LEL Flash | Issue: June/July 2014

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Issue: June/July 2014


Supreme Court Cases: 2013-2014

This term, the Supreme Court addressed a variety of issues relevant to labor and employment practitioners. Many of the Court's opinions dealt with employee anti-retaliation protections. In Lane v. Franks, No. 13-483, - U.S. -, 2014 WL 2765285 (2014), the Court decided a case involving the First Amendment rights of a public employee to be free from retaliation when testifying in court. In Lawson v. FMR, - U.S. -, 134 S.Ct. 1158 (2014), the Court addressed the reach of whistleblower protections to contractors for public companies.

The Court also addressed a seemingly mundane issue with wide ranging implications in Sandifer v. U.S. Steel, - U.S. -, 134 S.Ct. 870 (2014). The Court determined whether "clothes," for the purposes of the Fair Labor Standards Act, included hazardous clothing.

In U.S. v. Quality Stores, Inc., - U.S. -, 134 S.Ct. 1395 (2014), the Court addressed a similar question of definitions with important implications--what are "wages" for the purposes of the Federal Insurance Contributions Act? The Court resolved a dispute about whether a type of severance payment should be treated as wages for which taxes are withheld.

In NLRB v. Noel Canning, No. 12-1281, - U.S. -, 2014 WL 2882090 (2014), the Court analyzed a Constitutional separation of powers issue with immense practical implications: did the President have the power to appoint members of the National Labor Relations Board through the recess appointments clause? This opinion has collateral effects for the many NLRB decisions made with the three NLRB board members appointed through the recess appointment.

In Harris v. Quinn, No. 11-681, - U.S. -, 2014 WL 2921708 (2014), the Court addressed the reach of a collective bargaining agreement involving public employees. Finally, in Burwell v. Hobby Lobby, No. 13-354, - U.S. -, 2014 WL 2921709 (2014), the Court addressed the power of a closely held for profit corporation to assert religious objections to a provision of the Affordable Care Act requiring companies to pay for a health care plan which offers contraceptives to women.

Lane v. Franks, No. 13-483, - U.S. -, 2014 WL 2765285 (2014)

Petitioner Edward Lane ran a program for at-risk youth with the Central Alabama Community College ("CACC"). The CACC is a public institution. In 2006, Lane discovered that an employee of the CACC, Suzanne Schmidt, was on the payroll but was not performing any work. Ms. Schmidt was a member of the Alabama legislature. Lane reported his findings internally to the CACC. The CACC informed him that taking any adverse employment action against Schmidt might have dire consequences for his employment. Nonetheless, Lane terminated Schmidt.

The FBI contacted Lane as part of its investigation into Schmidt. Lane later testified in a federal grand jury hearing and in two federal criminal trials against Schmidt, for mail fraud and for fraud involving a program receiving federal funds. Lane was subpoenaed to testify in the criminal trials. Schmidt was convicted at the conclusion of the trials, however part of her conviction was reversed on appeal.

CACC terminated Lane after the first criminal trial.

Lane filed suit against the CACC, alleging that the state violated his First Amendment rights by firing him in retaliation for testifying against Schmidt. At issue was Lane's job as a public employee, and whether Lane's speech outside the scope of his ordinary job duties was entitled to First Amendment protections.

The Court held that Lane's testimony in court was protected. It stated that "speech by public employees on subject matter relating to their employment holds special value because those employees gain knowledge of subject matter of public concern through their employment." The Court emphasized that the First Amendment anti-retaliation protections exist in this context so that public employees may speak out without fear of dismissal.

Lawson v. FMR, LLC, - U.S. -, 134 S.Ct. 1158 (2014)

In the wake of several high profile cases of financial fraud Congress passed the Sarbanes-Oxley Act of 2002 ("SOX"). SOX stiffened penalties for corporate fraud and it provides protections to employees of public companies who report allegations of fraud.

Petitioners Jackie Lawson and Jonathan Zang both worked at Fidelity Brokerage Services, LLC (subsequently, FMR, LLC). Fidelity contracted with mutual funds to provide day to day operations and to manage investment activities. Lawson and Zang separately complained internally about financial improprieties with the mutual funds their company managed. Zang was subsequently fired and Lawson quit. Both alleged that they were terminated because of their internal complaints.

