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Supreme Court Review:
2002-2003 Employment Law Cases 

By Ross Runkel   Bio   email
Editor, Employment Law Memo

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Cases Decided

Arbitrator will decide whether contract authorized class action arbitration (5-4)

[Editor's note: We expect this non-employment case to have an impact on employment law arbitration cases.]

In Green Tree Financial v. Bazzle (06/23/2003), in a split decision, the Court remanded the case so an arbitrator could decide whether arbitration contracts signed by Bazzle and others forbid class arbitration. The Supreme Court of South Carolina held that the contracts were silent with respect to class arbitration, that they consequently authorized class arbitration, and that the arbitrations had properly taken that form. Four Supreme Court Justices concluded that whether or not the contracts forbid class arbitration (that is, what kind of arbitration the parties agreed to) is a disputed issue of contract interpretation and that such a dispute must be decided by an arbitrator. One Justice concurred in the judgment even though he would have preferred to affirm the South Carolina decision. Three Justices dissented, saying that the issue was one for a court to decide, and the holding of the South Carolina court "contravenes the terms of the contract and is therefore pre-empted by the [Federal Arbitration Act]." One Justice dissented because he believes that the Federal Arbitration Act does not apply to a state court proceeding.

Direct evidence not required for employee to get a mixed motive instruction in Title VII case.

In Desert Palace, Inc v. Costa (06/09/2003), the Court unanimously affirmed the 9th Circuit's decision holding that direct evidence of discrimination is not required for an employee to obtain a mixed-motive jury instruction under Title VII. Most lower courts had required an employee to produce "direct evidence" of discrimination in order to get this instruction. The Court said that the 1991 amendments to Title VII did not require "direct evidence" in order to get a mixed-motive instruction.

FLSA suit may be removed from state to federal court.

In Breuer v. Jim's Concrete of Brevard (05/19/2003), the Court held that when an employee files a claim under the Fair Labor Standards Act (FLSA) in state court, then the employer can remove that case to federal court. The removal statute, 28 USC Section 1441(a), provides for removal of certain cases "except as otherwise expressly provided by Act of Congress." The Supreme Court held that the language in FLSA Section 216(b) was not an express prohibition of removal and therefore did not bar removal of the suit from state to federal court.

Common-law element of control determines whether director-shareholder physicians are "employees" 

In Clackamas Gastroenterology Associates, P.C. v. Wells (04/22/2003) the Court provided guidance in determining who is an "employee" under the Americans with Disabilities Act (ADA). For an employer to be a "covered entity" under the ADA, it must have 15 or more "employees."  This employer was a professional corporation that had over 15 employees if, and only if, its four physician-shareholders were counted as "employees." The Court decided (7-2) that the common-law element of control is the principal guidepost to be followed in deciding whether the four director-shareholder physicians in this case should be counted as “employees,” and listed six factors that are relevant.

Employee can bring FMLA suit in federal court

In Nevada Department of Human Resources v. Hibbs (05/27/2003) the Court held that Congress acted within its power under Section 5 of the 14th amendment in abrogating the states' 11th amendment immunity to suits alleging violation of 29 USC Section 2612 (a)(1)(C), which provides for unpaid leave to care for a sick family member.

ERISA Plan need not follow "treating physician" rule.

In Black & Decker Disability Plan v. Nord (05/27/2003) the Court held that ERISA does not require plan administrators to accord special deference to the opinions of treating physicians.

Physicians must arbitrate RICO claims.

In Pacificare Health Systems v. Book (04/07/2003) physicians sued claiming that managed-health-care organizations, including Pacificare, violated the Racketeer Influenced and Corrupt Organizations Act (RICO) by failing to reimburse them for health-care services that they had provided to patients covered by the organizations’ plans. Pacificare moved to compel arbitration. The lower courts refused to compel arbitration on the ground that the arbitration clauses in the parties’ agreements prohibited awards of “punitive damages,” and hence an arbitrator lacked authority to award treble damages under RICO, and the arbitration agreements were unenforceable.  The US Supreme Court unanimously reversed.  Because the Court could not tell whether an arbitrator would construe RICO's treble damages provision as being "punitive," it was premature for the Court to address the issue.  Therefore, the proper course was to compel arbitration.

Court upholds "Any Willing Provider" statutes.

Kentucky Assoc of Health Plans v. Miller (04/02/2003): Kentucky's "Any Willing Provider" statutes prohibit health insurers from discriminating against health-care providers who are willing to meet the terms and conditions for participation established by the insurer.  A group of health maintenance organizations (HMOs) sued claiming that these statutes were preempted by the Employee Retirement Income Security Act (ERISA).  The Supreme Court unanimously held that the state statutes are not preempted by ERISA.  These statutes are "laws which regulate insurance" which ERISA expressly saves from preemption. The Court announced that it was making a "clean break" from using a McCarran-Ferguson Act analysis when interpreting the clause that saves "laws which regulate insurance" from ERISA preemption.

County can be liable for treble damages under False Claims Act.

