WORK LAW: CASES AND MATERIALS Second Edition

2012 SUPPLEMENT

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WORK LAW: CASES AND MATERIALS

2012 SUPPLEMENT

Marion G. Crain Wiley B. Rutledge Professor of Law Washington University School of Law Pauline T. Kim Charles Nagel Professor of Law Washington University School of Law Michael Selmi Samuel Tyler Research Professor of Law George Washington University Law School

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Chapter 4 PUBLIC POLICY PROTECTIONS FOR INDIVIDUAL JOB SECURITY

E. STATUTORY PROTECTIONS FOR WHISTLEBLOWERS Insert at bottom of page 241, before Day v. Staples, Inc. WHISTLEBLOWER PROVISIONS OF THE DODD-FRANK ACT In response to the financial crisis of 2008 and ensuing recession, Congress passed the DoddFrank Wall Street Reform and Consumer Protection Act of 2010 which, among other things, expands and strengthens protections for employee whistleblowers. It amends portions of the Sarbanes-Oxley Acts whistleblower provisions in response to the perceived shortcomings of that statute. It also creates additional anti-retaliation protections, which reach a broader array of potential whistleblowers. The Dodd-Frank Act, however, goes beyond merely prohibiting retaliation, and creates a whistleblower bounty. These provisions affirmatively encourage whistleblowers to report certain forms of corporate wrongdoing by offering substantial monetary awards to those who provide information leading to successful government enforcement actions. Amendments to the Sarbanes-Oxley whistleblower provisions. Dodd-Frank broadens the substantive reach of Sarbanes-Oxley by expanding the types of covered employees, 18 U.S.C. 1514A(a), and extends the period of time to file a whistleblower complaint with OSHA from 90 days after the violation occurs to 180 days after the violation or the date on which the employee became aware of the violation. 18 U.S.C. 1514A(b)(2)(D). In addition, Dodd-Frank provides a right to jury trial in these actions, 1514A(b)(2)(E), and prohibits pre-dispute agreements to arbitrate these claims. 1514A(e). Expanded anti-retaliation protections for whistleblowers. Dodd-Frank also creates new whistleblower protections, adding a section to the Securities Exchange Act that prohibits employers from discharging, demoting, suspending, threatening, harassing, or otherwise discriminating in the terms and conditions of employment because of any lawful act done by the whistleblower (i) in providing information to the [Securities and Exchange] Commission . . . ; (ii) in initiating, testifying in, or assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information; or (iii) in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.), the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), including section 10A(m) of such Act (15 U.S.C. 78f(m)), section 1513(e) of title

18, United States Code, and any other law, rule, or regulation subject to the jurisdiction of the Commission. 15 U.S.C. 78u-6(h)(1)(A). Elsewhere in that section, a whistleblower is defined as any individual who provides, or two or more individuals acting jointly who provide, information relating to a violation of the securities laws to the Commission . . . . 78u-6(a)(6). Thus, there is an apparent inconsistency in the statute: the definition of a whistleblower seems to require that information be provided to the SEC, while the list of protected activities above encompasses some disclosures not made to the SEC, but protected under section 806 of the Sarbanes-Oxley Act, 18 U.S.C. 1514A(a), or the other laws listed in 15 U.S.C. 78u-6(h)(1)(A)(iii). This ambiguity regarding whether a report to the SEC is necessary led one court to conclude that a plaintiff must show that he either provided information to the SEC, or that his disclosures fell under the four categories listed in 15 U.S.C. 78u-6(h)(1)(A)(iii). Egan v. TradingScreen, Inc., No. 10 Civ. 8202, 2011 U.S. Dist. LEXIS 47713, at *19 (S.D.N.Y. May 4, 2011) (emphasis added). To date, very few cases have interpreted the anti-retaliation provisions of Dodd-Frank, but it appears that the Act offers coverage that partially overlaps with the whistleblower protections of Sarbanes-Oxley. That overlap is significant, because Dodd-Frank offers a quite different enforcement scheme, allowing a complainant to go directly to federal court without first filing with OSHA. In addition, the Dodd-Frank anti-retaliation provisions may be brought within six years after the date of the violation or three years after the date the violation becomes known (but no more than ten years after the date of the violation), 15 U.S.C. 78u-6(h)(1)(B)(iii), a period far longer than the 180 day limit for filing a Sarbanes-Oxley claim. Dodd-Frank also provides more generous remedies, entitling a successful plaintiff to two times the amount of back pay owed, plus interest, as well as litigation costs and attorneys fees. 78u-6(h)(1)(C). Dodd-Frank further extends protection to other types of whistleblowers, providing a cause of action for employees who provide disclosures to the newly-created Bureau of Consumer Financial Protection, 12 U.S.C. 5567(a), or who report violations of the Commodities Exchange Act to the Commodity Futures Trading Commission. 7 U.S.C. 26(h). The Bounty Provisions. The most discussed, and controversial, of the whistleblower protections in Dodd-Frank are the so-called bounty provisions. Prior to Dodd-Frank, financial bounties had been used in a variety of contexts to incentivize the reporting of wrong-doing. The most prominent legal example was the False Claims Act, 31 U.S.C. 3729 et seq., which offers a bounty to individuals who successfully pursue claims that private parties have defrauded the federal government. In a similar vein, the Dodd-Frank Act seeks to motivate those with inside knowledge to come forward and assist the Government to identify and prosecute persons who have violated securities laws and recover money for victims of financial fraud. S. REP. NO. 111-176, at 110 (2009). Thus, the Act provides that any individual who voluntarily provides original information to the Securities and Exchange Commission is entitled to a monetary award if that information results in a successful enforcement action with sanctions exceeding one million dollars. 18

U.S.C. 78u-6(b). Such a whistleblower is entitled to between 10 and 30 percent of the monetary sanctions collected, with the exact amount to be determined in the discretion of the Commission. Id. The Act provides similar monetary incentives for whistleblowers who report violations to the Commodity Futures Trading Commission. 7 U.S.C. 26(b). Richard Moberly argues that the bounty model enacted in Dodd-Frank responds to the primary weakness of Sarbanes-Oxleynamely, that it failed to encourage effective whistleblowing that would remedy the underlying wrongdoing. Rather than providing a remedy ex post for retaliation, the bounty model encourages greater whistleblowing by focusing attention on the alleged corporate misconduct (rather than a subsequent personnel action), by compensating whistleblowers for their risk and by directing disclosures to external regulators who can act on the information. See Richard Moberly, Sarbanes-Oxleys Whistleblower Provisions Ten Years Later, S.C. L. REV. (forthcoming) (available at http://papers.ssrn.com/ sol3/papers.cfm?abstract_id=2064061). Other commentators have been more critical, arguing that the bounty provisions of Dodd-Frank do not go far enough to incentivize effective whistleblowing, see Geoffrey Christopher Rapp, Mutiny by the Bounties? The Attempt to Reform Wall Street by the New Whistleblower Provisions of the Dodd-Frank Act, 2012 B.Y.U. L. REV. 73 (2012) (arguing for bounties in cases producing less than $1 million and for allowing whistleblowers to bring actions independent of the SEC), or conversely, that the bounty provisions go too far and will impose significant costs on employers and regulators. See Jenny Lee, Corporate Corruption and the New Gold Mine: How the Dodd-Frank Act Overincentivizes Whistleblowing, 77 BROOK. L. REV. 303, 339 (2011) (asserting that the Dodd-Frank Act overincentivizes whistleblowing); Dave Ebersole, Blowing the Whistle on the Dodd-Frank Whistleblower Provisions, 6 OHIO ST. ENTERPREN. BUS. L.J. 123, 174 (2011) (arguing that the bounty provisions impose costs on businesses and agencies, but provide uncertain benefits to society).

Replace notes 1, 3 and 4 following Day v. Staples on pp. 246-49: NOTES 1. Protected Activity. The courts analysis in the Day case focuses on the first prong of the plaintiffs prima facie casewhether he engaged in a protected activity under the SarbanesOxley Act. According to the court, what is required to show that an employee has engaged in protected activity? Why does it think that Days complaints about Stapless business practices fall short of this standard? Sarbanes-Oxley does not protect all types of whistleblowing, only those that involve reporting information regarding any conduct which the employee reasonably believes constitutes a violation of section 1341 [mail fraud], 1343 [wire fraud], 1344 [bank fraud], or 1348 [securities fraud], any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders. 18 U.S.C. 1514A(a)(1). In addition, the statute only protects outside reports to a government agency or Congress, not the media. See Tides v. Boeing Co., 644 F.3d 809, 815 (9th Cir. 2011) (rejecting employees argument that their disclosures about improper auditing practices to the news media might eventually cause

information to be provided to government agencies or Congress and therefore should be protected under Sarbanes-Oxley). Courts and administrative decisions have differed on how closely the alleged wrongdoing must be linked to a specific violation of one of the laws listed in the Act. Like the court in Day, some decisions have insisted that an employee must show that his communications to his employer definitively and specifically relate[d] to one of the [listed] laws. . . . Welch v. Chao, 536 F.3d 269, 275 (4th Cir. 2008). To satisfy this requirement, a plaintiff need not cite a specific code section, but her complaint to the employer must be sufficient to identify the specific conduct that the employee believes to be illegal. Id. at 276. Others decisions have insisted that the alleged wrongdoing relate to shareholder fraudthat is, the reported fraud must be of a type that would be adverse to investors interests. In the Matter of Platone v. FLYi, Inc., ARB Case No. 04-154, 2006 DOLSOX LEXIS 105, at *29 (Sept. 29, 2006), affd, Platone v. U.S. Dept of Labor, 548 F.3d 322 (4th Cir. 2008). In this view, general allegations of corporate fraud that do not impact shareholders directly are insufficient. Other courts have taken a more liberal approach, permitting claims under Sarbanes-Oxley to proceed based on generalized allegations of financial wrongdoing. For example, in Collins vs. Beazer Homes USA, Inc., 334 F. Supp. 2d 1365 (N.D. Ga. 2004), the court considered the claim of a former Director of Marketing, who alleged that she was fired when she complained that her employer was knowingly overpaying invoices to a favored contractor and overpaying sales agents based on personal relationships. The court explained: Defendants assert that Plaintiff did not engage in protected activity because she never specifically alleged securities or accounting fraud and because her complaints were too vague to constitute protected activity. Defendants contrast the type of disclosures made by Sherron Watkins, the former Enron Vice President, to the disclosures made by Plaintiff. Defendants point out that Watkins was an accountant whose job it was to review Enrons securities, that she outlined specific accounting procedures and transactions about which she was concerned, and that she expressed concerns that specific securities laws were being violated. By contrast, Defendants contend, Plaintiff was the Director of Marketing who expressed only vague concerns that amounted to nothing more than personality conflicts and differences in marketing strategies. . . . . . . . It is evident that Plaintiffs complaints do not rise to the level of complaints that were raised by Sherron Watkins at Enron. However, the mere fact that the severity or specificity of her complaints does not rise to the level of action that would spur Congress to draft legislation does not mean that the legislation it did draft was not meant to protect her. In short, if Congress had intended to limit the protection of Sarbanes-Oxley to accountants, or to have required complainants to specifically identify the code section that they believe was being violated, it could have done so. It did not. Congress instead protected employees and adopted the reasonable belief standard for those who blow the whistle on fraud and protect investors. Legislative history at S7420; see 18 U.S.C. 1514A(a). . . . Plaintiffs allegations detailed violations of the companys internal accounting controls in favor of preferential treatment based on personal relationships . . . . [T]hose allegations were within the zone of protection afforded by Sarbanes-Oxley.

Id. at 1376-78. Other courts have similarly held that the reasonableness of plaintiffs belief of illegality should be determined based on the knowledge available to a reasonable person in the same factual circumstances with the same training and experience as the aggrieved employee. Harp v. Charter Commcns, Inc., 558 F.3d 722, 723 (7th Cir. 2009) (citation omitted). The Administrative Review Board (ARB), sitting en banc in In the matter of Sylvester v. Parexel Intl, LLC, ARB Case No. 07-123, 2011 DOLSOX LEXIS 39 (May 25, 2011), recently repudiated the requirement that in order to be protected, a complaint must definitively and specifically relate to one of the laws listed in sec. 1514A(a)(1). An earlier ARB case, In the Matter of Platone v. FLYi, Inc., ARB Case No. 04-154, 2006 DOLSOX LEXIS 105, (Sept. 29, 2006), had imported the language from cases decided under a different whistleblower statute. In Sylvester, the ARB concluded that it had evolved into an inappropriate test and was often applied too strictly. Sylvester, 2011 DOLSOX LEXIS at *43. Instead, it held that complainants are protected if they report information that they reasonably believe relates to one of the violations listed in the statute [e.g. mail fraud, wire fraud, etc.]. Sylvester also affirmed that reasonable belief should be assessed based on the knowledge available to a reasonable person in the same factual circumstances with the same training and experience as the aggrieved employee. Id. at *33 (citing Harp v. Charter Commcns, Inc., 558 F.3d 722, 723 (7th Cir. 2009)). Sylvester also rejected the argument that reporting must involve shareholder fraud, holding that whistleblowers are protected when they report any violation of a law listed in the statute, whether or not it directly threatens shareholder interests. Sylvester is notable because it signals a marked shift in the ARBs approach to SarbanesOxley claims. See note 4, infra. However, as an administrative decision it is not necessarily binding on the federal courts that review ARB decisions, or decide Sarbanes-Oxley whistleblowing claims in the first instance. Whether its reasoning proves influential in shaping future interpretations of the protections under Sarbanes-Oxley remains to be seen. If Days case had been decided under the standards articulated in Collins or Sylvester would his claim have prevailed? Should it prevail? Would a broader definition of protected activity be more effective in changing a culture that encourages a corporate code of silencethe concern that motivated Congress when it passed Sarbanes-Oxley? Or do the costs of defining protected activity so broadly outweigh the benefits? 3. Covered Employees. Another issue that has arisen under Sarbanes-Oxley concerns which employees are protected against retaliation. The statute clearly protects the employees of public companiesthose with a class of securities registered under the Securities Exchange Act or which are required to file reports with the SEC. 18 U.S.C. 1514A(a). The Dodd-Frank Act clarified that Sarbanes-Oxleys whistleblower protections extend to the employees of any subsidiary or affiliate whose financial information is included in the consolidated financial statements of the public company. Id. The statute also prohibits retaliation by any officer, employee, contractor, subcontractor, or agent of a public company. Id. Should that provision be interpreted to protect the employees of a private company that contracts to provide services to a public company, but is not a subsidiary

or affiliate? The First Circuit recently confronted that question in a case involving employees of private companies that contracted with Fidelity mutual funds to provide financial management services. See Lawson v. FMR, LLC, 670 F.3d 61 (1st Cir. 2012). The Fidelity mutual funds are registered with the SEC and required to file reports, but have no employees of their own. Instead, the funds are overseen by a Board of Trustees and rely on contracts with private companies, such as the plaintiffs employers, to serve as investment advisers and fund managers. The plaintiffs alleged that they were retaliated against for raising concerns about improper registration statements and accounting methods and sought relief under Sarbanes-Oxley. The First Circuit dismissed their claims, concluding that Sarbanes-Oxleys whistleblower protections do not apply to the employees of a contractor of a public company. Id. at **19-20. The ARB recently rejected the holding in Lawson and reaffirmed its position that SarbanesOxleys whistleblower protections are not limited to employees of publicly traded companies. Spinner v. David Landau & Assoc., ARB Case Nos. 10-111, 10-115 (May 31, 2012) (available at http://www.oalj.dol.gov/PUBLIC/ARB/DECISIONS/ARB_DECISIONS/SOX/10_111.SOXP.P DF.) The complainant in Spinner was a Certified Public Accountant, Certified Internal Auditor, and Certified Fraud Examiner employed by a firm that provides internal auditing services to publicly held companies. He was assigned to provide auditing services to S.L. Green, a publicly traded company, and was allegedly terminated after he reported problems that he uncovered during his audit of S.L. Green. The ARB reversed dismissal of his claim, holding that accountants employed by private accounting firms, who in turn provide SOX compliance services to publicly traded corporations, are covered as employees of contractors under [18 U.S.C. 1514A(a)]. Id. at 6. As in its decision in Sylvester (see note 1, supra), the ARB in Spinner adopted a different position from that articulated by a federal court, creating another area of conflicting interpretations. In order to achieve the purpose behind Sarbanes-Oxley, should its protections extend beyond the employees of public companies and their subsidiaries and affiliates? If so, how would you define the appropriate scope of coverage? What are the justifications for limiting coverage as the Lawson court did? 4. An Administrative Shift. Despite burdens of proof that are arguably more favorable to discharged employees, the success rate of Sarbanes-Oxley claims filed with OSHA was quite low initially. Professor Richard E. Moberly conducted a comprehensive study of all Department of Labor determinations of Sarbanes-Oxley whistleblower claims during the first three years after the statute was passed. He found that during this period, the OSHA found in favor of complaining employees only 3.6% of the time. See Richard E. Moberly, Unfulfilled Expectations: An Empirical Analysis of Why Sarbanes-Oxley Whistleblowers Rarely Win, 49 WM. & MARY L. REV. 65, 67 (2007). On appeal from these initial decisions, administrative law judges in the Department of Labor ruled in favor of employees in 6.5% of cases. Id. As Moberly points out, the low win rates of Sarbanes-Oxley whistleblower claims in the administrative process seem especially low when compared to win rates under other statutes (e.g. a 9.8% success rate for administrative claims of whistleblowers in the airline industry; a 14.1% success rate for sexual harassment charges filed with the EEOC). Id. at 93-94. The years following the end of Moberlys original study saw even lower success rates. Over a nearly six

year period, the win rate for Sarbanes-Oxley complainants in front of OSHA was 1.7%. See Richard Moberly, Sarbanes-Oxleys Whistleblower Provisions Ten Years Later, S.C. L. REV. (forthcoming) (available at http://papers.ssrn.com/ sol3/papers.cfm?abstract_id=2064061), at 27. Several factors apparently contributed to these low success rates, including complainants failure to meet procedural requirements, the agencys narrow interpretation of the statute, and improperly applied burdens of proof. Moberly, Unfulfilled Expectations, at 67-70. In addition, OSHA investigators were poorly trained on the complexities of Sarbanes-Oxley and lacked resources to conduct adequate investigations. Id. at 124-6; Moberly, Ten Years Later, at 27-30. Recently, however, administrative handling of Sarbanes-Oxley claims appears to have shifted. President Obamas election resulted in new appointments that changed key personnel at both OSHA, which is responsible for the initial investigation of Sarbanes-Oxley complaints, and the ARB of the Department of Labor, which issues administrative decisions interpreting the Act. David Michaels, who was appointed Assistant Secretary of Labor in charge of OSHA in 2009, has made the whistleblower protection program a priority. He instituted a number of reforms, including improving training for investigators and devoting more resources to the program. Id. at 37-39. OSHA, which had not found in favor of a single complainant in fiscal years 2006 to 2008, issued several significant orders in favor of Sarbanes-Oxley whistleblowers in 2010 and 2011orders which included sizeable backpay awards of up to $1 million. Id. The ARB, with new membership, also appears to have shifted its stance towards SarbanesOxley claims. As discussed in notes 1 and 3, supra, in 2011 it repudiated its earlier, narrow interpretations of a protected activity in Sylvester, and most recently, it extended coverage to employees of private contractors in Spinner. Other recent decisions by the ARB have similarly interpreted Sarbanes-Oxleys protections expansively. For example, the ARB adopted a more lenient standard for what employer actions constitute retaliation, Menendez v. Halliburton, Inc., 32 I.E.R. Cas. (BNA) 1435 (A.R.B. Sept 13, 2011), and permitted a claim to go forward even though the employee had taken confidential documents to support his whistleblower claim, Vannoy v. Celanese Corp., 32 I.E.R. Cas. (BNA) 1454 (A.R.B. Sept. 28, 2011). These developments led a management attorney to question the conventional wisdom that the Department of Labor is a hospitable venue for corporate respondents in Sarbanes-Oxley (SOX) cases and to conclude that it may now be more favorable to whistleblowers than the federal courts. Edward T. Ellis, Reconstituted ARB Expanding Sarbanes-Oxley Whistleblower Protections, 82 BNA Daily Lab. Rep. I-1 (Apr. 27, 2012). Is it surprising that the success rates of whistleblower complainants varies so much depending upon the identity of agency personnel? Should the newly appointed members of the ARB have continued to enforce the original ARB interpretations of the Act? What if they believed those interpretations were clearly erroneous and thwarted the purpose of the Act? What is the correct success rate for these types of claims and how could you figure out if the agency was doing its job appropriately? Given these developments, how should whistleblower complainants weigh the respective advantages of removing their cases to federal court versus letting the administrative process run its course?

