Management Team Briefing on Employment Laws

1

P A R T 1 Introduction to Employment Law

Chapter 1 Overview of Employment Law

Chapter 2 The Employment Relationship

Chapter 3 Overview of Employment Discrimination

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C H A P T E R 1 Overview of Employment Law

The purpose of this first chapter is to present a big picture of the body of law that we will apply to particular human resources practices throughout this book. This chap- ter contains an overview of employment laws, the rights they confer on employees, and the processes involved in enforcing these laws. Special attention is given to the use of alternatives to litigation to resolve employment disputes.

Heard at the Staff Meeting Congratulations on your new job as human resources manager! You pour a cup of coffee and settle into your seat to hear the following reports from staff members:

“We’ve lined up some interns from a local college to take the place of vacationing staff mem- bers this summer. We won’t pay the interns, of course, but hopefully they will be self-starters who can make a real contribution.”

“In the interest of security, we now have a firm that checks the backgrounds of our job candidates. Anyone with an arrest or conviction is immediately dropped from consideration for employment.”

“Our employees’ use of social media has gotten out of hand. To deal with this problem, we have developed a new company policy that strictly prohibits employees from airing criticisms of the company’s employment practices or its managers via social media. We hope this will put an end to any disparaging comments.”

“Do you remember the chemist that we hired recently? She’s been doing a great job, but she mentioned the other day that she might have a problem regarding a noncompeti- tion agreement that she had signed with her former employer. I told her that we did not intend to get involved in the matter, but I was confident that she would be able to work things out.”

You get up to get another—large—cup of coffee and feel fortunate that you were paying attention during that employment law class you took.

Which legal issues emerged during this staff meeting? What should this company be doing differently to better comply with the law? Although you might not encounter this many legal problems in one sitting, employment law pervades virtually every aspect of human resources practice, and managers regularly confront employment law questions.

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4 Part 1: Introduction to Employment Law

U.S. Employment Law Is a Fragmented Work in Progress “Just tell me what the law is, and I’ll follow it.” Were matters only that simple! No single set of employment laws covers all workers in the United States. Instead, the employment law system is a patchwork of federal, state, and local laws. Whether and how laws apply also depend on such things as whether the employees work for the government or in the private sector, whether they have union representation, and the size of their employer. Our principal focus will be on federal laws because these reach most widely across U.S. workplaces and often serve as models for state and local laws. However, we will also mention significant variations in the employment laws of different states.

There is another problem with the idea of just learning the legal rules and adhering to them. Employment law is dynamic. New law is created and old law is reinterpreted con- tinuously. Recent political changes and the prospect of a significant realignment of the U.S. Supreme Court have engendered more than the usual degree of uncertainty about what the law will be in the future. Changing workplace practices also pose new legal questions. At any point in time, there are “well-settled” legal questions on which there is consensus, other matters that are only partially settled (perhaps because only a few cases have arisen or because courts have issued conflicting decisions), and still other questions that have yet to be considered by the courts and other legal decision makers. Attaining a solid grasp of employment law principles will allow you to make informed judgments in most situations. You must be prepared to tolerate some ambiguity and keep learning, however, as the law of the workplace continues to develop.

Sources of Employment Law What comes to mind when you think of the law? Judges deciding court cases? Congress legislating? The Constitution? All of these are parts of the law in general and employment law in particular. Legal rules governing the workplace are found in the U.S. Constitution and state constitutions, statutes enacted by legislatures, executive orders issued by presi- dents and governors, regulations created by administrative agencies, and judicially authored common law.

Constitutions Constitutions are the most basic source of law. Constitutions address the relationships between different levels of government (e.g., states and the federal government) and between governments and their citizens. A legal claim based on a constitution must generally assert

Clippings Cities and counties have become more important as sources of employment law in recent years. They have enacted, or attempted to enact, laws providing for higher minimum wages, paid sick time, and expanded protection against discrimination, among other things. But there has also been a counter-trend of state legislatures act- ing to “preempt” these local initiatives. Just since 2011, 22 states have enacted laws prohibiting localities from adopting their own employment laws. In general, state governments have the authority to do so.

SOURCE: Jay-Anne B. Casuga and Michael Rose. “Are State Workplace Preemption Laws on the Rise?” Labor Relations Week 30 (July 20, 2016).

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Chapter 1: Overview of Employment Law 5

a violation of someone’s constitutional rights by the government (in legal parlance, the element of “state action” must be present). In practical terms, this means that usually only employees of government agencies—and not employees of private corporations—can look to the U.S. Constitution or state constitutions for protection in the workplace. Constitutional protections available to government employees include speech rights, freedom of religion, protection from unreasonable search and seizure, equal protection under the law, and due process rights.

Statutes In our system of government, voters elect representatives to legislative bodies such as the U.S. Congress. These bodies enact laws, or statutes, many of which affect the workplace. Among the many important statutes with implications for human resources practice are Title VII of the Civil Rights Act, the National Labor Relations Act, the Equal Pay Act, the Americans with Disabilities Act, the Family and Medical Leave Act, and the Employee Retirement Income Security Act.

Executive Orders The executive branch of government has the power to issue executive orders that affect the employment practices of government agencies and companies that have contracts to pro- vide goods and services to the government. Executive orders function much like statutes, although they reach fewer workplaces and can be overridden by the legislative branch. One important example of an executive order affecting employment is Executive Order (E.O.) 11246, which establishes affirmative action requirements for companies that do business with the federal government.

Regulations, Guidelines, and Administrative Decisions When Congress enacts a statute, it often creates an agency, or authorizes an existing one, to administer and enforce that law. Legislators do not have the expertise (and sometimes do not have the political will) to fill in all the details necessary to put statutes into practice. For example, Congress mandated in the Occupational Safety and Health Act that employers pro- vide safe workplaces but largely left it to the Occupational Safety and Health Administration (OSHA) to give content to that broad principle by creating safety standards governing par- ticular workplace hazards. Formal regulations are put in place only after an elaborate set of requirements for public comment and review has been followed. Regulations are entitled to considerable deference from the courts (generally, they will be upheld when challenged), provided that the regulations are viewed as reasonable interpretations of the statutes on which they are based.1 Agencies also contribute to the law through their decisions in individual cases that are brought before them and the guidance that they provide in complying with laws.

Common Law Courts are sometimes asked to resolve disputes over matters that have not been objects of legislation or regulation. Over time, courts have recognized common law claims to enforce private agreements and to remedy certain types of harm. Common law is defined by state courts, but broad similarities exist across states. One branch of common law is the traditional role of the courts in interpreting and enforcing contracts. The other branch is recognition of various tort claims to compensate persons who have been harmed. Tort claims relevant to employment law include negligence, defamation, invasion of privacy, infliction of emotional distress, and wrongful discharge in violation of public policy.

1 Chevron U.S.A., Inc. v. National Resources Defense Council, 467 U.S. 837 (1984).

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6 Part 1: Introduction to Employment Law

Substantive Rights Under Employment Laws Employment laws confer rights on employees and impose corresponding responsibilities on employers. Paradoxically, the starting point for understanding employee rights is a legal doctrine holding that employees do not have any right to be employed or to retain their employment. This doctrine, known as employment at will, holds that in the absence of a contract promising employment for a specified duration, the employment relationship can be severed at any time and for any reason not specifically prohibited by law. Statutory and other rights conferred on employees have significantly blunted the force of employ- ment at will. Nevertheless, in the absence of any clear right that employees can assert not to be terminated, employment at will is the default rule that permits employers to terminate employment without needing to have “good” reasons for doing so.

Broadly speaking, employees have the following rights under employment laws.

Nondiscrimination and Equal Employment Opportunity A central part of employment law is the set of protections for employees against discrimi- nation based on their race, sex, age, and other grounds. Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Equal Pay Act, and the Americans with Disabilities Act are examples of federal laws that prohibit discrimination in employment and express the societal value of equal employment opportunity.

Freedom to Engage in Concerted Activity and Collective Bargaining Another approach to protecting workers is to provide them with greater leverage in dealing with their employers and negotiating contractual standards of fair treatment. Labor laws exist to protect the rights of employees to join together to form labor unions and attempt to improve their terms and conditions of employment through collective bargaining with their employers. Important federal labor laws include the National Labor Relations Act, the Railway Labor Act, and the Civil Service Reform Act (covering collective bargaining by federal government employees).

Terms and Conditions of Employment That Meet Minimum Standards Some employment laws protect workers in a more direct fashion by specifying minimum standards of pay, safety, and other aspects of employment. Federal laws exemplifying this approach include the Fair Labor Standards Act (minimum wage and overtime pay require- ments), the Occupational Safety and Health Act (workplace safety standards), and the Family and Medical Leave Act (leave policy requirements).

Protection of Fundamental Rights Some legal challenges to employer practices are based on broader civil liberties and rights. For example, a variety of privacy-related protections exist, including privacy torts, the Electronic Communications Privacy Act, the Employee Polygraph Protection Act, and the Fair Credit Reporting Act.

Compensation for Certain Types of Harm Employees can take legal action to recover damages when, for example, they are the victims of employer negligence, are defamed, or have emotional distress inflicted upon them; their employment contract is breached; or they are wrongfully discharged.

In the Dukowitz v. Hannon Security Services case that follows, a terminated employee sued her former employer. Although one might sympathize with the employee under the facts of this case, it is apparent from this decision that employment at will still presents a large hurdle for terminated employees.

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Chapter 1: Overview of Employment Law 7

OPINION BY JUSTICE STRAS:

Hannon hired Dukowitz as a security officer in November 2005 and assigned her to an evening posi- tion. In July 2008, Dukowitz learned about a tempo- rary daytime position that would be available for the holiday season. Dukowitz’s supervisor offered her the position, but required Dukowitz to sign a document acknowledging the possibility that the position would be unavailable beyond the holiday season. Dukowitz switched to the daytime position in September 2008. In early December, Dukowitz’s supervisor informed her that the position would no longer be available after the end of December and that Hannon did not have any hours available for Dukowitz in the ensuing months. Dukowitz claims that she told her direct supervisor that she would need to apply for unemployment ben- efits “to make ends meet.” According to Dukowitz, her supervisor then turned to another supervisor and asked, “should we term her?”—in other words, terminate her employment. Dukowitz claims that she begged her supervisor not to terminate her and asked that Hannon place her on a “floating shift” so that she could work when shifts became available.

Dukowitz applied for unemployment benefits on December 21, 2008. [Note: Under Minnesota law, employees can receive unemployment insurance when their hours are reduced below a specified number. They need not be completely unemployed.] Two days later, Dukowitz’s daytime position became unavailable. Hannon ultimately terminated Dukowitz’s employment on March 13, 2009. The parties dispute the reasons for Dukowitz’s termination. Hannon asserts that Dukowitz was terminated because of her “poor work [for a client], her expressed unwillingness to work weekends or nights and the lack of Hannon opportunities for business in the St. Cloud area.” Dukowitz contends that she received positive performance reviews and that she never refused to work weekends or nights.

In June 2010, Dukowitz commenced this action against Hannon for wrongful discharge. Dukowitz alleged in her complaint that Hannon violated the public policy of the State of Minnesota when it terminated her employment in retaliation for her application for unem- ployment benefits. The district court granted Hannon’s motion for summary judgment based in part on its con- clusion that “common law wrongful termination claims

[are limited] to scenarios in which an employee was fired for his or her refusal to violate the law.” * * *

The court of appeals affirmed. * * * We granted Dukowitz’s petition for further review.

* * * The dispute in this case centers on the scope of the public-policy exception to the employment-at-will rule. Dukowitz argues that our decisions in [prior cases], establish a cause of action for wrongful discharge if an employee can identify a clear mandate of public pol- icy that the employer violated when it discharged the employee. Dukowitz alternatively asserts that, even if the scope of the public-policy exception is more limited, we should now recognize a cause of action for wrong- ful discharge under the circumstances presented by this case. * * *

In Minnesota, the employer–employee relationship is generally at-will, which means that an employer may discharge an employee for “any reason or no reason” and that an employee is “under no obligation to remain on the job.” . . . [W]e [have] recognized a narrow public- policy exception to the employment-at-will rule. “An employee may bring an action for wrongful discharge if that employee is discharged for refusing to participate in an activity that the employee, in good faith, believes violates any state or federal law or rule or regulation adopted pursuant to law.” * * *

Because Dukowitz has not alleged that her termina- tion resulted from a refusal to commit an act that she, in good faith, believed to be illegal, she has not stated a cause of action under . . . [Minnesota case law]. . . Dukowitz’s claim survives only if we recognize a new cause of action for wrongful discharge for terminations resulting from an employee’s application for unemploy- ment benefits. We decline to do so for two reasons.

First, . . . this court “has generally been reluctant to undertake the task of determining public policy since this role is usually better performed by the legislature.” * * * Our general reluctance to extend the legislatively declared public policy of the state applies with equal, if not greater, force here. Significantly, Dukowitz’s argument requires us to depart from the traditional American common-law, employment-at-will rule. The employment-at-will rule—foundational in American employment law for well over a century—protects the freedom of the employer and employee to contract. Dukowitz does not provide us with a persuasive reason to depart from the common law. * * *

Dukowitz v. Hannon Security Services 841 N.W. 2d 147 (Minn. 2014)

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8 Part 1: Introduction to Employment Law

Second, we decline to expand the public-policy excep- tion to the employment-at-will rule when the Legislature has already delineated the consequences for an employer that interferes with an employee’s application for unem- ployment benefits. Under [Minnesota’s unemployment insurance statute], an employer who “directly or indi- rectly . . . obstruct[s] or impede[s] an application or con- tinued request for unemployment benefits” is guilty of a misdemeanor. * * * As numerous courts have recognized, adoption of a new cause of action is particularly inappro- priate when the Legislature has already provided other remedies to vindicate the public policy of the state. * * * Under these circumstances, principles of judicial restraint reinforce our decision not to create a new remedy when the Legislature has already provided for one. * * *

Accordingly, we decline Dukowitz'’s invitation to expand the scope of the public-policy exception to the employment-at-will rule to reach a termination result- ing from an employee'’s application for unemployment benefits. * * * [W]e affirm the decision of the court of appeals.

