“Mistakes happen. Including in the context of employment decisions. But not every mistake amounts to actionable employment discrimination.”   Smith v. Towne Properties Management Co., Inc. (6th Cir. 3-4-2020).

So stated the Sixth Circuit in affirming the grant of summary judgment to the employer in a FMLA and disability discrimination lawsuit. The plaintiff, Robyn Smith, was the manager of an apartment complex for a property management company.   Smith was diagnosed with pseudotumor cerebri, a condition caused by spinal fluid pressure on the brain. The symptoms of the condition mimic a brain tumor, including migraines, blurred vision, vertigo, and short-term memory loss.   This condition sometimes made it difficult for Smith to perform her job, and she took several FMLA covered absences.

Part of Smith’s compensation included free rent at the complex she managed.  Sometime after the diagnosis and use of FMLA leave, another company employee alleged to its management that Smith was also charging her gas, electric, and water bills to the apartment complex.   The company investigated, learned the allegations were true, and fired Smith.   The company learned after the termination that the prior owners of the complex, Jack and Cynthia Brauer, for whom Smith worked before the company acquired the property, provided her free utilities in addition to rent.   Despite learning this information, the company did not reconsider its decision to terminate Smith.

The issue on summary judgment was whether the company’s stated reason for the termination, that Smith engaged in theft by charging her utilities to the complex, was pretext for disability and FMLA discrimination.   In ruling for the employer, the Court relied upon the so-called “honest belief” defense.   That means, if the decision maker honestly holds a belief and acts on it in good faith, it does not matter whether the facts upon which the belief is based are true.   Incorrect facts honestly believed are not evidence of pretext.

The evidence showed the company investigated multiple sources to confirm the truth of the theft allegation.   A supervisor reviewed the utility bills to confirm they were charged to the complex and not to Smith personally. When the company called Mr. Brauer to ask whether utilities were included in Smith’s compensation when she worked for them, he was “very surprised,” and said he had “no idea” Smith was not paying utilities.   The company looked for documentation showing Smith was authorized to received free utilities and found nothing. But it did find a letter itemizing Smith’s compensation, which listed an apartment allowance, but did not mention utilities.

Smith objected that the honest belief defense requires the employer to make a reasonably informed and considered decision, and should not apply if the factual error was “too obvious to be unintentional.”   In other words, the employer can’t hide behind an honest belief in facts that were uncovered during a shoddy or incomplete investigation.   For example, Smith pointed out that Mr. Brauer had Alzheimer’s, and therefore did not remember that utilities were included as part of her compensation package.  The company found out the truth from Mrs. Brauer after the termination.  The Court rejected Smith’s argument however, because at the time the decision was made, the company did not know Mr. Brauer had Alzheimer’s and thus did not know its facts were wrong.

Takeaways

The honest belief defense is an important tool in the defense lawyer’s toolbox.  It can be very effective to win on summary judgment, so long as the employer has evidence it relied in good faith on facts reasonably available to it at the time. To take advantage of the defense, employers should endeavor to do the following:

  • The investigation of the employee’s offense should be reasonably thorough, examining if possible multiple potential sources of evidence;
  • The evidence relied upon to support the honest belief should be objective (e.g. documents, e-mails, statements that are corroborated by others);
  • While it is not essential to interview the employee to get her side of the story (the company did not interview Smith), it is nonetheless recommended so you have the employee’s version of the fact;
  • If the employee requests her job back or reapplies after you know you were mistaken, you should seriously consider the request, even if you don’t grant it.     The Smith Court implied that if Smith had asked for her job back, there may have been a different result.

Many employers use job applications that ask applicants to disclose their salary or wages at prior jobs.   Sometimes the question comes up in an interview. Employers have many potential motives for asking the question: perhaps to determine what compensation the applicant will expect if hired; to determine whether the applicant would fit within the position’s existing compensation structure, or to ensure the salary offered is not too little, or too much.

But, it may be time to stop asking questions about prior pay.  Thirteen states and many municipalities have enacted laws barring or limiting an employer’s right to inquire about an applicant’s past wage or salary history, or relying upon such information in determining the salary to offer a new employee. The premise underlying these laws is that is women have generally lower pay than men for similar jobs because of historic pay discrimination. Therefore, allowing reliance on prior pay in setting a new salary has the effect of perpetuating the gender pay gap. Although such laws have faced legal challenges on First Amendment grounds, the U.S. Court of Appeals for the Third Circuit ruled in a recent high-profile opinion, that Philadelphia’s ordinance barring inquiry into applicant’s prior wage history does not violate the First Amendment. See Greater Philadelphia Chamber of Commerce v. City of Philadelphia (3rd Cir. 2-6-2020).  In the wake of the Third Circuit’s ruling, it would not be surprising to see more states and localities enact these kinds of laws.

Even in those states where the law does not expressly prohibit an employer from asking about an applicant’s wage history, employers who ask about prior wages should re-consider whether continuing the practice is worth the legal risk. A recent opinion from the U.S. Court of Appeals for the Ninth Circuit highlights the potential legal liability employers face when asking about or relying upon an applicant’s prior pay history.

