June 2013 - Laborsphere

WHO IS A SUPERVISOR UNDER TITLE VII?

In its 1998 opinions in Faragher v. Boca Raton and Burlington Industries v. Ellerth, the Supreme Court held that harassment by a supervisor can result in liability against an employer, but that an employer would only be liable for harassment by a non-supervisory employee if it knew or should have known of the harassment and was negligent in failing to correct it. It has remained unclear, however, exactly who is a supervisor for purposes of vicarious harassment liability under Title VII. The First, Seventh and Eighth Circuits have held that an individual is a supervisor for purposes of harassment liability only if he/she has been given the authority to take tangible employment actions – to hire, fire, demote, transfer or discipline – against the victim of harassment. The Second, Fourth and Ninth Circuits have adopted the definition set forth by the EEOC in its Enforcement Guidance where it defines supervisory status by the ability to exercise significant direction of an employee’s work activities irrespective of the power to take substantial or tangible employment actions. The Supreme Court’s opinion this week in Vance v. Ball State University resolves that split by making clear that Title VII imposes vicarious liability on the employer only for the harassment by a member of management who has been given the power by the employer to significantly impact the employment of a subordinate victim.

In Vance, Plaintiff Maetta Vance complained on a number of occasions to the University that she had been subjected to racial harassment by Saundra Davis, who she claimed was her supervisor, as well as by a number of co-workers and other supervisors. The University investigated each complaint and imposed discipline when it found the complaint had merit. Nevertheless, Vance filed charges with the EEOC and ultimately initiated a Title VII action for race harassment and hostile environment discrimination in the United States District Court for the Southern District of Indiana. The district court granted the employer’s motion for summary judgment based on its finding that the University was not strictly liable for the alleged harassment by Davis because Davis was not Vance’s supervisor, and that the University was not liable under a negligence theory because it acted promptly to investigate and resolve the complaints filed by Vance.

The Seventh Circuit Court of Appeals affirmed. The Appeals Court determined that summary judgment was warranted in part because Vance had failed to establish a basis to impose liability against the employer. In this respect, the court found that Davis was not a supervisor under Title VII because she did not have the power to take tangible employment actions, i.e., Davis had no authority to hire, fire, promote, demote or discipline Vance. The court rejected the argument by Vance that Davis was a supervisor merely because she told Vance what to do and refused to adopt the definition of supervisor advanced by the EEOC that it was sufficient under Title VII if the supervisor directed the day-to-day activities of an employee even without authority to take significant or tangible employment actions.

In a 5-4 decision written by Justice Samuel Alito, the Supreme Court affirmed. The Court resolved the split among the circuits by refusing to defer to the expertise of the EEOC, and by rejecting the Agency’s vague and “nebulous” definition of supervisor in favor of a bright line standard which could easily be applied by the parties and courts to establish the status of an alleged harasser. The majority determined that it was appropriate to focus on the framework established in Faragher and Ellerth – that employers will be vicariously and strictly liable for harassment by a supervisor which results in a tangible adverse action such as a significant change in the victim’s employment status – in order to understand and determine the proper definition of a supervisor in the context of a claim for harassment under Title VII. Applying the Faragher and Ellerth analysis, the Court found that the defining characteristic of a supervisor in such a case is the power to cause “direct economic harm” by virtue of “the authority to effect a tangible change in a victim’s terms and conditions of employment.” Accordingly, the Court held that to be a supervisor for purposes of imposing vicarious liability in a Title VII harassment case, a person must have the power to make a “significant change” in the working status of the alleged victim, such as the ability to hire, fire, promote, demote, discipline or impose “significantly different responsibilities” on the employee.

The dissent, written by Justice Ruth Bader Ginsburg, argued that the majority opinion ignores the workplace reality where the power to control work assignments – no less than the power to fire or discipline – is used as an intimidating factor to aid in the harassment of a subordinate. Justice Ginsburg would have deferred to the informed expertise of the EEOC, and suggested that the majority opinion will allow employers to escape liability for the harassment of their employees and undermine the effort “to stamp out discrimination in the workplace.”