Chapter 7 DIGNITARY INTERESTS B. PRIVACY

Replace note 5 on page 395-96 with the following: 5. Constitutional Protection for Confidential Information and Personal Autonomy. In addition to the privacy protections against unreasonable searches and seizures afforded by the Fourth Amendment, the Fourteenth Amendments concept of ordered liberty has been interpreted to protect two types of privacy interests: One is the individual interest in avoiding disclosure of personal matters, and another is the interest in independence in making certain kinds of important decisions. Whalen v. Roe, 429 U.S. 589, 599 (1977). Public employees have raised constitutional challenges when a government employer seeks access to sensitive personal informationsuch as medical or financial records. See, e.g., Denius v. Dunlap, 209 F.3d 944 (7th Cir. 2000) (finding infringement of a public employees right of privacy where the employer required employee to sign a release permitting it to review personal medical records and confidential financial information without any justification for seeking the information and in the absence of safeguards against misuse). The right of confidentiality, however, is not absolute, but must be balanced against the governments interest in disclosure. See Fraternal Order of Police v. Philadelphia, 812 F.2d 105 (3d Cir. 1987) (holding that a flexible balancing test should be applied to public employees claims that required disclosures violated their privacy interest in avoiding disclosure of confidential information). The U.S. Supreme Court recently decided a case involving a claim by employees of a government contractor that parts of a government required background investigation violated their constitutional right to avoid disclosure of personal matters. Natl Aeronautics and Space Admin. v. Nelson, 131 S. Ct. 746 (2011). A Ninth Circuit panel had granted a preliminary injunction against the background investigations, finding that there were serious questions as to whether a broad, open-ended inquiry seeking any adverse information from third parties violated the employees informational privacy rights. Nelson v. Natl Aeronautics & Space Admin., 530 F.3d 865, 881 (9th Cir. 2008). The panel also found that the balance of hardships tipped sharply in favor of the plaintiffs who face a stark choiceeither violation of their constitutional rights or loss of their jobs. Id. Noting that only two cases, decided more than 30 years earlier, had referred broadly to such a constitutional privacy interest, the Supreme Court assume[d], without deciding that the Constitution protects informational privacy. See Natl Aeronautics, 131 S. Ct. at 751. Even assuming that such a right exists, the Court held that the challenged background checks would not violate that right because [t]he Governments interests as employer and proprietor in managing its internal operations combined with existing statutory protections against dissemination of the information satisfied any such constitutional right. Id. Justice Scalia and Thomas concurred in the judgment, but wrote separately to emphasize that in their view [a] federal constitutional right to informational privacy does not exist. Id. at 764.

The Nelson decision raises some uncertainty about the status of a constitutionally protected right of informational privacy in general. But even if such a right exists, the Courts opinion makes clear that the employment context is highly relevant to evaluating any such claim, noting that the Government has a much freer hand in dealing with citizen employees than it does when it brings its sovereign power to bear on citizens at large. Id. at 757-58 (citing Enquist v. Oregon Dept. of Agriculture, 55 U.S. 591, 598 (2008)). Public employees have also asserted constitutional privacy claims under the autonomy prongwith mixed successto challenge decisions by their employers based on their off-duty relationships. Compare Thorne v. El Segundo, 726 F.2d 459 (9th Cir. 1983) (holding that police departments refusal to hire plaintiff based in part on a past, private sexual relationship violated her constitutional rights of privacy and free association), with Mercure v. Van Buren, 81 F. Supp. 2d 814 (E.D. Mich. 2000) (rejecting constitutional privacy claim by police officer fired for having an affair with the estranged wife of a fellow officer on the grounds that adultery is not constitutionally protected).

Replace pages 420-33 in the text with the following: 4. Privacy of Electronic Communications As discussed in the last several sections, the source and nature of legal protection of employee privacy interests varies depending upon whether the workplace is public or private, union or nonunion. Regardless of the type of workplace, however, the rapidly expanding use of new technologies on the job has raised challenging new questions about how to balance employee privacy with employers interests in using these technologies to improve productivity and security. One recurring area of conflict has been over the extent to which employers are permitted to access their employees electronic communications, such as emails, text messages or blog postings. The legal basis for challenging such employer actions varies depending upon the sector, but the cases raise a common underlying questionwhether and to what extent do employees have a reasonable expectation of privacy in their electronic communications? The Supreme Court recently confronted this question in the following case:

CITY OF ONTARIO v. QUON United States Supreme Court 130 S. Ct. 2619 (2010) JUSTICE KENNEDY delivered the opinion of the Court. [Jeff Quon was employed by the Ontario Police Department (OPD) as a police sergeant and member of OPDs Special Weapons and Tactics (SWAT) Team. The City issued pagers to Quon and other SWAT team members in order to help them mobilize and respond to emergency situations. Each pager was allotted a limited number of characters sent or received each month.

Usage in excess of that amount would result in an additional fee. The City had a Computer Usage, Internet and E-Mail Policy which specified that the City reserves the right to monitor and log all network activity including e-mail and Internet use, with or without notice. Users should have no expectation of privacy or confidentiality when using these resources. Quon signed a statement acknowledging that he had read and understood the Computer Policy.] Although the Computer Policy did not cover text messages by its explicit terms, the City made clear to employees, including Quon, that the City would treat text messages the same way as it treated e-mails. At an April 18, 2002, staff meeting at which Quon was present, Lieutenant Steven Duke, the OPD officer responsible for the Citys contract with [the wireless service provider], told officers that messages sent on the pagers are considered e-mail messages. This means that [text] messages would fall under the Citys policy as public information and [would be] eligible for auditing. Dukes comments were put in writing in a memorandum sent on April 29, 2002, by [the Chief of the Ontario Police Department, Lloyd] Scharf to Quon and other City personnel. Within the first or second billing cycle after the pagers were distributed, Quon exceeded his monthly text message character allotment. Duke told Quon about the overage, and reminded him that messages sent on the pagers were considered e-mail and could be audited. Duke said, however, that it was not his intent to audit [an] employees text messages to see if the overage [was] due to work related transmissions. Duke suggested that Quon could reimburse the City for the overage fee rather than have Duke audit the messages. Quon wrote a check to the City for the overage. Duke offered the same arrangement to other employees who incurred overage fees. Over the next few months, Quon exceeded his character limit three or four times. Each time he reimbursed the City. Quon and another officer again incurred overage fees for their pager usage in August 2002. . . . Scharf decided to determine whether the existing character limit was too low. . . . Duke reviewed the transcripts [of text messages sent in August and September by Quon and the other officer who had exceeded the character allowance] and discovered that many of the messages sent and received on Quons pager were not work related, and some were sexually explicit. Duke reported his findings to Scharf, who, along with Quons immediate supervisor, reviewed the transcripts himself. After his review, Scharf referred the matter to OPDs internal affairs division for an investigation into whether Quon was violating OPD rules by pursuing personal matters while on duty. The officer in charge of the internal affairs review was Sergeant Patrick McMahon. Before conducting a review, McMahon used Quons work schedule to redact the transcripts in order to eliminate any messages Quon sent while off duty. He then reviewed the content of the messages Quon sent during work hours. McMahons report noted that Quon sent or received 456 messages during work hours in the month of August 2002, of which no more than 57 were work related; he sent as many as 80 messages during a single day at work; and on an average workday, Quon sent or received 28 messages, of which only 3 were related to police business. The report concluded that Quon had violated OPD rules. Quon was allegedly disciplined. . . . . [Quon filed suit alleging] that petitioners violated [his] fourth Amendment rights . . . by obtaining and reviewing the transcript of [his] pager messages. . . .

[The parties disagree] over whether Quon had a reasonable expectation of privacy. . . . The Court must proceed with care when considering the whole concept of privacy expectations in communications made on electronic equipment owned by a government employer. The judiciary risks error by elaborating too fully on the Fourth Amendment implications of emerging technology before its role in society has become clear. See, e.g., Olmstead v. United States, 277 U.S. 438 (1928), overruled by Katz v. United States, 389 U.S. 347, 353 (1967). In Katz, the Court relied on its own knowledge and experience to conclude that there is a reasonable expectation of privacy in a telephone booth. See id., at 360-361 (Harlan, J., concurring). It is not so clear that courts at present are on so sure a ground. Prudence counsels caution before the facts in the instant case are used to establish far-reaching premises that define the existence, and extent, of privacy expectations enjoyed by employees when using employer-provided communication devices. Rapid changes in the dynamics of communication and information transmission are evident not just in the technology itself but in what society accepts as proper behavior. As one amici brief notes, many employers expect or at least tolerate personal use of such equipment by employees because it often increases worker efficiency. Another amicus points out that the law is beginning to respond to these developments, as some States have recently passed statutes requiring employers to notify employees when monitoring their electronic communications. At present, it is uncertain how workplace norms, and the laws treatment of them, will evolve. [Even if the Court follows the OConnor pluralitys approach,] the Court would have difficulty predicting how employees privacy expectations will be shaped by those changes or the degree to which society will be prepared to recognize those expectations as reasonable. Cell phone and text message communications are so pervasive that some persons may consider them to be essential means or necessary instruments for self-expression, even self-identification. That might strengthen the case for an expectation of privacy. On the other hand, the ubiquity of those devices has made them generally affordable, so one could counter that employees who need cell phones or similar devices for personal matters can purchase and pay for their own. And employer policies concerning communications will of course shape the reasonable expectations of their employees, especially to the extent that such policies are clearly communicated. A broad holding concerning employees privacy expectations vis--vis employer-provided technological equipment might have implications for future cases that cannot be predicted. It is preferable to dispose of this case on narrower grounds. For present purposes we assume . . . Quon had a reasonable expectation of privacy in the text messages sent on the pager provided to him by the City . . . . Even if Quon had a reasonable expectation of privacy in his text messages, petitioners did not necessarily violate the Fourth Amendment by obtaining and reviewing the transcripts. . . . Under the approach of the OConnor plurality, when conducted for a noninvestigatory, work-related purpos[e] or for the investigatio[n] of work-related misconduct, a government employers warrantless search is reasonable if it is justified at its inception and if the measures adopted are reasonably related to the objectives of the search and not excessively intrusive in light of the circumstances giving rise to the search. 480 U.S., at 725-726. The

search here satisfied the standard of the OConnor plurality and was reasonable under that approach. The search was justified at its inception because there were reasonable grounds for suspecting that the search [was] necessary for a noninvestigatory work-related purpose. Id. at 726. As a jury found, Chief Scharf ordered the search in order to determine whether the character limit on the Citys contract with Arch Wireless was sufficient to meet the Citys needs. . . . The City and OPD had a legitimate interest in ensuring that employees were not being forced to pay out of their own pockets for work-related expenses, or on the other hand that the City was not paying for extensive personal communications. As for the scope of the search, reviewing the transcripts was reasonable because it was an efficient and expedient way to determine whether Quons overages were the result of workrelated messaging or personal use. The review was also not excessively intrusive. OConnor, supra, at 726 (plurality opinion). Although Quon had gone over his monthly allotment a number of times, OPD requested transcripts for only the months of August and September 2002. While it may have been reasonable as well for OPD to review transcripts of all the months in which Quon exceeded his allowance, it was certainly reasonable for OPD to review messages for just two months in order to obtain a large enough sample to decide whether the character limits were efficacious. And it is worth noting that during his internal affairs investigation, McMahon redacted all messages Quon sent while off duty, a measure which reduced the intrusiveness of any further review of the transcripts. Furthermore, and again on the assumption that Quon had a reasonable expectation of privacy in the contents of his messages, the extent of an expectation is relevant to assessing whether the search was too intrusive. Even if he could assume some level of privacy would inhere in his messages, it would not have been reasonable for Quon to conclude that his messages were in all circumstances immune from scrutiny. Quon was told that his messages were subject to auditing. As a law enforcement officer, he would or should have known that his actions were likely to come under legal scrutiny, and that this might entail an analysis of his on-the-job communications. Under the circumstances, a reasonable employee would be aware that sound management principles might require the audit of messages to determine whether the pager was being appropriately used. Given that the City issued the pagers to Quon and other SWAT Team members in order to help them more quickly respond to crisesand given that Quon had received no assurances of privacyQuon could have anticipated that it might be necessary for the City to audit pager messages to assess the SWAT Teams performance in particular emergency situations. From OPDs perspective, the fact that Quon likely had only a limited privacy expectation, with boundaries that we need not here explore, lessened the risk that the review would intrude on highly private details of Quons life. OPDs audit of messages on Quons employer-provided pager was not nearly as intrusive as a search of his personal e-mail account or pager, or a wiretap on his home phone line, would have been. That the search did reveal intimate details of Quons life does not make it unreasonable, for under the circumstances a reasonable employer would not expect that such a review would intrude on such matters. The search was permissible in its scope.

The Court of Appeals erred in finding the search unreasonable. It pointed to a host of simple ways to verify the efficacy of the 25,000 character limit . . . without intruding on [respondents] Fourth Amendment rights. 529 F.3d 909. . . . This approach was inconsistent with controlling precedents. This Court has repeatedly refused to declare that only the least intrusive search practicable can be reasonable under the Fourth Amendment. Vernonia, supra, at 663. That rationale could raise insuperable barriers to the exercise of virtually all search-and-seizure powers, United States v. Martinez-Fuerte, 428 U.S. 543, 557, n. 12 (1976), because judges engaged in post hoc evaluations of government conduct can almost always imagine some alternative means by which the objectives of the government might have been accomplished, Skinner, 489 U.S., at 629, n. 9. . . . Even assuming there were ways that OPD could have performed the search that would have been less intrusive, it does not follow that the search as conducted was unreasonable. . . . Because the search was motivated by a legitimate work-related purpose, and because it was not excessive in scope, the search was reasonable . . . and the Court of Appeals erred by holding to the contrary. Petitioners did not violate Quons Fourth Amendment rights. . . . [The opinion of JUSTICE STEVENS, concurring on this judgment, is omitted.] [The opinion of JUSTICE SCALIA, concurring in part and concurring in the judgment, is omitted.]

NOTES 1. Reasonable in Scope? The Ninth Circuit had a different view of the reasonableness of the scope of the search in Quon. It wrote: A search is reasonable at its inception if there are reasonable grounds for suspecting . . . that the search is necessary for a noninvestigatory work-related purpose such as to retrieve a needed file. OConnor, 480 U.S. at 726. Here, the purpose was to ensure that officers were not being required to pay for work-related expenses. This is a legitimate work-related rationale, as the district court acknowledged. However, the search was not reasonable in scope. As OConnor makes clear, a search is reasonable in scope when the measures adopted are reasonably related to the objectives of the search and not excessively intrusive in light of . . . the nature of the [misconduct]. Id. Thus, if less intrusive methods were feasible, or if the depth of the inquiry or extent of the seizure exceeded that necessary for the governments legitimate purposes . . . the search would be unreasonable. . . Schowengerdt [v. General Dynamics Corp.], 823 F.2d [1328,] 1336 [(9th Cir. 1987)] . . . . There were a host of simple ways to verify the efficacy of the 25,000 character limit (if that, indeed, was the intended purpose) without intruding on Appellants Fourth Amendment rights. For example, the Department could have warned Quon that for the month of September he was forbidden from using his pager for personal communications, and that the contents of all of his messages would be reviewed to ensure the pager was used only for work-related purposes during that time frame. Alternatively, if the Department wanted to review past usage, it

could have asked Quon to count the characters himself, or asked him to redact personal messages and grant permission to the Department to review the redacted transcript. . . . Instead, the Department opted to review the contents of all the messages, work-related and personal, without the consent of Quon or the remaining Appellants. This was excessively intrusive in light of the noninvestigatory object of the search, and because Appellants had a reasonable expectation of privacy in those messages, the search violated their Fourth Amendment rights. Quon, 529 F.3d at 908-09. How did the Supreme Court respond to this reasoning? Which approach do think is most consistent with Justice OConnors plurality opinion in OConnor v. Ortega? 2. An Alternative Test. In Quon, the Supreme court pointed out that the OConnor court had disagreed on the proper analytical framework for Fourth Amendment claims against government employers. Justice Scalia, concurring in OConnor, had offered an alternative test. The Court in Quon summarized Justice Scalias approach: His opinion would have dispensed with an inquiry into operational realities and would conclude that the offices of government employees . . . are covered by Fourth Amendment protections as a general matter. But he would also have held that government searches to retrieve work-related materials or to investigate violations of workplace rulessearches of the sort that are regarded as reasonable and normal in the private-employer contextdo not violate the Fourth Amendment. Quon, 130 S. Ct. at 2628. How does Scalias proposed test differ from the framework adopted by the plurality in OConnor? Would it make a difference in the outcome? Should it? 3. New Technologies and the Fourth Amendment. Determining how the Fourth Amendments prohibition of unreasonable searches and seizures applies to monitoring of new technologies like email and text messages can be difficult. Although the Supreme Court avoided this question in Quon, in a recent criminal case it ruled that attaching a GPS device to a vehicle to monitor its movements continuously over several weeks constitutes a search under the Fourth Amendment. United States v. Jones, 132 S. Ct. 945 (2012). The Court however was divided in its reasoning, with several Justices emphasizing the physical nature of the intrusion, and others focused on the reasonableness of the defendants expectation of privacy in his movements over an extended period of time. Should the Justices have squarely confronted the question whether Quon had a reasonable expectation of privacy in his text messages? If so, how should it have answered that question? Although the Supreme Court in Quon declined to provide an answer, other courts have considered similar claims by employees in the private sector. Consider the contrasting approaches taken in the following two cases:

SMYTH v. PILLSBURY CO. United States District Court, Eastern District of Pennsylvania 914 F. Supp. 97 (1996) WEINER, DISTRICT JUDGE. In this diversity action, plaintiff, an at-will employee, claims he was wrongfully discharged from his position as a regional operations manager by the defendant. Presently before the court is the motion of the defendant to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons which follow, the motion is granted. . . . Defendant maintained an electronic mail communication system (e-mail) in order to promote internal corporate communications between its employees. Defendant repeatedly assured its employees, including plaintiff, that all e-mail communications would remain confidential and privileged. Defendant further assured its employees, including plaintiff, that email communications could not be intercepted and used by defendant against its employees as grounds for termination or reprimand. In October 1994, plaintiff received certain e-mail communications from his supervisor over defendants e-mail system on his computer at home. In reliance on defendants assurances regarding defendants e-mail system, plaintiff responded and exchanged e-mails with his supervisor. At some later date, contrary to the assurances of confidentiality made by defendant, defendant, acting through its agents, servants and employees, intercepted plaintiffs private email messages made in October 1994. On January 17, 1995, defendant notified plaintiff that it was terminating his employment effective February 1, 1995, for transmitting what it deemed to be inappropriate and unprofessional comments 1 over defendants e-mail system in October, 1994. As a general rule, Pennsylvania law does not provide a common law cause of action for the wrongful discharge of an at-will employee such as plaintiff. Borse v. Piece Goods Shop, Inc., 963 F.2d 611, 614 (3d Cir.1992). . . . However, in the most limited of circumstances, exceptions have been recognized where discharge of an at-will employee threatens or violates a clear mandate of public policy. A clear mandate of public policy must be of a type that strikes at the heart of a citizens social right, duties and responsibilities. Novosel v. Nationwide Insurance Co., 721 F.2d 894, 899 (3d Cir.1983). This recognized public policy exception is an especially narrow one. . . . As evidenced above, a public policy exception must be clearly defined. The sources of public policy can be found in legislation, administrative rules, regulation, or decision; and judicial decisions . . . Absent legislation, the judiciary must define the cause of action in case by case determinations. Borse, 963 F.2d at 619, n. 6 (3d Cir.1992).

