Justices Resume Term That Features Heavy Dose of Discrimination Cases

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The U.S. Supreme Court resumed its 2014-2015 term with five labor and employment cases on its docket, including three discrimination cases, one case questioning if federal agencies must engage in formal rulemaking to change interpretations of agency regulations, and a case asking whether the Employee Retirement Income Security Act's statute of limitations bars a lawsuit by retirement plan participants over fiduciaries' choice of plan investments.

The court began its term in October with eight labor and employment cases. But on Dec. 9, it decidedIntegrity Staffing Solutions Inc. v. Busk, No. 13-433, unanimously ruling that employees in two Nevada warehouses serving Amazon.com customers aren't entitled to pay under the Fair Labor Standards Act for time spent going through post-shift security screens.

By a 7-2 vote Jan. 21, the justices decided in Department of Homeland Security v. MacLean, No. 13-894, that a federal air marshal fired for disclosing to the media “sensitive security information” about air marshal deployments might have a Whistleblower Protection Act claim because his disclosure wasn't “specifically prohibited” by statute or presidential order.

And on Jan. 26, the court unanimously held “ordinary principles of contract law” determine whether retiree health benefits granted under a union contract vest for life and the U.S. Court of Appeals for the Sixth Circuit's 31-year-old “Yard-Man inference” that such health benefits vest for life is incompatible with ordinary contract interpretation principles (M&G Polymers USA, LLC v. Tackett, No 13-1010).

The court is expected to rule by June 30 on the remaining cases.

EEOC's Pre-Suit Obligations Questioned

The justices heard oral argument Jan. 13 on whether employers may obtain judicial review of the Equal Employment Opportunity Commission's obligation under Title VII of the 1964 Civil Rights Act to attempt to conciliate, or settle, discrimination claims before filing a lawsuit (Mach Mining LLC v. EEOC, U.S., No. 13-1019, oral argument 1/13/15).

Ruling in an EEOC lawsuit against an Illinois mining company charged with a “pattern or practice” of sex discrimination, the U.S. Court of Appeals for the Seventh Circuit decided Title VII permits no judicial review once the EEOC submits facially valid documents indicating it invited the employer to conciliate and no agreement acceptable to the commission was reached (738 F.3d 171, 121 FEP Cases 327 (7th Cir. 2013)).

The appeals court said Title VII's language, which provides matters discussed in conciliation must not be disclosed in subsequent proceedings and leaves it up to the EEOC to decide if a settlement offer is acceptable, shows Congress meant to commit the conciliation process to the agency's discretion. Title VII also provides no workable standards for courts to apply in determining whether the EEOC has adequately conciliated a charge, the Seventh Circuit said.

The Seventh Circuit was the first federal appeals court to rule no judicial review is available. Eight other circuits have allowed judicial review and, in some cases, dismissed the EEOC's discrimination claims or entire lawsuits because the agency hasn't adequately conciliated the underlying charge. But those courts are split on whether to apply a “good faith” standard or a more structured, three-step inquiry into the EEOC's exchanges with the employer.

Organizations representing employers, including the U.S. Chamber of Commerce and the Equal Employment Advisory Council, have joined Mach Mining in arguing the Seventh Circuit is an outlier. They contend Title VII permits courts to assess whether the EEOC is meeting its mandatory, pre-suit obligation to attempt voluntary compliance.

The employer groups warn no judicial review would permit the EEOC to short-circuit or even skip the conciliation process altogether in cases the agency is eager to publicize and to litigate. Congress required conciliation under Title VII to support the voluntary resolution of discrimination claims and no judicial review would undermine that statutory intent, the employer groups argue.

But the EEOC and its supporters say permitting judicial review would encourage employers to game the system and use the conciliation process to set up their affirmative defense rather than to engage in genuine settlement negotiations. Congress didn't intend for employers to avoid trial on meritorious discrimination claims based on an affirmative defense of inadequate conciliation, the EEOC argues. If the Supreme Court permits judicial review, the results would include federal courts diverted by mini-trials on issues collateral to employment discrimination and the risk meritorious bias claims would never be heard, the EEOC contends.

