Unionization of Home Based Employees, Quirky Question # 91

Posted by Roy Ginsburg on April 26, 2009 · Leave a Comment 

Quirky Question #91:

I own a company with a nationwide work force, and all of our employees work out of their homes.  I am hearing rumors that these employees may try to organize a union.  Is this possible?  Aren’t unions for employees working at a single factor or facility?  Once my employees are hired, we meet as a group only once a year.  For the rest of the year, in fact, virtually all of our communication is over e-mail.  If the rumors are true and they can try to form a union, what can I do to convince them otherwise?

[Readers: The question relating to the unionization of home-based employees was posed to my colleage, Joel O'Malley. Joel's analysis is set forth below. If you would like additional information regarding this issue, don't hesitate to contact Joel directly at 612.492.6727 or via email at omalley.joel@dorsey.com. Additional information regarding Joel is available at http://www.dorsey.com/o'malley_joel/. Regards, Roy]

Joel’s Analysis:

Unions aren’t just in factories anymore. Actually, they haven’t been for decades. Employees in virtually all sectors of the economy have organized to form unions, as is their right under the National Labor Relations Act. Amazingly, this can include employees scattered over a wide geographical area, as long as those employees constitute an appropriate bargaining unit (generally, employees with substantially mutual interests in wages, hours, and conditions of employment).

Thus, when an appropriate unit of scattered employees collectively exercise their desire to organize by submitting signed authorization cards, the National Labor Relations Board will hold a mailbox election, much like many states’ electoral contests recently have been conducted. [Note this all might change should the Employee Free Choice Act become law, a topic for another day.] Ballots are mailed and must be returned by employees within a certain period, typically a couple weeks.

As for your desire to convince your employees not to unionize, many of the normal rules around keeping an election free from pressure and coercion are quite different in the mailbox ballot setting. For example, in normal live elections, neither the union nor the employer may make election speeches to massed assemblies of employees within 24 hours before the scheduled vote. This rule, enunciated by the National Labor Relations Board over fifty years ago in its Peerless Plywood decision, was meant to protect employees from being forced to listed to speeches on the eve of an election – much like those negative 30-second television spots in public office elections – that might “destroy freedom of choice.” Either party may still distribute literature during that period, though. The rule is most applicable to employers forcing employees to meet and listen to speeches on company time, but has been applied to creative unions that, for example, drive around factories with mounted speakers blaring pro-union messages.

In the mailbox ballot context, the Peerless Plywood rule is quite different. Instead of barring mass communications within 24 hours of the vote, the rule bars such communications beginning at the time the ballots are mailed until ballots must be returned. Thus, rather than a 24-hour rule, it could amount to a two or more weeks of relative silence. Yet, with employees scattered all over the country, it’s hard to contemplate a massed assembly where employees are forced to listed to speeches.

You state that virtually all communication with your employees is done electronically. The Board and courts in more recent years have addressed similar situations – although not in the mailbox election setting – and have applied the Peerless Plywood rule rather leniently. In one case, an employer was permitted to send individual employees electronic “Vote No” messages on their mobile devices. Virginia Concrete Corp., 338 NLRB 1182, at *9 (2003). Although the employees could not avoid seeing the message, it was analogous to campaign literature in that it was not audible and could be deleted or scrolled past if the employee desired. In another case, a union agent allegedly programmed a screen-saver on a widely visible computer in the employer’s workplace to transmit an anti-union (and, in this case, pro-religious) message to employees. See Mail Contractors of America, Inc., 122 Fed. App’x 635 (4th Cir. 2005) (“VOTE YES LOCAL 470 AND JESUS WILL FORGIVE YOUR SINS.”). Again, the court held the message amounted to the distribution of campaign literature.

In addition to the Peerless Plywood rule, the Board also prohibits electioneering in polling places. See Milchem, Inc., 170 NLRB 362 (1968). Under the Milchem rule, it must be shown a party engaged in the equivalent of “prolonged conversations” with employees. See NLRB v. WFMT, 997 F.2d 269, 274-75 (7th Cir. 1993). The application of this rule is rather obvious in the live election setting; in the mailbox setting, it’s less than clear.

While no Board or court decision has overturned a mailbox election based on the Milchem rule; one case did analyze communications to employees during the mailbox balloting period under the test. In Mail Contractors of America, the employer claimed the union sent a pamphlet to the homes of individual eligible voters. The court assumed without deciding that the Milchem electioneering prohibition could apply in the mailbox balloting situation, but held the evidence was insufficient to support the employer’s assertion that pamphlets were sent to all eligible voters.