[n. 1] Defendant alleges in its motion to dismiss that the e-mails concerned sales management and contained threats to kill the backstabbing bastards and referred to the planned Holiday party as the Jim Jones Koolaid affair.
1

Plaintiff claims that his termination was in violation of public policy which precludes an employer from terminating an employee in violation of the employees right to privacy as embodied in Pennsylvania common law. 2 In support for this proposition, plaintiff directs our attention to a decision by our Court of Appeals in Borse v. Piece Goods Shop, Inc., 963 F.2d 611 (3d Cir.1992). In Borse, the plaintiff sued her employer alleging wrongful discharge as a result of her refusal to submit to urinalysis screening and personal property searches at her work place pursuant to the employers drug and alcohol policy. After rejecting plaintiffs argument that the employers drug and alcohol program violated public policy encompassed in the United States and Pennsylvania Constitutions, our Court of Appeals stated our review of Pennsylvania law reveals other evidence of a public policy that may, under certain circumstances, give rise to a wrongful discharge action related to urinalysis or to personal property searches. Specifically, we refer to the Pennsylvania common law regarding tortious invasion of privacy. Id. at 620. The Court of Appeals in Borse, observed that one of the torts which Pennsylvania recognizes as encompassing an action for invasion of privacy is the tort of intrusion upon seclusion. As noted by the Court of Appeals, the Restatement (Second) of Torts defines the tort as follows: One who intentionally intrudes, physically or otherwise, upon the solitude or seclusion of another or his private affairs or concerns, is subject to liability to the other for invasion of his privacy, if the intrusion would be highly offensive to a reasonable person. Restatement (Second) of Torts 652B. Liability only attaches when the intrusion is substantial and would be highly offensive to the ordinary reasonable person.. . . Applying the Restatement definition of the tort of intrusion upon seclusion to the facts and circumstances of the case sub judice, we find that plaintiff has failed to state a claim upon which relief can be granted. In the first instance, unlike urinalysis and personal property searches, we do not find a reasonable expectation of privacy in e-mail communications voluntarily made by an employee to his supervisor over the company e-mail system notwithstanding any assurances that such communications would not be intercepted by management. Once plaintiff communicated the alleged unprofessional comments to a second person (his supervisor) over an e-mail system which was apparently utilized by the entire company, any reasonable expectation of privacy was lost. Significantly, the defendant did not require plaintiff, as in the case of an urinalysis or personal property search to disclose any personal information about himself. Rather, plaintiff voluntarily communicated the alleged unprofessional comments over the company e-mail system. We find no privacy interests in such communications.

[n. 2] Although plaintiff does not affirmatively allege so in his complaint or in his memorandum of law in opposition to defendants motion to dismiss, the allegations in the complaint might suggest that plaintiff is alleging an exception to the at-will employment rule based on estoppel, i.e. that defendant repeatedly assured plaintiff and others that it would not intercept e-mail communications and reprimand or terminate based on the contents thereof and plaintiff relied on these assurances to his detriment when he made the inappropriate and unprofessional e-mail communications in October 1994. The law of Pennsylvania is clear, however, that an employer may not be estopped from firing an employee based upon a promise, even when reliance is demonstrated. Paul v. Lankenau Hospital, 569 A.2d 346 (1990).
2

In the second instance, even if we found that an employee had a reasonable expectation of privacy in the contents of his e-mail communications over the company e-mail system, we do not find that a reasonable person would consider the defendants interception of these communications to be a substantial and highly offensive invasion of his privacy. Again, we note that by intercepting such communications, the company is not, as in the case of urinalysis or personal property searches, requiring the employee to disclose any personal information about himself or invading the employees person or personal effects. Moreover, the companys interest in preventing inappropriate and unprofessional comments or even illegal activity over its e-mail system outweighs any privacy interest the employee may have in those comments. In sum, we find that the defendants actions did not tortiously invade the plaintiffs privacy and, therefore, did not violate public policy. As a result, the motion to dismiss is granted.

STENGART v. LOVING CARE AGENCY, INC. Supreme Court of New Jersey 990 A.2d 650 (2010) CHIEF JUSTICE RABNER delivered of the opinion of the Court. In the past twenty years, businesses and private citizens alike have embraced the use of computers, electronic communication devices, the Internet, and e-mail. As those and other forms of technology evolve, the line separating business from personal activities can easily blur. In the modern workplace, for example, occasional, personal use of the Internet is commonplace. Yet that simple act can raise complex issues about an employers monitoring of the workplace and an employees reasonable expectation of privacy. . . . Loving Care provides home-care nursing and health services. Stengart began working for Loving Care in 1994 and, over time, was promoted to Executive Director of Nursing. The company provided her with a laptop computer to conduct company business. From that laptop, Stengart could send e-mails using her company e-mail address; she could also access the Internet and visit websites through Loving Cares server. Unbeknownst to Stengart, certain browser software in place automatically made a copy of each web page she viewed, which was then saved on the computers hard drive in a cache folder of temporary Internet files. Unless deleted and overwritten with new data, those temporary Internet files remained on the hard drive. On several days in December 2007, Stengart used her laptop to access a personal, passwordprotected e-mail account on Yahoos website, through which she communicated with her attorney about her situation at work. She never saved her Yahoo ID or password on the company laptop. Not long after, Stengart left her employment with Loving Care and returned the laptop. On February 7, 2008, she filed the pending complaint [alleging employment discrimination].

In an effort to preserve electronic evidence for discovery, in or around April 2008, Loving Care hired experts to create a forensic image of the laptops hard drive. Among the items retrieved were temporary Internet files containing the contents of seven or eight e-mails Stengart had exchanged with her lawyer via her Yahoo account. 3 . . . [Loving Cares attorneys reviewed the e-mails and used information culled from them in the course of discovery. When Stengarts lawyers learned that defense counsel had copies of their e-mail communications with plaintiff, they sought the return of the originals and all copies of the e-mails and moved to disqualify defense counsel as a sanction for violating the attorney-client privilege.] A legend appears at the bottom of the e-mails that Stengarts lawyer sent [warning readers that the e-mail was confidential and might contain a privileged attorney-client communication]. . . . Loving Care and its counsel relied on an Administrative and Office Staff Employee Handbook that they maintain contains the companys Electronic Communication policy (Policy) [to argue that its employees have no expectation of privacy in their use of company computers.] The proffered Policy states, in relevant part: The company reserves and will exercise the right to review, audit, intercept, access, and disclose all matters on the companys media systems and services at any time, with or without notice. . . . E-mail and voice mail messages, internet use and communication and computer files are considered part of the companys business and client records. Such communications are not to be considered private or personal to any individual employee. The principal purpose of electronic mail (e-mail) is for company business communications. Occasional personal use is permitted; however, the system should not be used to solicit for outside business ventures, charitable organizations, or for any political or religious purpose, unless authorized by the Director of Human Resources. The Policy also specifically prohibits [c]ertain uses of the e-mail system including sending inappropriate sexual, discriminatory, or harassing messages, chain letters, [m]essages in violation of government laws, or messages relating to job searches, business activities unrelated to Loving Care, or political activities. The Policy concludes with the following warning: Abuse of the electronic communications system may result in disciplinary action up to and including separation of employment. . . . It is not clear from [the Policys] language whether the use of personal, password-protected, web-based e-mail accounts via company equipment is covered. The Policy uses general language to refer to its media systems and services but does not define those terms. Elsewhere, the

[n.1] The record does not specify how many of the e-mails were sent or received during work hours. Loving Care asserts that the e-mails in question were exchanged during work hours through the companys server. However, counsel for Stengart represented at oral argument that four of the e-mails were transmitted or accessed during non-work hoursthree on a weekend and one on a holiday. It is unclear, and ultimately not relevant, whether Stengart was at the office when she sent or reviewed them.
3

Policy prohibits certain uses of the e-mail system, which appears to be a reference to company e-mail accounts. The Policy does not address personal accounts at all. In other words, employees do not have express notice that messages sent or received on a personal, web-based e-mail account are subject to monitoring if company equipment is used to access the account. The Policy also does not warn employees that the contents of such e-mails are stored on a hard drive and can be forensically retrieved and read by Loving Care. The Policy goes on to declare that e-mails are not to be considered private or personal to any individual employee. In the very next point, the Policy acknowledges that [o]ccasional personal use [of e-mail] is permitted. As written, the Policy creates ambiguity about whether personal e-mail use is company or private property. . . . According to some courts, employees appear to have a lesser expectation of privacy when they communicate with an attorney using a company e-mail system as compared to a personal, web-based account like the one used here. See, e.g., Smyth v. Pillsbury Co., 914 F. Supp. 97, 100-01 (E.D.Pa.1996) (finding no reasonable expectation of privacy in unprofessional e-mails sent to supervisor through internal corporate e-mail system); Scott v. Beth Israel Med. Ctr., Inc., 17 Misc.3d 934, 847 N.Y.S.2d 436, 441-43 (N.Y.Sup.Ct.2007) (finding no expectation of confidentiality when company e-mail used to send attorney-client messages). But see Convertino v. U.S. Dept of Justice, 674 F. Supp. 2d 97, 110 (D.D.C.2009) (finding reasonable expectation of privacy in attorney-client e-mails sent via employers e-mail system). As a result, courts might treat e-mails transmitted via an employers e-mail account differently than they would web-based e-mails sent on the same company computer. Courts have also found that the existence of a clear company policy banning personal e-mails can also diminish the reasonableness of an employees claim to privacy in e-mail messages with his or her attorney. We recognize that a zero-tolerance policy can be unworkable and unwelcome in todays dynamic and mobile workforce and do not seek to encourage that approach in any way. The location of the companys computer may also be a relevant consideration. In Curto v. Medical World Communications, Inc., 99 Fair Empl. Prac. Cas. (BNA) 298, 2006 WL 1318387 (E.D.N.Y. May 15, 2006), for example, an employee working from a home office sent e-mails to her attorney on a company laptop via her personal AOL account. Id. at 301. Those messages did not go through the companys servers but were nonetheless retrievable. Ibid. Notwithstanding a company policy banning personal use, the trial court found that the e-mails were privileged. Id. at 305. . . . Applying the above considerations to the facts before us, we find that Stengart had a reasonable expectation of privacy in the e-mails she exchanged with her attorney on Loving Cares laptop. Stengart plainly took steps to protect the privacy of those e-mails and shield them from her employer. She used a personal, password-protected e-mail account instead of her company email address and did not save the accounts password on her computer. In other words, she had a

subjective expectation of privacy in messages to and from her lawyer discussing the subject of a future lawsuit. In light of the language of the Policy and the attorney-client nature of the communications, her expectation of privacy was also objectively reasonable. As noted earlier, the Policy does not address the use of personal, web-based e-mail accounts accessed through company equipment. It does not address personal accounts at all. Nor does it warn employees that the contents of emails sent via personal accounts can be forensically retrieved and read by the company. Indeed, in acknowledging that occasional personal use of e-mail is permitted, the Policy created doubt about whether those e-mails are company or private property. Moreover, the e-mails are not illegal or inappropriate material stored on Loving Cares equipment, which might harm the company in some way. They are conversations between a lawyer and client about confidential legal matters, which are historically cloaked in privacy. Our system strives to keep private the very type of conversations that took place here in order to foster probing and honest exchanges. In addition, the e-mails bear a standard hallmark of attorney-client messages. They warn the reader directly that the e-mails are personal, confidential, and may be attorney-client communications. While a pro forma warning at the end of an e-mail might not, on its own, protect a communication, other facts present here raise additional privacy concerns. Under all of the circumstances, we find that Stengart could reasonably expect that e-mails she exchanged with her attorney on her personal, password-protected, web-based e-mail account, accessed on a company laptop, would remain private. It follows that the attorney-client privilege protects those e-mails. In reaching that conclusion, we necessarily reject Loving Cares claim that the attorney-client privilege either did not attach or was waived. . . . Specifically, Loving Care contends that Stengart effectively brought a third person into the conversation from the startwatching over her shoulderand thereby forfeited any claim to confidentiality in her communications. We disagree. . . . The Policy did not give Stengart, or a reasonable person in her position, cause to anticipate that Loving Care would be peering over her shoulder as she opened e-mails from her lawyer on her personal, password-protected Yahoo account. The language of the Policy, the method of transmittal that Stengart selected, and the warning on the e-mails themselves all support that conclusion. . . . Stengart took reasonable steps to keep discussions with her attorney confidential: she elected not to use the company e-mail system and relied on a personal, password-protected, web-based account instead. She also did not save the password on her laptop or share it in some other way with Loving Care. As to whether Stengart knowingly disclosed the e-mails, she certified that she is unsophisticated in the use of computers and did not know that Loving Care could read communications sent on her Yahoo account. Use of a company laptop alone does not establish that knowledge. Nor does the Policy fill in that gap. Under the circumstances, we do not find either a knowing or reckless waiver.

Our conclusion that Stengart had an expectation of privacy in e-mails with her lawyer does not mean that employers cannot monitor or regulate the use of workplace computers. Companies can adopt lawful policies relating to computer use to protect the assets, reputation, and productivity of a business and to ensure compliance with legitimate corporate policies. And employers can enforce such policies. They may discipline employees and, when appropriate, terminate them, for violating proper workplace rules that are not inconsistent with a clear mandate of public policy. For example, an employee who spends long stretches of the workday getting personal, confidential legal advice from a private lawyer may be disciplined for violating a policy permitting only occasional personal use of the Internet. But employers have no need or basis to read the specific contents of personal, privileged, attorney-client communications in order to enforce corporate policy. Because of the important public policy concerns underlying the attorney-client privilege, even a more clearly written company manualthat is, a policy that banned all personal computer use and provided unambiguous notice that an employer could retrieve and read an employees attorney-client communications, if accessed on a personal, password-protected e-mail account using the companys computer systemwould not be enforceable. [The Court then decided that the defendant violated a New Jersey rule of professional conduct by failing to immediately notify plaintiffs counsel or seek court permission to read the e-mails once it realized that they were attorney-client communications. The Court remanded the case to determine what sanctions were appropriate.] NOTES 1. Divergent Outcomes. In both Smyth and Stengart, an employee challenged as violations of privacy an employers actions accessing and reading email messages sent using a company owned computer. Why does Smyths claim fail and Stengarts succeed? Are there factual differences between the two cases that explain the differing outcomes? Or do the two courts simply have fundamentally different attitudes towards the privacy of email communications? One critical difference between Smyth and Stengart are the legal contexts in which the privacy claims arise. Smyth alleged invasion of privacy in order to challenge his termination, while Stengarts privacy claim arose as part of a claim of attorney-client privilege. Do you think these differing contexts influenced the divergent outcomes? Should the different contexts make a difference in whether or not a privacy interest is recognized? Following the decision in Stengart, what would you advise an employer regarding its policies for employee email use? what about the employers practices of monitoring and reviewing employee email? 2. Content of Communications. The court in Smyth repeatedly refers to his email comments as inappropriate and unprofessional. The content of his comments may be relevant to whether his discharge was justified, but are they relevant to the question of whether his privacy was invaded? Conversely, the court in Stengart put significant emphasis on the importance of the attorney-client privilege. What if the emails recovered by Stengarts former employer were not privileged communications, but emails to her boyfriend complaining about her supervisors? Would her privacy have been invaded in that case? Should the employer be permitted to use those emails to impeach her testimony in subsequent litigation? In other words,

is it the sensitive content of the communications that gives rise to privacy concerns, or are there other privacy interests at stake? 3. Expectations of Privacy. In Smyth, the court finds that the plaintiff had no reasonable expectation of privacy in the emails that led to his discharge. It does not provide much explanation for this conclusion, but its very brief discussion mentions the following factors: (1) the communication was voluntarily made (2) to Smyths supervisor (3) over the company e-mail system. Are these facts relevant to the issue whether Smyth had a legitimate interest in the privacy of his emails? How does the court in Stengart analyze whether the plaintiff had a reasonable expectation of privacy? What facts should be relevant to this inquiry? In determining whether an individual has a reasonable expectation of privacy in other contexts, courts have looked at historical values, societal understandings, established practices and whether the individual has manifested an expectation of privacy through her behavior. Most of these factors, however, are not of much assistance when dealing with new technologies such as email. Because of its newness, the norms surrounding an emerging technology are unsettled and contested. In such a situation, trying to determine legitimate expectations of privacy by referring to societal expectations is wholly circular, for societal expectations will be shaped by whether the law legitimates an individuals claims of privacy. Like Smyth, cases raising privacy claims in an employees work email generally have not succeeded. See, e.g., Garrity v. John Hancock Mutual Life Ins. Co., 18 IER Cases 981 (D. Mass. 2002) (holding that plaintiff employees had no reasonable expectation of privacy in their work email); McLaren v. Microsoft Corp., No. 05-97-00824, 1999 Texas App. LEXIS 4103 (Tex. Ct. App. May 28, 1999) (same). On the other hand, claims of invasion of privacy when an employer reads emails on an employees personal email account, even when accessed at work or through employer provided computers, have been more successful. See, e.g., Fischer v. Mt. Olive Lutheran Church, 207 F. Supp. 2d 914 (W.D. Wisc. 2002) (denying defendants summary judgment motion on a common law invasion of privacy claim because it was disputed whether the employers accessing of plaintiffs email account is highly offensive to a reasonable person and whether plaintiffs email account would be considered private by a reasonable person); Van Alstyne v. Elec. Scriptorium, Ltd., 560 F.3d 199 (4th Cir. 2009) (reporting jury verdict in favor of former employee on her claim that employers accessing of her personal email account violated federal statutory law). Does it matter what norms ultimately emerge? If a general consensus emerges that email messagesat least in the workplace settingare not protected communications, then employees will adjust their expectations and behavior accordingly. From this perspective, the choice of a legal rule need not have any long-term impact on privacy interests. Once the rule is clear, employees can protect confidential communications simply by not using e-mail to transmit sensitive information. See Michael Selmi, Privacy for the Working Class: Public Work and Private Lives, 66 LA. L. REV. 1035 (2006) (arguing that employees should avoid using employer equipment for personal use during work, but that their activities off-duty should be protected from employer scrutiny). On the other hand, a number of commentators argue that the effect of technology is to blur the line between work and personal life, making it more difficult to shield purely private matters from the workplace. See, e.g., Patricia Sanchez Abril, Avner Levin &

