SEC issues rules on executive pay vs. financial performance

12 years after Congress told the SEC to adopt a rule, the Commission on April 25 adopted amendments to its rules to require registrants to disclose information reflecting the relationship between executive compensation actually paid by a registrant and the registrant’s financial performance.

Specifically, the amendments require registrants to provide a table disclosing specified executive compensation and financial performance measures for their five most recently completed fiscal years. With respect to the measures of performance, a registrant will be required to report its total shareholder return (TSR), the TSR of companies in the registrant's peer group, its net income, and a financial performance measure chosen by the registrant.

Using the information presented in the table, registrants will be required to describe the relationships between the executive compensation actually paid and each of the performance measures, as well as the relationship between the registrant’s TSR and the TSR of its selected peer group.

A registrant will also be required to provide a list of three to seven financial performance measures that it determines are its most important performance measures for linking executive compensation actually paid to company performance. Smaller reporting companies will be subject to scaled disclosure requirements under the rules.

The final rules will become effective 30 days following publication in the Federal Register. Registrants must begin to comply with the new disclosure requirements in proxy and information statements that are required to include Item 402 executive compensation disclosure for fiscal years ending on or after December 16, 2022.

Pregnancy: Light duty for on-the-job injuries but not for pregnancy is not discriminatory

The EEOC sued Walmart claiming that the denial of temporary light duty to pregnant employees violated the Civil Rights Act and the Pregnancy Discrimination Act.

The trial court granted summary judgment to Walmart, and the 7th Seventh Circuit affirmed. EEOC v. Wal-Mart Stores East (7th Cir 08/16/2022) [PDF]

Walmart had a pretty simple policy. It offered temporary light duty to employees who were injured on the job, but did not offer similar light duty to employees who were pregnant or who were injured outside of their work for Walmart.

The EEOC argued that by accommodating all workers injured on the job, and denying all pregnant women a similar accommodation, Walmart engaged in sex discrimination.

Walmart offered evidence that the purpose of its policy is to implement a worker’s compensation program that benefits Walmart’s employees while limiting the company’s “legal exposure” and costs of hiring people to replace injured workers.

The 7th Circuit said, "Offering temporary light duty to workers injured on the job pursuant to a state worker’s compensation law is a 'legitimate, nondiscriminatory' justification for denying accommodations under the TAD Policy to everyone else, such as individuals not injured on the job, including pregnant women.”

Finally, the court said, "the burden shifts back to the EEOC to 'provid[e] sufficient evidence that the employer’s policies impose a significant burden on pregnant workers, and that the employer’s "legitimate, nondiscriminatory" reasons are not sufficiently strong to justify the burden, but rather—when considered along with the burden imposed—give rise to an inference of intentional discrimination.'" The court concluded that the EEOC could not carry that burden.

First time: Gender dysphoria recognized as a disability

The 4th Circuit is the first federal appeals court (on a 2-1 vote) to recognize gender dysphoria as a disability. Williams v. Kinkaid (4th Cir 08/16/2022) [PDF].

The case involves a person incarcerated in a county jail, yet this has a message for employees and employers because the relevant statutory language is identical.

Kesha Williams, a transgender woman with gender dysphoria, spent six months incarcerated in the Fairfax County Adult Detention Center. According to her complaint, prison deputies initially assigned her to women’s housing, then quickly moved her to men’s housing when they learned that she was transgender. There, she claims she experienced delays in medical treatment for her gender dysphoria, harassment by other inmates, and persistent and intentional misgendering and harassment by prison deputies.

The Americans with Disabilities Act (ADA) specifically excludes "transvestism, transsexualism, pedophilia, exhibitionism, voyeurism, gender identity disorders not resulting from physical impairments, [and] other sexual behavior disorders."

The trial court held that the exclusion for “gender identity disorders not resulting from physical impairments” applied to Williams’ gender dysphoria and barred her ADA claim, and dismissed the ADA and Rehabilitation Act claims. The 4th Circuit disagreed.

The 4th Circuit described a shift in medical understanding, explaining that a diagnosis of gender dysphoria, unlike that of “gender identity disorder[],” concerns itself primarily with distress and other disabling symptoms, rather than simply being transgender. Thus, "as a matter of statutory construction, gender dysphoria is not a gender identity disorder."

The court also found that Williams' "gender dysphoria nevertheless falls within the ADA’s safe harbor for 'gender identity disorders . . . resulting from physical impairments.'" "Williams’ complaint, as it stands, permits the plausible inference that her condition 'result[ed] from a physical impairment.'"

