Second Circuit Reluctantly Maintains Status Quo on Class Waiver Provisions, But Hints at Future Change in Law


On September 2, the Second Circuit Court of Appeals issued its decision in Patterson v. Raymour’s Furniture Co., the most recent case in what has become an all-out war between employers and the NLRB over the use of class-waiver provisions in arbitration agreements.  The decision, consistent with prior Second Circuit precedent enforcing such waivers, maintains the status quo for an issue with a recently-formed circuit split (discussed in our prior post here).

Beginning with its decision in D.R. Horton, the Board has taken the position that class-waiver provisions in arbitration agreements infringe on the rights of employees to engage in concerted activities and, therefore, violate the National Labor Relations Act.  Prior to May 2016, each federal appellate court that addressed the issue had rejected the Board’s reasoning and enforced these types of arbitration agreements.  However, in May and August 2016, the Seventh and Ninth Circuits, respectively, issued decisions finding that such agreements violated the NLRA and were not entitled to enforcement under the Federal Arbitration Act.  These decisions created a circuit split with the Fifth, Eighth, and Second Circuits, each of which had previously enforced these types of agreements.

However, just as the Eighth Circuit doubled-down on its rejection of the NLRB’s position in June (Cellular Sales of Missouri, LLC v. NLRB), the Second Circuit in Patterson has refused to reverse course on the issue.  Unfortunately, the Court’s application of pro-employer precedent on this issue was less than enthusiastic.  First, the Court chose to issue its decision through a “summary order,” which holds no precedential value.  Further, rather than stating its actual agreement with the prior Second Circuit decision enforcing class-waiver provisions in arbitration agreements (Sutherland v. Ernst & Young LLP), the Court merely stated that it was “bound” by that prior holding until it is overruled, perhaps suggesting that an en banc Second Circuit should reevaluate the Court’s position on the issue.  Even more explicitly, the decision states, “If we were writing on a clean slate, we might well be persuaded . . . to join the Seventh and Ninth Circuits and hold that the EAP’s waiver of collective action is unenforceable.”

In sum, employers should be wary of taking too much comfort in the Second Circuit’s decision in Patterson.  Although an immediate reversal of Second Circuit precedent would have been devastating, employers would have preferred a more ringing endorsement of Sutherland’s holding.  Regardless, the enforceability of class-waiver provisions in arbitration agreements is an issue that is far from settled, and given the circuit split, the Supreme Court’s involvement will almost certainly be necessary.

Nerds Win, Jocks Lose

Once again I shake my head at the NLRB’s analysis in their application of the National Labor Relations Act. In the high profile Northwestern University case which issued in August of last year, the Board found that it would not assert jurisdiction over the grant-in-aid scholarship football players of Northwestern University, citing in particular the fact that it would not promote stability in labor relations.  The Board bypassed the issue as to whether the football players were statutory employees and went with a policy oriented approach, finding that it was not in the best interest of all involved to invoke jurisdiction.  As the Board noted “even when the Board has authority to act( which it would in this case, were we to find that the scholarship players were statutory employees) the Board sometimes properly declines to do so”, stating that the policies of the Act would not be effectuated by its assertion of jurisdiction.

In declining jurisdiction the Board focused on the fact that the overwhelming majority of Northwestern’s competitors in football are public colleges and universities over which the Board cannot assert jurisdiction, so it would not promote stability in labor relations to assert jurisdiction in that situation. This underlying theme is restated repeatedly in the Board’s decision in Northwestern University and while there are other distinctions set out by the Board, this is the core determining factor for the Board.  Yet, here we are, a few months later, and the Board holds in Columbia University that graduate students should be protected under the Act even though the Board will not have jurisdiction over the bulk of the universities and colleges who compete for their services, resulting in the same instability in labor relations.  The Board’s reasoning and distinctions simply make no sense.  Indeed, I think that if the matter is taken up on appeal, given the Northwestern University case, grounds for overturning the Board’s Columbia University decision are readily apparent.  There simply is not a rational distinction between the two cases.

So we are going to have to wait this one out and see if there is an appeal and what the courts’ findings may be in this further expansion by the Board of its jurisdiction.

Fifth Circuit Makes it Easier for Plaintiffs to Defeat Summary Judgments

courtroomiStock_000006975339_DoubleIn a recent decision, Heinsohn v. Carabin & Shaw, the Fifth Circuit found that an employee’s “self-serving” testimony created a material fact question. The Court also included language that should be of concern for employers when seeking summary judgment.

