California Court Tosses Arbitration Agreement ‘Permeated’ by Unconscionability

Employment Law

California Court Tosses Arbitration Agreement ‘Permeated’ by Unconscionability

Why it matters

Concluding that an arbitration agreement was both substantively and procedurally unconscionable, a California appellate panel affirmed denial of an employer’s motion to compel arbitration. Maya Baxter sued Genworth for wrongful termination. Pursuant to a Conditions of Employment Acknowledgment form completed by Baxter, Genworth moved to compel arbitration of the action. A trial court determined the agreement was unconscionable, and the appellate panel affirmed. Although the fact Baxter had to sign the agreement as a condition of continued employment amounted to “modest” procedural unconscionability, the panel found several features of substantive unconscionability that tipped the scales in favor of the employee, including default discovery limitations and a prohibition against contacting witnesses. Finding the agreement “permeated” by unconscionability, the court affirmed denial of the motion to compel arbitration.

Detailed discussion

Maya Baxter began working for AssetMark Investment Services in 2001 and became an employee of Genworth when it acquired her previous employer in 2006. As a condition of Baxter’s continued employment, Genworth required her to sign a Conditions of Employment Acknowledgment form, which included an agreement to resolve employment-related disputes according to guidelines known as the Resolve Employee Issue Resolution Program.

The Resolve program contained four stages of alternative dispute resolution. If a problem arose, employees were first required to submit concerns in writing to a Resolve administrator for discussion with an immediate manager and human resources representative. Level two involved a meeting with a higher-level manager and an HR rep. Escalation to level three sent the dispute to mediation, with arbitration at level four.

Baxter filed suit against Genworth alleging that she was terminated after she expressed concern about employee evaluation forms that included race, age and gender coding, which she believed was discriminatory and unlawful. The employer countered with a motion to compel arbitration based on Baxter’s agreement to participate in the Resolve program.

A trial court denied the motion, finding the arbitration agreement to be both procedurally and substantively unconscionable. Genworth appealed, but a California Court of Appeal affirmed. The appellate panel began with procedural unconscionability. “Here, Baxter had no opportunity to negotiate the terms of the Resolve program,” the court wrote. “Nor did she have any meaningful choice in the matter. She could either quit her job of over five years or agree to the arbitration terms that were a condition of her continued employment. The Resolve program was presented in a take-it or leave-it manner. Baxter lacked equal bargaining power. These facts present a ‘high degree of oppressiveness’ supporting a finding of procedural unconscionability.”

Turning to substantive unconscionability, the court expressed concern about several provisions of the agreement. The Resolve guidelines prohibited employees and their attorneys from obtaining information outside the formal discovery process, including attempts to question other employees about the aggrieved employee’s claim. No such prohibition on contacting other employees applied to Genworth.

“This provision of the Resolve guidelines effectively acts as a gag order that limits a complaining employee’s ability to informally investigate a claim,” the panel said. “As the trial court observed, without the ability to conduct such an informal investigation, an employee will be hampered in his or her ability to effectively tailor the limited discovery allowed under the arbitration agreement. Because the same prohibition does not apply to Genworth, the arbitration agreement is unfairly one-sided.”

The employer also violated public policy by forbidding employees from assisting each other with claims of discrimination except within the confines of the limited formal discovery allowed, the court added.

Default limitations on discovery—such as a cap of 10 interrogatories (with each subpart counting as a separate interrogatory) and just two depositions—also troubled the panel. “Employment disputes are factually complex, and their outcomes ‘are often determined by the testimony of multiple percipient witnesses, as well as written information about the disputed employment practice,’” the court wrote. “Seemingly neutral limitations on discovery in employment disputes may be non-mutual in effect.”

In Baxter’s case, her 12-year employment history would require the testimony of several witnesses (with six already identified in her complaint), documents related to multiple policies and procedures, and communications about her discipline and termination. “The default limitations on discovery are almost certainly inadequate to permit Baxter to fairly pursue her claims,” the court said.

