Employment Law

EEOC’s Wellness Challenge Feeling Under the Weather

Why it matters: The Equal Employment Opportunity Commission’s (EEOC) efforts to challenge employer wellness programs hit a snag when a federal court judge in Minnesota denied the agency’s request for an injunction against Honeywell International. In the Commission’s third suit in three months alleging that a wellness program violated the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA), the EEOC claimed that Honeywell’s biometric testing program for employees and spouses imposed a financial penalty on those that elected not to participate and was not a job-related or business necessity, asking that the court halt the program. But the judge refused to issue a temporary restraining order, in part based on the novel legal questions presented by the suit and employer uncertainty about the intersection of statutes like the ADA, GINA, and the Affordable Care Act (ACA) with employer-sponsored wellness programs. In light of the judicial admonition, will the EEOC think twice before it continues its attacks on employer wellness programs?

Detailed Discussion

In August, the EEOC filed its first lawsuit challenging an employer’s wellness program, charging that Wisconsin-based Orion Energy Systems ran afoul of the ADA. In quick succession, the agency followed with suits against another Wisconsin company, Flambeau, Inc., followed by a high-profile suit against Honeywell in October.

According to the agency’s complaint, Honeywell announced changes to the company’s High Deductible Health Plan (HDHP) at the end of the summer, informing employees that they (and their spouses if they had family coverage) would undergo biometric testing by a third-party vendor for the 2015 health benefit year if they chose to participate in the HDHP.

The biometric testing included a blood sample screened for glucose, cholesterol, and nicotine levels, as well as the collection of data on blood pressure, height, weight, and waist circumference.

Employees that elected not to participate were penalized, the EEOC told the court, losing contributions to their Health Savings Account (HSA) from Honeywell and facing various surcharges, including a $1,000 nicotine surcharge. After submitting to the testing for the 2015 program, three employees filed complaints with the EEOC.

But U.S. District Court Judge Ann D. Montgomery disagreed with the agency that a preliminary injunction was necessary to halt the testing.

The EEOC proffered two ways that irreparable harm would occur if the testing were allowed to continue: first, the agency would be unable to carry out its congressionally mandated statutory enforcement, and second, employees would lose the right to decide “without coercion” whether to participate in the program.

By continuing to investigate the lawfulness of Honeywell’s program, the EEOC can fulfill its enforcement obligations, Judge Montgomery said, and the three employees face no threat of actual injury, having already submitted to testing for the 2015 calendar year.

As for other employees who have yet to undergo testing, “the EEOC has not demonstrated that Honeywell’s biometric testing jeopardizes any employees’ right to privacy in their health information,” the court wrote. “Under these circumstances, it appears that even if the EEOC prevails on the merits, any damage alleged by Honeywell employees can be cured through the most basic of legal remedies: monetary damages.”

On the other hand, the court noted that Honeywell – and its employees by extension – could face harm if an injunction were granted. If the company were required to fund HSAs for employees who chose not to participate in the biomedical testing, as requested by the EEOC, “Honeywell argues that it will not be able to recoup those funds, should it prevail on the merits,” Judge Montgomery explained. Further, “because Honeywell’s health care costs are fixed, any anticipated revenue lost due to an injunction would be transferred to all Honeywell employees in the form of increased health care contributions.”

With both the irreparability of harm to the plaintiff and the possibility of injury to other parties weighing in Honeywell’s favor, the court declined to consider other factors.

Judge Montgomery did note that issues like the likelihood of success on the merits and the public interest considerations were likely a draw, given the “intriguing legal questions” raised by the case. Uncertainties such as the application of the ADA’s safe harbor provision to wellness plans, whether Honeywell’s biometric testing constituted a genetic test pursuant to GINA, and the intersection of the ACA’s approval of surcharges used in conjunction with wellness programs presented the court with novel questions, she said.

