SCOTUS Archives - The National Law Forum

U.S. Supreme Court: Forced Transfers of Employees Without Loss of Pay or Rank Violate Title VII

Federal law prohibits employers from relying on certain protected statuses (race, color, religion, sex, or national origin) when making employment decisions. Lower courts have required employees suing employers to point to a materially adverse harm caused by the alleged employer discrimination. But is a forced transfer of an employee to another department—with no loss of pay or rank—an “adverse employment” decision? On April 17, 2024, the U.S. Supreme Court ruled 9-0 in the affirmative.

In Muldrow v. City of St. Louis, a female police sergeant alleged she was transferred from one job to another because she is a woman, in violation of Title VII. While her rank and pay remained the same in the new position, her responsibilities (moving from being a plainclothes intelligence officer to a more administrative role), perks (e.g., no longer having a take-home car), and schedule (fewer weekends off) did not. The District Court reiterated Title VII’s prohibition against basing employment decisions on a person’s gender, but further opined that because the female police sergeant did not demonstrate there was a “significant” change in working conditions producing “material employment disadvantage,” her discrimination claim failed as a matter of law. The District Court reached this conclusion because she suffered no “change in salary or rank,” and therefore, there was no harm and no foul. The U.S. Court of Appeals for the Eighth Circuit agreed, concluding that the plaintiff did not have a viable employment discrimination claim because her job transfer “did not result in a diminution to her title, salary, or benefits.”

Writing for a unanimous court, Justice Elena Kagan reversed the Eighth Circuit, ruling that an employee need not show “significant, serious” or “material” change in employment conditions to maintain a discrimination claim “because the text of Title VII imposes no such requirement.” More specifically, the Supreme Court reasoned that there is nothing in Title VII that distinguishes “between transfers causing significant disadvantages and transfers causing not-so-significant ones.” All a plaintiff need show in a forced discriminatory transfer case is that the transfer left the employee “worse off,” but not “significantly worse” as numerous federal appellate decisions have previously held.

Road to Victory Just Got a Little Easier for Whistleblowers

In 2017, a federal jury found whistleblower Trevor Murray was wrongfully terminated after he refused “to change his research on commercial mortgage-backed securities.” He won over $900,000. On appeal in 2022, the U.S. Court of Appeals for the Second Circuit overturned Murray’s award, finding whistleblowers who bring a retaliation claim against their employer under the Sarbanes-Oxley Act (SOX) must prove their employer acted with “retaliatory intent.”

Earlier this month, the U.S. Supreme Court weighed in, issuing a unanimous decision in Trevor Murray v. UBS Securities LLC, et al. The justices found that the Second Circuit was wrong. That is, “when it comes to a plaintiff’s burden of proof on intent under SOX, they only need to show that their protected activity contributed to an unfavorable personnel action, such as a firing.” Once the plaintiff does this, the Supreme Court found the burden of proof shifts to the employer to prove that “it would have taken the same adverse action regardless of the employee’s protected activity.” The justices found the law is intended ”to be plaintiff-friendly.”

In light of this development, employers should continue to be diligent in documenting the reasons that lead to an employee’s termination. This is especially true if that employee may be found to have engaged in a protected activity, cloaking them with certain whistleblower protections.

In siding with whistleblower Trevor Murray, the justices rejected UBS’ position that a separate finding of retaliatory intent is required for whistleblower protection under the Sarbanes-Oxley Act, or SOX, which governs corporate financial reporting and recordkeeping.

Striking a Balance: The Supreme Court and the Future of Chevron Deference

In its frequent attempts to enforce the separation of powers that the Constitution’s framers devised as a system of checks and balances among the executive, legislative, and judicial branches of the federal government, it is often the so-called “Fourth Branch”—that includes the varied administrative agencies—that is at the heart of things.[1]

These agencies possess a level of technical and scientific expertise that the federal courts generally lack. And, without reference to expertise, Congress often leaves it to agencies and the courts to interpret and apply statutes left intentionally vague or ambiguous as the product of the legislative compromise required to gain passage. This phenomenon begs the question of the extent to which the federal courts may defer to administrative agencies in interpreting such statutes, or whether such deference abnegates the judicial prerogative of saying what the law is. Having passed on several opportunities to revisit this question, the Supreme Court of the United States has finally done so.

In what potentially will lead to a decision that might substantially change the face of federal administrative law generally while voiding an untold number of agency regulations, the Supreme Court, on January 17, 2024, heard oral argument in a pair of appeals, Loper Bright Enterprises, et al., v. Raimondo, No. 22-451, and Relentless, Inc., et al. v. Department of Commerce, No. 22-1219, focusing on whether the Court should overrule or limit its seminal decision in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

Almost 40 years ago, the Chevron decision articulated the doctrine commonly known as “Chevron deference,” which involves a two-part test for determining when a judicial determination must be deferential to the interpretation of a statute. The first element requires determining what Congress has spoken directly to the specific issue in question, and the second is “whether the agency’s answer is based on a permissible construction of the statute.”

Among the most cited Supreme Court cases, Chevron has become increasingly controversial, especially within the conservative wing of the Court, with several Justices having suggested that the doctrine has led to the usurpation of the essential function of the judiciary.

Chevron deference affects a wide range of federal regulations, and the Court’s ruling, whether or not Chevron is retained in some form, is likely to result in significant changes to how agencies may implement statutes and how parties affected by regulations may seek relief from the impact of those regulations. Interestingly, commentators on the recent oral argument in the case are widely divided in their predictions as to the outcome—some suggesting that the conservative majority of the Court will overrule Chevron outright, others suggesting that the Court has no intention at all to do so.

Based on remarks made during the oral arguments by Justice Gorsuch, and by Justices Amy Coney Barrett and Elena Kagan, as well as Justice Kagan’s fashioning of a majority that clarified a related interpretive rule in an earlier case focusing on agencies’ authority to interpret their own regulations, we suggest that there is a substantial possibility that the Court will take a moderate path by strengthening judicial scrutiny at the “Step One” level while recognizing that there are technical and scientific matters as to which courts have no expertise. At the same time, the Court may make it clear that, essentially, legal issues are within its prerogatives and are not subject to agency interpretation.

We examine how the Court might find a path to a better balancing of agency and judicial functions that is consistent with and builds upon other recent rulings involving the review of actions taken by administrative agencies. Whatever the outcome, the Court’s ruling in these cases will have a profound impact on individuals and entities that are regulated by federal agencies or that depend on participation in government programs, such as Medicare and Social Security.