Alissa Del Riego, Blurred Boundaries: Social Media Privacy and the Twenty-First Century Employee, 49 AM. BUS. L.J. 63, 64 (2012); Robert Sprague, Invasion of the Social Networks: Blurring the Line between Personal Life and the Employment Relationship, 50 U. LOUISVILLE L. REV. 1 (2011). Could employees neatly segregate work and personal aspects of their communications and their lives if they wanted to do so? Are there any costs of failing to protect the privacy of employees electronic communications at work? Professor Pauline Kim argues that reduced employee privacy may threaten other values besides traditional dignitary concerns. More specifically, employer monitoring of electronic communications may discourage certain types of valuable workplace speech, such as collective speech (see Chapter 8, Section D) or whistleblowing speech (see Chapter 4, Section E) that the law otherwise protects and encourages. See Pauline T. Kim, Electronic Privacy and Employee Speech, 87 CHI-KENT L. REV. 901 (2012). 4. Employer Policies. In Smyth the employer had assured its employees that it would not intercept their email communications or use them to discipline or discharge. In contrast, the employer in Stengart had a policy reserving the right to review all electronic communications. Why did these express employer policies not determine the outcome in each case? Should an employers policies be decisive? Are there any problems with relying solely on an employers formal policies to determine whether an employee has a reasonable expectation of privacy? 5. Employer Interests. Employers assert a number of interests in accessing and monitoring their employees electronic communications. Among other things, employers worry about lost productivity, the disclosure of trade secrets, liability for sexual or racial harassment and unauthorized use of property. These concerns led one federal court of appeals to comment that the abuse of access to workplace computers is so common (workers being prone to use them as media of gossip, titillation, and other entertainment and distraction) that reserving a right of inspection is so far from being unreasonable that the failure to do so might well be thought irresponsible. Muick v. Glenayre Elecs., 280 F.3d 741, 743 (7th Cir. 2002). Do you agree? Employers may have legitimate business reasons for engaging in electronic monitoring and surveillance, but the law also affects their incentives for doing so. To the extent that employers fear liability for sexual or racial harassment based on electronic communications, they have an incentive to monitor their employees. The legal standard for liability, however, requires that the conduct must be severe or pervasive; isolated or sporadic incidents will not give rise to liability. Although purportedly intended to avoid liability for harassment, employer monitoring practices may go far beyond what the law requires. Professor Dennis Nolan points out that employers may do more monitoring than required to avoid liability, because of the relative liability risks. Employers fear the substantial costs involved in losing a sexual harassment lawsuit, or even having to defend against such a claim. By contrast, the risk of liability for monitoring employees electronic communications is far less. As Nolan explains, [a]bsent a legal counterweight to sexual or racial harassment suits, it is safer for employers to err on the side of intrusion and restriction than on the side of toleration; to do the former is almost costless; to do the latter could be expensive. Dennis R. Nolan, Privacy and Profitability in the Technological Workplace, 24 J. LAB. RES. 209, 210-20 (2003).

6. Social Media. As electronic communication expands beyond email and texting, issues of employee privacy have increasingly been raised in the context of social media. Should employers be restricted from gathering information about applicants or current employees from Facebook, Twitter and other social media sites? Should they be able to discipline workers for what they say or post on these sites? Are employers entitled to require their employees to give them access to these sites by providing their personal passwords? In recent years, many employers have conducted internet checks, including review of publicly available postings on social networking sites, to evaluate job applicants. Third party vendors offer background screening services that aggregate information about applicants from social media, and software that can monitor current employees activities on site like Facebook and LinkedIn. See, e.g., Kristin Samuelson, Should I be worried about Spokeo.com?, CHI. TRIBUNE, May 28, 2010; Joshua Brustein, Keeping a Closer Eye on Employees Social Networking, N.Y. TIMES, Mar. 26, 2010. Employers may have some legitimate interests in knowing about their employees off-duty communications, such as preventing co-worker harassment, or protecting trade secrets or other confidential business information from disclosure or misuse. Are these interests sufficiently important to justify employer monitoring of public postings? What about access to portions of a social networking site that are protected by privacy settings? Are there other ways to protect legitimate employer interests? After several media reports about employers requiring employees or job applicants to reveal their Facebook passwords, lawmakers have begun to respond. In May of 2012, Maryland adopted a law that forbids employers from asking employees or applicants to reveal passwords to their social media accounts. See 2012 BILL TEXT MD. S.B. 433, modifying MD. CODE ANN., LAB. & EMPL. 3-712 (LexisNexis 2012) (effective Oct. 1, 2012). As of July 2012, similar legislation is pending in approximately a dozen other states and the United States Congress. While these bills limit access to password-protected content, they generally do not prohibit supervisors or managers from seeking to friend their subordinates, nor do they prevent an employer from monitoring publicly available posts by its employees. Do these practices raise similar privacy concerns? or not? Although new legislation has focused on forced disclosure of passwords, a number of existing laws already bear on employer practices of scrutinizing employees online activities. For example, accessing personal information revealed on Facebook may run afoul of prohibitions on inquiries into an applicants protected class status under anti-discrimination laws, see, e.g., CAL. CODE REGS. tit. 2, 72873, subd. (b)(1), or raise an inference of discrimination, as when an adverse personnel action follows the discovery through a social networking site that an employee is pregnant. Other laws, such as the Fair Credit Reporting Act, 15 U.S.C. 16811681T (1990), and the Genetic Information Nondiscrimination Act, 42 U.S.C. 2000ff-1(b), regulate the acquisition and use of certain types of sensitive personal information for employment purposes and should apply to information collected from online sources as well. See, e.g., Edward Wyatt, U.S. Penalizes Online Company in Sale of Personal Data, N.Y. TIMES, June 12, 2012. Aside from these protections for particular types of sensitive information, however, employers remain largely free to make judgments about employees based on their online

activities. They can, and do, discipline and terminate employees for comments posted on online that are deemed unprofessional, inappropriate or damaging to the employers reputation. While publicly posted communications may not involve privacy in the traditional sense of secrecy or seclusion, scrutiny of employees social media activities off-duty does raise questions about how far employer authority should extend beyond the workplace (see Section C, infra). There is one significant exception to employer prerogative in this area, and it concerns employer policies or disciplinary actions that interfere with concerted activity protected under the National Labor Relations Act. Suppose, for example, that employees post comments on social media sites about work-related matters. The employer may feel it has a strong interest in monitoring and preventing negative comments about coworkers, supervisors or work policies that are made on-line; however, these comments may be exactly the type protected because of their connection to collective action. Thus, the same factual scenarios that raise issues concerning the privacy of employees communications and off-duty activities may also implicate distinct interests in speaking and acting collectively as well. See Pauline T. Kim, Electronic Privacy and Employee Speech, 87 CHI-KENT L. REV. 901 (2012). As explored in greater detail in Chapter 8, infra, the legal theories used to advance employees interests in collective voice are very different, and so are the contours of the protection they offer. 7. Statutory Regulation. The Electronic Communications Privacy Act of 1986 (ECPA), 18 U.S.C. 2510 et seq., which amended the Omnibus Crime Control and Safe Streets Act, would appear to provide some privacy protections for electronic communications. Title I of that statute prohibits the interception of electronic communications. Most circuit courts, however, have concluded that an intercept for purposes of the ECPA only occurs contemporaneously with transmission, and that, therefore, the retrieval of stored messages does not violate this provision of the ECPA. See, e.g., Fraser v. Nationwide Mut. Ins. Co., 352 F.3d 107, 113 (3d Cir. 2004) (holding that an insurance agent had no claim under the ECPA when the insurance company searched its file server on which all of his email messages were stored because there was no intercept); Konop v. Hawaiian Airlines, Inc., 302 F.3d 868 (9th Cir. 2002) (concluding that employers unauthorized access of employees secure website did not violate Title I because the communication must be acquired during transmission, not while in electronic storage, to be an unlawful intercept). The Stored Communications Act (SCA), found in Title II of the ECPA, does not require an intercept, but creates civil liability for one who (1) intentionally accesses without authorization a facility through which an electronic communication service is provided; or (2) intentionally exceeds an authorization to access that facility, 18 U.S.C. 2701(a). However, the statute exempts the seizure of electronic communications by the person or entity providing the electronic communications service. To the extent that an employer accesses employee messages on an electronic communications service it provides, its actions are likely exempted from the prohibitions of the SCA. See, e.g., Fraser, 352 F.3d at 115 (holding that because insurance agents email was stored on insurance companys email system, the search of his email falls within exception for provider of service). On the other hand, employer attempts to access password protected email or web pages maintained by third party service providers are more likely to run afoul of the SCA. For

example, in Pietrylo v. Hillstone Rest. Grp., No. 06-5754, 2008 U.S. Dist. LEXIS 108834 (D.N.J. July 25, 2008), two employees who worked as servers at the employers restaurant were fired after managers read their postings on a private MySpace group. The two employees had created the private group for the restaurants employees for the purpose of vent[ing] about any BS we deal with out [sic] work without any outside eyes spying in on us. This group is entirely private, and can only be joined by invitation. Postings on the site included sexual remarks about management and customers, jokes about the specifications established for customer service and quality, and references to violence and illegal drug use. A factual dispute over whether the employee who had provided the password had done so voluntarily raised the question of whether the managers had accessed the postings with authorization, and therefore the court denied summary judgment for the employer on the SCA claim. A jury ultimately found a violation of the SCA and awarded damages. See Pietrylo v. Hillstone Rest. Grp., No. 06-5754, 2009 U.S. Dist. LEXIS 88702 (D.N.J. Sep. 25, 2009). See also Konop, 302 F.3d at 880 (reversing summary judgment on SCA claim for employer who accessed employees password protected website where parties disputed whether it had gained access through an authorized user); Fischer, 207 F. Supp. 2d at 926 (denying summary judgment on SCA claim to employer who accessed plaintiffs web-based Hotmail account).

Chapter 8 EMPLOYEE VOICE

D. COLLECTIVE VOICE PROTECTIONSTHE NLRA 3. NLRA 7 Rights in the NonUnion Workplace Insert new Note after Note 1 p. 538: 1.a. Protected Electronic Communications. As the Board explained in Timekeeping Systems, the NLRAs protection of concerted activity applies to e-mail as well as to more traditional forms of oral and written communication. Suppose that the employer discovers that employees are complaining about their supervisors, company policies, or other aspects of their employment on Facebook or through other social media. Should it make any difference whether the communication occurs on a social networking site or blog? Are the interests at stake different? Unfair labor practice complaints based upon employee postings on social media sites have increased dramatically in the last several years. NLRB field offices have received hundreds of complaints and have issued charges against employers in a number of these instances. Two cases have progressed to hearing before an administrative law judge, although the Board has not issued a final decision in either one. In both cases the ALJ concluded that at least part of the employee Facebook posting was protected activity. In Hispanics United of Buffalo Inc., No. 3CA-27872 (2011), Lydia Cruz-Moore, an advocate for victims of domestic violence employed by a nonprofit Buffalo, N.Y. social service provider, criticized other employees for keeping clients waiting and for not doing their jobs. When Cruz-Moore announced her intention to take her complaints to the social service organizations executive director, a co-worker posted a message on her personal Facebook page during off-duty time complaining about Cruz-Moores criticisms and asking other employees how they felt. Four other employees responded in a sympathetic vein. Cruz-Moore saw the comments on Facebook and became upset. Cruz-Moore complained to the executive director, who discharged the Facebook-posting employees for violating the companys zero-tolerance policy against harassment and bullying by posting on their Facebook pages. The ALJ found that the discharges violated NLRA 8(a)(1) because the employees responses to Cruz-Moores criticism represented a first step towards taking group action to defend themselves against the accusations they could reasonably believe Cruz-Moore was going to make to management. Id. at 8-9. By nipping this action in the bud the employer prevented the employees from taking further action as a group, thereby interfering with their section 7 rights to engage in self-organization or concerted activity for mutual aid or protection. The employer was ordered to reinstate the terminated employees and to make them whole for loss of pay or benefits stemming from the discharge. Id. at 11. In Karl Knauz Motors, Inc., No. 13-CA-46452, a nonunion BMW dealership hosted an Ultimate Driving Event to introduce a redesigned BMW 5 series automobile. The sales staff met with management a day or two prior to the event to discuss what was expected of them. When the general sales manager described the food that would be served (hot dogs, bags of Doritos, cookies, bowls of apples and oranges and bottles of water), sales people complained that

their commissions depended upon vehicle sales, the event focused on their bread and butter product, and that the food was substandard given the brands luxury image. Id. at 2. On the day of the event, a salesman, Robert Becker, took pictures of the sales people holding hot dogs, water and Doritos and posted the pictures on Facebook together with the following comment: I was happy to see that Knauz went All Out for the most important launch of a new BMW in years . . . the new 5 series. A car that will generate tens of millions of dollars in revenues for Knauz over the next few years. The small 8 oz bags of chips, and the $2.00 cookie plate from Sams Club, and the semi fresh apples and oranges were such a nice touch . . . but to top it all off . . . the Hot Dog Cart. Where our clients could . . . [obtain an] over cooked wiener and a stale bun. . . . Relatives, friends, and coworkers commented on the site. The ALJ found Beckers action concerted, pointing out that two or more individuals are not required to act in unison in order to be acting concertedly. Id. at 8. A single employee, acting alone, still acts concertedly if his action seeks to initiate or to induce or prepare for group action, or where the individuals action grows out of prior concerted activity. The group discussion the day prior to the sales event and the sales staffs complaint that hot dogs were not going to sell cars was logically connected to Beckers posting, and thus was sufficient to render this concerted activity. In addition, Beckers posting dealt with a matter pertaining to wages (compensation was based on commissions earned and volume of sales completed) and its satirical tone did not rise to the level of disparagement necessary to deprive an otherwise protected activity of the Acts protection. Id. Unfortunately for Becker, he also posted on his Facebook page pictures of an accident at a neighboring Land Rover dealership (owned by the same automotive group). A sales representative allowed a customers 13-year-old son to get behind the wheel of a Land Rover while showing the car to his father, and when the child stepped on the gas pedal the car was propelled over the customers foot, down an embankment and into a pond. (The salesperson was thrown into the water.) Becker posted his photos of this incident on his Facebook page with the caption, This is your car: This is your car on drugs. Comments by Becker, his friends and coworkers appeared on the page as well, including a service advisor who wrote Finally, some action at our Land Rover store. Id. at 4. The ALJ concluded that this posting was neither protected nor concerted. There was no prior discussion with other employees, it had no connection to the terms and conditions of Beckers employment, and it was posted apparently as a lark. To the extent that Beckers discharge was based upon this action, it was lawful. Id. at 9. The NLRBs Acting General Counsel has issued three Operations-Management Memoranda within the last year (OM 11-74, OM 12-31, and OM 12-59) reporting on the burgeoning number of unfair labor practice complaint filings based upon alleged retaliation for employee postings on social media sites. The Operations Memoranda are issued by the NLRBs General Counsels Office to give direction to NLRB field offices in casehandling. The Memoranda describe the factual scenarios that have been presented to the Board, and offer the General Counsels legal analysis on the facts presented. They do not have the force of law, but offer useful guidance. Consider the following factual scenarios which the Boards General Counsel concluded would not justify filing an unfair labor practice charge. Can you explain why not? How are these

examples different from the activity found to be protected in Hispanics United and Knauz, supra? A bartender was discharged for posting a message on his Facebook page complaining about his employers policy that waitresses are not required to share tips with bartenders, observing that he hadnt had a raise in years, and referring to the customers as rednecks who he hoped would choke[] on glass as they drove home drunk. Although he had a prior conversation with another bartender, who agreed that the policy sucked, neither they nor any other bartender raised the issue with management, and no employees responded to his Facebook post. The employee received a Facebook message that he had been terminated. (OM 11-74) A mental health recovery specialist who worked the night shift in a nonprofit facility for the homeless was discharged for complaining on her Facebook page to friends during her shift that it was spooky being alone overnight in a mental institution, and that she was not sure whether one client was laughing at her, with her, or at the voices in the clients own head. (OM 11-74) An employee of a home improvement store was reprimanded by her supervisor in front of the Regional Manager for failing to perform a task that she had not been instructed to perform. On her lunch break, the employee used her cell phone to update her Facebook status with an expletive and the name of the employers store. Four others, including one of her coworkers, liked that status, and two others commented on it. The employee was discharged for her Facebook posting. (OM 12-31) 1.b. Social Media Policies. Suppose that in an effort to be proactive the employer develops a social media policy restricting what its employees can say about the company or their employment on the internet. The most recent NLRB Advice Operations Memorandum, issued May 30, 2012 (OM 12-59), explains that the Boards traditional doctrine concerning company policies restricting employee speech in any forum applies to company policies limiting employee speech on social media. Such policies violate the NLRA where employees would reasonably interpret them as limiting their exercise of section 7 rights, effectively chilling speech that might lead to formation of a union or other concerted activity. See Lafayette Park Hotel, 326 N.L.R.B. 824, 825 (1998), enforced, 203 F.3d 52 (D.C. Cir. 1999). The Board follows a two-step inquiry in evaluating employer work rules. Lutheran Heritage Village-Livonia, 343 N.L.R.B. 646, 647 (2004). First, it asks whether the rule explicitly restricts section 7 protected activities; if it does, it violates section 8(a)(1), which prohibits interference with, restraint or coercion of employees in the exercise of section 7 rights. For example, a rule that prohibits employees from discussing or denigrating the employees terms and conditions of employment in any forum would violate 8(a)(1) under this prong of the analysis. If the company rule does not explicitly restrict section 7 protected activity, it will violate section 8(a)(1) only if: (1) employees would reasonably construe the language to prohibit section 7 activity; (2) the rule was promulgated in response to union activity; or (3) the rule has been applied to restrict the exercise of section 7 rights. Id. Ambiguity in application to section 7 activity and an absence of limiting language or illustrations are likely to doom the policy. For

example, a confidentiality policy violates the NLRA where it requires that disclosure of information such as individual wage and benefit levels or information regarding the companys financial performance must be only to someone who needs to know the information in order to perform their job, prohibits conversations regarding confidential information in the employee break room or in other open areas, at home, or in public areas, and threatens employees with discharge or criminal prosecution for failing to report unauthorized access of confidential information. See Target Corp., No. 29-CA-030713. Attempts by the employer to monitor tone or content of on-line communications may also violate the NLRA. For example, in McKesson Corp., No. 6-CA66504, an employers policy instructing employees not to pick fights and reminding them to communicate in a professional tone and to avoid objectionable or inflammatory comments was unlawful, because discussions about workplace conditions and unionism are often robust and heated, and thus employees might construe such policies as prohibiting speech about unions. See OM 12-59. On the other hand, company policies that advance legitimate employer business interests such as preventing disclosure of trade secrets, prohibiting harassment, bullying, discrimination, or retaliation do not violate the NLRA, particularly if they provide specific illustrations of prohibited acts. See Clearwater Paper Corp., No. 19-CA-64418. For example, a social media policy developed by Wal-Mart survived scrutiny by the Boards general counsel where it prohibited inappropriate postings including discriminatory remarks, harassment, and threats of violence or similar inappropriate or unlawful conduct. Restrictions on tone instructing employees to be fair and courteous to fellow employees and suggesting that they are more likely to resolve work-related complaints by speaking directly to co-workers or by utilizing WalMarts open door policy than by posting complaints on social media sites were also lawful. Board counsel found the policy gave specific examples of prohibited conduct, was aimed at egregious and unlawful conduct, and was not used to discipline section 7 activity. See Walmart, No. 11-CA-67171.

