Function Over Form: The Supreme Court's Realistic View of the FLSA

For those who think that one of the travesties of the recent history of employment law has been the explosion of FLSA collective action litigation, today's 5-4 decision by the Supreme Court holding that pharmaceutical representatives are in fact exempt employees under the outside sales exemption is a re-affirmation that common sense can in fact prevail.  Christopher v. SmithklineBeacham Corp. (6/18/12).

Although a critical decision for the pharmaceutical industry in its own right, the case has generally been viewed more importantly for its insight as to the weight the Supreme Court would give to agency views of the laws they enforce. Here the DOL had weighed in as amicus in a series of law suits arguing that the pharmaceutical sales reps were not exempt, although the DOL had given differing views as to why that was so.

The majority opinion begins with Justice Alito's description of why the DOL's position is not entitled to deference. Perhaps more significantly, the dissent written by Justice Breyer, the member of the court with the most claim to administrative law expertise, agrees. In fact, on this key point, it would be fair to say that this is a 9-0 decision. Justice Breyer writes:

In light of important, near-contemporaneous differences in the Justice Department’s views as to the meaning of relevant Labor Department regulations, I also agree that we should not give the Solicitor General’s current interpretive view any especially favorable weight.

Although casting the blame on the Department of Justice, not the Department of Labor, it is clearly a rebuke to the DOL.

Having jointly rejected the DOL's view, the two wings of the Court still reach a different outcome on their own independent review of the exemption.

The problem is that we have a 1938 statute designed for a very simple economic model which existed at the time was adopted.  The FLSA was designed for an even pre-Leave it to Beaver world, where a factory was divided between the white collar workers in the front office and the blue collar workers in the back, whose product was sold by the Willy Loman's of the world, who packed their sales bag and left on Monday through Thursday and returned to do their paper work on Friday.  Trying to use regulations written for that world, in today's workplace results in often ludicrous results.

It seems clear to me that the Supreme Court understands this historical fact, at least as relevant to the outside sales exemption, as it noted that the DOL had been authorized by the statute to issue regulations, and that those regulations were issued in 1938, 1940 and 1949, and in 2004 "following notice-and-comment procedures, the DOL reissued the regulations with minor amendments." Although they limit that historical reference to the outside sales exemption, I think a review would indicate that it is applicable for much of the remainder of the FLSA and its regulations as well.

The points relied on by the majority in rejecting the formalistic view of the minority are significant and could be utilized by other courts to rein in what has been an overly mechanistic view of the FLSA:

• that until 2009, the pharmaceutical industry had "little reason to suspect that its longstanding practice of treating detailers as exempt outside salesmen transgressed the FLSA."
• that the DOL had never initiated any enforcement actions or otherwise suggested that it thought the industry was acting unlawfully.
• the realization that pharmaceutical sales reps, whose average income is $90,000 a year according to the opinion,  "typically earn salaries well above the minimum wage" and enjoyed other benefits that "set them apart from the nonexempt workers entitled to overtime pay." Hardly the kind of employees the FLSA was intended to protect.
• That it would be "challenging, to say the least" for pharmaceutical companies to compensate reps for overtime going forward without significantly changing the nature of that position.
• Rejecting a legalistic argument, that requires title to pass, to instead taking a more "realistic approach" of what the outside salesman exemption is meant to reflect.

Let me be clear what my argument is. At least with respect to mis-classification cases, in the last 10 years plus, the FLSA has been used to extract tremendous sums from employers, who had no intent to cheat or abuse their workers. The beneficiaries of that extraction have been employees, who generally knew what their job involved and knew what they were going to be paid for doing it. In other words, the true economics were already baked in, and an after the fact application of a formalistic approach, with its accompanying lack of "fair warning" discussed by Justice Alito, is not a good economic use of resources.

The biggest beneficiaries of course have been the repeat players, lawyers who represent the plaintiffs in those cases, who of course have taken their share of the extraction, and lawyers who represent the defendants (including me and my firm) in those cases. 

In a world where there are many issues that call out for righting, for the most part mis-classification under the FLSA has not been in my mind a worthy fight. Today's decision is by no means the end, but it is at least a bright and correct light.

The NLRB in the Non-Union Setting: Making A Point

For years I have been a member of seminar planning committees, and inevitably the talk gets round to an NLRA topic. In Texas, that usually meets groans and comments to the effect that no one is really interested because very few practitioners actually deal with union related matters.

Inevitably, one solution was to title the program slot, something along the lines, The NLRA for the Non-union Company. And while that often at least made the program, it was still hard to generate much enthusiasm.

However, the current Board seems intent on getting out the message that indeed concerted activity, not just union activity, is what is protected, including today's launch of a web page describing Protected Concerted Activity, complete with state by state links to cases where the Board has found such activity.

For example, clicking that link and the button located prominently in Texas, pulls up 16-CA-025349:

A supervisor at a dental association was fired after she refused to divulge the names of employees who had anonymously signed a petition protesting top management. The Board found the discharge was unlawful because she had rightfully refused to violate federal labor law by punishing concerted activity. In a settlement, the supervisor and another former employee waived reinstatement in exchange for $900,000 in lost wages and benefits.

