Employment Law

Impact of Dynamex Continues to Grow

Why it matters

We continue to see the impact of the California Supreme Court’s Dynamex Operations West, Inc. v. Superior Court of Los Angeles decision about what is the legal standard to determine whether workers should be classified as employees or independent contractors.

Dynamex, as our usual readers know, adopted a test that ultimately makes it much more difficult for businesses to classify workers as independent contractors. In a closely watched case on point out of California federal court, the district court magistrate judge acknowledged in a new order that her earlier decision might have been different had the Dynamex opinion been on the record. The case, Lawson v. Grubhub, Inc., was heard before U.S. Magistrate Judge Jacqueline Scott Corley, and while she declined to vacate her earlier finding, she noted the plaintiff’s motion raises a substantial issue. It’s likely the order will be reversed upon appeal.

Lawson v. Grubhub, Inc., involves Raef Lawson, a Grubhub driver who alleged that he was incorrectly classified as an independent contractor. Grubhub moved to dismiss the suit earlier this year, and the district court sided with the company, finding that Grubhub did not control Lawson’s work. Lawson appealed, and after the Dynamex decision was issued, Lawson filed a motion seeking relief from the judgment. His case would have had a different outcome if the state’s highest court had adopted a new legal standard for determining whether workers should be classified as employees or independent contractors, he argued. “After carefully considering the issues, and having had the benefit of oral argument, the Court declines to definitively rule that it would vacate the judgment, but the motion does raise a substantial issue,” the court wrote. However, the court also said the question of whether or not Dynamex applies retroactively should properly be made to the U.S. Court of Appeals for the Ninth Circuit.

Detailed discussion

Raef Lawson briefly worked as a restaurant delivery driver for Grubhub in Southern California in late 2015 and early 2016. He was added as a plaintiff to a putative wage and hour class action against the company in California state court. The case was bifurcated: The first phase involved a trial on Lawson’s individual claims and whether he was an “aggrieved employee” under the Private Attorneys General Act (PAGA). Assuming the court found in the affirmative, the second phase would have resolved the PAGA claim after additional discovery. After the first phase, the court ruled that Lawson was an independent contractor, not an employee, because Grubhub lacked sufficient control over the plaintiff’s work. The court applied the multifactor test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, where the most significant consideration is the employer’s right to control work details.

That ruling was in February, and a few weeks later, the California Supreme Court issued its game-changing opinion in Dynamex, where it adopted a new legal standard for determining the classification of workers. The new “ABC” test presumptively considers all workers to be employees and permits workers to be classified as independent contractors only if the hiring entity demonstrates that the worker in question satisfies three conditions.

Lawson—who had appealed to the Ninth Circuit—filed a motion for relief from judgment based on the new standard established in Dynamex. Although Judge Corley explained that the court lacked jurisdiction to grant a Federal Rule of Civil Procedure 60(b)(6) motion because of Lawson’s pending appeal, she considered the merits of the motion.

The plaintiff argued that Dynamex required a reversal of the court’s February ruling as the factual findings at trial indicated that Grubhub could not satisfy any of the prongs of the ABC test.

Judge Corley acknowledged that Dynamex upset a settled legal principle—as Borello had been “nearly unanimously” applied before the California Supreme Court decision—but noted that the parties had always been likely to appeal the trial court outcome because it was one of the first cases involving a gig economy worker. Further, no real delay occurred, because the Dynamex opinion was released shortly after the trial court’s decision.

However, the court noted that Lawson’s argument about the application of Dynamex made one important assumption: that the court’s opinion would have retroactive application. The answer to this “pivotal question” remains uncertain.

“The outcome of Plaintiff’s (implied) motion to vacate the judgment hinges on the application of Dynamex to the wage order claims at this stage in the proceedings,” Judge Corley wrote. “If it does, the Court would likely revisit the judgment, at least as to the overtime and minimum wage claims. The answer to the retroactivity question, however, is complicated and the Court declines to definitively answer it on this record. Nonetheless, the Court can and does say that Plaintiff’s motion raises a substantial issue.”

As for the defendant’s argument that the court should deny the plaintiff’s motion to let the U.S. Court of Appeals for the Ninth Circuit decide the retroactivity question in the first instance, it “is directed to the wrong court; that is an argument to make to the Ninth Circuit,” the court said.

