Law and the Workplace

Supreme Court Rules in Favor of Employers in Upholding Arbitration Agreements Containing Class Action Waivers

On May 21, 2018, the Supreme Court of the United States ruled in Epic Systems Corp. v. Lewis that employers can require employees to arbitrate disputes with the employer individually and waive their right to pursue or participate in class or collective actions against their employer. Ruling 5-4 in favor of an employer’s right to include class action waivers in its arbitration agreements, the Court rejected the National Labor Relations Board’s position in D.R. Horton that such class waivers violate employees’ rights to take collective steps for their “mutual aid and protection.” The decision puts to rest the NLRA-based objection to such agreements, and so is a significant victory for employers, but leaves open other challenges to such agreements.

The Court’s opinion, authored by Justice Neil M. Gorsuch for the majority, resolved three cases that were argued together—Epic Systems Corp v. Lewis; Ernst & Young LLP v. Morris; and National Labor Relations Board v. Murphy Oil USA—in all of which an employee who had signed an arbitration agreement containing a class action waiver sought to litigate Fair Labor Standards Act and related state law claims through class or collective actions in federal court.  The Seventh Circuit in Lewis and the Ninth Circuit in Morris had sided with the NLRB and the individual employees; the Fifth Circuit had rejected the NLRB’s view in Murphy Oil. Siding with the Fifth Circuit, the Court’s ruling requires employees who have signed arbitration agreements with their employers containing class action waivers to take their disputes to an arbitrator individually rather than as part of a putative class or collective action.  Chief Justice John G. Roberts Jr. and Justices Anthony M. Kennedy, Clarence Thomas and Samuel A. Alito Jr. joined the majority opinion.

The employees had argued that the “saving clause” of the Federal Arbitration Act, which allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract,” precludes enforcement of class waivers because the National Labor Relations Act (“NLRA”) protected their right to act collectively in bringing a class action. The employers countered that the Federal Arbitration Act protects agreements requiring arbitration from judicial interference and that neither the saving clause nor the NLRA demands a different conclusion.

The Court’s opinion repeatedly acknowledged that “[a]s a matter of policy these questions are surely debatable,” but held that “as a matter of law the answer is clear.”  “In the Federal Arbitration Act,” the Court concluded, “Congress has instructed federal courts to enforce arbitration agreements according to their terms—including terms providing for individualized proceedings.”  Nothing contained in the NLRA overrides that requirement, the Court held, and in particular, the NLRA “does not express approval or disapproval of arbitration” and “does not mention class or collective action procedures.” Indeed, the Court held that the NLRA “does not even hint at a wish to displace the Arbitration Act—let alone accomplish that much clearly and manifestly, as our precedents demand.”

That reference to precedent included the Court’s several arbitration decisions in the last ten years, particularly AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), which had upheld class action waivers against state-law challenges.

The Court’s decision should also abrogate some state-court decisions that had followed the NLRB’s analysis, such as the New York Appellate Division’s decision in Gold v. New York Life Ins. Co. (1st Dept. 2017). It may also preempt municipal prohibitions on class waivers, such as in the administrative rules promulgated under New York City’s Freelance Isn’t Free Act.

Notably, the Court’s opinion discussed Congress’ ability to pass new legislation to reach a different result.  In fact, Justice Ruth Bader Ginsburg, reading her dissent from the bench, urged Congress to address the matter.

Even if Congress does not act, the Court’s rejection of the NLRA-based challenge does not mean that class action waivers will now be enforced uniformly. The Court acknowledged the FAA’s statutory exception, which permits arbitration agreements to be invalidated “upon such grounds as exist at law or in equity for the revocation of any contract.” The Court held that exception inapplicable here because it includes only defenses that apply to “any contract” (such as duress or fraud), and the NLRA’s arguable attack only on class action waivers does not offer a general defense to contract enforcement. But general state-law contract doctrines such as procedural and substantive unconscionability have played a greater and greater role in disputes over arbitration agreements, and the Court’s decision does not affect those debates.

Connecticut Enacts Salary History Inquiry Law

Connecticut Governor Dannel Malloy has signed into law a bill that will restrict employers from inquiring about applicants’ salary history during the hiring process.  The law will take effect on January 1, 2019.