The case is Rizo v. Yovino, (9th Cir. 2-27-2020). it involved a challenge to a pay disparity between a female math teacher and male math teachers under the federal Equal Pay Act (EPA).  The EPA prohibits an employer from paying female employees less than male employees (and vice versa) for substantially similar work, which means work that requires equal skill, effort, and responsibility, and which is performed under similar working conditions.   The Iowa Civil Rights Act has similar provisions concerning equal pay for equal work.

The EPA allows wage disparities between men and women for substantially equal work under four circumstances. The exceptions apply where the disparity is based on, 1) a seniority system; 2) a merit system; 3) quantity or quality of production; and 4) any other factor other than sex.   It is the fourth exception that has resulted in the most litigation, and was at issue in the Rizo case.

The Fresno County Office of Education hired Rizo as a math consultant. She had thirteen years experience as a middle and high school math teacher, and a master’s degree.   Fresno County set new employee salaries based upon a pay schedule that had 12 salary levels that corresponded to a job classification. Each salary level had up to 10 steps.   To determine a new employee’s pay, the County started with the employee’s prior salary, added 5 %, and placed the employee at the step on its pay schedule that was closest to that number. Rizo was placed on Step 1, level 1 when she started, at a salary of $62,133.   In 2012, after working at Fresno County for three years, Rizo learned that a newly hired male math consultant was hired at Step 1, level 9, with a starting salary of $79,088.   That was more than Rizo’s salary after working there for three years.   She also learned all male math consultants were paid more than she was, even though she had more education and experience.   Rizo did not obtain any relief when she complained to HR, and ended up filing suit against Fresno County, alleging that its decision to pay her less than her male colleagues who did the same work violated the EPA.

The legal issue was whether Fresno County’s reliance on Rizo’s salary at a prior job to justify paying her less than male colleagues who did the same work qualified as “any other factor other than sex.”   Fresno County’s defense was that it applied its pay scale to all new employees regardless of sex; therefore, by definition, its decision was based upon a factor “other than sex.”

But, the court did not interpret the language so broadly.   The court concluded that the fourth exception, “any other factor other than sex,” must be interpreted in the context of the first three exceptions, all of which relate to the job being performed. The court held that Fresno County’s reliance on Rizo’s pay at a prior job to determine her salary was not a factor that related to Rizo’s current job.   Even if factors in addition to prior pay are considered, the court ruled, relying upon prior pay even as one factor violates the EPA.

In the Ninth Circuit, therefore, pay disparities between men and women in substantially similar jobs that are based, all or in part, on the employee’s pay at a prior job, are impermissible under the EPA.  No other circuit has yet adopted the Ninth Circuit’s strict approach, so this decision is not binding elsewhere.  But, the ruling could set up a Supreme Court challenge to resolve the differing approaches in the Circuits.   In addition, Plaintiff’s lawyers are likely to rely upon the Ninth Circuit’s ruling to challenge pay disparities under State equal pay act statutes, regardless whether other federal circuits follow the Ninth’s lead.

Given the unsettled legal landscape, employers should consider whether asking about prior pay is really essential in their hiring practices.   Sometimes the question about prior pay is asked just because the employer has not updated its application, or uses a form purchased from an office-supply store.    There remain many other factors other than sex that an employer can permissibly rely upon in setting a new salary, such as years of experience, education, and skills.   Even if prior pay is sometimes a proxy for those items, they can also be evaluated without reference to prior pay.    if pay disparities between men and women in similar jobs exist, having merely asked the question about prior pay sets you up for potential legal challenge.   If you don’t ask about prior pay, you won’t know, and can’t be accused of relying on it.

Compared with many states, Iowa’s laws governing the employment relationship are generally pretty employer friendly.   But, if some members of the Iowa House of Representatives get their way this legislative session, that will change in a hurry.   House members have introduced no fewer than twenty-one bills (21!) that add new or expand existing obligations and potential liability on employers.

The number of proposed bills dealing with employment issues is unprecedented, and it is not easy to discern the sponsors’ motivation for offering the bills in this session. Given that Republicans control the House, Senate, and Governor, it is hard to imagine any of these bills will be enacted into law this year. Perhaps in this election year the bills’ proponents are signaling the agenda they would promote if they are able to flip one or both of the chambers in November?

Below is a  summary of each of 19 of proposed bills (two are duplicative), along with a link to the text of the actual bill (a bill introduced in the house is called a “House File” or “HF”).   Employers, if you are concerned about how these proposals will impact your business, you should contact your legislators this year, regardless of their party:

HF 109:   A proposal to amend the Iowa Civil Right Act to require employers to provide reasonable accommodations relating to pregnancy and childbirth.  What is different about this proposal compared to existing law is that “reasonable accommodation” is specifically defined to mean  “actions which would permit an employee with a medical condition relating to the employee’s pregnancy or childbirth to perform in a reasonable manner the activities involved in the employee’s specific occupation and include but are not limited to the provision of an accessible worksite, acquisition or modification of equipment, job restructuring, and a modified work schedule.”

