U.S. Supreme Court Declines to Take Up San Francisco Healthcare Law

Back in 2008, the Ninth Circuit Court of Appeals held that San Francisco's Healthcare Security Ordinance was not preempted by ERISA. We posted on that here. Fast-forward (chuckle) to yesterday, when the U.S. Supreme Court refused the Golden Gate Restaurant Association's petition for review. So, looks like those pesky surcharges disclosed at the bottom of menus throughout San Francisco are here to stay.


U.S. Supreme Court Issues Two More Arbitration Decisions

The U.S. Supreme Court closed out its employment cases for the 2010 Term with two arbitration decisions. The Court held in one opinion that the arbitrator must resolve an arbitrability issue. The Court reached the opposite result in the other. Here's what happened.

In Granite Rock Co. v. Teamsters, the company and its union agreed on a new contract. But the Company would not agree to hold the union harmless for strike-related damage. The union continued to strike. The company argued the strike violated the "no-strike" clause in the parties' new contract, which also contained an arbitration clause. The union believed the agreement was not properly ratified and, therefore, not a contract when the strike occurred.

Granite sued the Teamsters in federal court alleging breach of contract against the local union, and interference with contract against the International. District court allowed a jury to decide when the agreement was ratified - which determined if the strike was arbitrated or resolved in court. Once the jury decided the agreement was properly ratified, the district court sent the case to arbitration over the merits of the breach of contract issue. The Ninth Circuit, though, held that the arbitrator should have decided the ratification issue.

The Supreme Court held the district court got it right. The court was required to decide if the parties agreed to arbitrate the breach of the no-strike clause issue, because courts enforce arbitration only to the extent the parties agreed. The date the contract was ratified amounted to a dispute over the applicability of arbitration to the dispute. If ratified, there would be a valid contract. Here's how the court put it:

a court may order arbitration of a particular dispute only where the court is satisfied that the parties agreed to arbitrate that dispute. See First Options, supra, at 943; AT&T Technologies, supra, at 648−649. To satisfy itself that such agreement exists, the court must resolve any issue that calls into question the formation or applicability of the specific arbitration clause that a party seeks to have the court enforce. See, e.g., Rent-A-Center, West, Inc. v. Jackson, ante, at 4−6 (opinion of SCALIA, J.). Where there is no provision validly committing them to an arbitrator, see ante, at 7, these issues typically concern the scope of the arbitration clause and its enforceability. In addition, these issues always include whether the clause was agreed to, and may include when that agreement was formed.
So, the court, not the arbitrator, had to decide when the contract was ratified.

This decision was 7-2, authored by Justice Thomas. Justices Sotomayor and Stevens dissented from this part of the opinion, but joined in the unanimous decision that there is no claim for tortious interference under federal law.

The opinion in Granite Rock Co. v. Teamsters is here.

Just a couple of days earlier, though, the Court held in Rent-a-Center West, Inc. v. Jackson that the arbitrator must decide arbitrability, albeit in a different context. Granite was decided under Section 301 of the LMRA. Rent-a-Center is a Federal Arbitration Act case. But the Court cites FAA decisions in Granite, too. So, the analysis is probably the same.

Jackson sued for employment discrimination in Nevada federal court. Rent-a-Center sought to compel arbitration. Jackson argued the agreement was "unconscionable" under Nevada law, which is a defense to the enforceability of the arbitration agreement.

But the arbitration agreement provided: "[t]he Arbitrator, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement including, but not limited to any claim that all or any part of this Agreement is void or voidable."

So, unlike in Granite, the parties' agreement expressly gave the arbitrator the authority to determine whether the agreement was void, or enforceable. The Court held that, given the parties' "clear and unmistakable" agreement, any dispute over this provision was itself a question for the arbitrator to resolve:

The delegation provision is an agreement to arbitrate threshold issues concerning the arbitration agreement. We have recognized that parties can agree to arbitrate"gateway" questions of "arbitrability," such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy.

The Court then analyzed whether the FAA permitted the court to permit the arbitrator to decide if the agreement was unconscionable. The Court held that the FAA did permit this. In particular, the court decided that Jackson alleged the entire arbitration agreement was invalid, not exclusively the provision conferring on the arbitrator the right to decide unconscionability. Had Jackson been able to argue this delegation provision alone was unconscionable (and how would he do that?) the court may have come down a different way.

Therefore, Jackson's challenge to the arbitration agreement as "unconscionable" must be decided by the arbitrator.

If arbitration agreements reserve the power to decide unconscionability to the arbitrator, that will certainly affect courts' power to decide "unconscionability" claims by plaintiffs seeking to avoid arbitration agreements.

