Category: Labor & Employment

Supreme Court Rules Public Employee Demoted For Perceived Political Activity Can Bring First Amendment Challenge

In a 6-to-2 decision, the Supreme Court ruled that when a public employer demotes an employee in order to prevent the employee from exercising his free-speech rights, the employee may challenge that action as a violation of the First Amendment and §1983, even if the employer was mistaken about the employee’s behavior. The Court found that the government’s motive is what matters and that the constitutional violation of discouraging employees from engaging in protected political activity and speech is the same regardless of whether or not the employer was mistaken about the employee’s political involvement. Heffernan v. City of Paterson, 578 U.S. ___ (2016).

Supervisor Assumed Employee Supported Opposing Candidate

Jeffrey Heffernan was a police officer in Paterson, N.J., a twenty-year veteran of the force. After being promoted to detective in 2005, he was assigned to the office of the chief of police. In April 2006, the city was in the middle of a mayoral election where the incumbent had the support of Heffernan’s supervisors, but the challenger was a former Paterson police chief and friend of Heffernan. Heffernan could not even vote in the election as he did not live in the city but his mother did.

One afternoon, while off duty, Heffernan went, at his mother’s request, to the challenger’s campaign office to get a new yard sign for his mother’s yard. Other members of the police force saw him with the sign. The following day, Heffernan’s supervisors demoted him to patrol officer and assigned him to a walking patrol post. They demoted him as punishment for what they thought was his “overt involvement” in the challenger’s campaign, even though that belief was mistaken. Heffernan was not involved in the campaign but merely picked up the sign to help his bedridden mother.

Heffernan sued, alleging his demotion violated the First Amendment. He asserted that his supervisors demoted him because they thought he engaged in constitutionally protected speech, even though they were mistaken about his actions. The district court and Third Circuit Court of Appeals rejected his claim, holding that a free-speech retaliation claim under §1983 lies only when the government retaliated against an employee who actually exercised his First Amendment rights, not on the mistaken perception that he exercised protected rights.

High Court Rules In Favor Of First Amendment Protection 

Generally, the First Amendment prohibits government officials from dismissing or demoting an employee because that employee engaged in constitutionally protected political activity or speech. Heffernan argued that the government’s motive in taking an adverse employment action is the key to a public employee’s retaliation claim. He alleged that as long as a government employer believed that the employee was engaged in protected activity and took adverse action because of that belief, the employer violated the First Amendment.

The Supreme Court agreed. Writing for the majority, Justice Breyer stated that “the government’s reason for demoting Heffernan is what counts here.” The Court ruled that when a government employer demotes an employee because it wants to prevent the employee from engaging in political activity protected by the First Amendment, the employee is entitled to challenge that unlawful action under the First Amendment and §1983, even if the employer is acting upon a factual mistake regarding the employee’s behavior. The Court stated that the employer’s mistake does not diminish the risk of harm to the demoted employee or to others who fear similar adverse consequences of engaging in protected activity.

The Court left the door open, however, for government employers to adopt a neutral policy that prohibits police officers from overt involvement in any political campaign. Whether a specific neutral policy meets constitutional muster is a question the Court left for another day.

It’s the Employer’s Ill Motive that Matters, Not the Employee’s Exercise of Rights

The Court’s ruling means that a public employer can be held liable for violating an employee’s constitutional rights even where the employee admits he wasn’t exercising those rights. The public employer’s desire or motive to keep the employee from engaging in protected political activity is enough to give the employee a viable claim for damages under §1983 regardless of whether the employee engaged in any activity protected by the Constitution.

Article By Joanna R. Vilos of Holland & Hart LLP
Copyright Holland & Hart LLP 1995-2016.

Uber Aims to Settle Two Class Actions; Approximately 385,000 Uber Drivers in California and Massachusetts to Remain Independent Contractors – At Least for Now

Last Thursday, Uber settled two closely-watched class actions contesting Uber’s classification of approximately 385,000 drivers in California and Massachusetts as independent contractors as opposed to employees. While the plaintiffs viewed the settlement as a victory, so likely did Uber, as it allows Uber to continue to pursue an on-demand independent contractor service business model.  The court, however, still needs to approve the settlement and whether it will do so is not clear.

As part of the proposed settlement, Uber agreed to pay $84 million to the drivers. If Uber holds an initial public offering and its valuation goes above $93.75 billion within one year, Uber will pay an additional $16 million to the drivers bringing the total settlement to $100 million.  After reducing the pot to account for attorneys’ fees and other costs, the individual payments, based on the number of miles driven by each driver, range from nominal amounts up to $8,000, although the majority of class members may just walk away with less than $100.  Uber further agreed to revise its termination practices so that drivers must generally be given warnings and explanations before Uber can deactivate them from its software application.  Drivers will also be able to appeal terminations and will enjoy a more driver-friendly tipping policy.

Many consider $84 million, or even $100 million, a well-spent business expense for Uber, who potentially had to spend hundreds of millions, if not billions, of dollars to reclassify its drivers and comply with the requirements of minimum wage, overtime, workers compensation, anti-discrimination, benefits, sick leave, and other federal, state and local laws that apply to employees.

