for personal expression. Yet imagine the impact when an employee’s blog post or status update venting about his or her employment situation or employer goes viral. Corporate reputations are at stake and legal consequences can be severe. Or consider other ways that an employer’s reputation is vulnerable. (See Exhibit 14.10, “Law Forbids Secret Videos of Factory Farms.”)

page 741

Exhibit 14.10 Law Forbids Secret Videos of Factory Farms

The editorial excerpted below criticizes a new law passed in North Carolina that forbids “undercover recordings” of abuse at farms and slaughterhouses. (The law technically applies to other workplaces, too, but in practice the law is clearly aimed at protecting factory farms.) The criticism of this law is grounded upon the principle (and constitutional protection of) free speech. It is a good criticism.

We wonder, however, about something not mentioned in the editorial: a counterargument rooted in privacy and the sanctity of private property. When activists, for example, pose as employees to gain access, and then secretly record wrongdoing, are they not effectively trespassing? This may well be morally justified, but legally it still seems plausibly subject to penalty. The question then becomes whether video illegally obtained could rightly

be brought to light? Should a law forbid such video on the grounds that it was obtained by illegal means, or should the public’s interest in knowing about bad behavior at slaughterhouses override such considerations?

. . . The industry should welcome such scrutiny as a way to expose the worst operators. Instead, the industry’s lobbyists have taken the opposite approach, pushing for the passage of so-called “ag-gag” laws, which ban undercover recordings on farms and in slaughterhouses. These measures have failed in many states, but they have been enacted in eight. None has gone as far as North Carolina, where a new law that took effect Jan. 1 aims to silence whistle-blowers not just at agricultural facilities, but at all workplaces in the state. That includes, among others, nursing homes, day care centers, and veterans’ facilities.

Anyone who violates the law—say, by secretly taping abuses of elderly patients or farm animals and then sharing the recording with the media or an advocacy group—can be sued by business owners for bad publicity and be required to pay a fine of $5,000 for each day that person is gathering information or recording without authorization. . . .

What do you think?

Source: MacDonald, C., and A. Marcoux, “Law Forbids Secret Videos of Factory Farms,” Business Ethics Highlights (February 6, 2016), https://businessethicshighlights.com/2016/02/06/law-forbids-secret-videos-of-factory-farms/, referring to “No more exposés in North Carolina,” New York Times (Feb. 1, 2016), https://www.nytimes.com/2016/02/01/opinion/no-more-exposes-in-north-carolina.html. Business Ethics Highlights © Christopher MacDonald, reprinted with permission.

In January 2013, an Applebee’s waitress was fired after she posted on Reddit a photo of a bill on which a customer had written, “I give God 10%, why do you get 18%?”63 In another case, an employee of a car dealership posted comments criticizing the food served at a work event, and negative comments about an accident involving a vehicle sold by the dealership. A National Labor Relations Board (NLRB) judge determined that while the food posting was protected off-duty activity, the accident posting was not. The employee’s appeal of his termination failed.64 Getting “dooced”—being fired as a result of negative comments about one’s company on a personal blog or social media site—has now entered the Internet lexicon.65

With the presence of the Internet and smartphones throughout our lives and the workplace, the NLRB has continued to expand the scope of how online communications are protected, and has limited further the ability of employers to page 742discipline their employees for work-related social

media posts. For instance, in 2015 a long-time employee of Pier Sixty LLC, a New York catering company, used his iPhone to post a message to his Facebook page about his manager while he was on a break. His post read, “Bob is such a NASTY MOTHER F***ER . . . don’t know how to talk to people!!!!! F**k his mother and his entire f***ing family!!!! What a LOSER!!!! Vote YES for the UNION!!!!!!!!!” The NLRB found that employee social media communications that relate to working conditions or unionization should tend to be protected. This is true even if the postings are offensive, obscene, or attack individual members of management personally. Therefore, the employee’s communications were protected communications and discipline on this basis was prohibited.66

However, there are some limitations to free speech in online communications, especially when the employee is a public servant. A former police officer was fired after posting criticisms about her police chief’s decision not to send department representatives to the funeral of a police officer who was killed in the line of duty a few towns away. In 2015, the Fifth Circuit held that the officer spoke as a citizen, rather than as a public employee, when she posted the comments. However, the court found that the city’s “substantial interests in maintaining discipline and close working relationships and preventing insubordination within the department outweigh [the police officer’s] minimal interest in speaking on a matter of public concern.”67

Given these developments, the International Office of Labour’s assessment of the implications of the technology economy in its World Employment Report 2001, remains apt, even years later:

More and more, boundaries are dissolving between leisure and working time, the place of work and place of residence, learning and working. . . . Wherever categories such as working time, working location, performance at work and jobs become blurred, the result is the deterioration of the foundations of our edifice of agreements, norms, rules, laws, organizational forms, structures and institutions, all of which have a stronger influence on our behavioral patterns and systems of values than we are aware.68

Finally, intrusions may come from unexpected arenas. For instance, while employees perhaps are concerned about their rights with regard to employer monitoring in the workplace, they might contemplate the possibility of informal intrusions such as from their colleagues rather than their supervisors. In a 2007 survey of information technology employees, a security vendor found that one-third of 200 respondents admitted to having used their administrative passwords in order to access confidential employee information including compensation information. One of the survey respondents was quoted as saying, “Why does it surprise you that so many of us snoop around your files? Wouldn’t you if you had secret access to anything you can get your hands on?”69 Unfortunately, this same survey reported that access continued long after many of these respondents had left their employers. Further exploration into the subject only uncovers greater vulnerabilities. In a much larger survey of more than 16,000 IT practitioners, almost two-thirds reported that they had intruded into another employee’s personal computer without permission, and this number includes one-third of respondents who were page 743at the manager level or

above! (See additional “Implications of New Technology,” Exhibit 14.11.)

Exhibit 14.11 Implications of New Technology

Consider the implications of new technology on the following areas:

• Monitoring usage.

• Managing employee and employer expectations.

• Distinguishing between work use and personal use of technology.

• Managing flextime.

• Maintaining a virtual workplace.

• Protecting against medical concerns for telecommuters.

• Managing/balancing privacy interests.

• Monitoring use of the Web to spread information and misinformation.

• Managing fair use/disclosure.

• Responding to accessibility issues related to the digital divide.

• Managing temporary workforces.

• Adapting to stress and changing systems.

• Maintaining proprietary information.

• Measuring performance.

• Managing liability issues.

How Monitoring Works: Practice and Prevalence Workplace surveillance using video cameras and audio recording equipment is a familiar and common form of monitoring. Employee theft has led both public and private employers to increase monitoring of employees by closed circuit video, which can either be recorded or watched live by

management. Employee theft cost retailers nearly $15 billion in 2015, accounting for around 34.5 percent of total “retail shrinkage” (loss of inventory due to employee theft, shoplifting, paperwork errors, or supplier fraud), compared with 38 percent from shoplifting.70

More than two-thirds of American employers monitor the Internet use of employees while at work, while almost half also conduct surveillance on their keystrokes and emails.71 Most employers notify employees of antitheft video surveillance (78 percent) and performance-related video monitoring (89 percent). Phone calls and voice mail are also widely monitored. In 2007, almost half (45 percent) of employers monitored office phones for time spent and numbers dialed, and a further 16 percent recorded conversations.

One new development in workplace monitoring is the increasing use of identification and location tracking technologies. A familiar technology, now pervasive in consumer goods ranging from smartphones to car navigation systems, is the global positioning system (GPS), a network of satellites that enables the precise location, speed, and direction of any device fitted with a receiver to be identified. Companies use GPS for vehicle tracking and to ensure that drivers use the most efficient routes, drive safely, and are not making unnecessary stops or charging excessive overtime. Employers are increasingly tracking employees themselves, by including GPS devices in phones, nametags, uniforms, key chains, or other items. The number of employers using GPS for monitoring purposes is difficult page 744to establish. The AMA’s 2007

study found that only 8 percent of all employers surveyed used GPS to track company vehicles, 3 percent to monitor cell phones, and less than 1 percent used GPS to monitor employee IDs. Yet a 2012 study restricted to companies with field employees found that 62 percent were using GPS to track staff (the study did not distinguish between vehicle and personnel tracking), up from 30 percent in 2008.72

As GPS technology becomes more pervasive, some states have created new laws regulating GPS tracking. For instance, in Illinois state statutes allow an employer to track the location of a company-owned vehicle used by its employees. The employer is permitted to track the vehicle because the employer is the vehicle’s owner and therefore consents to the tracking. However, an employer may not install a GPS tracking device in an employee-owned vehicle without the employee’s consent.73 Other states, including California, Connecticut, Delaware, and Texas, also have statutes that specifically apply to GPS tracking.

Case law also may determine whether an employer’s GPS tracking without an employee’s knowledge or consent is an invasion of privacy (on the basis of common-law intrusion into seclusion). Court decisions in some states have found no claims for invasion of privacy when employer-owned vehicles are involved, similar to the state statutes mentioned above.74 On the other hand, other states have held that a decision to install a GPS on an employee’s personal vehicle is not legal.75

Another location tracking technology involves radio frequency identification devices (RFIDs), which are microchips that can be planted anywhere, including under the skin. In 2006, Citywatcher.com became the first U.S. firm to ask employees to accept RFID bodily implants and require those who refused the implant to carry a key chain with an RFID microchip. While one’s first instinct might be a concern about privacy, consider the reasoning used by the attorney general in Mexico, who explained why he opted to implant the tiny devices under the skin of some of his workers. He wanted to be able to track them more effectively in case they were kidnapped because of their line of work.

In 2015, Epicenter, a new Swedish office block, offered about 400 employees a miniscule RFID chip. The chip was designed to provide various kinds of access to the employees, such as the ability to enter the building or use the copy machine. The chief disruption officer at the office block explained: “Today we need pin codes and passwords. Wouldn’t it be easy to just touch with your hand? That’s really intuitive.” Some employees refused to get a chip implanted.76 States are concerned enough about the possibility of the widespread use of RFID implants that they have begun to act. In 2006, Wisconsin became the first state to ban mandatory implants. North Dakota,

California, and Oklahoma have since followed course, with other states considering similar regulations on the use of RFID implants.77

But the most significant development results from advances in information-gathering technologies, which enable employers to monitor workplace computer use to an extent that was never before possible. There are now hundreds of software and hardware solutions available on the market to monitor a vast array of activities through a variety of surveillance activities. For instance, there is software that employers can install on any employer-owned technology that page 745can maintain a record of every key an employee hits at any moment, along with every

window that is open and what that person is looking at in those windows. It is even possible to re- create every deleted document because all of the original keystrokes have been recorded, including the “deletes.” Since all keystrokes are monitored and time-stamped, this surveillance also means that all staff downtime is also monitored because the employer is aware of all times when the technology is not in use so breaks that stretch on for a bit too long can be flagged. Similar software alerts the employer to the installation and date of install of any applications, all files that have been opened, online chat (including content), and remote desktop usage.78 Surveillance software also can track and screen employees’ email for potentially offensive or inappropriate messages, as well as scan for keywords predetermined by the employer, automatically sending “flagged” websites or messages to an administrator. For example, an employer could scan employee emails for the names of competitors as keywords, to monitor for theft or disclosure of proprietary information.

In several workplace privacy cases, the Court has ruled in favor of the employee that monitors employees’ company emails.79 Experts estimate that monitoring responsibilities now take up at least 20 percent of the average IT manager’s time.80 (See Exhibit 14.12, “Percent of U.S. Companies That Monitor Their Employees’ Internet Use.”)

Exhibit 14.12 Percent of U.S. Companies That Monitor Their Employees’ Internet Use

Source: “The Rise of Workplace Spying,” The Week (July 5, 2015), http://theweek.com/articles/564263/rise-workplace- spying.

What other monitoring technologies might become available in the near future? One likely contender is biometrics, a range of cutting-edge identification technologies that include voice recognition, fingerprint verification, iris and retinal scanning, hand geometry analysis, and facial feature scanning. Biometrics has been widely adopted by the government for homeland security and border protection purposes. With increased availability of biometric technology, such as fingerprint scanning, available in newer models of Apple’s iPhone as well as page 746an

increasing number of Android handsets, there is a growing acceptance of this type of recognition technology. It is estimated that by 2019, 770 million biometric authentication apps will be downloaded each year. This number is a dramatic increase from the 6 million that were downloaded in 2015.81

Despite some initial problems,82 fingerprint scanning technology has become increasingly sophisticated. Organizations have been using the scanners to improve authentication and security and iris scanning has become an increasingly popular form of authentication. For instance, the United Nations refugee program has used iris scanning to process refugees more efficiently and to help identify aid money fraud across the Middle East. Employers have been using iris scanning to prevent time loss by, for example, preventing employees from faking the time they were at work.83 Those in favor of the technology contend that it will reduce the high economic and emotional costs of identity theft, among other benefits. Those opposed argue that it is subject to

inaccuracies, provides more information than employers have a right to know, and is one additional way in which “big brother” can keep an eye on employees at all times.

In the near future, the biggest monitoring breakthroughs are likely to be productivity-related, as Big Data collection becomes a fixture of office life and increasingly sophisticated methods for analyzing and interpreting the data emerge. Sensors attached to lanyards or clothing can monitor the smallest movements, conversation patters, and even tone of voice. Some futurists predict that “wriggle monitors” will soon be used to measure employee focus! Employees may not be too excited about these changes. For instance, in January 2016, journalists at The Daily Telegraph found that individual sensors had been installed overnight that monitored when they were at their desks. The sensors appeared without notice or explanation. There was such an outcry that the Telegraph removed the sensors before the day’s end.84

Expect more integrated monitoring that brings together voice and motion sensors, location tracking, and computer surveillance, to enable fine-grained analysis of how employees actually work and interact, in order to refine workflows and practices and improve office design. When Bank of America wanted to investigate the role of face time among call center workers, it conducted a study of 90 employees using sensors that monitored movement, location, and conversation patterns. The study revealed that workers in close-knit teams that interacted frequently were most productive. To promote employee interaction, the bank began scheduling workers for group breaks, rather than solo ones, boosting productivity by 10 percent.85

Yet such intensive monitoring may reveal more than employers intend—or are comfortable with. Dr. Ben Waber, chief executive of Sociometric Solutions, a Boston startup that conducts research like the Bank of America study, claims he can often predict from a worker’s patterns of movement whether the worker is likely to leave the company or be promoted. As a result, Sociometric Solutions generally only provides employers with aggregate and unidentified data on team interaction, and while managers often want to see data on individual employees, they are prohibited from doing so (although employees get to see their own data). It seems unlikely that such privacy considerations will survive once this kind of monitoring goes mainstream.

page 747

An Evolving Legal Environment

In City of Ontario v. Quon,86 included at the end of the chapter, the U.S. Supreme Court addressed the issue of employer monitoring for the first time. In this case, two California police officers were disciplined after an audit of text messages on city-issued devices found that many of the officers’ texts were personal in nature. Though the officers had been assured by their supervisor that an audit would not be performed, the Court determined that the audit was permissible nonetheless because the review of the messages was reasonably “work-related.” The decision suggests that, even where employees may have a reasonable expectation of privacy, employers are still entitled to monitor where there is a good business-related reason for doing so. It is unclear to what extent Quon will apply to the many forms of employee monitoring. The majority opinion explicitly refused to draw implications for other surveillance technologies or work arenas, citing the need for judicial restraint in the face of rapidly changing technologies and evolving workplace norms. Thus, as one scholar notes, “[u]nder Quon, it remains unclear how much protection for electronic communications the Fourth Amendment will provide to employees, and in any event, those protections do not extend to the private sector.”87

Courts have supported reasonable monitoring of employees in open areas as a method of preventing and addressing employee theft. For example, in Sacramento County Deputy Sheriff’s

Association v. County of Sacramento,88 a public employer placed a silent video camera in the ceiling overlooking the release office countertop in response to theft of inmate money. The California Court of Appeals determined that the county had engaged in reasonable monitoring because employee privacy expectations were “diminished (though not eliminated) where persons elect to work in a jail or prison setting.”89 Courts have sometimes recognized a wrongful intrusion into seclusion (and awarded significant damages to employee plaintiffs) in cases where employers have secretly videotaped employees in locations that are reasonably considered “inherently private”—such as locker rooms or change-rooms.90 A location does not have to be inherently private, like a bathroom, to justify an employee’s reasonable expectation of privacy. In Bowyer v. Hi-Lad, Inc.,91 the West Virginia Supreme Court recognized that even surveillance of a space “open to the public” can wrongfully invade privacy interests, when it upheld a jury verdict in favor of a hotel employee whose conversations with clients were recorded by a secret microphone. The court disagreed with the employer’s argument that a front desk employee could have no reasonable expectation of privacy, stating that “Most employees, even those working in ‘public’ spaces, have a reasonable expectation that their oral communications with other employees or with customers are not going to be recorded by hidden microphones.”

However, courts do not necessarily agree on how private break rooms should be. In Brannen v. Kings Local Sch. Dist. Bd. of Edn.,92 because “other school employees at Kings had unfettered access to the break room, including the principal and most of the teachers,” school custodians did not have a reasonable expectation of privacy in the break room. Courts have also found that police officers page 748lacked a reasonable expectation of privacy in the locker room and that

placement of a video recorder did not constitute a “search.”93 Though courts do not, per se, require notice in order to find that no reasonable expectation of

privacy exists and to therefore allow monitoring by employers, notice of monitoring is favored by the courts.94 The court in Thygeson v. U.S. Bancorp95 held that an employer’s specific computer usage policy precluded an employee’s reasonable expectation of privacy.

While, as stated earlier, there is little legislation that actually relates to these areas specifically, there is some statutory protection from overt intrusions, though the statute does not apply in all circumstances. The federal wiretapping statute, Title III of the Omnibus Crime Control and Safe Streets Act of 1968, as amended by the Electronic Communications Privacy Act of 1986,96 protects private- and public-sector employees from employer monitoring of their telephone calls and other communications without a court order.

There are two exceptions to this general prohibition. First, interception is authorized where one of the parties to the communication has given prior consent. Second, the “business extension” provision creates an exception where the equipment used is what is used in the ordinary course of business. An employer must be able to state a legitimate business purpose and there must be minimal intrusions into employee privacy such that they would not be objectionable to a reasonable person. It is by now well established that these exceptions enable an employer to conduct extensive electronic surveillance of employees’ Internet usage on company computers, including communication via their work email account. Potential protections against computer monitoring in the workplace—including prohibitions on the interception of electronic communications in Title I of the ECPA and restrictions on accessing stored electronic communications in Title II of the ECPA (the Stored Communications Act)—have generally not been successful.97

Yet although neither federal nor state laws precludes such surveillance, an employer’s right to monitor private communications from an employee is not absolute, regardless of what the company policy might say.98 Limits do exist. One is the privacy of communications subject to attorney–client privilege. For example, in Stengart v. Loving Care Agency, Inc.,99 the New Jersey Supreme Court ruled that communications between an employee and her attorney sent through her personal email account, which involved potential employment discrimination claims by the employee against the employer, were not subject to monitoring by the employer. Monitoring of

those password-protected communications violated both the employee’s right of privacy and the attorney–client privilege. However, where employees communicated with counsel via their work email (rather than a personal password-protected email or social media accounts such as Gmail, Snapchat, or Facebook), courts have been less willing to protect the privilege.100 For example, in Holmes v. Petrovich Dev. Co.,101 a California state court held that an employee who used her employer’s computer and email system to communicate with her attorney had waived the attorney–client privilege. The court distinguished Stengart based on the fact that the employee in Holmes had used her work email account, not a password-protected Web-based account, and the company policy concerning monitoring specifically addressed communications on its email system.

page 749In a Delaware case, the court found that the the corporation’s right of access to

executives’ work emails encouraged a finding that the executives had no reasonable expectation of privacy in those emails. The court noted that the executives’ knowledge of the corporation’s email policy supported the finding.102

The general rule that can be gleaned from these cases is that employers need permission from the employee to retrieve communications in most password-protected, non–work-related areas. The City of Bozeman, Montana, tried to require that all prospective employees disclose their user names and passwords for any profiles they have on Facebook, Twitter, Snapchat, Google, and YouTube.103 However, the Montana legislature responded by enacting a law barring employers from delving into employees’ and applicants’ social media accounts, with a few exceptions. This statute prohibits employers from requiring employees or applicants to disclose any information about their social media accounts, or to tell the employer their user names or passwords.104

Whether employers in other states can require potential or current employees to disclose the passwords to social media sites has gained significant media and legislative attention. Maryland actually was the first state to pass a “social media protection password law” in April 2012. A number of other states—including Montana—have enacted similar laws. By 2016, 25 states had passed special laws restricting access to personal media accounts of applicants and employers, and legislation is pending in at least 15 other states and the District of Columbia.105

Yet, a number of concerns have been raised about the laws. Some critics have questioned whether they are necessary, suggesting that the rash of legislation is a response to media hype rather than an actual problem. A 2012 survey of nearly 1,000 executives, corporate counsel, and human resource professionals from large corporations throughout the United States found that 99 percent of respondents denied that their organization had requested social media passwords as part of the hiring process.106

As the laws protecting employees’ passwords expanded, employers’ interest in collecting this information waned. The 2014 survey by the same firm found that respondents expressed little concern over their ability to monitor employees’ personal social media activity during the workday.107 By 2016, the password protection laws were not even included in the report.108

However, another nationwide study of 2,300 human resource managers, also from 2012, reported that 37 percent of companies use social media sites to research job candidates (and a further 11 percent plan to start), although it did not specifically ask about password requests.109 As employers make greater use of social media in preemployment screening and workplace monitoring, and employees become more protective of their online privacy, it seems likely that access to passwords will become a contested issue.

Another concern raised by critics is that some state legislation may hamper employers’ ability to deal with workplace violence or harassment. In some states (like California), the laws provide exemptions for legitimate business interests, including broad exceptions that permit asking employees to disclose social media content that is reasonably believed to be relevant to investigations of employee misconduct. Yet in other states (like Colorado, Illinois, Maryland, and New Jersey), social media privacy laws could potentially prevent an employer from requesting page 750the password to a social media account from an employee whose co-worker

reported seeing a post like “I’m so angry I want to kill my boss.” Given that it is not uncommon for perpetrators of violence to indicate their intentions online, this is hardly a hypothetical concern. Inconsistent state laws, which are particularly onerous for national companies, has led some commentators to suggest the need for federal legislation.

Business Justifications for Monitoring Employees’ Technology Use

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A second justification for electronic surveillance is to increase productivity, particularly by reducing misuse of employee time. Employers are particularly concerned about productivity loss due to time spent online—and with good reason. A 2014 survey of 750 employees found that 89 percent visit non–work-related websites every day, up from 64 percent in 2012.110 (See Exhibit 14.13, “Surfing on the Job.”) In 2015, an online survey of 400 U.S. white-collar, adult workers, more than 90 percent of the workers admit that they checked personal emails at work. It is important to consider the flip side to this perspective, which is that 87 percent of these workers look at business emails during non-working hours. The workers estimate that they spend 6.3 hours per day checking emails, with 3.2 hours on work messages and 3.1 hours on personal emails.111 Wasted time, overclogged networks, and inappropriate material seeping into the workplace are all reasons why employers may seek to limit employees’ Internet use at work.

Exhibit 14.13 Surfing on the Job

Reasons why workers “waste” work hours:

page 751 The most visited non-work sites are:

Source: “Wasting Time at Work Survey,” Salary.com, (2014), http://www.salary.com/2014-wasting-time-at- work/slide (accessed December 20, 2016).

As mentioned above, monitoring is made simpler through an employee’s use of a computer.

Employers now customarily provide many employees with personal computers that are linked either to the Internet or, at least, to an internal network. Employers can monitor the computer user’s activities. For instance, employers may be able to determine which cites you visited, whether or not you were scrolling through the page or had it on in the background, and when you were away from your computer. While this information may not necessarily seem personal to some, consider the facts of Scenario 3. The employer in that case seems to be within its rights to monitor the use of its computers.

The third reason to monitor employees’ usage is to protect against liability, the importance of which is clear when one focuses on five areas of potential employer liability: defamation, copyright infringement, sexual harassment, discrimination, and obscenity. In the American Management Association’s 2007 survey, which remains the most recent survey of this data, 43 percent of the respondents reported that they engaged in email monitoring as a result of their concerns for legal liability. More than 24 percent of firms have reported receiving a subpoena for employee email, and 28 percent of the firms reported firing employees for inappropriate email.

As discussed previously in this chapter, the guidelines that apply to a general defamation claim also apply to issues surrounding the Internet. However, some contend that the opportunity for harm is far greater. This is because employees and employers can easily disseminate information to a wide range of media. Not only can employers be subject to defamation claims by their own employees, but page 752the far greater threat is the liability a company faces when an employee,

as a representative of the employer, defames another individual using the Internet (with access provided by the employer) as the medium.

Further, firms are concerned about inappropriate use of Web software such as occurs when an employee downloads program files without compensating the creator or when employees use copyrighted information from the Web without giving credit to the original author, thereby exposing the firm to potentially significant copyright infringement liability. Finally, when an employee downloads software programs from the Web, the computer systems within the firm have the potential to be compromised by viruses or even unauthorized access.

Sexual harassment and discrimination by employees via the Internet are governed by the same general guidelines that were previously discussed in the chapters addressing sexual harassment and discrimination throughout the workplace. However, many employees believe that once an email message is deleted, it is permanently removed from the system. This is not the case. All emails sent on company time, with content that constitutes sexual harassment, that might create a hostile working environment, or that contains other forms of discrimination, may easily be discovered, both by the employer and by opposing parties to litigation against the employer. Employers would prefer to create a safe and welcome workplace for their employees. Courts also focus in many cases on employers’ responses to claims of sexual harassment or unethical behavior, among other allegations, so it is valuable for firms to uncover these inappropriate activities.

Without monitoring, how would companies know what occurs? For example, in one case, female warehouse employees alleged that a hostile work environment was created in part by inappropriate email, and they sought $60 million in damages in federal court. The case settled out of court.112 In another case, Zubulake v. UBS Warburg, the plaintiff was awarded a jury verdict in the amount of $29.2 million.113 The award ended up so large in part due to sanctions imposed by the trial judge as a result of the employer’s failure to preserve emails for evidentiary purposes. In a 2012 case in New York, the court found that an employer sending sexually offensive e-mails to both male and female employees could support a claim of a hostile work environment.114 In 2013, a District Court in Iowa found that a lesbian former human resources director for a medical practice stated plausible claims of retaliation for complaining about a sexually hostile work environment after the medical practice and the female CEO subjected her to unwanted and unwelcomed sexual comments, sexual questions, sexual conversations, sexual emails, sexual texts, and sexual jokes.115

An interesting question arises as to the extent of an employer’s responsibilities once it begins monitoring. Paradoxically, since monitoring is done with the aim of limiting liability, the fact that the employer has collected and has access to certain data may by law impose responsibilities on that employer which, if not fulfilled, form the basis for liability. For example, where an employee harasses a co-worker by sending sexually explicit messages or images over company email, an employer who has software that scans for sexually explicit material may be more likely to be liable for failing to take action to prevent a hostile work environment under Title VII.116

page 753Finally, obscenity is an issue, which poses both legal and reputational risks when

employees download pornographic images while at work. Consider these scenarios: A customer service representative at an electronics store is surfing the Internet using one of the display computers. She accesses a website that shows graphic images of a crime scene. A customer in the store who notices the images is offended. Another customer service representative is behind the counter, using the store’s computer to access a pornographic site, and starts to laugh. A

customer asks him why he is laughing. He turns the computer screen around to show her the images that are causing him amusement.

Certainly, the employer would be justified in blocking employees’ access to such websites. But what about sites of activist groups regarding sensitive issues such as abortion? Should an employer be allowed to block or restrict access to such sites? If such access may be restricted in order to promote efficiency and professionalism, then should employers be allowed to limit access to such innocuous sites as eBay or ESPN.com? One study revealed that 31 percent of the employees who make personal use of the Internet at work restrict their surfing to less than half an hour a day.117 By limiting or restricting access to websites, the employer may be creating an environment in which employees do not feel trusted and perhaps feel inhibited about using the Internet for creative, work-related purposes because they fear being reprimanded for misusing access. As Riedy and Wen warn, “an environment of surveillance may unknowingly curtail otherwise productive activity, as employees act and then think in response to the unseen observer. New, radical, unconventional ideas may be filtered out of communications if the employee is constantly worried what the observer may think.”118

Employers seem to have business justification for other types of monitoring: “If [the employer] sees you doing something on the screen that they think you can do in a quicker way, they can tell you. They can even tell you ways to talk to people, or they can tell you ways to do things quicker to end your [customer service] call quicker,” says Kathy Joynes, a travel agent for American Express who works out of her home, but whose supervisor can shadow her computer screen at any time.119

Because of the overall potential liability for their employees’ actions, employers should develop a formal policy or program regulating employee usage of the Internet. In addition to having a formal policy, employers may choose to establish a process of monitoring their employee’s Internet usage. This may involve tracking websites visited and the amount of time spent at each site using software programs designed for that specific purpose. However, employers need to consider the employees’ rights to free speech and privacy when developing such policies and systems. (See Exhibits 14.14, “Monitoring Employees’ Technology Usage,” and 14.15, “Allowable Monitoring.”)

page 754

Exhibit 14.14 Monitoring Employees’ Technology Usage

page 755

WHY FIRMS MONITOR AND WHY THERE SHOULD BE LIMITS

Surveys report alarming statistics about the use of the Internet while at work. Among them, up to 40 percent of workplace Internet use is not business-related, 64 percent of workers admit to using the Internet for personal purposes at some point during the workday, and the total amount of time spent on the Web can average more than 18 hours per week.a

It is estimated that 35 million workers, or approximately 25 percent of U.S. employees, spend an average of 3.5 hours a week on blogs.b Men spend a bit more time on nonwork-related Web surfing than women, 2.3 hours per week versus 1.5 hours among women.c

13 percent of employees spend over two hours a day surfing nonbusiness sites.d 24 percent of employees spend working hours at least one time each week watching or listening to streaming

media.e

70 percent of all traffic to Internet pornography websites is clocked during the traditional working hours of 9:00 a.m. and 5:00 p.m.f

aDeon Fair et al., “Internet Abuse Continues to Steal Workplace Productivity Despite the Use of Filters,” April 27, 2005, http://www.minitrax.com/bw/whitepapers/AIWhitePaper.pdf.

bEzra Palmer, “The Work Force Is Surfing,” I-Media Connection, October 28, 2005, http://www.imediaconnection.com/content/7068.asp.

cDeborah Rothberg, “As Crucial as Coffee: Web Surfing at Work,” e-week, May 17, 2006, http://www.eweek.com/article2/0,1895,1963997,00.asp. See also Websense, “Web @ Work Survey.”

dAlan Cohen, “Worker Watchers: Want to Know What Your Employees Are Doing Online? You Can Find Out without Spooking Them,” Fortune/CNET Technology Review, Summer 2001, pp. 70, 76.

eRothberg, “As Crucial as Coffee.”

fStaff Monitoring, “Staff Computer and Internet Abuse Statistics,” 2007, http://staffmonitoring.com/P32/stats.htm.

Source: Adapted by authors from data from the American Management Association, “2007 Electronic Monitoring & Surveillance Survey,” March 13, 2008, www.amanet.org/training/articles/The-Latest-on-Workplace-Monitoring-and- Surveillance.aspx.

Exhibit 14.15 Allowable Monitoring

Telephone calls

Monitoring is permitted in connection with quality control. Notice to the parties to the call is often required by state law, though federal law allows employers to monitor work calls without notice. If the employer realizes that the call is personal, monitoring must cease immediately.

Email messages

Under most circumstances, employers may monitor employee emails. Even in situations where the employer claims that it will not, its right to monitor has been held to persist. However, where the employee’s reasonable expectation of privacy is increased (such as a password-protected account), this may impact the court’s decision, though it is not determinative.

Voice mail system messages

Though not yet completely settled, it appears that voice mail system messages are analyzed in the same manner as email messages.

Internet use Where the employer has provided the equipment and/or the access to the Internet, the employer may track, block, or review Internet use.

The Case of Employee Email An employer’s need to monitor email must be weighed against an employee’s right to privacy and autonomy. The employer is interested in ensuring that the email system is not being used in ways that offend others or harm morale, or for disruptive purposes—a significant concern when one- third of employees admit to page 756using their work email accounts to send personal

emails.120 Likewise, an employer may choose to review email in connection with a reasonable investigation of possible employee misconduct. Also, companies that maintain sensitive data may be concerned about disclosure of this information by disloyal or careless employees, apparently justifying this type of intrusion.

In one well-publicized 2012 incident, Harvard faculty members were outraged after The Boston Globe revealed that the administration had searched the work email accounts of 16 faculty deans to try to find the source of a media leak related to a cheating scandal. The search appeared to violate Harvard’s privacy policy, which states that the administration may search employees’ emails “in extraordinary circumstances such as legal proceedings and internal Harvard investigations” but also that employees must be notified either before or shortly after a search. However, in cases examining employer searches of employees’ electronic communication, courts have repeatedly found that employees do not have a reasonable expectation of privacy when it

comes to their work email accounts, as long as the employer has a valid business-related purpose for conducting the search, even where an employer’s policy or a supervisor’s comments suggest otherwise.121

While monitoring email transmissions over telephone lines is forbidden by the ECPA, communications within a firm do not generally go over the phone lines and therefore may be legally available to employers, though interception of emails could still violate the Wiretap Act. In addition, there are numerous exceptions to the ECPA’s prohibitions as discussed earlier in this chapter, including situations where one party to the transmission consents, where the provider of the communication service can monitor communications, or where the monitoring is done in the ordinary course of business. In order to satisfy the ECPA consent exception, however, the employer’s interception must not exceed the scope of the employee’s consent. Employers must be aware, as well, that an employee’s knowledge that the employer is monitoring certain communications is insufficient to be considered implied consent. To avoid liability, employers must specifically inform employees of the extent and circumstances under which email communications will be monitored.

Despite the failure of federal legislative attempts to require employers to notify employees that their email is being monitored, such as the proposed Notice of Electronic Monitoring Act, employers should provide such notification, as described below.122 In addition, some states, including Delaware and Connecticut, have now imposed notice requirements before monitoring.

Developing Computer Use Policies

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An employer can meet its business necessity to monitor email, protect itself from liability, and, at the same time, respect the employees’ legitimate expectation of privacy in the workplace in numerous ways. Moreover, research demonstrates that monitoring may be more acceptable to employees when they perceive that monitoring takes place within an environment of procedural fairness and one designed to ensure privacy.123 Accordingly, employers should develop concise written policies and procedures regarding the use of company computers, specifically email. The Society for Human Resource Management strongly encourages companies both page 757to adopt

policies that address employee privacy and to ensure that employees are notified of such policies. Any email policy should be incorporated in the company policies and procedures manuals, employee handbooks, and instruction aids to ensure that the employee receives consistent information regarding the employer’s rights to monitor employee email. Additionally, a company could display a notice each time an employee logs on to a company computer indicating that computers are to be used only for business-related communication or explaining that the employee has no reasonable expectation of privacy in the electronic messages. Employers also can periodically send memos reminding employees of the policy. For a sample email, voice mail, and computer systems policy, see Exhibit 14.16, “Sample Email, Voice Mail, and Computer Systems Policy.”

Exhibit 14.16 Sample Email, Voice Mail, and Computer Systems Policy

Subject: Email, Voice Mail, and Computer Systems Policy

Purpose: To prevent employees from using the Company computer and voice mail systems for harassing, defamatory, or other inappropriate communications. To preserve the Company’s right to monitor and retrieve employee communications. To prohibit excessive personal use of the company’s electronic systems.

Related Policies:

Harassment Prevention, Rules of Conduct, Confidentiality of Company Information, Solicitations.

Background: Inappropriate employee use of Company computer, email, and voice mail systems can subject the Company to significant legal exposure. Due to the effervescent nature of computer communications, employees will often say things in email that they would never put in writing. Thus, it is important that all employers have a policy which strongly prohibits the inappropriate use of the Company’s electronic systems, and puts employees on notice that the employer reserves the right to monitor such use.

Policy: The Company provides its employees with access to Company computers, network, Internet access, internal and external electronic mail, and voice mail to facilitate the conduct of Company business. Company Property: All computers and data, information and software created, transmitted, downloaded, or stored on the Company’s computer system are the property of Company. All electronic mail messages composed, sent, and received are and remain the property of Company. The voice mail system and all messages left on that system are Company property. Business Use and Occasional Personal Use: The Company’s computers, network, Internet access, electronic mail, and voice mail systems are provided to employees to assist employees in accomplishing their job responsibilities for the Company. Limited occasional personal use of such facilities is acceptable, provided such use is reasonable, appropriate, and complies with this policy. If

you have any questions as to whether a particular use page 758of such facilities is permissible, check

with your supervisor before engaging in such use. The use of Company’s computers, network, Internet access, electronic mail, and voice mail for personal use does not alter the facts that the foregoing remain Company property, and that employees have no reasonable expectation of privacy with respect to such use. Privacy: Employees shall respect the privacy of others. Except as provided below, messages sent via electronic mail are to be read only by the addressed recipient or with the authorization of the addressed recipient. The data, information and software created, transmitted, downloaded, or stored on the Company’s computer system may be accessed by authorized personnel only. Employees should understand that the confidentiality of electronic mail cannot be ensured. Employees must assume that any and all messages may be read by someone other than the intended recipient. Personal passwords are not an assurance of confidentiality. There is no reasonable expectation of privacy in any email, voice mail, and/or other use of Company computers, network, and systems. Prohibited Conduct:

• Employees may not use the Company’s computers, network, Internet access, electronic mail, or voice mail to conduct illegal or malicious activities.

• Employees may not transmit or solicit any threatening, defamatory, obscene, harassing, offensive, or unprofessional material. Offensive content would include, but not be limited to, sexual comments or images, racial slurs, gender-specific comments or any comments that would offend someone on the basis of his or her race, religion, color, national origin, ancestry, disability, age, sex, marital status, sexual orientation, or any other class protected by any federal, state, or local law.

• Employees may not create, transmit, or distribute unwanted, mass, excessive or anonymous emails, electronic vandalism, junk email, or “spam.”

• Employees may not access any website that is sexually or racially offensive or discriminatory.

• Employees may not display, download, or distribute any sexually explicit material.

• Employees may not violate the privacy of individuals by any means, such as by reading private emails or private communications, accessing private documents, or utilizing the passwords of others, unless officially authorized to do so.

• Employees may not represent themselves as being someone else, or send anonymous communications.

• Employees may not use the email, social networks, voice mail, or computer systems to solicit for religious causes, outside business ventures, or personal causes.

• Employees may not transmit any of Company’s confidential or proprietary information including (without limitation) customer data, trade secrets, or other material covered by Company’s policy in regard to Confidentiality of Company information.

• Employees may not install, run, or download any software (including entertainment software or games) not authorized by the Company.

• Employees may not disrupt or hinder the use of the Company computers or network, or infiltrate another computer or computing system.

• Employees may not damage software or propagate computer worms or viruses. page 759

Only authorized employees may communicate on the Internet on behalf of the Company. Monitoring: Company maintains the right to monitor and record employee activity on its computers, network, voice mail, and email systems. Company’s monitoring includes (without limitation) reading email messages sent or received, files stored or transmitted, and recording websites accessed. Archiving: It is Company’s practice to archive (i.e., make backup copies) all electronic documents, files, and email messages incident to the Company’s normal back-up procedures. Employees should

therefore understand that even when a document, file, or message is deleted, it may still be possible to access that message. Management and law enforcement agencies have the right to access these archives. Copyright Laws: Any software or other material downloaded into the Company’s computers may be used only in ways consistent with the licenses and copyrights of the vendors, authors, and owners of the material. No employee shall make illegal or unauthorized copies of any software or data. Violations of this Policy: Any violation of this policy may result in disciplinary action up to and including immediate termination. Any employee learning of any violation of this policy should notify his or her [e.g., immediate supervisor] immediately.

Dates: Be sure to date policies when they become effective. Hang on to old policies and be sure to change the date on revised versions.

Source: Lee T. Paterson, ed., Sample Personnel Policies (El Segundo, CA: Professionals in Human Resources Association (PIHRA), 2002).

Some experts advocate policies that restrict the use of email to business purposes only and that explain that the employer may access the email both in the ordinary course of business and when business reasons necessitate. If the employer faithfully adheres to this policy 100 percent of the time, this process is certainly defensible. However, such a standard is one that is difficult to honor in every case and the employer may be subject to claims of disparate treatment if applied inconsistently. Therefore, a more realistic approach—and one that is generally accepted in both the courts and common practice—suggests that employees limit their use of technology to reasonable personal access that does not unnecessarily interfere with their professional responsibilities or unduly impact the workplace financially or otherwise (referring to bandwidth, time spent online, impact on colleagues, and so on).

In addition, employers should be aware that developing a legitimate computer use policy and notifying employees of the policy on a frequent basis is not the whole story; it also matters how the policy is implemented and enforced. In a number of recent cases, the employer’s enforcement of computer use policies has been found to violate existing laws. In particular, policies must not be enforced in a discriminatory manner, or used selectively against employees for exercising their statutorily protected rights. In one 2009 case, an employee was protected against employer enforcement of a legitimate email policy, because “in practice, the only employee emails that had ever led to discipline were the union-related emails at issue.”124 A 2010 case, Gorzynski v. JetBlue Airways Corp., alleged discriminatory enforcement of a technology policy based on age.125 In addition to violating the policy, selective enforcement against members of a protected class may constitute an unlawful discriminatory action. Employees may also be protected where monitoring is undertaken in retaliation for engaging in a protected activity. For example, six on-staff doctors and scientists were permitted to sue the Food and Drug Administration (FDA) after discovering that the FDA accessed page 760their personal Gmail accounts. This secret surveillance took place

over a two-year period, and after the staffers had complained to Congress that the FDA was approving risky medical devices.126

Kevin Conlon, district counsel for the Communication Workers of America, suggests these additional guidelines that may be considered in formulating an accountable process for employee monitoring:

1. There should be no monitoring in highly private areas such as restrooms.

2. Monitoring should be limited to the workplace.

3. Employees should have full access to any information gathered through monitoring.

4. Continuous monitoring should be banned.

5. All forms of secret monitoring should be banned. Advance notice should be given.

6. Only information relevant to the job should be collected.

7. Monitoring should result in the attainment of some business interest.

Philosopher William Parent conceives the right to privacy more appropriately as a right to liberty and therefore seeks to determine the potential affront to liberty from the employer’s actions. He suggests the following six questions to determine whether those actions are justifiable or have the potential for being an invasion of privacy or liberty:

1. For what purpose is the undocumented personal knowledge sought?

2. Is this purpose a legitimate and important one?

3. Is the knowledge sought through invasion of privacy relevant to its justifying purpose?

4. Is invasion of privacy the only or the least offensive means of obtaining the knowledge?

5. What restrictions or procedural restraints have been placed on the privacy-invading techniques?

6. How will the personal knowledge be protected once it has been acquired?127

Both of these sets of guidelines also may respect the personal autonomy of the individual worker by providing for personal space within the working environment, by providing notice of where that “personal” space ends, and by allowing access to the information gathered, all designed toward achievement of a personal and professional development objective.

As is apparent from the above discussion, it is possible to implement a monitoring program that is true to the values of the firm and accountable to those it impacts—the workers. Appropriate attention to the nature and extent of the monitoring, the notice given to those monitored, and the ethical management of the information obtained will ensure a balance of employer and employee interests.

In City of Ontario v. Quon, included at the end of the chapter and discussed in greater detail

above, the Supreme Court examines an employer’s decision to monitor employee text message records. As you consider the case, ask yourself whether page 761the employer could have used

a less intrusive method for discovering whether the messages were work-related and whether you believe that its stated reason for requesting the records was legitimate.

Bring Your Own Device (BYOD) Employees increasingly use their personal smartphones, tablets, or laptops for business purposes, either instead of or in addition to company-issued equipment. While this can decrease company costs for devices, data, and IT support, it poses a number of practical and legal risks. A 2016 study revealed that 69 percent of employees use their own personal devices to do work for their employers and 62 percent of of employees work from home or other off-site locations. The same study saw a dramatic increase in concern about the risks this causes: 69 percent of respondents “agreed” or “strongly agreed” that BYOD has significantly increased security risks.128

The challenges associated with “bring your own device” (BYOD) environments arise because the device, the data stored on it, and the networks that the devices access all belong to different owners with varying degrees of security and sophistication; and employers are not in control of these security levels. Employees, therefore, have the ability to store proprietary, privileged, and confidential company information on devices that may lack adequate security. One study found that 70 percent of IT managers know or believe that employees have business data in their personal file-sharing accounts, according to a recent ESG survey. Further, once the data is there, it stays there—most employees never delete it.129

Companies that maintain a BYOD environment (in other words, those that do not have policies that prohibit these activities) may opt to integrate employees’ smartphones, tablets, and other mobile devices in a number of different ways. A policy of limited separation that permits company

information to be intermingled with personal information is extremely insecure and makes it difficult to balance protection of company data against respect for employee privacy. A slightly more secure walled garden approach separates company-owned data from personal data in a separate, secure application. The most secure approach is called virtualization, which provides remote access to company servers, so that employees can access and use the company’s data, without actually downloading it or storing it on their device. Virtualization eliminates the risk that data will be lost if the device is misplaced or stolen. Whatever route they choose, employers that permit BYOD should develop clear and comprehensive policies and conduct regular employee training.130

Blogging and Other Social Media (“Web 2.0”)

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By October 2016, the blog site Tumblr had nearly 320 million blogs. This number marked a dramatic increase from 17.5 million blogs in May 2011.131 The number of blogs was growing so fast that it was out of date by the time this sentence was written.132 Social media is now the number one activity on the Web. At the time of our research, the worldwide number of social network users is expected to go from 970 million in 2016 to 2.95 billion by 2020, which means that the number of social media users will have increased from 14 percent of the world’s population to 39 percent in just four years.133 But individuals are not the only ones embracing social media. A 2015 survey by Jobvite found that 92 percent of companies page 762use social

media to find candidates, up from 34 percent in 2008.134 As of 2013, 15 million businesses, companies, and organizations had Facebook pages.135 social media User-created content, including text, video, audio, and other multimedia, published or otherwise communicated in an environment that enables scalable interactivity and dialogue, such as a blog, wiki, or other similar site.