Court Seems Receptive to Review 

During oral argument, a majority of the justices seemed inclined to rule Title VII permits at least some judicial review but appeared to be seeking guidance on what standards should apply.

Mach Mining's attorney suggested the court could prescribe some “rudiments” of an adequate conciliation process without deciding if “good faith” or some other standard is required. But the Justice Department attorney representing the EEOC said except in extraordinary circumstances, courts shouldn't look beyond the agency's facially valid documents indicating conciliation has occurred.

In addition to Title VII, claims under the Americans with Disabilities Act, the Genetic Information Nondiscrimination Act and the Age Discrimination in Employment Act also are subject to a pre-suit conciliation requirement, so the court's ruling would affect lawsuits under those laws as well.

The case is significant because the outcome will affect the EEOC's pre-suit process in nearly every case the agency seeks to litigate. A ruling in Mach Mining's favor could encourage more employers to wield an inadequate conciliation defense against the EEOC, particularly in the large-stakes, systemic cases the agency now is emphasizing.

But the EEOC finds reasonable cause to believe discrimination has occurred in less than 5 percent of all private sector charges filed with the agency, and it litigates on the merits slightly more than one case for every 1,000 charges filed, according to the EEOC. The EEOC in recent years has successfully conciliated 41 percent of the cases in which it finds cause, the agency said.

In a case that has drawn perhaps the most media attention among the pending employment cases, the justices are reviewing a Fourth Circuit decision that United Parcel Service didn't violate the PDA by denying light duty to driver Peggy Young, who had a 20-pound lifting restriction while pregnant.

During oral argument, Justice Stephen Breyer observed most federal courts for 40 years already have been conducting some level of judicial review of EEOC conciliation with no apparent adverse effect on the agency's ability to enforce Title VII and the other discrimination laws.

What Does PDA Mean?

The court also will be deciding whether the Pregnancy Discrimination Act, a 1978 amendment to Title VII, requires employers to accommodate the work restrictions of pregnant employees if they offer accommodations to any non-pregnant employees “similar in their ability or inability to work” (Young v. United Parcel Service Inc., No. 12-1226).

In a case that has drawn perhaps the most media attention among the pending employment cases, the justices are reviewing a U.S. Court of Appeals for the Fourth Circuit decision that United Parcel Service didn't violate the PDA by denying light duty to driver Peggy Young, who had a 20-pound lifting restriction while pregnant, because she didn't fit into the company's light-duty eligible categories of workers injured on the jobs, those with conditions covered by the Americans with Disabilities Act and drivers who temporarily lost their Department of Transportation certification (707 F.3d 737, 116 FEP Cases 1569 (4th Cir. 2013)).

Young therefore was forced to take unpaid leave while pregnant and lost her employer-provided health benefits.

The EEOC, which is participating as an amicus for Young, issued a July 2014 enforcement guidance that interprets the PDA to require an employer to accommodate a pregnant employee's work restrictions if the employer offers an accommodation to a non-pregnant employee with the same work restriction.

The EEOC argues the PDA's plain language, which requires employers to treat pregnant workers the same for all employment-related purposes as non-pregnant employees “similar in their ability or inability to work,” means if an employer offers light duty to some non-pregnant employees with lifting restrictions, for example, it must do the same for pregnant employees.

The Fourth Circuit's decision improperly reads that language out of the PDA, the EEOC and Young argue. The congressional intent behind the PDA, that pregnant employees not be forced out of the workforce, also would be defeated by the Fourth Circuit's reading of the act, Young and her supporters argue.

Employee Has Wide Support

A diverse group of amici support Young and the EEOC, including women's and civil rights groups, unions, Democratic members of Congress, a bipartisan group of state legislators, the U.S. Women's Chamber of Commerce, public health advocacy groups and a coalition of 23 anti-abortion groups that argue Congress in the PDA intended to reduce economic incentives for female workers to choose abortion.