HF 146:  This would amend the ICRA to make it illegal for an employer to inquire about an employee’s past salary history, to release a former employer’s salary to a prospective employer, and to advertise a position without including information about the minimum salary for the position.

HF 147:    HF 2074;  HF 2075:   These three bills purport to undo the public sector bargaining reforms enacted in 2017.   They would expand the subjects o bargaining to include virtually all aspects of wages, benefits, and working conditions; allow for bargaining over dues checkoffs, and eliminate the requirement that the a bargaining unit must vote to recertify at the end of the agreement.

HF 155:  This proposal would prohibit an employer from taking adverse employment action based upon the reproductive choices of an employees, including the decision to use  certain contraceptive drugs or medical devices.

HF 64: This would prohibit employers from inquiring into an applicant’s criminal background or asking for the disclosure of criminal history until an interview is conducted; or, if there is no interview, until a conditional job offer is made.

HF 177: Amends the ICRA to require break time for employees to express breast milk and provide a suitable private room; the employer may not discipline or terminate an employee whose production is adversely affected by the need to express breast milk.

HF 19:  This bill would make it illegal to discriminate against applicants based upon their unemployment status, i.e. applicants who are unemployed at the time of application or have a history of unemployment could not be excluded on that basis.

HF 22:   This bill would impose requirements on employment agencies to provide certain notices to employees, and regulate the amount they charge for transportation services or meals.

HF 24:  Imposes a penalty on employers who are found to have willfully misclassified employees for purposes of unemployment contributions.

HF 25:  Requires the payout of all accrued vacation or paid time off at the time of employment separation.

HF 26:  Requires employers to provide a 30 minute meal break for every 7 hours worked; and a ten minute rest break for every 4 hours worked.

HF 28:  Establishes an annual “prevailing wage” for public improvement construction projects.

HF 29:  This bill would make licensed teachers exempt from the 2017 public sector collective bargaining reforms by designating teachers as public safety employees.

HF 30:   The proposal requires employers to treat adoptive parents the same as biological parents with respect to employment policies, benefits, and protections.

HF 90    In calculating the wage basis for workers’ compensation benefits, overtime and premium pay must be included; under existing law those items are excluded.   In addition, if permanent partial disability or death benefits are payable, this bill would require an annual cost of living adjustment.

HF 91     Increases the minimum wage gradually until it reaches $12 per hour on January 1, 2022.    Starting July 1, 2022, the minimum wage would be adjusted annually based upon the cost of living.  A bill for an act relating to the state minimum hourly wage

HF 2096:   Provides state employees with paid family leave.  A bill for an act providing for paid family leave for state employees.  “Family leave” is allowed for reasons similar to FMLA leave.

 

Although “joint employment” is not a new legal concept, in recent years federal agencies such as the Department of Labor and National Labor Relations Board have made aggressive efforts to expand its application. The targets of those who seek to expand the concept of joint employment are typically employers who use independent contractors (common in the construction industry), those who hire vendors to perform certain tasks (e.g. janitorial services), employers that rely upon a staffing agency to supply workers, and even franchisors (e.g. McDonald’s) that license their business model to independent operators.   Of course, one of the reasons an employer might use vendors, contractors, or staffing agencies is to delegate to others certain obligations that come with having employees, such as payroll administration, wage and hour compliance, collective bargaining, or workplace safety.  But, the agencies seeking to expand joint employment want the employers who try to delegate such tasks to remain legally responsible, along with the contractor, vendor, or staffing agencies, for violations of the employment and labor laws.

The good news for employers is that these same agencies that pushed for expanded joint employment a few years ago are now dialing back. They are also trying to create more clarity for employers about when joint employment does or does not exist, so employers have more certainty about their legal obligations.   The first of these efforts occurred last week. On January 16, the U.S. Department of Labor is published a final regulation to update and revise the Department’s interpretations of joint employer status under the Fair Labor Standards Act (FLSA).

With these new regulations, the DOL aims to “promote certainty for employers and employees, reduce litigation, promote greater uniformity among court decisions, and encourage innovation in the economy.”   Other agencies with jurisdiction over employers, including the NLRB and EEOC, are also working on revising their standards governing joint employment, supposedly in a way that harmonizes with DOL’s approach.

The DOL’s new rule examines whether the potential joint employer is actually a joint employer under the FLSA based upon the following four factors:

  • Who hires or fires the employee;
  • Who supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
  • Who determines the employee’s rate and method of payment; and
  • Who maintains the employee’s employment records.

No one single factor is controlling and the weight to be given each factor will vary on a case-by-case basis.  Importantly, however, the rule provides additional guidance on how to apply the four factors. For example, the potential joint employer must actually exercise one or more of the control factors. The contractual right to act in relation to the employee may be relevant, but such right does not alone demonstrate joint employer status in the absence of actual exercise of control.