But Uber is not out of the woods yet. First, as mentioned earlier, the court must approve the settlement and there is no guarantee that it will.  Just a few weeks earlier, a California judge rejected a proposed settlement of similar litigation between Uber’s competitor, Lyft, and its drivers in part because it “short-changed” those drivers.  Under that settlement, Lyft drivers would have received an average of $56.  Second, Uber is settling lawsuits with its former and existing drivers in California and Massachusetts, but lawsuits in other states remain outstanding and new ones could be on the way.  Stay tuned for further developments.

Article By Michael S. Arnold & Gauri P. Punjabi of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

©1994-2016 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

San Francisco Becomes First U.S. City To Require Employer-Funded Paid Parental Leave

Mother Bottle Baby.jpgThis month, the San Francisco Board of Supervisors unanimously approved an ordinance that provides six weeks of parental leave for bonding with a new child at 100% of the employee’s rate of pay (subject to certain caps).  The ordinance which will take effect beginning January 1, 2017, will make San Francisco the first U.S. city to require employer-paid parental leave.

The new ordinance will go above and beyond the California state mandate, which currently provides covered employees six weeks of paid family leave at 55% of their pay for baby bonding or to care for a sick family member.  That paid leave is funded by the employee who is taking the leave, through regular payroll contributions to the California State Disability Insurance (“SDI”) program.  The new ordinance requires covered San Francisco employers to pay the remaining 45% of a covered employee’s wages during the six weeks of paid parental leave.

The law’s effective dates are staggered as follows:

Effective Date

Size of Employer

January 1, 2017

50 or more employees regardless of the employees’ location.

July 1, 2017

35 or more employees regardless of the employees’ location.

January 1, 2018

20 or more employees regardless of the employees’ location.

Covered Employers

In determining the size of a covered employer, the ordinance looks at the size of an employer’s total workforce, regardless of the actual location of the employees.  Accordingly, an employer may be subject to the ordinance even if it does not employ 50 (or 20) employees within the city of San Francisco.

The City and other governmental entities are not covered employers under the ordinance.

Covered Employees

Employees (including part-time and temporary employees) are eligible for the fully paid leave if they meet all of the following criteria:

  • Are employed for at least 180 days prior to the start of the leave;

  • Work at least 8 hours per week in San Francisco;

  • Work at least 40% of their weekly hours in San Francisco; and

  • Are eligible for California Paid Family Leave for baby bonding.

Notably, employee eligibility is based on the number of hours the employee works in San Francisco, regardless of his or her residence and regardless of the employer’s work location.

Union employees are not covered if (1) their collective bargaining agreement expressly waives the requirements under the ordinance in clear and unambiguous terms, or (2) the collective bargaining agreement was entered into before the ordinance’s effective date.

How Much Do Employers Need to Pay?

The new ordinance requires covered employers to pay 45% of the employee’s weekly gross wages, up to a maximum of $924 per week, for six weeks.  This cap is based on the California Paid Family Leave program’s 55% wage replacement provision, which is capped at $1,129 per week.  Between the two programs, covered employees should receive 100% wage replacement for a six-week parental leave, up to a total of $2,053/week.

What if the Employee Works for Multiple Employers?

If the covered employee works for more than one employer, the 45% supplemental compensation amount is apportioned between or among the covered employers based on the percentage of the employee’s total weekly wages received from each employer.  For example, if the employee earns $800 per week from Employer A and $200 per week from Employer B for a combined total of $1,000, Employer A pays 80% of the supplemental compensation and Employer B pays 20% of the supplemental compensation.

Can the Employer Require the Use of Vacation?

An employer can require employees to use up to two weeks of unused, accrued vacation to help meet the employer’s obligation under the ordinance.  This vacation time can be counted toward the six-week paid parental leave period.

Anti-Discrimination/Retaliation Provision

Employers may not interfere with, discriminate, or retaliate against employees for exercising their rights under the ordinance.  Terminating a covered employee within 90 days of their request or application for California Paid Family Leave, or taking adverse action against an employee within 90 days of their filing a complaint based on the new ordinance, will raise a rebuttable presumption that such action was taken to avoid the employer’s obligations under the law.

Notice and Posting

Employers will be required to post in a conspicuous place, at any workplace where a covered employee works, a notice informing employees of their rights under the ordinance.  The notice must be in English, Spanish, Chinese, and any other language spoken by at least 5% of the employees at the workplace or job site.

Employer Records

Employers must retain for three years records documenting the supplemental compensation paid to its employees, and make the records available to San Francisco’s Office of Labor Standards Enforcement (“OLSE”) upon request.  Failure to do so will raise a rebuttable presumption that the employer has violated the ordinance.

Damages and Penalties for Violations

The ordinance provides for remedies through the OLSE and through the courts.  The OLSE or “a person or entity acting on behalf of the public as provided for under applicable state law” may bring a civil action in court for alleged violations of the ordinance.

