Court Strikes Down Trump Administration Rule to Benefit Wage Violators

Recent Trump Administration efforts to chip away at employee protections under federal law faced a setback earlier this month. A federal court in New York struck down a large portion of a January 2020 Department of Labor (“DOL”) rule that changed how to determine whether multiple entities are an individual’s employer under the “joint employer doctrine.” The case is New York v. Scalia.

Non-exempt employees are entitled to a federal minimum wage and overtime under the federal Fair Labor Standards Act (“FLSA”). But sometimes it can be tricky to determine who is supposed to pay these wages when more than one entity directly benefits from the employee’s work—for example, when an employee works at a franchise or is placed by a staffing agency. Prior to the new rule, which took effect in March 2020, the Department of Labor’s guidance instructed that, in circumstances like these, multiple entities could be considered employers of the same individual if that individual economically depended on the multiple entities. The Trump Administration rule scrapped this analysis in favor of an employer-friendly four-factor test based solely on the level of control each possible joint employer exerts over the worker. The factors in the rejected test were whether the possible joint employer:

(i)                Hires or fires the employee;

(ii)              Supervises and controls the employee's work schedule or conditions of employment to a substantial degree;

(iii)           Determines the employee's rate and method of payment; or

(iv)            Maintains the employee's employment records.

This change strongly benefited employers who maintain franchise relationship or rely heavily on contractors or workers staffed by an agency. This corporate windfall would come at the expense of workers, who are far less likely to be able to enforce their FLSA rights under the new standard, if, for example, multiple entities govern their employment so that no one employer meets the new test.

Seventeen states and the District of Columbia sued to block the rule, culminating in the decision striking down much of the rule earlier this month. The Court’s ruling rested on two main reasons. First, the rule improperly relied solely on the FLSA’s definition of “employer,” out of context. The FLSA’s definition of “employer” defines an employer as “any person acting directly or indirectly in the interest of an employer in relation to an employee,” requiring that a court deciding which entities are liable consider the definition of the term, “employee.” The definition of “employee,” in turn, necessitates reference to the definition of “employ.” Accordingly, the Court determined that the DOL should not have taken the word “employer” out-of-context by ignoring the other statutory definitions in crafting its employer-friendly rule. In its analysis, the Court emphasized the background and purpose of the FLSA and noted that the law’s definitions of “employer,” “employ,” and “employee” are intentionally broad in order to provide robust protections for workers.

Second, the Court held that the new rule was too restrictive. The FLSA had intentionally refused to place its focus entirely on control in order to give the law a broader scope. Although control could be sufficient to establish joint employer liability, the Trump Administration rule made control necessary to establish an employer-employee relationship, which was a step too far.

The Court also found procedural deficiencies with the new rule. For one, the rule deviated from past DOL interpretations in 1997, 2014, and 2016 without adequate explanation. In another notable portion of the opinion, the Court observed that the DOL initially did not consider the cost of the new rule to employees when considering the rule—the DOL had merely stated that the rule would not affect wages “assuming that all employers always fulfill their legal obligations,” a position which the Court aptly described as “silly.” Although the DOL ultimately acknowledged that the impact of the new rule on wages before passing the rule, the DOL completely disregarded this impact and ignored an estimate by the Economic Policy Institute that the new rule would cost employees $1,000,000,000 (a billion dollars) per year. This decision laid bare the business community’s bald-faced power grab in passing the new rule, catering to business interests by short-changing their workers.

The ruling was not a complete victory for employees. The court struck down the new rule only as it applies to “vertical” joint employer liability, but not “horizontal” joint employer liability. A “vertical” joint employer relationship involves an employee who has a relationship with both an employer and another business contracting the employee’s services (such as a contractor, subcontractor, staffing agency, or franchise), whereas a “horizontal” relationship involves an employee who employed by two sufficiently related entities (such as a joint venture). The Court left the DOL’s changes to “horizontal” joint employment intact.

If you have been denied minimum wage or overtime due, contact Bryan Schwartz Law.

Supreme Court Favors Delegation Clauses, But Courts Retain Jurisdiction Over Formation Disputes

On January 8, 2019, the Supreme Court reversed the Fifth Circuit decision in Henry Schein, Inc. v. Archer and White Sales, Inc., Case No. 17-1272. 