“[G]reat uncertainty persists in regard to how the ACA, ADA and other federal statutes such as GINA are intended to interact,” she wrote. “Recent lawsuits filed by the EEOC highlight the tension between the ACA and the ADA and signal the necessity for clarity in the law so that corporations are able to design lawful wellness programs and also to ensure that employees are aware of their rights under the law. Should this matter proceed on the merits, the court will have the opportunity to consider both parties’ arguments after the benefit of discovery in order to determine whether Honeywell’s wellness program violates the ADA and/or GINA.”

To read the order in EEOC v. Honeywell International, click here.

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Magazine Interns Settle Suit for $5.85 Million

Why it matters: For $5.85 million, former interns at Conde Nast Publications agreed to resolve their employment dispute in New York federal court. Two different courts in the state have split on the issue of whether interns should be considered employees, with the question currently pending before the Second U.S. Circuit Court of Appeals. Instead of waiting to see what standard the federal appellate panel decides on, Conde Nast settled the suit brought by former interns at its publications. An estimated 7,500 former interns dating back four years for a nationwide class and seven years for a New York state class will be eligible to receive a share of the settlement fund, which will also cover attorneys’ fees, costs, and claims administration fees. The multimillion-dollar settlement serves as a reminder to employers to use caution when considering whether to hire – and how to compensate – interns.

Detailed Discussion

In June 2013, Lauren Ballinger and Matthew Leib filed suit against Conde Nast Publications. Ballinger, a former intern at W, and Leib, who interned at The New Yorker, claimed that the publisher violated both New York labor law and the Fair Labor Standards Act (FLSA) by failing to pay them the minimum wage for the hours they worked.

The parties began preliminary discovery and exchanged some motions. But during this time, two federal courts in New York reached two very different conclusions about the legal status of interns under state labor law. In Glatt v. Fox Searchlight Pictures, the court determined that interns were employees under state law and granted summary judgment for the plaintiffs on their FLSA claims; the opposite conclusion was reached in Wang v. Hearst Corp.

“These very different outcomes demonstrate the uncertainty that the parties face,” the plaintiffs wrote in their motion in support of preliminary approval of the settlement. With the cases on appeal to the Second U.S. Circuit Court of Appeals, the parties engaged in multiple settlement conferences and reached a deal.

Pursuant to the agreed-on terms, a settlement fund of $5.85 million provided by Conde Nast would cover payments to two classes of plaintiffs: a national class of FLSA claimants who worked at Conde Nast dating back to June 2010 and a statewide class of New York interns for the publisher since June 2007.

The estimated 7,500 interns will be paid based on an allocation formula of three factors: whether the internship was a “closet internship,” where the intern’s primary activities were performed in a fashion magazine closet; whether the internship occurred during the summer; and whether the intern received a stipend resulting in payment of less than minimum wage.

Under the formula, payments would range from a maximum of $1,900 for a summer closet internship where no stipend was received down to $700 for a non-closet internship that did not occur during the summer with a stipend provided. The payout represents more than 60 percent of the unpaid wages for class members, according to the plaintiffs’ motion.

The fund also includes attorneys’ fees (not to exceed 11 percent or $650,000), costs, expenses, claim administration fees, and service payments of $10,000 for the two named plaintiffs.

To read the motion in support of preliminary settlement approval in Ballinger v. Advance Magazine Publishers, Inc., click here.

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California Appellate Court Sends Suit to Arbitration

Why it matters: In the latest interpretation of the California Supreme Court’s decision in Iskanian v. CLS Transportation Services, an appellate panel in the state sided with an employer and sent a case to arbitration. The instant case involved an employee who filed a state court lawsuit alleging Ralphs Grocery Company violated California labor laws by not providing meal or rest breaks for its workers. When Ralphs filed a motion to compel arbitration based on an employment agreement, a trial court judge held that the agreement was unenforceable and denied the motion. The appellate court reversed, relying upon Iskanian and finding that the agreement was not unconscionable. The decision keeps the Iskanian decision in the headlines following recent federal court rulings declining to follow Iskanian’s prohibition on employee waivers of Private Attorney General Act claims in the state, prompting speculation that the California Supreme Court decision is on its way to a review by the United States Supreme Court.

