Justices Begin Term With Eight Cases On Labor and Employment Law Docket

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By Kevin McGowan

Oct. 3 — The U.S. Supreme Court opened its new term Oct. 6 with eight labor and employment law cases on the docket, raising a variety of issues involving discrimination, pensions and benefits, wage and hour, and federal employees' rights.

Among other things, the court is expected to decide whether the Pregnancy Discrimination Act requires employers to offer pregnant employees workplace accommodations, whether the Labor Department must engage in formal rulemaking to change its administrative interpretation of Fair Labor Standards Act regulations, and whether a federal air marshal fired for leaking sensitive Transportation Security Administration information can raise a whistle-blower defense.

On Oct. 2, the justices added two cases for review—the Equal Employment Opportunity Commission's appeal of a U.S. Court of Appeals for the Tenth Circuit decision denying the agency's religious discrimination claim against Abercrombie & Fitch Stores Inc. for rejecting a Muslim job applicant who wore a head scarf, and an Employee Retirement Income Security Act case involving plan fiduciaries' duty of prudence.

The Justice Department's solicitor general will be busy, representing federal agencies that are named parties in four cases and participating as an amicus in at least two other private cases that raise significant federal statutory or regulatory issues.

Review of EEOC Settlement Efforts

The discrimination case with the broadest potential impact involves whether the EEOC's pre-suit efforts to conciliate or settle discrimination charges under Title VII of the 1964 Civil Rights Act are subject to judicial review (Mach Mining LLC v. EEOC, U.S., No. 13-1019).

An Illinois mining company seeks reversal of a Seventh Circuit decision that courts can't review the EEOC's conciliation efforts. The appeals court reasoned that Title VII makes the process confidential and leaves to the agency's discretion whether a proposed settlement is acceptable (738 F.3d 171, 121 FEP Cases 327 (7th Cir. 2013).

Every other federal circuit to consider the issue has ruled the EEOC's conciliation efforts are reviewable, with most requiring the agency to meet a “good faith” effort standard. The court agreed to review the Seventh Circuit ruling in June.

In its brief, Mach Mining said the appeals court turns the usual judicial presumptions on their head by defining as an affirmative defense the company's challenge to the EEOC's conciliation efforts. Rather, EEOC has the burden of proving all conditions precedent to suit were met, the company said.

That Title VII doesn't expressly grant judicial review is no barrier because under traditional administrative law principles, courts review an agency's compliance with mandatory, pre-suit obligations, Mach Mining said. The Supreme Court previously has scrutinized the EEOC's compliance with its other Title VII pre-suit obligations despite the lack of an express judicial review provision, the company said.

The Seventh Circuit's contention that Title VII provides no workable standard of review for courts to apply ignores that federal courts for nearly 40 years have applied a “good faith” standard and other criteria for the EEOC to meet in conciliation, Mach Mining said.

When Title VII was amended in 1972, Congress rejected a proposed amendment that would have shielded EEOC conciliation efforts from judicial review precisely because of legislators' concerns about an unfettered agency with newly granted litigation powers, Mach Mining said. The court shouldn't upend that congressional bargain by ruling the EEOC now can escape judicial scrutiny, the company said.

Court Misunderstands Incentives

Several employer groups, including the U.S. Chamber of Commerce, the Equal Employment Advisory Council, the Society for Human Resource Management, the Retail Litigation Center, and the National Federation for Independent Business, have filed amicus briefs supporting Mach Mining.

The Seventh Circuit's assumption that most employers won't take conciliation seriously if courts can review the EEOC's settlement efforts and potentially dismiss bias charges based on inadequate conciliation couldn't be further from reality, the Chamber said in a brief joined by the Retail Litigation Center, the NFIB, the Small Business Legal Center, and American Trucking Associations Inc.

Rather, Congress in Title VII understood that employers have the greatest incentive to settle charges through confidential conciliation before a suit is filed, litigation expenses mount, and the EEOC can broadcast through a press release that the defendant is a discriminator, the Chamber said.

It's also “counterintuitive” to assume the EEOC always would resist the temptation to short-cut conciliation if courts lack authority to oversee that process, the Chamber said.

But it's unnecessary to demonize either the EEOC or employers facing discrimination charges to recognize that Congress intended judicial review of the conciliation process, just as it meant for courts to review every other aspect of the agency's pre-suit obligations, to advance the act's preference for voluntary settlements, the Chamber said.

The EEOC's brief is due Oct. 27. The court hasn't yet set an oral argument date.