This one was 5-4. The dissent argued the majority simply got it wrong, synthesizing the law as follows:

questions related to the validity of an arbitration agreement are usually matters for a court to resolve before it refers a dispute to arbitration. But questions of arbitrability may go to the arbitrator in two instances: (1) when the parties have demonstrated, clearly and unmistakably, that it is their intent to do so; or (2) when the validity of an arbitration agreement depends exclusively on the validity of the substantive contract of which it is a part.

The majority believed this rule required arbitration because both prongs were satisfied. But the dissent argued (1) because the agreement was alleged to be unconscionable, Jackson could not have "clearly and unmistakably" submitted arbitrability to the arbitrator. The dissent also argued

when a party raises a good-faith validity challenge to the arbitration agreement itself, that issue must be resolved before a court can say that he clearly and unmistakably intended to arbitrate that very validity question. This case well illustrates the point: If respondent’s unconscionability claim is correct—i.e., if the terms of the agreement are so one-sided and the process of its making so unfair—it would contravene the existence of clear and unmistakable assent to arbitrate the very question petitioner now seeks to arbitrate. Accordingly, it is necessary for the court to resolve the merits of respondent’s unconscionability claim in order to decide whether the parties have a valid arbitration agreement under §2. Otherwise, that section’s preservation of revocation issues for the Court would be meaningless.

The bottom line: unless or until Congress overturns this decision, it appears employers will be able to avoid courts' rulings on unconscionability and have arbitrators decide them instead.

The opinion in Rent-a-Center West, Inc. v. Jackson is here.

Happy Anniversary to Us (Again)

Yes, it's a slight detour into self-indulgence. Thank you for your patience.

So, four years ago, two wide-eyed kids, with barely a tuna sandwich and $3.00 between them, decided to stake out their little corner of the American Dream and start a small business of their own.... Oh, and Jennifer and I started Shaw Valenza four years ago today, too! What a coincidence! (I hope those two scrappy kids made it.)

Anyhoo, after perfectly timing our decision to start a business a few months in advance of the worst time to start a business in history, we're grateful to still be here. We know why we made it, too. Coffee and toner? Sure. But we're also thankful for our clients, prospective almost-clients, and even former clients, who have made our survival possible. We are grateful to our colleagues / co-workers / employees, who have helped us flourish. Thank you, too, to our vendors and everyone else who have helped us along the way. And a big thanks to the courts, legislatures, and regulators, who continue to provide us with an ever-expanding, confusing, and conflicting body of employment laws!

By the way, SV's 4th anniversary also means that this blog celebrates its fourth year of existence. This is post number 368, and I've enjoyed every one of them. So, thank you, adoring public, for reading along with us. :::echo....echo....echo....::::

See you next year. I hope.


U.S. Supreme Court Partially Punts in Electronic Monitoring Case

We posted about Quon v. Arch Wireless here when it was just a Ninth Circuit case. There, the court of appeals held that a deputy sheriff had a reasonable expectation of privacy in his text messages sent on an employer-provided PDA.

On review, the U.S. Supreme Court ducked on the reasonable expectation of privacy issue that the courts below focussed on. The Supreme Court is concerned that the use of electronic data in the workplace and in society is still in flux and it does not want to pass judgment too soon on how privacy is maintained and expected in electronic communications. So we won't know about what policies are valid, whether a supervisor's oral statement could modify a written policy, and whether employers can destroy an expectation of privacy merely by furnishing the equipment. Another day, perhaps.

Instead, the court did hold that the City of Ontario was within its rights to look at Quon's text messages to see if he was using too much bandwidth for personal use. The court assumed there was a sufficient expectation of privacy without deciding the issue, and simply held that the search was "reasonable."
Because the search was motivated by a legitimate work related purpose, and because it was not excessive in scope, the search was reasonable under the approach of the O’Connor plurality. 480 U. S., at 726. For these same reasons—that the employer had a legitimate reason for the search, and that the search was not excessively intrusive in light of that justification—the Court also concludes that the search would be “regarded as reasonable and normal in the private-employer context” and would satisfy the approach of JUSTICE SCALIA’s concurrence. Id., at 732. The search was reasonable, and the Court of Appeals erred by holding to the contrary. Petitioners did not violate Quon’s Fourth Amendment rights.
Bottom line - this case would have more relevance to private sector employers in California if the Court had addressed the "reasonable expectation of privacy" issue. However, the court's discussion also concludes that employee monitoring is "regarded as reasonable and normal in the private-employer context."