In addition, the final rule states that an employee’s economic dependence on the potential joint employer is no longer relevant on joint employer liability under the FLSA.  This is a significant change in the analysis of a joint employment relationship, and substantially reduces joint employer situations. The rule cites specific factors that are not to be considered indicia of economic dependence, including, whether the employee’s work requires special skill; whether the employee has the opportunity to control profit and loss; and whether the employee invested in equipment or materials. These “economic reality” concepts are no longer part of the FLSA’s joint employer analysis.

Finally, the rule identifies specific business models and practices that do not make joint employer status more likely under the FLSA. Such models and practices include:

  • Franchise model;
  • Allowing the operation of a store on one’s premises;
  • Requiring a vendor or independent contractor to have a sexual harassment policy;
  • Providing a sample handbook or forms;
  • Participating in an association health or retirement plan;
  • Requiring, monitoring, and enforcing other businesses’ compliance with quality control standards to ensure the consistent quality for a work product, brand, or business reputation

While the DOL’s new rule helps to clarify the circumstances under which that agency will pursue liability for joint employment, it is important to remember that, as of now, other agencies have their own tests that do not necessarily mirror the DOL’s new standard.   In addition, each state’s common law, as well as stage agencies, apply tests that may or may nor comport with the DOL’s more business friendly approach.   A this point, it is also too early to tell whether courts will adopt the DOL’s new approach to joint employment.  Employers trying to avoid joint employment liability must continue to tread carefully, and consider the myriad agencies and jurisdictions that have an interest in joint employment.

As many employers recall with chagrin, the National Labor Relations Board and its General Counsel were very active during the Obama administration, overturning long-established precedent, changing rules in a way that favored unions over employers, and inserting itself into employment issues where the Board traditionally had not acted.

The NLRB, now with a majority of seats held by Republicans, has just this month issued a number of new rules and rulings rolling back some of the more aggressive changes that occurred when Democratic appointees held the majority of Board seats, as well as other changes that return the Board to its traditional role as a neutral arbiter of the labor laws.

Some of the significant changes include:

  1. Confidentiality of Employment Investigations: In a 2015 decision (Banner Estrella Medical Center), the Board held it was presumptively unlawful to prohibit an employee from disclosing information relating to an internal investigation.  Confidentiality was permitted only if  the employer could show the specific circumstances of the investigation made it necessary.     On December 16, 2019, the Board reversed that decision in Apogee Retail, LLC, making instructions about confidentiality presumptively lawful as long as the practice was facially neutral, i.e., it was not intended to prevent an employee from engaging in protected, concerted activity.
  2. Employers may Limit Union’s Right to use Company e-mail to Business Purposes: In the 2014 decision Purple Communications, Inc., the Board ruled that employees who have access to the employer’s e-mail for business purposes may also use the e-mail system, on non-working time, to communicate about union related matters.    On December 17, 2019, in Caesar’s Entertainment, the Board reversed that decision, holding that employers may limit e-mail to business purposes so long as such a practice applies to all non-work communication; i.e., it does not discriminate against communications related to protected, concernted activity.
  3. The Board will Give Greater Deference to Grievance Arbitration: A decision issued December 23, 2019 (United Parcel Service, Inc.) held that the NLRB will defer to grievance arbitration decisions that also deal with labor law violations, so long as the arbitral proceedings were conducted fairly and without irregularities, the parties agreed to be bound by the result, and the arbitrator considered the labor law violations.  Under prior precedent the Board was less inclined to defer to arbitration decisions that also dealt with labor law violations, meaning that employers sometimes had to contest those issues twice, once in arbitration, and a second time before the Board.
  4. Limits on Employee’s right to Wear Union Insignia when Customers are Present: In Wal-Mart Stores, Inc., decided December 16, 2019, the NLRB ruled a policy that employees may wear only “small, non-distracting” union insignia in the workplace did not violate the law, so long as it was applied only in customer facing areas.   The rule was unlawful to the extent it applied in “employee-only” areas.
  5. The Right to End the Mandatory Collection of Dues when a Contract Expires: In 2015, the Board ruled in Lincoln Lutheran of Racine, that an employer must continue to recognize a “dues checkoff” in a collective bargaining agreement, even after the agreement expires. On December 17, 2019, in Valley Medical Center, the NLRB returned to the pre-2015 precedent, holding that an employer is not required to continue deducting dues or transmitting them to the union after the agreement containinig a “dues checkoff” expires.
  6. Board Sends Signal in Joint Employer Settlement: On December 12, 2019, the Board overruled an administrative law judge’s decision not to approve 30 settlements between McDonald’s Corp. and employees of McDonald’s franchisees.  The ALJ rejected the settlements even though the employees received all of their claimed back pay, because McDonald’s did not admit liability or joint employer status.    Although this case was not a definitive ruling on the joint employer question, the Board sent a signal of its view on the issue with the following:  “we conclude that further litigation would imposed a substantial burden on the parties without a significant probability of prevailing on the complaint’s joint employer allegation.” (emphasis added).
  7. Quickie Elections Slowed Down: See this post for a discussion of the revised election rules issued December 13, 2019.

