United States: US Employment Litigation Round-Up For May 2019

US Supreme Court Holds That Title VII Failure-to-Exhaust Defense Can Be Waived

Decision: On June 3, 2019, in an opinion authored by Justice Ginsburg, a unanimous Supreme Court held in Fort Bend County, Texas v. Davis, No. 18-525, that under Title VII of the Civil Rights Act of 1964, the procedural requirement that a plaintiff file a charge with the Equal Employment Opportunity Commission ("EEOC") or a related state agency prior to initiating litigation is not jurisdictional and that a defense based on the plaintiff's failure to exhaust administrative remedies may be forfeited if employers do not timely assert it.

The plaintiff filed a sexual harassment and retaliation charge against her employer, Fort Bend County, with the Texas Workforce Commission in February 2011. While her charge was pending, the county terminated her employment for failing to report to work on a Sunday, when she was attending a church function. The plaintiff attempted to amend her charge to include a claim for wrongful termination of her employment by writing "religion" on the Texas Workforce Commission's intake questionnaire and checking the boxes for "discharge" and "reasonable accommodation," but she did not make any changes to the charge form itself. After receiving a "right to sue" letter a few months later, the plaintiff filed suit in Texas federal court for religious discrimination and retaliation for complaining about sexual harassment. After several years of litigation, the county successfully moved to dismiss the plaintiff's religious discrimination claims for lack of jurisdiction because the plaintiff had not included the religious discrimination claim in her charge with the Texas Workforce Commission before bringing her lawsuit. The Fifth Circuit reversed the dismissal, holding that the county had waived its failure-to-exhaust defense by waiting several years into the litigation to assert it.

The Supreme Court affirmed, explaining that Title VII's charge-filing requirement is a nonjurisdictional claim-processing rule that does not implicate the adjudicatory authority of courts because Congress did not incorporate the requirement into the statute's jurisdictional provision (42 U.S.C. § 2000e–5(f)(3)). Consequently, while courts must enforce the mandatory statutory requirement if properly raised by a defendant, a failure-to-exhaust defense can be forfeited if the employer "waits too long to raise the point."

Impact: The Supreme Court's ruling clarifies that—unlike challenges to subject matter jurisdiction, which may be addressed at any time—employers must promptly assert a failure-to-exhaust defense under Title VII to avoid a potential waiver. Davis also underscores the importance of comparing the allegations asserted in a complaint with the underlying administrative charges filed with the EEOC or a similar state agency to ensure that the worker properly exhausted his or her administrative remedies before filing suit. This is particularly important in situations where the worker amends his or her complaint to add new allegations of discrimination or retaliation that were not investigated by the EEOC or a related state agency. Accordingly, while Davis offers workers another chance to avoid dismissal of their Title VII claims in limited circumstances, employers who diligently assert their potential defenses should be unaffected. As Justice Ginsburg noted, "[a] Title VII complainant would be foolhardy consciously to take the risk that the employer would forgo a potentially dispositive defense."

Recent Updates in Marijuana Law and Implications for Employers

Development: In recent years, there has been an uptick in legislation at the state and local levels legalizing marijuana. As of May 2019, medical marijuana use is legal in 33 states, including Illinois and New York, while an additional 10 states, including California, have legalized recreational marijuana use. Illinois is poised to follow suit and enact a bill legalizing recreational marijuana use beginning in January 2020.

The legalization of recreational and/or medical marijuana use in these states has significant implications for employers. While the federal Americans with Disabilities Act does not protect medical marijuana users, some state discrimination laws—such as those in Massachusetts and Rhode Island—have been interpreted to provide protections for medical marijuana users. Moreover, a number of states have enacted laws barring employers from refusing to hire, disciplining or terminating employees because of their lawful off-work activities—including marijuana use. For example, New York law bars employers from refusing to hire, disciplining or terminating employees based on their off-duty legal use of consumable products. Thus, although New York has not specifically legalized recreational marijuana use, its off-duty conduct law would bar an employer from terminating an employee who uses marijuana legally and off-duty under the state's medical marijuana law.

Likewise, the Illinois Right to Privacy in the Workplace Act bars employers from refusing to hire, disciplining or terminating employees "because the individual uses lawful products off the premises of the employer during nonworking hours." While this statute currently protects only medical marijuana users in Illinois, its protections likely will extend to recreational users once the new recreational marijuana legalization law comes into effect.

On May 10, 2019, New York City added a new element to the mix when it passed legislation barring employers, labor unions and employment agencies from conducting pre-employment testing for marijuana or THC (the active intoxicating ingredient in marijuana), with the exception of certain types of jobs (primarily those relating to safety or those where testing is otherwise mandated by law). The new law will take effect on May 10, 2020.

Moreover, effective January 2020, Nevada will become the first state to expressly bar most employers from refusing to hire applicants who test positive for marijuana in a pre-employment drug screen. While other states, such as Oklahoma, extend similar protections to applicants who have valid medical marijuana licenses, Nevada's law is the first to provide such protections to all applicants.

Impact: Given the rapid change in state and local laws over the past few years, employers should keep an eye on these developments. In particular, employers should periodically review their drug testing, hiring and disciplinary policies to ensure that they remain in compliance with new laws.