Even though the Resolve program provided the arbitrator with the power to permit additional discovery, it required a vague standard of “good and sufficient cause,” and “a reasonable arbitrator would feel constrained under the terms of the Resolve program to expand discovery to the extent necessary to vindicate Baxter’s statutory rights,” the panel said. “Under the circumstances, it is reasonable to conclude that her ability to prove her claims would be frustrated.”

The court found additional provisions that were problematic, including a shortened limitations period to pursue relief and default timelines for concluding the arbitration, resulting in a finding that the agreement was unconscionable and therefore unenforceable.

“As a contract of adhesion that Baxter was forced to accept as a condition of her continued employment, Resolve is procedurally unconscionable,” the panel wrote. “And, the provisions in Resolve that prohibit contacting other employees about a claim, restrict formal discovery, shorten limitations periods, and effectively limit an employee’s right to seek administrative remedies before an arbitration is conducted provide more than ample grounds to support a conclusion that Resolve is substantively unconscionable.”

The court refused to sever any of the unconscionable provisions, finding that the agreement was so permeated it could not be salvaged, affirming denial of the motion to compel.

To read the opinion in Baxter v. Genworth North America Corp., click here.

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DOL White Collar Exemption Remains in Court

Why it matters

The litigation over the Department of Labor’s (DOL) controversial white collar exemption to the Fair Labor Standards Act (FLSA) continues to play out despite an earlier ruling striking down the new rule. In August, a Texas federal court judge granted an injunction against the Obama-era rule taking effect, invalidating the proposed changes. However, the DOL is keeping the dispute alive to appeal the issue of whether the agency has the authority to issue a new rule, recently filing a motion indicating its intent to appeal this question to the U.S. Court of Appeals, Fifth Circuit. In part an attempt to provide protection for federal agency authority generally, the move may also be intended to make a second shot at revising the exemption (the agency published a request for information in July on potential updates) more successful.

Detailed discussion

In May 2016, the Department of Labor (DOL) published the final regulations updating the so-called white collar exemption to the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA).

Pursuant to the final rule, the agency increased the minimum salary threshold from $455 per week (or $23,660 per year) to $913 per week (or $47,476 per year), equal to the 40th percentile of weekly earnings for full-time salaried employees working in the lowest-wage census region.

Before the final rule could take effect as scheduled on Dec. 21, 2016, a coalition of 21 states filed suit seeking a preliminary injunction. After reviewing the history of the FLSA and the white collar exemption (also referred to as the “EAP exemption,” for executive, administrative or professional capacity), U.S. District Judge Amos L. Mazzant granted the injunction.

The DOL sought interlocutory appeal to the U.S. Court of Appeals, Fifth Circuit, but the January 2017 change in federal administration slowed down the process.

Things sped up after Judge Mazzant issued a new ruling on Aug. 31, granting summary judgment in favor of the states and a coalition of 56 business groups. The final rule’s revision to the minimum salary threshold exceeded the DOL’s authority, the court found.

“Congress unambiguously directed the Department to exempt from overtime pay employees who perform ‘bona fide executive, administrative, or professional capacity’ duties,” Judge Mazzant wrote. “However, the Department created a Final Rule that makes overtime status depend predominantly on a minimum salary level, thereby supplementing an analysis of an employee’s job duties.”

Given this contravention of the intent of federal lawmakers, the court concluded that the final rule was not based on a permissible construction of the FLSA and that the DOL exceeded its authority.

A few days later, the DOL moved for voluntary dismissal of the earlier appeal as moot. However, the DOL now appears to be keeping the litigation alive, filing a notice in late October of its intent to appeal the opinion to the Fifth Circuit.

Why the change of heart? Under the current administration, the DOL has elected not to advocate for the specific salary level set in the Obama-era final rule. Instead, the DOL has opted to undertake further rule-making to determine what the salary level should be—while maintaining that the Secretary of Labor does have the authority challenged in the litigation.

To that end, the DOL issued a request for information, inviting comments “on the 2016 revisions to the white collar exemption regulations, including whether the standard salary level set in that rule effectively identifies employees who may be exempt, whether a different salary level would more appropriately identify such employees, the basis for setting a different salary level, and why a different salary level would be more appropriate or effective.”

The DOL received more than 140,000 comments in response.