Dissenting Opinion by Justice Wright

* * * I disagree with the majority’s conclusion that appel- lant Jane Kay Dukowitz (“Dukowitz”) . . . does not have a cognizable common-law cause of action for wrongful discharge against respondent Hannon Security Services . . . (“Hannon”). In my view, an employee who alleges that she was discharged from employment because she filed an application for unemployment benefits has a common-law cause of action for wrongful discharge under the public-policy exception to the employment- at-will rule. For that reason, I respectfully dissent.

* * * The majority first expresses a “general reluctance” to recognize a new cause of action unless “the Legislature intends for us to do so.” Indeed, the Legislature plays a significant—even the most significant—role in formu- lating the public policy of the state. But the Legislature’s role is not exclusive. As a common-law court, we have “the power to recognize and abolish common law doc- trines.” We have explained that the common law “is not composed of firmly fixed rules” and “[a]s society changes over time, the common law must also evolve.” * * * When applied here, the majority’s view—that any extension of public policy is better left to the Legislature—presents an overly narrow view of the common law and abdicates this court’s responsibility for developing it.

* * * The question presented is not whether we should adopt a public-policy exception. We did so in . . . [a pre- vious case]. Nor does this case call on us to elaborate the

precise contours of the exception. Here, we are asked to decide only whether an employee who is discharged in retaliation for applying for partial unemployment ben- efits can maintain a cause of action under the public- policy exception to the employment-at-will rule.

* * * Under Minnesota law, an individual is con- sidered unemployed, and therefore potentially eligible for unemployment benefits, if “(1) in any week that the applicant performs less than 32 hours of service in employment . . . and (2) any earnings with respect to that week are less than the applicant’s weekly unemploy- ment benefit amount.” Thus, because an employee may qualify for unemployment benefits while still working a limited number of hours, it is possible for an employer to retaliate against an employee who applies for unem- ployment benefits by terminating the employee alto- gether. In this case, it is undisputed that Dukowitz was eligible for unemployment benefits at the time of her termination.

[The Minnesota unemployment insurance statute] sets forth the public policy underlying unemployment benefits in Minnesota:

The public purpose of this chapter is: Economic insecurity because of involuntary unemployment of workers in Minnesota is a subject of general concern that requires appropriate action by the legislature. The public good is promoted by providing workers who are unemployed through no fault of their own a temporary partial wage replacement to assist the unemployed worker to become reemployed. This program is the “Minnesota unemployment insurance program.”

* * * The statutory proscription against employer interference with an application or request for unem- ployment benefits, when read in conjunction with the clear statement of Legislative purpose, constitutes a clear mandate of public policy. The only remaining question is whether permitting employers to discharge employ- ees in retaliation for filing an application for unem- ployment benefits jeopardizes that public policy. The answer to that question undoubtedly is yes. Permitting employers to discharge employees who seek unemploy- ment benefits deters eligible, economically vulnerable individuals—including part-time workers, seasonal workers, or workers who have their hours reduced— from seeking unemployment benefits to which they are statutorily entitled. Moreover, permitting such termina- tions exacerbates the very problem that unemployment insurance is designed to remedy—economic insecurity.

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The foregoing excerpt from Dukowitz v. Hannon Security Services is the first of a number of employment law cases that you will have the opportunity to read in this text. The words are those of the judge who wrote the decision. The excerpt also includes a “dissenting opinion” written by one of the judges on the Minnesota Supreme Court who disagreed with the court’s decision and felt strongly enough about it to put his reasons in writing. You would find the same words if you looked up the case—which you can easily do by using an online legal database and searching for either the names of the parties or the citation that appears below the names of the parties. The only difference is that we have shortened the case by selecting only the most essential details and by removing internal citations and footnotes. By seeing the law applied to particular factual circumstances and reading the judges’ rationales for their decisions, you will gain a fuller understanding of the law.

When reading cases, it is important to pay attention to how the legal issues are framed. One might be tempted to say that the legal issue in the Dukowitz case was whether the security company had the right to terminate this employee because she had applied for unemployment insurance, or more generally, whether the termination was fair. But these statements do not get to the heart of the legal issue in this case. Under employment at will, employers do not have to justify their termination decisions. Instead, a termination is pre- sumed to be lawful unless the terminated employee can prove that he or she had some spe- cific right not to be terminated under the circumstances. Because it did not find protection under Minnesota’s very limited public policy exception to employment at will for employees terminated because they claimed unemployment insurance benefits, the court fell back on the principle of employment at will. Whether the termination was necessary, wise, or fair was irrelevant to the issue of whether it was legally permissible.

Determining Which Employment Laws Apply Because U.S. employment law is a patchwork of legal protections that apply to some groups of employees but not others, it is necessary to briefly elaborate on some of the key contex- tual factors that determine which, if any, employment laws apply in a given situation. You will need to consider these factors when presented with situations posing potential legal problems.

Public or Private Sector Employment The legal environment differs substantially depending on whether public sector (i.e., government) employees or private sector employees are being considered. The terms “public sector” and “private sector” do not refer to whether a company trades its stock on the stock

Consequently, it is not surprising that the overwhelming majority of state courts that have specifically addressed this question have concluded that their unemployment insurance statutes—which are substantially similar to Minnesota’s statutory scheme—provide a clear public- policy basis for a wrongful-discharge claim.

Because I conclude for the foregoing reasons that Dukowitz has a cognizable cause of action for wrong- ful discharge under the public-policy exception to the employment-at-will rule, I respectfully dissent. * * *

CASE QUESTIONS

1. What is the legal issue in this case? What did the Minnesota Supreme Court decide?

2. What is “employment at will”? What role does it play in this case?

3. Why does this court rule for the employer? Why does the dissenting judge (Justice Wright) believe that the employee should have been allowed to go to trial?

4. Do you agree with the court’s decision in this case? Why or why not?

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10 Part 1: Introduction to Employment Law

market (i.e., publicly traded versus privately held companies), but rather to whether the employer is a government agency or a corporation (including private, nonprofit agencies). Public employees make up roughly 15 percent of the workforce. One reason that public employees are a different case has already been mentioned. In general, constitutional pro- tections pertain only to public employees and not to private-sector employees. Beyond this, public employees are often covered by state or municipal civil service laws, collective bar- gaining agreements, and tenure provisions.

Not all comparisons favor public employees. Public employees are subject to restrictions on their political activities, excluded from coverage under the National Labor Relations Act and the Occupational Safety and Health Act, and limited in their ability to sue for violations of federal law. This last point should be underscored. A series of U.S. Supreme Court deci- sions has held, based on the Eleventh Amendment and the broad concept of state sover- eignty, that state governments cannot be sued by their public employees, whether in state or federal court, for violations of such federal employment laws as the Fair Labor Standards Act and the Americans with Disabilities Act (however, the Court reached the opposite deci- sion regarding certain suits brought under the Family and Medical Leave Act).2 Thus, even though these federal laws still apply to state government employees, options for their enforcement are limited.

Unionized or Nonunion Workplace When employees opt for union representation and negotiate a collective bargaining agree- ment with their employer, the employer is contractually committed to live up to the terms of the agreement. In contrast to the vast majority of employees who lack employment contracts, unionized employees have many of their terms and conditions of employment spelled out in enforceable labor agreements. These contractual terms typically go well beyond the mini- mum requirements of the law (e.g., by providing for daily overtime rather than the weekly overtime required by federal law). Employers in unionized workplaces are also more limited in their ability to make unilateral changes in workplace practices without first negotiating those changes with unions. Discipline or discharge of a unionized employee is contractually limited to situations where the employer can establish “just cause” for the discipline or dis- charge, which stands in stark contrast to the at-will employment of most non-union workers.

Employer Size The legal environment also varies depending on the size of the employer. Size can be vari- ously construed. For purposes of some statutes, including the Fair Labor Standards Act and the National Labor Relations Act, size is measured in financial terms and coverage is limited to employers that exceed a minimum level of revenue. More often, statutes specify a minimum employer size in terms of number of employees. For instance, both Title VII of the Civil Rights Act and the Americans with Disabilities Act limit coverage to companies that have fifteen or more employees, the Age Discrimination in Employment Act applies to employers with twenty or more employees, and the Family and Medical Leave Act applies only to employers with fifty or more employees.

These size limitations are not trivial. Table 1.1 shows that almost 90 percent of firms in the United States had fewer than twenty employees in 2014. This means that the vast major- ity of firms remain outside the reach of federal employment laws. There are two countervail- ing factors to consider, however. First, the minority of companies that are covered nonetheless employ most U.S. workers (because each larger company employs many more people). Thus,

2 Alden v. Maine, 527 U.S. 706 (1999); University of Alabama v. Garrett, 531 U.S. 356 (2001); Nev. Dep’t of Human Res. v. Hibbs, 538 U.S. 721 (2003); Coleman v. Ct. of App. of Md., 132 S. Ct. 1327 (2012).

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Chapter 1: Overview of Employment Law 11

the approximately 10 percent of all firms that had twenty or more employees in 2014 employed almost 83 percent of the workforce. The second important factor is that most states have enacted laws that mirror federal employment laws and that apply to smaller workplaces. For example, the Ohio Civil Rights Act covers employees whose employer has four or more employees.3 Thus, in Ohio, employers with between four and fourteen employ- ees would fall under state antidiscrimination law, but not federal law, whereas employers with fifteen or more employees would be subject to both federal law and state law. Only employers with fewer than four employees would not be subject to civil rights statutes.

There is another aspect to the size issue. Counting the number of employees that an employer has is more complex than it first appears. For one thing, employment lev- els can change rapidly. A smaller company could easily vacillate above and below the minimum  number of employees specified in a statute. When must the employer have the requisite number of employees? At the time of the alleged violation? When the claim is filed? Over some longer period of time? Part-time employees present another complication. Should part-time employees be counted the same as full-time employees?

Congress addressed these questions partially in Title VII of the Civil Rights Act of 1964 (parallel language appears in other employment statutes). An employer is defined as someone “who has fifteen or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year. . . .”4 “Current” calendar year refers to the year in which the alleged discrimination occurred. The Supreme Court has ruled that the proper method for counting employees is the payroll method. Under this method, an employee is counted for each full week between when she is hired and when she leaves employ- ment, regardless of the number of days or hours the employee worked during those weeks.5

Geographic Location An employee’s rights are affected by where he happens to live. Some states and cities go much further than others, and also further than the federal government, in conferring rights on workers. States and cities have become increasingly important as sources of employment laws in recent years. The interrelationship between federal and state laws is a complex legal matter. At the risk of oversimplification, states are usually free to enact laws pertaining to issues not addressed by federal law. State laws also can match or exceed the protections

3 O.R.C. Ann. § 4112.01(A)(2) (2017). 4 42 U.S.C.S. § 2000e(b) (2017). 5 Walters v. Metropolitan Educational Enterprises, Inc., 117 S. Ct. 660 (1997).

TABLE 1.1 EMPLOYMENT SIZE OF FIRMS (2014)

E m Pl oym E n t Si z E ( no. of E m Pl oy E E S )

f i r m S E m Pl oy E E S

N % N %

0–4 3,598,185 61.8 5,940,248 4.9

5–9 998,953 17.1 6,570,776 5.4

10–19 608,502 10.4 8,176,519 6.8

20–99 513,179 8.8 20,121,588 16.6

100–499 87,563 1.5 17,085,461 14.1

5001 19,076 0.3 63,175,352 52.2

Total 5,825,458 99.9 121,069,944 100.0

Source: Adapted from U.S. Census Bureau, 2014 SUSB Annual Data Tables by Establishment Industry, viewed June 30, 2017 (http://www.census.gov/).

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available under federal laws dealing with the same matters, but they cannot reduce the rights that employees have under federal law. Thus, state laws are important not only because they reach smaller workplaces than federal employment laws, but also because they sometimes provide employees with rights not available under federal law. Examples of state laws that exceed federal law include higher minimum wages in some states, laws regulating the han- dling of personnel records, limitations placed on drug testing, and explicit prohibitions against discrimination based on sexual orientation.

Government Contracts Federal, state, and local governments sometimes use the contracting process as leverage to get employers to implement desired workplace practices. Employers that contract to do business with the federal government (e.g., defense contractors, construction companies, and computer suppliers) and that meet certain other criteria are required to engage in affir- mative action as a condition of their contracts. Likewise, both the Drug-Free Workplace Act (requiring that employers take certain actions to stop workplace drug use) and the Rehabilitation Act (prohibiting discrimination against and requiring affirmative action on behalf of disabled persons) apply to private employers based on their contracts with the federal government.

Industry and Occupation Most employment laws apply to any industry, but some are more narrowly targeted. For example, the Omnibus Transportation Employees Testing Act of 1991 mandates extensive drug (and alcohol) testing, but only for employees in industries regulated by the Department of Transportation (e.g., airlines, railroads, and trucking companies). Likewise, employees in the historically dangerous mining industry are not covered under the Occupational Safety and Health Act, but instead under a separate statute, the Mine Safety and Health Act. Agricultural workers, despite their generally poor working conditions, are wholly or partly excluded from the protection of many employment laws, including the National Labor Relations Act, the Fair Labor Standards Act, and state workers’ compensation statutes. An important example of an occupation-based distinction is the National Labor Relations Act’s exclusion of supervisors and managers.

Historical Development of U.S. Employment Law Detailing what the law said previously and how it has changed over time is beyond the scope of this book. However, you should have some sense of when employment laws came into existence. Figure 1.1 is a timeline of major employment laws (ignoring, for the most part, amendments to these laws).

