Employment Law

Continuing Violation Doctrine Keeps Title VII Suit Alive

Why it matters

The U.S. Court of Appeals for the Fifth Circuit allowed a professor to move forward with her Title VII hostile work environment claims under the continuing violations doctrine, reversing summary judgment in favor of the educational institution where she worked. A female math professor alleged that her male supervisor harassed her for years because of her gender, interfering with her classes and refusing to let her participate on committees, write grants or teach online courses or advanced classes. A district court judge granted summary judgment for the school based on statute of limitations grounds as most of the conduct at issue occurred more than 300 days before she filed her charge with the Equal Employment Opportunity Commission and the more recent allegations were insufficient to support a hostile work environment claim. But the federal appellate panel reversed, holding that the district court should have applied the continuing violations doctrine, remanding the case for reconsideration.

Detailed discussion

A math professor at Southern University's New Orleans campus, Panagiota Heath alleged that when Mostafa Elaasar became her supervisor in 2003 he began a campaign of harassment that lasted more than a decade. Heath claimed Elaasar interfered with her classes (rewriting her exams and coercing a student to make a complaint against her) and denied her request for a sabbatical to write a book (telling her he didn't think she was capable of doing so).

Heath filed a lawsuit in 2009 in state court asserting sex discrimination but stopped pursuing it; she also complained to the school but the university did not respond. Heath took a sabbatical due to job-related stress during the 2010–2011 school year but alleged that when she returned in the fall of 2011, Elaasar's harassment continued unabated. He refused to allow her to participate in any committees, would not allow her to teach online courses or advanced classes, and isolated her from department business, she claimed.

More than 200 students filed a petition on Heath's behalf with the school and Heath made multiple complaints but the university did not respond. Heath filed a charge of discrimination with the Equal Employment Opportunity Commission (EEOC) and then a federal complaint against the school and Elaasar, alleging she was subject to a hostile work environment under Title VII.

A district court granted the defendants' motion for summary judgment. Most of the allegedly harassing conduct Heath relied on occurred outside the statute of limitations (300 days before the filing of her EEOC charge), the court said, and looking only at the conduct that occurred after that, Heath failed to present adequate evidence to support her claim.

The U.S. Court of Appeals for the Fifth Circuit reversed. The district court erred by neglecting U.S. Supreme Court guidance on the application of the continuing violation doctrine found in the 2002 opinion National R.R. Passenger Corp. v. Morgan, the panel said.

Morgan "distinguishes discrete acts that form the basis of traditional discrimination claims from continuing conduct that forms the basis of hostile work environment claims," the Fifth Circuit explained. "Claims alleging discrete acts are not subject to the continuing violation doctrine; hostile workplace claims are. Hostile environment claims are 'continuing' because they involve repeated conduct, so the 'unlawful employment practice' cannot be said to occur on any particular day. As long as an 'act contributing to the claim occurs within the filing period, the entire time period of the hostile environment may be considered by a court for the purposes of determining liability.'"

The decision also rejected the prior position of the Fifth Circuit and its use of three factors to evaluate whether or not a continuing violation existed, the court said. Expressly recognizing that Morgan overruled its prior test, the panel made clear the standard going forward: courts should focus on when harassment occurred—not when a plaintiff knew of an ongoing violation.

As the judge erred in using the prior standard to evaluate Heath's claims, the court reversed summary judgment and ruled that Heath's hostile work environment claims involved a continuing violation dating back to 2011 when she returned from her leave. "The conduct that she identifies from that point forward is related," the panel wrote, and the pre- and post-limitations period incidents involved the same type of employment actions, occurred relatively frequently, and were perpetrated by the same individual.

"There is no evidence the university took any intervening act after Heath returned from sabbatical that would have severed the continuing nature of the acts," the court added. "And the Defendants have pointed to no equitable consideration that should prevent the court from considering the full scope of the continuing conduct. We thus conclude that Heath has alleged a continuing course of conduct dating back to her return from leave in 2011."

To read the decision in Heath v. Board of Supervisors for the Southern University and Agricultural and Mechanical College, click here.