The dissent agreed with the trial court – saying that "since 'gender identity disorders not resulting from physical impairments' are excluded from the ADA, the district court appropriately dismissed Williams’ ADA claim."

NLRB consent order won't get court enforcement, citing Article III

NLRB orders are not self-enforcing. The Board must go to a federal Circuit Court to obtain an enforcement order.

The 4th Circuit (2-1) is now saying that when the NLRB and the charged party stipulate to a settlement agreement, courts lack jurisdiction to enforce a Board order that reflects the terms of the settlement. NLRB v. Constellium Rolled Products (4th Cir 08/05/2022) [PDF].

This is based on the court's interpretation of Article III of the Constitution, which limits the judicial power to "cases and controversies."  The court found that the parties lacked "adverseness."

The Board's General Counsel issued a complaint against an employer. Later, the employer and union entered a Formal Settlement Stipulation. By signing the agreement, the employer effectively withdrew its answer to the complaint before the Board and agreed to stipulated facts. The Stipulation also included proposed terms for a Board order.

The employer agreed, upon entry of the Board’s order, to “immediately comply with the provisions of the order.” The employer also agreed that when the Board sought a judgment in federal court enforcing its order, the employer would waive all defenses and consent to the entry of that judgment.

The Board approved the Formal Settlement Stipulation and issued an order reflecting its terms. A week later the Board petitioned the 4th Circuit to enter a consent judgment against the employer reflecting the order’s terms.

The court would have none of that, saying, "we lack jurisdiction to exercise judicial power when it would have no real consequences for the parties and would only rubberstamp an agreement the parties memorialized in writing and consummated before ever arriving on a federal court’s doorstep."

The court's summary: "In sum, the parties agree on every relevant question potentially before this Court. That agreement led the parties to resolve this dispute among themselves before ever coming to federal court, leaving nothing for this Court to do that would have real consequences in the world. And the Board agrees that [the employer] has complied with the order and continues to do so. There is nothing meaningful for this Court to do. Because this suit lacks adverseness, we lack jurisdiction."

The DISSENT argued that "the NLRB has a sufficient interest in the enforcement of its order to support our jurisdiction."

Impending death of the "adverse employment action" requirement

Update: The 5th Circuit has vacated the opinion described below and granted an en banc rehearing, to be scheduled. Hamilton v. Dallas County (5th Cir 10/13/2022) [PDF].

I would think that a clear-cut policy of assigning employee shifts based solely on gender would be a violation of Title VII. Actually an easy, open-and-shut case.

But not so in the 5th Circuit. Hamilton v. Dallas County (5th Cir 08/03/2022) [PDF].

Nine female detention service officers working at the Dallas County Jail alleged that days off were assigned based on gender – men get both weekend days, and women get one weekend day and one day during the week.

The trial court smacked them down on a Rule 12(b)(6) motion, and the 5th Circuit affirmed.

Why? Because – according to 5th Circuit precedent – this is not an "adverse employment action." In the 5th Circuit, “[a]dverse employment actions include only ultimate employment decisions such as hiring, granting leave, discharging, promoting, or compensating,”

So the three-judge panel was stuck with that rule, even though the panel said, "Surely allowing men to have full weekends off, but not women, on the basis of sex rather than a neutral factor like merit or seniority, constitutes discrimination with respect to the terms or conditions of those women’s employment."

In the end, the panel called for en banc review "to reexamine our ultimate-employment-decision requirement and harmonize our case law with our sister circuits’ to achieve fidelity to the text of Title VII."

Clearly the outcome is wrong. The US Supreme Court has often reminded lower courts that it is their job to apply statutes the way they are written, and not to add burdens that are not derived from the statute the way Congress wrote it.

I look forward to seeing an en banc decision in this case.

LawMemo employment law Alerts

Once a week LawMemo posts an Alert focusing on a recent employment law decision. The archive is HERE.

Here’s a list from the last few months:

08/02/2022 - "Cat's paw" theory allows discrimination plaintiffs to get to a jury

07/26/2022 - No intolerable working conditions? No constructive discharge.
07/19/2022 - App-based drivers: Jury will decide whether employees or contractors
07/12/2022 - Banning "Black Lives Matter" masks violated the 1st amendment
07/05/2022 - SCOTUS: States have no sovereign immunity in USERRA suits (5-4)

06/28/2022 - 1st amendment bars termination of coach for post-game prayers
06/21/2022 - FAA requires PAGA plaintiff to arbitrate her individual claim
06/14/2022 - Defamation: belief that fired employees "were jerks" won't prove actual malice
06/07/2022 - Unanimous SCOTUS: Airline ramp supervisor is exempt from the FAA

05/31/2022 - SCOTUS: Waiver of right to arbitrate does not require proof of prejudice
05/24/2022 - "First one of you tries to unionize … I’ll send you back to the salt mine."
05/17/2022 - Severely disabled janitors are employees
05/10/2022 - ADA impairment need not be permanent or have long-term effects
05/03/2022 - Arbitration agreement in employee handbook is unenforceable

$6 million non-economic damages is "shockingly excessive"

A man got fired by IBM, he sued claiming wrongful termination and retaliation, and a jury found in his favor.