Best wishes to everyone for a Happy New Year!

Back in October, we covered then upcoming oral arguments at the Iowa Supreme Court in Ferguson v. Exide Technologies.  Last week, the Court issued its opinion in that case.

The principal question in Ferguson was whether an employee may sue her employer for wrongful discharge in violation of the public policy established in Iowa’s drug-testing statute.  The Iowa Supreme Court has ruled that some statutes establish well-defined public policies and that employees fired in violation of those policies may sue their employers. These claims are an exception to the general rule of at-will employment.

In the first and most prominent example of a wrongful-discharge claim, an employee fired after filing a workers’ compensation claim was permitted to sue his employer. The legislature granted injured employees a right to seek workers’ compensation; the wrongful-discharge claim deters employers from undermining it by firing seekers.  It deters with potential damages, including emotional-distress and punitive damages.

But in that particular case, the legislature hadn’t specified a penalty for discharging the employee—for instance, damages, reinstatement, a right to attorney’s fees. So unless the Supreme Court created a claim, employees might be discouraged from seeking workers’ compensation.

In Ferguson, the legislature by contrast did specify remedies for an employer’s violation of the drug-testing statute.  A provision of the drug-testing statute says that violations “may be enforced through a civil action” and an employee may be awarded “reinstatement or hiring, with or without back pay,” and other relief, including “attorney fees and court costs.”  Do these remedies foreclose an employee’s wrongful discharge claim?

In a per curiam opinion (by the full court), the Supreme Court answered yes. The original purpose of the wrongful-discharge claim was, the Court observed, “to provide a court remedy to enforce legislatively declared public policy.”  Yet such a claim is unnecessary, the Court reasoned, when the statute itself creates a civil claim.  And because the drug-testing statute includes a civil claim, the employee may not sue for wrongful discharge.

Employers of course still face liability for violating the drug-testing statute. But Ferguson makes clear that once the legislature has “weighed in” on remedies, as it did there, Iowa courts should leave it at that.  The immediate consequence for the employee in Ferguson is that the lower court will wipe away her emotional-distress damages—awarded on top of statutory back wages, reinstatement, and attorney’s fees.  Although the emotional-distress damages in Ferguson were modest ($12,000), the case’s broader consequence is that employers do not face potentially soaring emotional-distress and punitive damages for violating the drug-testing statute. Unless, that is, the legislature decides otherwise.

On December 13 the National Labor Relations Board announced amendments to a controversial 2014 election rule issued under the Obama era NLRB. The amended rule will be published on December 18, and is scheduled to go into effect 120 days later, on April 16, 2020.

The union friendly 2014 rule, widely described as providing for “quickie” elections, drastically reduced the number of days between a union’s filing of a petition for election and the election itself.   The short window between petition and election reduced the employer’s opportunity to mount an informational campaign opposing the election, as well as limited employers’ rights to contest the scope of the bargaining unit and eligibility of voters until after the election had actually occurred.

The new rule, while not rolling back all the 2014 changes, is nonetheless an improvement for employers. Some of the significant changes include:

  • Pre-election Hearing: Moved from eight calendar days from service of election papers on the employer to 14 business days.   The new rule also allows the employer to file briefs following the hearing.
  • Position Statements: Employers now have seven calendar days from service of the petition; this was moved to eight business days.   Unions are now required to respond to the employer’s position statement by noon the day before the scheduled hearing.
  • Unit Scope and Voter Eligibility Determine Before the Election:   Issues such as who should be in the bargaining unit, and who is eligible to vote in the election are decided before the election is scheduled, rather than after the fact.
  • Elimination of the “Quickie” election: An election under the 2014 rules could occur as soon as 12 calendar days after the petition was received. The new rule changes that to 20 business days.

It is not clear the new rules will drastically alter the election landscape that generally favors unions.   Even before the “quickie” elections were put into place in 2014, unions won a majority of the elections held-65% on average from 2012-14.  After the “quickie” election rule, the win percentage for unions increased by 10%-from 2015-17 unions won an average of 71% of elections.

There is little doubt that increasing the number of days before the election helps the employer, primarily by allowing more time to provide information to employees who may be uniformed or on the fence about voting in favor of the union.   But, it is important to remember that resisting union organizing efforts starts long before a representation petition is filed.    By the time the union files the petition, it has already worked with your employees for months to persuade them to the union cause, and likely has convinced more than half the employees who will participate in the election to sign a union authorization card. There are likely one or two issues, such as pay, benefits, or working conditions, that are galvanizing union support.   If the employees don’t hear from the employer about these issues until the representation petition is filed it may already be too late, regardless of how much time passes before the election occurs.