A few days after the DOL appealed the determination with respect to the scope of its authority, it filed a subsequent motion to hold the appeal in abeyance while it undertakes further rule-making.

To read the notice of appeal in State of Nevada v. U.S. Department of Labor, click here.

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Transgender Professor’s Title VII Suit Moves Forward

Why it matters

A transgender professor can move forward on her Title VII hostile work environment and discrimination claims, an Oklahoma federal court has ruled, denying the employer’s motion for summary judgment. When she was hired by the school in 2004, Dr. Rachel Tudor presented as a man. In 2007, she began to transition and present as a woman. Her application for tenure was denied in 2009 despite the recommendations of the faculty, and she was terminated a short time later. Pointing to restrictions on which restrooms she could use, how she could dress and what makeup she could wear, Tudor claimed she was subjected to a hostile work environment as well as discrimination in violation of Title VII. The university moved for summary judgment, but the court denied the motion. The combination of administrators’ use of an improper pronoun to refer to the plaintiff with the various restrictions was enough for a jury to infer the conduct was sufficiently severe or pervasive, the court wrote.

Detailed discussion

When she was hired by Southeastern Oklahoma State University as an assistant professor in 2004, Dr. Rachel Tudor presented as a man. In 2007, she began to transition and present as a woman. She applied for the tenured position of associate professor in 2009, but her application was denied over the recommendations of tenured faculty members. Tudor was then terminated during the 2010–2011 school year based on her lack of tenure.

Alleging that she suffered significant discrimination and harassment after she announced her transition, Tudor filed suit asserting that she was subjected to a hostile work environment and discriminated against in violation of Title VII.

The school moved for summary judgment, arguing that the plaintiff failed to provide sufficient evidence of a hostile environment and offered just a “handful” of insults, incidents or comments.

But U.S. District Judge Robin J. Cauthron disagreed.

“Rather, [the plaintiff] argues that every day over the course of a four-year period she had restrictions on which restrooms she could use, restrictions on how she could dress, what makeup she could wear,” the court said. “She was also subjected to hostilities from administrators targeting her gender, such as using an improper pronoun to refer to her and other gender-based hostilities. Although Plaintiff’s proof is not well organized or her facts well presented, she has offered sufficient evidence from which a reasonable jury could find that her work place was filled with a sufficient amount of offensive or insulting conduct that it was sufficiently severe or pervasive.”

The university argued that Tudor failed to take advantage of the preventive and corrective opportunities that were available to her because she never submitted a complaint or grievance regarding the allegedly harassing events.

The court was not persuaded, however, noting that at the time of the plaintiff’s employment, the defendants did not have any policy addressing transgender discrimination or the type of hostility displayed toward her as a transgender person.

Tudor’s discrimination claim also survived, with the court rejecting the employer’s contention that the plaintiff had not demonstrated pretext behind the reason given for her termination. She provided sufficient evidence suggesting that substantial procedural irregularities existed in the decision to deny her tenure, the court said.

“For example, she notes one of the decisionmakers on her tenure initially refused to give her any reason for the denial,” Judge Cauthron wrote. “Later, that same person planted a backdated letter in her portfolio spelling out some rationales for the denial. A second decisionmaker … refused to provide his reasons for denial and persisted even after the faculty advisor committee ordered him to disclose them.”

Each of these actions demonstrated some weakness, implausibility, inconsistency or incoherencies in the employer’s assertion that Tudor’s tenure submission was clearly insufficient, the court said.

Finally, the plaintiff’s retaliation claim moved forward. She engaged in multiple protected activities, from filing an internal grievance to sending a letter to the U.S. Department of Education complaining of discrimination, the court found, establishing “sufficient facts from which a reasonable jury could find she was subject to retaliation by the Defendants.”

To read the opinion and order in Tudor v. Southeastern Oklahoma State University, click here.