The enormous growth in blogging and other social media has created a dilemma for those businesses that have embraced these new technologies. While social media may offer new opportunities to reach a wider customer base in a variety of new ways, it also offers new arenas in which employees can harm the company image, share company information that should not be shared, harass fellow employees, or commit other acts that employers once worried about only with email. A 2016 study by the Ponemon Institute found that, while only 23 percent of companies conducted an audit of their confidential documents, of those who did, 69 percent found security issues.136

For better or for worse, social media is here to stay. Social media advertising budgets doubled worldwide from 2014 to 2016, going from $16 billion to $31 billion; yet, 46 percent of marketers are uncertain as to whether their channels have generated additional revenue.137 Though there is a near consensus that social content marketing is valuable and will continue to become more pervasive, measuring the exact value of social media marketing has been notoriously difficult.138 A 2009 report found a correlation between corporate profitability and engagement in social media, looking at 11 different online social media channels.139 Generally, those that had a deeper involvement in social media saw revenues grow faster than those that did not. A 2013 study demonstrated that social media activities strengthen the bond between customers and businesses. Customers who engage with a firm through social media contribute 5.6 percent more revenue than those who do not.140

The challenge for employers now is to find the right balance between embracing social media and discouraging employee misuse. As with email, employers have the right to control what is sent out through the various social media channels they own. The difficult part is trying to control what employees send out on their own time and through their own social media channels.

In a case included at the end of the chapter and discussed earlier, a San Diego police officer

in his free time sold pornographic videos and other paraphernalia, including official police department uniforms, through an adults-only section of eBay. His superiors discovered the activity and ordered him to stop. When he did not, they dismissed him. He sued the department, alleging a violation of his First Amendment right to free speech. Although the appellate court accepted his argument, the U.S. Supreme Court reversed, concluding that the San Diego Police Department had legitimate and substantial interests of its own that were compromised by the employee’s speech, especially because the police officer linked his videos to his work (the videos depicted the police officer in a simulated police uniform).141 Speech by a public employee that involves “public concern” is entitled to a balancing test, but those that are outside of public concern are subject to tighter restrictions.

The general rule is that bloggers (and other social media users) enjoy First Amendment protections for comments made on blogs and elsewhere, but that protection is not absolute.142 First, it does not extend to unprotected speech, such as defamation. Second, unless a termination violates an exception, it does not protect employees from the at-will employment doctrine.

page 763The other thing to note is that government employees have even fewer First

Amendment rights than private employees. As the Supreme Court said in Roe, “a governmental employer may impose certain restraints on the speech of its employees, restraints that would be unconstitutional if applied to the general public.”143

If employers want to punish employees for statements made in a blog written and posted on their free time, employees have little legal recourse. However, it has been suggested that they could claim protection under the National Labor Relations Act, if the blogging relates to wages, hours, or working conditions.144 Indeed, in late 2010, the National Labor Relations Board (NLRB) filed a complaint against an employer for firing an employee who had been accused of violating the company’s technology policy, which barred employees from depicting the company “in any way” on Facebook or other social media sites. The complaint alleged that the employer had violated the NLRA by terminating the employee after she engaged in concerted activities with her co-workers by criticizing her supervisor on Facebook.145 The case settled in February 2011 after the employer agreed to narrow its Internet policies “to ensure that they do not improperly restrict employees from discussing their wages, hours, and working conditions with co-workers and others while not at work” and promised that it “would not discipline or discharge employees for engaging in such discussions.”146 Yet perhaps the fact that NLRA protection is the best that employees can hope for illustrates how few protections they have.

Several states have laws that prevent employers from disciplining employees for engaging in lawful conduct away from work, as discussed previously.147 Those statutes typically refer to “use of a lawful product” and were most often originally designed to prevent employers from punishing employees who smoke or drink away from work. Not all the laws are the same; New York, for example, specifically protects off-duty political and recreational activities.

Whether those state laws can be extended to protect blogging activities conducted away from work seems unlikely but remains an open question. Some commentators have suggested that states amend their laws to incorporate protections for off-duty blogging.148 Though Congress has not passed any national protections, some states, including California, Colorado, New York, and North Dakota, have passed laws that prohibit employers from discharging or otherwise discriminating against lawful conduct occurring during nonworking hours away from the workplace.149 Until Congress or state legislatures step in, employers will continue to have wide latitude in managing off-duty blogging.

Several cases illustrate the point. Talia Jane, a customer service agent at Yelp!, was fired after she wrote an open letter to the company’s CEO, imploring him to give employees a livable wage.

In her letter, Jane described bread as a luxury she could not afford on her $367 per week salary in San Francisco.150 Ellen Simonetti was fired in 2004 by Delta Air Lines for an online journal post showing a photograph of her in her Delta uniform. Jessica Cutler was fired in 2004 from her job as a congressional aide after posting blogs detailing her sexual adventures and criticizing her boss. Chez Pazienza was fired in 2008 by CNN for operating a blog without permission. Others have been fired by Starbucks, Microsoft, Wells Fargo, Google, Friendster, The Washington Post, and Kmart; and the list goes on. Many page 764of those were fired even though they did not

blog in their own name and did not have prior notice that what they were doing would subject them to punishment.

What is an employee to do? The Electronic Frontier Foundation maintains a tutorial on blogging that includes tips on how to avoid getting fired.151 One key recommendation is to blog anonymously. The Delaware Supreme Court, for example, refused to compel discovery of the identity of an anonymous blogger who published allegedly defamatory comments about a Smyrna, Delaware, city councilman.152 The ultimate fate of anonymity remains to be seen; but, the court’s assertions that “[b]logs and chat rooms . . . are not sources of facts or data upon which a reasonable person would rely,” as well as “readers are unlikely to view messages posted anonymously as assertions of fact,” already seem dated.

In a another case, an appeals court in Texas held that the trial court did not have any authority to order disclosure of a blogger’s identity.153 However, in non-employment situations, the Court has not always upheld the protection of anonymous bloggers.154

Until the legal boundaries become clearer, the best possible solution for employers and employees is probably a combination of a clear written policy, some tolerance of criticism, and more effective training. Companies that embrace social media need to find the right balance between encouraging employees to engage in open and honest communications with customers and protecting the company’s interests. Therefore, a company social media policy should contain the following:155

• Defined objectives that do not overreach. A policy can range from restrictive—banning all employee comments on work-related matters, including on their own time—to permissive—allowing contact with customers but warning employees to avoid embarrassing the company.

• A reminder that company policies apply. Employers who embrace social media activities should remind employees that company policies continue to apply to off-work social media-related activities, including those involving the sharing of company information, harassment, and discrimination.

• Personal comment rules. Employers should establish rules for employees who express opinions through social media; for example, employees who offer personal opinions may be required to identify themselves as employees of the company and provide a disclaimer that they have no authority to speak for the company and that the views are theirs, alone.

• Disclosure reminders. If the employer is publicly traded, the policy should include a reminder of the rules imposed by the Securities and Exchange Commission on information disclosures by publicly owned companies.

• Monitoring reminders. Employers should remind employees that they retain the right to monitor all social media activities, including the right to view Facebook and Twitter postings made while away from work; they may need to be reminded that content sent through social media channels is not private and cannot be recalled.

• Copyright reminders. Employers may want to include a reminder to respect copyright law; social media users often mistakenly believe that anything they see on the Internet is fair game for copying and reusing.

page 765Employers who embrace social media will have to decide how much criticism they are

willing to tolerate. Employers that have been willing to tolerate some internal criticisms have

sometimes been rewarded for that tolerance with a reputation for open-mindedness and a progressive embrace of social media technologies.

Social media technologies have democratized opinion-giving. Once upon a time, employers could control their message rather effectively by training the few top executives who were authorized to speak for the company. Today, however, any employee with a cell phone or a personal computer can publish her or his opinion any number of ways. Putting such a public microphone in the hands of employees who are untrained in the dangers of misstatements can be disastrous, potentially exposing the company to legal liability and possibly damaging the stock price. The answer is better employee training of the dangers inherent in social media and a clear social media policy that sets forth the employer’s expectations of those who intend to use the technologies, including the risks for those who misuse them.

YouTube is another popular social media outlet. Because many cell phones now have not only cameras but also video capabilities, and because many employees carry cell phones, it is a short step between something an employee sees at work and YouTube, or another video-sharing site. Some employers, therefore, have implemented policies banning the use of cameras, cell phones, and any other devices used to take still pictures or video on the theory that employees may not fully appreciate the importance of not sharing the business’s inner workings with the rest of the world. Although no cases exist that have challenged such bans, employers are likely within their rights to do so, especially if the ban is tied to a legitimate business reason.

Waivers of Privacy Rights On occasion, an employer may request that an employee waive her or his privacy rights as a condition of employment. This condition could be a search. A waiver would exempt the employer from liability for claims the employee may have as a result of privacy issues. While a valid waiver must be voluntarily given, requiring a waiver as an employment condition is a questionable approach. Employers maintain a superior bargaining position from which to negotiate such an arrangement, so voluntariness is questionable. search A physical invasion of a person’s space, belongings, or body.

waiver The intentional relinquishment of a known right.

Waivers exist at all stages of employment, from preemployment medical screenings to a waiver of age discrimination claims when being bought out of one’s job at a certain age. Courts are not consistent in their acceptance of these waivers, but one common link among those that are approved is that there exists some form of consideration in which the employee receives something in return for giving up rights.

It has thus been held that the waiver at least be accompanied by an offer of employment. No waiver that is given by an applicant prior to a job offer would be considered valid and enforceable. Other requirements articulated by the courts include that the waiver be knowingly and intelligently given and that it be clear and unmistakable, in writing, and voluntary.

page 766

Privacy Rights since September 11, 2001 The United States has implemented widespread modifications to its patchwork structure of privacy protections since the terrorist attacks of September 11, 2001. In particular, proposals for the expansion of surveillance and information-gathering authority were submitted and many, to the chagrin of some civil rights attorneys and advocates, were enacted.

The most public and publicized of these modifications was the adoption and implementation of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act).156 The USA PATRIOT Act expanded states’ rights with regard to Internet surveillance technology, including workplace surveillance and amending the Electronic Communications Privacy Act in this regard. The act also grants access to sensitive data with only a court order rather than a judicial warrant, among other changes, and imposes or enhances civil and criminal penalties for knowingly or intentionally aiding terrorists. In addition, the new disclosure regime increased the sharing of personal information between government agencies in order to ensure the greatest level of protection.

Title II of the act provides for the following enhanced surveillance procedures, among others, that have a significant impact on individual privacy and may impact an employer’s effort to maintain employee privacy:

• Expanded authority to intercept wire, oral, and electronic communications relating to terrorism and to computer fraud and abuse offenses.

• Provided roving surveillance authority under the Foreign Intelligence Surveillance Act of 1978 (FISA) to track individuals. (FISA investigations are not subject to Fourth Amendment standards but are instead governed by the requirement that the search serve “a significant purpose.”)

• Allowed nationwide seizure of voice mail messages pursuant to warrants (i.e., without the previously required wiretap order).

• Broadened the types of records that law enforcement may obtain, pursuant to a subpoena, from electronic communications service providers.

• Permitted emergency disclosure of customer electronic communications by providers to protect life and limb.

• Offered nationwide service of search warrants for electronic evidence. Pursuant to these provisions, the government is now allowed to monitor anyone on the Internet

simply by contending that the information is “relevant” to an ongoing criminal investigation. In addition, the act provides anti-money-laundering provisions designed to combat money- laundering activity or the funding of terrorist or criminal activity through corporate activity or otherwise. All financial institutions must now report suspicious activities in financial transactions and keep records of foreign national employees, while also complying with antidiscrimination laws discussed throughout this text. It is a challenging balance, claim employers.

page 767

Exhibit 14.17 Toward Appropriate Information Collection from Employees

Though it appears that employee privacy might be a moving target, there are steps that employers may take to be respectful of employee information and personal privacy while also maintaining a balanced management of its workplace:

• First, conduct an information audit for the purpose of determining those areas of the company’s practices and procedures that have the potential for invasion, including what type of information is collected, how that information is maintained, the means by which the information is verified, who has access to the information, and to whom the information is disclosed. The audit should cover all facets of the organization’s activities, from recruitment and hiring to termination. In addition, it may be helpful to ascertain what type of information is maintained by different sectors of the organization.

• Second, in connection with sensitive areas where the company maintains no formal policy, develop a policy to ensure appropriate treatment of data. It is recommended that a policy and procedure be maintained in

connection with the acquisition of information, the maintenance of that information, the appropriate contents of personnel files, the use of the information contained therein, and the conduct of workplace investigations. For instance, in connection with the maintenance of personnel files and the accumulation of personal information about company employees, the employer should request only information justified by the needs of the firm and relevant to employment-related decisions.

• Third, the information collected should be kept in one of several files maintained on each employee: (1) a personnel file, which contains the application, paperwork relating to hiring, payroll, and other nonsensitive data; (2) a medical file, which contains physicians’ reports and insurance records; (3) evaluation files, which contain any evidence of job performance including, but not limited to, performance appraisals; and (4) a confidential file, which contains data relating to extremely sensitive matters that should not be disclosed except with express and specific authority, such as criminal records or information collected in connection with workplace investigations.

• Fourth, information should be gathered from reliable sources, rather than sources of questionable repute such as hearsay and other subjective indicators. Irrelevant or outdated material should periodically be expunged from these records as well.

• Fifth, publicize privacy policies and procedures, and educate employees regarding their rights as well as their responsibilities.

In March 2011, President Barack Obama signed the PATRIOT Sunsets Extension Act, which provided a four-year extension for three key provisions, including roving wiretaps and searches of business records, allowing authorities greater access to certain personal and business records.

The USA PATRIOT Act was not the only legislative response. Both federal and state agencies have passed a number of new pieces of legislation responding to terrorism. Not everyone is comfortable with these protections. Out of concern for the USA PATRIOT Act’s permitted investigatory provisions, some librarians now warn computer users in their libraries that their computer use could be monitored by law enforcement agencies. The Washington Post reports that some are even ensuring privacy by destroying records of sites visited, books checked out, and logs of computer use.157 The American Civil Liberties Union reports that a number of communities have passed anti–USA PATRIOT Act resolutions.158

page 768On June 1, 2015, the USA PATRIOT Act expired. The next day, Congress enacted the

USA Freedom Act,159 which restored many modified provisions of the USA PATRIOT Act. The new act restored authorization for wiretaps, but limits the bulk collection of telecommunication metadata on U.S. citizens by intelligence agencies, though critics point out that it still allows bulk collection of metadata by phone companies, which can be accessed by the National Security Agency.

Employers have three choices in terms of their response to a governmental request for information. They may:

1. Voluntarily cooperate with law enforcement by providing, upon request (as part of an ongoing investigation), confidential employee information.

2. Choose not to cooperate and ask instead for permission to seek employee authorization to release the requested information.

3. Request to receive a subpoena, search warrant, or FISA order from the federal agency before disclosing an employee’s confidential information.160

Management Tips • Develop and publish policies that reserve your right to monitor, gain access to, or disclose all emails in your system. Notify

employees of the policy and train all managers (see Exhibit 14.17, “Toward Appropriate Information Collection from Employees”).

• When developing an email policy, do not overlook instant messaging (IM). Ensure that any policy that applies to emails also applies to IMs. IMs can pose a greater security risk than email if the IMs sent to employees are not subject to virus-checking software.

• The same warning applies for the so-called Web 2.0 technologies, such as blogs, social networking, wikis, and similar technologies. Ensure that the privacy policy accounts for these social media technologies and strikes the right balance between appropriate and inappropriate uses.

• The privacy policy should be clear that employees have no expectation of privacy in all employer-provided equipment. Clear policies reduce the likelihood of future disputes.

• As an employer, you may search your employees’ property where the employee does not have any expectation of privacy; the difficulty comes in determining where that expectation exists. Therefore, if you believe that searches are necessary, the policy should state clearly where the expectation of privacy ends and under what conditions searches will be permitted.

• Monitoring policies should be clearly stated and should explain that use of technology is subject to review, notwithstanding password protection. They should explain that passwords are provided for the user’s protection from external intrusion, as opposed to the creation of an expectation that email is actually private with regard to the employer.

• page 769 In designing a monitoring process, avoid content-based and real-time monitoring as both give rise to subjective action rather than standardized procedures and may violate the Federal Wiretap Act.

• Since many privacy protections exist on a state-by-state basis, be sure to investigate the specific protections for which you are responsible in the states in which you do business.

• Your privacy policy should be targeted to protect your business interests. Therefore, consider prohibiting the following: (1) the use of cameras, cell phones, or other devices for taking pictures or making recordings on your property; (2) the use of emails for distributing illegal or improper content; (3) the use of company trademarks, logos, or other copyrighted material without permission; and (4) the disclosure of company materials to outside entities.

• While it may appear reasonable for you to want to regulate certain off-work activities of your employees, be wary of overrestricting since courts do not look on these regulations positively. Policies regulating off-work activities that have been upheld are generally those that are targeted to protect legitimate business interests, such as the company’s reputation.

• On that note, if you do opt to regulate the off-work activities of your employees, you may wish to consider focusing the policy on the possible negative impact of off-duty conduct on the employer’s business interests and on the public’s perception of the employer, rather than on the specific off-duty conduct, in particular.

• You are less likely to find problems with a waiver of privacy rights where the waiver is accompanied by an offer of employment.

• Ensure that you comply with all privacy rules required by HIPAA, particularly involving the security of employee health records. Train the appropriate employees on those requirements.

• When you do collect personal information about your employees, be sure to regulate access to this information since unwarranted disclosure might constitute an invasion of privacy even where the original collection of information is allowed.

• Technology changes quickly. You should keep abreast of current developments and conduct periodic reviews of the privacy policy to ensure that emerging technologies are covered.

• Ensure that the privacy rules are enforced consistently.

Chapter Summary

• Privacy is a fundamental right that has been recognized as deserving constitutional protection.

• Public employers are subject to greater scrutiny because their actions are considered to be State actions, thus triggering constitutional protections that generally do not apply to private-sector employers.

• Employee privacy rights in the workplace originate from three sources: the Constitution, various state and federal laws, and the common law; those employees who have employment contracts, either individual or union-negotiated, also have whatever protections are provided in the contracts.

• Common law torts include intrusion into seclusion, public disclosure of private facts, publication in a false light, and defamation.

• page 770Regulation of an employee’s off-work activities is a controversial area, with the general rule

being that employers have the right to regulate such activity as long as the regulation is connected

to a legitimate business interest; some state legislatures have stepped in to limit what employers can regulate.

• Employers generally have the right to monitor employee activity while employees are on employer property; employers are generally on stronger footing if they develop a written policy, they notify employees of the policy, and they enforce the policy consistently.

Chapter-End Questions

1. Can a government employee state a claim for a violation of the constitutional right to privacy when she was required, as a job applicant, to sign an affidavit stating that she had not used tobacco products for one year prior to the application date?

2. A gay employee files a claim for invasion of privacy against his employer who shared with co-workers the fact that the employee’s male partner was listed on his insurance policy and pension plan as his beneficiary. Does he have a claim?

3. An employee obtains permission to take a leave of absence to attend to a personal matter. A co-worker asks the manager why the employee is on leave. What information may the manager properly share with the co- worker?

4. Melissa Ignat, an employee of the real estate division of Yum! Brands, the parent company of Pizza Hut, Taco

Bell, and KFC, suffered from a bipolar disorder and, consequently, missed several weeks of work in 2008. Upon returning to work from her medical leave, Ignat claimed, her supervisor had informed the entire department of her medical condition. As a result, she claimed that she was “shunned” by her co-workers. One co-worker asked her supervisor if Ignat would “go postal” at work. Ignat filed suit under California common law, which prohibits invasion of privacy by the public disclosure of private facts. Yum! Brands asked the court for summary judgment, arguing that California case law had applied only to disclosures in writing. Ignat’s allegations described verbal incidents, with no written documentation evidencing the disclosure of private medical information. Should the court extend the application of the law to cover verbal disclosures, given the ease of communicating non-written information in the 21st century, or should it follow precedent, even if it is (arguably) outdated? [Ignat v. Yum! Brands, Inc., 214 Cal. App. 4th 808 (2013).]

5. Robert Sumien worked as an emergency care technician (EMT) for Careflite. Jan Roberts, his ambulance partner, commented on the Facebook wall of a third Careflite employee that she wanted to “slap” a patient that she had recently transported. This comment was brought to the attention of Careflite’s Compliance Officer, also a Facebook “friend” of the third employee, who engaged in an exchange with Roberts. Roberts then posted on her own wall, defending her original comment referencing the need for patient restraints to protect EMT safety. Sumien responded on Roberts’s wall with the following comment: “Yeah like a boot to the head. . . . Seriously yeah restraints or actual HELP from PD [police department] instead of the norm.” Roberts and Sumien were subsequently fired. Sumien sued Careflite, alleging that the company had invaded his privacy, among other charges. Sumien claimed that he had not been aware that his comments could be seen by others from the company. Is a lack of understanding of Facebook’s privacy settings a viable foundation for a privacy violation charge? [Sumien v. CareFlite, No. 02-12-00039-CV, 2012 WL 2579525 (Tex. App. July 5, 2012).]

6. An employee submitted an expense report that included costs from a cell phone issued by his company. The company wanted to check the phone to verify information page 771that the employee had provided and, because

the employee was in the hospital, they obtained access to his office, as well as a key to his desk drawer, in order to look for the phone. Though they did not find the phone, they did find a pellet gun and ammunition. The employee was fired for violating the employer’s weapons ban. Did the supervisors violate the employee’s right to privacy? Is the fact that the employee shared the desk with other employees relevant? [Ratti v. Serv. Mgmt. Sys., Inc., No. CIV. A. 06-6034 KSH, 2008 WL 4004256 (D.N.J. Aug. 25, 2008).]

7. In 2013, an employee was suspected of falsifying time records, so the state employer installed a GPS device on the employee’s personal vehicle, which the employee used for work activities. However, the GPS device was left on during both work and non-work hours. Was this tracking lawful? [Cunningham v. New York State Dept. of Labor, 21 N.Y.3d 515 (NY Ct. App., 2013).]

8. A teacher claimed that she was diagnosed with adult Attention Deficit Hyperactivity Disorder (ADHD). She brought a claim against the school district alleging that the district had violated the Americans with Disabilities Act (ADA) and also a New York human rights law for discriminating against her on the basis of her ADHD, for retaliating against her for a complaint she filed with the New York State Division of Human Rights, and for failing to accommodate her ADHD. The teacher claimed that actions by the school district brought about emotional distress. Does the District have the right to compel the teacher to provide authorizations for the release of all records from her social networking accounts as part of its discovery during this case? [Giacchetto v. Patchogue- Medford Union Free Sch. Dist., 293 F.R.D. 112, 115 (E.D.N.Y. 2013).]

9. Two female employees of a 24-hour residential facility for abused and neglected children discovered video recording equipment hidden on a bookshelf in an office that they shared. They were able to lock the door and close the blinds to the office; and one of the women regularly changed clothes there. The California Supreme Court upheld the placement of the hidden video equipment by their employer, even though neither woman was suspected of any wrongdoing. How is that possible? Under what set of facts do you imagine that an employer could permissibly monitor employees who are not suspected of wrongdoing? [Hernandez v. Hillsides, Inc., 47 Cal. 4th 272 (2009).]

10. Stevon Anzaldua was a full-time paramedic and firefighter. The Fire District suspended Anzaldua for allegedly failing to respond to a directive issued by the Chief. Shortly thereafter, Anzaldua emailed a newspaper reporter expressing concerns about the Fire District and about the Chief, in particular. Many of Anzaldua’s co-workers were reportedly “shocked” and “angered” by the email. Two battalion chiefs noted that the communication “fostered division between Anzaldua and his co-workers, and between the District firefighters and [Chief].” As a result, the Fire District terminated Anzaldua. Anzaldua brought an action, alleging that the Fire District and the individuals involved in his termination violated his First Amendment right to free speech by retaliating against him for emailing the reporter. Anzaldua also alleged that the Chief violated federal and state computer privacy laws by accessing his email account and obtaining his emails. Will Anzaldua’s claim be successful? [Anzaldua v. Ne. Ambulance & Fire Prot. Dist., 793 F.3d 822 (8th Cir. 2015).]

11. During her employment with Verizon, Sandi Lazette was issued a company-owned Blackberry device, which she was allowed to use for personal, as well as professional, business. When Lazette left Verizon in October of 2010, she attempted to delete her personal Gmail account prior to returning the device to her former boss, Chris Kulmatycki. She believed that the device would be ‘recycled’ and given to another employee. Unbeknownst to Lazette, the Gmail deletion was unsuccessful. Over the page 772next 18 months, Kulmatycki accessed over

48,000 emails from Lazette’s personal Gmail account, including “communications about family, career, financials, health, and other personal matters.” Lazette filed suit, asserting that Kulmatycki had invaded her privacy, amongst other claims. Kulmatycki and Verizon sought to have the case dismissed, arguing that Kulmatycki could not violate Lazette’s privacy by accessing a company-owned device in his capacity as a company employee. Whose claim prevailed? [Lazette v. Kulmatycki, 949 F. Supp. 2d 748 (N.D. Ohio 2013).]

12. In 2008, the New York Department of Labor suspected that its director of staff and organizational development, Michael Cunningham, had been skipping work and filing false time sheets to conceal his absences. The Office of Inspector General (OIG) was brought in to investigate. The OIG placed a GPS device on Cunningham’s personal vehicle without his knowledge, tracking his movements for one month, including nights, weekends, and a week-long, out-of-state vacation that he took with his family. Cunningham was later fired, largely on the basis of the evidence gathered from the GPS tracker, which showed that he had indeed been submitting fraudulent time cards. Cunningham sued, alleging that the Department of Labor’s warrantless use of the GPS monitoring device constituted a violation of state laws prohibiting unreasonable search and seizure. Was the use of the GPS device to monitor an employee under suspicion of wrongdoing legally justified in this case? [Cunningham v. New York State Department of Labor, No. 1:05-CV-1127-DNH-RFT, United States District Court, N.D. New York, 2010.]

13. In May 2015, a woman sued her employer after she was fired for uninstalling a GPS tracking app from a company-issued smartphone. Does she have a case for wrongful termination? What about a violation of privacy? Does it matter if the employer requires that employees leave their smartphones on at all times? Would it make a difference if the employees were told at the beginning of their employment that the employer would monitor their off-duty activity? [Arias v. Intermex Wire Transfer, 15-cv-01101 (E.D. CA, 2015).]

End Notes

1. 1. E. J. Bloustein, “Privacy as an Aspect of Human Dignity,” in F. D. Schoeman (ed.), Philosophical Dimensions of Privacy: An Anthology (New York: Cambridge University Press, 1984), p. 188.

2. 2. Warren. Samuel D., and Louis D. Brandeis, “The Right to Privacy,” Harvard Law Review 4, no. 193 (1890).

3. 3. MacDonald, C., “Why Privacy Matters,” Management Ethics (Fall/Winter 2010), http://www.ethicscentre.ca/EN/resources/Management_Ethics_FW10_dh.pdf (accessed October 1, 2016).

4. 4. See, for example, Levin, A. “Dignity in the Workplace: An Enquiry into the Conceptual Foundation of Workplace Privacy Protection Worldwide,” ALSB Journal of Employment and Labor Law 11, no. 1 (Winter 2009), p. 63.

5. 5. Hayat, M.A., “Privacy and Islam: From the Quran to Data Protection in Pakistan,” Information & Communications Technology Law (October 22, 2007), http://www.tandfonline.com/doi/abs/10.1080/13600830701532043?journalCode=cict20 (accessed October 30, 2016).

6. 6. ETCIO, “Global Security Software Market Revenue Crossed $22 Billion, Up 3.7 Percent in 2015: Gartner,” (July 18, 2016), http://cio.economictimes.indiatimes.com/news/digital-security/global-security- software-market-revenue-crossed-22-billion-up-3-7-pc-in-2015-gartner/53263433 (accessed October 30, 2016).

7. 7. National Retail Federation, “National Retail Security Survey 2015,” https://nrf.com/resources/retail- library/national-retail-security-survey-2015 (accessed October 30, 2016).

8. page 773 8. U.S. Department of Health and Human Services, Substance Abuse and Mental Health

Services Administration, “Results from the 2013 National Survey on Drug Use and Health: Summary of National Findings,” http://www.samhsa.gov/data/sites/default/files/NSDUHresultsPDFWHTML2013/Web/NSDUHresul ts2013.htm (accessed November 6, 2016).

9. 9. Mitchell, K., “Addiction in the Workplace—Substance-Abuse Issues Pose Stern Challenges for Employers Office of National Drug Control Policy,” Healthcare News (April 2016), http://healthcarenews.com/addiction-in-the-workplace-substance-abuse-issues-pose-stern- challenges-for-employers/ (accessed April 12, 2017).

10. 10. PricewaterhouseCoopers, “Fortifying your defenses: The role of internal audit in assuring data security and privacy,” (July 2012), https://www.pwc.com/us/en/risk-assurance-services/assets/pwc-internal-audit- assuring-data-security-privacy.pdf (accessed April 9, 2017).

11. 11. Munich RE, “Survey Shows Small Businesses Have Big Data Breach Exposure,” https://www.munichre.com/HSB/pr-06-03-2013/index.html (accessed November 6, 2016).

12. 12. Donlon, R., “Small, mid-sized businesses hit by 63% of all cyber attacks,” Property Casualty 360 (May 27, 2015), http://www.propertycasualty360.com/2015/05/27/small-mid-sized-businesses-hit-by-62-of-all- cyber?slreturn=1478464853 (accessed November 6, 2016).

13. 13. 381 U.S. 479 (1965).

14. 14. Bean, R., “Big Data and the Emergence of the Chief Data Officer,” Online Career Tips (August 9, 2016), http://onlinecareertips.com/2016/08/big-data-emergence-chief-data-officer/ (accessed November 6, 2016).

15. 15. See, for example, Smyth v. Pillsbury, 914 F. Supp. 97 (E.D. Penn. 1996). The standard was first enunciated by the U.S. Supreme Court in Katz v. U.S., 389 U.S. 347 (1967), a Fourth Amendment search and seizure case involving a public telephone booth.

16. 16. See Ulrich v. K-Mart, 858 F. Supp. 1087 (D. Kan. 1994).

17. 17. 480 U.S. 709 (1987).

18. 18. 132 S. Ct. 945 (2012).

19. 19. Munkittrick, D. “GPS in the Workplace,” Privacy Law Blog (April 30, 2012), privacylaw.proskauer.com/2012/04/articles/workplace-privacy/gps-in-the-workplace/ (accessed November 6, 2016).

20. 20. 795 F.2d 1136, 1141 (3d Cir. 1986).

21. 21. 109 S. Ct. 1402 (1989).

22. 22. U.S. v. Slanina, 283 F.3d 670 (5th Cir. 2002); and Leventhal v. Knapek, 266 F.3d 64 (2d Cir. 2001).

23. 23. 474 F.3d 1184 (9th Cir. 2007).

24. 24. As an interesting side note, though U.S. law considers child pornography illegal, most states have no legal obligation to report it. Only Arkansas, Missouri, Oklahoma, South Carolina, and South Dakota have laws that require workers in the information technology arena to report child pornography when it is found on workers’ computers. Harbert, T., “Dark Secrets and Ugly Truths: When Ethics and IT Collide,” Computerworld (September 12, 2007), http://www.computerworld.com/article/2540961/it- careers/dark-secrets-and-ugly-truths--when-ethics-and-it-collide.html (accessed November 11, 2016).

25. 25. Ziegler, 474 F.3d at 1199. 26. page 774 26. U.S. Department of Justice, Overview of the Privacy Act of 1974: 2015

Edition, https://www.justice.gov/opcl/file/793026/download (accessed November 12, 2016).

27. 27. Dobronski v. F.C.C., 17 F.3d 275 (9th Cir. 1994).

28. 28. 18 U.S.C. §§ 2510–2521.

29. 29. United States Courts, Wiretap Report 2015 (December 31, 2015), http://www.uscourts.gov/statistics- reports/wiretap-report-2015 (accessed April 9, 2017).

30. 30. Ibid.

31. 31. Fraser v. National Mutual Insurance, 352 F.3d 107 (3d Cir. 2003). See also United States v. Steiger, 318 F.3d 1039 (11th Cir. 2003); Konop v. Hawaiian Airlines, Inc., 302 F.3d 868 (9th Cir. 2002); and Steve Jackson Games, Inc. v. U.S. Secret Serv., 36 F.3d 457 (5th Cir. 1994).

32. 32. Montana is the one exception. Employees can be fired only for good cause under the Wrongful Discharge from Employment Act, Mont. Code Ann. §39-2-901, et seq. (2008).

33. 33. 50 S.E. 68 (Ga. 1905).

34. 34. Lake v. Wal-Mart Stores, Inc., 582 N.W.2d 231 (Minn. 1998); Opperman v. Path, Inc., No. 13-CV- 00453-JST, 2016 WL 3844326, at *9 (N.D. Cal. July 15, 2016); and Byrd v. Aaron’s, Inc., 14 F. Supp. 3d 667 (W.D. Pa. 2014).

35. 35. Lawlor v. N. Am. Corp. of Illinois, 2012 IL 112530, ¶ 40, 983 N.E.2d 414, 426.

36. 36. 66 Md. App. 133, 502 A.2d 1101 (1986).

37. 37. 28 F. Supp. 3d 786 (N.D. Ind. 2014).

38. 38. 561 F. Supp. 872 (S.D. Ga. 1983).

39. 39. Certain states, however, provide no statutory protection, including Alabama, Connecticut, Mississippi, Nebraska, New Jersey, New York, Vermont, and Washington.

40. 40. As of publication, these states included California; Colorado; Connecticut; District of Columbia; Illinois; Indiana; Kentucky; Louisiana; Maine; Minnesota; Mississippi; Missouri; Montana; Nevada; New Hampshire; New Jersey; New Mexico; New York; North Carolina; North Dakota; Oklahoma; Oregon; Rhode Island; South Carolina; South Dakota; Tennessee; Virginia; West Virginia; Wisconsin; and Wyoming. See also Pearce, John, and Dennis Kuhn, “The Legal Limits of Employees’ Off-Duty Privacy Rights,” Organizational Dynamics 32, no. 4 (2003), pp. 372–83; and Levinson, Ariana R., “Industrial Justice: Privacy Protection for the Employed,” Cornell Journal of Law and Public Policy 18 (2009), p. 609.

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55. 55. Electronic Privacy Information Center, “Workplace Privacy” (2010), http://epic.org/privacy/workplace/ (accessed November 20, 2016).

56. 56. Thompson, J., “‘BYOD’—The Pitfalls of Bring-Your-Own-Device Policies,” 21 Nev. Emp. L. Letter 4, No. 2 (November 2015).

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59. 59. Cited in Levinson, Ariana R., “Workplace Privacy and Monitoring: The Quest for Balanced Interests,” 59 Clev. St. L. Rev. 377 (2011).

60. 60. Jones, J., “In U.S., Telecommuting for Work Climbs to 36%,” Gallup (August 19, 2015), http://www.gallup.com/poll/184649/telecommuting-work-climbs.aspx (accessed November 23, 2016).

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63. 63. Samuel, A., “When HR Decisions Become Social Media Scandals,” Harvard Business Review (February 8, 2013), http://blogs.hbr.org/2013/02/when-hr-decisions-become-socia/ (accessed November 24, 2016).

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75. 75. See, e.g., Cunningham v. New York State Dept. of Labor, 21 N.Y.3d 515 (NY Ct. App., 2013) (Finding that installing a GPS device on the personal vehicle of a state employee who was suspected of falsifying time records was an unreasonable search).

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86. 86. 560 U.S. 746 (2010).

87. 87. Levinson, Ariana, “Toward a Cohesive Interpretation of the Electronic Communications Privacy Act for the Electronic Monitoring of Employees,” West Virginia Law Review 114 (Winter 2012), pp. 461–530, 469.

88. 88. 59 Cal. Rptr. 2d 834 (Cal. Ct. App. 1996).

89. 89. Id. at 842.

90. 90. See, e.g., Doe by Doe v. B.P.S. Guard Services, Inc., 945 F.2d 1442 (8th Cir. 1991); Liberti v. Walt Disney World Co., 912 F. Supp. 1494 (M.D. Fla. 1995); and Trujillo v. City of Ontario, 428 F. Supp. 2d 1094 (C.D. Cal. 2006).

91. 91. Bowyer v. Hi-Lad, Inc., 216 W. Va. 634 (2004).

92. 92. 144 Ohio App. 3d 620 (2001).

93. 93. See DeVittorio v. Hall, 589 F. Supp. 2d 247 (S.D.N.Y. 2008), aff’d, 347 F. App’x 650 (2d Cir. 2009).

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95. 95. 2004 U.S. Dist. LEXIS 18863 (D. Or. 2004).

96. 96. 18 U.S.C. §§ 2510–2520.

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151. 151. Electronic Frontier Foundation, “How to Blog Safely (About Work or Anything Else),” (April 11, 2005), https://www.eff.org/wp/blog-safely (accessed January 15, 2017).

152. 152. Doe v. Cahill, 884 A.2d 451 (Del. 2005).

153. 153. In re Does 1-10, 242 S.W.3d 805 (Tex. App. 2007).

154. 154. See, e.g., Cohen v. Google, Inc., 25 Misc. 3d 945, 887 N.Y.S.2d 424 (Sup. Ct. 2009).

155. 155. Adapted from Barnes, Robert, and Darya V. Pollak, “Employees Online: Protecting Company Interests in a Web 2.0 World,” Bloomberg Finance L.P. (November 10, 2008). For an example of a sample blogging and social networking policy, see one produced by the International Public Management Association for Human Resources. See IMPA, “Sample Blogging and Social Networking Policy,” http://ipma- hr.org/sites/default/files/Sample%20Blogging%20and%20Social%20Networking%20Policy.pdf (accessed January 15, 2017).

156. 156. Public Law 107–56.

157. 157. Sanchez, R., “Librarians Make Some Noise over Patriot Act,” The Washington Post (April 10, 2003), https://www.washingtonpost.com/archive/politics/2003/04/10/librarians-make-some-noise-over- patriot-act/91bcbbc6-65a6-41d2-855d-d78b4c7945d2/?utm_term=.f13c1f1cf197 (accessed January 15, 2017).

158. 158. ACLU, “National Security,” http://www.aclu.org/SafeandFree/SafeandFree.cfm?ID=11256&c=206 (accessed January 15, 2017).

159. 159. Pub.L. 114–23.

160. 160. Knapp, V., “The Impact of the Patriot Act on Employers” (2003), http://www.rothgerber.com/newslettersarticles/le0024.asp (accessed January 15, 2017).

Cases

Case 1 O’Connor v. Ortega 781

Case 2 Shoun v. Best Formed Plastics, Inc. 784

Case 3 City of San Diego v. Roe 786

Case 4 City of Ontario v. Quon 788

O’Connor v. Ortega 480 U.S. 709 (1987) The respondent, Dr. Ortega, was a physician and psychiatrist and an employee of a state hospital who had primary responsibility for training physicians in the psychiatric residency program. Hospital officials became concerned about possible improprieties in his management of the program. In particular, the officials thought that Dr. Ortega may have misled the hospital into believing that the computer had been donated when, in fact, the computer had been financed by the possibly coerced contributions of page 782 residents. Hospital officials were also concerned about charges that Dr.

Ortega had sexually harassed two female hospital employees, and that he had taken inappropriate disciplinary action against a resident.

While he was on administrative leave pending investigation of the charges, hospital officials, allegedly in order to inventory and secure state property, searched Dr. Ortega’s office and took personal items from his desk and file cabinets that later were used in administrative proceedings resulting in his discharge. The employee filed an action against the hospital officials, alleging that the search of his office violated the Fourth Amendment. The trial court found that the search was proper in order to secure state property. The court of appeals held that the employee had a reasonable expectation of privacy in his office, and thus the search violated the Fourth Amendment. The Supreme Court explains that a search must be reasonable both from its inception as well as in its scope, and remands the case to the district court for review of the reasonableness of both of those questions.

O’Connor, J.

***

Because the reasonableness of an expectation of privacy, as well as the appropriate standard for a search, is understood to differ according to context, it is essential first to delineate the boundaries of the workplace context. The workplace includes those areas and items that are related to work and are generally within the employer’s control. At a hospital, for example, the hallways, cafeteria, offices, desks, and file cabinets, among other areas, are all part of the workplace. These areas remain part of the workplace context even if the employee has placed personal items in them, such as a photograph placed in a desk or a letter posted on an employee bulletin board.

Not everything that passes through the confines of the business address can be considered part of the workplace context, however. . . . The appropriate standard for a workplace search does not necessarily apply to a piece of closed personal luggage, a handbag or a briefcase that happens to be within the employer’s business address.

***

Given the societal expectations of privacy in one’s place of work, we reject the contention made by the Solicitor General and petitioners that public employees can never have a reasonable expectation of privacy in their place of work. Individuals do not lose Fourth Amendment rights merely because they work for the government instead of a private employer. The operational realities of the workplace, however, may make some employees’ expectations of privacy unreasonable when an intrusion is by a supervisor rather than a law enforcement official. Public employees’ expectations of privacy in their offices, desks, and file cabinets, like similar expectations of employees in the private sector, may be reduced by virtue of actual office practices and procedures, or by legitimate regulation. The employee’s expectation of privacy must be assessed in the context of the employment relation. An office is seldom a private enclave free from entry by supervisors, other employees, and business and personal invitees. Instead, in many cases offices are continually entered by fellow employees and other visitors during the workday for conferences, consultations, and other work-related visits. Simply put, it is the nature of government offices that others—such as fellow employees, supervisors, consensual visitors, and the general public—may have frequent access to an individual’s office. . . .

The undisputed evidence discloses that Dr. Ortega did not share his desk or file cabinets with any other employees. Dr. Ortega had occupied the office for 17 years and he kept materials in his office, which included personal correspondence, medical files, correspondence from private patients unconnected to the Hospital, personal financial records, teaching aids and notes, and personal gifts and mementos. The files on physicians in residency training were kept outside Dr. Ortega’s office. Indeed, the only items found by the investigators were apparently personal items because, with the exception of the items seized for use in the administrative hearings, all the papers and effects found in the office were simply placed in boxes and made available to Dr. Ortega. Finally, we note that there was no evidence that the Hospital had established any reasonable regulation or policy discouraging employees such as Dr. Ortega from storing personal papers and effects in their desks or file cabinets, although the absence of such a policy does not create an expectation of privacy where it would not otherwise exist.

page 783 On the basis of this undisputed evidence, we accept the conclusion of the Court of Appeals that Dr.

Ortega had a reasonable expectation of privacy at least in his desk and file cabinets. Having determined that Dr. Ortega had a reasonable expectation of privacy in his office, . . . we must determine

the appropriate standard of reasonableness applicable to the search. A determination of the standard of reasonableness applicable to a particular class of searches requires “balanc[ing] the nature and quality of the intrusion on the individual’s Fourth Amendment interests against the importance of the governmental interests alleged to justify the intrusion.” In the case of searches conducted by a public employer, we must balance the invasion of the employees’ legitimate expectations of privacy against the government’s need for supervision, control, and the efficient operation of the workplace.

***

The governmental interest justifying work-related intrusions by public employers is the efficient and proper operation of the workplace. Government agencies provide myriad services to the public, and the work of these agencies would suffer if employers were required to have probable cause before they entered an employee’s desk for the purpose of finding a file or piece of office correspondence. Indeed, it is difficult to give the concept

of probable cause, rooted as it is in the criminal investigatory context, much meaning when the purpose of a search is to retrieve a file for work-related reasons. Similarly, the concept of probable cause has little meaning for a routine inventory conducted by public employers for the purpose of securing state property. To ensure the efficient and proper operation of the agency, therefore, public employers must be given wide latitude to enter employee offices for work-related, noninvestigatory reasons.

We come to a similar conclusion for searches conducted pursuant to an investigation of work-related employee misconduct. Even when employers conduct an investigation, they have an interest substantially different from “the normal need for law enforcement.” Public employers have an interest in ensuring that their agencies operate in an effective and efficient manner, and the work of these agencies inevitably suffers from the inefficiency, incompetence, mismanagement, or other work-related misfeasance of its employees. Indeed, in many cases, public employees are entrusted with tremendous responsibility, and the consequences of their misconduct or incompetence to both the agency and the public interest can be severe. . . . Public employers have a direct and overriding interest in ensuring that the work of the agency is conducted in a proper and efficient manner. In our view, therefore, a probable cause requirement for searches of the type at issue here would impose intolerable burdens on public employers. The delay in correcting the employee misconduct caused by the need for probable cause rather than reasonable suspicion will be translated into tangible and often irreparable damage to the agency’s work, and ultimately to the public interest. Additionally, while law enforcement officials are expected to “schoo[l] themselves in the niceties of probable cause,” no such expectation is generally applicable to public employers, at least when the search is not used to gather evidence of a criminal offense. It is simply unrealistic to expect supervisors in most government agencies to learn the subtleties of the probable cause standard. . . .

Balanced against the substantial government interests in the efficient and proper operation of the workplace are the privacy interests of government employees in their place of work which, while not insubstantial, are far less than those found at home or in some other contexts. . . . The employer intrusions at issue here “involve a relatively limited invasion” of employee privacy. Government offices are provided to employees for the sole purpose of facilitating the work of an agency. The employee may avoid exposing personal belongings at work by simply leaving them at home.

. . . We hold . . . that public employer intrusions on the constitutionally protected privacy interests of government employees for noninvestigatory, work-related purposes, as well as for investigations of work-related misconduct, should be judged by the standard of reasonableness under all the circumstances. Under this reasonableness standard, both the inception and the scope of the intrusion must be reasonable:

Determining the reasonableness of any search involves a twofold inquiry: first, one must consider “whether the . . . action was justified at its inception,” second, one must determine whether the search as actually conducted “was reasonably related in scope to the circumstances which justified the interference in the first place.”

Ordinarily, a search of an employee’s office by a supervisor will be “justified at its inception” when there are reasonable grounds for suspecting that the search will turn up evidence that the employee is guilty of work- related misconduct, or that the search is necessary for a page 784 noninvestigatory work-related purpose such as

to retrieve a needed file. Because petitioners had an “individualized suspicion” of misconduct by Dr. Ortega, we need not decide whether individualized suspicion is an essential element of the standard of reasonableness that we adopt today. The search will be permissible in its scope when “the measures adopted are reasonably related to the objectives of the search and not excessively intrusive in light of . . . the nature of the [misconduct].”

***

On remand, therefore, the District Court must determine the justification for the search and seizure, and evaluate the reasonableness of both the inception of the search and its scope.

Accordingly, the judgment of the Court of Appeals is REVERSED and the case is REMANDED to that court for further proceedings consistent with this opinion.

