Independent Contractor v. Employee: Law of Economic Realities

In cases under the Fair Labor Standards Act, a question sometimes arises as to whether a worker is an independent contractor or an employee. The answer can be important, as an employee may have rights to minimum wage and overtime compensation that an independent contractor performing the same basic job tasks does not.  

To determine whether a worker is an employee under the FLSA, courts in the Fourth Circuit look to the “economic realities” of the relationship between the worker and the putative employer.

McFeeley v. Jackson St. Entm’t, LLC, 825 F.3d 235, 241 (4th Cir. 2016) (quoting Schultz v. Capital Int’l Sec., Inc., 466 F.3d 298, 304 (4th Cir. 2006)). The touchstone of the “economic realities” test is whether the worker is “economically dependent on the business to which he renders service or is, as a matter of economic [reality], in business for himself.” Id. If the practical economic reality is that the worker is “economically dependent” on the putative employer and not “in business for himself[,]” the worker will generally be considered an employee qualified for FLSA rights. Id

Economic Realities Test

In making this determination, courts applying the economic realities test consider six factors:

(1) [T]he degree of control that the putative employer has over the manner in which the work is performed;

(2) the worker’s opportunities for profit or loss dependent on his managerial skill;

(3) the worker’s investment in equipment or material, or his employment of other workers; 

(4) the degree of skill required for the work; 

(5) the permanence of the working relationship; and 

(6) the degree to which the services rendered are an integral part of the putative employer’s business. 

McFeeley, 825 F.3d at 241. These factors are often called the “Silk factors” in reference to United States v. Silk, 331 U.S. 704 (1947), the Supreme Court case from which they derive. See Schultz at 305.

Generally speaking, the greater the degree of control the putative employer has over the manner in which the work is performed, the greater the permanence of the working relationship, and the greater the degree to which the worker’s services are an integral part of the putative employer’s business, the more likely the worker is an “employee” under the economic realities test. Similarly, the fewer opportunities the worker has for profit or loss dependent on his managerial skill, the less the worker invests in equipment, material, or employment of other workers, and the lower degree of skill required for the work, the more likely the worker is an “employee” under the economic realities test. 

Application

For example, in Schultz, the plaintiff security workers worked jointly for a Saudi prince and a security firm. The Fourth Circuit found the prince and security firm exercised nearly complete control over how the workers did their jobs. Further, the workers had no opportunity for profit or loss dependent on their managerial skills, as they were paid a set rate per shift. Additionally, the firm and prince supplied the workers with all the necessary equipment, including cell phones, cars, firearms, and cameras. With respect to the fourth factor, although some security duties required special skills, others did not. As to the permanence of the relationship, the prince employed some workers for several years and preferred to hire workers who would stay with him over the long term. And the services rendered by the workers were integral to the security firm’s business, as the firm’s only function was to provide security for the prince, and workers were hired specifically to perform that task. Considering these facts under the economic realities test, the Fourth Circuit concluded the security workers “were not in business for themselves” and “thus were thus employees, not independent contractors.” Schultz, 466 F.3d at 309.

Similarly, in McFeeley, the plaintiff exotic dancers worked for dance clubs. The Fourth Circuit found that the clubs exercised significant control over how the dancers performed their work. That control included dictating dancers’ schedules, imposing written guidelines that all dancers had to obey during working hours, setting fees the dancers were supposed to charge patrons for private dances, and dictating how tips and fees were handled. Further, the dancers’ opportunities for profit or loss depended far more on the clubs’ management and decision-making than their own; the club owners’ investment in the clubs’ operation far exceeded the dancers’ investment; the job duty of dancing at the clubs required a relatively minimum degree of skill; and the dance clubs could not function without exotic dancers. Therefore, the dancers were employees of dance clubs under the FLSA, rather than independent contractors. McFeeley, 825 F.3d 235, 242-244.

And in Salinas v. Commercial Interiors, Inc., 848 F.3d 125 (4th Cir. 2017), the plaintiff drywall installers worked for a subcontractor of a larger company that offered general contracting and interior finishing services, including drywall installation, carpentry, framing, and hardware installation. The workers were economically dependent on the subcontractor alone, making them necessarily economically dependent on the contractor and subcontractor jointly. Due to the contractor’s daily supervision of these workers, it exercised greater control over their work than the subcontractor exercised alone. Further, the contractor provided all of the materials, supplies, tools, and equipment that workers used for their work. On these facts, the Fourth Circuit determined the drywall installers were employees covered by FLSA, rather than independent contractors, based on their entire employment for both the framing and drywall installation subcontractor and general contractor. Id. at 150-151.

Summary

In summary, Fourth Circuit courts determine whether a worker is an employee or an independent contractor by looking to the “economic realities” of the relationship between the worker and the putative employer. The outcome is important because an employee may have rights to minimum wage and overtime compensation under the FLSA that an independent contractor performing the same basic job tasks does not. The “economic realities” test turns on whether the worker is economically dependent on the business to which he renders service or is, as a matter of economic reality, in business for himself. If the practical economic reality is that the worker is economically dependent on the putative employer and not in business for himself, the worker will generally be considered an employee qualified for FLSA rights. 

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

This blog was also published to TimCoffieldAttorney.net.

Integrity Staffing v. Busk: Principal Activities Law

In Integrity Staffing Sols., Inc. v. Busk, 574 U.S. 27 (2014), the Supreme Court held that under the Fair Labor Standards Act, time warehouse workers spent waiting for and undergoing security screenings was not compensable time. More broadly, the decision clarified the proper analysis of “principal activities” verses preliminary and postliminary activities. Principal activities are compensable under the FLSA. Purely preliminary or postliminary activities (like a commute) are not, but some activities before or after a shift might still be compensable principal activities. The term “principal activities” includes all activities which are an “integral and indispensable part of the principal activities.” An activity is “integral and indispensable to the principal activities” if it is an “intrinsic element of those activities and one with which the employee cannot dispense if he is to perform his principal activities.” 574 U.S at 33.

Facts

Busk worked for Integrity Staffing Solutions as an hourly warehouse worker. Integrity Staffing provided warehouse staffing to Amazon. Integrity Staffing’s warehouse workers retrieved and packaged products for delivery to Amazon.com customers. Integrity Staffing required these employees to undergo a security screening before leaving the warehouse each day, but did not pay them for the time (roughly 25 minutes each day) they spent waiting for and undergoing the screening. Busk and his co-workers filed suit under the Fair Labor Standards Act. They asserted, inter alia, they were entitled to compensation for the time they spent waiting to undergo and undergoing the screenings. They also argued the screenings were compensable because the company could have reduced the time involved to a negligible de minimis amount by adding screeners or staggering shifts, and because the screenings were conducted to prevent employee theft and, thus, for the sole benefit of the employers and their customers.

The District Court dismissed this claim. It held the screenings were not integral and indispensable to the employees’ principal activities but were instead postliminary and noncompensable under the Portal–to–Portal Act. The Ninth Circuit reversed that decision in part, holding that the postshift screening would be compensable as integral and indispensable to the employees’ principal activities if the screenings were necessary to the principal work and performed for the employer’s benefit. Integrity Staffing appealed. 

The Court’s Decision

The Supreme Court reversed. It held the time the warehouse workers spent waiting to undergo and undergoing security screenings was not compensable under the FLSA. 

First, the Court explained Congress passed the Portal–to–Portal Act in response to the “unexpected liabilities” created by a broad judicial interpretation of the FLSA’s undefined terms “work” and “workweek.” See 29 U.S.C. § 251(a). The Portal–to–Portal Act therefore exempted employers from FLSA liability for claims based on “activities which are preliminary to or postliminary to” the principal activities that an employee is employed to perform. 29 U.S.C. § 254(a)(2)

The Court had long held that the term “principal activities” includes all activities which are an “integral and indispensable part of the principal activities.” Steiner v. Mitchell, 350 U.S. 247, 252–253 (1956). In Integrity Staffing, the Court further explained that an activity is “integral and indispensable to the principal activities” if it is an “intrinsic element of those activities and one with which the employee cannot dispense if he is to perform his principal activities.” 574 U.S at 33.