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Eleventh Circuit: Indefinite Leave Not Reasonable Accommodation

Why it matters

Taking a position similar to that of a recent decision from the U.S. Court of Appeals, Seventh Circuit, the Eleventh Circuit held that indefinite leave is not a reasonable accommodation under the Americans with Disabilities Act (ADA). A utility service technician injured his shoulder at work and was given several restrictions on his physically demanding job. He took Family and Medical Leave Act time as well as leave pursuant to an employer policy and eventually underwent surgery. When his leave expired before he was able to return to work, he was terminated for being unable to perform the essential functions of his job. Alleging the employer failed to provide a reasonable accommodation, he sued. A district court judge granted summary judgment for the employer, and the Eleventh Circuit affirmed in a per curiam opinion. Even though the worker’s condition was temporary rather than chronic—and thus likely to be fully corrected at some point in the future—he did not request a specific period of time in which to recover from his surgery, the court explained. “Rather, he was essentially requesting a leave of absence that would allow him to work ‘at some indefinite point in the future,’” which is not a reasonable accommodation, the federal appellate panel wrote.

Detailed discussion

A local governmental body, Emerald Coast Utilities Authority provides water, sewer and sanitation services in and around Escambia County, FL. Roderick Billups began working as a utility service technician II for Emerald Coast in 1995. The position was physically demanding, requiring Billups to routinely lift objects of moderate to heavy weight and wield tools such as jackhammers.

In December 2013, while attempting to open an old air-release valve, Billups felt something pop in his right shoulder. A visit to the doctor resulted in physical limitations that left him unable to perform the essential functions of his position. Billups began leave under the Family and Medical Leave Act (FMLA), expecting to return to work within a few weeks.

But when his condition did not improve, he underwent surgery in April 2014. His FMLA leave had already expired, but Emerald Coast had a policy providing 26 weeks of leave instead of 12 for on-the-job injuries. After surgery, Billups was told that he could expect to return to work without restriction in six months.

Emerald Coast notified Billups in writing that he was likely to be terminated due to his inability to perform the essential functions of his job by the time his leave ended. He requested a “predetermination” hearing, where he argued that he could be cleared for duty in July, although he would have to keep his arms close to his body while working.

Billups was terminated in June, when his leave ended. He was not cleared to return to work without restrictions until October. He then filed suit under the Americans with Disabilities Act (ADA), claiming that Emerald Coast failed to provide a reasonable accommodation for his disability. A federal court judge granted summary judgment in favor of the employer, and Billups appealed.

In an unpublished opinion, the U.S. Court of Appeals, Eleventh Circuit affirmed, rejecting the plaintiff’s argument that Emerald Coast should have offered him a limited period of unpaid leave while he recovered from surgery.

A leave of absence might be a reasonable accommodation in some cases, the panel emphasized, but not in this one.

“[A]n accommodation is unreasonable under our precedent unless it would allow the employee to ‘perform the essential functions of their jobs presently or in the immediate future,’” the court wrote. “It is undisputed that Billups was unable to perform the essential functions of his position as of the date of his termination. And the record shows that Billups was essentially requesting a leave of absence that would allow him to work ‘at some indefinite point’ in the future.”

Billups did not request a specific period of time in which to recover, nor would it have been reasonable to expect him to, the court said, as he was still participating in physical therapy and it was uncertain when he would be cleared to return to work without the limitations that rendered him unable to perform the essential functions of his position.

“Thus, Billups’s request for additional leave was essentially an open-ended request for ‘sufficient time to ameliorate his conditions’ following the surgery,” the panel said. “Billups was not ‘terminated immediately upon becoming disabled,’ but rather received over six months of medical leave to allow recovery. That period of time ultimately was not sufficient, largely as a result of the surgery’s delay through no fault of Billups’s own. Nevertheless, in light of Emerald Coast’s allowance of six months of leave and the uncertainty about when Billups could perform the essential functions of his position in the future, Billups has not shown that a reasonable jury could conclude that he was denied a reasonable accommodation that would have allowed him to perform the essential functions of his job either presently or in the immediate future.”

The court affirmed summary judgment in favor of the employer.

To read the opinion in Billups v. Emerald Coast Utilities Authority, click here.