At the turn of the twentieth century, employment law was virtually nonexistent in the United States. The first significant departure from an unregulated workplace was the adop- tion of state workers’ compensation laws to deal with the severe problem of injured work- ers. A major breakthrough came in the 1930s, when the National Labor Relations Act and the Fair Labor Standards Act were enacted. Employment law took large strides forward in the 1960s with the passage of major antidiscrimination statutes, including Title VII of the Civil Rights Act, the Age Discrimination in Employment Act, and the Equal Pay Act. Common law claims, particularly for wrongful discharge, came into vogue in the late 1970s and throughout the 1980s. Benefits have been the target of a number of employment laws since the 1970s, with health insurance, pensions, and leaves being at the center of recent legislative efforts.

Legislation does not emerge in a vacuum. Many of our employment laws reflect the work of social movements, organized efforts to create needed changes in workplaces and society.

Practical Considerations How should employers that operate in different states and cities deal with lack of uniformity in employment laws?

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Figure 1.1 timeline of major U.S. Employment laws

1900 Workers’ Compensation (most states between 1911 and 1920)

1920 Railway Labor Act (1926)

National Labor Relations Act (Wagner Act) (1935)

Social Security Act (1935)

Fair Labor Standards Act (1938)

1940 Labor–Management Relations Act (Taft–Hartley Act) (1947)

1960 Equal Pay Act (1963)

Title VII of the Civil Rights Act (1964)

Executive Order 11246 (1965)

Age Discrimination in Employment Act (1967)

1970 Occupational Safety and Health Act (1970)

Rehabilitation Act (1973)

Employee Retirement Income Security Act (1974)

Pregnancy Discrimination Act (1978)

1980 Common Law Wrongful Discharge Claims (The majority of states adopted one or more of these laws from the late 1970s through the 1980s.)

Consolidated Omnibus Budget Reconciliation Act (COBRA) (1985)

Immigration Reform and Control Act (1986)

Employee Polygraph Protection Act (1988)

Worker Adjustment and Retraining Notification Act (1988)

1990 Americans with Disabilities Act (1990)

Older Workers Benefit Protection Act (1990)

Civil Rights Act of 1991 (1991)

Family and Medical Leave Act (1993)

Uniformed Services Employment and Reemployment Rights Act (1994)

Health Insurance Portability and Accountability Act (1996)

2000 Pension Protection Act (2006)

ADA Amendments Act (2008)

Genetic Information Nondiscrimination Act (2008)

Patient Protection and Affordable Care Act (2010)

The workers’ compensation statutes adopted in the early part of the twentieth century were influenced by the progressive movement, which addressed the social problems of that time. The National Labor Relations Act was enacted in 1935 during the early part of the New Deal and in the depths of the Depression. The act both reflected and furthered the efforts of ordi- nary workers and their unions, joined together in the labor movement, to gain some control over their work lives. Likewise, the Civil Rights Act of 1964 was a crowning achievement of the civil rights movement. The civil rights movement had to overcome enormous opposition to obtain legislation protecting the basic civil rights of all people, and the struggle to real- ize this law’s promise continues. Thus, although we will focus on the effects of employment laws on the human resources practices of companies, our employment laws mean much more than that: They are windows into important periods in our history, express basic soci- etal values, and represent hard-won accomplishments that should not be taken for granted.

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The timeline in Figure 1.1 covers more than a century, but most of the laws are clustered in the second half of this period. As a consequence, many interesting legal questions have yet to be resolved by the courts. Is there “too much” employment law now? Certainly, in comparison to the not-so-distant past, the workplace is far more regulated than it used to be. At the same time, U.S. employers enjoy considerably more freedom to make and carry out human resources decisions as they see fit than do employers in most of the other major industrialized nations in the world, particularly in Europe.

Procedures for Enforcing Employment Laws Simply conferring rights on employees is not enough. Means of enforcing those rights must be available when employers do not live up to their legal responsibilities. TV lawyers get cases and emerge victorious in the space of a single episode. In the real world, the pro- cess of resolving employment disputes is anything but simple and quick. A wide variety of enforcement procedures exist for bringing and resolving claims related to violations of employment laws. The applicable procedure depends on the particular law that forms the basis for the claim. However, it is possible to convey some of the more typical ways in which employment law claims proceed.

What Does an Employee Decide to Do When She Believes That Her Rights Were Violated? In a few situations, employment laws are enforced by government agencies at their own initiative, such as when OSHA elects to inspect a workplace based on the occurrence of a serious accident or because it operates in a particularly dangerous industry. However, as a general rule, both the courts and government agencies rely on employees to come for- ward with complaints before enforcement actions are undertaken. Thus, the decision of an employee to challenge some action of her employer is a key part of the enforcement process.

Although there are undoubtedly some frivolous claims brought against employers, it is a mistake to assume that most employee complaints are baseless and rooted in opportunism. Contesting one’s employer in the legal system is an expensive, protracted, uncertain, and emotionally draining process.6 Most likely, the cases that are brought are just the tip of the iceberg. Most employees who have their rights violated by their employers do something other than take legal action: They quit, join a union, withhold commitment and discretion- ary effort, just let it go, or talk it over with the employer and work things out. Ultimately, although no employer can be expected to like it, our system of employment law depends on employees being willing to come forward and assume the burden of taking legal action, both to remedy the harm that was done to them as individuals and to uphold public policy.7

How Long Does the Employee Have to Bring a Case? An important feature of any enforcement procedure is the length of time that an aggrieved person has to come forward with a complaint. This is the limitations period. Time lim- its for filing lawsuits or charges with administrative agencies vary. Unfair labor practice charges must be brought to the National Labor Relations Board within six months of their occurrence. In discrimination cases, employees generally have 300 days to file a charge with the Equal Employment Opportunity Commission (EEOC) (180 days in states that do not have their own state civil rights agencies), but only 90 days to file suit if the EEOC’s efforts

6 Deborah L. Rhode. “Litigating Discrimination: Lessons from the Front Lines.” Journal of Law & Policy 20 (2012), 325. 7 McKennon v. Nashville Banner Publishing Co., 115 S. Ct. 879, 884 (1995).

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to resolve the case conclude unsuccessfully. Wage and hour cases brought under the Fair Labor Standards Act can go back as far as three years. A major practical consequence is that employers must be prepared to defend actions taken well in the past by individuals who might no longer work for their companies. The only way to do this is to maintain solid documentation regarding all human resources decisions.

Employees who fail to bring charges in a timely fashion generally lose their right to pursue legal action. The clock usually starts ticking on the limitations period when the employee receives unequivocal written or oral notice of a decision (e.g., termination), rather than on the effective date of that decision (if these differ). However, if an employee is unaware of her rights because she was actively misled by her employer or the employer failed to meet its legal obligation to post information in the workplace, a court might excuse an untimely fil- ing.8 This is known as equitable tolling. This doctrine is applied sparingly and generally does not shield employees from the consequences of negligent legal representation. Thus, when an employee’s religious discrimination lawsuit was filed late due to a clerical error made by her lawyer’s office, the employee’s suit was dismissed for lack of timeliness.9 How- ever, when an employee’s legal representatives mistakenly filed a timely claim with the wrong federal enforcement agency and the mistake was not corrected until after the limitations period had expired, the employee’s case was allowed to proceed. In deciding to toll the dead- line for filing in this case, the court pointed to the facts that the employee’s lawyers had exercised due diligence in pursuing her claim by promptly filing the charge and repeatedly contacting the agency—which, for its part, inexplicably failed to correct the error and merely informed the lawyers that it was still investigating the case.10

When applying limitations periods to discrimination cases, courts distinguish between “discrete acts” (such as nonhiring and termination) that occur at particular points in time and acts that recur and have a cumulative impact. Repeated acts of harassment that, over time, create a “hostile environment” are a prime example of the latter. Employees who claim that they were subjected to a hostile environment can challenge all of the harassing acts, even if these go back well beyond the limitations period, provided that at least one incident of harassment occurred during the limitations period.11 Sometimes, employees claim that harassment or other discriminatory treatment leaves them with no option but to resign. An employee who quits under these circumstances is sometimes found to have been “construc- tively discharged” (see Chapter 16). The Supreme Court has said that the limitations period in such cases begins when the employee gives notice of her resignation, rather than on the date of the last discriminatory act that prompted the employee to quit.12

What about pay discrimination in this light? Is it a discrete act in which a decision is made at a particular point in time to pay an employee a discriminatorily low amount? Or is it an ongoing violation that recurs with each paycheck that is lower than it ought to be if discrimina- tion had not occurred? The Supreme Court had said that it was the former,13 but Congress subsequently enacted the lilly ledbetter fair Pay Act, which established that each discrimi- natorily low paycheck is a separate violation that starts the limitations period anew.14 An unlaw- ful employment practice occurs “when an individual is affected by application of a discriminatory compensation decision or other practice, including each time wages [are] . . . paid.”15

8 Mercado v. The Ritz Carlton San Juan Hotel, Spa & Casino, 410 F.3d 41 (1st Cir. 2005). 9 Harris v. Boyd Tunica Inc., 628 F.3d 237 (5th Cir. 2010). 10 Granger v. Aaron’s Inc., 2011 U.S. App. LEXIS 5995, 10–12 (5th Cir.). 11 National Railroad Passenger Corporation v. Morgan, 536 U.S. 101 (2002). 12 Green v. Brennan, 136 S. Ct. 1769 (2016). 13 Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007). 14 Pub. L. No. 111–2, 123 Stat. 5 (2009). 15 42 U.S.C.S. § 2000e-5 (e)(3)(A) (2017).

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Can a Lawsuit Be Brought? By Whom? Most employment laws enable employees to enforce their rights through lawsuits against their employers. The Occupational Safety and Health Act is an exception in this regard. When an employee believes that a safety hazard exists in his workplace, he needs to contact OSHA and get an inspector to come. If the inspector does not agree that there is a problem and the employer is not cited, no course of legal action is available to the employee. Likewise, if the appropriate officials of the National Labor Relations Board decline to bring a complaint regarding an alleged unfair labor practice, the employee is out of luck. Suits in discrimination cases can be brought by individuals or the EEOC. However, because the EEOC goes to court in only a very small percentage of the cases it receives, the burden of taking legal action to enforce antidiscrimination laws falls mainly on individual employees. Finding an attorney willing to take an employment law case, particularly on a contingent fee basis (the attorney incurs most of the cost of litigation with the promise of a substantial share of any award if the litigation is successful), can be difficult. Employment lawyers accept only an estimated 5 percent of the employment discrimination cases brought to them. Lower-wage workers, for whom provable damages are relatively low, are particularly likely to have their cases turned away.16

A great deal happens between when a lawsuit is filed and when the case is actually heard in court (if it ever gets that far). Considerable managerial time is spent responding to requests for records, answering interrogatories (sets of questions), and giving sworn deposi- tions (statements) regarding the facts of the case. If you are involved in making human resources decisions, you can expect to experience this part of the litigation process firsthand. The best advice is to answer questions truthfully and succinctly and to have documentation to back you up. Settlement negotiations are likely, both at this point and throughout the course of the litigation. Settlements are a common outcome of litigation.17

Employment law cases are brought in both state and federal courts. Where the case will end up depends on such factors as the legal basis for the claim, where the parties to the

16 Elizabeth Hill. “Due Process at Low Cost: An Empirical Study of Employment Arbitration under the Auspices of the American Arbitration Association.” Ohio State Journal on Dispute Resolution, 18 (2003), 777–783. 17 Laura Beth Nielsen, Robert Nelson, and Ryon Lancaster. “Individual Justice or Collective Legal Mobilization? Employment Discrimination Litigation in the Post Civil Rights United States.” Journal of Empirical Legal Studies 7, 2 (2010), 184–88.

J U S T T H E FAC T S

A nurse’s aide alleged that on August 22, 2012, she was attacked while cleaning a resi- dent’s room by a male coworker who attempted to rape her. She was able to escape and reported the attack to the nursing home’s managers. However, following this inci- dent, managers starting saying that she had fabricated the whole thing and her work hours were changed without notice. Coworkers also started to exhibit hostility toward her, saying that she was a “liar,” refusing to work with her, and in one instance, spill- ing hot coffee on her. After her request for transfer to another unit was denied, the woman resigned on September 11, 2012. She filed a discrimination charge with the EEOC on July 3, 2013. When she later filed suit in federal court, the nursing home moved to have the case dismissed because her EEOC charge had not been timely. What should the court decide? Why?

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case reside or are incorporated, and the strategic choices of the parties. A case that goes into the federal court system starts at the district court (trial court) level. The role of the district court is to establish the facts of the case and to reach a decision about the employee’s claim(s). However, many cases filed against employers are dismissed without a trial (this is usually called granting summary judgment) because the court determines that even if the allegations of the plaintiff (the employee who is suing) are accepted as true, they are not sufficient to support a legal claim. Hence, there are no material facts in dispute that would warrant holding a trial. If a case does go to trial, the plaintiff bears the burden of proof to show, generally by a “preponderance” (the majority) of the evidence, that his rights were violated. Cases that go to trial are sometimes decided by juries (a jury trial) and other times by judges (a bench trial).

District court decisions can be appealed by either party to a federal appeals court (cir- cuit court). Appeals courts typically accept the facts of cases as given and focus on whether the lower courts properly applied the law in deciding cases. Appeals court decisions can be appealed to the U.S. Supreme Court. However, because the Supreme Court exercises its discretion as to which cases it hears (when the court decides to hear a case, it issues a writ of certiorari), and it hears relatively few cases each year, rarely does a case go that far. Thus, although you will read about many U.S. Supreme Court decisions in this book, these cases are included because they raise important employment law issues and because the Court has decided them authoritatively, not because they are typical cases.