Detailed Discussion

When Stephanie Mahmud applied for a job with Ralphs Grocery Company in February 2008, her signed application stated that she “acknowledge[d] and underst[ood]” Ralphs had a dispute resolution program that included a Mediation & Binding Arbitration Policy.

The policy applied to “all employees and applicants for employment” and to “any employment-related disputes that exist or arise between employees and [Ralphs] that would constitute cognizable claims or causes of action in a court or government agency under applicable law including individual statutory claims or disputes.”

In addition, the arbitration policy provided that “there is no right or authority for any covered disputes to be heard or arbitrated on a class action basis, as a private attorney general, or on bases involving claims or disputes brought in a representative capacity on behalf of the general public, or other Ralphs employees (or any of them), or of other persons alleged to be similarly situated.”

Mahmud filed a lawsuit in California state court in 2009, alleging that Ralphs violated multiple provisions of the state’s Labor Code by failing to provide meal and rest breaks, among other claims. Based on the arbitration agreement, Ralphs moved to compel arbitration.

A trial court judge refused, relying on a 2007 California Supreme Court decision in Gentry v. Superior Court, which established a four-factor test to determine whether a class action waiver should be enforced.

Ralphs appealed and in the interim, the California Supreme Court decided Iskanian v. CLS Transportation, where the court upheld the general enforceability of class waivers in mandatory employment arbitration agreements.

The decision explicitly stated that it abrogated Gentry.

In light of the new decision, Mahmud told the court that Ralphs was collaterally estopped from litigating the enforceability of the agreement based on an earlier case that found it to be both procedurally and substantively unconscionable. As a fallback position, she added that the policy was unconscionable and should not be enforced against her.

But the appellate panel wasted little time on either contention.

Mahmud failed to raise the estoppel argument in the trial court, the panel wrote, and therefore waived it. And while she wanted to rely upon a ruling that found the policy unconscionable, a second court had considered the same policy and found it enforceable in a separate case, the court added.

Even if the court overlooked the waiver and considered the merits of Mahmoud’s unconscionability argument, she “presented no evidence of the circumstances surrounding her application for employment or her decision to sign the agreement,” the panel wrote.

“Even after the United States Supreme Court’s decision in [AT&T v. Concepcion] called Gentry into question and led Ralphs to renew its petition to compel arbitration, Mahmud chose to base her opposition entirely on the four Gentry factors, providing neither a declaration nor other evidence to support unconscionability on any other ground. In the absence of such evidence, we will not presume procedural unconscionability.”

To read the opinion in Mahmud v. Ralphs Grocery Company, click here.

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NLRB Affirms Controversial D.R. Horton Decision

Why it matters: A divided panel of the National Labor Relations Board (NLRB) stood behind its much-criticized D.R. Horton decision by reaffirming that an employment agreement waiving class arbitration violated the National Labor Relations Act (NLRA). The Board first considered the issue in the D.R. Horton case, a ruling that was reversed by the Fifth U.S. Circuit Court of Appeals and rejected by other courts around the country. With a chance for a do-over, the five-member panel split three to two and found the reasoning and result of D.R. Horton to be correct. “The core objective of the National Labor Relations Act is the protection of workers’ ability to act in concert, in support of one another,” the majority emphasized, and the right to act concertedly for mutual aid and protection includes judicial forums. Not everyone agreed – two members of the panel issued dissents arguing that the Board failed to recognize the need for the NLRA to coexist with other statutes and also neglected to follow the instructions of the U.S. Supreme Court with regard to arbitration.

Detailed Discussion

Sheila Hobson signed a binding arbitration agreement and waiver of jury trial when she applied for a job with Murphy Oil in November 2008. Less than two years later, Hobson filed suit in Alabama federal court along with three other employees seeking to pursue a collective action alleging violations of the Fair Labors Standards Act (FLSA).

