SCOTUS: PAGA plaintiff must arbitrate

As I expected, the US Supreme Court has held (8-1) that the Federal Arbitration Act (FAA) preempts a rule of California law that invalidates contractual waivers of the right to assert representative claims under California's Labor Code Private Attorneys General Act (PAGA). Viking River Cruises v. Moriana (US Supreme Ct 06/15/2022) [PDF].

Moriana filed a PAGA action against her former employer. Because her employment contract contained a mandatory arbitration agreement, the employer moved to compel arbitration of Moriana's individual PAGA claim and to dismiss her other PAGA claims.

The California courts denied that motion, holding that categorical waivers of PAGA standing are contrary to California policy and that PAGA claims cannot be split into arbitrable "individual" claims and nonarbitrable "representative" claims, relying on Iskanian v. CLS Transp, 59 Cal. 4th 348 (2014).

The Supreme Court put its focus on that portion of Iskanian that precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate. The Court said that "Iskanian's indivisibility rule effectively coerces parties to opt for a judicial forum rather than 'forgo[ing] the procedural rigor and appellate review of the courts in order to realize the benefits of private dispute resolution.' This result is incompatible with the FAA."

As for the claims that were not individual to Moriana, the Court pointed out that PAGA provides no mechanism to enable a court to adjudicate nonindividual PAGA claims once an individual claim has been committed to a separate proceeding. "As a result, Moriana lacks statutory standing to continue to maintain her non-individual claims in court, and the correct course is to dismiss her remaining claims."

Waiting for SCOTUS

Expecting decisions June 15 in these three employment law cases:

Kennedy v. Bremerton School District [Briefs]: A high school football coach was fired for saying post-game prayers on the 50-yard line. Is his speech protected by the 1st amendment? If so, does the establishment clause compel the school to prohibit it?

Torres v. Texas Department of Public Safety [Briefs]: When a returning soldier sued the state of Texas claiming a USERRA violation, the Texas Court of Appeals held that USERRA’s cause of action is unconstitutional because Congress lacks the power to authorize lawsuits against nonconsenting states pursuant to its War Powers. The question presented is whether Congress has the power to authorize suits against nonconsenting states pursuant to its War Powers.

Viking River Cruises v. Moriana [Briefs]: Does the Federal Arbitration Act require enforcement of a bilateral arbitration agreement providing that an employee cannot raise representative claims, including under the California Private Attorneys General Act?

I predict wins for Kennedy, Torres, and Viking River Cruises.
UPDATE: I was right on all three.

No arbitration for cargo ramp supervisor

Watch 60 second video: https://youtu.be/uRb7HU80NXc

A unanimous United States Supreme Court says that an airline cargo ramp supervisor does not need to arbitrate her wage claim even though she signed an arbitration agreement. Southwest Airlines v. Saxon (US Supreme Ct 06/06/2022) [PDF]

So her claim stays in federal court.

The Federal Arbitration Act requires courts to enforce arbitration agreements. But  there's a big exception for contracts of employment of seamen, railroad employees, or any other class of workers engaged in interstate or foreign commerce.

She belongs to that class of workers in interstate commerce. She frequently unloads and loads cargo onto and off the airplane.

Now, the court was clear.

This does not cover all of the employees of the airline, and it's not only those employees who actually cross state lines.

She works on goods that are actually in interstate commerce. 

SCOTUS: FAA exempts airline ramp supervisor from having to arbitrate

In general, the Federal Arbitration Act (FAA) requires courts to enforce agreements to arbitrate. The big exceptions appear in FAA §1: "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce."

Southwest Airlines v. Saxon (US Supreme Ct 06/06/2022) [PDF] raised the question of whether "any other class of workers engaged in foreign or interstate commerce" included Latrice Saxon, an airline ramp supervisor who frequently loads and unloads cargo alongside the ramp agents.

Although Saxon signed an agreement to arbitrate wage claims, a unanimous US Supreme Court holds that Saxon is indeed exempt, so she can bring her overtime claim in federal court rather than being required to arbitrate. Saxon belongs to a "class of workers engaged in foreign or interstate commerce" to which §1's exemption applies.

Both sides advanced extreme arguments, and the Court rejected both.