For example, in Steiner, the Court held the time battery-plant employees spent showering and changing clothes was compensable because the chemicals in the plant were “toxic to human beings” and the employer conceded that “the clothes-changing and showering activities of the employees [were] indispensable to the performance of their productive work and integrally related thereto.” Id. at 34 (quoting Steiner at 249, 251). Similarly, in Mitchell v. King Packing Co., 350 U.S. 260, 262 (1956), the Court held compensable the time meatpacker employees spent sharpening their knives because dull knives would “slow down production” on the assembly line, “affect the appearance of the meat as well as the quality of the hides,” “cause waste,” and lead to “accidents.” 574 U.S. at 34 (quoting Mitchell at 262). By contrast, in IBP, Inc. v. Alvarez, 546 U.S. 21 (2005), the Court held noncompensable the time poultry-plant employees spent waiting to don protective gear because such waiting was “two steps removed from the productive activity on the assembly line.” 574 U.S. at 34 (quoting IBP at 42). The Court further noted Department of Labor regulations were consistent with this approach. See 29 CFR § 790.8(b) (“The term ‘principal activities’ includes all activities which are an integral part of a principal activity.”); 29 CFR § 790.8(c) (“Among the activities included as an integral part of a principal activity are those closely related activities which are indispensable to its performance.”); 29 CFR 790.7(g) (examples of preliminary and postliminary activities). 574 U.S. at 30-35.

The Court then held the security screenings at issue in Integrity Staffing were noncompensable postliminary activities. First, the Court determined the screenings were not the principal activities the employees were employed to perform. The workers were not employed to undergo security screenings. They were employed to retrieve goods from the warehouse and package them for shipment. Nor were the security screenings “integral and indispensable” to those activities. In support of this conclusion, the Court cited a 1951 Department of Labor opinion letter, which found noncompensable under the Portal–to–Portal Act both a preshift screening conducted for employee safety and a postshift search conducted to prevent employee theft. 

The employees in Integrity Staffing, like the Ninth Circuit, essentially took the position that if an activity was required by an employer it was compensable under the FLSA. The Court disagreed with this approach, noting that it would sweep into “principal activities” the very activities that the Portal–to–Portal Act was designed to exclude from compensation (like the time waiting to don protective gear held noncompensable in IBP). Finally, the Court rejected the employees’ argument that the screenings were compensable because Integrity Staffing could have reduced the time to a de minimis amount. Whether an employer could conceivably reduce the time employees spent on a preliminary or postliminary activity did not change the nature of the activity or its relationship to the principal activities that an employee is employed to perform. Therefore, that concern was properly addressed through bargaining, rather than in a suit under the FLSA. 574 U.S. at 35-37.

Analysis

In sum, Integrity Staffing clarified the analysis of “principal activities” verses preliminary and postliminary activities. Principal activities are compensable. The term “principal activities” includes all activities which are an “integral and indispensable part of the principal activities.” An activity is “integral and indispensable to the principal activities” if it is an “intrinsic element of those activities and one with which the employee cannot dispense if he is to perform his principal activities.” 574 U.S at 33. More specifically, Integrity Staffing stands for the proposition that time spent waiting for and undergoing security screenings was not a principal activity and therefore not compensable under the Fair Labor Standards Act. 

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

This blog was also published to TimCoffieldAttorney.com.

ADA Job Restructuring Law

Can federal employment laws require an employer to change an employee’s job duties, as an accommodation for a disability? The answer is sometimes, depending on the circumstances. The analysis often turns on whether the duties at issue are “essential functions” of the employee’s job, and whether co-workers are available to take on the duties (in exchange for the disabled employee taking on some of their duties). 

Both Title I of Americans with Disabilities Act and Section 504(a) of Rehabilitation Act of 1973 (for employers receiving federal funds) require employers to “mak[e] reasonable accommodations to the known physical or mental limitations of an otherwise qualified individual with a disability.” 42 U.S.C. § 12112(b)(5)(A); Hooven-Lewis v. Caldera, 249 F.3d 259, 268 (4th Cir. 2001) (holding that discrimination under Rehabilitation Act includes failure to accommodate and applying same standard as that used for ADA failure-to-accommodate claims).

Reasonable Accommodation Defined 

A reasonable accommodation is one that “enables [a qualified] individual with a disability … to perform the essential functions of [a] position.” 29 C.F.R. § 1630.2(o)(1)(ii). The ADA expressly contemplates that a reasonable accommodation may require “job restructuring.” 42 U.S.C. § 12111(9)(B). The Fourth Circuit holds that job restructuring to shift a marginal, nonessential task to other employees can be a reasonable accommodation, especially where replacement tasks are shifted back to the disabled employee to avoid increasing the overall workload of other employees. Jacobs v. N.C. Admin. Office of the Courts, 780 F.3d 562, 580-81 (4th Cir. 2015) (“Jacobs’s proposed accommodation was to work fewer days at the counter and more days microfilming or performing other deputy clerk tasks. This proposed accommodation did not require the AOC to increase the workload of Jacobs’s coworkers; Jacobs merely asked that her employer change which deputy clerk was assigned to which task … A reasonable jury could therefore conclude that Jacobs’s requested accommodation was reasonable.”)

To prevail on a failure to accommodate claim, an employee must show: “(1) that [he] was an individual who had a disability within the meaning of the statute; (2) that the employer had notice of [his] disability; (3) that with reasonable accommodation [he] could perform the essential functions of the position; and (4) that the employer refused to make such accommodations.” Jacobs, 780 F.3d at 579 (quoting Wilson v. Dollar Gen. Corp., 717 F.3d 337, 345 (4th Cir. 2013).)

The Essential Functions Questions

Job-restructuring implicates the third element, which asks whether the proposed restructuring accommodation would allow the employee to perform the “essential functions” of the position. Employers sometimes believe that if a duty is included in an employee’s job description, it is an “essential” function of the job, and therefore the ADA cannot require the employer to shift that duty to other employees. This is not necessarily true. While job descriptions may be relevant evidence in determining the essential functions of a job, they are not dispositive. As the Fourth Circuit holds:

Not all job requirements or functions are essential. A job function is essential when “the reason the position exists is to perform that function,” when there aren’t enough employees available to perform the function, or when the function is so specialized that someone is hired specifically because of his or her expertise in performing that function.

Jacobs, 780 F.3d at 579 (quoting 29 C.F.R. § 1630.2(n)(2)). “[I]f an employer has prepared a written description before advertising or interviewing applicants for the job, this description shall be considered evidence of the essential functions of the job.” Id. (quoting 42 U.S.C. § 12111(8) (emphasis added)). “Other relevant evidence can include ‘the employer’s judgment as to which functions are essential,’ ‘the amount of time spent on the job performing the function,’ ‘the consequences of not requiring the incumbent to perform the function,’ and the work experience of people who hold the same or similar job.” Id. (quoting 29 C.F.R. § 1630.2(n)(3)).

Jacobs involved a court clerk with social anxiety who sought to have her job restructured so she did not have to work at the counter in the clerk’s office, and would perform additional clerk’s duties instead. Jacobs at 580. The Fourth Circuit held that even though the clerk’s job description named “customer service” as a function, working at the counter was not necessarily an “essential function” of the clerk position because, inter alia, “many employees were available to perform that function.” Jacobs, 780 F.3d at 580.