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California Appellate Court: Commissioned Employees Must Be Paid for Rest Periods

Why it matters

Are employees paid on commission entitled to separate compensation for rest periods mandated by state law, and if so, do employers who keep track of hours worked, including rest periods, violate this requirement by paying employees a guaranteed minimum hourly rate as an advance on commissions earned in later pay periods? A California appellate court recently answered both questions in the affirmative. A pair of sales associates filed suit against a furniture retailer, claiming that their commission plan violated state law. Paid exclusively through commissions, the associates were paid a "draw" against future commissions if they failed to earn at least $12.01 per hour during any pay period. Separate compensation was not provided for non-selling time, including rest periods. The appellate panel found that the commission plan violated state law because it failed to separately compensate the sales associates for the time they worked but could not earn commissions, reversing summary judgment in favor of the employer. A commission plan "must separately account and pay for rest periods to comply with California law," the court ruled.

Detailed discussion

After Ricardo Vaquero and Robert Schaefer were terminated, they filed suit against their former employer, Ashley Furniture HomeStores. The pair alleged that the store's parent company—Stoneledge Furniture LLC—violated California law with its commission plan. From 2009 through March 2014, Stoneledge compensated sales associates like Vaquero and Schaefer strictly on a commission basis. If an employee failed to earn at least $12.01 per hour in commissions in any pay period, Stoneledge paid the associate a draw against future commissions.

The commission agreement did not provide separate compensation for any non-selling time, such as time spent in meetings, on certain types of training and during rest periods. Stoneledge authorized and permitted sales associates to take rest periods of at least ten consecutive minutes for every four hours worked or major fraction thereof.

Stoneledge filed a motion for summary judgment, arguing that the rest period claim failed as a matter of law because the employer paid its sales associates a guaranteed minimum for all hours worked, including rest periods. A trial court judge agreed.

The plaintiffs appealed. They countered that payment for rest periods is mandated under two separate provisions of law: Wage Order 7-2001 and section 226.7 of the state Labor Code. Section 226.7 provides that employers "shall not" require employees to work during a meal or rest or recovery period mandated by law, while Wage Order 7 (applicable to the mercantile industry) establishes an employer's duty to pay such employees the minimum wage "for all hours worked."

Recognizing that state wage and hour laws "reflect the strong public policy favoring protection of workers' general welfare," the appellate court concluded that the law required Stoneledge to separately compensate its sales associates for rest periods.

"The plain language of Wage Order No. 7 requires employers to count 'rest period time' as 'hours worked for which there shall be no deduction from wages,'" the court wrote. "Wage Order 7 requires employers to separately compensate employees for rest periods if an employer's compensation plan does not already include a minimum hourly wage for such time."

This requirement applies equally to commissioned employees, employees paid by piece rate, or any other compensation system that does not separately account for rest breaks and other nonproductive time, the court said. "[N]othing about commission compensation plans justifies treating commissioned employees differently from other employees," the panel wrote, adding that "the purpose of a rest period is to rest, not to work."

Stoneledge argued that commission sales may continue through rest periods because commissions are routinely earned while employees are not present, including when they are on break. But it "makes no sense to assume that a commission-based employee who works 100 minutes per 40-hour work week longer than another employee—for example, by greeting new customers, following up with potential leads, or answering emails and phone calls related to pending orders—would not earn more in commissions than the employee who spent those same 100 minutes in a break room," the court said.

The court found support for its conclusion in the Division of Labor Standards Enforcement Policies and Interpretations Manual as well as public policy, which has "long viewed mandatory rest periods 'as part of the remedial worker protection framework,'" and so sacrosanct a right that it is unwaivable. "Compensation plans that do not compensate employees directly for rest periods undermine this protective policy by discouraging employees from taking rest breaks," the panel said.

As Stoneledge's plan did not separately compensate sales associates for rest periods, it violated state law, the court held. "The problem with Stoneledge's compensation system … is that the formula it used for determining commissions did not include any component that directly compensated sales associates for rest periods," the panel wrote. "Sales associates who were paid their commission received the same amount of compensation regardless of whether they took rest breaks."

When the employer paid an employee only a commission, that commission did not account for rest periods, and when Stoneledge compensated an employee on an hourly basis (including for rest periods), the company took back that compensation in later pay periods, the court explained. "In neither situation was the employee separately compensated for rest periods."

The court noted that its decision did not cast doubt on the legality of commission-based compensation. "Instead, we hold only that such compensation plans must separately account and pay for rest periods to comply with California law," the panel said. "Nor will our decision lead to hoards of lazy sales associates. The commission agreement in effect during the class period provided that a sales associate who failed to meet minimum sales expectations (which generated commissions well above the guaranteed minimum) was subject to disciplinary measures up to and including termination. Thus, employers like Stoneledge have methods to ensure that an employee's productivity does not suffer as a result of complying with California law by paying a minimum wage for rest periods."