Relying upon the agreement, Murphy Oil moved to compel arbitration on an individual basis. While the district court sided with the employer, Hobson filed an unfair labor charge with the NLRB.

Hobson’s charge did not occur in a vacuum, however.

In 2012, the NLRB issued a decision in D.R. Horton, holding that an employer violates the NLRA “when it requires employees covered by the Act, as condition of their employment, to sign an agreement that precludes them from filing joint, class, or collective claims addressing their wages, hours, or other working conditions against the employer in any forum, arbitral or judicial.”

The Board reached this conclusion “notwithstanding the Federal Arbitration Act (FAA), which generally makes employment-related arbitration agreements judicially enforceable,” noting that arbitration under the FAA “is a matter of consent, not coercion.”

On appeal, the Fifth Circuit reversed; other courts across the country similarly declined to follow the NLRB’s decision.

But the Board embraced the opportunity to carefully reexamine D.R. Horton in light of the adverse judicial decisions and reaffirm its holding. Characterizing the NLRA as unique among workplace statutes, the majority wrote that the national labor policy was built on the premise of protecting workers’ ability to act in concert and in support of one another – even in the courtroom.

“The rights uniquely guaranteed by Section 7 (with the exception of the right to refrain from concerted activity) are, as the Supreme Court has observed, ‘collective rights,’ and all of them are substantive rights,” the majority said. “Section 7 protects picketing. It protects a consumer boycott. It protects a strike. And as numerous Board and judicial decisions make quite clear, it protects, as a substantive right, workers joining together to pursue legal redress in a state or federal court. There is no basis in the Act or its jurisprudence to carve out concerted legal activity as somehow entitled to less protection than other concerted activity.”

The Fifth Circuit opinion gave the NLRA short shrift, the majority said, and should have afforded the statute more respect instead of assuming that the FAA trumped it. “Section 7 of the NLRA amounts to a ‘contrary congressional command’ overriding the FAA,” the Board said. “We see no compelling basis for the court’s conclusion that to override the FAA, Section 7 was required to explicitly provide for a private cause of action for employees, a right to file a collective legal action, and the procedures to be employed.”

After considering the stance of the dissenting panel members, the majority remained unmoved. “The employer’s imposition of a mandatory arbitration agreement requiring employees to bring all workplace claims individually – and forbidding them access to any group procedure – reflects and perpetuates precisely the inequality of bargaining power that the Act was intended to redress,” the panel wrote.

The majority was careful to note that its decision did not guarantee class treatment, but it did reflect “a right to pursue joint, class, or collective claims if and as available, without the interference of an employer-imposed restraint.”

With that said, the Board found that Murphy Oil’s arbitration agreement violated Section 7 of the NLRA by explicitly prohibiting employees from concertedly pursuing employment-related claims in any forum. Further, the employer violated Section 8(a)(1) by attempting to enforce the unlawful agreement when it moved to compel arbitration in the underlying suit, the majority said.

The Board ordered Murphy Oil to cease and desist using the mandatory arbitration agreement and rescind or revise it for current employees.

Board member Philip A. Miscimarra dissented, writing that the NLRA needs to “coexist with a broad array” of other federal and state laws. “I believe Congress did not vest the NLRB with authority to dictate what internal procedures must govern non-NLRA claims adjudicated by courts and agencies other than the NLRB,” he said.

Also dissenting: member Harry I. Johnson, III, who said the majority opinion “poses the unfortunate example of a federal agency refusing to follow the clear instructions of our nation’s Supreme Court on the interpretation of the statute entrusted to our charge, and compounding that error by rejecting the Supreme Court’s clear instructions on how to interpret the Federal Arbitration Act, a statute where the Board possess no special authority or expertise.”

He also listed the courts that have “condemned” the D.R. Horton case, including the Second, Fifth, and Eighth Circuits as well as courts in Arkansas, California, Colorado, Georgia, Illinois, Kansas, Nevada, New York, Texas, and Virginia.

To read the order in Murphy Oil USA, click here.

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