To read the order in Lawson v. Grubhub, Inc., click here.

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Removal of Voluntary OT Could Form Basis of Title VII Suit

Why it matters

The U.S. Court of Appeals for the Fourth Circuit reversed the district court’s dismissal of a Title VII retaliation and discrimination lawsuit after determining that the denial of voluntary overtime could constitute a tangible employment action. Tamika Ray was hired as a bundler by International Paper Company in 2002 and allegedly sexually harassed by her supervisor beginning the following year. According to Ray’s lawsuit, the supervisor made repeated sexual comments, offered to pay her to perform sexual acts and, on one occasion, grabbed her thigh. Ray first reported the harassment in 2013 but, despite company policy mandating that supervisors pass such reports along to the legal or human resource departments, her new supervisors failed to do so. When her original supervisor learned of her complaint, he told her she could no longer perform voluntary overtime before her shifts—resulting in a significant decrease in her income. Other workers were still allowed to do such work. Ray sued, and a district court judge granted summary judgment in favor of the employer. The Fourth Circuit reversed, finding that the denial of voluntary overtime could be a tangible employment action, allowing Ray’s suit to move forward.

Detailed discussion

International Paper Company (IPC) hired Tamika Ray in 2002 to work as a bundler and, later, as an operator. In both positions, Johnnie McDowell was Ray’s supervisor, but in 2013, after a transfer to a new department, Ray reported to new supervisors. Ray told her supervisors that McDowell had been sexually harassing her since 2003. She claimed that he repeatedly asked her to engage in sexual activity with him and offered to pay her for those acts. He also made several overtly sexual comments to Ray and, on one occasion, grabbed her thigh while the two were alone in his office.

Under IPC’s anti-harassment policy, a supervisor is required to report an allegation of sexual harassment to a human resources (HR) representative or the legal department. Ray’s new supervisors did neither. In 2014, when McDowell learned that Ray had complained about his conduct, he confronted her and informed her that she could no longer perform “voluntary” overtime work before her regular work shift began.

Ray then reported McDowell to the HR department. Other employees backed up Ray’s statements, and investigators determined that McDowell was lying when he denied the harassment. The company did not discipline McDowell, however. Ray made additional complaints that McDowell was sabotaging her work on the production line. Again, other employees confirmed this behavior, and again, IPC took no action against McDowell.

Ray filed suit alleging that she was subjected to a hostile work environment in violation of Title VII and asserting a separate claim of retaliation. A district court judge granted IPC’s motion for summary judgment, and Ray appealed.

The Fourth Circuit reversed, rejecting the employer’s argument that the elimination of voluntary overtime hours did not qualify as a tangible employment action under the statute.

“Ray testified that McDowell’s decision preventing her from performing this higher-pay work negatively affected her income,” the federal appellate panel wrote. “Prior to McDowell’s action, Ray regularly was permitted to work for four hours before her shift, earning around $24 per hour instead of her normal rate of $16.25 per hour. Ray explained that these almost daily voluntary overtime hours were a ‘significant part of [her] earnings.’ A reasonable jury could determine that losing this amount of income constituted a ‘significant change in [Ray’s] benefits.’”

This conclusion was not altered by IPC’s contention that Ray received a greater amount of overtime hours in 2015 than she received in 2014, the court added. Ray did not claim that her ability to earn overtime pay was eliminated completely, and the employer still required certain overtime work of its employees.

“Thus, Ray’s total amount of overtime income in 2015 bears little relevance to her claim that her income was affected negatively, at least for a period, because she was denied the opportunity to do voluntary overtime work,” the court said.

Nor was the panel persuaded by IPC’s argument that Ray lacked evidence that McDowell denied her the ability to perform voluntary overtime work because she refused to submit to his sexual demands.

“Here, the record shows that McDowell was responsible for the decision to eliminate Ray’s voluntary overtime work,” the court said. “On one occasion after eliminating her ability to perform voluntary overtime work, McDowell asked Ray whether she wanted to make extra money and told her to meet him after work. Thus, on the present record, it is impossible to separate McDowell’s motive for eliminating Ray’s voluntary overtime work from McDowell’s inappropriate conduct.”