The Fourth Circuit followed the majority of courts in ruling the PDA doesn't require accommodation of pregnant employees and that employers may limit “pregnancy blind” light-duty policies in ways that might exclude pregnant workers. Only the U.S. Court of Appeals for the Sixth Circuit has allowed a PDA claim to proceed on a failure to accommodate theory.

The EEOC is trying to “bootstrap” the reasonable accommodation requirement of the Americans with Disabilities Act into the PDA without securing a congressional amendment to the act, United Parcel Service and its amici argue. They warn the PDA interpretation advocated by Young and the EEOC would put pregnant employees in a preferred position, even more favored than employees with disabilities, because no “reasonable” accommodation limitation would apply.

Justice Antonin Scalia picked up on that point during the Dec. 3 oral argument, asking if Young was arguing the PDA grants “most favored nation” status to pregnant employees. But Justice Ruth Bader Ginsburg later said that UPS's argument, that Young was treated no worse than other non-pregnant employees restricted by conditions incurred off the job, would give pregnant employees “least favored nation” status.

In its Supreme Court brief, UPS said beginning Jan. 1, 2015, it would offer pregnant employees light duty on the same terms as non-pregnant employees with the same work restrictions. The company, which operates nationwide, cited the recent enactment of some state and local laws that require reasonable accommodation of pregnant employees, saying it was a voluntary, business decision. But UPS argued nothing in the PDA required it to offer light duty to Young during her 2006-2007 pregnancy and, indeed, that the PDA today doesn't require employers to change their light-duty policies.

Notice and Religious Bias Examined

The court's third pending Title VII case involves whether Abercrombie & Fitch Stores Inc. may be held liable for not hiring a sales position applicant who wore a Muslim headscarf, or hijab, to her 2008 job interview (EEOC v. Abercrombie & Fitch Stores, Inc., No. 14-86).

A federal district court in Oklahoma granted summary judgment to the EEOC on the retailer's liability for failing reasonably to accommodate applicant Samantha Elauf, and a jury subsequently awarded $20,000 in damages. But in a 2-1 decision, the U.S. Court of Appeals for the Tenth Circuit said Abercrombie & Fitch can't be held liable under Title VII because the employer lacked “actual, particularized notice” Elauf had a religious conflict with work rules when Elauf never told the employer she was wearing the hijab for religious reasons or requested an accommodation from Abercrombie's “look” policy (731 F.3d 1106, 120 FEP Cases 212 (10th Cir. 2013)).

In dissent, Judge David Ebel said the EEOC raised at least a triable issue the retailer had notice of Elauf's religious conflict based on evidence the assistant store manager who interviewed her correctly assumed Elauf wore the head scarf for religious reasons and allegedly discussed with her manager Elauf's appearance and whether a variance from the look policy was possible.

The Supreme Court granted the EEOC's petition for review in October and will hear oral argument Feb. 25.

In its brief, the EEOC seeks reversal of the Tenth Circuit's ruling an employer must have actual knowledge of a religious conflict from a job applicant's direct, explicit statements before the employer is obliged to discuss reasonable accommodation of the applicant's religious observance.

Instead, the EEOC argues if an employer has acted based on its correct assumption an applicant's garb reflects her religious beliefs and it conflicts with a work requirement, the Title VII notice requirement is satisfied, even if the applicant never expressly raised the conflict or requested accommodation.

Diverse Groups Back EEOC 

Myriad civil rights groups and religious organizations representing Muslims, Christians, Jews, Sikhs and other sects have filed amicus briefs supporting the EEOC, arguing the Tenth Circuit stood Title VII on its head by requiring an applicant expressly to identify a work conflict when employers generally know much more at the hiring stage about their work rules and potential conflicts with religious beliefs.

Elauf's evidence, for example, indicates she might not have raised the potential conflict between her wearing the hijab and Abercrombie's policy that its sales employees reflect the store's “classic, East Coast collegiate” look because a friend who worked at the store previously had assured Elauf it wouldn't pose a problem, the amici said.