The Vance opinion will not only have a significant impact on how harassment cases are approached in litigation, but will also promote the use of internal complaint procedures by forcing employees to report incidents of harassment by co-workers, and by encouraging employers to investigate and resolve such complaints in order to avoid liability in court. Not surprisingly, the opinion has been lauded by defense counsel for bringing clarity to a significant issue of importance and as a victory for employers. The General Counsel of the EEOC, however, has expressed his disappointment in the ruling and in the Court’s failure to defer to the Agency’s long standing interpretation of the law, and employee organizations have parroted the concern expressed in the dissenting opinion that the standard adopted by the Court will make it harder for victims to hold their employers accountable for harassment in the workplace. However, as noted by Justice Alito, there has been no indication from any of the 14 states which comprise the First, Seventh and Eighth Circuits – which have long applied the test adopted by the Court – to support that fear.

Unpaid Interns Deemed Employees Under the FLSA

A federal district court in New York ruled last week that unpaid interns who worked on the production of films for Fox Searchlight Pictures Inc. and Fox Entertainment Group, Inc. were actually employees who should have been paid in accordance with the Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”). Glatt v. Fox Searchlight Pictures Inc., Case No. 11-CV-06784 (S.D.N.Y. 2013). This decision comes just weeks after another Southern District of New York judge issued a favorable defense ruling by denying class certification for unpaid interns at various Hearst-owned magazines. See Wang v. The Hearst Corporation, Case No. 12-CV-00793 (S.D.N.Y. 2013).

In Glatt, the court applied the six-factor test set used by the Department of Labor (“DOL”) and determined that two unpaid interns who worked on production of Black Swan were improperly classified and did not come within the “trainee” exception to the FLSA’s coverage. Instead, the interns should have been classified as employees subject to the FLSA and NYLL. Specifically, in applying the DOL test, the court found that:

The internship was not similar to training in an educational environment because the interns did not receive any formal training or education, or acquire any new skills aside from those specific to the Black Swan back office during the internship;
The internship had only incidental benefit to the interns – resume value and references– which were not the result of the structure of the internship, and that Fox also benefitted from the unpaid work;
The interns displaced regular employees and performed tasks that would have otherwise been performed by regular employees, such as obtaining documents for personnel files, picking up paychecks for coworkers, tracking and reconciling purchase orders, making copies, and running errands, among other low-level tasks;
Fox received immediate advantages from the activities of the interns, and there is no evidence that the interns impeded work;
The interns were not entitled to a job at the conclusion of the internship; and
The parties understood that the interns were not entitled to wages for time spent in the internship, although the court noted that this factor was not determinative.

While the plaintiffs to whom the court’s ruling applied did not seek class certification, the court granted another plaintiff’s motion for class certification of her NYLL claims and conditional certification of the FLSA claims. In doing so, the court found that: (1) the class was sufficiently numerous because it included at least 40 plaintiffs whose information was not easily identifiable by plaintiffs; (2) there are common questions or law and fact relating to the DOL’s six-factor test; (3) the plaintiff’s claims are typical of the class because she participated in the same internship program administered by the same set of recruiters as all class members and was classified as an unpaid intern like all class members; (4) plaintiff’s interest are not antagonistic to those of the class; (5) common issues of liability predominate over any individual damages claims; and (6) class action is a more efficient mechanism than individual claims because of the relatively small recoveries available.

The court’s reference to the evidence presented in the case provides a good lesson for employers. The court noted an internal memo in which Fox stated that, in light of the DOL test, Fox would only provide paid internships unless a manager could comply with the six criteria provided by the DOL. The outcome in Glatt demonstrates employers must remain vigilant not only in maintaining proper policies on internships, but also in training and oversight of managers, to ensure compliance with the DOL’s six-factor test and the FLSA.