If the OLSE (after an administrative hearing) or court determines that the employer has violated the ordinance, the employer may be required to pay:

  • the total supplemental compensation withheld,

  • penalties to the employee of $250 or three times the amount of supplemental compensation withheld (whichever is greater),

  • penalties of $50 per day to each employee whose rights were deemed violated (e.g., in the instance of a failure to post a notice, this may be several employees per workday),

  • interest, and

  • in the event of a lawsuit, the plaintiff’s attorneys’ fees and costs.

Courts may also provide injunctive relief.  In addition, the OLSE may require the employer to pay the City penalties of $50 per day per “employee or person as to whom the violation occurred or continued.”

Takeaways

Paid leave is an area gaining increasing attention from state and local governments.  San Francisco’s new law comes on the heels of New York state’s enactment of a new paid family leave law and California’s Assembly Bill No. 908 which, beginning in 2018, will raise California’s current family leave pay rate from 55% to 60% or 70% depending on the employee’s wage rate.  The U.S. Department of Labor has also set requirements for federal contractors to provide their employees with paid sick leave.

While San Francisco has gone farther than any other jurisdiction in what it requires employers to provide to new parents, employers should expect similar legislation in more jurisdictions across the U.S. in the years to come.

Employers with employees who work in San Francisco are highly encouraged to review the new ordinance carefully and to consult with an employment attorney to begin exploring what steps they may need to take now to ensure they are able to comply with the law upon its enactment.

We will continue to monitor the increasing and various city, state, and federal laws surrounding paid leave and provide additional analysis and guidance on compliance.

Article By Anna M. Stancu of Sheppard, Mullin, Richter & Hampton LLP
Copyright © 2016, Sheppard Mullin Richter & Hampton LLP.

Wave of Recent and Transformative Pro-Employee Measures in New York

New York State and New York City lawmakers have taken several actions recently to expand employee rights and benefits. New York State has passed a 2016-2017 budget (“Budget”) that will significantly impact New York employers by creating a law governing paid family leave and enacting a statewide plan to incrementally increase the minimum wage resulting in a $15 minimum wage rate for some employers. Mayor Bill de Blasio also recently signed several bills amending the New York City Human Rights Law (“NYCHRL”), including 3 amendments that will strengthen existing employee protections.

Paid Family Leave

The New York State Budget enacts a paid family leave policy for New York employees (the “Paid Family Leave Law”) that will provide wage replacement to employees taking time o for covered reasons. Beginning January 1, 2018, employees who have worked for at least 6 months will be eligible for 8 weeks of paid leave benefits for the purpose of (1) caring for a family member with a serious health condition, (2) caring for a new child during the first 12 months after the child’s birth or after the first 12 months after placement of the child for adoption or foster care with the employee, or (3) addressing certain exigencies when a family member, including a spouse, domestic partner, child or parent, is called to active military service. Leave will be paid at a rate of 50% of the individual’s average weekly wage, not to exceed 50% of the state average weekly wage.

The length of leave benefits and amount of bene ts paid to eligible employees will increase incrementally. Once fully implemented on January 1, 2021, the Paid Family Leave Law will provide employees with up to 12 weeks of paid family leave to be paid at a rate of 67% of the individual’s average weekly wage, not to exceed 67% of the state average weekly wage.

Until New York passed the Paid Family Leave Law, only 3 states o ered any paid family leave: California, New Jersey and Rhode Island. While New York State lauds its Paid Family Leave Law as the “longest and most comprehensive in the nation,” this week San Francisco’s city supervisors voted to require employers with more than 20 employees to give workers six weeks of fully paid leave – a measure that is even more expansive than California’s current leave law that provides benefits for 55% of an employee’s average weekly wage. If signed into law, San Francisco’s paid leave law may be considered the most far-reaching in the nation.

But how does New York’s Paid Family Leave Law stack up against paid family leave insurance benefits o ered by its neighbor across the Hudson?

New York New Jersey
Employers Covered All Employers All Employers
Employees Eligible All employees who have worked for at least 6 months in NY All employees who have worked 20 calendar weeks
Reasons for Leave
  • care for newborn/newly adopted/foster child
  • care for family member with serious health condition
  • address exigencies associated with certain family members on active military service
  • care for newborn/adopted child
  • care for family members with serious health condition
Length of Benefits 12 weeks, once fully implemented 6 weeks during any 12 month period, with a different rate for intermittent leave
Amount of Benefits 67% of average weekly wage, not to exceed 67% of the state average weekly wage, once fully implemented 2/3 of employee’s average weekly wage, up to $524 per week maximum, with a different rate for intermittent leave
Job and Benefits Protection Requires reinstatement to the position held immediately prior to taking leave, or to a comparable position with comparable benefits. No job protection

Minimum Wage

New York’s Budget incorporates minimum wage increases throughout the State, which will increase the wage significantly from the current $9 per hour rate. The increases will be implemented in incremental phases and will vary by location within New York State and by the size of the employer’s business. By the end of 2018, many New York City businesses will be required to pay employees $15 per hour, which is the swiftest and most significant increase set forth in the Budget. However, New York City employers with 10 or fewer employees will experience smaller increases over a longer period leading to a $15 minimum wage rate at the end of 2019. Employers in other counties around New York City will reach the $15 per hour minimum wage rate by the end of 2021. Other areas in New York State will experience lesser increases, reaching a $12.50 minimum wage rate by the end of 2020 with further increases to be determined. New York is the second state to institute a $15 minimum wage rate, preceded by California which also recently implemented a phased-in increase to its minimum wage rates that will begin next year.