A Chevron Refresher

Most law students and lawyers have some familiarity with the touchstone for judicial review of agency rules that was articulated in Chevron, a case that dealt with regulations published by the Environmental Protection Agency to implement a part of the Clean Air Act.[2] The Supreme Court explained that judicial review of an agency’s final rule should be based on the two-part inquiry that we mentioned earlier. First, the reviewing court should determine whether Congress made its intent unambiguously clear in the text of the statute; if so, the inquiry ends, and both the agency and the reviewing court must give effect to Congress’s intent. This has become known by the shorthand phrase “Step One.”

If Congress’s intent is not clear, either because it did not address a specific point or used ambiguous language, then the court should defer to the agency’s construction if it is based on a permissible reading of the underlying statute. This has become known as “Step Two.”

In applying Step Two, a reviewing court should determine if the gap left by Congress was explicit or implicit. If the ambiguity is explicit, then the agency’s regulations should be upheld unless they are arbitrary, capricious, or contrary to the statute.[3] If the ambiguity is implicit, then the “court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency.”[4]

Chevron deference is not a blank slate for courts to find ambiguity. It recognized that the judiciary “is the final authority on issues of statutory construction” and instructed that in applying Step One, judges are expected to apply the “traditional tools of statutory construction.”[5] It also recognized that any deference analysis should fit within the balance among the branches of government. The Supreme Court explained that while Congress sets an overall policy, it may not reach specific details in explaining how that policy is to be executed in particular contexts. In these situations, the executive branch may have the necessary technical expertise to fill in the details, as it is charged with administering the policy enacted into law. The Court noted that the judiciary was not the ideal entity to fill in any gaps left in legislation because “[j]udges are not experts in the field” and that courts are not political entities. As a result, agencies with expertise are better suited to carry out those policies. Moreover, even if agencies are not accountable to the public, they are part of the executive branch headed by the President, who (unlike judges with life tenure) is directly accountable to the electorate.[6]

Nevertheless, during the recent oral arguments, the Chief Justice stated that the Court had not in recent years employed Chevron itself in its analysis of agency action. The reason why the issue of whether Chevron unduly intrudes upon the judicial function, and whether it should be overruled or modified, relates to the fact that it is widely used in lower court review of administrative actions. Its reconsideration also relates to increasing jurisprudential conservatism on the Supreme Court and the application of originalism and, more widely, textualism.

The Chevron concept of deference to agency regulations exists alongside a line of cases in which courts have deferred to an agency’s interpretations of its own regulations. In both Bowles v. Seminole Rock & Sand Co.[7] and Auer v. Robbins,[8] the Supreme Court developed the principle that courts are not supposed to substitute their preference for how a regulation should be interpreted; instead, a court should give “controlling weight” to that interpretation unless it is “plainly erroneous or inconsistent with the regulation.”[9] Nevertheless, the Court has refused to extend that form of deference to subregulatory guidelines and manuals where there is little or no evidence of a formal process intended to implement Congress’s expressed intent.[10]

The Chevron framework has generated criticism, including statements by several current Justices. Their position relies on an argument that Chevron distorts the balance of authority in favor of the executive and strips courts of their proper role. In a recent dissent from a denial of certiorari, Justice Gorsuch complained that Chevron creates a bias in favor of the federal government and that instead of having a neutral judge determine rights and responsibilities, “we outsource our interpretive responsibilities. Rather than say what the law is, we tell those who come before us to go ask a bureaucrat.”^[11] Justice Thomas has written that the Administrative Procedure Act does not require deference to agency determinations and raises constitutional concerns because it undercuts the “obligation to provide a judicial check on the other branches, and it subjects regulated parties to precisely the abuses that the Framers sought to prevent.”[12]

Chevron and the Herring Fishermen

The dispute that has brought Chevron deference to the Supreme Court in 2024 starts with the business of commercial fishing for herring. The National Marine Fisheries Service (NMFS) published a regulation in 2020 that requires operators of certain fishing vessels to pay the cost of observers who work on board those vessels to ensure compliance with that agency’s rules under the Magnuson-Stevens Fishery Conservation and Management Act of 1976 (“Act”). Several commercial fishing operators challenged the regulations, which led to two decisions by the U.S. Courts of Appeals for the District of Columbia Circuit and the First Circuit. Both courts upheld the regulations, but on slightly different grounds. In the first decision, Loper Bright Enterprises, Inc. v. Raimondo,[13] the District of Columbia Circuit followed the traditional Chevron analysis and concluded that the Act did not expressly address who would bear the cost of the monitors. The NMFS’s interpretation of the statute in the regulation was found to be reasonable under Step Two of Chevron based on the finding that the agency was acting within the scope of a broad delegation of authority to the agency to further the Act’s conservation and management goals, and on the established precedent concluding that the cost of compliance with a regulation is typically borne by the regulated party.

The second decision by the First Circuit, Relentless, Inc. v. United States Department of Commerce,[14] took a slightly different approach. That court focused on the text of the Act and concluded that the agency’s interpretation was permissible. It did not anchor its decision in a Chevron analysis and stated that “[w]e need not decide whether we classify this conclusion as a product of Chevron step one or step two.”[15] The First Circuit also emphasized that the operators’ arguments did not overcome the presumption that regulated entities must bear the cost of compliance with a relevant statute or regulation.

The parties have staked out starkly different views of Chevron’s legitimacy and whether it is compatible with the separation of powers in the U.S. Constitution. The fishermen petitioners argue that Chevron is not entitled to respect as precedent because the two-part test was only an interpretive methodology and not the holding construing the Clean Air Act. Their core argument is that Chevron improperly and unconstitutionally shifts power to the executive branch by giving more weight to the agencies in rulemaking and in resolving disputes where the agency is a party and shifts power away from the judiciary’s role under Article III to interpret laws and Congress’s legislative authority power under Article I. Taking this one step further, the petitioners argue that this shift violates the due process rights of regulated parties. They also argue that Chevron is unworkable in practice, citing instances where the Supreme Court itself has declined to apply the two-part test and the lack of a consensus as to when a statute is clear or ambiguous, making the application of Chevron inconsistent. Put another way, according to the petitioners, the problem with Chevron is that there is no clear rule spelling out how much ambiguity is needed to trigger deference to an agency’s rule. Next, they argue that Chevron cannot be applied when an underlying statute is silent because this allows agencies to legislate when there is a doubt as to whether Congress delegated that power to the agency at all and that it would run counter to accepted principles of construction that silence can be construed to be a grant of power to an agency. Finally, they contend that Chevron deference to agencies conflicts with Section 706 of the Administrative Procedure Act, where Congress authorized courts to “decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action.”[16]

The Secretary of Commerce argues that there are multiple reasons to preserve Chevron deference. First, the Secretary argues that Chevron fits within the balance of power between the branches of the federal government. In the Secretary’s view, Chevron deference is consistent with the separation of powers doctrine, as it respects (1) Congress’s authority to legislate and to delegate authority to an administrative agency, (2) the agency’s application of its expertise in areas that may be complex, and (3) the judiciary’s authority to resolve disputed questions of law. Therefore, the Chevron framework avoids situations where courts may function like super-legislatures in deciding how a statute should be implemented or administered and second-guess policy decisions.