In this new fluid and electronic landscape where the old rules don’t seem to apply, it’s hard to tell what the Board would do in any given case of alleged improper electronic communication or electioneering. It appears that electronic communications with employees during the Peerless Plywood period are generally permissible, since employees are not required to read particular e-mails, and those inaudible messages can quickly and easily be deleted and largely ignored. What if the employer includes a link in an e-mail message to a speech from the company president posted on Youtube or the company’s intranet? Again, probably permissible, since watching the video is voluntary. But programming computers so that the video automatically appears when the computer is booted up probably would cross the line. And what if the employer sends e-mails every day over the entire balloting period? There certainly is an argument to be made that this would amount to a “prolonged conversation” with employees.

The safe recommendation is probably that, during the Peerless Plywood period, the employer should send text-only e-mails on an infrequent basis, and do so using a bcc format so it appears to individual employees that the e-mail is directed at them and not at a “massed audience.” Depending on the employer’s appetite for risk and technical sophistication, however, many more means of fully harnessing electronic communication can be imagined, whether in the mailbox ballot or a live election context. One can be sure unions are brainstorming these same ideas themselves.

Filed under Collective Bargaining Agreements, Union Organizing, Unions · Tagged with

Changes to Nation’s Employment Laws

Posted by Roy Ginsburg on April 24, 2009 · Leave a Comment 

Holly’s, Zeb’s and Ambrea’s Analysis of Changes to the Nation’s Employment Laws

The advent of the Obama Administration is likely to result (and already has resulted) in sweeping changes to federal labor and employment laws and, accordingly, the relationship between employers and their employees. As we approach the 100th day of the new Administration, we have compiled a user-friendly summary guide to several key pieces of labor and employment legislation that are either pending before or likely to be revisited by the 111th Congress. Among other things, these laws underscore the Obama Administration’s stated commitments to strengthening anti-discrimination protections, repositioning the work/family balance, and reinvigorating unions. We will continue to monitor these and other legislative developments and will issue updates to ensure our clients stay ahead of the curve on impending changes.

A. Strengthening Anti-Discrimination Protections

Lilly Ledbetter Fair Pay Act of 2009 

• Essentially strips the statute of limitations with respect to compensation discrimination cases under Title VII, the Rehabilitation Act, the ADA, and the ADEA.

• Restarts the clock for an employee to file a claim with the EEOC every time an employee receives a paycheck “affected” by a discriminatory compensation decision, regardless of when it occurred.

• Employee must still file an administrative charge within 180/300 day window.

• Limits back-pay to two years prior to charge.

Signed into law in January 2009; retroactive to May 28, 2007. 

Paycheck Fairness Act 

• Would amend the FLSA “to provide more effective remedies to victims of discrimination in the payment of wages on the basis of sex.”

• In effect, would require employers trying to rebut presumption of pay discrimination to establish that the factor responsible for the pay differential: “(i) is not based upon or derived from a sex-based differential in compensation; (ii) is job-related with respect to the position in question; and (iii) is consistent with business necessity.”

• The employee would still prevail if they show that there is an “alternative employment practice” that would serve the same purpose without producing the pay differential.

• Would change class certification scheme for pay-discrimination claims from opt-in (FLSA) to opt-out (Rule 23).

Passed the House in January 2009; was received in the Senate in January 2009, but has not gone to a vote. 

Employment Non-Discrimination Act

• Would provide federal protection (akin to protection afforded persons based on gender, race, religion, age, etc.) to persons because of their sexual orientation, gender identity, or both.

Inactive; reintroduction in the 111th Congress is anticipated. 

Equal Remedies Act

• Would remove the current caps on punitive damages under Title VII and the ADA.

Inactive; reintroduction in the 111th Congress is anticipated. 

B. Repositioning Work/Family Balance 

Working Families Flexibility Act

• Would give employees the right to request flexible work options, including the number of hours the employee is required to work; the time the employee is required to work; and the location of the work.

• Within 14 days after employee requests change, employer would be required to meet with employee and then produce/deliver a written decision within 14 days after meeting.

• Employer’s decision must identify cost of change, overall financial resources involved, effect of change on employer’s business, etc.

• Upon denial, employee could request reconsideration, and employer would have to meet again and issue a final decision in writing, stating the grounds for denial. An employee could then file a complaint with the DOL.

• Penalties and damages would be available for infractions.