The Budget incorporates a “safety valve” provision, which provides that starting in 2019 the State Director of the Division of Budget will annually assess the impact of the minimum wage increases to determine whether it is necessary for the State to temporarily suspend the scheduled increases. Based on the Director’s recommendation and report, the Commission of Labor will determine whether or not to suspend or delay further increases to the minimum wage rate.

NYCHRL

The recent amendments to the NYCHRL, which already had some of the broadest employee protections in the country, further strengthen employee protections in New York City. Speci cally, the NYCHRL has been amended to benefit employees by:

  • codifying three judicial decisions, including by expressly stating that the statute must be interpreted liberally to accomplish “uniquely broad and remedial purposes” regardless of whether similar civil and human rights provisions under federal or state law have been similarly construed and that any and all exceptions and exemptions found in the statute must “be construed narrowly in order to maximize deterrence of discriminatory conduct.”

  • permitting a claimant to recover attorneys’ fees, expert fees and other costs in an administrative proceeding before the New York City Commission on Human Rights; and

  • repealing several provisions that were previously interpreted to limit protections related to sexual orientation.

Each of these amendments is effective immediately.

Tips for Employers

New York employers should review their policies regarding leave and ensure any necessary updates are made in advance of the Paid Family Leave Law’s January 1, 2018 implementation date. Similarly, the varied and incremental increases to the minimum wage rate throughout New York State will require New York employers to closely monitor their payroll practices to ensure that they properly implement minimum wage requirements. The employment-related amendments to the NYCHRL do not create a rmative requirements on employers. However, employers should bear in mind that New York City’s ever expanding NYCHRL creates unique challenges for employers seeking to defend claims. We will continue to update you as courts interpret these new measures, and if and when regulations are issued to address more nuanced concerns about the new legislation.

Article By David I. Rosen, Galit Kierkut, Charles H. Kaplan & Grace A. Byrd of Sills Cummis & Gross P.C.

© Copyright 2016 Sills Cummis & Gross P.C.

Coca-Cola Bottling Of Mobile to Pay $35,000 to Settle EEOC Sex Discrimination Suit

Company Refused Job to Experienced Applicant Because of Gender, Federal Agency Charged

Coca-Cola Bottling Company of Mobile, a manufacturer, bottler and distributor of soft drink products, will pay $35,000 and furnish other significant relief to settle a sex discrimination lawsuit filed by the U.S. Equal Employment Opportunity Commission (EEOC), the agency announced today.

According to EEOC’s suit, Coca-Cola Bottling Company of Mobile, a subsidiary of Coca-Cola Bottling Co. Consolidated, refused to hire Martina Owes, an applicant for two vacant warehouse positions, because she is female. While Owes had the required warehouse and forklift experience, the company chose to hire less qualified men for the available positions. EEOC also charged that, by not preserving all application materials related to those positions, the company violated federal record-keeping laws.

Sex discrimination violates Title VII of the Civil Rights Act of 1964, which protects employees against discriminatory practices based on race, color, national origin, sex, and religion. EEOC filed suit in U.S. District Court for the Southern District of Alabama, Mobile Division (EEOC v. Coca-Cola Bottling Co. Consolidated et al., Case No. 1:15-cv-00486) after first attempting to reach a pre-litigation settlement through its administrative conciliation process.

The consent decree settling the suit, entered by U.S. District Judge William H. Steele, provides that Coca-Cola Bottling will pay Owes $35,000 and prohibits further discrimination. Also, the company is required, for three years, to conduct annual training of its Mobile employees on discrimination and retaliation, develop new or revised anti-discrimination policies and a written hiring process, and designate a director-level employee to coordinate its compliance with anti-discrimination laws and compliance with the decree.

“Employers are required to provide women with equal employment opportunities, and that includes jobs that traditionally have been dominated by men,” said Delner Franklin-Thomas, district director of EEOC’s Birmingham District Office, which has jurisdiction over Alabama and portions of Mississippi and Florida. “We appreciate Coca-Cola Bottling’s desire to cooperate with EEOC early in the litigation process to resolve this matter.”

EEOC Birmingham Regional Attorney C. Emanuel Smith, said, “EEOC will continue to litigate when necessary in cases involving arbitrary and unfair barriers to equal opportunity in the workplace based on sex. The law requires that female applicants be judged on their qualifications and not passed over because of their gender.”

The elimination of recruiting and hiring practices that discriminate against women, racial, ethnic and religious groups, older workers, and people with disabilities is one of six national priorities identified by EEOC’s Strategic Enforcement Plan (SEP).

