The days are getting longer, the temperatures are rising, and kids everywhere are counting down the days until summer vacation begins. For many employers, the change in the season brings another big shift: the arrival of summer interns.

Internship programs are great for employers and interns alike – interns gain experience, training, and exposure to the employer’s industry, and employers gain extra help, new ideas, and, hopefully, the chance to establish a pipeline of possible future employees. But the question of whether employers could lawfully offer unpaid internships has been a bit of a moving target. Since we last covered this topic in 2012, however, the rules governing unpaid internships have changed. This year, the Department of Labor (“DOL”) rejected the six-factor test that it had previously used to determine whether an intern should be considered an employee under at least the minimum wage provisions of the Fair Labor Standards Act (meaning that they could not work without pay). Instead, the DOL adopted a new, seven factor-test known as the “primary beneficiary test.”

In good news for employers, the new primary beneficiary test is considered more flexible than the prior test. It focuses on economic realities – in other words, if the employer is the primary beneficiary, the intern must be compensated as an employee.  On the other hand, if the intern primarily benefits from the relationship, the internship can be unpaid.  The DOL indicated that it would consider the following seven factors in the analysis:

  • The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  • The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  • The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  • The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  • The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  • The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  • The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

While the prior test required employers to meet all six factors, the factors outlined for consideration in the primary beneficiary test are non-exhaustive, which should allow employers a bit more breathing room in structuring unpaid internship programs, especially when students are involved.

In addition to wage and hour issues, it’s important to be alert to other requirements governing your interns.  For instance, states may impose laws more stringent than the DOL’s rules interpreting the FLSA. Also, as we’ve also covered recently, an increasing number of states are considering and passing laws aimed at curbing sexual harassment in the workplace. Some of these laws (for instance, New York City’s) even include sexual harassment training requirements for interns who work for a specified amount of time. And, note that the considerations are different for employers with paid internship programs. Such employers may need to consider additional issues, such as possible coverage under some of the state and federal laws that protect employees.

So, as you prepare to welcome this year’s crop of interns to your office, in addition to checking off orientation, work assignments and welcome packets from your to-do list, consider reaching out to your favorite Troutman Sanders employment attorney to ensure your program is in tip-top shape by before you welcome this summer’s group aboard.

The United States Supreme Court has indicated that it will finally settle the circuit-splitting issue of whether gay and transgender status falls under the protection of Title VII. The court signaled this when it agreed recently to hear three cases that have been appealed to the high court. The three cases are: Altitude Express v. Zarda; Bostock v. Clayton County, Georgia; and R.G. & G.R. Harris Funeral Homes Inc. v. EEOC.

In the Altitude Express case, Zarda (through his estate, as he perished in a BASE-jumping accident after filing his lawsuit) contends that his employer fired him because of his sexual orientation. A three-judge Second Circuit panel first ruled that Zarda had no claim for sex discrimination under Title VII because sexual orientation was not covered by the law.

Then, however, the Second Circuit reversed itself in an en banc decision (which means all of the Second Circuit judges convened to hear the case as opposed to a three-judge panel). The Second Circuit then held that that sexual orientation discrimination is discrimination “because of” sex under Title VI, ruling in Zarda’s favor. The Second Circuit’s decision aligns with the decision from the Seventh Circuit in Hively v. Ivy Tech.

Zarda’s case is also particularly noteworthy not only because of the important contemporary legal issue it presents, but also because it exposed a rare public divide between two federal agencies (the Equal Employment Opportunity Commission and the Department of Justice) while under review at the Second Circuit. . Both agencies filed supplemental briefs in the case, with the EEOC arguing that Title VII applies to sexual orientation while the DOJ argued that it does not apply. It will be particularly instructive to see whether the agencies continue to take opposing stances before the Supreme Court.

Like the Zarda case, the second case—Bostock v. Clayton County, Georgia—presents the issue of whether sexual orientation is protected under Title VII. In the Bostock case, a three-judge panel from the Eleventh Circuit held that that Title VII did not prohibit discrimination based on sexual orientation. Bostock requested that that the full court hear the case en banc as in Zarda, but the court declined to do so.

The third case, EEOC v. R.G. & G.R. Harris Funeral Homes, Inc., is a case brought by plaintiff Aimee Stephens, a transgender woman who worked as a funeral director in Michigan. She presented as a male when she started her job, but then told her supervisor several years later that she was planning to transition to a woman and would start wearing women’s clothes to work. She was fired shortly after that.