Reintroduced March 3, 2009; pending.

FMLA (possible expansions)

• Would allow employees to take leave to address effects of domestic violence; would provide employees up to 24 hours of unpaid leave per year to attend school activities or to take family members to doctor for regular medical or dental appointments.

• Another bill would require a Family Leave Insurance Program, into which employees and employers would pay shared premiums in order to fund paid FMLA leave for workers.

Introduced in 2007 and again in 2008; reintroduction in the 111th Congress is anticipated. 

Healthy Families Act

• In its current form, would require that employers provide 7 paid sick days to any employee who works more than 30 hours a week, with a prorated annual amount for employees working less than 30 hours; accrued sick leave could carry over from year to year.

Introduced in 2005 and again in 2007 with then-Senator Obama as a co-sponsor; reintroduction in the 111thCongress is anticipated. 

Family-Friendly Workplace Act

• Would amend the FLSA to allow private-sector employers to offer employees the option of receiving “comp time” PTO, rather than overtime premium payments, at a rate of 1.5 hours of PTO per “overtime” hour worked.  Employees would have to consent to the swap in writing.

• To be eligible, employees must have worked at least 1,000 hours in the prior 12 months; the maximum accrual is 160 hours of “comp time”; employers would have to pay out by January 31 of a given year all “comp time” not used in the prior year; and all “comp time” would have to be paid out at termination.

Introduced February 10, 2009; pending. 

C. Reinvigorating Unions

Employee Free Choice Act (EFCA)

• In its current form, would be the most sweeping revision to national labor law in over 50 years.

• Would allow unionization of a group of employees upon the union gathering signed cards from more than 50% of the members of that group, without the benefit of a secret ballot election; would require employers to submit to binding arbitration if they could not reach a first contract with the new union after 90 days of bargaining and 30 days of mediation (and such contract would be binding for 2 years); and would impose new, increased penalties for unfair labor practices.

Introduced in 2003 and again in 2007 with then-Senator Obama as a co-sponsor; reintroduced in both the House and Senate on March 10, 2009. 

Secret Ballot Protection Act

• This is the antithesis to EFCA and was, in fact, introduced before EFCA. It would require a secret ballot election and would preclude voluntary recognition of a union by an employer (something that is allowed currently).

Introduced February 25, 2009; pending. 

Re-Empowerment of Skilled and Professional Employees and Construction Tradeworkers (RESPECT) Act

• Would narrow the 60-year-old definition of “supervisor” under the NLRA to eliminate “assign” and “responsibility to direct” from that definition. Doing so would move thousands of front line and low-level supervisors within the protection of the NLRA and allow them to be forcibly included in unionized bargaining units.

Introduced in 2007; reintroduction in the 111th Congress is anticipated.

D. Executive Orders

Economy in Government Contracting

• Denies federal contractors reimbursement for funds spent on activities designed to persuade employees not to join a union.

Effective January 30, 2009. 

Notification of Employee Rights Under Federal Labor Laws

• Requires federal contracts (except purchases under $100,000) to require contractors to post a notice informing employees that they have a right to decide whether to join a union.

Effective January 30, 2009. 

Non-Displacement of Qualified Workers Under Service Contracts

• Requires all federal contracts (in excess of $100,000) to include a provision requiring any contractor who assumes the contract from a previous contractor to retain that previous contractor’s qualified employees.

Effective January 30, 2009. 

Use of Project Labor Agreements (PLAs) for Federal Construction Projects

 

• Allows the Government to require PLAs on large-scale federal construction projects (exceeding $25 million).  A PLA is defined as “a pre-hire collective bargaining agreement with one or more labor organizations that establishes the terms and conditions of employment for a specific construction project.”

Effective February 6, 2009. 

E. Other Putative Changes

Federal Oversight, Reform, and Enforcement of the WARN Act of 2007 (FOREWARN)

• Would amend the WARN Act by expanding scope of “employer” to businesses employing 50 or more full-time employees (rather than 100); expanding scope of “plant closing” from 50 employees down to 25; expanding “mass layoff” to 100 employees (rather than 500); and requiring 90 days advance notice (up from 60). It also would expand the scope of notice (employers would have to inform more people / entities of intended layoffs), and it would increase fines.

Introduced in September 2007; reintroduction in the 111th Congress is anticipated. 