Case Questions

1. Do you think the standard of the search articulated in this opinion is the correct standard for determining whether a search violates the Fourth Amendment? Think of arguments for both perspectives—the employer and employee.

2. How can an employer protect itself from a claim of an unreasonable search conducted in the workplace? Note the court stated that a policy regarding this issue was not a determinative factor in determining the constitutionality of the search.

3. What could you do as an employee to protect yourself from a company search?

Shoun v. Best Formed Plastics, Inc. 28 F. Supp. 3d 786 (N.D. Ind. 2014)

In March 2012, George Shoun fell and injured his shoulder while on the job at Best Formed Plastics and spent several months away from work recovering. Jane Stewart, who processed workers’ compensation claims for the company, prepared an accident report for the incident and notified the company’s insurer. Mr. Shoun says that between March and August 2012, Ms. Stewart monitored his medical treatment for the company and so learned the nature and extent of his injury.

In February 2013, Ms. Stewart posted the following on her Facebook page: “Isn’t [it] amazing how Jimmy experienced a 5 way heart bypass just one month ago and is back to work, especially when you consider George Shoun’s shoulder injury kept him away from work for 11 months and now he is trying to sue us.” Mr. Shoun claims Ms. Stewart’s Facebook page is linked to her business email address and available to the business communities in northeastern Indiana and southern Michigan. The quoted statement remained on Ms. Stewart’s Facebook page for 76 days.

Mr. Shoun asserts that Ms. Stewart’s posting of the statement was a “deliberate disclosure of [his] medical condition to other persons” in violation of the Americans with Disabilities Act. He claims, too, that Ms. Stewart “acted with the intent to expose him to public scorn and ridicule and to blacklist him among prospective employers within her broad network.” Mr. Shoun seeks compensatory and punitive damages, pre-judgment interest, attorney fees, and costs.

Best Formed Plastics moves to dismiss Mr. Shoun’s complaint because, first, the company can’t be liable for violating the ADA’s confidentiality provisions when Mr. Shoun voluntarily disclosed his medical condition to the public and, second, Mr. Shoun hasn’t alleged any tangible injury that resulted from the alleged ADA violation.

Miller, J.

***

page 785

Discussion

Section 102 of the Americans with Disabilities Act provides that any information relating to a medical condition of an employee obtained by an employer during “voluntary medical examinations, including voluntary work histories, which are part of an employee health program available to employees at that work site,” must be “collected and maintained on separate forms and in separate medical files and [be] treated as a confidential medical record.” To state a claim for violation of the ADA’s confidentiality provisions, a plaintiff must allege that his employer obtained his medical information through employment-related medical examinations and inquiries, the information obtained through such means was disclosed by the employer rather than treated as confidential (unless that information falls under one of the exceptions found in 42 U.S.C. § 12112(d)(3)(B)(i), (ii), (iii), none of which are alleged here), and he suffered a tangible injury as a result of the disclosure.

Best Formed Plastics argues that Mr. Shoun’s amended complaint should be dismissed because Mr. Shoun voluntarily and publicly disclosed his medical condition in the complaint he filed in the Elkhart Superior Court before Ms. Stewart’s alleged disclosure of that same information. The company asks the court to take judicial notice of Mr. Shoun’s state court complaint, a request to which Mr. Shoun hasn’t objected. “Taking judicial notice of matters of public record need not convert a motion to dismiss into a motion for summary judgment” if the facts

are “readily ascertainable from the public court record and not subject to reasonable dispute.” Ennenga v. Starns. Mr. Shoun’s complaint meets those requirements. Because the state court complaint “is offered to show what was stated to the court rather [than] for the truth of the matter asserted,” Felty v. Driver Solutions (internal quotation and citation omitted), the court grants the motion to take judicial notice of Mr. Shoun’s Elkhart Superior Court complaint.

Best Formed Plastics notes that Mr. Shoun filed his state court complaint on February 14, 2013, and Ms. Stewart posted her comment on her Facebook page five days after Mr. Shoun’s public disclosure of his medical condition. Thus, the company says, Mr. Shoun voluntarily publicized his medical condition outside the context of an authorized employment-related medical examination or inquiry prior to Ms. Stewart’s Facebook comment, so Ms. Stewart’s alleged disclosure was nothing more than a mere recitation of facts previously disclosed to the public by Mr. Shoun. Best Formed Plastics concludes that based on Mr. Shoun’s voluntary disclosure, the company can’t be liable for violating the ADA’s confidentiality provisions, and Mr. Shoun isn’t entitled to the relief he seeks.

The cases relied on by Best Formed Plastics support the company’s argument that an employee’s voluntary disclosure of medical information outside the context of an authorized employment-related medical examination or inquiry can render the confidentiality requirements of the ADA inapplicable to the employer, but in those cases the plaintiff-employees volunteered their medical information to their employer or a co-employee.

Neither side has alleged or argued that Mr. Shoun voluntarily disclosed his medical information to Ms. Stewart or anyone else at Best Formed Plastics; instead, Mr. Shoun alleges that Ms. Stewart acquired information about his medical condition through an employment-related medical inquiry by the company and then wrongfully disclosed that information. Whether Ms. Stewart gained knowledge of Mr. Shoun’s medical condition solely within the context of his employment-related medical examination is a question of fact not appropriate for resolution in a motion to dismiss. Mr. Shoun has set forth facts sufficient to allege a violation of the confidentiality provisions of the ADA and the motion of Best Formed Plastics to dismiss for failure to state a claim will be denied.

Best Formed Plastics also moves to dismiss the amended complaint based on its claim that Mr. Shoun hasn’t alleged any tangible injury. The court can’t agree. Mr. Shoun has alleged that as a result of Ms. Stewart’s actions, “prospective employers refused to hire him,” and he suffered emotional injury, both of which have been recognized as tangible injuries under the ADA. Dismissal on this basis is inappropriate.

Based on the foregoing, the court GRANTS the renewed motion to take judicial notice and DENIES the motion to dismiss the amended complaint.

SO ORDERED.

Case Questions

1. Should Best Formed Plastics’ motion to dismiss have been granted? Why or why not?

2. Assume that Ms. Stewart had only two Facebook friends who could see her post: Mr. Shoun and Mr. Shoun’s boss (who already had signed off on his medical leave and was aware of Mr. Shoun’s condition). Would the judge have ruled differently?

3. If you were the owner of Best Formed Plastics, what rules and procedures might you put in place to ensure that you are not faced with a similar lawsuit in the future?

page 786

City of San Diego v. Roe 543 U.S. 77 (2004)

The City of San Diego terminated a police officer for selling homemade, sexually explicit videotapes and related activities. Using an adults-only section of eBay, the officer sold not only videotapes of himself in a police uniform but also official San Diego Police Department uniforms and other police equipment. The officer sued the city, alleging a violation of his First Amendment right to free speech. The trial court found for the city on the ground that the speech was not entitled to protection because

it was not of “public concern.” The Ninth Circuit, however, reversed the trial court, finding that his conduct fell within the protected category of citizen commentary on matters of public concern because it took place off-duty, it was away from the employer’s premises, and it did not involve a workplace grievance. The U.S. Supreme Court reversed.

Per Curiam

***

A government employee does not relinquish all First Amendment rights otherwise enjoyed by citizens just by reason of his or her employment. On the other hand, a governmental employer may impose certain restraints on the speech of its employees, restraints that would be unconstitutional if applied to the general public. The Court has recognized the right of employees to speak on matters of public concern, typically matters concerning government policies that are of interest to the public at large, a subject on which public employees are uniquely qualified to comment. Outside of this category, the Court has held that when government employees speak or write on their own time on topics unrelated to their employment, the speech can have First Amendment protection, absent some governmental justification “far stronger than mere speculation” in regulating it. United States v. Treasury Employees (NTEU). We have little difficulty in concluding that the City was not barred from terminating Roe under either line of cases.

In concluding that Roe’s activities qualified as a matter of public concern, the Court of Appeals relied heavily on the Court’s decision in NTEU. In NTEU it was established that the speech was unrelated to the employment and had no effect on the mission and purpose of the employer. The question was whether the Federal Government could impose certain monetary limitations on outside earnings from speaking or writing on a class of federal employees. The Court held that, within the particular classification of employment, the Government had shown no justification for the outside salary limitations. The First Amendment right of the employees sufficed to invalidate the restrictions on the outside earnings for such activities. The Court noted that throughout history public employees who undertook to write or to speak in their spare time had made substantial contributions to literature and art, and observed that none of the speech at issue “even arguably [had] any adverse impact” on the employer.

The Court of Appeals’ reliance on NTEU was seriously misplaced. Although Roe’s activities took place outside the workplace and purported to be about subjects not related to his employment, the SDPD demonstrated legitimate and substantial interests of its own that were compromised by his speech. Far from confining his activities to speech unrelated to his employment, Roe took deliberate steps to link his videos and other wares to his police work, all in a way injurious to his employer. The use of the uniform, the law enforcement reference in the website, the listing of the speaker as “in the field of law enforcement,” and the debased parody of an officer performing indecent acts while in the course of official duties brought the mission of the employer and the professionalism of its officers into serious disrepute.

The Court of Appeals noted the City conceded Roe’s activities were “unrelated” to his employment. In the context of the pleadings and arguments, the proper interpretation of the City’s statement is simply to underscore the obvious proposition that Roe’s speech was not a comment on the workings or functioning of the SDPD. It is quite a different question whether the speech was detrimental to the SDPD. On that score the City’s consistent position has been that the speech is contrary to its regulations and harmful to the proper functioning of the police force. The present case falls outside the protection afforded in NTEU. The authorities that instead control, and which are page 787 considered below, are this Court’s decisions in Pickering, Connick, and the decisions which

follow them. To reconcile the employee’s right to engage in speech and the government employer’s right to protect its own

legitimate interests in performing its mission, the Pickering Court adopted a balancing test. It requires a court evaluating restraints on a public employee’s speech to balance “the interests of the [employee], as a citizen, in commenting upon matters of public concern and the interest of the State, as an employer, in promoting the efficiency of the public services it performs through its employees.”

Underlying the decision in Pickering is the recognition that public employees are often the members of the community who are likely to have informed opinions as to the operations of their public employers, operations which are of substantial concern to the public. Were they not able to speak on these matters, the community would be deprived of informed opinions on important public issues. The interest at stake is as much the public’s interest in receiving informed opinion as it is the employee’s own right to disseminate it.

Pickering did not hold that any and all statements by a public employee are entitled to balancing. To require Pickering balancing in every case where speech by a public employee is at issue, no matter the content of the speech, could compromise the proper functioning of government offices. This concern prompted the Court

in Connick to explain a threshold inquiry (implicit in Pickering itself) that in order to merit Pickering balancing, a public employee’s speech must touch on a matter of “public concern.”

In Connick, an assistant district attorney, unhappy with her supervisor’s decision to transfer her to another division, circulated an intraoffice questionnaire. The document solicited her co-workers’ views on, inter alia, office transfer policy, office morale, the need for grievance committees, the level of confidence in supervisors, and whether employees felt pressured to work in political campaigns.

Finding that—with the exception of the final question—the questionnaire touched not on matters of public concern but on internal workplace grievances, the Court held no Pickering balancing was required. To conclude otherwise would ignore the “common-sense realization that government offices could not function if every employment decision became a constitutional matter.” Connick held that a public employee’s speech is entitled to Pickering balancing only when the employee speaks “as a citizen upon matters of public concern” rather than “as an employee upon matters only of personal interest.”

Although the boundaries of the public concern test are not well-defined, Connick provides some guidance. It directs courts to examine the “content, form, and context of a given statement, as revealed by the whole record” in assessing whether an employee’s speech addresses a matter of public concern. In addition, it notes that the standard for determining whether expression is of public concern is the same standard used to determine whether a common-law action for invasion of privacy is present. That standard is established by our decisions in Cox Broadcasting Corp. v. Cohn, and Time, Inc. v. Hill. These cases make clear that public concern is something that is a subject of legitimate news interest; that is, a subject of general interest and of value and concern to the public at the time of publication. The Court has also recognized that certain private remarks, such as negative comments about the President of the United States, touch on matters of public concern and should thus be subject to Pickering balancing.

Applying these principles to the instant case, there is no difficulty in concluding that Roe’s expression does not qualify as a matter of public concern under any view of the public concern test. He fails the threshold test and Pickering balancing does not come into play.

Connick is controlling precedent, but to show why this is not a close case it is instructive to note that even under the view expressed by the dissent in Connick from four Members of the Court, the speech here would not come within the definition of a matter of public concern. The dissent in Connick would have held that the entirety of the questionnaire circulated by the employee “discussed subjects that could reasonably be expected to be of interest to persons seeking to develop informed opinions about the manner in which . . . an elected official charged with managing a vital governmental agency, discharges his responsibilities.” No similar purpose could be attributed to the employee’s speech in the present case. Roe’s activities did nothing to inform the public about any aspect of the SDPD’s functioning or operation. Nor were Roe’s activities anything like the private remarks at issue in Rankin, where one co-worker commented to another co-worker on an item of political news. Roe’s expression was widely broadcast, linked to his official status as a police officer, and designed to exploit his employer’s image.

The speech in question was detrimental to the mission and functions of the employer. There is no basis for finding that it was of concern to the community as the Court’s cases have understood that term in the context of restrictions by governmental entities on the speech of their employees.

page 788

Case Questions

1. In your opinion, does the Ninth Circuit’s conclusion that Roe’s activities were protected by the First Amendment have merit?

2. Where do you think the line would have been drawn on Roe’s free speech rights by the Supreme Court had he not tied his activities to the police department? What if Roe did not wear a police uniform but still sold police-related paraphernalia? What if he wore a police uniform but did not sell police-related paraphernalia?

3. Is the “public concern” requirement from the Pickering case a fair balancing of the rights involved? How might it be improved?

City of Ontario v. Quon 130 S. Ct. 2619 (2010)

The City of Ontario, California, acquired pagers that could send and receive text messages. The pagers were issued to Quon and other police officers, who were told that the city-provided service plan included a monthly limit on the number of characters sent and received each month. Overages had to be paid by the employees. When the employees exceeded their monthly limits for several months, the police chief sought to determine if the overages being paid by the police officers were for city-related business or personal messages. Based on transcripts sent by the service provider, the police chief discovered that Quon had been sending sexually explicit messages. He also learned that few of Quon’s on-duty messages were related to police business, and he was disciplined. Quon and other officers sued, alleging violations of the Fourth Amendment search and seizure provisions.

The trial court ruled that Quon and the police officers had an expectation of privacy in the content of the messages, but it dismissed the Fourth Amendment claims because the jury found that the police chief’s actions were motivated by the legitimate reason of determining whether the officers were unfairly paying for work-related overages. The Ninth Circuit, however, reversed, concluding that the police chief’s motives were not determinative because he could have used less intrusive tactics than an audit of the messages. The U.S. Supreme Court reversed, holding that the search of the text messages was not excessive in scope.

Kennedy, J.

***

Though the case touches issues of far-reaching significance, the Court concludes it can be resolved by settled principles determining when a search is reasonable.

***

It is well settled that the Fourth Amendment’s protection extends beyond the sphere of criminal investigations. Camara v. Municipal Court of City and County of San Francisco. “The Amendment guarantees the privacy, dignity, and security of persons against certain arbitrary and invasive acts by officers of the Government,” without regard to whether the government actor is investigating crime or performing another function. The Fourth Amendment applies as well when the Government acts in its capacity as an employer. Treasury Employees v. Von Raab.

***

Before turning to the reasonableness of the search, it is instructive to note the parties’ disagreement over whether Quon had a reasonable expectation of privacy. The record does establish that OPD, at the outset, made it clear that pager messages were not considered private. The City’s Computer Policy stated that “[u]sers should have no expectation of privacy or confidentiality when using” City computers. Chief Scharf’s memo and Duke’s statements made clear that this official policy extended to text messaging. The disagreement, at least as respondents see the case, is over whether Duke’s later statements overrode the official policy. Respondents contend that because Duke told Quon that an audit would be unnecessary if Quon paid for the overage, Quon reasonably could expect that the contents of his messages would remain private.

page 789 At this point, were we to assume that inquiry into “operational realities” were called for, . . . it would

be necessary to ask whether Duke’s statements could be taken as announcing a change in OPD policy, and if so, whether he had, in fact or appearance, the authority to make such a change and to guarantee the privacy of text messaging. It would also be necessary to consider whether a review of messages sent on police pagers, particularly those sent while officers are on duty, might be justified for other reasons, including performance evaluations, litigation concerning the lawfulness of police actions, and perhaps compliance with state open records laws. These matters would all bear on the legitimacy of an employee’s privacy expectation.

The Court must proceed with care when considering the whole concept of privacy expectations in communications made on electronic equipment owned by a government employer. The judiciary risks error by elaborating too fully on the Fourth Amendment implications of emerging technology before its role in society has become clear. See, e.g., Olmstead v. United States, overruled by Katz v. United States. In Katz, the Court relied on its own knowledge and experience to conclude that there is a reasonable expectation of privacy in a telephone booth. It is not so clear that courts at present are on so sure a ground. Prudence counsels caution before the

facts in the instant case are used to establish far-reaching premises that define the existence, and extent, of privacy expectations enjoyed by employees when using employer-provided communication devices.

Rapid changes in the dynamics of communication and information transmission are evident not just in the technology itself but in what society accepts as proper behavior. As one amici brief notes, many employers expect or at least tolerate personal use of such equipment by employees because it often increases worker efficiency. Another amicus points out that the law is beginning to respond to these developments, as some States have recently passed statutes requiring employers to notify employees when monitoring their electronic communications. At present, it is uncertain how workplace norms, and the law’s treatment of them, will evolve.

Even if the Court were certain that the O’Connor plurality’s approach were the right one, the Court would have difficulty predicting how employees’ privacy expectations will be shaped by those changes or the degree to which society will be prepared to recognize those expectations as reasonable. Cell phone and text message communications are so pervasive that some persons may consider them to be essential means or necessary instruments for self-expression, even self-identification. That might strengthen the case for an expectation of privacy. On the other hand, the ubiquity of those devices has made them generally affordable, so one could counter that employees who need cell phones or similar devices for personal matters can purchase and pay for their own. And employer policies concerning communications will of course shape the reasonable expectations of their employees, especially to the extent that such policies are clearly communicated.

A broad holding concerning employees’ privacy expectations vis-à-vis employer-provided technological equipment might have implications for future cases that cannot be predicted. It is preferable to dispose of this case on narrower grounds. For present purposes we assume several propositions arguendo: First, Quon had a reasonable expectation of privacy in the text messages sent on the pager provided to him by the City; second, petitioners’ review of the transcript constituted a search within the meaning of the Fourth Amendment; and third, the principles applicable to a government employer’s search of an employee’s physical office apply with at least the same force when the employer intrudes on the employee’s privacy in the electronic sphere.

Even if Quon had a reasonable expectation of privacy in his text messages, petitioners did not necessarily violate the Fourth Amendment by obtaining and reviewing the transcripts. Although as a general matter, warrantless searches “are per se unreasonable under the Fourth Amendment,” there are “a few specifically established and well-delineated exceptions” to that general rule . . . The Court has held that the “special needs” of the workplace justify one such exception.

Under the approach of the O’Connor plurality, when conducted for a “noninvestigatory, work-related purpos[e]” or for the “investigatio[n] of work-related misconduct,” a government employer’s warrantless search is reasonable if it is “justified at its inception” and if “the measures adopted are reasonably related to the objectives of the search and not excessively intrusive in light of” the circumstances giving rise to the search. The search here satisfied the standard of the O’Connor plurality and was reasonable under that approach.

The search was justified at its inception because there were “reasonable grounds for suspecting that the search [was] necessary for a noninvestigatory work-related purpose.” As a jury found, Chief Scharf ordered the search in order to determine whether the character limit on the City’s contract with Arch Wireless was sufficient to meet the City’s page 790 needs. This was, as the Ninth Circuit noted, a “legitimate work-related rationale.” The

City and OPD had a legitimate interest in ensuring that employees were not being forced to pay out of their own pockets for work-related expenses, or on the other hand that the City was not paying for extensive personal communications.

As for the scope of the search, reviewing the transcripts was reasonable because it was an efficient and expedient way to determine whether Quon’s overages were the result of work-related messaging or personal use. The review was also not “excessively intrusive.” Although Quon had gone over his monthly allotment a number of times, OPD requested transcripts for only the months of August and September 2002. While it may have been reasonable as well for OPD to review transcripts of all the months in which Quon exceeded his allowance, it was certainly reasonable for OPD to review messages for just two months in order to obtain a large enough sample to decide whether the character limits were efficacious. And it is worth noting that during his internal affairs investigation, McMahon redacted all messages Quon sent while off duty, a measure which reduced the intrusiveness of any further review of the transcripts.

Furthermore, and again on the assumption that Quon had a reasonable expectation of privacy in the contents of his messages, the extent of an expectation is relevant to assessing whether the search was too intrusive. Even if he could assume some level of privacy would inhere in his messages, it would not have been reasonable for Quon to conclude that his messages were in all circumstances immune from scrutiny. Quon was told that his messages were subject to auditing. As a law enforcement officer, he would or should have known that his actions were likely to come under legal scrutiny, and that this might entail an analysis of his on-the-job communications. Under the circumstances, a reasonable employee would be aware that sound management principles might require the audit of messages to determine whether the pager was being appropriately used. Given that the City issued the pagers to Quon and other SWAT Team members in order to help them more quickly respond to

crises—and given that Quon had received no assurances of privacy—Quon could have anticipated that it might be necessary for the City to audit pager messages to assess the SWAT Team’s performance in particular emergency situations.

From OPD’s perspective, the fact that Quon likely had only a limited privacy expectation, with boundaries that we need not here explore, lessened the risk that the review would intrude on highly private details of Quon’s life. OPD’s audit of messages on Quon’s employer-provided pager was not nearly as intrusive as a search of his personal email account or pager, or a wiretap on his home phone line, would have been. That the search did reveal intimate details of Quon’s life does not make it unreasonable, for under the circumstances a reasonable employer would not expect that such a review would intrude on such matters. The search was permissible in its scope.

Chapter 15 Labor Law

Source: Library of Congress Prints and Photographs Division [LC-USZC2-837]

Learning Objectives

By the time you finish studying this chapter, you should be able to:

1. LO1Discuss the history of unions in the United States.

2. LO2Identify the Norris–LaGuardia Act of 1932 and what it covers.

3. LO3Identify the National Labor Relations Act of 1935 (Wagner Act) and what it requires.

4. LO4List and explain several collective bargaining agreement clauses.

5. LO5Explain unfair labor practices and give examples.

6. LO6Describe the Taft–Hartley Act of 1947 and its requirements.

7. LO7Define the Landrum–Griffin Act of 1959 (Labor Management Reporting and Disclosure Act) and its provisions.

8. LO8Discuss collective bargaining in the public sector and how it differs from the private sector.

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Opening Scenarios

SCENARIO 1

Plastico Corporation hears through the corporate grapevine that its employees are unhappy with working conditions at the manufacturing plant and are looking into bringing in a union. In an effort to stop the plant’s unionization, Plastico posts a notice on the lunchroom bulletin board stating that anyone found to be sympathetic to the unions will be terminated. Is this strategy permissible as a way for Plastico to discourage unionization?

SCENARIO 2

Zellico, Inc., is in the midst of a union fight and the employees eventually go on strike. The union later gives an unconditional request for reinstatement to the employer, but the employer refuses to reinstate them and give employees a wage increase without consulting the union. Did the employer commit an unfair labor practice?

SCENARIO 3

A nonunion company offers to form a partnership with its employees in order to decide what it can do to cut costs because of declining profits. Is this legal?

Statutory Basis Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection, and shall also have the right to refrain from any or all such activities. [National Labor Relations Act of 1935, 29 U.S.C. §§ 151–169, § 157, section 7.]

Coming Together on Issues Think labor law doesn’t affect you? Thank goodness we’re not back at the 2008 television season. If we were, you would probably have missed your favorite TV shows. The airwaves were full of reruns and lame substitute shows put on in their place. The reason was that television writers were on strike. The 13,500-member Writers Guild of America wanted a share of profits from the increasingly popular new technological outlets for their shows, such as the Internet. The 100-day strike ended just before the Academy Awards were to be telecast—much to the relief of everyone.

But the Writers Guild of America is hardly alone. The NFL has certainly seen its share of being locked in rancorous collective bargaining negotiations with the NFL players, up to, and including, resorting to litigation. Other recent events:

• In January 2014, for the first time in the history of college sports, athletes asked to be represented by a labor union and took formal steps to begin the National Labor Relations Board (NLRB) process to be recognized as employees by submitting the appropriate form at the regional NLRB office in

Chicago. In March 2014, the NLRB determined that Northwestern football page 793players receiving

grants-in-aid were employees and granted them the right to hold a representation election.

• Hundreds of McDonald’s minimum wage employees around the country went on strike for higher wages, including workers in New York, Boston, Chicago, and Detroit.1

• Baked confection Twinkies maker, Hostess Brands, Inc., closed after a strike left it without enough workers to operate.2 The good news for fans was that the brand was bought by two private equity firms and Twinkies were again available by July 2013, with a shelf life 26 days longer than under Hostess.3

• A slim 51 percent of the machinists’ union agreed to a pension freeze and higher health care expenses in order to save thousands of jobs by Boeing keeping the manufacture of the 777X jet in Washington state rather than moving it to South Carolina.4

• In the traditionally nonunion south, students joined forces to raise awareness and mobilize students in support of workers’ right to organize and form a union by having the Mississippi Student Justice Alliance and the Georgia Student Justice Alliance present actor and humanitarian Danny Glover (who has previously been arrested at labor protests) as a speaker as part of the Concerned Students for A Better Nissan College Tour.

• Harley-Davidson wrapped up its labor negotiations with employees throughout its operations, including making an agreement in Pennsylvania to cut nearly 50 percent of jobs in exchange for the company’s commitment to invest $90 million in the plant. In New York, the company threatened to move to a new plant in Kentucky if the contract was rejected.5

• Concerned about being too taxed with extra responsibilities to do their jobs well, nurses have walked out at least 750 times in recent decades, making it the most strike-prone job in the country. A study published by the National Bureau of Economics shows that during 50 strikes at New York state hospitals between 1984 and 2004, patients were almost 20 percent more likely to die (about 140 patients).6

• After New Yorkers braced for a walkout by apartment building doormen, a strike was averted when a deal was reached.7

• The NBA “avoids the apocalypse” by reaching an interim labor agreement, thereby narrowly avoiding a walkout.8

• The National Hockey League loses its season to labor disputes, angering thousands of loyal fans; baseball lockouts threaten to cost revenues and crowds.9

• Disgruntled private-sector lawyers unionize over pay and working conditions for the first time.10 Though they have lost much of the numbers and clout that they once had, maybe even because

they have done their job too well, as you can see from these recent issues, unions are still an important part of the American workplace landscape. (See Exhibit 15.1, “Who’s in Unions?”)

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Exhibit 15.1 Who’s in Unions?

According to the 2016 report of the U.S. Department of Labor’s Bureau of Labor Statistics, released in January 2017:

• In 2016, the number of union members was down 0.4 percent from the year before.

• There are 16.3 million union members in the United States. 14.6 million are union members, while the rest are not union affiliated but have jobs covered by union contracts.

• 10.7 percent of wage and salary workers are union members, down from 20.1 percent in 1983, the first year such figures were kept.

• The median weekly earning for union members is $1,004; for nonunion workers, $802.

• Men are more likely to be union members (11.2 percent) than women (10.2 percent); when records were first kept in 1983, the gap between men and women was 10 points, but men’s union membership declined more rapidly than women’s and narrowed the gap.

• Blacks are more likely to be in a union (13.0 percent) than whites (10.5 percent), Asians (9.0 percent), or Hispanics (8.8 percent).

• Workers 45 to 64 are more likely to be union members (13.3 percent) than younger workers.

• Full-time workers are twice as likely to be union members (11.5 percent) than part-time workers (5.7 percent).

• All states in the Middle Atlantic and Pacific divisions had membership rates above the national average.

• All states in the East South Central and West South Central have rates below the national average.

• The state with the highest membership rate is New York (23.6 percent).

• The state with the lowest union membership rate is South Carolina (1.6 percent).

• About 1.7 million employees are represented by a union but are not members of the union. About half of these are government employees.

• Union membership rate has steadily declined from a high of 20.1 percent in 1983, the first year the data were available.

• 7.4 million (6.4 percent) private industry employees are union members (less than half of what it was in 1983), but 7.1 million (34.4 percent) of public employees are in a union. Of the government workers, 40.13 percent are in local government, the group with the highest representation.

• Two occupational groups have the highest unionization rates (34.6 percent): (1) education, training, and library occupations and (2) protective service occupations such as police and firefighters (34.5 percent).

• In the private sector, utilities have the highest rate of union membership (21.5 percent), followed by transportation and warehousing (18.4 percent), telecommunications (14.1 percent), and construction (13.9 percent). Agriculture and related industries and finance are lowest at 1.2 percent union membership, with food services and drinking places following closely at 1.6 percent.

• Union membership in 2016 was down in 31 states and the District of Columbia, up in 16 states, and remained unchanged in 3 states.

Source: U.S. Department of Labor, Bureau of Labor Statistics, Union Members Summary, https://www.bls.gov/news.release/union2.nr0.htm

Labor law is actually a very different and discrete part of the law from employment law, but given its far-reaching impact on the workplace, it is important to be familiar with its basic history and provisions in order to have a more complete knowledge of issues in the workplace environment. Labor law involves collective bargaining page 795between employers and

employees about issues in the workplace. Rather than each employee entering into his or her own individual agreement with the employer covering his or her employment, the law now permits employees to do so in an organized and collective way. This was not always so. The agrarian nature of the economy in the United States was such that until the middle of the 19th century, the majority of working Americans worked on farms. In 1820, only about 12 percent of workers were employed in manufacturing. By 1860, that number had increased to about 18 percent, and the location of manufacturing had shifted from private homes to factories. As this trend continued to

grow, so did the size of the non-farm labor class, and the basis for modern labor issues was created. Compounding the competitive nature of industry during this time were several things, including the simultaneous improvement of the transportation system. This served to allow products from other markets to compete with local products, thus decreasing the local demand and the profit margin of production. This was often offset by decreasing the wage of the worker. It was in this atmosphere that the earliest labor strife leading to what most of us know as workers refusing to work unless their grievances are addressed—strikes—took place. collective bargaining Negotiations and agreements between management and labor about wages, hours, and other terms and conditions of employment.

A Historical Accounting

LO1

Labor law has a long and somewhat acrimonious history in this country. Central to an understanding of the struggle between labor and management is understanding the role the courts played in shaping labor policy before the U.S. Congress enacted legislation that forms the basis for labor relationships today. There were four weapons of choice that business used to control early unionizing efforts: criminal conspiracy laws, injunctions, antitrust laws, and constitutional challenges. A brief examination of these early antiunion efforts helps to explain how the balance between workers’ rights and management’s rights was ultimately reached.

Criminal Conspiracy Laws

In the 1800s, many courts considered activity by workers such as striking and picketing to be common-law criminal conspiracies. Workers were convicted for trying to improve working conditions through union efforts. As early as 1806, employers in the shoemaking industry in Philadelphia discovered that they could enlist the aid of the courts by charging their unionized employees with criminal conspiracy. Thus, if a group of employees attempted to exert pressure on an employer to increase wages, they would be charged with criminal conspiracy and, if convicted, subject to imprisonment. Generally, the penalties imposed were fines rather than jail, but along with them came the threat of harsher sentences upon subsequent convictions. This acted to discourage and even eliminate union activity. This practice continued until 1842 when the landmark case of Commonwealth v. Hunt, included at the end of the chapter, severely criticized the use of criminal conspiracy charges to discourage unionization.

Despite Commonwealth v. Hunt, the criminal conspiracy trials retained some vitality until the 1890s. During this time, conspiracy trials were losing steam page 796because of difficulty in getting

juries to side with employers. Another method of discouraging unions was being developed that would prove equally difficult for labor.

Injunctions Employers sought the use of injunctions to gain immediate relief from workers’ attempted collective bargaining activities. This legal action was encouraged and proliferated after 1895. In that year, the U.S. Supreme Court issued a decision that upheld the constitutionality of the labor injunction.11 Armed with this potent legal support, judges were quick to apply this remedy to quash strikes and protests. Judges often committed abuses by wielding their power in personal ways. For example, when an injunction was sought, a judge would have to decide whether a union’s objectives were lawful or unlawful. Judges outlawed many union activities this way. This was not always an issue of improper motivation; judges were left without legislative directives and, in their

absence, were free to use their own beliefs, attitudes, and prejudices to reach conclusions. Given the antilabor sentiment among the business class, which was the background of a good many judges of this period, the rulings were overwhelmingly against labor’s attempt to organize. injunction A court order requiring individuals or groups of persons to refrain from performing certain acts that the court has determined will do irreparable harm.

This method came to a head in the case of Hitchman Coal Company v. Mitchell,12 in which the Supreme Court declared that a labor injunction could be used to enforce a yellow dog contract. The yellow dog contract was a device used by antiunion employers to stop the progress of the union movement. It was the promise of a worker not to join a labor union while in the hire of an employer. Yellow dog contracts, used sparingly before Hitchman, proliferated afterward. Employees, often faced with no alternative employment options, were forced to sign yellow dog contracts. Later, if their employer was faced with a unionizing campaign, the employer could receive an injunction that would restrain anyone from encouraging these workers to join a union. This decision’s hostile view toward organized labor dealt a harsh blow to workers seeking to organize. Its effects were felt until 1932, when yellow dog contracts were outlawed by Congress. yellow dog contract Agreement employers require employees to sign stating they do not belong to a union and will not join one; now illegal.

Antitrust Attacks The early part of the 20th century saw declining competition and mammoth growth of industrialization. By 1930, nonagricultural occupations accounted for about 80 percent of the labor force. Business leaders saw the advantage of cooperation and began to establish price agreements, trusts, pools, and trade associations. These devices were intended to stamp out competition between rivals. Elimination of competition meant growth of huge and powerful corporations whose purpose was to monopolize an area. Once competition was eliminated, it was easy to control prices and make them whatever the corporation wanted them to be. Of course, this was a disaster for consumers, who were at the mercy of the monopolies.

Congress enacted the Sherman Antitrust Act in 1890 to eliminate monopolistic control of the nation’s economy. After its passage, labor unions learned page 797that the law limited a variety of

their activities. Unions were prosecuted under various provisions that were interpreted to include them under the provisions that prohibited “every contract, combination . . . or conspiracy, in restraint of trade. . . .” When unions challenged the application of the Sherman Antitrust Act to their activities, the Supreme Court, in 1908,13 held that the Sherman Act applied to labor unions, giving business a new weapon to combat unionism. In addition, the Court held that individual union members were responsible for the actions of their officers, making the rank and file liable for judgments against the union, and outlawed secondary boycotts. In response, unions organized themselves into a strong political force and in 1912 helped to elect Woodrow Wilson (who had pledged his support to the American Federation of Labor) as well as other Democratic candidates. The Democratic Party soon fulfilled its promise to organized labor, and in October 1914 the Clayton Act became law. Section 6 of that act provided that “nothing contained in the antitrust laws shall be construed to forbid the existence and operation of labor organizations” nor shall labor unions be held to be “illegal combinations or conspiracies in restraint of trade under the antitrust laws.” secondary boycott Union pressure on management created by getting others who do business with management to cease.

More importantly, the Clayton Act regulated the procedure by which a federal court could issue an injunction against labor. Some of the most important gains from labor’s perspective were the requirement that an injunction not be issued without notice to the union, absent emergency circumstances; the requirement that a jury trial be held for those members who were charged with

a violation under the injunction; the requirement that a bond be posted by the party seeking the injunction and indemnifying the union if they were found to have acted lawfully; and the requirement that specific acts be enjoined and not just the activity of the union wholesale.

Constitutional Challenges to Early Congressional Enactments Early efforts by federal and state legislators to support organized labor were thwarted by the courts as a whole. Many state laws were declared unconstitutional by state supreme courts. Congress continued to recognize the rights of labor organizations and in 1898 passed the Erdman Act. The objective of the act was to set up a procedure by which conflicts in the railroad industry could be handled. Among other rights, it gave the railroad workers the right to self-organization and collective bargaining and outlawed the yellow dog contract. At this time, Congress targeted railroad workers for protection largely because of the Pullman strike, which had disrupted service in 1894. Feeling the need to ensure against further disruptions that had the effect of paralyzing the nation’s transportation system, Congress thought it had found a way to make this issue one of constitutional dimension by making it one of interstate commerce. However, when confronted with the issue of whether Congress could regulate industry by regulating employer–employee relations in this way, the Supreme Court held that Congress could not and struck down this critical law. The Court was not partial to any laborers in particular. In 1918 and 1923, the Court struck page 798down congressional laws that would have controlled the use of child laborers and

legislation that would have given women a minimum wage when employed in industry.

Out of Necessity Comes Change The start of World War I saw the first real movement away from antiunion sentiment. The need for uninterrupted production and for preventing wartime strikes was seen as critical for the greater national interest. President Woodrow Wilson formed the National War Labor Board for the purpose of peacefully resolving labor disputes. This precursor to the National Labor Relations Board (NLRB) embodied many of the tenets that were eventually adopted by the NLRB. While the war acted to create a moratorium on attacks on organized labor, it also served to show that peaceful efforts aimed at resolving labor disputes were possible. After World War I, the National War Labor Board was dismantled, but the unmistakable effect was that it was a stepping stone toward recognition of the organized labor movement.

Congress continued to enact piecemeal legislation aimed at limited pockets of laborers, but in 1932, responding to the harsh effects of the Depression, Congress enacted the National Industrial Recovery Act (NIRA). This law put business in charge of regulating prices and production. Because the regulation of the market in this way was a clear violation of the Sherman Antitrust Act, the NIRA exempted any price control measure (called “codes”) from the reach of the Sherman Act. In addition, the NIRA established a minimum wage and gave workers collective bargaining and other rights. Under the NIRA, the ranks of organized labor began to increase. It was under the umbrella of the NIRA that President Roosevelt created the National Labor Board in 1933 and bolstered its enforcement provisions in 1934. Both the NIRA and the board operated successfully until a dispute with the automobile industry, which it could not settle, undermined labor’s confidence in the board to such an extent that it was effectively dismantled. In 1935, the NIRA was declared unconstitutional by the Supreme Court because, the Court held, neither the president of the United States nor any private group (such as the business entities given the power under the NIRA to control prices) had the constitutional authority to do what was required of them under the act.

It is against this backdrop that the modern labor movement was born. After this, Congress was able to enact legislation that has formed the basis of what we know as organized labor. Through a series of enactments that have shifted the balance of power first to the unions and then to

employers, the balance that has been created is subject today only to refinement. (See Exhibit 15.2, “Union Role in Services Expanding.”)

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Exhibit 15.2 Union Role in Services Expanding

In a 1990 New York Times article on the sharp decline of union membership in the 1980s, the conclusion was that unions had to evolve or die. Suggestions for evolving included unions providing social and financial services such as drug and alcohol abuse prevention, reduced-fee credit cards, checking accounts, and so forth. It noted that the “Union, yes” television campaign to attract workers and the AFL-CIO’s creation of a new membership category had been put in place to address these issues, but low private-sector unionization numbers weakened the union’s bargaining position. Many experts were guardedly optimistic that unions would be revitalized, but with the downward decline in numbers, we can now see, a few decades later, this has not been realized.

At one point, labor unions enjoyed great popularity in the United States. According to the U.S. Department of Labor’s Bureau of Labor Statistics, in 2016, about 10.7 percent of the workforce (about 16 million) were unionized, a decrease from former years, such as 1983, the first year for which comparable union data are available, when the number was 20.1 percent, or even 2009. In just the one-year period from 2009 to 2010, union representation went from 12.3 percent to 11.9 percent, a loss of 612,000 members. By contrast, it rose by 311,000 from 2006 to 2007.

Due in part to such factors as the reduction in the labor force of traditionally heavily unionized industries such as steel manufacturing, international competition, aggressive nonunionizing campaigns by employers, union concessions during downturns in the economy, the enactment of legislation such as the North American Free Trade Agreement (NAFTA), and the loss of jobs to other countries with cheaper labor, the percentage has steadily decreased since the 1970s. (See Exhibit 15.3, “Maquiladoras: Mexico’s Cheap Labor Lures Firms.”) The economic downturn in the last few years, including the housing bust, accounted for heavy losses in areas like the construction industry and trades.

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Exhibit 15.3 Maquiladoras: Mexico’s Cheap Labor Lures Firms

See an example of why labor complains about managements’ moving jobs out of the United States.

TAKING JOBS SOUTH

In 1965 Mexico introduced the concept of maquiladoras as a way of encouraging foreign investment. They are plants just across the Mexican border to which U.S. companies such as Maytag, Nokia, Eaton, General Motors, and Zenith deliver raw materials and/or parts and receive finished goods. About 1 million Mexicans work at about 3,000 plants in Mexico. Not only are taxes and customs fees almost nonexistent because of NAFTA (the North American Free Trade Agreement), but Mexican workers work cheaper. Some employers may pay as much as $1 or $2 per hour for skilled labor, but most pay less—as little as 50 cents per hour—up to 10 hours per day, six days per week. Ten Mexican workers can be hired for the price of one American worker. There are virtually no unions for employers to worry about and working conditions required by American laws such as the Occupational Safety and Health Act in the United States do not apply. Some employees may have air-conditioned, modern workplaces and employer-provided cheap lunches, health services, and housing aid, but that is generally not the case. Most maquiladoras are more like sweatshops that expose workers to dangerous conditions or chemicals without any of the protections they would have in the United States. Maquiladoras are also responsible for industrial pollution that would not be allowed if the company were operating just across the border in the United States. Because of foreign competition, American companies have used maquiladoras to stay competitive or even to remain in business at all. In recent years, due in large part to globalization, Mexico has been losing

maquiladoras to places like Central America, China, and Taiwan. China, in particular, has been giving Mexican maquiladoras stiff competition and is trying hard to become the world’s cheapest assembly destination. Maquildoras still account for 45 percent of Mexico’s exports, and $51 billion in imports of parts, however.

Yet with 16.3 million members, labor unions remain an important part of the workplace. With the 2016 median weekly income of full-time wage and salary union members being $1,004 compared with $802 for nonunion employees (although union membership does not totally account for the difference), we can see at least some of the reason why unions still play an important part in the workplace landscape. One of the issues we may well see developing more frequently in the near future is unions increasing their membership by getting involved in issues such as low wages or immigrant workers. In the South, which is traditionally low in union membership, this occurred in the Koch Foods and Gold Kist poultry plants in Tennessee and Alabama. When employers engage in practices like refusing to allow employees to leave the processing line to go to the bathroom; heavy, unrealistic work quotas; wages so low that even employees working for 10 years can only make a maximum of $7.55 per hour; abusive treatment such as screaming, cursing, or not allowing sick employees to leave, even traditionally nonunion workplaces run the risk of workers uniting and resorting to collective bargaining. In this chapter, we will discuss the basic laws addressing collective bargaining, what the laws require, and how to lessen the likelihood of an employer running into union troubles.

Labor Laws Four main federal laws constitute the statutory basis for labor law and unionization. The legislation initiating a move toward collective bargaining in the United States began with restricting court responses to union activity and establishing the right of employees to form labor organizations and to be protected against unfair labor practices at the hands of employers.

Until the Norris–LaGuardia Act of 1932 and the Wagner Act of 1935 (generally referred to as the National Labor Relations Act of 1935), employers had held virtually all the power. However, once that right to bargain collectively was created and unions were established, the matter took some rather sinister twists. Unions started feeling their power and often went overboard in using it.

page 801This resulted in two other legislative measures to address the evolution of collective

bargaining. The Taft–Hartley Act (also known as the Labor Management Relations Act) amended the Wagner Act in 1947 to establish unfair union practices, and the Landrum–Griffin Act of 1959 gave certain civil rights to union members and addressed corruption of union officials.

The Norris–LaGuardia Act of 1932

LO2

The Norris–LaGuardia Act was the first major labor law statute enacted in the United States. The opening section of the Norris–LaGuardia Act established that government recognized that the job is more important to a worker than a worker is to a corporation. It recognized that the only real power workers had was in impacting employers through numbers. An employer may not be disturbed when one worker walks out, but most certainly will be when all or most workers do so. The Norris–LaGuardia Act endorsed collective bargaining as a matter of public policy. To implement this policy, Congress sharply curbed the power of the courts to intervene in labor disputes, including curtailing use of the injunction. Norris–LaGuardia did not give labor unions any new legal rights; rather, it allowed them more freedom to operate free from court control and

interference. This greatly facilitated labor unions acting as effective collective bargaining agencies.

Section 4 of the act declares that no federal court has the power to issue any form of injunctive relief in any case involving a labor dispute if that injunction would prohibit any person who was participating in such a dispute from doing certain acts. Judges cannot restrain any strike, regardless of its objective, and cannot restrain picketing activities. A labor union can provide relief funds to its strikers and publicize its labor disputes, and workers can urge other employees to join the conflict. Norris–LaGuardia allows a union to act in defense of a person prosecuted for his or her actions or to prosecute an action under the worker’s contract. A union can conduct meetings to promote the interests of workers. Norris–LaGuardia protected any “labor dispute” even though parties did not stand as employer–employee with each other, further encouraging collective bargaining.

Most importantly, while it did not directly outlaw yellow dog contracts, the act declared that yellow dog contracts were inconsistent with U.S. public policy and not enforceable in any court in the United States. Later, the NLRB held that an employer engaged in an unfair labor practice if it demanded that an employee execute such an agreement.

The act also had a significant impact in curbing prosecution under the antitrust laws. In its statement of purpose, Congress claimed that the intent of the act was to give labor what it thought it had received under the Clayton Act. Given the broadly stated purpose of the act, the Supreme Court has broadly construed it, providing unions with the opportunity to engage in activities calculated to affect the collective bargaining process. When Norris–LaGuardia limited the enforcement of yellow dog contracts and removed the impediments of workers to organize in a concerted fashion, the way was paved for enactment of the National Labor Relations Act three years later.

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The National Labor Relations Act of 1935 (Wagner Act)

LO3

Of the four pieces of seminal labor legislation, it is the National Labor Relations Act (NLRA) that most people consider to be the mainstay of union activity since it established the right of employees to form unions, to bargain collectively, and to strike. Recall that, at one time, it had been illegal—in fact, criminal—for employees to join together in an effort to collectively bargain with employers.