It’s not very often an appellate court takes away a jury verdict because of the trial court’s discretionary ruling to extend a deadline. The case is Petrone v. Werner Enterprises (8th Cir. 10/10/2019).    Student drivers for Werner Enterprises brought a FLSA collective action for alleged unpaid wages earned during an eight weeks student-driver training program.   The plaintiffs alleged they were entitled to wages for time spent on short rest breaks and while resting in their sleeper berths.   A jury awarded the student drivers $779,127 for their short term rest breaks, but nothing for the sleeper berth claims.  The court then awarded liquidated damages and attorney’s fees.

The appeal was about the plaintiffs’ late disclosure of a supplemental expert witness report. Plaintiffs disclosed their original expert report in compliance with the deadline in the scheduling order. But, defense counsel’s deposition of the plaintiff’s expert “revealed considerable flaws in the methodology for computing allegedly uncompensated break and sleeper-berth time.”   The expert admitted in his deposition he had double counted some times, and others were artificially split into two separate breaks because they spanned 12:00 a.m., and thus occurred in two separate days.   As a result, the expert’s original calculations of the lost wages were inconsistent and inflated.

After the deposition, which occurred well after the expert disclosure deadline, plaintiffs’ counsel requested the court to amend the scheduling order to permit a “supplemental” expert report. The “supplemental” report corrected the flaws the defense counsel had exposed in the expert’s deposition, and was served one month before the deadline to file motions to exclude the expert testimony.

Naturally, Werner opposed extending the expert witness deadline.   The expert’s deposition revealed enough flaws in his proposed testimony that the court might exclude it altogether, which would make it difficult for the plaintiffs to prove damages.    If the deadline was extended, however, it would allow the expert to present a modified opinion free from the flaws contained in the expert’s original report.

The outcome turned on Federal Rule 16(b), which permits a court to modify a scheduling order for “good cause.” In this case, the trial court ruled good cause did not exist, because the expert’s so-called “supplemental” report did not really “supplement” his original opinions, as much as correct them. The court found that nothing prevented the expert from recognizing the flaws in his report before he was deposed.  While an expert is permitted to supplement expert opinions based upon information not available at the time the original report was prepared, he cannot use opposing counsel’s efforts identifying the flaws in the original report to hone his methodology and present more robust expert opinions.

What was the consequence of the “no good cause” finding?  It turns out, not much.     The court granted the requested extension of expert disclosure deadline anyway, reasoning that the lack of good cause was outweighed by the general preference in the Rules of Civil Procedure “for determination of cases on the merits.”   The trial court also relied on Rule 37(c)(1), which allows the trial court to impose as a sanction for failing to properly supplement discovery something less than complete exclusion of the evidence.    The sanction the trial court chose was to give Werner the opportunity, at plaintiffs’ expense, to depose the expert about the supplemental report, as well as awarding Werner costs incurred because of the late submission.   In the end, the expert was permitted to testify about the value of the lost wages, which he opined was $779,127.  That was precisely the amount the jury ultimately awarded.

In a 2-1 decision, the Court of Appeals vacated the judgment against Werner, holding the trial court abused its discretion in granting the plaintiffs’ request to modify the scheduling order despite finding no good cause existed for doing so.   The majority ruled the trial court should not have considered lesser sanctions under Rule 37 because Rule 37 did not apply in these circumstances.    The trial court also erred in finding the general preference for resolving disputes on the merits trumped the mandatory good cause standard in Rule 16(b).

What happens next? Vacating the judgment means the case is remanded back to the trial court, except this time the plaintiffs will not be allowed to present their modified expert opinion that was submitted after the original disclosure deadline.    The next battle will be whether the expert’s original, but admittedly flawed opinion, is still admissible to prove the plaintiff’s damages.

This opinion demonstrates that something as simple as a deadline in a scheduling order can have potentially an outcome determining effect on the case.   While a missed deadline will not necessarily gut every case like it did potentially to Petrone, when it comes to evidence you can’t live without, pay close attention to the disclosure deadlines.   This case is also a good reminder that expert witnesses should not expect to get a mulligan for sloppy work.     If it’s not done right the first time you may not get another chance.

It’s October, and the Iowa Supreme Court’s term is in full swing. Next week the Court will hear argument in Ferguson v. Exide Technologies (No. 18-1600). The case addresses whether an employee may bring a tort claim against her employer if she’s discharged in violation of Iowa’s statute regulating workplace drug testing.  This is an important case for not only employers, but also court watchers.

First some background.  In Iowa, as in most every other state, an employee generally may be fired for good reason, bad reason, or no reason at all.  Everyone knows this general rule as employment at will.  But the rule has its exceptions.  For example, the Iowa Civil Rights Act forbids an employer to fire someone because she belongs to a protected class.  And the Iowa Supreme Court has held that an employer may not fire someone in violation of public policy.  Attorneys know this as the tort of wrongful discharge in violation of public policy.

In Ferguson, the plaintiff was fired after she refused to submit to a drug test that her employer concedes was unlawful.  She sued, alleging first that this violated the Iowa drug-testing statute itself and, second, that she was wrongfully discharged in violation of public policy.  The trial court sided with the plaintiff on both claims, precipitating the employer’s challenge to the public-policy claim.

