Third Circuit Finds No ADA Violation Where Employee Deemed Unfit for Duty

On Tuesday August 15, the U.S. Court of Appeals for the Third Circuit affirmed the dismissal of a claim for disability discrimination, where the plaintiff was deemed psychologically unfit for duty and subsequently had his employment terminated. The Third Circuit’s decision provides guidance for employers regarding the extent of their obligations to accommodate employees under the Americans with Disabilities Act (“ADA”).

In McNelis v. Pennsylvania Power & Light Co., No. 16-3883 (3d Cir., Aug. 15, 2017), the plaintiff, an armed security guard for a nuclear power plant, sued his former employer for disability discrimination following his termination.  McNelis had experienced mental health problems, including extreme paranoia.  His behavior prompted a fitness-for-duty evaluation by an independent psychologist, which was required under PPL policy, as well as under regulations promulgated by the Nuclear Regulatory Commission.  The psychologist determined that McNelis was unfit for duty, and his employment was terminated shortly thereafter.

The court held that McNelis’ termination did not violate the ADA.  As the court explained, McNelis was not qualified for the position because he not able to perform the essential functions of his job; namely, he could not demonstrate that he was fit for duty or could not maintain an unescorted security clearance.  According to Judge Hardiman, who issued the opinion on behalf of the panel, the fact that federal regulations may prohibit an individual who is psychologically unfit for duty from holding a job that implicates public welfare is a deliberate and “unremarkable” policy judgment that does not violate the ADA.  The court further explained in a footnote that compliance with legally mandated job requirements is a valid defense to claims brought under the ADA.

The court’s decision serves as a reminder for employers to ensure that their policies are aligned with all relevant legal requirements, as well as with public safety considerations, and that job descriptions accurately reflect the essential functions associated with each position.

For more information on developments in this area, please contact Betty Graumlich at BGraumlich@reedsmith.com or Jordan Ellis at JEllis@reedsmith.com.

NYC Proposes Ban on Non-Competes

New York City, which for years has been a trailblazer in employee-friendly workplace legislation, is at it again. Late last month, the NYC Council proposed a bill that would prohibit non-compete agreements for low-wage workers.  The bill would also bar non-competes for all other employees, if the potential that the employee might be asked to sign a non-compete is not disclosed, in writing, at the beginning of the hiring process.  As is often the case with NYC employment legislation, this is a first-of-its-kind bill.

More particularly, the bill states, quite simply, that “[n]o employer shall enter into a covenant not to compete with any low-wage employee of such employer.” The term “covenant not to compete” is, in turn, defined as any agreement “between an employee and an employer that restricts such employee from performing 1) work for an employer not a party to such agreement for a specified period of time; 2) work in a specified geographical area for an employer not a party to such agreement; or 3) work for an employer not a party to such agreement that is similar to such employee’s work for the employer who is a party to the agreement.”

As noted above, the proposed restriction would only apply to “low wage employees.” According to the bill, a “low wage employee” is any employee who is not a “manual worker,” “railroad worker,” or “commission salesman,” as those terms are defined under Article 6 of the New York Labor Law.  The prohibition would also not apply to an individual employed in a bona fide executive, administrative, or professional capacity earning more than $900/week. Continue Reading

Employers Beware: Fifth Circuit Narrows “Fluctuating” Workweek

In a recent Wage and Hour development, the Fifth Circuit held that the “fluctuating workweek method,” which allows employers to decrease their liability for overtime payments in situations where they misclassify exempt employees, should not automatically be used where the employee works a different number of hours each week, based on a recurring, fixed schedule.

Calculating Hourly Rates: Fixed Method vs. Fluctuating Workweek Method

Since overtime pay is computed in terms of an hourly rate based on an employee’s regular rate of pay, to determine how much overtime pay a misclassified employee may be due, courts must first determine an employee’s regular rate of pay. Where the misclassified employee is paid on a salary basis, courts must convert the employee’s salary compensation to an hourly rate.

