Employment Law

AARP Challenges EEOC’s Wellness Program Regulations

Why it matters

The AARP filed suit against the Equal Employment Opportunity Commission (EEOC) in D.C. federal court, requesting an injunction to halt the implementation of the EEOC’s new wellness program regulations. AARP—which represents 38 million people over the age of 50—argued that the regulations violate anti-discrimination provisions in both the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA) by forcing nonparticipating employees to effectively pay a “penalty” in the form of higher insurance premiums than those who elect to share their disability and genetic information with employers. The EEOC regulations, set to take effect in 2017, generally provide that employer wellness programs are voluntary if health coverage is not conditioned on participation and if a penalty for nonparticipation is no more than 30% of an employee’s health insurance premium. But the 30% rule permits a penalty so substantial as to make an employee’s participation involuntary, at an average cost of $1,800 to $5,200 per year, according to the AARP’s complaint.

Detailed discussion

In May, the Equal Employment Opportunity Commission (EEOC) published a pair of final rules, one for the Americans with Disabilities Act (ADA) and a second for the Genetic Information Nondiscrimination Act (GINA), intended to provide greater certainty to employers regarding how those laws apply to workplace wellness programs consistent with the Health Insurance Portability and Accountability Act (HIPAA).

Pursuant to the rules, an employer-sponsored wellness program is permissible if it is “reasonably designed to promote health or prevent disease” and employee participation is “voluntary,” meaning employers do not require any employees to participate, do not deny workers who elect not to participate access to health coverage or prohibit the choice of certain plans, and do not “take any other adverse action or retaliation against, interfere with, coerce, intimidate or threaten any employee who chooses not to participate in a wellness program or fails to achieve certain health outcomes.”

The final ADA rule established that wellness programs that are part of a group health plan, and ask questions about employees’ health or include medical examinations, may offer incentives of up to 30% of the total cost of self-only coverage (including the employee’s and employer’s contribution). Similarly, the final GINA rule provides that the value of the maximum incentive attributable to a spouse’s participation may not exceed 30% of the total cost of self-only coverage.

AARP argued in its federal court complaint, however, that the 30% incentive actually serves as a penalty to those employees who elect not to share their information. “The EEOC’s 2016 wellness rules enable employers to pressure employees to divulge their own confidential health information and the confidential genetic information of their spouses as part of an employee ‘wellness’ program,” the group argued. “Yet, the ADA and GINA expressly protect employees’ medical privacy from such coercion.”

In enacting the ADA and GINA, Congress expressed concern about the potential for facilitating employment discrimination and giving rise to stigma surrounding disabilities and genetic information, AARP alleged, and for 15 years, the EEOC maintained that employee wellness programs implicating confidential medical information were voluntary only if employers neither required participation nor penalized employees who chose to keep their information private.

“The 2016 Rules depart starkly from the EEOC’s longstanding position,” AARP argued. “Under the 2016 Rules, employers may penalize employees who do not disclose private health and genetic information through wellness programs. Employers’ ‘inducements’ may be monetary or non-monetary, and they may be framed as rewards for participation or punishments for declining to participate.”

AARP noted that the new EEOC rules hit its members particularly hard, as “a disproportionate number of older workers have one or more actual ‘disabilities,’ a record thereof, and/or are perceived as having a disability, and are therefore protected by the ADA. Older workers are also more likely to have the very types of ‘invisible’ disabilities—such as mental health conditions—that are likely to be revealed by medical questionnaires.” And once revealed, the divulged medical information “will never be confidential again,” ARRP added.

On average, the 30% figure amounts to $1,800 per year for employee-only coverage or $5,200 for family coverage, AARP stated. Not participating in an employee wellness program “would double or even triple those employees’ individual health insurance costs,” the complaint alleged, resulting in a harsh penalty that is not based on any economic analysis, legal requirements or facts in the record. Given this significant financial impact, participation in an employee wellness program cannot fairly be described as “voluntary,” AARP asserted.

The suit seeks a declaratory judgment and permanent injunctive relief halting implementation of the EEOC’s rules, which the group characterized as “arbitrary, capricious, an abuse of discretion, and contrary to law.”

To read the complaint in AARP v. EEOC, click here.

