Tag: SCOTUS

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.

Copyright © 2023, Hunton Andrews Kurth LLP. All Rights Reserved.

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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.

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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.

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© Polsinelli PC, Polsinelli LLP in California

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.

© 2022 Proskauer Rose LLP.
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Supreme Court to Consider First Amendment Protection for Parody Dog Toy

The Supreme Court of the United States has agreed to consider the scope of protection afforded by the First Amendment to commercial parody products that feature the unauthorized use of another party’s trademark(s). Jack Daniel’s Properties, Inc. v. VIP Products LLC, Case No. 22-148 (Supr. Ct. Nov. 21, 2022) (certiorari granted). The questions presented are as follows:

  1. Whether humorous use of another’s trademark as one’s own on a commercial product is subject to the Lanham Act’s traditional likelihood-of-confusion analysis, or instead receives heightened First Amendment protection from trademark-infringement claims.
  2. Whether humorous use of another’s mark as one’s own on a commercial product is “noncommercial” under 15 U.S.C. § 1125(c)(3)(C), thus barring as a matter of law a claim of dilution by tarnishment under the Trademark Dilution Revision Act.

This is the second time Jack Daniel’s has filed a petition for certiorari in connection with this case. The Supreme Court first considered the matter in January 2021, following the US Court of Appeals for the Ninth Circuit’s decision to vacate and remand the district court’s finding of trademark infringement, reverse the judgment on dilution and uphold the validity of Jack Daniel’s trademark and trade dress rights.

The case then returned to the district court, which granted summary judgment to VIP Products. The Ninth Circuit affirmed and then Jack Daniel’s filed its second petition for certiorari.

The Supreme Court will seek to settle the long-standing split amongst the US Courts of Appeal regarding the proper analysis for parody in trademark infringement and dilution claims and the scope of protection afforded to it via the First Amendment.

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© 2022 McDermott Will & Emery

Supreme Court Questions Whether Highly Compensated Oil Rig Worker Is Overtime Exempt

On October 12, 2022, the Supreme Court of the United States heard oral arguments in a case regarding whether an oil rig worker who performed supervisory duties and was paid more than $200,000 per year on a day rate basis is exempt from the overtime requirements of the Fair Labor Standards Act (FLSA).

The case is especially significant for employers that pay exempt employees on a day rate. It could have a major impact on the oil and gas industry in the way that it recruits, staffs, and compensates employees who work on offshore oil rigs and at remote oil and gas work sites. In addition, depending on how the Supreme Court rules, its decision could have much broader implications.

During the arguments in Helix Energy Solutions Group, Inc. v. Hewitt, the justices questioned whether, despite the employee’s high earnings, he was eligible for overtime compensation because he was paid by the day and not on a weekly salary basis. There is no express statutory requirement that an employee be paid on a “salary basis” to be exempt from overtime requirements, but such a requirement has long been included in the regulations issued by the U.S. Department of Labor (DOL) applicable to the FLSA’s white-collar exemptions. Notably, Justice Brett Kavanaugh suggested during the arguments that the regulations may be in conflict with the text of FLSA, although Helix did not raise this issue in its petition for certiorari.

Background

The case involves an oil rig “toolpusher,” an oilfield term for a rig or worksite supervisor, who managed twelve to fourteen other employees, was paid a daily rate of $963, and earned more than $200,000 annually. Between December 2014 and August 2017, when Michael Hewitt was discharged for performance reasons, he worked twenty-eight-day “hitches” on an offshore oil rig where he would work twelve-hour shifts each day, sometimes working eighty-four hours in a week. After his discharge, Hewitt filed suit alleging that he was improperly classified as exempt and therefore was entitled to overtime pay. The district court ruled in favor of Helix.

In September 2021, a divided (12-6) en banc panel of the U.S. Court of Appeals for the Fifth Circuit held that Hewitt was not exempt from the FLSA because his payment on a day-rate basis did “not constitute payment on a salary basis” for purposes of the highly compensated employee (HCE) exemption that is found in the FLSA regulations.