The case is a business dispute in which plaintiff Archer and White seeks both money damages and injunctive relief. Defendant Schein moved to compel arbitration and Archer and White opposed, arguing that the dispute was not subject to arbitration because the complaint seeks injunctive relief, at least in part. The relevant contract provision states:

Disputes. This agreement shall be governed by the laws of the State of North Carolina. Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property of [Schein]), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association. The place of arbitration shall be in Charlotte, North Carolina.

Schein argued that because of the contract's express incorporation of the American Arbitration Association's rules, the parties agreed that questions of arbitrability, including the arbitrability issue raised by Archer and White, would be decided by an arbitrator. Archer and White responded that because they seek injunctive relief, which is excluded in the above provision, the court may resolve a threshold question of arbitrability if the argument for arbitration is "wholly groundless." The district court agreed and Schein's motion to compel was denied. The Fifth Circuit affirmed, citing its own precedent for a "wholly groundless" exception to enforcing a delegation clause. 

In his first Opinion, Justice Kavanaugh writes for a unanimous Supreme Court that when parties contract to delegate arbitrability questions to an arbitrator, a court may not override this agreement even if the court believes that arbitrability of the particular dispute is "wholly groundless." He explains that "[j]ust as a court may not decide a merits question that the parties have delegated to an arbitrator, a court may not decide an arbitrability question that the parties have delegated to an arbitrator."

However, citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995), and Rent-a-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010), the Opinion clearly states that courts retain the power to decide whether there is "clear and unmistakable evidence" of a meeting of the minds to delegate arbitrability questions to an arbitrator. Rather than ordering the lower courts to grant Schein's motion to compel, the Court remanded to the Fifth Circuit to consider, in the first instance, the issue of whether the contract in fact delegated the arbitrability question to the arbitrator.

In employment law, workers' rights attorneys generally seek to avoid arbitration because of the ways in which arbitration agreements are being used not only to stop workers and consumers from vindicating their rights in a concerted manner, but also to exert control over the dispute resolution process, primarily by companies building repeat-customer relationships with certain preferred arbitrators.    

The Supreme Court's decision in Schein is prompting defense attorneys to advise their employer clients to review their arbitration agreements and include a clearly worded delegation clause. However, employers cannot circumnavigate the courts merely through the presence of a provision attempting to delegate questions of arbitrability to an arbitrator. Workers remain able to argue defenses to formation of such an agreement, and courts must hear these arguments. Workers, if you can argue that the defendant lacks "clear and unmistakable evidence" that the parties agreed to arbitrate, or that the parties agreed to delegate issues of arbitrability to an arbitrator, the Supreme Court has made clear, unanimously, that this argument must be heard by the court before compelling arbitration.

Preliminary Injunction Against Trump’s Transgender Service Ban Shows How Federal Courts Are Our Last Line of Defense Against Discriminatory Executive Orders

The first 10 months of the Donald Trump Administration have been a sort of stress test for the resilience of the American constitutional system and the institutions charged with upholding it. We have seen an acting Attorney General resign rather than implement a plainly unconstitutional “Muslim ban,” and top Pentagon officials walk back Trump’s most belligerent threats of a nuclear attack against North Korea. But no institution has served a greater role in curbing the worst impulses of the Trump presidency than the federal courts, which have been repeatedly confronted with the Trump Administration’s cynical and authoritarian efforts to violate our core liberties and constitutional values: equal protection under the law, freedom of speech, and freedom of religion, to name a few.

In the most recent example, the U.S. District Court for the District of Columbia last week granted a preliminary injunction against the enforcement of President Trump’s Memorandum, which sought to ban all transgender individuals from serving in the U.S. military, effective March 2018. Under the Obama Administration, the Department of Defense went through a lengthy deliberation process and announced in June 2016 that transgender Americans could serve openly in the U.S. military, and that transgender recruits would no longer be turned away. The effect of the District Court’s Order is to preserve that status quo, such that current transgender troops will not be discharged in March and transgender recruits may join the military as soon as January.