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PAGA Claims May Be Arbitrable, California Appellate Court Rules

Why it matters

Who should decide whether a Private Attorneys General Act (PAGA) claim in a wage and hour suit should be arbitrated? Finding the language of the arbitration agreement at issue unclear, a California appellate panel reversed the denial of a motion to compel arbitration and remanded the case to the trial court. When former umpire Derek Eaton filed his wage and hour suit against Big League Dreams, the employer moved to compel arbitration pursuant to an employment agreement. A trial court judge denied the motion, relying upon Iskanian v. CLS Transportation to hold that PAGA claims can never be forced into arbitration. The appellate panel found, however, that Eaton’s arbitration agreement differed sufficiently from the one at issue in Iskanian to require reversal of the lower court’s decision. Whether or not PAGA claims can be arbitrated is an “unsettled” question of law, the court held, and not necessary to decide in Eaton’s case. Instead, the panel directed the trial court to consider whether the parties agreed to arbitrate representative PAGA claims and who should decide the scope of that agreement—the court or an arbitrator.

Detailed discussion

Derek Eaton worked as an umpire for Big League Dreams (BLD) in Manteca, California. He filed suit in 2014, bringing a representative action under the Private Attorneys General Act (PAGA) for failure to pay minimum wage, failure to provide accurate wage statements, failure to maintain accurate wage statements and failure to timely pay wages, among other claims.

His former employer reminded him of his employment agreement, which included an arbitration provision stating: “Any claim by you or BLD relating to, or any controversy arising from, your employment with BLD or the termination thereof shall, on the written request of you or BLD, be submitted to arbitration and be governed by the Employment Dispute Resolution Rules of the American Arbitration Association (AAA). . . . Such arbitration shall be the exclusive remedy of you and BLD and the award of the arbitrator shall be final and binding.” Based on this agreement, BLD filed a motion to compel arbitration.

Eaton countered that the California Supreme Court’s decision in Iskanian v. CLS Transportation held that PAGA claims are not subject to arbitration. A trial court agreed with the plaintiff and denied the motion; BLD appealed.

After taking a close look at the Iskanian opinion, the appellate panel disagreed with the premise that it foreclosed the arbitration of all PAGA claims. Instead, the panel noted that the state’s highest court distinguished PAGA claims from class actions because of the means of recovery, while making clear that the employer had to answer the employee’s representative PAGA claims in some forum, whether arbitral or judicial.

“On the one hand, Iskanian suggests that representative PAGA claims are not subject to mandatory arbitration,” the court said. “For example, Iskanian says, ‘a PAGA claim lies outside the FAA’s coverage because it is not a dispute between an employer and an employee arising out of their contractual relationship.’”

But, on the other hand, “Iskanian suggests that representative PAGA claims can be arbitrated,” the panel wrote. “[I]n remanding the case, the court stated that the employer ‘must answer the representative PAGA claims in some forum. . . . [I]t would be incongruous to raise the possibility of arbitration if the court intended to foreclose it.”

“Against this background, we conclude that the question whether representative PAGA claims can ever be subject to mandatory arbitration remains unsettled,” the appellate panel stated. “We need not resolve this question, at least not today, because we conclude that other questions must be answered first: Did the parties agree to arbitrate representative PAGA claims? And who should decide the scope of their agreement?”

The arbitration agreement did not specifically reference representative or class claims, so on remand, the parties must address whether the language of the agreement can be reasonably interpreted as requiring arbitration of representative PAGA claims, the panel wrote. Also up for debate: who should decide whether the parties agreed to arbitrate representative PAGA claims. Parties to an arbitration agreement may agree to delegate to the arbitrator (instead of a court) questions regarding the enforceability of the agreement, the panel noted, but the language of the clause must be clear and unmistakable.

While the parties’ incorporation of the AAA Employment Rules raised the possibility that they intended to submit questions of arbitrability to the arbitrator, neither of the parties had tackled the threshold question of “who decides” arbitrability, the panel found. Since a trier of fact is in the best position to consider such issues, the panel remanded the matter to the trial court for the opportunity to answer the question.

“On remand, the trial court is directed to conduct such further proceedings as may be required to determine whether the parties’ arbitration agreement encompasses representative PAGA claims and whether the incorporation of the AAA Employment Rules constitutes clear and unmistakable evidence of their intent to delegate questions of arbitrability to the arbitrator,” the panel wrote. “If the trial court answers the latter question in the affirmative, the court shall stay the entire action pending the arbitrator’s determination of the scope of his or her jurisdiction to decide Eaton’s representative PAGA claims.”

To read the opinion in Eaton v. Big League Dreams Manteca LLC, click here.