The jury awarded him about $5 million in economic damages and $6 million in non-economic damages.

Applying Washington law, the 9th Circuit reversed the non-economic damages award, finding that $6 million was "shockingly excessive." Kingston v. IBM (9th Cir 08/01/2022 [PDF].

Quoting from some Washington court decisions, the court said the $6 million non-economic damages award is “so excessive as to strike mankind, at first blush, as being, beyond all measure, unreasonable and outrageous.”

The reasoning was this: "Although we do not question that Kingston suffered psychological distress because of his termination, his distress does not appear to have been significantly greater than what anyone might suffer from being fired. Based on the evidence presented at trial, $6 million is shockingly excessive. It also far exceeds the amounts that Washington courts have upheld in similar cases—so far as we have been able to determine, no Washington court has upheld an award of greater than $1.5 million in non-economic damages in a wrongful-termination case."

So, the case goes back to the district court for a reduction of the non-economic damages award "to an amount supported by the record and consistent with Washington law."

Is there a constitutional "right to engage in common occupations"?

When I see a cert petition assert a constitutional "right to engage in common occupations," that catches my attention. The case is Tiwari v. Friedlander. Cert petition here.

I’m reminded that "The Constitution does not prohibit legislatures from enacting stupid laws."

The facts are simple. The petitioners are two folks who own Grace Home Care, formed to provide same-language healthcare to Nepali-speaking folks in Louisville, Kentucky. But Grace could not open. Under the Certificate of Need law, Kentucky had determined that there was no “need” for any new home health services in Louisville.

The suit claimed that the Certificate of Need Law was a violation of the "right to earn a living" under the Due Process, Equal Protection, and Privileges or Immunities clauses of the Fourteenth Amendment. The district court and the 6th Circuit denied Grace's claim.

It's a long-standing rule that economic legislation passes constitutional muster if the government has a "rational basis" for the law. The petitioners are asking the Supreme Court to clarify how the rational basis test should actually be applied. They claim (with considerable justification I think) that the Supreme Court has described the rational-basis test inconsistently and that this has led to confusion in the lower courts, absurd results, and inconsistent outcomes.

In this very case, a trial court judge originally sided with Grace. However, that judge got elevated to the Circuit court and a new judge upheld the law under the rational-basis test. Then at the 6th Circuit the court ruled that "Kentucky's certificate-of-need law passes, perhaps with a low grade but with a pass all the same."

I don't expect the Supreme Court to grant certiorari in this case. The petitioners view the right they assert as somehow special, and want the rational-basis test to have sharper teeth. I think the Supreme Court is tired of "ranking" rights as more or less important, and prefers to let the democratic process work its wonders in the economic arena.

Grubhub delivery drivers are not exempt from FAA arbitration

Some former Grubhub delivery drivers sued Grubhub alleging various wage and hours violations. They had all electronically signed arbitration agreements, so Grubhub moved to compel arbitration.

The big question in the case was whether they fell within the definition of "any other class of workers engaged in foreign or interstate commerce" who are exempt from arbitration under § 1 of the Federal Arbitration Act (FAA).

The trial court reasoned that they were exempt by virtue of their transportation and delivery of prepackaged food items, some of which were manufactured outside the state.

The Massachusetts Supreme Court disagreed, and held that the drivers are required to arbitrate rather than litigate their dispute. Archer v. Grubhub (Massachusetts 07/27/2022) [PDF].

The dispositive point was that these drivers were not "actually engaged in the movement of goods in interstate commerce." Although the drivers transported goods that may travel across several states before landing in a meal prepared by a local restaurant and delivered by a Grubhub driver, they did not fall within the residual clause because they were not connected to the act of moving those goods across state or national borders.

The court cited several cases from other courts that reached the same conclusion.

Grubhub drivers are unlike "last-mile drivers" (e.g., Amazon drivers) who are transporting goods that – from moment the goods entered "the flow of interstate commerce," – were always "destined for" the customers to whom the last-mile drivers made deliveries.