Under the law, employers will be prohibited from inquiring or directing a third party to inquire about a prospective employee’s wage history, unless the prospective employee has voluntarily disclosed such information.  For purposes of the law, “wages” are defined as “compensation for labor or services rendered by an employee, whether the amount is determined on a time, task, piece, commission or other basis of calculation.”

The law goes on to state that employers will still be permitted to inquire about “other elements of a prospective employee’s compensation structure, as long as such employer does not inquire about the value of the elements of such compensation structure.”  However, the statute does not define the scope of such “other elements” of an applicant’s compensation structure, and it remains to be seen whether further regulations or guidance may be issued that will shed more light on the scope of this provision.

Additionally, the law will not apply to any actions taken by an employer or its agent pursuant to any federal or state law that specifically authorizes the disclosure or verification of salary history for employment purposes.

The law provides for a private right of action for aggrieved individuals, with damages that may include compensatory damages, punitive damages, and attorney’s fees and costs.

The Connecticut law comes hot on the heels of Vermont’s recent enactment of a similar law that will take effect on July 1, 2018.

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We will continue to report on new developments with regard to this and other similar laws as they arise.

SCOTUS:  Employers Can Compel Individual Arbitration of Wage and Hour Claims

 

In its eagerly-awaited opinion in Epic Systems Corp. v. Lewis, the U.S. Supreme Court held on May 21 that class action waivers in arbitration agreements between employers and employees do not violate the National Labor Relations Act.  The opinion resolves a split among federal circuits, and reiterates—once again—the strong federal policy favoring arbitration.

While challenges to class action waivers have been rather popular in recent years, the legal conclusion that such waivers are permissible is, in the words of the Supreme Court, “clear” and “unmistakable.”  As Justice Gorsuch wrote for the 5-4 majority, “[i]n the Federal Arbitration Act, Congress has instructed federal courts to enforce arbitration agreements according to their terms—including terms providing for individualized proceedings.”

Generally speaking, the FAA applies to an arbitration agreement—and preempts all state laws—when the economic activities of the parties have some nexus to interstate commerce.  The application of Epic Systems to the relatively smaller group of arbitration agreements not subject to the FAA remains to be seen.

The opinion ostensibly abrogates last year’s decision of the New York State Appellate Division in Gold v. New York Life Ins. Co., 153 A.D.3d 218 (1st Dep’t 2017), which relied on the Seventh Circuit’s decision in Epic Systems—now reversed—to declare class and collective action waivers in arbitration agreements unenforceable under the NLRA.  The opinion also calls into question the rules issued by New York City’s Department of Consumer Affairs under the Freelance Isn’t Free Act, which state that “[i]f a contract [between a hiring party and a freelance worker] includes language that waives or limits a freelance worker’s right to participate in or receive money or any other relief from any class, collective, or representative proceeding, said waiver or limitation is void.”  See N.Y.C. Rules, Tit. 6, § 12-05(b).

Stay tuned for further analysis of this groundbreaking development.

Vermont Enacts Salary History Inquiry Law

Paying Wages

Vermont has become the latest jurisdiction to enact a law that will prohibit employers from inquiring about, seeking, or requiring salary history information from prospective employees.

The law will take effect on July 1, 2018.

Under the law, employers and their agents will be prohibited from:

  • inquiring about or seeking information regarding a prospective employee’s current or past compensation from either the prospective employee or his or her current or former employer;
  • requiring that a prospective employee’s current or past compensation satisfy minimum or maximum criteria; and
  • determining whether to interview a prospective employee based on his or her current or past compensation.

If, however, a prospective employee voluntarily discloses information about his or her current or past compensation, an employer may, after making an offer of employment with compensation to the prospective employee, seek to confirm (or request that the prospective employee confirm) the compensation information provided.

The law further provides that employers may inquire about a prospective employee’s salary expectations or requirements and/or provide information to the candidate about the compensation and benefits offered in relation to the position in question.

For purposes of the law, “compensation” is defined broadly to include “wages, salary, bonuses, benefits, fringe benefits, and equity-based compensation.”

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We will continue to report on new developments with regard to this law as they arise.

New Jersey Enacts Statewide Paid Sick Leave Law

New Jersey Governor Phil Murphy (D) has signed into law the New Jersey Paid Sick Leave Act (the “Act”), which will provide eligible employees with paid leave for their own medical needs, those of a family member, or other covered reasons. The Act will take effect on October 29, 2018.

