The Fate of the Department of Labor's New Overtime Rule is in Limbo, and its Prospects are Dim

Recent developments in the judicial and executive branches of the federal government make it unlikely that a key effort by the Obama Administration to raise the wages of American workers will come to fruition. 

            I.                   Overtime Final Rule

Earlier this year, the Department of Labor announced a new rule which would have increased the salary threshold for the executive, administrative, and professional exemptions to the Fair Labor Standards Act (FLSA). The rule was expected to extend the FLSA’s overtime protections to an estimated 4.2 million additional white-collar employees around the country, including managers in the restaurant, retail, and hospitality industries. (Bryan Schwartz Law wrote about the overtime final rule announcement here). The overtime final rule was anticipated to go into effect on December 1, 2016. 

The final rule would:

• increase the salary level required for the white collar exemptions to apply, from $23,660 to $47,476;
• increase the compensation level required for the highly compensated employee exemption to apply, from $100,000 to $134,004; and,
• provide automatic increases to these salary levels every three years based on data reported by the Bureau of Labor Statistics, without requiring a separate rulemaking. 

II.                Final Rule Imperiled by the Courts

On November 22, 2016, U.S. District Court Judge Amos Mazzant granted an emergency motion to preliminarily enjoin the Department of Labor from implementing and enforcing the overtime final rule. Nevada, et al. v. U.S. Dept. of Labor, et al., No: 4:16-CV-00731, Docket No. 60 (E.D. Tex). The court applied the analytical framework set forth in Chevron U.S.A., Inc. v. National Resources Defense Council, Inc., 467 U.S. 837 (1984), to conclude that the Department of Labor’s interpretation of the FLSA’s white collar exemptions, set forth in 29 U.S.C. § 213(a)(1), was not entitled to deference, and was contrary to the language and intent of the statute.

Courts apply a two-step analytical framework to determine whether an agency's interpretation of a statue is entitled to judicial deference. First, the court determines “whether Congress has directly spoken to the precise question at issue.” Id. at 842. “If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” Id. at 842-43. Second, if Congress’s intent is ambiguous regarding the precise question at issue, then the court will defer to the agency’s interpretation unless it is “arbitrary, capricious, or manifestly contrary to the statute.” Id. at 844.

In Nevada, the court concluded that the final rule was not entitled to Chevron deference. At the first step of analysis, the court interpreted the language of the FLSA's white collar exemptions as describing employee job duties, not employee salaries. Slip. Op. at 11. The Department of Labor added regulations shortly after the FLSA was enacted in 1938 which added salary basis and minimum salary requirements. The court concluded that by significantly raising the salary level required for the white collar exemption to apply, the Department of Labor exceeded its delegated authority because it allowed minimum salary level to supplant the duties test. Slip. Op. at 13.

The court went on to explain that the final rule would also fail at the second stage of the Chevron analysis, because it was not “based on a permissible construction of the statute. Id. (quoting Chevron, 467 U.S. at 843). The court interpreted the final rule as creating a de facto salary-only test. The court concluded that by doing so, the final rule was “contrary to the statutory text and Congress’s intent,” and not entitled to deference on that basis. Slip. Op. at 14.

In a statement released on the agency’s website, the Department of Labor states that it “strongly disagrees with the decision by the court,” explaining that, 

Since 1940, the Department's regulations have generally required each of three tests to be met for the FLSA's executive, administrative, and professional (EAP) exemption to apply: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (“salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (“salary level test”); and (3) the employee's job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (“duties test”). The Department has always recognized that the salary level test works in tandem with the duties tests to identify bona fide EAP employees. The Department has updated the salary level requirements seven times since 1938.

III.             Final Rule Imperiled by the President-Elect

The overtime final rule is likely to die during the presidency of Donald Trump.

On December 1, 2016, the Department of Labor filed a notice of appeal to the Fifth Circuit Court of Appeals – home of some of the most conservative appeals judges in the country. Given the high stakes of this case, the non-prevailing party on appeal will probably seek certiorari before a Supreme Court containing one or more nominee selected by president-elect Trump. If Trump’s selection for the Supreme Court is anything like his recent pick to head the Department of Labor, the High Court will have an additional vote in support of the district court’s ruling.

On December 8, 2016, President-elect Trump named Andy Puzder, a fast-food executive, as his pick to head the Department of Labor. Mr. Puzder is vocal opponent of recent efforts to raise the minimum wage, and government regulation of the workplace generally. In a May 18, 2016 Forbes Op-Ed, Mr. Puzder criticized the overtime final rule as “another barrier to the middle class, rather than a springboard.” If confirmed, Mr. Puzder can be expected to impose additional barriers to implementation of the overtime final rule.

In an economy where middle-class workers’ wages have stagnated, President Obama's Administration sought to lift white-collar wages through the overtime final rule. The court’s wrong decision, and president-elect Trump’s signaled direction, will allow the wealthy few to continue to pocket the economy’s profits while middle-class workers watch their standards of living decline. This is an existing trend that will likely grow throughout the Trump presidency. For the next four years, at least, the movement to raise minimum wages should not expect gains at the federal level. In the meantime, the movement should continue to seek victories where possible – on the state and local levels.  

IV.       Possible Silver Lining? Some Employers May be Contractually Obligated to Raise Wages

Because the preliminary injunction issued just one week before the overtime final rule was supposed to take effect, by that time, many employers may have taken steps toward raising their employees’ wages. Even without the rule, some employers may already have contractually obligated themselves to raise their employees’ wages. 