Employee Misclassification Prevention Act

• Would step up enforcement regarding misclassification of independent contractors; increase penalties; and impose civil fines of $10,000 per violation for employers who “repeatedly or willfully” misclassify workers. Would also require employers to notify “non-employees” in writing of: (a) their classification; (b) the significance of the classification (that their rights to “wage, hour, and other labor protections” depend on proper classification); and (c) their right to contact the DOL if they need further information.

Introduced in House in May 2008 and in Senate in September 2008 with then-Senator Obama as a co‑sponsor; reintroduction in the 111th Congress is anticipated.

Filed under Employment Law Changes 2009 · Tagged with

14 Penn Plaza: US Supreme Court Decision

Posted by Roy Ginsburg on April 20, 2009 · Leave a Comment 

U.S. Supreme Court Enforces Agreement Compelling Unionized Employees to Arbitrate Discrimination Claims

By Douglas R. Christensen

On April 1, 2009, an ideologically divided United States Supreme Court resolved a long-standing controversy regarding the arbitration of discrimination claims of union-represented employees.  The Court’s decision in 14 Penn Plaza v. Byett resolved a split and an issue of confusion among lower courts, and the Court clarified and synchronized two of its earlier decisions concerning arbitration in the employment arena.  The question presented by 14 Penn Plaza was whether a provision in a collective bargaining agreement that clearly and unmistakably required union members to arbitrate claims arising under the Age Discrimination in Employment Act was enforceable.  The Supreme Court, in a 5-4 opinion written by Justice Thomas, held that “a collective bargaining agreement that clearly and unmistakably requires a union member to arbitrate ADEA claims is enforceable as a matter of federal law.”  The decision may have a number of important practical implications for employers with unionized workforces.

1. Factual Background

The employees in 14 Penn Plaza were employed as night lobby watchmen and were members of the Service Employees International Union which, pursuant to the National Labor Relations Act, had the exclusive authority to bargain for their “rates of pay, wages, hours of employment, and other conditions of employment.”  The employees were subject to a collective bargaining agreement which cited a number of federal, state, and local anti-discrimination laws, including the ADEA, and which provided that “[a]ll such claims” were subject to arbitration under the collective bargaining agreement “as the sole and exclusive remedy for violations,” and further provided that “[a]rbitrators shall apply appropriate law in rendering decisions based upon claims of discrimination.”

Several of the night watchmen were reassigned to less remunerative night porter and cleaner positions.  The union filed grievances over the reassignment, contending, among other things, that the reassignments violated the labor agreement’s ban on age discrimination.  The union requested that all of the claims raised in the grievances be arbitrated, but later withdrew the age discrimination claims from arbitration, while continuing to arbitrate the remaining claims.  The night watchmen then filed a charge of discrimination with the Equal Employment Opportunity Commission, and, after the EEOC issued a right to sue notice, commenced litigation against 14 Penn Plaza.  14 Penn Plaza brought a motion to compel arbitration which was denied by the district court and the Second Circuit Court of Appeals.

2. The Supreme Court’s Decision and Reasoning

The Supreme Court majority based its decision in 14 Penn Plaza on an examination of the ADEA and the NLRA.  The Court held that the provision of the collective bargaining agreement requiring arbitration of discrimination claims was a “condition of employment” that was subject to mandatory bargaining under the NLRA.  From there the Court found that the NLRA requires that courts respect contractual bargains between employers and unions, “unless the ADEA removes this particular class of grievances from the NLRA’s broad sweep.”  Finding no such language in the ADEA, the Supreme Court concluded that the collective bargaining agreement’s arbitration clause required arbitration of the unionized employees’ ADEA claims.

The Supreme Court acknowledged tension between two of its earlier arbitration-related decisions.  In Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), the Court held that an individual employee could be compelled to arbitrate age discrimination claims, but it appeared as if a union was prohibited under Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974), from agreeing in a collective bargaining agreement to arbitrate the age discrimination claims of its members.  Justice Thomas stressed that Gardner-Denver and its progeny “have narrow holdings” and are of “narrow scope,” and stated that broad dicta in those cases “rested on a misconceived view of arbitration that this Court has since abandoned.”  The Court’s decision in 14 Penn Plaza greatly narrowed (and may have effectively overruled) its decision in Gardner-Denver.