Judges enjoy considerable latitude in deciding cases. However, while courts sometimes change their minds about the law, they have a strong preference for adhering to prior deci- sions (“precedents”)—or at least giving the appearance of doing so. This desire for consis- tency and stability in the law is captured by the Latin phrase stare decisis (“let the decision stand”).

Class-Action Lawsuits Most lawsuits are brought by one, or perhaps a few, named plaintiffs on behalf of themselves. In class-action lawsuits, plaintiffs sue on behalf of themselves and some larger group of persons. They claim that their rights and those of other class members were violated in essentially the same manner by the defendant. There are procedures for individuals to opt in or out of class-action lawsuits, and any award is shared by the class members.

Class-action lawsuits are controversial. Plaintiffs’ counsels see them as an efficient means for pursuing the claims of many individuals who might not otherwise be able to take legal action, whereas corporate defendants tend to see them as collections of disparate allegations strung together by attorneys seeking to maximize their earnings. The class-action lawsuit is a potent weapon for plaintiffs. The prospect of facing a team of lawyers seeking substantial damages on behalf of a large group of plaintiffs is obviously of great concern to an employer. An employer that fails to obtain dismissal of a class-action suit has an especially strong incentive to settle the case rather than risk the outcome of a jury trial.

A key initial determination that must be made in these cases is whether multiple persons have claims that are sufficiently similar to justify their certification as a “class.” In 2011, the Supreme Court was presented with the question of whether a class-action sex discrimination suit brought on behalf of more than a million current and former Wal-Mart employees could go forward. The Court ruled that the plaintiffs had failed to meet the criteria for certifying a class under the applicable Federal Rules of Civil Procedure.18 The details of these rules go beyond the scope of this book, but in general they require plaintiffs to show that all members of the proposed class suffered the same legal injury, that it is not practical to directly involve so many plaintiffs and their own lawyers in the litigation, that all class members will be

18 Wal-Mart Stores v. Dukes, 131 S. Ct. 2541 (2011).

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adequately represented, and that the types of damages sought and underlying legal claims are consistent with class-based litigation. As the Supreme Court put it in the Wal-Mart case, “[t]he crux of this case is commonality.”19 When the requisite commonality is present, deter- mination of the truth or falsity of some aspect of a given class member’s case “will resolve an issue that is central to the validity of each one of the claims in one stroke.”20 The Wal-Mart plaintiffs’ argument that they were victims of the same “policy” in the form of decentralized decision making that allowed store managers to indulge in stereotyping and discrimination when making pay and promotion decisions failed to impress the Court. The many different ways in which managers might have used their discretion when making employment deci- sions was “the opposite of a uniform employment practice that would provide the common- ality needed for a class action.”21 Importantly, although this case decided only the issue of class certification, the Court indicated that determining the commonality of claims often overlaps with consideration of the merits of those claims, requiring judges—rather than juries—to make early assessments of whether discriminatory practices are affecting all mem- bers of proposed classes. Lastly, the Court found fault with the plaintiffs’ attempt to use class-based litigation to obtain individualized monetary damages and not simply a court order or other relief that would necessarily apply to employees as a group.

The Supreme Court’s resounding rejection of the Wal-Mart plaintiffs’ effort to achieve class standing sent a strong message that future class-action lawsuits would be more closely scrutinized and classes less likely to be certified, particularly in the realm of discrimina- tion cases where the circumstances of individual plaintiffs are apt to vary. Plaintiffs in sub- sequent cases have, in fact, encountered difficulty advancing class-based discrimination lawsuits.22 Such claims appear to have a much better chance of achieving class certification if they involve smaller numbers of employees employed by the same establishment.23 Indeed, even the sex discrimination case against Wal-Mart has continued to be pressed by smaller, less geographically dispersed groups of Wal-Mart employees.24 Class-based wage and hour claims have been very prominent in recent years, but also stand to be limited by the Supreme Court’s Wal-Mart decision.25 The practical effect of these technical legal issues is quite real: While class-action lawsuits are still being brought in significant numbers, the ability of employees to effectively challenge the policies and practices of large corporations has been diminished.

Is There an Administrative Prerequisite to a Lawsuit? Some employment laws require that a charge be filed with an administrative agency (e.g., the EEOC or the Wage and Hour Division of the Department of Labor) and that the agency be given the chance to resolve the matter before an employee can go to court. In discrimination cases, an employee usually starts by filing a charge with either the EEOC or a state fair employment practice agency. The EEOC takes a number of steps in regard to the cases it receives, including investigating to determine whether there is “reasonable cause” to believe that discrimination has occurred. If the EEOC finds that discrimination likely occurred, it is not empowered to fine employers or require that they remedy their discrimination. Instead, the agency undertakes a conciliation process in which it becomes a party to

19 Wal-Mart Stores, 2550–2551. 20 Wal-Mart Stores, 2551. 21 Wal-Mart Stores, 2554. 22 Ealy v. Pinkerton Government Services, 2013 U.S. App. LEXIS 5122 (4th Cir.); Davis v. Cintas, 2013 U.S. App. LEXIS 10856 (6th Cir.) 23 Brown v. Nucor Corp., 785 F.3d 895 (4th Cir. 2015). 24 Phipps v. Wal-Mart Stores, 792 F.3d 637 (6th Cir. 2015), cert. denied, 2016 U.S. LEXIS 1499. 25 Aburto v. Verizon California, 2012 U.S. Dist. LEXIS 329 (C.D. Cal.); Leyva v. Medline Industries, 2013 U.S. App. LEXIS 10649 (9th Cir.).

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settlement negotiations with the employer. The EEOC has considerable discretion in how it goes about conciliating and in deciding whether to accept settlement offers, but its statutory duty to conciliate requires at a minimum that it inform employers of its finding of discrimi- nation, offer to conciliate, and give the employer an opportunity to remedy the alleged discriminatory practice.26

If the EEOC dismisses a case or fails to achieve conciliation between the parties, it issues a right to sue letter to the employee alleging discrimination. Only then is the employee able to commence a lawsuit. Other types of legal claims, such as breach of contract or negligence, can proceed directly to court.

Must the Employee Exhaust Internal Dispute Resolution Mechanisms Before Proceeding? If an employer has a complaint or grievance procedure, the employee does not usually have to use the internal procedure before taking the case to an enforcement agency or court. However, this is an area of the law where profound changes are occurring. The Supreme Court has held that an employer may be able to escape liability for harassment engaged in by a supervisor when an employee unreasonably refuses to avail herself of the employer’s complaint procedure.27 An even more fundamental change has been the rise of alternative dispute resolution procedures intended to take the place of lawsuits (see “The Changing Workplace” feature).

26 Mach Mining, LLC v. EEOC, 135 S. Ct. 1645, 1655–1656 (2015). 27 Faragher v. City of Boca Raton, 524 U.S. 775 (1998).

There is great interest in alternative dispute resolution (ADR) procedures in all areas of the law. Alternative dis- pute resolution procedures are alternatives to going to court to resolve disputes. Enthusiasm for ADR stems from the belief that these procedures are less expen- sive, quicker, more private, and less damaging to rela- tionships than litigation. Two of the most frequently used types of ADR are mediation and arbitration. In mediation, a neutral third party (the mediator) facili- tates negotiations between the disputing parties to help them reach an agreement, but does not have the authority to decide the dispute or impose a settlement. In arbitration, a neutral third party (the arbitrator) func- tions more like a private judge. Arbitrators hear disputes and render decisions that are almost always final and binding on the parties.

The EEOC encourages the parties to discrimination charges to use mediation. Rather than decide whether there has been a violation of the law, the mediator (a trained EEOC staff member or contractor) focuses on helping the parties “jointly explore and reconcile their

differences.” Typically undertaken prior to EEOC inves- tigation of a charge, mediation is voluntary and confi- dential. If it proves unsuccessful, the case reverts to the typical EEOC enforcement procedure of investigation, conciliation, and possible litigation. The EEOC’s media- tion program achieved a 76.6 percent settlement rate in fiscal year 2012, resolving discrimination charges in 8,714 of the 11,376 mediations conducted in that year.1 Cases that went through mediation in 2012 were resolved in an average of 101 days, compared to the average of 200 days consumed by the EEOC’s investigative process.2

Arbitration has, for decades, been the principal means of enforcing employee rights under collective bargaining agreements in unionized workplaces. This use of arbitration essentially establishes, through collec- tive bargaining, a private system for resolving disputes about violations of private contractual agreements. What has changed is that many nonunion employers are now requiring arbitration agreements as a condition of employment and arbitration is being used to resolve all employment law disputes—not simply contractual

T H E C H A N G I N G W O R K P L AC E

Alternative Dispute Resolution Procedures

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ones. To get (or keep) their jobs, employees have to sur- render the ability to go to court to vindicate their rights as employees, and they have to do so prior to any dis- putes arising.

Precise, current estimates of the extent of ADR use in the workplace are lacking. A 2008 survey of corporate counsel found that some 25 percent of firms required arbitration agreements with their nonunion employees.3 But a more recent study based on a national survey of private sector businesses found that more than half (53.9  percent) of the surveyed establishments required their employees to arbitrate any disputes with them.4 Extrapolating from the survey results to the entire work- force, the researchers estimated that some 60 million workers no longer have access to the courts and are limited to using arbitration instead.5 Overall, it is clear that the use of arbitration agreements with private sec- tor, nonunion employees has increased substantially over the past several decades and is now fairly widespread.

Whether the ability of employees to vindicate their rights is enhanced or diminished by the use of arbitra- tion agreements is a disputed matter.6 One important study of the effects of arbitration agreements in employ- ment found that cases were resolved considerably more quickly than in litigation, but that employee win rates and awards were lower than those found in some prior

studies of litigation outcomes.7 Research has also pro- vided evidence of a “repeat-player” advantage for employers that fared better due to prior experience with the arbitration process and particular arbitrators.8 Over- all, it appears that the use of mandatory arbitration agreements disadvantages employees in some respects, although reliance on the courts has its own problems.

1 U.S. Equal Employment Opportunity Commission. “EEOC Mediation Statistics FY 1999 through FY 2012.” Viewed June 27, 2013 (http://www1.eeoc.gov/mediation/mediation_stats.cfm). 2 U.S. Equal Employment Opportunity Commission. “Questions and Answers about Mediation.” Viewed June 27, 2013 (http:// www.eeoc.gov/eeoc/mediation/qanda.cfm). 3 Charles D. Coleman. “Is Mandatory Arbitration Living up to Its Expectations? A View from the Employer’s Perspective.” ABA Journal of Labor & Employment Law 25, 2 (2010), 227–239. 4 Alexander J.S. Colvin. The Growing Use of Mandatory Arbitration. Report for the Economic Policy Institute (September 27, 2017). 5 Colvin (2017). 6 David Schwartz. “Mandatory Arbitration and Fairness.” 84 Notre Dame Law Rev. 1247 (2009). 7 Alexander J. S. Colvin. “An Empirical Study of Employment Arbitration: Case Outcomes and Processes.” Journal of Empirical Legal Studies 8, 1 (2011), 5. 8 Alexander J. S. Colvin and Mark D. Gough. “Individual Employment Rights Arbitration in the United States: Actors and Outcomes.” Industrial & Labor Relations Review 68, 5 (2015), 1019–1042.

Enforceability of Arbitration Agreements It is clear that agreements requiring employees to use arbitration rather than the courts as the means of resolving employment law claims are generally enforceable. In a case involving an arbitration agreement between a broker and the New York Stock Exchange (NYSE), the Supreme Court ruled that the broker would have to use the NYSE’s arbitration procedure rather than the courts to pursue an age discrimination claim against his employer. Quoting an earlier case, the Court minimized the differences between arbitration and litigation: “by agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.”28 In a subsequent case that specifically considered employees, the Supreme Court decided that arbitration agreements between employers and employees are covered under the federal Arbitration Act (fAA) and thus generally enforceable (but not when transportation workers are involved, owing to exclusionary language included in the statute).29 The FAA, enacted by Congress in 1925, requires courts to enforce most written arbitration agreements. The Court’s evident enthusiasm for arbitration does not mean that arbitration agreements will always be enforced. In a case involving a disability discrimination suit brought by the EEOC on behalf of an employee who had signed an arbitration agreement, the Supreme Court

28 Gilmer v. Interstate/Johnson Lane Corporation, 500 U.S. 20, 26 (1991). 29 Circuit City Stores v. Adams, 121 S. Ct. 1302 (2001).

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decided that the agency’s suit was not barred by the agreement and that it could seek to recover victim-specific remedies, including back pay and reinstatement.30 Thus, even with a signed arbitration agreement in hand, an employer is still subject to administrative pro- ceedings and possibly a lawsuit brought on behalf of an employee by an administrative agency. Another issue is that arbitration provisions in the collective bargaining agreements of unionized employees will not bar litigation over violations of individuals’ legal rights unless the contract language “clearly and unmistakably” requires arbitration of both legal and contractual disputes.31 To meet this standard, a collective bargaining agreement “must, at the very least, identify the specific statutes the agreement purports to incorporate or include an arbitration clause that specifically refers to statutory claims.”32

There are additional limitations on the enforceability of mandatory arbitration agree- ments. Fundamentally, arbitration agreements are contracts. Courts decline to enforce con- tracts when fraud is involved, the contract was entered into under extreme duress, or the contract is unconscionable. Contracts are unconscionable when the process of contract formation essentially involves a “take it or leave it” offer of an agreement drafted by a more powerful party (a “contract of adhesion”) and when the contents of the agreement unrea- sonably favor the more powerful party. Arbitration agreements have sometimes not been enforced by courts (i.e., the employee was allowed to go to court despite the existence of the agreement) on the grounds that they are unconscionable. Chavarria v. Ralphs Grocery Company is one such case.

