2nd Circuit issues groundbreaking ruling on sales reps and overtime payments

I’ve written a lot in the past about FLSA exemptions, particularly the administrative exemption and the outside sales exemption.

Yesterday, the 2nd Circuit issued a landmark ruling reconciling these two exemptions in the context of pharmaceutical sales reps. In In re Novartis Wage & Hour Litigation [pdf], the court was faced with the claims of approximately 2,500 Novartis reps who claim they are owed back overtime. Novartis claims it did not have to pay overtime to this class of employees, either because they qualified as exempt outsides sales people or exempt administrative professionals. The court disagreed.

The 33-page opinion is a must-read for any business that employs salespeople and pays them as exempt. The highlights:

Outside sales exemption: The sales reps do not qualify for the outside sales exemption because they do not actually sell any products. Instead, in their brief sales calls on physicians, they merely promote their employer’s product. The physician cannot neither buy directly from the rep, not commit to making a purchase:

In sum, where the employee promotes a pharmaceutical product to a physician but can transfer to the physician nothing more than free samples and cannot lawfully transfer ownership of any quantity of the drug in exchange for anything of value, cannot lawfully take an order for its purchase, and cannot  lawfully even obtain from the physician a binding commitment to prescribe it, we conclude that … the employee has not in any sense … made a sale.

Administrative employee exemption: The sales reps do not qualify for the administrative employee exemption because their jobs lack the exercise of discretion and independent judgment. Specifically, the court pointed to the reps’ lack of any role in planning marketing strategies or formulating the core messages delivered to doctors, inability to deviate from the promotional core messages or to answer any questions for which they have not been scripted, and quotas for doctors’ visits, sales pitches, and promotional events.

Three things about this opinion stand out to me:

1. Novartis has taken an absolute beating this summer. As Dan Schwartz at Connecticut Employment Law Blog points out, it was only seven weeks ago that a jury tagged the pharmaceutical company for a quarter-billion dollars in a sex discrimination lawsuit brought by female sales reps. Now, pending a reversal by the full 2nd Circuit or the Supreme Court, it is going to be on the hook for an untold amount of back overtime to another group of sales reps.

2. If your business employs salespeople, this opinion has the potential to dramatically alter how you pay them. At a minimum, you should be retaining employment counsel to review—and potentially overhaul—the classifications of your employees.

3. The Department of Labor is proving itself to be a formidable ally of the worker on the issue of FLSA exemptions. In March, it issued its game-changing Administrator’s Interpretation in which it pronounced, for the first time, that mortgage loan officers are generally non-exempt positions. In this case (as reported by Bloomberg News), the DOL submitted a brief in supporting the sales rep’s position. Your business should be looking at employees’ FLSA classifications with the same critical eye as the DOL to avoid potential problems down the road.

[Hat tip: Howard Bashman’s How Appealing]

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

The dark side of discrimination litigation

The San Francisco Chronicle reports that a jury awarded a former applicant for a job a Lucasfilm $113,800 in damages on a pregnancy discrimination claim. The jury concluded that the media company withdrew its job offer to Julie Veronese after she disclosed her pregnancy.

This case proves two important points about discrimination litigation:

1. The smoking-gun piece of evidence in the case was an email Veronese's supervisor-to-be in which she expressed concern about Veronese's ability to do the job while pregnant. This case illustrates the dangers of email and proves the point that if you should not put in an email what you do not want shown to a jury or published in the newspaper.

2. Veronese's attorney is reported as saying that she will seek $1.2 million in attorney's fees from Lucasfilm. While the number is stagging, what is more staggering is that one can collect ten-fold in attorney's fees than what she recovered as damages in the actual litigation. Many claims carry risk for damages, and a six-figure verdict is nothing to sneeze at. The real risk in many discrimination lawsuits, however, is the attorney's fees that a successful plaintiff can recover. The risk of a fee award must play into the exposure calculus in strategizing the defense of any discrimination claim. Failing to take both the likelihood of a fee award and the potential amount of that award into account very early on in litigation could lead to an expensive surprise at the end of the case.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