#ApprenticeshipWorks — Unless it maintains the pay gap

The Legal Aid Society-Employment Law Center blogged about Bryan Schwartz Law's case involving construction worker Teresa Caponio, who suffered sex and age discrimination in her apprenticeship - read about it: https://las-elc.org/blog/apprenticeshipworks-%E2%80%94-unless-it-maintains-pay-gap

Can our democracy survive an unfit President? Compassion, not secession

Is the greatest system of government ever invented great enough to be reinvented after it is burned down? Sub -question - was Trump elected in spite of Trump, to say we must have a do-over of our government, by people terrified by the new economy who have experienced that government is not effectively on their side? People whose worst instincts were in some instances preyed upon by the demagogue but who fundamentally just want change?

Or even if he was really elected in part because of bigotry and sexism rather than in spite of it, can we choose to take away a different message - that the real majority of people are just sick of paying so much for government and getting their hopes up that it will provide a real safety net,a real education, real statutory protections - and being constantly let down? When Trump and his sycophants fail at governing - as they will, since they know only how to burn, and not how to build (other than towering monuments to their own names) - can we step into the void and save our inclusive America with a new vision? We must not forget that we are the ones who serve the diverse working class of America, not the sham billionaire bankruptcy artist who can't be bothered to pay livable minimum wages or his fair share of taxes.

We win in the end because we are right on justice and fairness. And we lose if we come out as defenders of an indisputably flawed and too-often inequitable system.

Is there the kernel of a path forward here? I hope so because as much as I despise Trump and his idiocy I cannot despise America, even though many here voted for him. America gave us the opportunity to do what good we do so passionately. Can we find a way in our anger to have compassion for Trump's victims, or some of them, who themselves struggle to make ends meet and cannot see any hope with the current system, other than through a false prophet? We are the compassionate. We are the compassionate. We are the compassionate. Does repeating this give us any chance of internalizing it?

We must fight by all available means against the hatefulness that Trump espoused throughout his campaign. But can we do it without secession from America? 

Eleventh Circuit Rules that Dreadlocks Not Protected Under Discrimination Law

In EEOC vs. Catastrophe Management Systems, the Eleventh Circuit held that an employer with a policy that prohibits "excessive" hairstyles is permitted to reject an applicant with dreadlocks, even though the policy would tend to target African American employees.

 

The EEOC sued Catastrophe Management Systems on behalf of Chastity Jones, a black job applicant whose job offer was rescinded after she refused to cut off her dreadlocks. Jones applied to CMS through an online application and was selected for an in-person interview. Jones attended the interview dressed in a business suit, wearing her hair in short dreadlocks. After the interview, Jones joined several other applicants in a room where they were all told they were hired.

  

Unfortunately, the good news for Jones was short-lived. When she later met with CMS' human resources to complete hiring paperwork, the Human Resource Manager told Jones she could not be hired if she kept her dreadlocks. Jones asked why and the manager responded with "they tend to get messy, although I'm not saying yours are, but you know what I am talking about." Jones refused to cut her dreads, and CMS rescinded the offer.

 

At the time of the conversation, CMS had a grooming policy that said “All personnel are expected to be dressed and groomed in a manner that projects a professional and businesslike image while adhering to company and industry standards and/or guidelines…No excessive hairstyles or unusual colors are acceptable.

  

The federal district court and the Eleventh Circuit rejected the EEOC's argument of discrimination, concluding the complaint rested on an improper argument that Title VII protected against discrimination based upon mutable characteristics. "Title VII prohibits discrimination on the basis of immutable characteristics, such as race, color, or natural origin," and a "hairstyle, even one more closely associated with a particular ethnic group, is a mutable characteristic" the court concluded.

 

It is worth underscoring that the EEOC did not argue that CMS' grooming rules had a disparate impact on African American employees. It is not clear whether or not the case's outcome would have been different if the employer had faced a disparate impact, as opposed to a disparate treatment, claim.

 

“This litigation is not about policies that require employees to maintain their hair in a professional, neat, clean or conservative manner,” said C. Emanuel Smith, regional attorney for the EEOC's Birmingham District Office. “It focuses on the racial bias that may occur when specific hair constructs and styles are singled out for different treatment because they do not conform to normative standards for other races.” Bryan Schwartz Law agrees.

Uber Drivers Learn that Sometimes the Perfect is the Enemy of the Good

Courts have an important responsibility to approve class action settlements and ensure that the plaintiffs and their attorneys are not selling out the class by colluding with the defendants. Sometimes, though, in their zealous protection of the absent class members, courts wind up forgetting the old aphorism attributed to Confucius: "Better a diamond with a flaw than a pebble without." Uber drivers may wind up with pebbles rather than somewhat flawed diamonds. Crushed pebbles may make concrete, but even flawed diamonds could help pay a lot more bills.

When veteran wage-and-hour litigator Shannon Liss-Riordan sought court approval for a $100 million settlement on behalf of a class of 385,000 Uber drivers in California and Massachusetts, she was denounced by some objectors for the compromise she reached, even after she volunteered to cut her fee in half. Then Judge Edward Chen of the U.S. District Court for the Northern District of California last month denied approval of the proposed settlement of the drivers’ independent-contractor-misclassification claims, finding that the settlement was not “fair, adequate, and reasonable,” as required to grant preliminary approval.

Judge Chen is one of the most careful protectors of absent class members and one of the most thoughtful jurists when it comes to adjudicating wage protections. In denying preliminary approval for the proposed independent-contractor-misclassification settlement, Judge Chen expressly endorsed the view that district court review of class action settlements should not be too lax – and particularly that the court’s review at the preliminary (as opposed to the final) approval stage should be more searching.  But, in this case, his decision disapproving the settlement may have unintended consequences.

In disapproving the settlement, Judge Chen acknowledged the risk posed by Uber’s previously-rejected arbitration provisions, stating: “The most obvious risk to Plaintiffs is, of course, that the Ninth Circuit [which sits as the Northern District of California’s reviewing court] will uphold the validity of the arbitration provision contained in the 2013 and/or 2014 agreements, which this Court found was invalid as a matter of public policy.” This is exactly what happened.

