No Hate to Arbitrate?  EEOC Changes Stance on Arbitration AgreementsCan you require employees to sign arbitration agreements? After more than 20 years of saying no, the EEOC has reversed its policy and says you can.

Background

In 1997 the EEOC issued the Policy Statement on Mandatory Binding Arbitration of Employment Discrimination Disputes as a Condition of Employment (the Policy Statement), setting forth its position. Specifically, the EEOC stated that “unilaterally imposed agreements mandating binding arbitration of employment discrimination disputes as a condition of employment harms both the individual civil rights claimant and the public interest in eradicating discrimination.” Given this position, the EEOC announced it would (1) “closely scrutinize” charges of discrimination involving arbitration agreements to determine whether they were secured under “coercive circumstances,” including as a condition of employment; and (2) challenge the legality of arbitration agreements requiring arbitration of employment disputes as a condition of employment. Whether the EEOC’s policy discouraged mandatory arbitration is debatable. The good news, however, is that the EEOC has reversed its position.

Reversal of Policy

On December 17, 2019, the EEOC issued its Rescission of Mandatory Binding Arbitration of Employment Discrimination Disputes as a Condition of Employment, rescinding the Policy Statement. In rescinding the Policy Statement, the EEOC noted that – since issuance of the Policy Statement – the Supreme Court has ruled that agreements to arbitrate employment-related disputes are enforceable under the Federal Arbitration Act. Noting the court has rejected concerns regarding the use of arbitration for employment-discrimination claims, the EEOC determined the Policy Statement conflicted with Supreme Court precedent and should be rescinded.

That said, the EEOC acknowledged

“[c]ase law also now makes clear that the EEOC continues to be fully available to employees as an avenue to assert EEO rights and to investigate in the public interest, regardless of whether the parties have entered into an enforceable arbitration agreement.”

Additionally, the EEOC stated that rescission of the Policy Statement does not limit its ability to challenge the legality of a particular arbitration agreement.

Takeaways

It is difficult to know the practical impact of the EEOC’s rescission of the Policy Statement. That said, the impact may be limited as it only brings the EEOC’s position in line with existing legal precedent. It could, however, reduce the number of EEOC investigations arising out of the enforceability of arbitration agreements.

Update: Maximum Ending for Alabama Minimum Wage Suit? Eleventh Circuit Affirms Lower Court’s Dismissal of Case Dealing with Inflation of Minimum Wage, But Is It the End?Ever wonder what happened with the minimum wage fight that has been going on between Alabama and Birmingham? Well, here is the latest — the full panel on the Eleventh Circuit has now spoken: the district court rightly dismissed the lawsuit against Alabama’s governor and attorney general alleging discrimination in the state’s minimum wage law.  But this may not be the final chapter for Alabama’s minimum wage law.

Background and Previous (Vacated) Ruling

The underlying facts relate to the Birmingham City Council raising the minimum wage to $10.10 per hour for employees in the city and the Alabama Legislature and governor enacting a Minimum Wage Act that prohibited all such local laws that would raise the minimum wage beyond the federal minimum of $7.25 per hour.  As set out in our post from earlier this year, a three-judge panel had reversed the dismissal as to one of the claims under the 14th Amendment, but that ruling was vacated to allow the entire Eleventh Circuit panel to review and opine on the matter.

The Full Panel Finds…

On December 13th, a 7-5 majority ruled that the plaintiffs — two Birmingham minimum-wage employees and public interest groups — did not have standing to sue the Alabama attorney general over the 2016 state law. Standing is a threshold procedural requirement — any plaintiff in a lawsuit must establish that he or she has been actually damaged by the alleged conduct. Per the full panel’s ruling, the plaintiff workers did not show that their lower-wage damages were sufficiently traceable to the attorney general’s conduct.

The previous three-judge ruling, that this current opinion vacated, believed the plaintiffs did have standing against the Alabama attorney general because of his authority to enforce the state provision, creating a sufficient connection to the plaintiffs’ injuries.

As posed by the full panel’s majority: “what, exactly, do they say the attorney general did wrong — how, exactly, do they trace their injuries to his ‘conduct’?”  The court then rejected the plaintiffs’ two responses: (1) that he had failed to discharge his statutory duty to proclaim? that the state law was unconstitutional and (2) as a result of his conduct, the City of Birmingham failed to implement its increased wage ordinance.  The ruling emphasized that the attorney general has no enforcement role in the state law passed, rather these plaintiffs’ “immediate gripe is with their employers, who aren’t paying the ordinance-prescribed wages.” Instead of suing the AG, the plaintiffs could have sued their respective employers for failing to pay the City’s minimum wage amount, which would have likely resulted in their employers defending based on the state-wide law and teed up a challenge to the state law with the attorney general then potentially intervening as a party. But that is not what happened.

As the court summarized its ruling, “we hold that plaintiffs lack Article III standing to bring their equal-protection claim against the Alabama attorney general because they have failed to establish that their injuries (while real and cognizable) are fairly traceable to the attorney general’s conduct or that those injuries would be redressed by a decision in their favor.”

The Dissent Disagrees

The five-judge dissent contended that the majority opinion sidestepped the main issue of whether the state law deprived Birmingham’s black citizens of equal economic opportunity based on an overly onerous standard, especially at only the early pleading stage of the lawsuit.  The dissent believed the plaintiffs alleged enough in the complaint to show injury and traceability to the attorney general and would have allowed the equal-protection claim to proceed.