Lawson and Zang filed suit, alleging that they had been retaliated against in violation SOX. Their claims were dismissed at the lower court level, on the theory that the whistleblower protections in SOX only apply to employees of public companies, not to their contractors and subcontractors.

The Supreme Court reversed, finding that many protections and prohibitions in SOX apply to company officers, employees, contractors, subcontractors, and agents. Accordingly, the Court found that the Act's whistleblower protections extend to employees of contractors for public companies.

Sandifer v. U.S. Steel, No. 12-417, - U.S. -, 134 S.Ct. 870 (2014)

Petitioner Clifton Sandifer and a class of other workers at U.S. Steel alleged that they had been underpaid, in that that they had not been compensated for the time they spent changing into their protective work clothes. The clothes included flame retardant jackets, boots, safety glasses, and respirators. At issue was whether these items were "clothes" within the meaning of Section 203(o) of the Fair Labor Standards Act ("FLSA").

The U.S. Steel collective bargaining agreement ("CBA") provided that the time employees spent changing into work clothes was not subject to compensation. The CBA relied on FLSA Section 203(o), which asserts that unions and employers may bargain for whether the time employees spend changing clothes or washing may be paid. Sandifer argued that "clothes" in the context of the Fair Labor Standards Act did not include clothing intended to reduce workplace hazards.

The Court held that the term "clothes" in the context of Section 203(o) had a broad meaning, one which included safety clothing. With regard to the respirator, earplugs, and other items which could not be classified as clothing, the Court directed that the issue of compensation should turn on whether "on the whole" the time spent putting on protective clothing could be characterized as changing clothes or washing.

U.S. v. Quality Stores, Inc., No. 12-1408, - U.S. -, 134 S.Ct. 1395 (2014)

Respondent Quality Stores, an agricultural retailer, reorganized its debts through a Chapter 11 bankruptcy. It terminated thousands of its employees, offering severance payments to its laid-off employees. Quality Stores had two severance agreements, one based on job grade and management level, the other based on seniority. In both cases, the severance payments were not tied to any unemployment insurance payment the employees might receive.

Quality Stores initially believed that the severance payments were wages, so it withheld taxes pursuant to the Federal Insurance Contributions Act ("FICA"). Later, Quality Stores decided that the severance payments were not wages, so it sought a refund from the IRS. The IRS neither allowed nor denied the refund. Quality Stores sought an order from the Bankruptcy Court that the payments were not wages. It obtained such an order, one which was affirmed by the District Court and the Sixth Circuit Court of Appeals.

The High Court reversed, finding that the severance payments were wages within the meaning of FICA. The Court cited Congress' intent to define wages broadly in the context of the Act. It described these severance payments as employee benefits beyond salary payments, similar to merit-based bonuses. Finally, it found that Section 3402(o) of the Internal Revenue Code does not narrow the FICA definition of wages to exempt all severance payments.

National Labor Relations Board v. Noel Canning, No. 12-1281, - U.S. -, 2014 WL 2882090 (2014)

The Recess Appointments Clause permits the President to "fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session."

In January 2013, President Obama used his recess appointment power to appoint three persons to fill vacancies on the National Labor Relations Board (the NLRB). During that time the Senate was in its winter recess, however the Senate held a series of "pro forma" sessions on Tuesdays and Fridays during its recess. By unanimous consent, the Senate directed that no business would be conducted during these sessions. The "pro forma" sessions occurred from December 20, 2011 through January 23, 2012.

Noel Canning Corp., a party subject to the National Labor Relations Act (the NLRA), challenged a decision by the NLRB, arguing that the recess appointments were not made during a time that the Senate was in recess. Accordingly, it argued that the NLRB lacked a sufficient number of members to make quorum, and that the agency therefore could not enforce the NLRA. The D.C. Circuit Court of Appeals agreed.

The High Court affirmed the lower court decision invalidating the NLRB appointments. The Court held that the President had recess appointment powers for both recesses between sessions and for recesses taken during sessions ("inter-session recesses"), assuming that the inter-session recess was of a sufficient length. The Court determined that inter-session recesses of less than ten days, such as the recesses at issue in this case, were presumptively too short for the President to make use of the recess appointment power. The Court also held that, for the purposes of the Recess Appointments Clause, the Senate is in session when it says that it is, provided that the Senate, by its own rules, is able to conduct Senate business.