Last week’s decision from the Ninth Circuit upholding Uber’s arbitration agreements (which contained class waivers) in another case may mean that the vast majority of those 385,000 drivers will get nothing. The Ninth Circuit ruled that Judge Chen had erred in previously declaring Uber’s arbitration agreements unenforceable, and that in doing so, he had “ignore[d]” circuit precedent.

Now, to get anything at all, each driver may need to bring an individual arbitration against Uber and win, showing that he or she was more like an Uber employee than an independent contractor. This will be a tough showing and, as Uber well knows, the vast majority of drivers will never step forward to assert the risky claims at all.

Denying approval for the $100 million settlement, Judge Chen found that the settlement reflected a 90% discount on the full value of the drivers claims, with the exception of the claim under the Private Attorneys General Act (PAGA), for which the Court indicated that the settlement was a mere 0.1% of their full value. In particular, Judge Chen expressed concern that the PAGA claim had recently been added to the lawsuit to induce Uber to settle. Furthermore, Judge Chen questioned the value of the nonmonetary relief in the settlement, such as the provision that would allow drivers to accept cash tips (as opposed to in-app tipping as with Lyft), suggesting that riders accustomed to a cashless experience are unlikely to reach for their wallets. 

It is possible that each of these terms was a compromise that was less than ideal for the Uber driver class members. Of course, any settlement of a wage-and-hour class action (or more broadly, any settlement of any lawsuit) is going to consist of a mix of terms, both good and bad for both sides of the dispute. But surely getting some money in a settlement – even an imperfect settlement – would be much better for hundreds of thousands of Uber drivers than getting nothing at all.

These Uber disputes raise central questions about the level of scrutiny a district court should apply to a class settlement – particularly given Judge Chen’s criticism of “lax review” – and whether the Court or class counsel is in a better position to evaluate the risks of non-recovery. While the court is charged with preventing collusive settlements to protect absent class members, ultimately, seasoned and responsible class counsel and class members both tend to care most about the bottom line, in light of the risks. With the benefit of hindsight, Liss-Riordan appears to have been right about the risks of proceeding with the litigation, and the settlement’s objectors were misguided.

The case is not over. Liss-Riordan has been signing up Uber drivers to pursue individual arbitrations in California. The PAGA claims on behalf of California drivers may not be compelled to arbitration. Nonetheless, the likelihood of a recovery nearing $100 million, or getting money for all 385,000 Uber drivers, looks bleak.

When reviewing class action settlements that were negotiated at arm’s length by experienced class counsel, where class counsel is able to articulate the rationale for their position, courts should be hesitant to second-guess counsel’s risk assessment. The perfect is often the enemy of the good in these cases, where a court – with a single decision – can erase years of work to obtain a successful result, absent some kind of an agreement between the parties. Particularly in the employment context, where workers should be recovering more than nominal amounts in any class resolution, those who do not wish to participate can always opt-out of a deal and pursue their own claims if they are so inclined. For the rest, though, receiving flawed diamonds might be a whole lot better than the alternative – getting dirt.

You are Not Helpless! Do Something to Defeat Trump

This is a personal appeal from Bryan Schwartz, the principal of Bryan Schwartz Law:

I'm writing this to you as a friend.

We all know Trump is a hotheaded, bigoted liar who has throughout his life exhibited a willingness to say or do anything that might get him some attention - even run for President without having ever spent a day of his life in public service. He has pledged to build a wall along our border, to round up and deport 11 million, and to end religious freedom for Muslims. We know that even his candidacy is a disgrace to the United States and that, if there is any justice or decency in this country, he will be trounced on November 8th.

First things first - Trump is not being trounced. In current polls nationally, he is within 3-4 percentage points of the former Secretary of State, Senator, and First Lady, Hillary Clinton, in the presidential race, and all the polls lead to the conclusion that the race is tightening. Our preeminent statistics journalist, Nate Silver, reports that "many voters — close to 20 percent — either say they’re undecided or that they plan to vote for third-party candidates. At a comparable point four years ago, only 5 to 10 percent of voters fell into those categories." (http://fivethirtyeight.com/features/election-update-clintons-lead-keeps-shrinking/) This gives the race far more unpredictability - it means Clinton could still win in a landslide, but it also means that Trump has a real shot at winning, inviting chaos and ruin upon our great country.

But, what can we do about it? Most of us don't live in swing states, the election will be decided by hundreds of millions of dollars - not our measly thousands - and besides, we're very busy people. We've got our stressful jobs, and our family stuff - taking the kids to practice, getting them to school, helping with homework -and then there's the volunteering we're already doing with other good organizations, and just living life - catching a ballgame, having a glass of wine. We plan to vote, but otherwise, aren't sure what we can really do.

Elie Wiesel just died. The timing is spooky. Thirty years ago in his Nobel Prize acceptance speech (http://www.eliewieselfoundation.org/nobelprizespeech.aspx), he described us as “guilty…accomplices” if we stand by and let other human beings endure humiliation, as Trump seeks. Elie Wiesel said, “…We must take sides. Neutrality helps the oppressor, never the victim. Silence encourages the tormentor, never the tormented. Sometimes we must interfere….Wherever men and women are persecuted because of their race, religion, or political views, that place must - at that moment - become the center of the universe.”

Trump is not urging genocide yet, but that does not permit us to stand by and be Trump's accomplices. It is simply not enough to believe he is a wrong-headed demagogue and to exercise a single vote against him. We, the empowered, must act more forcefully. If we don't, and he wins, and begins the terrible downward spiral of our democracy that he has promised, it is not because of them. It is because of our own inaction. I always wondered what Americans did while the Holocaust was beginning in Europe, while stories emerged of Hitler's atrocities. Most did not agree with Hitler - but they were busy with their lives, and did not mount a groundswell to stop him while they could, until it was too late for many millions.