Job-Restructuring Accommodations

If applying these factors indicate the job duty at issue is not an essential function, the employer may have an obligation to shift that duty to other employees as a disability accommodation, with the disabled employee taking on some replacement duties so her co-workers do not have to do more work overall. Federal appellate courts applying the ADA consistently hold that job restructuring to shift non-essential functions can be a reasonable accommodation. In addition to Jacobs, see Rorrer v. City of Stow, 743 F.3d 1025, 1044 (6th Cir. 2014) (“Shifting marginal duties to other employees who can easily perform them is a reasonable accommodation.”); Henschel v. Clare County Road Com’n, 737 F.3d 1017, 1023–24 (6th Cir. 2013) (The “ADA requires job restructuring of non-essential duties as a reasonable accommodation in appropriate circumstances”; hauling the excavator not necessarily an essential function of the excavator operator position, as there were a number of other employees who could perform this task); Benson v. Northwest Airlines, 62 F.3d 1108, 1112 (8th Cir. 1995) (stating that reasonable accommodation may “involv[e] reallocating the marginal functions of a job”); U.S. EEOC v. AIC Sec. Investigations, Ltd., 55 F.3d 1276, 1284 (7th Cir. 1995) (“The ADA defines ‘reasonable accommodation’ to include restructuring a job, such as by removing non-essential functions from the job.”) (citing 42 U.S.C. § 12111(9)(B) and 29 C.F.R. § 1630.2(o)); Davidson v. Am. Online, Inc., 337 F.3d 1179, 1192 (10th Cir. 2003) (“a restructuring of the non-essential requirements” of a job could be a reasonable accommodation); Hill v. Assocs. for Renewal in Educ., Inc., 897 F.3d 232, 240 (D.C. Cir. 2018), cert. denied, 139 S.Ct. 1201 (2019) (“an employer may be required to accommodate an employee’s disability by ‘reallocating or redistributing nonessential, marginal job functions,’ or by providing an aide to enable the employee to perform an essential function without replacing the employee in performing that function.” (quoting 29 C.F.R. Pt. 1630, App.) (emphasis in original)).

To recap, under the ADA or Rehab Act, a reasonable disability accommodation could therefore entail shifting certain “non-essential” tasks to other employees and shifting from those employees to the disabled employee additional work that she can perform independently. See Jacobs at 580-81. Because this kind of accommodation would shift additional tasks back to the disabled employee and therefore not increase the overall workload of other employees, cases like Crabill v. Charlotte Mecklenburg Bd. of Educ., 423 Fed.Appx. 314, 323 (4th Cir. 2011) (noting that “an accommodation that would require other employees to work harder is unreasonable”) would not apply.

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call (434) 218-3133 or send an email to info@coffieldlaw.com.

This blog was also featured on TimCoffieldAttorney.net.

IBP, Inc. v. Alvarez: Law of Compensation for Waiting

The Fair Labor Standards Act requires employers to pay minimum wages and overtime wages based on time worked by covered employees. Oftentimes, an employee has to spend time waiting to put equipment, walking to a worksite, or doing other preshift tasks necessary to perform her job. Is the employee entitled to compensation under the FLSA for that time? Trial courts routinely address various iterations of this question. In IBP, Inc. v. Alvarez, 546 U.S. 21 (2005), the Supreme Court answered one of them. It held that the FLSA requires employers to pay employees for time spent walking to and from stations that distributed employer-mandated safety equipment.

Facts

Alvarez involved two separate but similar cases. Employees of IBP filed suit under the FLSA  seeking compensation for time they spent putting on and taking off (“donning and doffing”) required protective gear and walking between the locker rooms and the production floor of IBP’s meat processing facility. The trial court decided these activities were compensable. The Ninth Circuit affirmed. IBP appealed.

In the companion case, employees of Barber Foods sought compensation under the FLSA for time they spent donning and doffing required protective gear at Barber’s poultry processing plant, as well as time they spent walking and waiting associated with picking up and returning the gear. The trial court found in favor of Barber on the walking and waiting claims, finding those activities were not compensable. The First Circuit affirmed, finding that the walking and waiting times were preliminary and postliminary activities excluded from FLSA coverage by §§4(a)(1) and (2) of the Portal-to-Portal Act of 1947. The employees appealed.

The U.S. Supreme Court consolidated the cases to address the question of whether the FLSA requires employers to pay employees for time spent walking to and from stations that distributed required safety equipment.

Legal Background

In Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 691–692 (1946), the Supreme Court held that a “workweek” under the FLSA included the time employees spent walking from time clocks near a factory entrance to their workstations. In response to that decision, Congress passed the Portal-to-Portal Act. The Portal-to-Portal Act excepted from FLSA coverage walking on the employer’s premises to and from the location of the employee’s “principal activity or activities,” §4(a)(1), and activities that are “preliminary or postliminary” to “said principal activity or activities,” §4(a)(2).

The Department of Labor subsequently issued regulations which interpreted the Portal-to-Portal Act as not affecting the computation of hours within a “workday,” 29 CFR §790.6(a), which includes “the period between the commencement and completion” of the “principal activity or activities,” §790.6(b).

In a subsequent Supreme Court decision, Steiner v. Mitchell, 350 U.S. 247, 256 (1956), the Court explained that the “term ‘principal activity or activities’ … embraces all activities which are ‘an integral and indispensable part of the principal activities,’ ” including the donning and doffing of specialized protective gear “before or after the regular work shift, on or off the production line.”

The Court’s Decision

In the 2005 Alvarez decision, the Court held that an employee putting on employer-required safety equipment qualified as a “principal activity” under the FLSA. The continuous “workday” for purposes of calculating compensable time began when employees started that activity. Therefore, compensable time included the subsequent time employees spent walking to and from the worksite after donning their protective gear, and time spent waiting to doff the gear. The Court further held that the previous time spent waiting to put on the safety equipment, however, was not included in the workday, and not compensable time, because it was a “preliminary” activity under the Portal-to-Portal Act. 546 U.S. at 28-38.

Time spent walking to and from the worksite after donning and before doffing protective gear is compensable time

First, the Alvarez held that the time the IBP employees spent walking after changing into protective gear from the locker room to the production floor was compensable under the FLSA.  546 U.S. at 33-37.

The Court explained that Section 4(a)(1) of the Portal-to-Portal Act text does not exclude this time from the FLSA. IBP had argued that, because donning is not the “principal activity” that starts the workday, walking occurring immediately after donning and immediately before doffing is not compensable. That argument, the Court pointed out, was foreclosed by its decision in Steiner, which clarified that §4 does not remove activities that are “integral and indispensable” to “principal activities” from FLSA coverage because those activities are themselves “principal activities.” 350 U. S. at 253. The Court went on to explain that that these identical terms cannot mean different things within the same law (§4(a)(2) and in §4(a)(1)). According to the normal rules of statutory interpretation, identical words used in different parts of the same statute are generally presumed to have the same meaning. Further, with respect to §4(a)(2)’s reference to “said principal activity or activities,” “said” is an explicit reference to the use of the identical term in §4(a)(1). Alvarez, 546 U.S. at 33-35.

The Court also rejected IBP’s argument that Congress’s repudiation of the Anderson decision (by passing the Portal-to-Portal Act) reflected a legislative purpose to exclude the walking time at issue from the FLSA. The Court found this argument unpersuasive because it observed the time at issue in Alvarez, which occurred after the workday begins (by donning) and before it ends (by doffing), was more comparable to time spent walking between two different positions on an assembly line than to the walking in Anderson, which occurred before the workday began. Id. at 34-35.

The Court also pointed out the DOL regulations supported the compensable nature of the IBP employees’ walking time. For example, 29 CFR §790.6 did not strictly define the workday’s limits as the period from “whistle to whistle.” And 29 CFR §790.7(g), n. 49, which provides that postdonning walking time is not “necessarily” excluded from  §4(a)(1) of the Portal-to-Portal Act, does not mean that such time is always excluded. Therefore, the Court determined those regulations could not overcome clear statements elsewhere in the regulations that supported the compensable nature of postdonning walking time. 546 U.S. at 35-37.

