Articles

Legislative Update July 2013

Over the last several weeks, there have been some significant federal employment law developments that we wanted to highlight in this issue of our newsletter.  Late last month the Supreme Court concluded its term by issuing a number of eagerly anticipated opinions, including a landmark decision striking down provisions of the federal Defense of Marriage of Act (DOMA), as well as decisions clarifying who is a “supervisor” for liability purposes under Title VII of the Civil Rights Act of 1964 and the correct legal standard to be applied in Title VII retaliation cases.  The Supreme Court also agreed to hear an appeal in its next term to consider whether recent appointments to the National Labor Relations Board (NLRB) were constitutional, stemming from a January 2013 federal appellate court decision that has called into question a host of NLRB decisions and actions dating back to January 2012. 

 

We begin, however, by recapping the Obama Administration’s announcement earlier this month that it is delaying implementation of certain aspects of the Affordable Care Act (ACA), including provisions requiring larger employers (with 50 or more full?time employees) to provide health insurance to their employees or face penalties.

 

ACA "PAY OR PLAY" PENALTIES DELAYED UNTIL 2015

 

On July 2, the Obama Administration announced that implementation of certain penalty provisions under the ACA employer health insurance mandate (also known as the "pay or play" penalties) have been delayed until January 1, 2015, effectively delaying the ACA’s mandate that larger employers provide coverage for their workers or pay penalties. 

 

The ACA requires employers and insurers to report to the Internal Revenue Service (via Forms 6055 and 6056) certain information about the health care benefits provided to employees.   Reporting was supposed to start in 2014, but no formal guidance has yet been issued. 

     

The Treasury Department said in a statement that "[o]nce these rules have been issued, the Administration will work with employers, insurers, and other reporting entities to strongly encourage them to voluntarily implement this information reporting in 2014, in preparation for the full application of the provisions in 2015.  Real-world testing of reporting systems in 2014 will contribute to a smoother transition to full implementation in 2015."

 

The Obama Administration noted that this reporting “transition relief” will make it "impractical to determine which employers owe shared responsibility payments (under section 4980H) for 2014."  Accordingly, transition relief is also being provided to the employer mandate penalties.  These payments will not apply for 2014.   Any employer shared responsibility payments will not apply until 2015.

 

Formal guidance describing this transition is expected sometime this month.

 

Employers’ Bottom Line:  Transition relief is being provided only for the employer mandate penalties and reporting on Forms 6055 and 6056.  Employers will still have to comply with the other portions of the ACA, including:

·        reporting requirements, such as Form W-2 reporting;

·     health plan coverage and design mandates, such as women's preventive care, preexisting condition exclusions, and implementing a 90-day waiting period; and

·        distribution requirements such as distributing a Summary of Benefits and Coverage and Notice of Coverage Options. 

The transition relief also does not affect the implementation of the state Health Insurance Exchanges intended to create marketplaces where uninsured Americans can shop for policies.  Employers should be on the lookout for further guidance in the coming days.

SUPREME COURT STRIKES DOWN PORTION OF FEDERAL LAW

THAT DENIED FEDERAL BENEFITS TO SAME SEX COUPLES

 

On June 26, 2013, the Court issued a highly anticipated opinion in United States v. Windsor (PDF), finding that married same-sex couples are entitled to a host of federal benefits.  (On the same day, the court also declined to decide Hollingsworth v. Perry (PDF), a case from California, and thereby effectively allowed same-sex marriages in that state.)

In United States v. Windsor (PDF), the Court held that Section 3 of the federal Defense of Marriage Act (DOMA) is unconstitutional because it violates the Fifth Amendment.  The Court's decision to strike down this provision, which denies more than 1,000 federal benefits to same-sex married couples, may dramatically transform the legal status and financial standing of hundreds of thousands of gay Americans. 