Are We Done Yet?

By affirming the dismissal based on the lack of standing, the court never reached the actual merits. Specifically, the court did not address whether the plaintiffs had alleged a plausible 14th Amendment equal-protection claim.  The possibility remains that the state law will be challenged via a lawsuit against an employer. As framed by the dissent: “[w]hy dismiss this action for failing to present a justiciable case or controversy when, as even the majority acknowledges, the same parties will ultimately be fighting the same controversy if employees are forced to sue their employers?” We shall see if this is the final chapter or more remains to be written.

The Relationship Talk: DOL Issues New Rules on Joint Employer StatusWhen do your business relationships make you a joint employer? Fortunately, the DOL recently published a Notice of Proposed Rulemaking with changes to regulations regarding when two or more entities should be treated as “joint employers” under the FLSA. This will help answer the question of when you and the business partner share legal responsibility for an employee’s wages and hours worked for either entity.

This proposed rule is the DOL’s first major overhaul of joint employer regulations since 1958.

What’s the Law as it Currently Stands?

In 1939, the DOL first recognized that two or more entities may jointly employ a single employee and share legal responsibility for that employee’s wages.  About 20 years later, in 1958, the DOL articulated a formal standard for identifying a joint employment relationship (currently codified at 29 C.F.R. §791).  Under Section 791.2, the existence of a joint employment relationship depends on whether two entities are acting “entirely independently of each other” and are “completely disassociated” with respect to the “employment of a particular employee.”  The code specifically provides:

When an employee either:

(a) performs work that simultaneously benefits two or more employers; or
(b) works for two or more employers at different times during the workweek a joint employment relationship “generally” exists if:

1. The employers have an arrangement to share the employee’s services;
2. One employer is acting directly or indirectly in the interest of the other employer; or
3. The employers directly or indirectly “share control of the employee,” because one employer controls, is controlled by, or is under common control with the other employer.

Clear as mud, right?

Unfortunately, the existing rule’s focus on whether entities are “completely disassociated” has not produced a coherent test for distinguishing separate employment from joint employment.  Presently, federal courts have no uniform standard and, as a result, have developed many differing multi-factor tests. For example, the Ninth Circuit set out a four-factor test in Bonnette v. California Health & Welfare Agency as compared to the Second Circuit’s 10-factor test as set out in Zheng v. Liberty Apparel Co., as compared to other circuits’ use of the economic realities test, which considers whether an employee is “economically dependent” on the putative employer.

Under the current regulations, companies operating in multiple jurisdictions risk being subject to joint employer liability in one jurisdiction, but not in another, for the same business practices.

What is the DOL Proposing To Change?

As a preliminary matter, the DOL proposes to clarify Section 791.2 to identify two situations that may give rise to a joint employment relationship.

Same Employee, Separate Duties and Work. In the first scenario, Company A employs Worker for one set of hours in a workweek, and Company B employs Worker for a separate set of hours in the same workweek.

Under the DOL’s proposed revisions to Section 791.2, the “not completely disassociated” standard would apply to determine if Company A and Company B jointly employ Worker.

Same Employee and Work, Two Companies Benefit. In the second scenario, Company A employs Worker during a workweek, but Company B simultaneously benefits from that work.

Under this scenario — which encompasses franchisor-franchisee, contractor-subcontractor, and similar business relationships — the DOL’s revision to Section 791.2 would eliminate the “not completely disassociated” standard and replace it with a “four-factor balancing test” that examines which business:

  1. Hires or fires the employee;
  2. Supervises and controls the employee’s work schedule or conditions of employment;
  3. Determines the employee’s rate of pay and method of payment; and
  4. Maintains the employee’s employment records.

No single factor would be dispositive, and whether joint employment exists would still depend on the particular facts of each case. However, the DOL’s revision would make several important clarifications, including the following:

  • The inquiry would focus on whether the employer actually exercises sufficient control over a worker, rather than the “ability, power, or reserved contractual right” to take action in relation to the employee.
  • A worker’s economic dependence on a company such as whether the employee is in a specialty job, has the opportunity for profit or loss, or invests in equipment or materials required for work, would not be relevant to the joint employer analysis.
  • No particular business model (i.e. franchisee/franchisor model) or business practice (i.e. providing a handbook or offering a health or retirement plan) would make joint-employer status more or less likely.
  • The revisions would add several examples of business relationships that do and do not constitute joint employment relationships under the FLSA.

Takeaways

The DOL’s aim in revising 29 C.F.R. §791.2 is clarity and uniformity.  According to the DOL, the proposed revisions are meant to ensure that employers and joint employers clearly understand their responsibilities with regard to wages.  While the FLSA does not expressly grant the DOL the authority to define joint employment, an agency’s interpretation of a statute is important, and courts may defer to it. Also, the exemplary fact patterns that are provided with the proposed rule will undoubtedly be useful to companies trying to assess the risk that they could be deemed a joint employer under the FLSA.

The DOL has previously stated that it expected to publish a final joint employer rule by year-end.  That projected deadline now seems aspirational, and the final rule publication may be pushed to early 2020.