According to the Secretary, courts know how to apply the traditional tools of statutory interpretation, and if an ambiguity exists after that exercise is complete, it is appropriate to defer to an administrative agency that has technical or scientific experience with the subject matter being regulated. In addition, the Secretary contends that Chevron promotes consistency in the administration of statutes and avoids a patchwork of court rulings that may make it difficult or impossible to administer a nationwide program, such as Social Security or Medicare. Third, the Secretary notes that Chevron is a doctrine that has been workable for 40 years and that over those decades, Congress has not altered or overridden its holding, even as it has enacted thousands of statutes since 1984 that either require rulemaking or have gaps that have been filled by rulemaking. As a result, the Secretary argues that there are settled interpretations that agencies and regulated parties rely on, and overruling Chevron would lead to instability and relitigating settled cases. Finally, the Secretary argues that Chevron deference cannot be limited to interpretations of ambiguous language alone, as there are no accepted criteria for distinguishing ambiguous statutory language from statutory silence.

The Oral Argument

The Supreme Court heard arguments in both cases on January 17, 2024. Over more than three hours of argument, the Justices focused on several questions. Justices Kagan, Sotomayor, and Jackson expressed concerns that abandoning the Chevron framework would put courts in the position of making policy rather than just ruling on questions of law. In their view, courts lack the skills and expertise to craft policy and should not act as super-legislators. They also stressed that there are situations in which the tools of statutory construction do not yield a single answer or that Congress has not addressed the question either because it left some matters unresolved in the statute or through other subsequent changes not contemplated by Congress, such as the adoption of new technologies. In these cases, the Justices wanted to know why deference to an agency was not appropriate and did not see any clear indication that Congress intended that courts, not agencies, should make determinations when the statutory language is ambiguous or silent. They also questioned why the Supreme Court should overrule Chevron when Congress has been fully aware of the decision for 40 years and has not enacted legislation to eliminate the ability of a court to defer to an agency’s determinations.

The members of the more conservative wing of the Supreme Court questioned counsel about weaknesses in the Chevron framework. Justice Gorsuch returned to his earlier criticism of Chevron and asked the parties to define what constitutes enough ambiguity to allow a court to move from Step One to Step Two. He further questioned whether there was sufficient evidence that Congress ever intended to give the government the benefit of the doubt when an individual or regulated entity challenges agency action. Justice Gorsuch, along with Justices Thomas and Kavanaugh, asked whether Chevron actually resulted in greater instability and whether it was appropriate to abandon Chevron in favor of the lesser form of deference articulated in Skidmore v. Swift & Co., where deference is not a default outcome and a court is supposed to exercise its independent judgment to give weight to agency determinations based on factors including the thoroughness of the agency’s analysis, the consistency and validity of the agency’s position, and the agency’s “consistency with earlier and later pronouncements, and all those factors which give it power to persuade.”[17] The follow-up questions asked whether it was correct to accord deference to agency regulations when the agency’s policy can shift from administration to administration.

Where Is the Conservative Court Likely to Go?

The length of the argument and the alacrity of questioning do not mean that the Supreme Court is going to overrule the 40-year-old, highly influential Chevron doctrine. It is, however, quite likely that the doctrine will be narrowed and clarified. To say nothing of the recent oral argument, several recent decisions evidence a reluctance to abandon deference altogether. In a pair of decisions issued in 2022 involving Medicare reimbursement to hospitals, the Court resolved deference questions by relying on the statutory text alone.

Those decisions involved challenges to a Medicare regulation governing hospital reimbursement, and a published interpretation of a section of the Medicare statute governing reimbursement for outpatient drugs. Although the Court ruled in the government’s favor in the former case and against the government in the latter case, neither decision relies on Chevron—even though in one case, the petitioner’s counsel expressly asked the Court to overrule Chevron during the oral argument.[18] Yet, by relying on the text of each statute to resolve a regulatory dispute, the Court’s reasoning in both decisions is consistent with Step One of the Chevron test and demonstrates that it is workable in practice and need not result in a dilution of judicial review. In addition, the Court has developed another limit to agency action in its decisions, finding that when a regulatory issue presents a “major question,” deference is irrelevant unless the agency can show that Congress expressed a clear intent that the agency exercise its regulatory authority. This concept remains a work in progress because the Court has not defined criteria that make an issue a major question.[19]

These cases provide a useful background to an increasingly jurisprudentially conservative, textually oriented Court. Two cases that were specifically discussed during oral argument are particularly significant in plotting the Court’s landing place with regard to Chevron. Justice Gorsuch made multiple references to Skidmore, which sets forth the principle that a federal agency’s determination is entitled to judicial respect if the determination is authorized by statute and made based on the agency’s experience and informed judgment. Unlike the Chevron standard, the Skidmore standard considers an agency’s consistency in interpreting a law it administers.

The second, and more recent, precedent that is even more likely to guide the narrowing of Chevron is Kisor v. Wilkie.[20] There, a 5-4 divided Court adopted a multi-stage regime for reviewing an agency’s reliance upon arguably ambiguous regulations that is roughly analogous to Chevron’s two-stage analytical modality. In doing so, it modified, but did not overrule, Auer v. Robbins, 519 U.S. 452 (1997), and its doctrinal predecessor, Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945), which permit a court to defer to an agency’s interpretation of its own ambiguous regulation, so long as that interpretation is reasonable, even if the court believes another reasonable reading of the regulation is the better reading.

Kisor saw a mixed bag of Justices joining, or dissenting from, various parts of the Kagan opinion. What made the majority as to its operative section was the Chief Justice’s joining Justice Ginsburg, Breyer, and Sotomayor. With Justice Ginsburg having been succeeded by Justice Barrett, and Justice Breyer having been succeeded by Justice Jackson, one might hypothesize that there now would be a conservative 5-4 majority that would have overruled Auer. However, it was Justice Barrett who raised the possibility of “Kisorizing” Chevron, a suggestion quickly adopted by Justice Kagan. Justice Gorsuch, a longtime opponent of Chevron, is likely amenable to a Skidmore-oriented result.

The Kagan opinion cabins and arguably lowers the level of deference an agency’s interpretation of a rule should receive. Thus, with a strong nod to the Court’s jurisprudential drift to the right, Justice Kagan begins with the truism that whatever discretion an agency might claim, the Court’s analysis must proceed under the proposition that an unambiguous rule must be applied precisely as its text is written. It is not unlikely that, if the Court narrows Chevron (as we predict it shall), it also will begin with a more robust requirement to apply the statutory text in Step One and re-emphasize the need to exhaust all of the tools of statutory construction; in other words, there is no need for deference unless there is genuine ambiguity. If an agency’s determination is to become relevant, it only becomes so after ambiguity is established.[21]

In short, if the law gives a definitive answer on its face, there is nothing to which a court should defer, even if the agency argues that there is an interpretation that produces a better, more reasonable result. This is a textual determination that addresses the criticism of the so-called Administrative State’s acting as a quasi-legislature to which the Court yields its own power to say what the law is.