The National Labor Relations Act In order to avoid the unconstitutional delegation of legislative power, Congress, in enacting the NLRA, placed the administration of the act in the hands of the National Labor Relations Board (NLRB), an independent federal administrative agency, rather than in the hands of an industrial group; set up standards to govern the exercise of power delegated to that administrative agency; and provided for the judicial enforcement of the orders of that agency. The board was empowered to issue remedial orders, enforceable in the courts, to prevent commission of unfair labor practices. Five such unfair practices were outlined in section 8 of the act. Under this section, it is an unfair labor practice to

• Interfere with, restrain, or coerce employees in the exercise of their rights.

• Interfere with the formation of a labor organization.

• Discriminate in the hiring or tenure of employment or discourage membership in a labor organization.

• Retaliate for filing charges or testifying under the act.

• Refuse to bargain with the representatives of the employees. Notably absent from this act are unfair labor practices that might be committed by unions,

although there were unfair labor practices listed that might be committed by employers. In the political climate that prevailed in 1935, the government placed its weight on the side of laborers because of the imbalance between corporate power and the labor market. The act was government’s attempt to guarantee workers the right to organize so they would be able to bargain on a more equal basis with employers.

As you can imagine, given the history we discussed, creation of the NLRB did not rest well with business. For the first few years of its existence, the board survived a well-organized and concerted attack challenging its constitutionality and the scope of its authority. Finally, in 1937 and 1938, the U.S. Supreme Court brought the avalanche of injunction suits against the NLRB to a halt in a series of rulings that found the authority of the board to determine whether an employer had engaged in an unfair labor practice to be exclusive, subject only to subsequent judicial review after the board had issued its decision, and that detailed the scope of the NLRB’s legal powers. These decisions form the foundations of the NLRB that are still effective today.

With the constitutionality of the NLRB settled and the injunctions halted, the judicial proceedings during the third year of the board’s existence concerned page 803the correctness of

the NLRB’s decisions and the power of the board to fashion remedies. Certain principles of law were established, including that employees on strike are still employees; that employees striking because of an unfair labor practice are entitled to reinstatement, even if reinstatement makes it necessary to discharge employees hired to replace them; and that threatened economic loss does not justify the commission of an unfair labor practice. From 1935 to 1947, the courts developed a vast body of law dealing with labor issues.

The National Labor Relations Board The NLRB is the independent federal agency that enforces labor laws in the private sector. Once sufficient interest has been indicated by the employees (usually by signing union authorization cards), the NLRB conducts elections to determine what union, if any, will represent the employees in collective bargaining. The NLRB also decertifies unions that employees no longer wish to have represent them, issues labor regulations, hears unfair labor practice cases at the agency level, brings enforcement proceedings for unfair labor practice cases, and otherwise administers the NLRA. The board itself is composed of five members who, among other things, hear appeals from administrative law judge decisions of the agency on issues of unfair labor practices and union elections.

An interesting, unusual issue arose a few years ago with far-ranging legal impact. Due to expiration of member terms and political stalemates in D.C., the National Labor Relations Board was down by three members for 27 months, beginning in January 2008 and lasting until President Obama’s recess appointment on March 27, 2010. The two-member board issued nearly 600 decisions during that time, acting as a quorum of a three-member board delegated the power to do so. In June 2010, the U.S. Supreme Court held, in New Process Steel, L.P. v. NLRB,14 that the board lacked the authority to issue decisions during this 27-month period. This effectively invalidated the nearly 600 cases addressed by the two-member board, leaving unclear how they would be resolved by the fully functioning board. At the very least, the board had to reissue decisions in the 74 cases pending before the federal courts in which the losing party challenged the board’s authority to act with only two members.15

In collective bargaining, employees with a community of interests—that is, similar workplace concerns and conditions—come together as a bargaining unit that the union will represent. The community of interests is based on such factors as similarity of the jobs the employees perform,

similar training or skills, and so on. While the general rule is that at least two employees must be in a bargaining unit, an employer may agree to a one-person unit, such as for an on-site craftworker (e.g., a carpenter who belongs to a carpenter’s union being employed at a worksite as the only carpenter). community of interests Factors employees have in common for bargain-ing purposes. bargaining unit The group of employees in a workplace that have the legal right to bargain with the employer.

Employees may unionize either by signing a sufficient number of authorization cards, by voting

in a union during a union representation election, or, in some cases, by the NLRB ordering the employer to bargain with a union. The NLRB supervises the union election and certifies the results. The employer cannot interfere in any way with the employees’ efforts to form a union, as was done in Opening

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Concerted Activity Section 7 of the NLRA guarantees employees the right to engage in concerted activities for mutual aid or protection. Typical protected concerted activities include union organizing, the discussion of unionization among employees, and the attempt by one employee to solicit union support from another employee. But concerted activity need not involve a union. Activities by groups of employees unaffiliated with a union to improve their lot in their workplace are deemed protected concerted activities.

Concerted activity also covers activity by a single employee, even if no other employee joins him or her. The reasoning is that the protected status of such activity should not turn on whether another employee decides to join the activity. Not all concerted activity is protected, however. Acts or threats of violence are not protected.

Unions Unions are composed of nonsupervisory or nonmanagerial employees, including part-time workers. Specifically excluded from the NLRA are agricultural and domestic workers, independent contractors, and those employed by their spouse or parent. As we discussed in the chapter on affirmative action, agricultural and domestic workers were excluded from the law because these were the primary occupations to which blacks were consigned. The law was passed during the Jim Crow era of segregation as southern legislators refused to have blacks on par with whites.

The issue of supervisory employee inclusion in bargaining units has become heated recently. During the Bush administration, the definition of supervisor was clarified in Oakwood Health Care, Inc.16 The terms assign, responsible to direct, and independent judgment in section 2(11) of the law were interpreted in a way that made it easier for an employer to consider an employee as a supervisory employee excluded from a bargaining unit for collective bargaining purposes. Unions were upset by this.

The Re-empowerment of Skilled and Professional Employees and Construction Tradeworkers (RESPECT) Act17 was introduced in Congress in 2007 but has not been enacted into law. The law would essentially greatly increase the number of managers who could qualify to be a part of a bargaining unit. The law would remove from the definition of supervisor the duties of assigning the responsibility to direct other employees and would require that supervisors “hire, transfer, suspend, lay off, recall, promote, discharge, reward or discipline other employees” for a majority of their work time. This would have the effect of greatly reinvigorating unions, an idea of great concern to business. President Obama supported the law, but he had a Republican Congress, and under President Trump passage is unlikely any time soon.

The union’s shop steward, elected by the members, is the intermediary generally between the union and the employer. He or she may collect dues and recruit new workers, and, if a union member feels the collective bargaining agreement has page 805been violated in some way, or

an unfair labor practice has been committed, the shop steward is usually the first to contact the employer and discuss the issue, hopefully having it resolved. shop steward Union member chosen as an intermediary between union members and employers.

collective bargaining agreement Negotiated contract between labor and management.

Unions may be organized by industry or craft/trade. If all employees of a particular industry organize into a union, such as autoworkers, regardless of the job the members hold, this is an industrial union . The value of an industrial union from an employee’s point of view is the solidarity and strength in a comprehensive group of workers—especially important in the event of a strike. Rather than being organized by industry, unions also may be organized around a particular craft or trade such as carpenters, sheet metal workers or pipefitters. These are craft unions. The value of a craft union is that the members all have the same issues specific to their craft or trade. Craft union members’ interests are represented by a business agent of the craft union. You can imagine that management generally has an easier time trying to negotiate with one industrial union rather than a union for each craft/trade involved in management’s enterprise. However, each type of union has its own advantages and disadvantages. industrial union Union organized across an industry, regardless of members’ job type.

craft unions Unions organized by the employee’s craft or trade.

business agent The representative of a union, usually a craft union.

An interesting phenomenon in the past decade or so has been the unionization or attempted unionization of groups traditionally nonunion. For instance, since the early 1990s, registered nurses across the country sought to unionize and did so in record numbers. Before that time, nurses had considered unions to be for blue-collar workers, while nurses were considered professionals. One of the first projects President Clinton undertook when he came into office was to ask his wife, Hillary Rodham Clinton, to head up efforts to make health care more accessible and affordable to all. The health industry’s response was unprecedented restructuring, and the resulting downsizing, among other things, displaced registered nurses. Registered nurses’ perception of unions as being only for blue-collar workers changed, and they began to seek a collective voice purportedly to protect their profession and patient safety.

Even private attorneys are getting into the act. District attorneys had for some time been unionized in the public sector, but in 2003, in what is believed to be a first in the private legal profession, lawyers at the Phoenix office of the Los Angeles law firm of Parker Stanbury, which subcontracts with Pre-Paid Legal Service to provide easily accessible legal services, voted to unionize. Citing a lack of response by their employer to their complaints about low pay, few research materials, no law library, limited Internet access, hourly performance quotas, and working in open cubicles, they voted in representation by the local Teamsters union, which also represents truckers, grocery workers, bakery drivers, and UPS employees. There were allegations that management frequently tried to block the organizing effort, but the unionized lawyers said they were contacted by several other private attorneys interested in exploring unionizing.

There also have been organizing efforts for other nontraditional groups such as graduate students, college football players, medical interns and residents, and congressional researchers.

page 806We cannot leave the area of organizing efforts without touching on another topic

important to that area: the rise of the use of labor management consulting firms and the other methods used to thwart efforts at unionization. These organizations (often known as union

busters) arose in the 1970s as primarily only a handful of law firms. Today, such firms have grown into a very sophisticated, billion-dollar industry. By 1989, employers had hired antiunion consultants in 76 percent of all union organizing campaigns. To the extent that employers can stop organizing efforts by hiring help regarding how to discourage employees from voting to have union representation, they would consider the money spent as well worth the price. (See Exhibit 15.4, “Why Employers Don’t Want Unions.”)

Exhibit 15.4 Why Employers Don’t Want Unions

Union-busting is big business. You might wonder why a business would pay to have an organization come in to the workplace and stop employees’ efforts to unionize. Here are a few of the reasons.

• Businesses generally prefer to make their own decisions, without the input of employees.

• Having to consult with the union means business is less likely to be able to make quick decisions.

• Bottom-line decisions such as outsourcing, subcontracting, or relocating to take advantage of cheaper labor or other costs would require union negotiation, thus making it less likely to be done smoothly, quickly, and efficiently.

• Due to the long history of contention between labor and management, being unionized often gives the workplace a feeling of “us versus them,” which can adversely impact morale and productivity.

• Union contracts requiring grievance proceedings and arbitration can be inefficient though they are certainly less costly and time-consuming than litigation.

• Striking by workers, work stoppages, or slowdowns are a possible costly risk.

• The collective bargaining process is usually an adversarial affair, which does not help workplace morale.

• An employer looking to sell his or her business looks less appealing if a union is in place. This can lead to a lowering of the potential selling price for the business.

The consulting firms’ efforts may be successful in keeping unions out, but the employers may pay in other ways. For instance, nurses at Long Beach Memorial Hospital ran an organizing campaign to have the nurses join the California Nurses Association. A consulting firm was brought in to help keep the union out. The vote was eventually 591 to 581 to not have the nurses represented by a union, but the NLRB issued a complaint against the hospital alleging 26 violations of federal labor law. Many tactics are used to thwart unions during organizing efforts, some legal and some not. (See Exhibit 15.5, “Antiunionizing Tactics.”) The best strategy is to have a workplace in which employees feel no need for a union because their reasonable needs are taken care of by the employer. However, if employers choose to make use of management consulting firms to keep unions out of the workplace, they should keep in close touch with the consultants and their tactics in order to avoid being left with the liability when the NLRB alleges unfair management practices.

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Exhibit 15.5 Antiunionizing Tactics

Below is a list of tactics used by employers over the years, both legal and illegal, to keep their employees from voting for union representation. As you will see, this is an extremely creative process, so the list is not exhaustive.

• Utilize scare tactics, including additional security guards and guard dogs, to create an atmosphere of fear and intimidation.

• Direct managers to disseminate misinformation about the union.

• Direct managers to disseminate antiunion flyers—one company passed out over 100 different flyers!

• Run newspaper ads against the union.

• Create antiunion videos and deliver them to employees’ homes.

• Offer enticements such as improved working conditions and pay increases, and imply that they will not come about if the union is voted in.

• Plead for more time to try to make things better.

• Have supervisors interrogate employees to find out how they intend to vote.

• Pressure supporters not to talk to other employees about the union.

• Place managers in employee hangouts such as lounges, cafeterias, or break rooms to inhibit employees’ discussion of the union vote.

• Have supervisors write letters to individual employees telling them things like the supervisor will lose his or her job if the union is voted in.

• Ignore and isolate pro-union employees.

• Use ethnicity as a wedge between various ethnic groups.

• Have supervisors call daily mandatory meetings.

• Have supervisors engage employees in one-on-one conversations about the union as much as possible.

• Disseminate antiunion buttons, flyers, posters, videos, bumper stickers, and T-shirts.

• Have an antiunion website.

• Install locked, glass-covered bulletin boards all over the workplace and post antiunion material on them.

• Make supervisors think they will lose their jobs if they do not get the employees to vote against the union.

• Have a few employees run an antiunion campaign.

• Spring last-minute surprises on employees, such as rumors of possible workplace shutdown, bonuses, or pay raises.

• Have payroll send out checks with an amount equal to union dues taken out, tell employees this is what their paychecks will look like if the union is voted in, and then put the money back in their next paychecks.

• Shut down part or all of operations and allege that the shutdown is because of union costs.

Good-Faith Bargaining Under the NLRA, an employer is required to bargain in good faith with union representatives about wages, hours, and terms and conditions of employment. These are mandatory subjects of bargaining. While employers may actually bargain about other matters (permissive subjects), only a refusal to bargain about mandatory subjects of bargaining may form the basis of an unfair labor practice. (See Exhibit 15.6, “Selected Collective Bargaining Agreement Clauses.”) mandatory subject of bargaining Wages, hours, and other conditions of employment, which, by law, must be negotiated between labor and management.

permissive subjects of bargaining Nonmandatory subjects that can be negotiated between labor and management.

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Exhibit 15.6 Selected Collective Bargaining Agreement Clauses LO4

Wages—including cost-of-living increases, production increases, learners’ and apprentices’ overtime.

Benefits—including vacations, sick pay, holidays, insurance.

Hours—including overtime and determinations about assignment.

Seniority—setting forth how employee seniority is determined and used.

Management security—employers may make their own decisions about how to run the business as long as they are not contrary to the collective bargaining agreement or law.

Union security—the union’s legal right to exist and to represent the employees involved.

Job security—how employees will maintain employment, including procedures for layoffs, downsizing, work sharing, and so on.

Dues checkoff—right of a union to have the employer deduct union dues from employees’ wages and turn them over to the union.

Union shop—requires all employees to join the union within a certain time of coming into the bargaining unit.

Modified union shop—requires that all new employees must join the union after an agreement becomes effective, as must any employees who were already union members; but those already working who were not union members and do not wish to join need not do so.

Maintenance-of-membership—employees who voluntarily join a union may leave only during a short window period prior to agreement expiration.

Agency shop—requires all employees of the bargaining unit to pay union dues, whether union members or not.

Grievances—sets forth the basis for grievances regarding conflicts over the meaning of the collective bargaining agreement and procedures for addressing them.

Exclusive representation—the union representative will be the only party who can negotiate with the employer about matters affecting bargaining unit employees.

Arbitration—the matters that cannot be otherwise resolved will be submitted to arbitration to be resolved by a neutral third party whose decision is usually binding.

Midterm negotiations—permits agreed-on topics to be reopened to negotiation prior to contract expiration.

No-strike, no lockout—parties agree that the employees will not strike or will only do so under limited circumstances and that employers will not engage in lockouts. Instead, the grievance procedure will be used to handle labor disputes.

At times, management and labor may differ on whether a particular matter is a mandatory subject of bargaining. If this disagreement is legitimate, it can form the basis of an unfair labor practice—for instance, a union may allege management has committed an unfair labor practice by refusing to bargain over a mandatory subject of bargaining such as wage increases. In one case, the union demanded negotiations on the issue of the agency’s new smoking ban.18

If the matter proposed for negotiation is illegal, such as a proposal to have a closed shop, it is bad-faith bargaining even to bring it up as a proposal, and management’s refusal to bargain cannot be the basis of an unfair labor practice. closed shop Employer hires only union members.

page 809The law requires only that the parties bargain in good faith about appropriate matters,

not that one party necessarily agree with the other’s position and include it in the collective bargaining agreement. The intent is to prevent management from unilaterally instituting workplace

policies that closely affect workers without at least getting employee input and negotiating the matter. The fact that one side or the other does not receive what it wants in the contract is not just cause for an unfair labor practice. As long as good-faith bargaining takes place, there has been compliance with the statute.

A case of bargaining in bad faith might occur when, for instance, management comes to the bargaining table and denies a raise to employees without offering any evidence whatever as to why, and simply continues to reject the union’s wage proposals. The 2011 National Football League negotiations with the National Football League Players Association experienced a stalemate where negotiation impasses and failure to agree on a new contract threatened to interrupt the start of the football season. Despite more than $9 billion in league revenues, owners asserted that stadium construction and other investments had driven their profits down to the single digits. They proposed that players should take 18 percent off the pool of money used to calculate salary caps. The players wanted to see league financial statements justifying the owners’ claims, but the owners were reluctant to share.19 Fortunately, an agreement was reached and the season salvaged.

Bargaining in bad faith also could occur if one side rejects proposals out of hand without making

counterproposals to the other side. Missing scheduled negotiation sessions without a valid reason and setting forth unsupported proposals could lead to an unfair labor practice charge. Of course, failing to show up for negotiations or refusing to sign the written agreement to which the parties orally agreed also would be bad-faith bargaining. The Gimrock Construction, Inc. v. International Union of Operating Engineers, Local 487 case, provided at the end of the chapter for your review, demonstrates how extreme an employer can be in failing or refusing to bargain in good faith. Since 1999, Gimrock refused to bargain with the employees’ union representative on the first collective bargaining agreement or to provide the union with requested relevant information. The 11th Circuit Court of Appeals upheld and enforced two earlier board decisions finding a refusal to bargain. Finally, the NLRB general counsel took the extraordinary step of requesting remedies that included requiring the employer to bargain for a minimum of 16 hours per week and also to send written bargaining progress reports to the NLRB regional director every 30 days. Twelve years later, in a 2011 decision, the NLRB agreed that because of the employer’s extended reluctance, the remedies were appropriate. Delaying negotiating for 12 years gives you some idea of the resistance some employers have to unions and the lengths to which they will go to avoid unions in the workplace.

The duty to bargain in good faith over terms and conditions of employment does not require agreement between the parties. As with the NFL negotiations, if agreement is not reached with the union after good-faith bargaining is conducted, the union may then be free to advance to other alternatives it can exercise, up to page 810and including strikes. These are not activities exclusive

to management. Unions are also capable of engaging in refusals to bargain or bargaining in bad faith.

Duty of Fair Representation Frequently, when union members do not like the contract that results from collective bargaining negotiations, they will allege the union has breached its duty of fair representation. This duty, not formally defined in the statute and often used as a catchall allegation, requires the union to represent all employees fairly and nondiscriminatorily. If employees feel that one group has come out better than another in a contract, they will use the duty of fair representation as a basis for challenging the contract. The U.S. Supreme Court spoke to this issue in Air Line Pilots Association International v. O’Neill,20 when it held that since the final outcome was not “wholly irrational or arbitrary,” the union had done its statutory job of upholding its duty of fair representation even though some members may not have liked the outcome.

Collective Bargaining Agreements If all goes well, bargaining between labor and management results in a collective bargaining agreement. This is the term for the contract that is reached between the employer and the union about workplace issues. There is no set form that this agreement must take, and it may be any length and contain any provisions the parties decide. (See Exhibit 15.6, “Selected Collective Bargaining Agreement Clauses.”) Job and union security are the main issues for employees, while freedom from labor strife such as strikes, slowdowns, and work stoppages is paramount for employers. Management will often wish to include a management security clause, stating that it has the power to run its business and make business decisions as long as it is not in violation of the collective bargaining agreement or the law. management security clause Parties agree that management has the right to run the business and make appropriate business decisions as long as applicable laws are complied with.

Toward that end, in addition to wages and hours, collective bargaining agreements often also contain provisions regarding strikes, arbitration of labor disputes, seniority, benefits, employment classifications, and so on. Because things change, the agreement is in effect only for a specified period. Prior to expiration of that period, the parties will negotiate a new contract to take effect when the old one expires. As you know from NFL negotiations discussed above, that does not always occur. The collective bargaining agreement between the NFL and the NFL Players Association expired on March 4, 2011, but that date came and went through summer 2011 with no agreement. Two extensions were agreed to, but to no avail. In fact, the NFLPA decertified its union on March 11, 2011, and was no longer represented by a union at the bargaining table. The NFLPA filed an antitrust suit against the NFL and the NFL responded with a lockout of the players on March 12, 2011.21 This first NFL work stoppage since 1987, of course, put the 2011 season in jeopardy as the situation moved from negotiation to litigation. On April 25, 2011, a federal judge granted the players’ request for an injunction stopping the lockout.22

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The collective bargaining agreement also may include a clause permitting midterm negotiations. These are negotiations agreed to and scheduled during the life of the contract, rather than immediately prior to its expiration, about matters on which the parties have agreed they will permit interim negotiations. The parties may not be able to agree on a particular provision and, rather than allow it to hold up the entire contract, will agree to come back together later to negotiate it. Alternatively, the parties may agree to midterm negotiations because the contract may cover a fairly long period and the provision subject to midterm negotiation is one that may change quickly and need to be reviewed before the contract’s expiration date. midterm negotiations Collective bargaining negotiations during the term of the contract rather than at its expiration.

Unfair Labor Practices

LO5

Refusal to bargain in good faith is not the only unfair labor practice that an employer can commit. Others include engaging in activities that would tend to attempt to control or influence the union, or to interfere with its affairs, and discriminating against employees who join or assist unions. Actual interference by the employer need not be proved for it to be considered an unfair labor practice. Rather, the question is whether the activity tends to interfere with, restrain, or coerce

employees who are exercising rights protected under the law. (See Exhibit 15.7, “Management Unfair Labor Practices.”) The Columbia Portland Cement Co. v. National Labor Relations Board case, which is provided at the conclusion of the chapter and is the basis for Opening Scenario 2, indicates the extent of possible unfair labor practices when the employer refused to reinstate striking employees and gave a unilateral wage increase without consulting the union

Exhibit 15.7 Management Unfair Labor Practices

• Trying to control the union or interfering with union affairs, such as trying to help a certain candidate get elected to a union office.

• Discriminating against employees who join a union or are in favor of bringing in a union or who exercise their rights under the law (e.g., terminating, demoting, or giving poor working schedules to such employees).

• Interfering with, coercing, or restraining employees exercising their rights under the labor law legislation (e.g., telling employees they cannot have a union or they will be terminated if they do).

• Refusal to bargain or refusal to bargain in good faith.

As mentioned previously, some employers are more aggressive in interfering with their employees’ unionizing efforts. In Davis Supermarkets, Inc. v. National Labor Relations Board,23 the company interfered with its employees’ organizing efforts and even terminated some of its employees. The court found these acts to be unfair labor practices that violated the NLRA.

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Sometimes, even though the employer may have the best of intentions, its other actions may

amount to a violation of law. In Electromation v. National Labor Relations Board, included at the end of the chapter, what may have appeared to the company to be legitimate negotiations with nonunion employees was held to violate the NLRA. The nonunion employer attempted to resolve labor issues through “employee participation” or “employee–management” focus groups. When the court determined that the groups actually constituted labor organizations and were dominated by management, who had too much of a hand in administering these groups, it held that the employer’s actions constituted an unfair labor practice. Electromation is the basis for Opening Scenario 3.

In Exhibit 15.5, “Antiunionizing Tactics,” we listed many of the antiunion organizing tactics that

have been used by management over the years to thwart union efforts to organize, and in Exhibit 15.7, “Management Unfair Labor Practices,” we listed some unfair labor practices. In Exhibit 15.8, “Cans and Can’ts during Union Campaigns,” we list some specific acts employers can and cannot engage in during organizing efforts. It would be wise for employers to use these lists as guides in order to avoid unfair labor practice complaints.

Exhibit 15.8 Cans and Can’ts during Union Campaigns

Often referred to as “NO TIPS” (threats, interrogation promises, or spying, along with several other things an employer cannot do), during a unionizing campaign, the employer can’t

• Threaten to fire an employee for joining a union.

• Try to help the employees form a union.

• Lay off or terminate employees who support the union.

• Allow employees to copy antiunion leaflets at work and pass them out.

• Let employees hold antiunion meetings at work.

• Email, post, or circulate threatening or intimidating letters or leaflets.

• Try to question employees about their support of (or opposition to) the union.

• Terminate, discipline, transfer, or reassign union supporters to less desirable shifts, duties, or locations without some legitimate business cause other than their union support.

• Ask about union meetings or union activities.

• Spy on union activities or union supporters.

• Isolate all union supporters so that they cannot speak with other employees.

• Promise wage increases or other benefits if employees don’t join the union.

• Threaten to take away job benefits if employees vote in a union.

• Ban pro-union buttons if such things are generally permitted.

During a unionizing campaign, an employer can

• Send letters to employees’ homes.

• Establish a suggestion box or complaint process.

• Give pay raises or benefits overall, not just to union supporters. (This can be limited after the union applies for its certificate or gives notice to bargain its first agreement.)

• Hold meetings in an effort to address or solve problems it becomes aware of.

• Tell employees how good the company is.

• Tell employees how good the company’s benefits and working conditions are.

• Address issues that it may become aware of during the unionizing process.

Strikes and Lockouts The NLRA permits certain strikes by employees as a legitimate bargaining approach that leverages economic and public pressure. (See Exhibit 15.9, “Types of Strikes.”) When a union strikes, union members do not work but, instead, generally gather outside the employer’s place of business and carry signs about the nature of the strike (picketing) and chant slogans. Engaging in such activity is for purposes of pressuring management to concede, bringing attention to the strikers’ demands, gathering public support, and discouraging others who may support the employer. For instance, a picket line may encourage shoppers going into a grocery store not to patronize the store where the clerks are on strike because wages are too low. As we discussed in the chapter on the Fair Labor Standards Act’s regulation of wages, this occurred at various McDonald’s locations across the country in the summer of 2013 as employees went on strike for higher wages. picketing Union members carrying signs in front of the employer’s business that tell of an unfair labor practice or strike.

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Exhibit 15.9 Types of Strikes

• Economic strike—used to exert pressure on the employer regarding economic issues. Also used for strikes resulting from any other reason than an unfair labor practice. Protected activity.

• Unfair labor practice strike—called by union because of an employer’s unfair labor practice. Protected activity.

• Sympathy strike—union not involved in strike also strikes to show solidarity and support for striking union.

• Sitdown strike—employees illegally take possession of workplace during strike. Not protected activity.

• Wildcat strike—strike not authorized by union. Generally not protected activity, but may be.

• Intermittent strike—strikes that occur from time to time and are not announced. Not protected activity.

• Slowdown—employees remain on the job and generally do not produce as much. Unprotected activity.

Legitimate strikes may be called by the union either for economic reasons or because of unfair labor practices. For instance, the employees may strike when a collective bargaining agreement expires without a new one to take its place or if the employees are attempting to force economic concessions from the employer. If employees strike for legally recognized reasons, their actions are protected under the NLRA and they retain their status as employees. Strikes not authorized by the union are called wildcat strikes and are illegal if they force the employer to deal with the employees, rather than the union, or impose the will of the minority rather than the majority. They have been found not to be unlawful if they are merely to make a statement. wildcat strike A strike not sanctioned by the union.

page 814Since strikes correctly engaged in are perfectly legal, if the employer replaces the

strikers with new employees, then once the strike is over, the strikers have a right to reinstatement if they offer an unconditional offer to return to work. If their jobs are occupied by replacement workers, then unfair labor practice strikers are entitled to be reinstated, but economic strikers are not.

Just as employees can stop working if they feel the need to strike to make their point, the employer can close the premises to employees and engage in a lockout. In a lockout, the employer curtails employment by either shutting down the plant or bringing in temporary nonunion employees after laying off striking workers. Under the NLRA, the employer may engage in lockouts not as a way of avoiding bargaining or unionizing but, rather, as with strikes, to bring pressure to bear on the other side for legitimate purposes. The pressure position is probably why the NFL chose to announce a lockout of the NFL players on March 11, 2011, effective at midnight that night. lockout Management does not allow employees to come to work.

Many collective bargaining agreements contain no-strike, no-lockout clauses, which either prohibit or limit the availability of this action and, instead, call for the use of the grievance process to handle issues. In 2002, baseball commissioner Bud Selig pledged not to lock out players throughout the season and the World Series. His statement left open the possibility that team owners would come up with new work rules after that. Because the players’ union had been working without a labor contract since November 7, 2001, they interpreted the commissioner’s statement as a “veiled threat” to impose vast economic changes as soon as the postseason ended. In 1994, in its eighth walkout since 1972, the baseball players’ union struck in order to fight management’s plan to implement changes that included a salary cap. The walkout lasted 232 days and resulted in the cancellation of the World Series for the first time since 1904. In 2002, after fighting for months over changes imposed by club owners, the players entered into a new contract on August 30, avoiding the strike deadline by only hours. no-strike, no-lockout clause Labor and management agree that labor will not strike and management will not stage a lockout.

In 2004–2005, there was the unfortunate National Hockey League fiasco where differences between the owners and players, primarily over the issue of salary caps, resulted in a five-month

lockout by the owners and, eventually, cancellation of the entire season by the NHL commissioner—an event many hockey fans still think back on with much dismay. It was the first time a major North American professional sports league lost an entire season to a labor dispute.24 The last time the NHL’s Stanley Cup was not awarded was in 1919 because of a flu pandemic. The year before, the Boston Red Sox had won the World Series. Coincidentally, this time around, when the cup wasn’t awarded because of labor disputes canceling the season, the Red Sox had once again, after over 80 years, won the World Series the year before.

In Local 825, Int’l Union of Operating Engineers v. National Labor Relations Board,25 the union challenged the lockout and hiring of temporary workers as unfair labor practices, but the court held that the practices did not violate the law. The court discussed legitimate purposes for which an employer can stage a lockout and what happens if the workers are replaced with temporary employees during the lockout. It said that “if the adverse effect of the discriminatory conduct on employee rights is ‘comparatively slight’ an anti-union motivation must page 815be proved to

sustain the charge if the employer has come forward with evidence of legitimate and substantial business justifications for the conduct.” Thus, the “slight” impact on employee rights (to organize, etc.) that the conduct at issue arguably had is negated if the employer has established a legitimate and substantial business justification for its conduct.

The Taft–Hartley Act of 1947

LO6

With the enactment of the NLRA and the subsequent gains made in unionism, the Taft–Hartley Act of 1947 was enacted as an amendment to the NLRA to curb excesses by unions. Most importantly, the Taft–Hartley Act changed the policies of the NLRA. No longer were all employers legislatively determined to be frustrating the organizational rights of their employees. Congress recognized that unions had grown so strong and powerful over the years that their activities required federal regulation. As such, unions were to have certain limitations placed on their activity. Congress wanted employers, employees, and labor organizations to recognize one another’s legitimate rights and made the rights of all three subordinate to the public’s health, safety, and interests.

Section 7 was rewritten to recognize the right of an employee to refrain from concerted activity, including union activity. Like section 8 of the Wagner Act, which enumerates unfair labor practices that could be committed by employees, section 8 of the Taft–Hartley Act spells out six unfair labor practices that could be committed by organized labor (see Exhibit 15.10, “Union Unfair Labor Practices”), thereby bringing unions under the regulation of the federal law. Under this section, it is an unfair labor practice for unions to

Exhibit 15.10 Union Unfair Labor Practices

• Refusing to bargain or bargaining in bad faith—that is, not attending bargaining sessions, not providing proposals, not providing necessary information.

• Coercing or restraining employees in exercising their rights to join (or not join) a union. This is not a problem if the union and employer have a provision in their collective bargaining agreement that states a nonunion member coming into the bargaining unit must join the union within a certain amount of time.

• Charging discriminatory or very high dues or entrance fees for admittance into the union.

• Threatening, encouraging, or influencing employees to strike in an effort to pressure the employer to join an employer organization, to get the employer to recognize an uncertified union, or to stop doing business with an employer because of the employer not doing so.

• Influencing employers to discriminate against, or otherwise treat differently, employees who do not belong to the union or are denied union membership for some reason other than nonpayment of union dues or fees.

1. Restrain or coerce employees in the exercise of their rights or employers in the selection of their representatives for collective bargaining.

2. page 816Cause an employer to discriminate against an employee.

3. Refuse to bargain with an employer.

4. Engage in jurisdictional or secondary boycotts.

5. Charge excess or discriminatory initiation fees or dues.

6. Cause an employer to pay for goods or services that are not provided.

In an interesting case from 2014, the NLRB refused to find social media statements made to employees who worked during a strike to be violations of law. On the union’s Facebook page, union members verbally and physically threatened employees who refused to participate in the strike. One union member even posted that he found out the addresses of the members who crossed the line, and another commented: “Can we bring Molotov Cocktails?” One of the employees filed an unfair labor practice charging the union was obligated to disavow such statements because they coerced or restrained employees in the exercise of their right to engage in concerted activity in crossing the picket line. The NLRB determined that the comments were not threats that violated the law and the union was not responsible for them because the members making them were not agents of the union.26

Before closed shops (where the employee must become a member of the union in order to obtain a job) were outlawed by the Taft–Hartley Act, states enacted right-to-work laws. (See Exhibit 15.11, “Right-to-Work States.”) This was done in response to the use of closed shops by unions to control dissenters by severing page 817their union membership, without which they

could not work in a closed shop. The NLRA permits states to have right-to-work laws, and as of 2017, 28 of them do. In a right-to-work state, employment cannot be conditioned on union membership. Despite some employees’ nonparticipation in the union, and thus their not being required to pay union dues, the union must still represent these employees as a part of the bargaining unit. If a state is not a right-to-work state, the union and employer may have as a part of their collective bargaining agreement union security device a provision for a union shop . This provision, called a union shop clause, requires the employer to have all members or potential members of the bargaining unit agree that they will join the union within a certain amount of time (not less than 30 days) after becoming employed. right-to-work laws Permits employees to choose not to become a part of the union.

union shop Union and management agree that employees must be members of the union.

union shop clause Provision in a collective bargaining agreement allowing a union shop.

Exhibit 15.11 Right-to-Work States

According to the National Right To Work Committee, the following states had right-to-work laws in effect as of May 29, 2017:

Alabama 8/28/1953

Arizona 11/5/1946

Arkansas 11/7/1944

Florida 11/7/1944

Georgia 3/27/1947

Idaho 1/31/1985

Indiana 2/1/2012

Iowa 4/28/1947

Kansas 11/4/1958

Kentucky 1/7/2017

Louisiana 7/9/1976

Michigan 3/8/2013

W Virginia 2/12/2016

Wisconsin 3/9/2015

Mississippi 2/24/1954

Missouri 2/6/2017 effec 8/28/2017

Nebraska 12/11/1946

Nevada 12/4/1952

N Carolina 3/18/1947

N Dakota 6/28/1948

Oklahoma 9/2/2001

S Carolina 3/19/1954

S Dakota 7/1/1947

Tennessee 2/21/1947

Texas 9/5/1947

Utah 5/10/1955

Virginia 1/12/1947

Wyoming 2/8/1963

Source: htp://www.nrtw.org/d/rtws.htm

The issues involved in states having right-to-work laws versus not having them arose recently in the state of Michigan, which, with 19.6 percent of its workforce belonging to a union, is the fourth largest union membership state in the country. It is also the birthplace and home of the United Auto Workers union. Though job losses have decreased UAW membership from 1.5 million in 1979 to about 390,000 now, the union has been so successful in Michigan that even white-collar workers admit that their salaries would not be as high and their benefits as good if it were not for the unions. Due to union negotiations, among other things, union members enjoy good wages, extra days off, and rights such as the auto manufacturers’ job bank preserving hourly workers’ jobs even if there is nothing for them to do (earning UAW the nickname “U Ain’t Working”). At the same time, for the past several years, Michigan has been losing jobs (336,000 from 2000 to 2006 alone) to places like Mexico, with its lower wages. In June 2007, at 7.2 percent, Michigan’s unemployment rate was the highest in the nation. In an effort to attract more business to the state, in 2007, Michigan Republican Rep. Jack Hoogendyk introduced a right-to-work bill for the state to change its closed shop laws, which require that if there is a union in the workplace,

employees must join, to an open shop where employees can decide for themselves if they wish to do so.

In the view of some, the closed shop law in Michigan makes Michigan less attractive to businesses contemplating moving there because it means that the work environment is not employer-friendly. On the other hand, unions say such laws lead to lower wages and benefits and, because Michigan is such a strong union state, dismissed the idea of such legislation, saying they would fight any such moves. Michigan passed the law in December 2012. The governor, who, during campaigning, said it was not a priority for him, shocked national observers by quickly signing the bill. In his mind, the law made Michigan more attractive to new industry and no longer automatically crossed off the list when businesses sought a new home because of the state now permitting employees to choose whether to join a union. Since job creation was a priority for him, if the law would attract new business to the state, it made sense, he said in an interview in February 2014.27

Oklahoma had the same fight before it passed its law in 2001 becoming effective in 2003. Since Oklahoma’s law became effective, the impact has been “minimal,” according to researchers. Personal income grew 7.6 percent in 2006, the page 818third highest in the United States, but

according to the Department of Commerce, that was because of growth in the preexisting oil and gas industry. On the minus side, several manufacturing plants closed, including General Motors, Bridgestone Firestone, and Wrangler jeans, which moved to Mexico. Union membership went from 8 percent to 5.4 percent.

A study from the Fraser Institute, a leading Canadian think tank, found that since 2009, right- to-work states created four times as many jobs as other states. In Oklahoma, data suggests the faster manufacturing growth after passage was due in substantial degree to passing the law because businesses looking to invest and expand no longer dismissed the state as a possibility. Holding other factors steady, right-to-work states increase states’ economic growth by about 1.8 percent, versus 1 percent in states without such laws.28 At the same time, an Economic Policy Institute analysis of Bureau of Labor Statistics data on the unemployment rate for Oklahoma with its right-to-work law and six other nearby states without it from 2001 to 2010 show little difference in the unemployment rates (1.4 for Oklahoma vs. 1.3 for surrounding states), indicating the law did not necessarily create the jobs and improve the employment situation as it was touted to do.29 It should be noted that a national right-to-work law was introduced in Congress in 2017. Such laws have been introduced before, but with the present political climate as it is, it is entirely possible that this time it could pass. If it does, it would greatly weaken unions who will be pressed to represent even more employees who see no benefit in joining a union and paying dues when, by law, they must be represented as part of a bargaining unit anyway.

It is also permissible for the collective bargaining agreement to contain an agency shop clause, which requires nonunion members to pay to the union the usual union dues and fees without joining the union and thereby becoming subject to union rules. Some right-to-work laws do not allow this and, instead, permit nonunion employees of the bargaining unit to be free riders—that is, to receive union benefits without having to pay union dues or fees. In National Football League Players Association v. Pro Football, Inc., the court addressed the issue of pro football players who did not want to pay union dues. The decision turned on whether the state law of the place where they played their games would govern, or the place where they held their practices. Virginia, where they primarily practiced, is a right-to-work state, while Washington, DC, where they played their games, is not. The court held that their primary workplace was in Virginia, and since it is a right-to-work state, the players were required to pay union dues. agency shop clause Requires nonunion members to pay union dues without having to be subject to the union rules.

free riders Bargaining unit employees who do not pay union dues but whom the union is still obligated to represent.

A frequent bone of contention with union members is the use of union dues for activities with which the members do not agree. This is a particularly interesting question when it involves the agency shop since employees who do not want to belong to the union must still pay to the union an amount equal to the union dues (often called a service fee). This is, of course, to prevent the problem of free riders who benefit from union activity but do not contribute to the union’s resources.

In 1991, the U.S. Supreme Court addressed the issue of what the union could use this money for. In Lehnert v. Ferris Faculty Association,30 the court determined that unions could use nonmember service fees for political activities. It said page 819that that “chargeable activities must

(1) be ‘germane’ to collective-bargaining activity; (2) be justified by the government’s vital policy interest in labor peace and avoiding ‘free riders,’ and (3) not significantly add to the burdening of free speech that is inherent in the allowance of an agency or union shop.” It used these guidelines to decide if the specific programs being challenged were within these rules.

In 2007, the Court addressed the agency shop nonmember funds’ use issue when a public employee union asserted that Washington state’s law prohibiting labor unions from using the agency shop fees of nonmembers for election-related purposes unless the nonmember affirmatively consents was an unconstitutional burden on the union’s First Amendment right to free speech. In Davenport v. Washington Education Association,31 the union asserted that the law was unconstitutionally restrictive of free speech because it put the burden on the union to find out if the nonmember objected to the use of the funds for election-related purposes. The Court said that the public employee union being able to receive agency shop fees from government employees was much like the union being able to tax government employees for having a job. Under these circumstances, if the state of Washington wished to put the burden on the union to find out if the nonmembers wanted their funds used for election-related purposes, the Court did not think that was an unconstitutionally high price to pay.

In 2008, the U.S, Supreme Court further refined the issue decided in Lenhert and addressed whether service fees could be used for litigation activities far removed from the workplace, a question upon which the Court had not reached a consensus in Lenhert. In Locke v. Karass,32 the Court allowed such a use by the union for national union affairs such as litigation.

One of the other powers in the Taft–Hartley Act rarely comes into play, but it is an important provision when needed. The act gives the president of the United States the authority to halt a strike or lockout if it would imperil national health or safety. Under the act, the president can seek an injunction that would require an 80-day “cooling-off period” for the parties during which, hopefully, they would reach an agreement. If the union rejects management’s terms after the cooling-off period, then the union can strike.

In the fall of 2002, not long after the tragic events of September 11, 2001, the 10,500 West Coast dockworkers of the International Longshore and Warehouse Union (ILWU) threatened to strike over issues involving the introduction of labor-saving technology and the outsourcing of union jobs. With the 29 ports handling about 50 percent of all ocean-borne cargo entering the United States or $300 billion in goods (about 7 percent of the gross domestic product) from San Diego to Seattle at about the rate of $1 billion per day, supporting about 1.4 million U.S. jobs, and at least 45 retailing giants like Walmart, Home Depot, Target, and The Gap, representing over $1 trillion in annual sales and 100,000 manufacturing, distribution, and retail centers, lobbying President George W. Bush to avert a strike or slowdown, the matter was serious. President Bush certainly thought so: he promised to use any means necessary to make sure troops received what they needed. Options floated included using U.S. Navy personnel page 820to run the ports, trying

to break up the union’s coastwide bargaining unit, or introducing legislation that would restrict the union’s ability to call a strike.

Management instituted a lockout after deciding the workers had engaged in a work slowdown. After eight days of the lockout, President Bush declared a national emergency, asserting the strike’s potentially crippling effect on the national economy. On October 8, the U.S. Department

of Justice took the case to a federal court in San Francisco to halt the lockout and requested a temporary restraining order under the Taft–Hartley Act. On behalf of President Bush they argued that the order was necessary to protect the economy because some businesses were reportedly running low on inventories and supplies and the strike was also jeopardizing the war on terrorism. Defense Secretary Donald Rumsfeld gave a sworn statement that the port dispute threatened to “degrade military readiness, hinder the department’s ability to prosecute the global war on terrorism, and undercut other defense needs and worldwide commitments.” The judge granted the restraining order and called an immediate halt to the lockout, ordering the West Coast ports to reopen immediately. More than 200 ships waited in the waters outside the ports, with an estimated unloading time of eight to nine weeks. On November 1, 2002, the union and management announced an agreement regarding the central technology issue.

The Landrum–Griffin Act of 1959

LO7

Also known as the Labor Management Reporting and Disclosure Act, this legislation was enacted in response to congressional investigations into union corruption from 1957 to 1959. After finding evidence of such corruption, Congress passed the legislation. Based on the investigative findings, the purpose of the law is to establish basic ways of unions operating to ensure a democratic process, to provide union members with a minimum bill of rights attached to union membership, and to regulate the activities of union officials and the use of union funds. (See Exhibit 15.12, “Union Members’ Bill of Rights.”)

Exhibit 15.12 Union Members’ Bill of Rights

Among other things, the Landrum–Griffin Act provides that

• Union members have the right to attend union meetings, vote on union business, and nominate candidates for union elections.

• Members may bring an agency or court action against the union after exhausting union procedures.

• Certain procedures must be followed before any dues or initiation fee increases.

• Except for the failure to pay dues, members must have a full and fair hearing when being disciplined by the union.

page 821The act provides a bill of rights for union members. Looking at some of the provisions

of the bill of rights, one might think that they are so simplistic as to be taken as givens for an organization. However, keep in mind that the bill of rights was enacted in response to union abuses actually found during the two-year congressional investigation.

The Landrum–Griffin Act also set forth specific procedures to be followed when unions hold elections, including voting for officers by secret ballot, holding elections at least every three years (other times for different levels of the union, such as international officers), candidates being able to see lists of eligible voters, and procedures for having an election declared improper. Provisions also were enacted to safeguard union funds. Under the act, unions cannot use union funds for anything except benefiting the union or its members. Funds cannot be used to support union office candidates, and union officials, agents, employees, and so on cannot acquire financial interests that conflict with the union’s. The law made stealing or embezzling union funds a federal crime.

Labor Relations in the Public Sector

LO8

Much of what has been discussed relates to the private sector. Of more recent vintage is the matter of collective bargaining in the public sector.

Federal Employees Historically, there has been little legislation affecting the labor relations of public employees (federal, state, and local government employees). The NLRA has always exempted these employees. There was no uniform federal policy on public labor–management relations. Currently, however, over half of the 50 states and the District of Columbia have collective bargaining statutes covering most, if not all, public employees.

Over time, federal employees formed associations, but only postal workers were not powerless to influence their workplace. In 1962, President Kennedy established the right of federal employees to form and join unions. Since that time, union ranks have increased in the public sector.

Federal restrictions prevent federal unions from conducting direct bargaining over wages and benefits and from striking. The Civil Service Reform Act of 1978 established the Federal Labor Relations Authority (FLRA) to administer federal sector labor law. This agency may be thought of as the federal counterpart to the private sector’s National Labor Relations Board (NLRB).