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Return-to-Work Policy Costs Employer $9.8M

Why it matters

American Airlines’ return-to-work policy has resulted in a $9.8 million settlement with the Equal Employment Opportunity Commission (EEOC) after the agency challenged the airline’s policy of requiring workers to be at “100 percent” in order to return to work. In practice, the policy violated the Americans with Disabilities Act (ADA), the EEOC asserted, because it meant that employees were not allowed to return to work until they had no disability-related restrictions on their job duties. The charging parties in the case had disabilities ranging from lupus to cancer to asthma, but the employer refused to provide accommodations such as intermittent leave or a stool behind the ticket counter for a worker with a standing restriction, said the EEOC. In addition to monetary relief, the consent decree—in which the employer did not admit liability—requires the airline to conduct additional ADA training and avoid violations of the statute going forward.

Detailed discussion

More than a dozen employees of American Airlines and subsidiary Envoy Air, Inc., filed charges of discrimination with the Equal Employment Opportunity Commission (EEOC) alleging violations of the Americans with Disabilities Act (ADA). Specifically, the workers alleged that the airlines had a “100 percent” return-to-work policy that required employees to be able to work without any restrictions.

The EEOC filed suit after investigating, asserting that since at least Jan. 1, 2009, the employer engaged in a pattern or practice of violating the statute by refusing to accommodate employees with disabilities, terminating employees with disabilities and failing to rehire employees. The policy requires that employees who are no longer able to do their job without reasonable accommodation find other jobs, apply for other jobs or compete for other jobs, without regard to reassignment as a reasonable accommodation.

For example, American did not provide intermittent leave as an accommodation, refused to provide a stool behind the ticket counter to accommodate an employee with a standing restriction, terminated several of the charging parties or placed them on unpaid leave, and told others they could not return to work until they had no restrictions related to their injuries and/or disabilities, according to the EEOC’s complaint.

To settle the charges—while still denying all of the allegations and maintaining they provide equal employment opportunities for all workers—the airlines entered a consent decree.

Pursuant to the agreement, the EEOC will hold an unsecured claim in American Airlines’ Fourth Amended Joint Chapter 11 Plan in the amount of $9.8 million. The ultimate dollar value of the settlement will depend upon the trading price of the airline’s stock, the parties acknowledged, with the decree fully enforceable no matter the trading price. The airlines took responsibility for administration costs up to $150,000.

Equitable relief was also provided by the defendants, with a promise to end the challenged return-to-work policy, refrain from taking part in any employment practices that discriminate or retaliate on the basis of disability, engage in the interactive process with employees who request a reasonable accommodation, and remove references to the litigation from the charging parties’ personnel files.

Additional training on the requirements of the ADA will be provided to all employees, with extra time allotted for human resources workers and ADA coordinators, a newly designated position with responsibilities to oversee the defendants’ compliance with the statute and the consent decree.

To read the consent decree in Equal Employment Opportunity Commission v. American Airlines, Inc., click here.

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New CA Laws to Impact Salary Inquiries, Bonding Leave

Among other bills recently signed by California Governor Jerry Brown impacting California employers are SB 63 (required bonding leave for small California employers) and AB 168 (ban on employers inquiring about salary history), which both go into effect on Jan. 1, 2018.

SB 63—Required Bonding Leave for Small Employers

SB 63 will require employers to provide 12 weeks of baby bonding leave to employees in addition to the myriad of other leave of absence programs California already imposes. This bill affects small employers with as few as 20 employees and applies to those employees who:

  • Have worked for the employer for more than 12 months;
  • Worked at least 1,250 hours during the prior 12-month period; and
  • Work at a worksite where there are at least 20 employees within a 75-mile radius.

The leave required by the bill, when combined with other protected leaves, could result in small employers having to provide up to seven months of protected leave for the same employee. This bill will have the greatest impact on employers with 20 to 49 employees who are not already required to provide family leave under the federal Family and Medical Leave Act or the state’s California Family Rights Act.

AB 168—Bans Employers From Inquiring About a Job Applicant’s Salary History

Under AB 168, employers are banned from asking about a job applicant’s salary history and from relying on salary history information as a factor in determining what salary to offer an applicant. An employer could also be penalized for failing to provide a pay scale for the position upon demand.

Any violation of the provisions in AB 168 carries a huge threat of costly litigation under the Labor Code Private Attorneys General Act.

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