Some courts require more than a contract drafted by a more powerful party and offered on a take-it-or-leave-it basis to establish that an agreement is procedurally unconscionable. Courts may also inquire into the education and legal sophistication of the employee, and whether details of the agreement were adequately explained or hidden away amidst copious fine print.33 But in any event, the question of enforceability most often turns on the contents of these agreements (i.e., whether they are also substantively unconscionable). As in the Chavarria case, one area of particular concern is the procedure for selecting an arbitrator. An essential requirement for a fair arbitration is neutrality. Arrangements that give the employer effective control over who can arbitrate a case or require the use of arbitrators with business ties to the employer are unlikely to be enforced.34 Also consistent with the Chavarria

30 Equal Employment Opportunity Commission v. Waffle House, Inc., 534 U.S. 279 (2002). 31 14 Penn Plaza LLC v. Pyett, 129 S.Ct. 1456 (2009). 32 Ibarra v. UPS, 695 F.3d 354, 360 (5th Cir. 2012). 33 Morrison v. Wal-Mart Stores, 317 F.3d 646, 666–67 (6th Cir. 2003). 34 McMullen v. Meijer, 355 F.3d 485 (6th Cir. 2004); Rodriguez v. Windermere Real Estate/Wall Street, Inc., 2008 Wash. App. LEXIS 214 (Div. One), review denied, 164 Wn.2d 1017 (2008).

Clippings Tara Zoumer was fired when she refused to sign an arbitration agreement required by her employer, WeWork, a rapidly growing start-up firm that rents office space to entrepreneurs. In its embrace of arbitration, WeWork joined Uber, Lyft, and numer- ous other tech start-up firms. WeWork contends that arbitration is part of a multi- step dispute resolution process that is more collaborative than litigation and fully consistent with the company’s principles. San Francisco‒based employment lawyer Cliff Palefsky has a decidedly less positive view, observing that these firms “give their young workers Ping-Pong tables and take away their constitutional rights.”

SOURCE: Jessica Silver-Greenberg and Michael Corkery. “Start-ups Turn to Arbitration in Workplace.” New York Times (May 15, 2016), A1.

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OPINION BY CIRCUIT JUDGE CLIFTON:

* * * I. Background

Plaintiff Zenia Chavarria completed an employment application seeking work with Defendant Ralphs Grocery Company. Chavarria obtained a position as a deli clerk with Ralphs and worked in that capacity for roughly six months. After leaving her employment with Ralphs, Chavarria filed this action, alleging on behalf of herself and all similarly situated employees that Ralphs violated various provisions of the California Labor Code and California Business and Professions Code. Ralphs moved to compel arbitration of her individual claim pursuant to an arbitration policy incorporated into the employment application. Chavarria opposed the motion, arguing that the arbitration agreement was unconscionable under California law.

By completing an employment application with Ralphs, all potential employees agree to be bound by Ralphs’ arbitration policy. The application contains an acknowledgment that the terms of the mandatory and binding arbitration policy have been provided for the applicant’s review. Ralphs’ policy contains several provisions central to this appeal.

Paragraph 7 governs the selection of the single arbi- trator who will decide the dispute. It provides that, unless the parties agree otherwise, the arbitrator must be a retired state or federal judge. It explicitly prohibits the use of an administrator from either the American Arbitration Association (“AAA”) or the Judicial Arbitration and Mediation Service (“JAMS”).

If the parties do not agree on an arbitrator, the policy provides for the following procedure:

(1) Each party proposes a list of three arbitrators; (2) The parties alternate striking one name from the

other party’s list of arbitrators until only one name remains;

(3) The party “who has not demanded arbitration” makes the first strike from the respective lists; and

(4) The lone remaining arbitrator decides the claims.

In practice, the arbitrator selected through this pro- cess will invariably be one of the three candidates nomi- nated by the party that did not demand arbitration.

Paragraph 10 concerns attorney and arbitration fees and costs. It specifies that each party must pay its own attorney fees, subject to a later claim for reimbursement under applicable law. The provision regarding arbitra- tion fees, including the amount to be paid to the arbi- trator, is more than a little convoluted. Ultimately, it provides that the arbitrator’s fees must be apportioned at the outset of the arbitration and must be split evenly between Ralphs and the employee unless a decision of the U.S. Supreme Court directly addressing the issue requires that they be apportioned differently.

Paragraph 13 of the policy permits Ralphs to unilat- erally modify the policy without notice to the employee. The employee’s continued employment constitutes acceptance of any modification.

The district court held that Ralphs’ arbitration pol- icy was unconscionable under California law, and it accordingly denied Ralphs’ motion to compel arbitra- tion. Ralphs appeals the district court’s denial under [the Federal Arbitration Act].

II. Discussion

* * * The FAA provides that any contract to settle a dispute by arbitration shall be valid and enforceable, “save upon such grounds as exist at law or in equity for the revocation of any contract.” This provision reflects both that (a) arbitration is fundamentally a matter of contract, and (b) Congress expressed a “liberal fed- eral policy favoring arbitration.” Arbitration agree- ments, therefore, must be placed on equal footing with other contracts.

Like other contracts, arbitration agreements can be invalidated for fraud, duress, or unconscionability. A  defense such as unconscionability, however, can- not justify invalidating an arbitration agreement if the defense applies “only to arbitration or [derives its] meaning from the fact that an agreement to arbitrate is at issue.” * * * No single rule of unconscionability uniquely applicable to arbitration is at issue in this case. We must therefore apply California’s general principle of contract unconscionability. * * *

A. Unconscionability under California law Under California law, a contract must be both proce- durally and substantively unconscionable to be ren- dered invalid. California law utilizes a sliding scale

Chavarria v. Ralphs Grocery Company 773 F. 3d 916 (9th Cir. 2013)

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to determine unconscionability—greater substantive unconscionability may compensate for lesser procedural unconscionability. * * *

1. Procedural Unconscionability Procedural unconscionability concerns the manner in which the contract was negotiated and the respective cir- cumstances of the parties at that time, focusing on the level of oppression and surprise involved in the agree- ment. Oppression addresses the weaker party’s absence of choice and unequal bargaining power that results in “no real negotiation.” Surprise involves the extent to which the contract clearly discloses its terms as well as the reasonable expectations of the weaker party.

The district court held that Ralphs’ arbitration policy was procedurally unconscionable for several reasons. The court found that agreeing to Ralphs’ policy was a condition of applying for employment and that the policy was presented on a “take it or leave it” basis with no opportunity for Chavarria to negotiate its terms. It further found that the terms of the policy were not pro- vided to Chavarria until three weeks after she had agreed to be bound by it. This additional defect, the court held, multiplied the degree of procedural unconscionability. Ralphs argues that the policy is not procedurally uncon- scionable because Chavarria was not even required to agree to its terms. Ralphs bases this contention on a provision in the employment application that provides, “Please sign and date the employment application . . . to acknowledge you have read, understand & agree to the following statements.” The word “please,” Ralphs con- tends, belies any suggestion of a requirement. Ralphs argues that Chavarria could have been hired without signing the agreement.

Ralphs’ argument ignores the terms of the policy itself, which bound Chavarria regardless of whether she signed the application. The policy provides that “[n]o signature by an Employee or the Company is required for this Arbitration Policy to apply to Covered Disputes.” That Ralphs asked nicely for a signature is irrelevant. The policy bound Chavarria and all other potential employees upon submission of their applications.

These circumstances are similar to others where we have held agreements to be procedurally unconscio- nable. In [an earlier case], we held that an arbitration agreement was procedurally unconscionable under California law because it was imposed upon employ- ees as a condition of their continued employment. We explained, “where . . . the employee is facing an employer with ‘overwhelming bargaining power’ who ‘drafted the contract and presented it to [the employee]

on a take-it-or-leave-it basis,’ the clause is procedurally unconscionable.” Likewise, in [another prior case], we held that “a contract is procedurally unconscionable under California law if it is ‘a standardized contract, drafted by the party of superior bargaining strength, that relegates to the subscribing party only the oppor- tunity to adhere to the contract or reject it.’” Chavarria could only agree to be bound by the policy or seek work elsewhere. Ralphs’ policy meets the standard under which we have previously found arbitration provisions in employment contracts to be procedurally unconscio- nable. Further, we have held that the degree of proce- dural unconscionability is enhanced when a contract binds an individual to later-provided terms. Ralphs did not provide Chavarria the terms of the arbitration policy until her employment orientation, three weeks after the policy came into effect regarding any dispute related to her employment. The employment application merely contains a one-paragraph “notice” of the policy. The policy itself is a four-page, single-spaced document with several complex terms. . . . [T]he district court did not err when it held that the policy was procedurally unconscionable.

2. Substantive Unconscionability Chavarria must also demonstrate that Ralphs’ arbi- tration policy is substantively unconscionable under California law. A contract is substantively unconscio- nable when it is unjustifiably one-sided to such an extent that it “shocks the conscience.”

The district court found that several terms rendered Ralphs’ arbitration policy substantively unconscionable. First, the court noted that Ralphs’ arbitrator selection provision would always produce an arbitrator proposed by Ralphs in employee-initiated arbitration proceedings. Second, the court cited the preclusion of institutional arbitration administrators, namely AAA or JAMS, which have established rules and procedures to select a neutral arbitrator. Third, the court was troubled by the policy’s requirement that the arbitrator must, at the outset of the arbitration proceedings, apportion the arbitrator’s fees between Ralphs and the employee regardless of the merits of the claim. The court identified this provision as “a model of how employers can draft fee provisions to price almost any employee out of the dispute resolution process.” The combination of these terms created a pol- icy, according to the court, that “lacks any semblance of fairness and eviscerates the right to seek civil redress. . . . To condone such a policy would be a disservice to the legitimate practice of arbitration and a stain on the cred- ibility of our justice system.”

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* * * Regarding the arbitrator selection provision, Ralphs does not deny that its policy precludes the selec- tion of an arbitrator proposed by the party demanding arbitration. Nor does it deny that the party selecting the arbitrator gains an advantage in subsequent proceedings. * * * Ralphs simply argues that it won’t always be the party that is guaranteed an arbitrator of its choosing. In particu- lar, Ralphs argues that the district court erred in assuming that an employee will always be the party that demands arbitration. Ralphs contends that the opposite is true. In Ralphs’ view, Chavarria, the employee in this case, will wind up with an arbitrator of her choosing because it is Ralphs that demanded arbitration. Ralphs’ logic is thus:

(1) Chavarria brought a claim in federal court; (2) Ralphs filed a motion to compel arbitration; (3) If the court grants the motion, then the case will

go to arbitration; and (4) Ralphs will have “demanded” arbitration and thereby

relinquished the first strike to Chavarria. Chavarria will, under Ralphs’ scenario, strike all three of the arbitrators on Ralphs’ list, and the last remaining arbitrator will necessarily be from Chavarria’s list.

It doesn’t take a close examination of Ralphs’ argu- ment to reveal its flaws. To begin with, Ralphs’ argument invites an employee to disregard the arbitration policy and to file a lawsuit in court, knowing that the claim is subject to arbitration. * * *

Perhaps more to the point, Ralphs’ argument relies on a fanciful interpretation of its arbitration policy. Ralphs’ motion to compel arbitration does not consti- tute a “demand for arbitration” as provided in the policy. Paragraph 9 of the arbitration policy provides that “[a] demand for arbitration . . . must be made in writing, comply with the requirements for pleadings under the [Federal Rules of Civil Procedure] and be served on the other party.” Ralphs’ motion to compel arbitration is not a demand for arbitration under the terms of Ralphs’ pol- icy because it does not comply with the Federal Rules of Civil Procedure requirements governing pleadings. A fair construction of the agreement suggests that an employee, even after filing a frivolous claim in federal court, none- theless must serve on Ralphs a demand for arbitration that complies with the Federal Rules. Accordingly, as the district court found, Ralphs gets to pick the pool of poten- tial arbitrators every time an employee brings a claim.

* * * Ralphs also argues that there is nothing of concern in its cost allocation provision because it simply follows the “American Rule” that each party shall bear its own fees and costs. Ralphs misses the point. The troubling aspect of the cost allocation provision relates to the arbitrator

fees, not attorney fees. The policy mandates that the arbi- trator apportion those costs on the parties up front, before resolving the merits of the claims. Further, Ralphs has designed a system that requires the arbitrator to appor- tion the costs equally between Ralphs and the employee, disregarding any potential state law that contradicts Ralphs’ cost allocation. * * * There is no justification to ignore a state cost-shifting provision, except to impose upon the employee a potentially prohibitive obstacle to having her claim heard. Ralphs’ policy imposes great costs on the employee and precludes the employee from recov- ering those costs, making many claims impracticable.

The significance of this obstacle becomes more apparent through Ralphs’ representation to the district court that the fees for a qualified arbitrator under its policy would range from $7,000 to $14,000 per day. Ralphs’ policy requires that an employee pay half of that amount—$3,500 to $7,000—for each day of the arbitra- tion just to pay for her share of the arbitrator’s fee. This cost likely dwarfs the amount of Chavarria’s claims.

* * * The district court focused its substantive uncon- scionability discussion on these terms, and it was cor- rect in doing so because the terms lie far beyond the line required to render an agreement invalid. We there- fore need not discuss at length the additional terms in Ralphs’ arbitration policy, such as the unilateral modi- fication provision, which we have previously held to support a finding of substantive unconscionability. * * *

III. Conclusion

The arbitration policy imposed by Ralphs on its employ- ees is unconscionable under California law. That law is not preempted by the FAA. We affirm the decision of the district court denying Ralphs’ motion to compel arbitration, and we remand for further proceedings. AFFIRMED and REMANDED.

CASE QUESTIONS

1. What was the legal issue in this case? What did the appeals court decide?

2. What does it mean for a contract to be “unconscio- nable”? To be “procedurally unconscionable”? To be “substantively unconscionable”?

3. What was the evidence that this agreement was pro- cedurally unconscionable? That this agreement was substantively unconscionable?

