Supreme Court 2000-2001 Year In Review

In 2001, the U.S. Supreme Court issued a number of decisions that impact significantly on American workplaces. For example, the Court ruled that arbitration clauses in employment agreements are enforceable under the Federal Arbitration Act; it invalidated the National Labor Relations Board’s test for determining the supervisory status of nurses, and it found that the Eleventh Amendment shields states from disability discrimination suits in federal court.

Early in its 2001-02 term, the Court decided the latest chapter in the Adarand saga, dismissing a challenge to the constitutionality of affirmative action in the context of federal contracting. The Court’s current docket contains several other important labor and employment cases, including a case testing the extent to which arbitration clauses may limit the enforcement power of the Equal Employment Opportunity Commission.

Cases Recently Decided by the Supreme Court

Arbitration clauses in employment agreements are enforceable

In Circuit City Stores v. Adams, 532 U.S. 105 (2001), the Court reversed an appeals court decision and ruled that the federal law governing arbitration compels courts to enforce arbitration clauses in employment agreements.

Congress passed the Federal Arbitration Act (“FAA”) in 1925 to overcome the anti-arbitration sentiments then prevalent among judges. The FAA compels courts to enforce arbitration clauses in contracts “involving commerce,” provided the contract itself is valid. The law exempts “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

Focusing on the phrase “engaged in foreign or interstate commerce,” the Ninth Circuit Court of Appeals had ruled that Congress intended to exempt all employment contracts of employees working in interstate commerce. In reality, this interpretation meant that essentially all employment agreements were exempt from the FAA and that arbitration provisions in such agreements were therefore unenforceable. The Supreme Court reversed, explaining that the exemption’s reference to seamen and railroad employees would be superfluous if the last phrase encompassed all employees. The Court concluded that a more reasonable interpretation would limit the exemption to transportation workers, who are most logically similar to seamen and railroad employees.

Notably, the Supreme Court’s opinion in Circuit City did not address another Ninth Circuit decision, Duffield v. Robertson Stephens & Co., 144 F.3d 1182 (9th Cir. 1998), which held that Title VII cases are not subject to arbitration if the arbitration agreement in question is a condition of employment and is signed before a dispute arises. No other Circuit has adopted this view, and the Supreme Court of California rejected it in Armendariz v. Foundation Health Psychcare Services, 6 P.3d 669 (Cal. 2000). It remains to be seen whether Duffield will be expanded or ultimately rejected in light of the Circuit City decision.

One isolated comment does not constitute sexual harassment, and mere temporal proximity does not suffice to establish retaliation

In Clark County School District v. Breeden, 532 U.S. 268 (2001), the Court reversed the Ninth Circuit on two issues concerning Title VII retaliation claims. First, Title VII has been interpreted by lower courts as protecting an employee’s opposition not only to practices actually made unlawful by Title VII, but also to practices that the employee reasonably believes to be unlawful. The Court avoided deciding whether this is a correct reading of the statute, holding narrowly that in this particular case, the employee had complained about an incident no reasonable person could believe violated Title VII. The incident in question was an isolated off-color remark made by the employee’s supervisor, in response to which the supervisor and another employee chuckled. Thus, the Court reaffirmed its prior holdings that “sexual harassment is actionable under Title VII only if it is so severe or pervasive as to alter the conditions of the victim’s employment and create an abusive working environment.” In other words, an isolated sexually explicit remark does not violate Title VII.

The second issue decided by the Court in Clark County concerns the attempt by plaintiffs to use the temporal proximity between the occurrence of protected activity and an unfavorable employment action to establish a causal relationship between the two events. The Court rejected the employee’s proof in this case, noting that adverse employment action taken some 20 months after the allegedly protected activity at issue does not, by itself, suggest a causal connection.

Eleventh Amendment shields states from ADA claims in federal court

In Board of Trustees of Univ. of Alabama v. Garrett, 531 U.S. 356 (2001), a bare majority of the Court ruled that ADA suits for damages brought in federal court by State employees against a State are barred by the Eleventh Amendment to the Constitution which, with certain limitation, makes the States immune from suit in federal court. The Court found that although Congress had clearly expressed its intent to abrogate state immunity, it had exceeded the scope of its power under the Constitution.

Noting that Congress has the authority to enact legislation both to remedy and to deter violation of the rights guaranteed under the Fourteenth Amendment, the Court found that legislation nonetheless must be congruent and proportional to the injury Congress seeks to prevent or remedy. Because Congress failed to show a pattern of irrational state discrimination in employment against the disabled, the Court said, abrogation of Eleventh Amendment state immunity was not a valid exercise of congressional power.

