Supreme Court Rules for Employers in 2006-07 Term
 
October 8, 2007
 
Ann Marie Hensler - Tampa
Erin Webb - Orlando

The second term of the United States Supreme Court under Chief Justice Roberts proved to be a banner year for employers, as it was for business in general. Employers won every case the Supreme Court considered. The Supreme Court limited the time employees have to sue for pay discrimination, increased employers’ flexibility when terminating ERISA pension plans and limited the scope of the Fair Labor Standards Act (FLSA) while confirming that courts should generally accept the Department of Labor’s interpretations of the FLSA.

This article summarizes the employment and labor law decisions of the Supreme Court’s 2006-07 term, and explains their significance.

Ledbetter v. Goodyear Tire & Rubber, Co., Inc., U.S., No. 05-1074, 5/29/07

In the most important case of the year, Ledbetter v. Goodyear Tire & Rubber, Co., Inc., a divided Supreme Court held that an employee claiming pay discrimination must file a charge with the Equal Employment Opportunity Commission (EEOC) within 180 or 300 days, depending upon the state, after an allegedly discriminatory pay decision or lose the opportunity to sue for pay discrimination, even if he or she continues to receive paychecks reflecting lower pay based on discrimination.

To sue for discrimination under Title VII, an employee must file a charge with the EEOC within 300 days after the allegedly discriminatory decision (180 days if the state does not have its own fair employment agency). Failure to file an EEOC charge within those time limits bars the employee from later suing for discrimination.

Lilly Ledbetter worked for Goodyear Tire & Rubber Company as a salaried area manager from 1979 to 1998. Salaried employees such as Ledbetter were given raises based on their annual performance evaluations, and future raises were figured as a percentage of their prior pay. From 1992 to 1996, Ledbetter’s supervisor consistently ranked her at or near the bottom of her co-workers, and she was denied raises in 1996, 1997 and 1998. Before 1998, though, Ledbetter did not challenge any of her individual performance evaluations or annual raises as discriminatory.

Nonetheless, in late 1997, Ledbetter recognized that she was paid substantially (between 15 and 40 percent) less than male area managers. Ledbetter filed an EEOC charge alleging sex-based pay discrimination in June 1998, and later sued for sex-based pay discrimination in the U.S. District Court for the Northern District of Alabama.

Ledbetter could not show that any pay decision made within 180 days before she filed her EEOC charge was discriminatory. Instead, she claimed that Goodyear had discriminated against her with respect to earlier evaluation and raise decisions, that discrimination reduced her current pay, and each paycheck that was reduced because of such past discriminatory pay decisions was a new discriminatory act. Thus, she could challenge long-past pay decisions if she filed an EEOC charge within 180 days of any allegedly discriminatory paycheck. The District Court agreed with her, and she recovered damages for pay discrimination.

The Supreme Court disagreed and ruled that Ledbetter’s claim was time-barred. Emphasizing that discriminatory intent is the “central element” of any disparate treatment claim, the Court distinguished between past discriminatory acts (pay decisions) and the present effects of those acts (paychecks), and concluded that “current effects alone cannot breathe life into prior, uncharged discrimination.” Instead, the majority ruled Ledbetter must have challenged each separate allegedly discriminatory pay decision by filing an EEOC charge within 180 (300 in most states) days after each decision was made; her failure to do so barred her claim.

The Court was concerned that if it adopted Ledbetter’s argument, “a single discriminatory pay decision made 20 years ago [that] continued to affect an employee’s pay today” could give rise to a suit, “even if the employee had full knowledge of all the circumstances relating to the 20-year-old decision at the time it was made.”

The Ledbetter decision makes it much harder for employees to challenge pay discrimination. Although the case involved Title VII, the Supreme Court’s reasoning applies also to claims of pay discrimination based on age and disability.

Nonetheless, the decision may result in a greater number of EEOC charges being filed to challenge specific pay decisions. Employees who know they will forever lose the right to challenge a pay decision if they do not do so within 180/300 days may file a charge even if they are not sure that discrimination has occurred.

Finally, the Democratic majority in Congress has vowed to overturn the Ledbetter decision. A bill has been introduced that would amend Title VII, the ADEA, the ADA and the Rehabilitation Act to specify that the time limit for filing pay discrimination claims begins to run each time an employee receives a paycheck that manifests discrimination – not just when the employer makes a discriminatory pay decision.

We will keep you updated on legislative and judicial developments that affect this issue.

Long Island Care at Home v. Coke, U.S., No. 06-593, 6/11/07

The FLSA exempts from its minimum wage and overtime requirements persons “employed in domestic service employment to provide companionship services for individuals ... unable to care for themselves” (the companionship exemption). A Department of Labor (DOL) regulation (the third-party regulation) says that the companionship exemption includes those “companionship” workers employed by an “agency other than the family or household using their services.”

