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Supreme Court Review:
2004-2005 Employment Law Cases 

By Ross Runkel   Bio   email
Editor, Employment Law Memo

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Cases Decided

False Claims Act retaliation claim statute of limitations is the most analogous state statute

Graham County Soil v. US ex rel Wilson (06/20/2005): Wilson sued under the federal False Claims Act (FCA) claiming her employer retaliated against her for alerting federal officials to purported fraud and for cooperating with the ensuing investigation. The trial court dismissed the suit as untimely under the state's 3-year statute of limitations; the 4th Circuit reversed, applying the FCA's 6-year limitation period. The US Supreme Court reversed, holding that the appropriate statute of limitations in a False Claims Act retaliation case is the most closely analogous state statute, not the 6-year period stated in the FCA.

ADEA allows disparate impact claims (5-3); employees lose on the merits.

Smith v. City of Jackson (03/30/2005): The City's pay plan granted raises in an attempt to bring starting salaries up to the regional average. Employees with less than five years' service got proportionately greater raises than more senior employees, and most employees over 40 had more than five years of service. Older employees sued claiming a violation of the Age Discrimination in Employment Act (ADEA) because they were adversely affected by the plan because of their age. The trial court granted summary judgment for the City; the 5th Circuit affirmed on the ground that disparate impact claims are categorically unavailable under the ADEA. The US Supreme Court affirmed the judgment on totally different grounds.

(1) The ADEA allows recovery on a disparate impact theory in cases similar to Griggs v. Duke Power, 401 US 424 (1971), a Title VII case. [The Court vote was 5-3 on this point.] Unlike Title VII, the ADEA significantly narrows its coverage via the "RFOA" provision which permits any "otherwise prohibited" action "where the differentiation is based on reasonable factors other than age."

(2) The employees' disparate impact claim failed on its merits. Disparate impact claims are narrower under the ADEA than under Title VII for two reasons: (a) the RFOA provision and (b) the fact that Congress did not change the ADEA when it adopted the Civil Rights Act of 1991 which expanded the scope of Title VII's disparate impact coverage.

For ADEA cases, the Court will apply its pre-1991 interpretation of Title VII's identical language, most notably the interpretation in Wards Cove v. Atonio, 490 US 642 (1989). Wards Cove says that plaintiffs are "responsible for isolating and identifying the specific employment practices that are allegedly responsible for any observed statistical disparities," and the employees in this case have failed to do so. They did "little more than point out that the pay plan at issue is relatively less generous to older workers than to younger workers. They have not identified any specific test, requirement, or practice within the pay plan that has an adverse impact on older workers."

In addition, "the disparate impact is attributable to the City's decision to give raises based on seniority and position. Reliance on seniority and rank is unquestionably reasonable given the City's goal of raising employees' salaries to match those in surrounding communities." Thus, the City's decision was based on a "reasonable factor other than age." There may have been other reasonable ways, including ways that did not have a disparate impact on older workers, but unlike the business necessity test, "the reasonableness inquiry includes no such requirement."

Title IX allows private right of action for retaliation (5-4).

Jackson v. Birmingham Board Of Education (03/29/2005): Jackson, a girls' basketball coach, sued under Title IX of the Education amendments of 1972 claiming he was removed from his coaching position because he complained about practices he believed discriminated against his team in violation of Title IX. The trial court dismissed the action; the 11th Circuit affirmed. The United States Supreme Court reversed. The court relied on Title IX's broad statutory language that prohibited an employer from intentionally subjecting any person to discrimination on the basis of sex. The court stated that retaliation was, by definition, an intentional act and that Title IX did not require that the victim of the retaliation must also be the victim of the discrimination. The court noted that Congress' enactment of Title IX just three years after Sullivan v Little Hunting Park, Inc., 396 US 229, where the court interpreted 42 USC Section 1982's general prohibition of racial discrimination to include retaliation against a white man for advocating the rights of blacks, provided a realistic basis for presuming that Congress expected Title IX to be interpreted in conformity with Sullivan. The court found that reporting incidents of discrimination was integral to Title IX enforcement and would be discouraged if retaliation against those who report went unpunished. The DISSENT argued that Title IX's plain terms did not encompass Jackson's claim for retaliation because his sex did not play a role in his adverse treatment and that the court's holding ignored the rule that Congress must speak with a clear voice when it imposed liability on the States through its spending power and the rule refusing to imply a cause of action when Congress' intent to create a right or remedy was not evident.

