Issues In Employment Law – July 2001

Posted on July 1, 2001

Given the United States Supreme Court’s March decision in Circuit City v. Adams, 121 US 1302 (2001), regarding the applicability of the Federal Arbitration Act to employment contracts, employers who use mandatory Arbitration Clauses in Employment Contracts need to review the clauses to ensure their enforceability.

We have written often in recent months about the enforceability of Arbitration Clauses in Employment Contracts. In Circuit City v. Adams, 121 US 1302 (2001), the United States Supreme Court decided that the Federal Arbitration Act did indeed apply to employment contracts. This has lead to much argument about the circumstances under which a mandatory arbitration clause would be enforced against an employee by the courts. So far the judicial consensus indicates that arbitration clauses will be fully enforceable if they are used and intended merely to provide an alternative forum, which may be less expensive, and more expeditious, and not as an attempt by the employer to achieve a tactical advantage. There are five particular issues which courts weigh in determining whether the clause is enforceable.

The first issue which courts review is the allocation of the costs of arbitration. Many Circuits permit some level of cost-sharing in the arbitration clauses between the employer and the employee. However, in the District of Columbia, any requirement that the employee pay any costs or fees in excess of that which she would have to pay to institute a suit, is deemed unfair and will render the arbitration clause unenforceable. Cole v. Burns International Security Services, 105 F.3d 1465 (D.C. Cir. 1997). Similarly, in Perez v. Globe Airport Security Services, Inc., 2001 WL 649497, (11th Cir. June 2001), the 11th Circuit Court of Appeals, which decided Federal law in Alabama, Georgia, and Florida, weighed in and found the Arbitration Clause of the Employment Agreement was unenforceable. The Court reasoned that since the Arbitration Clause in that case required that the employer submit any Title VII Claim to arbitration, and that the employee share equally in the costs of the Arbitration, the entire clause was tainted by the illegal cost sharing arrangement.

The next area where courts look is to the adequacy of the notice to the employee that the arbitration clause will apply to specific statutory claims, such as Title VII, ADA, ADEA, FMLA, or some other civil rights and discrimination type claims. Usually, the courts will want the arbitration clause to be very clear and unambiguous about this. Bailey v. Federal National Mortgage Association, 209 F.3d 740 (D.C. Cir. 2000) (citing Wright v. Universal Maritime Service Corp., 525 U.S. 70, 79-82, 119 S.Ct. 391, ____, 142 L.Ed.2d 361, _____ (1998)).

The third area of inquiry requires that the arbitration clauses must permit all of the damages and other rights and remedies which are contained in the statute, including punitive damages. The landmark case on this issue is Armendariz v. Foundations Health Psychcare Services, Inc., 99 Cal.Rptr.2d 745 (Cal. 2000), which says that “the drastic limitation on statutory relief for employment discrimination in the arbitration agreement is contrary to public policy and unlawful.”

Further, the courts will inquire as to whether the employer is willing to subject itself to arbitration, or whether the employer seeks to reserve the ability to go to court to itself, while requiring the employee to submit its claims to arbitration. Here the court seeks to determine if there is a contractual exchange of promises, or merely an illusory one, where the employee gives up something, while the employer gives up nothing. Where the obligations are not mutual, the court may find that “there can be no contract.” Hackney v. Morelite Construction, D.C. Corp., 418 A.2d 1062 (D.C. 1980).

The last area courts will examine is whether the employer has sought to improper influence the arbitration process by selecting arbiters of its own choosing, or otherwise unfair inserting itself into the process. Hooters of America, Inc. v. Phillips, 173 F.3d 933 (4th Cir. 1999) (defendant promulgated arbitration rules so egregiously unfair as to the constitute a complete default of its obligation to act in good faith)

In sum, it remains our recommendation that if an employer wishes to include a mandatory arbitration clause in its employment contracts that a court will sanction, it is important to review the clauses for fairness in light of the above discussion.

While employers should investigate all claims of workplace sexual harassment, the employer will not be held liable for its failure to investigate general complaints of the presence of sexual harassment by “non-targets” of sexual harassment, according to a recent Federal Appeals Court decision.

In Leibovitz v. New York City Transit Authority, 2001 WL 609965 (2nd Cir. June 2001), the Court of Appeals for the 2nd Circuit, which covers Connecticut, New York, and Vermont, discussed the issue of who has standing to sue for sexual harassment in the workplace. In this case, the claimant was a female employee who had suffered no actual sexual harassment herself. Instead, she had heard of other female employees who had been harassed, and was distressed that the employer did not seem to be vigorously investigating these other claims. Alleging that she felt “aggrieved” by the sexual harassment which existed around her, she sued. The Court ruled that she could not articulate an actual term or condition of her employment which was affected by the alleged harassment. She never saw any, nor actually heard any harassment taking place. Merely presuming that someone, somewhere within the company is being harassed will not allow that employee to sustain a suit for sexual harassment.