The 14 Penn Plaza majority praised the benefits of arbitration and stated that “[n]othing in the law suggests a distinction between the status of arbitration agreements signed by an individual employee and those agreed to by a union representative.”  The Court stated that, “[a]s in any contractual negotiation, a union may agree to the inclusion of an arbitration provision in a collective bargaining agreement in return for other concessions from the employers.  Courts generally may not interfere with this bargained-for exchange.”  The Court held that it had no legal basis to strike down the collective bargaining agreement’s arbitration clause because it was “freely negotiated” and “clearly and unmistakably” required the employees to arbitrate the age discrimination claims at issue.  The Court also held that an agreement to arbitrate ADEA claims is not a waiver of a substantive right, as that term is used in the ADEA, but merely shifts the forum for the resolution of ADEA claims from a court to an arbitrator.  Thus, the night watchmen were required to arbitrate their ADEA claims and could not pursue those claims in court.

As Justice Souter’s dissent noted, the 14 Penn Plaza decision “explicitly reserves the question of whether a collective bargaining agreement’s waiver of a judicial forum is enforceable when a union controls access to and presentation of employee claims in arbitration,” as is often the case.  The majority stated that a union’s duty of fair representation to its members and the judicial review available under the Federal Arbitration Act are effective protection against unfair or discriminatory actions by a union in pursuing grievances for alleged discrimination by an employer.

3. Observations, Ramifications, and Considerations

While the majority opinion focuses on ADEA claims, it strongly suggests that its holding will apply to other statutory claims of discrimination, including Title VII claims.  It should also apply to state law discrimination claims, and there is a strong argument that any state law attempts to preclude such collective bargaining agreements are preempted by federal labor law.

The Court’s decision leaves to the lower courts the job of determining whether or not a collective bargaining agreement’s arbitration agreement clearly and unmistakably covers statutory claims.Since most state and federal courts have held that various state and federal anti-discrimination statutes do not expressly prevent employees from arbitrating discrimination claims, those employers who already have a collective bargaining agreement provision that clearly and unmistakably provides for the arbitration of discrimination claims should be able to insist that those claims be arbitrated, unless the statute at issue expressly prohibits arbitration.

However, it is likely that only a few existing collective bargaining agreements will meet the 14 Penn Plaza standard.  Employers with broader, more generalized arbitration provisions in collective bargaining agreements will have a hard time convincing federal or state courts that unionized employees are required to arbitrate their discrimination claims.  But, when collective bargaining agreements containing arbitration provisions are up for renewal, they can be renegotiated to provide for the arbitration of discrimination claims by union members.

A union may or may not decide that it is beneficial to it to arbitrate its members’ discrimination claims.  Employers should consider whether it will benefit them to require unionized employees to arbitrate their discrimination claims rather than pursue them in court: for some employers, this may be the right result, but others might correctly decide that it is not.  Compulsory arbitration is, for a variety of complicated reasons, not always the best way to resolve discrimination claims.  Employers should consult with labor counsel to discuss the pros and cons of compulsory arbitration versus litigation, and, if they choose to go the arbitration route, to assist them in crafting clear and unmistakable language that will pass muster under 14 Penn Plaza.

Finally, a caveat – it is unclear how broad an impact the 14 Penn Plaza decision may ultimately have because of a bill recently introduced in Congress. The Court in 14 Penn Plaza acknowledged that Congress has the power to identify claims that may not be subject to mandatory arbitration. A bill introduced in February 2009, the Arbitration Fairness Act of 2009, would, if passed, make compulsory arbitration provisions in employment agreements unenforceable. The bill does not currently apply to arbitration provisions in collective bargaining agreements, but the 14 Penn Plaza decision might inspire attempts to modify the bill to legislatively overrule the decision. For the time being, clear and unmistakable collective bargaining agreement provisions between an employer and a union to arbitrate employees’ discrimination claims are enforceable, but employers are advised to monitor legislative developments.

Filed under Arbitration, Collective Bargaining Agreements, Recent Decisions, Unions, United States Supreme Court · Tagged with

Enforcing Arbitration Agreements, Quirky Question # 90

Posted by Roy Ginsburg on April 13, 2009 · Leave a Comment 

Quirky Question # 90:

Several years ago our company adopted as arbitration policy.  We felt that this was one way we could control our employment litigation costs.  Our arbitration policy is set forth in our Employee Handbook, which is available to our employees on line.  We encourage our employees to review the Handbook if they have any questions about our company’s policies.  Our system does not allow us to track who accesses the Handbook and who does not.  We recently terminated one of our employees.  He now claims that our decision was discriminatory and he filed a Charge of Discrimination.  He then obtained a right to sue letter and filed a lawsuit alleging race and age discrimination.  We intend to file a motion to compel arbitration.  Is there anything we should be concerned about  before proceeding to arbitration?