The Court further suggested that even if Congress had established such a pattern of unconstitutional discrimination by the States, the rights and remedies created by the ADA against the States would still raise concerns as to congruence and proportionality. For example, the ADA requires employers to make their facilities readily accessible to disabled individuals unless doing so would impose an undue hardship on the employer. According to the Court, that requirement far exceeds what the Constitution requires.

Court clarifies role of reviewing court in arbitration cases

In Major League Baseball Players Ass’n v. Garvey, 532 U.S. 504 (2001), the Court held that when a court finds that an arbitrator has improperly exceeds his authority under the collective bargaining agreement and thereby “dispensed his own brand of justice,” the court should not proceed to decide the case on its merits. Instead, the court should vacate the arbitrator’s award – leaving open the possibility of further arbitration proceedings under the applicable collective bargaining agreement. Further, the Court emphasized the well-established principle that it is not the role of a court to overturn an arbitrator’s decision simply because the court disagrees with the arbitrator’s factual findings, particularly those concerning credibility.

Court invalidates NLRB test for supervisory status

In NLRB v. Kentucky River Community Care, Inc., 532 U.S. 706 (2001), a bare majority of the Court held that the NLRB’s test for determining supervisory status is inconsistent with the National Labor Relations Act (“NLRA” or the “Act”).

The NLRA deems employees to be “supervisors” (exempt from the protections of the Act) if they (a) exercise any one of a dozen specified supervisory functions, including “responsibly direct[ing]” other employees; (b) use “independent judgment” in exercising their authority; and (c) hold their authority in the employer’s interest. In interpreting the supervisor exclusion, the NLRB has long held that where an individual directs other employees using “ordinary professional or technical judgment,” such direction does not constitute “responsible direction” so as to make the individual a supervisor. The NLRB reasoned that such direction arises out of the individual’s expertise and experience rather than his or her exercise of true management prerogatives.

Applying these standards in the Kentucky River case, the NLRB rejected the contention of the employer, an operator of a health care facility, that its nurses were supervisors who should be excluded from the facility-wide bargaining unit sought by the union. The Supreme Court affirmed an appellate court ruling which reversed the NLRB’s decision, finding that the NLRB’s standard for determining supervisory status is inconsistent with the terms of the NLRA. The NLRB exceeded its authority, the Court found, by adding an additional element to the definition of “supervisor” which is not found in the statute – a requirement that the individual exercise more than “ordinary professional or technical judgment” in directing other employees.

Court dismisses Adarand’s challenge to affirmative action program

On November 27, 2001 (less than one month after it heard oral argument on the case), the Court unanimously dismissed Adarand Constructors v. Mineta, 2001 WL 1488214, bringing to an ambiguous conclusion the latest chapter in a construction company’s long-standing challenge to the federal government’s effort to redress racial discrimination in the highway construction industry. The underlying legal dispute arose initially in 1989, when Adarand submitted the lowest bid for a guardrail project on a Colorado highway, but was denied the job in favor of a “disadvantaged business enterprise.”

The federal program at issue, which was established by the Department of Transportation (“DOT”) pursuant to the Small Business Act (“SBA”), was designed to level the playing field for businesses owned and operated by “socially and economically disadvantaged” individuals bidding for federal subcontracts. The SBA presumes that members of certain minority groups, as well as women, are “social and economically disadvantaged.” However, federal regulations currently require that, in order to qualify for the program, the individuals who own or operate the business must certify that they personally have been socially and economically disadvantaged (i.e., that they have experienced racial or cultural prejudice) that has impaired their access to capital and credit opportunities.

Conceding that the appeal in Adarand had been “improvidently granted,” the Court dismissed on the ground that Adarand lacked standing to challenge the one aspect of the federal program still before the Court. Adarand was not a suitable plaintiff, the Court said because the only aspect of the program that encourages considerations of race in federal contract procurement has been suspended in Colorado – the sole state in which Adarand does business. That aspect of the federal program has also been suspended in other states in which a federal study showed that discrimination in contracting is no longer a serious problem.

