VIII. Labor

A. Employment Law Developments

1. Employment Discrimination and Retaliation

a. Supreme Court Holds That Title VII Prohibits Discrimination on the Basis of Sexual Orientation and Transgender Status.

In Bostock v. Clayton County,¹ the Supreme Court held that Title VII of the Civil Rights Act of 1964 (Title VII) prohibits employers from discriminating against individuals on the basis of sexual orientation and transgender status. The Court’s landmark decision resolved a circuit split regarding the applicability of Title VII’s protections to claims of discrimination based on sexual orientation and transgender status.

In 2013, Clayton County, Georgia, discharged plaintiff, a Child Welfare Services Coordinator, after he joined a “gay recreational softball league.”² The plaintiff filed, alleging that his termination was based on his sexual orientation and therefore constituted unlawful discrimination on the basis of sex under Title VII. The district court dismissed his claims, holding that Eleventh Circuit precedent “foreclosed the possibility of a Title VII action alleging discrimination on the basis of sexual orientation.”³ The Eleventh Circuit affirmed, stating that it had “previously held that ‘[d]ischarge for homosexuality is not prohibited by Title VII.’”⁴

The Eleventh Circuit’s ruling conflicted with earlier decisions from the Second and Sixth Circuits. The Second Circuit had held in Altitude Express v. Zarda that a plaintiff was “entitled to bring a Title VII claim for discrimination based on sexual orientation.”⁵ The Sixth Circuit reached a similar outcome, holding that “[d]iscrimination against employees, either because of their failure to conform to sex stereotypes or their transgender and transitioning status, is illegal under Title VII.”⁶ The Supreme Court consolidated and granted certiorari in all three cases to “resolve . . . the disagreement among the courts of appeals over the scope of Title VII’s protections for homosexual and transgender persons.”⁷

The Supreme Court affirmed the decisions of the Second and Sixth Circuits and reversed the Eleventh Circuit’s decision. Justice Gorsuch, writing for the majority, described the issue as a matter of basic statutory interpretation, entailing a determination of “the ordinary public meaning of its terms at the time of its enactment.”⁸ Relying on contemporaneous dictionary definitions and precedent, the Court determined that the ordinary public meaning of the operative phrase “because of . . . sex” establishes a but-for causation standard.⁹ Applying that standard, the Court concluded that the “ordinary public meaning of the statute’s language” makes clear that “an employer violates Title VII when it intentionally fires an individual employee based in part on sex.”¹⁰ In the Court’s view, “it is impossible to discriminate against a person for being homosexual or transgender without discriminating against that individual based on sex.”¹¹ “Sex plays a necessary and undisguisable role” in an employer’s decision to fire an employee for being homosexual or transgender, and, therefore, such a decision violates Title VII.¹²

2. Occupational Safety and Health

a. Occupational Safety and Health Administration Issues Emergency Temporary Standard for Healthcare Employers.

The Occupational Safety and Health Administration (OSHA) published its COVID-19 Emergency Temporary Standard (ETS) on June 21, 2021.¹³ The ETS applies only to employers in the healthcare and healthcare support services settings.¹⁴ Healthcare services are defined as “services that are provided to individuals by professional healthcare practitioners . . . for the purpose of promoting, maintaining, monitoring, or restoring health.”¹⁵ Healthcare support services are defined as “services that facilitate the provision of healthcare services.”¹⁶ OSHA also pointed all non-healthcare employers to its nonbinding Guidance on Mitigating and Preventing the Spread of COVID-19 in the Workplace and advised that they “should still take steps to protect unvaccinated or otherwise at-risk workers in their workplaces.”¹⁷

The ETS requires covered employers to, among other things, develop and implement a COVID-19 plan; provide and require the use of personal protective equipment (PPE); implement physical distancing, barriers, and cleaning requirements; conduct health screening and medical management; provide medical removal benefits and paid time-off for vaccination; maintain records and report COVID-19 cases; and implement other precautions.¹⁸ All changes required under the ETS, including the provision of equipment and testing for employees, must be made at no cost to employees.¹⁹

For all other employers, OSHA’s nonbinding guidance now “focuses only on protecting unvaccinated or otherwise at-risk workers in their workplaces (or well-defined portions of workplaces).”²⁰ Unless otherwise required by other federal, state, local, tribal, or territorial laws, rules, and/or regulations, non-healthcare employers may now follow the guidance of the Centers for Disease Control and Prevention (CDC) for fully vaccinated people.²¹

3. Wage and Hour

a. Fifth Circuit Establishes New Standard for Certifying FLSA Collective Actions.