In Cook County v. United States ex rel. Chandler (03/10/2003), Chandler, a former employee of Cook County, sued the county under the federal False Claims Act (FCA).  This was a qui tam action in which Chandler sued on behalf of the United States to recover funds that allegedly were obtained fraudulently by the county. The US Supreme Court unanimously held that local governments are "persons" amenable to qui tam actions under the False Claims Act (FCA).  Municipal corporations were not excluded from coverage when the original FCA was passed in 1863.  The amendments of 1986, which raised potential damages from double to triple, did not repeal municipal liability.

Employees prevail in FELA asbestosis fear of cancer case.

In Norfolk & Western Railway Co v. Ayers (03/10/2003) six retired employees sued under the Federal Employers Liability Act (FELA) claiming they suffered asbestosis.  A state court jury awarded $5.8 million; the West Virginia Supreme Court declined a discretionary review of the case.  The US Supreme Court unanimously affirmed. (1) Mental anguish damages resulting from the fear of developing cancer may be recovered under the FELA by a railroad worker suffering from the actionable injury asbestosis caused by work-related exposure to asbestos. The trial judge correctly stated the law when he charged the jury that an asbestosis claimant, upon demonstrating a reasonable fear of cancer stemming from his present disease, could recover for that fear as part of asbestosis-related pain and suffering damages. The parties agree that the claimants suffer from asbestosis, a cognizable injury under the FELA. When fear of cancer “accompanies a physical injury,” pain and suffering damages may include compensation for that fear. (2) The FELA’s express terms, reinforced by consistent judicial applications of the Act, allow a worker to recover his entire damages from a railroad whose negligence jointly caused an injury, thus placing on the railroad the burden of seeking contribution from other potential tortfeasors.

Coal Act - Late assignments are valid.

Barnhart v. Peabody Coal (01/15/2003): Under the Coal Industry Retiree Health Benefit Act of 1992 (Coal Act), the Commissioner of Social Security “shall, before October 1, 1993,” assign each coal industry retiree eligible for benefits under the Act to an extant operating company.  The Commissioner made some assignments after that date.  The trial court and the 11th Circuit held that the assignments were void; the US Supreme Court reversed.

The companies argued that the Commissioner's failure to act prior to October 1, 1993 was "jurisdictional."  The Supreme Court found that argument "unsupportable" and "counterintuitive."  The word "shall," without more, does not create a jurisdictional time limit.  The structure of the Coal Act, its purpose, and its legislative history go against the argument.  In the end, the Court read the statutory date "as a spur to prompt action, not as a bar to tardy completion." The DISSENT argued that the result in this case "is irreconcilable with the text and structure of the [Coal Act], and finds no support in our precedents."

Arbitration - Arbitrator can rule on arbitrability issue.

[Editor's note: We expect this non-employment case to have an impact on employment law arbitration cases.]

In Howsam v. Dean Witter Reynolds Inc (12/10/2002) the Court held that an arbitrator rather than a court should determine whether a dispute ineligible for arbitration because it was more than six years old.

Howsam was a client of Dean Witter, and she signed a client service arbitration agreement. When Howsam claimed Dean Witter engaged in misrepresentation, she chose to arbitrate the dispute before the National Association of Securities Dealers (NASD). Dean Witter sued asking the court to declare the dispute ineligible for arbitration because it was more than six years old. NASD Code Section 10304 states that no dispute "shall be eligible for submission ... where six (6) years have elapsed from the occurrence or event giving rise to the dispute."

The trial court dismissed the action, stating that the NASD arbitrator should interpret and apply the NASD rule. In reversing, the Tenth Circuit found that the rule's application presented a question of the underlying dispute's "arbitrability"; and the presumption is that a court will ordinarily decide an arbitrability question. The United States Supreme Court unanimously reversed, holding that an NASD arbitrator should apply the time limit rule to the underlying dispute.

The Supreme Court relied on a number of collective-bargaining arbitration decisions in making the following points. The question whether parties have submitted a particular dispute to arbitration, i.e., the "question of arbitrability," is "an issue for judicial determination [u]nless the parties clearly and unmistakably provide otherwise." The phrase "question of arbitrability" has a limited scope, applicable in the kind of narrow circumstance where contracting parties would likely have expected a court to have decided the gateway matter. But the phrase is not applicable in other kinds of general circumstance where parties would likely expect that an arbitrator would decide the question - "procedural questions which grow out of the dispute and bear on its final disposition," and "allegation[s] of waiver, delay, or a like defense to arbitrability." Following this precedent, the application of the NASD rule is not a "question of arbitrability" but an "aspec[t] of the [controversy] which called the grievance procedures into play." NASD arbitrators, comparatively more expert about their own rule's meaning, are comparatively better able to interpret and to apply it. In the absence of any statement to the contrary in the arbitration agreement, it is reasonable to infer that the parties intended the agreement to reflect that understanding. And for the law to assume an expectation that aligns (1) decisionmaker with (2) comparative expertise will help better to secure the underlying controversy's fair and expeditious resolution.

The word "eligible" in the NASD Code's time limit rule does not indicate the parties' intent for the rule to be resolved by the court prior to arbitration. Parties to an arbitration contract would normally expect a forum-based decisionmaker to decide forum-specific procedural gateway matters, and any temptation here to place special antiarbitration weight on the word "eligible" in Section 10304 is counterbalanced by the NASD rule that "arbitrators shall be empowered to interpret and determine the applicability" of all code provisions.

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