Washington State Limits Enforceability of Noncompetition Agreements

Development: The Washington state legislature recently passed the Engrossed Substitute House Bill 1450 ("HB 1450"), which places a number of conditions on the enforcement of noncompetition agreements in the state of Washington. HB 1450, which takes effect on January 1, 2020, provides that:

  • Noncompetition covenants between employees and employers are void and unenforceable unless an employer discloses the terms of the covenant to a prospective employee in writing before the employee accepts the employer's offer of employment; 
  • To the extent noncompetition covenants take effect after an employee commences employment, they will not be enforceable unless the employer provides the employee with independent consideration for agreeing to the restriction, such as a bonus or salary increase;
  • Noncompetition covenants are unenforceable if an employee is laid off, unless the employer pays the employee compensation equivalent to the employee's base salary at the time of termination for the noncompetition period, less any compensation earned by the employee through subsequent employment during the noncompetition period; and
  • Covenants are unenforceable if they restrict, restrain or prohibit an employee earning less than twice the applicable state minimum hourly wage from having an additional job, supplementing their income by working for another employer, working as an independent contractor or being self-employed.

The new law prohibiting noncompetition covenants applies to both employees and independent contractors if their annual earnings do not exceed a certain threshold—$100,000 for employees and $250,000 for independent contractors—which will be adjusted for inflation. HB 1450 also creates a rebuttable presumption that noncompetition covenants are unreasonable and unenforceable if they extend for longer than 18 months after the employment ends.

HB 1450 defines covenants not to compete as written or oral agreements or contracts that restrain employees or independent contractors from engaging in a lawful profession, trade or business of any kind but specifically excludes (a) covenants prohibiting solicitation of employees, (b) covenants prohibiting solicitation of customers, (c) confidentiality agreements, (d) covenants prohibiting use or disclosure of trade secrets or inventions, (e) covenants entered into by a person purchasing or selling the goodwill of a business or otherwise acquiring or disposing of an ownership interest and (f) covenants entered into by a franchisee in connection with the sale of a franchise under certain circumstances.

The new law also precludes employers from including non-Washington venue provisions in noncompetition agreements with Washington-based employees or independent contractors.

Impact: The most immediate impact of HB 1450 is on companies that use Washington-based employees or independent contractors. Such employers should examine any noncompetition covenants that they have in place to ensure that those covenants comply with HB 1450. To the extent that employers need to reform those noncompetition covenants to comply with HB 1450 or that they otherwise plan to introduce new noncompetition covenants to their employees, they should provide additional compensation to their employees to ensure that the changes are effective. More generally, HB 1450 highlights a broader trend toward the restriction of noncompetition agreements throughout the United States. In addition to Washington, a number of states have recently implemented statutes limiting noncompetition covenants, including the Massachusetts' Noncompetition Agreement Act, Illinois' Freedom to Work Act, and Nevada's AB 276. Other jurisdictions—including Pennsylvania, New Jersey and Vermont—are considering restrictions as well.

NLRB Advice Memo Targets Scabby and Fat Cat

An advice memorandum recently released by the National Labor Relations Board's ("NLRB") Office of General Counsel (the "General Counsel") concluded that the use by unions of misleading banners and oversized "Corporate Fat Cat" and "Scabby the Rat" balloons against neutral employers constitutes unlawful secondary picketing in violation of the National Labor Relations Act ("NLRA").

In the case addressed by the advice memo, the International Brotherhood of Electrical Workers, Local 134 (the "Union") had a primary labor dispute with Edge Electric, a subcontractor for Summit Design + Build ("Summit"). The Union erected a large yellow banner near the entrance to Summit's job site that read: "LABOR DISPUTE: SHAME SHAME," with Summit's name in capital letters on it. The Union also erected a 10–15-foot tall inflatable cat dressed in a corporate suit with a cigar planted in his mouth—known as the "Corporate Fat Cat"—clutching a construction worker by the neck. Fat Cat and Scabby the Rat (a 10–15-foot tall inflatable rat) are well-recognized symbols of labor protest frequently used during union demonstrations. The Union displayed the banner and Fat Cat outside Summit's premises for three days despite being told that Edge Electric—the subcontractor with whom the Union had the primary dispute—would not be at the job site until the third day. At least two other subcontractors refused to perform work for Summit at the job site as a result of the labor dispute.

The advice memo concluded that the Union's conduct violated the NLRA and ran afoul of protections in the act for neutral, secondary employers because it was tantamount to unlawful secondary picketing. The memo explained that the large banners and inflatables at the entrance of Summit's business "sought to dissuade the public from entering through coercive conduct, rather than through a persuasive message." It noted that the inflatable and the banner were the "functional equivalent of a picket sign" because each created a "symbolic, confrontational barrier to anyone seeking to enter or work at the construction site." The memorandum thus urged the NLRB to "reconsider" its 2010 and 2011 decisions in Carpenters Local 1506 (Eliason & Knuth of Arizona), Sheet Metal Workers Local 15 (Brandon Medical Center (Brandon II)), and Carpenters Southwest Regional Council Locals 184 & 1498 (New Star), which had narrowed the NLRA's definition of picketing and determined that the erection of stationary banners and an inflatable rat at a neutral employer's facilities was lawful nonpicketing secondary activity.

Impact: The General Counsel's memorandum is a positive development for employers that could signal a shift in the NLRB's stance regarding the propriety of certain union conduct, including the use of stationary bannering and large inflatables. While the matter addressed in the memo was resolved through an informal settlement in February 2019, the General Counsel's recommendation that the NLRB revisit prior Obama-era precedent is promising for neutral or secondary employers faced with this type of union conduct.

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