By putting the burden of notice on an applicant, the Tenth Circuit enables an “ostrich” approach by employers, who can blatantly discriminate in hiring based on religion but avoid Title VII liability by remaining willfully ignorant about why an applicant might be wearing certain clothes, whether a conflict is present and if reasonable accommodation is possible, according to an amicus brief filed by 15 religious and civil rights organizations supporting the EEOC.

In a separate amicus brief, the Council on American-Islamic Relations said the Tenth Circuit's allocation of Title VII's burdens particularly disadvantages young, immigrant Muslim job seekers who often are unfamiliar with U.S. employment laws or any need explicitly to request accommodation of their religious observances in the workplace.

If the Supreme Court affirms the Tenth Circuit's “explicit notice” rule, it would create a “loophole” to Title VII's prohibition of employment discrimination based on an individual's outward representation of religious beliefs, CAIR said.

Nine amicus briefs have been filed on the EEOC's behalf, representing individuals and groups including the American Civil Liberties Union, the National Employment Lawyers Association, the attorneys general of nine states, the National Association of Evangelicals, the Sikh Coalition, a coalition of Jewish advocacy organizations and the American-Arab Anti-Discrimination Committee.

No Discriminatory Intent, Retailer Argues 

Meanwhile, Abercrombie & Fitch argued in its brief the EEOC can't show the retailer intentionally discriminated based on a theory the employer may be liable if it “correctly assumed” an applicant's practice was based on religion.

Instead, the EEOC must show the employer intended to discriminate because of the applicant's religious practice, not just that the employer applied a neutral rule—employees may not wear caps or other head gear—that might affect applicants who wear such garb for religious reasons, Abercrombie & Fitch said.

The EEOC in its brief abandoned a reasonable accommodation theory in favor of a disparate treatment claim the evidence just can't support, Abercrombie & Fitch said.

But if the Supreme Court reaches the reasonable accommodation issue, it “should hold that only actual knowledge of a religious conflict, not a mere guess, gives rise to Title VII liability, and it should affirm for that reason,” the retailer said.

An actual knowledge standard “has been the established rule” for more than 40 years, Abercrombie & Fitch said. “Employees and applicants have told employers if they need religious accommodation, eliminating any need to speculate, guess or probe.”

The EEOC itself has said employees and applicants generally trigger the discussion of accommodation under Title VII by informing the employer of a conflict between work rules and their religious observance, the retailer said.

The EEOC's argument that some applicants might be unaware of a conflict is “no reason” for a general rule shifting the burden to employers, “particularly given the host of counterproductive consequences” of such a rule, Abercrombie & Fitch said.

“Imposing duties on employers when they ‘suspect' any ‘possible' conflict with religion has no basis in Title VII or any caselaw,” the retailer said. “It would also subject employers to an unfair Catch-22 and induce the very stereotyping that Title VII is meant to prevent, as employers attempt to avoid litigation by preemptively probing the suspected religious views of their employees.”

When Is Rulemaking Required?

The justices Dec. 1 heard oral argument on consolidated appeals by the Labor Department and three mortgage loan officers from a U.S. Court of Appeals for the District of Columbia Circuit decision striking down a 2010 DOL Wage and Hour Division interpretation that the loan officers were nonexempt employees under the Fair Labor Standards Act and therefore eligible for overtime pay (Perez v. Mortgage Bankers Ass'n, No. 13-1041; Nickols v. Mortgage Bankers Ass'n, No. 13-1052).

In ruling for the Mortgage Bankers Association, the D.C. Circuit said under the Administrative Procedure Act, the Labor Department had to engage in notice-and-comment rulemaking before significantly revising the agency's interpretation of FLSA regulations concerning the act's white-collar exemption for administrative employees (720 F.3d 966, 20 WH Cases2d 1527 (D.C. Cir. 2013)).