Time spent waiting to doff is compensable time

With respect to the Barber Foods employees, the Court similarly held that because donning and doffing gear that is “integral and indispensable” to employees’ work is a “principal activity” under the FLSA, the continuous workday rule required that the time the Barber Foods employees spent walking to and from the production floor after donning and before doffing, as well as the time spent waiting to doff at the end of the day, are not affected by the Portal-to-Portal Act. Therefore, this time was compensable under the FLSA. 546 U.S. at 37-39.

Time spent waiting to don is not compensable time

Finally, however, the Court held that time spent waiting to don protective gear before work is not compensable time. The Court’s reasoned that §4(a)(2) of the Portal-to-Portal Act excluded from the FLSA the time employees spend waiting to don the first piece of gear that marks the beginning of the continuous workday. The Court determined that this qualifies as a “preliminary” activity because it was “two steps removed” from the productive activity on the assembly line. While certain preshift activities were necessary for employees to engage in their principal activities, the Court found that this does not mean that those preshift activities are “integral and indispensable” to a “principal activity” under Steiner. The Court expressed a concern that it could not conclude that Barber employees predonning waiting time was a compensable “principle activity” without also reaching the necessary (but untenable) conclusion that the walking time in Anderson would also be a “principal activity” unaffected by the Portal-to-Portal Act. The Court observed that 29 CFR §790.7(h) (differentiating between being “engaged to wait,” which is compensable, and “wait[ing] to be engaged, which is not compensable) did not support a finding that time spent waiting to don protective gear was compensable. 546 U.S. at 39-42.

Analysis

In short, Alvarez held that an employee putting on employer-required safety equipment qualified as a “principal activity” under the FLSA. The continuous “workday” for purposes of calculating compensable time began when employees started that activity.

This determination, that the workday begins with donning, has two important implications. First, FLSA compensable time included the subsequent time employees spent walking to and from the worksite after donning their protective gear, and time waiting to doff their gear. Second, however, the previous time employees spent waiting to don the protective equipment was not included in the workday, and not compensable time, because it was a “preliminary” activity under the Portal-to-Portal Act.

This blog was also published at TimCoffieldAttorney.com.

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call (434) 218-3133 or send an email to info@coffieldlaw.com.

Law of Joint Employment

Law of Joint Employment

A worker’s joint employers are jointly and severally liable for any violations of the Fair Labor Standards Act. Salinas v. Commercial Interiors, Inc., 848 F.3d 125, 134 (4th Cir. 2017). This means that for purposes of the FLSA’s requirements that an employer pay minimum wages and overtime wages to non-exempt employees, a worker may have more “employers” than just the company who issues her paychecks. In short, if more than one entity has the ability to help determine the conditions of a workers’ employment, more than one entity may be liable if the worker is not paid the minimum wages or overtime compensation required by federal law.

DOL Joint Employment Regulations

The Department of Labor regulation implementing the FLSA distinguishes “separate and distinct employment” from “joint employment.” 29 C.F.R. § 791.2(a). “Separate employment” exists when “all the relevant facts establish that two or more employers are acting entirely independently of each other and are completely disassociated with respect to the” individual’s employment. Id. By contrast, “joint employment” exists when “employment by one employer is not completely disassociated from employment by the other employer(s).” Id. When two or more entities are found to jointly employ a particular worker, “all of the employee’s work for all of the joint employers during the workweek is considered as one employment for purposes of the [FLSA].” Id. (emphasis added). Thus, for example, all hours worked by the employee on behalf of each joint employer are counted together to determine whether the employee is entitled to overtime pay under the FLSA. Id; Hall v. DIRECTV, LLC, 846 F.3d 757, 766 (4th Cir. 2017).

Fourth Circuit Factors

In Salinas, the Fourth Circuit observed that the joint employment regulations speak to “one fundamental question: whether two or more persons or entities are ‘not completely disassociated’ with respect to a worker such that the persons or entities share, agree to allocate responsibility for, or otherwise codetermine — formally or informally, directly or indirectly — the essential terms and conditions of the worker’s employment.” 848 F.3d at 141 (quoting 29 C.F.R. § 791.2(a) and citing In re Enter. Rent-A-Car Wage & Hour Employment Practices Litig., 683 F.3d 462, 468 (3d Cir. 2012) (“[W]here two or more employers … share or co-determine those matters governing essential terms and conditions of employment — they constitute ‘joint employers’ under the FLSA.” (internal quotation marks omitted)).

With these principles in mind, courts in the Fourth Circuit consider six factors in determining whether entities constitute joint employers:

(1) whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate the power to direct, control, or supervise the worker, whether by direct or indirect means;

(2) whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate the power to, directly or indirectly, hire or fire the worker or modify the terms or conditions of the worker’s employment;

(3) the degree of permanency and duration of the relationship between the putative joint employers;

(4) whether, through shared management or a direct or indirect ownership interest, one putative joint employer controls, is controlled by, or is under common control with the other putative joint employer;

(5) whether the work is performed on a premises owned or controlled by one or more of the putative joint employers, independently or in connection with one another; and

(6) whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate responsibility over functions ordinarily carried out by an employer, such as handling payroll, providing workers’ compensation insurance, paying payroll taxes, or providing the facilities, equipment, tools, or materials necessary to complete the work. Id. at 141.

Salinas at 141.

The Fourth Circuit in Salinas observed that these six factors may not constitute an exhaustive list of all potentially relevant considerations. Id. at 142. “To the extent that facts not captured by these factors speak to the fundamental threshold question that must be resolved in every joint employment case — whether a purported joint employer shares or codetermines the essential terms and conditions of a worker’s employment — courts must consider those facts as well.” Id.

As these factors illustrate, the Fourth Circuit’s joint employer test turns on whether the entities in question codetermine the essential conditions of a worker’s employment. Salinas at 143. Thus, the existence of a general contractor-subcontractor relationship “has no bearing on whether entities … constitute joint employers for purposes of the FLSA.” Id. 143–44.

Application of Salinas Factors

For example, in Salinas, the Fourth Circuit held that a drywall installation subcontractor and general contractor were joint employers under the FLSA because, inter alia, the subcontractor provided staffing for the contractor based on the contractor’s needs; the employees performed the work for the contractor’s benefit; the contractor supervised the employees’ progress daily and provided feedback; and the employees wore uniforms bearing the contractor’s logo. 848 F.3d at 146.

For another Fourth Circuit case on the joint employer issue, see Hall v. DIRECTV, LLC, 846 F.3d 757, 762 (4th Cir. 2017). In that case, the plaintiff technicians sufficiently alleged DIRECTV as a joint employer, even though the technicians were nominally employed by a subcontractor. The court held that DIRECTV could be liable as a joint employer along with the subcontractor because, inter alia, the technicians were required to “obtain their work schedules and job assignments through DIRECTV’s centralized system,” to check in with DIRECTV after completing assigned jobs, and to “wear DIRECTV uniforms…when performing work for the company.” Similarly, in Young v. Act Fast Delivery of W. Virginia, Inc., 2018 WL 279996, *8 (S.D. W.Va. Jan. 3, 2018), the court held that under Salinas, a pharmaceutical delivery company was a joint employer of the plaintiff couriers, even though the couriers were nominally employed by a third party subcontractor.

As the Fourth Circuit emphasized in Salinas, “Separate employment exists when … ‘two or more employers are acting entirely independently of each other and are completely disassociated with respect to’ the individual’s employment.” 848 F.3d at 133-34 (emphasis in original) (quoting 29 C.F.R. § 791.2(a)). “By contrast, joint employment exists when ‘the facts establish … that employment by one employer is not completely disassociated from employment by the other employer.’” Salinas at 134 (emphasis in original).

Summary

Therefore, under the Fourth Circuit’s framework, the “fundamental question” guiding the joint employment analysis is “whether two or more persons or entities are ‘not completely disassociated’ with respect to a worker such that the persons or entities share, agree to allocate responsibility for, or otherwise codetermine — formally or informally, directly or indirectly — the essential terms and conditions of the worker’s employment.” Id. at 140. If the facts show that two related companies were not “completely disassociated” or “acting entirely independently” with respect to a worker’s employment, they may be joint employers. If the entities shared control over the conditions of employment, they may both be potentially jointly and severally liable for FLSA violations as joint employers.