E. NONTRADITIONAL MECHANISMS FOR COLLECTIVE VOICE Replace Note 2, p. 556 with the following new Note 2: 2. Wal-Mart. Professor Selmi mentions a Wal-Mart class action sex discrimination suit poised to set a new record. The lawsuit, which asserted that female workers were systematically denied promotions and earned less pay than male employees as a result of a centralized corporate structure that fostered gender stereotyping and sex discrimination, was closely watched; because of its size, it had the potential to expose the retail giant to billions of dollars in damages, and the theory of recovery asserted by the plaintiffs was quite novel. A federal judge in San Francisco certified the action as a class action, and the Ninth Circuit (sitting en banc) upheld the certification of a class of 500,000 current employees. The Supreme Court reversed the Ninth Circuits decision, finding that the plaintiffs had failed to satisfy Federal Rule of Civil Procedures Rule 23(a)(2) requirement that they establish common questions of law or fact affecting the proposed class. Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). In a 54 ruling, the Court explained that proof of commonality requires a demonstration that the plaintiff class members have suffered the same injury, and their claims must depend upon a common contention, such as discriminatory bias on the part of the same supervisor, that is capable of classwide resolution. Id. at 2551. While proof that an employer followed a general policy that had discriminatory impact in the same general fashion could suffice, the Court found unpersuasive the plaintiffs effort to make that showing through statistical and anecdotal evidence of a corporate culture that facilitated gender bias by supervisors in local decisionmaking by allowing discretion over employment issues. Id. at 2555. The Court noted that [i]n a company of Wal-Marts size and geographical scope, it is quite unbelievable that all managers would exercise their discretion in a common way without some common direction. Id. The case is discussed further infra in Chapter 9, this supplement. The impact of Dukes beyond the Title VII context remains to be seen. Fair Labor Standards Act claims, for example, are not subject to Rule 23 certification. However, FLSA plaintiffs must show that they are similarly situated to other employees in order to pursue opt-in collective action wage and hour claims. Employers are likely to argue that the factors that the Dukes Court found relevant to establishing commonality should also apply to the analysis of what constitutes similarly situated plaintiffs. Wal-Mart faces potential liability in a number of high profile collective action suits under the Fair Labor Standards Act alleging failure to pay workers overtime pay, failure to pay workers for time worked off-the-clock, and other wage and hour violations (discussed further in Chapter 11, infra), and the issue may well be addressed in some of those cases. In response to these threats to its reputation and business model, Wal-Mart has adopted a proactive stance that Professor Cynthia Estlund has dubbed self-regulation. We will discuss self-regulation further in Chapter 15. At this juncture, however, we pause to consider how WalMarts proactive response may affect avenues for worker voice inside the firm.

p. 558-60: Replace Notes 2 and 3 with the following new Notes: 2. The Role of Class Actions in the Formation of Collective Worker Identity. Could the process of litigating employment law class actions itself encourage workers to frame workplace problems as collective injuries and to construct a group identity that might lead to more durable forms of collective voice? Some commentators think so. Consider the following: By diagnosing an employers payment of low wages, or her differential treatment of employees based on race, as an injustice practiced on workers collectively, therefore, employment laws can be instrumental to constructing for workers a shared experience of unjust treatment. As such, successful use of employment law to frame oppressive working conditions as collective injustices can increase the salience of a collective identity based around possession of employment rights. Benjamin I. Sachs, Employment Law as Labor Law, 29 CARDOZO L. REV. 2685, 2728 (2008). Professor Sachs argues that employment law class action litigation has the potential to galvanize nascent forms of collective organization, insulate workers collective efforts from employer interference, and set in motion dynamics that can generate successive forms of collective activity that go beyond demands for statutory rights. Id.; see also Anna Archer, Comment, Shopping for a Collective Voice When Unionization is Unattainable: 1.6 Million Women Speak Up in Dukes v. Wal-Mart Stores, Inc., 42 HOUS. L. REV. 837 (2005) (suggesting that successful plaintiffs might bargain not only for damages, but forward-looking expansive new employment policies, standardized pay and seniority consideration, rendering class actions a substitute for collective bargaining through a union). How likely is this, given Professor Selmis critique, above? Under what conditions might the potential for formation of a group identity be realized? Class action litigation may be one of the few remaining vehicles for collective voice in workplaces where employers have successfully resisted unionization, as Wal-Mart has. Professor Crain examined the absence of union involvement in and support for the Wal-Mart sex discrimination litigation, and urged unions to play a more public role in reframing sex discrimination as the sort of collective injury that unions can be effective in countering through collective bargaining. Marion Crain, Sex Discrimination as Collective Harm, in THE SEX OF CLASS: WOMEN TRANSFORMING AMERICAN LABOR 99, 110-115 (Dorothy Sue Cobble ed., 2007). Why do you suppose that unions have not heeded this advice, given their intense desire to organize Wal-Mart workers? One dilemma that confronts every union is the tension between the unions long-term social justice mission and its short-term obligation to undertake actions that directly benefit its current membership. Arguably organizing new members in the same industry or sector serves the interests of current members by strengthening union leverage at the bargaining table (unionized competitors are less likely to undercut the wages and benefits sought by unions in bargaining, thus eliminating one of the employers bases for resisting the increases). But those gains are not certain, nor are they immediately realized. Thus, members are likely to complain if their dues are used to finance suits asserting the statutory rights of nonunionized workers unless the unions support produces immediate gains in the form of an election win. And in a classic catch-22, union financial support may violate the NLRA as a form of vote-buying if it unduly influences employee voting in a subsequent election and occurs within a time frame that makes

such undue influence likely. See NLRA 8(b)(1), 29 U.S.C. 158(b)(1); Freund Baking Co. v. NLRB, 165 F.3d 928 (D.C. Cir. 1999) (holding that union announcement and sponsorship of class action lawsuit to enforce employees rights to overtime pay under state law proximate in time to a union election violates 8(b)(1) because it potentially interferes with voter decisionmaking); Stericycle, 357 N.L.R.B. No. 61 (2011) (finding that a new election was warranted where a union financed a wage and hour lawsuit on behalf of employees it sought to organize during the critical period between the date of the filing of the representation petition and the election; unions may educate employees about their rights and may refer them to competent counsel, but may not fund the litigation). This combination of political and legal pressures makes it particularly difficult for unions to take the long view and to offer financial support to lawsuits that advance the statutory rights of the nonunion workers that they seek to organize. See generally Catherine L. Fisk, Union Lawyers and Employment Law, 23 BERKELEY J. EMP. & LAB. L. 57 (2002) (discussing legal barriers to union role in enforcing employment statutes in nonunion workplaces). 3. Class or Collective Claims as Protected Concerted Activity Under the NLRA. Professor Ann Hodges has observed that class actions to enforce workplace rights could be viewed as a form of protected concerted activity under NLRA 7. Ann C. Hodges, Can Compulsory Arbitration Be Reconciled With Section 7 Rights? 38 WAKE FOREST L. REV. 173, 217-18 (2003). In 2012, the National Labor Relations Board found this argument persuasive in a case involving mandatory arbitration agreements which barred the pursuit of class or collective claims in court or through arbitration. D.R. Horton, Inc., 357 N.L.R.B. No. 184 (2012). The employer, a home builder with operations in more than 20 states, required new and current employees to sign a Mutual Arbitration Agreement as a condition of employment. The agreement provided that all disputes and claims relating to employment would be resolved through arbitration, and restricted the arbitrator to hearing individual claims, explicitly depriving the arbitrator of the authority to fashion a proceeding as a class or collective action or to award relief to a group or class of employees in one arbitration proceeding. In exchange for the right to arbitrate claims, employees waived the right to file a lawsuit or other civil proceedings relating to employment, including the right to trial by a judge or jury. Thus, employees who wished to be hired or to retain their jobs were required to agree that they would not pursue class or collective litigation of claims in any forum, arbitral or judicial. Id. at 2. An employee who had signed the arbitration agreement asserted that he had been misclassified as exempt from the overtime pay requirements of the Fair Labor Standards Act, and sought to initiate arbitration on behalf of a nationwide class of similarly classified employees. When the employer refused, citing the contractual language barring arbitration of collective claims, the employee filed an unfair labor charge with the NLRB, alleging that the arbitration agreement interfered with employees rights to engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection. The Board found that the class action waiver violated section 8(a)(1) of the NLRA because the contractual language would lead employees reasonably to believe that they were prohibited from exercising their associational rights under section 7 of the NLRA. The Board explained: The Board has long held, with uniform judicial approval, that the NLRA protects employees ability to join together to pursue workplace grievances, including through

litigation. Not long after the Acts passage, the Board held that the filing of a Fair Labor Standards Act suit by three employees was protected concerted activity, . . . as was an employees circulation of a petition among coworkers, designating him as their agent to seek back wages under the FLSA. . . . In the decades that followed, the Board has consistently held that concerted legal action addressing wages, hours, or working conditions is protected by Section 7. Collective pursuit of a workplace grievance in arbitration is equally protected by the NLRA. When the grievance is pursued under a collectively-bargained grievancearbitration procedure, the Supreme Court has observed, No one doubts that the processing of a grievance in such a manner is concerted activity within the meaning of 7. NLRB v. City Disposal Systems, Inc., 465 U.S. 822, 836 (1984). And the same is true when the grievance is pursued under a unilaterally created grievance/arbitration procedure so long as its pursuit is concerted. . . . Thus, employees who join together to bring employment-related claims on a classwide or collective basis in court or before an arbitrator are exercising rights protected by Section 7 of the NLRA. .... That this restriction on the exercise of Section 7 rights is imposed in the form of an agreement between the employee and the employer makes no difference. From its earliest days, the Board, again with uniform judicial approval, has found unlawful employer-imposed, individual agreements that purport to restrict Section 7 rights including, notably, agreements that employees will pursue claims against their employer only individually. .... Some amici contend that employees Section 7 rights are not impaired by [the arbitration agreements waiver of the right to pursue class or collective claims] because employees can still discuss their claims with one another, pool their resources to hire a lawyer, seek advice and litigation support from a union, solicit support from other employees, and file similar or coordinated individual claims. It is true that the [arbitration agreement] does not interfere with employees right to engage in any of these protected concerted activities. But if the Act makes it unlawful for employers to require employees to waive their right to engage in one form of activity, it is no defense that employees remain able to engage in other concerted activities. . . . The Board emphasized the limitations of its ruling. First, the ruling applies only to agreements made by employees covered by the NLRA; thus, supervisors, managers, independent contractors, and many others are excluded. Second, the Board did not decide whether arbitration agreements that prohibited class or collective actions in court but allowed them in arbitration would be permissible. Finally, the Board noted that its ruling pertained only to arbitration agreements that were required as a condition of employment; it did not reach the more difficult question . . . whether, if arbitration is a mutually beneficial means of dispute resolution, an employer can enter into an agreement that is not a condition of employment with

an individual employee to resolve either a particular dispute or all potential employment disputes through non-class arbitration rather than litigation in court. Id. at 12 and n.28. The case is currently on appeal to the Fifth Circuit. D.R. Horton, Inc. v. NLRB, No. 12-60031 (5th Cir.), argued May 31, 2012. D.R. Horton is discussed further in Chapter 14, this supplement. 4. Class Actions As Catalysts for Social Change. Must the plaintiff workers prevail in a class action lawsuit in order for the litigation to promote change? In Chapter 5 (Collective Job Security) we considered the role of unsuccessful test cases such as Local 1330, United Steel Workers v. United States Steel Corp., 631 F.2d 1264 (6th Cir. 1980) in educating the public and altering social norms. Might losing cases sometimes serve as more effective catalysts for social change than winning cases? See Winnie Chau, Note, Something Old, Something New, Something Borrowed, Something Blue and a Silver Sixpence for Her Shoe: Dukes v. Wal-Mart & Sex Discrimination Class Actions, 12 CARDOZO J.L. & GENDER 969 (2006) (suggesting that the widespread publicity associated with the Wal-Mart case is more likely to spur broad-based change than a financial recovery because of its public consciousness-raising and mobilization effect). Attorneys representing the plaintiffs in Wal-Mart v. Dukes report that more than 12,000 additional women who are current or former Wal-Mart employees have contacted the attorneys during the years that the case was pending. See Justices Hand Wal-Mart a Big Victory, Reversing Sex Bias Class Certification, Daily Lab. Rep. (BNA) No. 118, June 20, 2011, at AA-1, AA-2. Plaintiffs attorneys are currently pursuing the claims seriatim in individual suits, in smaller class claims involving individual stores or regions (at least two have been filed already, one in Texas and one in California), and at the state level. Id. EEOC officials have also indicated that they will press forward with class suits and those alleging a pattern or practice of discrimination, since Rule 23 does not apply to such claims filed by the EEOC. Supreme Court Ruling No Hindrance to Class Suit Strategy, Top Officials Say, Daily Lab. Rep. (BNA) No. 57, Mar. 23, 2012, at C-1.

Chapter 9 EMPLOYMENT DISCRIMINATION LAW

B. CLAIMS OF INTENTIONAL DISCRIMINATION: THE DISPARATE TREATMENT MODEL 2. The Mixed-Motives Proof Structure Add new case on Cats Paw theory to p. 590: STAUB v. PROCTOR HOSPITAL United States Supreme Court 131 S. Ct. 1186 (2011) JUSTICE SCALIA delivered the opinion of the Court. We consider the circumstances under which an employer may be held liable for employment discrimination based on the discriminatory animus of an employee who influenced, but did not make, the ultimate employment decision. I Petitioner Vincent Staub worked as an angiography technician for respondent Proctor Hospital until 2004, when he was fired. Staub and Proctor hotly dispute the facts surrounding the firing, but because a jury found for Staub in his claim of employment discrimination against Proctor, we describe the facts viewed in the light most favorable to him. While employed by Proctor, Staub was a member of the United States Army Reserve, which required him to attend drill one weekend per month and to train full time for two to three weeks a year. Both Janice Mulally, Staubs immediate supervisor, and Michael Korenchuk, Mulallys supervisor, were hostile to Staubs military obligations. Mulally scheduled Staub for additional shifts without notice so that he would pa[y] back the department for everyone else having to bend over backwards to cover [his] schedule for the Reserves. 560 F.3d 647, 652 (CA7 2009). She also informed Staubs co-worker, Leslie Sweborg, that Staubs military duty had been a strain on th[e] department, and asked Sweborg to help her get rid of him. Ibid. Korenchuk referred to Staubs military obligations as a b[u]nch of smoking and joking and [a] waste of taxpayers[] money. Ibid. He was also aware that Mulally was out to get Staub. Ibid. In January 2004, Mulally issued Staub a Corrective Action disciplinary warning for purportedly violating a company rule requiring him to stay in his work area whenever he was not working with a patient. The Corrective Action included a directive requiring Staub to report to Mulally or Korenchuk when [he] ha[d] no patients and [the angio] cases [we]re complete[d]. Id. at 653. According to Staub, Mulallys justification for the Corrective Action was false for two reasons: First, the company rule invoked by Mulally did not exist; and second, even if it did, Staub did not violate it.

