The United States Supreme Court decided several significant employment law cases during the 2008 Term. The Court’s opinions addressed the validity of service fees charged by unions to nonmembers, the scope of Title VII’s anti-retaliation protections, spousal rights under ERISA benefit plans, waivers of Age Discrimination in Employment Act (ADEA) claims in collective bargaining agreements, retroactivity of the Pregnancy Discrimination Act (PDA), and an employee’s burden to prove age discrimination under the ADEA even when evidence exists that age was a motivating factor in the employer’s decision. There currently is one case on the docket for next Term, summarized below. (The Court may add more cases to the docket as the new Term approaches in October 2009).

Cases Decided (in Chronological Order)

Locke v. Karass (January 21, 2009)

The Court clarified when unions may charge nonmembers service fees. An employee included in a collective bargaining unit may choose not to be a member of the union that represents the unit. However, the union may charge the non-member a “service fee” for bargaining services. The union must carve out the portion of dues spent on activities unrelated to collective bargaining (such as political activity).

The Court addressed whether the union could include the costs associated with litigation directed by the national union. The Court held such expenses may be charged as part of the service fee when: (1) the subject matter of the (extra-local) litigation is of a kind that would be chargeable if the litigation were local, such as litigation related to collective bargaining, and (2) the charge is reciprocal in nature, i.e., the contributing local reasonably expects other locals to contribute similarly to the national union’s resources used for costs of similar litigation on behalf of the contributing local if and when it takes place.

Crawford v. Metro. Gov’t of Nashville & Davidson County (January 26, 2009)

The Court decided Title VII protects from retaliation those employees who participate in an organization’s internal investigations of unlawful discrimination or harassment. Vickie Crawford worked for Metro Nashville for 30 years in its administrative offices. After several employees complained internally about a manager’s conduct, Metro began an investigation, which included interviewing Crawford and other employees. Metro later terminated Crawford’s employment. Crawford then sued Metro for retaliation.

The Sixth Circuit decided that Crawford’s conduct was not protected from retaliation under Title VII, which covers “opposition” to illegal practices and “participation” in proceedings. The lower court ruled Crawford’s participation in an interview was not “opposition” because she merely responded to an invitation to be interviewed; she had not complained herself. In the court’s view, Crawford’s interview also was not “participation” because there was no administrative charge pending when the city initiated its investigation.

The Supreme Court explained it is unlawful for an employer to discriminate against an employee who “has opposed any practice made an unlawful employment practice by” Title VII. The Court reasoned this provision extends to an employee who speaks out about discrimination not only on her own initiative, but in answering questions during an employer’s internal investigation.

Kennedy v. Plan Administrator for DuPont Savings and Investment Plan (January 26, 2009)

The Court decided the administrator of an employee benefit plan, governed by ERISA, properly paid benefits to a decedent employee’s former spouse, even though the spouse waived the right to benefits as part of the divorce settlement. The Court explained the decedent did not change the beneficiary designation and the spouse did not expressly disclaim benefits in accordance with the terms of the benefits plan.

William Kennedy, a DuPont employee, married and divorced Liv Kennedy. As part of their settlement, Liv Kennedy waived her right to benefits under the Savings Investment Plan. However, DuPont did not recognize the waiver as valid and paid her in accordance with an earlier beneficiary designation form. The District Court entered summary judgment for the Estate, ordering DuPont to pay the benefits to the Estate. The Fifth Circuit reversed, holding that Liv’s waiver was an assignment or alienation of her interest to the Estate barred by ERISA. The Fifth Circuit decided that Liv Kennedy did not effectively waive her rights because there was no “Qualified Domestic Relations Order” or “QDRO” entered as part of her divorce proceedings.

The Court disagreed with the Fifth Circuit’s rationale that the spouse’s waiver violated ERISA’s anti-alienation provision, but nevertheless affirmed the Fifth Circuit’s decision, explaining the administrator properly distributed benefits to the spouse. The Court reasoned the spouse’s waiver was not rendered invalid as an assignment or alienation of the benefits since the spouse did not attempt to direct her interest in the benefits to the decedent’s estate or any other potential beneficiary. However, since the waiver was not a QDRO, the plan required the decedent to change the plan beneficiary or the spouse to expressly disclaim the benefits and, in the absence of either event, the administrator was required to distribute the benefits to the spouse as the named beneficiary.

14 Penn Plaza LLC v. Pyett (April 1, 2009)

The Court decided a provision in a collective-bargaining agreement that clearly and unmistakably required union members to arbitrate claims arising under the Age Discrimination in Employment Act of 1967 was enforceable as a matter of federal law. The Second Circuit ruled that the collective bargaining agreement’s waiver was ineffective. The Supreme Court reversed.