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

McKennon v. Nashville Banner: Law of After-Acquired Evidence

McKennon v. Nashville Banner: Law of After-Acquired Evidence

What happens when an employer, having wrongfully terminated an employee (in violation of federal employment law), discovers in litigation that the employee did something that would have legitimately and lawfully lead to termination, had the employer known about it before wrongfully firing the employee? Does the employer still have to pay lost wages for the wrongful termination, or does this “after-acquired evidence” excuse the violation?

The Supreme Court addressed these questions in McKennon v. Nashville Banner Pub. Co., 513 U.S. 352 (1995). The Court rejected the argument that a legitimate reason for termination, discovered after an unlawful discharge, excuses the unlawful action or bars the employee from recovery. However, the Court also indicated that such after-acquired evidence may limit the employee’s ability to obtain reinstatement or recover all lost wages associated with the termination.

Facts

McKennon worked thirty years for Nashville Banner Publishing Company until she was terminated at age sixty-two. McKennon filed suit, alleging that her discharge violated the Age Discrimination in Employment Act of 1967 (ADEA). McKennon’s suit sought a variety of legal and equitable remedies available under the ADEA, including backpay. In her deposition, McKennon admitted that during her final year of employment she had copied and taken home several of the Banner’s confidential financial documents. 513 U.S. 354-56.

For the purposes of summary judgment, the Banner conceded that it had discriminated against McKennon because of her age. Id. The District Court, however, granted summary judgment for the company, holding that McKennon’s misconduct in taking the confidential documents was grounds for termination and that neither back pay nor any other remedy was available to her under the ADEA. The Court of Appeals affirmed on the same reasoning. McKennon appealed. Id. at 355-56.

The Court’s Decision

The Court reversed. It held that an employee who is fired in violation of federal employment law is not barred from all relief when, after her discharge, her employer discovers evidence of wrongdoing that would have led to her termination on lawful and legitimate grounds had the employer known of it. 513 U.S. 356-360.

After-Acquired Evidence Not a Complete Bar

First, the Court held that this kind of “after-acquired evidence” is not a complete bar to recovery. The Court reasoned that even if the employee engaged in misconduct that would have prompted a termination, the employer’s discrimination that actually prompted the discharge cannot be disregarded. The Court assessed the purposes of the ADEA’s remedial provisions, 29 U.S.C. § 626(b) and 29 U.S.C. § 216(b), which (like the remedial provisions of other employment laws) were designed both to compensate employees for injuries caused by unlawful discrimination and to deter employers from discriminating in the first place. The Court concluded that allowing after-acquired evidence to bar all relief would frustrate both of these important objectives. Therefore, the Court held that after-acquired evidence did not bar all relief for unlawful discrimination. Id. at 358-360.

Relevance to Crafting an Appropriate Remedy

Second, however, the Court observed that trial courts should take into account after-acquired evidence of an employee’s wrongdoing in determining the specific remedy for the employer’s discrimination. To hold otherwise, and bar any consideration of employee misbehavior in the relief analysis, would be to ignore the employer’s legitimate concerns about employee misconduct. The ADEA, like other employment laws, just prohibits discrimination. It does not limit employers from having legitimate rules and exercising appropriate lawful discretion in hiring, promoting, and firing employees. Therefore, the Court noted, employee wrongdoing is relevant in taking due account of such lawful prerogatives and the employer’s corresponding equities arising from the wrongdoing. Id. at 360-61.

General Rule: No Reinstatement or Front Pay

Third, the Court discussed how trial courts might balance these competing concerns — on one hand, the prohibition against unlawful discrimination, and on the other, the employer’s right to address legitimate employee misconduct in an appropriate manner. The Court decided that remedial relief in such cases should be addressed on a case-by-case basis. However, the Court stated that as a general rule, if the employer proves the employee engaged in misconduct that would have prompted a lawful termination had the employer known about it, neither reinstatement nor front pay is an appropriate remedy. Id. at 362. This is because “it would be both inequitable and pointless to order the reinstatement of someone the employer would have terminated, and will terminate, in any event and upon lawful grounds.” Id.

Possible Limitations on Back Pay

The Court indicated that the more difficult issue, in after-acquired evidence cases, is the proper measure of back pay. This is because even a guilty employer cannot be required to ignore information it learns about employee wrongdoing that would lead to a legitimate discharge, even if it is acquired during the course of a discrimination lawsuit and might have gone undiscovered in the absence of the discrimination that led to the lawsuit. Id. at 362. The Court stated that the “beginning point in formulating a remedy should therefore be calculation of backpay from the date of the unlawful discharge to the date the new information was discovered.” Id. In determining the appropriate relief, the court can consider extraordinary equitable circumstances that affect the legitimate interests of either party. But an “absolute rule barring any recovery of backpay, however, would undermine the [federal employment law’s] objective of forcing employers to consider and examine their motivations, and of penalizing them for employment decisions that spring from … discrimination.” Id. Thus, as a general rule, after-acquired evidence does not bar back pay, but it might limit the amount of back pay an employee can recover.

No Bar to General Compensatory, Punitive, or Liquidated Damages

It is also worth noting that McKennon did not state or suggest that compensatory damages for past or future emotional harm should be time-limited. The decision only addressed possible limitations on lost wages and reinstatement. Allowing full emotional distress damages even if the defendant prevails on an after-acquired evidence defense makes good sense in light of McKennon’s reasoning. This is because no legitimate business prerogative would be served by allowing a proven discriminator to avoid paying the full cost of the emotional damage caused by the discrimination. The same reasoning supports the conclusion that after-acquired evidence does not bar punitive damages or liquidated damages, in cases where the usual standards for awarding punitive or liquidated damages are met. Here is a link to EEOC’s guidance on this issue.

Employer’s Burden of Proof

Finally, the Court discussed the employer’s burden in attempting to prove an “after-acquired evidence” defense. When an employer seeks to use this defense, it must first establish that the wrongdoing was of “such severity that the employee in fact would have been terminated on those grounds alone had the employer known of it at the time of the discharge.” Id. at 362-63. The Court also expressed concern that, due to the possibility of uncovering after-acquired evidence, employers might routinely undertake extensive discovery into an employee’s background or job performance to resist employment discrimination claims. Id. at 363. However, the Court concluded the trial courts’ authority to award attorney’s fees under §§ 216(b) and 626(b) and to invoke the appropriate provisions of the Federal Rules of Civil Procedure would likely deter most abuses of the discovery rules. Id.

Analysis

The Court in McKennon rejected the notion that a legitimate reason for termination, discovered after an unlawful discharge, excuses the unlawful action or bars the employee from recovery. However, such after-acquired evidence may limit the employee’s ability to obtain reinstatement or recover all lost wages associated with the termination. To use this defense, an employer must prove that the employee engaged in misconduct of such severity that the employee would have been terminated on those grounds alone had the employer learned of it during her employment. As a general rule, if the employer meets this burden, reinstatement is not an appropriate remedy and back pay may be limited.

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

Corning Glass Works v. Brennan: EPA Law Requires Equal Pay for Equal Work

In Corning Glass Works v. Brennan, 417 U.S. 188 (1974), the Supreme Court addressed the allocation of proof in pay discrimination claims under the Equal Pay Act of 1963. This was the first Supreme Court decision applying the Equal Pay Act. The Court held that to prevail on an EPA claim, the plaintiff must prove that the employer pays an employee of the one sex more than it pays an employee of the other sex for substantially equal work. The opinion addressed what it meant for two employees to perform “substantially equal work” for the purposes of the Equal Pay Act, including what it means for work to be performed under “similar working conditions.” 