In Swales v. KLLM Transport Services, LLC,²² the Fifth Circuit established a new standard for certifying collective actions under the Fair Labor Standards Act (FLSA), holding that the district courts “should identify, at the outset of the case, what facts and legal considerations will be material to determining whether a group of ‘employees’ is ‘similarly situated’” and “authorize preliminary discovery accordingly.”²³ This standard diverges from the one used in other circuits, under which “conditional” certification is often granted without requiring parties to engage in a period of discovery.²⁴

Plaintiffs, a group of truck drivers, filed suit against their employer, alleging that they, along with other “similarly situated” drivers, were misclassified as independent contractors.²⁵ Plaintiffs sought to pursue their claims as a collective action. To determine whether to conditionally certify the collective action and, in turn, to send notice to potential class members, the district court allowed the parties to engage in discovery limited to the issue of certification under the FLSA’s penalties provision. The district court ultimately granted Plaintiffs’ motion for conditional certification, finding that, despite some differences among the truck drivers, the claims and defenses in the case largely turned on the same questions of fact, notably whether the workers were misclassified under an economic-realities test.

On appeal, the Fifth Circuit ruled that the limits of discovery, as they relate to the certification of a collective action, should be determined by district courts as early as possible. In so ruling, the Fifth Circuit rejected the widely used standard first articulated in Lusardi v. Xerox Corp., ²⁶ a two-step certification process under which the first step of certification, or “conditional certification,” is based principally on pleadings and affidavits, while the second step requires a more comprehensive analysis after a full discovery period. The Fifth Circuit reasoned that district courts may exercise broad “litigation-management discretion” when determining whether named plaintiffs and putative or potential “opt-in” plaintiffs are similarly situated, and that the district court is best situated to determine how much discovery is needed to decide whether and when to send notice to potential opt-in plaintiffs.²⁷ Based on this framework, the court vacated the district court’s ruling and remanded the case for further consideration.

b. Second Circuit Takes Stance in Circuit Split Regarding Pleading Standard for “Willfulness” Under the FLSA.

In Whiteside v. Hover-Davis, Inc.,²⁸ the Second Circuit held that, for the three-year exception to the FLSA’s default two-year statute of limitations to apply, “a plaintiff must allege facts at the pleadings stage that give rise to a plausible inference that a defendant willfully violated the FLSA.”²⁹ Under this standard, a plaintiff’s mere allegation that a defendant willfully violated the FLSA is not enough to trigger the FLSA’s three-year exception.

Plaintiff filed suit against his former employer, alleging that it failed to pay him overtime, as required by the FLSA, for work he performed between January 2012 and January 2016. During that time, plaintiff, an exempt employee, was allegedly asked to and did perform work typically performed by hourly, non-exempt employees. Because plaintiff filed his lawsuit in January 2019, the employer moved to dismiss based on the FLSA’s default two-year statute of limitations. In response, plaintiff argued that he FLSA’s three-year statute of limitations exception for willful violations applied. The district court disagreed, finding that plaintiff had failed to allege facts that gave rise to a plausible inference of a willful violation.

On appeal, the Second Circuit affirmed, concluding that “an FLSA plaintiff must plausibly allege willfulness to secure the benefit of the three-year limitations period” at the pleadings stage.³⁰ The court joined the Sixth Circuit—which has held that a plaintiff must do more than merely allege willfulness for the three-year exception to apply—and rejected the approach adopted by the Tenth Circuit that mere allegations of willfulness are sufficient.³¹ In so ruling, the Second Circuit also decided that the plaintiff had not met his burden of pleading facts sufficient to raise a plausible inference of a willful violation by his employer. The court found that asking the plaintiff to perform a traditionally non-exempt job did not amount to a willful violation based on the facts alleged in his complaint, namely that plaintiff failed to allege that his salary was adjusted; failed to allege that he complained about the situation to his managers; and offered no details on who asked him to change roles or whether any manager was actually aware that switching roles was an issue.

