Our last column summarized key employment law cases decided recently by the California Supreme Court. The United States Supreme Court has also issued important decisions during its October 2009 Term, of which employers should take notice. The Supreme Court’s recent opinions address a variety of topics, including: pre-employment testing, attorneys’ fees, employee privacy, and employment arbitration. Several important employment law cases are on the Supreme Court’ docket for the 2010 Term beginning in October. We summarize below the recently decided cases and those that remain pending.

Cases Decided

Lewis v. City of Chicago, 130 S. Ct. 2191 (2010)

This is a procedural case involving the statute of limitations for filing a charge of discrimination with the Equal Employment Opportunity Commission (“EEOC”). In 1995, the City of Chicago administered a written test to firefighter applicants. The City notified the applicants of the results in January 1996.

On March 21, 1997, more than 400 days after they were notified of the test results but within 300 days of the City’s initiation of the hiring process, the plaintiffs filed with the EEOC a charge, claiming the City’s practice of selecting applicants based on their test results had a disparate impact on black applicants.

Under federal regulations, there is a 300-day statute of limitations for filing a discrimination charge with the EEOC. The City argued the charge was untimely because it was not filed within 300 days of notification of the results. The trial court disagreed, finding that each hiring was a new violation of Title VII (i.e., a continuing violation). The Seventh Circuit Court of Appeals reversed, holding that the discrimination was completed when the test was scored and discovered when the applicants learned the results (i.e., more than 300 days before plaintiffs filed the charge).

The U.S. Supreme Court unanimously reversed the Seventh Circuit. The Court found that a plaintiff who does not file a timely charge challenging the adoption of a hiring practice may file a claim challenging the application of the practice as long as each of she alleges each of the elements of a disparate-impact claim (i.e., that the employer “uses a particular employment practice that causes a disparate impact” on one of the prohibited bases). The “use” of the test results for hiring decisions rendered the complaint timely.

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

In City of Ontario v. Quon, the Court addressed a significant issue facing employers in today’s electronic age—the legality of monitoring employees’ electronic communications while at work.

The City issued two-way pagers to police office on their SWAT team, including Sergeant Quon. Specifically, the City’s electronic communications policy applied to the pagers, and put Quon and the other officers on notice that that they should have no expectation of privacy in their workplace communications.

The City wanted to see if its employees were using the pagers for non-work related matters. So they contacted their wireless service provider, and were provided with transcripts detailing SWAT team members’ use, including Quon’s. As a result, the City discovered that Quon was using pager for personal use, including sending sexually explicit messages. After Quon learned that the City had obtained his text messages, he sued the City, claiming invasion of privacy and violation of the Fourth Amendment of the United States Constitution.

The Ninth Circuit Court of Appeals found that Quon had a reasonable expectation of privacy in the text messages, and that the nature of the City’s search was unreasonable as a matter of law. The Supreme Court reversed. First, the Court assumed, without deciding, that Quon had a reasonable expectation of privacy in his workplace communications. The Court declined to rule on employees’ privacy rights in the era of employer-provided electronics (e.g., computers, smart-phones, pagers, etc.) The Court then held that the City’s search of Quon’s text messages was reasonable and did not violate the Fourth Amendment, because the search was motivated by a legitimate work-related purpose (i.e., to audit usage to determine why overages) and was not excessive in scope (the City did not search any off-duty hours texts and searched only a representative sample of Quon’s texts.)

For a more in-depth look at this case, and its ramifications for California employers, please see this column published on July 27, 2010, titled: “Workplace Privacy and Text Messages: Quon v. Arch Wireless.” .

Hardt v. Reliance Standard Life Ins., 130 S. Ct. 2149 (2010)

The general rule is that parties to an action are responsible for their own attorney’s fees. However, there are exceptions, generally created by statute. This case involved the award of attorneys’ fees in ERISA litigation. An employee sued the insurance company claiming it violated ERISA by denying her long-term disability benefits. The trial court denied the company’s motion for summary judgment because the benefit denial was not based on “substantial evidence.” The court also denied the employee’s motion for summary judgment, but said there was “compelling” evidence she was totally disabled and instructed the company to act on her application within 30 days, which the company did. Thereafter, the court awarded the employee about $40,000 in attorneys’ fees.

The Fourth Circuit Court of Appeals reversed the award of attorneys’ fees. It found that the employee was not a “prevailing party,” required for an award of fees, because she only sought the award of benefits, which the district court failed to award (the insurer awarded the benefits on its own).

The Supreme Court unanimously reversed, holding that ERISA did not require a fee claimant be a “prevailing party” to be eligible for attorney’s fees. Rather, in ERISA cases, district courts have discretion to award fees and costs to parties who demonstrate they have achieved “some degree of success on the merits,” which the Court found the employee had demonstrated here. Unfortunately, the Court’s decision provides little guidance as to what “some success on the merits” may mean, which will likely lead to increased uncertainty in ERISA litigation-related fee disputes.