Note: The Section issued a Hot Topic with further anlaysis of this decision on July 1.

Harris v. Quinn, No. 11-681, - U.S. -, 2014 WL 2921708 (2014)

Petitioner Pamela Harris is a personal assistant providing in-home medical care to disabled patients. The program Harris worked for was run by the Illinois Department of Human Services. Two divisions of the Department of Human Services managed the in-home care program--the Division of Rehabilitation Services (the "Rehabilitation Program") and the Division of Developmental Disabilities (the "Disabilities Program"). The Rehabilitation Program in-home care assistants voted to unionize. The Disabilities Program in-home care assistants voted not to unionize.

The union representing the Rehabilitation Program negotiated a "fair share" agreement, through which all in-home care assistants, including non-union employees, were required to pay to support the collective bargaining process and the contract administration.

Harris alleges that the "fair share" agreement violates her First Amendment rights, in that it compels her association with, and her speech through, the union.

The Court determined that the personal assistants should not be required to pay under the "fair share" agreement. The Court cited the statutory text defining a personal assistant as an employee of the patient. As the patient's employee, the Court noted that the terms and conditions of the personal assistant's work varied based on the patient's needs and desires, in consultation with the patient's doctor. The Court contrasted this arrangement with an Illinois public sector employee, where the employer is the state.

Note: An expanded look at this decision is presented in this issue, with union and management perspectives.

Burwell v. Hobby Lobby Stores, No. 13-354, - U.S. -, 2014 WL 2921709 (2014)

The Affordable Care Act (the "ACA") requires companies that employ 50 or more full time persons to offer a group health care plan or insurance policy with some minimum features. Among them, the ACA requires that health care plans offer preventative care and screenings to women, with no co-pays. The U.S. Department of Health and Human Services, charged with interpreting this provision, stated that preventative care includes (among many other services) contraceptive services for women, including birth control, intrauterine devices, and the "morning after pill."

A company employing more than 50 persons that did not want to provide the ACA health care had two options. The employer may refuse to offer the ACA compliant plan, in which case the employer would pay a fine related to the number of its affected employs, or the employer could refuse to provide any health care plan at all. In the latter case, the employer may be charged if some of its employees qualified for subsidized health insurance on a government run insurance exchange.

Several petitioners filed suit, alleging that the ACA's requirement that companies must pay for contraceptives violated the company owners' sincerely held religious beliefs. The petitioners, Hobby Lobby, Constego Woods, and Mardel, are for-profit corporations where ownership and management are controlled by families whose religious beliefs inform their business practices. At issue was whether 1) the Religious Freedom Restoration Act ("RFRA"), an act which prohibits the government from substantially burdening a person's religious beliefs, applied to for-profit corporations; and 2) whether the government could show that the substantial burden to religion was justified because it furthers a compelling government interest and it is the least restrictive means of achieving a compelling government interest.

The Court held that the RFRA applied to closely held for-profit corporations. The Court also determined that the government had not met its burden of showing that compelling corporations to pay for contraceptive devices were the "least restrictive means" of furthering the government's compelling interest. It cited the government's exemption of some religious nonprofit organizations from the contraceptive provision in support for its argument. The Court concluded that the contraceptive mandate, as applied to closely-held for-profit corporations, violated the RFRA.

John Henderson is a Trial Attorney with the U.S. Equal Employment Opportunity Commission and a member of the Employment Rights and Responsibilities Committee. The views expressed in this article do not represent the views of the Equal Employment Opportunity Commission or the U.S. government.


Opening Page

Comments from the Chair

Special Feature
U.S. Supreme Court Strikes Down Agency Fees Required from Illinois In-Home Care Personal Assistants

Second Feature
The Minimum Wage: An Ongoing Debate

Flash Co-Chairs:
Jeremy J Glenn, Meckler Bulger et al | Monique R. Gougisha, Ogletree Deakins | Amy F. Shulman, Broach & Stulberg LLP | Jennifer R. Spector, National Labor Relations Board

American Bar Association Section of Labor and Employment Law
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