The airline argued that the exemption should cover only those workers who physically move goods or people across foreign or international boundaries—pilots, ship crews, locomotive engineers, and the like. To that, the Court said, "Here, §1's plain text suffices to show that airplane cargo loaders are exempt from the FAA's scope, and we have no warrant to elevate vague invocations of statutory purpose over the words Congress chose."

Saxon argued that all of the airline's workers – everyone from cargo loaders to shift schedulers to those who design Southwest's website – are covered by the exemption. To that, the Court compared the use of the word "seamen." Because "seamen" includes only those who work on board a vessel, they constitute a subset of workers engaged in the maritime shipping industry.

SCOTUS rejects rule that arbitration waiver must involve prejudice

When she was hired, Robyn Morgan, a Taco Bell employee, signed an agreement to arbitrate any employment dispute. Despite that agreement, Morgan filed a nationwide collective action asserting a violation of federal law regarding overtime payment.

The employer initially defended against the lawsuit as if no arbitration agreement existed, filing a motion to dismiss (which the trial court denied) and engaging in mediation (which was unsuccessful). Then—nearly eight months after Morgan filed the lawsuit— the employer moved to stay the litigation and compel arbitration under the Federal Arbitration Act (FAA). Morgan opposed, arguing that the employer had waived its right to arbitrate by litigating for so long.

The courts below applied 8th Circuit precedent, under which a party waives its right to arbitration if it knew of the right; acted inconsistently with that right; and prejudiced the other party by its inconsistent actions.

The prejudice requirement is not a feature of federal waiver law generally. The 8th Circuit adopted that requirement because of the "federal policy favoring arbitration."

The US Supreme Court unanimously held that the 8th Circuit erred in conditioning a waiver of the right to arbitrate on a showing of prejudice. Morgan v. Sundance, Inc. (US Supreme Court 05/23/2022) [PDF].

The Court said: "Outside the arbitration context, a federal court assessing waiver does not generally ask about prejudice. Waiver, we have said, 'is the intentional relinquishment or abandonment of a known right.' To decide whether a waiver has occurred, the court focuses on the actions of the person who held the right; the court seldom considers the effects of those actions on the opposing party. That analysis applies to the waiver of a contractual right, as of any other." Thus, the 8th Circuit applied a rule that applies only to arbitration.

Courts that have required a showing of prejudice have relied on the "federal policy favoring arbitration." However, that policy, the Court said, "is merely an acknowledgment of the FAA's commitment to overrule the judiciary's longstanding refusal to enforce agreements to arbitrate and to place such agreements upon the same footing as other contracts."

The "federal policy favoring arbitration." is to make arbitration agreements as enforceable as other contracts, but not more so. Accordingly, a court must hold a party to its arbitration contract just as the court would to any other kind. But a court may not devise novel rules to favor arbitration over litigation.

Harassment: $1 million awarded to 15-year-old nude dancer

An adult entertainment club hired a 15-year-old victim of child sex trafficking as a nude dancer. The Bureau of Labor and Industries (BOLI) entered an order holding the club and three of its owners liable for subjecting her to sex discrimination in violation of ORS 659A.030(1)(b).

BOLI awarded $1 million in damages against the club, and also jointly and severally against the owners for aiding and abetting the unlawful sexual harassment.

The club is liable for $1 million.

The Oregon Court of Appeals upheld the award against the club, applying the following statute:

“An employer is liable for sexual harassment by nonemployees in the workplace when the employer or the employer’s agents knew or should have known of the conduct unless the employer took immediate and appropriate corrective action. In reviewing such cases the division will consider the extent of the employer’s control and any legal responsibility the employer may have with respect to the conduct of such non-employees.”

The owners are off the hook — for now.

However, the court concluded that BOLI erred in holding the owners liable for aiding and abetting. The relevant statute provides that it is unlawful "to aid, abet, incite, compel or coerce the doing of any of the acts forbidden under this chapter." However, BOLI applied different language that it took from a previous agency decision: “to help, assist, or facilitate the commission of an unlawful employment practice.”

The court found this error to be "fundamental" — applying the meaning of three terms (help, assist, and facilitate) that are not even in the statute. So that part of the case was remanded.

For all the gory details: Frehoo, Inc. v. BOLI (Oregon Ct App 05/18/2022) [PDF].