The Fifth Circuit further concluded that the employer’s day-rate pay plan did not qualify as the equivalent of payment on a salary basis under another FLSA regulation because the guaranteed pay for any workweek did not have “a reasonable relationship” to the total income earned. In other words, the court found that the employee was not exempt because the $963 he earned per day was not reasonably related to the $3,846 the employee earned on average each week.

Oral Arguments

Oral arguments at the Supreme Court focused on the interplay between the DOL’s HCE regulation, 29 C.F.R. § 541.601, and another DOL regulation, 29 C.F.R. § 541.604(b), which states that an employer will not violate the salary basis requirement under certain limited circumstances even if the employee’s earnings are computed on an hourly, daily, or shift basis.

At the time of Hewitt’s employment, the HCE exemption required an employee to be paid at least $455 per week on a “salary or fee basis” and to earn at least $100,000 in total annual compensation. Those threshold amounts have since been increased to $684 per week and $107,432 per year.

The other regulation, 29 C.F.R. § 541.604(b), states that an employee whose earnings are “computed on an hourly, a daily or a shift basis” may still be classified as exempt if the “employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of hours, days or shifts worked, and a reasonable relationship exists between the guaranteed amount and the amount actually earned. The reasonable relationship test will be met if the weekly guarantee is roughly equivalent to the employee’s usual earnings at the assigned hourly, daily, or shift rate for the employee’s normal scheduled workweek.”

Hewitt earned double the minimum total compensation level for the HCE exemption. Since the minimum salary level for the exemption was only $455 per week, and Hewitt was guaranteed that he would be paid at least $963 per week for each week he worked at least one day, Helix argued that he was exempt from the FLSA’s overtime requirements because the HCE exemption was completely self-contained and to be applied without regard to other regulations, including the “salary basis” test and the minimum guarantee regulation. Hewitt argued that the HCE exemption required compliance with either the “salary basis” test or the minimum guarantee regulation since he was admittedly paid on a day rate basis.

However, Justice Ketanji Brown Jackson suggested that it was not that simple. Justice Jackson said the question of salary basis is more about the “predictability and regularity of the payment” for each workweek. “What he has to know is how much is coming in at a regular clip so that he can get a babysitter, so that he can hire a nanny, so that he can pay his mortgage,” Justice Jackson stated. Justice Jackson echoed the language of the salary basis test requiring that an exempt employee be paid a predetermined amount for any week in which she performed any work.

Similarly, Justice Sonia Sotomayor asked Helix, “so what you’re asking us to do is take an hourly wage earner and take them out of 604, which is the only provision that deals with someone who’s not paid on a salary basis.” Justice Sotomayor additionally raised the FLSA’s goal of “preventing overwork and the dangers of overwork.”

In contrast, Justice Clarence Thomas suggested that Hewitt’s high annual compensation relative to the average worker is a strong indication that he was paid on a salary basis and should be exempt. “The difficulty is just, for the average person looking at it, when someone makes over $200,000 a year, they normally think of that as an indication that it’s a salary,” Justice Thomas stated.

Justice Kavanaugh asked if the issue of whether the DOL regulations conflict with the FLSA is being litigated in the courts. He said, “it seems a pretty easy argument to say, oh, by the way, or maybe, oh, let’s start with the fact that the regs [sic] are inconsistent with the statute and the regs [sic] are, therefore, just invalid across the board to the extent they refer to salary.” He further stated, “if the statutory argument is not here, I’m sure someone’s going to raise it because it’s strong.”

Key Takeaways

It is difficult to predict how the Supreme Court will rule in this case. A decision that requires strict adherence to the regulation’s reasonable relationship test, even when the minimum daily pay far exceeds the minimum weekly salary threshold, would have a significant negative impact on the manner in which certain industries compensate their workers. It also could lead to even more litigation by highly compensated employees, many of whom make more money without receiving overtime pay than what many people who currently are paid overtime compensation make.