Covered Employers and Employees

The Act applies to all employers with employees working in New Jersey, including temporary help service firms, regardless of employer size.

All employees working in the state will be eligible for paid leave under the Act, with the exception of:

  • construction employees working under a collective bargaining agreement;
  • per diem health care employees; and
  • public employees, who are already required to receive paid sick leave.

Employees may begin using paid sick leave on the 120th day of employment, unless the employer agrees to an earlier date.

Accrual of Paid Sick Leave

Eligible employees are entitled to accrue sick leave at a rate of one hour of sick leave for every 30 hours worked in a benefit year (which may be any period of 12 consecutive months as established by the employer). An employer shall not be required to permit an employee to accrue more than 40 hours of sick leave in a given benefit year.

As an alternative to an accrual system, an employer may provide employees, in the beginning of each benefit year, with the full amount of earned sick leave that each employee would otherwise be entitled to accrue under the Act (the “front-loading method”).

An employer that currently offers its employees paid time off (which may include personal, sick, and/or vacation days) that accrues at a rate equal to or greater than that required by the Act, and that can be used for the same purposes and in the same manner as provided by the Act, may use such time to satisfy its obligations under the Act.

Carry Over and Payout of Unused Leave

When sick leave is provide using an accrual system, employees may carry over up to 40 hours of earned but unused sick time into the following benefit year. Alternatively, employers may offer employees the option to receive payment of their unused sick days in the final month of the employer’s benefit year.  Employees may choose to: (i) accept payout of all earned but used sick leave; (ii) decline the payout and carry over all unused time to the following benefit year; or (iii) accept payout for half of the earned but unused leave time and carry over the remaining earned sick leave, which shall not exceed forty hours.

When sick leave is provided using the front-loading method, the employer must either provide the employee with a payment for the full amount of unused earned sick leave in the final month of the employer’s benefit year or allow the employee to carry forward any unused sick leave to the next benefit year.

Permissible Reasons for Taking Sick Leave

Paid sick leave under the Act can be used for any one or a combination of the following reasons:

  • time needed for diagnosis, care, or treatment of, or recovery from, an employee’s mental or physical illness, injury or other adverse health condition, or for preventive medical care for the employee;
  • time needed for the employee to aid or care for a family member of the employee during diagnosis, care, or treatment of, or recovery from, the family member’s mental or physical illness, injury or other adverse health condition, or during preventive medical care for the family member;
  • for covered reasons resulting from the employee, or a family member of the employee, being a victim of domestic or sexual violence;
  • when an employee is not able to work because of a closure of the employee’s workplace, or the school or place of care of a child of the employee, by order of a public official due to an epidemic or other public health emergency, or because of a determination that the presence in the community of the employee, or a member of the employee’s family in need of care by the employee, would jeopardize the health of others; or
  • time needed by an employee to attend a child’s school-related conference, meeting, function or other event requested or required by a school administrator, teacher, or other professional staff member, or to attend a meeting regarding care provided to the child in connection with the child’s health conditions or disability.

A “family member” is defined as “child, grandchild, sibling, spouse, domestic partner, civil union partner, parent, or grandparent of an employee, or a spouse, domestic partner, or civil union partner of a parent or grandparent of the employee, or a sibling of a spouse, domestic partner, or civil union partner of the employee, or any other individual related by blood to the employee or whose close association with the employee is the equivalent of a family relationship domestic partner, or civil union partner of the employee.”

Employee Notice Requirements

If the need to use earned sick leave is foreseeable, an employer may require up to seven calendar days’ advance notice, and may further require employees to make a reasonable effort to schedule the use of sick leave in a manner that does not unduly disrupt the employer’s operations. If the leave is not foreseeable, an employer may require notice as soon as practicable.  In addition, employers may prohibit employees from using foreseeable earned sick leave on certain dates, and require reasonable documentation if sick leave that is not foreseeable is used during such dates.

Employers may require medical or other reasonable documentation for earned sick leave of three or more consecutive days to ensure that the reason for the leave is permissible under the Act. For leave related to an employee’s or a family member’s medical needs, such documentation would include information from a health care professional treating the employee or the family member indicating the need for the leave and, if possible, number of days of leave.  For leave due to domestic or sexual violence, reasonable documentation may include such things as medical documentation, a law enforcement agency record or report, a court order, or documentation from a social worker, counselor, member of the clergy, attorney, or certified domestic violence specialist.