It will not take too many stories of that nature to get the word out.

That's a far cry from what life was back in the late 1970's and early 1980's. I can't remember the exact date, but I was in the San Antonio office of the NLRB waiting to see some one and the phone rang.  The secretary answered the phone, and sitting right across from her I could tell that it was an employee calling with a possible complaint. After listening a moment, she asked, "Is there a union involved?" and obviously getting a negative response, hung up the phone with a "Well, we only handle matters where there are unions."

Oh how times have changed.



Intentional Infliction of Emotional Distress, A Dangerous Cause of Action

This headline, Steelworker awarded $25 million in New York racial lawsuit might seem to come from a typical Title VII or Section 1981 case for racial discrimination.

According to the story in the Cleveland Plain Dealer, the plaintiff Elijah Turley, who is black, testified that

 "KKK" and "King Kong" graffiti were written on the walls of the plant and a stuffed monkey with a noose around its neck was found hanging from his driver's side mirror.

But it was not as if the company did nothing in response as evidence indicated that the company hired a private investigator, installed security cameras and suspended some of the employees involved in some of the incidents.

But it's my guess from another quote in the story that although based on racially based behavior, it was not a race discrimination claim, but instead a claim for intentional infliction of emotional distress. That's based on the quote from Turley's lawyer that the conduct was "atrocious and intolerable in a civilized society," which is language taken from the Restatement of Torts discussion of the tort of intentional infliction of emotional distress.

Texas struggled with this as an employment law tort, with approximately 10 cases passing the muster of that supposedly high standard at both the trial and appellate level only to be rejected by the Supreme Court. (One case did survive the Supreme Court's review.) Finally, the Supreme Court basically eliminated the tort from Texas employment law, finding that it was designed as a gap-filler, one that was to be used only if no other cause of action existed.

Unfortunately, for the defendants, they weren't in the Lone Star state.

Somewhere in a Smoke Filled Room Your Future Is Being Determined

Well that's a little dramatic, but after staying up late to watch my Spurs complete their second sweep in a row,  the subtle part of my brain is not working as well as it should be.

Although said in jest, the comment does have some truth (except for the smoky rooms), as the American Law Institute is meeting in D.C. this week and will be taking up Chapters 3 and 7 of the Restatement of Employment Law. This according to Paul Secunda, one of the editors at the Workplace Prof Blog, who will be in attendance. American Law Institute - Restatement of Employment Law.

According to Professor Secunda, Chapter 3 on compensation and benefits is authored by Sam Estreicher of NYU, and Chapter 7 which deals with privacy and autonomy interests in the workplace is authored by Matt Bodie, from St. Louis University.

Although it will be known as the Restatement of Employment Law, Third, it is actually the first. The 3rd moniker is because this is the third general round of Restatements done by the ALI. The first round was from 1923 to 1944. The 2nd round started in 1952, and the 3rd round started in 1987, and included Employment Law for the first time.

Because it takes considerable time to reach the consensus of the various reporters and advisers, and then go through the Council itself, it may well be some time before it is finalized. A list of the project participants can be found here.

Even when final, its impact will come only as courts adopt it.

But if you think it could not have impact on your world, think of the four theories of privacy rights (only three of which have been accepted by Texas courts) and intentional infliction of emotional distress. Although the latter has been substantially restricted in Texas, both concepts have been important in my career, and both arose gained prominence (if not their existence) from the Restatement of Torts.

As I have always understood the Restatements, they are meant to be a combination of what the law is, plus some looking forward to what it should be, so whatever comes out could very well be an important force, although that force is likely to be felt long after my active days of practice are ended.

If you want a preview of where it's headed, some of the drafts are available from the ALI's website under the Restatements of the Law - Employment Law section.

5th Circuit Dashes Class Action in Arbitration Setting

The interaction between arbitration and class/collective actions which seems to be continually evolving, took another positive step for employers in the 5th Circuit with today's decision in Reed v. Florida Metro University, Inc. (5th Cir 5.18.12).

Reed sued claiming that his on line Bachelor's degree in paralegal studies would not be recognized either by law schools, nor a police department where he sought employment. Since that was contrary to his understanding as to what the school told him, he filed suit claiming a violation of the Texas Education Code. He sought $51,000 plus attorneys fees, but also sought relief on behalf of a class of everyone who "contracted to receive distance education from Everest University Online while residing in Texas."

The defendant successfully moved to compel arbitration, but the Court deferred the decision as to whether it could be brought as a class action to the arbitrator.

Noting it was a close question, the arbitrator held that the matter could proceed as a class action. Reed sought affirmation of that ruling and the School asked that it be vacated on the ground the arbitrator exceeded his powers.  Judge Lee Yeakel in Austin denied the School's Motion to vacate award.

The 5th Circuit first addressed whether Judge Yeakel's decision to allow the arbitrator to decide whether or not the matter could proceed as a class action was correct and concluded that it was.