Depending upon its breadth, a decision that the regulations are in conflict with the statutory text of the FLSA could provide a roadmap for additional challenges to other parts of the regulations. This could have a wide-ranging impact, as the DOL currently is in the process of preparing a proposal to revise its FLSA regulations. Then again, if a future litigant takes up Justice Kavanaugh’s invitation to challenge whether the salary regulations are overbroad compared to the language of the FLSA, the current effort to revise the regulations regarding exemptions for executive, administrative, and professional employees may be moot.

Article By Andrew P. Burnside, Steven F. Pockrass, and Zachary V. Zagger of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

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Supreme Court Takes Up FLSA High Earners Exemption

On October 12, 2022, the U.S. Supreme Court heard oral arguments in a case that considers whether a supervisor who earned over $200,000 annually may still be eligible for overtime pay under the Fair Labor Standards Act (FLSA). The case centers on the interpretation of the regulatory scheme surrounding highly compensated employees and their exemption status under the FLSA.

The Plaintiff in the case was a worker in a supervisory role on an oil rig and his compensation was based on a daily rate. The plaintiff argued that his daily rate of pay did not constitute a salary.  Prior to the Supreme Court, the Fifth Circuit en banc agreed with the Plaintiff and found that he was not paid a salary such that he was not an exempt employee under the FLSA.

This case has implications for how employers will pay workers, and whether there is potential exposure for overtime claims, even for highly compensated employees.

For more Labor and Employment legal news, click here to visit the National Law Review.

© Polsinelli PC, Polsinelli LLP in California

Supreme Court Set to Decide Whether NLRA Preempts State Law Claims for Property Damage Caused During Strikes

The U.S. Supreme Court’s upcoming term will include review of whether the National Labor Relations Act (the “Act”) preempts state court lawsuits for property damage caused during strikes, which could have significant implications for employers and unions.

Factual Background

The case – Glacier Northwest Inc. v. International Brotherhood of Teamsters Local Union No. 174 – began over five years ago when the Union in Washington State representing the Employer’s truck drivers went on strike.  The Union timed their strike to coincide with the scheduled delivery of ready-mix concrete, and at least 16 drivers left trucks that were full of mixed concrete, forcing the Employer to rush to empty the trucks before it hardened and caused damage.  The Employer was able to do so, but incurred considerable additional expenses and, because it dumped the concrete in order to avoid truck damage, lost its product.

Employer Brings State Law Suit for Property Damage

After the incident, the Employer sued the Union under Washington State law for intentional destruction of property.  The Union argued that the suit was preempted by the Supreme Court’s decision in San Diego Building Trades Council v. Garmon, 359 U.S. 236 (1959) (“Garmon”).  In Garmon, the Supreme Court held that, although the Act does not expressly preempt state law, it impliedly preempts claims based on conduct that is “arguably or actually protected by or prohibited by the Act.”  The Supreme Court held in Garmon that conduct is “arguably protected” when it is not “plainly contrary” to the Act or has not been rejected by the courts or the National Labor Relations Board (the “Board”).

State Court Holdings

The Washington State trial court dismissed the Employer’s suit for property damage because strikes are protected by the Act.  The Washington Court of Appeals reversed, holding that intentional destruction of property during a strike was not activity protected by the Act, and thus, not preempted under Garmon.

Finally, the Washington Supreme Court reversed again, holding that the Act impliedly preempts the state law tort claim because the intentional destruction of property that occurred incidental to a work stoppage was at least arguably protected, and the Board would be better-suited to make an ultimate determination on this legal issue.

Question Before the Supreme Court

The Supreme Court will now determine whether the National Labor Relations Act bars state law tort claims against a union for intentionally destroying an employer’s property in the course of a labor dispute.