The Court has twice before issued decisions in the Adarand case. Adarand sued after it was denied the guardrail project, and after losing at both the district court and Circuit Court levels, Adarand finally scored a victory before the Supreme Court in 1995 (“Adarand I”). In this highly controversial decision, a 5-4 majority of the Court ruled that racial classifications imposed by law can be upheld only if they meet a “strict scrutiny” standard, regardless of whether those classifications help or hurt minorities. Under the strict scrutiny analysis, a racial classification is permissible only if it “serve[s] a compelling governmental interest” and is “narrowly tailored to further that interest.” The case was returned to the lower courts to decide whether the program at issue met this test.

ERISA preempts state probate statute

Egelhoff v. Egelhoff, 532 U.S. 141 (2001), involved a Washington State probate statute that provides for automatic revocation of a beneficiary designation in favor of a former spouse upon dissolution of marriage. To the extent it applies to designations under benefit plans covered by the Employee Retirement Income Security Act (“ERISA”), the Washington statute was challenged under ERISA’s preemption section, 29 U.S.C. § 1144(a). That provision states that ERISA “shall supersede any and all State laws insofar as they may now or hereafter related to any employee benefit plan” covered by ERISA. Reversing the Washington Supreme Court, the Supreme Court held that ERISA preempted the state statute because the law had an impermissible connection with ERISA plans. Justices Breyer and Stevens dissented, arguing that ERISA does not pre-empt the entire field of state law governing inheritance.

Provision on withholding payments in connection with public works does not violate Constitutional due process guarantees

The California Labor Code authorizes the State to withhold payments due to a contractor on a public works project in the event a subcontractor on the project fails to pay prevailing wages to its workers as required by state law. The Code permits the contractor, in turn, to withhold similar sums from the subcontractor. The Code does not afford the subcontractor the right to a hearing before or after such payments are withheld; instead, the subcontractor may protect its interests by suing for breach of contract.

In Lujan v. C&G Fire Sprinklers, 532 U.S. 189 (2001), the Court held that this statutory scheme does not violate the subcontractor’s due process rights, even though the Code does not provide for a hearing. The Court found that whatever property interest the subcontractor has can be fully protected by an ordinary breach of contract action.

Cases Currently Pending on the Supreme Court’s Docket

Does an arbitration clause preclude individual remedies in an EEOC enforcement action?

In EEOC v. Waffle House, Inc., the Court will decide whether an employee’s agreement to arbitrate claims of workplace discrimination precludes the EEOC from obtaining individual remedies for the employee in an enforcement action against the employer in federal court.

The case arose when Eric Scott Baker applied for work at a Waffle House restaurant in Columbia, South Carolina. The employment application he completed and signed included an arbitration clause purporting to cover “any dispute or claim concerning Applicant’s employment with Waffle House Inc. or any subsidiary or Franchisee of Waffle House Inc.” Baker was subsequently hired at another Waffle House. Approximately two weeks after he commenced work, Baker experienced seizures at home and at work, and Waffle House terminated his employment shortly thereafter.

Baker filed a charge with the EEOC, alleging violations of the ADA and the 1991 Civil Rights Act. The EEOC ultimately filed a lawsuit against Waffle House in federal court. The relief sought by the EEOC includes compensatory and punitive damages for Baker as well as back pay and reinstatement. Waffle House moved to compel arbitration of the EEOC’s claims. The district court denied the motion.

The Fourth Circuit reversed, holding 2-1 that Baker is bound by the arbitration agreement he signed, and further holding that the EEOC is not free to seek monetary relief for him in court. While the Fourth Circuit did not bar the EEOC from pursuing in federal court its claims for injunctive relief under the ADA, it held that the claims for individual relief – including back pay, monetary relief, and reinstatement – must go to arbitration.

In its petition for Supreme Court review, the EEOC explained that Congress had amended Title VII of the 1964 Civil Rights Act in 1972 in order to allow the EEOC to bring claims for victim-specific relief in federal court. The Fourth Circuit’s decision, the EEOC argued, substantially reversed the Congressional decision to correct a “major flaw” in Title VII. The EEOC also pointed out that the Fourth Circuit’s decision conflicted with an earlier decision of the Sixth Circuit, which held in EEOC v. Frank’s Nursery, 177 F.3d 448 (6th Cir. 1999), that a private arbitration agreement has no impact on the EEOC’s right to pursue claims in federal court, whether it seeks injunctive relief, monetary relief for the aggrieved individual, or both.

Must the plaintiff’s complaint plead specific facts in order to state a claim for relief under Title VII and the ADEA?