However, even a reasonable agency interpretation, the Kagan opinion notes, might not be dispositive. The opinion must be the agency’s official position, not one ginned up for litigation purposes, and it must reflect the agency’s particular expertise.

Conclusion

In its 40-year life, Chevron deference has been at the heart of the application of federal administrative law. No case among all of the many governmental functions that the Supreme Court considers has been more widely cited, and no administrative law case has been more controversial, especially among jurisprudential conservatives. While asked by various parties to do so, the Court has declined, and the Chevron structure has been applied, often inconsistently, by federal courts. Perhaps reflecting the increasingly conservative direction of the Court, we have reached a point where the Court will consider retiring this long-standing precedent or, alternatively, refreshing it based on the experience of courts and agencies since 1984.

Justice Kagan’s analytic method in Kisor v. Wilkie could also apply to tightening Chevron. In her decisions, she has exhibited great fidelity to reading text literally, avoiding the perils of legislation from the bench. As she wrote in Kisor:

[B]efore concluding that a rule is genuinely ambiguous, a court must exhaust all the traditional tools of construction. . . . For again, only when that legal toolkit is empty and the interpretive question still has no single right answer can a judge conclude that it is more one of policy than of law. That means a court cannot wave the ambiguity flag just because it found the regulation impenetrable on first read. Agency regulations can sometimes make the eyes glaze over. But hard interpretive conundrums, even relating to complex rules, can often be solved. A regulation is not ambiguous merely because discerning the only possible interpretation requires a taxing inquiry. To make that effort, a court must carefully consider the text, structure, history, and purpose of a regulation, in all the ways it would if it had no agency to fall back on. . . . Doing so will resolve many seeming ambiguities out of the box, without resort to . . . deference” (citations and internal punctuation omitted).[22]

Text alone might not provide the answer in every case, as Justice Kagan recognizes as she outlines four additional steps that might lead to judicial deference to agency statutory interpretations. However, to the extent that a majority of the Court elects to retain Chevron, though narrowing it, her approach in the analogous setting reflected in Kisor would be effective in resolving the two cases now at bar—recognizing agency expertise in technical and scientific matters beyond the competency of the judiciary while preserving the function of the courts to determine what the legislature actually wrote, not to write it themselves.

* * * *

ENDNOTES

[1] Besides the administrative bureaucracy, various jurists and commentators have, under this rubric, included the press, the people acting through grand juries, and interest or pressure groups. Those institutions represent the arguable influence of extra-governmental sources. We are focused here on the level of judicial deference afforded to federal administrative agencies.

[2] 467 U.S. at 842-43.

[3] 5 U.S.C. § 706(2)(A).

[4] Id. at 844.

[5] Id. at 843, fn.9.

[6] Id. at 865-66.

[7] 325 U.S. 410, 414 (1945).

[8] 519 U.S. 452, 461 (1997).

[9] Id.

[10] United States v. Mead Corp., 533 U.S. 218, 229 (2001); Christensen v. Harris County, 529 U.S. 576 (2000).

[11] Buffington v. McDonough, No. 21-972 (Gorsuch, J., dissenting at 9) (2022).

[12] Perez v. Mortgage Bankers Ass’n, 135 S.Ct. 1199,1213 (2015) (Thomas, J., concurring in the judgment).

[13] 45 F.4th 359 (D.C. Cir. 2022).

[14] 62 F.4th 621 (1st Cir. 2023).

[15] Id. at 634.

[16] 5 U.S.C. § 706.

[17] 323 U.S. 134, 140 (1944).

[18] Becerra v. Empire Health Foundation, 142 S.Ct. 2354 (2022), and American Hospital Ass’n v. Becerra, 142 S.Ct. 1896 (2022). The request to overrule Chevron appears in the transcript of the American Hospital Ass’n oral argument, at 30.

[19] West Virginia v. EPA, 142 S.Ct. 2587 (2022); Utility Air Regulatory Group v. EPA, 573 U.S. 302, 324 (2014).

[20] 139 S. Ct. 2400 (2019).

[21] Kisor predicated deference, if at all, upon five preliminary stages. First, as noted, the reviewing court should determine that a genuine ambiguity exists after applying all of the tools of statutory construction. This is consistent with Step One of Chevron, but Justice Kagan makes it clear that this is a heightened textual barrier. Second, the agency’s construction of the regulation must be “reasonable”; this is a restatement of Step Two of Chevron. The Court cautioned that an agency can fail at this step. Third, the agency’s construction must be “the agency’s ‘authoritative’ or ‘official position,’” which was explained as an interpretation that is authorized by the agency’s head or those in a position to formulate authoritative policy. Fourth, the regulatory interpretation must implicate the agency’s “substantive expertise.” Finally, the regulatory interpretation must reflect the agency’s “fair and considered judgment” and that a court should decline to defer to a merely “convenient litigating position” or “post hoc rationalizatio[n] advanced” to “defend past agency action against attack.”

[22] 139 S.Ct. at 2415.

Supreme Court Upholds Corporate Whistleblower Protections in Landmark Ruling

Today, the U.S. Supreme Court issued a unanimous ruling holding that whistleblowers do not need to prove that their employer acted with “retaliatory intent” to be protected under the Sarbanes-Oxley Act (SOX). The decision in the case, Murray v. UBS Securities, LLC, has immense implications for a number of whistleblower protection laws.

“This is a major win for whistleblowers and thus a huge win for corporate accountability,” said leading whistleblower attorney David Colapinto, a founding partner of Kohn, Kohn & Colapinto.

“A ruling in favor of UBS would have overturned more than 20 years of precedent in SOX whistleblower cases and made it exceedingly more difficult for whistleblowers who claim retaliation under many similarly worded federal whistleblower statutes,” Colapinto continued.

“Thankfully, the Court was not swayed by UBS’ attempt to ignore the plain meaning of the statute and instead upheld the burden of proof that Congress enacted to protect whistleblowers who face retaliation,” added Colapinto.

In an amicus curiae brief filed in the case on behalf of the National Whistleblower Center, the founding partners of Kohn, Kohn & Colapinto outlined the Congressional intent behind the burden of proof standard in SOX.

“In crafting the unique ‘contributing factor’ test for whistleblowers, Congress left an incredibly straight-forward legislative history documenting the value of whistleblowers’ contributions, the risks and retaliation whistleblowers faced, the barriers the previous burden of proof presented for whistleblowers, and Congress’ explicit intention to lower that burden of proof for whistleblowers,” the brief states.