Railroad Unemployment Insurance Act preempts California paid sick leave law

In 2014, the California legislature passed the Healthy Workplaces, Healthy Families Act, which requires employers to provide a minimum of 24 hours “paid sick leave” or three “paid sick days” per year to every employee working in California.

Six railroad companies brought suit against the California Labor Commissioner. The railroads alleged that the California Act was invalid as applied to their employees.

The 9th Circuit agreed with the railroad companies. National Railroad Passenger Corporation v. Brotherhood of Locomotive Engineers And Trainmen (9th Cir 07/26/2022). [PDF]

The federal Railroad Unemployment Insurance Act (RUIA) provides unemployment and sickness benefits to railroad employees, and it contains an express preemption provision disallowing railroad employees from having any right to “sickness benefits under a sickness law of any State.” Looking to the plain meaning of the statutory text, the court concluded that the preemption provision broadly refers to compensation or other assistance provided to employees in connection with physical or mental well-being. The court concluded that RUIA’s statutory framework and stated purposes confirm the breadth of its preemptive effect.

The court said: "Properly considered in light of RUIA’s plain text and structure, the California Act is a 'sickness law' that provides 'sickness benefits.'"

6 US Supreme Court employment cases during 2021-2022 session

[View the video]

This 90-second video covers six cases from the US Supreme Court during the 2021-2022 session.

Four of them provide us with more guidance about the preemptive role of the Federal Arbitration Act (FAA).

1. An airline ramp supervisor is exempt from the Federal Arbitration Act, so she does not have to arbitrate because she's in a" class of workers engaged in interstate commerce."

2. In deciding whether a litigant can enforce or vacate an arbitration award in federal court, the court cannot “look through” to the underlying controversy to decide whether it has jurisdiction.

3. In deciding whether a litigant has waved its right to arbitrate, a court cannot impose an additional requirement that there has to be a showing of prejudice.

4. A plaintiff in a California Private Attorney General Act case has got to arbitrate her individual case separate from her representation case on a non-class basis.

5. The football coach who said a prayer at the end of the game on the fifty yard line cannot be suspended because he has rights under the first amendment.

6. In suits under the Uniformed Services Employment and Reemployment Act (USERRA), the states have given up their sovereign immunity to suits in their own courts.

"Cannot alter" language does not make arbitration agreement unconscionable

Gist v. ZoAn Management (Oregon Supreme Court 07/08/2022) [PDF] is a case that looked like a run-of-the-mill allegation that a driver claimed to be an employee but was wrongly classified as an independent contractor, and the defendant wanted to enforce an arbitration agreement.

But the plaintiff claimed the arbitration agreement was unconscionable, and had an interesting argument.

The agreement stated that the arbitrator "cannot alter, amend or modify the contract." From that, the plaintiff argued that the arbitrator lacked the power to grant him relief on his claims, and so the agreement was unconscionable. Specifically, the argument was that the contract classified the plaintiff as an independent contractor and the arbitrator lacked authority to conclude he was an employee and to enforce his rights as an employee under Oregon's wage and hour statutes.

The Oregon Supreme Court had little trouble brushing the plaintiff's argument aside because the defendant conceded that "An arbitration agreement that limits the arbitrator's authority to 'alter, amend, or modify' the terms of the contract does not limit any statutorily mandated rights." The court agreed with that interpretation of the "cannot alter" clause.

The court said, “the [contract] does not prevent the arbitrators from concluding that the [contract]'s provisions classifying the drivers as independent contractors are invalid or unenforceable and that plaintiff was an employee. If the arbitrators so conclude, then they can resolve plaintiff's claims under Oregon's wage and hour statutes.”

Oh, yes, then there's this: For the first time on appeal the plaintiff argued that drivers are exempt from the Federal Arbitration Act because they qualify for the transportation worker exception to the FAA. However, this was never raised below, the argument was not preserved, and the Supreme Court simply did not address it.

Mixed reactions to SCOTUS's 5-4 USERRA decision

I'm having mixed reactions to Torres v. Texas Department of Public Safety (US Supreme Ct 06/29/2022) [PDF] — the US Supreme Court case holding that a military servicemember can bring a suit against a State in State court to enforce his rights under the Uniformed Services Employment and Reemployment Rights Act (USERRA), in spite of the State's claim of sovereign immunity.

While serving in Iraq, Torres was exposed to toxic burn pits, a method of garbage disposal that sets open fire to all manner of trash, human waste, and military equipment. Torres received an honorable discharge. But he returned home with constrictive bronchitis, a respiratory condition that narrowed his airways and made breathing difficult. These ailments, Torres says, left him unable to work his old job as a State trooper, so he asked the State to accommodate his condition by reemploying him in a different role. The State refused, asserting sovereign immunity.