EEOC’s litigation and settlement efforts were led by Senior Trial Attorney Gerald Miller and Trial Attorney Christopher Woolley of its Birmingham District Office.

EEOC enforces federal laws prohibiting employment discrimination. Further information about EEOC is available on its website at www.eeoc.gov.

You can read the original article on the EEOC’s website here.

Article By U.S. Equal Employment Opportunity Commission
© Copyright U.S. Equal Employment Opportunity Commission

Dane County Judge: Wisconsin’s “Right to Work” law unconstitutional

wisconsin supreme courtIn a decision issued April 8, 2016, Dane County Circuit Court Judge William Foust ruled that Wisconsin’s “Right to Work” law violates the Wisconsin Constitution because it takes union property without just compensation (i.e., it is an unlawful taking).

According to the Wisconsin Manufacturers & Commerce (WMC), which played a leading role in seeking and attaining passage of the law, Judge Foust’s decision “is an act of blatant judicial activism that will not withstand appellate review.” Wisconsin Attorney General Brad Schimel also issued a statement expressing disappointment in the ruling and stating that he is “confident the law will be upheld on appeal.”

Judge Foust ruled that the law unconstitutionally takes union property by forcing a union to represent workers who are not members of the union and do not pay dues to the union. Judge Foust found the State’s argument that “neither federal law nor state law requires a union or other entity to become an exclusive bargaining representative” to be “disingenuous.” According to Judge Foust, the unions have no choice in representing all employees because, by law, their existence depends upon being the exclusive bargaining agent for any particular bargaining unit.

A copy of Judge Foust’s order is available here.

Article by: Rufino Gaytán of Godfrey & Kahn S.C.
Copyright © 2016 Godfrey & Kahn S.C.

Attorneys Facing An Uphill Battle In Litigation Should Consider Option Value When Arguing Valuation

Let me tell you a sad story; Joe owned a marketing company and earned a prosperous living for several years. Joe’s business was growing rapidly and all seemed right with the world. Then a trusted employee left Joe’s firm, taking with him half of Joe’s customers in violation of his non-compete agreement. Joe’s business slowly suffered and lost customers until eventually his firm declared bankruptcy.

Joe sued his former employee and asked for damages related to the value of his firm. Joe’s attorney argued to the court for compensation based on the value of Joe’s firm that was destroyed by the employee. Yet the attorney left out one critical question when arguing the case; how should the law account for the fact that Joe’s business was growing rapidly until the employee left?

Perhaps Joe had several big accounts that he might have been able to sign had the employee not engaged in unfair trade practices. Without taking these factors into account, Joe’s attorney is under-representing the value of Joe’s claim and leaving compensation on the table for no reason.

In finance, this idea of the possibilities that could plausibly occur in the future is called an embedded option or a real option and it is extremely useful in a variety of cases from divorce proceedings and business bankruptcies to merger disputes and matters of economic harm. In the scenario above, Joe’s firm had the ability to potentially continue to grow and become even more successful than it was at the time before Joe’s employee left. Hence the damage done to Joe is greater than simply the lost historical value of the firm. He has also lost the possibility of much more value in the future.

The crux of modern asset valuation is based on a concept called the time value of money. Essentially the idea is that because money received in the future is worth less than money received today, we can value assets or a business based on their associated cash flows and an appropriate discount rate. This approach forms the basis of everything from stock valuation on Wall Street to proper methods for computing interest rates in bankruptcy. This facet of valuation is well understood. But what about the future opportunities or chances of cash flows that are uncertain?  That’s what embedded options address.

The concept of embedded options might seem abstract or even too nebulous for many judges to buy into in a court case, but the reality is that real options have significant value and are often a subject of serious financial negotiations. Particularly for small firms, real options are often important and serve as the basis for various types of convertible debt and warrant grants.

As a finance professor and frequent consultant to companies on matters of asset valuation and financial forecasting, I have long taken it for granted that the techniques used in the finance profession were well understood and universally applied across many other industries including the law. I was very surprised to learn when I started doing expert consulting work, this is not the case. Lawyers often neglect to ask for damages based on real options in their cases. This leaves an important tool out of the litigation toolbox.

In discussing real options thus far, it might seem like they are primarily useful for parties alleging damages, yet they can also be useful for defendants as well. In particular, defendants need to understand how real options are valued and also understand the four appropriate metrics for calculating economic harm as it relates to options (compensating variation, equivalent variation, Paasche indices, and Laspeyres indices). I’ll talk more about these in a future column though.

When valuing real options, there are various statistical techniques that can be used. The math is not necessarily important here, but the concepts are. Essentially, real options increase in value in situations where there is greater uncertainty, and when interest rates in the broader economy rise. Those conditions make real options an exciting tool in today’s courts. With the Fed finally starting to raise interest rates, real options should become marginally more valuable. More importantly, situations with significant amounts of uncertainty lead to greater volatility in intrinsic asset prices.