Turning to Ray’s retaliation claims, the court again disagreed with IPC that the plaintiff failed to establish a causal link between her complaints about McDowell’s conduct and the elimination of her voluntary overtime hours. It was sufficient that Ray presented evidence that she lost a “significant part of [her] earnings,” the court said, and it remained a dispute of material fact regarding whether her loss was severe enough to constitute an adverse employment action.

“Based on the record before us, a jury reasonably could determine that McDowell retaliated against Ray after learning that she had complained about him to other IPC supervisors,” the panel wrote. “Accordingly, we conclude that there are disputed issues of material fact with respect to Ray’s retaliation claim against IPC.”

The court remanded the case to the district court for further proceedings.

To read the opinion in Ray v. International Paper Company, click here.

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Old, Purportedly Racist Facebook Posts Don’t Support Suit

Why it matters

Three-year-old Facebook posts were insufficient to base a racial discrimination claim upon, a North Carolina federal court has ruled, dismissing a Title VII action. Thomas Jerome Neal worked as a janitor at a Ford dealership. When a new general manager started in May 2016, Neal looked up his Facebook page and found posts he considered to be racist. The new general manager changed the janitorial work schedule and reassigned supervisory responsibilities to a Caucasian employee before outsourcing the entire janitorial department to a third party. Neal was offered a transfer but resigned soon after. He also filed a lawsuit alleging violations of Title VII and the Age Discrimination in Employment Act. The dealership moved for summary judgment, and the court granted the motion, finding that the Facebook posts did not provide evidence of race discrimination. Neal never observed the general manager making any racially inappropriate comments at the dealership, the court said, and the posts were dated three years prior to the decision to outsource the janitorial department.

Detailed discussion

Thomas Jerome Neal, a 45-year-old African-American male, was hired by Green Ford in August 2014 to work in its auto detailing department. One year later, he was moved to the janitorial department by an African-American general manager (GM), where he was supervised by an African-American male.

In 2016, a new Caucasian GM took over the dealership. Neal and other employees looked up his Facebook page and found posts that Neal considered racist and derogatory, including statements critical of President Barack Obama, a quote attributed to Vladimir Putin stating that Russia does not need minorities, anti-Muslim sentiments and a quote from comedian Jay Leno that “Over a million people in California lost their health coverage. Some are so angry … they’re going back to Mexico.”

Once the new GM started work, he quickly restructured the janitorial department hours and work schedule, demoting the African-American supervisor and assigning a Caucasian male to oversee the workers. Not long after, the new GM decided to eliminate the janitorial department and outsource the work as a cost-saving measure.

Neal’s position was eliminated, and he was offered a position in the detailing department, where he was paid less. He asked why he was not considered for “other predominantly Caucasian departments,” and voluntarily resigned. He filed a charge of discrimination with the Equal Employment Opportunity Commission alleging race and age discrimination and then filed suit against the dealership.

Green Ford moved for summary judgment. Even applying a liberal construction to Neal’s pro se claims, U.S. District Court Judge Thomas D. Schroeder granted the motion.

To support his claim of racial discrimination, Neal relied heavily upon the new GM’s Facebook posts. “However, regardless of any racial animus that may be reflected by them, there is no showing that the posts had any bearing on any decision affecting Neal’s employment,” the court said. “The posts are dated 2013, predating the decision to outsource the janitorial work and reassign Neal to the detail department by two or more years, and there is no showing of any link between the posts and [the GM’s] decision in this regard. There is also no evidence that [the GM] ever talked about the posts or had similar posts at Green Ford.”

Further, Neal never observed the new GM make any racially inappropriate comment at work. “Therefore, the Facebook posts are insufficient direct or indirect evidence of racial discrimination sufficient to create a genuine issue of material fact,” the court wrote.

As for the decision to outsource the janitorial department, the court found no inference of discrimination simply because the department was staffed by two African-American employees. Neal failed to show that his position was filled by someone not in the protected class, the employer pointed out, and had no evidence that Green Ford knew of or had any control over the race of the outsourced workers.

