Employment Law

Fifth Circuit Pins Down Insignia Ban

Why it matters

The U.S. Court of Appeals, Fifth Circuit, affirmed a ruling from the National Labor Relations Board (NLRB or Board) that a ban on pins violated Section 8(a)(1) of the National Labor Relations Act (NLRA), and held that In-N-Out Burger failed to overcome the presumption that a blanket ban on insignia is unlawful under the statute. The fast-food chain required employees to adhere to a dress code that included a prohibition on wearing “any type of pin or stickers.” In April 2015, a worker at a Texas location wore a “Fight for $15” pin and was instructed to remove it. He filed a charge with the NLRB, which agreed that the dress code violated the NLRA. The federal appellate panel affirmed, finding that the public image exception relied on by the employer was “exceedingly narrow” and that the employer’s interest in maintaining a unique public image did not constitute “special circumstances” sufficient to justify the no-pin rule. The court noted that the fact In-N-Out Burger requires employees to wear company-issued buttons twice a year didn’t help its case.

Detailed discussion

To demonstrate solidarity with the “Fight for $15” campaign—a national movement advocating for a $15-per-hour minimum wage, the right to form a union without intimidation and other improvements for low-wage workers—an employee at an Austin, TX, In-N-Out Burger wore a “Fight for $15” button to work.

The next day, another worker also wore the button and was called into the manager’s office, where he was instructed to remove the button. The employee filed an unfair labor practice charge with the NLRB. An administrative law judge (ALJ) determined the employer violated the NLRA, and on appeal, the Board affirmed.

In-N-Out appealed again, this time to the Fifth Circuit. The employer explained that the company strictly enforces its uniform and appearance rules to promote a consistent public image across its 300 locations, including a nine-element uniform and a prohibition found in the employee handbook that states, “Wearing any type of pin or stickers is not permitted.”

Notwithstanding this rule, however, the employer required employees to wear company-issued buttons twice a year. During the Christmas season, employees must wear buttons stating “Merry Christmas/In-N-Out Hamburgers/No Delay.” In April, workers wear buttons soliciting donations to the In-N-Out Foundation, a nonprofit organization established by the company’s owners that focuses on preventing child abuse and neglect.

The employer argued that its interest in maintaining a unique public image and its concern with ensuring food safety constituted “special circumstances” sufficient to justify the no-pin rule. But the Fifth Circuit was not persuaded.

“Since the Act’s earliest days, it has been recognized that Section 7 protects the right of employees to wear items—such as buttons, pins, and stickers—relating to terms and conditions of employment (including wages and hours), unionization, and other protected matters,” the federal appellate panel wrote. “Accordingly, an employer that maintains or enforces a rule restricting employees from displaying such items commits an unfair labor practice in violation of Section 8(a)(1).”

The Board has created a “narrow” exception to this rule if an employer can demonstrate “special circumstances sufficient to outweigh [its] employees’ Section 7 interests and legitimize the regulation of such insignia, then the right of employees to wear these items ‘may give way.’” The “special circumstances” exception is applied only in a limited number of situations, including where it would “unreasonably interfere with a public image that the employer has established, as part of its business plan, through appearance rules for its employees.”

In addition, a rule that infringes on employees’ Section 7 right to wear protected items is presumptively invalid, the panel noted, and it is the employer’s burden to overcome that presumption. In-N-Out Burger was unable to overcome this presumption and demonstrate the “special circumstances” required, the court found.

“In-N-Out failed to demonstrate a connection between the ‘no pins or stickers’ rule and the company’s asserted interests in preserving a consistent menu and ownership structure, ensuring excellent customer service, and maintaining a ‘sparkling clean’ environment in its restaurants,” the court said. Further, “In-N-Out’s requirement that its employees wear the Christmas and In-N-Out Foundation buttons undercut its claim that ‘special circumstances’ required employee uniforms to be button-free.”

“If the employee uniform—which In-N-Out describes as an integral component of its overall public image—changes several times each year, then either the company’s interest in maintaining a ‘consistent’ public image is not as great as it suggests, or, alternatively, the uniform does not play as critical a role in maintaining that public image as In-N-Out claims,” the panel wrote. “As the Board observed, the Christmas and In-N-Out Foundation buttons are appreciably larger and ‘significantly more conspicuous’ than the ‘Fight for $15’ buttons. Since the addition of larger, more noticeable buttons to employee uniforms does not interfere with In-N-Out’s public image, the Board permissibly concluded that allowing employees to wear smaller buttons protected by Section 7, such as the ‘Fight for $15’ buttons, would not unreasonably interfere with the company’s public image.”