Facts

Corning was a glassworks company. It employed night shift inspectors and day shift inspectors at its plants. For many years, Corning allowed only men to work the night shift, and it paid night shift inspectors more than it paid the day shift inspectors, who were women. In June 1966, three years after the passage of the Equal Pay Act, Corning began opening the night shift jobs to women, allowing female employees to apply for the higher-paid night inspection jobs on an equal seniority basis with men.  

In January 1969, Corning implemented a new “job evaluation” system for setting wage rates. Under that pay system, all subsequently-hired inspectors were to receive the same base wage (which was higher than the previous night shift rate) regardless of sex or shift. With respect to employees hired before the new pay system went into effect, however, the pay plan provided that those employees who worked the night shift would continue to receive a higher (“red circle”) rate. Because of this “red circle” rate, the new pay system perpetuated the previous difference in base pay between day and night inspectors, thereby also perpetuating the previous disparity in pay between female (day) inspectors and male (night) inspectors. 

The Equal Pay Act prohibits an employer from paying different wages to employees of opposite sexes “for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions,” except where the difference in payment is made pursuant to a seniority or merit system or one measuring earnings by quantity or quality of production, or where the differential is “based on any other factor other than sex.” 29 U.S.C. § 206(d)

The Secretary of Labor brought suit, asserting that Corning’s pay practices violated the EPA by paying male and female inspectors differently for equal work. 

The Court’s Decision

The Court addressed the question of whether Corning’s pay practices violated the EPA by paying different wages to employees of opposite sexes for “equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions[.]” The Court found that they did. 

First, the Court held that Corning’s pay practices from the passage of the EPA in 1963 to June 1966 violated the EPA, because during that period the night shift inspectors (all male) were paid more than the day shift inspectors (female) and the night shift and day shift inspectors performed equal work “under similar working conditions.” 29 U.S.C. § 206(d). Corning argued the difference between working at night and working at day meant the different positions did not entail similar working conditions. The Court rejected this argument, holding that the EPA’s legislative history established that the statutory term “working conditions,” as used in the EPA, encompasses only physical surroundings and hazards, and not the time of day worked. 417 U.S. 197-204.

Corning also argued that the pre-1966 pay disparity was lawful because the higher pay to (male) night inspectors was intended as additional compensation for the inconvenience of night work, and thus the pay disparity was based on a “factor other than sex[.]” 29 U.S.C. § 206(d). The Court rejected this argument, holding the evidence showed the pay disparity in fact arose because men would not work for the low rates paid to women inspectors. The pay disparity therefore “reflected a job market in which Corning could pay women less than men for the same work.” 417 U.S. 204-05.

Second, the Court held that Corning did not remedy its violation of the EPA in June 1966 simply by permitting women to work as night shift inspectors, because the violation could only be cured by increasing the base wages of female day inspectors to meet the higher rates paid to night inspectors. Corning’s action in allowing women to work the night shift did not accomplish this, as “Corning’s action still left the inspectors on the day shift — virtually all women — earning a lower base wage than the night shift inspectors because of a differential initially based on sex and still not justified by any other consideration[.]” 417 U.S. 207-08. In effect, “Corning was still taking advantage of the availability of female labor to fill its day shift at a differentially low wage rate not justified by any factor other than sex.” Id. Thus, Corning’s allowing women to work the night shift, without increasing base pay to the female day shift workers, did not remedy the EPA violation. 

Finally, the Court held the Corning did not remedy its violation of the EPA in January 1969 with its pay plan equalizing day and night inspector rates, because the plan’s higher “red circle” rate paid to employees who previously worked the night shift only perpetuated the previous unlawful pay disparity. This was because the previously-hired male night shift workers would receive the higher red circle rate based on their pre-1969 pay — before day and night wage rates were equalized. Thus, the pay plan had the unlawful effect of continuing the pay disparity between men and women for equal work. As the Court observed, “the company’s continued discrimination in base wages between night and day workers, though phrased in terms of a neutral factor other than sex, nevertheless operated to perpetuate the effects of the company’s prior illegal practice of paying women less than men for equal work.” 417 U.S. 209-10.

Analysis

This case was important because it marked the first time the Supreme Court addressed the requirements of the Equal Pay Act. The Court held that to prevail on an EPA claim, the plaintiff must prove that the employer pays an employee of one sex more than it pays an employee of the other sex for substantially equal work. The opinion addressed what it meant for two employees to perform “substantially equal work” for the purposes of the EPA, and held that the requirement for work to be performed under “similar working conditions” referred to physical surroundings and hazards, and not the time of day worked. If a male employee and a female employee perform equal work at different times of the day, they should therefore be given equal pay — unless the pay disparity is based on a seniority or merit system or one measuring earnings by quantity or quality of production, or where the differential is “based on any other factor other than sex.” 29 U.S.C. § 206(d). If an employer’s pay practices violate the EPA, the only way to cure the violation is to equalize wages between men and women — simply offering women the same job titles is not sufficient. And pay systems that have the effect of perpetuating prior discrimination may still violate the EPA — even if the pay system is neutrally-worded and made without intent to discriminate. 

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

Civil Rights Act of 1866: Racial Discrimination Unlawful

Congress enacted the Civil Rights Act of 1866 in the aftermath of the Civil War, when many southern states were passing laws restricting the legal rights of newly-freed slaves. The 1866 Act, among other things, conferred upon “all citizens” and “all persons” the same rights to own property and to make and enforce contracts, respectively. 

Since 1866, the Act has been re-enacted several times with some modifications. Of particular importance in the employment context, one portion of this law is now codified at 42 U.S.C. § 1981. In relevant part, Section 1981 provides that “All persons within the jurisdiction of the United States shall have the same right … to make and enforce contracts … as is enjoyed by white citizens[.]” Because the employer-employee relationship is a type of contractual relationship, Section 1981 prohibits racial discrimination in the employment context. 

In practice, Section 1981 functions similarly to Title VII of the Civil Rights Act of 1964, in that it prohibits employers from intentionally discriminating against employees on the basis of race. For example, the tests for proving a racially hostile work environment asserted under Section 1981 and Title VII are the same. Boyer-Liberto v. Fontainebleau Corp., 786 F.3d 264, 277 (4th Cir. 2015). Under both laws, an employer is liable for a racially hostile workplace when the plaintiff can show “(1) unwelcome conduct; (2) that is based on the plaintiff’s … race; (3) which is sufficiently severe or pervasive to alter the plaintiff’s conditions of employment and to create an abusive work environment; and (4) which is imputable to the employer.” Id. at 277 (citing Okoli v. City of Balt., 648 F.3d 216, 220 (4th Cir. 2011)). 

Title VII and Section 1981 differ, however, in several important aspects.

Section 1981 Requires Intentional Discrimination

Title VII contains a provision that makes it unlawful for employers to implement practices that impact individuals of one race more than individuals of other races, even if this employer did not intend for the practice to be discriminatory. This “disparate impact” provision of Title VII prohibits an employer from “us[ing] a particular employment practice that causes a disparate impact on the basis of race [or other protected characteristics]” so long as the employer “fails to demonstrate that the challenged practice is job-related for the position in question and consistent with business necessity[.]” 42 U.S.C. § 2000e-2(k)(1)(A). Thus, an employer can violate Title VII’s prohibition on racial discrimination without intending to do so. 

Section 1981 does not have an analogous provision. Section 1981 claims, therefore, require evidence of intentional discrimination. The Supreme Court has rejected the argument “that a violation of § 1981 could be made out by proof of disparate impact….” Gen. Bldg. Contractors Ass’n, Inc. v. Pennsylvania, 458 U.S. 375, 383 n.8 (1982). In discussing the history of the statute and comparing it to Title VII, the Court explained Section 1981 was enacted to prevent purposeful discrimination and “did not include practices that were neutral on their face … but that had the incidental effect of disadvantaging blacks to a greater degree than whites.” Id. at 388. (quotation omitted).