For public sector employers, this case is significant because it clarifies the standard for the government-as-employer performing workplace monitoring even where employees have a reasonable expectation of privacy.

The case is City of Ontario v. Quon and the opinion is here.

U.S. Supreme Court: NLRB Must Have 3 Members to Rule

So, what are we going to do about the over-500 - count 'em - NLRB decisions issued by the 2-member panels??

The NLRB normally has 5 members. At the end of 2007, the Board had 4 members, and anticipated the terms of 2 recess appointments would expire shortly. So, the 4 members "delegated" its powers to a three-member panel.

Then, one of the panel members left because his term expired. That left just two - a quorum of the panel of three...right?

Well no. Several litigants challenged the Board's power to function as a two member panel. The Courts of Appeals split on the issue. The Supreme Court ruled today that the two-member decisions were improper:

we find that the Board quorum requirement and the three-member delegation clause should not be read as easily surmounted technical obstacles of little to no import. Our reading of the statute gives effect to those pro-visions without rendering any other provision of the statute superfluous: The delegation clause still operates to allow the Board to act in panels of three, and the group quorum provision still operates to allow any panel to issue a decision by only two members if one member is disqualified. Our construction is also consistent with the Board’s longstanding practice with respect to delegee groups. We thus hold that the delegation clause requires that a delegee group maintain a membership of three in order to exercise the delegated authority of the Board.

So, what happens to the 500+ decisions issued by the 2-member panel? We'll see how many of the litigants attempt to challenge them. Or, perhaps the Board, which has been staffed by 4 members since March 2010, will find some way to re-affirm the decisions. We shall see.

The case is New Process Steel LP v. NLRB and the opinion is here.


US DOL Issues New Adminstrator Interpretation

The U.S. Department of Labor is not waiting around for employers and employees to request informal opinion letters. The administrator is busy reviewing its previous letters and issuing new Administrator Interpretations. These are not the same as official regulations, but they give you an idea of how the department will enforce its laws.

The department issued its second such letter yesterday. This one addresses "donning and doffing" - basically whether changing at the beginning and end of the shift constitutes "preliminary" or "postliminary" activity (non-compensable under federal law) or compensable work time.

The issue arises under the federal Fair Labor Standards Act, as modified by the Portal-to-Portal Act:

Section 3(o) of the Fair Labor Standards Act (FLSA) provides that time spent “changing clothes or washing at the beginning or end of each workday” is excluded from compensable time under the FLSA if the time is excluded from compensable time pursuant to “the express terms or by custom or practice” under a collective bargaining agreement. 29 U.S.C. § 203(o).

In 1997, the DOL issued an opinion letter saying that meat packing employees' putting on "protective" clothing or gear, such as smocks, arm guards, belly guards, gloves, etc. was compensable time because these items were not considered "clothes." In 2002 and 2007, the DOL retreated from this position and held that donning/doffing "protective clothing" could be considered "clothes," excluded from work time.

In its Administrative Interpretation, No. 2010-2, the DOL returns to its 1997 interpretation. After reviewing the legislative history and court decisions, the DOL says:

the § 203(o) exemption does not extend to protective equipment worn by employees that is required by law, by the employer, or due to the nature of the job. This interpretation reaffirms the interpretations set out in the 1997, 1998 and 2001 opinion letters and is consistent with the “plain meaning” analysis of the Ninth Circuit in Alvarez. Those portions of the 2002 opinion letter that address the phrase “changing clothes” and the 2007 opinion letter in its entirety, which are inconsistent with this interpretation, should no longer be relied upon.

The DOL then went a step further. The DOL opined that changing clothes, even if not compensable, may constitute a "principal activity" where changing is integral to the job. When changing is considered a "principal activity," it starts the work day. The activities that follow are part of the work day and compensable, even if they would not be compensable by themselves. So, if changing clothes is a "principal activity," then walking from the locker to the work area is also compensable under the "continuous workday" doctrine:

it is the Administrator’s interpretation that clothes changing covered by § 203(o) may be a principal activity. Where that is the case, subsequent activities, including walking and waiting, are compensable. The Administrator issues this interpretation to assist employees and employers in all industries to better understand the scope of the § 203(o) exemption.
This interpretation is highly significant in industries where employees change clothes at the beginning and end of the shift, even when they do not necessarily wear "protective clothing" or equipment. That is because time that otherwise would not be compensable may become so if the clothes changing is considered a "principal activity."

The Obama administration's DOL, run by former California legislature member Hilda Solis, is awake. Employers should not ignore the federal agency, even in California.
The new interpretation is posted here.