On April 2, 2004, Angie Day, Staubs co-worker, complained to Linda Buck, Proctors vice president of human resources, and Garrett McGowan, Proctors chief operating officer, about Staubs frequent unavailability and abruptness. McGowan directed Korenchuk and Buck to create a plan that would solve Staubs availability problems. Id. at 654. But three weeks later, before they had time to do so, Korenchuk informed Buck that Staub had left his desk without informing a supervisor, in violation of the January Corrective Action. Staub now contends this accusation was false: he had left Korenchuk a voice-mail notification that he was leaving his desk. Buck relied on Korenchuks accusation, however, and after reviewing Staubs personnel file, she decided to fire him. The termination notice stated that Staub had ignored the directive issued in the January 2004 Corrective Action. Staub challenged his firing through Proctors grievance process, claiming that Mulally had fabricated the allegation underlying the Corrective Action out of hostility toward his military obligations. Buck did not follow up with Mulally about this claim. After discussing the matter with another personnel officer, Buck adhered to her decision. Staub sued Proctor under the Uniformed Services Employment and Reemployment Rights Act of 1994, 38 U.S.C. 4301 et seq., claiming that his discharge was motivated by hostility to his obligations as a military reservist. His contention was not that Buck had any such hostility but that Mulally and Korenchuk did, and that their actions influenced Bucks ultimate employment decision. A jury found that Staubs military status was a motivating factor in [Proctors] decision to discharge him, and awarded $57,640 in damages. The Seventh Circuit reversed . . . . The court observed that Staub had brought a cats paw case, meaning that he sought to hold his employer liable for the animus of a supervisor who was not charged with making the ultimate employment decision. Id. at 655-656. 4 It explained that under Seventh Circuit precedent, a cats paw case could not succeed unless the nondecisionmaker exercised such singular influence over the decisionmaker that the decision to terminate was the product of blind reliance. Id. at 659. . . . The court admit[ted] that Bucks investigation could have been more robust, since it failed to pursue Staubs theory that Mulally fabricated the write-up. Ibid. But the court said that the singular influence rule does not require the decisionmaker to be a paragon of independence: It is enough that the decisionmaker is not wholly dependent on a single source of information and conducts her own investigation into the facts relevant to the decision. Ibid. Because the undisputed evidence established that Buck was not wholly dependent on the advice of Korenchuk and Mulally, the court held that Proctor was entitled to judgment. Ibid. We granted certiorari. 559 U.S. ___, 130 S. Ct. 2089 (2010). II

The term cats paw derives from a fable conceived by Aesop, put into verse by La Fontaine in 1679, and injected into United States employment discrimination law by [Judge] Posner in 1990. See Shager v. Upjohn Co., 913 F.2d 398, 405 (CA7). In the fable, a monkey induces a cat by flattery to extract roasting chestnuts from the fire. After the cat has done so, burning its paws in the process, the monkey makes off with the chestnuts and leaves the cat with nothing.
4

The Uniformed Services Employment and Reemployment Rights Act (USERRA) provides in relevant part as follows: A person who is a member of . . . or has an obligation to perform service in a uniformed service shall not be denied initial employment, reemployment, retention in employment, promotion, or any benefit of employment by an employer on the basis of that membership, . . . or obligation. 38 U.S.C. 4311(a). It elaborates further: An employer shall be considered to have engaged in actions prohibited . . . under subsection (a), if the persons membership . . . is a motivating factor in the employers action, unless the employer can prove that the action would have been taken in the absence of such membership. 4311(c). The statute is very similar to Title VII . . . . The central difficulty in this case is construing the phrase motivating factor in the employers action. When the company official who makes the decision to take an adverse employment action is personally acting out of hostility to the employees membership in or obligation to a uniformed service, a motivating factor obviously exists. The problem we confront arises when that official has no discriminatory animus but is influenced by previous company action that is the product of a like animus in someone else. In approaching this question, we start from the premise that when Congress creates a federal tort it adopts the background of general tort law. See Burlington N. & S. F. R. Co. v. United States, 556 U.S. ___, ___, 129 S. Ct. 1870 (2009). Intentional torts such as this, as distinguished from negligent or reckless torts, . . . generally require that the actor intend the consequences of an act, not simply the act itself. Kawaauhau v. Geiger, 523 U.S. 57, 61-62 (1998). Staub contends that the fact that an unfavorable entry on the plaintiffs personnel record was caused to be put there, with discriminatory animus, by Mulally and Korenchuk, suffices to establish the tort, even if Mulally and Korenchuk did not intend to cause his dismissal. But discrimination was not part of Bucks reason for the dismissal; and while Korenchuk and Mulally acted with discriminatory animus, the act they committedthe mere making of the reportswas not a denial of initial employment, reemployment, retention in employment, promotion, or any benefit of employment, as liability under USERRA requires. If dismissal was not the object of Mulallys and Korenchuks reports, it may have been their result, or even their foreseeable consequence, but that is not enough to render Mulally or Korenchuk responsible. Here, however, Staub is seeking to hold liable not Mulally and Korenchuk, but their employer. Perhaps, therefore, the discriminatory motive of one of the employers agents (Mulally or Korenchuk) can be aggregated with the act of another agent (Buck) to impose liability on Proctor. Again we consult general principles of law, agency law, which form the background against which federal tort laws are enacted. . . . Here, however, the answer is not so clear. The Restatement of Agency suggests that the malicious mental state of one agent cannot

generally be combined with the harmful action of another agent to hold the principal liable for a tort that requires both. See Restatement (Second) Agency 275 . Some of the cases involving federal torts apply that rule. See United States v. Science Applications Intl Corp., 626 F.3d 1257, 1273-1276 (CADC 2010); Chaney v. Dreyfus Service Corp., 595 F.3d 219, 241 (CA5 2010); United States v. Philip Morris USA Inc., 566 F.3d 1095, 1122, 386 U.S. App. D.C. 49 (CADC 2009). But another case involving a federal tort, and one involving a federal crime, hold to the contrary. See United States ex rel. Harrison v. Westinghouse Savannah River Co., 352 F.3d 908, 918-919 (CA4 2003); United States v. Bank of New England, N. A., 821 F.2d 844, 856 (CA1 1987). Ultimately, we think it unnecessary in this case to decide what the background rule of agency law may be, since the former line of authority is suggested by the governing text, which requires that discrimination be a motivating factor in the adverse action. When a decision to fire is made with no unlawful animus on the part of the firing agent, but partly on the basis of a report prompted (unbeknownst to that agent) by discrimination, discrimination might perhaps be called a factor or a causal factor in the decision; but it seems to us a considerable stretch to call it a motivating factor. Proctor, on the other hand, contends that the employer is not liable unless the de facto decisionmaker (the technical decisionmaker or the agent for whom he is the cats paw) is motivated by discriminatory animus. This avoids the aggregation of animus and adverse action, but it seems to us not the only application of general tort law that can do so. Animus and responsibility for the adverse action can both be attributed to the earlier agent (here, Staubs supervisors) if the adverse action is the intended consequence of that agents discriminatory conduct. So long as the agent intends, for discriminatory reasons, that the adverse action occur, he has the scienter required to be liable under USERRA. And it is axiomatic under tort law that the exercise of judgment by the decisionmaker does not prevent the earlier agents action (and hence the earlier agents discriminatory animus) from being the proximate cause of the harm. Proximate cause requires only some direct relation between the injury asserted and the injurious conduct alleged, and excludes only those link[s] that are too remote, purely contingent, or indirect. Hemi Group, LLC v. City of New York, 559 U.S. 1, ___, 130 S. Ct. 983 (2010). We do not think that the ultimate decisionmakers exercise of judgment automatically renders the link to the supervisors bias remote or purely contingent. The decisionmakers exercise of judgment is also a proximate cause of the employment decision, but it is common for injuries to have multiple proximate causes. . . . Moreover, the approach urged upon us by Proctor gives an unlikely meaning to a provision designed to prevent employer discrimination. An employers authority to reward, punish, or dismiss is often allocated among multiple agents. The one who makes the ultimate decision does so on the basis of performance assessments by other supervisors. Proctors view would have the improbable consequence that if an employer isolates a personnel official from an employees supervisors, vests the decision to take adverse employment actions in that official, and asks that official to review the employees personnel file before taking the adverse action, then the employer will be effectively shielded from discriminatory acts and recommendations of supervisors that were designed and intended to produce the adverse action. That seems to us an implausible meaning of the text, and one that is not compelled by its words.

Proctor suggests that even if the decisionmakers mere exercise of independent judgment does not suffice to negate the effect of the prior discrimination, at least the decisionmakers independent investigation (and rejection) of the employees allegations of discriminatory animus ought to do so. We decline to adopt such a hard-and-fast rule. As we have already acknowledged, the requirement that the biased supervisors action be a causal factor of the ultimate employment action incorporates the traditional tort-law concept of proximate cause. See, e.g., Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 457-458 (2006). Thus, if the employers investigation results in an adverse action for reasons unrelated to the supervisors original biased action, then the employer will not be liable. But the supervisors biased report may remain a causal factor if the independent investigation takes it into account without determining that the adverse action was, apart from the supervisors recommendation, entirely justified. We are aware of no principle in tort or agency law under which an employers mere conduct of an independent investigation has a claim-preclusive effect. Nor do we think the independent investigation somehow relieves the employer of fault. The employer is at fault because one of its agents committed an action based on discriminatory animus that was intended to cause, and did in fact cause, an adverse employment decision. .... We therefore hold that if a supervisor performs an act motivated by antimilitary animus that is intended by the supervisor to cause an adverse employment action, and if that act is a proximate cause of the ultimate employment action, then the employer is liable under USERRA. III Applying our analysis to the facts of this case, it is clear that the Seventh Circuits judgment must be reversed. Both Mulally and Korenchuk were acting within the scope of their employment when they took the actions that allegedly caused Buck to fire Staub. . . . As the Seventh Circuit recognized, there was evidence that Mulallys and Korenchuks actions were motivated by hostility toward Staubs military obligations. There was also evidence that Mulallys and Korenchuks actions were causal factors underlying Bucks decision to fire Staub. Finally, there was evidence that both Mulally and Korenchuk had the specific intent to cause Staub to be terminated. Mulally stated she was trying to get rid of Staub, and Korenchuk was aware that Mulally was out to get Staub. Moreover, Korenchuk informed Buck, Proctors personnel officer responsible for terminating employees, of Staubs alleged noncompliance with Mulallys Corrective Action, and Buck fired Staub immediately thereafter; a reasonable jury could infer that Korenchuk intended that Staub be fired. . . . It is less clear whether the jurys verdict should be reinstated or whether Proctor is entitled to a new trial. The jury instruction did not hew precisely to the rule we adopt today; it required only that the jury find that military status was a motivating factor in [Proctors] decision to discharge him. Whether the variance between the instruction and our rule was harmless error or should mandate a new trial is a matter the Seventh Circuit may consider in the first instance. ....

The judgment of the Seventh Circuit is reversed, and the case is remanded for further proceedings consistent with this opinion. It is so ordered. JUSTICE KAGAN took no part in the consideration or decision of this case. JUSTICE ALITOs concurring opinion, joined by JUSTICE THOMAS, is omitted. NOTES 1. The Courts Approach. In Staub, the Court adoptsas it often doesa middle ground between the asserted positions. Why do you think it did so here? Do you think the Court adopted an appropriate standard? What problems do you anticipate that plaintiffs might have in establishing liability under the cats paw theory? One of the more interesting aspects of the cats paw theory, what is also known as subordinate liability, is that it took so long for the Court to address the issue. In some ways, the theory is akin to the mixed motives theory, but there is a significant difference as well, what do you think that difference is? 2. USERRA. The Staub case arose under the Uniformed Services Employment and Reemployment Rights Act (USERRA), which prohibits discrimination based on an individuals military service obligation. As the Court notes, much of the case law parallels Title VII, though one distinguishing feature is that the cases often involve direct evidence of discrimination. For example, in Bobo v. UPS, 665 F.3d 741 (6th Cir. 2012), the plaintiff upon notifying his supervisor of his service obligations was told that he needed to choose between UPS and the Army, id. at 744, and when he later returned from his military service he was assigned three times as many drivers to train than his peers. Id. at 745. Why do you think these cases may involve direct evidence? Is there something about the cases that might make them different in this respect? 3. The Cats Paw Theory in Other Contexts. The question whether the Staub case would be applied to Title VII has, to date, been answered affirmatively, often without any analysis. See Guinares v. SuperValue, Inc., 674 F.3d 962, 972 (8th Cir. 2012) (applying to Title VII); McKenna v. City of Philadelphia, 649 F.3d 171 (3rd Cir. 2011) (applying to Title VII case with little discussion). For an entertaining discussion of the theory and its complications, by Judge Posner, who introduced the cats paw fable into the jurisprudence lexicon, see Cook v. IPS Intl Corp., 673 F.3d 625, 627-29 (7th Cir. 2012). Whether the Staub standard applies in the age discrimination context seems a more difficult question. One court recently applied the standard in a modified fashion by requiring but-for rather than proximate causation regarding the role the subordinate played. See Simmons v. Sykes Enterprises, Inc., 647 F.3d 943 (10th Cir. 2012). Based on the limited early sampling, the cases have proved difficult to establish but the reasons seem to turn on the particular facts of the cases rather than the standard the Supreme Court adopted.

Add new case to retaliation note on p. 592: Over the last decade, the Supreme Court has issued a series of decisions involving claims of retaliation that have strongly favored plaintiffs. The casebook mentions several of the cases, and the case listed below marks the Courts latest foray into this area. Lower courts had generally found that these third-party claims fell outside of the scope of Title VIIs antiretaliation provision given that the person affected was not the person who filed a claim, or participated in the process. Note specifically how the Court addresses the statutory language, and it may also be worth highlighting that the opinion was written by Justice Scalia. THOMPSON v. NORTH AMERICAN STAINLESS, LP United States Supreme Court 131 S. Ct. 863 (2011) JUSTICE SCALIA delivered the opinion of the Court. Until 2003, both petitioner Eric Thompson and his fiance, Miriam Regalado, were employees of respondent North American Stainless (NAS). In February 2003, the Equal Employment Opportunity Commission (EEOC) notified NAS that Regalado had filed a charge alleging sex discrimination. Three weeks later, NAS fired Thompson. Thompson then filed a charge with the EEOC. After conciliation efforts proved unsuccessful, he sued NAS in the United States District Court . . . claiming that NAS had fired him in order to retaliate against Regalado for filing her charge with the EEOC. The District Court granted summary judgment to NAS, concluding that Title VII does not permit third party retaliation claims. 435 F. Supp. 2d 633, 639 (ED Ky. 2006). After a panel of the Sixth Circuit reversed the District Court, the Sixth Circuit granted rehearing en banc and affirmed by a 10-to-6 vote. 567 F.3d 804 (2009). The court reasoned that because Thompson did not engag[e] in any statutorily protected activity, either on his own behalf or on behalf of Miriam Regalado, he is not included in the class of persons for whom Congress created a retaliation cause of action. Id. at 807-808. We granted certiorari. I Title VII provides that [i]t shall be an unlawful employment practice for an employer to discriminate against any of his employees . . . because he has made a charge under Title VII. 42 U.S.C. 2000e-3(a). . . . It is undisputed that Regalados filing of a charge with the EEOC was protected conduct under Title VII. In the procedural posture of this case, we are also required to assume that NAS fired Thompson in order to retaliate against Regalado for filing a charge of discrimination. This case therefore presents two questions: First, did NASs firing of Thompson constitute unlawful retaliation? And second, if it did, does Title VII grant Thompson a cause of action? II With regard to the first question, we have little difficulty concluding that if the facts alleged by Thompson are true, then NASs firing of Thompson violated Title VII. In Burlington N. & S.

F. R. Co. v. White, 548 U.S. 53 (2006), we held that Title VIIs antiretaliation provision must be construed to cover a broad range of employer conduct. We reached that conclusion by contrasting the text of Title VIIs antiretaliation provision with its substantive antidiscrimination provision. Title VII prohibits discrimination on the basis of race, color, religion, sex, and national origin with respect to . . . compensation, terms, conditions, or privileges of employment, and discriminatory practices that would deprive any individual of employment opportunities or otherwise adversely affect his status as an employee. Id. at 62 (quoting 42 U.S.C. 2000e-2(a). In contrast, Title VIIs antiretaliation provision prohibits an employer from discriminat[ing] against any of his employees for engaging in protected conduct, without specifying the employer acts that are prohibited. 548 U.S., at 62 (quoting 2000e-3(a)). Based on this textual distinction and our understanding of the antiretaliation provisions purpose, we held that the antiretaliation provision, unlike the substantive provision, is not limited to discriminatory actions that affect the terms and conditions of employment. Id. at 64. Rather, Title VIIs antiretaliation provision prohibits any employer action that well might have dissuaded a reasonable worker from making or supporting a charge of discrimination. Id. at 68. We think it obvious that a reasonable worker might be dissuaded from engaging in protected activity if she knew that her fianc would be fired. Indeed, NAS does not dispute that Thompsons firing meets the standard set forth in Burlington. Tr. of Oral Arg. 30. NAS raises the concern, however, that prohibiting reprisals against third parties will lead to difficult linedrawing problems concerning the types of relationships entitled to protection. Perhaps retaliating against an employee by firing his fiance would dissuade the employee from engaging in protected activity, but what about firing an employees girlfriend, close friend, or trusted coworker? Applying the Burlington standard to third-party reprisals, NAS argues, will place the employer at risk any time it fires any employee who happens to have a connection to a different employee who filed a charge with the EEOC. Although we acknowledge the force of this point, we do not think it justifies a categorical rule that third-party reprisals do not violate Title VII. As explained above, we adopted a broad standard in Burlington because Title VIIs antiretaliation provision is worded broadly. We think there is no textual basis for making an exception to it for third-party reprisals, and a preference for clear rules cannot justify departing from statutory text. We must also decline to identify a fixed class of relationships for which third-party reprisals are unlawful. We expect that firing a close family member will almost always meet the Burlington standard, and inflicting a milder reprisal on a mere acquaintance will almost never do so, but beyond that we are reluctant to generalize. As we explained in Burlington, 548 U.S., at 69 the significance of any given act of retaliation will often depend upon the particular circumstances. Given the broad statutory text and the variety of workplace contexts in which retaliation may occur, Title VIIs antiretaliation provision is simply not reducible to a comprehensive set of clear rules. We emphasize, however, that the provisions standard for judging harm must be objective, so as to avoi[d] the uncertainties and unfair discrepancies that can plague a judicial effort to determine a plaintiffs unusual subjective feelings. Id. at 68-69. III

The more difficult question in this case is whether Thompson may sue NAS for its alleged violation of Title VII. The statute provides that a civil action may be brought . . . by the person claiming to be aggrieved. 42 U.S.C. 2000e-5(f)(1). The Sixth Circuit concluded that this provision was merely a reiteration of the requirement that the plaintiff have Article III standing. We do not understand how that can be. The provision unquestionably permits a person claiming to be aggrieved to bring a civil action. It is arguable that the aggrievement referred to is nothing more than the minimal Article III standing, which consists of injury in fact caused by the defendant and remediable by the court. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560561 (1992). But Thompsons claim undoubtedly meets those requirements, so if that is indeed all that aggrievement consists of, he may sue. We have suggested in dictum that the Title VII aggrievement requirement conferred a right to sue on all who satisfied Article III standing. Trafficante v. Metropolitan Life Ins. Co., 409 U.S. 205 (1972), involved the person aggrieved provision of Title VIII (the Fair Housing Act) rather than Title VII. In deciding the case, however, we relied upon, and cited with approval, a Third Circuit opinion involving Title VII, which, we said, concluded that the words used showed a congressional intention to define standing as broadly as is permitted by Article III of the Constitution. Id. at 209 (quoting Hackett v. McGuire Bros., Inc., 445 F.2d 442, 446 (1971)). We think that dictum regarding Title VII was too expansive. . . [and we] now find that this dictum was ill-considered, and we decline to follow it. If any person injured in the Article III sense by a Title VII violation could sue, absurd consequences would follow. For example, a shareholder would be able to sue a company for firing a valuable employee for racially discriminatory reasons, so long as he could show that the value of his stock decreased as a consequence. At oral argument Thompson acknowledged that such a suit would not lie, Tr. of Oral Arg. 5-6. We agree, and therefore conclude that the term aggrieved must be construed more narrowly than the outer boundaries of Article III. At the other extreme from the position that person aggrieved means anyone with Article III standing, NAS argues that it is a term of art that refers only to the employee who engaged in the protected activity. We know of no other context in which the words carry this artificially narrow meaning, and if that is what Congress intended it would more naturally have said person claiming to have been discriminated against rather than person claiming to be aggrieved. We see no basis in text or prior practice for limiting the latter phrase to the person who was the subject of unlawful retaliation. . . . In our view there is a common usage of the term person aggrieved that avoids the extremity of equating it with Article III and yet is fully consistent with our application of the term in Trafficante. The Administrative Procedure Act, 5 U.S.C. 551 et seq., authorizes suit to challenge a federal agency by any person . . . adversely affected or aggrieved . . . within the meaning of a relevant statute. 702. We have held that this language establishes a regime under which a plaintiff may not sue unless he falls within the zone of interests sought to be protected by the statutory provision whose violation forms the legal basis for his complaint. Lujan v. National Wildlife Federation, 497 U.S. 871, 883 (1990). We have described the zone of interests test as denying a right of review if the plaintiffs interests are so marginally related to or inconsistent with the purposes implicit in the statute that it cannot reasonably be assumed that Congress intended to permit the suit. Clarke v. Securities Industry Assn., 479 U.S. 388, 399-400