Section 1981 Does Not Require an EEOC Charge

To bring a race discrimination claim under Title VII in court, a plaintiff must first file a charge of discrimination with the Equal Employment Opportunity Commission. Before she can file a Title VII race discrimination claim in court, the plaintiff must then wait for the EEOC to complete its investigation and issue a Notice of Suit Rights. By contrast, a plaintiff may bring a lawsuit under Section 1981 for racial discrimination without first going through the EEOC process. 

Section 1981 Has a Longer Statute of Limitations than Title VII

Title VII claims have a relatively short statute of limitations — depending on the state, Title VII race discrimination claims generally must be reported to the EEOC within 180 or 300 days of the employer’s discriminatory actions, and a Title VII lawsuit must be filed in court within 90 days of the employee’s receipt of suit rights from the EEOC. By contrast, the text of Section 1981 does not specify a particular time limit within which claims must be filed. Section 1981 violations are therefore subject to the general four-year statute of limitations for civil actions arising under federal law. 28 U.S.C. § 1658. Section 1981 claims may therefore be brought in court within four years of the discriminatory action at issue. 

Title VII Covers More Types of Discrimination than Section 1981

Section 1981 only applies to discrimination based on race. Title VII, by contrast, outlaws race discrimination as well as discrimination based on “religion, sex, and national origin.” 42 U.S.C. § 2000e-2(a).

Section 1981 Applies to All Employers, Regardless of Size

Title VII only prohibits racial discrimination by employers with fifteen or more employees. 42 U.S.C. § 2000e(b). Section 1981, by contrast, contains no such limitation. Because the terms of Section 1981 apply to all forms of contracting, it applies to all employers regardless of size — including employers with fewer than fifteen employees.

Both Laws Allow Recovery of Compensatory and Punitive Damages, but Section 1981 Does Not Cap Damages

Title VII is subject to caps limiting the amount of compensatory and punitive damages an employer may be required to pay for violating the law. The applicable caps range from $50,000 to $300,000, depending on how many employees the employer has. 42 U.S.C. § 1981a(b)(3). The relevant statute authorizes compensatory damages for “future pecuniary losses, emotional pain, suffering, inconvenience, mental anguish, loss of enjoyment of life, and other nonpecuniary losses[.]” 42 U.S.C. § 1981a(b)(3). The same statute further allows punitive damages against private-sector employers for Title VII violations if the plaintiff shows the employer “engaged in a discriminatory practice or discriminatory practices with malice or with reckless indifference to the federally protected rights of an aggrieved individual.” 42 U.S.C. § 1981a(b)(1).

Section 1981, by contrast, does not include a cap on damages. While the text of Section 1981 does not specifically discuss damages, courts have affirmed compensatory damages awards under Section 1981, Runyon v. McCrary, 427 U.S. 160 (1976), and held that a prevailing Section 1981 plaintiff is entitled under the common law to punitive damages “under certain circumstances,” Johnson v. Railway Express Agency, Inc., 421 U.S. 454, 460 (1975). Specifically, punitive damages may be awarded “for conduct [by the defendant] exhibiting malice, an evil motive, or recklessness or callous indifference to a federally protected right,” Stephens v. South Atlantic Canners, Inc., 848 F.2d 484, 489 (4th Cir. 1988); Lowery v. Circuit City Stores, Inc., 206 F.3d 431, 441 (4th Cir. 2000). This standard comes from the Supreme Court’s opinion in Smith v. Wade, 461 U.S. 30 (1983), in which the Court held that punitive damages are available under the common law in an action under the civil rights statute 42 U.S.C. § 1983 “when the defendant’s conduct is shown to be motivated by evil motive or intent, or when it involves reckless or callous indifference to the federally protected rights of others.” Smith, 461 U.S. at 56. 

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

Meritor Savings Bank v. Vinson: Sexual Harassment is Unlawful Discrimination

In Meritor Savings Bank v. Vinson, 477 U.S. 57 (1986), the Supreme Court recognized for the first time that sexual harassment is a violation of Title VII of the Civil Rights Act of 1964.. 

As discussed in an earlier post, Title VII protects employees from workplace discrimination “because of” sex. 42 U.S.C. § 2000e-2(a).

Meritor Savings Bank addressed the question of whether Title VII prohibits employers from creating a sexually “hostile environment” or only prohibited tangible economic discrimination, like terminations and demotions.

The Court held, inter alia, that “hostile environment” sexual harassment is a form of sex discrimination that is actionable under Title VII. Id. at 63-69. This is because the language of Title VII is not limited to “economic” or “tangible” discrimination, like a termination resulting in wage loss. Therefore, sexual harassment leading to purely non-economic injury (like emotional distress) can violate Title VII. 

Facts

In 1974, Meritor Savings Bank hired Vinson as a teller. Her supervisor was a man named Sidney Taylor. Vinson testified that Taylor subsequently invited her out to dinner and, during the course of the meal, suggested that they go to a motel to have sex. At first, she refused, but out of what she described as fear of losing her job she eventually agreed. According to Vinson, Taylor thereafter repeatedly demanded sexual favors from her, usually at the branch, both during and after business hours. She estimated that over the next several years she had intercourse with him some 40 or 50 times. In addition, Vinson testified that Taylor fondled her in front of other employees, followed her into the women’s restroom when she went there alone, exposed himself to her, and forcibly raped her on several occasions. Taylor denied all this. The District Court found that any sexual relationship between Vinson and Taylor was a voluntary one. 

In her suit against Taylor and the bank, Vinsom claimed that during her four years at the bank she had constantly been subjected to “sexual harassment” by Taylor in violation of Title VII. She sought injunctive relief, compensatory and punitive damages against Taylor and the bank, and attorney’s fees.

The Court’s Decision

Meritor Savings Bank raised the question of whether Title VII’s prohibition on sex-based “discrimination” prohibits employers from creating a sexually “hostile environment” or was limited to a prohibition on tangible economic discrimination, like terminations and demotions.

The Court held that “hostile environment” sexual harassment is a form of sex discrimination that is actionable under Title VII. Id. at 63-69. This is because the language of Title VII is not limited to “economic” or “tangible” discrimination, like a termination resulting in wage loss. Therefore, consistent with EEOC’s interpretation of Title VII, sexual harassment leading to purely non-economic injury (like emotional distress) can violate Title VII.

In so holding, the Court emphasized the purpose of Title VII: “Title VII affords employees the right to work in an environment free from discriminatory intimidation, ridicule, and insult whether based on sex, race, religion, or national origin. 477 U.S. at 65. Citing the EEOC’s guidelines on sex discrimination, the Court held that an employee may establish a violation of Title VII “by proving that discrimination based on sex has created a hostile or abusive work environment.” Id

The Court quoted the Eleventh Circuit’s decision in Henson v. City of Dundee, 682 F.2d 897, 902 (11th Cir. 1982), which compared sex-based harassment to racial harassment:

Sexual harassment which creates a hostile or offensive environment for members of one sex is every bit the arbitrary barrier to sexual equality at the workplace that racial harassment is to racial equality. Surely, a requirement that a man or woman run a gauntlet of sexual abuse in return for the privilege of being allowed to work and made a living can be as demeaning and disconcerting as the harshest of racial epithets.

477 U.S. at 67. The Court went on to hold that for harassment to violate Title VII, it must be “sufficiently severe or pervasive ‘to alter the conditions of [the victim’s] employment and create an abusive working environment.'” Id. (quoting Henson at 904).

The Court further held that “voluntariness” in the sense that an employee was not forced to participate in sexual conduct against her will, is no defense to a sexual harassment claim. The District Court had therefore erroneously focused on the “voluntariness” of Vinson’s participation in the claimed sexual episodes. In a sexual harassment case, the correct inquiry is whether the employee by her conduct indicated that the alleged sexual advances were unwelcome, not whether her participation in them was voluntary. 477 U.S. at 67-68. The Court further held that while evidence of an employee’s sexually provocative speech or dress may be relevant in determining whether she found particular advances unwelcome, such evidence should be admitted with caution in light of the potential for unfair prejudice. Id. at 69.