In a detailed opinion, the Court determined that the Plaintiffs – current and aspiring transgender service members – were likely to succeed on their Fifth Amendment equal protection claims. The Court first determined that the Memorandum’s effect of disfavoring a class of historically persecuted individuals warranted heightened scrutiny. Then the Court concluded that the government could not meet such a standard, noting the unusual circumstances surrounding the announcement of the ban (i.e., it was announced via a series of Presidential tweets), the lack of factual support for the reasons proffered in favor of the ban, and the fact that the military itself had recently rejected those same reasons. The guiding principle in rejecting the ban is that “the Constitution’s guarantee of equality must at the very least mean that a bare desire to harm a politically unpopular group cannot justify disparate treatment of that group.” This principle has been applied to protect maligned groups from “hippies” (U.S. Dep’t of Agriculture v. Moreno) to the mentally disabled (City of Cleburne v. Cleburne Living Center) to lesbians and gays (Romer v. Evans, Lawrence v.Texas, and U.S. v. Windsor). In short, Trump cannot prevent trans soldiers from serving their country simply because he, and his base, do not like trans people.

The courts have so far risen to the task of protecting these and other fundamental rights – blocking policies fueled by nothing more than bare hatred of Muslims, or immigrants, or LGBTQ individuals, among others. This was no guarantee: throughout their history, the federal courts, up to the Supreme Court, have repeatedly endorsed discrimination against unpopular groups, bowing to popular will or their own private bias in upholding Jim Crow laws (Plessy v. Ferguson), Japanese internment (Korematsu v. U.S.), and sodomy bans (Bowers v. Hardwick). The Supreme Court has sometimes later reversed course: rejecting “separate but equal” in Brown v. Board of Education, and recognizing a right to same-sex consensual sexual intimacy in Lawrence v. Texas. This history reminds us that we cannot take the courts for granted, or assume that they will consistently protect society’s most vulnerable.

So far, Trump has been his own worst enemy in the series of judicial challenges to his discriminatory executive orders. Courts had little trouble finding that the Muslim ban was fueled by discriminatory animus given Trump’s extensive campaign rhetoric and tweets indicating a desire to harm Muslims by virtue of their faith. In rejecting the transgender service ban, the Court determined that Trump’s sudden announcement of the ban via Twitter tended to support that it was motivated by a desire to harm a politically unpopular group (at least among his own base) than any rational policy objective.

Beyond Trump’s inability to keep his mouth shut or his fingers away from his cell phone, his policies have also failed as a result of his Administration’s resistance to established procedures and its shoddy lawyering. For instance, in reference to the transgender service ban, the Court noted that it “by no means suggests that it was not within the President’s authority to order that additional studies be undertaken and that this policy be reevaluated. If the President had done so and then decided that banning all transgender individuals from serving in the military was beneficial to the various military objectives cited, this would be a different case.”

Although it seems unlikely that Trump will suddenly exhibit the discipline required by his office,  the extent to which courts have relied on the Administration’s missteps to overturn discriminatory policies suggests that we cannot simply assume courts will continue to do so, should Trump demonstrate a modicum of self-control. Further studies would be unlikely to support the President’s overblown, discriminatory rhetoric, so a transgender ban (for example) would be unlikely to succeed, all things being fair and equal, even if championed by a more competent administration – but only if people of conscience, including attorneys, continue to fight vigorously for America’s constitutional and statutory guarantees.

Moreover, while the federal courts have been preventing the worst of Trump’s abuses from coming to fruition, the Trump Administration has been working at a breakneck pace to fill the large number of judicial vacancies (more than 150) that remained unfilled at the end of the Obama presidency. Filling these vacancies with opponents of basic civil rights for LGBTQ individuals has been one of the few “successes” of the Trump presidency. Among the 50 or candidates Trump has nominated to lifetime federal judicial appointments include Jeff Mateer, who in 2015 referred to transgender children as proof of “Satan’s plan.” Another, John K. Bush (who has already been confirmed to a seat on the Sixth Circuit), had a previous side career as a right-wing blogger who derided LGBTQ individuals and promoted conspiracy theories about President Obama’s citizenship.

Thus, although the courts have largely risen to the extraordinary challenges posed by Trump’s discriminatory policies, that job will become increasingly difficult as Trump’s own judges come to represent a significant portion of the federal bench. If we expect the courts to keep up, we must remain vigilant and strenuously oppose those of Trump’s judicial appointees who will rubber-stamp the unfit President’s agenda.