B. Employee Retirement Income Security Act (ERISA) Developments

1. Supreme Court to Address Pleading Standard in “Excessive Fee” Cases.

The biggest news in the ERISA litigation world this year was the Supreme Court’s grant of certiorari to review the Seventh Circuit’s decision in Divane v. Northwestern University.³² In the past decade, ERISA litigation has come to be dominated by putative class actions alleging that the fiduciaries of participant-directed 401(k) or 403(b) plans violated their prudence duty by offering participants investment menus that allegedly included high-cost or poorly performing investment options and/or by causing their plans to incur allegedly excessive administrative costs. Indeed, in the past year and a half alone, more than a hundred of these suits have been launched. While a number of these cases, like Northwestern, have been dismissed, far more have gotten beyond the motion to dismiss stage, subjecting plan sponsors and fiduciaries to the high costs and risks of class action litigation. And, in many instances, those cases that have survived dismissal appear to have been based on little more than allegations that the challenged investment offerings, in hindsight, performed less well than other somewhat cheaper options available in the investment marketplace.

In Northwestern, it is hoped that the Supreme Court will bring some clarity to the pleading standard in this area. The specific question on which the Court granted certiorari is “[w]hether allegations that a defined-contribution retirement plan paid or charged its participants fees that substantially exceeded fees for alternative available investment products or services are sufficient to state a claim against plan fiduciaries for breach of the duty of prudence under ERISA, 29 U.S.C. § 1104(a)(1)(B).” In 2020, two Circuit Court cases in addition to Northwestern considered this issue in somewhat similar fact patterns: the Eighth Circuit in Davis v. Washington University in St. Louis³³ and the Third Circuit in Sweda v. University of Pennsylvania.³⁴ In each case, a university’s 403(b) plan gave participants the ability to select from a wide array of investment options offered by TIAA-CREF and a major mutual fund family (Vanguard in two cases, Fidelity in the third). And, in each case, the plaintiffs alleged that the fiduciaries who decided which investments would be available to participants violated their ERISA prudence obligation in making those decisions. The facts alleged in support of that charge boil down to the defendants’ inclusion of investment options (often actively managed) on the plan’s menu that charged higher fees and in retrospect performed less well than others (often passively managed) that could have been included. From the availability of allegedly “similar” funds that performed better at lower cost, the plaintiffs have attempted to infer that the fiduciaries’ decision-making process must have been somehow deficient.

While the complaints in each of these cases were dismissed at the district-court level for failure to state a claim, the results were mixed at the appellate level. In Sweda, the Third Circuit reversed the dismissals of all of the plaintiffs’ fiduciary breach counts except one that was barred by the statute of limitations. In Davis, the Eighth Circuit reversed the dismissal of the plaintiffs’ allegation that the plan fiduciaries could have obtained access to lower-fee share classes of the very same mutual funds. However, it affirmed the dismissal of allegations that two actively managed options charged excessive fees and had a record of inferior performance, because the complaint cited no funds with comparable investment strategies to serve as benchmarks for evaluating prudence. In Northwestern, the Seventh Circuit affirmed the dismissal in its totality. In so doing, the court emphasized that the complaint undermined its own cause by conceding that participants had low-fee, passively-managed investment choices available. ERISA, the court concluded, required fiduciaries only to give participants a reasonable, prudent selection of investment alternatives.

The broadly worded statement of the issue before the Supreme Court leaves room for a decision covering a wide range of questions. For example, how much leeway do fiduciaries have in constructing investment menus? The plaintiffs in Northwestern and the two other appellate cases strongly contended that participants’ choices ought to be limited to funds in the lowest cost tier. This argument runs directly counter to the Seventh Circuit’s conclusion in Hecker v. Deere & Company, an early “excessive fees” case: “[N]othing in ERISA requires every fiduciary to scour the market to find and offer the cheapest possible fund (which might, of course, be plagued by other problems).”³⁵ It is hoped that the Supreme Court will endorse the Seventh Circuit’s view.