The “fixed” or “standard” method of calculating a salaried employee’s regular hourly rate of pay is to divide the employee’s salary by the number of hours that the salary is intended to compensate. However, for some salaried arrangements, the employee is not expected to work a fixed number of hours each week.  Many salaries are intended to compensate however many hours the job demands in a particular week, with the weekly salary staying the same whether many or few hours are actually worked.  When an employee agrees to such an arrangement, the hours worked in each workweek fluctuate, and the appropriate way to determine the regular hourly rate of pay is through what is called the “fluctuating workweek method.”  Using this method, the regular rate of pay is calculated by dividing the salary paid in a workweek by the total of number of hours worked.  As a result, the use of the “fluctuating workweek method” almost always results in a lower regular rate of pay than under the “fixed method.” Continue Reading

EEOC Determination: Denial of Transition-Related Health Care Benefits Violates Title VII Rights of Transgender Employees

In a recent Letter of Determination, the U.S. Equal Employment Opportunity Commission (“EEOC”) found probable cause to believe an employer violated the Title VII rights of a transgender employee when it excluded coverage for “transgender treatment/sex therapy” services from its medical benefit plans.  Specifically, the EEOC determined that denying coverage for transition-related services constituted sex discrimination under Title VII.

The extent of protections for LGBTQ employees under federal non-discrimination laws continues to be an area of intense debate, with many Circuit Courts of Appeal split over whether sexual orientation is a form of sex discrimination under Title VII.  With respect to transgender status, however, every Circuit Court to consider the matter has found that discrimination on the basis of transgender status is a form of sex discrimination.

Transition-related health care coverage is a relatively recent area of coverage offered by insurers, and litigation regarding the provision of transition-related coverage is even newer.  Many employers have been awaiting implementing regulations under the Affordable Care Act’s (“ACA) Section 1557, regarding non-discrimination, to purchase transition-related coverage.  Under the current administration, however, the fates of Section 1557 and the ACA as a whole are uncertain.

Regardless of the ACA, the EEOC reaffirmed its commitment to pursuing protections for transgender employees, including with respect to employment benefits, with this recent Determination.  For that reason, employers should take the EEOC’s position into account when selecting coverage options for employees.  In addition to deciding whether to provide transition-related coverage, employers need to understand which transition-related services should be included in such a policy.

For more information regarding this evolving area of employment law and human resources considerations, please contact Miriam Edelstein at medelstein@reedsmith.com or your existing Reed Smith attorney.

Employment Tribunal Fee Regime: An Unlawful Barrier to Justice

The Supreme Court has today found in favour of the trade union UNISON in its judicial review of the UK Employment Tribunal fees regime, unanimously holding that the legislation implementing the current regime is unlawful both under domestic and EU law. The immediate consequence is that the Tribunal fees regime is quashed with effect from today’s date, meaning that Tribunal and EAT fees cease to be payable, and all fees paid since the regime was introduced will need to be reimbursed.

The Headline Points

  • The current fee regime was introduced by the government in 2013 with the stated intention of transferring the cost burden of the tribunals from taxpayers to users of their services, deterring claims with no merit and encouraging earlier settlement in cases. The introduction of the regime led to a dramatic and sustained decline in the number of Tribunal claims brought, prompting persistent calls for the government to overhaul the current system.
  • In UNISON’s judicial review application (which followed earlier unsuccessful applications to the High Court and Court of Appeal), UNISON argued that the legislation underpinning the fee regime was unlawful on the grounds that the prescribed fees interfered unjustifiably with the right of access to justice, frustrated the operation of employment rights granted by Parliamentary legislation and discriminated unlawfully against women (on the basis that claims attracting a higher fee are more likely to be brought by women).
  • The Supreme Court has unanimously upheld UNISON’s application on each of these grounds. Emphasising the fundamental importance of the right to access to justice, the Court found that the Tribunal fee regime’s intrusion into this right was greater than could be justified by its legitimate purposes. In assessing the extent of the intrusion, the Court closely examined empirical evidence relating to the impact of fees on behaviour in the real world. It was particularly concerned by evidence showing that there had been a greater fall in the number of lower value claims, suggesting that fees (which range from £390 to £1,200 but are not directly linked to the value of a claim) were disproportionately impacting individuals on lower incomes.
  • In reaching its decision, the Court provided a detailed commentary on the principles underpinning the constitutional right of access to justice, warning that without proper access to the courts, laws are liable to become a dead letter and the democratic election of members of Parliament a meaningless charade. It is likely that any future restrictions on access to the legal system will be subjected to close scrutiny in light of the principles set out in the Supreme Court’s judgment.
  • Although it was not necessary to decide the issue of indirect discrimination, the Court found that the fee regime did put women at a particular disadvantage because a higher proportion of women bring “type B” claims (which incur a higher fee) and that the fee structure could not be objectively justified on the basis of the government’s legitimate aims.