The claim’s survival turns largely on legislative intent.  A provision of the drug-testing statute says that violations “may be enforced through a civil action” and an employee may be awarded “reinstatement or hiring, with or without back pay,” and other relief, including “attorney fees and court costs.”  By prescribing a cause of action and remedies in the drug-testing statute, did the Iowa legislature intend those remedies to be exclusive?

Ferguson’s employer of course argues yes, likening the drug-testing statute to the ICRA.  The Supreme Court has held that the ICRA is exclusive for discrimination claims.  Ferguson for her part insists the wrongful-discharge claim safeguards the public policy embodied in the drug-testing statute’s employee protections.  In her view, the statutory remedy thus supplements rather than supplants her wrongful-discharge claim.

This question looks a lot like one the Supreme Court sidestepped last year.  Ackerman v. State of Iowa (No. 16-0287) held that an employee covered by a collective bargaining agreement could sue for wrongful discharge in violation of public policy. Yet the Court avoided the State’s argument that the remedy available to Ackerman under another Iowa statute prevented her wrongful-discharge claim, finding the argument was too late.

But that didn’t stop the Justices from wading into the issue.  The statute in Ackerman prescribed a “civil action” awarding “affirmative relief” to aggrieved public employees, “including reinstatement, with or without back pay,” and other relief, including “attorney fees and costs.”  Telegraphing how they might analyze a similar statute, the five-Justice majority observed that this provision doesn’t “expressly declare” its remedy is exclusive.  Justices Waterman and Mansfield dissented, writing that Ackerman could “proceed with her statutory right of action.”  She thus didn’t need “a third avenue of recovery”—“especially one that is at odds with” the statute.

The statute in Ferguson nearly mirrors that in Ackerman.  The Justices’ reasoning in that case thus offers a glimpse at how they may decide Ferguson.  But two Justices who joined the majority there—Zager and Hecht—have been replaced.  And Justices Waterman and Mansfield remain.  With this reconfigured majority, Justice Waterman’s Ackerman dissent may supply the foundation of a Ferguson majority.  If that happens, employees will be left with the exclusive avenue of recovery under the drug-testing statute.

We’ll follow up when the Court issues it opinion.

The U.S. Court of Appeals for the Fifth Circuit issued a potentially game-changing decision earlier this month on the EEOC’s Enforcement Guidance on criminal background checks.   The case is State of Texas v EEOC (5th Cir. 8/6/2019).   An applicant rejected for employment at the Texas Department of Public Safety  filed a complaint with EEOC, alleging the Department’s no-felon policy violated Title VII because it has a disparate impact on African American applicants.

EEOC’s investigation of such charges, and the decision whether to refer them for enforcement, is governed by a 2012 Enforcement Guidance, known as the “Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions under Title VII of the Civil Rights Act of 1964.”   Rather than submit to an EEOC investigation and potential enforcement action, Texas sued EEOC, alleging its Guidance unlawfully limits the prerogative of employers to exclude convicted felons from employment. State and local laws in Texas prohibit hiring persons convicted of certain crimes.  The EEOC Guidance, on the other hand, disapproves of blanket bans of hiring of persons with criminal convictions.  Instead, the Guidance declares that employers should conduct an individualized assessment of the applicant to determine whether the applicant’s criminal history warrants exclusion from employment.

A judge in the U.S. District Court for the Northern District of Texas issued an injunction in February 2018 that prohibited EEOC from using its Enforcement Guidance in to investigate the Texas no-felon policy. But, that injunction was to last only until EEOC subjected the Guidance to legally required notice and opportunity for public comment required of all substantive rulemaking.  On appeal, the Fifth Circuit affirmed the injunction, but in the game-changing move, modified it to remove the language that lifted the injunction after EEOC put the rule through notice and comment.  The effect of the Court of Appeals’ modification was to make the injunction permanent.  There was no need to put the Guidance through the notice and comment procedure, the Court concluded, because Title VII provides EEOC no legal basis to issue the Guidance in the first place.   

What is the Enforcement Guidance on Criminal Background and Why Does it Matter?

EEOC has long taken the position that an employer’s consideration a person’s arrest and/or conviction record to make employment decisions has a disparate impact on certain minorities.   EEOC’s position is based upon national arrest and conviction data showing African American and Hispanic males have disproportionate rates of arrests and convictions relative to their population.   While critics of EEOC’s Guidance do not question the national arrest and conviction data, what is controversial is EEOC’s presumption that disparate impact liability exists whenever a particular employer excludes persons from employment because of their criminal background.   In EEOC’s view, an employer can legally justify reliance on criminal background checks only to the extent the employer can prove such reliance is “job related” and “consistent with business necessity.”