State, County, and Municipal Public Employees Collective bargaining in the public sector is an important aspect of labor law. One of the most heavily unionized sectors of public employment is that of teachers, police officers, and firefighters, who are generally state, county, or municipal employees. Most public employee organizations at the state, page 822county, and municipal levels can be divided into three major categories:

professional associations, craft unions, and industrial-type unions. Professional associations are composed of a wide variety of professionals. The largest professional employee organization is the National Education Association (NEA). This organization of school teachers has over 3 million members from kindergarten to college, and in addition to teachers, consists of principals, administrators, and other school specialists. The Fraternal Order of Police does not consider itself a union, but many local lodges engage in collective bargaining, handle grievances, and represent the interests of their members to their employers.

Craft unions consist of such groups as the International Association of Firefighters (IAFF), which is an affiliate of the AFL-CIO. Another teachers union that considers itself to be a craft union is the American Federation of Teachers (AFT), which limits its membership to classroom teachers only. While craft unions are too numerous to list, many of them are familiar and have been in existence for nearly a century, such as the United Mine Workers and International Brotherhood of Electrical Workers.

The union that typifies the industrial-type union is the American Federation of State, County, and Municipal Employees (AFSCME), an affiliate of the AFL-CIO. These local unions may represent an entire city or county, or they may represent a smaller unit of government, such as a department or a group of employees that cuts across many departments.

The AFL-CIO assists public workers’ unions that affiliate with it through its Public Employees Department. This department, formed in 1974, has 33 affiliated unions that represent millions of federal, state, and local government employees. These unions represent workers in schools, courts, regulatory agencies, hospitals, transportation networks, police, and fire departments. The AFL-CIO believes that state and local employees are the only workers in the United States who do not enjoy the basic right to enter into collective bargaining agreements with their employers. That is, there is no national legislation that gives these workers the right to enter into collective

bargaining agreements. If they have the right, it is because the state in which they operate has enacted state legislation that permits it.

To many, the most important difference between public and private collective bargaining is that federal legislation and most state statutes do not contain the right of public employees to strike. This prohibition is grounded in the need to protect public health and safety (i.e., to prevent police officers or firefighters from being out on strike while crime rises or buildings burn), as well as the sovereignty doctrine deeming striking against a governmental employer as inconsistent with the government being the sovereign or highest authority.

State and federal employees have not always honored the prohibition on striking. While many ignored the prohibition, probably the most famous example occurred when the federal air traffic controllers, represented by the Professional Air Traffic Controllers Organization (PATCO), went on strike in 1981. One of page 823the reasons the strike was so memorable was undoubtedly

because newly elected President Ronald Reagan took a hard line and terminated 11,000 striking employees. The air traffic controllers were sued for their action in United States v. Professional Air Traffic Controllers Organization.33

Management Tips

Dealing with unions can be an uncomfortable situation for an employer. The very idea is

antithetical to many business owners who feel the business is theirs, and since they are taking all

the risks and putting up all the money, they should have full control. Giving over any control to

employees through the unions and the collective bargaining process is not easy for them. Like it

or not, however, collective bargaining is the law. Following the tips below can help avoid

problems resulting in liability for violating labor laws:

• If employees decide they wish to unionize, do not try to negatively influence the decision in impermissible ways.

• Do not assume any employee you speak to for the purpose of persuading him or her not to unionize will keep the conversation confidential.

• Know the kinds of things the employer can legally do to influence the unionizing decision, and do only those things that are permissible.

• Once the union is in place, conduct all negotiations only with the union representatives. Avoid making side deals with individual employees.

• Treat the collective bargaining process as you would any business activity. Do not invite unfair labor practice charges by engaging in activity that could be deemed a refusal to bargain in good faith.

• Know what the law requires—the employer need not do any more than the law requires in permitting the union to conduct its business. Know well what the employer can and need not do.

• Keep the lines of communication open between labor and management.

• Try to keep the “us versus them” mentality from having a negative impact on the collective bargaining process. It can be difficult to avoid, but if you can, it helps negotiations stay on an even keel, without letting egos get in the way.

• Play hardball without setting management up for an unfair labor practice charge.

There are also differences between the private and public sector about what may be negotiated. While the U.S. postal workers may do so, generally federal employees cannot bargain over wages, hours, or benefits. On the other hand, they can bargain about the numbers, types, and grades of positions; procedures for performing work or exercising authority; the use of technology; and alternatives for employees harmed by management decisions.

page 824

Chapter Summary

• The four main labor law statutes form a framework within which employers and employees may address workplace issues with some modicum of predictability.

• Laws paved the way for unionism by preventing courts from prohibiting union activity. They also provided a statutory basis, with the Wagner or National Labor Relations Act, and they fine-tuned and addressed union abuses, with the Taft–Hartley Act and the Landrum–Griffin or Labor Management Recording and Disclosure Act.

• Private employers and employees are free to negotiate upon mandatory as well as permissive terms of bargaining to determine matters of wages, hours, and other terms and conditions of employment.

Chapter-End Questions

1. After a bitter strike and boycott that included strike-related violence and the use of “scabs” to replace workers in the walnut industry, a returning worker who had been a quality control supervisor prior to the strike was placed in a seasonal packing position, a job with less status, because the employer was afraid that the replacement workers, some of whom were still on the job, would try to instigate violence against the returning workers. The workers claimed that the employer refused to place them in their prior positions as retaliation for striking. After a strike, does the employer have an obligation to place striking workers back in their prestrike position if there might be violence aimed at them? [Diamond Walnut Growers Inc. v. NLRB, 113 F.3d 1259 (DC Cir. 1997).]

2. Bloom was hired to perform clerical work for Group Health Incorporated Office and Professional Employees International Union Local 12. Group Health had negotiated a collective bargaining agreement that contained a union security clause that stated employees must be “members in good standing,” which Bloom interpreted as requiring that he pay union dues. Upon filing a grievance with the NLRB, what is the likely outcome? [Bloom v. NLRB, 30 F.3d 1001 (8th Cir. 1994).]

3. C. Tyler Williams Co. set up a committee called the Employee-Owners’ Influence Council (EOIC). All employees were encouraged to become members. Of 150 employees who applied, 30 of Tyler Williams’ 8,000 employees were selected by the company. They discussed such issues as medical insurance benefits, the Employee Stock Ownership Plan, and family and medical leave. Is this organization in violation of the NLRA? [Polaroid v. NLRB, 329 NLRB No. 47 (Oct. 6, 1999).]

4. In its employee handbook, an employer stated that it would do “everything possible to maintain the company’s union-free status for the benefit of both our employees and [the Company].” Is this an unfair labor practice under the NLRB? [Aluminum Casting & Engineering Co. v. NLRB, 328 NLRB No. 2 (Apr. 9, 1999).]

5. A truck driver who refused to drive a truck because he “smelled fumes” informed his co-worker of this fact. When the employee was disciplined for refusing to take the truck, he alleged that he was engaged in “concerted activity.” What basis does he have for alleging this? [NLRB v. PALCO, 163 F.3d 662 (1st Cir. 1998).]

6. An employer was hiring employees after a strike. On employment applications, the employer asked potential employees whether they belonged to a union. Was page 825the employer engaged in an unfair labor practice?

[Mathews Readymix, Inc. v. NLRB, 165 F.3d 74 (DC. Cir. 1999).]

7. The employer engaged in the practice of photographing an employee engaged in picket-line activity. Is this illegal surveillance, even though the activity was “open and obvious,” no action was taken against the employee, and the employer was preparing a defense regarding potential illegal secondary activity? [Clock Electric, Inc. v. NLRB, 162 F.3d 907 (6th Cir. 1998).]

8. What are the most important differences between public- and private-sector collective bargaining?

9. During contract negotiations, employer and union exchange information on the union’s proposal for pay raises. The employer rejects the proposal. The employer is adamant and refuses to agree to the raises. The union alleges that this is an unfair labor practice in that the employer is not bargaining in good faith. Is it?

10. The union strikes the employer in an effort to receive higher wages. The employer brings in workers to replace the striking employees. Agreement is finally reached between the employer and employees. Must the employer dismiss the replacement workers?

End Notes

1. 1. “Fast-Food Workers Strike Nationwide in Protest against Wages,” Fox News (August 29, 2013), htp://www.foxnews.com/us/2013/08/29/fast-food-workers-to-strike-nationwide-over-wages/.

2. 2. Torres, Jeanette, “Hostess Maker Will Close after Strike,” ABC News (November 16, 2012), htp://abcnews.go.com/Business/twinkies-maker-hostess-liquidate-company-strike/story?id=17736898.

3. 3. “Twinkie’s Make Early Return at WalMart Stores,” USA Today (July 12, 2013), htp://www.usatoday.com/story/money/business/2013/07/12/twinkies-make-early-return- walmart/2511927/.

4. 4. “Boeing’s Machinists Union OKs Benefit Cuts to Keep 777X,” WITN-NBC (January 4, 2014), htp://www.witn.com/home/headlines/Boeings-Machinists-Union-OKs-Benefit-Cuts-To-Keep-777X— 238703321.html.

5. 5. Kell, John, “Harley-Davidson Wraps Up Labor Negotiations,” The Wall Street Journal (February 28, 2011), htp://online.wsj.com/article/SB10001424052748704615504576172851667284040.html.

6. 6. Dokoupil, Tony, “When Nurses Strike in New York,” Newsweek (May 3, 2010), p. 8.

7. 7. McGeehan, Patrick, “Deal Reached That Averts a Walkout by Doormen,” The New York Times (April 21, 2010), htp://community.nytimes.com/comments/www.nytimes.com/2010/04/21/nyregion/21strike.html; and Sulzberger, A.G., “New Yorkers Brace for Doorman Strike,” The New York Times (April 18, 2010), htp://www.nytimes.com/2010/04/19/nyregion/19strike.html.

8. 8. Beck, Howard, and Liz Robbins, “Pro Basketball; NBA and Players Union Agree to a Six-Year Deal,” The New York Times (June 22, 2005), htp://query.nytimes.com/gst/fullpage.html?res=9401EED9103EF931A15755C0A9639C8B63.

9. 9. “Lockout over Salary Caps Shuts Down NHL,” ESPN NHL (February 16, 2005), htp://sports.espn.go.com/nhl/news/story?id=1992793.

10. 10. Baldas, Tresa, “Lawyers Unionize, Vote to Join the Teamsters,” The National Law Journal (April 8, 2003), htp://www.judicialaccountability.org/articles/lawyersunionize.htm.

11. 11. In re Debs, 158 U.S. 564 (1895).

12. 12. 245 U.S. 229 (1917). 13. page 82613. Loewe v. Lawlor (a.k.a. the Danbury Hatters case), 208 U.S. 274 (1908).

14. 14. 130 S. Ct. 2635 (2010).

15. 15. htp://www.jonesday.com/new_process_steel/.

16. 16. 348 NLRB No. 37; Case 7-RC-22141, 9/29/2006.

17. 17. H.R. 1622/S. 969 (110th Cong.).

18. 18. Department of Health and Human Services v. Federal Labor Relations Authority, 920 F.2d 45 (DC. Cir 1990).

19. 19. Kaplan, Daniel, “NFL Labor Negotiations: The Issues,” Sports Business Journal (April 25, 2011), htp://aol.sportingnews.com/nfl/feed/2010-09/nfl-labor-talks/story/nfl-labor-negotiations-the- issues: htp://sports.espn.go.com/nfl/news/story?id=6205936.

20. 20. 499 U.S. 65 (1991).

21. 21. Fendrich, Howard, “NFLPA Decertifies as Talks Break Down,” CBS Boston (March 11, 2011), htp://boston.cbslocal.com/2011/03/11/report-nflpa-plans-to-decertify/.

22. 22. Battista, Judy, “Judge Grants Injunction to End N.F.L. Lockout Pending Appeal,” The New York Times (April 25, 2011), htp://www.nytimes.com/2011/04/26/sports/football/26nfl.html?_r=1&emc=na.

23. 23. 2 F.3d 1162 (D.C.Cir. 1993).

24. 24. “Lockout over Salary Cap Shuts Down NHL,” Associated Press, ESPN-NHL (February 16, 2005), htp://sports.espn.go.com/nhl/news/story?id=1992793; and “NHL Lockout Chronology,” USA Today (July 13, 2005), htp://www.usatoday.com/sports/hockey/nhl/2005-07-13-lockout-chronology_x.htm.

25. 25. 829 F.2d 458 (3rd Cir. 1987).

26. 26. Amalgamated Transit Union, Local Union No. 1433, AFL-CIO and Charles Weigand, No. 28-CB- 078377(2/12/2014).

27. 27. Woods, Ashley, “Rick Snyder Claims Michigan Is ‘Absolutely’ Better with Right-to-Work,” The Huffington Post (February 8, 2014), htp://www.huffingtonpost.com/2014/02/08/rick-snyder-right-to-work_n_4751896.html.

28. 28. Keating, Frank, and Brandon Dutcher, “Right-to Work Laws Help States Like Oklahoma Shine,” Forbes (October 8, 2013), htp://www.forbes.com/sites/realspin/2013/10/08/right-to-work-laws-help- states-like-oklahoma-shine/.

29. 29. “Right-to-Work Law Did Not Help Oklahoma’s Labor Market,” Economic Policy Institute (March 3, 2011), htp://www.epi.org/publication/right-to-work_law_did_not_help_oklahomas_labor_market/.

30. 30. 500 U.S. 501 (1991).

31. 31. 127 S. Ct. 2372 (2007).

32. 32. 129 S. Ct. 798 (2008).

33. 33. 653 F.2d 1134 (7th Cir. 1981).

Cases Case 1 Commonwealth v. Hunt 827

Case 2 Gimrock Construction, Inc. v. International Union of Operating Engineers, Local 487 829 Case 3 Columbia Portland Cement Co. v. NLRB 831 Case 4 Electromation v. National Labor Relations Board 832

page 827

Commonwealth v. Hunt 45 Mass. (4 Metc.) 111 (Mass. 1842)

A lower court found a group of seven shoemakers who belonged to a union guilty of conspiracy because they refused to work for an employer who hired a shoemaker who was not a member of their union. The Supreme Judicial Court of Massachusetts, in reversing the convictions, found not only that it was not an unlawful activity to unionize but that the object of unions may be “highly meritorious and public spirited.”

Shaw, J.

***

Without attempting to review and reconcile all the cases, we are of the opinion, that as a general description, though perhaps not a precise and accurate definition, a conspiracy must be a combination of two or more persons, by some concerted action, to accomplish some criminal or unlawful purpose, or to accomplish some purpose, not in and of itself criminal or unlawful, by criminal or unlawful means. We use the terms criminal or unlawful, because it is manifest that many acts are unlawful, which are not punishable by indictment or other public prosecution; and yet there is no doubt, we think, that a combination by numbers to do them would be an unlawful conspiracy, and punishable by indictment.

Several rules upon the subject seem to be well established, to wit, that the unlawful agreement constitutes the gist of the offence, and therefore that it is not necessary to charge the execution of the unlawful agreement.

Another rule is a necessary consequence of the former, which is, that the crime is consummate and complete by the fact of unlawful combination, and, therefore, that if the execution of the unlawful purpose is averred, it is by way of aggravation, and proof of it is not necessary to conviction; and therefore the jury may find the conspiracy, and negative the execution, and it will be a good conviction.

And it follows, as another necessary legal consequence, from the same principle, that the indictment must— by averring the unlawful purpose of the conspiracy, or the unlawful means by which it is contemplated and agreed

to accomplish a lawful purpose—set out an offense complete in itself; and that an illegal combination, imperfectly and insufficiently set out in the indictment, will not be aided by averments of acts done in pursuance of it.

From this view of the law respecting conspiracy, we think it an offence which especially demands the application of that wise and humane rule of the common law, that an indictment shall state, with as much certainty as the nature of the case will admit, the facts which constitute the crime intended to be charged. This is required, to enable the defendant to meet the charge and prepare for his defence, and, in case of acquittal or conviction, to show by the record the identity of the charge, so that he may not be indicted a second time for the same offence. It is also necessary, in order that a person, charged by the grand jury for one offence, may not be substantially convicted, on his trial, of another.

From these views of the rules of criminal pleading, it appears to us to follow, as a necessary legal conclusion, that when the criminality of a conspiracy consists in an unlawful agreement of two or more persons to compass or promote some criminal or illegal purpose, that purpose must be fully and clearly page 828stated in the

indictment; and if the criminality of the offence, which is intended to be charged, consists in the agreement to compass or promote some purpose, not of itself criminal or unlawful, by the use of fraud, force, falsehood, or other criminal or unlawful means, such intended use of fraud, force, falsehood, or other criminal or unlawful means, must be set out in the indictment.

We are here carefully to distinguish between the confederacy set forth in the indictment, and the confederacy or association contained in the constitution of the Boston Journeymen and Bootmakers’ Society, as stated in the little printed book, which was admitted as evidence on the trial. Because, though it was thus admitted as evidence, it would not warrant a conviction for anything not stated in the indictment. It was proof, as far as it went to support the averments in the indictment. If it contained any criminal matter not set forth in the indictment, it is of no avail.

Now, it is to be considered, that the preamble and introductory matter in the indictment—such as unlawfully and deceitfully designing and intending unjustly to extort great sums, etc.—is mere recital, and not traversable, and therefore cannot aid an imperfect averment of the facts constituting the description of the offence. The same may be said of the concluding matter, which follows the averment, as to the great damage and oppression not only of their said masters, employing them in said art and occupation, but also of divers other workmen in the same art, mystery and occupation, to the evil example, &c. If the facts averred constitute the crime, these are properly stated as the legal inferences to be drawn from them. If they do not constitute the charge of such an offence, they cannot be aided by these alleged consequences.

Stripped then of these introductory recitals and alleged injurious consequences, and of the qualifying epithets attached to the facts, the averment is this: that the defendants and others formed themselves into a society, and agreed not to work for any person, who should employ any journeyman or other person, not a member of such society, after notice given to discharge such workman.

The manifest intent of the association is to induce all those engaged in the same occupation to become members of it. Such a purpose is not unlawful. It would give them a power which might be exerted for useful and honorable purposes, or for dangerous and pernicious ones. If the latter were the real and actual object, and susceptible of proof, it should have been specially charged. Such an association might be used to afford each other assistance in times of poverty, sickness and distress; or to raise their intellectual, moral, and social condition; or to make improvement in their art; or for other proper purposes. Or the association might be designed for purposes of oppression and injustice. But in order to charge all those, who become members of an association, with the guilt of a criminal conspiracy, it must be averred and proved that the actual, if not the avowed object of the association, was criminal. An association may be formed, the declared objects of which are innocent and laudable, and yet they may have secret articles, or an agreement communicated only to the members, by which they are banded together for purposes injurious to the peace of society or the rights of its members. Such would undoubtedly be a criminal conspiracy, on proof of the fact, however meritorious and praiseworthy the declared objects might be. The law is not to be hoodwinked by colorable pretenses. It looks at truth and reality, through whatever disguise it may assume. But to make such an association, ostensibly innocent, the subject of prosecution as a criminal conspiracy, the secret agreement, which makes it so, is to be averred and proved as the gist of the offence. But when an association is formed for purposes actually innocent, and afterwards its powers are abused by those who have the control and management of it, to purposes of oppression and injustice it will be criminal in those who thus misuse it, or give consent thereto, but not in the other members of the association.

Nor can we perceive that the objects of this association, whatever they may have been, were to be attained by criminal means. The means which they proposed to employ, as averred in this count, and which, as we are now to presume, were established by the proof, were, that they would not work for a person, who, after due notice, should employ a journeyman not a member of their society. Supposing the object of the association to be laudable and lawful, or at least not unlawful, are these means criminal? The case supposes that these persons are not bound by contract, but free to work for whom they please, or not to work, if they so prefer. On this state

of things, we cannot perceive, that it is criminal for men to agree together to exercise their own acknowledged rights, in such a manner as best to subserve their own interests.

Suppose a baker in a small village had the exclusive custom of his neighborhood, and was making large profits by the sale of his bread. Supposing a number of those neighbors, believing the price of his bread too high, should propose to him to reduce his prices, or if he did not, that they would introduce another baker; and on his refusal, such other baker should, under their encouragement, set up a rival establishment, and sell his bread at lower prices; the effect would be to diminish the profit of the former baker, and to the same extent to impoverish him. And it might be said and proved, that the purpose of the associates was to diminish his profits, and thus impoverish him, though the ultimate and laudable object of the combination was to reduce the cost of bread to themselves and their neighbors. The same thing may be said of all competition in every branch of trade and industry; and yet it is through that competition, that the best interests of trade and industry are promoted. It is scarcely necessary to allude to the familiar instances of opposition lines of conveyance, rival page 829 hotels, and

the thousand other instances, where each strives to gain custom to himself, by which he may lessen the price of commodities, and thereby diminish the profits of others.

We think, therefore, that associations may be entered into, the object of which is to adopt measures that may have a tendency to impoverish another, that is, to diminish his gains and profits, and yet so far from being criminal or unlawful, the object may be highly meritorious and public spirited. The legality of such an association will therefore depend upon the means to be used for its accomplishment. If it is to be carried into effect by fair or honorable and lawful means, it is, to say the least, innocent; if by falsehood or force, it may be stamped out with the character of conspiracy. REVERSED.

Case Questions

1. Why do you think it was necessary to dissolve the relationship between criminal conspiracy and the labor movement? What was the relationship given by the court between criminal acts and employees’ rights to control their environment at work?

2. Why do you think the court found that there was some good in organizing to affect the employer’s policies? Explain.

3. Do you agree with the court’s analysis in this case? Explain.

Gimrock Construction, Inc., and International Union of Operating Engineers, Local 487 356 NLRB No. 83 (January 28, 2011)

After repeatedly rejecting the union’s request to engage in negotiations to create its first collective bargaining agreement, the board ordered the employer to engage in collective bargaining. The employer again refused, and the board eventually issued this order for the employer to engage in very specific activity in order to bargain collectively in good faith.

By Chairman Liebman and Members Pearce and Hayes

***

For context, pursuant to a Stipulated Election Agreement, the International Union of Operating Engineers, Local 487, AFL-CIO (the Union) won an election on March 3, 1995, and was certified on March 20, 1995, as the bargaining representative of Respondent’s equipment operators, oiler/drivers, and equipment mechanics employed in Miami-Dade and Monroe counties, Florida (the two counties). The Respondent’s bargaining obligation arose from the Board’s June 30, 2005 decision, finding that the Respondent violated Section 8(a)(5) and (1) of the Act by refusing—since October 27, 1999—to meet and bargain with the Union and provide it with requested relevant information. The board’s order was enforced by the 11th Circuit on December 27, 2006. As explained in the judge’s decision, the Respondent thereafter failed to respond to numerous requests to meet and bargain with the Union and to furnish it with the requested information.

In view of the Respondent’s continuing refusal—over a period of years—to comply with the Board’s bargaining order, the institution of a bargaining schedule and the submission of progress reports are necessary to ensure that (and gauge whether) the Respondent meaningfully complies with its bargaining obligations as set forth under

the page 830 terms of the court-enforced Order. Because the General Counsel specifically sought these

requirements in the compliance specification, we reject the Respondent’s argument that it was denied due process.*

Further, as of September 2007, the Respondent had not posted the required notices to employees, and its failure to post was one of the subjects of a proceeding in the United States District Court for the Southern District of Florida, wherein the Board sought to enforce certain investigative subpoenas requiring the Respondent to (a) demonstrate that it had posted the required notices, and (b) furnish requested information necessary to calculate the amount of back pay due under the terms of the Order in 344 NLRB 1033 (2005). By Order dated September 13, 2007, the District Court directed the Respondent to comply with the investigative subpoenas, and thereafter the Respondent posted the notices and provided certain payroll records to the Board’s Regional Office.

Order

The National Labor Relations Board adopts the recommended Supplemental Order of the administrative law judge and orders that the Respondent, Gimrock Construction, Inc., Hialeah Gardens, Florida, its officers, agents, successors, and assigns, shall take the action set forth in the Order, including the payment to backpay claimants of the amounts set forth below, plus interest accrued to the date of payment minus tax and withholdings by Federal and State laws.

Murray R. Chinners $74,583.12

Alfred K. Duey $125,057.47

Joseph G. MacNeil $10,367.77

Joseph T. Robinson $580.83

Barney Sims $92,243.40

James K. Wilkerson $37,208.66

James L. Wolf $14,311.31

TOTAL $354,352.56

IT IS HEREBY ORDERED that Respondent Gimrock Construction, within 21 days of the Board’s issuance of its Supplemental Decision in this matter, bargain upon request with the Union; meet and bargain for a minimum of 16 hours per week until an agreement is reached, the parties agree to a hiatus in bargaining, or they reach a lawful impasse; and prepare written bargaining progress reports every 30 days, submitting them to the Regional Director and serving copies on the Union to provide it with an opportunity to reply. The Administrative Law Judge’s order is AFFIRMED.

Case Questions

1. Do you think the court made the right decision in this case?

2. Given that there is a statutory duty to bargain in good faith, why do you think management chose to do what it did?

3. Given how strict the final order to bargain was on the employer, does the employer’s strategy make sense to you?

page 831

Columbia Portland Cement Co. v. National Labor Relations Board 979 F.2d 460 (6th Cir. 1992)

The employer engaged in unfair labor practices that eventually led employees to engage in an

unfair labor practice strike. After the union gave an unconditional request for reinstatement to the

employer, the employer refused to reinstate them, and also unilaterally gave a wage increase

without consulting the union. The court found both to be unfair labor practices by the employer.

Contie, J.

***

Petitioner, Columbia Portland Cement Company (the “Company”), operates a limestone shale quarry and cement production facility in Zanesville, Ohio. Since at least September 1, 1984, Local Lodge D24 of the Cement, Lime, Gypsum & Allied Workers Division of the International Brotherhood of Boilermakers, Iron Shipbuilders, Blacksmiths, Forgers and Helpers, AFL-CIO (the “Union”), has represented the Company’s employees. The most recent collective-bargaining contract between the Union and the Company’s predecessor expired on May 1, 1984, but the predecessor company and the Union agreed to extend that contract during negotiations for a new contract.

The Company purchased the facility from the predecessor on August 28, 1984. The Company notified the Union on August 29, 1984, that it intended to terminate the extended contract and desired to negotiate a new one. The parties failed to reach agreement on a new contract, however, and on October 28, 1984, the Company unilaterally implemented the last offer it had made. On May 8, 1985, the employees went out on strike.

By letter dated April 29, 1987, the Union made an offer to return to work on behalf of the striking employees. The letter stated that the employees “unconditionally offer to return to work immediately.” In response, the Company sent a letter dated May 7, 1987, informing the Union that, “with regard to [the] unconditional offer to return to work,” the Company would not reinstate the striking employees. The Company contended that some of the employees had been lawfully terminated, and that the remainder were permanently replaced economic strikers who would be kept on a list for future vacancies.

On April 20, 1988, the Company offered reinstatement, without back pay, to 62 of the striking employees; 33 eventually returned to work.

“A strike which is caused in whole or in part by an employer’s unfair labor practices is an unfair labor practice strike.” Employees who go out on strike in response to an employer’s unfair labor practices may not be permanently replaced by other employees. Unfair labor practice strikers are entitled to immediate reinstatement by the employer upon their unconditional offer to return to work. Refusing to reinstate striking employees after their unconditional offer to return to work violates section 8(a)(3) and (1) of the Act.

The Company granted employees a wage increase of 20 cents per hour; replaced the retirement plan with a 401(k) plan; and changed the grievance procedure to bypass the union and deal directly with the grievant. These actions all violate the employer’s duty to bargain with the employees’ exclusive bargaining agent in contravention of section 8(a)(5) and (1). Accordingly, the Board’s decision must be AFFIRMED.

Case Questions

1. Why do you think the employer refused to rehire the strikers after they gave an unconditional promise to return?

2. Do you think it is fair that employees striking because of an unfair labor practice are entitled to reinstatement? Explain.

3. Do you think the new owner of the business took this hard line in dealing with the union in order to try to initially establish its dominance over the union? Explain.

page 832

Electromation v. National Labor Relations Board 35 F.3d 1148 (7th Cir. 1993)

A nonunion company negotiated with its workers to resolve labor issues through employee participation or employee–management focus groups rather than a union. The court held that these committees constituted labor organizations and were dominated by the employer, thus constituting an unfair labor practice.

Will, J.

***

At the time of the events which gave rise to this suit, Electromation’s approximately 200 employees, most of whom were women, were not represented by any labor organization. To minimize the financial losses it was experiencing at the time, the company in late 1988 decided to cut expenses by revising its employee attendance policy and replacing the 1989 scheduled wage increases with lump sum payments based on the length of each employee’s service at the company.

In January 1989, the company received a handwritten request signed by 68 employees expressing their dissatisfaction with and requesting reconsideration of the revised attendance bonus/wage policy. After meeting with the company’s supervisors, the company President, John Howard, decided to meet directly with employees to discuss their concerns. Accordingly, on January 11, 1989, the company met with eight employees—three randomly selected high-seniority employees, three randomly selected low-seniority employees, and two additional employees who had requested that they be included—to discuss a number of matters, including wages, bonuses, incentive pay, tardiness, attendance programs, and bereavement and sick leave policy, all normal collective bargaining issues.

Following this meeting, Howard met again with the supervisors and concluded that management had “possibly made a mistake in judgment in December in deciding what we ought to do” . . . [and] “that the better course of action would be to involve the employees in coming up with solutions to these issues.” The company determined that “action committees” would be an appropriate way to involve employees in the process. Accordingly, on January 18, 1989, the company met again with the same eight employees and proposed the creation of action committees to “meet and try to come up with ways to resolve these problems; and that if they came up with solutions that we believed were within budget concerns and they generally felt would be acceptable to the employees, that we would implement these suggestions or proposals.” At the employees’ suggestion, Howard agreed that, rather than having a random selection of employee committee members, sign-up sheets for each action committee would be posted.

On the next day, the company posted a memorandum to all employees announcing the formation of the following five action committees: (1) Absenteeism/Infractions; (2) No Smoking Policy; (3) Communication Network; (4) Pay Progression for Premium Positions; and (5) Attendance Bonus Program. Sign-up sheets were also posted at this time.

On February 13, 1989, the International Brotherhood of Teamsters, Local Union No. 1049 (the “union”) demanded recognition from the company. Until then, the company was unaware that any organizing efforts had occurred at the plant. In late February, Howard informed Employee Benefits Manager Loretta Dickey of the union’s demand for recognition. Upon the advice of counsel, Dickey announced at the next meeting of each committee that, due to the union demand, the company could no longer participate in the committees, but that the employee members could continue to meet if they so desired.

Finally, on March 15, 1989, Howard formally announced to the employees that “due to the union’s campaign, the Company would be unable to participate in the [committee] meetings and could not continue to work with the committees until after the [union] election.” The union election took place on March 31, 1989; the employees voted 95 to 82 against union representation. page 833 On April 24, 1989, a regional director of the National Labor

Relations Board (Board) issued a complaint alleging that Electromation had violated the Act by refusing to meet. Section 2(5) of the Act defines a labor organization as:

any organization of any kind, or any agency or employee representation committee or plan, in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work.

Under this statutory definition, the action committees would constitute labor organizations if: (1) the Electromation employees participated in the committees; (2) the committees existed, at least in part, for the purpose of “dealing with” the employer; and (3) these dealings concerned “grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work.”

With respect to the first factor, there is no question that the Electromation employees participated in the action committees. Turning to the second factor, which is the most seriously contested on appeal, the Board found that the activities of the action committees constituted “dealing with” the employer. We agree with the Board that the action committees can be differentiated only in the specific subject matter with which each dealt. Each committee had an identical relationship to the company: the purpose, structure, and administration of each committee was essentially the same. We note, in addition, that even if the committees are considered individually, there exists substantial evidence that each was formed and existed for the purpose of “dealing with” the company. It is in fact the shared similarities among the committee structures which compels unitary treatment of them for the purposes of the issues raised in this appeal.

Given the Supreme Court’s holding that “dealing with” includes conduct much broader than collective bargaining, the Board did not err in determining that the Electromation action committees constituted labor organizations within the meaning of Sections 2(5) and 8(a)(2) of the Act.

Finally, with respect to the third factor, the subject matter of that dealing—for example, the treatment of employee absenteeism and employee bonuses—obviously concerned conditions of employment. The purpose of the action committees was not limited to the improvement of company efficiency or product quality, but rather that they were designed to function and in fact functioned in an essentially representative capacity. Accordingly, given the statute’s traditionally broad construction, there is substantial evidence to support the Board’s finding that the action committees constituted labor organizations.

Section 8(a)(2) declares that it shall be an unfair labor practice for an employer: to dominate or interfere with the formation or administration of any labor organization or contribute financial or other support to it: Provided, that subject to rules and regulations made and published by the Board pursuant to Section 6, an employer shall not be prohibited from permitting employees to confer with him during working hours without loss of time or pay. Section 8(a)(1) provides that it shall be an unfair labor practice for an employer: to interfere with, restrain or coerce employees in the exercise of the rights guaranteed in section 157 of this title. Section 7 in turn provides that: [e]mployees shall have the right to self-organization, to form, to join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection, and shall also have the right to refrain from any and all such activities except to the extent that such right may be affected by an agreement requiring membership in a labor organization as a condition of employment as authorized in section 158(a)(3) of this title.

Electromation argues that the Board’s ruling in this case implies that an employer violates Section 8(a)(2) whenever it proposes a structure whereby the employees and employer “cooperate,” or meet together to discuss topics of mutual concern. The company thus asserts that the Board may find a violation of Section 8(a)(2) only where it finds that the employer has actually undermined the free and independent choice of the employees.

The company played a pivotal role in establishing both the framework and the agenda for the action committees. Electromation unilaterally selected the size, structure, and procedural functioning of the committees; it decided the number of committees and the topic(s) to be addressed by each. The company unilaterally drafted the action committees’ purposes and goal statements, which identified from the start the focus of each committee’s work. Also, despite the fact that the employees were seriously concerned about the lack of a wage increase, no action committee was designated to consider this specific issue. In this way, Electromation actually controlled which issues received attention by the committees and which did not. Although the company acceded to the employees’ request page 834 that volunteers form the committees, it unilaterally determined how many

could serve on each committee, decided that an employee could serve on only one committee at a time, and determined which committee certain employees would serve on, thus exercising significant control over the employees’ participation and voice at the committee meetings. Also, although it never became a significant issue because so few employees signed up for the committees, the initial sign up sheets indicated that the employer would decide which six employees would be chosen as committee members where more than six expressed interest in a particular committee. Ultimately, the company limited membership to five and determined the five to serve. Also, the company designated management representatives to serve on the committees. Employee Benefits Manager Dickey was assigned to coordinate and serve on all committees. In the case of the Attendance Bonus Program Committee, the management representative—Controller Mazur—reviewed employee proposals, determined whether they were economically feasible, and further decided whether they would be presented to

higher management. This role of the management committee members effectively put the employer on both sides of the bargaining table, an avowed proscription of the Act.

Finally, the company paid the employees for their time spent on committee activities, provided meeting space, and furnished all necessary supplies for the committees’ activities. While such financial support is clearly not a violation of Section 8(a)(2) by itself, in the totality of the circumstances in this case such support may reasonably be characterized to be in furtherance of the company’s domination of the action committees. We therefore conclude that there is substantial evidence to support the Board’s finding of unlawful employer domination and interference in violation of Section 8(a)(2) and (1). NLRB ORDER ENFORCED.

Chapter 16 Selected Employment Benefits and Protections

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Learning Objectives

By the time you finish studying this chapter, you should be able to:

1. LO1List the matters regulated by the Fair Labor Standards Act.

2. LO2Discuss the requirements of the minimum wage laws and to whom they apply.

3. LO3Explain the Family Medical Leave Act, including to whom it applies and under what circumstances.

4. LO4Explain contributory negligence, assumption of risk, and the fellow servant rule, and their roles in the regulation of safety in the workplace, and determine how OSHA impacted this regulatory environment.

5. LO5Set forth what OSHA requires of employers to create a safer workplace and how it is enforced.

6. LO6Describe the reporting responsibilities of employers under the OSHA Act.

7. LO7Explain the purposes of ERISA and identify who and what type of entities are covered.

8. LO8Describe the minimum ERISA standards for employee benefit plans.

page 836

Opening Scenarios

SCENARIO 1

Fenwick, a new MBA graduate, is hired into a management position at $125,000 per year. It is Fenwick’s first job as a professional. After several months, Fenwick finds he is leaving work later and later. Fenwick begins to resent that he works late, putting in more and more hours, and is not receiving any more than the originally agreed-upon salary. He is contemplating legal action against his employer for violation of the Fair Labor Standards Act. Will it be worth his while to pursue this?

SCENARIO 2

Carly and Carl live with their two children and Carl’s mom, who is in the advanced stages of Alzheimer’s. Carly works in pharmaceutical sales and has a lot of job flexibility. Carl is the chief financial officer for an investment firm and his job is very demanding. Carl’s mom takes a turn for the worse and will need extra care for a few weeks. Carly knows she has the flexibility and time so she goes to her supervisor and requests time off under the Family and Medical Leave Act to take care of her ailing mother-in-law. Will it be granted?

SCENARIO 3

Singhie, an employee of Carterez, a contractor, is hospitalized due to the large number of cement particles she inhaled while Bartow, a subcontractor, was laying the cement foundation for a structure. Carterez is cited by OSHA for violation of the protective gear requirements. Who is liable, Carterez, the contractor, or Bartow, the subcontractor?

Introduction Beyond those laws that we have discussed in previous chapters, there are several other laws that do not contain antidiscrimination provisions but nevertheless significantly impact the workplace; this chapter will introduce you to some of them. These include the Fair Labor Standards Act of 1938 (FLSA), the Family and Medical Leave Act of 1993 (FMLA), the Occupational Safety and Health Act of 1970 (OSHA), and the Employee Retirement Income Security Act of 1974 (ERISA). Each is an important aspect of the workplace landscape.

Fair Labor Standards Act of 1938

Statutory Basis Every employer shall pay to each of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce, wages at the following rates: . . . not less than $6.55 an hour beginning July 24, 2008; and $7.25 per hour effective July 24, 2009. [Sec. 6(a), Fair Labor Standards Act of 1938, as amended, 29 U.S.C. § 201 et seq.]

. . . No employer shall employ any of his employees for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above

specified at a rate not less than one and one-half times the regular rate at which he is employed. [Sec. 7(a)(1), Fair Labor Standards Act of 1938, as amended, 29 U.S.C. § 201 et seq.]

page 837

Introduction: Show Me the Money! Face it. If we were all rich and didn’t have to work, many of us would not do so. Since we do have to work, we want to make sure that we get all that is coming to us. We don’t want to have to work for whatever meager wages our employer wants to pay us, compete with 10-year-olds for our job, or work whatever number of hours our employer decides he or she wants us to work without extra pay. Under the broad constitutional powers that Congress has to regulate interstate commerce, in 1938 it passed a law to regulate pay and hours worked. The law, now amended several times, is called the Fair Labor Standards Act (FLSA). The act set standards for the minimum age for workers, minimum wages they can make, and the rate at which they must be paid if they work over a certain amount of time during a workweek. Much like the Equal Pay Act and Title VII, the act also prohibits pay differentials based solely on gender. You should know that in the latest annual Fulbright & Jaworski, LLP, litigation trends survey of U.S. companies, the issue of vulnerability for companies that made the top of the list was wage and hour issues. Sixty-seven percent of companies said they spend over $100,000 (excluding the cost of settlement) to litigate a single employee case to conclusion.1 minimum wages The least amount a covered employee must be paid in hourly wages.

LO1

The FLSA is administered by the U.S. Department of Labor’s Wage and Hour Division, which has authority to investigate, gather information, issue regulations, and enforce FLSA provisions. States also have wage and hour provisions administered by comparable state agencies. Violations, if willful, are crimes punishable by fines of up to $10,000, with second convictions resulting in possible imprisonment. Child labor violations carry civil penalties. The FLSA contains antiretaliation provisions to protect employees who use the FLSA, such as filing a complaint or participating in an FLSA proceeding.2

If an employer violates the FLSA by underpaying employees, the employees may recover back wages. The federal government recovered more than $266 million in back wages in fiscal year 2016 alone.3 The Wage and Hour Division reported that since FY 2011, it has recouped more than billion for more than 1.3 million workers.4 In February of 2014, one of the Oakland Raiders cheerleaders filed a lawsuit on her own behalf and that of the 40 other cheerleaders, alleging that at $125 per home game or $1,250 per season, the Raiders did not pay the Raiderettes minimum wages for the work they are required to do both on and off the field. In her estimation, they were paid less than $5 per hour. In addition to the 10 8-hour-shift home games, the cheerleaders must do 10 charity events, a team rally, Fan Day, and the swimsuit calendar photo shoot. They must pay the costs of travel to these events, their suits, accessories such as tights, false eyelashes, a yoga mat, and a team-elected hairstylist who costs several hundred dollars.5 Effective February 1, 2015, all new contracts with those who do business with the federal government must include provisions for paying the employees of the federal contractors at least $10.10 per hour. Between February 12, 2014, and the effective date of January 1, 2015, “agencies are strongly encouraged to take all steps that are reasonable and legally permissible to ensure that individuals working pursuant to those contracts and contract-like instruments are paid an hourly wage of at least $10.10.”6 In January, page 838the U.S. Supreme Court decided a case in which the issue of

employees being required to be paid for the time spent “donning and doffing” required clothing

was before the Court.7 In February of 2014, Hibachi Grill and Supreme Buffet paid $2 million in wage and hour violations.8 In 2008, Walmart paid $54.25 million to settle a lawsuit alleging Walmart cut Walmart and Sam’s Club employees’ break times short and worked employees while off the clock without paying them. The decision involves about 100,000 current and former hourly employees in Minnesota over the past decade.9 The fines could have been much higher since Minnesota law allows a $1,000 fine to be imposed for each violation and the state district judge found that Walmart had violated the law more than 2 million times. Walmart has faced similar suits in at least 35 states, but rarely settles as it did this time.

The Obama administration was quite aggressive in making sure wage and hour laws were complied with and employees got what they had bargained for. It is expected that enforcement will become even more vigorous, with additional funding for agencies to handle the increased enforcement.10 For instance, the Department of Labor proposed a rule designed to better protect children under 16 working in agricultural vocations, especially from injuries. The agency withdrew the proposed rule, however, after thousands of comments about its negative impact on family farms.11 In September 2013, pursuant to an executive order, the Department of Labor announced that nearly 2 million direct care workers who provide essential home care assistance to the ill, elderly, and those with injuries and disabilities as home health care aides, personal caretakers, and certified nursing assistants would now be included in minimum wage and overtime protection.12 The agency has also undertaken a Misclassification Initiative by which it signed agreements with several states and their attorneys general to make sure they do not misclassify employees as independent contractors and thereby avoid paying proper minimum wages. States who have signed such agreements include California, Colorado, Connecticut, Hawaii, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah, and Washington. In the past two years, the agency has recovered $18.2 million, a 97 percent increase, in back wages for more than 19,000 employees where the primary reason for violations was misclassified employees.13

One of the issues that has seen growing interest has been unpaid student internships. The U.S. Department of Labor has said it is cracking down on firms that do not properly pay interns and increasing their education in the area to make employers aware of the law.14 They issued new guidance to employers in 2010. (See Exhibit 16.1, “Fact Sheet on Internships under the Fair Labor Standards Act.”) A June 2013 decision, Glatts v. Fox Searchlight Pictures,15 involving unpaid interns working on the film Black Swan for Searchlight Pictures, ruled that unpaid interns were employees and should receive minimum wage. The court rejected Fox’s argument that it should rely on a balancing test weighing who received the primary benefit of the internship because it was subjective and unworkable for employers, as often the intern would not even know this until the end of the internship. Instead, the court used the factors in the DOL fact sheet in Exhibit 16.1 and made the determination. There have been several moves to address unpaid internships, including more than 20 lawsuits filed page 839and the Fair Pay Campaign whose

purpose is to end unpaid internships. The common assumption is that unpaid interns are privileged college kids, but a 2012 study showed they are mostly middle or working class and often hold down second jobs to pay the bills. They are also 77 percent more likely to be female. Interestingly, a survey of 20,000 students conducted by the National Association of Colleges and Employers found that unpaid interns have no advantage in the job market and no higher starting salaries than students who did not have internships.16

Exhibit 16.1 Factsheet on Internships under the Fair Labor Standards Act

(April 2010) Fact Sheet #71: Internship Programs under the Fair Labor Standards Act This fact sheet provides general information to help determine whether interns must be paid the minimum

wage and overtime under the Fair Labor Standards Act for the services that they provide to “for-profit” private- sector employers.

BACKGROUND The Fair Labor Standards Act (FLSA) defines the term employ very broadly as including to “suffer or permit to work.” Covered and nonexempt individuals who are “suffered or permitted” to work must be compensated under the law for the services they perform for an employer. Internships in the “for-profit” private sector will most often be viewed as employment, unless the test described below relating to trainees is met. Interns in the for-profit private sector who qualify as employees rather than trainees typically must be paid at least the minimum wage and overtime compensation for hours worked over forty in a workweek.*

THE TEST FOR UNPAID INTERNS There are some circumstances under which individuals who participate in for-profit private sector internships or training programs may do so without compensation. The Supreme Court has held that the term suffer or permit to work cannot be interpreted so as to make a person whose work serves only his or her own interest an employee of another who provides aid or instruction. This may apply to interns who receive training for their own educational benefit if the training meets certain criteria. The determination of whether an internship or training program meets this exclusion depends upon all of the facts and circumstances of each such program.

The following six criteria must be applied when making this determination:

The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

The internship experience is for the benefit of the intern;

The intern does not displace regular employees, but works under close supervision of existing staff;

The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;

The intern is not necessarily entitled to a job at the conclusion of the internship;

The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If all of the factors listed above are met, an employment relationship does not exist under the FLSA, and the Act’s minimum wage and overtime provisions do not apply to the intern. This exclusion from the definition of employment is necessarily quite narrow because the FLSA’s definition of “employ” is very broad. Some of the most commonly discussed factors for for-profit private-sector internship programs are considered below.

SIMILAR TO AN EDUCATION ENVIRONMENT AND THE PRIMARY BENEFICIARY OF THE ACTIVITY In general, the more an internship program is structured around a classroom or academic experience as opposed to the employer’s actual operations, the more likely the internship will be viewed as an extension of the individual’s educational experience (this often occurs where a college or university exercises oversight over the internship program and provides educational credit). The more the internship provides the individual with skills that can be used in multiple employment settings, as opposed to skills particular to one employer’s operation, the more likely the intern would be viewed as receiving training. Under these circumstances the intern does not perform the routine work of the business on a regular and recurring basis, and the business is not dependent upon the work of the intern. On the other hand, if the interns page 840 are engaged in the operations of the employer or are

performing productive work (for example, filing, performing other clerical work, or assisting customers), then the fact that they may be receiving some benefits in the form of a new skill or improved work habits will not exclude them from the FLSA’s minimum wage and overtime requirements because the employer benefits from the interns’ work.