Under Garmon, the Act does not preempt suits regarding unlawful conduct that is plainly contrary to the NLRA, and the Employer argues that the strike at issue here was plainly unprotected because of the intentional destruction of property.  In other words, the conduct is not even arguably protected by the Act such that the Act would preempt – it was, rather, plainly unprotected conduct, and thus, the proper subject of a lawsuit.  The Employer also cited the “local feeling” exception to Garmon, which creates an exception to preemption where the States may have a greater interest in acting, such as in the case of property damage or violence.

The Union argued in opposition to the Employer’s certiorari petition that the Employer merely challenged the Washington Supreme Court’s conclusion that the conduct was arguably protected by the Act, and not its reasoning.  Moreover, whether or not the conduct was protected should be decided by the Board, which is better-suited to decide the matter.

Takeaway

Employers should gain much greater clarity into whether they can seek relief from such conduct via a damages lawsuit.  If the Court finds that such conduct is not preempted and may be litigated in state court, such a ruling could go far in protecting employers’ interests in contentious labor disputes and potentially shift the balance of power towards employers during these disputes.

Article By Michael J. Lebowich, Joshua S. Fox, and Thomas B. Fiascone of Proskauer Rose LLP

For more labor and employment legal news, click here to visit the National Law Review.

© 2022 Proskauer Rose LLP.

The Supreme Court Is Poised to Weigh in on a False Claims Act Circuit Split

Three pending petitions for writ of certiorari have asked the U.S. Supreme Court to resolve a split among the federal courts of appeals as to the pleading standard for False Claims Act (“FCA”) whistleblower claims.

The FCA creates a right of action whereby either the government or private individuals can bring lawsuits against actors who have defrauded the government. 31 U.S.C. §§ 3729 et seq. Under the FCA, a private citizen can act as a “relator” and bring an action on behalf of the government in what is known as a qui tam suit. The government can elect to intervene, which means participate, in the suit; if it does not, the relator can continue to litigate the case without the direct participation of the government. 31 U.S.C. § 3730. Private individuals can receive a portion of the action’s proceeds or settlement amount. 31 U.S.C. § 3730(d).

The petitions ask the Court to clarify the level of particularity required under Federal Rule of Civil Procedure 9(b) (“Rule 9(b)”) to plead a claim under the FCA. Rule 9(b) requires plaintiffs alleging “fraud or mistake” to “state with particularity the circumstances constituting fraud or mistake.”

Johnson v. Bethany Hospice and Palliative Care LLC, Case No. 21-462

In their petition for a writ of certiorari, the petitioners in Johnson asked the Supreme Court to take up the issue of whether Rule 9(b) requires FCA plaintiffs “who plead a fraudulent scheme with particularity to also plead specific details of false claims.” The Eleventh Circuit earlier affirmed the district court’s dismissal of an FCA claim based on the plaintiffs’ failure to plead “specific details about the submission of an actual false claim” to the government. Estate of Helmly v. Bethany Hospice & Palliative Care of Coastal Georgia, LLC, 853 F. App’x 496, 502-03 (11th Cir. 2021).

In particular, the relators alleged that several doctors purchased ownership interests in Bethany Hospice and Palliative Care, LLC (“Bethany Hospice”) and were allocated kickbacks for patient referrals through a combination of salary, dividends, and/or bonus payments.  Id. at 498. Among other allegations, the complaint alleged that both the relators had access to Bethany Hospice’s billing systems, and, based on their review of those systems and conversations with other employees, were able to confirm that Bethany Hospital submitted false claims for Medicare and Medicaid reimbursement to the government.  Id. at 502.