Her supervisor said he fired her because Stephens “was no longer going to represent himself as a man.” The supervisor stated in the case that he believes gender transition “violat[es] God’s commands” since “a person’s sex is an immutable God-given fit.”

The EEOC sued on Stephens’ behalf in federal district court in Michigan, claiming discrimination in violation of Title VII. The district court held Stephens was discriminated against because it engaged in sex stereotyping, but that the employer was protected by the Religious Freedom Restoration Act. Stephens appealed.

The Sixth Circuit agreed with Stephens that Title VII bars employment discrimination against transgender people because: (1) transgender discrimination is gender stereotyping; and (2) transgender discrimination is inherently sex discrimination since such a decision must be “motivated, at least in part, by the employee’s sex.” The Sixth Circuit then held that the employer was not protected by the Religious Freedom Restoration Act, reversing the district court.

As these cases proceed before the Supreme Court, we will continue to monitor and update readers.

For the first time in many years, there seems to be momentum in Washington D.C. for the adoption of a national paid sick leave policy.  Currently, nine states and at least 10 localities have paid sick leave laws.  Paid sick leave is common throughout Europe, in many South American countries, and even in China.  The biggest issue, however, is that while both parties have plans to implement such a law, those plans are very different.

The Democratic plan, embodied in the Healthy Families Act, would allow employees to earn up to one week of paid leave to use for any number of reasons, including recovery from an illness, receiving preventative treatment, caring for a sick family member, attending meetings related to the health of a child, or to seek assistance related to domestic violence, stalking or sexual assault.  The general contours of the Act would allow an employee to earn one hour of paid sick leave for every 30 hours worked.  The law sets the minimum cap for accrual at 56 hours.  In other words, employees would be guaranteed the ability to accrue at least seven days of paid sick leave per year (presuming an employee works an eight-hour day).  The Act would allow smaller employers (fewer than 15 employees) to front load this leave (i.e., give employees access to all 7 days of leave at once, instead of requiring them to earn it by working hours).  Employees would be allowed to carry over any unused paid sick leave from year to year, so long as they did not exceed 56 hours of accrued paid sick leave at any point.  For example, if an employee has 30 hours of paid sick leave accrued as the year turns, the employee would be permitted to carry over all 30 hours, then accrue 26 more to reach 56 accrued for that year.  It’s unclear how this would operate where employers allow employees to accrue more than the 56-hour minimum.  Existing practices at the state level would suggest that employers would only have to roll over up to 56 hours.

Republicans, in contrast, have set down their marker in the debate by introducing the Child Rearing and Developmental Leave Empowerment (“CRADLE”) Act, which would grant three months of paid parental leave to employees who are new parents.  To qualify, employees would need to have worked for either four out of the previous four quarters, five of the previous six, or 20 total quarters.  The level of benefits would be determined by Social Security’s primary insurance amount (so that benefits are more generous to those with lower incomes).  To make this plan “budget neutral,” employees would have to agree to postpone Social Security benefits to take the benefits under the CRADLE Act.  An employee would elect anywhere from one to three months of paid parental leave in exchange for delaying Social Security benefits by double the number of months of parental leave taken.  In other words, if an employee took one month of paid parental leave, the employee’s Social Security Benefits would be delayed by two months; if the employee took three months, the delay would be six months.

It is unclear which proposal, if either, will gain traction, or if some other proposal will be introduced or gain momentum.  So, stay tuned for any updates that may come.  In the meantime, if you need assistance creating a paid leave plan that complies with any state or local law, or even implementing a policy that addresses any type of paid time off, we always here help.

Last week, the United States Department of Labor (DOL) issued its long-awaited proposed change to the minimum salary threshold for the white-collar exemptions under the Fair Labor Standards Act. The new minimum salary threshold is $35,308/year (or $679/week).

This new rule is not finalized nor in effect now. Rather, the new rule is open for a notice and comment period, with the DOL accepting public comments for 60 days after the rule is published in the Federal Register. The Department of Labor predicts that the new rule will likely become effective in January 2020.