To read the opinion in Vaquero v. Stoneledge Furniture LLC, click here.

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Ninth Circuit Permits Internal Whistleblower to Sue

Why it matters

Broadening a circuit split, the U.S. Court of Appeals for the Ninth Circuit determined that a whistleblower was entitled to the protections of the Dodd-Frank Wall Street Reform and Consumer Protection Act despite failing to report his concerns about corporate actions to the Securities and Exchange Commission (SEC). A vice president of portfolio management at Digital Realty Trust, Paul Somers shared with senior management his concern about actions by a supervisor that he said violated the Sarbanes-Oxley Act. When he was fired not long after, he sued. Digital Realty moved to dismiss, arguing that Somers was not entitled to protection from alleged retaliation because he did not report his concerns to the SEC. A district court denied the motion and the Ninth Circuit affirmed, joining the Second Circuit to hold that Dodd-Frank's whistleblower protections do not require reporting to the SEC and that Congress intended to protect internal whistleblowers. The decision stands in opposition to Fifth Circuit precedent and increases the likelihood the issue will end up before the U.S. Supreme Court.

Detailed discussion

Paul Somers began working as a Vice President at Digital Realty Trust in 2010. He claimed that over the four years he worked for the company he made several reports to senior management regarding possible securities law violations by the company, soon after which he was fired.

Somers then sued Digital Realty, alleging violations of various state and federal laws, including Section 21F of the Securities Exchange Act, seeking the protections afforded to whistleblowers under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Digital Realty moved to dismiss this claim, arguing that Somers only reported the alleged violation internally and not to the SEC, meaning he was not a "whistleblower" under Dodd-Frank's definition.

The district court denied the motion and the U.S. Court of Appeals for the Ninth Circuit affirmed. The federal appellate panel documented the existing circuit split on the question, with the Fifth Circuit strictly applying Dodd-Frank's definition of "whistleblower" so as to require dismissal of the plaintiff's action because he did not make his disclosures to the SEC. The Second Circuit has taken the opposite position, viewing the statute itself as ambiguous and deferring to the SEC's regulation, which interprets the provision to extend protections to all those who make disclosures of suspected violations—whether internally or to the SEC.

"We agree with the district court that the regulation is consistent with Congress's overall purpose to protect those who report violations internally as well as those who report to the government," the Ninth Circuit wrote. "This intent is reflected in the language of the specific statutory subdivision in question, which explicitly references internal reporting provisions of Sarbanes-Oxley and the Securities Exchange Act. In view of that language, and the overall operation of the statute, we conclude that the SEC regulation correctly reflects congressional intent to provide protection for those who make internal disclosures as well as to those who make disclosures to the SEC."

The case must be seen against "the background of twenty-first century statutes to curb securities abuses," the court explained. Dodd-Frank established legal protections for employees who blow the whistle on a company's illegal activities, but the statute wasn't entirely clear. Section 78u-6(a)(6) defines a whistleblower as "any individual who provides … information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission."

Separately, Section 78u-6(h)(1)(A) provides whistleblowers with a private right of action against employers who take retaliatory actions against a whistleblower for taking certain protected actions, delineated in three subsections. Two subsections specifically reference working with the SEC, while the third provides protections more generally "in making disclosures that are required or protected" under the Sarbanes-Oxley Act, the Exchange Act "and any other law, rule, or regulation subject to the jurisdiction of the Commission."

There is no legislative history explaining the purpose of the third subsection, "but its language illuminates congressional intent," the court said. "By broadly incorporating, through subdivision (iii), Sarbanes-Oxley's disclosure requirements and protections, [the Dodd-Frank Act] necessarily bars retaliation against an employee of a public company who reports violations to the boss, i.e., one who provide[s] information regarding a securities law violation to 'a person with supervisory authority over the employee.'"

Some provisions of Sarbanes-Oxley and the Exchange Act mandate internal reporting before external reporting for certain types of employees, such as auditors, the panel added. "Leaving employees without protection for that required preliminary step would result in early retaliation before that information could reach the regulators," the court said.