4. Do you agree with this decision? Why or why not? 5. What would you advise this employer to do in light

of this decision? Should it redraft the language of the arbitration agreement to deal with the court’s objec- tions (and, if so, how) or drop the whole thing?

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case, courts have closely scrutinized arbitration agreements that require employees to bear a significant portion of the arbitration cost. Although some courts hold that any fee-splitting arrangement is objectionable, most courts look at the facts of the situation and the likelihood that the cost would deter employees from bringing claims.35 Remedies that are markedly different from those available through litigation (e.g., reinstatement or punitive damages are not allowed) are also problematic.36 Limitations periods for filing arbitration claims that are shorter than those that would apply to court proceedings have sometimes, but not always, been deemed unconscionable.37 However, courts also recognize that the relative informality, rapid resolution, and lower cost of arbitration are precisely what make it attractive and therefore do not require that arbitration mirror the procedures and remedies of litigation. Thus, under the FAA, arbitration agreements are not invalid simply because they contain language disallowing “class-wide” (i.e., class-action) arbitration, even in cases where claims by individual plaintiffs would be prohibitively expensive relative to expected individual dam- ages.38 Nevertheless, it is currently an open question whether, despite being permissible under the FAA, prohibiting employees from banding together to bring arbitration cases violates the National Labor Relations Act (NLRA).39 Without getting way ahead of ourselves, we can simply say here that the NLRA broadly protects collective action by employees. This includes the right to unionize, of course, but it might also include participating in class-wide arbitration. The Supreme Court is expected to decide this question soon.

35 Blair v. Scott Specialty Gases, 283 F.3d 595, 609–10 (3d Cir. 2002). 36 Ingle v. Circuit City Stores, 328 F.3d 1165, 1178–79 (9th Cir. 2003), cert. denied, 540 U.S. 1160 (2004). 37 Clark v. DaimlerChrysler Corp., 286 Mich. App. 138 (2005), appeal denied, 475 Mich. 875 (2006); Ingle, 1175. 38 AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011); American Express v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013). 39 D.R. Horton Inc., 357 N.L.R.B. No. 184 (2012); Lewis v. Epic Systems Corp., 823 F. 3d 1147 (7th Cir. 2016), cert. granted, 2017 U.S. LEXIS 691; Murphy Oil USA v. NLRB, 808 F. 3d 1013 (5th Cir. 2015), cert. granted, 2017 U.S. LEXIS 680.

Clippings At best, there are pros and cons to the use of arbitration to resolve legal disputes between employers and employees. But when arbitrators are not impartial or the pro- cess is otherwise defective, serious miscarriages of justice can result—and these are not likely to be corrected. Emergency room physician Deborah Pierce filed a sex dis- crimination claim against the medical practice that terminated her. Under the arbi- tration agreement she had signed with the practice, her case was heard by Vasilios Kalogredis, a corporate attorney who also handles arbitrations. During the hearing, the practice withheld important evidence in the case and a female colleague reversed her previous testimony on behalf of Ms. Pierce after a conversation with male col- leagues had “clarified” her recollection of events. Arbitrator Kalogredis ruled for the practice and his written decision contained large sections drawn verbatim from briefs filed by the medical practice’s lawyers. Since arbitrators’ decisions are final and rarely subject to judicial review, Ms. Pierce had no opportunity to challenge the proceeding. Instead, she was left with a $200,000 bill for legal costs. Law professor Myriam Gilles has opined that mandatory arbitration “amounts to the whole-scale privatization of the justice system. . . . Americans are actively being deprived of their rights.”

SOURCE: Jessica Silver-Greenberg and Michael Corkery. “A ‘Privatization’ of the Justice System.” New York Times (November 2, 2015), A1.

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Besides delving into the contents of arbitration agreements, courts have considered what adequate notification entails and whether arbitration “agreements” actually existed. As with any valid contract, a clear offer must be made and accepted. An employee who was handed a booklet describing her employer’s Dispute Resolution Procedure was not held to the arbitration provisions of that procedure because she never provided any written assent to the policy. “For an arbitration agreement to be binding, it must be an agreement, not merely a company policy. Moreover, pursuant to the FAA, the agreement must be in writing.”40 Likewise, an arbitration agreement that was communicated to employees via e-mail was not enforced when the e-mail message did not clearly alert employees to the legal significance of the new policy and the employer did not ascertain whether employees clicked on links that would have taken them to the details of the new policy.41 Communication via e-mail satisfied the requirement that arbitration agreements be written, but the employer’s failure to clearly notify employees regarding the policy’s legal effect, to track whether employees accessed the linked details, and to obtain from employees acknowledgment that the materials had been read and understood, led the court to conclude that employees had received insufficient notice of the arbitration agreement to be bound by it.

Adequate notification is most clearly established when employers provide employees with the details of arbitration agreements and highlight their legal significance, as well as require employees to read and sign the agreements. Even so, courts have sometimes enforced agree- ments when these conditions were absent. In one such case, the court overlooked the absence of a signed agreement to arbitrate or even an explicit acknowledgment that information about the agreement had been read because there were numerous other indicators—mailings to the employee’s home address, a brochure distributed at work, a video presentation viewed by the plaintiff at work, and multiple opportunities to opt out of the arbitration arrangement that were not acted upon—of sufficient notice to the employee.42

40 Lee v. Red Lobster Inns of America, 92 Fed. Appx. 158, 161 (6th Cir. 2004). 41 Campbell v. General Dynamics, 407 F.3d 546 (1st Cir. 2005). 42 Tillman v. Macy’s, 735 F.3d 453 (6th Cir. 2013).

Practical Considerations Would you advise an employer to use arbitration agreements? Why or why not?

J U S T T H E FAC T S

An employee believed that he had been discriminated against by his employer. He filed a lawsuit in federal court, but the employer argued that the court should require him to arbitrate the dispute instead. When the employee was hired, he had signed an arbitration agreement. During his first week of employment, he had been instructed by the human resources manager to “read it and sign it.” The document was the stan- dard agreement that the company required all of its employees to sign, and there was no opportunity to negotiate over the terms. Under the agreement, employees were required to file grievances within five days of the actions being challenged. This limitations period did not apply to any claims that the company might have against employees. The agreement also provided that each party would bear its own attor- ney’s fees and expenses. Arbitrators were to be selected from a list of four names pro- vided by the American Arbitration Association. In the absence of mutual agreement on who would arbitrate the case, names would be struck from the list until a single name remained. The company would get the first strike and then the parties would take turns. Should the court compel arbitration of this dispute? Why or why not?

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OPINION BY CIRCUIT JUDGE MANION:

The Equal Employment Opportunity Commission filed this employment discrimination case on behalf of John Shepherd, a former employee of AutoZone, and alleged that AutoZone had violated the Americans with Disabilities Act. * * * [A] jury returned a verdict in Shepherd’s favor. The magistrate judge then approved $100,000 in compensatory damages, $200,000 in puni- tive damages, $115,000 in back pay, [and] an injunc- tion on AutoZone’s antidiscrimination practices. . . . AutoZone appeals the . . . remedies. We affirm . . . except for a provision in the injunction, which we remand for further proceedings.

Shepherd started working for AutoZone in 1998. He initially worked as a sales clerk—a nonsupervisory position—but was promoted to parts sales manager a year later. * * * Shepherd averaged the highest sales per customer among the employees at his store in 2003. Although Shepherd received several reprimands at

work, he won the AutoZone Extra Miler award, which AutoZone characterized as a “prestigious honor,” and AutoZone even asked Shepherd to train new employees.

But Shepherd suffered from a chronic back injury. In 1996, Shepherd had been permanently injured while working for a different employer, and he sought help from his neurologist, Dr. Marc Katchen. Dr. Katchen determined that Shepherd had impairments to his tra- pezius and rhomboid muscles of the upper-left side of his back, a degenerative-disc disease of the cervical ver- tebrae, and a herniated disc of the cervical vertebrae. As a result, Shepherd could rotate his torso, but repetitive twisting aggravated his condition and caused “flare-ups,” which brought on severe pain in his neck and back.

About 80% of Shepherd’s work at AutoZone was devoted to sales and customer service, and these activi- ties did not affect his health. However, soon after start- ing work at AutoZone, Shepherd began to experience severe flare-ups that caused his back and neck to swell, and would cause pain with the slightest of movements. * * * Dr. Katchen determined that these flare-ups were

EEOC v. AutoZone 707 F. 3d 824 (6th Cir. 2012)

Employers that opt to use arbitration agreements should clearly communicate those agree- ments to employees in written form and obtain written statements of assent. Employers should provide for a fair arbitration process and avoid the temptation to draft one-sided agreements that place burdens on employees without imposing corresponding limitations on themselves. The agreements should provide employees with a genuine opportunity to vindicate their legal rights and not leave them much worse off than if their day in court had been available to them.

Remedies for Violations of Employment Laws If an employee takes legal action against his employer and is successful, what does he get for the trouble? remedies available in employment cases include attorneys’ fees, court orders, back pay, front pay, reinstatement, hiring, liquidated damages (awarded for serious, inten- tional violations in amounts up to twice the actual damages incurred), compensatory dam- ages (a wide range of damages beyond loss of wages, including pain and suffering), and punitive damages (intended to punish the employer in cases of serious, intentional viola- tions and to create an example to affect the behavior of others). Not all remedies are available for every type of legal claim, nor are all the remedies for which a successful plaintiff is eligible necessarily awarded by the courts. Under the National Labor Relations Act, for example, employees are eligible for “make-whole” remedies, including reinstatement and back pay, but not compensatory and punitive damages. In contrast, common law tort claims can yield monetary damages, but not reinstatement.

In EEOC v. AutoZone, an appeals court reviews the remedies awarded to a successful plaintiff in a disability discrimination case.

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caused by the repetitive motions involved in mopping AutoZone’s floors, which was one of Shepherd’s job requirements. Shepherd asked his store manager, Larry Gray, if he could be released from mopping, and Gray informally allowed Shepherd to perform other tasks instead. But when the district manager, Steven Smith, found out that Shepherd was no longer mopping the floors, he directed Gray to have Shepherd resume mop- ping. Gray complied.

After Shepherd transferred to another AutoZone store in Smith’s district, he again sought to avoid mop- ping the floors. The store manager, Terry Wilmot, was willing to accommodate Shepherd’s back injury, but  when one of Shepherd’s coworkers complained about Shepherd’s special treatment, Smith again insisted that Shepherd should mop the floors. Although Wilmot allowed Shepherd to avoid mopping duties when Smith was not around, Smith demoted Wilmot in July 2002, and replaced him with a new store man- ager, Steven Thompson. * * * Shepherd testified that Thompson and Smith still required him to mop the floors. He stated that he had sent a myriad of health and medical forms—some produced in conjunction with Dr. Katchen—to AutoZone officials, but he never received an accommodation.

In March 2003, Shepherd took a medical leave of absence because his mopping duties had caused his condition to worsen. He returned to work in April, and . . . was still compelled to mop the floors. As a result, he suffered from flare-ups four or five times a week and was unable to perform basic tasks of his daily routine. Shepherd’s wife, Susan, had to help Shepherd get dressed, wash his body, and engage in other activities around the house. Shepherd began to suffer from depression and Dr. Katchen prescribed an antidepressant.

Shepherd continued to seek an accommodation that would allow him to stop mopping the floors. Shepherd contacted a number of corporate officials at AutoZone and was quite insistent that he needed an accommo- dation. Among other corporate officials, Shepherd frequently contacted Jackie Moore, the lead disability coordinator who worked at AutoZone’s corporate ben- efits department in Memphis, Tennessee.

On September 12, 2003, Shepherd was wringing out a mop when he felt a sharp pain. He tried to continue his work, but the pain persisted, and he suffered a dis- abling flare-up that left him unable to return to work for the rest of the year. Three days after this flare-up, Smith sent Shepherd a written letter that relieved Shepherd of his mopping duties because of his back condition. Over the next few months, Shepherd received extensive

treatments from Dr. Katchen, including heat treatment, physical therapy, medications, deep tissue massage, ultrasound, antidepressants, and sleep inducers. When Shepherd tried to return to work in January 2004, he learned that AutoZone would not allow him to return. Instead, AutoZone kept Shepherd on involuntary medi- cal leave until February 2005, when it terminated his employment with AutoZone. * * *

[W]e must now address AutoZone’s arguments about the remedies that resulted from that trial. AutoZone raises issues relating to (1) the compensatory damages; (2) the punitive damages; [and] (3) the injunction.

1. Compensatory Damages

AutoZone first argues that the compensatory damages are excessive and should be remitted from $100,000 to $10,000. The jury awarded compensatory damages of $100,000 for the “physical, emotional and/or mental pain [Shepherd] experienced . . . as a result of AutoZone’s fail- ure to provide him with reasonable accommodation.”

* * * To determine whether an award of compensa- tory damages is excessive, we consider whether the dam- ages awarded (1) were monstrously excessive; (2) had no rational connection between the award and the evi- dence; and (3) were roughly comparable to awards made in similar cases. We agree with the magistrate judge that the EEOC provided sufficient evidence to support the award of compensatory damages. First, Shepherd testi- fied about the symptoms of his back condition and the details of his disabling September 12, 2003, back injury. Additionally, evidence from Shepherd’s wife provided a detailed account of the effect that Shepherd’s injuries had on his daily life while working at AutoZone. Finally, Dr. Katchen testified in great detail about his diagno- sis and treatment of Shepherd’s myofascial pain. This evidence provides a basis for concluding that the com- pensatory damages were not monstrously excessive, but were instead rationally connected to Shepherd’s pain.

Additionally, the magistrate judge accurately observed that the compensatory damages in this case are approximately the same value as the compensatory dam- ages awarded in comparable cases. In fact, Shepherd’s case is more extreme than some of these cases because Shepherd experienced near-daily pain that left him inca- pable of performing common activities, such as putting on his clothes and taking a shower. We have recog- nized that cases that include even the slightest “physical element” are often associated with more substantial compensatory-damages awards.