So, while you have some time to plan, here are the key points to understand from the new rule:

  1. The minimum salary threshold for all white-collar exemptions is moving to $35,308/year (or $679/week). The current level is $23,660/year (or $455/week). There are no changes to the duties portion of the tests for the various white-collar exemptions, which still have to be met for an employee to be exempt from overtime; only the minimum salary threshold is changing.
  2. The minimum salary threshold for highly compensated employees is moving to $147,414/year, a significant increase from the current level of $100,000/year.
  3. There are no automatic increases or regional differentiators built into the new rule (as some predicted). The DOL will, however, evaluate the threshold every four years.
  4. Employers will be allowed to meet the new minimum threshold with non-discretionary bonuses and incentive payments (g., commissions) for up to 10% of the new threshold amount.

Employee advocate groups have called for an increase to the threshold for years, especially since it has not been increased in 15 years. However, the new rule is not nearly as high as the $47,000/year threshold previously proposed by the Obama administration.

This new rule will almost certainly be challenged in court by business groups citing increased payroll costs for employers. At the same time, other groups representing employees will also probably challenge the rule in court, arguing that the increase is not high enough to protect workers.

Our readers will probably recall that the Obama administration’s proposed rule was blocked by a U.S. District Court in 2017, and that decision is still on appeal. The District Court, in that case, held that the DOL’s white-collar exemptions rules focused less on the duties portion of the tests (as set forth specifically in the Fair Labor Standards Act itself), and more on the salary threshold (which is not specifically set forth in the FLSA). Whether the new salary threshold functionally diminishes the importance of the duties tests will likely be addressed in the expected litigation around the DOL’s new rule.

In the end, we now have some guidance on what the current DOL intends to do.  While it may be a while before the rule goes into effect (and while litigation may occur), employers can now evaluate how the rule will affect their workforce and make proper decisions to address the changes to which employees will continue to be considered exempt from overtime.

Arbitration agreements with employees are a hot topic – and continue to make headlines. As we covered in Part 1 of this blog series, there are many practical and legal considerations involved in deciding whether your business should require employees to arbitrate employment-related disputes (as opposed to resolving them in court). But once you have weighed the pros and cons, consulted with legal counsel, and made the decision to proceed in that direction, how do you make sure your agreements to arbitrate are enforceable?

Drafting enforceable arbitration agreements presents a challenge, particularly for multi-state employers. This is because most states have specific, individual requirements governing arbitration agreements that can range from the technical (such as requiring that employees specifically initial the arbitration provision), to the more substantive (such as prohibiting certain claims from arbitration altogether). This may seem simple enough but can quickly become complicated when attempting to draft an agreement that works for employees in multiple states.  Adding to the confusion, the U.S. Supreme Court has held that the Federal Arbitration Act (“FAA”) generally preempts state statutes that single out arbitration clauses, or that serve as an obstacle to the accomplishment of the FAA’s objectives (meaning, they prevent enforcement of an arbitration agreement in accordance with its terms). But whether and to what extent a particular state’s requirements are found to “single out” arbitration clauses or “serve as an obstacle” to the FAA is often unclear in practice. Courts’ interpretations of these types of issues can vary widely and are constantly evolving, so there are no guarantees.

So, this area of law can be a moving target – which means drafting an enforceable agreement is often no easy feat. But, here are a few tips to help make yours more likely to hold up.

Avoid common unconscionability pitfalls. 

Regardless of whether a technical or substantive requirement imposed by state law will or will not be preempted, the FAA generally does not preempt state laws governing contract formation.  This means that defenses like unconscionability, duress, or fraud will generally still apply. The requirements of every state’s contract formation rules are beyond the scope of this article.  But, there are a few things you can include in your agreement to help avoid common concerns.

A few do’s and do nots: do not make the agreement impossible to read or confusing, and do not bury an arbitration provision in fine print.  Do have employees sign a standalone agreement to arbitrate employment-related disputes, rather than including such an agreement as part of a larger document, such as an employee handbook. And, although this goes without saying, do make sure your hiring managers and human resources professionals know not to rush an employee through the process of signing an agreement to arbitrate, or pressure or otherwise coerce employees into signing the agreement.

Make sure employees specifically assent to arbitration.

On a related note, an important factor in the analysis of whether an arbitration agreement is enforceable is whether the employee has specifically agreed to arbitration. So, you’ll want to make sure the agreement clearly states that the employee is assenting to arbitrate employment-related claims (and that he or she is giving up the right to a jury trial/the right to sue in court). You may even consider including a provision allowing employees to “opt out” of the arbitration requirement, or at least outlining a procedure for him or her to do so.

Make sure your agreement outlines procedures that are fair to both sides.