Employers who provide “comprehensive” health coverage plans need to ensure that their plans include that class of female-only drugs or devices such as oral contraceptives.

In a recent United States District Court decision, the exclusion of oral contraceptives from an otherwise “comprehensive” prescription drug plan has been held to be illegal sex discrimination on the part of the employer. In Erickson v. The Bartell Drug Company, 2001 WL 649651, (W.D. Wash. June 2001), a female employee sued her employer, claiming sex discrimination due to the exclusion of oral contraceptives from the company prescription plan. The employer claimed that it had the right to limit the extent of the employee benefits that it provides, and that the exclusion of “family planning” drugs and devices for both men and women was a facially non-discriminatory business decision. The Court rejected this position due to the fact that all oral contraceptives and most other “family planning” drugs and devices are exclusively available to females. Further, the exclusion of these “female-only” drugs and devices created a less comprehensive health plan for female employees than for male employees, and failed to account for the biological differences between the sexes where family planning has a more direct impact on the actual health of women.

Employers who choose to include its current employees in a newly instituted “Covenant Not to Compete” policy need to provide separate incentives or compensation to those current employees in order to make the Covenant enforceable.

The Supreme Court of South Carolina recently decided not to enforce a Covenant not to Compete which was contained in an Employment Agreement. The Employer in Poole v. Incentives Unlimited, Inc., 2001 WL 589545, (S.C. June, 2001), asked one of its travel agents to sign a Non-Complete Agreement more than three years after the employee began working for the employer. Nothing concerning the Agent’s employment changed as a result of the signing of the agreement-no additional pay, no other benefit or compensation of any sort. The Court reasoned that a non-compete clause is enforceable if it is 1) not detrimental to the public interest, 2) is reasonably limited as to time and territory, and 3) is supported by valuable consideration. It was the third prong that the Court found to be lacking. It said that “continued at-will employment was insufficient consideration to support the covenant not to compete.” The Court refused to enforce the non-compete agreement.

If non-compete agreements are a valuable part of your employment contracts, this case suggests one of the several pitfalls. If you ask employees to sign one after the date of hire, the employer will need to be able to demonstrate separate and adequate compensation exchanged for the employee’s waiver of his right to future employment. If the non-compete is part of the initial employment agreement, it would be advisable to have a separate compensation item which is directly attributable to the non-compete clause, although this is not expressly addressed by this case. Of course, all non-compete clauses must not offend the public interest, and be limited in time, scope, and geography.

If Employer furnishes an employee transportation to and from work, injuries that occur during such transportation are compensable for workers’ compensation purposes as arising out of and in the course of employment, according to the Supreme Court of Virginia.

While this is a general proposition of Workers’ Compensation Law in Virginia, the case of Vaughan’s Landscaping & Maintenance, et al. v. Dodson, 546 S.E.2d 437 (Va. June 2001), is illustrative of the extent that this rule applies. In this case, the employer/owner offered to give employee a ride home from the worksite. On the way, the owner saw some mutual friends playing horseshoes in a park, as stopped. Both the owner and the employee began drinking with the friends, and joined in the horseshoes. The employee became obviously intoxicated during this time, but still got into the truck being driven by the owner, who subsequently had an accident in which employee was injured. Despite the lapse of time, the fact that they stopped along the way, and that employee was intoxicated, the ride home, provided by the employer, remained an activity which “arose out of and was in the course of” the employment, allowing the injuries sustained by the employee to be covered by the Workers’ Compensation Act.

Employer’s who wish to provide transportation for its employees must realize that they are exposed for any injuries sustained on the way home. Thus, such employers should publish express conditions on the use of any employer provided transportation, such as a limitation on extra errands which would not be permitted, nor covered, should the employee not head straight home.

When Employee’s take intermittent leave or need to work a reduced schedule due to an FMLA issue, Employers need to be diligent about the proper notice issued to the employee.

Under the Family and Medical Leave Act, an employee is entitled to take intermittent leave or work a reduced work schedule is the employee’s health care provider certifies that the employee’s serious health condition necessitates the leave or modified work schedule. Pursuant to 29 CFR 825.208(b), within a reasonable period of time (usually defined as one or two days after the employer learns of the employee’s need for leave), the employer must provide notice to the employee that it intends to count the leave taken as against the FMLA entitlement. Further, the employer must provide this notice at least once at the first of each six-month period in which the employee takes leave. However, if the conditions change during this period, the employer must issue a new notice covering the change. For example, if an employee is taking medical leave for rehabilitation from an injury for two weeks, and then, one week later, the employee must further take three more weeks off to care for a sick spouse, the employer must issue a new notice if the employer intends to count the additional time against the FMLA leave.

The reason these notices are important is that without the notices, the leave taken can’t be counted against the FMLA entitlement. The most important thing for the employer is diligent record keeping. If you have any questions about these details, please call us.