We conclude that all three factors used to determine whether compensatory damages are excessive weigh in

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favor of the EEOC. The magistrate judge therefore did not abuse his discretion when he upheld the award of $100,000 in compensatory damages for Shepherd’s pain and suffering.

2. Punitive Damages

The jury awarded $500,000 in punitive damages against AutoZone, but the magistrate judge reduced the puni- tive damages to $200,000 to comply with a statutory cap. AutoZone first asks us to vacate the punitive damages for insufficient evidence. If we decline to do so, AutoZone alternatively asks us to remit punitive damages under the Due Process Clause to no more than $10,000. * * *

Punitive damages are available to the EEOC if it can demonstrate that AutoZone engaged in intentional dis- crimination “with malice or with reckless indifference to the federally protected rights of an aggrieved indi- vidual.” [T]he Supreme Court [has] established a three- part framework to determine whether punitive damages are proper. . . . First, the plaintiff must show that the employer acted with “malice” or “reckless indifference” toward the employee’s rights under federal law. A plain- tiff “may satisfy this element by demonstrating that the relevant individuals knew of or were familiar with the anti-discrimination laws” but nonetheless ignored them or lied about their discriminatory activities. The plaintiff has the burden of proving “malice” or “reck- less indifference” by a preponderance of the evidence. Second, the plaintiff must establish a basis for imput- ing liability to the employer based on agency principles. Employers can be liable for the acts of their agents when the employer authorizes or ratifies a discriminatory act, the employer recklessly employs an unfit agent, or the agent commits a discriminatory act while “employed in a managerial capacity and . . . acting in the scope of employment.” Third, when a plaintiff imputes liability to the employer through an agent working in a “managerial capacity . . . in the scope of employment,” the employer has the opportunity to avoid liability for punitive dam- ages by showing that it engaged in good-faith efforts to implement an anti-discrimination policy. This is a fact- intensive analysis, and “although the implementation of a written or formal anti-discrimination policy is relevant to evaluating an employer’s good faith efforts . . ., it is not sufficient in and of itself to insulate an employer from a punitive damages award.”

* * * First, a rational jury could have found that AutoZone acted with “reckless indifference” to Shepherd’s federal employment rights. AutoZone stipulated that Thompson, Smith, and Moore had all received ADA training. Furthermore, Teresa James, the benefits manager

for AutoZone and Moore’s supervisor, testified about AutoZone’s established procedure for handling employ- ees’ accommodation requests. If an AutoZone employee made an accommodation request, the benefits depart- ment would obtain the employee’s medical documenta- tion, such as a physician’s report, then coordinate with AutoZone’s legal department to “ensure that there is a con- sensus on what the request is.” The benefits department would then review the physical demands of the employee’s position and coordinate with a human resources manager in the field to determine whether AutoZone could accom- modate the employee’s disability.

* * * Although Moore was aware of Shepherd’s situ- ation, her testimony revealed that she did not address Shepherd’s disability through AutoZone’s typical pro- cedures. Instead, when asked whether she could “recall having considered any potential accommodations that would address [Shepherd’s] limitation,” . . . Moore testified about what she hypothetically “would” do in Shepherd’s case—not what she actually did. * * * Moore eventually did take concrete action to address Shepherd’s situation. She coordinated with Smith and instructed him to type up a letter for Shepherd. This letter informed Shepherd that he should not engage in any activities that affected his medical condition. But this letter was dated September 15, 2003—three days after Shepherd suffered his disabling back injury, and the day that Dr. Katchen placed Shepherd on medical leave. A jury could easily conclude that this letter was delivered too late to affect Shepherd’s work requirements. A jury might even con- clude that this letter was nothing more than AutoZone’s attempt to cover up its prior failure to accommodate Shepherd’s disability.

AutoZone argues that its mistakes—if any—were not the result of reckless disregard for Shepherd’s rights, but were caused by mere negligence, which is not sufficient to support punitive damages. . . . * * * AutoZone, how- ever, understood that Shepherd had a back injury and regarded it as a disability. Thompson, Smith, and Moore did not deny Shepherd an accommodation because they doubted the veracity of Dr. Katchen’s medical reports or because they were relying on another doctor’s analy- sis. . . . Instead, a rational jury could have concluded that they failed to accommodate Shepherd’s disability because they ignored AutoZone’s established proce- dures for handling accommodation requests. Failing to follow up on an accommodation request might only be negligence if it occurs infrequently, but an employer’s response sinks from negligence to reckless indifference when it repeatedly fails to accommodate an employee’s disability. Because Shepherd repeatedly asked Moore

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for an accommodation, and asked for an accommo- dation so often that Moore became frustrated by his persistence, a rational jury could have decided that AutoZone’s response was not mere negligence, but reck- less indifference.

Second, a rational jury could have imputed liability to AutoZone through a manager acting in the scope of employment at AutoZone. * * * Moore was the lead dis- ability coordinator in AutoZone’s benefits department and was responsible for coordinating employees’ accom- modations. * * * Because Moore had the authority and discretion to make decisions about employees’ accom- modations, a rational jury could have concluded that Moore was acting in a managerial capacity in the scope of her employment when she authorized accommoda- tions for AutoZone employees. Therefore, a rational jury could have imputed liability to AutoZone based on the evidence presented at trial.

Third, a rational jury could have concluded that AutoZone did not engage in good-faith efforts to enforce an anti-discrimination policy. AutoZone did not intro- duce a written anti-discrimination policy into evidence, but instead relied on James, AutoZone’s benefits man- ager, to explain AutoZone’s procedures for handling dis- ability accommodations in her testimony. Although the employer is not required to present a written or formal anti-discrimination policy, “it is difficult to ascertain the contours of this policy without physical evidence of its existence.”

Nor did AutoZone present evidence that an anti- discrimination policy was properly enforced in Shepherd’s case. We have held that an employer is unable to establish good-faith efforts when “top management officials” disregard the company’s anti-discrimination policy. * * * [A] rational jury could have concluded that Moore exhibited reckless indifference to Shepherd’s federal employment rights, and a rational jury could also have concluded that she disregarded AutoZone’s antidiscrimination procedures.

. . . [W]e conclude that the magistrate judge cor- rectly ruled that a rational jury had sufficient evidence to impose punitive damages. We therefore decline to vacate the punitive damages.

Because we find sufficient evidence for a rational jury to impose punitive damages, we must next consider whether the punitive damages in this case are so grossly excessive that they offend the Due Process Clause of the Fourteenth Amendment. We analyze the punitive-damages award of $200,000 under the framework the Supreme Court estab- lished in BMW of North America, Inc. v. Gore. In Gore,

the Supreme Court observed that punitive damages “may properly be imposed to further a State’s legitimate interests in punishing unlawful conduct and deterring its repeti- tion,” but punitive damages violate the Due Process Clause “[o]nly when an award can fairly be categorized as ‘grossly excessive’ in relation to these interests.” The Supreme Court then instructed courts to consider three guideposts: “(1) the degree of reprehensibility of the defendant’s mis- conduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive dam- ages awarded by the jury and the civil penalties authorized or imposed in comparable cases.”

The first guidepost requires us to consider the reprehensibility of the defendant’s conduct and is “[p]erhaps the most important indicium of the reason- ableness of a punitive damages award.” * * * These five factors weigh against AutoZone. First, Shepherd suffered physical—not just economic—harm. Mopping the floors aggravated Shepherd’s back condition, and Shepherd suffered severe, and ultimately disabling, pain as a result. Second, AutoZone’s conduct demonstrated a reckless disregard for Shepherd’s health. AutoZone was aware that Shepherd suffered from a back injury but did not adequately accommodate his disability and required him to mop the floors anyway. Third, Shepherd was finan- cially vulnerable. When Shepherd was asked at trial why he continued to mop the floors even though it caused him pain, he stated he could not afford to lose his job because he had a wife and children. Fourth, AutoZone’s dismissiveness of Shepherd’s health concerns occurred on multiple occasions and was not an isolated incident. Indeed, Shepherd had contacted Moore so often that she expressed frustration with Shepherd’s persistence. The fifth factor considers whether the harm was caused intentionally or accidentally. Shepherd’s flare-ups were not the result of a mere accident, but were instead the result of AutoZone’s reckless indifference. Therefore, when we consider these factors as a whole, we conclude that AutoZone’s conduct was sufficiently reprehensible to justify imposing punitive damages.

The second guidepost requires us to examine the ratio between punitive damages and “the actual harm inflicted on the plaintiff.” The Supreme Court has repeatedly declined to set a fixed ratio to limit punitive damages based on constitutional grounds, but it has rec- ognized that in practice, “few awards exceeding a single- digit ratio between punitive and compensatory damages . . . will satisfy due process.” * * * The jury awarded the EEOC $100,000 in compensatory damages, $500,000

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in punitive damages, and $115,000 in back pay. The magistrate judge later remitted the punitive damages to $200,000. This is a two-to-one ratio between punitive and compensatory damages, and if back pay is added to the compensatory damages, the value of the punitive damages is actually less than the value of the back pay and compensatory damages by $15,000. We conclude that these ratios are well within the range of constitu- tionally acceptable values.

The third guidepost requires us to compare the puni- tive damages in this case to the “civil or criminal penal- ties that could be imposed for comparable misconduct.” * * * Thankfully, we need not look far to determine the legislature’s judgment concerning the appropriate level of damages in this case: Congress has already defined the statutory cap for the sum of punitive and compensatory damages at $300,000 for this case. We recognize that this statutory cap suggests that an award of damages at the capped maximum is not outlandish.

Because all three of the Gore guideposts favor the EEOC, we conclude that the punitive-damages award of $200,000 does not violate due process. We therefore decline to further remit the punitive damages.

3. Injunction

AutoZone also argues that the magistrate judge’s injunc- tion was unwarranted and should be vacated. District courts have wide discretion “to fashion a complete remedy, which may include injunctive relief, in order to make whole victims of employment discrimina- tion.” * * * [T]he magistrate judge entered an injunc- tion that . . . required AutoZone to (1) comply with the reasonable-accommodations requirement of the ADA for employees in the Central District of Illinois; (2) to notify the EEOC of any employee who requests an accommo- dation during the next three years in the Central District of Illinois; and (3) to maintain complete records of its responses to such accommodation requests. * * *

i. first Provision of the injunction AutoZone challenges the first provision of the injunction, which, more specifically, states as follows: “AutoZone shall make reasonable accommodations to the known physical limitations of any qualified employee with a disability who is working at an AutoZone retail store within the Central District of Illinois and who requests an accommodation or whose need for an accommoda- tion is otherwise known to AutoZone.”

Unlike the second and third provisions of the injunc- tion, this provision has no time limit. In essence, the

magistrate judge permanently ordered AutoZone to comply with the ADA’s accommodation requirement. The order is enforceable via contempt motion, bypassing the normal administrative and adjudicative processes for ADA accommodation claims. AutoZone argues that this part of the judge’s order amounts to an impermissible “obey the law” injunction. An injunction that does no more than order a defeated litigant to obey the law raises several concerns. One is overbreadth. An obey-the-law injunction departs from the traditional equitable prin- ciple that injunctions should prohibit no more than the violation established in the litigation or similar conduct reasonably related to the violation. * * * [T]his means that a request for an obey-the-law injunction must be evaluated with great care; this type of injunction will be an “appropriate” form of equitable relief only where the evidence suggests that the proven illegal conduct may be resumed. * * *

Although the judge did not explicitly discuss the fac- tors that we have said might support the limited use of an obey-the-law injunction, AutoZone’s inaction over eight years was sufficient to convince the judge that compliance with the law will not be forthcoming with- out an obey-the-law injunction. As the district court emphasized:

[T]he conduct of the Defendant’s managerial employ- ees at the highest level was clearly an intentional vio- lation of the ADA. The evidence showed that these employees knew of Shepherd’s back problems, knew that he was under a physician’s care for those prob- lems, and knew that the problems were exacerbated by mopping. Despite that knowledge, those managers insisted for no good reason at all that Shepherd con- tinue to mop.

In light of the evidence showing AutoZone’s intransi- gence at quite senior levels of management, we are satis- fied that the district court did not abuse its discretion in ordering AutoZone to comply with the ADA’s reasonable accommodation requirement in the Central District of Illinois. Nonetheless, even though the judge limited the geographic reach of the EEOC’s proposed obey-the-law injunction, the order has no temporal limit. It is per- manent, which would permit any ADA accommoda- tion claim arising at an AutoZone store in the Central District to be raised via contempt motion no matter how remote in time or different from the violation proven in this case. This would indefinitely deny AutoZone the protections of the normal administrative and adju- dicative processes in that region. We are satisfied that

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AutoZone has earned this treatment for at least a reason- able time, or at least that the district court did not abuse its discretion in so finding, but we must remand to the district court with instructions to modify the injunction to impose a reasonable time limit on the first provision requiring compliance with the ADA.

ii. Second and third Provisions of the injunction AutoZone further argues that the second and third provisions of the injunction are unwarranted because AutoZone’s 2011 employee manual contains an ADA policy against disability discrimination. But a mere policy statement in an employee manual would not have been sufficient to remedy Shepherd’s situation. Shepherd’s requests for an accommodation were left unresolved because of a systemic failure to prop- erly implement AutoZone’s established procedures. AutoZone asserts that the facts of this case cannot jus- tify the injunction because eight years have passed since Shepherd’s disabling accident and many of the individu- als in this case no longer work for AutoZone, but the passage of time and changes in management personnel do not guarantee the enforcement of AutoZone’s anti- discrimination procedures. By requiring AutoZone to notify the EEOC of employees seeking accommodations and to record its responses to these requests in writing, the injunction ensures that AutoZone will implement

the anti-discrimination procedure it purports to fol- low. Finally, AutoZone asserts that the injunction is too broad because it applies to all stores throughout the Central District of Illinois, but the magistrate judge appropriately crafted the scope of the injunction because AutoZone’s problem was not limited to just Shepherd’s store.