Make sure your agreement covers the procedures that will govern arbitration proceedings between the parties to help avoid arguments or surprises later on. One way to do this is to incorporate rules from an organization like the American Arbitration Association. There are various sets of rules applicable to different types of disputes (including specific to employment claims). These rules typically outline procedural requirements for arbitration and will provide a framework for how the resolution of a claim will proceed.  Note that these rules will often limit the amount employees must pay in arbitration fees, as courts will sometimes find an agreement is unenforceable if it costs the employee more to pursue arbitration of an employment-related dispute than it would have cost him or her to proceed in court.  These rules will also generally cover other important topics such as requiring selection of a neutral arbitrator, providing that any arbitral award be put into writing, and outlining the scope of what will be allowed in discovery.

Don’t forget the small stuff.

Make sure the agreement to arbitrate is mutual, meaning that both the employer and the employee agree to arbitrate claims, and, importantly, that both parties sign the agreement. Make sure that the actual employing entity is a party to the agreement. This means that employers with subsidiaries or affiliates should ensure that a corporate representative from the appropriate entity is a signatory to the agreement. Finally, be sure that your arbitration agreement carves out any other employment agreements or benefit plans that may have separate or different dispute resolution procedures.

As you can surely recognize, drafting an enforceable arbitration agreement isn’t something that should be taken lightly. Reach out to your favorite Troutman Sanders employment attorney for guidance specific to your business.

In a 2-1 ruling on February 4, 2019, the Second Appellate District of the California Court of Appeals expanded requirements for reporting time pay by ruling that a California employer would owe reporting time pay if it requires an employee to call in to confirm a scheduled on-call shift, even when the employee does not actually report for work.

Like many retailers, Tilly’s, Inc. scheduled its retail employees for both regular and on-call shifts.   For on-call shifts, Tilly’s required employees to call exactly two hours before the start of the shift to confirm whether they were to report for work or not. If the on-call shift was scheduled on or before 10:00 a.m., employees had to call the night before at 9:00 p.m. Tilly’s instructed employees to consider on-call shifts “a definite thing” until they were told not to report. If employees called late, failed to call, or refused to work on-call shifts, they were subject to formal discipline, which could include termination. Employees were not compensated for on-call shifts unless they were required to physically report for work.

Skylar Ward, a former Tilly’s retail employee, brought a putative class action, alleging that Tilly’s failed to provide reporting time pay for on-call shifts pursuant to California’s Industrial Welfare Commission (IWC) Wage Order No. 7. Specifically, Wage Order No. 7 requires payment of reporting time pay ranging from two to four hours’ wages if (a) an employee is required to “report for work and does report,” but is not put to work or works less than half of his or her usual or scheduled day’s work, or (b) an employee is required to report for work a second time in a workday, but works less than two hours in the second reporting. The phrase, “report for work,” is not defined in Wage Order No. 7, and for the past 75 years no further definition was needed; California employers provided reporting time pay only when an employee actually did physically “report for work.” As such, the trial court agreed with Tilly’s and dismissed the case, on the basis that merely calling in to confirm a shift, without physically reporting, does not constitute “report[ing] for work” to trigger reporting time pay. Ward appealed. (Ward v. Tilly’s Inc., No. B280151, 2019 WL 421743 (Cal. Ct. App. Feb. 4, 2019).)

The Court of Appeals reversed the trial court’s order, ruling that Tilly’s alleged failure to provide reporting time pay to employees who called in to confirm on-call shifts would violate Wage Order No. 7. The Court emphasized that Tilly’s on-call policies in particular, which required employees to call exactly two hours prior to the start of the on-call shift and imposed strict discipline for failing to timely call, yielded an imbalanced benefit to Tilly’s at the expense of the extensive burdens placed on its employees. For example, Tilly’s on-call shifts prevented its employees from taking other jobs, pursuing an education, caring for loved ones, committing to social plans, or otherwise enjoying off-duty recreational time simply because they had to be available to confirm an on-call shift, for which they may not even be called in (or compensated).

The Court first reasoned that the phrase “report for work” is ambiguous enough that the Court needed to consider the legislative history of the Wage Orders. The Court then cited the Wage Orders’ purpose of protecting employees and broadly interpreted the phrase, “report for work,” to include more than just physical presence in the workplace. Assuming that the IWC had been presented with the issue of telephonic call-in requirements when the Wage Orders were created, the Court concluded that the IWC would have deemed that Tilly’s on-call practices triggered reporting time pay because they “have much in common with the specific abuse the IWC sought to combat by enacting a reporting time pay requirement.”