The plaintiff in Swierkiewicz v. Sorema N.A. alleged that he was unlawfully discharged on the basis of his age and national origin. The district court dismissed the complaint for failure to plead specific facts to support each element of the plaintiff’s prima facie case of discrimination. The Second Circuit affirmed, finding that mere blanket statements in a complaint to the effect that the plaintiff was discriminated against are insufficient to survive a motion to dismiss.

Is an employer barred from designating time off from work as FMLA leave until it notifies the employee in writing that it is doing so?

The plaintiff in Ragsdale v. Wolverine Worldwide, Inc., took seven months of medical leave while undergoing cancer treatment. Her employer neglected to inform her that this time off from work would count as leave under the Family and Medical Leave Act (“FMLA”). Plaintiff was unable to return to work at the expiration of the seven months of leave she was entitled to under the applicable collective bargaining agreement, and she then requested FMLA leave. The employer denied the request on the grounds that she had exhausted her available FMLA leave. Since she was unable to return to work, her employment was terminated and she sued, claiming that she was discharged in violation of the FMLA.

According to a Department of Labor (“DOL”) regulation, time off from work may not be counted against an employee’s 12 weeks of FMLA leave until the employer actually notifies the employee in writing that the time off has been designated as FMLA leave. The Eighth Circuit Court of Appeals refused to enforce this regulation on the grounds that it is inconsistent with the FMLA itself (which requires only that 12 weeks of leave be given, not that specific notice be given). Plaintiff appealed to the Supreme Court.

Does a medical condition that prevents an individual from performing some, but not all, of her job duties constitute a “disability” under the ADA?

On November 7, 2001, the Court heard arguments in Toyota Motor Manufacturing v. Williams. The question raised by this case is whether a person who is limited in some, but not all, job-related tasks is “disabled” under the ADA. Under the ADA, a disability is defined as a “substantial” limitation on the individual’s “ability to engage in one or more major life activities.” An individual is substantially limited in the major life activity of working only if the person is significantly restricted in the ability to perform either a class of jobs or a broad range of jobs in various classes, as compared to the average person having comparable training, skills, and abilities.

The case was brought by an assembly line worker at a Kentucky auto manufacturing plant. She developed carpal tunnel syndrome, which rendered her unable to perform certain tasks associated with her job. Initially, Toyota permitted her to perform other jobs within the plant, but several years later, it required her to perform tasks which were medically impossible for her to perform. She was forced to quit after Toyota refused to accommodate her medical condition by modifying her job to include only the tasks she had previously performed.

The district court granted summary judgment for Toyota based on its conclusion that the plaintiff was not substantially limited in the major life activity of working, and she therefore was not disabled under the ADA. The Sixth Circuit reversed, finding that she was substantially limited in performing a class of assembly line jobs and other jobs, as well as in the performance of other manual tasks outside of the workplace. Toyota’s appeal to the Supreme Court followed.

Does the ADA require employers to override their seniority systems?

The Court heard arguments on December 4, 2001, in US Airways v. Barnett – the second of three ADA cases the Court will decide this term. Barnett sued under the ADA claiming, among other things, that his employer refused to accommodate his disability. The trial court granted summary judgment for the employer, and the Ninth Circuit reversed on appeal. Barnett v. US Air, Inc., 228 F.3d 1105 (9th Cir. 2000).

The case involves an airline employee (Barnett) who suffered a work-related back injury and used the airline’s seniority system for job assignments to transfer from his position as a cargo handler to a position in the mail room. When Barnett learned that more senior employees planned to transfer to the mail room, thereby “bumping him out” to a cargo job he was medically unable to perform, he asked the company if he could remain in the mail room as a “reasonable accommodation” for his disability. US Airways denied this request, and Barnett was placed on medical leave with reduced pay.

Barnett sued, arguing that US Airways should have reasonably accommodated his disability by making an exception to its seniority system that would have permitted him to continue working in the mail room.

The district court ruled in the employer’s favor, but the Ninth Circuit disagreed, rejecting the employer’s claim that the ADA guarantees disabled employees nothing more than the right to apply for and compete equally for reassignment. Acknowledging that the employer’s established seniority system is “a factor in the undue hardship analysis,” the court held that the seniority system was not a per se bar to reassignment. According to the Ninth Circuit, the question of whether a seniority system can bar an accommodation should be analyzed on a case-by-case basis.