Roy’s Analysis:

As the very recent U.S. Supreme Court decision in the 14 Penn Plaza case illustrates, courts will enforce employment arbitration agreements.  (See Doug Christensen’s analysis of this decision, posted Monday, April 20, 2009.)  n 14 Penn Plaza, the nation’s high court enforced an arbitration agreement set forth in a collective bargaining agreement, requiring employees to arbitrate employment discrimination claims.  Many other courts have enforced arbitration agreements in a variety of different types of employment agreements.

The question you pose is whether an arbitration agreement contained in your Employee Handbook is enforceable.  Complicating the matter somewhat is that your Handbook is available electronically on-line rather than in hard copy.  Moreover, as you noted, your company does not have the capability to track who accesses your Handbook on-line and who does not.  As a consequence, you don’t really know which of your employees has reviewed your Handbook.  For that matter, you don’t even know which of your employees knows your company’s Handbook contains an arbitration provision.

Given that arbitration agreements are contracts, and subject to standard contract analysis (offer, acceptance, consideration), the factual context you describe may be problematic.  A fundamental question is whether, in the context you described, there has been a meeting of the minds with respect to the agreement to arbitrate.  As I’m sure you can appreciate, an employee who did not ever review your Employee Handbook on line, or who may even have reviewed the document but not indicated his/her assent to its provisions, may be able to advance a persuasive argument that he/she did not agree to arbitrate any of his/her employment claims.

Similar issues arose in the recent case of Kirleis v. Dickie, McCamey & Chilcote, P.C., No. 07-3504 (3rd Cir. March 24, 2009).  n Kirleis, a partner in a law firm challenged her firm’s mandatory arbitration policy.  When Kirleis filed complaints against her firm for sex discrimination, retaliation and hostile work environment under federal and state law, the law firm moved to compel arbitration pursuant to the firm’s By-Laws.  The firm’s By-Laws were set forth on-line.  Kirleis, however, challenged the legitimacy of the By-Laws’ arbitration provision, arguing that she: a) had never been provided with a copy of the firm’s By-Laws; b) was never informed the By-Laws contained an arbitration provision; c) never signed any agreement or other document referring to or incorporating the arbitration provision; and d) never agreed to arbitrate her claims.

The appellate court emphasized that the determination of whether the parties agreed to arbitrate turns on “ordinary state-law principles that govern the formation of contracts.”  Thus, before compelling arbitration pursuant to the Federal Arbitration Act, the court had to determine whether a “valid agreement to arbitrate exists,” and whether the “particular dispute falls within the scope of that agreement.”  The Third Circuit then assessed the state-law principles governing the formation of contracts – “(1) a mutual manifestation of an intention to be bound; (2) terms sufficiently definite to be enforced; and (3) consideration.”  The Court noted that under Pennsylvania law, arbitration agreements must be sufficiently specific to cover the employee’s claims and the employee must have “expressly agreed” to abide by the arbitration agreement.

Relying on earlier Pennsylvania decisions, one involving an arbitration agreement contained in an employee handbook that an employee had not received, the federal Court of Appeals concluded that Kirleis’s claims were not subject to arbitration.  First, the Court found that because Kirleis had not received a copy of the law firm’s By-Laws, she could not have agreed to arbitrate her claims.  Second, the Court observed that even had the By-Laws been provided to her, “a mere offer is insufficient to create a triable issue as to the existence of a contract to arbitrate.”  Because Kirleis had presented evidence that she did not agree to arbitrate her claims, the court was unwilling to compel arbitration.

The defendant law firm argued that Kirleis, as a shareholder/director of the firm, was on “constructive notice of the arbitration provision set forth in the By-Laws” and her “implied intent” to be bound thereby.  The appellate court recognized the “tension” between the law of contract and corporate law principles, but concluded that the contract law requirements predominated.  Finding that under Pennsylvania law, “explicit agreement is essential to the formation of an enforceable arbitration contract,” the notion that Kirleis “impliedly agreed to arbitrate “must fail.”

The principles of the Kirleis decision and other arbitration cases llustrate the problems your company may confront in trying to enforce the arbitration agreement set forth in your on-line Employee Handbook.  It would appear from the facts you presented that your company has not distributed the Handbook in hard-copy form.  Moreover, it is unclear whether all employees have access to your Handbook on-line.  (Does every employee have a company-issued computer?  For those employees not issued a computer, are they provided access to computer terminals on a regular basis?  During orientation or other training programs, are your employees advised that they should review your company’s handbook on-line?  When your company adopts handbook changes, are employees notified that they should review the changes that have been made?)  Given the fact that it’s unclear which of your employees have been provided access to your company’s handbook, and that you cannot monitor which of your employees accesses your on-line information, you also would be unable to rebut any contention that the particular employee who has filed suit might make regarding the absence of knowledge.