The Court also appealed to the California Supreme Court’s 2016 ruling in Augustus v. ABM Security Services, Inc. (2016) 2 Cal.5th 257, 263, to emphasize the notion that off-duty time is not truly off-duty “if an employer limits the kinds of activities employees can engage in during off-duty time.” While the facts in Augustus and Ward are distinguishable, these rulings suggest a trend by California courts in treating any time that employees remain ready or on-call as compensable regardless of whether they are physically called on to work.

Although the holding in Ward concluded that Tilly’s fact-specific, on-call policies triggered reporting time pay, it is still unclear how this particular holding will apply to on-call policies and procedures in other factual circumstances. For example, the Court did not allude to an acceptable timeframe in which employees can call in to avoid reporting time pay requirements, nor did the Court address retroactive application of its holding. Also, the ruling may be extended beyond the retail industry to those industries and occupations covered by other Wage Orders containing the same language and requirements for reporting time pay, such as the manufacturing, personal services, housekeeping, and transportation industries, and agricultural and household occupations. As a result, California employers in each of these industries and occupations should carefully consider the result in Ward and be mindful of the legal trend to treat on-call time as compensable. Employers should promptly assess their scheduling and on-call policies in comparison to those in Ward to ensure proper compensation and compliance.

Worksite Enforcement

When you think of immigration in the United States these days, the first thought that comes to your mind might be the continuing dispute over building a wall at the Southern border.  That topic has certainly received the most attention, but for employers, the more relevant issue remains the increasing worksite immigration enforcement measures.  Here are some recent statistics from Immigration and Customs Enforcement (ICE):

  • FY 2018 – 6,848 worksite investigations were opened (compared to 1,691 in FY 2017)
  • FY 2018 – 5,981 I-9 audits were initiated (compared to 1,360 in FY 2017)
  • FY 2018 – 779 criminal and 1,525 administrative worksite-related arrests were made (compared to 139 and 172, respectively, in FY 2017)

As you can clearly see from these statistics, far more employers have been selected for an I-9 audit by the government last year, and many more criminal and administrative worksite-related arrests (not to mention monetary fines) have followed.  This trend is projected to continue under the current administration, as it believes that worksite enforcement is “one of the most powerful tools ICE uses to ensure that businesses are complying with U.S. employment laws.”

Whereas larger companies were the more likely “target” for the U.S. government in the past, that is no longer the case.  Recently, ICE conducted an I-9 audit of a Korean grocery store in San Diego.  As a result of the audit of the employer’s I-9 forms, 26 people were found to be in the U.S. without authorization, and they were taken into ICE custody.  Other detailed results of the investigation were not provided, but presumably, the employer was ordered to pay monetary fines for their violations.

As you can see, employers cannot predict when the government will pay them a visit.  These audits can be completely random; they can be initiated through anonymous tips, or another agency can share information with ICE that prompts an I-9 investigation.  Therefore, it is a good idea to get ahead of the I-9 trend and do an internal audit of your company’s I-9 forms with the help of an experienced immigration professional to make sure everything is in order, or address and resolve any issues – before the government arrives at your door.

H-1B Cap

Once again, we have entered the H-1B cap filing season.  The H-1B is a popular nonimmigrant visa category that is available to highly skilled foreign nationals who are offered an H-1B-qualifying position by a U.S. employer.  This is also known as a “specialty occupation visa” because in order to be eligible for this visa category, the position that is being offered to a foreign national must require a minimum of a bachelor’s degree in a specific field and the foreign national must meet that requirement.

For foreign nationals working in the U.S., one of the biggest advantages to being in H-1B status is that even though it is a non-immigrant visa category (as opposed to an immigrant visa category), you can have an intent to reside permanently in the U.S., which can be convenient when you begin the permanent residence process.

As there are more petitions filed than there are visa numbers available, USCIS conducts a lottery each year to select the ones that it will adjudicate.  For this reason, all H-1B cap petitions must be filed in the first week of April.  So employers – if you have employees in a nonimmigrant status (typically students in F-1 status and have temporary work authorization through an Employment Authorization Document), please speak with an immigration attorney right away to discuss whether to file an H-1B cap on their behalf this season.

