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Supreme Court Review:
2000-2001 Employment Law Cases 

By Ross Runkel   Bio   email
Editor, Employment Law Memo


During its 2000-2001 session, the United States Supreme Court decided eleven significant cases involving labor and employment law.  They deal with individual arbitration agreements, collective bargaining arbitration, caps on damages, the 11th amendment in ADA suits, sexual harassment, Title VII retaliation, supervisor status under the NLRA, taxation, ERISA preemption, and RICO.

Arbitration - Individual Employment Agreements

Yes, the Federal Arbitration Act (FAA) applies to individual employment contracts.  Circuit City Stores v. Adams (03/21/2001) (5-4) held that the exception in FAA Section 1 which excludes "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce" means what it says.  It excludes only transportation workers.  This decision swept away a 9th Circuit ruling that had put all employment agreements beyond the reach of the FAA.

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), and other lower court cases had already established that an arbitration agreement can keep nearly every employment dispute out of the court system. This includes cases involving federal discrimination statutes (e.g., Title VII, ADA, ADEA), federal wage and hours laws, state common law claims involving contract rights and torts (e.g., wrongful discharge), state statutes, and state constitutional provisions.

Circuit City did not address another 9th 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 agreements imposed as a condition of employment and signed before a dispute arises.  No other Circuit has taken that position, and the California Supreme Court rejected it in Armendariz v. Foundation Health Psychcare Services, 6 P.3d 669 (California 2000).

In a related action, the Court said that during its 2001-2002 session it will decide whether the EEOC has the authority to obtain damages and reinstatement on behalf of an employee who signed an agreement to arbitrate.  EEOC v. Waffle House Inc (Docket No. 99-1823), certiorari granted March 26, 2001  [Summary].

Arbitration - Public Policy exception

Eastern Associated Coal Corp v. United Mine Workers of America (11/28/200) unanimously held that public policy considerations do not require courts to refuse to enforce an arbitration award ordering an employer to reinstate an employee truck driver who twice tested positive for marijuana.  The Court made the important point that the question was not whether the employee’s drug use itself violates public policy, but whether the agreement to reinstate him does so. The Court could not find in the Omnibus Transportation Employee Testing Act of 1991, the regulations, or any other law or legal precedent an explicit, well defined, dominant public policy to which the arbitrator’s decision ran contrary.

Arbitration - Role of a reviewing court

Major League Baseball Players Assoc v. Garvey (05/14/2001) (8-1) held that when a court finds that an arbitrator has "dispensed his own brand of justice," the court should not then decide the case on its merits, but should vacate the arbitrator's award - leaving open the possibility of further proceedings under the collective bargaining agreement.  Further, a court should not overturn an arbitrator's decision because it disagreed with the arbitrator's factual findings, particularly those with respect to credibility. 

Remedies - Title VII front pay is excluded from statutory damages cap

In Pollard v. E I du Pont de Nemours (06/04/2001) the Court held that in Title VII cases front pay is not subject to the Civil Rights Act of 1991's statutory damages cap.

11th amendment - ADA suits in federal court

University of Alabama v. Garrett (02/21/2001) (5-4) held that suits in federal court by state employees to recover money damages by reason of the states' failure to comply with Title I of the ADA are barred by the 11th amendment.  The Court found that Congress had clearly expressed its intent to abrogate state immunity, but that Congress had not acted pursuant to a valid grant of constitutional authority.

First, the legislative history of the ADA fails to show that Congress identified a history and pattern of irrational employment discrimination by the states.  Second, the rights and remedies created by the ADA do not show the necessary "congruence" and "proportionality."  For example, the ADA requires employers to make their facilities readily accessible to disabled individuals unless to do so would impose an undue hardship.  That requirement far exceeds what the constitution requires.  By contrast, the Court upheld the Voting Rights Act of 1965 because Congress had documented a marked pattern of unconstitutional action by the states and had determined that litigation was an ineffective remedy.