Here are five things we can do, even as busy people, to defeat Trump, that I am doing with my family between now and November 8th. Join us - I will buy you dinner if you are my friend and let me know you are working with us!

1.  Visit a swing state. I am taking my family to Reno, Nevada, twice between now and Election Day - the weekend of October 8-10 (Columbus Day weekend) and November 7-8 (the day before Election Day and Election Day). Face-to-face canvassing is the most effective campaign work. There is work to be done walking blocks, entering data, organizing volunteers, driving people to the polls, and otherwise ensuring that Nevada's six electoral votes do not go for Trump. Busses of volunteers go from the Bay Area every Saturday to Nevada to help. Roundtrip tickets on Southwest from Oakland, non-stop, are less than $80. Clinton only leads in current polls by about 2 points in Nevada. Washoe County - where Reno is - is the bellwether county of the bellwether state of Nevada, a state which has predicted the presidency in all but one election over the last 100+ years. Email me and I will plug you into the Nevada grassroots campaign. For anyone who joins us November 8th all day, if you are a friend and let me know you are working with us, I will buy you dinner in Reno, after the polls close.

2. Protect the polls. Attorneys and legal professionals, in particular, can volunteer to do voter protection. I am hosting an event in my office at 6 p.m. on October 6th (1330 Broadway, Suite 1630) if you want to be trained as a poll watcher in Nevada. Again, if you are a friend and let me know you are working with us, I will buy you dinner on November 8th if you come to do voter protection.

3. Get one new person to vote against Trump (or for Clinton). Have the tough conversation with a conservative relative or friend. Whatever will resonate - Trump has filed bankruptcy four times, leaving hardworking building contractors and others holding the bag, and won't release his taxes. He insulted the Pope and had five children with three women. He started a fake university that stole students' money and gave out bogus degrees. He ships jobs overseas and makes Trump products in China. He scoffs at veterans and the parents of fallen soldiers. Do you know one single person, in your entire universe, especially one in a swing state, who you fear might be voting for Trump? Have a tough heart-to-heart.

4. Send a call to action to your friends. I am doing this. You can do this, too. If 100 of my friends contact 100 of their friends (and 50 of them don't overlap), and they each do the same - we can activate thousands of people of conscience, looking for a way to make an impact, but feeling helpless.

5.  Max. out. I have given $2,700 to defeat Trump: https://www.hillaryclinton.com/donate/

Match this. Maybe it is a lot for an ordinary middle-class or upper middle-class person. But Trump has billions and just had the best fundraising month of his campaign. If you can't give this much, or you can give more (divided among the campaign, the DNC, and other organizations), then max. out the way you can. If you want to see who usually wins elections, follow the money. (http://www.huffingtonpost.com/kirby-goidel/money-matters-in-presiden_b_9190198.html; http://prospect.org/article/does-money-affect-election-outcomes-us-politics-quick-review-literature).

Talking to friends (live or on Facebook) and bemoaning Trump's antics is not enough. Don't feel helpless. Do something. Defeat Trump. If everyone who feels like we do, does what we do, then he will lose.

As Elie Wiesel said, concluding his Nobel acceptance speech: "Our lives no longer belong to us alone; they belong to all those who need us desperately."  America is a great country where we have thrived, and she and her future generations need us desperately now.

I hope you will join me.

Bryan Schwartz

Seventh Circuit Joins Fourth and Fifth Circuits in Disapproving of Racially Discriminatory Voting Restrictions

As a result of three new appellate court rulings, more voters of
color in Wisconsin, Texas, and North Carolina will likely be able 
to participate in the general election on November 8, 2016.

On Monday, the U.S. Court of Appeals for the Seventh Circuit denied Wisconsin’s motion to stay a district court ruling striking down a provision in the state’s voter suppression law that significantly reduced early voting, as well as assorted voter ID requirements in the law. As the district court found, in removing early voting on evenings and weekends, the Wisconsin legislature targeted African-American and Latino voters, who disproportionately took advantage of the extended voting hours. In particular, eliminating early voting on Sundays has become a common tactic to reduce African-American voting by directly targeting “Souls to the Polls” events where churches provide transportation to polling locations after Sunday services. The three-judge panel of the Seventh Circuit was composed entirely of Republican appointees, who denied the stay request without a written opinion.

Earlier this summer, the Fifth Circuit questioned the legitimacy of Texas’s strict voter ID law in an en banc ruling, noting that the law required forms of identification that voters of color were much less likely to possess. It further noted that Texas failed to take any reasonable steps to ameliorate the discriminatory effects of the strict voter ID requirement.

Just a few weeks ago, the Fourth Circuit struck down a much wider range of voting restrictions in North Carolina as racially discriminatory – including strict voter ID, a ban on same-day registration, and cutbacks in early voting (including Sunday voting). The Fourth Circuit took the district court to task for its “failure of perspective [which] led the court to ignore critical facts bearing on legislative intent, including the inextricable link between race and politics in North Carolina.”  The district court had approved the restrictions as grounded in partisanship rather than race, justifying them as “politics as usual.” Noting the strong correlation between party identification and race in North Carolina, the Fourth Circuit held that such an explanation “cannot be accepted where politics as usual translates into race-based discrimination.”

Both the Wisconsin district court and the Fourth Circuit found that the plaintiffs had met the difficult burden of showing that the voting laws were enacted with discriminatory intent, in addition to the discriminatory effect the laws would have on voters of color. The Fifth Circuit found that Texas’s law had a discriminatory effect, but remanded to the district court for reconsideration of whether the law also reflected the legislature’s intent to discriminate. Only a finding of discriminatory impact is required to obtain relief under the Voting Rights Act, but a finding of discriminatory intent allows for broader remedies.