Plaintiffs must pay tax on that portion of a settlement that went to attorneys as a contingent fee.

Commissioner v. Banks (01/24/2004): Former employees sued their former employers claiming various legal theories under state law and federal law. In each case settlements were reached. The employees filed federal income tax returns that excluded from income that portion of the settlements that the plaintiffs had to pay to their attorneys under contingent fee agreements. The Internal Revenue Service said these amounts should have been included as taxable income, and the Tax Court agreed. The 6th Circuit and the 9th Circuit both reversed, holding that these amounts were not part of the plaintiffs' taxable income. The US Supreme Court unanimously reversed, holding that plaintiffs must pay tax on that portion of the settlement that went to attorneys as a contingent fee.

The Court relied on two basic taxation principles. (1) "Gross income" as defined by the Internal Revenue Code includes "all income from whatever source derived" which means all economic gains not otherwise exempted. (2) A taxpayer cannot exclude an economic gain from gross income by assigning the gain in advance to another party. The Court held that the contingent fee agreement should be viewed as an anticipatory assignment to the attorney of a portion of the client's income from any litigation recovery.

One of the employee-taxpayers brought claims under federal statutes that authorize fee awards to prevailing plaintiffs' attorneys. He argued that the anticipatory assignment principle would be inconsistent with the purpose of statutory fee shifting provisions. The Court did not address these claims because the fee paid to his attorney was calculated solely on the basis of the private contingent fee contract. There was no court-ordered fee award, and no other indication that the fee paid to the attorney was in lieu of statutory fees.

[Editor's Note: Congress amended the Internal Revenue Code, effective November 22, 2004, to allow a tax deduction for amounts a plaintiff pays for attorney fees and court costs in connection with an action involving a claim of "unlawful discrimination" as defined by the Act. The new statute applies only to fees and costs paid after October 22, 2004. Relevant text of the Act: http://www.lawmemo.com/docs/congress/ajca.htm.]

Making and selling sexually explicit video is not expression on a matter of public concern.

San Diego v. Roe (12/06/2004): Roe, a San Diego police officer, created a sexually explicit videotape of himself and sold them on eBay. The tape showed him in a police uniform. He also sold custom videos, official San Diego police uniforms, and other items. The City discharged him for this and related conduct. Roe sued claiming violation of his 1st amendment right to free speech. The trial court granted summary judgment for the City on the ground that selling official police uniforms and producing and selling the tape for profit was not expression on a matter of "public concern." The 9th Circuit reversed, finding that Roe's conduct was within the protected category of citizen commentary on matters of public concern. The US Supreme Court reversed in an unsigned per curiam decision without even hearing oral argument. The Supreme Court held that Roe's expression did not qualify as a matter of public concern.

The 9th Circuit had ruled that Roe's conduct was a matter of public concern (citing United States v. Treasury Employees, 513 US 454 (1995)) because his expression was not an internal workplace grievance, took place while he was off-duty and away from his employer's premises, and was unrelated to his employment. The Supreme Court found that the Treasury Employees case did not apply because the City demonstrated legitimate and substantial interests of its own that were compromised by his speech, and because Roe took deliberate steps to link his videos and other wares to his police work.

Pickering v. Board of Education, 391 US 563 (1968) adopted a balancing test for evaluating governmental restrictions on public employee speech on matters of "public concern." However, the balancing test does not even come into play unless the employee's speech touches on a matter of public concern. Supreme Court cases "make clear that public concern is something that is a subject of legitimate news interest; that is, a subject of general interest and of value and concern to the public at the time of publication." The Court had "no difficulty" concluding that Roe's expression did not qualify as a matter of public concern.

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