NLRB Rules That Policy Requiring Employees to Individually Arbitrate Employment Disputes Violates the National Labor Relations Act

On June 3, 2013 an National Labor Relations Board (NLRB) Administrative Law Judge (ALJ) reached a decision in which it found that MasTec Services’ Company’s policy that required employees to individually arbitrate employment disputes violated Section 8(a)(1) of the National Labor Relations Act (NLRA). In so holding, the ALJ radically expanded the NLRB’s previous decision in D. R. Horton, Inc. (1/3/12). As D.R. Horton itself has been rejected by almost all federal courts which have considered it, the MasTec decision is bound to create a firestorm of criticism.

In D.R. Horton, the NLRB ruled that requiring employees to sign a blanket waiver of rights to pursue their employment claims through class actions violated Section 8(a)(1) of the NLRA. The specific agreement at issue in D.R. Horton (1) contained a mandatory arbitration provision, and (2) required employees to bring all employment-related claims to an arbitrator on an individual basis, as opposed to as a potential class action. The D.R. Horton decision generated significant criticism, and many commentators noted that it appeared to conflict with U.S. Supreme Court precedent, specifically AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). Concepcion held that the Federal Arbitration Act preempts state laws that prohibit contracts from disallowing class-wide arbitration, and that companies can enforce contract provisions that require customers to arbitrate their disputes individually. Concepcion, which involved a consumer contract, was thought to make it much harder for individuals – not only consumers, but also employees who had signed arbitration agreements – to file class action lawsuits.

Although D.R. Horton initially caused great concern among employers, as it seemed to eliminate the possibility of preventing class suits through mandatory arbitration agreements, this concern has been tempered by the fact that an overwhelming number of federal courts that have considered the issue have refused to follow the decision, including the Eighth Circuit Court of Appeals. See e.g., Owen v. Bristol Care, Inc., 702 F.3d 1050 (8th Cir. 2013); Delock v. Securitas Security Servs. USA, Inc., 883 F. Supp. 2d 784 (E.D. Ark. 2012); Morvant v P F Chang’s China Bistro Inc., 2012 WL 1604851 (N.D. Cal. 2012); De Oliveira v. Citicorp North America, Inc. (M.D. Fla. 2012); Tenet Healthsystem Philadelphia, Inc. v. Rooney (E.D. Pa. 2012); Lavoice v. UBS Wealth Management Americas (S.D.N.Y. 2011); Johnmohammadi v. Bloomingdales, Inc. (C.D. Cal. 2012); Sanders v. Swift Transp. Co. of Ariz., 843 F Supp. 2d 1033, (N.D. Cal. 2012); Palmer v. Convergys Corp., 2012 WL 425256 (M.D. Ga. 2012).

MasTec is sure to be controversial because, despite the courts’ hostile reaction to D.R. Horton, MasTec expands its holding. The arbitration provision at issue in MasTech was less restrictive than that in D.R. Horton, in that it (1) permitted the employee to opt out within 30 days, and (2) explicitly authorized employees to bring claims to administrative agencies. Nonetheless, even with these safeguards in place, the ALJ found the provision to violate Section 8(a)(1). The ALJ gave three independent reasons for reaching this conclusion. First, given that the NLRA grants employees the right to engage in protected concerted activities without interference, an employer may not require its employees to affirmatively act (through the opt-out) in order to obtain or maintain those rights. Second, employees who opt out still would be unable to engage in and cooperate in concerted activities with those who did not opt out, disadvantaging them in their attempts at concerted action. Third, some employees may be reluctant to exercise the opt-out option for fear of angering their employers. Under the reasoning of the Mas Tec opinion, it would be virtually impossible for any employer to include a class action waiver in arbitration agreements with individual employees.

D.R. Horton itself is currently on appeal before the U.S. Court of Appeals for the Fifth Circuit. Should the NLRB and Federal Court decisions continue to diverge, the stage may be set for a reversal of D.R. Horton (or perhaps a Supreme Court decision). We will continue to monitor D.R. Horton and its progeny, given the case’s broad implications for employers potentially subject to employee class actions.