The Court noted that unions and employers have broad discretion to agree on terms to be included in collective bargaining agreements. Unions are the employees’ designated bargaining representatives and may bargain away rights (such choosing arbitration over lawsuits) in exchange for other concessions by management. The Court also refused to rule that mandatory arbitration was a waiver of substantive rights without the employees’ consent. The Court made clear it does not consider arbitration in lieu of court to be a substantive change, but rather merely a change of forum.

AT&T Corp. v. Hulteen (May 18, 2009)

The Court decided because an employer’s pre-Pregnancy Discrimination Act (PDA) plan was not adopted with discriminatory intent, applying it pre-PDA was not discriminatory.

Congress passed the PDA in 1978. Before that, employers were free to deny service credits to employees taking pregnancy leave at rates different from other short-term disabilities. These credits could be important for pensions and other benefits depending on length of service. AT&T’s old pension plan used to provide that employees on pregnancy disability leave did not receive the same service credit as employees on leave for other disabilities. Just before Congress enacted the Pregnancy Discrimination Act, in 1978, AT&T modified its service credit calculations prospectively, but still calculated pre-PDA service under its pre-PDA rules. Before the PDA, AT&T’s calculations were legal under Supreme Court precedent interpreting Title VII.

Four AT&T employees sued AT&T, claiming that perpetuating the calculation of service credit violated the PDA because their pension benefits were reduced as a result of the pre-PDA calculation. The EEOC joined in, as did the Communication Workers’ Union. The district court and Ninth Circuit agreed with the plaintiffs, but the Supreme Court did not.

Gross v. FBL Financial Services, Inc. (June 18, 2009)

The Court held a plaintiff bringing an Age Discrimination in Employment Act (ADEA) disparate-treatment claim must prove, by a preponderance of the evidence, that age was the “but-for” cause of the challenged adverse employment action. The burden of persuasion does not shift to the employer to show that it would have taken the action regardless of age, even when a plaintiff has produced some evidence that age was one motivating factor in that decision.

Gross alleged FBL demoted him in violation of the ADEA, which makes it unlawful for an employer to take adverse action against an employee “because of such individual’s age.” The district court instructed the jury to enter a verdict for Gross if he proved, by a preponderance of the evidence, that he was demoted and his age was a “motivating factor” in the demotion decision. It also instructed the jury to return a verdict for FBL if it proved that it would have demoted Gross regardless of age. The jury returned a verdict for Gross. The Eighth Circuit reversed, holding that the jury had been incorrectly instructed under the standard established for cases under Title VII of the Civil Rights Act of 1964 when an employee alleges that he suffered an adverse employment action because of both permissible and impermissible considerations—i.e., a “mixed-motives” case. The Supreme Court vacated the Eighth Circuit’s decision.

Ricci v. DeStefano (June 29, 2009)

The Court decided that New Haven, Connecticut violated Title VII by throwing out a firefighter’s promotion examination on the ground that White firefighters passed the test far more frequently than Black firefighters. The city feared a disparate impact lawsuit from unsuccessful minority applicants because the test results were skewed along racial lines. The Second Circuit had upheld the city’s action.

The Supreme Court (5-4) held that refusing to certify the test on the basis of the successful examinees’ race constituted disparate treatment discrimination. The Court then considered whether avoiding disparate impact litigation was a valid defense. Mere fear of a lawsuit is not sufficient. Rather, to justify the action, the city would have to have a “strong basis in evidence” that “the test was deficient and that discarding the results is necessary to avoid violating the disparate-impact provision.”

The Court also addressed the probability that the Black firefighters would sue for disparate impact discrimination. The Court noted that the test appeared to be “job-related and consistent with business necessity,” a defense to the claim. In addition, the Court suggested that its decision would insulate the city from liability because throwing the test results out would constitute disparate treatment.

Pending Case

The Court has accepted review of the following case, which will be decided when the 2009 term begins in October.

Stolt-Nielsen S.A., et al. v. Animal Feeds International Corp.

The Court will decide whether imposing class arbitration on parties whose arbitration clauses are silent on that issue is consistent with the Federal Arbitration Act. Although this is not an employment case, its holding may affect employment arbitration agreements.

The parties have international maritime contracts that contain arbitration clauses that are silent as to whether arbitration is permissible on behalf of a class of contracting parties. A panel of arbitrators decided that silence permitted class arbitration.

The district court vacated the award. The 2nd Circuit reversed, explaining courts vacate arbitration awards only in the rare instances in which the arbitrator willfully flouted the governing law by refusing to apply it.