This article is Part 1 of a two-part series providing an overview of recent United States Supreme Court decisions in employment law. Part 2 of this article will be featured soon.

The United States Supreme Court issued several decisions during the past year that may affect California employers:

Lawson v. FMR, LLC (March 4, 2014)

The Sarbanes-Oxley Act of 2002 is a federal law that regulates publicly-traded corporations. The Act includes a “whistleblower” provision prohibiting retaliation against employees who report corporate fraud.

FMR and its subsidiaries are non-publicly-traded companies contracted to provide advisory and management services for Fidelity mutual funds. The Fidelity funds had no employees of their own, as is typical in the mutual fund industry.

Former employees sued FMR under Sarbanes-Oxley, claiming they were fired after reporting alleged fraud relating to the Fidelity funds. The question for the Court was whether Sarbanes-Oxley applied to FMR’s employees. Although the whistleblower provision expressly extends to contractors such as FMR, it was unclear whether the statute intended to provide protection to employees of privately-held companies.

The Court decided it wouldn’t make sense for the whistleblower provision to cover contractors, but not their employees. And, because most mutual funds have no employees, the Court concluded it would defeat the purpose of the whistleblower provision if employees of contracted companies like FMR were not protected. Therefore, employees of a non-publicly traded employer may sue under the statute if the employer is providing services to a publicly traded entity.

U.S. v. Quality Stores, Inc. (March 25, 2014)

Quality Stores discharged a number of employees during Chapter 11 bankruptcy. The company provided severance payments based on seniority and length of service. Afterwards, the company requested refunds of Federal Insurance Contributions Act (FICA) taxes (i.e., social security, Medicare, etc.) withheld from the severance payments on the ground that severance is not wages within the meaning of FICA’s implementing law. The IRS refused.

FICA provides that any severance “shall be treated as if it were a payment of wages.” Wages are defined as “all remuneration for employment,” including non-cash benefits. The Court noted that severance payments are a form of benefits granted upon termination. And while the severance payments were not tied to any specific work, the Court found they were indisputably consideration for past employment.

Employers should keep in mind that severance payments not covered by ERISA plans may therefore be treated as a deferred form of wages under California law. In that case, it’s a good idea to use a severance agreement that sets forth the timing and conditions for receiving severance payments, such as upon signing a release. Otherwise, promised severance could be due on the date of termination as part of final wages.

Lane v. Franks (June 19, 2014)

Lane was the director of a program for under-privileged youth operated by Central Alabama Community College (CACC). He discharged an Alabama State Representative who was on the payroll after discovering he wasn’t performing any work. Lane later testified under subpoena about his reasons for the termination in a criminal action against the Representative. Franks, Lane’s boss, subsequently fired Lane. Lane sued Franks and the CACC, claiming his termination was retaliation for his testimony.

Courts typically recognize that the government, like private employers, has an interest in controlling employee speech to protect the efficiency of government processes. But here, the Court held that Lane’s testimony under subpoena was as a “concerned citizen” and fell outside the scope of his ordinary job duties. Lane’s testimony was therefore entitled to First Amendment free-speech protection.

In other words, public employees do not relinquish free speech protections by accepting public employment. Courts will instead strike a balance between employee rights to comment on matters of public concern and the public employer’s interests. The fact that the speech is related to job duties, by itself, does not automatically weigh in favor of the employer.

Sandifer v. United States Steel Corp. (January 27, 2014)

Unionized steelworkers sued their employer for back pay for unpaid time spent donning and doffing protective gear, such as fire-proof pants, jackets, earplugs, and respirators. The employer pointed to the collective bargaining agreement, which stated that “changing clothes” was non-compensable. The employees countered that the gear was not clothing because its primary function was protection.

The Court decided that the real issue was whether the period of time spent donning and doffing the gear could be fairly characterized as “time spent in changing clothes.” If the majority of the period is spent adjusting wearable equipment, (e.g., a respirator or helmet) the entire period would be compensable — even if some clothing items were also changed. But, if the majority of the time is spent donning or doffing gear that could function as clothing — even if they have some protective quality — the entire period is non-compensable. In short, clothing that benefits the employer does not necessarily convert it to something other than ordinary clothing for the purpose of donning and doffing.

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