During oral argument before the Supreme Court, counsel for US Airways argued for a “bright-line rule” that would insulate seniority systems and other “neutral” employment policies from alteration – a rule that would make requests for such alterations “per se” unreasonable. Counsel for Barnett argued that this approach would essentially “vitiate the statute,” the intent of which was to take account of both the employer’s and the employee’s needs in determining whether an accommodation is reasonable. Counsel for Barnett added that the employer’s interests are not a factor at the initial stage of deciding what is “reasonable” – after all, she pointed out, Congress included “reassignment to a vacant position” on a list of potentially reasonable accommodations in the statute itself.

This case is particularly interesting, as the Court must resolve seemingly irreconcilable workplace interests: the disabled employee in question can prevail only at the expense of a more senior employee who has presumably relied on the employer’s established seniority system in forming expectations about the future.

Does the “direct threat” exception in the ADA apply where the only threat is to the employee’s own health or safety?

The ADA permits an employer to deny employment opportunities to a disabled individual who cannot meet the requirement that he “shall not pose a direct threat to the health or safety or other individuals in the workplace.” 42 U.S.C. § 12133. In February 2002, the Supreme Court will consider whether this exception to the ADA’s broad prohibition on disability-based employment discrimination allows employers to exclude a disabled employee from a particular job because he poses a potential threat to his own health or safety, though not to the health or safety of his coworkers.

The case, Chevron U.S.A., Inc. v. Echazabal, involves an oil refinery worker with chronic hepatitis C, who was removed from his position because of the employer’s concern that chemicals used in the refinery would exacerbate his medically condition and could potentially kill him. Echazabal sued, claiming Chevron had discriminated against him based on his disability.

The Ninth Circuit reversed summary judgment granted to Chevron, ruling 2-1 that employers may not use the “direct threat” defense to exclude workers who pose a potential threat only to themselves, and not to other employees. 226 F.3d 1063 (9th Cir. 2000). By doing so, the Ninth Circuit rejected EEOC regulations stating that employers may assert a direct threat defense regarding employees who pose a threat only to their own health or safety. In an amicus brief filed with the Supreme Court on September 26, 2001, Solicitor General Theodore Olson urged the Court to hear the case and argued that the Ninth Circuit erred in finding the EEOC rules invalid. The thrust of his argument is that the EEOC regulations in question concern aspects of the ADA over which the ADA expressly grants the EEOC rulemaking authority. Therefore, the Ninth Circuit was required to accept the EEOC rules, as long as Congress has not previously spoken to the point at issue and the EEOC’s interpretation of the ADA is reasonable.

Does the disparate impact theory of liability apply to federal age discrimination claims?

Disparate impact claims arise from employment practices that are neutral on their face, but that nonetheless have a disproportionate negative impact on the employment opportunities of a protected class of individuals. Some thirty years ago, the Supreme Court held that disparate impact claims are permissible under Title VII. See Griggs v. Duke Power Co., 401 U.S. 424 (1971). Since then, lower federal courts have grappled (with widely divergent results) with the issue of whether such claims are likewise permissible under the Age Discrimination in Employment Act (“ADEA”).

In Adams v. Florida Power Corp., both the district court and the Eleventh Circuit Court of Appeals concluded that plaintiffs were not permitted to bring disparate impact claims against their former employer under the ADEA. The Eleventh Circuit reasoned in part that the ADEA permits an employer to “take any action otherwise prohibited … where the differentiation is based on reasonable factors other than age.” 29 U.S.C. § 623(f)(1). This language is nearly identical to language found in the Equal Pay Act, which the Supreme Court has previously interpreted as precluding disparate impact claims. Plaintiffs appealed the Eleventh Circuit’s decision to the Supreme Court.

Other labor and employment cases on the Supreme Court’s docket this term

The Supreme Court has agreed to decide a number of other significant labor and employment issues during its current term, including those presented in the following cases:

• Hoffman Plastic Compounds v. NLRB: Where an employer was found to have unlawfully discharged an employee in retaliation for engaging in union organizing activities, and where the employer later discovered that the employee in question was an undocumented alien, must the employer pay back pay up to the date on which it became aware the employee was not legally authorized to work in the U.S.?
• Edelman v. Lynchburg College: Is it proper for a court to dismiss an employee’s complaint for failure to timely file an EEOC charge where the employee had timely filed a complaint letter with the EEOC, but he did not file a properly verified discrimination charge within the applicable 300 day period?
• National Railroad Passenger Corp. v. Morgan: Can a plaintiff who lets the statute of limitations lapse with respect to some of his discrimination claims nonetheless sue on these time-barred claims under a continuing violations theory, as long as the untimely incidents represent an ongoing unlawful employment practice?