WIRTW #133

Jeffrey Hirsch at the Workplace Prof Blog reports that the NLRB has announced its plan to handle some of the nearly 600 cases invalidated by the Supreme Court in New Process Steel. According to Professor Hirsch:

[T]he Board is addressing the cases currently pending in court—not the cases already decided in court, cases in which the losing party complied with the NLRB order, or cases that may be brought to court but haven’t yet. As expected, the Board will rehear these pending cases with a three-member panel that will include Chairwoman Liebman and Member Schaumber, who were on the original two-member panel. This makes sense, as it means that only one member will have to start from scratch on these cases.

The story of the week, however, comes via OnPointNews. I’ll let the title speak for itself. You’ll have to click over for the details – Bias Suit Claims New Age Boss Fired Woman for Fetus.

Like most of America, I’m off on Monday, enjoying the unofficial 4th of July. I’ll be back with fresh content on Tuesday. In the meantime, enjoy what I read this week:

HR

• Anti-nepotism policies: implement and exercise with caution – from Donna Seale’s Human Rights in the Workplace

• When a Storm Hits, What's an Employer to Do In Connecticut? – from Dan Schwartz’s Connecticut Employment Law Blog

• Top 10 Things I Learned as a Summer Intern – from KnowHR Blog

Wage & Hour

• BP Capping Wages for Recovery Workers at $200/Day – from Work in Progress

• No Wonder this Job is So Hard: Contradictory Messages From the Government – from Michael Haberman’s HR Observations

• DOL Testimony Regarding The Employment Misclassification Prevention Act And Misclassification Enforcement Efforts – from Overtime Advisor

• He Shoots … and Misses! Does the World Cup Invite FMLA Abuse? – from FMLA Insights

Discrimination

• Protecting yourself from age discrimination claims – from Employment Law Bits

• New York cop’s $80,000 bias award – from Walter Olson’s Overlawyered

• Educational requirements can be discriminatory, according to the EEOC – from Sindy Warren at the Warren & Hays Employment Law Blog

• Still No GINA Regs, But New Website on the Basics – from Delaware Employment Law Blog

• The Fourth Circuit Undercuts the “Equal Opportunity Jerk” Defense – from Maryland Employment Law Developments

Litigation

• Is Your Document Retention the Stuff of Nightmares? – from Stephanie Thomas at Compensation Cafe

• Discovery: Who to depose—and how to get ready – from What About Clients?

• Opening Statement? We’ve got an app for that – from Deliberations

Whistleblowing

• Financial Reform Bill Contains Several Provisions Impacting the Workplace – from Washington D.C. Employment Law Update

• SOX Whistleblower Must Actually Believe Employer’s Conduct Was Illegal, Says Eleventh Circuit – from Florida Employment Law Blog

And, finally, since I live in Cleveland and cannot escape the circus that is LeBron James, Matthew Gibson shares his thoughts at his Wills & Wealth blog – I Can't Take it Anymore. It's Time to Talk LeBron.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

6th Circuit weighs in on administrative exhaustion of EEOC charges

Before an employee can file a Title VII lawsuit, the employee must first file a timely administrative charge with the EEOC. As a general rule, an employee cannot bring claims in a lawsuit that were not included in the EEOC charge. However, because employees, and not attorneys, typically file EEOC charges, courts review them liberally, and typically will consider any claims that are reasonably related to or grow out of the factual allegations in the EEOC charge.

In Younis v. Pinnacle Airlines, Inc. (6th Cir. 6/30/10) [pdf], the 6th Circuit explains what it means for a claim to be reasonably related to or grow out of the factual allegations in the charge. In Younis, the employee alleged discrimination and harassment based on religion and national origin, in addition to retaliation. The 6th Circuit upheld the dismissal of the harassment and retaliation claims because the EEOC charge lacked any specific reference to those claims:

The problem in this case is that in his EEOC filing, Younis did not allege a claim of hostile work environment, and he cited only discrete acts of alleged discrimination, limited to three or four isolated comments by his peers that occurred over a three-year period. In order to establish a claim of hostile work environment, however, a plaintiff must present evidence of harassment that “unreasonably interfer[es] with [his] work performance and creat[es] an objectively intimidating, hostile, or offensive work environment.” … As a result, we have suggested in several unreported cases that the inclusion in an EEOC charge of a discrete act or acts, standing alone, is insufficient to establish a hostile-work-environment claim for purposes of exhaustion. We now hold that such evidence, cited in an EEOC charge to support a claim of disparate treatment, will not also support a subsequent, uncharged claim of hostile work environment “unless the allegations in the complaint can be reasonably inferred from the facts alleged in the charge.” …

Younis’s retaliation claim suffers from the same deficiency…. The EEOC form included a specific check-off box to indicate a charge of retaliation. Although Younis marked other boxes on the form evincing an intent to charge discrimination based on religion and national origin, he did not indicate that he was alleging retaliation. Moreover, there is nothing in the narrative portion of the EEOC charge that could be interpreted as claiming retaliation, nor is there any language that would have put the EEOC or the employer on notice that Younis was alleging retaliation by Pinnacle.

This ruling shows that courts give serous consideration to whether a plaintiff exhausted all claims with the EEOC. This exhaustion requirement furthers two key policies for employers:

1. It provides the employer information concerning the conduct about which the employee complains.
2. It affords the EEOC and the employer an opportunity to settle all disputes through conference, conciliation, and persuasion.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

Following up on Thompson v. North American Stainless – the tea leaves of associational retaliation

In response to yesterday’s post on the Supreme Court agreeing to review the issue of associational retaliation, Michael Fox at Jottings by An Employer’s Lawyer suggests that Thompson might come out better for employers than one might think:

However, this is ultimately a question of statutory construction, which calls to mind Jackson v. Birmingham Board of Education, where the dispute was whether Title IX prohibited retaliation, although there was no anti-retaliation provision in the statute itself. In a 5-4 decision, the court’s opinion finding retaliation was prohibited was authored by Justice O’Connor. Significantly one of the dissenters was Justice Anthony Kennedy.

Despite some personnel changes since the Jackson case, the Court’s ideological split remains the same. Thompson will come down to a decision between statutory interpretation and policy (with Justice Kennedy likely holding the deciding vote).

The original Thompson v. North American Stainless (6th Cir. 3/31/08) [pdf] decision chose policy:

However, “[i]t is a well-established canon of statutory construction that a court should go beyond the literal language of a statute if reliance on that language would defeat the plain purpose of the statute[.]” … Here, a literal reading of section 704(a) suggests a prohibition on employer retaliation only when it is directed to the individual who conducted the protected activity. Such a reading, however, “defeats the plain purpose” of Title VII. There is no doubt that an employer’s retaliation against a family member after an employee files an EEOC charge would … dissuade “reasonable workers” from such an action.

The en banc panel [pdf]—the decision the Supreme Court agreed to review—went the opposite way, opting for the clear language of the statute:

The statutory language of § 704(a) … explicitly identifies those individuals who are protected – employees who “opposed any practice made an unlawful employment practice” or who “made a charge, testified, assisted or participated in any manner in an investigation, proceeding, or hearing” under Title VII. Section 704(a) thus clearly limits the class of claimants to those who actually engaged in the protected activity…. In other words, Congress carefully chose qualifying words of action (“opposed,” “testified,” “made a charge,” “participated,” “assisted”), not words of association…. The plain text simply cannot be read to encompass “piggyback” protection of employees like Thompson who, by his own admission, did not engage in protected activity, but who is merely associated with another employee who did oppose an alleged unlawful employment practice.

While the Supreme Court’s battle lines are clear, how the ruling will come out is less so. Jackson v. Birmingham Board of Education is one guidepost for us to look to. Crawford v. Metropolitan Gov’t of Nashville is another. In Crawford (decided unanimously just last year), the Supreme Court held that the opposition clause of Title VII’s retaliation provision covers an employee who merely answers questions during an employer’s purely internal investigation into a co-worker’s allegations of harassment against a different employee. In that case, the Court took a broad reading of the meaning of “opposition” to impart a policy choice against retaliation.