On the second issue, whether the arbitrator exceeded his powers in holding that it could proceed as a class action, the 5th Circuit found Judge Yeakel had erred. The Court reversed and held the arbitrator had exceeded his powers and since there was "only one possible outcome on the facts before us" held that the arbitration must proceed only between the two parties, rather than sending it back to the Arbitrator for reconsideration.

In doing so, the Court noted it was openly disagreeing with the 2nd Circuit's interpretation of the Supreme Court's decision in Stolt-Nielsen S.A. v. AnimalFeeds International Corp. (U.S. 2010).  In Jock v. Sterling-Jewelers, Inc. (2nd Cir. 2011), cert. denied Mar. 19, 2012, the 2nd Circuit emphasized the deference to be given to the arbitrator, ultimately concluding that "whether the arbitrator was right or wrong in her analysis, she had the authority to make the decision, and the parties to the arbitration agreement or bound by it."

The 5th Circuit chose to respectfully disagree with the 2nd Circuit, holding instead that a court had to ensure that an arbitrator has a basis for his class arbitration determination, even while applying a deferential standard of review.

Emphasizing the Supreme Court's concerns about class action arbitration as expressed not only in Stolt-Nielsen,  but its subsequent decision in AT&T Mobility v. Concepcion (U.S. 2011), the 5th Circuit chose to emphasize the Supreme Court's view that there must be a showing that the parties consented to class action determination.

Although the Supreme Court may have had enough of class actions and arbitration for awhile, the 5th Circuit has done its best to tee up another one for them. In the mean time, employers whose arbitration agreements are silent on class actions can breathe a sigh of relief, at least in three states.

NLRB Enjoined, Again

Earlier it was the NLRB's posting regulations, see post here, which were enjoined. Today it's the regulations regarding the conduct of elections (sometimes referred to as the ambush election rule) which was the subject matter of yet another injunction.

District Judge James E. Boasberg of the District of Columbia, has enjoined the rule because of a lack of a quorum. This one does not have anything to do with the last recess appointments to the Board which are under challenge, but to the fact that Member Brian Hayes, did not participate in voting on the passage of the final rule.

In Chamber of Commerce et al v. NLRB  (D.D.C. 5/14/12) the Court noted that

At the end of the day, while the Court’s decision may seem unduly technical, the quorum requirement, as the Supreme Court has made clear, is no trifle.

This was after he had cited an even better known authority:

According to Woody Allen, eighty percent of life is just showing up. When it comes to satisfying a quorum requirement, though, showing up is even more important than that.

Undoubtedly this is not the last chapter in the litigation or the rule for that matter. Even if the Board is able to overcome the lack of quorum on its initial rule making, there will still be the substantive challenges which were not addressed.

And, if the Board should choose to re-enact the legislation, the new vote will include members whose recess appointment is being challenged and that of course will result in another hurdle, even before the challenges on the merits of the rule are addressed.
For those ready to decry this as a partisan gesture, Judge Boasberg was nominated by President Obama and at least according to Wikipedia, was recommended by Delegate Eleanor Holmes Norton, the non-voting member of the House of Representatives from the District of Columbia and the former Chair of the EEOC.

May Day? A Lack of A Call?

Earlier this morning I received an email forwarded from the management company in the downtown office building where I work, advising that there could be traffic issues arising out of protest activities planned for this afternoon.

That reminded me that I had meant to post about the alternative labor day, that has been much talked about in certain circles. But as the morning slipped away, I thought surely that the topic had been well covered by other bloggers. But when I checked my google reader, where I have a large, although by no means complete collection of labor/employment type blogs, nary a word today.

I have become a fan of MSNBC's Up with Chris Hayes and this week end one of his panel's talked a lot about the the failure of the Employee Free Choice Act,  plans for May Day activities sponsored by Occupy Wall Street and the general state of the labor union movement in America.

Hayes, who regardless of what of you think of his views, is clearly a bright and deep thinker, made a comment that he was shocked to learn that the May Day movement, which like many, I have always associated with celebrations in the Soviet Union, originated in the United States and was tied to one of our most infamous moments in labor history the Haymarket Riot which occurred in Chicago on May 4, 1886. 

From the Dissident Voice, a radical newsletter in the struggle for piece and social justice (so you know the perspective it is taking) Jerry Elmer penned this article, The Haymarket Riot and the Origins of May Day. Even the overseas press new more about its origins than I did. See, A potted history of Labour Day, from the Irish Times.

I have done far more employment than labor law in my career, and what labor law I have done has been on the side of management.   I am by no means convinced that labor as we have known it in the recent past is the answer to the future.

I do think however, that we are long past due for a non-partisan look at our economic system and the world of work and just how it functions. In any such conversation, all sides must have a serious and listened to voice. 

Although any marching analogy on May Day is fraught with peril, what I fear most is that rather than moving toward such an important discussion each day we are marching more and more stridently in the opposite direction.

Ultimately, regardless of whether there is a short term winner to that approach or not, I am afraid that our society as a whole will be the loser.