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Obama Administration Calls on States to Crack Down on Non-competes

Why it matters

Seeking to reduce the prevalence of non-compete agreements, President Barack Obama released a call to action encouraging employers not to use them in order to “enhance competition to benefit consumers, workers, and entrepreneurs.” The “State Call to Action on Non-Compete Agreements” characterized such agreements as an “institutional factor that has the potential to hold back wages and entrepreneurship,” claiming that states that strictly enforce them have lower wage growth and lower mobility than states that do not enforce them. Some states—including California, North Dakota and Oklahoma—have enacted laws to curtail abusive and unfair agreements, the Call to Action noted, while at least a dozen others have considered reform. For those states that continue to enforce the agreements, President Obama called on state policymakers to follow three “best practices”: banning non-compete clauses for certain categories of workers (such as those under a certain wage threshold and those that are unlikely to possess trade secrets), improving the transparency and fairness of non-compete agreements, and incentivizing employers to write enforceable contracts.

Detailed discussion

Taking a stance on non-compete agreements, President Barack Obama released a call to action asking state policymakers to pursue “best practice policy objectives” if they elect to enforce such agreements.

Earlier this year the President launched an initiative intended to stoke competition, with reports from the White House and Treasury as a result. Those reports found non-compete agreements are an “institutional factor that has the potential to hold back wages and entrepreneurship,” according to the State Call to Action on Non-Compete Agreements, impacting nearly one in five workers, or approximately 30 million employees.

“Most workers should not be covered by a non-compete agreement,” the Call to Action declared. “Though each state faces different circumstances, we believe that employers have more targeted means to protect their interests, that non-compete agreements should be the exception rather than the rule, and that there is gross overuse of non-compete clauses today.”

The primary rationale behind non-competes is to prevent workers from transferring trade secrets to rival companies, but “a considerable proportion come at the expense of workers, entrepreneurship, and the broader economy,” the Call to Action stated. “Researchers have found that states that strictly enforce non-compete agreements have lower wage growth and lower mobility than states that do not enforce them.”

Several states—such as Illinois, Utah and Washington—have recently considered reforms on the subject, including legislation regulating non-competes as well as outright bans, with three states—California, Oklahoma and North Dakota—making the agreements generally void and unenforceable.

For those states that continue to enforce the agreements, the Call to Action set forth three “best practice” policy objectives, beginning with a ban on non-compete agreements for certain categories of workers. Employees under a certain wage threshold, workers in certain occupations that promote public health and safety, employees who are unlikely to possess trade secrets and those who may suffer undue adverse impacts (including workers laid off or terminated without cause) should not be subject to non-competes, the Call to Action declared.

Employers should also improve the transparency and fairness of non-compete agreements, the document stated, with the agreements being prohibited unless they are proposed before a job offer or significant promotion has been accepted or by providing consideration over and above continued employment for those workers who sign the agreements.

Finally, the Call to Action suggested that employers should be incentivized to write enforceable contracts, with states promoting the use of the “red pencil doctrine,” for example, which renders contracts with unenforceable provisions void in their entirety.

“To promote compliance and enforcement, states should assign appropriate remedies or penalties for employees that do not comply with state non-compete statutes,” the Call to Action concluded. “In adopting these strategies, states can help ensure that workers can move freely from job to job, without fear of being sued. … As states move to ensure free labor market competition, non-compete reform should be considered as one important tool.”

Elected officials in Connecticut, Hawaii, Illinois, New York and Utah already signed on to support the policy, with New York Attorney General Eric Schneiderman issuing a press release promising to introduce legislation next year “to curb the rampant misuse of non-compete agreements.” AG Schneiderman has already taken action against employers over the use of the agreements, reaching a deal with restaurant chain Jimmy John’s earlier this year in which the company promised to stop using the agreements for minimum wage workers in the state.

In addition to the Call to Action, the Administration released a fact sheet and called on Congress to pass federal legislation to eliminate non-competes for workers under a certain salary threshold.

To read the Call to Action, click here.

To read the fact sheet, click here.

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Pennsylvania Court Applies Title VII to Sexual Orientation Discrimination Claim

Why it matters

Momentum continues in the direction of recognizing sexual orientation discrimination under Title VII with a decision from a Pennsylvania federal court in a suit brought by the Equal Employment Opportunity Commission (EEOC). The EEOC represented a gay male telemarketer for Scott Medical Health Center in Philadelphia, alleging that his supervisor created a sexually hostile work environment. The medical health center moved to dismiss the suit, arguing that Title VII does not encompass claims of discrimination based on sexual orientation, but the court disagreed. “There is no more obvious form of sex stereotyping than making a determination that a person should conform to heterosexuality,” the judge wrote. “[T]he Court finds discrimination on the basis of sexual orientation is, at its very core, sex stereotyping plain and simple; there is no line separating the two.” The court noted the changing legal landscape with regard to rulings providing protection against discrimination based on sexual orientation, from district court cases to the U.S. Supreme Court’s decision in Obergefell v. Hodges.