Duty to Accommodate Pregnant Employees?

In perhaps the term's most high-profile employment case, the justices will consider whether the Pregnancy Discrimination Act requires employers to accommodate pregnant employees with work restrictions if they accommodate non-pregnant employees with the same restrictions (Young v. United Parcel Serv., Inc., U.S., No. 12-1226).

Peggy Young, a former United Parcel Service air delivery driver, seeks reversal of a Fourth Circuit ruling that UPS didn't violate the PDA by refusing to transfer Young to light duty when she was pregnant, after physicians recommended a 20-pound lifting restriction.

The Fourth Circuit said UPS's “pregnancy blind” policy, which made light duty available only to drivers injured on the job, those with impairments covered by the Americans with Disabilities Act, and those who temporarily lost Department of Transportation certification, didn't discriminate against pregnant employees (707 F.3d 737, 116 FEP Cases 1569 (4th Cir. 2013)).

The justices granted review to Young July 1.

In her brief, Young said the act's plain text, as well as Congress's intent to overturn General Electric Co. v. Gilbert, 429 U.S. 125, 13 FEP Cases 1657 (1976), and to prevent exclusion of pregnant women from the workplace, means the PDA requires accommodation of pregnant workers on the same terms as non-pregnant employees similar “in their ability or inability to work.”

Young disputed the Fourth Circuit's reasoning that UPS's light duty program was “pregnancy blind,” as pregnant employees presumably would be eligible if they had an ADA-covered disability, incurred an on-the-job injury, or had a condition making them temporarily ineligible for DOT certification.

Rather, Young said, the only relevant comparison under the PDA, a 1978 amendment to Title VII, is whether employees who are accommodated resemble the pregnant employee in their ability or inability to work.

Instead of comparing Young to non-pregnant workers who aren't accommodated for off-the-job injuries or impairments, the PDA requires that Young be compared with employees who have lifting restrictions and are accommodated, she said.

In several footnotes, Young cited the EEOC's pregnancy discrimination enforcement guidance as support for her PDA interpretation. She asserted that the EEOC's position is entitled to some judicial deference, but her brief soft-pedaled the issue of whether the court must defer to the agency's interpretation.

Amici Cite Health Policy Concerns

Democratic members of Congress, women's rights groups, civil rights organizations, unions, groups that oppose abortion, and public health advocates have filed amicus briefs supporting Young.

In addition to citing the PDA's plain text, the amici emphasized that the Fourth Circuit ruling conflicts with Congress's intent that employers are barred from forcing out pregnant employees and are required to treat them the same as non-pregnant workers with similar work restrictions.

The PDA doesn't require employers to offer light duty, but if they do, such options must be available to pregnant employees on the same terms as workers with the same restrictions, the amici said.

Several amici cited the important health consequences for mothers, infants and families of allowing pregnant employees to remain on the job and retain their benefits. Congress passed the PDA precisely to prevent situations like that experienced by Young, who was forced to take unpaid leave and lost her health benefits during pregnancy, the amici contended.

UPS's brief is due Oct. 24 and the court hears oral argument Dec. 3.

APA Notice and Comment

The court will hear oral argument Dec. 1 on whether the Labor Department violated the Administrative Procedure Act by altering its interpretation of a Fair Labor Standards Act regulation without granting the public notice and an opportunity for comment (Perez v. Mortg. Bankers Ass'n, No. 13-1041; Nickols v. Mortg. Bankers Ass'n, No. 13-1052).

The justices are reviewing a District of Columbia Circuit ruling that the DOL erred in not giving notice and obtaining comment before issuing a reinterpretation of a 2006 wage and hour opinion letter (720 F.3d 966, 20 WH Cases2d 1527 (D.C. Cir. 2013)).

The court granted separate petitions filed by the DOL and individual loan officers challenging the D.C. Circuit's position.

The justices are expected to decide the extent to which federal agencies can revisit and change the guidance they have previously issued without triggering APA requirements. Attorneys told Bloomberg BNA the case is significant in part because the D.C. Circuit is the federal forum where many, if not most, regulatory challenges are brought.

In “a meat and potatoes” Supreme Court term, the case raises a significant administrative law issue, said Carter Phillips of Sidley Austin in Washington. “It's actually an important question because I think in general agencies have typically used the interpretive device as a way of avoiding” a more difficult decision to adopt a regulation, Phillips said.

Although the issue “may sound somewhat obscure and of interest to only a narrow segment of law professors, it is actually pretty important,” said Thomas H. Dupree Jr. of Gibson, Dunn & Crutcher in Washington.