DISPLACEMENT AND SUPERVISION ISSUES If an employer uses interns as substitutes for regular workers or to augment its existing workforce during specific time periods, these interns should be paid at least the minimum wage and overtime compensation for hours worked over forty in a workweek. If the employer would have hired additional employees or required existing staff

to work additional hours had the interns not performed the work, then the interns will be viewed as employees and entitled compensation under the FLSA. Conversely, if the employer is providing job shadowing opportunities that allow an intern to learn certain functions under the close and constant supervision of regular employees, but the intern performs no or minimal work, the activity is more likely to be viewed as a bona fide education experience. On the other hand, if the intern receives the same level of supervision as the employer’s regular workforce, this would suggest an employment relationship, rather than training.

JOB ENTITLEMENT The internship should be of a fixed duration, established prior to the outset of the internship. Further, unpaid internships generally should not be used by the employer as a trial period for individuals seeking employment at the conclusion of the internship period. If an intern is placed with the employer for a trial period with the expectation that he or she will then be hired on a permanent basis, that individual generally would be considered an employee under the FLSA.

WHERE TO OBTAIN ADDITIONAL INFORMATION This publication is for general information and is not to be considered in the same light as official statements of position contained in the regulations.

For additional information, visit our Wage and Hour Division website: http://www.wagehour.dol.govand/ or call our toll-free information and helpline, available 8 a.m. to 5 p.m. in your time zone, 1-866-4USWAGE (1-866-487- 9243).

*The FLSA makes a special exception under certain circumstances for individuals who volunteer to perform services for a state or local government agency and for individuals who volunteer for humanitarian purposes for private non-profit food banks. WHD also recognizes an exception for individuals who volunteer their time, freely and without anticipation of compensation for religious, charitable, civic, or humanitarian purposes to non-profit organizations. Unpaid internships in the public sector and for non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible. WHD is reviewing the need for additional guidance on internships in the public and non -profit sectors.

Source: U.S. Department of Labor, http://www.dol.gov/whd/regs/compliance/whdfs71.htm.

page 841According to the National Association of Colleges and Employers the number of

graduating students who have held internships rose from 9 percent in 1992 to 83 percent in 2008,17 so it is an area of increasing concern. Since most students want the experience, connections, and job possibilities that come from holding an internship, they are less likely to complain if they are unpaid or are used as a temporary employee, thus making them likely targets for exploitation. The good thing about the cases and push-back activity from interns is that it has caused employers to take a look at their policies and see how they can better comply with the law.

Another recent active area of concern in wages is lactation time for nursing mothers. Keep in mind that we discussed in the gender chapter that the FLSA was amended by the Patient Protection and Affordable Care Act to require that an employer provide reasonable unpaid breaks for nursing mothers to express milk for up to a year from the birth of their child. If the expressing is done during a regular paid break, the break is paid time. Unless the employer has less than 50 employees and it would cause an undue hardship to do so, the employer must also provide a private place other than a restroom in which the new mother can express her milk. The law does not preempt state laws requiring that such breaks be paid.

Another area of growing concern has been that of payment of employees’ time for “donning and doffing” protective gear—that is, time spent before and after work putting on and taking off protective covering or equipment that is necessary for work. Generally, if the clothing and equipment are necessary for work, the time must be paid. As we mentioned in the opening information of the chapter, the U.S. Supreme Court determined that it can, however, be negotiated otherwise in a collective bargaining agreement if employees wish to trade off something else with the employer, for instance, a higher hourly wage.

The Fifth Circuit in Allen v. McWane, Inc.,18 joining the Third and Eleventh Circuits, held that if an employer has a custom and practice of not paying for time spent donning and doffing protective equipment and the employees never discussed it during collective bargaining negotiations, it is not a basis for claims of violation under the FLSA. In the court’s view, “as long as there was a company policy of non-compensation for time spent changing for a prolonged period of time— allowing the court to infer that the union had knowledge of and acquiesced to the employer’s policy—and a CBA existed, the parties need not have explicitly discussed such compensation when negotiating the CBA. McWane ‘only need prove that the parties had a ‘custom or practice’ of non-compensation under the agreement.’”

Covered Employees Since the FLSA was enacted pursuant to the powers of Congress to regulate interstate commerce, that requirement forms, in part, a basis for determining coverage. Actually, there are two types of coverage in the FLSA: individual coverage and enterprise coverage. If the individual employee’s job involves interstate commerce directly, such as an over-the-road truck driver traveling from state to state, or moving or preparing goods for interstate commerce, including phoning and using the mail, then the individual is covered. For enterprise coverage, all employees of a business will be covered if the business is engaged in interstate commerce or page 842in

producing goods for interstate commerce and meets a minimum gross annual income requirement of $500,000. The law applies to both part-time and full-time employees. Federal, state, and local employees are also covered by the law, though there are some specific provisions for certain state and local employees.

If an employee works for certain types of businesses, the $500,000 minimum does not apply. That is, employees will be covered even if their employer does not make at least $500,000 per year. These organizations include hospitals and other institutions primarily engaged in the care of the sick, aged, mentally ill, or disabled who reside on the premises; schools for children who are mentally or physically disabled or gifted; preschools, elementary, and secondary schools and institutions of higher education; and federal, state, and local government agencies. The law also covers domestic service workers such as day workers, housekeepers, chauffeurs, cooks, valets, or full-time babysitters (defined as other than those babysitting on a casual basis; typically requiring at least 20 hours per week). State laws also may apply, and when both cover a situation, the law setting the higher standards must be the one used.

The FLSA contains exemptions from these rules for several groups, which vary depending on

the area of the FLSA being addressed. As can be seen from Reich v. Circle C Investment, Inc., given at the end of the chapter, even the threshold decision as to who is covered by the act is not always an easy one. In Reich the court was faced with deciding whether topless dancers who only received tips were, in fact, employees for purposes of the Fair Labor Standards Act provisions on minimum wages, overtime, and record-keeping requirements.

Minimum Wages The minimum wage law was passed in 1938, nine years after the Wall Street crash of 1929, in hopes that it would avoid another Depression. The advocates of the law, primarily unions and other workers, believed that a minimum wage would provide everyone with sufficient money on which to live without causing economic harm to business owners. With the growing income gap, the issue of minimum wages has been of great interest lately as businesses like MacDonald’s and Walmart have come under fire for their low wages for entry-level employees. Demonstrations and strikes have been held and social media campaigns engaged in to try to raise the minimum wage for these workers to a living wage that is, in the view of some, more realistic. It probably did

not help matters when Walmart came under fire for setting up food donation collection bins for its employees at Thanksgiving (Walmart said it was for helping employees who may have undergone a misfortune such as a home fire or spouse’s loss of a job)19 or McDonald’s posted on its company website for employees its Practical Money Skills Budget Journal with tips for coping with low wages.20

LO2

Under the FLSA, employers are required to pay covered employees a certain minimum hourly wage. On July 24, 2007, pursuant to the Fair Minimum Wage Act signed by President George W. Bush on May 25, 2007, the minimum wage rose from $5.15 per hour, where it had been since September 1, 1997, to $5.85 per hour. On July 24, 2008, the minimum wage increased to $6.55, and on July 24, 2009, it increased to $7.25. In 1938, when the FLSA was enacted, it was 25 cents per hour. State wage laws may have higher minimums than the federal law. (See Exhibit 16.2, “State Minimum Wages.”) page 843As mentioned earlier, in February 2014, President Obama

signed an executive order requiring that those who contract to do business with the federal government pay their workers a minimum wage of at least $10.10 per hour.

Exhibit 16.2 State Minimum Wages

page 844

Consolidated State Minimum Wage (MW) Update Table (Effective Date: 01/01/2011) The state minimum wage rate requirements, or lack thereof, are controlled by legislative activities within the

individual states. Federal minimum wage law supersedes state minimum wage laws where the federal minimum wage is greater

than the state minimum wage. In those states where the state minimum wage is greater than the federal minimum wage, the state minimum wage prevails.

There are 4 states than have a minimum wage set lower than the federal minimum wage. There are 21 states (plus DC) with minimum wage rates set higher than the federal minimum wage. There are 20 states that have a minimum wage requirement that is the same as the federal minimum wage requirement. The remaining 5 states do not have an established minimum wage requirement.

The State of Washington has the highest minimum wage at $9.32/hour. The states of Georgia and Wyoming have the lowest minimum wage ($5.15) of the 45 states that have a minimum wage requirement.

Note: There are 10 states (AZ, CO, FL, MO, MT, NV, OH, OR, VT, and WA) that have minimum wages that are linked to a consumer price index. As a result of this linkage, the minimum wages in these states are normally increased each year, generally around January 1. Effective January 1, 2014, 9 of the 10 states increased their respective minimum wages. The exception was Nevada, which adjusts in the month of July each year.

Source : Division of Communications, Wage and Hour Division, U.S. Department of Labor http://www.dol.gov/whd/minwage/america.htm

Wage rates may be lower if, in accordance with appropriate regulations, an industry wage order makes them so in Puerto Rico, the Virgin Islands, or American Samoa. The Fair Minimum Wage Act of 2007 provided for a 50-cent-per-hour industry-based increase in wages for American Samoa until the wage rate was generally the same as for the United States. If the covered employee is an apprentice, learner, or disabled worker, then, under certain circumstances, she or he may receive less than the minimum wage if the employer obtains a certificate issued by the Department of Labor’s wage and hour administrator.

Tipped employees (defined in the regulations as those who regularly receive more than $30 a month in tips) may be paid direct wages of $2.13 per hour, but the employer must make up the

difference if the tips do not equal the usual minimum wage.21 Employees may be paid on a piece rate rather than an hourly rate as long as they receive the equivalent of the minimum wage. (See Exhibit 16.3, “Exemptions from Both Minimum Wage and Overtime Pay,” and Exhibit 16.4, “Other FLSA Exemptions,” for wage and overtime exemptions.) In Kilgore v. Outback Steakhouse of Florida, Inc.,22 the court wrestled with the issue of whether it was permissible for an employer to require servers who receive tips to pool their tips and split them with other employees who do not receive tips. The court held that this was permissible for the employer to do. In 2008, a San Francisco superior court held that Starbucks would have to pay $100 million ($86 million plus interest) page 845to its 120,000 baristas (coffee servers) statewide because it had been

Starbucks’ policy to allow shift supervisors to share the tips received by the baristas, resulting in an average hourly wage of $1.71 for the baristas.23 The California Court of Appeals, however, reversed the decision, saying that no law or court ruling prevents a service employee from sharing a collective tip.24

Exhibit 16.3 Exemptions from Both Minimum Wage and Overtime Pay

• Executive, administrative, and professional employees (including teachers and academic administrative personnel in elementary and secondary schools), outside sales employees, and employees in certain computer-related occupations (as defined in Department of Labor regulations).

• Employees of certain seasonal amusement or recreational establishments, employees of certain small newspapers, seamen employed on foreign vessels, employees engaged in fishing operations, and employees engaged in newspaper delivery.

• Farm workers employed by anyone who used no more than 500 “man-days” of farm labor in any calendar quarter of the preceding calendar year.

• Casual babysitters and persons employed as companions to the elderly or infirm.

Source: http://www.dol.gov/esa/whd

Exhibit 16.4 Other FLSA Exemptions

As you can see from the list below, there are many exemptions to the FLSA provisions. These do not include state exemptions that may exist.

(MW = minimum wage; OT = overtime; CL = child labor)

Aircraft salespeople—OT

Airline employees—OT

Amusement/recreational employees in national parks/forests/wildlife refuge system—OT

Babysitters on a casual basis—MW & OT

Boat salespeople—OT

Buyers of agricultural products—OT

Companions for the elderly—MW & OT

Country elevator workers (rural)—OT

Disabled workers—MW

Domestic employees who live in—OT

Farm implement salespeople—OT

Federal criminal investigators—MW & OT

Firefighters working in small (less than five firefighters) public fire departments—OT

Fishing—MW & OT

Forestry employees of small (less than nine employees) firms—OT

Fruit & vegetable transportation employees—OT

Homeworkers making wreaths—MW, OT, & CL

Houseparents in nonprofit educational institutions—OT

Livestock auction workers—OT

Local delivery drivers and drivers’ helpers—OT

Lumber operations employees of small (less than nine employees) firms—OT

Motion picture theater employees—OT

Newspaper delivery—MW, OT, & CL

Newspaper employees of limited-circulation newspapers—MW & OT

Police officers working in small (less than five officers) public police departments—OT

Radio station employees in small markets—OT

Railroad employees—OT

Seamen on American vessels—OT

Seamen on other than American vessels—MW & OT

Sugar processing employees—OT

Switchboard operators—MW & OT

Taxicab drivers—OT

Television station employees in small markets—OT

Truck and trailer salespeople—OT

Youth employed as actors or performers—CL

Youth employed by their parents—CL

Source: http://www.dol.gov/elaws/esa/flsa/screen75.asp

page 846As mentioned, the FLSA has exemptions, so not everyone is covered under the

statute. However, some states cover FLSA-exempted employees under their state laws. The following are the primary exemptions from both the wage and the overtime provisions of

the FLSA. Note that under the FLSA, some employees are exempt from the overtime provisions but not the minimum wage provisions (see Exhibit 16.4, “Other FLSA Exemptions”).

1. Outside salespeople; executive, administrative, and professional employees, including teachers, academic administrative employees in elementary and secondary schools; and certain employees in computer-related occupations if they are paid at least $27.63 per hour. (This is why it would not be worth Fenwick’s time to pursue a claim in Opening Scenario 1; more below.)

2. Employees of certain individually owned and operated small retail or service establishments not part of a covered enterprise.

3. Employees of certain seasonal amusement or recreational establishments, messengers, full-time students, employees of certain small newspapers, switchboard operators of small telephone companies, sailors employed on foreign vessels, and employees engaged in fishing operations.

4. Farm workers employed by anyone who used no more than 500 person-days of farm labor in any calendar quarter of the preceding calendar year.

5. Casual babysitters and people employed as companions to the elderly.

The FLSA overtime regulations underwent a major overhaul in 2004 regarding their exemption

for white-collar professionals, that is, primarily those in executive, administrative, and professional jobs. This matter had been debated for years and was accomplished under President George W. Bush. These rules are extremely important since they determine who must be paid overtime for working more than 40 hours per week. The general rule was that white-collar employees in the above categories were not entitled to overtime pay. Determinations as to who fit into these categories were made using a salary test and a duties test.

Prior to the rule change, the salary levels used in the wage and hour rules had not been updated for nearly 30 years. Under the old rules, the FLSA exempted from overtime pay workers who made more than $155 per week, or $8,060 per year, and who met certain other requirements that had been criticized as convoluted and confusing. For instance, the employee also had to devote at least 80 percent of his or her time to “exercising discretion” or other “intellectual” tasks that cannot be “standardized in . . . a given period of time.” The new rules were designed to simplify application of the regulations to white-collar exemptions.

Under the new regulations, which required businesses to review their pay levels and jobs to make sure employees were being paid correctly under the new rules, page 847employees earning

up to $23,660 per year, or $455 per week, are automatically entitled to overtime pay, regardless of whether they are hourly or annual salaried employees. That is, regardless of the classification of the job, if the salary is at or below a certain level ($23,660 per year or $455 per week), the employee is entitled to overtime pay. For the most part, executive employees would be exempt if they manage two or more employees; if they have hiring, firing, and promotion authority or significant input; or if they have advanced degrees or similar training and work in a specialized field or the operations, finance, and auditing areas of a business. It was speculated that the jobs that would be most affected by the new overtime regulations would be assistant managers in stores, restaurants, and bars. Under the new regulations, an employer could boost salaries (that is, pay an employee more than $23,660) in order to avoid the new rules requiring overtime to be paid to those who earn up to $23,660.

Employees who earn at least $100,000 per year and perform some executive, professional (either learned or creative), or administrative job duties are automatically exempt from the overtime provisions of the FLSA. That is why in Opening Scenario 1, Fenwick would not be entitled to more pay for the additional hours he finds himself putting in. As with the prior regulations, the Department of Labor can collect back wages for overtime violations, and companies not in compliance run the risk of costly lawsuits by employees. Retaliation against employees filing claims or reporting an employer’s violations is a separate violation of the law. Because FLSA class action lawsuits have increased by 70 percent since 2000, and the regulations may change employees’ status from what it was before the new regulations, employers would do well to give considerable attention to these matters.

Overtime Provisions In addition to minimum wages, covered employees working over 40 hours per week are entitled to overtime pay of at least time and a half—at least one and one-half times the covered employee’s regular hourly wage rate. The FLSA does not limit the hours employees work but, rather, sets standards for the hours constituting a normal workweek for wage purposes. The statute then sets wage rates for hours worked over and above the normal week. It is a common misconception that the law prohibits an employer from requiring employees to work over 40 hours per week. The law does not dictate hours, but merely states that, if an employee works over 40 hours, he or she must be paid time and a half for the time worked in excess of 40 hours. (See Exhibit 16.5, “Full and Partial Overtime Pay Exemptions.”) CALNET, Inc., and two of its subcontractors were ordered to pay $1,060,554 in back wages for failing to pay employees for time that they were on call.25 Domestic workers who live in the employer’s home permanently or for an extended period of time who are employed by an individual, family, or household are not entitled to overtime pay, but they must earn at least federal minimum wage. They can enter into agreements to exclude certain time from compensable hours worked, such as sleep time, meal time, and other periods of freedom from work duties. Employers must maintain accurate work records and may require employees to record and submit their hours worked to the employer.

page 848

Exhibit 16.5 Full and Partial Overtime Pay Exemptions

EXEMPTIONS FROM OVERTIME PAY ONLY Certain commissioned employees of retail or service establishments; auto, truck, trailer, farm implement, boat, or aircraft salesworkers; or parts-clerks and mechanics servicing autos, trucks, or farm implements who are employed by nonmanufacturing establishments primarily engaged in selling these items to ultimate purchasers.

Employees of railroads and air carriers, taxi drivers, certain employees of motor carriers, seamen on American vessels, and local delivery employees paid on approved trip-rate plans. Announcers, news editors, and chief engineers of certain nonmetropolitan broadcasting stations.

Domestic service workers living in the employer’s residence. Employees of motion picture theaters. Farm workers.

PARTIAL EXEMPTIONS FROM OVERTIME PAY Partial overtime pay exemptions apply to employees engaged in certain operations on agricultural commodities and to employees of certain bulk petroleum distributors.

Hospitals and residential care establishments may adopt, by agreement with their employees, a 14-day work period instead of the usual 7-day workweek, if the employees are paid at least time and one-half their regular rates for hours worked over 8 in a day or 80 in a 14-day work period, whichever is the greater number of overtime hours.

Employees who lack a high school diploma, or who have not attained the educational level of the 8th grade, can be required to spend up to 10 hours in a workweek engaged in remedial reading or training in other basic skills without receiving time and one-half overtime pay for these hours. However, the employees must receive their normal wages for hours spent in such training, and the training must not be job specific.

Source: http://www.dol.gov/esa/wpd .

Retaliation

The FLSA prohibits employers from retaliating against any employee who exercises his or her rights under the act, such as by filing suit to collect benefits wrongfully withheld. As we will see in Mullins v. City of New York, reproduced at the end of the chapter, retaliation can include acts of intimidation that fall short of firing or disciplining someone for exercising lawfully held rights.

Child Labor Laws The FLSA sets minimum age standards for allowing children to work. Under the law, most cannot work before age 16, with 18 being the minimum age for hazardous jobs. The Department of Labor publishes a list of such occupations. Children between the ages of 14 and 16 may work at certain types of jobs that do not interfere with their health, education, or well-being. Certain agricultural work also is permitted. States may have child labor laws even stricter than the federal law, and, if so, the stricter rules apply. In 2008, as a part of the Genetic Information page 849Nondiscrimination

Act of 2008, the FLSA was amended to increase the civil penalties for child labor violations resulting in death or serious bodily injury.

The Family and Medical Leave Act of 1993

Statutory Basis

Leave Requirement

a. 1. Entitlement to leave—an eligible employee shall be entitled to a total of 12 workweeks of leave during

any 12-month period for one or more of the following: A. Because of the birth of a son or daughter of the employee and in order to care for such son or daughter. B. Because of the placement of a son or daughter with the employee for adoption or foster care. C. In order to care for the spouse, or a son, daughter, or parent, of the employee, if such spouse, son,

daughter, or parent has a serious health condition. D. Because of a serious health condition that makes the employee unable to perform the functions of the

position of such employee. [The Family and Medical Leave Act of 1993, 29 U.S.C. § 2601 et seq.]

Introduction: It’s All in the Family The FMLA was previously in the gender chapter because it was enacted primarily in response to female employees’ concerns about keeping their job or not being demoted or losing benefits after the birth or arrival of a child. Since its passage, however, the law has evolved into a much broader piece of legislation. With baby boomers playing such a large part in the national conscience and policies, it was inevitable that since the law also covers taking time off to care for parents, this would also become a fertile area under the law.

General Provisions

LO3

On February 5, 1993, President Clinton signed into law the first piece of legislation of his administration: the Family and Medical Leave Act (FMLA). The act guarantees employees who have been on the job at least a year up to 12 weeks of unpaid leave per year for a birth; an adoption; or care of sick children, spouses, or parents (or their own serious illness) and the same or an equivalent job upon their return. This is why, in Opening Scenario 2, Carly will not be granted the FMLA leave she requests. She wishes to take time off for her husband’s parent, not her own. This is not covered by the act. In January 2008, President George W. Bush signed into law an FMLA amendment that would allow an eligible employee to take up to 26 weeks unpaid leave in a 12-month period to care for a returning war veteran seriously injured in the line of duty. In addition the National Defense Authorization Act for FY 2008 (NDAA)26 allows eligible employees to take up to 12 weeks of unpaid leave to deal with exigencies caused by a spouse, son, daughter, or parent either being called to active duty or being on active duty. The FMLA applies to page

850employers with 50 or more employees within a 75-mile radius. Employees must have worked

for their employer for at least one year and for at least 1,250 hours during the 12 months preceding the time off. They must give the employer at least 30 days’ notice when practical (such as for a birth).

In 2010, the Department of Labor expanded leave rights under the FMLA and extended the right to care for a sick child to an employee who is acting as a parent, even if the employee does not have a legal or biological relationship to the child. In announcing the new guidance, Hilda Solis, Secretary of Labor, stated:

No one who loves and nurtures a child day-in and day-out should be unable to care for that child when he or she falls ill. No one who steps in to parent a child when that child’s biological parents are absent or incapacitated should be denied leave by an employer because he or she is not the legal guardian. No one who intends to raise a child should be denied the opportunity to be present when that child is born simply because the state or an employer fails to recognize his or her relationship with the biological parent. These are just a few of many possible scenarios. The Labor Department’s action today sends a clear message to workers and employers alike: All families, including LGBT families, are protected by the FMLA.27

Employers may require employees to first use vacation or other leave before applying for the unpaid leave, but employees must be compensated for the vacation days as they normally would be. Where both members of the couple work for the same employer, the employer can restrict the couple to a total of 12 weeks’ leave per year. Employers must continue to provide employees with health insurance during their leave and may exclude the highest-paid 10 percent of their employees from FMLA coverage.

Employers also can require medical confirmation of an illness, which the U.S. Department of Labor defines as requiring at least one night in the hospital. Complaints may be filed with the Wage and Hour Division of the Labor Department, or the employee can file a lawsuit if he or she feels the employer violated the act.

In 1997, Congress declined to grant President Clinton’s request to extend the FMLA to permit employees to take up to 24 hours of unpaid leave each year to fulfill certain family obligations such as attending parent-teacher conferences, taking a child to the doctor, finding child care, or caring for elderly relatives. Societal impediments also can be a factor, such as men feeling they will be viewed as disloyal if they take a leave of absence under the FMLA.

However, the greatest impediment to full use of the law is the fact that the leave is unpaid. Though California recently provided that employees be paid 55 percent of their salary for up to six weeks of FMLA leave (in addition to whatever other leave employees may have), the United

States is in the unique position of being the only industrially similar nation that does not provide at least some type of paid parental leave. This may, in fact, be remedied at some future point. In April 2008, the House Committee on Government Oversight and Reform passed a bill to provide federal employees at least a percentage of their income for four weeks when leave is taken to have or adopt a child.28 The bill, never passed, proposed that employees and employers pay into a fund that will provide the source of the paid leave. Such legislation has been introduced before without success even though page 851both parents work in 70 percent of American working

households, and all other similar countries have such legislation. The FMLA has been the subject of a great deal of uncertainty ever since its passage. The law,

particularly the Department of Labor’s regulations, has been a constant source of confusion for employers. There have been questions as to how serious an illness must be for the employee to qualify for the leave, assessment of eligibility requirements for the leave, what to do about intermittent leave, reinstatement after taking leave, and notification and certification requirements for leave, just to name a few issues.

These issues have resulted in a steadily increasing number of FMLA claims, causing it to develop into one of the most active areas of employment law. A survey by the Society for Human Resource Management (SHRM), found that nearly 40 percent of human resource professionals reported that confusion over implementation of the FMLA has led to illegitimate leave being granted.29 Two of the most challenging FMLA-related activities identified by organizations are tracking/administering intermittent FMLA leave and determining the overall costs incurred while complying with the requirements of the FMLA. According to the survey, many HR professionals noted that the timing of intermittent FMLA leave requests (e.g., around weekends, holidays, pleasant weather) raised suspicions of abuse.

The Wage and Hour Division of the Department of Labor heard these comments and on November 17, 2008, announced the first major overhaul of the FMLA in 10 years. The new regulations became effective on January 16, 2009, and provided clarification and detailed new leave entitlements for the military, as mentioned earlier.30 When the agency posted a request for comments on its proposed changes, over 15,000 were received.

If you think about the problems that can be presented for an employer if found to be in violation of the FMLA, and the many ways in which the law can be violated, you can see how the law would be such a frustrating one for employers. It doesn’t help matters when employees take FMLA leave, then post photos on social media showing them vacationing, including participating in strenuous physical activity. A case that has been granted certiorari by the U.S. Supreme Court involves what it meant for a child to take FMLA leave to “care for” for her parent dying of cancer. The daughter took FMLA leave to take her mother, who was dying of cancer, on an end-of-life trip to Las Vegas where they engaged in gambling and other Las Vegas activities such as dining on the strip and shopping. The daughter helped her mother take medication but the trip did not include medical care, therapy, or treatment for the mother’s cancer.31 Then, there are other issues of vagueness. For instance, the Spangler v. Federal Home Loan Bank of Des Moines32 case demonstrates why employers have such a problem with this law. A bank employee had a long history of depression that caused her to miss days of work. She had been given notice about her excessive absences and put on probation about her absenteeism, and yet she still took time off. She was terminated after calling in and leaving a voicemail message saying that she would not be in because of “depression again.” The issue was whether this statement was sufficient to put the employer on notice that the employee was invoking the FMLA and taking FMLA leave. The court determined it well could be sufficient notice of a serious page 852health condition as required

by the FMLA because of the employer’s extensive history with the employee taking absences because of depression. It did not mean the employer would be required to keep her on despite her absences, but it at least put the employer on notice that the employee was absent for FMLA reasons.

On the other hand, in Righi v. SMC Corporation of America,33 the court upheld the termination of an employee who, discovering his mother had a medical emergency, emailed his supervisor that he would need the next couple of days off to arrange for her care. He was gone for nine days and during that time did not contact the employer to inform him of what was going on. When the employer repeatedly called the employee there was no answer. The court said that under the FMLA the employee had a duty to comply with the employer’s policies for taking FMLA leave, including notifying the employer of plans to take such leave. Avoiding the employer’s calls and not contacting the employer relieved the employer of liability for the termination.

In Terwilliger v. Howard Memorial Hospital,34 the court said the employee’s FMLA rights were interfered with when the employee, a hospital housekeeper off for back surgery, kept receiving phone calls from her supervisor asking when she was returning to work. The employee had already requested and been granted FMLA leave for her serious medical condition but felt pressured to return to work by the calls continually made to her by her supervisor during recuperation.

As you can see, there seem to be as many ways to violate the FMLA as there are employees, so it is in an employer’s best interest to know the FMLA requirements and comply with them.

Occupational Safety and Health Act

Statutory Basis

Occupational Safety and Health Act

§ 654 (§ 5) Duties

a. Each employer—

1. shall furnish to each of his employees employment and a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees;

2. shall comply with occupational safety and health standards promulgated under this Act.

b. Each employee shall comply with occupational safety and health standards and all rules, regulations and orders issued pursuant to this Act which are applicable to his own actions and conduct.

Introduction: Safety at Work Workplace safety seems like it might not be such a big deal—that is, of course, until you slip on spilled salad dressing in the kitchen of the restaurant for which you work and you cannot continue to pay your tuition. Workplace safety is often page 853perceived as the bailiwick of angry-looking

union reps or blue-collar “working stiffs” who carry lunch pails to work. But it is a workplace issue that affects us all. In 2012, 4,383 workers were killed on the job.35 That is an average of nearly 12 deaths each day, and more than 96,700 violations of the Occupational Safety and Health Act’s standards were found in 2010 across tens of thousands of work sites and 3 million suffer nonfatal workplace injuries costing millions of dollars. In its 2012 Workplace Safety Index, Liberty Mutual found that disabling workplace injuries and illnesses cost employers a total of nearly $1 billion per week in direct workers’ compensation costs36 making health and safety one of the most vital workplace issues facing employers today. (See Exhibit 16.6, “The Top Six Ethics-Related Global Workplace Issues.”)

Exhibit 16.6 The Top Six Ethics-Related Global Workplace Issues

The following issues were named by the American Management Association in 2006 as the “Top Six Ethics- Related Global Workplace Issues” that would face firms in 2015. Did the AMA get them right and are they currently our most pressing issues today?

1. Forced labor, child labor, working hours

2. Health and safety in the workplace, working conditions

3. Discrimination, harassment

4. Financial malfeasance

5. Fraud, theft

6. Gift giving, bribes

In 2014, Kirk Hanson, Executive Director of the Markkula Center for Applied Ethics at Santa Clara University, identified six ethical dilemmas that every professional faces. Do you see some overlaps or contrasts?

1. What Is Worthwhile Work? (“What is worthwhile spending the majority of my waking time on for the next year—or 30 years?”)

2. Work vs. Family

3. Going Along with the Crowd (will you go along even if you disagree with the crowd?)

4. When Leaders Mislead (what do you do in the face of inappropriate authority?)

5. Are You a Change Agent?

6. Careers and the Common Good (will you apply your knowledge for the benefit of others?)

Sources: American Management Association, The Ethical Enterprise: Doing the Right Things in the Right Ways, Today and Tomorrow (New York: American Management Association/Human Resources Institute, 2006), www.amanet.org; Hanson, Kirk O., "The Six Ethical Dilemmas Every Professional Faces," Verizon Visiting Professorship in Business Ethics, Bentley University (February 3, 2014), http://www.bentley.edu/sites/www.bentley.edu.centers/files/2014/10/22/Hanson%20VERIZON%20Monograph_2014- 10%20Final%20(1).pdf (accessed February 25, 2016).

On December 29, 1970, President Richard Nixon signed into law the Occupational Safety and Health Act, attempting to ensure safe and healthful working conditions for all employees and to preserve the human resources of the United States. Since 1971, OSHA claims that the act has helped to cut workplace fatalities by more than 65 percent and injury/illness rates by 67 percent; at the same time, U.S. employment has nearly doubled.37 More than 100,000 workers who might have died on the job did not because of improved safety and health.

page 854

OSHA specifically requires that an employer provide a safe and healthy workplace “to each

of its employees. . . .” Does that language limit the liability of the employer only to those individuals who are actually employees of the employer? Under a concept called the “multiemployer doctrine,” on multiemployer worksites, an employer who creates a safety hazard can be liable under the OSHA, regardless of whether the employees threatened are its own or those of another employer on the site. In Opening Scenario 3, Caterez could be found liable due to the multiemployer doctrine. An employer is liable as long as the government can show that the employee at a worksite was exposed to the risk by the contractor’s safety violations. In Scenario

3, if it can be shown that Singhie was exposed to the cement dust due to the contractor’s safety violation by not providing the mask, Caterez can be held liable and would be the responsible party to handle the OSHA violation.

While the Occupational Safety and Health Review Commission ruled that the multiemployer worksite policy does not apply to a general contractor if the general contractor’s own employees were not exposed to the hazard, the Eighth Circuit reversed that interpretation, ruling that the multiemployer worksite policy makes the general contractor, in effect, the guarantor of all construction work as long as it has employees present, regardless of whether they are similarly exposed.38

General Provisions

LO4

OSHA requires that an employer provide a safe workplace. Prior to passage of OSHA, there was no comprehensive national legislation about workplace safety, and state laws varied greatly. Employers could locate their workplaces in states with lax safety laws providing little protection for workers. Under such laws, employees were often limited in the damages they could recover due to injuries arising from the employer’s unsafe workplace.

Several defenses were available to employers to escape liability for providing an unsafe work environment. Contributory negligence allowed the employer to defend against the employee’s injury suit by claiming that the employee contributed to the injury through the employee’s own negligence. The assumption of risk defense precluded the employee from recovering when the employee knew of a risk involved in the workplace, chose to chance not being injured, and was in fact injured. The fellow servant rule permitted the employer to escape liability when the negligence was the fault of an employee rather than the employer. As you can imagine, injured workers did not find much protection under these laws requiring that the employer provide a safe working environment. contributory negligence A defense to a negligence action based on the injured party’s failure to exercise reasonable care for her or his own safety.

assumption of risk A defense to a negligence action based on the argument that the injured party voluntarily exposed herself or himself to a known danger created by the other party’s negligence.

fellow servant rule An employer’s defense to liability for an employee’s injury where the injury occurred on the job and was caused by the negligence of another employee.

Workers’ compensation laws, however, are generally no-fault, which means that workers injured on the job are entitled to recover for their injuries without having to prove who is at fault. The defenses became irrelevant. The trade-off for employers, in agreeing to be bound by a no- fault system, is that the injured workers are limited in their financial recovery to what they can obtain under workers’ compensation laws. no-fault Liability for injury imposed regardless of fault.

LO5

Section 5(a) of the act imposes two basic requirements on all employers—regardless of size— to accomplish the goal of a safer workplace. First, the employer must comply with all the safety and health standards dictated by the Department of Labor, generally called the “compliance” requirements. Second, page 855the employer must “furnish to each of [its] employees employment

and a place of employment which are free from recognized hazards that are causing or are likely

to cause death or serious physical harm.” This broad requirement is called the “general duty” clause, and the traditional employer defenses noted above are not often available. The only exceptions to the reach of the act are self-employed people, family members employed by family farms, state and local government employees (except under an OSHA-approved plan), and work environments that are regulated by other federal agencies (such as mining or nuclear energy).

In furtherance of workplace safety, OSHA creates certain specific regulatory standards of safety (for example, how much flour dust is permitted to be in a wheat-processing plant) in addition to its general duty clause, which applies in the absence of specific standards. The law applies to any employer that has employees and is in a business affecting commerce (most employers!). In order to accomplish its mission of workplace safety, OSHA provides several tools, including unannounced workplace inspections by OSHA compliance officers, citations and penalties for violations, and continual safety training requirements. Complaints to OSHA may arise from employees, grievances filed by other sources, or reports of fatal or multiple injuries. OSHA protects from retaliation employees who file such complaints by prohibiting employers from discharging or discriminating against employees who exercise rights afforded by the act. OSHA also provided for the creation of the National Institute for Occupational Safety and Health (NIOSH), the research arm of OSHA, which conducts research on workplace health and safety and makes recommendations to the secretary of labor that, if approved, may become the standards of conduct in a certain industry.

Routine inspections in certain high-risk industries also are conducted by OSHA. The employer may consent to the inspection or may demand that the OSHA representatives obtain a search warrant. There may be reasons to use one strategy or the other that lie outside the scope of this text, so it is advisable to consult with legal counsel. The inspection is likely to proceed in either scenario. To ensure that the inspectors are viewing the workplace in the same condition as that experienced by the employees, inspections are conducted without prior notice to an employer. In fact, anyone giving unauthorized advance notice of the inspection to the employer can be punished by a fine of up to $1,000. The inspector will arrive at the worksite, ask to see the safety and accident records of the employer, conduct a “walk around” to visually inspect the site, and discuss with the employer any violations or concerns, as well as possible solutions to the problems. Because OSHA cannot inspect the more than 8 million worksites covered by the act, it has established an inspection priority system in order to have the most significant impact. Under this system, the agency inspects situations of imminent danger, catastrophes and fatal accidents, employee complaints involving serious harm, referrals, or planned inspections.

LO6

Penalties and “abatement orders” are assessed in connection with the inspection officer’s report. A nonserious or a serious violation may require payment of a penalty ranging from $0 to $7,000, while repeated and/or willful violations have a price tag of up to $70,000 per violation or up to $500,000 plus prison time if the page 856violation was willful and involved a fatality. Criminal

sanctions and even higher fines are also possible where the employer acts willfully and causes the death of an employee. (See Exhibit 16.7, “Seven Main Categories of OSHA Violations and Resulting Penalties.”) Congress has contemplated raising these fines several times. In fact, in 2008, it did so for child labor injuries. However, the main penalty categories have not been reformed in decades. Though a bill was introduced in 2013 that would significantly increase penalties in many categories, it is considered unlikely to pass.39

Exhibit 16.7 Seven Main Categories of OSHA Violations and Resulting Penalties

1. Other than serious violation: A violation that has a direct relationship to job safety and health, but probably would not cause death or serious physical harm. A proposed penalty of up to $7,000 for each violation is discretionary.

2. Serious violation: A violation where there is substantial probability that death or serious physical harm could result and the employer knew, or should have known, of the hazard. A mandatory penalty of up to $7,000 for each violation is proposed.

3. Willful violation: A violation that the employer knowingly commits or commits with plain indifference to the law. Penalties of up to $70,000 may be proposed for each willful violation, with a minimum penalty of $5,000 for each violation. If an employer is convicted of a willful violation of a standard that resulted in the death of an employee, the offense is punishable by a court-imposed fine or by imprisonment for up to six months, or both. A fine of up to $250,000 for an individual, or $500,000 for a corporation, may be imposed for a criminal conviction.

4. Repeated violation: A violation of any standard, regulation, rule, or order where, upon reinspection, a substantially similar violation can bring a fine of up to $70,000 for each such violation. The original violation must be final in order to be the basis for a repeated citation.

5. Failure to abate prior violation: Failure to abate a prior violation may bring a civil penalty of up to $7,000 for each day the violation continues beyond the prescribed abatement date.

6. De minimis violation: Violations of standards that have no direct or immediate relationship to safety or health.

7. Additional violations: Examples include falsifying records, reports, or applications; violations of posting requirements; assaulting a compliance officer; or otherwise resisting, opposing, intimidating, or interfering with a compliance officer while engaged in the performance of her or his duties.

Due to the expenses associated with these violations and considering the fact that each day represents a separate violation, employers often request variances in order to prevent citations or penalties. Employers may ask OSHA for a variance from a standard or regulation if they cannot fully comply by the effective date, due to shortages of materials, equipment, or professional or technical personnel, or can prove their facilities or methods of operation provide employee protection “at least as effective” as that required by OSHA. Employers can request a temporary variance, a permanent variance, an interim order, or an experimental variance in order to remain in compliance with OSHA standards. Variances are not retroactive, so an employer who has been cited for a standards violation may not seek relief from that citation by applying for a variance.

Source: OSHA Training Institute, OSHA Directorate of Training and Education, “Introduction to OSHA, Instructor Guide” (April 2011), https://www.osha.gov/dte/outreach/intro_osha/intro_to_osha_guide.html (accessed September 17, 2017).

page 857As long as an employer is covered by the act, has more than 10 employees, and is not

subject to one of the few exceptions (certain low-hazard industries in the retail, finance, insurance, real estate, and service sectors), it must maintain certain records for OSHA compliance. Where the injury or illness is work-related and meets the general recording criteria or falls into specific categories, reporting is mandated. Employers must report injuries and fatalities without delay— within eight hours for fatalities, and within twenty-four hours for in-patient hospitalizations.40 It must be reported as long as it is an illness, a death, or an injury that involves (1) medical treatment, (2) loss of consciousness, (3) restriction of work or motion, or (4) transfer to a different position. Employers also must report workplace injuries due to assaults by family members or ex-spouses as a part of their record-keeping requirements. The records must contain the following information, must be reported on OSHA Form 300,41 and must be posted for the employees to see (i.e., it need not be filed with the government but, instead, must be kept throughout the year and compiled for the February posting): case number, employee’s name, job title, date of injury or onset of illness, where the event occurred, description of the event, classification of the case, and number of days away from work.42

Employees must be informed of their OSHA rights by their employer. This requirement may be met by displaying an OSHA poster in the workplace, but displaying this poster is not mandatory. Employee rights also include requesting and participating in inspections, notice of an employer’s violations or citations, access to monitoring procedures and results, and access to medical information. Employees who provide information to OSHA are protected from discharge and/or discrimination by the employer in retaliation for the reporting.

Responsibility for enforcing OSHA rests with the Department of Labor’s Occupational Safety and Health Administration (OSHA). If an employer seeks to challenge a citation or penalty

imposed, as opposed to simply demanding a warrant from the inspector to come onto the premises, it may submit an appeal to the Occupational Safety and Health Review Commission (OSHRC), an independent federal agency functioning as an administrative court created to decide issues of citations or penalties resulting from OSHA inspections.

An example of a relatively large penalty for willful violations would be the Cintas case in 2007, where OSHA proposed a penalty of $2.78 million after an inspection following the death of a worker who fell into a dryer while clearing a wet laundry jam.43 Cintas, the largest industrial laundry company in the United States, was subject to 42 willful, instance-by-instance citations for violations of the OSHA lockout/tagout standard, including the failures to shut down and to lock out power to the equipment before clearing jams. Cintas eventually settled with OSHA a year and a half later for $2.76 million, along with commitments to improve site safety. However, related unions claimed that the agreement had no teeth since Cintas was given two years to correct the severe safety violations and no follow-up inspections were planned. “On its way out the door, the Bush Labor Department has granted serial offender Cintas a despicable pardon for page 858their

failure to protect its workers from hazardous machinery,” said Congressman Phil Hare (D-IL). Hare also noted that, as part of the settlement agreement, “the Department of Labor modified the willful citations to ‘unclassified citations,’ despite the fact that Cintas knew about these hazards and OSHA originally found the company to be negligent. There is nothing in the law that even allows unclassified citations and we are determined to take legislative action to prohibit the declassification of willful citations.”44

Actually, the question of willfulness is one that remains somewhat open in the courts. It is an important one to answer because fines can be significantly increased where willfulness is shown. OSHA defines a willful violation as “a violation that the employer intentionally and knowingly commits or a violation that the employer commits with plain indifference to the law. The employer either knows that what he or she is doing constitutes a violation, or is aware that a hazardous condition existed and made no reasonable effort to eliminate it.” In addition, the OSHRC has also interpreted willfulness to include a violation the employer should have known.

In November 2010, the OSH Act (OSHA) launched the Severe Violator Enforcement Program (SVEP) in order to “more effectively focus enforcement efforts on recalcitrant employers who demonstrate indifference to the health and safety of their employees through willful, repeated, or failure-to-abate violations of the OSH Act.”45 Evaluating the program after its initial 18 months, OSHA found that targeting “recalcitrant” employers led to increased follow-up inspections and enhanced settlements from repeat offenders. Critics of the program have charged that businesses may find themselves on the SVEP list prematurely and face high barriers in getting off the list.46

Specific Regulations Certain specific regulations seem to apply across the board to all types of employment environments. For instance, a number of specific requirements involve the physical layout of the worksite including proper ventilation, adequate means of emergency exit, safety nets, guard rails, and so on. Employees must be trained and informed (through classes, labels, signs) regarding protective measures, for everything from wearing protective devices, such as masks, to the proper use of chemicals. Medical examinations must be provided by the employer where an employee has been exposed to toxic substances.

OSHA can set standards on its own initiative or in response to petitions from other parties. If it is determined that a specific standard is needed, any of several advisory committees may be called upon to develop recommendations. Recommendations for standards also may come from NIOSH. Once OSHA has developed plans for a standard, it publishes them in the Federal Register as a “Notice of Proposed Rulemaking.” A recent example is OSHA’s recommendations to lower worker exposure to crystalline silica, a deadly dust that needlessly kills hundreds of workers and sickens thousands more each year.47 Exposure to airborne silica dust occurs in

operations involving cutting, sawing, drilling, and crushing of concrete, brick, block, and other stone products and in operations page 859using sand products, such as in glass manufacturing,

foundries, and sand blasting. In preparing the recommendations, OSHA reviewed existing practices and programs as well as available scientific information on silica dust and cancer, and solicited comments from representatives of trade and professional associations, labor organizations, individual firms, and other interested parties. The final recommendations were announced in August 2013. The employer may be held liable for workplace hazards under the general duty clause even if specific regulations do not exist (see discussion of the general duty clause, below).

Finalizing a new standard can be a time-consuming process. A 2012 report by the Government Accountability Office (GAO) found that between 1981 and 2010, the time it took OSHA to develop and issue safety and health standards ranged from 15 months to 19 years and averaged more than seven years.48 Though rarely used, the secretary of labor may establish emergency temporary standards that will be effective immediately on publication in the Federal Register without having to go through the lengthy rule-making process otherwise required by the act where he or she “determines (a) that employees are exposed to grave danger from exposure to substances or agents determined to be toxic or physically harmful or from new hazards, and (b) that such emergency standard is necessary to protect employees from such danger.” The emergency standard is effective until regular standards are approved through the regular procedures or for six months, whichever is shorter. emergency temporary standards Standards are imposed by OSHA without immediately going through the typical process where an employee is exposed to grave danger from exposure to substances and the standards are necessary to protect employees from the danger.

One of the most burdensome requirements on employers is the continual-training requirement. OSHA requires that employers adopt a program of continual workplace safety training of employees. An employer is required to provide safety training every time an employee is hired or transferred into a new position, even if for just a day. This is generally the most frequently cited type of violation under the statute. As a result, OSHA has made an effort to simplify the requirement and now supplies employers with material safety data sheets regarding various types of chemicals and the surrounding hazards associated with them. continual-training requirement OSHA requires that the employer provide safety training to all new employees and to all employees who have been transferred into new positions.