Valentine’s Day is right around the corner, what better way to celebrate than to examine the pitfalls of office romances? The “Me Too” era is still in full swing, and it is subjecting employers to more scrutiny than ever. Have you considered how to best handle office romances between employees before Cupid’s arrow meets its mark?

There are several ways that a workplace romance can expose an employer to legal liability. The relationship can turn sour, making things uncomfortable for one or both parties going forward. Allegations of sexual harassment may arise if either party is dissatisfied with what happened or engages in harassing or stalking behavior after the breakup. If a supervisor is involved, the organization may well be held liable based on that management role.

Even if the relationship runs smoothly, employers still face legal risks: co-workers may bring allegations of favoritism or unfair treatment because of the relationship. Courts have generally disfavored these so-called “paramour preference” claims (because the disparate treatment is premised not on the employee’s gender but rather on a romantic relationship between the employer’s decision-maker and the person treated preferentially – in other words, a preference for one’s lover results in both male and female employees being at a disadvantage, so there is no sex-based discrimination). Nevertheless, defending against these claims is time-consuming and expensive, and even if there is never a lawsuit, if other employees feel that they are being treated unfairly the relationship is likely to have a negative effect on office morale.

So, what is an employer to do? The story of Brian Krzanich, the CEO of Intel until his resignation in June 2018, is an interesting illustration. When Intel discovered that he had violated the company’s prohibition against managers having sexual and romantic relationships with direct and indirect reports, he was obliged to leave the company within a matter of a few days. Intel was praised for its handling of the situation and avoiding a “Me Too” fallout, but the situation demonstrates that swift and decisive action is often necessary in today’s climate. Intel’s policy governing workplace romances that was put in place in 2011 – and the Company’s following it without fail or delay – made this situation easier to navigate (albeit not for Mr. Krzanich).

The Intel strategy of expressly prohibiting such relationships is one way employers can help to protect themselves against the risks inherent in workplace romances. That prohibition focused solely on relationships with direct or indirect subordinates, which is likely more realistic than a blanket prohibition. But any useful policy must give the employer a framework by which to navigate these issues.

Another alternative is a policy discouraging dating between employees and requiring disclosure of such relationships to the employer. Requiring disclosure gives the employer the opportunity to protect itself up-front and may reassure other employees that the company is working to prevent harassment, favoritism, or retaliation because of personal relationships.

Employers who require disclosure of romantic relationships also may utilize a tool sometimes known as a “love contract.” These documents provide written confirmation that the employees’ relationship is voluntary and that both parties understand the company’s policies forbidding harassment and know how to report and address any work-related problems that may arise. A love contract may help an employer defend against potential claims by showing that the employer used reasonable care to prevent any harassment and that the employee had and was made aware of the avenues available through the company to try to prevent and avoid any harm.

While companies may prefer to prevent intimate relationships from ever arising between their employees, they are likely to happen anyway. By their very nature, interoffice romances are ripe with controversy and must be managed carefully, both for legal and business reasons. By implementing practical policies and developing an action plan with their counsel, a savvy employer can still come out smelling like a rose.

As we covered last year, the United States Supreme Court held in Epic Systems Corp. v. Lewis that employment contracts can legally bar employees from collective arbitration (and require instead individualized proceedings). The Supreme Court found that a provision forbidding collective arbitration violated neither the Federal Arbitration Act nor the National Labor Relations Act. This decision was a win for employers, as it continued the Supreme Court’s recent trend of enforcing agreements to arbitrate and enabled employers to specify that employees must each arbitrate their claims individually, rather than all together as a group.

Since then, as you might expect, employee arbitration agreements have become a hot topic for many employers. They’ve been a hot topic in the Supreme Court as well; in two different rulings issued in January 2019 (New Prime Inc. v. Oliviera and Henry Schein Inc. v. Archer and White Sales Inc.) the Court continued to shed light on the Federal Arbitration Act’s transportation worker exemption and to what extent parties may delegate decisions of whether a claim must be arbitrated or litigated in court to an arbitrator.

All of this activity related to arbitration provides a good opportunity to consider whether requiring your employees to arbitrate employment disputes is the right decision for your business. And, if so, what should you do to make sure your agreements with your employees are enforceable?

We’ll discuss the first topic – whether you should or should not require employees to arbitrate employment claims – in this Part 1, and we’ll cover the second issue in Part 2 (a “coming soon” blog post).