In Heinsohn, the Court reversed summary judgment in a pregnancy discrimination case in which the employer fired a legal assistant for making mistakes on the job that she denied making. The Fifth Circuit found that an employee’s “self-serving” deposition testimony created genuine issues of fact as to the employer’s alleged legitimate, nondiscriminatory reasons for terminating Heinsohn. Continue Reading

Employer Options Under the New DOL Regulations

Business People Handshake Greeting Deal Concept

Executive, Professional and Administrative employees are exempt from overtime requirements if they meet three tests:  the salary level test; the salary basis test; and the duties test. As I am sure you have heard, new overtime regulations raise the required annual salary level from $23,660 to $47,476 (or $913 each week). Under the new salary level test, which goes into effect on December 1, 2016, exempt employees paid less than $47,476 no longer qualify for exempt status. So what is an employer to do?  Here are some potential options:

1. Retain Exempt Status. Increase the employee’s annual salary to at least $47,476 and the employee will remain exempt. Please note, however, that the rules establish a mechanism for automatically updating the salary and compensation levels every three years; thus, you may be required to again increase the employee’s salary in three years to meet the new threshold. Additionally, the employee still needs to meet the duties test, and this is a good time to review compliance with that test. This is the only option that does not require the employer to track the employee’s work hours.

a. Example.  Currently an exempt employee has an annual salary of $41,600 ($800 weekly) and, therefore, no longer passes the new salary test.  Employer raises the employee’s annual salary to $47,476.  Employee retains the exemption from overtime pay under the new regulations.

2. Convert to Hourly. Convert the exempt employee from a salary to an hourly wage and begin paying overtime for more than 40 hours worked in a week. The employer must begin tracking the hours worked by the employee. Overtime hours can be controlled by limiting or forbidding overtime without the employer’s express approval.

a. Example.  Currently exempt employee has an annual salary of $41,600 ($800 weekly).  Employer converts the employee to the equivalent hourly wage of $20 an hour ($800 ÷ 40 hours).  The employee’s overtime rate would be $30 an hour ($20 x 1.5).  Thus an employee who works 45 hours during one week would be paid $950 (($20 x 40 hrs) + ($30 x 5 hrs.)).  Assuming the employee averages working 45 hours a week during a year, this equates to an annual salary of $49,400 ($950 a wk x 52 wks).  Under these particular facts, it would be cheaper to pay the employee the $47,476 annual salary and have the employee remain exempt.

3. Remain Salaried, but Pay Overtime. Have the employee remain on a salary, but pay overtime when the employee exceeds 40 hours in a workweek. This will require the employer to track the employee’s time. The regular rate will be calculated by dividing 40 hours into the weekly salary and then paying 1 ½ times that amount for overtime hours. This may be a good option where an employee enjoys the status of a salaried employee and doesn’t want to become an hourly employee. Overtime hours can be controlled by limiting or forbidding overtime without the employer’s express approval.

a. Example.  Currently exempt employee has an annual salary of $41,600 ($800 weekly).  Employer retains the employee at this salary, but pays the employee overtime for any hours worked over 40 in a week.  The employees overtime rate would be $30 an hour (($800 ÷ 40) x 1.5).  Thus, an employee who works 45 hours during one week would be paid $950 ($800 + (30 x 5)).  Assuming the employee averages working 45 hours a week during a year, this equates to an annual salary of $49,400 ($950 x 52).  Please note that the employee is paid the same amount whether he is paid hourly or paid a salary.  Under these particular facts, it would be cheaper to pay the employee the $47,476 annual salary and have the employee remain exempt.

4. Fluctuating Workweek Plan. Use the Fixed Salary/Fluctuating Work Week plan, which is approved by the DOL regulations. Under this plan, the employee is paid a fixed salary that covers the straight time for all hours worked, including overtime hours. Thus, overtime is paid at a ½ time rate (compared to 1 ½ time rate) for the hours worked over 40 hours.  Under this plan, the regular rate must be calculated each week (by dividing the total number of hours worked by the fixed salary). Certain conditions, including prior employee agreement and paying the same salary when the employee works less than 40 hours in a week, are necessary to use this plan. Continue Reading

Seventh Circuit Creates D.R. Horton Split, While Eighth Circuit Maintains Prior Position

On May 26, the Seventh Circuit Court of Appeals issued its decision in Lewis v. Epic Systems Corporation, another case evaluating the NLRB’s position that class-waiver provisions in arbitration agreements violate the National Labor Relations Act.  However, unlike any other Circuit Court that has addressed this issue thus far, the Seventh Circuit agreed with the NLRB’s position, finding that the company’s arbitration agreement was not entitled to enforcement under the Federal Arbitration Act.