Nor could Neal overcome the employer’s legitimate, nondiscriminatory reason for the adverse employment action: the elimination and outsourcing of the janitorial department as a cost-cutting measure for the dealership. Neal argued the dealership could have cut costs in other departments with higher salaries, but offered no evidence to support his position and failed to create a genuine dispute of material fact, the court said.

As for the plaintiff’s age discrimination claims, he again lacked evidence about the characteristics of the workers in the outsourced company that replaced him and failed to establish that he was replaced by a substantially younger individual. Also, the dealership again pointed to cost savings as a legitimate, nondiscriminatory reason for the elimination of the janitorial department, the court noted.

Judge Schroeder similarly determined the evidence did not back up Neal’s retaliation or hostile work environment claims, granting summary judgment in favor of Green Ford and dismissing the case.

To read the opinion and order in Neal v. Green Ford, LLC, click here.

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Employee’s Illegal Actions End Title VII Claim

Why it matters

Title VII doesn’t protect illegal actions, the U.S. Court of Appeals for the Fourth Circuit held, affirming summary judgment for an employer where the employee ran afoul of state law. A sheriff’s office employee for almost 19 years, Catherine Netter worked for 16 of those years with an unblemished disciplinary record. However, in 2014 she received a disciplinary sanction that prohibited her from applying for a promotion. She objected, arguing that similarly situated employees who were not African-American or Muslim had not received such sanctions. As part of an investigation into her complaint, a human resources worker asked whether Netter had evidence to support her claim. In response, she reviewed, copied and supplied the investigator with confidential personnel files. When the employer learned what she had done, Netter was fired. She filed suit under Title VII, arguing that she was terminated for engaging in protected activity. The federal appellate panel disagreed. Netter did not dispute that her actions violated state law, and the federal statute does not protect illegal actions, the Fourth Circuit said.

Detailed discussion

Catherine Netter, a Muslim, African-American woman, began working for the Guilford County sheriff’s department in 1998. She compiled an unblemished disciplinary record until April 2014, when she received a disciplinary sanction that barred her from testing for a promotion.

She filed complaints with both the human resources (HR) department and the Equal Employment Opportunity Commission (EEOC), alleging that similarly situated employees, who were neither African-American nor Muslim, had not been similarly disciplined.

Following up on Netter’s complaint, an HR investigator asked if she had evidence to support her discrimination claims. In response, Netter reviewed, copied and supplied the investigator with the confidential personnel files of five other employees. She did not seek permission from those employees or her own supervisors to copy and disclose the files.

Netter also provided the files to the EEOC and her lawyer, as she had filed a Title VII lawsuit against her employer. In response to a pretrial discovery request, Netter’s counsel provided copies of the files to the sheriff’s office, which led to the employer asking how they were obtained. Netter admitted her actions.

A professional standards officer in the sheriff’s office then recommended Netter be terminated based on her violation of both state law and department policy. She was fired, and Netter filed a new EEOC charge based on retaliation and amended her lawsuit.

The sheriff’s office moved for summary judgment. A district court judge granted the motion, and the U.S. Court of Appeals for the Fourth Circuit affirmed.

Netter told the court that her entire course of conduct constituted protected “participation” activity under the anti-retaliation provisions of Title VII. While the court acknowledged that the participation clause offers more capacious protection for conduct in connection with Title VII proceedings than the opposition clause, it found Netter’s actions still fell outside the bounds of protection.

“[W]e cannot conclude that Netter’s unauthorized inspection and copying of the personnel files constituted protected participation activity for a straightforward reason,” the panel explained. “She violated a valid, generally applicable state law.”

North Carolina General Statutes section 153A-98(f) establishes a Class 3 misdemeanor for “knowingly and willfully examin[ing] …, remov[ing], or copy[ing] any portion of a confidential personnel file” without authorized access.

It may be difficult for an employee to provide evidence in support of Title VII claims, the Fourth Circuit recognized, but illegal actions do not constitute protected activity under the statute. The North Carolina state law does not conflict with the federal statute, as it does not meaningfully impede a litigant’s ability to pursue a Title VII claim, the court noted.