The panel rejected the employer's argument that Dodd-Frank's definitional provision on "whistleblowers" should be dispositive. "Terms can have different operative consequences in different contexts," the court wrote. Dodd-Frank's "anti-retaliation provision unambiguously and expressly protects from retaliation all those who report to the SEC and who report internally. Its terms should be enforced."

Even if the court were to find the statutory language ambiguous, "the agency responsible for enforcing the securities laws has resolved any ambiguity and its regulation is entitled to deference," the panel said. Pursuant to its rule-making authority, the SEC issued Exchange Act Rule 21F-2 in 2011, stating that anyone who does any of the things described in subdivisions (i), (ii), and (iii) of the anti-retaliation provision is entitled to protection, including those who make internal disclosures under Sarbanes-Oxley.

One member of the panel filed a dissenting opinion, agreeing with the Fifth Circuit's line of reasoning.

To read the opinion in Somers v. Digital Realty Trust, Inc., click here.

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Shorter Workday, Less Pay = Reasonable Accommodation

Why it matters

An employer did not run afoul of federal law by shortening an employee's workday—and decreasing her pay as a result—as a reasonable accommodation of her religious needs, an Illinois federal court ruled. A Muslim employee objected when her shift was changed from 7 a.m.–4 p.m. to 9 a.m.–6 p.m., as she needed to be at a daily religious program held between 4 and 6 p.m. Her employer agreed to shorten her shift to end at 4 p.m. and decreased her pay accordingly. She was later fired after an injury caused her to miss work and the parties disagreed about time off. In her complaint, the employee claimed that the employer engaged in religious discrimination because shortening her workday diminished her earnings. But the court sided with the employer, finding the schedule modification constituted a reasonable accommodation even with the decrease in pay. No authority required the employee be permitted to work as many hours as she would have otherwise been entitled to, the court said, granting summary judgment on the religious discrimination claim.

Detailed discussion

At Concentra Health Services in Chicago, Timika Smith was hired as a front office specialist, working Monday through Friday from 7 a.m. to 4 p.m. A Muslim and a member of the Moorish Science Temple of America, Smith was expected to participate in daily religious programs that began between 4 p.m. and 6 p.m. On some occasions, she would pick up her daughter from school before going to the program.

In 2014, Concerta determined that it was unnecessary to have a dedicated front office specialist prior to 9 a.m. because two other employees—medical assistants—could perform those functions for the limited number of customers that came during that time period. As a result, Smith's shift was changed to 9 a.m. to 6 p.m.

Smith objected, explaining that she needed to be at her temple prior to 6 p.m. each day and sometimes needed to pick up her daughter. Concerta offered to let Smith take a break to fulfill her prayer accommodations but ultimately agreed to shorten her shift to 4 p.m. Her pay was decreased accordingly. Smith asked to switch to a medical assistant role, but was not certified for the position and there were no openings. Later in the year, Smith was injured in a car accident and had work restrictions as a result. She later took Family and Medical Leave Act leave and was ultimately terminated for failing to return when her leave ended.

She filed suit, alleging that she was discriminated against based on her religion because Concentra failed to provide her with a reasonable accommodation. Although disputes existed as to whether Smith refused to work after 4 p.m. because of her religious beliefs or her need to pick up her daughter, the court assumed without deciding that Smith could make out a prima facie case of discrimination.

The "undisputed facts establish that Concentra reasonably accommodated Smith's religious practices," U.S. District Court Judge Sharon Johnson Coleman ruled. "A reasonable accommodation is one that 'eliminates the conflict between employment requirements and religious practices.' A reasonable accommodation need not be an employee's preferred accommodation or the most beneficial accommodation for the employee; once the employer offers an alternative that reasonably accommodates the employee's religious needs the statutory inquiry is at an end."

After Smith informed her employer that the new schedule would not be viable as a result of her personal and religious obligations, Concentra allowed Smith to end her shift at 4 p.m. "This adjustment eliminated the conflict between Smith's schedule and her religious obligations and thus constituted a reasonable accommodation," the court said.

Judge Coleman rejected Smith's argument that the shorter workday was not a reasonable accommodation because it diminished her earnings, as "no authority require[s] that reasonable accommodations permit an employee to work as many hours as they would otherwise be entitled to."