Over the last few years, the Board has consistently taken the position that these class-waiver provisions infringe on the rights of employees to engage in concerted activities.  But federal appellate courts (including the Fifth, Second, and Eighth Circuits) have consistently rejected the Board’s reasoning and enforced these types of arbitration agreements.  However, the Seventh Circuit’s decision in Epic Systems has created a circuit split that will likely require intervention by the United States Supreme Court.

Importantly, the Eighth Circuit recently doubled-down on its rejection of the Board’s position.  On June 2, one week after the Seventh Circuit issued its Epic Systems opinion, the Eighth Circuit announced its decision in Cellular Sales of Missouri, LLC v. NLRB.  In once again rejecting the Board’s position, the Eighth Circuit relied on its prior decision in Owen v. Bristol Care, Inc., finding that the company did not violate the NLRA by requiring its employees to waive collective actions, or by enforcing this arbitration agreement.  However, the Eighth Circuit did give “considerable deference” to the Board’s finding that employees could reasonably construe the company’s arbitration agreement to foreclose their right to file charges with the Board.

Several other cases involving the enforceability of class-waiver provisions are pending on appeal in the various federal appellate courts.  The decisions in those cases will reveal whether the outcome in Epic Systems constitutes merely an outlier or represents a larger shift in thinking on this important issue.

D.C. Circuit Strikes Down NLRB Duty to Bargain Requirement

In an unpublished decision, which issued on May 3, 2016, the United States Court of Appeals for the District of Columbia made it clear that there was a “fundamental and long-running disagreement” between the Court and the Board as to the appropriate approach by which to determine whether an employer had violated Section 8(a)(5) of the NLRA when it refuses to bargain with a union over a subject allegedly contained in a collective bargaining agreement.  As the Court put it:

The Board insists such questions turn on whether the union clearly and unmistakably waived its bargaining rights on the subject through the CBA, but we have repeatedly held the proper inquiry is simply whether the subject that is the focus of dispute is covered by the agreement. Under our precedent, if the subject is covered by the contract then the employer generally has no ongoing obligation to bargain with its employees about a subject during the life of the agreement.  (citation omitted)


The employer had reduced and reallocated hours of certain of its bargaining unit employees. The Board, finding no clear and unequivocal waiver regarding such action, found an unfair labor practice.  However, the DC Circuit, in reviewing the matter, concluded that the plain language of the CBA extinguished the union’s right to bargain over the subject of the employees’ hours, including any effects of an hourly reduction.  They relied primarily on the management rights clause of the CBA.  But more importantly, the Court also stated that there was no need to effects bargain over the issue.

This obviously is a major loss for the NLRB on this issue and one which the NLRB will do battle on in the future with other courts, but the DC Circuit has made it clear that they are not buying the Board’s waiver argument in these circumstances. Hopefully other courts will follow this same path.

Union Avoidance Consultants Under Attack

Businessmen Talking In Conference RoomOn March 23, the Department of Labor released the final version of its controversial and expansive rule that changes the disclosure requirements for labor relations consultants who aid employers with their union avoidance measures.

What Does That Mean to Employers?

Previously, a consulting firm was required to disclose activity to the DOL only when it engaged in direct contact with workers regarding labor organizing campaigns.  Now, under the Department’s new “persuader” rule, the hiring of an attorney or consultant to thwart organizing attempts must be reported whenever the third-party consultant engages in persuader activities that go beyond the plain meaning of advice, regardless of whether there is direct contact with employees.  This rule encompasses typical work conducted by outside consultants.  It includes, for example, planning employee meetings, training supervisors or employer representatives to conduct meetings, drafting or providing speeches, and other common persuader activities.

Legal Challenges Underway

At least two lawsuits have already been filed against the DOL in federal court challenging the new rule.  The National Association of Manufacturers (NAM), along with several business groups, filed suit in the Eastern District of Arkansas.  Similarly, a coalition of law firms has filed suit in the District of Minnesota.  The challengers have asserted a number of arguments, including claims that the rule: violates the First Amendment; is overbroad; exceeds the DOL’s authority; and, importantly, infringes attorney-client confidentiality protections.