DOMA was enacted in 1996, and allows states to refuse to recognize same-sex marriages performed under the laws of other states.  Section 3 of the Act codifies the nonrecognition of same-sex marriages for all federal purposes, including insurance benefits for government employees, Social Security survivors' benefits, immigration, and the filing of joint tax returns.  The following are a few of the key benefits many same-sex couples stand to receive in light of the Court’s decision:

·        Survivors' benefits:  DOMA barred gay and lesbian couples from many entitlement and welfare programs, including those tied to Social Security.  Same-sex spouses will now be eligible for Social Security survivors' benefits upon death of a partner, among other forms of assistance.  

·        Tax-free employee health insurance:  Federal law has lagged behind the almost 40% of Fortune 500 companies who offer tax-free employer-provided health benefits to domestic partners.  Health coverage for the spouses of gay and lesbian employees will now be available without taxable strings attached. 

·        Emergency Leave:  Current law does not offer gay and lesbian employees time off from work to tend to a domestic partner or that partner's family member.  But the guarantees provided by the Family and Medical Leave Act (FMLA) will soon be available to same-sex spouses.

·        Green cards and visas:  There are an estimated 28,500 bi-national same-sex couples – meaning one partner is a U.S. citizen or permanent resident and one isn't – but DOMA did not allow the former to petition for the latter to immigrate.  Now, however, such individuals may lobby the federal government for green cards or visas for a non-American same-sex partner.

 

Employers' Bottom Line:  The decision on federal benefits will immediately extend many benefits to same-sex couples in the states where same-sex marriage is recognized and legal – effectively increased to 13 states, as well as the District of Columbia, with the Court's ruling in Hollingsworth v. Perry (PDF).  Specifically, federal laws governing employee benefit plans will require employers to treat employees' same-sex spouses and opposite?sex partners equally for purposes of the benefits that the employer extends to spouses.  Employers in California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, Washington and the District of Columbia will need to analyze the impact that this ruling has on the benefits that employers may or must offer to same-sex spouses of their employees, as well as leave benefits.

STANDARD FOR SUPERVISOR LIABILITY UNDER TITLE VII CLARIFIED

 

On June 24, 2013, the Court issued an opinion favorable to employers, determining the term "supervisor" under Title VII should be defined narrowly.  In Vance v. Ball State University (PDF)the Court limited employers' vicarious liability for workplace harassment by a "supervisor" to harassing conduct by persons with authority to take tangible employment actions (hire, fire, demote, promote, transfer, discipline) against the victim.  For the first time defining "supervisor" for Title VII purposes, the Court defined it narrowly and favorably to employers.  The Court split 5-4 along ideological lines, with Justice Alito writing the majority opinion for the conservative wing of the Court.  Justice Ginsburg was joined in her dissent by Justices Sotomayor, Breyer, and Kagan.

Title VII makes it unlawful for an employer to discriminate against any individual with respect to compensation, terms, conditions, or privileges of employment because of the individual's race, color, religion, sex, or national origin.  The Supreme Court has recognized that this language also prohibits the creation or perpetuation of a discriminatory or "hostile" work environment through harassment or other means.

In two leading decisions issued in 1998, the Supreme Court focused on the harasser's status in determining whether an employer will be held liable for alleged harassment.  In Faragher v. City of Boca Raton, 524 U.S. 775, and Burlington Industries, Inc. v. Ellerth, 524 U.S. 742, the Court held that if the alleged harasser is the plaintiff's co-worker, the employer will be vicariously liable for the misconduct only if it was negligent in either discovering or remedying the offending behavior.   If, however, the alleged harasser is a supervisor, the employer will be vicariously liable for the harassment, and can avoid liability only by proving that it: (1) exercised reasonable care to prevent and correct any harassing behavior; and (2) the employee unreasonably failed to take advantage of any preventive or corrective opportunities.

Before Vance, however, the Supreme Court had not specifically defined what constituted a "supervisor" under Title VII.   Lower courts differed on qualifications one must possess to qualify as a supervisor for vicarious liability purposes.   Some held that an employee is not a supervisor unless he or she has the power to hire, fire, demote, promote, transfer, or discipline the victim.   Other courts, following the EEOC's preference, adopted a more open-ended approach, which tied supervisor status to the ability to exercise "significant discretion" over another's daily work.   The Supreme Court has now endorsed the more restrictive view.