Overall, the first provision of the injunction should have a reasonable time limit, which the second and third provisions already contain. Therefore, we remand the first provision of the injunction but affirm the second and third provisions. * * *

CASE QUESTIONS

1. What were the legal issues in this case? What did the court decide?

2. What are compensatory damages? Why did the appeals court uphold the compensatory damages awarded to the plaintiff?

3. What are punitive damages? Why did the appeals court uphold the awarding of punitive damages in this case? Why was the amount of punitive damages deemed not constitutionally excessive?

4. What is injunctive relief? What was the employer ordered to do? Why was the first injunction “remanded” to the trial court?

5. Overall, do the damages awarded to the plaintiff in this case seem “just”? Why or why not?

Clippings A jury in Winston-Salem, North Carolina, awarded $200,000 in compensatory and punitive damages in a racial harassment case brought by the EEOC. Back pay and other remedies were still to be determined. The two employees involved were subjected to ongoing racial slurs and other offensive acts by managers and coworkers at a trucking company. Both men were also retaliated against when they complained about the mistreatment, and one of them was terminated. The EEOC regional attorney, Lynette A. Barnes, commented: “The jury, acting as the conscience of the community, properly found that Widenhouse [the employer] engaged in conduct that warranted an award of punitive damages. Such damages are designed to punish Widenhouse’s past conduct and to deter this employer, as well as other employers, from engaging in this type of discrimination.”

SOURCE: U.S. Equal Employment Opportunity Commission. “Jury Awards $200,000 in Damages Against A. C. Widenhouse in EEOC Race Harassment Suit.” Press Release (February 1, 2013) (https://www1.eeoc.gov/).

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The awarding of punitive damages is of particular concern to employers. Yet, the threat of punitive damages plays an important role in ensuring that employers take their legal responsibilities seriously. To keep the issue of damages in perspective, remember that the vast majority of cases never go to trial and that headline-grabbing, multi-figure awards including punitive damages are the rare exceptions rather than the rule. Even when plaintiffs prevail at trial, judges routinely slash jury awards by half or more. Punitive damages may be capped. The ceiling on combined compensatory and punitive damages in discrimina- tion cases brought under Title VII of the Civil Rights Act is $300,000 (with lower caps for smaller employers). In any event, while the costs to employers of employment law claims are sometimes overstated, they are still well worth avoiding.

The Role of Managers in Legal Compliance Knowledge of employment law will help you recognize, analyze, and deal effectively with the many employment law issues that you are likely to encounter. It should also enable you to put in place sound policies and practices that prevent many legal problems from arising in the first place. Managers need to know about employment law so they can institute policies that prevent violations, recognize situations that raise legal concerns, and know when to seek legal advice. Most often, lawyers get involved after the fact, when legally inadvisable actions have already been taken and organizations are in damage-control mode. Managers—and particularly human resources managers—have a central role in legal compliance and need to have a solid grasp of employment law.

Noncompliance with the law is not an option—at least not one that will be entertained in this book. But choices remain as to how to go about complying with the law. Should employ- ers aim to do no more than that which is strictly required or should they take a broader view of their legal obligations? How should issues on which the law is currently unclear be handled? How proactive should employers be in seeking to avoid legal problems? How far should employers go in settling claims rather than litigating them? These choices can be seen as defining an employer’s legal compliance strategy.

Practical Considerations Which of the following legal compliance strategies would you advise an employer to adopt? Why?

- “Pushing the enve- lope” in areas of legal uncertainty or erring on the side of caution?

- Doing no more than the minimum required by the law or going well beyond that?

- Responding to legal problems as they arise or proactively investing in poli- cies and practices designed to avoid legal problems?

- Litigating aggres- sively or attempting to work things out with employees who believe that they have been wronged?

Key Terms Constitutions, p. 4 statutes, p. 5 executive orders, p. 5 regulations, p. 5

common law, p. 5 tort, p. 5 employment at will, p. 6 public sector, p. 9

private sector, p. 9 payroll method, p. 11 social movement, p. 12 enforcement procedure, p. 14

J U S T T H E FAC T S

After a jury awarded a plaintiff $300,000 in damages in a sexual harassment case, a federal district court judge reduced the award to $50,000. The judge did so because at the time of the jury’s verdict, the plaintiff’s employer had twenty-five employees, and Title VII caps damages for employers with no more than 100 employees at a maxi- mum of $50,000. However, four years earlier, when the harassment occurred, the employer had 247 employees. Was the judge correct in capping damages awarded to the plaintiff based on the employer’s size at the time of the jury’s verdict rather than at the time when the discrimination occurred? Why or why not?

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limitations period, p. 14 equitable tolling, p. 15 Lilly Ledbetter Fair Pay Act, p. 15 settlement, p. 16 district court, p. 17 summary judgment, p. 17 plaintiff, p. 17 burden of proof, p. 17 appeals court, p. 17

U.S. Supreme Court, p. 17 certiorari, p. 17 stare decisis, p. 17 class-action lawsuits, p. 17 conciliation, p. 18 right to sue letter, p. 19 alternative dispute resolution

(ADR), p. 19 mediation, p. 19

arbitration, p. 19 Federal Arbitration Act (FAA), p. 20 unconscionable, p. 21 remedies, p. 27 punitive damages, p. 27 legal compliance strategy, p. 33

Practical Advice Summary • Managers need to be well versed in employment law

and remain up-to-date on this law in the face of ongo- ing changes.

• Managers should learn about employment law so they can

— Institute sound policies that prevent violations. — Recognize legal issues when they arise. — Know when to seek advice from legal counsel.

• Creating and maintaining good documentation of the reasons for human resources decisions is essential.

Chapter Summary The body of law that governs human resources practice consists of many different pieces, including constitutions, statutes, executive orders, regulations, and common law. Courts interpret and apply the law in all of these forms. Because the applicable legal rules differ, it is important to consider whether the employer in question is in the public sector or private sector, whether the employees are unionized, what the size of the employer is, what the geographic location of the employer is, whether the employer is a government contractor, and which industry and occupation are involved. Employment laws confer on employees rights to be protected from discrimination and to enjoy equal employment opportunity, to form unions and engage in collective bargaining with their employers, to have terms and conditions of employment that meet at least minimum standards, to have basic liberties respected, and to receive compensation for certain types of harm done by their employers. However, the starting point for analyzing employees’ rights on the job is employment at will. In the absence of a contract of employment for a spec- ified duration, employment can be terminated at any time and for any reason that is not specifically prohibited by law.

The process by which these important rights are enforced varies but is rarely quick or painless. Employees make choices about whether to undertake legal action, and if they do so, they face varying time limits, adminis- trative prerequisites, and court proceedings. Most cases are resolved without going to trial. Both settlements and dismissals of cases via summary judgments are common

occurrences. Litigation is sometimes undertaken on behalf of classes of employees rather than by individ- ual plaintiffs. Although the class-action lawsuit can be a potent weapon for plaintiffs, recent court decisions have had the effect of restricting its use. Employers have increasingly turned to the use of arbitration agreements, under which employees must agree to take all employ- ment disputes to arbitration rather than court. These agreements are generally enforceable, but they can be rendered unenforceable by their contents and the way they are presented to employees.

Employees who are successful in contesting violations of their rights potentially are entitled to a variety of rem- edies. The remedies available depend on the legal basis for and strength of the employee’s case. One particularly significant remedy is punitive damages. In discrimina- tion cases, these are available when an employer has engaged in discriminatory acts with malicious intent or reckless indifference to an employee’s federally protected rights. Some cases result in large awards to plaintiffs, but these headline-grabbing cases should not be viewed as the typical outcome of employment litigation.

Legal protections for employees and the number of legal claims being brought by employees have clearly increased. Employment laws serve important purposes and express societal values. Anecdotal accounts of frivolous lawsuits and employee windfalls should not be allowed to obscure the far more complex reality of enforcing fair treatment in the workplace.

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Chapter 1: Overview of Employment Law 35

Chapter Questions 1. Would you be inclined to take legal action

against your employer if you felt strongly that your legal rights had been violated? Why or why not?

2. The XYZ Company had twelve employees for the first half of 2017. It signed a contract with a major retailer in June 2017 and hired an addi- tional eight employees to handle the extra work. The contract was cancelled in January 2018, and the company terminated the eight new hires. In March 2018, another employee was fired. If the employee believed that the termination was dis- criminatory, could the employee have brought a case under Title VII of the Civil Rights Act or is the employer not large enough to be covered?

3. A teacher was terminated and filed a discrimi- nation charge with the EEOC. While his case was pending, he moved to another state to care for his mother, who was in the final stages of Alzheimer’s disease. About six months after he had filed his charge, the EEOC sent him notice of his right to sue. The notice was sent to his pre- vious address in Washington, D.C. On his EEOC intake form, the teacher had listed his former Washington, D.C., address, but had also written “c/o” (“in care of ”) with his attorney’s name and contact information. However, the teacher had not thought to contact the EEOC and provide it with his new out-of-state address. A copy of the right to sue letter was not sent to the attorney. When the attorney later contacted the EEOC for an update on the status of the teacher’s case, he was informed that the right to sue letter had been issued almost seven months earlier. The attorney then promptly filed suit in federal court, but the suit was dismissed as not timely. The teacher argued that the period for filing a dis- crimination suit should have been tolled because

he was out of state to care for his mother and he reasonably believed that the EEOC would notify his attorney. On appeal, what should the court decide? Why?

4. An employee signed an arbitration agreement when he was hired. The agreement provided that the costs of the arbitration would be split equally between the parties, with the employee payment capped at the amount earned in the employee’s highest earnings month during the previous year; remedies could not include either punitive dam- ages or reinstatement; all claims must be brought forth within a year; and depositions were limited to one for each side. The employee was fired and filed a lawsuit. The company went to court to compel arbitration. What should the court decide? Why?

5. A server signed an arbitration agreement when she was hired by a restaurant in September 2009. She left the job in July 2010 but was subsequently rehired in March 2011. She was not asked to sign an arbitration agreement upon being rehired. The server alleged that she was sexually harassed following her rehiring and sued the restaurant. The restaurant moved to compel arbitration under the agreement she had signed in 2009. That agreement stated, among other things, that “I will resolve by arbitration all claims and controversies (“claims”), past, present, or future, whether or not arising out of my employment or termination from employment, that I may have against [employer] . . . or that [employer] may have against me.” The agreement specifi- cally referred to harassment claims. It also stated that “[t]his Agreement shall survive termination of my employment or expiration of any benefit plan.” Is the employee still bound by an arbitra- tion agreement signed during a previous stint of employment? Why or why not?

• If mandatory arbitration agreements are used, such agreements should — Be in writing. — Clearly notify employees that they are waiving

their right to sue. — Obtain evidence of employee acceptance in writing.

• Mandatory arbitration agreements should not — Place restrictions on employees without corre-

sponding restrictions being placed on the employer.

— Unreasonably limit the remedies available to employees.

— Burden employees with excessive payments for the arbitration.

— Allow undue employer control over the selection of arbitrators.

— Be subject to change at any time by the employer.

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3 6 Part 1: Introduction to Employment Law

6. A fitness center issued an employee hand- book that included a section providing that all employment-related disputes would be “resolved only by an arbitrator through final and bind- ing arbitration.” It specified that disputes under the Fair Labor Standards Act were among those subject to the mandatory arbitration policy and further stipulated that disputes could not be brought as class-action suits. A sales representa- tive signed a form acknowledging that he had received the handbook. The acknowledgment reiterated that “if there is a dispute arising out of my employment . . . I will submit it exclusively to binding and final arbitration. . . .” The acknowl- edgment also stated that the terms of the hand- book were subject to change: “I acknowledge that, except for the at-will employment, [the employer] has the right to revise, delete, and add to the employee handbook. Any such revisions to the handbook will be communicated through official written notices approved by the President and CEO. . . .” The sales representative subse- quently filed a lawsuit under the Fair Labor Stan- dards Act, alleging that the company failed to provide required overtime pay. The fitness center sought removal of the lawsuit from court and an order to compel arbitration of the dispute. What should the court decide? Why?

7. At the end of a workplace meeting in which a number of issues were discussed, the company president mentioned that a new arbitration policy was being instituted. A pamphlet outlin- ing the new dispute resolution program was available, but it was not read to employees and not all employees picked it up. Employees who continued to work after the effective date of the new policy were deemed to have accepted it. When an employee told the president that he would not sign, he was told “not to worry about

it.” Subsequently, a new employee handbook was issued. The handbook included the arbitra- tion program. The handbook also included an acknowledgment form, but the employer did not require or receive signed forms. When a group of employees filed suit for unpaid wages, the employer attempted to compel arbitration of the issue. Should the court enforce the arbitration agreement? Why or why not?

8. An employee was subjected to severe national origin and religious harassment over a period of at least three years. The harassment included numerous death threats, vandalism, and workplace graffiti. The employee made many complaints to company officials, but the perpetrator(s) were never identified and disciplined. Actions taken by the employer (a large automaker) included holding two plant meetings with employees, compiling a list of suspects, analyzing plant entry and exit data, hiring a forensic document examiner to analyze the handwriting in graffiti and offensive notes, developing a protocol for handling incidents regarding this employee, increasing security walkthroughs, and conducting additional diversity training. The employer declined to interview the individuals on the suspects list or (as suggested by the police) install surveillance cameras. A jury found the employer liable for harassment, and the trial court awarded the maximum punitive damages allowable under Title VII ($300,000) to the plaintiff. Was the award of punitive damages appropriate in this case? Why or why not?

9. Which legal issues did you identify in the “staff meeting” discussion that opened the chapter? What should this company be doing differently? Which aspects of the situation are you unsure of and would want to learn more about?

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