SCOTUS will decide whether highly paid employee gets FLSA overtime

The US Supreme Court granted certiorari [Order] on May 2 to decide whether the Fair Labor Standards Act (FLSA) overtime requirement applies to an employee making over $200,000 per year on the ground that he was paid based on a daily rate, not a weekly, monthly, or annual rate. The case is Helix Energy v. Hewitt.

FLSA regulations have an exemption for certain highly paid employees who perform executive, administrative, or professional duties. The 5th Circuit applied a regulation that states that the exemption applies only if the employee is paid on a "salary basis," and held that being paid on a daily rate is not being paid on a "salary basis."

I expect oral arguments to be scheduled for the fall.

Predicting a win for the praying football coach

Video is 57 seconds long.

View video on YouTube: https://www.youtube.com/watch?v=xrsxOhDMVQc

Nationwide injunction of federal employee vaccine mandate has ended

In a 2-1 decision the 5th Circuit has ended the nationwide injunction of the President's Executive Order that mandates COVID-19 vaccination for all executive branch employees, subject to medical and religious exceptions. Feds for Medical Freedom v. Biden (5th Cir 04/07/2022) [PDF]

Several plaintiffs claimed that the President exceeded his authority, and sued in federal district court. The district court found that the plaintiffs were likely to succeed on the merits of their claim and that the equities favored them. It therefore preliminarily enjoined enforcement of the Order nationwide.

The 5th Circuit (2-1) reversed, holding that the Civil Service Reform Act of 1978 (CSRA) precluded the district court's jurisdiction.

The court pointed out that the CSRA distinguishes between employees against whom an agency has taken "final adverse action" and those for which adverse action is merely "proposed." Only those against whom an agency has taken "final adverse action" are entitled to judicial review.

The court said: "Critically, in this case, any adverse action against the plaintiffs remains 'proposed.' They are thus entitled to 'notice, representation by counsel, an opportunity to respond, and a written, reasoned decision from the agency' under § 7513(b), not administrative review under § 7513(d). In other words, the plaintiffs are 'employees to whom the CSRA denies statutory review.' Congress intended 'to entirely foreclose judicial review to' such employees."

The DISSENT argued that the "CSRA does not cover pre-enforcement employment actions, especially concerning 2.1 million federal civilian employees. The district court, therefore, had subject-matter jurisdiction to hear plaintiffs’ claims."

No "look through" when confirming or vacating arbitration award

The U.S. Supreme Court held that a federal court could not "look through" an arbitration award to the underlying dispute to determine if it had jurisdiction to confirm or vacate the award. Badgerow v. Walters (US Supreme Ct 03/31/2022) [PDF]

An employee sued in state court to vacate an arbitration award in favor of an employer on a wrongful termination claim. The employer then removed the case to the federal trial court which granted the employer's request to confirm the award. The Supreme Court reversed because the federal court lacked subject matter jurisdiction.

The Federal Arbitration Act (FAA) authorizes a party to an arbitration agreement to petition a federal court to vacate or confirm an arbitration award.

However, the FAA itself does not create subject matter jurisdiction. That must be based on diversity of citizenship or a federal question.

When someone petitions to compel arbitration under FAA § 4, the federal court will “look through” the petition to the “underlying substantive controversy.” That's based on specific §4 language: A party to an arbitration agreement may petition for an order to compel arbitration in a “United States district court which, save for [the arbitration] agreement, would have jurisdiction” over “the controversy between the parties.”

 It is FAA §§ 9 and 10 that apply to confirming or vacating an existing arbitration award. Those sections contain none of the same statutory language. Therefore, the "look through" approach does not apply.

Bottom line: As a result, federal courts will look through to the underlying controversy when asked to compel arbitration, but not when asked to confirm or vacate an existing arbitration award.

No McDonnell Douglas in California whistleblower cases

The 9th Circuit asked the California Supreme Court to clarify whether McDonnell Douglas is the proper framework for evaluating California whistleblower retaliation claims.

The California Court held that a plaintiff need not satisfy McDonnell Douglas's framework. Lawson v. PPG Architectural Finishes (California 01/27/2022) [PDF]

Lawson sued in federal court claiming he was fired because he blew the whistle on his employer's fraudulent practices, in violation of the protections codified in Labor Code section 1102.5. The federal trial court granted summary judgment for the employer because Lawson could not satisfy all of the steps in a McDonnell Douglas Corp. v. Green 411 U.S. 792 (1973) analysis.