The new rulings are a welcome development for voting rights advocates, who had been playing defense since the U.S. Supreme Court’s 2013 ruling overturning Section 5 of the Voting Rights Act of 1965 in Shelby County v. Holder. Section 5 required that jurisdictions – including both counties and entire states – with a record of racially discriminatory voting practices submit any proposed changes to voting laws to the Department of Justice for preclearance. Section 5 recognized the practical problem that an individual denied access to the polls on Election Day might have to wait years for the courts to sort out whether a violation had occurred. Section 5 instead placed the burden on the state seeking to introduce a new election law to show that it would not have a discriminatory effect on access to the polls. Despite of Section 5’s record of success (or perhaps because of it) and its bipartisan reauthorization by Congress in 2006, Justice Roberts wrote for a five-justice majority of the Court and concluded: “Our country has changed, and while any racial discrimination in voting is too much, Congress must ensure that the legislation it passes to remedy that problem speaks to current conditions.”*

The aftermath of Shelby County was predictable: with the protections of Section 5 gone, states across the country enacted (or began enforcing) voter suppression laws which directly targeted voters of color. For instance, the day of the Shelby County ruling Texas announced  that it would begin enforcing its strict photo ID law, which had been blocked by Section 5 due to its racially discriminatory effects. North Carolina then passed one of the most comprehensive voter suppression laws in the country after the legislature conducted studies which found that African-Americans would be impacted most by the new voting requirements. (Wisconsin was not covered by Section 5’s preclearance requirement.)

The spate of activity in the voting rights arena this summer has led many to ask: why now? An obvious answer may be that with the 2016 presidential election fast approaching, this summer marked the last reasonable opportunity for courts to intervene. Some commentators have pointed to the recent passing of Justice Antonin Scalia and the absence of a fifth vote on the high court to uphold racially discriminatory voting restrictions (or put more charitably, to interpret such restrictions as motivated by race). Linda Greenhouse of The New York Times argues that the decisions overturning voter suppression laws are part of a larger trend of federal courts being increasingly willing to look beyond phony motives offered by legislatures, particularly in the context of laws which purport to solve imaginary problems like in-person voter fraud. As Judge Catharina Haynes of the Fifth Circuit stated as to the Texas law: “We cannot say the district court had to simply accept that legislators were really so concerned about this almost nonexistent problem.” Similarly, Judge Diana Gribbon Motz of the Fourth Circuit reasoned with respect to North Carolina’s law: “Although the new provisions target African Americans with almost surgical precision, they constitute inapt remedies for the problems assertedly justifying them and, in fact, impose cures for problems that did not exist.”

Although the general election is only 75 days away, this story is far from over, as the Supreme Court may still intervene: North Carolina has already requested a stay of the Fourth Circuit’s ruling, and Wisconsin may yet seek similar relief. Still, it appears unlikely there are enough votes on the eight-member high court to disrupt these appellate court rulings before Tuesday, November 8.

The timing could not be more critical, with Republican nominee Donald Trump running an unprecedented campaign (at least, in recent history) founded on racist statements and appeals concerning Latinos, Muslims, and African Americans, among other groups. Thanks to an emerging consensus among the Circuit Courts of Appeal, a broader and more diverse community of Americans will be able to exercise their right to vote in Wisconsin, North Carolina, and Texas this November. Voters should seize the opportunity to send a clear message that such racist appeals have no place in American politics.

---

* Technically, the Court struck down the coverage formula for Section 5 (contained within Section 4(b) of the Act) and left Section 5 in tact. However, without a coverage formula, Section 5 is toothless. In theory, Congress could pass a new coverage formula to put the teeth back in Section 5, but that would require Congress to agree on a new coverage formula.

D.R. Horton Rising: The Ninth Circuit Sides with the Seventh Circuit and the National Labor Relations Board on Class Action Waivers, in Morris v. Ernst & Young, LLP

In the Ninth and Seventh Circuits, employers cannot force

employees to sign class action waivers as a condition of 

employment, because the NLRA provides employees the 

right to vindicate employment rights collectively.

Yesterday, the Ninth Circuit took sides in a major split within the U.S. Courts of Appeals over the enforceability of class arbitration waivers. In Morris v. Ernst & Young, LLP, No. 13-16599, Slip. Op. (9th Cir. Aug. 22, 2016), the Ninth Circuit held that employers violate Sections 7 and 8 of the National Labor Relations Act (“NLRA”) by requiring employees covered by the NLRA to waive, as a condition of their employment, participation in “concerted activities” such as class and collective actions. (Slip Op. at 1.)

By this holding, the Ninth Circuit joins the Seventh Circuit, which in Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. May 26, 2016) adopted the National Labor Relations Board (“The Board”) position in D.R. Horton, Inc., 357 NLRB No. 184 (2012). Under this line of authority, the Federal Arbitration Act (“FAA”) does not mandate enforcement of a contract that waives the substantive federal right to engage in concerted action established in Section 7 of the NLRA. (Slip Op. at p. 18-19.) Bryan Schwartz Law blogged in detail about the Lewis v. Epic Systems Corp. decision, here.

In Morris, two employees filed a class and collective action alleging that their employer had misclassified workers as exempt and deprived them of overtime in violation of the Fair Labor Standards Act (“FLSA”) and California labor laws. As a condition of employment, the employees were required to sign contracts containing a “concerted action wavier” that obligated them (1) to pursue legal claims against their employer exclusively through arbitration and (2) to arbitrate individually in “separate proceedings.” Based on these agreements, the employer moved to compel the employees to arbitrate their claims individually. The U.S. District Court granted the employer’s motion. (Slip Op. at p. 4-5.)

The Ninth Circuit reversed, reviewing the decision to compel arbitration de novo. Chief Judge Sidney R. Thomas explained in the opinion:

This case turns on a well-established principal: employees have the right to pursue work-related legal claims together. 29 U.S.C. § 157; Eastex, Inc. v. NLRB, 437 U.S. 556, 566 (1978). Concerted activity – the right of employees to act together – is the essential substantive right established by the NLRA. 29 U.S.C. § 157. Ernst & Young interfered with that right by requiring its employees to resolve all of their legal claims in “separate proceedings.” Accordingly the concerted action waiver violates the NLRA and cannot be enforced.