The Eleventh Circuit held that the allegations were “insufficient” under Rule 9(b)’s heightened pleading standard for fraud cases.  Id. Even though the relators alleged direct knowledge of Bethany Hospice’s billing and patient records, their failure to provide “specific details” regarding the dates of the claims, the frequency with which Bethany Hospice submitted those claims, the amounts of the claims, or the patients whose treatment formed the basis of the claims defeated their FCA claim.  Id. In addition, the relators did not personally participate or directly witness the submission of any false claims.  Id. The Eleventh Circuit also found unpersuasive the relators’ argument that Bethany Hospice derived nearly all its business from Medicare patients, therefore making it plausible that it had submitted false claims to the government.  Id. “Whether a defendant bills the government for some or most of its services,” the Eleventh Circuit stated, “the burden remains on a relator alleging the submission of a false claim to allege specific details about false claims to establish the indicia of reliability necessary under Rule 9(b).”  Id. (internal quotation marks omitted). Because the relators did not do so here, the Eleventh Circuit affirmed the dismissal of the case.

United States ex rel. Owsley v. Fazzi Associates, Inc., Case No. 21-936

The Sixth Circuit took a similarly hardline approach in United States ex rel. Owsley v. Fazzi Associates, Inc., 16 F.4th 192 (6th Cir. 2021), ruling in favor of a strict interpretation of Rule 9(b).  The petition for a writ of certiorari in Owsley asks the Court to take up the same question as in Johnson.

In Owsley, the relator alleged that her employer used fraudulently altered data to make its patient populations seem sicker than they actually were in order to increase Medicare payments received from the government.  Id. at 195. The complaint “describe[d] in detail, a fraudulent scheme,” and alleged “personal knowledge of the billing practices employed in the fraudulent scheme.”  Id. at 196 (internal quotation marks omitted). But the Sixth Circuit ruled that these allegations were not enough under Rule 9(b). Instead, to bring a viable FCA claim, a relator’s complaint must identify “at least one false claim with specificity.”  Id. (internal quotation marks omitted). A relator can do that in one of two ways: first, by identifying a representative claim actually submitted to the government; or second, by alleging facts “based on personal knowledge of billing practices” that support a strong inference that the defendant submitted “particular identified claims” to the government.  Id. (emphasis in original). Here, though the relator alleged specific instances of fraudulent data – such as upcoding a patient with a leg ulcer to include a malignant cancer diagnosis – she did not identify particular claims submitted to the government.  Id. at 197. “[T]he touchstone is whether the complaint provides the defendant with notice of a specific representative claim that the plaintiff thinks was fraudulent.”  Id. The Owsley relator, the court held, failed to meet that critical touchstone.

Molina Healthcare v. Prose, Case No. 21-1145

The Seventh Circuit adopted a more flexible pleading standard in United States v. Molina Healthcare of Illinois, Inc., 17 F.4th 732 (7th Cir. 2021). As in Johnson and Owsley, the petition for a writ of certiorari asks the Court to weigh in on the Rule 9(b) standard under the FCA. It also presents an additional question about the requirements for an FCA claim under the implied false certification theory.

In Molina Healthcare, the relator brought an FCA claim against Molina Healthcare (“Molina”) for violating certain requirements of its Medicaid contract. The relator alleged that Molina, which had previously subcontracted with another entity for the provision of certain nursing home services, continued to collect payment for those services from the government even though it no longer provided them. Molina Healthcare, 17 F.4th at 736. Molina Healthcare received fixed payments from the government for different categories of patients. It received the highest per capita payment for patients in nursing facilities: $3,180.30.  Id. at 737-38. The relator alleged that Molina Healthcare knowingly continued to collect this rate from the government when it no longer provided a key service to nursing home patients.  Id.

The relator brought an FCA claim against Molina based on three theories of liability: (1) factual falsity (i.e., presenting a facially false claim to the government); (2) fraud in the inducement (i.e., misrepresenting compliance with a payment condition “in order to induce the government to enter the contract”); and (3) implied false certification (i.e., presenting a false claim with the “omission of key facts” instead of “affirmative misrepresentations”).  Id. at 740-741.

