Never Too Late to Arbitrate? Tips on Getting Your Agreement OnDo your employees sign arbitration agreements? If so, do your arbitration agreements prevent employees from joining class actions against your company? Does your company want to start requiring arbitration agreements? If “yes” is the answer to any of these questions, some recent court decisions raise a few issues to keep in mind.

Let’s first take a step back. What is an arbitration agreement? Arbitration agreements require employees to bring any claim against the company through arbitration, not the court system. This means that if a current or former employee wants to sue you for anything – including age discrimination, harassment, or failure to pay overtime – the employee must go through arbitration. The employee cannot file a civil lawsuit.

With this background in mind, below are several items to consider as you review your arbitration agreement or think about drafting one.

Be Explicit

Arbitration agreements come in all shapes and sizes and will vary depending on your objectives. But they share some common characteristics. Make sure your agreement is:

  • Clear (you don’t want to spend any significant time arguing about whether the arbitration agreement applies at all or whether it applies to a specific dispute).
  • In writing.
  • Signed by the employee.

The agreement should expressly state that certain disputes – be sure to include what kinds of disputes – must be brought through a specific arbitration body. And don’t forget to include what state’s law applies.

Clearly Include Class and Collective Action Waivers

In addition to forbidding individual lawsuits against the company, arbitration agreements can prevent employees from participating in class and collective actions against the company. If your company wants to include this restriction in the agreement, be sure to specifically state that the employee waives any right he or she has in bringing a class or collective lawsuit or class or collective arbitration against the company. Remember a class of individuals can bring an arbitration claim just like a class can bring a lawsuit in the court system – so make sure to state the employee waives the right to bring a class or collective lawsuit, and a class or collective arbitration.

Include Class and Collective Action Waivers – Even After a Suit Has Been Filed

The above points are relevant if you’re thinking about including arbitration agreements going forward or if you’re dusting them off and editing your current ones. But what if you already have arbitration agreements in place, but didn’t forbid class or collective action? You may not be out of luck. In Cordúa Restaurants, Inc., the National Labor Relations Board recently found that if you are sued in a class or collective action, you can update your existing arbitration agreement to include a class or collective action waiver while the lawsuit is pending. This amendment will bar employees from opting into the pending litigation. Even more, the NLRB found that you can warn employees that their failure to sign the updated mandatory arbitration agreement will result in termination. This means that if your current arbitration agreement doesn’t prevent employees from joining class or collective actions, you can update those agreements – even during pending litigation – to prevent employees from bringing or joining such actions against the company.

Pay Attention to State Laws that Affect What Can Be Included in the Arbitration Agreement

Class and collective action waivers are enforceable, but be careful to draft these waivers so they do not conflict with state law requirements. For example, in California, arbitration agreements cannot limit the remedies to which an employee would otherwise be entitled in court. Additionally, California law requires employers to pay for any arbitration costs that go beyond what the employee would be expected to pay in court.

Arbitration agreements, while not a good fit for every company, are a useful tool for many. If you decide to use them, just be sure to carefully draft them so they achieve your goals. And don’t forget to periodically review and revise those agreements to keep them up to date.

Stick to Your Story: Employer’s Shifting Termination Justifications Can Cause Employer to Have to Explain Its Discharge Decision to a JuryIf you want to avoid potential liability from a former employee, remember a key maxim: Stick to your story about why you made the employment decision. If an employer shifts rationales for its decision or tries to pile on by adding new reasons after the fact, it will likely have to explain itself to a jury or pay to settle the case. A recent decision from a federal court in Tennessee, Rikita Bonner-Gibson v. Genesis Engineering Group, illustrates this principle.

Avoiding Pretext Is the Name of the Game

The issue boils down to whether the employer’s reason for termination was the true reason or a pretextual one to disguise an illegal motive. If facts suggest that an employer’s reason may be pretextual (because it has changed over time), then the case will likely go to a jury.

In this case, Genesis Engineering claimed it terminated Bonner-Gibson after she returned from maternity leave because she “unilaterally alter[ed] her work schedule and . . . respond[ed] to a supervisor in an insubordinate fashion.” Both reasons are unrelated to Bonner-Gibson’s pregnancy or leave. Bonner-Gibson, however, argued that the reason was a pretext and she was really terminated because of her pregnancy and in retaliation for complaining about her treatment during her pregnancy.