What does this mean?

Whether the Supreme Court’s judgment spells the end for Tribunal fees in the UK remains to be seen. Whilst the Court has strongly endorsed the public importance of access to justice, given the existing funding pressures on the judicial system, it is possible that the government will seek to introduce a different fee regime at a lower level at some point in the future. In the immediate term, the Lord Chancellor will be under pressure to act promptly on his commitment to reimburse all fees paid under the fee system over the past four years, and UK employers will be keeping a watchful eye on any emerging trends in tribunal claim numbers in the coming months.

For more information on developments in this area, please get in touch Ed Hunter at ehunter@reedsmith.com or your usual contact in the team.

California Supreme Court Expands Scope of PAGA Discovery

On July 13, 2017, in a decision with serious repercussions on the scope of PAGA discovery, the California Supreme Court overruled the Court of Appeals in Williams v. Superior Court to allow state-wide discovery of Marshalls employees’ contact information, without the plaintiff first having to show any evidence to support his own individual claims or the existence of a company-wide policy.

Plaintiff was a Marshalls employee who brought an action under the California Labor Code Private Attorneys General Act (“PAGA”) for meal and rest break violations, timely wage payment, and wage statement violations. At the start of discovery, the plaintiff sought employee contact information pertaining to the approximately 16,500 non-exempt workers across all Marshalls locations in California.  Although the trial court and the Court of Appeals held that incremental discovery was more appropriate and denied the plaintiff’s request for any employee contact information outside of his own work location until after undergoing “six productive hours of deposition,” the California Supreme Court disagreed.

Instead, the Supreme Court, in a lengthy opinion, shut down each of the Court of Appeals’ objections to the plaintiff’s request for state-wide discovery.   First, the Supreme Court held that “[i]n pursuing such [representative] discovery, the strength or weakness of the plaintiff’s individual claim is immaterial.”  Second, the Supreme Court stated that state-wide discovery was proper absent any company-wide or uniform policy as “[a] uniform policy may be a convenient or desirable way to show commonality of interest in a case where class certification is sought, but it is not a condition for discovery, or even success, in a PAGA action…” Continue Reading

NY Court Rules That Class Action Waivers Are Unenforceable

While pundits and practitioners eagerly await the U.S. Supreme Court’s looming decision on whether class action waivers in employment-related agreements violate the National Labor Relations Act (NLRA) – which will not be issued until 2018 – one New York State court has decided to wade into the fracas. On July 18, a New York State appellate court – whose jurisdiction covers Manhattan and the Bronx – concluded in Gold v. N.Y. Life Insurance Co. that contract clauses barring employees from commencing class, collective, and other representative actions against their employers are unenforceable and do indeed violate the NLRA.

In Gold, the appellate court examined whether an employer can force its employees to sign an agreement requiring that all legal claims against the employer be brought only through arbitration and, perhaps more importantly, only on an individual basis and in separate proceedings.  After recognizing that “there is a recent split among the Federal Circuit Courts regarding these types of clauses,” the Court answered this question with a resounding “no.”

In the underlying case, a group of former New York Life Insurance Company agents filed a class action lawsuit claiming that the agency took illegal wage deductions and committed assorted violations of the state minimum wage and overtime laws. One of the agents, however, had signed an agreement upon joining New York Life requiring her to arbitrate any claim or dispute with the insurance agency.  Additionally, under the arbitration provision, the agent agreed that no claim could be brought or maintained “on a class action, collective action or representative action basis either in court or arbitration.”  Despite this, the insurance agents nevertheless filed their wage case together in court and as a proposed class action.  After New York Life moved to compel arbitration, the claims of the agent who had signed the arbitration agreement were ordered to be submitted to arbitration on an individual basis.  The plaintiffs subsequently appealed. Continue Reading

NYC Agency Publishes Rules for New Independent Contractor Law

As we previously reported, the New York City “Freelance Isn’t Free” Act (the Act) took effect on May 15, 2017. The Act requires virtually all entities that engage an independent contractor in NYC for $800 or more in services to execute a written agreement with the contractor before work begins.  The Act additionally bars wage theft and retaliation against contractors, and imposes substantial penalties on businesses that fail to comply with its nuanced requirements.