(Id. at p. 6.)

The Ninth Circuit explained that the FAA does not dictate a contrary result. (Id. at 14.) While the FAA creates a “federal policy favoring arbitration” clause enforcement, the Act contains a savings clause that prohibits enforcement of arbitration agreements that defeat substantive federal rights, including the right to engage in concerted activity under the NLRA. (Id. at 15, 26.) In Morris, employees’ waiver was illegal not because it required the employees to pursue their claims in arbitration, but rather, because they could not do so in concert. (Id. at p. 16.)

Other circuit courts have taken a contrary position, enforcing employers concerted action waivers under the FAA. See Cellular Sales of Missouri, LLC v. N.L.R.B., 824 F.3d 772, 776 (8th Cir. 2016); Murphy Oil USA, Inc. v. N.L.R.B., 808 F.3d 1013 (5th Cir. 2015); Owen v. Bristol Care, Inc., 702 F.3d 1050, 1053-54 (8th Cir. 2013); D.R. Horton, Inc. v. NLRB, 737 F.3d 344, 361 (5th Cir. 2013); Sutherland v. Ernst & Young LLP, 726 F.3d 290, 297 n.8 (2d Cir. 2013).

As more circuits choose sides on whether class action waivers in arbitration agreements are enforceable, Supreme Court review becomes an inevitability. 

The High Court would also be wise to resolve a disagreement between the Ninth and Seventh Circuits regarding such waivers. In the Seventh Circuit, any “[c]ontracts that stipulate away employees’ Section 7 rights . . . are unenforceable.” Epic, 823 F.3d at 1155. The Ninth Circuit precedent is narrower, making such contracts enforceable if employment is not conditioned on agreeing to the clause. (Slip. Op. 11, n. 4.) For example, if an employee has the opportunity to opt-out of a class action waiver and keep his or her job, but chooses not to, that waiver would be enforceable by the employer in the Ninth Circuit. (Id. (citing Johnmohammadi v. Bloomingdale’s, Inc., 755 F.3d 1072, 1076 (9th Cir. 2014))). The Seventh Circuit provides a clearer rule, one that better comports with the purposes of the NLRA, and one that the Supreme Court should adopt.

For now, workers in the Ninth and Seventh Circuits, as well as their advocates, should take note that employers cannot force employees to sign class action waivers as a condition of employment, because Epic and Morris tell us that the NLRA provides employees with the right to vindicate their employment rights collectively. 

Bryan Schwartz Law Prevails at the Ninth Circuit: Court Affirms For-Profit Cosmetology School Waived Right to Arbitrate

BSL attorneys and co-counsel from Rudy, Exelrod Zief & Lowe and the Law Office of Leon Greenberg were successful in fending off Defendant’s appeal of the District Court’s order denying Defendants' Motion to Compel Arbitration in Paige Martin v. Gary Yasuda, et al.

 

The case is a class action wage and hour claim against Milan Institute, a for profit cosmetology school. Plaintiffs are individuals who enrolled in the cosmetology program at Milan Institute. Plaintiffs have filed actions under the FLSA and California’s wage and hour laws, alleging that they are entitled to compensation for tasks they performed in Milan’s salon for paying clients that weren’t related to their education—like cleaning, washing laundry, selling retail products, scheduling clients, and promoting Milan’s services.  Each student signed an enrollment agreement when they began at Milan Institute, which included an arbitration agreement.

 

Defendant’s filed an appeal after the district court denied Defendants' motion to compel arbitration by finding that Defendants' waived their right to arbitrate—arguing that the District court erred in denying their motion because (1) the issue of waiver should have been decided by an arbitrator and (2) the District court erred in finding waiver.

 

The Ninth Circuit affirmed the decision of the district court. On the first issue, the court explained that there are two categories of issues on motions to compel arbitration that govern whether a court or arbitrator should decide. The first category of issues is a “question of arbitrability.” This category includes issues that the parties would have expected a court to decide such as whether the parties are bound by an arbitration clause or whether an arbitration clause in a contract applies to a particular type of controversy.  The court explained that these type of disputes are for judicial determination unless the parties “clearly and unmistakably provide otherwise.” The second category—procedural issues—is presumptively not for the judge, but for an arbitrator, to decide—like whether the arbitral forum’s statute of limitations has run for a particular claim.

The court held that waiver by litigation conduct is part of the first category of issues because whether a party has waived its right to arbitrate on the basis of its litigation conduct is always a “question of arbitrability.” Thus, the court found it was proper for the District Court to decide whether Defendants had waived their right to arbitration.

For the second issue on appeal, the court also affirmed the District Court’s finding of waiver by Defendants by applying the three factor waiver test. A party seeking to prove waiver of a right to arbitration must demonstrate: (1) knowledge of an existing right to arbitrate, (2) acts inconsistent with that existing right, and (3) prejudice to the party opposing arbitration resulting from such inconsistent acts.  The court did not conduct analysis under the first prong because Defendants conceded that they had knowledge of their right to arbitrate.

For the second prong, the court found that Defendants' engagement in seventeen months of litigation before filing a motion to compel arbitration satisfied this element because Defendants took advantage of being in federal court.

Finally, the court also found that Plaintiffs satisfied the third element because if Defendants' motion to compel arbitration was granted, Plaintiffs would be forced to re-litigate an issue on the merits as to which they already prevailed. At the District Court level, Defendants filed a Motion to Dismiss that reached the merits of the case—focusing on a key issue: whether Plaintiffs were students and not employees of Milan as a matter of law. Plaintiffs defeated Defendants' Motion to Dismiss, and the District Court held that CA’s Cosmetology Act did not preclude Plaintiffs' arguments that they were employees under state wage laws as a matter of law. Accordingly, the Ninth Circuit affirmed the District Court’s decision that Defendants waived their right to arbitration.