General Duty Clause The general duty clause protects employees against hazards in the workplace, where no other OSHA standard would address the condition. The general duty clause stems from the act’s provision that “Each employer . . . shall furnish to each of his employees employment and a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees.” For instance, once it is found that a certain chemical used in an employer’s manufacturing process causes reproductive harm, or perhaps damage to the employee’s skin, then under the general duty clause the employer must take steps to protect employees and to provide a workplace free from this hazard. It is the employer’s responsibility to be aware of these workplace hazards and to ensure that all employees are equally protected. A recognized hazard also may take the form of actual knowledge when the employer actually knows of the hazard or the form of constructive knowledge if the industry recognizes the hazard even if the employer does not actually know of the hazard. general duty clause A provision of the act requiring that employers furnish to each employee employment and a place of employment free from recognized hazards that cause or are likely to cause death or serious physical harm to the employee.

page 860It is not always easy for an employer to determine what constitutes a recognized

hazard because we are constantly improving our knowledge; so, what we may think is all right today may prove harmful later. Whereas smokers were once free to puff away in the workplace, today OSHA has classified secondhand smoke as a potential cancer-causing agent. In fact, 36 states, along with the District of Columbia, American Samoa, the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands, have regulations on the provision of smoke-free working conditions.49

And what does the general duty clause’s term likely mean in connection with those risks that an employer must protect against? If there is a chance that 1 person in 1,000 may be harmed, does that mean that the risk is likely, or must 5 people out of 10 be at risk for harm to be likely? The OSHRC has stated that the harm need not be likely but possible. In fact, the commission has said that “the proper question is not whether an accident is likely to occur, but whether, if an accident does occur, the result is likely to be death or serious physical harm.”

Under OSHA, there are times when an employer or an employee may not comply with workplace rules or safety regulations and no violation results. For instance, where, based on a reasonable apprehension of death or serious injury and a reasonable belief that no less drastic alternative is available, an employee believes that the employer has violated its general duty to provide a safe working environment, the employees may refuse to work in that environment and the employer cannot punish them for doing so.

In Whirlpool Corporation v. Marshall,50 the U.S. Supreme Court upheld an OSHA regulation protecting employees against retaliation for refusing to work under dangerous conditions. Two employees at a Whirlpool plant refused to perform maintenance work that would require them to walk on elevated mesh screens less than two weeks after a co-worker fell to his death through the screens. The employees were sent home, and written reprimands were placed in their personnel files. The Court held that Whirlpool had illegally retaliated against the employees.

As an example of the application of the general duty clause, as well as the enormous expense of pursuing the defense of an OSHA claim for an employer, consider the case of a Walmart employee in Valley Stream, Long Island, Jdimytai Damour, who was trampled to death in a Black Friday sales stampede early on the morning after Thanksgiving in 2008. OSHA determined that Walmart had committed a “serious violation” of the general duty clause. It ruled, in effect, that Walmart’s failure to properly control the crowd, which had been foreseeable given previous Black Friday sales events, created a workplace hazard that was likely to cause death or serious physical injury to the employee. Although the proposed fine was only $7,000, the retail giant fought OSHA’s citation in court—spending, so far, more than $2 million in legal fees—presumably because of the citation’s future implications for any retailer when faced with large, unpredictable crowd surges. Although OSHA’s fine was upheld in court, and upheld on appeal to the OSHRC, Walmart appealed the ruling to the full body of the OSHRC in 2011. There has been no progress on the case since that point, as the OSHRC is short a member and is not therefore a “full” body. President Obama nominated a third commissioner to the OSHRC in November 2013, but the nomination awaits Senate confirmation.51 Meanwhile, no criminal penalties were ever brought against page

861anyone at Walmart (Walmart settled the criminal case by agreeing to pay money to a victims’

fund and to institute crowd management techniques), but a wrongful death suit brought against Walmart by Damour’s family was still pending.

On the other hand, there may be workplace hazards or injuries for which the employer will not be held responsible under OSHA. The three most common of these circumstances include the following:

1. Where the harm is the result of reckless behavior by an employee.

2. Where it is physically or economically impossible for the employer to comply with a safety requirement.

3. Where compliance with a requirement presents a greater harm than not complying (greater hazard defense).

recklessness Conscious disregard for safety; conscious failure to use due care.

greater hazard defense An employer may use the greater hazard defense to an OSHA violation where the hazards of compliance are greater than the hazards of noncompliance, where alternative means of protection are unavailable, and where a variance was not available.

If any of the above three conditions exist, there will be no OSHA violation imposed on the employer. For example, a citation was issued because a construction company failed to install a cable railing on the perimeter of the top of a building it was constructing. The employer presented evidence that the risk involved in constructing the railing would subject its employees to a greater risk than if the railing were not there. To assert this defense, however, an employer must show

• The hazards of compliance with the standard are greater than the hazards of noncompliance.

• Alternative means of protection are unavailable.

• A variance from the secretary of labor was unavailable or inappropriate. In Horne Plumbing and Heating Co. v. OSHRC,52 the employer had taken precautionary

measures; but two employees ignored the employer’s instructions and warnings from co-workers, worked in an unsafe area of the site anyway, and were killed. The court noted: “[a] hazard consisting of conduct by employees, such as equipment riding, cannot be totally eliminated. A willfully reckless employee may on occasion circumvent the best conceived and most vigorously enforced safety regime. Congress intended to require elimination only of preventable hazards.” The court found that the employer did everything possible to ensure compliance with the law, short of remaining at the worksite and directing the operations itself. This is slightly different from willfulness because it is simply whether a reasonable person would have recognized the hazard. Was this final effort required to protect the employee? The court responded that (citing a separate case):

While close supervision may be required in some cases to avoid accidents, it is unrealistic to expect an experienced and well-qualified [worker] to be under constant scrutiny. Such a holding by the Commission, requiring that each employee be constantly watched by a supervisor, would be totally impractical and in all but the most unusual circumstances, an unnecessary burden.

Finally, if the injury or illness does not result from a work-related cause, no report need be made. An illness or injury is considered work-related if (1) it occurred on the employer’s premises, (2) it occurred as a result of work-related page 862activities, (3) the employee was required to be

there by the employer, or (4) the employee was traveling to work or to a place he or she was required to be by the employer. If the activity does not fit into one of these categories, it was not work-related, and no report needs to be made. Accidents occurring in a telecommuting employee’s home are not covered, but those occurring in an employer’s car are. According to OSHA, “An employer is responsible for ensuring that its employees have a safe and healthful workplace, not a safe and healthful home.” However, the employer is not without any responsibility toward telecommuting workers. OSHA clarifies this responsibility as follows: “The employer is responsible only for preventing or correcting hazards to which employees may be exposed in the course of their work. For example: if work is performed in the basement space of a residence and the stairs leading to the space are unsafe, the employer could be liable if the employer knows or reasonably should have known of the dangerous condition.”53

Intentional Acts

Although workers’ compensation is the exclusive remedy available to injured employees, an exception exists for “intentional acts.” If the workplace injury is caused by the employer’s willful act, including the willful disregard of known dangers, the employee can sue the employer for compensatory (to compensate the injured party) and punitive (to punish the employer) damages.

Violence in the Workplace Workplace violence is an often-overlooked component of on-the-job injuries, though it has been among the top four causes of workplace death for over 15 years.54 A 2011 government report found that in 2009 alone there were 572,000 reported occurrences of nonfatal workplace violence and 521 homicides in the workplace.55 Under the OSH Act, an employer is required to protect employees against “recognized” workplace safety and health hazards that are likely to cause serious injury or death. OSHA takes the position that employers who do not take reasonable steps to prevent or abate a recognized workplace violence hazard could be found to be in violation of the general duty clause.

Although workplace violence is most often associated with a current or former disgruntled employee, it can also arise from customers, spouses, or relatives. To respond most effectively to potential violence and to head off any potential claim that the employer has failed in its duty to protect its employees, employers should develop a workplace violence policy that includes the following features:

• A “zero tolerance” policy toward threats or acts of violence.

• An established complaint process for employees to be able to warn the employer of potential violence.

• An established process for investigating complaints.

• A consistent application of disciplinary actions in response to violent acts.

• Training for managers and employees to recognize workplace violence. • page 863A requirement that employees provide the employer (usually HR or Security) with any

protective or restraining order that lists the workplace as a protected area. (This circumstance actually comes up with some frequency for large employers, unfortunately.)

The establishment of firm antiviolence policies, and consistent application of those policies, does not solve all the potential difficulties with workplace violence. Employers must also remember that perpetrators of the violence may also have rights. For example, the Americans with Disabilities Act protects an employee with an emotional impairment that qualifies as a disability under the ADA who is otherwise qualified for the position. An employer may be restricted from taking certain employment actions against the protected individual with mental or emotional impairments and instead might need to consider the possibility of accommodations. However, “[n]othing in the ADA prevents an employer from maintaining a workplace free of violence or threats of violence.”56 An employer never has to condone threats or actual violence, even if a disability caused the threats or violence.57

Bullying Many workplace acts of violence are easy to recognize. Others, however, are subtler and harder to detect. Bullying, which has been defined as “the tendency of individuals or groups to use persistent aggressive or unreasonable behavior against a co-worker” is a prime example.

Workplace bullying is a serious problem affecting over 60 million workers each year. A 2017 study by the Workplace Bullying Institute (WBI) (yes, there is such a place) found that almost a quarter of Americans have directly experienced bullying in the workplace, an additional 19 percent have witnessed bullying, and in 63 percent of the cases, the bullies are one’s bosses.58 Thirty- three percent of the bullies were peers with the same rank as the targets. Seventy percent of the

perpetrators are male, and two-thirds of targeted workers are female. When workers who have experienced bullying are asked what made the behavior stop, the WBI reports that the consistent answer is quitting the job or being terminated.59

Bullying can rise to the level of harassment and discrimination, and the creation of a hostile work environment, which can be especially difficult to prevent if the manager responsible for ensuring a safe work environment is the bully. In 2008, in Raess v. Doescher, the Indiana Supreme Court reinstated a $325,000 verdict in favor of an employee who was verbally assaulted by a surgeon during an altercation in the hospital’s operating room. The decision is noteworthy because liability depended directly on the act of bullying rather than on any hostile work environment or antidiscrimination law. The decision, therefore, appears to have created a common-law tort of workplace bullying, making Indiana the first such state with this tort, but probably not the last. Since 2003, 26 states have proposed legislation that would prohibit bullying in the workplace, though no such laws have yet been enacted.60

Bullying can be difficult to detect. In addition to acts commonly associated with bullying, such as humiliating comments, intimidation, overly harsh criticism, page 864excessive yelling, belittling

remarks, and even physical assault, bullying can also involve setting impossible deadlines, undermining work productivity, and failing to give credit. Bullying can even be nonverbal and covert.

The Raess case is a warning to employers to get their workplace bullies under control. The fact that bullying may not involve serious physical harm, or constitute harassment and discrimination, does not mean that a workplace bully is not causing irreparable damage to the workplace, including high turnover costs and bad public relations, as well as creating serious legal liability, including higher workers’ compensation costs.

Retaliation Section 11(c) of the OSH Act prohibits retaliation against whistle-blowers. To establish retaliation, an employee needs to prove (1) that he or she engaged in a protected activity (i.e., whistle- blowing), (2) that the employer knew about that activity, (3) that the employer subjected him or her to an adverse action (which can include intimidation or threats), and (4) that the protected activity contributed to the adverse action. In 2015, 3,288 whistle-blower complaints were filed with OSHA. In addition to the OSH Act antiretaliation provision, federal whistle-blowing provisions exist to protect 19 specific industries, including airline, commercial motor carrier, consumer product, environmental, financial reform, health care reform, nuclear, pipeline, public transportation agency, railroad, maritime, and securities laws. OSHA administers all 20 provisions. In December 2013, OSHA announced its intention to launch an online complaint system to report whistle- blower retaliation. If the proposed online system is approved, the streamlined process is expected to result in an increase in complaints.61

Employee Benefits—ERISA, COBRA, and HIPAA

Statutory Basis

Employee Retirement Income Security Act (ERISA)

§ 1132. Civil Enforcement.

a. A civil action may be brought—

1. By a participant or beneficiary—

1. (B) to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.

§ 1140. Interference with protected rights.

It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan, or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan.

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Introduction: Will It Be There When I Retire? Although not required to provide such benefits, many firms offer employees retirement plans, health care, and other employee benefits. In most cases, through their employers, employees invest a portion of their salary in a plan that provides funding for the employee’s retirement. But if the employer goes bankrupt, or the employee switches jobs, what happens to all of this money the employee paid into that plan? Or assume an employee has excellent medical benefits with his present company, benefits which he often takes advantage of; is he tied to that company and discouraged from leaving because he is concerned that he will not find those benefits on his own or elsewhere? What about an employee who pays into a retirement fund through her employer, only to find there are insufficient funds for her to receive the benefits when she retires?

Enron, WorldCom, Global Crossing, and United Airlines all filled the headlines of major newspapers in recent years with reports on their bankruptcies and accounting scandals. But Enron and WorldCom also contributed significantly to employee benefits law by adversely impacting the retirement benefits and health benefits of their employees, as well as the investments of other companies’ and entities’ retirement plans. For example, Enron employees whose retirement plans were heavily invested in Enron stock lost their retirement savings; and the University of California lost $145 million when Enron’s stock collapsed, while the Florida State Board of Administration and New York City pension funds lost a combined $444 million.62

LO7

In 1974, as a result of concerns regarding the protection of pension benefits of workers who lost their jobs prior to retirement, Congress enacted the Employee Retirement Income Security Act (ERISA), a federal law that governs certain administrative aspects of employee benefit and retirement plans and that is enforced by the Department of Labor (DOL). Congress was concerned about the millions of employees and their dependents who were affected by employee benefit plans. ERISA was designed to encourage cautious, careful management of retirement funds by employers who were receiving tax benefits for doing so. As we will see, ERISA coverage is not restricted to merely retirement plans but covers many types of promised employee benefits. ERISA is a complex act that is multifaceted, and you will only be introduced to it in this text. (See Exhibit 16.8, “Realities about ERISA.”)

Exhibit 16.8 Realities about ERISA

1. Your pension plans are not protected against the trustees who administer them.

2. Even if you put money into a retirement plan, it might not be there when you retire.

3. Even if your employer puts money into your retirement plan, depending on the type of plan, it might not be there when you retire.

4. ERISA applies beyond simply retirement or pension funds.

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General Provisions

LO8

An employer that offers welfare benefits (e.g., health, life, disability, or accident insurance) or retirement plans to its employees is subject to certain requirements under ERISA, which covers most private-sector employee benefit plans. In general, ERISA does not cover plans established or maintained by governmental entities or churches, plans maintained outside the United States primarily for the benefit of nonresident aliens, or plans maintained for nonemployees such as a director or independent contractors. The Department of Labor enforces the reporting and disclosure, and fiduciary requirements of ERISA. Individual plaintiffs may file actions based on ERISA violations, and ERISA preempts all state laws that relate to employee benefit plans, whether or not the situation contemplated by the state law is actually covered specifically in ERISA.

ERISA technically applies to employee benefit plans and covers two basic types of plans. The first type of plan ERISA covers is welfare plans. A welfare plan is any plan, program, or fund that the employer maintains to provide the following: medical, surgical, or hospital care; benefits for sickness, accident, disability, or death; unemployment benefits; vacation benefits; apprenticeship and training programs; day care centers; scholarship funds; prepaid legal services; or severance pay. However, payroll practices from the employer’s general assets are not welfare benefit plans covered by ERISA. employee benefit plan (or plans) A contractual obligation either through a plan, fund, or arrangement by which an employer or an employee organization such as a labor union agrees to provide retirement benefits or welfare benefits to employees and their dependents and beneficiaries.

The other type of plan ERISA covers is retirement or pension plans. There are two general forms of pension plans: those with defined contributions and those with defined benefits. The former involves plans in which each employee has her or his own account and the benefits received at retirement are based solely on the principal and income contributed. Contributions and defined contribution plans can come from employees, the employer, or both. Defined benefit plans comprise all other plans but generally refer to plans where the amount the employee receives at retirement is specifically designated at the time the employee enters the plan. Contributions to defined benefit plans generally only come from the employer, although some old plans also allow employee contributions. In defined contribution plans, the security comes from knowing the amount of principal that will be invested, while the security in defined benefit plans comes from knowing exactly how much will be paid in the end. retirement or pension plan A plan that provides for compensation at retirement or deferral of income to periods beyond termination of employment.

defined contribution Retirement plan where the benefits payable to a participant are based on the amount of contributions and earnings on such contributions.

defined benefit Retirement plan where the benefit payable to a participant is defined up front by a formula, the funding of which is determined actuarially.

ERISA imposes the following requirements on a plan to ensure that employee benefit plans are created and maintained in a fair and financially sound manner:

• It must be in writing and communicated to all employees in a language they will understand within a specified period of time. Employees also must be notified in writing of plan changes.

• The assets of a plan must be held in trust.

• A plan must be for the exclusive benefit of the employees and their beneficiaries. An employer may have assets of the plan returned only after all plan liabilities have been satisfied.

• page 867It must satisfy certain minimum participation, vesting, and distribution requirements.

• A plan may only be established and maintained by an employer, although funding of the plan may be from employer or employee contributions or both.

Also, ERISA establishes requirements for managing and administering pension and welfare plans. There are two main important issues arising from ERISA compliance: fiduciary duties, and reporting and disclosure.

Fiduciary Duty Prior to the enactment of ERISA, plan coordinators routinely abused the funds entrusted to them, often at the expense of the employees. For instance, the funds may have been offered as loans to selected people, with little or no interest in return and little or no security for the loans, thereby interfering with employees’ ability to earn income from the otherwise proper investment of funds.

ERISA established a number of requirements, called fiduciary standards, to prevent these abuses. Those authorized to make decisions about the placement and investment of the pension plan or those who offer the plan investment advice are considered fiduciaries and are subject to the following fiduciary requirements: fiduciary Someone who has discretionary authority over the investment or management of plan assets of others.

• Loyalty—Fiduciaries must discharge their duties solely in the interests of plan participants. Although fiduciaries may have other concerns, they must ignore those concerns when making fiduciary decisions. They must have undivided loyalty to the participants in the plan.

• Exclusive purpose—Fiduciaries when making decisions must make them with the exclusive purpose of providing benefits under the plan and defraying the reasonable expenses under the plan. Accordingly, fiduciaries may not act for their personal benefit or for the benefit of their employer or any other party.

• Prudence—A fiduciary must exercise the care and judgment one would expect from a prudent person pursuing similar objectives under the same circumstance. In some instances, this requires a fiduciary to rely on the judgment of advisors, provided that such advisors are prudently selected and supervised. Prudence is determined at the time the investment decision is made and not retroactively with 20/20 hindsight.

• Diversification—When investing plan assets, a fiduciary must do so in a diversified manner so as to avoid large losses. This diversification standard is intended to limit the investment risk of a plan. The prudence standard generally would require that a fiduciary managing the investments of a plan maintain a diversified portfolio. However, the diversification standard in effect creates a presumption that an undiversified portfolio is not prudent.

• Compliance with plan documents—A fiduciary is required to administer the plan in a manner that is consistent with its governing documents.

page 868If fiduciaries of retirement plans are required to diversify the plan’s assets and act

prudently, why did Enron, WorldCom, Global Crossing, and other large corporations have a significant concentration of plan assets in the company’s stock? ERISA provides an exception to the fiduciary requirements for “individual account plans” that allow participants to direct the investment of their accounts. Individual account plans are defined contribution plans like popular 401(k) plans. However, the fiduciary is still responsible for selecting the menu of investment alternatives and providing adequate information concerning these choices. One such investment

is often the employer’s stock. Whether the employer’s stock should be an investment and whether the amount of investment in employer stock should be limited is a question of prudence and diversification, as Enron, WorldCom, and Global Crossing have proven. In reaction to Enron, WorldCom, Global Crossing, and other instances where the value of employer stock has dropped, causing losses in retirement plans, Congress amended ERISA in 2006 to require public companies that allow for investment of employee contributions into an employer stock fund to notify them of their right to diversify into other nonemployer stock investments. In addition, public companies that match employee contributions in company stock must allow participants who have more than three years of service to diversify out of such investment and must provide for at least three alternative investments. Such companies also must provide notice of such diversification rights. Until employees are allowed to diversify out of employer stock, continued investment in such employer stock will be subject to the general fiduciary requirements of ERISA. Varity Corp. v. Howe, parts of which are reproduced at the end of this chapter, explores the nature of these fiduciary duties.

Certain transactions between an employee benefit plan and “parties in interest,” which include the employer, fiduciaries, and others who may be in a position to exercise improper influence over the plan, are prohibited by ERISA and may suffer penalties. Most of these types of transactions also are prohibited by the tax code. However, there are some statutory exemptions from the prohibited transaction rules, and the DOL and IRS can authorize such exemptions through regulatory and individual exemptive procedures.

One holding that seems to be gaining steam as the dominant standard is the “presumption of prudence” approach, which is typified in this statement by the Third Circuit in Moench v. Robertson.63 It “essentially shields the fiduciaries from such claims where the plan expressly authorizes employer stock as an investment unless the company and/or its stock value had been placed at extreme risk.”64 The standard is supported in the Second, Third, Fifth, Seventh, Ninth, and Eleventh Circuits.65 The Sixth Circuit has also supported the standard. However, in a 2012 stock drop case, this court broke with the other circuits in refusing to apply this standard at the pleading stage, a ruling that lowers the burden for plaintiffs.66 In 2014, the Sixth Circuit case went to the Supreme Court, which rejected the presumption of prudence approach based on the language in ERISA and held, to the contrary, that all ERISA plan fiduciaries are subject to a similar duty of prudence.67

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Reporting and Disclosure ERISA requires the employer or plan administrator to provide information to each participant and beneficiary about retirement plans and welfare plans; this information also must be provided to the federal government under certain circumstances. The required information includes a summary plan description (SPD), identifying in understandable terms the plan participants’ eligibility for participation and benefits under the plan. Plan changes must be communicated in a timely manner through either a new SPD or a summary of material modification. The SPD is required to be furnished to each participant eligible for benefits under the plan, as well as other beneficiaries. The SPD is not required to be filed with the DOL, but it must be furnished when requested. An annual report must be filed with the DOL containing financial and other information concerning the operation of the plan. Plan administrators also must furnish participants and beneficiaries with a summary of the information contained in the annual report. Certain plans may be exempt for the annual report requirement. For instance, the reporting and disclosure laws do not apply to insured welfare plans with fewer than 100 participants.

ERISA was amended by the Pension Protection Act (PPA) of 2006 to address the perceived abuses of Enron and WorldCom and the risks of having retirement investments heavily weighted

in employer stock. Since Enron, participants in individually directed account plans have the following rights and must be notified of such rights:

• Participants must be notified in advance of any period in which they will be prohibited from trading in their plan accounts, or so-called blackout periods.

• Participants in defined contribution plans that invest in publicly traded stock of their employer must be allowed to diversify their accounts into at least three other investment options and must be notified of such rights.

Courts have taken ERISA’s specific disclosure rules and crafted a broader and more general

duty to disclose information. For example, as discussed in the Varity Corp. v. Howe case, provided at the end of the chapter, the Supreme Court ruled that a fiduciary has the duty not to mislead participants regarding their benefits. Many lower courts also have addressed cases alleging an affirmative duty to disclose information that may impact a participant’s decisions regarding her or his benefits.

For example, several cases address whether or not a company has an affirmative duty to disclose to retiring employees whether or not enhanced early retirement benefits may be offered in the future. Claimants in these cases argue that the fiduciary had the duty to provide more or better information to the plaintiff regarding benefits. The stock drop cases addressed whether or not ERISA requires an affirmative duty to disclose. The Enron court in particular found that such a duty might exist if there are “special circumstances” with a potentially “extreme impact” on the “plan as a whole.” The next wave of ERISA litigation also hinges on this affirmative duty to disclose and has been focused on disclosure of plan fees and expenses. This duty-to-disclose issue continues to be litigated and to page 870develop, and ERISA fiduciaries might be wise to

overdisclose rather than underdisclose information that may be relevant to plan participants. The Department of Labor issued new rules, in 2012, that expand the disclosure responsibilities

of ERISA plan providers, particularly in the area of fee disclosures. Under the amended disclosure rules, “[r]etirement plan providers are required to disclose fee and service information to plan sponsors, in order to help them fulfill their fiduciary duties.”68

The DOL summarized the new rule as requiring “that certain service providers to employee pension benefit plans disclose information to assist plan fiduciaries in assessing the reasonableness of contracts or arrangements, including the reasonableness of the service providers’ compensation and potential conflicts of interest that may affect the service providers’ performance. These disclosure requirements are established as part of a statutory exemption from ERISA’s prohibited transaction provisions. This regulation will affect employee pension benefit plan sponsors and fiduciaries and certain service providers to such plans.”69

The Supreme Court has determined that ERISA fiduciaries must consider the conflict of interest that may arise from the dual role of paying out plans and determining eligibility for benefits.70 In Metropolitan Life Insurance Company v. Glenn (2008):

“Metropolitan Life Insurance Company (MetLife) is an administrator and the insurer of Sears, Roebuck & Company’s long-term disability insurance plan, which is governed by the Employee Retirement Income Security Act of 1974 (ERISA). The plan gives MetLife (as administrator) discretionary authority to determine the validity of an employee’s benefits claim and provides that MetLife (as insurer) will pay the claims. Respondent Wanda Glenn, a Sears employee, was granted an initial 24 months of benefits under the plan following a diagnosis of a heart disorder. MetLife encouraged her to apply for, and she began receiving, Social Security disability benefits based on an agency determination that she could do no work. But when MetLife itself had to determine whether she could work, in order to establish eligibility for extended plan benefits, it found her capable of doing sedentary work and denied her the benefits. Glenn sought federal-court review under ERISA, but the District Court denied relief. In reversing, the Sixth Circuit . . . considered it a

conflict of interest that MetLife both determined an employee’s eligibility for benefits and paid the benefits out of its own pocket. Based on a combination of this conflict and other circumstances, it set aside MetLife’s benefits denial.”

In upholding the employee’s claim, the Court found that although the structural conflict of interest within the fiduciary’s role is permissible, it must be weighed when considering discretionary abuse in denial of benefits. Emphasizing that this consideration must be made on the basis of the particular facts in each case, the Glenn ruling enlarges the scope of discovery in denial of benefits cases and shifts the burden of proof to the fiduciary to show that discretionary power was not abused. Recent lower court decisions have contested the degree of discovery required by Glenn, however, and produced varying interpretations of the conflict of interest consideration it requires.71

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Eligibility and Vesting Rules ERISA and the tax code require that all employees age 21 or over who have completed one year of employment must be covered by their employer’s pension plan. Vesting means acquiring rights that cannot be taken away. ERISA and the tax code provide that an employee’s right to her or his pension benefit becomes 100 percent nonforfeitable after three years of employment or gradually nonforfeitable over six years (20 percent per year, beginning in the second year). In either case, the employee’s right is vested, but the employee may not obtain the money or use it until retirement. Once an employee’s rights in the plan are vested, the employee cannot lose the pension benefits, even if she or he switches employers. Regardless of vesting schedules with regard to pension benefits for contributions by employers on behalf of employees, employees are always 100 percent vested in their own contributions, though there are variable tax penalties for early withdrawal. vesting Becoming legally entitled to receive a benefit where the benefit cannot be forfeited if employment is terminated.

Funding Requirements for Defined Benefit Plans To ensure that adequate funds are available under defined benefit plans to pay employees on their retirement, ERISA establishes minimum standards on how those plans should be funded throughout the years. Such standards require that employers fund the costs associated with accruals of benefits based on service in each year and amortize any prior service or actuarial gains or losses on investment over a set period of years.

In addition, employers with defined benefit plans must purchase insurance from the Pension Benefit Guarantee Corporation (PBGC) to cover potential losses of benefits if the plan is terminated without sufficient funds to pay all promised benefits. The PBGC was established by ERISA and is similar to the FDIC in that it acts to insure pensions to a certain guaranteed limit in the event that the plan and the employer are unable to pay all promised benefits. The pensions of retired workers generally are insured for the full amount owed, while the pensions of vested but still employed workers are covered only to the extent that their vested interests have accrued at the time the plan terminates, but only to a level guaranteed by the PBGC. Accordingly, workers can lose promised and accrued benefits. This result is what happened to workers at United Airlines, for instance, when their pension plans were terminated in its bankruptcy proceedings.

When a firm considers modifying a retirement plan for its employees, it must be wary since the employees may have been making decisions in reliance on the original benefit plan. Even if a proposed plan offers greater benefits than those originally included, an employer has a fiduciary duty to notify all employees of the changes that might take effect once the employer gives the

proposal “serious consideration.” Consider the perspective of someone who is about to retire but who might have greater benefits if she simply waits a month or two until a new plan is implemented. She would prefer to know about the possibility, wouldn’t she?

Where a plan is being given serious consideration, managers must truthfully and forthrightly offer the information to all employees. If notice of the possible changes is not given to employees, the firm should make eligibility for page 872plan participation retroactive to the date of serious

consideration. (See Exhibit 16.9, “Employee Benefit Plans Overview,” for an overview of benefit plans, and Exhibit 16.10, “What Everyone Should Know about ERISA,” for ERISA provisions.)

Exhibit 16.9 Employee Benefit Plans Overview

Reprinted with permission of author, Robin L. Struve © 2008.

Exhibit 16.10 What Everyone Should Know about ERISA

REPORTING AND DISCLOSURE Participants

• Summary Plan Descriptions (SPD)—within 90 days after an employee becomes a participant in a plan, or 120 days after a plan becomes subject to ERISA. Updated SPD must be provided every 5 years if amendments made to plan or 10 years if no amendments made.

• Summary of Material Modifications—210 days after the end of the plan year in which the modification or change was adopted. If change is a “material reduction in covered services or benefits” under a group health plan then within 60 days after the change is adopted.

• Summary Annual Reports—within 9 months after the close of the plan year. Model notice available.

• Annual Funding Notice—Defined benefit plans required to provide notice of funded status within 120 days after the end of each plan year. Model notice available.

• page 873 Benefit Statements—Annually, except defined contribution plans if the participant has the right to direct investments, then quarterly.

• COBRA Notices

• Blackout Period Notices—30 day advance notice, with limited exceptions.

• Plan documents upon request.

IRS/DOL

• Form 5500

PBGC

• Premiums—defined benefit plans only

Penalties

• Daily penalties for failure to file required reports or provide required disclosure.

• Penalties for failure to provide required participant disclosure generally $110/day per participant.

• DOL/IRS penalties range for $25 per day to $110 per day for delinquencies.

• Criminal penalties can apply.

• DOL delinquent filer program available w/reduced set penalties.

FIDUCIARY DUTIES

• Plan assets held exclusively for the purposes of providing benefits to participants and beneficiaries

• Prudent Person rule

• Investment diversification

• Must abide by plan document

• Participant directed accounts

• Plan assets must be transmitted into trust as soon as possible, but no later than 15 business days after the end of the month in which payroll withholding occurs.

• Prohibited Transactions

o Loans

o Sales/Purchases

o Providing services

o Using Plan assets for own account

• Breach of fiduciary duty is a personal liability.

GENERAL WELFARE PLAN ISSUES

• Severance Plans—ERISA plans if have “administrative scheme.” If not, then no.

• Cafeteria Plans—Not ERISA plans but still subject to IRS Form 5500 reporting (waived at this time). Cafeteria plan contributions not subject to FICA.

• Disability—When is an employee no longer “employed” once on disability? ADA concerns.

GENERAL PENSION PLAN ISSUES

• 401(k) Plans—nondiscrimination/plan operation issues. Investments in employer stock. Fees regarding administration and investment management.

• Defined Benefit Pension Plans—Funding and cost of administration issues.

ERISA Litigation The collapse of Enron was the impetus behind many legal and regulatory reforms in the area of corporate governance. It also contributed to substantial litigation involving complex ERISA issues regarding fiduciary liability. Although, ultimately, the Enron ERISA litigation settled out of court, the few judicial decisions and the briefs that DOL filed in the Enron case influenced many cases claiming breach of fiduciary duty when the value of employer stock in retirement plans declined suddenly.72 The outcomes of these “stock drop” cases differ, with some being decided during the pleading stage, before the case goes to the jury, and most of them settling out of court. However, such cases provide insight into who is or is not a fiduciary, as well as whether such fiduciaries have an affirmative duty to disclose information page 874that may be relevant to a participant

regarding his or her benefits. Generally, these cases find that a fiduciary will be anyone who has functional discretionary control over the plan. In addition, these cases generally hold that fiduciaries have a duty to be truthful, under the Varity standard discussed earlier, but may not always have an affirmative duty to disclose all financial details of the company merely due to the ability of participants to invest in company stock.73

The plaintiffs in the cases found in the notes all alleged that the fiduciaries of the plans breached their fiduciary duties under ERISA in one of the following ways:

• Allowing the plan to continue to acquire and hold employer stock after the defendants knew or should have known it was an imprudent investment;

• Failing to disclose to plan participants facts that would have enabled them to make an informed judgment regarding their continued acquisition and holding of employer stock; and/or

• Affirmatively inducing participants to continue to invest in employer stock after the defendants knew or should have known it was an imprudent investment.

Some of the more interesting claims in the stock drop cases surround the issue of who are the fiduciaries of the plan. Most of these plans gave fiduciary responsibility either to the company or to an administrative committee made up of individual employees appointed by the company.

ERISA declares that a person is a plan fiduciary “to the extent that” he or she exercises discretionary authority over plan management or plan administration, regardless of whether or not the person is a named fiduciary. Until Enron and its progeny, courts tended to interpret this functional definition of a fiduciary narrowly, and held that individuals acting in the scope of their employment were not personally liable for actions of the corporation. For example, the Third Circuit in Confer v. Custom Engineering Co.74 held that, “when an ERISA plan names a corporation as a fiduciary, the officers who exercise discretion on behalf of the corporation are not fiduciaries within the meaning of [ERISA] unless it can be shown that these officers have individual discretionary roles as to plan administration.” But other courts such as the Fifth Circuit in Musmeci v. Giant Super Markets, Inc.,75 have adopted an expanded interpretation of the functional approach to determining fiduciary status, where the court held officers and employees performing fiduciary acts on behalf of a corporation that is a fiduciary will be fiduciaries themselves.

This broad functional approach is the position taken by the Department of Labor and by the Enron court when it wrote, “[i]n view of the broad language [and] the functional and flexible definition of ‘fiduciary’ . . . this Court agrees with those courts which reject a per se rule of non- liability for corporate officers acting on behalf of the corporation and instead make a functional, fact-specific inquiry to assess ‘the extent of responsibility and control exercised by the individual with respect to the Plan’ to determine if a corporate employee . . . has exercised sufficient discretionary authority and control to be deemed an ERISA fiduciary and thus personally liable for a fiduciary breach.”76 Most of the stock drop cases followed a similar approach.

The Department of Labor has sought to broaden the definition of a fiduciary under ERISA. In April 2016, the DoL’s Employee Benefits Security page 875Administration issued a final regulation

defining who is a ‘‘fiduciary’’ of an employee benefit plan under ERISA, which also applies to the Internal Revenue Code. The 2016 regulation “treats persons who provide investment advice or recommendations for a fee or other compensation with respect to assets of a plan or IRA as fiduciaries in a wider array of advice relationships.”77 The rule eliminates many regulations limiting fiduciary duties. For example, the definition no longer requires investment advice to be given on a regular basis for the advisor to be considered a fiduciary; just one instance of advising will suffice.

The financial crisis that hit the United States in the 2000s caused pension plan losses that have been estimated at $2 trillion.78 Most of those losses were the result of drops in the value of stocks held by pension plans. Not surprisingly perhaps, ERISA-based lawsuits to recover pension plan losses have skyrocketed.79 Paving the way to more lawsuits was a 2008 decision by the U.S. Supreme Court, LaRue v. DeWolff, Boberg & Associations,80 in which the Court ruled that individuals can sue the plan trustee under ERISA for individual losses to their retirement plans. ERISA §502(a)(2) allows recovery against the trustee for “losses to the plan.” The question for the Court was whether “losses to the plan” meant that the suit against the trustee must be filed by the plan itself or if one person could bring suit for his or her individual losses. Provided that the plan is a defined contribution plan, such as a 401(k) plan, which has individual accounts, individuals are allowed to file suit under ERISA to recover damages resulting from the trustee’s

breach of his or her fiduciary duty. In the LaRue case, the individual contended that his retirement account lost $150,000 because the trustee failed to carry out his investment orders.

In response to the financial crisis in 2008, the Bush administration passed the Worker, Retiree, and Employer Recovery Act, which amended several features of ERISA and the PPA.81 The law clarifies that employers “are required to allow non-spouse rollovers and provide direct rollover notices as a condition of plan qualification.”82 Previously, pension providers were permitted, but not required, to allow non-spouses who are designated to receive participant death benefits to “roll over” the funds into an inherited IRA. Another provision permits “smoothing” in the calculation of the value of a pension plan’s assets, protecting ERISA plans from market volatility by averaging value over a two-year period. Other measures ease the transition to PPA funding rules by lowering the required funding threshold for plans that fail to meet expected annual earnings.

Since the passage of the Affordable Care Act in 2010, there have been concerns about potential conflicts between the ACA and ERISA. One issue has attracted particular attention as a possible area of new litigation. It is likely that some employers will be tempted to reduce employees to part-time status, to avoid the costs of providing ACA-mandated health insurance coverage to full-time employees. However, employers who do so risk violating Section 510 of ERISA. This section provides that, “It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan.”83 For example, under Section 510, an employer is prohibited from page 876terminating

an employee days before the employee’s pension vests, in order to prevent the employee from accessing her or his full benefits. The health insurance benefits that the ACA requires employers to provide to their full-time employees may be covered by ERISA as an element of employee benefit plans. Employers who reduce employee hours to part-time status to avoid funding their health insurance coverage therefore may be vulnerable to charges of violating this provision of ERISA.84

Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) The problem of an employee losing workplace health care coverage when the employee stopped working or switched jobs was addressed by the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) and was codified in ERISA and the tax code.85 COBRA applies to group health plans provided by employers with 20 or more employees on a typical working day in the previous calendar year. COBRA gives participants and beneficiaries the right to maintain, at their own expense, coverage under their health plan that would be lost due to a change in circumstance such as termination of employment or divorce. However, many states have similar laws governing smaller employers. A small employer should not assume that it does not have continuation requirements if it is otherwise not covered by COBRA.

If a worker’s employment terminates or she or he loses benefit coverage due to a reduction in hours, COBRA requires that employers extend employee health insurance coverage for up to 18 months and may charge up to 102 percent of the rates originally charged while the individual was still working for the employer. While the coverage is paid for by the employee, COBRA provides guaranteed coverage for an employee who leaves employment for a relatively short time where that person may have difficulty obtaining coverage. COBRA also requires employers to extend coverage to dependents who would otherwise lose coverage due to divorce or ceasing to be a dependent. General notice informing the covered individuals must be given informing them of their rights under COBRA and describing the law.

There are questions regarding the ongoing relevance of COBRA as the provisions of the Affordable Care Act are implemented. The ACA does not replace or reform COBRA provisions, and those eligible for COBRA coverage may choose to use the program. However, many expect

that the rates available on the new state insurance exchanges mandated by the ACA will be lower than the rates offered by COBRA. “As soon as the law was passed, the question among employers and benefits people was: Is there still going to be a reason for COBRA?” said Steve Wojcik, vice president of public policy for the National Business Group on Health, an employer group. Offered a choice between heavily subsidized coverage in the health act’s insurance exchanges or paying full price under COBRA, he said, “most people are going to choose the exchange.”86

The Health Insurance Portability and Accountability Act (HIPAA) The Health Insurance Portability and Accountability Act (HIPAA) is a federal law that amended ERISA in 1996 to promote standardization and efficiency in the health care industry.87 HIPAA accomplishes several goals including protecting individuals page 877from discrimination based on

their health status because it restricts exclusion from coverage due to preexisting medical conditions (employers are prohibited from denying coverage or charging more for coverage based on an individual’s past or present poor health); it created a uniform system for processing, retaining, and securing health care information by encouraging the use of electronic technology, mandating standardization of health-related transactions, and promoting security precautions to maintain the privacy of health information; and perhaps, most importantly, it protects the privacy of individuals with respect to their health care data, and the sharing of such data. Other HIPAA protections relate to the portability of medical coverage by individuals who experience a job loss or job change. When such an event occurs, HIPAA may increase the ability to obtain or maintain health coverage for oneself or one’s dependents if the election is made within a certain time frame.

HHS delegated responsibility for enforcing HIPAA’s privacy rules to the HHS Office for Civil Rights (OCR). HIPAA does not provide a private right of action for individuals to sue covered entities for alleged violations. However, covered entities may be subject to private lawsuits borne under tort or other legal theories. For example, individual state laws may offer relief that can be invoked by private plaintiffs. Further, some situations may be governed by ERISA, which would allow participants and beneficiaries to sue for enforcement of the applicable plan document.

In 2009, the Health Information Technology for Economic and Clinical Health Act (HITECH Act) was enacted to promote and expand the adoption of health information technology.88 The HITECH Act extends new responsibilities to HIPAA covered entities regarding data breaches and other privacy issues. To implement various provisions of the HITECH Act, HHS published a major set of reforms to HIPAA, referred to as the HIPAA Omnibus Rule, which went into effect in September 2013.89 In addition to expanding protections of personal health information, the Omnibus Rule strengthens the capacity of the HHS to respond to patient complaints, in part by instituting a new penalty structure for HIPAA violations.

HIPAA violations are subject to civil and criminal sanctions enforced by the Department of Justice. The 2013 reforms created a tiered system of civil penalties, depending upon the level of culpability of the violator. For instance, HHS may impose civil monetary penalties on a covered entity of $100–$50,000 per failure to comply with HIPAA’s privacy rules, with a calendar year limit of $1.5 million for identical violations. The maximum penalty of $50,000 per violation is mandated in instances of “willful neglect,” defined as the “conscious, intentional failure or reckless indifference to the obligations to comply,” where the violation goes uncorrected for more than 30 days. The criminal penalties can include up to 10 years of imprisonment if the wrongful conduct involves the intent to sell, transfer, or use individually identifiable health information for personal gain, or malicious reasons.

HIPAA does not preempt all state privacy laws. Furthermore, there are no provisions in HIPAA that exempt an employer from complying with other federal laws such as ERISA, ADA, and FMLA. In jurisdictions where the state privacy laws are more stringent than HIPAA, those laws or the relevant portions thereof are preserved and should be applied instead of HIPAA.90 Therefore, a state privacy law that provides more privacy protections or greater individual rights than provided

by the federal HIPAA privacy rules will generally govern the page 878situation. Employers should

initially determine whether and to what extent they are required to follow state law (including local statutes and regulations) instead of the requirements of HIPAA. The HHS website, http://www.hhs.gov, contains numerous links and technical assistance on HIPAA-related topics.

HIPAA Privacy Rules HIPAA’s privacy rules specifically address the permitted and prohibited use(s) and disclosure(s) of health information by organizations subject to them.91 A covered entity is generally permitted (but not required) to use and disclose protected health information, without an individual’s authorization, for the following purposes or situations: to the individual for “treatment,” “payment,” and “health care operations” as defined in the rule; to certain governmental authorities if abuse, neglect, or domestic violence is at issue; for many law enforcement activities pursuant to court orders and/or subpoenas; to funeral directors, coroners, or medical examiners to identify a deceased person or to determine the cause of death; and to the U.S. Department of Health and Human Services (HHS) when it is undertaking a compliance investigation, review, or enforcement action.

Generally, covered entities may use or disclose protected health information only if the use or disclosure is permitted or required by these privacy rules.92 In very general terms, a group health plan may use protected health information internally or disclose it externally only under the limited circumstances and for the specific purposes articulated in the privacy rules. Otherwise, group health plans may use or disclose protected health information only with the specific permission of the individual who is the subject of the protected health information. Such permission is manifested in the form of a signed, valid authorization form. No doubt, you have signed at least one such form in the past couple of years if you have visited a doctor. Such forms must be written in plain language and they must include a number of elements, including the following:93

• A description of the protected health information to be used and disclosed.

• The person(s) authorized to make the use or disclosure.

• The person(s) to whom the covered entity may make the disclosure.

• An expiration date or event.

• The purpose for which the information may be used or disclosed.

• A notice of the individual’s right to revoke the authorization. In some circumstances, it may be necessary to include additional information for the

authorization to be valid. There are special rules, for instance, that apply to psychotherapy notes and the use of health information for marketing purposes. The validity of an authorization also may be subject to various state laws and may be further varied depending on the subject of the health information that is being used or disclosed. Additional privacy requirements may be imposed by state law in jurisdictions where the state law provides greater protections for health information.

These privacy rules attempt to strike a balance between permitting important uses of information and protecting the privacy of people who seek medical treatment. The rule page 879is

supposedly flexible and comprehensive enough to cover the variety of uses and disclosures that need to be addressed while still promoting high-quality health care.

HIPAA applies to any entity that is a health care provider that conducts certain transactions in electronic form, a health care clearinghouse, or a health plan. Entities that fall within one or more of these categories are referred to as covered entities. Many varied organizations (in addition to hospitals) may be considered a covered entity due to the activities they conduct. For instance, a university might be considered a covered entity if it has a student health center or a mental health

center that provides health care. A grocery store may be considered a covered entity if it has a group health plan managed by the benefits office for its employees. In addition, the 2013 Omnibus Rule revises the definition and clarifies the responsibilities of “business associates” of HIPAA- covered entities. A business associate, under the Rule, is a person or entity that creates, receives, maintains, or transmits protected health information (PHI) in fulfilling certain functions or activities for a HIPAA-covered entity. Health information organizations, records storage facilities, and subcontractors are examples of business associates under the Omnibus Rule.

General Obligations of Covered Entities In general, HIPAA requires covered entities to notify patients of their privacy rights and to explain how their personal health information can be used or disclosed by the organization or its business associates. To this end, they must prepare and distribute a Notice of Privacy Practices to their patients or employees depending on the activities that they regularly conduct.

Covered entities are required to adopt and implement privacy policies and procedures. These policies should be widely publicized and distributed to all individuals within the organization. Individuals who work closely with health information or who are responsible for securing this information should receive detailed training on the organization’s established policies and procedures.