In Vance, the trial court ruled that the plaintiff-employee (Vance) failed to show that the individual who she complained discriminated against her was in fact a supervisor under the Seventh Circuit's narrow definition, which requires an individual to have the power to directly affect the terms and conditions of the plaintiff's employment.  The Seventh Circuit affirmed, and the Supreme Court upheld the Seventh Circuit's decision.

The Supreme Court adopted the Seventh Circuit's narrow definition of supervisor.   In doing so, it rejected Vance's argument that at least one of her co-workers should be considered a supervisor because the employee's job description included "leading, directing, and overseeing the work of substitute and part time employees," and Vance had served in a substitute or part-time capacity during the alleged harassment.

The Court's majority held that the Seventh Circuit's formulation for determining who is considered a supervisor was easily workable and could be applied without undue difficulty at both the summary judgment stage and at trial.   The Court noted that under this standard, an employee's supervisory status could be readily determined, generally by written documentation.   By contrast, the Court characterized the standard advocated for by the EEOC as "nebulous" and "abstract."   The Court found this standard would be difficult to apply and would undoubtedly frustrate judges and confound jurors.

Because the alleged harasser was not empowered to take tangible employment actions against Vance, the Supreme Court affirmed the Seventh Circuit and dismissed Vance's appeal.

Employers' Bottom Line: The Supreme Court has drawn a clear line for determining whether an employer may be held vicariously liable for its employees' alleged harassment of other employees.   As the Court's majority notes, whether an employee is a supervisor for these purposes will often be easily determined simply by referring to that employee's job description.  An employer can be held liable for the actions of an employee who has authority to hire, fire, demote, promote, transfer, or discipline another employee.  Employers should, therefore, take time to audit job descriptions and the actual daily responsibilities of their employees to ensure the description accurately reflects the actual functions of each job.  Failing to do so could leave an employer exposed to vicarious liability for actions of an employee who does not actually exert supervisory authority.

SUPREME COURT SETS HEIGHTENED STANDARD FOR PROVING RETALIATION CLAIMS

On June 24, 2013, the Supreme Court heightened the burden of proof for employees bringing retaliation claims under Title VII by holding that employees have to prove that the employer's desire to retaliate was the "but-for" cause for the employer's adverse employment action. 

In University of Texas Southwestern Medical Center v. Nassar (PDF), the Court found that the "motivating factor" standard commonly applied to Title VII status-based discrimination claims is not the proper standard for Title VII retaliation claims.   Instead, the Court held that plaintiffs must prove Title VII retaliation claims through the higher but-for causation standard commonly found under traditional tort principles.   The Court highlighted the dramatic increase in retaliation claims over the years and predicted that the new but-for standard will help foreclose frivolous retaliation claims.   The Court was sharply divided on the issue as demonstrated by its 5-4 vote.   Justice Kennedy delivered the opinion of the Court, with Chief Justice Roberts and Justices Scalia, Thomas, and Alito joining in the opinion.   Justice Ginsburg filed a dissenting opinion, in which Justices Breyer, Sotomayor, and Kagan joined.  

In addition to its anti-discrimination provisions, Title VII also makes an anti-retaliation provision, which makes it unlawful for employers to take an adverse employment action against an employee for having opposed, complained of, or sought remedies for unlawful workplace discrimination. 

In its 1989 decision in Price Waterhouse v. Hopkins, 490 U.S. 228, the Supreme Court held that a plaintiff could prevail on a status-based Title VII discrimination claim if he or she could show that plaintiff's race, color, religion, sex, or national origin was a "motivating" or "substantial" factor in the employer's adverse action.   In 1991, Congress passed the Civil Rights Act of 1991, which, in part, codified the Price Waterhouse motivating factor causation standard.  Courts throughout the nation subsequently applied the same standard to Title VII retaliation claims, with some recent circuit divides.