In the Court’s opinion, Justice Sonia Sotomayor likewise pointed to the Congressional intent of SOX’s contributing-factor burden of proof standard:

“To be sure, the contributing-factor framework that Congress chose here is not as protective of employers as a motivating-factor framework. That is by design. Congress has employed the contributing-factor framework in contexts where the health, safety, or well-being of the public may well depend on whistleblowers feeling empowered to come forward. This Court cannot override that policy choice by giving employers more protection than the statute itself provides.”

This article was authored by Geoff Schweller.

Year in Review: The Most Popular IP Posts of 2023

As 2024 begins and intellectual property (IP) strategies are being developed for the new year, it is a good time to reflect on what IP issues were prominent in 2023. According to many readers, hot IP topics included patent litigation strategies, artificial intelligence (AI), and pharmaceutical-related patent applications.

An Overview of Shotgun Pleadings in the Federal Courts– This article explores types of shotgun pleadings identified by courts and outlines potential responses to a shotgun pleading.
Lensa: Are AI Art Generators Copyright Infringers?– The ability of an AI tool, such as Lensa, to create near-replicas of other artists’ works leads to the question of whether AI-generated art can be considered derivative of other artworks. This article explores the answer to this question.
Supreme Court Unanimously Affirms Amgen Repatha® Antibody Patents Invalid for Lack of Enablement– In their May 2023 decision in Amgen v. Sanofi, the U.S. Supreme Court held claims of patents, directed to a genus of potentially millions of antibodies, to be invalid because the patents failed to sufficiently enable one skilled in the art to make and use the full scope of the claimed inventions as required by 35 U.S.C. §112(a). This article explains the decision and its possible effect going forward.
Why Pharma Companies Should File Patents Later In The R&D Process – This article discusses clinical trial related patent applications and best practices for maximizing patent term while minimizing risk of invalidation by public use.
Federal Circuit Resolves District Court Split, Holds Foreign Defendant Cannot Defeat Rule 4(k)(2) Personal Jurisdiction by Unilateral Post-suit Consent to Jurisdiction in Alternative Forum – This article provides provide additional context regarding the Federal Circuit’s January 2023 decision in In re Stingray IP Solutions, LLC.

The Supreme Court to Further Clarify “Transportation Worker” Exemption to the FAA

On September 29, 2023, the U.S. Supreme Court granted certiorari in Bissonnette v. LePage Bakeries Park St. LLC, a case from the Second Circuit Court of Appeals involving application of the Federal Arbitration Act’s (“FAA”) exemption for transportation workers.

Specifically, Section 1 of the FAA exempts from arbitration “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce”—the third category commonly referred to as the “transportation worker” exemption.

In the case below, the plaintiffs—a group of delivery drivers for a bakery—filed various wage and hour claims against the defendant, whom they claimed was their employer. When the defendant moved to compel arbitration, the plaintiffs argued that, as bakery delivery drivers, they were exempt from arbitration as a “class of workers engaged in foreign or interstate commerce.”

The Second Circuit concluded that the plaintiffs were not exempt from arbitration because they were in the bakery industry, not in the transportation industry. Therefore, the Second Circuit concluded that the plaintiffs were not transportation workers subject to exemption under Section 1 of the FAA. The Second Circuit’s decision turned, in part, on the interpretation of the U.S. Supreme Court’s decision in Saxon—a case that we previously reported on from last term.

In the Saxon case, the U.S. Supreme Court unanimously held that a ramp supervisor who frequently handled cargo for an interstate airline company was exempt under Section 1 of the FAA as a transportation worker. In reaching that conclusion, the U.S. Supreme Court’s analysis focused on the “actual work” the worker performed, rather than the industry in which the employer operated—holding that “[the worker] is . . . a member of a ‘class of workers’ based on what she does at Southwest, not what Southwest does generally.”

Though the Second Circuit in Bissonnette acknowledged Saxon, the Second Circuit, in a split decision, held that Saxon did not come into play, stating that “those who work in the bakery industry are not transportation workers, even those who drive a truck from which they sell and deliver the breads and cakes”—essentially establishing a threshold requirement that the individual work in the “transportation industry” in order to be covered by the exemption.

In a pointed dissent, Judge Pooler wrote: “Of course these truckers are transportation workers,” and, “[b]y focusing on the nature of the defendants’ business, and not on the nature of the plaintiffs’ work, the majority offers the sort of industrywide approach Saxon proscribes.”

The U.S. Supreme Court’s forthcoming decision will likely clarify whether the FAA’s exemption contains an industry requirement or whether the analysis turns purely on the nature of the work the individual worker performs without regard to the underlying industry in which they work. Regardless of the outcome, the U.S. Supreme Court’s decision will provide much-needed guidance at a time when more and more businesses are bringing transportation services in-house—opting to ship and deliver their own products as opposed to relying exclusively on traditional transportation companies.

How The U.S. Supreme Court’s Ruling On College Affirmative Action Programs May Impact Private Employers

The U.S. Supreme Court in Students for Fair Admissions, Inc. v. President and Fellows of Harvard College decided that the race-based admissions programs at Harvard College and the University of North Carolina (the “Schools”) violated the Equal Protection Clause of the Fourteenth Amendment. While the Court answered the question for publicly funded schools, it is an open question whether, and how, the Court’s decision will impact affirmative action and diversity programs for private employers, as discussed in more detail below.

Overview

The Fourteenth Amendment states, in relevant part, that no State shall “deny to any person . . . the equal protection of the laws.” Among other things, the clause protects people regardless of their race. A limited exception that permits race-based action by the government is permissible if such action can survive a rigorous standard known as “strict scrutiny.” Under that standard, race-based conduct is permissible only if the government can establish a “compelling government interest” and the race-based action is “narrowly tailored” to achieve that established interest.

The Supreme Court concluded that the Schools’ race-based admissions programs failed strict scrutiny. In support of their race-based admissions programs, the Schools asserted the following educational goals as their compelling interests:

Training future leaders in the public and private sectors/preparing engaged and productive citizens and leaders.
Preparing graduates to adapt to an increasingly pluralistic society/broadening and refining understanding.
Better educating students through diversity/enhancing appreciation, respect, and empathy, cross-racial understanding, and breaking down stereotypes/promoting the robust exchange of ideas.
Producing new knowledge stemming from diverse outlooks/fostering innovating and problem solving.
Preparing engaged and productive citizens and leaders.

The Court noted that although these goals were laudable, they were too amorphous to pass muster under the strict scrutiny standard. The Court recognized that a court would have no way to know whether leaders have been adequately trained; whether the exchange of ideas is sufficiently robust, or whether, and in what quantity, racial diversity leads to the development of new knowledge. In other words, the Court took issue with the fact that the asserted interests could not be measured in any meaningful, quantifiable way.