Evelyn Coke provided companionship services to the elderly and infirm as an employee of an agency, not of the individuals using her services. She sued the agency, claiming it had failed to pay her overtime and minimum wages required by the FLSA. Whether Coke was entitled to additional compensation depended upon whether she fell within the companionship exemption, which in turn depended upon whether the third-party regulation is valid.

Coke argued that the third-party regulation is invalid and unenforceable because it contradicts the statutory definition of the companionship exemption and because the DOL had changed its mind about whether employees of third-party agencies were exempt.

The Supreme Court rejected Coke’s arguments and ruled that the third-party regulation is valid. It ruled that because Congress had not specifically defined whether the companionship exemption applied only to employees of the family or to agency employees as well, the DOL had the power to interpret the law and fill that gap. The fact that the DOL had changed its mind about the scope of the exemption did not make the regulation invalid because the DOL had specifically explained the reasons for its change and because the DOL published its changed interpretation, so it is unlikely that anyone was unfairly surprised by the change.

In a narrow sense, the Supreme Court’s decision limits the FLSA’s scope by exempting more companionship workers. More broadly, though, the decision directs lower courts to pay greater attention to the DOL’s interpretations of the FLSA. The decision should give employers greater clarity and comfort when relying on DOL regulations to interpret the FLSA.

Beck v. Pace International Union et al., U.S., No. 05-1448, 6/11/07

Defined benefit pension plans are among many employers’ largest obligations. Recently, many employers have attempted to avoid those obligations by terminating their pension plans in bankruptcy. The Supreme Court’s decision in Beck v. Pace International Union, et al., removes a potentially significant obstacle to such plan terminations by holding that an employer does not have to consider merging its pension plan with a union pension plan instead of terminating it.

In March 2000, Crown Paper Company filed for Chapter 11 bankruptcy protection. In the bankruptcy, Crown sought to terminate most of its 18 employee pension plans. To meet the requirements of the Pension Benefit Guarantee Corporation (PBGC), which would assume liability for some of the benefits, Crown had to purchase an annuity to provide some of the promised benefits.

Before Crown purchased the annuity, the PACE International Union, which represented many of the plan participants, suggested that Crown instead merge its pension plans into PACE’s multiemployer pension fund. Crown’s board of directors, who were also the pension trustees, rejected this suggestion, purchased the annuity and, with PBGC approval, terminated 12 of its 18 pension plans. Crown received a payment of $5 million – arguably funds of the pension– under the annuity.

PACE argued that Crown breached its fiduciary duties under ERISA by purchasing the annuity without considering a merger with the union’s multiemployer fund and by receiving $5 million of potential pension funds as a result.

The Supreme Court disagreed. It ruled that for PACE to prevail, it would first have to show that merging an existing pension plan with the union’s pension plan was a permissible way to terminate a pension plan under ERISA. Because the Court found that such pension plan mergers are not a permissible means of terminating pension plans, PACE could not show that Crown breached its fiduciary duties. The Beck pension decision grants employers more discretion in the means they use to terminate pension plans as a way to obtain cost savings.

BCI Coca-Cola Bottling Co. of Los Angeles v. EEOC, U.S., No. 06-341, cert. granted 1/5/07

The opportunity for another significant decision from the Supreme Court evaporated when the case of BCI Coca-Cola Bottling Co. of Los Angeles v. EEOC was dismissed by the parties before the Supreme Court could issue a decision. Because the issue raised by the case is important and likely to come before the Supreme Court again, it is still noteworthy.

The BCI case dealt with what is often referred to as the “cat’s paw” issue: can an employer be liable for discrimination if an unbiased decision-maker bases her employment decision solely on the recommendation of a biased lower-level supervisor, without doing an independent investigation?

The lower courts have split over whether and under what circumstances the employer may be liable in this situation. On the one hand, some courts reason that the actual decision-maker was not biased and there was thus no discrimination. On the other hand, some courts rule that because the actual decision-maker made no investigation, she arguably acted as a mere conduit for the lower-level supervisor’s bias and that bias thereby infected the decision.

We expected that the Supreme Court would provide clarity, but the dismissal of the BCI case, probably because of a settlement, took away that possibility. Nonetheless, the Supreme Court is clearly interested in the issue, and we anticipate that the Court will address it again soon.

In the meantime, employers should ensure that whoever is actually responsible for adverse employment decisions has personally verified the facts underlying the decision and is not merely relying on the recommendation of another.

Conclusion

Although this was a big year for employers, history teaches that these decisions could prove to be a mixed blessing. In 1989 and 1990, employers won big in the Supreme Court. Congress responded by passing the Civil Rights Act of 1991, which reversed most of the employer victories and expanded the damages available under Title VII to include compensatory and punitive damages. The Americans with Disabilities Act and Family and Medical Leave Act followed in short order. If a Democrat wins the Presidency in 2008, a similar effort to expand employee protections seems likely.

For more information, email Erin Webb or Ann Marie Hensler at erin.webb@hklaw.com or ann.hensler@hklaw.com, respectively, or call toll free, 1-888-688-8500.