Title VII retaliation - The Court requires evidence

The Court decided Clark County School District v. Breeden (04/23/2001) per curiam without oral argument, reversing the 9th Circuit on two issues.

(1) In retaliation cases, lower courts have interpreted Title VII as protecting an employee's opposition not only to practices actually made unlawful by Title VII, but also to practices that the employee reasonably believed to be unlawful.  The Court avoided deciding whether this is a correct reading of the statute, and held that the employee had complained about an incident that no reasonable person could believe violated Title VII.  It was a single isolated incident in which the employee's supervisor made an off color comment, and then he and another employee chuckled.

(2) In retaliation cases, lower courts have allowed employees to show a causal connection between the occurrence of protected activity and an unfavorable employment action by demonstrating temporal proximity.  The Court rejected the employee's proof, noting that "Action taken (as here) 20 months later suggests, by itself, no causality at all."

NLRA - Whether charge nurses are "supervisors"

In NLRB v. Kentucky River Community Care (05/29/2001) (5-4) the Court  found that the NLRB's test for determining supervisory status of nurses is inconsistent with the National Labor Relations Act.  One of the three statutory factors that determine whether employees are supervisors is the use of "independent judgment" in exercising their authority to exercise one of the 12 supervisory functions.  The NLRB's position was that employees do not use "independent judgment" when they exercise "ordinary professional or technical judgment in directing less-skilled employees to deliver services in accordance with employer-specified standards."  The Court said one flaw in the NLRB's interpretation is that it distinguished different kinds of judgment, regardless of the degree of judgment.  This is a "startling categorical exclusion" that cannot be found in the statutory text.  A second flaw is that the NLRB would apply its categorical exclusion to only one of the 12 supervisory functions: "responsibly to direct."  The Court found "no apparent textual justification for this asymmetrical limitation."

Taxation - Tax rates for back wage payments

United States v. Cleveland Indians Baseball Co (04/17/2001) held that back wages are subject to FICA and FUTA tax rates that were in effect for the year in which  the wages are in fact paid, not for the year in which they should have been paid.  The employer in this case had settled a grievance and paid, in 1994, backpay for wages that were due in 1986 and 1987.

Due process - Withholding payments from subcontractor

The California Labor Code authorizes the State to order withholding of payments due a contractor on a public works project if a subcontractor on the project fails to comply with certain Code requirements; permits the contractor, in turn, to withhold similar sums from the subcontractor; and permits the contractor, or his assignee, to sue the awarding body for alleged breach of the contract in not making payment to recover the wages or penalties withheld. The State ordered withholding of funds due to alleged violations of the Code. The Supreme Court held that the statutory scheme did not violate due process even though the Code does not provide for a hearing.  Whatever property interest the subcontractor has can be fully protected by an ordinary breach of contract suit.  Lujan v. C & G Fire Sprinklers (04/17/2001)

ERISA - Preemption of state probate statute

A state probate statute provides that upon dissolution of marriage a beneficiary designation in favor of a former spouse is revoked.  ERISA's preemption section, 29 USC Section 1144(a), provides that ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" covered by ERISA.  The Court held that ERISA preempted the state statute because it had an impermissible connection with ERISA plans.  Egelhoff v. Egelhoff (03/21/2001) (7-2).

RICO - Corporations and their sole owners/employees are distinct entities.

Don King was the president and sole shareholder of a corporation.  He also carried out certain activities as an employee.  The Court held that King was a "person" distinct from the corporation/enterprise when he engaged in alleged RICO-prohibited conduct.  "The need for two distinct entities is satisfied ... when a corporate employee unlawfully conducts the affairs of the corporation of which he is the sole owner - whether he conducts those affairs within the scope, or beyond the scope, of corporate authority,"  Cedric Kushner Promotions v. Don King (06/11/2001).

Cases pending decision during 2001-2002

For reports on cases decided or still pending during the 2001-2002 session (beginning October 2001), see http://www.lawmemo.com/sum/courts/supreme/.

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