In addition, the Court found there was no meaningful connection between the Schools’ use of race in the admissions process and the claimed benefits. For example, the Court noted that while diversity may further the asserted interests, the Schools failed to establish that racial diversity would. The Court took particular issue with what it viewed as the overbroad and arbitrary nature of the Schools’ race considerations as they were underinclusive (for example, failing to distinguish between South Asians or East Asians, or define what Hispanic means, or account at all for Middle Eastern applicants). The Court reasoned that the overbroad, arbitrary, and underinclusive racial distinctions employed by the Schools undermine the Schools’ asserted interests—essentially noting that the Schools’ race-based admissions programs sought to “check the diversity box” rather than obtain a truly diverse (racially or otherwise) student body.

In addition to the School’s programs’ failure to survive strict scrutiny, the Court also recognized that the Schools’ race-based admissions processes promoted stereotyping, negatively impacted nonminority applicants, and, contrary to Court precedent, did not have a durational limit or any cognizable way in which to adopt a durational limit.

Supreme Court Precedent

The Court’s decision rested largely on two prior cases addressing race-based admission programs in higher education: Regents Univ. of Cal. v. Bakke, 438 U.S. 265 (1978) and Grutter v. Bollinger, 539 U.S. 306 (2003). As a guiding principle, the Court noted that the Equal Protection Clause of the Fourteenth Amendment bars admissions programs that use race as a stereotype or a negative.

In Bakke, while rejecting other asserted interests, the Court explained that obtaining the educational benefits associated with having a racially diverse student body was “a constitutionally permissible goal for an institution of higher education,” provided that certain guardrails were in place. This is despite the Court’s recognition that racial preferences cause serious problems of justice. The Court said that race only could operate as “a ‘plus’ in a particular applicant’s file” and the weight afforded to race must be “flexible enough to consider all pertinent elements of diversity in light of the particular qualifications of each applicant.”

In Grutter, the Court decided “student body diversity is a compelling state interest that can justify the use of race in university admissions,” provided that sufficient limitations were in place—notably, that under no circumstances would race-based admissions decisions continue indefinitely. The Court cautioned that, because the use of race was a deviation from the norm of equal treatment, race-based admissions programs must not result in “illegitimate . . . stereotyping,” must not “unduly harm nonminority applicants,” and must be “limited in time.”

The Court’s Additional Considerations

Of critical importance to the Court’s ruling was the fact that neither School’s race-based admissions program had an articulable end point. The Court noted that the Schools’ arguments to overcome the lack of a definite end point were, essentially, “trust us, we’ll know when we’re there.” Yet such arguments, the Court held, were insufficiently persuasive to offset the pernicious nature of racial classifications. Justices Thomas and Gorsuch, who joined the majority opinion, took additional issue with the Schools’ “trust us” arguments in separate concurrences, noting (1) their view of the Schools’ histories of harmful racial discrimination, and (2) that courts are not to defer to the morality of alleged discriminators.

Additionally, the Court took issue with the logical necessity that, in any instance when a limited number of positions are available, a race-based “plus factor” for applicants of a certain race is a negative for applicants who do not belong to the favored race. “How else but ‘negative’ can race be described if, in its absence, members of some racial groups would be admitted in greater numbers than they otherwise would have been?” In this, the Court recognized that equal protection is not achieved through the imposition of inequalities.

Impact on Private Employers

The Supreme Court’s recent decisions have no direct legal impact on private employers. The Court based its decision on the Equal Protection Clause of the Fourteenth Amendment, applicable to the Schools under Title VI, which does not intrinsically apply to private companies; it is Title VII and analogous state and local laws that apply to private employers (not Title VI) and prohibit private employers from discriminating against employees and applicants on the basis of race (and other protected characteristics). In employment, the law has always prohibited any consideration of race in decision-making, such as who to hire or who to promote, except in extremely narrow and limited situations but, even then, quotas and set-asides are strictly prohibited.

While not directly applicable, it is highly likely that the Court’s decision will spawn new challenges to private employer diversity and inclusion programs, and the Court’s rationale will be referenced as an indicator of how the Court will view such programs under Title VII. Even before the Court’s decision, the legal landscape around an employer’s use of affirmative action plans to aid in making employment decisions was murky. Generally a private employer’s affirmative action plan is permissible under Title VII in two scenarios: (1) if the plan is needed to remedy an employer’s past discrimination, and (2) if the plan is needed to prevent an employer from being found liable under Title VII’s disparate impact prohibitions (which operate to prohibit facially neutral policies that nevertheless disproportionately disadvantage certain groups).

Regarding the latter scenario, it is unlikely the Court’s ruling will have much if any impact. For an affirmative action plan to survive scrutiny on this basis, an employer must first prove a disparate impact case against itself: it must identify a specific policy, prove that such policy has a disparate impact on a certain group, and either show that the policy is not justified by business necessity or show that there is a viable alternative that both (a) accounts for the employer’s business necessity, and (b) has less of a disparate impact on the affected group. Then, the employer must prove how its affirmative action steps offset the disparate impact. There is nothing in the Court’s opinion that suggests an employer’s effort to remedy an ongoing Title VII violation would itself be a violation of Title VII.

However, there is language in the Court’s opinion that suggests an affirmative action plan implemented in the former scenario could be problematic, especially if it is not designed carefully. Indeed, a number of lower court decisions even before the Supreme Court’s recent ruling have struck down employer affirmative action programs. Permissible affirmative action programs are typically implemented to remedy past racial imbalances in an employer’s workforce overall, and are not tied to past discrimination against an identifiable employee or applicant. At the close of the Supreme Court’s recent opinion, it admonished Justice Sotomayor’s dissent wherein she proposed a world where schools consider race indirectly, through, for example, essays submitted alongside applications. The Court noted that such would nevertheless violate the Constitution, and clarified that admission decisions can rely on the content of application essays, but that such decisions must be based on an individual applicant’s character or experiences, and not based on the applicant’s race. Similarly, Justice Thomas, in his concurring opinion, recognized that “[w]hatever their skin color, today’s youth simply are not responsible for instituting the segregation of the 20th century, and they do not shoulder the moral debts of their ancestors.” Accordingly, challenges to affirmative action plans that attempt to remedy past discrimination generally, by using race in its decision-making may find purchase in the Court’s closing sentiments and Justice Thomas’s concurrence. Although a standard less exacting then “strict scrutiny” is used to evaluate discrimination claims under Title VII, the sentiment expressed by Members of the Court could make the judiciary increasingly skeptical of affirmative action programs that resemble those used by the Schools. In any event, the possibility of being able to continue to use affirmative action plans in the strict sense to increase diversity in an employer’s workforce is likely little comfort to private employers, as few will want to prove a discrimination case against themselves to justify a diversity program.