Nor did In-N-Out’s argument about maintaining food safety sway the Fifth Circuit. “In-N-Out’s ‘no pins or stickers’ rule banned all buttons other than its own, ‘without regard to their safety.’ Accordingly, even if In-N-Out had demonstrated a genuine basis for its food safety concerns—which it did not—it failed to show that its rule was ‘narrowly tailored’ to that concern,” the court said.

“With respect to the ‘Fight for $15’ buttons, the ALJ examined those buttons, as well as the company-issued buttons, and ‘[d]iscern[ed] no apparent, significant difference in safety.’ The Board also noted that In-N-Out’s managers did not make ‘any effort to examine’ the ‘Fight for $15’ buttons for safety issues before restricting employees from wearing them, which indicates that the company’s food safety argument is a ‘post hoc invention[].’”

The panel affirmed the NLRB’s order.

To read the opinion in In-N-Out Burger, Inc. v. NLRB, click here.

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Title VII Suit Moves Forward Where Employer Failed to Take Action

Why it matters

The U.S. Court of Appeals, Third Circuit, found that summary judgment is precluded where an employer had a documented history of not taking action based on complaints about an alleged harasser. For several years, Shari Minarsky’s supervisor made unwanted sexual advances toward her. She never reported his conduct, in part because she knew the supervisor had been warned twice for harassing other female employees but no action had been taken against him. Minarsky later sued, and the employer moved for summary judgment, arguing that because the plaintiff never reported the advances, she failed to take advantage of the safeguards put in place. In addition, the employer had by that point fired the supervisor. A district court agreed, but the Third Circuit reversed, finding that disputed issues remained. Not only did Minarsky fear reprisal, but she presented evidence that other complaints about her harasser went largely ignored, the federal appellate panel said. Highlighting the recent #MeToo movement, the court made clear that a plaintiff’s genuinely held, subjective belief of potential retaliation from reporting could counter an employer’s affirmative defense that the failure to report harassment was unreasonable, leaving the issue for a jury to determine at trial.

Detailed discussion

Sheri Minarsky served as a part-time secretary at the Susquehanna County Department of Veterans Affairs. One day each week, she worked for Thomas Yadlosky in an area separate from other county employees. Soon after she began working with Yadlosky in September 2009, he began to sexually harass her, Minarsky alleged, massaging her shoulders, attempting to kiss her on the lips, embracing her from behind and pulling her against him.

Minarsky said Yadlosky also engaged in nonphysical harassment, such as calling her at home on her days off to ask personal questions and sending sexually explicit emails. She claimed that the harassment intensified as time went on, and while she jokingly told him to stop, he did not. She feared speaking up because she needed the job, and when confronted, Yadlosky became “nasty.”

She was also aware of his annual attempts to kiss female employees under the mistletoe as well as two separate incidents in which other women complained about Yadlosky’s advances. Both times he was warned and nothing changed. When she started working for the county, Minarsky read and signed the General Harassment Policy, which prohibited harassment and encouraged employees to report any harassment.

Minarsky finally reported the harassment in 2013, and Yadlosky was terminated after admitting to the allegations. She later filed suit against the county and Yadlosky, alleging sexual harassment based on a hostile work environment in violation of Title VII. A district court granted summary judgment in favor of the defendants, ruling that the county acted reasonably.

The employer had an antiharassment policy that Minarsky was familiar with, reprimanded Yadlosky for his inappropriate conduct and terminated him once his behavior toward Minarsky came to light, the court said. The district court also found the plaintiff’s failure to report the harassment unreasonable.

Minarsky appealed, and the federal appellate panel reversed after analyzing the county’s use of the Faragher-Ellerth affirmative defense (based on the Supreme Court cases of Faragher v. City of Boca Raton, 524 U.S. 775 (1998), and Burlington Industries, Inc. v. Ellerth, 524 U.S. 742 (1998)).

The Third Circuit acknowledged that the county maintained a written antiharassment policy, which Minarsky was asked to read and sign, and did warn Yadlosky on two occasions. But the panel disagreed with the district court that the employer “exercised reasonable care to prevent and correct promptly any sexually harassing behavior.”