As part of the Act’s implementation, the NYC Department of Consumer Affairs, the agency tasked with enforcing the new law, recently issued rules (the Rules) clarifying the Act’s provisions. Specifically, the Rules:

  • Invalidate contractual provisions that purport to waive or limit an independent contractor’s right to participate in or receive relief from a collective or class action – thereby preventing employers from using collective/class action waivers in independent contractor agreements – or to disclose the terms of the contract at issue to the NYC Office of Labor Standards

Continue Reading

Taylor Review: a review of the Review

Today, the much-anticipated Taylor Review was published, with a speech by Matthew Taylor outlining his recommendations, followed by comments from Prime Minister Theresa May. The opening lines of the Review set out Taylor’s ambition: “The work of this Review is based on a single overriding ambition: All work in the UK economy should be fair and decent with realistic scope for development and fulfilment,” an aim May echoed in her own speech, calling for a balance of flexibility and protections of worker rights in the labour market.

The report comprises more than 100 pages of detailed analysis and recommendations, and will no doubt form the basis of debate over the coming weeks and months. We’ve set out here some of the key recommendations which will be of most interest to employers.

The Review deals with the ‘gig economy’ and the issue of the employment status of people who deliver services via platforms such as Deliveroo and TaskRabbit. The status of these people has been at the heart of a number of the high-profile cases recently, where companies have asserted that they are ‘self-employed,’ and individuals have argued they are ‘employees’ or ‘workers.’ However, the issue of employment status is not just confined to gig economy companies – it is relevant to any organisation that engages people on a freelance or self-employed basis.

Employment status: what’s new?

Employment law currently recognises three categories of individual, each with different rights and protection (see more detail in our blog here), broadly:

  • The self-employed, who have no employment law rights
  • Workers, who benefit from basic protections such as the minimum or living wage and paid annual leave
  • Employees, who have the greatest number of rights and protections

Continue Reading

Chicago-Area Employers: Paid Sick Leave Begins July 1

A reminder to all employers with any employees who work in Chicago or elsewhere in Cook County, Illinois: ordinances mandating that you provide paid sick leave to employees who work in Chicago or Cook County take effect July 1, 2017.

As we previously reported here, under the Chicago Paid Sick Leave Ordinance (and the almost identical Cook County Earned Sick Leave Ordinance), employers must begin awarding every employee who works in Chicago or Cook County one hour of paid sick leave for every 40 hours worked, up to at least 40 hours of paid sick leave per year (plus up to at least 20 unused rollover hours from the previous year). Nearly any employee who works at least 80 hours within any 120-day period in either jurisdiction qualifies, but employers may require the employee to wait up to 180 days after starting employment before they may use accrued paid sick leave.  Employers can avoid the carryover and accrual requirements by “frontloading” their employees with equal or greater leave at the start of each calendar or benefit year.

Recently released interpretative rules from the City and County have added the following clarifications:

  • According to the City’s rules, “[i]n the case of a conflict between the [City’s] Ordinance and the Cook County Earned Sick Leave Ordinance, the [City’s] Ordinance shall prevail within the City.”
  • After the first year of employment, an employee may use a maximum of 60 hours of paid sick leave (unless the employer has a more generous policy)
  • An employee may use paid sick leave in one-hour increments, unless the employer establishes and disseminates a written minimum-use policy
  • An employer is not required to allow paid sick leave use while the employee is on disciplinary leave
  • Paid sick leave must be paid no later than the next regular payroll period beginning after the leave was used
  • The following employees are not covered under either ordinance:
    • Employees working in construction covered by a collective bargaining agreement (“CBA”)
    • Employees covered by a CBA entered into before July 1, 2017
    • Employees covered by a CBA entered into on or after July 1, 2017, and that explicitly waives their rights under the ordinance(s)
  • Immigration status does not affect an employee’s rights under either ordinance
  • A private right of action is possible under both ordinances

Continue Reading

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