As the Kirleis case illustrates, even if you could establish that the employee had seen your Employee Handbook on-line, your company still would confront some additional issues.  First, you also would need to establish that the employee knew of the arbitration provision.  Second, you would need to establish that the employee assented to arbitrate his claims.  And, third, you would need to establish that there was consideration to support the agreement to arbitrate.  f the arbitration agreement was in place when the employee joined your Company, and the other elements of contract formation are satisfied, the consideration question should not present a problem.  But, if the arbitration requirement was put in place after the employee already had commenced employment with your company, the question of whether there was consideration sufficient to support the agreement may be more difficult to establish.

Bottom line, you may have some problems trying to enforce the arbitration provision in this situation. Rather than risk an adverse judicial determination holding that the arbitration agreement is not enforceable, it may be more prudent for your Company to take appropriate steps to ensure that the arbitration provision is enforceable in the future.

Filed under Arbitration, Employee Handbook · Tagged with

Overtime Compensation and “Exempt” Employees, Quirky Question # 89

Posted by Roy Ginsburg on April 8, 2009 · Leave a Comment 

Quirky Question # 89:

Our company develops software and is based in California with another location in Arizona.  On occasion, our software developers in Arizona come to our California facility to perform some work.  Two of our Arizona based developers have recently complained that while they are in California they should be paid overtime for the work done at our headquarters whenever they work more than 8 hours in a day.  One of the Arizona based employees makes a salary of $60,000 and is classified as exempt.  The other Arizona based employee makes a salary of $77,000 and is also exempt.  Neither one of these employees has worked in California for a whole week; they worked Wednesday through Friday in California four times in a two month period.  They never worked more than 40 hours in a week but both want the company to pay them overtime as if they are a nonexempt employees for the days they worked ten hours.  They both claim that in California they are nonexempt employees and are entitled to overtime.  Must we apply California law to Arizona based employees that work in California so infrequently?

[Readers: Set forth below is my California colleague's analysis of Quirky Question # 89, which addresses the issue of how out-of-state employees who occasionally work in California for a California-based employer should be treated with respect to overtime compensation and employee classification (exempt or non-exempt). As you read the analysis, you may reach the exasperating conclusion, "Only in California!"

The analysis below was prepared by Edward Raskin. Ed is a 2002 graduate of the University of California, Irvine, and a 2006 graduate of the University of California, Berkley, School of Law. Ed practices in Dorsey's Irvine, CA office. If you have any questions or comments about the analysis below, Ed can be reached at 949.932.3602 or via email at raskin.edward@dorsey.com. Additional information regarding Ed and his practice is available at: http://www.dorsey.com/raskin_edward/. Regards, Roy]

Ed’s Analysis:

It has become commonplace for employees who work in one state to occasionally perform work in another state. While this practice is commonplace, unfortunately the law surrounding this practice is very much up in the air, especially for workers who work occasionally in California.

You inquired about how Arizona employees, working periodically in CA, should be treated, both with respect to overtime compensation. As you recognize in your question, this issue also may be affected by how these employees are classified, i.e., whether they are exempt or non-exempt employees. Of course, the situation is complicated further if an employee classified as “exempt” under one state’s statutory scheme would be classified as “non-exempt” under CA law.

This factual context was recently explored by the Ninth Circuit in Sullivan vs. Oracle. In Sullivan, the Ninth Circuit Court of Appeals applied California’s Labor Code to out-of-state employees temporarily working in California for an in-state based company. On February 17, 2009, about three months after first deciding the case and after Oracle filed petitions for rehearing and en banc rehearing, the Ninth Circuit withdrew its opinion. At that point, the three-judge panel asked the California Supreme Court to ultimately decide the following issues raised in Sullivan:

1. Does the California Labor Code apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs in the circumstances of this case, such that overtime pay is required for work in excess of eight hours per day or in excess of forty hours per week?

2. Does Business & Professions Code § 17200 apply to the overtime work described in question one?

3. Does § 17200 apply to overtime work performed outside California for a California-based employer by out-of-state employees in the circumstances of this case if the employer failed to comply with the overtime provisions of the Fair Labor Standards Act?