The Seventh Circuit held that the relator’s allegations satisfied Rule 9(b)’s pleading requirement under all three theories. First, as to factual falsity, the Court found that the relator provided sufficient information as to the “when, where, how, and to whom” Molina made the allegedly false representations.  Id. at 741. Though the relator did not have access to the defendant’s files, the information he provided “support[ed] the inference” that Molina had submitted false claims to the government.  Id. Second, as to fraud in the inducement, the Seventh Circuit found that the relator’s “precise allegations” regarding “the beneficiaries, the time period, the mechanism for fraud, and the financial consequences” again satisfied Rule 9(b)’s standard.  Id. at 741. The complaint also included details about Molina’s chief operating officer’s statements that indicated that Molina “never intended to perform the promised act that induced the government to enter the contract.”  Id. at 741-42.  Third, as to the implied false certification theory, the court found that the plaintiff adequately alleged that Molina knowingly omitted key material facts while submitting claims to the government.  Id. at 743-44.

The Supreme Court Invites Comment from the Solicitor General

Facing what appears to be a major circuit split, the Supreme Court invited the Solicitor General to file a brief “expressing the views of the United States” in Johnson in January 2022 and in Owsley in May 2022.

The Supreme Court invites the Solicitor General to comment on only a handful of the approximately 7,000 to 8,000 petitions for writ of certiorari that the Court receives in a year. In the 2021 Term, for example, the Solicitor General filed what it calls a “Petition Stage Amicus Brief” in only 19 cases. Four Justices must vote to issue an invitation to the Solicitor General.

The Solicitor General’s view on whether the Court should grant certiorari has often been extremely influential. In the 2007 Term, for example, the Court denied certiorari in every case in which the Solicitor General recommended that approach. By contrast, it granted certiorari in 11 out of the 12 cases in which the Solicitor General recommended a grant. More recent data confirm that the Solicitor General’s recommendations as to whether the Court should grant certiorari remain highly influential. One study found that between May 2016 and May 2017, the Supreme Court followed the Solicitor General’s recommended approach in 23 cases (85%). At the same time, even the act of requesting the views of the Solicitor General dramatically increases the chances that the Court will take up a case. For example, between the 1998 Term and 2004 Term, one study found that the Court was 37 times more likely to grant certiorari in cases where it had invited the Solicitor General to file an amicus brief.

The Solicitor General Urges the Court to Decline Review

On May 24, 2022, the Solicitor General filed its brief in Johnson; it has yet to comment on Owsley. The Solicitor General’s amicus brief in Johnson urges the Court to deny certiorari. The Solicitor General notes that certiorari might be warranted if the courts of appeals applied a rigid, per se rule that required relators to plead “specific details of false claims.” But instead, the brief argues that the courts of appeals have “largely converged” on an approach to FCA pleading requirements that allows relators “either to identify specific false claims or to plead other sufficiently reliable indicia” to support a “strong inference” that the defendant submitted false claims to the government. According to the Solicitor General, the “divergent outcomes” among the circuit courts are merely the result of those courts’ application of a “fact-intensive standard” to various distinct allegations.

The petitioners in Johnson filed a supplemental brief in response to the Solicitor General’s views. They argue that the Solicitor General misinterpreted the Eleventh Circuit’s pleading standard, which effectively requires a relator to allege specific details about false claims to survive a motion to dismiss. In other words, the petitioners argue that in the Eleventh Circuit, the Solicitor General’s “purported” rule that a relator can either allege details about specific false claims or identify reliable indica that false claims were presented are “one and the same.”

Though the Court did not invite the Solicitor General to comment in Molina Healthcare, the petitioners in that case also filed a supplemental brief in response to the Solicitor General’s amicus in Johnson. “Everyone but the Solicitor General agrees that the circuits are hopelessly divided over whether Rule 9(b) requires a relator to plead details of false claims,” the brief argues. The brief notes that the Third, Fifth, Seventh, Ninth, Tenth, and D.C. Circuits do not require plaintiffs to plead specific details of actual false claims; by contrast, the First, Second, Fourth, Sixth, Eighth, and Eleventh Circuits require relators to plead specific details. Accordingly, the brief urges the Supreme Court to resolve the “widely acknowledged circuit split” over Rule 9(b)’s pleading standards.