Analysis

Meritor Savings Bank marked the first time the Supreme Court recognized a cause of action for sexual harassment. The decision also clarified that sexual harassment creating a hostile work environment constitutes unlawful sex discrimination under Title VI. The case is also notable for questioning whether sexual conduct between a supervisor and a subordinate could truly be voluntary due to the power dynamics and hierarchical relationship between supervisors and subordinates.

Here’s a link to a contemporaneous 1986 New York Times article about the case and its significance.

This site is intended to provide general information only. The information you obtain at this site is not legal advice and does not create an attorney-client relationship between you and attorney Tim Coffield or Coffield PLC. Parts of this site may be considered attorney advertising. If you have questions about any particular issue or problem, you should contact your attorney. Please view the full disclaimer. If you would like to request a consultation with attorney Tim Coffield, you may call 1-434-218-3133 or send an email to info@coffieldlaw.com.

Successor Liability for Employment Claims

In employment law, successor liability addresses the situation where one company violates Title VII of the Civil Rights Act (or other federal employment laws) by subjecting an employee to harassment or discrimination, then that company is sold to a second company before

the harassment or discrimination can be remedied. Under some circumstances, that second company can be held liable for the first company’s violations of Title VII — even though the second company did not itself subject the employee to harassment or discrimination.

Courts have emphasized the importance of successor liability in fulfilling Title VII’s remedial purposes. Successor liability under Title VII is an “equitable doctrine … addressing a particular problem of employment discrimination: ‘Failure to hold a successor employer liable for the discriminatory practices of its predecessor could emasculate the relief provisions of Title VII by leaving the discriminatee without a remedy or with an incomplete remedy.’” EEOC v. Phase 2 Investments Inc., 310 F. Supp. 3d 550, 569  (D. Md. 2018) (quoting EEOC v. MacMillan Bloedel Containers, Inc., 503 F.2d 1086, 1091 (6th Cir. 1974)

Therefore, courts may impose liability on a successor company even though it had little relationship to the first company and purchased the first company’s assets without agreeing to take responsibility for the first company’s liabilities to its employees. “Successor liability is liberally imposed.” Fennell v. TLB Plastics Corp., No. 84 Civ. 8775, 1989 WL 88717, *2 (S.D.N.Y. July 28, 1989) (citing Fall River Dyeing & Finishing Corp. v. NLRB, 482 U.S. 27 (1987) (finding successor liability (in the labor law context) where the successor changed marketing and sales, did not assume liabilities or trade name, hired employees through newspaper ads rather than from predecessor’s employment records, and seven months had passed between predecessor’s demise and successor’s start up) (emphasis added).

In determining whether successor liability in the Title VII context is appropriate, courts often look to nine equitable factors set forth in the Sixth Circuit’s decision in MacMillan:

1) whether the successor company had notice of the charge, 2) the ability of the predecessor to provide relief, 3) whether there has been a substantial continuity of business operations, 4) whether the new employer uses the same plant, 5) whether he uses the same or substantially the same work force, 6) whether he uses the same or substantially the same supervisory personnel, 7) whether the same jobs exist under substantially the same working conditions, 8) whether he uses the same machinery, equipment and methods of production and 9) whether he produces the same product.

Phase 2, 310 F. Supp. 3d at 570 (quoting MacMillan, 503 F.2d at 1094).

Factors 4-9 are essentially subsets of the “continuity of business operations” factor. The equitable test, then, “really comes down to three major factors: whether a successor had notice, whether a predecessor had the ability to provide relief, and the continuity of the business[.]” Phase 2, 310 F. Supp. 3d at 570 (internal quotes and citations omitted). Many cases in this area turn on a debate as to the first factor: whether the successor company had notice of an employee’s claims against a predecessor company.

Constructive Notice Through Due Diligence

Importantly, for the purposes of successor liability, “notice” can be constructive notice. “Constructive notice is information or knowledge of a fact imputed by law to a person … because he could have discovered the fact by proper diligence, and his situation was such as to cast upon him the duty of inquiring into it.” EEOC v. 786 South LLC, 693 F.Supp.2d 792, 795 (W.D. Tenn. 2010) (citing Black’s Law Dictionary 1062 (6th ed. 1990)). 

This means a successor company might be liable for a predecessor’s Title VII violations, even though the second company did not actually know about the violations before the sale, because the second company could have learned about the violations by exercising a little diligence. For example, in Lyles v. CSRA Inc., No. GJH-18-973, 2018 WL 6423894, *4 n3 (D. Md. Dec. 4, 2018), the court found sufficient notice for successor liability where “the record includes evidence of the lengthy due diligence process, meaning a jury could conclude that [the buyers] had constructive notice of the charges.”) Similarly, in 786 South LLC, 693 F.Supp.2d at 795, the court held a successor liable even though it had no actual notice because “constructive notice may suffice under the successor liability doctrine, at least where the relevant charges have been filed with the EEOC”). Likewise, in Lipscomb v. Techs., Servs., & Info., Inc., No. CIV.A. DKC-09-3344, 2011 WL 691605, *9 (D. Md. Feb. 18, 2011) the court imposed liability on a successor defendant even though it had no actual notice of the Title VII violations, because “Defendant could have acquired notice of the EEOC complaint prior to purchasing the MDEBEP subcontract at APG with some due diligence and inquiry.” (emphasis added).

See also Phase 2, 310 F. Supp. 3d at 570 (“At the very least, Maritime had constructive notice…the lengths to which Mister went to protect itself from liability, such as structuring the sale as an asset purchase, inquiring into Maritime’s liabilities, listing the assumed liabilities in a schedule, and including an indemnification clause, actually demonstrate the fairness of holding Mister liable as a successor.”); NLRB v. South Harlan Coal, Inc., 844 F.2d 380, 385 (6th Cir. 1988) (citing Golden State Bottling Co. v. NLRB, 414 U.S. 168, 172-74 (1973) for the principle that “knowledge of unfair labor practice litigation need not be actual, but may be inferred from the circumstances.”); EEOC v. Vucitech, 842 F.2d 936, 945 (7th Cir. 1988) (holding successor liable because, inter alia, it had at least constructive knowledge of discrimination charges); Scott v. Sopris Imports Ltd., 962 F. Supp. 1356, 1359–60 (D. Colo. 1997) (recognizing constructive notice is sufficient under MacMillan).

Constructive Notice Through Common Managers

Typically, constructive notice exists where a potential Title VII violation has been documented with the first company, meaning that the purchasing company has the ability to learn of the claim through by exercising pre-sale due diligence. Constructive notice, in this context, therefore turns on the purchasing company’s ability to acquire notice of a legal claim through “due diligence.” See, e.g., Lipscomb, 2011 WL 691605 at *8 (“As to the notice issue, lack of timely knowledge of a pending EEOC investigation does not per se bar successor liability… With some due diligence, Defendant would have been able to ascertain that Plaintiff had filed an EEOC charge[.]”)

Alternatively, constructive notice may exist where the predecessor’s high level managers, having personal knowledge of an employee’s discrimination claims, then become managers for the successor. See, e.g., EEOC v. Sage Realty Corp., 507 F. Supp. 599, 612 (S.D.N.Y.), decision supplemented, 521 F. Supp. 263 (S.D.N.Y. 1981) (“Palumbo, who was president of [predecessor] Monahan Cleaners, is now a full-time consultant to [successor] Monahan Building, overseeing the operation of Monahan Building’s business and supervising Monahan Building’s employees. Monahan Building had constructive notice of Hasselman’s charge of sex discrimination through Palumbo.”)

In sum, Title VII successor liability is an important equitable doctrine because it protects employees who have been subjected to unlawful discrimination in the event the guilty employer sells its assets before the employee can obtain relief. Successor employers have the ability to learn about potential employee claims before completing a purchase, and use that information to negotiate a lower purchase price. The end result is to protect the relief provisions of Title VII and the employees they cover.  

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