It is unclear whether the Ninth Circuit opinion will be reinstated if the Supreme Court declines to accept these certified questions. Of course, it is equally unclear whether, if it accepts the certified questions, the California Supreme Court will analyze these issues in a manner consistent with the Ninth Circuit’s now-withdrawn interpretation.

While Sullivan has been withdrawn, the circumstances involved in that case, which are similar to the facts you present, may provide us some guidance in how future courts may approach this situation. In Sullivan three putative class representatives were out of state residents (2 from Colorado and 1 from Arizona) who occasionally — anywhere from 5 to 30 days a year — traveled to Oracle’s home state of California to train Oracle customers on its software. Oracle classified these employees as exempt until 2003, when it changed their status to non-exempt and began paying them overtime.

Plaintiffs filed suit, alleging three distinct claims. The first claim sought to recover unpaid overtime pursuant to California’s Labor Code for work performed in California by non-residents who worked complete days in California from 2001 to 2004. Plaintiffs’ second claim under the California’s Unfair Competition Law (“UCL”) asserted that the violations of the Labor Code also violated the UCL. Finally, in their third claim Plaintiffs argued that Oracle’s overtime pay violations for work performed in the United States, but not in California, also breached the UCL.

Oracle moved for summary judgment on all three claims. It argued that California law should not apply to out-of-state employees. Rather, Oracle contended that Colorado overtime law should apply to the two Colorado residents and that the overtime provisions of the Fair Labor Standards Act (“FLSA”) should apply to the Arizona resident, since Arizona lacks its own state-specific overtime law.

The District Court granted Oracle’s motion for summary judgment on all three claims. Specifically, the court granted summary judgment on the first claim on grounds that the relevant provisions of California law did not apply to non-residents who work primarily in states other than California. Since the second claim under the UCL was based on an underlying Labor Code violation, the court also granted summary judgment in favor of Oracle. Finally, the district court granted summary judgment on the third claim on the grounds that the UCL does not apply to work performed outside of California in violation of the FLSA.

On appeal, the Ninth Circuit affirmed the district court’s decision as to the UCL claim for work performed outside of California, but reversed as to the claims under the California Labor Code and related claim under the UCL. Had the Ninth Circuit not withdrawn its opinion, the question you posed would have rather a straightforward response: yes, you must apply California law to both your Arizona employees for all work they perform for your company in California. Since, Sullivan’s future is currently unclear, however, employers in your position are left in a lurch.

Until the California Supreme Court decides this issue, cautious employers may wish to follow the Ninth Circuit’s guidance as set forth in Sullivan, absent other controlling authority. Therefore, it would be prudent to apply California law to your Company’s two Arizona-based employees to provide maximum risk protection.

However, this can become complicated. Your Company apparently has classified both employees as exempt under the computer professional exemption. Since Arizona does not have state-based labor laws, I will assume the exemption analysis was previously done under the applicable Federal law found at Section 13(a)(1) of the FLSA. California, however, has its own slightly different version of the computer professional exemption, including a much higher minimum pay requirement. Specifically, the California computer professional exemption is found at Labor Code 515.5 with sets forth the duties and minimum pay requirements for an employee to meet the exemption.

Because I do not know exactly what duties the two Arizona-based employees engage in on a day-to-day basis, I will assume that they meet the duties test of both Labor Code 515.5 and Section 13(a)(1) of the FLSA. Therefore, the next question is whether the two employees meet the minimum pay requirements under California law. Each year the Department of Labor Standards Enforcement sets the level of minimum pay based on the consumer price index. In 2008 the minimum salary was $75,000 per year. However, effective January 1, 2009, the minimum salary was raised to $79,050 per year.

As a result, the first Arizona employee making $60,000 per year would be ineligible for the California exemption regardless of whether or not the employee performs duties that are classified as exempt and overtime pay would be due under Sullivan. The second employee, making $77,000 per year, would be eligible for the California exemption for work performed in 2008 (provided he was performing exempt duties) because his salary exceeded the $75,000 minimum. For work performed in 2009, however, this employee would not meet the California exemption regardless of the nature of the duties he was performing, because he does not meet the salary threshold.

The underlying caveat to all of this is that Sullivan is no longer good law, so there is a reasonable argument that Arizona employees should not be treated the same as California employees for the few days they happen to work in California. Nevertheless, until the California Supreme Court decides this issue, employers wanting to be exceedingly cautious can apply the Sullivan framework discussed above.

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