The answer to the certified question: "Section 1102.6 provides the governing framework for the presentation and evaluation of whistleblower retaliation claims brought under section 1102.5. First, it places the burden on the plaintiff to establish, by a preponderance of the evidence, that retaliation for an employee's protected activities was a contributing factor in a contested employment action. The plaintiff need not satisfy McDonnell Douglas in order to discharge this burden. Once the plaintiff has made the required showing, the burden shifts to the employer to demonstrate, by clear and convincing evidence, that it would have taken the action in question for legitimate, independent reasons even had the plaintiff not engaged in protected activity."

Lawson claimed his boss began ordering him to intentionally mistint slow-selling paint products – that is, to tint the paint to a shade the customer had not ordered – and he reported that to the company's hot line. Later, he was fired.

The federal district court applied the three-part burden-shifting framework laid out in McDonnell Douglas Corp. v. Green 411 U.S. 792 (1973), and found that Lawson failed to satisfy the third prong in that he failed to produce sufficient evidence that the company's stated reason for firing him was pretextual.

The 9th Circuit observed that California's appellate courts had not followed a consistent practice, and asked the California Supreme Court to clarify.

The California court said: By its terms, section 1102.6 describes the applicable substantive standards and burdens of proof for both parties in a section 1102.5 retaliation case: First, it must be “demonstrated by a preponderance of the evidence” that the employee’s protected whistleblowing was a “contributing factor” to an adverse employment action. (§ 1102.6.) Then, once the employee has made that necessary threshold showing, the employer bears “the burden of proof to demonstrate by clear and convincing evidence” that the alleged adverse employment action would have occurred “for legitimate, independent reasons” even if the employee had not engaged in protected whistleblowing activities.

ERISA plan fiduciaries lose at US Supreme Court – unanimously

Current and former employees sued claiming ERISA plan fiduciaries violated their duty of prudence by, among other things, offering needlessly expensive investment options and paying excessive recordkeeping fees.

The 7th Circuit held that these allegations fail as a matter of law, in part based on the court's determination that employees' preferred type of low-cost investments were available as plan options. In the 7th Circuit's view, this eliminated any concerns that other plan options were imprudent.

The US Supreme Court vacated and remanded. Hughes v. Northwestern University (US Supreme Ct 01/24/2022) [PDF]

The fiduciaries administer retirement plans on behalf of current and former Northwestern University employees. The plans are defined-contribution plans governed by the Employee Retirement Income Security Act of 1974 (ERISA), under which each participant chooses an individual investment mix from a menu of options selected by the plan administrators.

The employees claimed that the fiduciaries violated ERISA’s duty of prudence required of all plan fiduciaries by: (1) failing to monitor and control recordkeeping fees, resulting in unreasonably high costs to plan participants; (2) offering mutual funds and annuities in the form of “retail” share classes that carried higher fees than those charged by otherwise identical share classes of the same investments; and (3) offering options that were likely to confuse investors.

The 7th Circuit erred in relying on the participants’ ultimate choice over their investments to excuse allegedly imprudent decisions by the fiduciaries.

Determining whether the employees state plausible claims against plan fiduciaries for violations of ERISA’s duty of prudence requires a context-specific inquiry of the fiduciaries’ continuing duty to monitor investments and to remove imprudent ones as articulated in Tibble v. Edison Int’l, 575 U. S. 523.

Tibble concerned allegations that plan fiduciaries had offered “higher priced retail-class mutual funds as Plan investments when materially identical lower priced institutional-class mutual funds were available.” The Tibble Court concluded that the plaintiffs had identified a potential violation with respect to certain funds because “a fiduciary is required to conduct a regular review of its investment.”

Tibble’s discussion of the continuing duty to monitor plan investments applies here. The employees allege that the fiduciaries' failure to monitor investments prudently—by retaining recordkeepers that charged excessive fees, offering options likely to confuse investors, and neglecting to provide cheaper and otherwise-identical alternative investments—resulted in the fiduciaries failing to remove imprudent investments from the menu of investment offerings. In rejecting the employees' allegations, the 7th Circuit did not apply Tibble’s guidance but instead erroneously focused on another component of the duty of prudence: a fiduciary’s obligation to assemble a diverse menu of options.