Similarly, given the participant-choice philosophy of these plans, should fiduciaries face potential exposure where they offer participants a reasonable selection of low cost investment options, but allegedly fail to eliminate more costly investment options (often actively managed) that may have performed less well than others? The Third Circuit’s Sweda opinion expressed apprehension on this point, noting that if “a meaningful mix and range of investment options insulates plan fiduciaries from liability for breach of fiduciary duty . . . [that test] would allow a fiduciary to avoid liability by stocking a plan with hundreds of options, even if the majority were overpriced or underperforming.”³⁶ That fact pattern is not present in Northwestern and hardly seems like a realistic danger in participant-directed plans generally. The Supreme Court’s views on this subject would provide fiduciaries with some meaningful guideposts in constructing investment menus from which participants can choose.

Whatever the case, Northwestern offers the Supreme Court an opportunity to provide guidance to the lower courts in the “excessive fees” area just as it did several years ago in the employer stock drop context with its decision in Fifth Third Bancorp v. Dudenhoeffer.³⁷ There the Court promulgated a pleading standard that instructs the lower courts to use the motion to dismiss as a mechanism to “readily divide the plausible sheep from the meritless goats” and “weed[] out meritless claims.”³⁸ The case will be closely watched to see if the Supreme Court provides similar clarity here and protects plan sponsors and fiduciaries from costly litigation based on essentially hindsight allegations that say nothing about the quality and thoroughness, (i.e., prudence, of the challenged fiduciaries’ decision-making processes).

Endnotes

1. 140 S. Ct. 1731 (2020).

2. Bostock v. Clayton Cnty., No. 1:16-CV-1460-ODE, 2017 WL 4456898, at *1 (N.D. Ga. July 21, 2017).

3. Id. at *2

4. Bostock v. Clayton Cnty., 723 F. App’x 964, 964 (11th Cir. 2018).

5. Altitude Express v. Zarda, 883 F.3d 100, 132 (2d Cir. 2018).

6. EEOC v. R.G. & G.R. Harris Funeral Homes, Inc., 884 F.3d 560, 600 (6th Cir. 2018).

7. 140 S. Ct. at 1738.

8. Id. at 1738.

9. Id. at 1739–40.

10. Id. at 1741.

11. Id.

12. Id. at 1737.

13. 29 C.F.R. § 1910, subpt. U.

14. Id. § 1910.502(a)(1).

15. Id. § 1910.502(b).

16. Id.

17. OSHA, Protecting Workers: Guidance on Mitigating and Preventing the Spread of COVID-19 in the Workplace, U.S. Dept. Lab. (2021), https://www.osha.gov/coronavirus/safework (last visited July 19, 2021).

18. 29 C.F.R. § 1910.502.

19. Id. § 1910.502(p).

20. OSHA, supra note 18.

21. Id.; Interim Public Health Recommendations for Fully Vaccinated People, CDC (July 16, 2021), https://www.cdc.gov/coronavirus/2019-ncov/vaccines/fully-vaccinated-guidance.html (last visited July 19, 2021).

22. 985 F.3d 430 (5th Cir. 2021).

23. Id. at 441.

24. Id. at 436–37.

25. Id. at 433; Swales v. KLLM Transp. Servs., LLC, 410 F. Supp. 3d 786 (S.D. Miss. 2019).

26. 985 F.3d at 436–37 (citing Lusardi v. Xerox Corp., 118 F.R.D. 351 (D.N.J. 1987)).

27. 985 F.3d. at 441–43.

28. 995 F.3d 315 (2d Cir. 2021).

29. Id. at 320.

30. Id. at 325.

31. Id.; Fernandez v. Clean House, LLC, 883 F.3d 1296, 1298–99 (10th Cir. 2018); Crugher v. Prelesnik, 761 F.3d 610, 617 (6th Cir. 2014).

32. 953 F.3d 980 (7th Cir. 2020), cert. granted sub nom., Hughes v. Northwestern Univ., No. 19-1401, 2021 WL 2742780 (U.S., July 2, 2021).

33. 960 F.3d 478 (8th Cir. 2020).

34. 923 F.3d 320 (3d Cir.), cert. denied, 140 S. Ct. 2565 (2020).

35. 556 F.3d 575, 586 (7th Cir. 2009), cert. denied, 558 U.S. 1148 (2010).

36. 923 F.3d at 330.

37. 573 U.S. 409 (2014).

38. Id. at 425.