In its brief, the DOL said the APA notice-and-comment procedure doesn't apply to “interpretive rules” such as the department's 2010 determination that loan officers aren't FLSA-exempt administrative employees and therefore are entitled to overtime pay.

That agency action reversed the DOL's 2006 opinion letter stating that loan officers were exempt administrative employees under relevant FLSA regulations.

The D.C. Circuit's position conflicts with the APA by requiring agencies to use notice-and-comment rulemaking for “significant” modification of an interpretive rule, the DOL said.

“That judge-made procedural requirement is inconsistent with the text of the APA, the policies embodied in that act and this court's precedents,” the DOL said.

In a separate brief, the loan officers said the D.C. Circuit's doctrine “undermines the thoughtful scheme created by Congress, upsetting a carefully-struck balance between process and predictability on the one hand and agency flexibility on the other.”

FLSA Coverage of Security Screen

The court heard oral argument Oct. 8 on whether the Fair Labor Standards Act may require employers to pay warehouse employees for time spent going through an anti-theft security screen after their shifts (Integrity Staffing Solutions, Inc. v. Busk, U.S., No. 13-433).

The justices will be interpreting the Portal-to-Portal Act, a 1947 FLSA amendment, which provides that “activities which are preliminary to or postliminary” to an employee's “principal” activities aren't compensable under the FLSA. Supreme Court precedent holds that some pre-shift and post-shift activities nevertheless must be paid if they are “integral and indispensable” to employees' primary job duties.

Integrity Staffing Solutions Inc., an employee leasing firm, seeks reversal of a Ninth Circuit decision that Integrity employees who worked at Nevada warehouses that fulfill Amazon.com orders may have FLSA claims for time spent going through a post-shift security screen (713 F.3d 525, 20 WH Cases2d 937 (9th Cir. 2013).

Reversing dismissal of the suit, the Ninth Circuit said because the security screen was required of all warehouse employees and conducted solely for Integrity Staffing's benefit, it could be found “integral and indispensable” to the employees' primary job activities of picking and shipping merchandise to Amazon.com customers. The justices in March granted review.

In its brief, Integrity Staffing said the Ninth Circuit's test finds no support in Supreme Court precedent, other federal circuit decisions or relevant Labor Department regulations.

Instead, the DOL regulations and precedent make clear that the “integral and indispensable” test turns on whether the pre-shift or post-shift activity is so involved with the performance of an employee's principal job duties that it should be deemed a principal activity itself, Integrity Staffing said.

Allowing the Ninth Circuit's interpretation to stand would cause a situation similar to that before Congress passed the Portal-to-Portal Act, when employers were swamped with lawsuits claiming the FLSA required pay for all time workers spend on an employer's premises, Integrity Staffing warned.

Indeed, since the Ninth Circuit decision, staffing firms and online retailers, including Amazon and Apple, have been hit with a flood of FLSA lawsuits from warehouse workers seeking compensation for time spent in security screens, Integrity Staffing said.

DOL Supports Employer's View

In an amicus brief supporting Integrity Staffing, the Labor Department agreed the Ninth Circuit misinterpreted the FLSA.

The appeals court reasoned that the anti-theft purpose of the screenings “stems from the nature” of the warehouse employees' work, which entails “access to merchandise.” But the DOL said the “integral and indispensable test” requires “a closer or more direct relationship” between an employee's principal work activities and the post-shift activity.

Under the proper analysis, the “integral and indispensable” standard is satisfied only when post-shift activities are “closely or directly related to the proper performance of the employees' productive work,” the DOL said.

“Here, the anti-theft screenings following the completion of the employees' shifts were not closely intertwined with their principal activity of filling orders in the warehouse, and the [Ninth Circuit's] focus on whether they were done for the employer's ‘benefit' was an insufficient proxy for determining whether they were integral and indispensable to a principal activity,” the DOL said.

The security screenings can't be “persuasively distinguished” from post-shift activities deemed noncompensable under the relevant DOL regulations, the department said. Rather, the security screen is “materially analogous” to a requirement that hourly workers check out after their shift has ended, which the department always has considered a noncompensable postliminary activity, the DOL said.

Screening Part of ‘Work,' Employees Say

Former Integrity employees Jesse Busk and Laurie Castro said in their brief the post-shift, anti-theft screening “easily falls within the definition of work under the FLSA” because it's required for the employer's benefit.