To start, what are some of the reasons you might want to require employees to arbitrate – rather than litigate in court – their employment-related disputes? Arbitration can be cheaper and faster, because discovery is much more limited than what is provided for disputes litigated in court. Pre-hearing motions are also more limited in arbitration as compared to in court; generally, a matter in arbitration will proceed much faster to a hearing on the merits.  Because of this, and due to the fact that private arbitrators generally do not have as much on their dockets, arbitrators can usually set a hearing date and reach a decision resolving the merits of a dispute faster than a court can.  Further, some employers find that having an arbitrator resolve disputes, rather than a jury, can provide more predictable results.  Unlike in court, where the parties have no input on which judge is assigned to hear their case and are subject to the opinions of a jury of their “peers,” there is no jury in arbitration and the parties have a say in which arbitrator will resolve the dispute. And although arbitration is not automatically confidential, it can be much more private than resolving a dispute in court because, for example, there are no public filings.

But arbitration isn’t for everyone or every situation. It can cause morale problems with employees, who are sometimes very concerned to find out that their employer is asking them to give up their right to a jury trial over a dispute that they may consider hugely important to them and their future career. Additionally, arbitration offers limited opportunities for appeal. While that can be a good thing if the arbitrator decides in your business’s favor, it is a double-edged sword if he or she does not. Arbitrators also tend to have a bit more room to fashion remedies that “split the baby,” giving the employee at least some measure of victory, which is less common in court.  Further, because of the limited discovery and ability to file pre-hearing motions, employers may not be able to learn about facts that help them evaluate the strengths and weaknesses of their case, so matters will generally either proceed directly to a hearing on the merits or settle without any opportunity to narrow an employee’s claims through motions practice (or have them dismissed altogether, which happens in a considerable percentage of employment lawsuits). Finally, some states place limitations or requirements on arbitration agreements, ranging from the relatively minor (such as requiring that employees specifically initial an arbitration provision in an agreement) to much more substantive (barring arbitration of certain claims, such as for sexual harassment, outright). Meeting these requirements can become complicated, particularly for employers who operate in multiple states. Although the Federal Arbitration Act generally preempts state law requirements that act as a bar to arbitration, this isn’t always a clear-cut determination and can force parties to engage in motions practice in court to determine whether the agreement is valid or if the dispute can be heard by an arbitrator at all – before ever even reaching the merits of a claim.

There are many practical and legal considerations involved in deciding whether to require that employees arbitrate employment-related disputes as opposed to resolving them in court. This is not a decision to be made lightly or without advice of legal counsel.  If you do decide to proceed in that direction, then you have to make sure your agreements to arbitrate are enforceable.  And that’s no easy trick either. Stay tuned for some thoughts on that topic and some additional issues to consider in Part 2.  In the meantime, consider reaching out to your favorite Troutman Sanders labor and employment attorney for guidance about whether arbitration is right for you and your workplace.

Perhaps before the year-end holidays kicked in, you might have noticed that on Friday, December 14, 2018, a Texas judge struck down the Affordable Care Act (“ACA”) as unconstitutional in its entirety.  The judge held that since 2017’s tax bill effectively eliminated the penalty for violations of the ACA’s individual mandate that required most Americans to obtain some form of health insurance, it became an unconstitutional tax.  Then, he concluded, because the law had no severability clause, the entire ACA was unconstitutional.

Legal scholars of various perspectives seemed to agree prior to the ruling that this argument, made by 20 Republican state attorneys general, was specious at best.  Judge Reed O’Connor, however, found it persuasive.  Judge O’Connor found that the mandate was so integral to the law that Congress would not have passed the ACA without it.  This case is going to be appealed (and most likely will end up going all the way to the U.S. Supreme Court).  But, the question, for now, is what do employers do in the meantime?

Importantly, since the reduction of the penalty did not occur until 2019, the law remained constitutional through year-end.  Additionally, once the case is appealed, it is highly likely the Fifth Circuit Court of Appeals will stay the ruling pending its decision, which could itself take many, many months.  And further appeal to the Supreme Court would take years.

Furthermore, because the ACA is so essential to the way the American healthcare system currently runs, a complete nixing of the law would be nearly impossible, from a practical and logistic perspective.  Thus, it is highly unlikely anything will change for some time.  Therefore, Employers should continue to abide by the ACA’s coverage and reporting requirements – and keep your eyes and ears open for any future changes, whether from the courts or from Congress.