New Process Steel v. NLRB, 130 S. Ct. 2635 (2010)

This decision called into question nearly 600 decisions issued by the National Labor Relations Board (the “Board”) between early January 2008 and March 2010. By statute, the NLRB Board consists of five members. At the end of 2007, the Board had four members, and anticipated that another’s term would expire shortly. So, the four members “delegated” their authority to a three-member panel. Then, one of the panel members left because his term expired, leaving just two panel members. In the subsequent months, this two-member panel issued almost 600 unfair labor practice and representation decisions, before additional members finally joined them in early April 2010.

Several litigants challenged the Board’s power to function as a two-member panel. In a 5-4 decision, the Supreme Court ruled that each of the two-member decisions were improper. The Court held that the National Labor Relations Act (“NLRA”), while permitting Board to delegate its authority to a three-member group, does not permit this number to fall below this three-member threshold—in other words, two members cannot exercise the delegated authority to decide cases. It remains to be seen how many of the other litigants challenge these “improperly” rendered decisions, or whether the Board will find some way to re-affirm them.

Stolt-Nielsen, S.A. v. AnimalFeeds, 130 S. Ct. 1758 (2010)

In Stolt-Nielsen, the Court addressed the propriety of ordering class-wide arbitration when the parties’ arbitration agreement is “silent” about proceeding in such a fashion. This case arose in the context of a commercial dispute involving maritime law, where the parties had agreed beforehand to submit their disputes to arbitration. However, there was no clause in their arbitration agreement authorizing class-wide arbitration proceedings. Despite this, the arbitration panel held that the class action could go forward. Following issuance of an award, the defendant moved in district court to vacate the award under the Federal Arbitration Act (“FAA”). The district court granted the motion, but the Second Circuit Court of Appeals reversed.

In a 5-3 decision, the Supreme Court reversed again, deciding that imposing class arbitration on parties who have not agreed to authorize class arbitration is inconsistent with the FAA. In so holding, the Court reiterated its long-standing principle that arbitration under the FAA “is a matter of consent, not coercion,” and accordingly, that private agreements to arbitrate need be enforced according to their terms. The Court recognized that parties are free to structure their arbitration agreements “as they see fit,” including by specifying “with whom” they choose to arbitrate. Because the parties in this case had not agreed on class-wide arbitration, the Court held it was error to order their dispute to proceed on such a basis.

Granite Rock Co. v. Teamsters, 130 S. Ct. 2847 (2010) and Rent-A-Center West v. Jackson, 130 S. Ct. 2772 (2010)

Arbitration was again at issue in two recent Supreme Court decisions addressing the question: Who decides the threshold issue of arbitrability—the court or the arbitrator?

In Granite Rock, the Court was called upon to decide whether the district court or the arbitrator should have decided whether the parties’ new collective bargaining agreement (for the first time containing an arbitration clause) was ratified at the time the Union went on strike. The Supreme Court held that to determine when the contract was ratified in effect would be a ruling on whether arbitration applied at all to the parties’ strike-related dispute. The Court ruled that decision was for the district court.

However, the Court reached the opposite conclusion just days earlier in Rent-A-Center. In that case, the Supreme Court held (in a 5-4 decision) that the arbitrator, and not the court, should decide whether an employee and his employer had entered into an enforceable agreement to arbitrate the employee’s race discrimination and retaliation claims. (The employee had sought to invalidate the entire arbitration agreement as unconscionable.) What was different about this case? Here, the parties’ arbitration agreement itself contained language providing that the arbitrator—and not a court—had exclusive authority to resolve any dispute relating to enforceability and formation of the agreement. Given this language, the Court held that the parties had a “clear and unmistakable” agreement to have the arbitrator resolve the threshold issue of arbitrability.

Pending Cases:

Here are some important cases pending before the Court, which will be decided some time between October 2010 and June 2011:

  • Kasten v. Saint-Gobain Performance: At issue in this case is whether an employee’s verbal (as opposed to written) complaints to his employer of perceived violations of the Fair Labor Standards Act (“FLSA”) constitute “protected conduct” for purposes of anchoring an employee’s claim for unlawful retaliation
  • Staub v. Proctor Hospital: The Court will address the so-called “cat’s paw” theory of liability in employment discrimination claims. That is, under what circumstances may an employer be found liable based on the unlawful intent of supervisors who may have influenced, but did not make, the ultimate employment decision?
  • AT&T Mobility v. Concepcion: In yet another arbitration case, the Court will decide whether the FAA preempts states from conditioning the enforcement of arbitration agreements on the availability of particular procedures. Specifically at issue is a line of California cases holding arbitration agreements “unconscionable” where they include express waivers of class arbitration.
  • Thompson v. North American Stainless: The Court will decide whether employees, who did not themselves engage in any protected activity, may claim third-party retaliation under federal anti-discrimination law.
  • NASA v. Nelson: In this case, the Court will again tackle—as it did in Quon—individuals’ constitutional right to informational privacy, this time in the context of pre-employment background and reference checks.

    Conclusion

    The decisions of the United States Supreme Court often have far-reaching consequences for employers in California and nationwide. Employers should carefully review these decisions—along with recent decisions of the California Supreme Court and lower courts—and make appropriate changes to their policies and practices. Employers should likewise stay tuned for further legal developments, as the Supreme Court prepares to tackle significant issues in its coming term.

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