What’s Next?

Only time will tell whether any of these legal attacks will prove successful in dismantling the new “persuader” rule.  For now, the rule remains in place, and employers must follow it.  However, employers should remember that agreements where a consultant merely agrees to provide “advice” are still exempt from the reporting requirement.  For example, mere recommendations regarding a company’s decision or course of conduct need not be reported.

Check back in for updates as this litigation develops, and do not hesitate to contact our firm with any specific questions on how this new rule may affect your company’s practices.

DOL Gets Slammed by DC Circuit Over Davis-Bacon Application

Outdoor mall with people

As you may recall, The Davis-Bacon Act applies to contractors and subcontractors performing on federally funded or assisted contracts in excess of $2,000 for the construction, alteration, or repair of public buildings or public works. This week, The United States Court of Appeals for the District of Columbia struck down an attempt by the DOL to significantly expand the Davis-Bacon Act. The Act requires that contractors on federal and DC government construction projects pay prevailing wages and fringe benefits to the workers on such projects. DOL sought to apply the Act to CityCenterDC, which is a mixed-use development on the site of the DC Convention Center.

For more information about the recent ruling on this Public-Private Partnership project, visit a this original blog post by my colleague Hal Perloff on Husch Blackwell’s The Contractor’s Perspective blog.

NLRB General Counsel Blocks Longstanding Process to Facilitate Settlement in NLRB Proceedings

An order, dated February 19, 2016, by the Board granted special permission to appeal and invited briefs over the issue of whether or not they will continue to permit Administrative Law Judges to issue orders granting settlement terms proposed by a respondent, to which no other party has agreed to, over the objections of the General Counsel.  Although these are relatively limited situations that arise, under Board procedures they definitely provide a mechanism to keep the General Counsel’s office in check over unreasonable settlement demands, especially in light of unfair labor practice claims that would normally be subject to a motion to dismiss or summary judgment if litigated in the courts.

Let’s be realistic, the Board normally does not take this action (brief invitation) unless it intends to change its practice. This is no more than a heads-up to all those who practice before the Board, that they are going to change their policy on this matter.  The invitation to file briefs over the current practice is simply providing lip service to the public and is truly not meant to engage in any high level discussion over the pros and cons of this procedure.   Like so many of the other changes which this Board has made since the Obama Administration has been in power, the best that can be hoped is that there will be a true change come the elections in November that would result in a change in the make-up of the Board and a reversal to the status quo ante for so many of these matters.   Let’s keep our fingers crossed.

Eighth Circuit Supports the NLRB’s Specialty Healthcare Decision

The Eighth Circuit became another notch in the belt of the NLRB in support of its position as set forth in Specialty Healthcare with the issuance of FedEx Freight, Inc. v. NLRB.  The facts are fairly straightforward and are typical for a representation proceeding in that the employer wanted to expand the bargaining unit beyond the scope of that which was petitioned for by the union, citing prior case law and the Board’s misapplication of the law, in particular, its Specialty Healthcare doctrine.  Unfortunately for FedEx Freight, this is one area of the law in which the courts give the NLRB a great deal of deference.  And that is exactly the route the Eighth Circuit took in this matter.  As frustrating as this area of the law is for many of us on the management side, the law has long been stated that the unit petitioned for need only be an appropriate unit, not the most appropriate unit.  And while it may appear that the Board is simply allowing the unions to dictate the scope of the bargaining unit based upon the extent of organization, as the Eighth Circuit points out in its decision, while that may not be given controlling weight it can be a consideration in the determination by the Board regarding the appropriateness of the unit.

Simply put, I see the Specialty Healthcare decision something we are going to have to live with for some time until the makeup of the Board changes and there is a reversion to the previous standard. Regardless of the case law in this area, ultimately it gets down to winning the election, and while obtaining a unit that is more favorable for a win in management’s column is part of that process, there are other ways in which to win a NLRB election and the recent statistics set forth by the Board under the new rules indicate that that has not changed.  So in terms of an organizing campaign, the focus should be on the campaign, versus the scope of the unit, given the overwhelming direction by the Courts of Appeal who have supported the Board’s Specialty Healthcare decision.