These volatile situations are often the very situations that lead to court cases for attorneys – a business deal that went wrong leads to a bankruptcy but could have led to a hugely successful company, a merger agreement could result in substantial cost savings for both firms or substantial value destruction for investors and is being challenged by shareholders, a wrongful death case for an individual in the prime of their lives leaves so many possible futures unexplored. Thanks to new statistical techniques and greater computing power, these situations and others can be effectively modeled through computer simulations and valued by economists in ways that would have been unimaginable a decade ago.

Representing clients fairly and to the best of one’s ability in court is the foremost duty of an attorney. To do that, attorneys need to understand the tools of business and the cutting-edge techniques being used in asset valuation. Failing to use these tools is not only a disservice to clients, but a severe hindrance to the attorney as well. In a competitive legal market, the Joes of the world will flock to those attorneys that free themselves to position their clients for maximum success in court.

Article By Dr. Michael McDonald of Fairfield University Dolan School of Business

© Fairfield University Dolan School of Business

Are they Worth Price of Paper They're Printed On? – Ubersization of Arbitration Clauses

Arbitration has long been treated as an inferior method of resolving disputes, despite pronouncements to the contrary from the U.S. Supreme Court. However, arbitration does serve a purpose. The process is less formalized, so it moves much faster than the court system. That means less disruption to business. It’s also less expensive than bringing a civil action, making it easier for individuals to assert their rights or air their grievances. For these reasons and more, many businesses have incorporated arbitration provisions into their contracts and handbooks. The Federal Arbitration Act was enacted in 1925, yet these types of contractual agreements to arbitrate still get shot down in certain courts and by certain administrative authorities.more

Drivers v. Uber – The Arbitration Dispute

In Uber’s California litigation, Judge Chen has examined various aspects of the arbitration provisions contained in the various versions of Uber’s agreements with its drivers.  The 2013 Agreement and the 2014 Agreement shared several key features:

(1) all disputes not exempted from the scope of arbitration were subject to resolution by final and binding arbitration;

(2) arbitration could proceed only on an individual basis, not by class;

(3) the delegation clause in the provision stated that “disputes arising out of or relating to the interpretation or application of this Arbitration Provision, including the enforceability, revocability or validity of the Arbitration Provision or any portion of the Arbitration Provision” shall be decided by the arbitrator; and,

(4) an opt-out clause allowed drivers to avoid the arbitration clause.

In separate litigation, the Court had Uber revise the opt-out provision to make it more conspicuous and less onerous on the drivers.  Because the 2013 Agreement contained the original opt-out provision, it did not stand a chance of being found enforceable.  In later 2014 and 2015 Agreements,  Uber included the provision in boldface and ALL CAPS with text larger than the provisions around it.  Language also was added to explain the significance of arbitration and the right to opt-out.  Additionally, to exercise that right now, a driver need only send an email to Uber stating his/her name and the desire to opt-out (although he/she could send a letter by regular mail, overnight delivery, or hand-delivery, too).  As a result, when the Court certified a class on September 1, 2015, those drivers who failed to opt-out of the provision were excluded from the class.  However, in December, the Court found the arbitration agreements were unenforceable on California public policy grounds, irrespective of the opt-out provision, thus dramatically increasing the size of the class.

Meanwhile, delegation clauses, like the one set forth under (3) above, seem to cause consternation in courts across the nation.  Even the U.S. Supreme Court has recognized that courts are the typical adjudicators of whether the parties have agreed to arbitrate in the first instance.  Because a delegation clause puts this determination in the hands of the arbitrator instead, it must be clear and unmistakable.  In Uber’s case, the clause was clear, but it was made ambiguous because it conflicted with other clauses contained in the Agreements.  For instance, a separate clause in Uber’s 2013 and 2014 driver agreements stated that the state and federal courts in San Francisco had exclusive jurisdiction over any disputes, actions, or claims arising out of the Agreement.  While Uber argued that the forum selection clause reserving jurisdiction in San Francisco courts was for any disputes found not subject to arbitration, Judge Chen did not buy into that argument.  He felt the clauses conflicted, and since the courts would have to apply rules of construction to resolve the ambiguity created by the competing clauses, that meant that the delegation clause was not clear and unmistakable, and therefore, was unenforceable.

The arbitration provision in Uber’s 2013 and 2014 Agreements also addressed responsibility for payment of the arbitrator’s fees.  It provided that if applicable law did not require Uber to pay for all of the costs and fees of arbitration, then the costs would be apportioned between the parties as required by law.  Judge Chen found that because the delegation clause would force drivers to pay exorbitant fees just to arbitrate whether or not their substantive disputes even belonged before the arbitrator in the first place, when drivers would not have to pay a court to make that determination, such a clause deprived drivers of any forum for their claims.