Defense Secretary Ashton Carter Signals that Transgender Americans Can Serve Openly in the Military

Effective this month, transgender Americans may now serve openly in the U.S. military and can no longer be discharged or otherwise separated from the military just for being transgender.

This decision to allow transgender Americans is one of many recent changes  that has resulted in a transformation of the military.  The Department of Defense also recently opened all combat roles to women and appointed the first openly gay Army secretary.

Defense Secretary Carter said that the military's top leaders, including Gen. Joseph F. Dunford Jr., the chairman of the Joint Chiefs of Staff, were on board with ending the prohibition on transgender service.  Carter also said the Pentagon would cover the medical costs of those in uniform who are seeking to undergo gender transition, though it would expect new recruits who are transgender to spend at least 18 months in their transitioned gender identity before joining the military.

While the decision was heralded by LGBT groups and progressives, there remains stiff opposition to the change in policy from Congressional Republicans. Senator Jim Inhofe of Oklahoma, a Republican member of the Senate Armed Services Committee, called for the new policy to not be carried out until Congress could convene hearings. And Representative Mac Thornberry of Texas, the chairman of the House Armed Services Committee, released a statement saying he would examine “legislative options to address the readiness issues associated with this new policy.”

Secretary Carter said that while practicality played a role in the decision, it was also a "matter of principle."

“Americans who want to serve and can meet our standards should be afforded the opportunity to compete to do so,” Carter said. “After all, our all-volunteer force is built upon having the most qualified Americans. And the profession of arms is based on honor and trust.”

Ninth Circuit Allows CA Wage and Hour Class Action to Move Forward, Affirming the District Court's Grant of Class Certification

The Ninth Circuit recently affirmed the District Court’s certification of a wage and hour class action against Stoneledge Furniture, a wholly owned subsidiary of Ashley Furniture Industries. 

Stoneledge Furniture operates 14 retail furniture stores in California and employs about 600 sales associates, who primarily sell furniture and accessories to Stoneledge’s customers. Stoneledge paid its sales associates on commission.

Plaintiff Ricardo Vaquero, a former sales associate of Stoneledge, asserts that Stoneledge violates California’s minimum wage and hour laws because it requires sales associates to do many tasks unrelated to sales.   Vaquero alleges that Stoneledge requires sales associates to clean the store, attend meetings, and carry furniture.   According to Vaquero, Stoneledge does not pay its sales associates for such work, beyond what they earn in commissions, and this policy violates California wage and hour laws.

Under the Class Action Fairness Act  of  2005,  28  U.S.C.  § 1332(d)(2), Defendants removed the case to federal court, and Vaquero moved to be named a class representative.   He asked to represent four subclasses, three of which were derivative of the  first:    (1)  a  class  of  all  California  sales  associates employed from August 24, 2008, to the present who were paid less than minimum wage for non-sales time worked; (2) sales associates who were not provided with itemized wage statements; (3) former sales associates who were not paid all wages due at separation; and (4) sales associates who were  subject  to  unlawful  business  practices.

The district court granted class certification for all of the classes except for the third subclass. 

Defendant Ashley Furniture moved to appeal the district court’s decision to certify the remaining subclasses pursuant to Federal Rule of Civil Procedure 23(f). The sole issue before the court is whether the district court properly granted class certification.

Defendants argued that Vaquero failed to meet the requirements of Rule23(a), alleging that Plaintiffs failed to establish commonality and predominance of class claims among the class.  Defendants also asserted that class certification altered the parties’ substantive rights in violation of the Rules Enabling Act, 28 U.S.C. § 2072(b).

 

Defendants relied on Wal-Mart Stores, Inc. v. Dukes, arguing that commonality did not exist among the class.  However, the court disagreed, distinguishing Dukes from the present case.  Dukes involved a class action against Walmart for sex discrimination, alleging that the corporate culture and the retailer’s delegation of promotion decision to individual managers denied a class of female employees equal pay and promotional opportunities in violation of Title VII.  The Supreme Court held that subjective decision by many managers in different locations could not be considered a common injury across a class of more than one million plaintiffs.

 

Unlike in Dukes, the Ninth Circuit found that the class in Vaquero had commonality because the class all had the common contention that Defendant’s compensation structure violated California’s minimum wage laws for all such employees, a relatively small number of class members who all generally performed the same work.

 

Defendants also argued that Vaquero’s class failed to establish predominance, asserting that predominance cannot be reached when damage calculations cannot be performed on a class-wide basis. Defendant’s based their argument on Comcast Corp. v. Behrend, an antitrust case where the Supreme Court reviewed certification of a class of consumers that offered a complex damages model to show how customers were subject to anti-competitive pricing.

 

The Ninth Circuit has interpreted Comcast to mean that plaintiffs must be able to show that damages resulted from the Defendant’s conduct in order to establish predominance.  The Ninth Circuit found that Vaquero easily established predominance because the class alleges that Defendant’s consciously chosen compensation policy deprived the class of earnings in violation of California minimum wage laws.  The court also held that the Vaquero class’s inability to prove individual damages cannot alone defeat class certification and held that the permissibility of using representative or statistical models to establish damages turns not on the form a proceeding takes—be it a class or individual action—but on the degree to which the evidence is reliable in proving or disapproving the elements of the cause of action.

 

Defendants also argued—relying heavily again on Dukes—that allowing the class to use representative evidence to prove damages would inevitably change the substantive rights of the parties by preventing Defendants from individually cross-examining and challenging each class member’s claim.  In Dukes, the Supreme Court rejected plaintiffs’ trial plan to determine damages through statistical sampling because Wal-Mart would lose the right to litigate its statutory defenses to individual claims.