(1987). We hold that the term aggrieved in Title VII incorporates this test, enabling suit by any plaintiff with an interest arguably [sought] to be protected by the statutes, National Credit Union Admin. v. First Nat. Bank & Trust Co., 522 U.S. 479, 495 (1998), while excluding plaintiffs who might technically be injured in an Article III sense but whose interests are unrelated to the statutory prohibitions in Title VII. Applying that test here, we conclude that Thompson falls within the zone of interests protected by Title VII. Thompson was an employee of NAS, and the purpose of Title VII is to protect employees from their employers unlawful actions. Moreover, accepting the facts as alleged, Thompson is not an accidental victim of the retaliationcollateral damage, so to speak, of the employers unlawful act. To the contrary, injuring him was the employers intended means of harming Regalado. Hurting him was the unlawful act by which the employer punished her. In those circumstances, we think Thompson well within the zone of interests sought to be protected by Title VII. He is a person aggrieved with standing to sue. .... The judgment of the Sixth Circuit is reversed, and the case is remanded for further proceedings consistent with this opinion. It is so ordered. JUSTICE KAGAN took no part in the consideration or decision of this case. The concurring opinion by JUSTICE GINSBURG is omitted. NOTE The Thompson case marks the latest in a lengthy run of expansive retaliation cases. As should be apparent, this case was not easy as a matter of statutory interpretation but the conclusion also seemed foreordained, as perhaps indicated in the Courts unanimity. Here the retaliation was rather clear if indirect, and thus not something the Court would likely tolerate, particularly given the standard it had established in prior cases, namely that retaliation occurs when a reasonable employee would have found the challenged action materially adverse, which in this context means it might well have dissuaded a reasonable worker from making or supporting a charge of discrimination. Burlington Northern & Santa Fe Ry. Co. v. White, 548 U.S. 53, 68 (2006) (casebook p. 591). Firing ones fianc, needless to say, is precisely the kind of action that would dissuade a worker from pursuing a charge of discrimination. These third-party retaliation claims are not likely to occur very often, but the case illustrates the Courts protective stance towards retaliation claims. Why do you think the Court has been so protective of retaliation claims?

Add new case on pattern or practice discrimination to page 597: Last term, the Supreme Court decided one of the most anticipated employment discrimination cases in years, the massive class action sex discrimination claim filed against Wal-Mart. The case was filed in California and sought nationwide class action status regarding the pay and promotion of women who worked, or had formerly worked, at Wal-Mart. The lawsuit was originally filed in 2001, and class certification was granted in 2004 after a lengthy hearing before the District Court. The class certification decision was followed by a lengthy appeal process, followed by an en banc hearing in the Ninth Circuit Court of Appeals. The result was that by the time the case reached the Supreme Court, it had been pending for nearly ten years but remained at the class certification stage. The Supreme Court granted certiorari to determine whether the class had been properly certified pursuant to Rule 23 of the Federal Rules of Civil Procedure. Much of the case discussion involves the particular demands of Rule 23, and we have edited out most of the Civil Procedure discussion so as to focus on the nature of the class pattern or practice claims that were brought against Wal-Mart. There were two different questions addressed by the Supreme Court. First, and what the focus of the excerpted opinion below involves, was whether there was sufficient commonality or common questions to justify class treatment under the basic provision of Rule 23(a). There was also a question whether, assuming the case could satisfy the requirements of 23(a), it would have to meet the requirements of 23(b)(2) or 23(b)(3) in order to proceed as a class. Historically, employment discrimination class actions that sought primarily injunctive relief were certified under section 23(b)(2), which has the advantage for plaintiffs that no notice is required to be provided to potential class members and the class is mandatory in nature. On the other hand, if a class is certified under Rule 23(b)(3), the type of class action usually required when a case is primarily about money damages, the class representatives must provide notice and an opportunity to opt out to all potential class members. In a case that involved as many as one million potential class members, the notice and opt out requirements could prove significant obstacles to pursuing the case as a class. Ultimately, the Supreme Court held that class actions like those brought against Wal-Mart must proceed under Rule 23(b)(3), and the Court by a 5-4 margin also held that the class was improperly certified because the claims lacked commonality. This latter issue is addressed below while the 23(b)(2) vs. 23(b)(3) discussion will be deferred to other relevant courses. WAL-MART STORES, INC., v. DUKES et al. United States Supreme Court 131 S. Ct. 2541 (2011) JUSTICE SCALIA delivered the opinion of the Court. We are presented with one of the most expansive class actions ever. The District Court and the Court of Appeals approved the certification of a class comprising about one and a half million plaintiffs, current and former female employees of petitioner Wal-Mart who allege that the discretion exercised by their local supervisors over pay and promotion matters violates Title VII by discriminating against women. In addition to injunctive and declaratory relief, the plaintiffs seek an award of backpay. We consider whether the certification of the plaintiff class was consistent with Federal Rules of Civil Procedure 23(a) and (b)(2).

I A Petitioner Wal-Mart is the Nations largest private employer. It operates four types of retail stores throughout the country: Discount Stores, Supercenters, Neighborhood Markets, and Sams Clubs. Those stores are divided into seven nationwide divisions, which in turn comprise 41 regions of 80 to 85 stores apiece. Each store has between 40 and 53 separate departments and 80 to 500 staff positions. In all, Wal-Mart operates approximately 3,400 stores and employs more than one million people. Pay and promotion decisions at Wal-Mart are generally committed to local managers broad discretion, which is exercised in a largely subjective manner. 222 F.R.D. 137, 145 (ND Cal. 2004). Local store managers may increase the wages of hourly employees (within limits) with only limited corporate oversight. As for salaried employees, such as store managers and their deputies, higher corporate authorities have discretion to set their pay within preestablished ranges. Promotions work in a similar fashion. Wal-Mart permits store managers to apply their own subjective criteria when selecting candidates as support managers, which is the first step on the path to management. Admission to Wal-Marts management training program, however, does require that a candidate meet certain objective criteria, including an above-average performance rating, at least one years tenure in the applicants current position, and a willingness to relocate. But except for those requirements, regional and district managers have discretion to use their own judgment when selecting candidates for management training. Promotion to higher office e.g., assistant manager, co-manager, or store manageris similarly at the discretion of the employees superiors after prescribed objective factors are satisfied. B The named plaintiffs in this lawsuit, representing the 1.5 million members of the certified class, are three current or former Wal-Mart employees who allege that the company discriminated against them on the basis of their sex by denying them equal pay or promotions, in violation of Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. 2000e-1 et seq. Betty Dukes began working at a Pittsburgh, California, Wal-Mart in 1994. She started as a cashier, but later sought and received a promotion to customer service manager. After a series of disciplinary violations, however, Dukes was demoted back to cashier and then to greeter. Dukes concedes she violated company policy, but contends that the disciplinary actions were in fact retaliation for invoking internal complaint procedures and that male employees have not been disciplined for similar infractions. Dukes also claims two male greeters in the Pittsburgh store are paid more than she is. Christine Kwapnoski has worked at Sams Club stores in Missouri and California for most of her adult life. She has held a number of positions, including a supervisory position. She claims

that a male manager yelled at her frequently and screamed at female employees, but not at men. The manager in question told her to doll up, to wear some makeup, and to dress a little better. App. 1003a. The final named plaintiff, Edith Arana, worked at a Wal-Mart store in Duarte, California, from 1995 to 2001. In 2000, she approached the store manager on more than one occasion about management training, but was brushed off. Arana concluded she was being denied opportunity for advancement because of her sex. She initiated internal complaint procedures, whereupon she was told to apply directly to the district manager if she thought her store manager was being unfair. Arana, however, decided against that and never applied for management training again. In 2001, she was fired for failure to comply with Wal-Marts timekeeping policy. These plaintiffs, respondents here, do not allege that Wal-Mart has any express corporate policy against the advancement of women. Rather, they claim that their local managers discretion over pay and promotions is exercised disproportionately in favor of men, leading to an unlawful disparate impact on female employees, see 42 U.S.C. 2000e-2(k). And, respondents say, because Wal-Mart is aware of this effect, its refusal to cabin its managers authority amounts to disparate treatment, see 2000e-2(a). Their complaint seeks injunctive and declaratory relief, punitive damages, and backpay. It does not ask for compensatory damages. Importantly for our purposes, respondents claim that the discrimination to which they have been subjected is common to all Wal-Marts female employees. The basic theory of their case is that a strong and uniform corporate culture permits bias against women to infect, perhaps subconsciously, the discretionary decisionmaking of each one of Wal-Marts thousands of managersthereby making every woman at the company the victim of one common discriminatory practice. Respondents therefore wish to litigate the Title VII claims of all female employees at Wal-Marts stores in a nationwide class action. C Class certification is governed by Federal Rule of Civil Procedure 23. Under Rule 23(a), the party seeking certification must demonstrate, first, that: (1) (2) (3) (4) the class is so numerous that joinder of all members is impracticable, there are questions of law or fact common to the class, the claims or defenses of the representative parties are typical of the claims or defenses of the class, and the representative parties will fairly and adequately protect the interests of the class (paragraph breaks added).

Second, the proposed class must satisfy at least one of the three requirements listed in Rule 23(b) [further discussion of the requirements of 23(b) is omitted]. . . . [R]espondents moved the District Court to certify a plaintiff class consisting of [a]ll women employed at any Wal-Mart domestic retail store at any time since December 26, 1998, who have been or may be subjected to Wal-Marts challenged pay and management track

promotions policies and practices. 222 F.R.D., at 141-142. As evidence that there were indeed questions of law or fact common to all the women of Wal-Mart . . . respondents relied chiefly on three forms of proof: statistical evidence about pay and promotion disparities between men and women at the company, anecdotal reports of discrimination from about 120 of Wal-Marts female employees, and the testimony of a sociologist, Dr. William Bielby, who conducted a social framework analysis of Wal-Marts culture and personnel practices, and concluded that the company was vulnerable to gender discrimination. 603 F.3d 571, 601 (CA9 2010) (en banc). Wal-Mart . . . offered its own countervailing statistical and other proof. . . . With one limitation not relevant here, the District Court granted respondents motion and certified their proposed class. . . . II The class action is an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only. Califano v. Yamasaki, 442 U.S. 682, 700-701 (1979). In order to justify a departure from that rule, a class representative must be part of the class and possess the same interest and suffer the same injury as the class members. East Tex. Motor Freight System, Inc. v. Rodriguez, 431 U.S. 395, 403 (1977) . . . . The Rules four requirementsnumerosity, commonality, typicality, and adequate representationeffectively limit the class claims to those fairly encompassed by the named plaintiffs claims. General Telephone Co. of Southwest v. Falcon, 457 U.S. 147, 156 (1982). A The crux of this case is commonalitythe rule requiring a plaintiff to show that there are questions of law or fact common to the class. Rule 23(a)(2). . . . Commonality requires the plaintiff to demonstrate that the class members have suffered the same injury, Falcon, supra, at 157. This does not mean merely that they have all suffered a violation of the same provision of law. Title VII, for example, can be violated in many waysby intentional discrimination, or by hiring and promotion criteria that result in disparate impact, and by the use of these practices on the part of many different superiors in a single company. Quite obviously, the mere claim by employees of the same company that they have suffered a Title VII injury, or even a disparateimpact Title VII injury, gives no cause to believe that all their claims can productively be litigated at once. Their claims must depend upon a common contentionfor example, the assertion of discriminatory bias on the part of the same supervisor. That common contention, moreover, must be of such a nature that it is capable of classwide resolutionwhich means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke. Rule 23 does not set forth a mere pleading standard. A party seeking class certification must affirmatively demonstrate his compliance with the Rulethat is, he must be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact, etc. We recognized in Falcon that sometimes it may be necessary for the court to probe behind the pleadings before coming to rest on the certification question, 457 U.S., at 160, and that

certification is proper only if the trial court is satisfied, after a rigorous analysis, that the prerequisites of Rule 23(a) have been satisfied, id. at 161. Frequently that rigorous analysis will entail some overlap with the merits of the plaintiffs underlying claim. That cannot be helped. . . . In this case, proof of commonality necessarily overlaps with respondents merits contention that Wal-Mart engages in a pattern or practice of discrimination. 5 . . . Here respondents wish to sue about literally millions of employment decisions at once. Without some glue holding the alleged reasons for all those decisions together, it will be impossible to say that examination of all the class members claims for relief will produce a common answer to the crucial question why was I disfavored. B This Courts opinion in Falcon describes how the commonality issue must be approached. . . . explaining: Conceptually, there is a wide gap between (a) an individuals claim that he has been denied a promotion [or higher pay] on discriminatory grounds, and his otherwise unsupported allegation that the company has a policy of discrimination, and (b) the existence of a class of persons who have suffered the same injury as that individual, such that the individuals claim and the class claim will share common questions of law or fact and that the individuals claim will be typical of the class claims. Id. at 157-158. Falcon suggested two ways in which that conceptual gap might be bridged. First, if the employer used a biased testing procedure . . . . Id. at 159, n. 15. Second, [s]ignificant proof that an employer operated under a general policy of discrimination conceivably could justify a class of both applicants and employees if the discrimination manifested itself in hiring and promotion practices in the same general fashion, such as through entirely subjective decisionmaking processes. Ibid. We think that statement precisely describes respondents burden in this case. The first manner of bridging the gap obviously has no application here; WalMart has no testing procedure or other companywide evaluation method that can be charged with bias. The whole point of permitting discretionary decisionmaking is to avoid evaluating employees under a common standard. The second manner of bridging the gap requires significant proof that Wal-Mart operated under a general policy of discrimination. That is entirely absent here. Wal-Marts announced policy forbids sex discrimination, and as the District Court recognized the company imposes penalties for denials of equal employment opportunity, 222 F.R.D., at 154. The only evidence of a general policy of discrimination respondents produced was the testimony of Dr. William

In a pattern-or-practice case, the plaintiff tries to "establish by a preponderance of the evidence that . . . discrimination was the companys standard operating procedure[,] the regular rather than the unusual practice." Teamsters v. United States, 431 U.S. 324, 358 (1977). If he succeeds, that showing will support a rebuttable inference that all class members were victims of the discriminatory practice, and will justify "an award of prospective relief," such as "an injunctive order against the continuation of the discriminatory practice." Teamsters, supra, at 361.
5

Bielby, their sociological expert. Relying on social framework analysis, Bielby testified that Wal-Mart has a strong corporate culture, that makes it vulnerable to gender bias. Id. at 152. He could not, however, determine with any specificity how regularly stereotypes play a meaningful role in employment decisions at Wal-Mart. At his deposition . . . Dr. Bielby conceded that he could not calculate whether 0.5 percent or 95 percent of the employment decisions at Wal-Mart might be determined by stereotyped thinking. 222 F.R.D. 189, 192 (ND Cal. 2004). The parties dispute whether Bielbys testimony even met the standards for the admission of expert testimony under Federal Rule of Evidence 702 and our Daubert case, see Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579. The District Court concluded that Daubert did not apply to expert testimony at the certification stage of class-action proceedings. 222 F.R.D., at 191. We doubt that is so, but even if properly considered, Bielbys testimony does nothing to advance respondents case. [W]hether 0.5 percent or 95 percent of the employment decisions at Wal-Mart might be determined by stereotyped thinking is the essential question on which respondents theory of commonality depends. If Bielby admittedly has no answer to that question, we can safely disregard what he has to say. It is worlds away from significant proof that Wal-Mart operated under a general policy of discrimination. C The only corporate policy that the plaintiffs evidence convincingly establishes is Wal-Marts policy of allowing discretion by local supervisors over employment matters. On its face, of course, that is just the opposite of a uniform employment practice that would provide the commonality needed for a class action; it is a policy against having uniform employment practices. It is also a very common and presumptively reasonable way of doing businessone that we have said should itself raise no inference of discriminatory conduct, Watson v. Fort Worth Bank & Trust, 487 U.S. 977, 990 (1988). To be sure, we have recognized that, in appropriate cases, giving discretion to lower-level supervisors can be the basis of Title VII liability under a disparate-impact theorysince an employers undisciplined system of subjective decisionmaking [can have] precisely the same effects as a system pervaded by impermissible intentional discrimination. Id. at 990-991. But the recognition that this type of Title VII claim can exist does not lead to the conclusion that every employee in a company using a system of discretion has such a claim in common. To the contrary, left to their own devices most managers in any corporationand surely most managers in a corporation that forbids sex discriminationwould select sex-neutral, performance-based criteria for hiring and promotion that produce no actionable disparity at all. Others may choose to reward various attributes that produce disparate impactsuch as scores on general aptitude tests or educational achievements, see Griggs v. Duke Power Co., 401 U.S. 424, 431-432 (1971). And still other managers may be guilty of intentional discrimination that produces a sex-based disparity. In such a company, demonstrating the invalidity of one managers use of discretion will do nothing to demonstrate the invalidity of anothers. A party seeking to certify a nationwide class will be unable to show that all the employees Title VII claims will in fact depend on the answers to common questions. Respondents have not identified a common mode of exercising discretion that pervades the entire companyaside from their reliance on Dr. Bielbys social frameworks analysis that we

