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Supreme Court 2009-2010 Terms Employment Decisions

Before we get much deeper into the 2010-2011 Supreme Court term, a review of the employment related cases from the 2009-2010 seems appropriate. Last term the Court decided six (6) employment related cases. The issues addressed were: mandatory arbitration (1&2); application of ERISA (3& 4); determination of corporate citizenship in a case relying on diversity jurisdiction (5) and the timing for a claim to challenge the use of a selection device with an adverse impact (6).

1. Rent-a-Center, West, Inc. v. Jackson, 130 S.Ct. 2772, 561 U.S. ____ (2010)

Topic: Federal Arbitration Act - Individual Employee

Summary: Jackson filed an employment discrimination suit under 42U.S.C. §1981 against Rent-ACenter (RAC). RAC filed a motion under the Federal Arbitration Act to compel arbitration and dismiss or stay proceedings. In the District Court, Jackson argued that the agreement was unconscionable under state law and therefore unenforceable. RAC claimed that the arbitration agreement precluded Jackson from bringing these claims in court. The Ninth Circuit held that deciding whether the agreement was subject to arbitration was correctly a decision for the arbitrator except where one claims unconscionability, which would be a threshold question for the court.

Holding: Provisions which delegate to the arbitrator exclusive authority to resolve any dispute relating to the ability to enforce an arbitration agreement will be given full force and effect. Since the delegation provision in this case could be severed from the rest of the agreement and it was not directlychallenged bypetitioner, the decision on unconscionabilitywas properlybefore the arbitrator and petitioner did not properly challenge this provision.

Ramifications: The Court avoided the more difficult decision, which the employee sought to have addressed, on whether the agreement was in fact unconscionable. Because of this, plaintiffs will continue to be bound to the arbitrator's decision as to the unconscionability of an arbitration agreement unless petitioners specifically challenge the delegation of authority to the arbitrator to determine unconscionability. In essence, the Court requires a party challenging an arbitration agreement to engage in a two-step process. The first step the Court now wants is for the party seeking relief from an arbitration agreement to separately evaluate the arbitration agreement's delegation provision (if one exists in the agreement) and determine whether this delegation is unconscionable. Plaintiffs may then bring the delegation challenge in court, but still must submit the determination of whether the agreement as a whole is unconscionable to the arbitrator .

2. Union Pacific R. Co. v. Locomotive Engineers and Trainmen Gen. Comm. of Adjustment, Central Region, 130 S.Ct. 584, 558 U.S. ____ (2010)

Elfvin & Besser wishes to thank Matthew Crawford for his summary of the Court's cases. A law clerk at Elfvin & Besser this past summer, he is currently a second year law student at The Ohio State University's Moritz College of Law.

Topic: Arbitration/National Railroad Adjustment Board

Summary: Union Pacific charged five railroad workers with disciplinary violations. The workers' union filed a grievance contestingthe charges pursuant to their collective-bargaining agreement with the employer. The Employees completed the grievance process, known as the "on-property proceedings," and the cases were then submitted for arbitration. An industry representative on the arbitration panel objected that the record of the on-property proceedings did not mention any conferencing. The Union then sought to supplement the record before the panel. The National Railroad Adjustment Board (NRAB) panel dismissed the five petitions for lack of jurisdiction. The district court upheld the NRAB panel's decision. The Seventh Circuit reversed on constitutional grounds, stating that NRAB procedure did not comply with due process.

Holding: The obligations to conference disputes or prove conferencing are not jurisdictional; a party's failure to do this does not divest NRAB panels of their adjudicatory authority. Rules regarding party submissions are claim-processing, not jurisdictional.

Ramifications: Parties left unsatisfied after the grievance process will not have their cases dismissed on a jurisdictional basis by NRAB panels if they do not submit proof of on-property conferencing at the arbitration stage. This is largely positive for union grievance procedures under the Railway Labor Act and prevents non-meritorious or non-merit based losses by employees.

3. Hardt v. Reliance Standard Life Ins. Co., 130 S.Ct. 2149, 560 U.S. ____ (2010)

Topic: Attorney Fees under ERISA

Summary: Hardt sustained neck and shoulder injuries, and later carpel tunnel syndrome, during her work as an executive assistant to the president of a textile manufacturer. She filed for benefits under the company's Long-Term Disability Insurance Program Plan. Her claim approval was contingent on her performance in a functional capacities evaluation. Her evaluator determined that she could still perform some level of sedentary work and was not totally disabled. Her benefits claim was denied and she filed an administrative appeal. During this time she was also diagnosed with smallfiber neuropathy. Two months later, Reliance informed Hardt that only those permanently disabled are eligible for benefits under the plan and that her claim was denied. After exhausting her administrative remedies, she sued Reliance in district court. The court denied the parties summary judgment and remanded back to Reliance, giving it 30 days to remedy what it found to be deficiencies in addressing Hardt's application for benefits. Reliance awarded benefits. Hardt subsequently brought an action for attorney's fees under § 1132(g)(1), which provides that "the court in its discretion may allow a reasonable attorney's fee and costs . . . to either party." The district court granted, but the Fourth Circuit vacated the fee award holding that Hardt was not a "prevailing party" since what she obtained from the district court was not "an enforceable judgment on the merits."