But the fiduciaries' provision of an adequate array of investment choices, including the lower cost investments plaintiffs wanted, does not excuse their allegedly imprudent decisions. Even in a defined-contribution plan where participants choose their investments, Tibble instructs that plan fiduciaries must conduct their own independent evaluation to determine which investments may be prudently included in the plan’s menu of options. If the fiduciaries fail to remove an imprudent investment from the plan within a reasonable time, they breach their duty.

The 7th Circuit’s exclusive focus on investor choice elided this aspect of the duty of prudence. The court maintained the same mistaken focus in rejecting the employees’ claims with respect to recordkeeping fees on the grounds that plan participants could have chosen investment options with lower expenses.

The US Supreme Court vacated the judgment below so that the 7th Circuit may reevaluate the allegations as a whole, considering whether the employees have plausibly alleged a violation of the duty of prudence as articulated in Tibble under applicable pleading standards. The content of the duty of prudence turns on “the circumstances . . . prevailing” at the time the fiduciary acts, 29 U. S. C. §1104(a)(1)(B), so the appropriate inquiry will be context specific.

US Supreme Court argument on two vaccine mandates scheduled for January 7

In a surprise move, the US Supreme Court announced that it will hear oral arguments on January 7 on whether the government will be able to enforce two vaccine mandates while those mandates are being challenged in court.

Mandate # 1 is a rule from the Occupational Safety and Health Administration requiring employers with more than 100 employees to require their employees to be fully vaccinated or be tested weekly. The 5th Circuit put the rule on hold last month. Then there were several cases pending in several federal Circuit courts, so these were all consolidated and sent to the 6th Circuit. Surprisingly, the 6th Circuit dissolved the 5th Circuit's stay, so that rule is still in effect.

Mandate # 2 is a rule from the Department of Health and Human Services requiring facilities participating in Medicare and Medicaid programs to require their workers to be vaccinated (with medical and religious exemptions). Lower courts have blocked that rule in about one-half of the states.

OSHA's vaccine rule is reinstated (2-1)

On December 17 the 6th Circuit (2-1) dissolved the 5th Circuit's stay of OSHA's rule that employers with 100 or more employees require COVID vaccinations or weekly testing. Mass. Building Trades Council v. OSHA (6th Cir 12/17/2021) [PDF].

After the 5th Circuit issued its stay of the rule, a large number of similar challenges pending in multiple federal Circuit courts were consolidated and transferred to the 6th Circuit. That court ruled that the challengers (1) "cannot establish a likelihood of success on the merits" and (2) "have not shown that any injury from lifting the stay outweighs the injuries to the Government and the public interest."

The dissent is of the opinion that "The Secretary of Labor lacks statutory authority to issue the mandate."

SCOTUS will decide: USERRA v. state sovereign immunity

On December 15 the US Supreme Court granted certiorari to decide whether Congress abrogated state sovereign immunity when it enacted the Uniform Services Employment and Re-employment Rights Act (USERRA). Torres v. Texas Dept of Public Safety (US Supreme Ct cert granted 12/15/2021) [Briefs].

States have sovereign immunity – not only due to the 11th amendment, but also because “immunity from suit 'is a fundamental aspect of the sovereignty which the States enjoyed before the ratification of the Constitution, and which they retain today ... except as altered by the plan of the Convention or certain constitutional Amendments.'” Alden v. Maine, 527 U.S. 706 (1999).

Torres sued a state agency under USERRA, claiming that the agency's failure to offer him a job that would accommodate his disability violated USERRA.

The Texas Court of Appeals held that the suit was barred by sovereign immunity.

The Texas court relied heavily on Alden v. Maine. In that case state employees sued the state in state court alleging violations of the Fair Labor Standards Act (FLSA). The Supreme Court held that the case should be dismissed on the ground of sovereign immunity:

"We hold that the powers delegated to Congress under Article I of the United States Constitution do not include the power to subject nonconsenting States to private suits for damages in state courts. We decide as well that the State of Maine has not consented to suits for overtime pay and liquidated damages under the FLSA."

The Texas court pointed out that USERRA was enacted pursuant to Article I of the constitution (not Section 5 of the 14th amendment), and said that Alden v. Maine makes it clear that nonconsenting state cannot be sued in their own courts for alleged USERRA violations.

Torres is arguing that USERRA was enacted under Congress's war powers, and that even though they are listed within Article I, they are both “plenary and exclusive,” and were never exercised individually by the states.

I look forward to seeing a decision before summer.