The Supreme Court decision in Steiner v. Mitchell, 350 U.S. 247, 12 WH Cases 750 (1956), doesn't mean an employer-required post-shift activity isn't compensable under the FLSA unless the employer has ordered the employee to do something closely related to that employee's shift work, Busk and Castro said.

Rather, “[i]f an employer requires a worker to engage in pre- or post-shift activity for the benefit of the employer, that activity is work within the scope of the FLSA, even if it is wholly unrelated to the employee's shift work,” Busk and Castro contended.

Under that criteria, a mandatory post-shift security screen to detect and deter employee theft of merchandise is compensable under the FLSA because it “obviously benefitted the employer,” regardless of whether it's closely related to fulfilling Amazon.com orders, the employees said.

No ‘Blanket Rule' on Screenings

In an amicus brief supporting the employees, the AFL-CIO said the Ninth Circuit correctly rejected a “blanket rule” that employee time spent in security screens can never be compensable under the FLSA.

Instead, whether such screens are “integral and indispensable” to an employee's work activities depends on factors including the purpose of the screen, its relation to the employees' job, its proximity to the work site, and whether it's limited to specific types of workers, the AFL-CIO said.

Supreme Court precedent establishes “a pre-shift or post-shift activity that is not functionally related to job performance can still be compensable if it is vital to the efficiency of the employer's production process and closely related to employees' primary job duties,” the AFL-CIO said. That the warehouse security screens are intended to prevent theft—an unlawful act—doesn't render them non-compensable under the FLSA, the AFL-CIO said.

“Because of the close relationship between Integrity Staffing's interest in deterring theft and employees' primary job duties handling merchandise, the anti-theft screenings constitute a compensable principal activity,” the labor federation said.

Retiree Benefits Presumption

The justices will hear oral argument Nov. 10 on whether courts should infer that silence regarding the duration of retiree health insurance benefits granted by a collective bargaining agreement means the retirees are to receive lifetime coverage (M&G Polymers USA, LLC v. Tackett, U.S., No. 13-1010).

At issue is the “Yard-Man presumption,” a judicial inference that union retiree benefits are intended to be vested absent specific plan or bargaining agreement language to the contrary, named for the U.S. Court of Appeals for the Sixth Circuit decision in United Auto Workers v. Yard-Man Inc., 716 F.2d 1476, 114 LRRM 2489 (6th Cir. 1983).

The case stems from M&G Polymers USA's 2006 announcement that retirees from its Pleasant Point, W.Va., plant must begin contributing toward their health care benefits' costs.

Retirees and the United Steelworkers sued under Section 301 of the Labor-Management Relations Act and the Employee Retirement Income Security Act, claiming that the union's bargaining agreements with M&G and its predecessors granted them free, lifetime health benefits and that M&G couldn't change the terms to require retiree contributions.

The Sixth Circuit upheld a permanent injunction ordering the retirees reinstated in M&G's health plan and barring the company from requiring retiree contributions.

Partially granting M&G's petition, the Supreme Court agreed to review whether courts construing collective bargaining agreements should presume that silence regarding the duration of retiree health benefits means the parties intended those benefits to vest for life.

Employer Touts Third Circuit Approach

M&G said in its brief that rather than following the Yard-Man presumption, the Third Circuit requires a clear statement from the parties that retiree health-care benefits are intended to last beyond the bargaining agreement's termination. The Second and Seventh circuits require at least some bargaining contract language that can reasonably support an inference that retiree benefits should continue indefinitely, M&G said.

The Sixth Circuit's presumption is “an aberration” that can't be justified as a matter of contract interpretation or federal labor law, M&G contended.

“It lacks any statutory basis and runs directly counter to Congress's intent ‘not to provide for vesting of employee welfare benefits,' ” the company said. “And it is wholly unnecessary, as ‘those who fear that their unions will not bargain for continued benefits for retirees need only see to it that specific vesting language protecting those benefits is incorporated into collective bargaining agreements.' ”

The Supreme Court should reject Yard-Man and instead require “at least some affirmative indication in the language of the agreement” that parties to a union contract “intend to vest retiree health-care benefits in perpetuity,” M&G said.

The Sixth Circuit's presumption also ignores Congress's “deliberate policy choice” in ERISA not to require vesting of retiree welfare benefits, as distinct from pensions, M&G said.

Maintenance of the Sixth Circuit presumption “may actually disserve national labor policy by discouraging employers from continuing to provide post-retirement medical coverage to current employees” to avoid the potentially “crushing liability” of vested benefits, M&G said.