Additionally, employers’ diversity, equity, and inclusion (DEI) programs may be the subject of challenges based on the Supreme Court’s skepticism of the benefits of “racial” diversity, as opposed to diversity on less-pernicious characteristics. For example, DEI programs that seek to increase racial diversity based on broad racial definitions may be subject to challenges because of their overbreadth or purportedly arbitrary nature. And DEI programs that highlight racial diversity, rather than, for example, diversity based on socio-economic, ideological, or experiential characteristics may suffer challenges to their legitimacy in reliance on the Supreme Court’s implication that there may be no identifiable tether between “racial” diversity and the purported benefits of diversity as a concept.

Of course, to the extent private employers with affirmative action plans have contracts with government entities and/or receive government funding, affirmative action plans under the Office of Federal Contract Compliance Programs (“OFCCP”), require targeted diversity recruiting efforts, aimed at increasing the diversity of applicant pools, although this also does not permit race (or other protected traits) to be used in decision-making.

Practical Tips For Employers

The Court’s decision applies to affirmative action programs in the college setting and applies an analysis under the Equal Protection Clause that does not directly apply to private employers. The decision also deals with very different scenarios where colleges and universities directly used race as a criteria for admissions. As noted, this has generally never been permitted in the employment context and, as a result, the rules of the road for implementing DEI programs have not changed, although they may evolve through future legal challenges in light of the Supreme Court’s recent decisions. There are still countless ways that private employers can design and implement lawful DEI programs. Below are just a few examples employers may consider:

Reiterate D&I as a priority in meetings, conferences, and other communications.
Implement recruiting programs to diversify your talent pool.
Incentivize employees to refer diverse candidates for openings.
Support employee resource groups, mentoring programs, and leadership training.
Educate your managers and supervisors on unconscious bias.
Encourage diversity in suppliers and business partners.
Tie D&I efforts (not results) to managerial performance evaluations.
Under the privilege of working with counsel, monitor changes in workforce demographics and conduct pay audits.
Consider modifying the goal of DEI programs to seek diversity based on broader characteristics that do not involved protected classes, such as experiences, economic background, or worldview.

Conclusion

The Court’s decision is a landmark ruling that will alter the landscape of college and university admissions. And it will almost certainly spawn new challenges beyond the classroom and into the workplace.

However, the decision does not legally require private employers to make changes to their existing DEI programs if such practices comply with already-existing employment laws. Employers can still implement diversity and inclusion programs and promote diversity within their workplaces but, as has always been the case, employers should tread carefully in designing and implementing these programs. Employers would do well to engage counsel to review such programs and initiatives for possible concerns in light of the Court’s decision, as well as existing precedent in the employment context.

For more Labor and Employment Legal News, click here to visit the National Law Review.

Supreme Court Upholds State Courts’ Power of Judicial Review Over Election Matters

On June 27, 2023, the United States Supreme Court upheld a decision by North Carolina’s highest court holding that the North Carolina legislature went too far in gerrymandering voting district maps. The Court affirmed the authority of state courts to review the decisions of state legislatures on election matters, rejecting the “independent state legislature theory.” The theory, taken to its extreme, is that no branch of state government can question a state legislature’s decision regarding any federal election. The ruling is an encouraging sign for states like Arizona, Illinois, and Michigan, where independent redistricting commissions have created, or are creating, new maps intended to represent non-partisan, or less partisan, boundary drawing and citizen-driven ballot initiatives to protect voters’ rights.

The plaintiffs in Moore v. Harper, 600 U.S. ___ (2023), were groups and individuals challenging North Carolina’s 2021 congressional districting map, which they viewed as unacceptable gerrymandering, created to favor Republican candidates. The legislative defendants asserted that in creating the new map, they had exercised the authority established by the “Elections Clause” in Article I, Section 4 of the United States Constitution that provides that state legislatures shall prescribe, “the Times, Places and Manner of” federal elections. Although North Carolina judges had found the new map to be “a partisan outlier intentionally and carefully designed to maximize Republican advantage in North Carolina’s Congressional delegation,” the legislative defendants argued the map was beyond the reach of judicial review. The Supreme Court had to decide whether “the Elections Clause insulates state legislatures from review by state courts for compliance with state law.” Moore, slip opinion at p 11.

Writing for the majority, Chief Justice John Roberts began the analysis by citing our country’s long-standing legal tradition of judicial review of the constitutionality of legislative acts. The majority opinion noted the 1787 decision in Bayard v Singleton, where the North Carolina Supreme Court found a law banning British loyalists from challenging property seizures was unconstitutional. The opinion goes on to review many decades of decisions where courts have considered the “interplay between state constitutional provisions and a state legislature’s exercise of authority under the Elections Clause.” Moore, slip opinion at p 15.

Looking at the other side of the case, the Court examined the legislative defendants’ arguments about the impact of the Election Clause. Rejecting Justice Clarence Thomas’s dissent, Roberts addressed the concept known as “independent state legislature theory” which contends that, “because the Federal Constitution gives state legislatures the power to regulate congressional elections, only [the Federal] Constitution can restrain the exercise of that power.” Id at 18. The historical references supporting this theory are debunked in the Moore decision, and many commentators have stated the decision in Moore slams the door on the extreme view that state legislative acts around federal elections are not subject to review by state courts.

The Moore decision, however, refers to a need to balance competing interests: “Although we conclude that the Elections Clause does not exempt state legislatures from the ordinary constraints imposed by state law, state courts do not have free rein.” Moore, slip opinion at p 26. The opinion goes on to note:

We do not adopt these or any other test by which we can measure state court interpretations of state law in cases implicating the Elections Clause… We hold only that state courts may not transgress the ordinary bounds of judicial review such that they arrogate to themselves the power vested in state legislatures to regulate federal elections.

Id. p 28-29. It therefore remains to be seen how difficult it will be to challenge state legislatures in their future attempts at partisan district drawing in state courts. Paying homage to the Supreme Court decision in Bush v Gore, it also leaves open the question of when federal courts may find that a state court has transgressed the “ordinary bounds of judicial review.” And, Moore leaves the Court’s holding in Rucho v Common Cause, 139 S Ct 2484 (2019) that partisan gerrymandering claims brought in federal court are not justiciable because they present a political question beyond their reach.

Nevertheless, taken in the context of other decisions reached this term, such as the Alabama districting case implicating the Voting Rights Act (Allen v Milligan), the recent decision in Moore gives comfort to many traditionalists who have been increasingly fearful of sudden and/or extreme changes to norms in American jurisprudence.

Click Here for More Election Law News at the National Law Review.

