Supreme Court Rules on Title VII Standards

In two recent Title VII cases, both decided on June 24, 2013, the U.S. Supreme Court made rulings in favor of the employer.  The cases were Vance v. Ball State University, and University of Texas Southwestern Medical Center v. Nassar.

In Vance, the question before the Court was – who is a supervisor?  This was an important question because in prior rulings based on agency-law principles, the Court held companies can be vicariously liable for discriminatory actions by an employee’s supervisor, whereas a company is far less likely to be liable for discrimination by mere co-workers.  These prior holdings, however, did not establish any guidelines for deciding who qualifies as a supervisor, and in subsequent cases the lower courts reached conflicting results.  Some courts developed a rule saying that a supervisor was anyone with the authority to give directions and orders to the employee (anyone the employee would have to call “sir” if he or she was in the military).  Other courts said a supervisor, for purposes of Title VII liability, was only a person with the authority to hire, fire, or discipline the employee.

The answer?  A “supervisor” is only a person with the authority to “hire, fire, demote, promote, transfer, or discipline.”  A company can still be held liable for discrimination or  harassment by non-supervisors, but not automatically – the employee will have to prove the company knew about it and failed to act.

In Nassar, the question involved an even more technical, but no less important distinction, which was – what legal standard should be used to decide if an employer can be held liable when it retaliates against an employee who stands up for his or her right to be free from illegal discrimination?  Again, two differing standards had developed in the lower courts.  Some courts held that all retaliation was actionable as long as the employee proves the adverse action in question was taken because of a retaliatory motive (the so-called “motivating factor” standard).  Other courts held retaliation was only actionable if the employee could prove “but for” causation – that if the employee had never engaged in the protected conduct (like complaining about a racist boss), the retaliatory and adverse action in question would not have happened.  In other words, these latter courts were holding that a little discrimination is OK, and it’s essentially no harm, no-foul where the company may have had a mixed motive for the action in question (for example: employee has complained of discrimination, but she has also been late to work three times, and both factors contribute to the decision to fire her).

The answer?  Employer wins again, and the employer can only be held liable if the employee meets the far-more difficult standard of proof.  Proving motive (i.e. company fired me because I complained) is always a challenge – but proving what would have happened if things had been different (i.e. if I had not complained, I would not have been fired) is even more difficult.

The takeaway?  For decades, rather than letting juries decide if an employer acted with an improper motive, federal courts have created various standards, tests, and rules that judges to use to decide these cases without a jury.  (Congress sometimes acts to modify the judicial decisions, but these days Congress probably couldn’t find the rear exit to the building using both chambers).  These judge-made rules are hurdles an employment plaintiff must clear to prevail on his or her claim.  It’s a judicial minefield, where dozens of correctly-placed steps are necessary for the employee to succeed, but only one wrong step is required to the employer to win.

Happy trails everyone.

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Arbitration Continues to Thrive

A recent opinion from the U.S. Supreme Court shows that arbitration agreements are favored and will be enforced, even over the objection of one of the parties, unless the objecting party can prove a defense to the arbitration clause itself.

In Nitro-Lift Technologies, L.L.C. v Howard, the U.S. Supreme Court took on an issue that often arises when one party objects to being kicked out of a lawsuit and into arbitration. The question is: who gets to decide whether the matter goes forward in court or in arbitration? Sometimes a party opposes arbitration by attacking the arbitration clause itself, and in those cases, it is well-established that the court must determine if there is a valid agreement to arbitrate. If the arbitration agreement was procured through fraud, or if there is some other defense to the enforcement of the arbitration clause itself, the court keep the case rather than ordering it to arbitration. Such findings are relatively few and far between, so in most cases the parties are sent packing out of court and into the arbitration. Other times a party has a defense to the enforcement of the contract as a whole. In this latter situation, the courts will likewise send the matter to arbitration.