“Yadlosky’s conduct toward Minarsky was not unique; Minarsky’s deposition testimony revealed a pattern of unwanted advances toward multiple women other than herself,” the court said. “In addition to the mistletoe incidents and his advances toward [the other two women resulting in warnings], Yadlosky had also made inappropriate physical advances to two of the women in authority … Minarsky testified that when she later attended the hearing to determine Yadlosky’s eligibility for unemployment benefits, she was shocked to learn of the extent to which [the Chief Clerk] knew of Yadlosky’s pattern of inappropriate physical contact … Thus, County officials were faced with indicators that Yadlosky’s behavior formed a pattern of conduct, as opposed to mere stray incidents, yet they seemingly turned a blind eye toward Yadlosky’s harassment.”

“Was the policy in place effective?” the panel asked. “Knowing of his behavior, and knowing that Minarsky worked alone with Yadlosky every Friday, should someone have ensured that she was not being victimized? Was his termination not so much a reflection of the policy’s effectiveness, but rather, did it evidence the County’s exasperation, much like the straw that broke the camel’s back? We do not answer these questions, but conclude that there exists enough of a dispute of material fact, and thus a jury should judge all of the facts as to whether the County ‘exercised reasonable care to prevent and correct promptly any sexually harassing behavior,’ and thereby determine whether the County satisfied the first element of Faragher-Ellerth.”

The court said the second element of the Faragher-Ellerth defense, regarding the reasonableness of Minarsky’s failure to report Yadlosky’s behavior, presented a “similarly troubling set of facts.” On the one hand, she remained silent; on the other hand, “her silence might be viewed as objectively reasonable in light of the persuasive facts Minarsky has set forth.”

Unable to ignore the plaintiff’s testimony as to why she did not report Yadlosky’s conduct, “we believe that a jury could find that she did not act unreasonably under the circumstances,” the court said.

In a footnote, the panel also discussed the #MeToo movement, writing that “there may be a certain fallacy that underlies the notion that reporting sexual misconduct will end it,” as “[v]ictims do not always view it in this way,” and instead “anticipate negative consequences or fear that the harassers will face no reprimand.”

“Although we have often found that a plaintiff’s outright failure to report persistent sexual harassment is unreasonable as a matter of law, particularly when the opportunity to make such complaints exists, we write to clarify that a mere failure to report one’s harassment is not per se unreasonable,” the Third Circuit said. “Moreover, the passage of time is just one factor in the analysis. Workplace sexual harassment is highly circumstance-specific, and thus the reasonableness of a plaintiff’s actions is a paradigmatic question for the jury, in certain cases. If a plaintiff’s genuinely held, subjective belief of potential retaliation from reporting her harassment appears to be well-founded, and a jury could find that this belief is objectively reasonable, the trial court should not find that the defendant has proven the second Faragher-Ellerth element as a matter of law. Instead, the court should leave the issue for the jury to determine at trial.”

In Minarsky’s case, she asserted that several forces prevented her from reporting Yadlosky’s conduct, including her fear of hostility and retaliation by getting fired, the futility of reporting (knowing others had done so and the conduct continued), the power dynamic, and the particular nature of her working relationship (away from other employees).

“Minarsky has produced several pieces of evidence of her fear that sounding the alarm on her harasser would aggravate her work environment or result in her termination,” the panel concluded. “A jury could consider this evidence and find her reaction to be objectively reasonable. We therefore cannot uphold the District Court’s conclusion that Minarsky’s behavior was unreasonable as a matter of law.”

To read the opinion in Minarsky v. Susquehanna County, click here.

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Arbitration Agreement Unenforceable in Any Language, California Court Rules

Why it matters

A California appellate panel denied an employer’s motion to compel arbitration in a wage and hour dispute, ruling that the arbitration agreement in the employee handbook was unenforceable. Carlos Juarez was an hourly employee at Wash Depot. He filed suit alleging various labor code violations, along with a Private Attorneys General Act (PAGA) claim. Pointing to a mandatory arbitration provision in the employee handbook, complete with a waiver of PAGA claims—printed in both English and Spanish—the employer moved to compel arbitration of the case. But the trial court denied the motion and the appellate panel affirmed. The English-language handbook stated that the denial of the right to bring a PAGA action was severable if the denial was found by a court to be unenforceable, but the Spanish-language version said the provision was not severable. The PAGA waiver was invalid, the appellate court said, and the differences between the two handbooks was at best negligent and at worst deceptive. Refusing to condone the employer’s purported attempt to have it both ways, the appellate panel affirmed denial of the motion to compel arbitration.

Detailed discussion

An hourly employee at Wash Depot’s hand car wash in Ventura, CA, Carlos Juarez, filed suit against his employer in December 2016, alleging 13 causes of action for various wage and hour violations (failure to pay earned wages, minimum wages and overtime compensation, for example). He also alleged a representative action pursuant to PAGA.