Neither was Concentra required to accommodate Smith in a different manner so that she could retain her previous schedule, the court said, either by letting her keep her hours or letting her switch to a medical assistant position. The employer set forth undisputed facts that a front office specialist was not needed from 7 a.m. to 9 a.m. and that it was necessary to have that position filled later in the day, as well as the fact there were no open medical assistant positions. "Accordingly, accommodating Smith in this manner would have imposed costs on Concentra sufficient to constitute an undue hardship," the court wrote. "It is well established that an employer is not required to engage in reasonable accommodations that would require imposing shift or job changes on other employees."

The court granted summary judgment in favor of the employer on Smith's religious discrimination claim. However, the court let the plaintiff's claims of discrimination based on a disability in violation of the Americans with Disabilities Act—by failing to accommodate her disability and terminating her based on the disability—move forward.

To read the opinion and order in Smith v. Concentra, Inc., click here.

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PAGA Claims Can Be Arbitrated, Ninth Circuit Rules

Why it matters

The U.S. Circuit Court of Appeals for the Ninth Circuit permitted arbitration of a worker's Private Attorneys General Act (PAGA) claim, holding that an individual employee contract can bind government parties. Placido Valdez sued Terminix over an alleged failure to provide rest and meal breaks and included a PAGA claim in his complaint. The pest control company moved to compel arbitration but a district court denied the motion, ruling that the PAGA claim made the state a party to the litigation and the state had not agreed to arbitration. Terminix appealed and, in an unpublished memorandum, the federal appellate panel reversed. The California Supreme Court's Iskanian v. CLS Transportation Los Angeles decision "does not require that a PAGA claim be pursued in a judicial forum," the court said, and "clearly contemplate[d] that an individual employee can pursue a PAGA claim in arbitration, and thus that individual employees can bind the state to an arbitral forum."

Detailed discussion

Termite technician Placido Valdez filed suit against his former employer, asserting that Terminix failed to provide meal and rest breaks as required by California state law. He also included a count under the state's PAGA in his complaint.

The employer moved to compel arbitration and a district court judge denied the motion. Terminix appealed, making three arguments to the U.S. Court of Appeals for the Ninth Circuit: (1) that the Federal Arbitration Act (FAA) preempts California's rule that a waiver of the right to bring a PAGA claim is invalid (pursuant to the California Supreme Court's decision in Iskanian v. CLS Transportation Los Angeles); (2) that case law subsequent to Iskanian questioned the reasoning of that decision; and (3) that the district court erred when it concluded that PAGA claims categorically cannot proceed to arbitration.

The panel made quick work of the first two arguments. The Ninth Circuit has already ruled on the application of the FAA to the Iskanian rule in Sakkab v. Luxottica Retail North American, Inc., the panel said, where the court held that "the Iskanian rule does not stand as an obstacle to the accomplishment of the FAA's objectives, and is not preempted."

As for the second argument, the court said that no subsequent case called into question the reasoning in Iskanian, as the rule bars any waiver of PAGA claims, regardless of whether the waiver appears in an arbitration agreement or a non-arbitration agreement.

However, the panel agreed with Terminix that Iskanian does not categorically prohibit PAGA claims from arbitration.

"Iskanian and Sakkab clearly contemplate that an individual employee can pursue a PAGA claim in arbitration, and thus that individual employees can bind the state to an arbitral forum," the court wrote. "Employees can bind government agencies because they 'represent[] the same legal right and interest' as the government in PAGA proceedings."

An employee plaintiff suing under the PAGA does so as the proxy or agent of the state's labor law enforcement agencies. "Accordingly, an individual employee, acting as an agent for the government, can agree to pursue a PAGA claim in arbitration," the panel said. "Iskanian does not require that a PAGA claim be pursued in the judicial forum; it holds only that a complete waiver of the right to bring a PAGA claim is invalid."

Sakkab likewise recognized that individual employees may pursue PAGA claims in arbitration, the court added, and the Ninth Circuit has upheld district court decisions compelling arbitration of PAGA claims post-Iskanian.

The panel then found that Valdez's PAGA claim fell within the scope of the arbitration clause, as the parties mutually agreed "to arbitrate covered Disputes." That clause of the agreement applied even after the representative action waiver was severed, and since the PAGA claim "relat[es] to [Valdez's] employment relationship with the Company," and arises under a "state" "employment related law[]," it constituted a covered dispute.

Reversing the denial of the motion to compel arbitration, the court remanded the case to the district court.

To read the memorandum in Valdez v. Terminix International, click here.

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