Detailed discussion

Five female workers at the Scott Medical Health Center in Philadelphia filed charges of discrimination with the Equal Employment Opportunity Commission (EEOC), alleging they were subjected to discrimination because of sex by a coworker, Robert McClendon. In the course of its investigation, the EEOC learned of other alleged harassment at the hands of McClendon targeting Dale Baxley, a gay male.

Baxley began working for Scott Medical as a telemarketer in July 2013, with McClendon as his manager. According to Baxley, McClendon routinely made unwelcome and offensive comments, regularly calling him a “fag,” “faggot,” “f***ing faggot,” and “queer,” as well as making statements such as “f***ing queer can’t do your job” and offensive statements about Baxley’s relationship with his partner such as “I don’t understand how you f***ing fags have sex.” Despite complaining to the company’s president, the harassment continued, the EEOC said, and Baxley left the job in August as a result.

The EEOC filed suit on Baxley’s behalf pursuant to Title VII based on the sexually hostile work environment allegedly created by McClendon. The company moved to dismiss the suit on two grounds: first, that the EEOC failed to comply with the procedural requirements of Title VII and second, that Title VII does not protect discrimination on the basis of sexual orientation.

U.S. District Court Judge Cathy Bissoon found no merit to either argument.

Scott Medical argued that the EEOC needed to file a new charge on behalf of Baxley before filing its complaint because the original charge was based on the female employees’ allegations of discrimination and the agency must file a new charge when the allegations raised in the original charge are different than those uncovered in the course of the investigation.

“Defendant misses the mark,” the judge wrote. “Mr. Baxley’s claims do not involve a different type of discrimination,” the judge wrote. “The EEOC alleges that Mr. McClendon discriminated against and harassed Mr. Baxley ‘because of sex.’ The original charges that led to the EEOC’s investigation alleged the very same. That the precise form of the sex discrimination and/or harassment may have differed from individual to individual does not alter this conclusion.”

In addition, the court stated that the EEOC put the employer on notice regarding the potential for a suit related to Baxley by sending reasonable cause determination letters, requesting Baxley’s personnel file, asking questions about Baxley’s complaints while meeting with the company’s president and informing the company that additional victims had been uncovered during the course of the investigation, providing their names.

Turning to the argument that Title VII does not prohibit discrimination based on sexual orientation, Judge Bissoon found that, but for Baxley’s sex, he would not have been subjected to the alleged discrimination or harassment.

“The Court holds Title VII’s ‘because of sex’ provision prohibits discrimination on the basis of sexual orientation,” the court said. “Accordingly, the EEOC’s Complaint stating that Mr. Baxley was discriminated against for being gay properly states a claim for relief. The Court sees no meaningful difference between sexual orientation discrimination and discrimination ‘because of sex.’”

Incremental changes in how courts have interpreted Title VII’s “because of sex” language have occurred over the decades, the court noted, broadening the scope of the statute’s protections regarding sex discrimination in the workplace. The judge cited U.S. Supreme Court decisions such as Price Waterhouse v. Hopkins in 1989 (establishing the concept of “sex stereotyping”) and the 2015 opinion in Obergefell v. Hodges, legalizing gay marriage.

“There is no more obvious form of sex stereotyping than making a determination that a person should conform to heterosexuality,” the court wrote. “Indeed, the Court finds discrimination on the basis of sexual orientation is, at its very core, sex stereotyping plain and simple; there is no line separating the two. It is, in the view of the undersigned, a distinction without a difference. Forcing an employee to fit into a gendered expectation—whether that expectation involves physical traits, clothing, mannerisms or sexual attraction—constitutes sex stereotyping and . . . violates Title VII. Simply put, Mr. McClendon’s alleged conduct toward Mr. Baxley ‘stemmed from an impermissibly cabined view of the proper behavior’ of men.”

For further support, the judge noted district court decisions from around the country endorsing an interpretation of Title VII that includes a prohibition on discrimination based on sexual orientation, including courts in Alabama, California, the District of Columbia, and Oregon.

“That someone can be subjected to a barrage of insults, humiliation, hostility and/or changes to the terms and conditions of their employment, based upon nothing more than the aggressor’s view of what it means to be a man or a woman, is exactly the evil Title VII was designed to eradicate,” Judge Bissoon wrote. “Because this Court concludes that discrimination on the basis of sexual orientation is a subset of sexual stereotyping and thus covered by Title VII’s prohibitions on discrimination ‘because of sex,’ Defendant’s Motion to Dismiss on the ground that the EEOC’s Complaint fails to state a claim for which relief can be granted will be denied.”

To read the memorandum order in EEOC v. Scott Medical Health Center, click here.

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