Historically, an employer could satisfy job relatedness and business necessity of criminal background checks if the employer took into account the following factors for excluded applicants: 1) the nature and gravity of the offense; 2) the time that has passed since the conviction and/or completion of the sentence; 3) the nature of the job held or sought.   These factors came to be known as the “Green” factors, named after the case Green v. Missouri Pacific Railroad Co. (8th Cir. 1977).

Although the 2012 Guidance reiterated that employers must satisfy the Green factors, it added “suggestions” for additional “best practices” employers should use to avoid disparate impact liability, including the following:

1) If the employer’s use of criminal background information is “validated” in accordance with the Uniform Guidelines on Employee Selection Procedures; or

2) If the employer conducts a “targeted screen” (i.e., the employer targets for criminal conviction inquiry only those positions where it may be relevant to the position), followed by an “individual assessment” of applicants who are excluded by the screen. The individual assessment is supposed to consider factors such as the age of the applicant when the conviction occurred; the number of offenses; the facts or circumstances of the conduct that led to the conviction; the length and consistency of employment before and after the conviction; employment or character references, and efforts and rehabilitation or training.

If indeed the Guidance offers merely “suggestions” or “best practices” for employers, why is it such a big deal? After all, it’s not the law, or even a legally enforceable regulation.    Nonetheless, the Guidance is intended to have, and does in fact have, real world impact on employer behavior.   The Guidance binds EEOC staff when conducting investigations, and directs their decisions about whether to refer employers for enforcement actions.   It limits the Agency’s discretion about how to view evidence; for example, the fact that an employer has a racially balanced workforce is not sufficient to overcome, in and of itself, the presumption that its use of criminal background checks results in disparate impact liability.   EEOC contends its best practices should be used even where state or local laws automatically disqualify applicants with certain criminal backgrounds.   According to EEOC, such laws are not a defense to disparate impact liability under Title VII.  Employment lawyers advise their clients the best way to avoid an EEOC investigation or enforcement action is to design your criminal background check around EEOC’s suggested best practices.    While following such advice may keep EEOC at bay, conducting an individual assessment of each applicant rejected because of a criminal background can be burdensome for employers that process a high number of applications.   Plus, the individual assessment criteria are inherently subjective, and excluding an applicant based upon subjective criteria does not necessarily insulate an employer from a claim.

The impact of the EEOC Enforcement Guidance goes beyond EEOC decision making.   Plaintiff’s lawyers frequently cite EEOC documents in legal briefs as persuasive authority on the interpretation of Title VII and other anti-discrimination laws. Even though the Guidance is not a regulation and is not entitled to deference by a court, some courts nonetheless defer to EEOC’s interpretation of the law contained in the Guidance.   Litigants in Iowa have even argued that Iowa state courts should defer to the EEOC Guidance in interpreting the Iowa Civil Rights Act, a law over which is has no jurisdiction whatsoever. In short, what starts as an EEOC “suggestion” for a “best practice” morphs over time into a legal requirement, the violation of which may involve significant economic damages and other relief to an aggrieved complainant.

No one is advocating the use of screening procedures that have a disparate impact on minority applicants when there are reasonable alternative procedures that would mitigate such an impact.   What concerns critics of the EEOC’s 2012 Guidance is that EEOC overreached with its suggested best practices.    In its zeal to limit employer use of criminal background screens, EEOC neglected the legitimate need of employers in some cases to err on the side of excluding applicants based simply on their criminal history, without the necessity of a subjective individual assessment.

What is the Effect of the Fifth Circuit’s Ruling?

There are several important takeaways from this Ruling:

  1. According to the Fifth Circuit, the problem was not that EEOC failed to go through the notice and comment procedure before implementing the Enforcement Guidance, but that it has no legal authority to issue such Guidance at all. The Court ruled Title VII allows EEOC to promulgate regulations only on procedural matters, not matters of substance.    EEOC has issued many other Guidance documents on various substantive aspects of the anti-discrimination laws, and this ruling puts them all into question (at least in the Fifth Circuit).
  2. Outside the Fifth Circuit, including in Iowa, it is possible EEOC will continue to rely on its Enforcement Guidance regarding criminal background checks. But, Fifth Circuit’s ruling gives employers in other jurisdictions ammunition to challenge EEOC’s authority to rely on the Guidance.  The ruling also can be used to try to dissuade courts, including state courts, from giving any deference to the EEOC’s view of the law as set forth in the Guidance.
  3. This ruling may embolden some employers to revisit burdensome and expensive criminal background screening practices adopted in the wake of the 2012 Guidance.
  4. This ruling does nothing to change the law in those states and localities that have enacted so-called “ban-the-box” laws or otherwise prohibit an inquiry into an applicant’s criminal background. It is important to be aware of the law in your local area when developing policies and procedures for evaluating an applicant’s criminal background.
  5. The Fifth Circuit’s ruling is likely not the last word.   As noted above, the Court’s reasoning is broad enough to call into question all documents EEOC has published over many years addressing the substantive application of the law.    This issue is likely to arise in other circuits, perhaps creating the opportunity for Supreme Court review down the road.