The arbitration provision contained three additional unfavorable terms which Judge Chen found were not sufficiently highlighted for the drivers’ attention.  For one, the confidentiality clause precluded the parties from disclosing the existence, contents, or results of any arbitration.  For another, the intellectual property carve-out clause excluded intellectual property disputes from arbitration – something the Court found favored Uber.  Finally, the unilateral modification clause permitted Uber to unilaterally modify the terms of the agreement without notice to the drivers.  As a result of all of the foregoing issues, the Court found the agreements to arbitrate were unconscionable.  Thus, Judge Chen refused to enforce them.

Can an enforceable arbitration agreement even be written? 

Arbitration agreements are evaluated on a case-by-case basis.  While many are still disfavored, as I mentioned earlier, they are more likely to be upheld if they are not unconscionable.  The procedural component of the unconscionability analysis usually deals with the formation of the agreement itself.  This includes the characteristics of the parties (e.g., age, literacy, sophistication), the manner and circumstances under which the contract was executed, and whether terms of the agreement are hidden or complex, among other things.  The substantive component looks at the unfairness of the agreement.  Judge Chen, acknowledging that the issue wasn’t fully settled, nevertheless evaluated the arbitration provision through the lens of an employer/employee relationship.  Let me provide some tips that make arbitration agreements more likely to be upheld by courts in the employment context.

  • Keep your agreement to arbitrate in a separate document requiring a separate acknowledgement.

  • While the agreement may cover all workplace disputes between the parties, do not preclude employees from filing charges with state or federal administrative agencies, like the EEOC.

  • If you reserve the right to modify or discontinue the arbitration clause, include a requirement that notice will be given to employees and that the modification or rescission will be applied prospectively.

  • Since cost is a big issue for courts reviewing these agreements, make sure the employee will only be required to pay what the arbitrator finds is reasonable should the employee lose, or make sure the costs to pursue arbitration are not more costly than those to bring a lawsuit.

  • The remedies available in arbitration should be similar to those available in court.

  • Avoid delegation clauses.

As always, there is no substitute for consulting with an attorney when attempting to draft one of these agreements.

ARTICLE BY Vanessa L. Goddard of Steptoe & Johnson PLLC
© Steptoe & Johnson PLLC. All Rights Reserved.

Are they Worth Price of Paper They’re Printed On? – Ubersization of Arbitration Clauses

Arbitration has long been treated as an inferior method of resolving disputes, despite pronouncements to the contrary from the U.S. Supreme Court. However, arbitration does serve a purpose. The process is less formalized, so it moves much faster than the court system. That means less disruption to business. It’s also less expensive than bringing a civil action, making it easier for individuals to assert their rights or air their grievances. For these reasons and more, many businesses have incorporated arbitration provisions into their contracts and handbooks. The Federal Arbitration Act was enacted in 1925, yet these types of contractual agreements to arbitrate still get shot down in certain courts and by certain administrative authorities.more

Drivers v. Uber – The Arbitration Dispute

In Uber’s California litigation, Judge Chen has examined various aspects of the arbitration provisions contained in the various versions of Uber’s agreements with its drivers.  The 2013 Agreement and the 2014 Agreement shared several key features:

(1) all disputes not exempted from the scope of arbitration were subject to resolution by final and binding arbitration;

(2) arbitration could proceed only on an individual basis, not by class;

(3) the delegation clause in the provision stated that “disputes arising out of or relating to the interpretation or application of this Arbitration Provision, including the enforceability, revocability or validity of the Arbitration Provision or any portion of the Arbitration Provision” shall be decided by the arbitrator; and,

(4) an opt-out clause allowed drivers to avoid the arbitration clause.

In separate litigation, the Court had Uber revise the opt-out provision to make it more conspicuous and less onerous on the drivers.  Because the 2013 Agreement contained the original opt-out provision, it did not stand a chance of being found enforceable.  In later 2014 and 2015 Agreements,  Uber included the provision in boldface and ALL CAPS with text larger than the provisions around it.  Language also was added to explain the significance of arbitration and the right to opt-out.  Additionally, to exercise that right now, a driver need only send an email to Uber stating his/her name and the desire to opt-out (although he/she could send a letter by regular mail, overnight delivery, or hand-delivery, too).  As a result, when the Court certified a class on September 1, 2015, those drivers who failed to opt-out of the provision were excluded from the class.  However, in December, the Court found the arbitration agreements were unenforceable on California public policy grounds, irrespective of the opt-out provision, thus dramatically increasing the size of the class.

Meanwhile, delegation clauses, like the one set forth under (3) above, seem to cause consternation in courts across the nation.  Even the U.S. Supreme Court has recognized that courts are the typical adjudicators of whether the parties have agreed to arbitrate in the first instance.  Because a delegation clause puts this determination in the hands of the arbitrator instead, it must be clear and unmistakable.  In Uber’s case, the clause was clear, but it was made ambiguous because it conflicted with other clauses contained in the Agreements.  For instance, a separate clause in Uber’s 2013 and 2014 driver agreements stated that the state and federal courts in San Francisco had exclusive jurisdiction over any disputes, actions, or claims arising out of the Agreement.  While Uber argued that the forum selection clause reserving jurisdiction in San Francisco courts was for any disputes found not subject to arbitration, Judge Chen did not buy into that argument.  He felt the clauses conflicted, and since the courts would have to apply rules of construction to resolve the ambiguity created by the competing clauses, that meant that the delegation clause was not clear and unmistakable, and therefore, was unenforceable.