The US Supreme Court held (5-4) that by ratifying the Constitution, the States agreed their sovereignty would yield to the national power to raise and support the Armed Forces, so Congress may exercise this power to authorize private damages suits against nonconsenting States, as in USERRA.

Two reactions:

1. I'm delighted that Torres can bring his suit. Those who have served in the armed forces deserve to have service-related injuries accommodated by their employers (whether private employers or State employers), and State court seems the logical place to bring a suit.

2. I'm amazed at the slender reed upon which the majority rests its opinion. I won't go into great detail here, yet the majority was able to brush aside a number precedents by latching on to three words — "complete in itself" — contained in one of those cases. The four dissenting Justices do a good job of making the point: "[T]he Court brushes aside a 23-year-old, pathbreaking precedent, while elevating a single phrase, made in passing in a one-year-old, highly circumscribed precedent. It then uses that phrase to fashion a test for plan-of-the-Convention waiver that mimics earlier attempts by this Court to deny States the dignity owed to them in our system of dual federalism."

Praying football coach wins at US Supreme Court

The Bremerton School District fired Joseph Kennedy, a high school football coach, after he knelt at midfield after games to offer a quiet personal prayer.

The US Supreme Court (6-3) held that terminating Kennedy violated the Free Exercise and Free Speech Clauses of the First Amendment. Kennedy v. Bremerton School District (US Supreme Ct 06/27/2022) [PDF].

The District Court found that the “‘sole reason’” for the District’s decision to suspend Kennedy was its perceived “risk of constitutional liability” under the Establishment Clause for his “religious conduct” after three games in October 2015. The 9th Circuit affirmed, and denied a petition to rehear the case en banc over the dissents of 11 judges.

The US Supreme Court said, "Here, a government entity sought to punish an individual for engaging in a brief, quiet, personal religious observance doubly protected by the Free Exercise and Free Speech Clauses of the First Amendment. And the only meaningful justification the government offered for its reprisal rested on a mistaken view that it had a duty to ferret out and suppress religious observances even as it allows comparable secular speech. The Constitution neither mandates nor tolerates that kind of discrimination. Mr. Kennedy is entitled to summary judgment on his First Amendment claims."

Three DISSENTERS argued that the Establishment Clause prohibits the District from firing Kennedy, and claimed that the majority disregarded "overwhelming precedents."

NLRB seeks nationwide cease and desist order against Starbucks

Here is the June 21, 2022 announcement from the NLRB:

Today, National Labor Relations Board Region 3-Buffalo Regional Director Linda M. Leslie petitioned in United States District Court for injunctive relief for seven former Starbucks employees in Buffalo, New York who were unlawfully fired for exercising their right to form a union. Section 10(j) of the National Labor Relations Act (NLRA) authorizes the NLRB to seek injunctions against employers and unions in federal district courts to stop unfair labor practices where, due to the passage of time, the normal Board processes are likely to be inadequate to effectively remedy the alleged violations.

The petition explains that, after learning about the organizing effort, Starbucks immediately set its vigorous antiunion campaign in motion, employing an expansive array of illegal tactics such as raising wages, promising benefits, bringing in a cadre of managers to monitor employees and discourage union activity, closing stores with active organizing drives, and threatening employees—culminating in the discharge of seven union activists at five different stores over the course of six weeks.

The Regional Director is seeking an interim Gissel bargaining order for Camp Road employees because traditional Board remedies will be unable to restore “laboratory conditions” to enable the NLRB to conduct a free and fair rerun election. She is also seeking a broad nationwide cease-and-desist order that would be applicable to all the Employer’s facilities in the United States along with a national posting of the district court’s decision and order at all Starbucks facilities to fully notify employees of their NLRA rights and the protections being afforded by the court’s order.

“Absent immediate interim relief, Starbucks will achieve its goal, through unlawful means, of irreparably harming the campaign in Buffalo, and sending a clear chilling message to its employees across the country,” said Region 3’s Regional Director Linda M. Leslie. “We are asking the Court to swiftly grant the injunction so that the unlawfully discharged workers can return to work and effectively exercise their right to engage in union activities, including collectively bargain a union contract.”

If granted, the injunction would provide interim relief while the case is being litigated. Regional Director Leslie issued a consolidated complaint on May 19, 2022 containing over 200 allegations of unfair labor practices by Starbucks. A hearing on the complaint before an Administrative Law Judge is set for July 11, 2022.