Employees may not be required to find coverage for missed hours or shifts, but the employer and employee may agree to have the employee work additional hours or shifts during the same or following pay period in lieu of the hours or shift missed.

Retaliation Is Prohibited

Employers may not retaliate against employees for exercising their rights under the Act. The Act creates a rebuttable presumption of unlawful retaliatory conduct when an employer takes adverse action against an employee within ninety days of when that employee files a complaint, informs others of a violation of the Act, cooperates with an investigation or prosecution made pursuant to the Act, opposes any policy that is made unlawful by the Act, or informs any person of his or her rights under the Act.

Employer Notice and Recordkeeping Requirements

Employers shall be required to conspicuously post a notice, as well as provide written notification to employees, of their rights under the Act. Such notice will be required to include the amount of earned sick leave to which employees are entitled and the terms of its use, as well as remedies provided by the Act if an employer fails to provide the required benefits or retaliates against employees exercising their rights.  A form notice will be issued by the Commissioner of Labor and Workforce Development.  Each covered employee must be provided with a written copy of the notification no later than 30 days after the form notification is issued and, for new employees, at the time of hire.

Employers will be required to maintain records reflecting both the hours worked and sick hours used by employees for a period of five years, which must be made available for inspection upon a request from the Department of Labor and Workforce Development.

Remedies Available

The Act provides that any violation shall be regarded as a failure to adhere to the wage payment requirements of the New Jersey State Wage and Hour Law, which provides several forms of remedies, including sanctions and criminal liability on the part of the employer and, in civil actions brought by employees, wages owed plus costs and attorney’s fees. In addition to these remedies, the Act provides that, in the case of a civil action, a prevailing employee shall be awarded actual wages owed as a result of the violation plus an equal amount of liquidated damages.

Preemption

About a dozen New Jersey cities had previously enacted paid sick leave ordinances. The Act preempts those ordinances and prevents municipalities from passing resolutions concerning paid sick leave going forward.

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We will continue to report on new developments with regard to this law as they arise.

Mayor de Blasio Signs Stop Sexual Harassment in NYC Act Into Law

On May 9, 2018, New York City Mayor Bill de Blasio signed into law the Stop Sexual Harassment in NYC Act (the “Act”), which, as we previously reported, is a package of bills aimed at addressing and preventing sexual harassment in the workplace.

The signing of the Act triggers the countdown to the effective dates of various provisions, as follows:

  • Effective immediately – The New York City Human Rights Law (“NYCHRL”) is amended to permit claims of gender-based harassment by all employees, regardless of the size of the employer.  Previously, the anti-discrimination provisions of the NYCHRL apply only to employers with four or more employees.  In addition, the statute of limitations for filing complaints with the NYC Commission on Human Rights (“City Commission”) of “claim[s] of gender-based harassment” under the NYCHRL is extended from one year to three years after the alleged harassing conduct occurred.
  • Effective July 8, 2018 – City contractors will be required to include their practices, policies, and procedures “relating to preventing and addressing sexual harassment” as part of an existing report required for certain contracts pursuant to the City Charter and corresponding rules.
  • Effective September 6, 2018 – Employers will be required to conspicuously display an anti-sexual harassment rights and responsibilities poster and distribute an information sheet on sexual harassment to new hires, both of which will be promulgated by the City Commission.
  • Effective April 1, 2019 – Employers with 15 or more employees (including interns) will be required to conduct annual anti-sexual harassment training for all employees, including supervisory and managerial employees.   As discussed in our previous posts, the required training must be “interactive” (though it need not be live or conducted in-person) and must cover a number of topics, including definitions and examples of sexual harassment, education on bystander intervention, and explanations of how to bring complaints both internally and with the applicable federal, state and city administrative agencies.  The City Commission will be required to develop publicly available online sexual harassment training modules for employers’ use, the use of which will satisfy the requirements of the Act so long as the employer supplements the module with information about the employer’s own internal complaint process to address sexual harassment claims.

New York City employers should also take note of the recently signed New York State budget, which includes several significant mandates aimed at addressing sexual harassment in the workplace, including a statewide requirement for annual sexual harassment training.  To the extent that the requirements under the state and city laws overlap, NYC employers must ensure they are meeting the requirements of both laws.

We will continue to report on any further developments with regard to these noteworthy new laws.

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