In a 2006 opinion letter, the WHD had said mortgage loan officers were exempt employees not entitled to overtime pay under the agency's regulations. DOL in 2010 couldn't change its interpretation of the agency's regulations and hold the loan officers were covered by the FLSA without giving employers and other agency stakeholders notice and an opportunity to comment, the D.C. Circuit ruled. It cited circuit precedent that an agency's “definitive” regulatory interpretation that significantly reverses its prior stance must be preceded by formal rulemaking under the APA.

The justices are considering a D.C. Circuit decision striking down a 2010 DOL Wage and Hour Division interpretation that loan officers were nonexempt employees under the Fair Labor Standards Act and therefore eligible for overtime pay.

At oral argument, a Justice Department lawyer representing DOL said the APA expressly exempts federal agencies from notice-and-comment rulemaking when they make changes to interpretive rules. The APA states an agency's amendment or repeal of an interpretive rule, as opposed to a substantive legislative rule, is exempt from formal rulemaking, DOL contended.

Are Agencies Attempting ‘End Run'?

But a lawyer representing the Mortgage Bankers Association said the justices should affirm the D.C. Circuit's ruling that the WHD's 2010 interpretation was a “de facto” amendment of the agency's substantive rules and therefore required notice-and-comment rulemaking.

During the argument, Justice Elena Kagan said the case seems partly motivated by employers' concerns that federal agencies are using interpretive rules and guidance as “an end run” around the APA's notice-and-comment provisions. Scalia questioned the distinction between substantive rules and interpretive rules. He asked if the question really boils down to whether “an interpretative rule that radically alters a prior interpretative rule is a substantive rule.”

The Labor Department argues agencies need the flexibility to modify their interpretations of existing rules, and to alert stakeholders to those changes, without engaging in formal rulemaking. The court's decision could affect not only the Labor Department but all federal agencies that want to change their interpretations of existing rules without undergoing the time-consuming, sometimes cumbersome notice-and-comment rulemaking process.

Nearly a dozen amicus briefs supporting the D.C. Circuit's ruling were joined by business groups and think tanks including the U.S. Chamber of Commerce, the National Association of Manufacturers, the National Federation of Independent Business, the Retail Litigation Center, the American Hospital Association, the Cato Institute, the Competitive Enterprise Institute, the Washington Legal Foundation and the Thomas Jefferson Institute for Public Policy.

ERISA Plan Participants Litigate Limitations Period

The court Feb. 24 will hear oral argument on whether 401(k) plan participants can sue plan fiduciaries under the Employee Retirement Income Security Act if more than six years have elapsed since the fiduciaries initially selected the plan investment to which the participants object (Tibble v. Edison Int'l, No. 13-550).

The justices are reviewing a U.S. Court of Appeals for the Ninth Circuit decision that ERISA's six-year statute of limitations barred six participants in Edison International's 401(k) plan from pursuing a statutory challenge to the fiduciaries' choice of higher-cost, retail-class mutual funds when identical, lower-cost institutional funds are available (729 F.3d 1110, 56 EBC 1245 (9th Cir. 2013)).

In response to ERISA plan participants' plan fee litigation, the Ninth Circuit joined the Fourth and Eleventh circuits as courts holding that under the act's statute of limitations, retirement plan participants can't sue plan fiduciaries if they chose the funds to which the participants object more then six years before the lawsuit was filed.

The Labor Department, as an amicus, has joined the plan participants in arguing the Ninth Circuit misconstrued the ERISA limitations period, which DOL says isn't intended to block participants' lawsuits against plan fiduciaries regarding their duty of prudence in maintaining the 401(k) plan. The solicitor general will participate in oral argument on DOL's behalf.

DOL Argues for Fiduciary Incentives

In court filings, DOL has warned the appeals court rulings give ERISA fiduciaries “no incentive to monitor and update plan investments” once they have been available for more than six years.

In its Supreme Court brief for DOL, the solicitor general said the justices need not adopt a “continuing violation” theory to find the plan participants filed a timely ERISA claim against the fiduciaries.