The arbitration provision in Uber’s 2013 and 2014 Agreements also addressed responsibility for payment of the arbitrator’s fees.  It provided that if applicable law did not require Uber to pay for all of the costs and fees of arbitration, then the costs would be apportioned between the parties as required by law.  Judge Chen found that because the delegation clause would force drivers to pay exorbitant fees just to arbitrate whether or not their substantive disputes even belonged before the arbitrator in the first place, when drivers would not have to pay a court to make that determination, such a clause deprived drivers of any forum for their claims.

The arbitration provision contained three additional unfavorable terms which Judge Chen found were not sufficiently highlighted for the drivers’ attention.  For one, the confidentiality clause precluded the parties from disclosing the existence, contents, or results of any arbitration.  For another, the intellectual property carve-out clause excluded intellectual property disputes from arbitration – something the Court found favored Uber.  Finally, the unilateral modification clause permitted Uber to unilaterally modify the terms of the agreement without notice to the drivers.  As a result of all of the foregoing issues, the Court found the agreements to arbitrate were unconscionable.  Thus, Judge Chen refused to enforce them.

Can an enforceable arbitration agreement even be written? 

Arbitration agreements are evaluated on a case-by-case basis.  While many are still disfavored, as I mentioned earlier, they are more likely to be upheld if they are not unconscionable.  The procedural component of the unconscionability analysis usually deals with the formation of the agreement itself.  This includes the characteristics of the parties (e.g., age, literacy, sophistication), the manner and circumstances under which the contract was executed, and whether terms of the agreement are hidden or complex, among other things.  The substantive component looks at the unfairness of the agreement.  Judge Chen, acknowledging that the issue wasn’t fully settled, nevertheless evaluated the arbitration provision through the lens of an employer/employee relationship.  Let me provide some tips that make arbitration agreements more likely to be upheld by courts in the employment context.

  • Keep your agreement to arbitrate in a separate document requiring a separate acknowledgement.

  • While the agreement may cover all workplace disputes between the parties, do not preclude employees from filing charges with state or federal administrative agencies, like the EEOC.

  • If you reserve the right to modify or discontinue the arbitration clause, include a requirement that notice will be given to employees and that the modification or rescission will be applied prospectively.

  • Since cost is a big issue for courts reviewing these agreements, make sure the employee will only be required to pay what the arbitrator finds is reasonable should the employee lose, or make sure the costs to pursue arbitration are not more costly than those to bring a lawsuit.

  • The remedies available in arbitration should be similar to those available in court.

  • Avoid delegation clauses.

As always, there is no substitute for consulting with an attorney when attempting to draft one of these agreements.

ARTICLE BY Vanessa L. Goddard of Steptoe & Johnson PLLC
© Steptoe & Johnson PLLC. All Rights Reserved.

Supreme Court Rules Public Sector Union Agency Fees Still Alive

The U.S. Supreme Court was equally divided 4-to-4 on a case that asked the Justices whether to overturn long-established law that allows a public sector union to charge an agency or service fee to those employees who choose not to join the union. With the Court equally split, the lower court’s decision is automatically affirmed, and public sector unions can continue to charge agency fees to employees who do not join the union.

Overturning Abood Appeared A Real Possibility

In the 1977 Abood v. Detroit Board of Education decision, the Supreme Court ruled that unions could charge an agency fee to public employees who chose not to join the union to cover the union’s costs to negotiate a contract that covers all the public employees. For over thirty years, that has been settled law. In 2014, however, the Court suggested it might be willing to overturn Abood, questioning its analysis on several grounds, including whether a mandatory agency fee violates a non-union member’s First Amendment right to free speech.

That apparent willingness to overturn Abood set up the First Amendment challenge to public union agency fees in this term’s case of Friedrichs v. California Teachers Association. At the oral argument in Friedrichs in January, the Court’s more conservative Justices appeared ready to overrule Abood. Even the four more liberal Justices appeared to concede that the First Amendment argument may be tough to uphold but instead focused on the importance of not overturning prior rulings unless there is a compelling reason to do so. The long-standing Abood precedent appeared in jeopardy.

Justice Scalia’s Death Creates Stalemate 

Justice Antonin Scalia’s unexpected death in February left the Court at a 4-to-4 stalemate in Friedrichs. With the even split, the Ninth Circuit’s ruling applying Abood stands.

Opponents of unions and the Abood decision will have to wait for another case to work its way through the judicial system to raise the issue for consideration by a future Court. Of course, depending on who fills Justice Scalia’s vacancy, the majority of Justices may no longer have an appetite to reconsider Abood. We’ll all have to wait and see. In the meantime, public sector unions may continue to charge agency fees to those employees not paying union dues.

Article By Jason S. Ritchie of  Holland & Hart LLP

Copyright Holland & Hart LLP 1995-2016.