Nitro-Lift fell into this latter category. After two employees went to work for a competing business, the employer commenced an arbitration proceeding seeking to (among other things) enforce covenants not to compete contained in the agreements. The former employees filed suit in an Oklahoma state court claiming that the agreements in question were themselves unenforceable. The case made it to Oklahoma’s Supreme Court, which contravened the rules stated above by ignoring the arbitration clauses and ruling the contracts as a whole were unenforceable. The U.S. Supreme Court reversed, once again affirming the general rule that attacks on the validity of the contract, as opposed to attacks on the validity of the arbitration clause itself, should be presented to and decided by the arbitrator and not the courts.

Employers often include arbitration agreements in employment contracts, and when disputes arise employees often seek to avoid arbitration thinking they will fare better in a state court. These efforts fail more often than not, and even routine disputes over the enforceability of arbitration clauses can result in delay and greater expense. Employees should therefore object at the time of negotiating the terms of employment if they do not wish to arbitrate. The employer may insist, which puts the employee to the choice of agreeing to arbitrate or not taking the job. It’s all a matter of negotiating leverage, and in today’s economy that favors the employers. But if you don’t object up front, you probably won’t get out of the agreement later.

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Are you reporting new hires to the State of Texas?

It is not new, but many employers (especially those lacking a Human Resources Department or in-house counsel) are failing to comply with state and federal laws on reporting newly-hired employees. Under the federal Personal Responsibility and Work Opportunity Reconciliation Act of 1996, and corresponding sections of the Texas Family Code, all Texas employers must report information concerning newly-hired employees to a state agency within 20 calendar days of the hire.

The reports serve two primary purposes. First, the reports are used to track parents who owe child support. Second, the reports are used to detect and eliminate fraud under various social programs, including unemployment benefits. Regarding this latter issue, a new employee’s wages are normally not reported to the Texas Workforce Commission for three to four months following hire. By that time, an employee may have been working a new job but also continuing to file for and receive unemployment for several months. By using the reports, the TWC can detect such fraud much earlier, which benefits all employers who pay into the system.

And of course, there are penalties for failing to comply with the reporting requirement. They are relatively modest, but reporting new hires can be done online and is so easy that there is no reason not to and risk incurring these penalties. Please contact my firm if you need any additional information or assistance with this or any other issue concerning compliance with state and federal employment laws.

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Noncompetes Became Easier to Draft and Enforce

Twenty years ago, it was almost impossible to convince a court to enforce a covenant not to compete in an employment agreement. In 1994, the Texas Supreme Court issued an opinion that puzzled Texas courts and attorneys for nearly two decades, and unless the employer could prove its former employee was using its own confidential information to compete unfairly, an employer’s efforts to get any relief from the courts often failed.

In 2012, however, the Texas Supreme Court issued the Marsh opinion doing away with the most confusing aspects of its earlier opinion, thus paving the way for greater clarity and certainty in this area of the law. As a result, covenants not to compete are becoming easier to draft and more likely to be enforced.

Take for example a case decided late last year by the Eastland Court of Appeals, “Garcia v. Oilfield Mud & Chemical Services, Inc. Benito Garcia worked as a technician servicing the drilling rigs of his employer’s customers. He quit and started his own competing business, and he began soliciting business from the same drilling rig operators he had been working with before. Based on two noncompetes Garcia had signed, the former employer sued and asked the court to issue an injunction to keep Garcia from soliciting business from its customers. The trial court found that Garcia had not received any information from his employer that qualified as a “trade secret,” and under pre-2012 Texas law this probably would have been fatal to the employer’s efforts to get an injunction. However, basing its decision on Marsh, the court issued an injunction because it was necessary to protect the employer’s goodwill and business rapport with existing customers.

Despite recent trends, there will still be considerable uncertainty going forward. The law in this area has changed so many times in the last twenty years, one must now be careful to determine if a court’s written opinion was based on a prior precedent or premise that is no longer valid. Employers must also be careful to avoid overreaching when drafting and litigating noncompetes, because the applicable statute allows a court to penalize an employer who sues to enforce an unenforceable noncompete. That said, greater clarity is usually a welcome development for those of us who practice in this area of the law, and we certainly received greater clarity from the courts in 2012.

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