“Instead, [the plan participants] contend that [the fiduciaries] breached a continuing duty of prudence within the limitations period by failing to research plan options and offer available lower-cost institutional-class funds,” the solicitor general said.

The Labor Department also rejects the notion that participants' ERISA claims regarding older plan investments are timely only if they allege a “material change in circumstances” caused the investment to become imprudent over time.

Rather, no change in circumstances is required because plan fiduciaries have an ongoing duty periodically to review plan investments and remove those that are imprudent, the solicitor general said.

The Pension Rights Center, AARP, Cambridge Fiduciary Services LLC in Scottsdale, Ariz., and a group of eight law professors have filed amicus briefs supporting the plan participants.

‘Continuing Violation' Theory Unavailable 

In its brief to the Supreme Court, Edison International said the justices should dismiss the case as “improvidently granted” review because the district court actually allowed the petitioners to try to prove plan fiduciaries violated their “duty of prudence” during the ERISA six-year limitations period by “inadequately monitoring” the mutual funds at issue. The plaintiffs' proof “just failed as a matter of fact,” the brief said.

If the justices reach the merits, they should affirm the district court didn't clearly err in finding the plan participants failed to establish a breach of the duty of prudence during the six-year “repose period” under ERISA, Edison said.

The participants' claim rests on a mistaken premise “it is per se imprudent” to keep funds with retail-class shares in a 401(k) lineup when institutional-class shares of the same funds are available, Edison said.

“A fiduciary may have perfectly legitimate reasons to add—or maintain—retail-class shares rather than institutional-class shares, including different published performance histories, ratings, and investment minimums,” Edison said. “A plaintiff challenging a given retail-share class fund therefore must prove why it was imprudent to add or maintain the fund, not simply assume the imprudence.”

To the extent the plan participants argue they can sue fiduciaries for alleged imprudence in their initial fund selections outside ERISA's six-year limitations period, the Ninth Circuit properly rejected the participants' “continuing violation” theory, Edison said.

Fiduciary Makes ‘Statute of Repose' Argument

“Although petitioners now deny resting their claims on a continuing violation theory, their claims amount to the same thing, given their failure to challenge the district court's factual finding that [the plan fiduciaries] acted prudently in monitoring and retaining the challenged funds,” Edison said. “Absent any imprudence in the post-selection monitoring process, petitioners' claims necessarily challenge only the continuing effects of an allegedly imprudent initial selection.”

But a continuing violation theory of liability is “contrary to the text and purpose” of ERISA Section 413(1), the statute's six-year limitations period, Edison said.

“Because the bar to suit established by § 413(1) is based on the last culpable act of the defendant, it constitutes not just a traditional statute of limitations, but a statute of repose,” Edison said. “As such, the provision establishes not just a time limit on suit, but a period after which the defendant is to have absolute freedom from liability for pre-repose acts.”

“Holding fiduciaries liable for simply failing to reverse allegedly imprudence pre-repose decisions would render the textual right to repose meaningless and other portions of the statute superfluous,” Edison said.

The court's enforcement of ERISA's “right to repose” won't permanently immunize funds added before the six-year limitations period from scrutiny, Edison said. All parties agree that plan fiduciaries must act prudently in monitoring existing investments and deciding if and when to remove or replace them, Edison said. Section 413(1) doesn't bar plan participants from trying to establish a fiduciary breached its duty of prudence during the six-year period, “so long as the claim is based on distinct facts establishing that the fiduciary acted imprudently in the process of monitoring existing funds,” Edison said.

In addition, “patently imprudent funds” are unlikely to go undetected or unchallenged for six years, and if they did, “it would likely be because of fraud or concealment,” the disclosure of which would trigger the running of a whole new six-year limitations period, Edison said.

“[S]ubjecting fiduciaries to liability for pre-repose decisions would harm plan participants and impose the kind of costs that Congress worried would discourage employers from offering ERISA plans,” Edison said.