“Indeed, in this case, Netter had access to—and utilized—civil discovery procedures without any demonstrated need to unlawfully review or copy confidential personnel information,” the panel wrote. “Accordingly, we hold that Netter’s unauthorized review and duplication of confidential personnel files did not constitute protected opposition or participation activity. Therefore, Netter cannot prevail.”

The court declined to adopt the employer’s broader argument that any disclosure of information in violation of an employer’s confidentiality policy falls beyond the scope of participation clause protection.

To read the opinion in Netter v. Barnes, click here.

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Lyft Steers FCRA Suit Into Arbitration

Why it matters

The arbitration agreement found in the terms of service a user must agree to when downloading the Lyft app operated to foreclose a Fair Credit Reporting Act (FCRA) action filed by an applicant who wanted to be a driver with the ride-sharing company, according to a new decision from a California federal court. Pete Peterson downloaded the Lyft app and agreed to its terms of service on two occasions. When Peterson later applied to be a driver, Lyft hired a third party to obtain a background report that adjudged him ineligible for employment based on the company’s hiring criteria. Lyft did not provide Peterson with a copy of the report or his rights as required by the FCRA. He sued, and the company moved to compel arbitration based on the provision found in the app’s terms of service. The court granted the motion, ruling that Peterson’s FCRA claim was arbitrable pursuant to the terms of service and that the arbitration provision was not unconscionable. While a contract of adhesion, the arbitration provision was not substantively unconscionable just because it waived Peterson’s right to bring a Private Attorneys General Act claim, and Lyft had the right to unilaterally modify it, the court said.

Detailed discussion

In December 2014, Pete Peterson created a Lyft account through the mobile application. He was presented with a screen listing the Lyft terms of service and clicked the “I accept” button. He created a second Lyft account in February 2015, again accepting the terms of service.

Both terms of service contained an arbitration provision that required “any legal disputes or claims arising out of or related to the Agreement” to be submitted to binding arbitration. The provision also prohibited class or collective actions.

Peterson applied to drive for Lyft. The company requested a background screening report from a third party. The report adjudged Peterson ineligible for employment based on Lyft’s hiring criteria, and he was not hired. One year later, Peterson reached out to the company and asked to be reconsidered.

A Lyft representative told him that he should reach out to the background check company to dispute the charges on his profile that made him ineligible for employment. He did so in May 2016 and then filed suit against Lyft, alleging violations of the Fair Credit Reporting Act (FCRA) because he was not provided with a copy of the report and a written description of his rights before his application was denied.

Relying on the arbitration provision in the app’s terms of service, Lyft moved to compel arbitration. Peterson countered that the provision did not encompass his FCRA claim, but U.S. Magistrate Judge Laurel Beeler disagreed.

“Mr. Peterson’s FCRA claim arises out of Lyft’s background checks, and hence the claim is at least loosely related to a ‘legal dispute[] or claim[] arising out of the Agreement’ that the parties agreed to arbitrate,” the court said.

Considering Peterson’s alternative argument, that the arbitration provision was unconscionable, the court reached the same conclusion. While the provision was a contract of adhesion, “this presents a minimal level of procedural unconscionability” at best, the court said.

As for substantive unconscionability, the fact that Lyft had the power to unilaterally modify the contract did not per se make the arbitration provision unconscionable, the court held. Even if the unilateral modification were unconscionable, Peterson did not claim that Lyft acted unreasonably to alter the contract terms, “so this at best presents mild substantive unconscionability,” the court found.

Peterson’s other two challenges to the arbitration provision—that it featured an unconscionable privacy provision and that it waived his right to bring a Private Attorneys General Act (PAGA) claim—also failed to sway Judge Beeler. Under current California and U.S. Court of Appeals for the Ninth Circuit law, privacy provisions like the one at issue do not render the arbitration provision unconscionable, the court said.

The PAGA argument failed because while such a waiver is unenforceable, it does not render an arbitration provision substantively unconscionable, the court explained, and Peterson did not plead a PAGA claim, meaning he lacked standing to challenge a PAGA waiver provision that was not being applied to him.

Not only did the parties enter a binding agreement containing an arbitration provision, but “the arbitration provision is enforceable and not unconscionable,” the court concluded. “The court grants Lyft’s motion to compel arbitration and dismisses this action.”

To read the order in Peterson v. Lyft, Inc., click here.

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