Wash Depot responded with a motion to compel arbitration based on Section EE of the employee handbook, titled “Dispute Resolution Agreement.”

Paragraph EE(1) provided in part: “Except as it otherwise provides, this Agreement is intended to apply to the resolution of disputes that otherwise would be resolved in a court of law, and therefore this Agreement requires all such disputes to be resolved only by an arbitrator through final and binding arbitration and not by way of court or jury trial.” The paragraph specifically included the employment relationship and compensation, breaks, and rest period claims, among others, within the arbitration mandate.

Section EE(4)(c) stated a waiver of the employee’s right to bring a representative PAGA action: “There will be no right or authority for any dispute to be brought, heard or arbitrated as a private attorney general action.” The English-language version of the handbook also provided that the PAGA waiver was severable from the arbitration agreement, should a court find the waiver unenforceable.

However, the Spanish-language version of the handbook provided that the PAGA waiver was not severable from the arbitration agreement. Juarez signed two acknowledgments—one in Spanish and one in English—stating that he received the handbook and agreed to its terms.

The trial court denied the employer’s motion to compel arbitration. On appeal, the appellate panel affirmed, beginning with the California Supreme Court’s decision in Iskanian v. CLS Transportation.

“The trial court properly concluded that the PAGA waiver set forth in the handbook is unenforceable as against public policy,” the court said. “Our Supreme Court in Iskanian … held that an employee’s right to bring a PAGA action may not be waived: ‘We conclude that where, as here, an employment agreement compels the waiver of representative claims under the PAGA, it is contrary to public policy and unenforceable as a matter of state law.’ This is so because a waiver indirectly exempts the employer from responsibility for his own violation of law.”

Further, the trial court did not abuse its discretion by declining to sever the PAGA waiver and enforce the remaining arbitration agreement, the panel wrote, rejecting Wash Depot’s assertion that courts must interpret arbitration agreements in a manner to preserve the right to arbitrate, including severing invalid clauses when necessary.

“At best, the difference in the severability clauses in the English-language and Spanish-language versions of the handbook is negligent; at wors[t] it is deceptive,” the court said. “Under the circumstances, we construe the ambiguous language against the interest of the party that drafted it. This rule applies with particular force in the case of a contract of adhesion. Indeed, Wash Depot may have left the meaning of severability ‘deliberately obscure, intending to decide at a later date what meaning to assert.’”

To read the opinion in Juarez v. Wash Depot Holdings, Inc., click here.

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New California Law Provides Defamation Protections for Employers

Why it matters

In light of the recent #MeToo movement, California enacted a new law aimed at protecting employers and victims from defamation claims by alleged sexual harassers. Sponsored by the California Chamber of Commerce, Assembly Bill 2770 was initiated as part of an effort to encourage employers to share relevant information about employees without fear of a defamation suit in order to make it more difficult for harassers from moving from one workplace to another. The law amends the definition of “privileged communication” to protect sexual harassment complaints made “without malice” and based on “credible evidence” by an employee to an employer. Similarly, communications made “without malice” by a current or former employer to “interested parties,” defined to include a party the employer believes may be a prospective employer, are also protected. Signed into law by Governor Jerry Brown in July, the measure takes effect Jan. 1, 2019.

Detailed discussion

Motivated by concerns that employers are increasingly facing the risk of defamation lawsuits given the wave of sexual harassment revelations across all industries, A.B. 2770 passed the California legislature with unanimous, bipartisan support.

The bill amended Section 47(c) of the Civil Code to broaden the definition of “privileged publication or broadcast” to encompass “(1) A complaint of sexual harassment by an employee (without malice) to an employer based upon credible evidence; and (2) Communications between the employer and interested persons (without malice) regarding complaints of sexual harassment. This includes current or former employers’ communications regarding whether the employer would not rehire the alleged harasser due to a determination that he or she engaged in sexual harassment.”

Previously, employers were faced with walking a tightrope of divulging information about sexual harassment allegations to a prospective employer with the possibility of a defamation lawsuit in return from the alleged harasser. The new law doesn’t completely remove the risk, as some workers may still file suit alleging the communication at issue was made with malice and/or was not based on credible evidence.

Several questions remain unanswered with the passage of A.B. 2770. For example, the legislature did not define the term “credible evidence,” and it is limited to communications specifically related to sexual harassment and not to other types of prohibited harassment, such as race, age or disability. It also remains to be seen whether the measure will provide enough comfort to employers to share information about alleged harassers.