All covered entities should make an effort to prevent unauthorized viewing or access to (electronic and paper) health records in their care. To this end, administrative, physical, and technical safeguards should be implemented. Specific protective steps may include the establishment of regular and ongoing training sessions for new and current employees who handle health information; documentation of office procedures for managing health information; creation of firewalls between departments to shield those departments that maintain health information from, for example, individuals who make human resources decisions; addition of locks to file cabinets that house medical information; and use of passwords and timed screen savers on all computers of individuals whose jobs require them to regularly come into contact with health information.

Organizations also must designate a privacy officer who has responsibility for ensuring that the above steps are adopted and followed, and that complaints regarding privacy violations are addressed through the organization’s established procedures. The privacy officer should use a monitoring plan to randomly check on the effectiveness of the organization’s privacy practices. (See Exhibit 16.11, “Sample Monitoring Plan.”)

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Exhibit 16.11 Sample Monitoring Plan

page 881

Enforcement of ERISA Employers have the right to reduce or modify employee benefits (unless prohibited by contractual obligations), as long as similarly situated plan participants are treated alike. For instance, the employer may not reduce benefits for one full-time employee without similarly reducing the benefits for all similar employees. In order to prevail on a claim of a violation of Section 510 of the

act, in the case of discharge, the employee must prove that the employer terminated her or his employment with the “specific intent” to interfere with her or his benefit rights.

In Owens v. Storehouse, Inc.,94 the court was asked to consider the employer’s (Storehouse) choice to limit coverage for specific types of claims, a choice that could adversely impact certain employees. Specifically, the employer’s insurance company notified Storehouse that it intended to cancel the firm’s policy because of the high incidence of AIDS in the retail industry generally, and among Storehouse’s employees specifically (five employees had AIDS at the time). Eventually, Storehouse convinced the company to continue the contract, but there was now a $75,000 deductible for AIDS-related claims, while other coverage began at $25,000. As it looked for another insurer, Storehouse considered placing a $25,000 lifetime cap on all AIDS-related claims. Owens, an employee, sued, claiming that this modification lowering the cap violated ERISA. The court held that there is no “vested” interest in the type of coverage an employer provides, even once someone begins to take advantage of that coverage, as long as the employer reserves the right to change or terminate its terms. As there was no specific intent to violate ERISA (i.e., denial of coverage in retaliation for exercising an ERISA right), the employer prevailed. (Note: This type of arrangement would now be prohibited by the ADA as it would be discriminatory against someone with a disability.)

In Central Laborers’ Pension Fund v. Heinz, provided for your review at the end of the chapter,

the Supreme Court evaluated a similar claim with regard to the amendment of a pension plan that expanded the definition of disqualifying employment and resulted in a suspension of early retirement benefits to some participants, in possible violation of ERISA’s prohibition against reducing an accrued right or benefit under a pension plan (the “anti-cutback” rule), an issue not addressed in Owens because those benefits were welfare benefits not protected by ERISA’s accrual rule.

It should be noted that some ERISA claims also may be asserted under the Age Discrimination in Employment Act (ADEA). For instance, since benefits are more likely to become vested as a worker gains seniority and as seniority may be more likely with advancing age, employers attempting to avoid paying benefits may be more likely to terminate older workers, giving rise to a claim under both ERISA and the ADEA.

page 882

Management Tips • Ensure that all employees are correctly classified so that the appropriate FLSA provisions are applied.

• Be sure to include all appropriate time in wages, such as donning and doffing time.

• Know that the Obama administration tightened up enforcement of wage laws, so make sure the laws are handled appropriately.

• Check the status of employees carefully before granting or denying FMLA leave.

• Be aware that the Obama administration clarified coverage of sick child laws to gays and lesbians caring for children of the relationship.

• Note that the Bush administration extended FMLA laws to better cover members of the military and their families being cared for during deployment or after returning with an injury.

• Make sure that all of your communications about your benefit plans are clear and written in a way that a reasonable person would understand. If you make any changes, those need to be communicated in writing to all affected employees.

• Under the Pension Protection Act (PPA) of 2006, you may have an additional communication requirement if you are a public company. If you allow for investment of employee contributions into your stock fund, you will need to notify employees of their right to diversify into other stock investments outside of your fund. There are other requirements along these lines, as well; so public companies need to be especially careful and diligent with respect to notification to employees.

• Individuals acting as officers and employees who are performing fiduciary acts on behalf of a corporation that is a fiduciary should be aware of the potential for a broad-scale adoption of an expanding definition of fiduciary that is tending to include them.

Chapter Summary We have covered a lot of ground in this chapter.

• Employers must be aware that employees have certain rights due to them under various statutes, including the right to a minimum wage and to be paid time and a half for hours worked over 40.

• Children below a certain age may not be employed except as specified by law, and there are only certain hours they can work and certain jobs they can do.

• By law, employees who have worked for an employer for at least 12 months are entitled to take up to 12 weeks’ unpaid leave for illness or to care for their children, parents, or a returning war veteran, without fear that their job will be taken from them or that their benefits or seniority will suffer.

• In addition, employees have a right to a safe workplace. Employers have a general duty to provide a safe workplace for their employees, in addition to any specific workplace safety regulations that have been developed by OSHA. page 883OSHA inspectors have the authority to conduct unannounced

inspections of a workplace, either without a warrant if the employer agrees or with a warrant if the employer insists upon one. Employers may be fined for violations of the safety regulations.

• While employers are not required to provide workplace benefits and retirement plans for their employees, if they choose to do so, they must carefully follow the applicable laws, including allowing employees to have interim coverage if they leave the job and protecting any medical information the employer may have for the employee. In providing benefits, the employer is under a duty to disclose relevant facts to employees, including contemplated changes, and to safeguard the employees’ contributions from unethical or illegal interference.

• An awareness of these workplace rules is a must for an employer who wishes to avoid federal and state liability for violations.

Chapter-End Questions

1. No employer intends to harm its employees. How would you define the term willful that would give rise to penalties of up to $70,000?

2. The range of dangerous conditions in which employees have been forced to work has been well documented, at least since Upton Sinclair’s The Jungle. But, what if the danger is the condition of the workplace building itself? Do the OSH Act protections extend to dangers created by, for example, a decrepit building? [Cascades Boxboard Group, osha.gov/pls/oshaweb/owadisp.show_doucment?p_table=NEWS_RELEASES&p_id=17393, Jan. 30, 2009.]

3. A police officer is eligible for two hours of additional leave bonus if he does not take more than 40 hours of sick leave during a year. If he loses the bonus as a result of taking FMLA leave, have his rights been violated because he has not been restored to an equivalent position before he left? Does it matter how he chooses to take his FMLA leave (i.e., as sick leave versus some other type of leave)? [Chubb v. City of Omaha, No. 05-1172, Eighth Circuit, Sept. 27, 2005.]

4. Allbright finds that Benito, Juana, and Lao Tsu, three of his employees, were the cause of the discovery of FLSA violations. As a result, he terminates them. Do the employees have any recourse? Explain.

5. Sasha is employed as the Winstons’ babysitter when they must occasionally stay over in town because of their jobs. Sasha is becoming increasingly discontented with her wages, which are below minimum wage. What relief does the FLSA provide for Sasha?

6. A Christmas tree grower used seasonal help to assist in harvesting Christmas trees and did not pay them overtime wages since the growers deemed the employees as engaged in agriculture, which is exempted from the overtime provisions. The DOL argued that the planting, fertilizing, and all other tasks relevant to growing the trees were performed by others who were agricultural workers exempted from the overtime provisions. However, they argued, since the seasonal employees only harvested the trees, they were not engaged in agriculture, but rather in forestry and lumbering, which requires the payment of overtime wages. Which view prevails? [DOL v. N.C. Tree Growers Association, Inc., 377 F.3d 345 (4th Cir. 2004).]

7. page 884In a construction project, a company built an 18-foot-by-20-foot trench that had to be lined with a special

fabric. When the workers had trouble stretching the fabric over the trench, an employee volunteered to go into the trench and fix the problem. His supervisor stopped him, saying it was too dangerous because the walls of the trench had not been properly supported. After several additional failed attempts to stretch the fabric, the supervisor relented and told the employee to go into the trench. Within five minutes, he was seriously injured when the trench collapsed. Does the supervisor’s initial statement constitute an intentional act of injury by the employer, thus removing the case from the limits set by the workers’ compensation statutes? Is it relevant to a jury’s decision if OSHA issues a citation for a willful violation in this case before it goes to trial? [Van Dunk v. Reckson Associates Realty Corp., Superior Court of NJ, Appellate Div., No. A-3548-08T2, August 30, 2010.]

8. A tenured professor falls down the stairs at her university and suffers a brain injury and is unable to work. She is told by the university that in order to be in compliance, she must apply for FMLA leave. She refuses to do so because she believes she would receive her salary if she did not file. The university suspends her salary. If she sues the university for interfering with her FMLA rights, will she win? [Keselyak v. Curators of the University of Missouri, 200 F. Supp. 3d 814 (W.D. Mo. 2016).]

9. Jared requested FMLA time off from his job to care for his partner, Samuel, who was suffering from a particularly acute case of adult mumps. Is the leave likely to be granted?

10. Nine months after coming to work for Gaggle, Inc., Sarah was diagnosed with breast cancer. The prognosis was not good. Sarah underwent surgery and a chemotherapy regimen that physically depleted her. When Sarah’s sick leave was used up, Sarah asked her employer for 12 weeks of FMLA leave. Will Sarah be likely to receive the requested FMLA leave?

End Notes

1. 1. “Fulbright’s 9th Annual Litigation Trends Survey: Litigation Bounces Back; Regulation Hits High-U.S. Release,” Norton Rose Fulbright (February 26, 2013), http://www.nortonrosefulbright.com/news/93066/fulbrights-9th-annual-litigation-trends-survey-litigation- bounces-back-regulation-hits-high-us-release.

2. 2. The federal regulations of the Wage and Hour Division can be found at 29 C.F.R. chapter V, http://www.dol.gov/esa/whd/flsa/index.htm.

3. 3. http://hrdailyadvisor.blr.com/tag/infographic/.

4. 4. http://www.hrdailyadvisor.blr.com/2014/01/05/infograh=phic-northeast-wages-hou/#.

5. 5. Egelko, Bob, “Raiders cheerleader sues, says pay is less than $5 an hour,” San Francisco Gate (January 22, 2014), http://www.sfgate.com/raiders/article/Raiders-cheerleader-sues-says-pay-is-less-than- 5165922.php.

6. 6. “Executive Order: The Minimum Wage for Contractors,” White House press release (February 12, 2014), http://www.whitehouse.gov/the-press-office/2014/02/12/executive-order-minimum-wage-contractors.

7. 7. Sanifer v. U.S. Steel Corp., (No. 12-417, 1/27/2014).

8. 8. “DOL Serves Hibachi Grill & Supreme Buffet a $2 Million Wage/Hour Bill,” HR Daily Advisor (February 13, 2014), http://hrdailyadvisor.blr.com/2014/02/13/dol-serves-hibachi-grill-supreme-buffet-a-2-million-wagehour- bill/#more-5683.

9. page 885 9. Randolph, Toni, “Wal-mart to Pay $54.25 M to Settle Minnesota Lawsuit,” MPRNews (December

9, 2008), http://minnesota.publicradio.org/display/web/2008/12/09/wall_mart_suit/.

10. 10. “The Labor Department—which has set new records for aggressive Wage and Hour enforcement—now has strong new standards in place to better protect workers’ pay,” http://www.dol.gov/elaws/overtime.htm; Stamer, Cynthia, “The DOL’s announcement of the recovery of more than $1.5 million in back pay under these two settlements in less than a week highlights the rising risks U.S. employers run if their overtime, wage and hour, worker classification or recordkeeping practices don’t comply with the Fair Labor Standards Act or other federal wage and hour laws,” (January 24, 2011), http://cynthiastamer.com/get_docID2a.asp?fileID=7PB1gVYd7l1hpbBzI5MEOVY8u.

11. 11. U.S. Department of Labor, “Labor Department statement on withdrawal of proposed rule dealing with children who work in agricultural vocations,” press release (April 26, 2013), http://www.dol.gov/whd/media/press/whdpressVB3.asp?pressdoc=national/20120426.xml.

12. 12. U.S. Department of Labor, “Minimum wage, overtime protections extended to direct care workers by US DOOL,” press release (September 17, 2013), http://www.dol.gov/whd/media/press/whdpressVB3.asp?pressdoc=national/20130917.xml.

13. 13. U.S. Department of Labor, “US Labor Department signs agreements with New York Labor Department, New York Attorney General’s Office to reduce misclassification of employees,” press release (November 18, 2013), http://www.dol.gov/opa/media/press/whd/WHD20132180.htm.

14. 14. Greenhouse, Steve, “Growth of Unpaid Internships May Be Illegal, Official Says,” The New York Times (April 2, 2010), http://nytimes.com/2010/04/03/business/03intern.html.

15. 15. 11 Civ. 6784 (WHP) (SDNY 6/11/13).

16. 16. Aronowitz, Nona, “‘No one should have to work for free’: Is this the end of the unpaid internship?” NBC News (September 2, 2013), http://www.nbcnews.com/news/us-news/no-one-should-have-work-free-end- unpaid-internship-v20262899.

17. 17. Ibid.

18. 18. 593 F.3d 449 (5th Cir. 2010).

19. 19. Kim, Eun Kyung, “Walmart defends controversial food drive for its employees,” Today (November 18, 2013), http://www.today.com/news/wal-mart-defends-controversial-food-drive-employees-2D11618754.

20. 20. Langfield, Amy, “McDonald’s finance guide ‘insulting’ to low-wage workers,” NBCNews (July 16, 2013), http://www.nbcnews.com/business/personal-finance/mcdonalds-finance-guide-insulting-low- wageworkers-f6C10653604.

21. 21. For a list of state minimum wage laws regarding tipping, see the Wage and Hour Division of the Department of Labor’s information at http://www.dol.gov/whd/state/tipped.htm.

22. 22. 160 F.3d 294 (6th Cir. 1998).

23. 23. Chou v. Starbucks, No. GIC 836925 (Cal. Super. Ct. Mar. 19, 2008).

24. 24. www.courtinfo.ca.gov/opinions/archive/D053491.pdf.

25. 25. U.S. Department of Labor, “U.S. Department of Labor recovers more than $1M in overtime wages for employees of U.S. Army contractor in Southern California: Back wages paid to 864 employees working at Ft. Irwin,” press release (January 13, 2011), http://www.dol.gov/whd/media/press/whdpressVB3.asp?pressdoc=Western/20110113.xml.

26. page 88626. www.dol.gov/esa/whd/fmla/ndaa_fmla.htm.

27. 27. U.S. Department of Labor, “U.S. Department of Labor clarifies FMLA definition of son and daughter: Interpretation is a win for all families no matter what they look like,” press release (June 22, 2010), http://www.dol.gov/opa/media/press/WHD/WHD20100877.htm.

28. 28. http://oversight.house.gov/story.asp?ID=1878.

29. 29. Society for Human Resource Management, “FMLA and Its Impact on Organizations,” HR News (July 2007), http://www.shrm.org/Publications/HRNews/Pages/CMS_022292.aspx.

30. 30. U.S. Department of Labor, “U.S. Department of Labor final rule will expand FMLA for military families and clarify rules for workers and employers,” press release (November 17, 2008), http://www.dol.gov/opa/media/press/esa/archive/esa20081703.htm.

31. 31. Ballard v. Chicago Park District (7th Cir. 1/28/2014).

32. 32. 278 F.3d 847 (8th Cir. 2002).

33. 33. No. 09-1775 (7th Cir. 2/14/11).

34. 34. No. 09-CV-4055 (W.D. Ark. 1/27/2011).

35. 35. U.S. Department of Labor, “Occupational Safety & Health Administration: Commonly Used Statistics,” 2014, www.osha.gov.

36. 36. “2012 Liberty Mutual Workplace Safety Index,” Liberty Mutual Insurance Company (2012), libertymutual group.com.

37. 37. USDL, “OSHA: Commonly Used Statistics.”

38. 38. Solis v. Summit Contractors, Inc., No. 07-2191, Feb. 26, 2009, Eighth Circuit. In February 2014, the Utah Supreme Court rejected the “multiemployer doctrine” as incompatible with the Utah Occupational Safety and Health Act (UOSH Act). Hughes General Contractors, Inc. v. Utah Labor Commission UT 3 (2014). Applying only to the UOSH Act the Hughes decision does not affect federal OSHA jurisprudence. However, the ruling does provide a road map that may prove enticing to future federal challengers to the doctrine.

39. 39. H.R. 1649: Protecting America’s Workers Act, introduced April 18, 2013, govtrack.us.

40. 40. As of January 1, 2015.

41. 41. http://www.osha.gov/recordkeeping/new-osha300form1-1-04.pdf.

42. 42. In November 2013, OSHA proposed a rule change that requires employers to file all workplace injury, health, and safety records electronically with the government, in order to better track data. Employers’ groups, such as the U.S. Chamber of Commerce, are opposed to the proposed rule change, arguing that it would expose confidential business records to the public without proper context. Public comment on the rule change closed in March 2014, and a decision was expected later in that year. For more information, please see Maurer, Roy, “Proposal to Submit Injury Reports Meets Opposition,” Society for Human Resource Management (November 11, 2013), <www.shrm.org>.

43. 43. U.S. Department of Labor, “U.S. Department of Labor’s OSHA proposes $2.78 million fine against Cintas Corp.,” press release (August 16, 2007), http://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table- NEWS_RELEASE&p_id-14397.

44. 44. OSHA, “U.S. Dept. of Labor, Cintas Settle Pending Federal OSHA Cases,” OSHA trade news release (December 18, 2008), http://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=NEWS_RELEASES&p_id=17213 ; and U.S. House of page 887Representatives, Committee on Education and Labor, “Woolsey, Hare Assail

Cintas Settlement,” press release (December 19, 2008), http://www.house.gov/apps/list/speech/edlabor_dem/1219Cintas.html.

45. 45. OSHA, “Severe Violator Enforcement Program,” White Paper, January 2013, www.osha.gov.

46. 46. Conn, Eric J., “Analysis: OSHA’s Severe Violators Program Prematurely Punishes Employers.” Society for Human Resource Management (May 28, 2013), http://www.shrm.org/hrdisciplines/safetysecurity/articles/pages/osha-svep-punishes- employers.aspx (5/28/2013).

47. 47. U.S. Department of Labor, Occupational Safety and Health Administration, “Crystalline Silica Notice of Proposed Rulemaking,” Statement of Dr. David Michaels, Assistant Secretary of Labor, Press Release, August 23, 2013, https://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=NEWS_RELEASES&p_id=2461 5.

48. 48. “Multiple Challenges Lengthen OSHA’s Standard Setting,” GAO-12-602T, April 19, 2012, http://www.gao.gov/products/GAO-12-602T.

49. 49. “Overview List—How many Smokefree Laws?” American Nonsmokers’ Rights Foundation, 2014, http://www.no-smoke.org/pdf/mediaordlist.pdf.

50. 50. 445 U.S. 1 (1980).

51. 51. Hosier, Fred, “Five Years Later, Walmart Still Hasn’t Paid Trampling Death OSHA Fine,” Safety News Alert (December 6, 2013), http://www.safetynewsalert.com/5-years-later-wal-mart-still-hasnt-paidtrampling- death-osha-fine/.

52. 52. 528 F.2d 54 (5th Cir. 1976).

53. 53. “OSHA Advisory Opinion. Re: Application of OSHA rules to people who work at home,” Tech Law Journal (November 15, 1999), http://www.techlawjournal.com/agencies/labor/telework/19991115.htm.

54. 54. OSHA, “Enforcement Procedures for Investigating or Inspecting Workplace Violence Incidents,” Directive No. CPL 02-01-052, September 8, 2011, https://www.osha.gov/OshDoc/Directive_pdf/CPL_02-01-052.pdf.

55. 55. Harrell, Erika, “Workplace Violence, 1993–2009,” Department of Justice, NCJ 233231, March 29, 2011, http://www.bjs.gov/index.cfm?ty=pbdetail&iid=2377.

56. 56. EEOC Guidance No. 915.002 (03/25/97) at pg. 29.

57. 57. See, e.g., Calef v. Gillette, 322 F.3d 75 (1st Cir. 2003)(court held “the ADA does not require that an employee whose unacceptable behavior threatens the safety of others be retained, even if the behavior stems from a mental disability.”)

58. 58. Namie, G., “2017 Workplace Bullying Institute U.S. Workplace Bullying Survey” (2017), http://workplacebullying.org/multi/pdf/2017/2017-WBI-US-Survey.pdf (accessed September 17, 2017) .

59. 59. Ibid.

60. 60. See “The Healthy Workplace Bill,” a website which maintains a record of all such legislative efforts at http://www.healthyworkplacebill.org/states.php.

61. 61. See, for example, Still, Kyle R., “OSHA Whistleblower Claims Expected to Increase Due to Online Complaint System,” Ward and Smith, P. A. (February 28, 2014), http://www.wardandsmith.com/blog/osha- whistleblower-claims-expected-to-increase-due-to-online-complaint-system.

62. 62. See Milford, Maureen, “UC Takes Charge of Enron Suit,” National Law Journal (March 7, 2002). 63. page 88863. Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995).

64. 64. Rosenberg, Stephen, “The Ninth Circuit Adopts Moench and Why It Matters,” Boston ERISA & Insurance Litigation Blog (October 8, 2010), http://www.bostonerisalaw.com/archives/401k-plans-the-ninth-circuit- adopts-moench-and-why-it-matters.html.

65. 65. Dudenhoeffer v. Fifth Third Bancorp, 692 F.3d 410 (6th Cir. 2012).

66. 66. Fifth Third Bancorp v. Dudenhoeffer, No. 12–751.

67. 67. Fifth Third Bankcorp. v. Dudenhoeffer, No. 12-751 (S. Ct., June 25, 2014), https://www.supremecourt.gov/opinions/13pdf/12-751_d18e.pdf.

68. 68. Andrus, Danielle, “To Aid with Compliance of DOL’s ERISA Rules, Principal Releases White Paper,” AdvisorOne (January 11, 2011), http://www.advisorone.com/article/aid-compliance-dols-erisa-rules- principal-releases-white-paper.

69. 69. Department of Labor, 29 CFR Part 2550, Reasonable Contract or Arrangement under Section 408(b)(2)— Fee Disclosure; Interim Final Rule.

70. 70. 128 S. Ct. 2343 (2008).

71. 71. See Cardoza v. United of Omaha Life Insurance Company, 708 F.3d 1196 (10th Cir. 2013); Todd v. CP Kilco, et al., 2011 WL 838848 (E.D. Oka. Mar. 1, 2011); Tillotson v. Life Ins. Co. of N. Am., 2011 WL 285815 (D. Utah Jan. 28, 2011); Murphy v. Deloitte & Touche Group Ins. Plan, 619 F.3d 1151 (10th Cir. 2010); and Crosby v. La. Health Serv. & Indem. Co., Case No. 10-30043, 2010 WL 5356498 (5th Cir. Dec. 29, 2010).

72. 72. See In re WorldCom Inc. ERISA Litig., 263 F. Supp. 2d 745 (S.D. N.Y. 2003); In re Polaroid ERISA Litig., 362 F. Supp. 2d 461 (S.D. N.Y. 2005); In re McKesson HBOC, Inc. ERISA Litig., 291 F. Supp. 2d 812 (N.D. Cal. 2005); In re Goodyear Tire & Rubber Co. ERISA Litig., 438 F. Supp. 2d 783 (N.D. Ohio 2006); DiFelice v. US Airways, 436 F. Supp. 2d 756 (E.D. Va. 2006); In re Electronic Data Systems Corp. “ERISA” Litig., 305 F. Supp. 2d 658 (E.D. Tex. 2004); In re Sears Roebuck & Co. ERISA Litig., No. 02 C 8324,

2004 U.S. Dist. LEXIS 3241 (N.D. Ill. Mar. 3, 2004); and In re Tyco Int’l Ltd., Multidistrict Litig., 2004 U.S. Dist. LEXIS 24272 (D.N.H. Dec. 2, 2004).

73. 73. See Kelley v. Household International, Inc., 312 F. Supp. 2d 1165 (N.D. Ill. 2004), and Hill v. Bellsouth Corp., 313 F. Supp. 2d 1361 (N.D. Ga 2004).

74. 74. 952 F.2d 34 (3d Cir. 1991).

75. 75. 332 F.3d 339, 350–52 (5th Cir. 2003).

76. 76. Title v. Enron Corp., 2003 WL 22245394 at 85 (S.D. Tex. September 30, 2003).

77. 77. 29 CFR Parts 2509, 2510, and 2550, Federal Register Rules and Regulations, Vol. 81, No. 68 (April 8, 2016), https://webapps.dol.gov/federalregister/PdfDisplay.aspx?DocId=28806.

78. 78. Caggeso, Mike, “Retirement Blues: Financial Crisis Pulls Billions from Pension Plans, Crimping Consumers’ Dreams and Corporate Profits,” Money Morning (January 29, 2009), moneymorning.com/2009/01/29/pension-plans.

79. 79. See, for example, Driscoll, Sean F., “More Retirement Plan Lawsuits Filed as Stock Market Slumps, Rockford Register Star (December 11, 2010), www.rrstar.com/businessrockford/x1757258400/More- pension-fund-lawsuits-filed-as-stock-market-falls.

80. 80. 128 S. Ct. 1020 (2008).

81. 81. Worker, Retiree, and Employer Recovery Act of 2008. H.R. 7327 (December 23, 2008). 82. page 88982. McCurdy, Keith, “Worker, Retiree and Employer Recovery Act Changes Required Minimum

Distributions,” Employee Benefits Legal Blog (December 22, 2008), http://employeebenefits.foxrothschild.com.

83. 83. 29 U.S.C. § 1140.

84. 84. American Bar Association, “The Patient Protection and Affordable Care Act, ERISA § 510 and the Next Generation of Benefits Litigation Concerns,” Employee Benefits Committee Newsletter, Spring 2013, http://www.americanbar.org/content/newsletter/groups/labor_law/ebc_newsletter/13_spr_ebcnews/ppac a.html.

85. 85. Consolidated Omnibus Budget Reconciliation Act of 1985, Pub. Law No. 99-272 (April 7, 1986).

86. 86. Hancock, Jay, “Swapping COBRA for Obamacare Likely to Be Windfall for Big Business,” Kaiser Health News (September 23, 2013), http://www.kaiserhealthnews.org/stories/2013/september/24/obamacare-cobra- businesses-marketplaces-exchanges.aspx.

87. 87. Health Insurance Portability and Accountability Act of 1996, Pub. Law No. 104-191 (August 21, 1996).

88. 88. Health Information Technology for Economic and Clinical Health (HITECH) Act, Title XIII of Division A and Title IV of Division B of the American Recovery and Reinvestment Act of 2009 (ARRA), Pub. L. No. 111-5, 123 Stat. 226.

89. 89. “Modifications to the HIPAA Privacy, Security, Enforcement, and Breach Notification Rules Under the Health Information Technology for Economic and Clinical Health Act and the Genetic Information Nondiscrimination Act; Other Modifications to the HIPAA Rules; Final Rule,” Federal Register, Vol. 78, no. 17 (January 25, 2013), http://www.gpo.gov/fdsys/pkg/FR-2013-01-25/pdf/2013-01073.pdf.

90. 90. For instance, Illinois has more stringent requirements regarding use and disclosure of genetic health information. See 410 Ill. Comp. Stat. 513/15 et seq.—the Genetic Information Privacy Act—regarding the use and disclosure of mental health information. See also 740 Ill. Comp. Stat. 110/1 et seq., the Mental Health and Developmental Disabilities Confidentiality Act.

91. 91. Though certain information may be released pursuant to permitted uses and disclosures, the amount of released information should be limited to the “minimum necessary” that is needed to accomplish the intended purpose of the use, disclosure, or request, as defined in the rules.

92. 92. See 45 C.F.R. § 164.502(a).

93. 93. See 45 C.F.R. § 164.508.

94. 94. 984 F.2d 394 (11th Cir. 1993).

Case 1 Reich v. Circle C Investments, Inc. 890

Case 2 Mullins v. City of New York 891

Case 3 Varity Corp. v. Howe 893

Cases Case 4 Central Laborers’ Pension Fund v. Heinz 894

page 890

Reich v. Circle C Investments, Inc. 998 F.2d 324 (5th Cir. 1993)

The court analyzes whether topless nightclub dancers who received no compensation except tips from customers are employees subject to FLSA or “business women renting space, stages, music, dressing rooms and lights from the club,” not subject to the law. The court determined that they were, in fact, employees for FLSA purposes.

Reavley, J.

***

The secretary of labor alleges that a topless nightclub has improperly compensated its dancers, waitresses, disc jockeys, bartenders, doormen, and “housemothers” and has failed to keep accurate records of the hours worked by its employees. The district court determined that the topless dancers and other workers are “employees” under the FLSA and that the club willfully violated its minimum wage, overtime and record-keeping provisions.

The dancers receive no compensation from the club. Their compensation is derived solely from the tips they receive from customers for performing on stage and performing private “table dances” and “couch dances.” At the end of each night, the dancers must pay the club a $20 “tip-out,” regardless of how much they make in tips. The club characterizes this tip-out as stage rental and argues that the dancers are really tenants. According to the club, the dancers are neither employees nor independent contractors, but are business women renting space, stages, music, dressing rooms, and lights from the club.

To determine employee status under the FLSA, we focus on whether the alleged employee, as a matter of economic reality, is economically dependent upon the business to which she renders her services, or in business for herself. To make this determination, we must analyze five factors.

The first factor is the degree of control exercised by the alleged employer. The district court found that the club exercises a great deal of control over the dancers. They are required to comply with weekly work schedules, which the club compiles with input from the dancers. The club fines the dancers for absences or tardiness. It instructs the dancers to charge at least $10 for table dances and $20 for couch dances. The dancers supply their own costumes, but the costumes must meet standards set by the club. The dancers can express a preference for a certain type of music, but they do not have the final say in the matter. The club has many other rules concerning the dancers’ behavior; for example, no flat heels, no more than 15 minutes at one time in the dressing room, only one dancer in the restroom at a time, and all dancers must be “on the floor” at opening time. The club enforces these rules by fining infringers.

The club attempts to de-emphasize its control by arguing that most of the rules are directed at maintaining decorum or keeping the club itself legal. The club explained that it publishes the minimum charge for table and couch dances at the request of the dancers to prevent dancers from undercutting each others’ prices. Finally, it stresses the fact that it does not control the dancers’ routines. We believe, however, that the record fully supports the district court’s findings of significant control.

The second factor is the extent of relative investments of the worker and alleged employer. The district court found that a dancer’s investment is limited to her costumes and a padlock. The amount spent on costumes varies from dancer to dancer and can be significant. The club contends that we should also consider as an investment each dancer’s nightly tip-out, which it characterizes as rent. The district court rejected this argument, and so do we. It is the economic realities that control our determination of employee status.

Third, we must look at the degree to which the workers’ opportunity for profit and loss is determined by the alleged employer. Once customers arrive at the club, a dancer’s initiative, hustle and costume significantly contribute to the amount of her tips. But the club has a significant role in drawing customers. Given its control over determinants of customer volume, the club exercises a high degree of control over a dancer’s opportunity

for “profit.” Dancers are far more closely akin to wage earners toiling for a living than to independent entrepreneurs seeking a return on their risky capital investments.

page 891 The fourth factor is the skill and initiative required in performing the job. Many of the dancers did not

have any prior experience with topless dancing before coming to work at the club. They do not need long training or highly developed skills to dance at the club. A dancer’s initiative is essentially limited to decisions involving costumes and dance routines. This does not exhibit the skill or initiative indicative of persons in business for themselves.

Finally, we must analyze the permanency of the relationship. The district court found that most dancers have short-term relationships with the club. Although not determinative, the impermanent relationship between the dancers and the club indicates non-employee status.

Despite the lack of permanency, on balance, the five factors favor a determination of employee status. A dancer has no specialized skills and her only real investment is in her costumes. The club exercises significant control over a dancer’s behavior and the opportunity for profit. The transient nature of the workforce is not enough here to remove the dancers from the protections of the FLSA. AFFIRMED.

Case Questions

1. Does any of the case surprise you? Explain.

2. If you were the club owner and did not want the dancers to be employees, after receiving this decision, how would you change things?

3. Do you think the dancers should have been considered employees? Why or why not?

Mullins v. City of New York 626 F.3d 47 (2nd Cir. 2010)

A group of police officers sued their police department for violations of the FLSA, specifically for failing to pay them for overtime. In the course of that lawsuit, the police department took depositions of some of the police officers. Following those depositions, the police department ordered its Internal Affairs Bureau to become involved in the lawsuit, both by collecting various documents and by attending future depositions. The officers claimed that IAB’s involvement constituted retaliation, which is prohibited by the FLSA, and they sought a preliminary injunction stopping all such intimidation. The trial court granted the injunction and the police department appealed to the Second Circuit.

Pooler, J.

***

Plaintiff-Appellees are approximately 4300 current and former New York City police sergeants who filed suit against the City of New York (the “City”) and the New York City Police Department (“NYPD”) on April 19, 2004, claiming systematic violations of their overtime rights under the Fair Labor Standards Act of 1938 (“FLSA”). Because of the sheer volume of plaintiffs, the parties agreed in May of 2005 to limit depositions to “test plaintiffs”— individuals from seventeen job categories, who would be organized into three groups.

The record reflects that, at some point in January 2006, NYPD’s outside counsel, Seyfarth Shaw LLP, met with Charles Campisi, Chief of the “Internal Affairs Bureau” (“IAB”), as well as other high level IAB officials and NYPD lawyers regarding the “topic of deposition testimony.” On January 19, 2006, Seyfarth Shaw sent transcripts from depositions of the first group of test plaintiffs to Appellants. The next day, the NYPD ordered lieutenants from IAB to collect command logs, memo books, activity reports, overtime slips, and requests for leave reports from all of the test plaintiffs as well as individuals who worked with them. Some of the IAB document collectors were plaintiffs in this lawsuit—they were promoted to lieutenants after the action was filed. The pool of plaintiffs from page 892 whom documents were collected included both those who had been deposed and those who had

not. Counsel for the test plaintiffs immediately objected to the use of IAB to collect documents on the ground that

certain plaintiffs understood IAB’s involvement to mean they were under investigation. Sergeant Paul Capotosto, Citywide Secretary of the Sergeants Benevolent Association, described the document collection process as a

“raid.” During his testimony at the preliminary injunction hearing, Sergeant Capotosto chronicled at least a dozen phone calls he received from worried plaintiffs, who expressed concern to him that the NYPD was retaliating against them for their participation in the lawsuit. Among these callers was IAB Lieutenant Ed Heim, a plaintiff in this action, who described being “forced” to collect documents from other plaintiffs and communicated his apprehension to Sergeant Capotosto about the NYPD’s approach. Another sergeant referred to IAB’s actions as “goon tactics.”

Testimony at the preliminary injunction hearing about the unusual nature of the process used to collect documents confirmed that plaintiffs’ concerns were not unfounded. Sergeant Anthony Lisi of the Emergency Services Unit of the NYPD testified that document collection is typically conducted by Administrative Lieutenants or Integrity Control Officers assigned to a particular command. In addition, Sergeant Brian Coughlan, Sergeant Supervisor of Detectives in the Bomb Squad, testified that IAB is involved in most cases only when an officer is being arrested or removed from his post.

In March 2006, shortly after the document collection, IAB sent an Integrity Control Officer to attend the deposition of Sergeant Edward Scott. As of his deposition date, Sergeant Scott, who was a plaintiff in the lawsuit against the City and NYPD, had given no testimony in connection with the action. Sergeant Scott, who testified by affidavit at the preliminary injunction hearing, explained that Integrity Control Officers do not normally attend depositions, and he was, therefore, “surprised and concerned” by the officer’s presence. He also testified that he found the officer’s presence to be “intimidating.” When Sergeant Scott’s retirement was administratively deferred pending resolution of an unspecified “disciplinary matter” some months later, it came to light that he was under investigation for testimony he had given during his deposition. Sergeant Scott stated that, at the time, “I believed that if I withdrew from this FLSA lawsuit, the City would close its investigation into my deposition testimony.”

FLSA provides that it is “unlawful for any person . . . to discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under [FLSA].” 29 U.S.C. § 215(a)(3). FLSA retaliation claims are subject to the three-step burden- shifting framework established by McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973). Thus, a plaintiff alleging retaliation under FLSA must first establish a prima facie case of retaliation by showing (1) participation in protected activity known to the defendant, like the filing of a FLSA lawsuit; (2) an employment action disadvantaging the plaintiff; and (3) a causal connection between the protected activity and the adverse employment action. An employment action disadvantages an employee if “it well might have ‘dissuaded a reasonable worker from making or supporting [similar] charge[s]. . . .’” Although the application of pre-existing disciplinary policies to a plaintiff “without more, does not constitute adverse employment action,” a causal connection between an adverse action and a plaintiff’s protected activity may be established “through evidence of retaliatory animus directed against a plaintiff by the defendant,” or “by showing that the protected activity was closely followed in time by the adverse action.”

Regarding the causal connection between the NYPD’s actions and Appellees’ participation in this lawsuit, we think the link is self-evident, and the district court did not err in concluding as much—IAB investigated the veracity of testimony given by the sergeants as part of the lawsuit. Moreover, the sequence, timing and nature of events only reinforces the connection. The day after the NYPD received transcripts from the depositions of certain test plaintiffs, IAB was dispatched to collect documents from the first group of plaintiffs. As testimony indicated, this was unusual in and of itself, because such documents are typically collected by Administrative Lieutenants or other officers in the individual precincts—not IAB. For the foregoing reasons, we AFFIRM the order of the district court.

Case Questions

1. Do you agree with the court that IAB’s involvement constituted retaliation? Why or why not?

2. To what extent did the police department culture play a role in this decision?

3. What steps could the police department have taken to prevent these actions from constituting retaliation?

page 893

Varity Corp. v. Howe 516 U.S. 489 (1996)

At the time employer Varity Corporation transferred its money-losing divisions in its subsidiary Massey-Ferguson, Inc., to Massey Combines, a separate firm (it called the transfer “Project Sunshine”), it held a meeting to persuade its employees of these failing divisions to change benefit plans. Varity conveyed the impression that the employees’ benefits would remain secure when they transferred. In fact, Massey Combines was insolvent from the day it was created, and by the end of its receivership, the employees who had transferred lost all of their nonpension benefits. The employees sued under ERISA, claiming that Varity breached its fiduciary duty in leading them to withdraw from their old plan and to forfeit their benefits. The district court held for the employees, and the court of appeals affirmed.

Breyer, J.

***

. . . The second question—whether Varity’s deception violated ERISA-imposed fiduciary obligations—calls for a brief, affirmative answer. ERISA requires a “fiduciary” to “discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries.” To participate knowingly and significantly in deceiving a plan’s beneficiaries in order to save the employer money at the beneficiaries’ expense, is not to act “solely in the interest of the participants and beneficiaries.” As other courts have held, “[l]ying is inconsistent with the duty of loyalty owed by all fiduciaries and codified in section 404(a)(1) of ERISA.”

Because the breach of this duty is sufficient to uphold the decision below, we need not reach the question of whether ERISA fiduciaries have any fiduciary duty to disclose truthful information on their own initiative, or in response to employee inquiries.

We recognize, as mentioned above, that we are to apply common-law trust standards “bearing in mind the special nature and purpose of employee benefit plans.” But we can find no adequate basis here, in the statute or otherwise, for any special interpretation that might insulate Varity, acting as a fiduciary, from the legal consequences of the kind of conduct (intentional misrepresentation) that often creates liability even among strangers.

We are aware, as Varity suggests, of one possible reason for a departure from ordinary trust law principles. In arguing about ERISA’s remedies for breaches of fiduciary obligation, Varity says that Congress intended ERISA’s fiduciary standards to protect only the financial integrity of the plan, not the individual beneficiaries. This intent, says Varity, is shown by the fact that Congress did not provide remedies for individuals harmed by such breaches; rather, Congress limited relief to remedies that would benefit only the plan itself. This argument fails, however, because, in our view, Congress did provide remedies for individual beneficiaries harmed by breaches of fiduciary duty.

Case Questions

1. What should Varity have done in order to avoid liability under ERISA?

2. How can an employee ensure that she or he knows all of the facts relevant to a question such as the one present in this case?

3. Why do you think Varity handled this in the way that it did?

page 894

Central Laborers’ Pension Fund v. Heinz 541 U.S. 739 (2004)

Retirees who had been receiving early retirement benefits from a multiemployer pension fund sued the fund under ERISA’s anti-cutback rule after their plan was amended to expand which types of postretirement employment triggered suspension of such benefits. Heinz understood that, if he were to work as “a union or non-union construction worker” (“disqualifying employment”), his pension would be suspended during that time. However, he also understood that his benefits would not be suspended if he chose to work in a supervisory capacity. Heinz therefore took a job in central Illinois in 1996, after retiring, as a construction supervisor, and the plan continued to pay out his monthly benefit.

In 1998, the plan’s definition of disqualifying employment was expanded by amendment to include any job “in any capacity in the construction industry (either as a union or non-union construction worker).” The plan took the amended definition to cover supervisory work and warned Heinz that if he continued on as a supervisor, his monthly pension payments would be suspended. Heinz kept working, and the plan stopped paying.

Heinz sued to recover the suspended benefits on the ground that applying the amended definition of disqualifying employment so as to suspend payment of his accrued benefits violated ERISA’s anti- cutback rule. The District Court granted judgment for the plan, only to be reversed by a divided panel of the Seventh Circuit, which held that imposing new conditions on rights to benefits already accrued was a violation of the anti-cutback rule. The Supreme Court granted certiorari in order to resolve the resulting Circuit Court split and affirms the Seventh Circuit in favor of the retirees.

Souter, J.

***

With few exceptions, the “anti-cutback” rule of the Employee Retirement Income Security Act of 1974 (ERISA) prohibits any amendment of a pension plan that would reduce a participant’s “accrued benefit.” The question is whether the rule prohibits an amendment expanding the categories of postretirement employment that triggers suspension of payment of early retirement benefits already accrued. We hold such an amendment prohibited.

II.

A. There is no doubt about the centrality of ERISA’s object of protecting employees’ justified expectations of receiving the benefits their employers promise them. “Nothing in ERISA requires employers to establish employee benefits plans. Nor does ERISA mandate what kind of benefits employers must provide if they choose to have such a plan. ERISA does, however, seek to ensure that employees will not be left empty-handed once employers have guaranteed them certain benefits. . . . [W]hen Congress enacted ERISA, it wanted to . . . mak[e] sure that if a worker has been promised a defined pension benefit upon retirement—and if he has fulfilled whatever conditions are required to obtain a vested benefit—he actually will receive it.”

ERISA’s anti-cutback rule is crucial to this object, and (with two exceptions of no concern here) provides that “[t]he accrued benefit of a participant under a plan may not be decreased by an amendment of the plan. . . .” After some initial question about whether the provision addressed early retirement benefits, a 1984 amendment made it clear that it does. Now § 204(g) provides that “a plan amendment which has the effect of . . . eliminating or reducing an early retirement benefit . . . with respect to benefits attributable to service before the amendment shall be treated as reducing accrued benefits.”

Hence the question here: did the 1998 amendment to the Plan have the effect of “eliminating or reducing an early retirement benefit” that was earned by service page 895 before the amendment was passed? The statute,

admittedly, is not as helpful as it might be in answering this question; it does not explicitly define “early retirement benefit,” and it rather circularly defines “accrued benefit” as “the individual’s accrued benefit determined under the plan. . . .” Still, it certainly looks as though a benefit has suffered under the amendment here, for we agree with the Seventh Circuit that, as a matter of common sense, “[a] participant’s benefits cannot be understood without reference to the conditions imposed on receiving those benefits, and an amendment placing materially greater restrictions on the receipt of the benefit ‘reduces’ the benefit just as surely as a decrease in the size of the monthly benefit payment.” Heinz worked and accrued retirement benefits under a plan with terms allowing him to supplement retirement income by certain employment, and he was being reasonable if he relied on those

terms in planning his retirement. The 1998 amendment undercut any such reliance, paying retirement income only if he accepted a substantial curtailment of his opportunity to do the kind of work he knew. We simply do not see how, in any practical sense, this change of terms could not be viewed as shrinking the value of Heinz’s pension rights and reducing his promised benefits.

B. The Plan’s responses are technical ones, beginning with the suggestion that the “benefit” that may not be devalued is actually nothing more than a “defined periodic benefit the plan is legally obliged to pay,” so that § 204(g) applies only to amendments directly altering the nominal dollar amount of a retiree’s monthly pension payment. A retiree’s benefit of $100 a month, say, is not reduced by a post-accrual plan amendment that suspends payments, so long as nothing affects the figure of $100 defining what he would be paid, if paid at all. Under the Plan’s reading, § 204(g) would have nothing to say about an amendment that resulted even in a permanent suspension of payments. But for us to give the anti-cutback rule a reading that constricted would take textual force majeure, and certainly something closer to irresistible than the provision quoted in the Plan’s observation that accrued benefits are ordinarily “expressed in the form of an annual benefit commencing at normal retirement age.”

The Plan also contends that, because § 204(g) only prohibits amendments that “eliminat[e] or reduc[e] an early retirement benefit,” the anti-cutback rule must not apply to mere suspensions of an early retirement benefit. This argument seems to rest on a distinction between “eliminat[e] or reduc[e]” on the one hand, and “suspend” on the other, but it just misses the point. No one denies that some conditions enforceable by suspending benefit payments are permissible under ERISA: conditions set before a benefit accrues can survive the anti-cutback rule, even though their sanction is a suspension of benefits. Because such conditions are elements of the benefit itself and are considered in valuing it at the moment it accrues, a later suspension of benefit payments according to the Plan’s terms does not eliminate the benefit or reduce its value. The real question is whether a new condition may be imposed after a benefit has accrued; may the right to receive certain money on a certain date be limited by a new condition narrowing that right? In a given case, the new condition may or may not be invoked to justify an actual suspension of benefits, but at the moment the new condition is imposed, the accrued benefit becomes less valuable, irrespective of any actual suspension.

***

This is not to say that § 203(a)(3)(B) does not authorize some amendments. Plans are free to add new suspension provisions under § 203(a)(3)(B), so long as the new provisions apply only to the benefits that will be associated with future employment. The point is that this section regulates the contents of the bargain that can be struck between employer and employees as part of the complete benefits package for future employment.

The judgment of the Seventh Circuit is AFFIRMED. Justice Breyer, with whom the Chief Justice, Justice O’Connor, and Justice Ginsburg join, CONCURRING.