If you want to look to Crawford for further guidance, Justice Kennedy was part of the seven-member majority that defined “oppose” (albeit in dicta) as “to be hostile or adverse to, as in opinion.” Justices Alito and Thomas separately concurred to make the point that “opposition” must include “active and purposive” conduct, and to take the majority to task for embracing a definition that permits opposition without action. If Thompson ultimately interprets the opposition clause to include silent opposition, it could be a bad day for employers. The Court could conclude that one closely associated with another who engages in protected activity engages in opposition through the closeness of the relationship and the implied hostility to the employer’s position.

We won’t find out what all this means until sometime next year. The tea leaves are not at all clear. Employers should be concerned, though, that Title VII is about to be judicially expanded yet again, and the doors may swing wide open for the filing of more retaliation claim.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

Supreme Court agrees to hear associational retaliation case

On the last day of its term, the Supreme Court has agreed to hear the issue of whether Title VII prohibits retaliation against an employee who is associated with another employee who engages in protected activity. The case—Thompson v. North American Stainless—hails from the 6th Circuit. I’ve covered this case in depth, so instead of recapping, I’ll simply direct you to my prior posts:

• En banc panel of 6th Circuit reverses prior holding in Thompson v. North American Stainless and rejects associational retaliation claims
• 6th Circuit decides that the closeness of a relationship does not matter in “associational discrimination” claims
• Associational retaliation revisited
• Courts sets boundary on associational discrimination claims
• 6th Circuit recognizes claim for associational retaliation

It is troubling that the Court accepted review of this case. For one thing, this Court has proven itself favorable to employee rights in retaliation claims. For another, there is no split among the circuit courts on this issue; the Court could have maintained the status quo simply by denying cert. Management-side employment lawyers and the businesses we represent should be concerned about the prospects of reversal and the recognition of a claim for associational retaliation. I will have much more coverage on this issue next year when the case is argued and decided.

[Hat tip: Workplace Prof Blog and LawMemo Employment Law Blog]

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

Do you know? Ohio military family leave law takes effect July 2

Beginning this Friday, July 2, 2010, Ohio employers with 50 or more employees will be required to provide leave for employees who are a spouse or parent of a member of the military who is called to active duty or is injured or hospitalized while serving on active duty.

The law—Ohio Revised Code Chapter 5906—has the following provisions and limitations:

• The employee eligible for leave must be a spouse, parent, or legal custodian of a person who is a member of the uniformed services and who is called into active duty, or who is injured, wounded, or hospitalized while serving on active duty.

• Employees are only eligible for leave if they have been employed for at least 12 consecutive months and for at least 1,250 hours in the 12 months immediately preceding the leave.

• Leave is limited to once per calendar year.

• Employees are entitled to the lesser of 10 work days or 80 work hours.

• It only covers full-time duty in the active military service for periods of longer than 30 days. It does cover training, or the period of time for which a person is absent from employment for an examination to determine fitness for military duty, unless it is contemporaneous with full-time military duty.

• An employee must provide at least 14 days’ notice prior to taking leave, unless the leave is taken because an employee receives notice from a representative of the uniformed services that the injury, wound, or hospitalization is of a critical or life-threatening nature.

• The dates on which an employee takes leave cannot occur more than two weeks prior to, or one week after, the deployment date of the employee’s spouse, child, or ward or former ward.

• The employee cannot have any other leave available, except sick leave or disability leave.

• Employers must continue to provide benefits to employees during the leave period. Employees remain responsible for their pro rata share of costs, if any.

• Upon the completion of the leave, employers must restore the employee to the position the employee held prior to taking that leave or a position with equivalent seniority, benefits, pay, and other terms and conditions of employment.

• An employer may require an employee requesting to use leave to provide certification from the appropriate military authority.

• Retaliation is prohibited.

• Employers cannot require employees to waive their leave rights.

• Employees can sue for injunctive relief and money damages to enforce their rights.

[Hat tip: @CCHWorkDay]

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.