The new law is set to take effect Jan. 1, 2019.

To read A.B. 2770, click here.

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SEC Seeks Changes for Whistleblower Program

Why it matters

The Securities and Exchange Commission (SEC or Commission) announced a proposal to amend the whistleblower program after almost eight years in practice, identifying ways in which the program might benefit from additional rulemaking. Proposed changes include allowing awards based on deferred prosecution agreements and nonprosecution agreements by the Department of Justice (DOJ) or a state attorney general, as well as settlement agreements entered into by the Commission outside of a judicial or administrative proceeding to address violations of the securities law. The SEC also seeks to increase the efficiency of the claims review process, obtain authorization to adjust an award percentage upward under certain circumstances to an amount up to $2 million (subject to the statute’s maximum recovery of 30% of the amount of sanctions collected) and adopt a uniform definition of “whistleblower” in response to the Supreme Court’s opinion in Digital Realty Trust, Inc. v. Somers. “The proposed rules are intended to help strengthen the whistleblower program by bolstering the Commission’s ability to more appropriately and expeditiously reward those who provide critical information that leads to successful enforcement actions,” SEC Chair Jay Clayton said in a statement. The proposed changes are open for a 60-day comment period.

Detailed discussion

In 2010, the SEC’s whistleblower program was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Since then, the Commission has ordered more than $266 million in 50 awards to 55 whistleblowers.

After gathering years of experience administering the whistleblower program, the SEC announced it was time for some changes. In a new proposal, the Commission suggested several ways to modify the program to improve it.

In an effort to expand the forms of action taken by a regulator in which a whistleblower may be eligible for an award, the proposal would allow awards based on deferred prosecution agreements and nonprosecution agreements entered into by the DOJ or a state attorney general, or a settlement agreement entered into by the SEC outside the context of a judicial or administrative proceeding.

“This proposed amendment will ensure that whistleblowers are not disadvantaged because of the particular form of an action that the Commission, DOJ, or a state Attorney General acting in a criminal case may elect to pursue,” the SEC explained. The current rules do not address these forms of action.

A second change would allow the SEC to adjust a whistleblower award upward, under certain circumstances, to $2 million (while the reward would remain subject to the 30 percent statutory maximum). To date, over 60 percent of the awards given out in the program have been less than $2 million, the Commission said, and the ability to pay a higher award could help sufficiently incentivize future whistleblowers “who might otherwise be concerned about the low dollar amount of a potential award.”

On the other end of the award spectrum, the proposal suggested that the SEC obtain the discretion to adjust exceedingly large awards. Forty percent of the aggregate funds paid to whistleblowers went out in just three awards, the Commission noted. In cases where the award could exceed $100 million, the proposal would allow the SEC to adjust the award percentage downward so that it would yield a payout (subject to the statute’s minimum recovery of 10% of the amount of sanctions collected) that “does not exceed an amount that is reasonably necessary to reward the whistleblower” and incentivize others. However, in cases where reduction is appropriate, the SEC would not reduce the award below $30 million.

The SEC also asked for public comment on the question of whether it could establish a potential discretionary award mechanism for enforcement actions that do not qualify as covered actions (because they do not meet the more than $1 million threshold requirement).

To address the Supreme Court’s recent decision in Digital Realty Trust, Inc. v. Somers, the Commission proposed rule amendments. The justices held that Dodd-Frank’s antiretaliation provision does not extend to those who have not reported a potential violation to the SEC. In the process, the Court invalidated the SEC’s rule 21F-2, which provides antiretaliation protection without requiring the individual to provide information to the SEC.

To comport with the Court’s holding, the proposal would modify Rule 21F-2 to establish a uniform definition of “whistleblower” that would apply to all aspects of 21F, including the award program, the heightened confidentiality requirements and the antiretaliation protections.

“For purposes of retaliation protection, an individual would be required to report information about possible securities laws violations to the Commission ‘in writing,’” the SEC said. “To be eligible for an award or to obtain heightened confidentiality protection, the additional existing requirement that a whistleblower submit information on Form TCR or through the Commission’s online tips portal would remain in place.”

Other changes include the elimination of a potential double recovery under the current definition of “related action” (to avoid the “irrational result” if a whistleblower could receive multiple recoveries for the same information from different whistleblower programs) as well as efforts to improve the efficiency of the claims review process.

The proposal is open for public comment on the potential changes as well as other issues related to the whistleblower program.

To read the SEC’s proposed rule, click here.

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