The Scope of Attorney-Client Privilege Over Dual-Purpose Communications

The Supreme Court will evaluate the scope of attorney-client privilege when applied to communications shared between counsel and client that involve both legal and non-legal advice (“dual-purpose communications”). The decision of the highest court will have long-lasting implications for both business organizations and their retained counsels. The potential outcome of this case cannot be understated.

In this matter, the grand jury issued subpoenas to an anonymous law firm seeking documents related to the government’s investigation of the firm’s client. The law firm had provided both legal and business services to the client by advising on tax-related legal issues and preparing the client’s annual tax returns. When the law firm and client (“Petitioners”) withheld certain correspondence on the grounds that they were protected by attorney-client privilege and the work-product doctrine, the government moved to compel the production of those documents. The district court held that, while the correspondence contained a “dual-purpose,” they were not protected by attorney-client privilege because the primary purpose of the correspondence was to obtain business tax advice and not legal advice.

On appeal, Petitioners argued that the appellate court should apply the “because of” test rather than the “primary purpose” test. The “because of” test asks whether the dual-purpose correspondence was made because of a need for legal advice. The application of this test would expand the scope of attorney-client privilege and protect the correspondence at issue. The Ninth Circuit Court of Appeals, however, rejected Petitioners’ argument and affirmed the district court’s decision. Petitioners appealed the Ninth Circuit’s decision, and the Supreme Court granted certiorari on October 3, 2022.

The Supreme Court’s decision in In re Grand Jury 21-1397 will be of particular significance for in-house counsels who regularly provide both business and legal advice to their employers. For outside counsels, the outcome of this case will shed light on the standard to be applied for asserting privilege over dual-purpose communications. Oral argument occurred on January 9, 2023 at the Supreme Court.

For more litigation news, click here to visit the National Law Review.

SCOTUS Takes a Pass on “Gap Time” Dispute

It’s two months into argument season at the Supreme Court, and we’re always keeping our fingers crossed that the justices will take up a wage and hour issue and clear up some ambiguities in the law or a circuit split.

Top billing this SCOTUS term goes to Helix Energy Solutions Group, Inc. v. Hewitt, in which the Court will address whether a supervisor who earned more than $200,000 a year but was paid on a daily basis is exempt from the overtime laws as a “highly compensated employee” under 29 C.F.R. § 541.601, notwithstanding the salary basis rules in 29 C.F.R. § 541.602 and 29 C.F.R. § 541.604. The Court held arguments on October 12, and you can read the transcript here. We’ll report on that decision as soon as it’s published.

This week’s news is a denial of a petition for a writ of certiorari in Cleveland County, North Carolina v. Conner, a case about gap time. The plaintiff in the case—an EMT worker—was paid under a fairly complex set of ordinance-based and contractual terms, but the gist of her claim was that the county shorted her on straight-time pay she was owed under her contract, and by doing do violated the Fair Labor Standards Act. The district court dismissed the claim, on the ground that the FLSA governs minimum wage and overtime pay, but not straight-time pay (assuming no minimum wage violation). On appeal, however, the Fourth Circuit noted that “there are situations … that fall between [the minimum wage and overtime] provisions of the FLSA. It explained:

In addition to seeking unpaid overtime compensation, employees may seek to recover wages for uncompensated hours worked that fall between the minimum wage and the overtime provisions of the FLSA, otherwise known as gap time …. Gap time refers to time that is not directly covered by the FLSA’s overtime provisions because it does not exceed the overtime limit, and to time that is not covered by the FLSA’s minimum wage provisions because … the employees are still being paid a minimum wage when their salaries are averaged across their actual time worked. (Internal citations and alterations omitted.)

The Court of Appeals differentiated between two types of gap time—“pure gap time” and “overtime gap time”—with the former referring to unpaid straight time in a week in which an employee works no overtime, and the latter referring to unpaid straight time in a week in which the employee works overtime. The court noted, correctly, that no provision of the FLSA addresses gap time of either type, and that there is no cause of action under the FLSA for “pure gap time” absent a minimum wage or overtime violation by the employer. Such claims would arise, if at all, under state law.

On the other hand, the circuit court noted that courts are divided on whether an employee can bring an “overtime gap time claim” under the FLSA. While the statute itself is silent on the issue, the U.S. Department of Labor’s interpretation of the FLSA—set forth in 29 C.F.R. § 778.315—states that:

[C]ompensation for … overtime work under the Act cannot be said to have been paid to an employee unless all the straight time compensation due him for the nonovertime hours under his contract (express or implied) or under any applicable statute has been paid.

In its simplest sense, the argument for recognizing “overtime gap time” claims under the FLSA is this: Say an employer promises an overtime-eligible employee base pay of $1,000 per week for up to 40 hours of work, and the employee works more than 40 hours in a given week. In that scenario, the employee’s hourly overtime rate would by $37.50 ($1000 ÷ 40 yields a regular rate of $25, and time-and-a-half on $25 is $37.50). But if the employer only pays the employee $800 in base pay for the week and not the promised $1,000, the regular rate becomes $20 ($1000 ÷ 40) and the hourly overtime rate becomes $30 (time-and-a-half on $20). So the employee is short-changed $7.50 on each overtime hour, which the Fourth Circuit found violates 29 C.F.R. § 778.315 and the spirit, if not the letter, of the FLSA.

“Pure gap time” is different, in this important sense: it only arises when the employee has not worked any overtime in the week. So there is no possibility of short-changing the employee on overtime pay, and—assuming the employee has, on average, received the minimum wage for all hours worked that week—no other provision of the FLSA that provides any relief. (The employee is ostensibly free to seek relief under an applicable state wage payment law or common law for failure to pay promised compensation.)

The Fourth Circuit concluded that 29 C.F.R. § 778.315 has the “power to persuade,” and therefore is entitled to “considerable deference” under Skidmore v. Swift & Co., 323 U.S. 134 (1944). As such, the court held that “overtime gap time claims” are indeed cognizable under the FLSA, and that “courts must ensure employees are paid all of their straight time wages first under the relevant employment agreement, before overtime is counted.” The court acknowledged a circuit split on the issue, with the Second Circuit declining to afford deference to 29 C.F.R. § 778.315 and rejecting “overtime gap time” claims as lacking a statutory basis (“So long as an employee is being paid the minimum wage or more, [the] FLSA does not provide recourse for unpaid hours below the 40–hour threshold, even if the employee also works overtime hours the same week.”).

The county filed a petition for a writ of certiorari with the Supreme Court, presenting not only the question of whether the FLSA permits “overtime gap time” but also seeking clarification on how federal courts should apply the Skidmore doctrine to agency interpretations such as 29 C.F.R. § 778.315. The Supreme Court denied the petition on December 12, leaving both questions for another day.

For more Employment Law News, click here to visit the National Law Review.

Tag: SCOTUS

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