The Solicitor General has a history of urging the Court to reject certiorari in FCA cases. According to the petitioners’ supplemental brief in Molina Healthcare, since the 1996 Term, the Solicitor General has recommended against review in eleven out of the twelve FCA cases in which the Court invited the Solicitor General’s views. Still, the Court granted certiorari in three of the cases in which the Solicitor General recommended against review.

Given the Supreme Court’s apparent interest in the FCA pleading standard – as evidenced by its calls for the Solicitor General’s views in Johnson and Owsley – there is a chance that it will grant certiorari in at least one of the three cases pending before it. Depending on when the Solicitor General weighs in, the Court may decide to grant certiorari in the fall of 2022.

Any Supreme Court decision that clarifies the pleading standard for FCA cases will likely affect a relator’s ability to successfully litigate qui tam actions in which the government does not intervene more than in cases in which the government does intervene. When a relator files a qui tam action, the government investigates the alleged fraud. If it intervenes in that action, it can file a complaint to include evidence it has discovered in that investigation, allowing it to meet the more stringent version of the Rule 9(b) pleading standard. Relators, however, often do not have access to the same evidence that the government does, such as specific claims data, making it far harder for a relator to meet the more stringent version of pleading standard.

Until the Supreme Court decides to weigh in, qui tam relators will continue to have an easier time satisfying the requirements of Rule 9(b) in those circuits with relaxed pleading standards. In the meantime, and whether the Court takes one of these petitions or not, any FCA whistleblower should seek legal counsel to help her identify the type of factual information that would meet the pleading requirements of the courts that apply a strict pleading requirement.

Article By Kayla Morin of Katz Banks Kumin LLP

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Supreme Court’s Decision In Famous Hale & Norcross Mining Case

Having read Professor Stephen Bainbridge‘s post about the origins of the judicial doctrine that directors must act on an informed basis, I passed along a reference to the California Supreme Court’s in Fox v. Hale & Norcross Silver Mining Co.,  108 Cal. 369, 41 P. 308 (1895).   The Hale and Norcross mine was a famous silver and gold mine in Nevada’s Comstock mining district.  Samuel Clemens (aka Mark Twain), who had worked in Virginia City, Nevada, even bought shares in the mine on margin, as he related in Chapter 15 of his autobiography:

“One day I got a tip from Mr. Camp, a bold man who was always making big fortunes in ingenious speculations and losing them again in the course of six months by other speculative ingenuities. Camp told me to buy some shares in the Hale and Norcross. I bought fifty shares at three hundred dollars a share. I bought on a margin, and put up twenty per cent. It exhausted my funds. I wrote Orion [his brother and the first and only Secretary of the Nevada Territory] and offered him half, and asked him to send his share of the money. I waited and waited. He wrote and said he was going to attend to it. The stock went along up pretty briskly. It went higher and higher. It reached a thousand dollars a share. It climbed to two thousand, then to three thousand; then to twice that figure. The money did not come, but I was not disturbed. By and by that stock took a turn and began to gallop down. Then I wrote urgently. Orion answered that he had sent the money long ago–said he had sent it to the Occidental Hotel. I inquired for it. They said it was not there. To cut a long story short, that stock went on down until it fell below the price I had paid for it. Then it began to eat up the margin, and when at last I got out I was very badly crippled.”

Samuel Clemens disappointing investment predated by a number of years the litigation that resulted in the California Supreme Court’s opinion.

The Hale and Norcross mine was located in Nevada, but the corporation that owned it was incorporated in California.  That is why the shareholders sued the directors in the Golden, rather than the Silver, state.  The Supreme Court’s decision was big news.  The day after the decision was issued, The San Francisco Call published this lengthy article that not only described the case, but also published the decision itself and a drawing of the plaintiff, M.W. Fox.

Article By Keith Paul Bishop of Allen Matkins Leck Gamble Mallory & Natsis LLP

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