Adoption of the Third Circuit's “clear statement” rule “would further national labor policy in yet another way by almost certainly reducing litigation and encouraging the resolution of labor issues at the collective bargaining table, not the courthouse,” M&G said.

Several employer groups, including the Chamber, the National Association of Manufacturers, SHRM, the Business Roundtable, the Council on Labor Law Equality and the ERISA Industry Council, have filed amicus briefs supporting M&G.

Retirees Say Presumption Not in Play

Meanwhile, the retirees and the Steelworkers said in their brief that M&G wrongly frames the issue as a choice between competing federal circuit court presumptions.

Instead, the retirees said, the Sixth Circuit's decision that pre-2005 retirees are entitled to lifetime health benefits rested on traditional contract interpretation and the parties' contract performance history. The decision didn't turn on a presumption that contract silence equals vesting and the Sixth Circuit in Yard-Man also didn't rely on such a presumption, the retirees said.

The Third Circuit's opposite presumption that only the parties' “express statement” can extend retiree health benefits beyond the bargaining agreement's term isn't supported by national labor policy or Supreme Court precedent, the retirees said.

ERISA also doesn't establish a presumption that rights to retiree health benefits last only as long as the agreement in effect when an employee retired, the retirees said. Congress provided that pension benefits can't be bargained away, but that doesn't imply welfare benefits for retirees must expire with the contract that grants them, the retirees said.

There's no basis for arguing that ERISA gave employers and plan sponsors a “statutory right” to terminate or modify welfare benefits that can be waived only through “clear, express, and unmistakable language,” the retirees said.

“One searches ERISA in vain for a provision creating such a right,” the retirees said. “No such provision exists, because Congress had not the slightest intention of preventing or limiting the enforcement of negotiated agreements regarding the continuation of welfare benefits.”

Religious Bias, ERISA Limitations Cases Added

The justices agreed Oct. 2 to consider whether Abercrombie & Fitch Stores Inc. violated Title VII by allegedly refusing to hire a Muslim job applicant in Oklahoma because she planned to wear a hijab—religious head scarf—while working (EEOC v. Abercrombie & Fitch Stores, Inc., U.S., No. 14-86).

The EEOC, which sued Abercrombie on Samantha Elauf's behalf, asked the justices to determine whether an employer needs to receive direct, explicit notice from an applicant or employee regarding her religious practices or beliefs to trigger Title VII's duty to accommodate.

But Abercrombie countered the issue really is whether a worker adequately informs an employer of a need for religious accommodation merely by wearing clothing that can be—but isn't always—associated with a particular religion.

By granting the EEOC's petition, the justices agreed to review a Tenth Circuit decision rejecting the agency's claim that Abercrombie's alleged reliance on its “look” policy for store employees in denying employment to Elauf was a cover for religious bias (731 F.3d 1106, 120 FEP Cases 212 (10th Cir. 2013)).

The appeals court 2-1 said the second element of a prima facie case for a failure-to-accommodate claim under Title VII generally requires a showing the employee or applicant provided the employer with notice of the need for a religious accommodation.

Also on Oct. 2, the justices granted review of a case asking whether retirement plan fiduciaries breach their duties under ERISA by offering higher-cost, retail-class mutual funds when identical lower-cost institutional-class funds are available (Tibble v. Edison Int'l, U.S., No. 13-550). The case presents the question of whether retirement plan participants can hold fiduciaries liable for including higher-cost investment funds in the plan when those funds initially were chosen more than six years before the lawsuit, or whether these types of claims are barred by ERISA's six-year statute of limitations.

The limitations period has been a huge roadblock for retirement plan participants challenging higher-cost funds, because many funds remain in retirement plans for years after their initial selection.

In the past two years, three federal appellate courts—including the Ninth Circuit in the instant case (711 F.3d 1061, 56 EBC 1245 (9th Cir. 2013))—have refused to hold plan fiduciaries liable on these types of claims, finding them time-barred by ERISA.

The DOL repeatedly has attacked these rulings in amicus briefs, including the solicitor general's brief recommending that the Supreme Court hear the Ninth Circuit case. In the DOL's view, the circuit court rulings give ERISA fiduciaries “no incentive to monitor and update plan investments” once they have been available for more than six years.

The justices have not set oral argument dates in either the EEOC religious bias or the ERISA limitations period case, but they likely will occur early in 2015.

With assistance from Peyton M. Sturges and Jacklyn Wille, both in Washington

To contact the reporter on this story: Kevin McGowan in Washington at kmcgowan@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com

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