However, the Ninth Circuit found Ashley Furniture’s reliance on Dukes misplaced.  The court found that Defendants’ concerns about damages were hypothetical at this stage of the litigation and that the district court’s grant of class certification did not expand Vaquero’s substantive rights or those of the class. The court explained that Defendants could challenge the viability of Vaquero’s evidence at a later stage of the proceedings and that it was immature to decide at the stage of class certification.

U.S. Supreme Court Upholds University of Texas’s Race-Conscious Admissions Program

In a 4-3 decision Thursday, the Supreme Court affirmed that a race-conscious admissions program used by the University of Texas is legal under the Equal Protection Clause of the 14th Amendment—at least, as that program was implemented in 2008 when UT rejected Abigail Fisher’s college application. Justice Kennedy’s majority opinion in Fisher v. University of Texas (Fisher II) was far from an enthusiastic defense of the need for race-conscious admissions programs at public universities, but it affirmed the status quo in reiterating the narrow range of circumstances in which such programs are constitutionally permissible. For that reason, advocates for racial justice can mark Fisher in the win column.

Fisher first came before the Court during the October 2012 term (Fisher I), at which point Ms. Fisher had already graduated from Louisiana State University with a degree in finance. The Court set forth the principles the UT admissions program needed to satisfy under the 14th Amendment (discussed below), said that the Fifth Circuit had failed to apply those principles, and sent the case back for the Fifth Circuit to reconsider.

The Supreme Court first addressed the constitutionality of affirmative action in higher education when it struck down a quota system for applications to the University of California Medical School at Davis in 1978. However, that case, Regents of University of California v. Bakke, also established that affirmative action would be constitutionally permissible, at least in some circumstances. The Court did not clearly establish the applicable level of scrutiny until the mid-1990s, when the Rehnquist Court held that all racial classifications—without regard to whether those classifications were intended to hinder or help people of color—would be subject to the highest level of scrutiny (strict scrutiny) under the Equal Protection Clause. In dissent, Justice Stevens wryly chided the majority as unable to tell “the difference between a ‘No Trespassing’ sign and a welcome mat.”

More recently, the Court considered two race-based admissions programs at the University of Michigan in 2003. The Court (in two opinions by Justice O’Connor) struck down the undergraduate school’s use of a point system to boost applications from people of color while it upheld the Law School’s use of race as a “plus factor” as part of a flexible assessment of other “soft variables.” Those decisions also established “attaining a diverse student body”—for the benefit of all students—as the only permissible basis for an affirmative action program. An affirmative action program that sought to remedy the effects of past discrimination, for example, would not pass constitutional muster. These Michigan cases established the needle which UT needed to thread if it wanted to promote diversity at its flagship university while satisfying strict scrutiny under the Equal Protection Clause.

UT thus developed an intriguing strategy to diversify its student body, by taking advantage of widespread racial segregation in the state’s public schools: it would offer admission to all students who placed in the top 10% of their high school class, up to 75% of the class. UT would then admit the remaining 25% according to an individualized inquiry which would consider race as one factor among many, much like the Michigan Law School plan approved by the Court. In alleging that her rejection from UT was racially discriminatory, Ms. Fisher challenged only the latter aspect of the admissions program (as she did not place in the top 10% of her high school class).

In Fisher I, Justice Kennedy described three controlling principles to assess the constitutionality of a public university’s race-conscious admissions program. First, such a program would have to satisfy strict scrutiny under the Equal Protection Clause (that is, it must be narrowly tailored to achieve a compelling government interest, and diversity qualifies as such an interest). Second, courts should defer to a university’s academic judgment, accompanied by reasoned explanation, that a diverse student body would promote its educational goals. Third, the university bears the burden of proving that a race-neutral approach would not accomplish the same goals.

In Fisher II, Justice Kennedy determined that UT had met its burden with respect to all three principles. In large part, Kennedy appears to have been persuaded by the comprehensiveness of the data produced by UT in support of its need to go beyond the Top 10% program to achieve the educational benefits of a diverse student body, the modesty of the program (using race as “but a ‘factor of a factor of a factor’ in the holistic-review calculus”), and a desire to defer to UT’s academic judgment.

Justice Kennedy’s Fisher II opinion (much like his Fisher I opinion) is far from a model of clarity. Justice Kennedy went to great lengths to explain that UT’s admissions program was one-of-a-kind, that the Court’s ruling was meant only to capture a moment in time, and that the opinion had “limit[ed] value for prospective guidance.” Justice Kennedy referred to UT’s program as unique (he used the Latin), although it is unclear why he thinks other states will not adopt a similar approach now that the Court has given its seal of approval—Texas is not unique in its de facto racially segregated public schools. He also noted that the opinion did not intend to approve of UT’s admissions program today or in the future, explaining that UT should continually assess the need for a race-conscious admissions policy.

In doing so, he also fell prey to the same dubious assumption as Justice O’Connor in the Michigan cases: that racism in the United States will soon become a distant memory (Justice O’Connor stated that affirmative action would cease to be necessary by 2028). This premise was misleading, even before a major U.S. political party nominated an overtly racist demagogue as its standard bearer.

Still, Justice Kennedy should be commended for his evolution on affirmative action. He voted to strike down the use of race as a plus factor in the Michigan Law School case less than 15 years ago, and less than 10 years ago joined the majority in striking down Seattle’s use of race in school assignments to further Seattle’s goal of racially integrated public schools. In fact, Justice Kennedy has never before affirmed an affirmative action program. Particularly before the death of Justice Scalia, many commentators suspected that Fisher II would effectively end race-conscious admissions at public universities, and deny countless students of color a fair shake in the application process. Fisher II instead preserved the status quo, for which the four justices in the majority should be applauded.