Holding: Under § 1132(g)(1), an attorney's fees claimant need not be a "prevailing party" to recover. This provision grants district courts discretion to direct attorney's fees for either party.

Ramifications: As long as ERISA plaintiffs demonstrate "some success on the merits" in their respective cases, even short of a judgment in their favor at the district court level, they may still be entitled to attorney's fees. However this may not be the case if a court determines that plaintiff has achieved only "trivial success on the merits" or a "purely procedural victor[y]." Courts will have some latitude in making this determination.

4. Conkright v. Frommert, 130 S.Ct. 1640, 559 U.S. ____ (2010)

Topic: ERISA

Summary: Employees left Xerox, received lump-sum distributions under the company's retirement benefit plan, and were later rehired. In determining how to account for the employees previous distributions when calculating current benefits, the plan administrator interpreted the plan as requiring a "phantom account" approach. This called for subtracting the amount of distribution that would have accrued had the employee never left from the total amount that would have been due to a new employee at that time. Disagreeing with this method of calculation, the employees filed suit underERISAchallenging the administrator's decision. The district court granted summaryjudgment for the administrator, but the Second Circuit vacated and remanded, finding the plan administrator's interpretation unreasonable. On remand, the district court applied a different method of calculating the distributions and did not defer to the plan administrator. The Second Circuit affirmed.

Holding: District courts must apply deferential review to the plan administrator's interpretation of an ERISA plan on remand.

Ramifications: ERISA plan administrators may now have greater incentive to engage in construing plans favorably to employers. Since district courts owe deference to the plan administrator on remand, even if the interpretation is found unreasonable on appeal, plaintiffs have a greater threshold to cross when challenging the administrator's interpretation.

5. Hertz Corp. v. Friend, 130 S.Ct. 1181, 559 U.S. ____ (2010)

Summary: California residents filed a class action suit against Hertz seeking damages for violation of state wage and hour laws. Hertz sought removal on the basis of diversity of citizenship, contending that its principal place of business was not California, but New Jersey. Hertz submitted a declaration stating that Hertz's leadership was located at its corporate headquarters in New Jersey, and that it carried out its core executive and administrative functions there. The district court, finding that a plurality of Hertz's business activities took place in California, found that Hertz was a California citizen and remanded back to state court. The Ninth Circuit affirmed.

Holding: A corporation's principal place of business, for purposes of diversity jurisdiction under28 U.S.C. § 1332(c)(1), is its "nerve center," or where the corporation's officers direct, control, and coordinate the corporation's activities.

Ramifications: Tests used by various circuit courts to determine where the principal place of business is located, including the amount of business done on a state-by-state basis, have been abandoned in favor of the "nerve center" test. Class action plaintiffs, particularly in wage and hour cases, can expect their cases to be more easily removed to federal court on the basis of diversity jurisdiction if a company's headquarters is located in another state.

6. Lewis v. City of Chicago, 130 S.Ct. 2191, 560 U.S. ____ (2010)

Topic: Title VII Disparate Impact Claims

Summary: Several African-American applicants filed discrimination charges with the Equal Employment Opportunity Commission (EEOC) alleging that using civil service test scores had a discriminatory disparate impact in violation of Title VII. The city administered a written civil service examination to applicants for firefighter positions in July of 1995. The city announced in January 1996 that it would drawrandomly from a pool of those who scored in the range of 89 to 100, or those who were "well qualified," and those who scored below a 65 would not be considered. Those who scored between 65 and 88 were deemed "qualified" and their applications kept on file. In May 1996 the city selected its first class from the list. The second class was selected in October of 1996 and the city drew from the same list nine additional times over the next six years. The district court certified the class and rejected City's claim that petitioners did not state a claim because they did not file within 300 days of the employment practice under §2000e-5(e)(1). The Seventh Circuit reversed in holding that the relevant employment practice was sorting the scores into categories, which took place more than 300 days ago.

Holding: The statutory period for a Title VII disparate-impact claim begins anew each time the discriminatory employment practice is applied, even if brought after a timely challenge to the adoption of the practice would fail. Disparate impact claims, in the context of civil service exams, may be brought within 300 days of each time a selection is made from the list of candidates compiled from the test scores.

Ramifications: The Court limits its holding in Lewis to claims involving a "present violation" within the limitations period. Where a discriminatory employment practice is utilized more than once, Title VII allows for accrual and a new 300 day period each time. Plaintiffs will now not be precluded from bringing a claim if the 300 day period has passed since the adoption of a test when the test results have been drawn from later.