In 2009, the Supreme Court visited the issue of causation in Gross v. FBL Financial Services, Inc., 557 U. S. 167.  Gross, however, dealt with the Age Discrimination in Employment Act of 1967 ("ADEA"), not Title VII.  In Gross, the Court found that the "because of . . . age" language found in the ADEA created a "but-for" standard for age discrimination claims.   In other words, the Court held that an ADEA plaintiff was required to prove that age was the "but-for" cause of the employer's adverse action and declined to adopt the Price Waterhouse motivating factor standard.   The Gross decision paved the way for the current Nassar ruling. 

In deciding Nassar, the Court closely examined the textual language of Title VII in distinguishing the burden plaintiffs must meet to establish a status-based discrimination claim versus a retaliation claim.   The Court primarily compared the language found under the anti-retaliation provision of Title VII to the language found under the ADEA and found no "meaningful textual difference" between the relevant text in the two statutes.   Therefore, the Court found that like Gross, "Title VII retaliation claims require proof that the desire to retaliate was the but-for cause of the challenged employment action."   Under this standard, an employer is not liable for retaliation if it would have taken the same action for other, non-discriminatory reasons.   The Court rejected the plaintiff-employee's primary argument that retaliation essentially is another form of unlawful employment practice under Title VII, no different from race or national origin discrimination and, therefore, the same motivating factor causation standard should apply.   The Court also highlighted the ever-increasing frequency of retaliation claims and the importance of the but-for causation standard to the "fair and responsible allocation of resources in the judicial and litigation systems."  In this regard, the Court noted that the EEOC in its Compliance Manual had wrongly adopted the motivating factor standard for Title VII retaliation claims. 

Employers' Bottom Line:  The Nassar decision is a significant win for employers, as this new standard likely will make it easier for employers to dispose of frivolous retaliation claims through summary judgment.  Employers should continue to carefully document their employment actions as such evidence will be essential in defeating plaintiffs' attempts to prove retaliation.

 

SUPREME COURT AGREES TO REVIEW WHETHER RECESS

APPOINTMENTS TO NLRB WERE UNCONSTITUTIONAL

 

On June 24, the Supreme Court also granted the request filed by the National Labor Relations Board to have the Court review in its next term the decision we discussed in a prior edition of our newsletter, Noel Canning v. NLRB, (PDF) 705 F.3d 490 (D.C. Cir. 2013).  In Noel Canning, a three-judge panel of the D.C. Circuit Court of Appeals held in January this year that President Obama's recess appointment of three members to the National Labor Relations Board (NLRB) violated the U.S. Constitution, which in turn called into question hundreds of Board decisions issued since January 2012.

 

The employer in Noel Canning (PDF) appealed an adverse decision before the NLRB to the D.C. Circuit Court of Appeals, arguing, among other things, that the NLRB's order was void because the NLRB lacked a quorum to act when it issued its decision.  It was specifically asserted that three members of the five-member Board were never validly appointed.  The court agreed, holding that the President Obama's recess appointments in January 2012 of Members Block, Flynn, and Griffin violated the U.S. Constitution.  Under a prior Supreme Court decision, New Process Steel, L.P. v. NLRB, 130 S. Ct. 2635 (2010), the Board’s remaining two validly appointed members did not constitute the required quorum of three to allow the NLRB to officially act, with the result being that the NLRB lacked the authority to officially act during that time.

 

Employers' Bottom Line:  While the NLRB has decided to request that the decision be reviewed by the Supreme Court, if it stands it could have a far-reaching impact, invalidating hundreds of Board decisions issued since 2012.  It is already being asserted as a defense in other cases by parties challenging the actions of the NLRB and is expected to implicate other cases in which President Obama has used his appointment power.  Employers should stay tuned to see how this issue is ultimately resolved once the Supreme Court commences its next term in October 2013.

 

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For additional information on any of the foregoing, please contact:

 

Andy Hament or Louis Wilson

FordHarrison LLP

Melbourne, Florida

(321) 724-5970

ahament@fordharrison.com

ldwilson@fordharrison.com