Reviewing the fact in the light most favorable to Bonner-Gibson, the court concluded Genesis Engineering had not been consistent in its rationale for terminating her. The “most notable” example came from an inconsistent statement during an unemployment hearing. During that hearing, the company’s HR representative testified that Bonner-Gibson was terminated because she forwarded a final written warning email she had received to family members. However, the HR representative did not have any personal knowledge of why Bonner-Gibson was terminated. She was speculating regarding the reasons why she was terminated based on her review of Bonner-Gibson’s personnel file. The forwarding of the email, however, was not one of the reasons for Bonner-Gibson’s termination. When Genesis Engineering abandoned this reason in litigation, the court opined that it called their entire decision-making process into doubt.

Don’t Pile On

In addition to shifting justifications, the court found that Genesis Engineering tried to “pile on” during the lawsuit to add additional reasons for terminating Bonner-Gibson that did not actually motivate its decision. Piling on of justifications for termination is also potentially evidence of pretext.

Genesis Engineering’s shifting rationales and piling-on tactics contributed to the court’s denying the motion for summary judgment on Bonner-Gibson’s pregnancy discrimination and retaliation claims. (The court granted summary judgment on other claims Bonner-Gibson did not contest.) The court held that Genesis Engineering’s shifting justifications and piling-on strategy helped create credibility determinations that only a jury could decide. Now, Genesis Engineering will either have to explain itself to a jury and seek a favorable verdict or pay a potentially costly settlement.

Key Takeaways

To avoid a similar plight, employers should remember the following takeaways:

  • Stick to your story. Once you terminate an employee for a reason, that is the reason. Don’t try to shift your justification later for discharging the employee.
  • Don’t pile on additional reasons after the fact. One true and documented reason for termination is better than five reasons that did not really motivate the termination.
  • Make sure that employees who represent the employer at administrative proceedings, such as unemployment hearings or responding to EEOC charges, actually know why an employee was terminated. It is, of course, much easier to prevent mistakes on the front end than to try to clean them up later.

Not a Bad Place to Be: Fifth Circuit Addresses the “Highly Compensated” Exemption Under the FLSASometimes employment laws can make the common person’s head spin. That certainly could be the case for a recent Fifth Circuit opinion examining the “highly compensated” regulatory exemption from the overtime requirements of the FLSA.

A Thousand Dollars a Day – Is It Fair Compensation?

Jeff Faludi used to practice law but began working as a consultant for U.S. Shale Solutions, an oil and gas company. He had an independent contractor agreement, under which he was paid $1,000 per day for every day he worked in Houston and $1,350 per day for every day he worked outside of Houston. Those rates applied regardless of how many hours he worked, and the proof showed many days where he charged that rate even though he did not work a full day and other days for which he charged a half-day rate. His annual compensation was about $260,000. After about 16 months, the company reorganized, and Mr. Faludi left. He subsequently filed an FLSA suit against the company, claiming he should have been paid overtime.

U.S. Shale filed for summary judgment claiming that Mr. Faludi was an independent contractor. In the alternative, it said that even if Mr. Faludi was an employee, he was exempt under the “practice of law” or “highly compensated employee” exemptions. Mr. Faludi also filed for partial summary judgment on the grounds he was an employee (not an independent contractor) and was not exempt. The lower court granted summary judgment in favor of the employer on the “highly compensated” exemption. Mr. Faludi appealed.

What It Means to Be Highly Compensated

The FLSA includes several types of employment that are exempted from the payment of overtime: executive, administrative, professional, computer or outside sales. In examining the exemptions, the Fifth Circuit looked to the Department of Labor’s regulations — especially those on “highly compensated employees.” An employee is exempt from the overtime requirements as a “highly compensated employee” if he or she:

  • Receives total annual compensation of at least $100,000, and
  • Customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee.

Mr. Faludi argued that he did not fit the exemption: His salary wasn’t paid in a regular manner, it was subject to a reduction due to the amount of work performed, and there was no connection between his pay and what he actually did. The Fifth Circuit did not give credence to any of those arguments. Instead, the Fifth Circuit focused on the fact that his $1,000 per day rate guaranteed him at least $455 per week and he regularly received that amount on a weekly or less frequent basis. Therefore, he was a highly compensated employee under the regulations and was exempt from overtime.

Does This Matter Even If I Don’t Employ Highly Compensated People?

The highly compensated exemption is likely a narrow one, and not one that would usually generate much litigation. However, this case does point out that employers should look to the DOL’s regulations for guidance on the nuances of the FLSA. Courts are using the regulations to enforce the overtime requirements, and it is worth looking at them. Also, don’t forget that there has been much talk about revising these exemptions, which will likely result in an increase of the $100,000 salary threshold.