have rejected. In a company of Wal-Marts size and geographical scope, it is quite unbelievable that all managers would exercise their discretion in a common way without some common direction. Respondents attempt to make that showing by means of statistical and anecdotal evidence, but their evidence falls well short. The statistical evidence consists primarily of regression analyses performed by Dr. Richard Drogin, a statistician, and Dr. Marc Bendick, a labor economist. Drogin conducted his analysis region-by-region, comparing the number of women promoted into management positions with the percentage of women in the available pool of hourly workers. After considering regional and national data, Drogin concluded that there are statistically significant disparities between men and women at Wal-Mart . . . [and] these disparities . . . can be explained only by gender discrimination. 603 F.3d, at 604. Bendick compared workforce data from Wal-Mart and competitive retailers and concluded that Wal-Mart promotes a lower percentage of women than its competitors. Ibid. Even if they are taken at face value, these studies are insufficient to establish that respondents theory can be proved on a classwide basis. . . . As Judge Ikuta observed in her dissent, [i]nformation about disparities at the regional and national level does not establish the existence of disparities at individual stores, let alone raise the inference that a company-wide policy of discrimination is implemented by discretionary decisions at the store and district level. 603 F.3d, at 637. A regional pay disparity, for example, may be attributable to only a small set of Wal-Mart stores, and cannot by itself establish the uniform, store-by-store disparity upon which the plaintiffs theory of commonality depends. There is another, more fundamental, respect in which respondents statistical proof fails. Even if it established (as it does not) a pay or promotion pattern that differs from the nationwide figures or the regional figures in all of Wal-Marts 3,400 stores, that would still not demonstrate that commonality of issue exists. Some managers will claim that the availability of women, or qualified women, or interested women, in their stores area does not mirror the national or regional statistics. And almost all of them will claim to have been applying some sex-neutral, performance-based criteriawhose nature and effects will differ from store to store. In the landmark case of ours which held that giving discretion to lower-level supervisors can be the basis of Title VII liability under a disparate-impact theory, the plurality opinion conditioned that holding on the corollary that merely proving that the discretionary system has produced a racial or sexual disparity is not enough. [T]he plaintiff must begin by identifying the specific employment practice that is challenged. Watson, 487 U.S., at 994; accord, Wards Cove Packing Co. v. Atonio, 490 U.S. 642, 656 (1989) (approving that statement), superseded by statute on other grounds, 42 U.S.C. 2000e-2(k). That is all the more necessary when a class of plaintiffs is sought to be certified. Other than the bare existence of delegated discretion, respondents have identified no specific employment practicemuch less one that ties all their 1.5 million claims together. Merely showing that Wal-Marts policy of discretion has produced an overall sex-based disparity does not suffice. Respondents anecdotal evidence suffers from the same defects, and in addition is too weak to raise any inference that all the individual, discretionary personnel decisions are discriminatory. In Teamsters v. United States, 431 U.S. 324 (1977), in addition to substantial statistical evidence

of company-wide discrimination, the Government (as plaintiff) produced about 40 specific accounts of racial discrimination from particular individuals. See id. at 338. That number was significant because the company involved had only 6,472 employees, of whom 571 were minorities, id. at 337, and the class itself consisted of around 334 persons, United States v. T.I.M.E.-D. C., Inc., 517 F.2d 299, 308 (CA5 1975), overruled on other grounds, Teamsters, supra. The 40 anecdotes thus represented roughly one account for every eight members of the class. . . . Here, by contrast, respondents filed some 120 affidavits reporting experiences of discriminationabout 1 for every 12,500 class membersrelating to only some 235 out of WalMarts 3,400 stores. 603 F.3d, at 634 (Ikuta, J., dissenting). More than half of these reports are concentrated in only six States (Alabama, California, Florida, Missouri, Texas, and Wisconsin); half of all States have only one or two anecdotes; and 14 States have no anecdotes about WalMarts operations at all. Id. at 634-635, and n. 10. Even if every single one of these accounts is true, that would not demonstrate that the entire company operate[s] under a general policy of discrimination, Falcon, supra, at 159, n. 15. . . . In sum, we agree with Chief Judge Kozinski that the members of the class: held a multitude of different jobs, at different levels of Wal-Marts hierarchy, for variable lengths of time, in 3,400 stores, sprinkled across 50 states, with a kaleidoscope of supervisors (male and female), subject to a variety of regional policies that all differed . . . . Some thrived while others did poorly. They have little in common but their sex and this lawsuit. 603 F.3d, at 652 (dissenting opinion). .... The judgment of the Court of Appeals is reversed. JUSTICE GINSBURG, with whom JUSTICE BREYER, JUSTICE SOTOMAYOR, and JUSTICE KAGAN join, concurring in part and dissenting in part. . . . Rule 23(a)(2) establishes a preliminary requirement for maintaining a class action: [T]here are questions of law or fact common to the class. 2 The Rule does not require that all questions of law or fact raised in the litigation be common, 1 H. Newberg & A. Conte, Newberg on Class Actions 3.10, pp. 3-48 to 3-49 (3d ed. 1992); indeed, [e]ven a single question of law or fact common to the members of the class will satisfy the commonality requirement, Nagareda, The Preexistence Principle and the Structure of the Class Action, 103 COLUM. L. REV. 149, 176, n. 110 (2003). The District Court, recognizing that one significant issue common to the class may be sufficient to warrant certification, 222 F.R.D. 137, 145 (ND Cal. 2004), found that the plaintiffs easily met that test. . . . The District Court certified a class of [a]ll women employed at any Wal-Mart domestic retail store at any time since December 26, 1998. 222 F.R.D., at 141-143 (internal quotation marks omitted). The named plaintiffs, led by Betty Dukes, propose to litigate, on behalf of the class, allegations that Wal-Mart discriminates on the basis of gender in pay and promotions. They

allege that the company [r]eli[es] on gender stereotypes in making employment decisions such as . . . promotion[s] [and] pay. App. 55a. Wal-Mart permits those prejudices to infect personnel decisions, the plaintiffs contend, by leaving pay and promotions in the hands of a nearly all male managerial workforce using arbitrary and subjective criteria. Ibid. Further alleged barriers to the advancement of female employees include the companys requirement, as a condition of promotion to management jobs, that employees be willing to relocate. Id. at 56a. Absent instruction otherwise, there is a risk that managers will act on the familiar assumption that women, because of their services to husband and children, are less mobile than men. See Dept. of Labor, Federal Glass Ceiling Commission, Good for Business: Making Full Use of the Nations Human Capital 151 (1995). Women fill 70 percent of the hourly jobs in the retailers stores but make up only 33 percent of management employees. 222 F.R.D., at 146. [T]he higher one looks in the organization the lower the percentage of women. Id. at 155. The plaintiffs largely uncontested descriptive statistics also show that women working in the companys stores are paid less than men in every region and that the salary gap widens over time even for men and women hired into the same jobs at the same time. Ibid. The District Court identified systems for . . . promoting in-store employees that were sufficiently similar across regions and stores to conclude that the manner in which these systems affect the class raises issues that are common to all class members. 222 F.R.D., at 149. The selection of employees for promotion to in-store management is fairly characterized as a tap on the shoulder process, in which managers have discretion about whose shoulders to tap. Id. at 148. Vacancies are not regularly posted; from among those employees satisfying minimum qualifications, managers choose whom to promote on the basis of their own subjective impressions. Ibid. Wal-Marts compensation policies also operate uniformly across stores, the District Court found. The retailer leaves open a $2 band for every positions hourly pay rate. Wal-Mart provides no standards or criteria for setting wages within that band, and thus does nothing to counter unconscious bias on the part of supervisors. See id. at 146-147. Wal-Marts supervisors do not make their discretionary decisions in a vacuum. The District Court reviewed means Wal-Mart used to maintain a carefully constructed . . . corporate culture, such as frequent meetings to reinforce the common way of thinking, regular transfers of managers between stores to ensure uniformity throughout the company, monitoring of stores on a close and constant basis, and Wal-Mart TV, broadcas[t] . . . into all stores. Id. at 151-153. The plaintiffs evidence, including class members tales of their own experiences, suggests that gender bias suffused Wal-Marts company culture. Among illustrations, senior management often refer to female associates as little Janie Qs. Plaintiffs Motion for Class Certification in No. 3:01-CV-02252-CRB (ND Cal.), Doc. 99, p. 13. One manager told an employee that [m]en are here to make a career and women arent. 222 F.R.D., at 166. A committee of female WalMart executives concluded that [s]tereotypes limit the opportunities offered to women. Plaintiffs Motion for Class Certification in No. 3:01-CV-02252-CRB (ND Cal.), Doc. 99, at 16.

Finally, the plaintiffs presented an experts appraisal to show that the pay and promotions disparities at Wal-Mart can be explained only by gender discrimination and not by . . . neutral variables. 222 F.R.D., at 155. Using regression analyses, their expert, Richard Drogin, controlled for factors including, inter alia, job performance, length of time with the company, and the store where an employee worked. Id. at 159. The results, the District Court found, were sufficient to raise an inference of discrimination. Id. at 155-160. The District Courts identification of a common question, whether Wal-Marts pay and promotions policies gave rise to unlawful discrimination, was hardly infirm. The practice of delegating to supervisors large discretion to make personnel decisions, uncontrolled by formal standards, has long been known to have the potential to produce disparate effects. Managers, like all humankind, may be prey to biases of which they are unaware. 6 The risk of discrimination is heightened when those managers are predominantly of one sex, and are steeped in a corporate culture that perpetuates gender stereotypes. . . . . The plaintiffs allegations state claims of gender discrimination in the form of biased decisionmaking in both pay and promotions. The evidence reviewed by the District Court adequately demonstrated that resolving those claims would necessitate examination of particular policies and practices alleged to affect, adversely and globally, women employed at Wal-Marts stores. Rule 23(a)(2), setting a necessary but not a sufficient criterion for class-action certification, demands nothing further. .... Wal-Marts delegation of discretion over pay and promotions is a policy uniform throughout all stores. The very nature of discretion is that people will exercise it in various ways. A system of delegated discretion, Watson held, is a practice actionable under Title VII when it produces discriminatory outcomes. 487 U.S., at 990-991. A finding that Wal-Marts pay and promotions practices in fact violate the law would be the first step in the usual order of proof for plaintiffs seeking individual remedies for company-wide discrimination. Teamsters v. United States, 431 U.S. 324, 359 (1977). That each individual employees unique circumstances will ultimately determine whether she is entitled to backpay or damages, 2000e-5(g)(2)(A) (barring backpay if a plaintiff was refused . . . advancement . . . for any reason other than discrimination), should not factor into the Rule 23(a)(2) determination. NOTES 1. Class Certification. Although the Wal-Mart case was decided on a Motion relating to class certification, there was considerable discussion regarding how a pattern and practice case might be proved. What message might you draw from the case regarding the proof the Supreme

An example vividly illustrates how subjective decisionmaking can be a vehicle for discrimination. Performing in symphony orchestras was long a male preserve. Goldin and Rouse, Orchestrating Impartiality: The Impact of "Blind" Auditions on Female Musicians, 90 AM. ECON. REV. 715, 715-716 (2000). In the 1970s orchestras began hiring musicians through auditions open to all comers. Id. at 716. Reviewers were to judge applicants solely on their musical abilities, yet subconscious bias led some reviewers to disfavor women. Orchestras that permitted reviewers to see the applicants hired far fewer female musicians than orchestras that conducted blind auditions, in which candidates played behind opaque screens. Id. at 738.
6

Court might require to establish a pattern and practice claim? Do you think the Courts view of the merits of the underlying claims influenced its decision? If so, is there something in the opinion you can point to that reflects the Courts views? One thing seems clear, the Court made it decidedly more difficult to certify a pattern and practice claim as a class action. For a discussion of the class certification implications see Melissa Hart, Civil Rights and Systemic Wrongs, 32 BERKELEY J. EMP. & LAB. L. 455 (2011). 2. The Effect on Pattern or Practice Claims. It is difficult to predict the ultimate effect of the Wal-Mart decision on employment discrimination cases. Early indications suggest that the case has been applied primarily to class certification decisions in other contexts. Nevertheless, given the Courts relatively hostile treatment of the plaintiffs evidence, the decision may force plaintiffs attorneys to create more distinctive cases, ones that offer a clear theory that is applicable to the defendants practices. One problem with the case the Wal-Mart plaintiffs offered is that it had a fairly generic quality to it, and relied, perhaps excessively, on the power of statistics to establish discrimination. In light of the Courts decision in Wal-Mart, Professor Michael Selmi has observed: [I]t now appears that plaintiffs must demonstrate that the employers actionsactions for which the employer is blameworthycaused the imbalance or underrepresentation, a determination that will typically require proof beyond statistics, no matter how powerful the statistical analysis might be. Michael Selmi, Theorizing Systemic Disparate Treatment After Wal-Mart v. Dukes, 32 BERKELEY J. EMP. & LABOR L. 477, 479 (2011). A District Court recently failed to certify a case that was, in many respects, quite similar to the Wal-Mart claim, and the Ninth Circuit remanded a case involving Costco for further findings, a claim that was brought by some of the same attorneys, and raising some of the same issues, as the Wal-Mart litigation. See Bell v. Lockheed Martin, 2011 U.S. Dist. Lexis 143657 (D.N.J. 2011) (noting that Lockheeds discretionary employment policies are substantially identical in nature to Wal-Marts discretionary policies and denying certification); Ellis v. Costco Wholesale Corp., 657 F.3d 970 (9th Cir. 2011) (remanding for further findings in light of WalMart). The size of the Wal-Mart case was obviously problematic in a number of respects. As a result, the attorneys who represented the plaintiffs in the original litigation have begun filing a series of smaller regional cases. To date, they have filed cases in Texas and California and those cases are in the early stages of litigation. 3. Social Framework Evidence. In its decision, the Supreme Court was quite critical of the plaintiffs social framework evidence. This kind of evidence has been controversial but it has also played an important role in establishing patterns of discrimination that may not be tied to a single actor or even a group of individual actors. Although sociologists provide the social framework testimony, the term derives its meaning from the legal actions and is not a term that is used within sociology. In its most basic sense, social framework evidence provides a framework to explain how systemic discrimination permeates institutional organizations and workplaces. In the Wal-Mart case, the evidence focused primarily on how subjective employment practices can lead to discriminatory results based on stereotypical notions of who might make the best manager or based on the presumed conflicts womens schedules might present. The difficulty with applying the evidence to a particular workplace is that the framework itself is generic in natureit explains research findings but does not involve any analysis or investigation of a particular workplace, other than to say that a workplace, like Wal-Mart, has the characteristics that can lead to discrimination based on the research findings. This led to the plaintiffs experts

admission that he was unable to say more than that Wal-Marts system was vulnerable to discrimination and was unable to quantify just how vulnerable it might have been. For a discussion of social framework evidence and its limitations see Melissa Hart & Paul M. Secunda, A Matter of Social Framework Evidence in Employment Discrimination Class Actions, 78 FORDHAM L. REV. 37 (2009) (discussing importance of social framework evidence to establishing systemic discrimination) and Gregory Mitchell, Laurens Walker & John Monahan, Beyond Context: Social Facts as Case-Specific Evidence, 60 EMORY L.J. 1109 (2011) (criticizing introduction of social framework evidence). The Supreme Courts criticism of the social framework evidence offered by the plaintiffs is likely to severely restrict this kind of evidence in future cases. How else might a plaintiff go about establishing discrimination based on subjective practices across an organization? What about in the case of Wal-Mart, what do you think might have helped persuade the Court that there were common questions to link the class claims?

Chapter 10 CHALLEGES TO EQUALITY IN DIVERSIFYING WORKPLACE

A. THE IMMIGRANT WORKFORCE 2. The Impact of Immigration Status On page 720, add at end of page (after first paragraph of note 5): The NLRB recently confronted the question whether, after Hoffman Plastic, it could award backpay to undocumented workers when the employer was responsible for violating IRCA. In Mezonos Maven Bakery, Inc., 357 N.L.R.B. 47 (2011), the Respondent had employed several undocumented workers for periods ranging from 5 months to 8 years without ever asking for documents to verify their work eligibilitya clear violation of the requirements of IRCA. The workers were fired after they concertedly complained about treatment by a supervisor. After a finding that the discharges constituted an unfair labor practice, an administrative judge ordered Respondent to pay backpay, distinguishing Hoffman Plastic on the grounds that the workers had not used fraudulent documents to obtain employment; rather, the employer had hired them knowing they were undocumented. The Board reversed, concluding that a backpay award is foreclosed by the Supreme Courts opinion in Hoffman Plastic. In the Boards view, the Courts opinion evinces an intention to preclude backpay for undocumented workers regardless of the identity of the IRCA violator. Id. at 3. Two of the Board members concurred separately, explaining that although they were bound to follow the Supreme Courts decision in Hoffman Plastic, they believed that the effect of their decision is that the [NLRAs] enforcement is undermined, employees are chilled in the exercise of their Section 7 rights, the work force is fragmented, and a vital check on workplace abuses is removed. Id. at 5 (Liebman and Pearce, concurring). On page 721, add note 6: 6. State Attempts at Regulation. Inaction on immigration reform at the federal level has led a number of states to enact laws intended to discourage illegal immigration, including penalties aimed at employers and workers. The Supreme Court recently considered two such laws, both enacted by the Arizona legislature. In Chamber of Commerce v. Whiting, 131 S. Ct. 1968 (2011), the Court considered the validity of the Legal Arizona Workers Act of 2007, which allows suspension or revocation of state licenses of an employer that knowingly or intentionally employs undocumented workers. ARIZ. REV. STAT. ANN. 23-211, 212, 212.01. The statute also requires employers to use EVerify, an internet-based system established by the federal government for employers to verify an applicants work-authorization status. 23-214(A). A group of business and civil rights organizations filed suit challenging the law, alleging that it was preempted by federal immigration law. IRCA, the relevant federal statute, creates various penalties for employers who knowingly hire undocumented workers, and expressly preempts state laws that sanction employers, except through licensing and similar laws. 8 U.S.C. 1324a(h)(2). The Court held that the Arizona law penalizing employers was a licensing law falling within this exception and

therefore, was not pre-empted. 131 S. Ct. at 1981. It also concluded that the requirement under Arizona law that employers use E-Verify was not impliedly preempted because it is entirely consistent with federal law. Id. at 1985. The Court again considered a preemption challenge to an Arizona immigration law in Arizona v. United States, No. 11-182 --- S. Ct. at --- (June 25, 2012) (slip op. available at http://www.supremecourt.gov/opinions/11pdf/11-182.pdf). In that case, the United States sued to enjoin enforcement of an Arizona statute, the Support our Law Enforcement and Safe Neighborhoods Act of 2010. Among other things, the law made it a state misdemeanor for an unauthorized alien to work or apply for work. ARIZ. REV. STAT. ANN. 13-2928(C). The United States argued that this provision was preempted by IRCA, which made it illegal for employers to hire undocumented workers, but did not impose criminal penalties on unauthorized aliens who sought to work. Explaining that IRCA established a comprehensive framework for combating the employment of illegal aliens, --- S. Ct. at --- (slip op. at 13) (quoting Hoffman Plastic Compounds, Inc. v. NLRB, 535 U.S. 137, 147 (2002)), the Court found that the criminal penalty was preempted. Noting that in IRCA, Congress made a deliberate choice not to impose criminal penalties on aliens who seek, or engage in, unauthorized employment, the Court concluded that the Arizona law would interfere with the careful balance struck by Congress and was therefore preempted by federal law. Id. at --- (slip op. at 13-14). On page 729, add to the end of Note 2: Williams v. Mohawk Industries, the principal case, also eventually settled. Mohawk denied any wrong-doing, but agreed to pay $18 million into a settlement fund for a class of approximately 48,000 former and current employees. As part of the settlement, Mohawk also agreed to train its employees to follow proper procedures for verifying employment eligibility when hiring workers. Amber McKinney, Mohawk Agrees to Pay Workers $18 Million To Settle RICO Illegal Immigration Lawsuit, DAILY LAB. REP. (BNA) No. 70, Apr. 14, 2010, at A-14.

Chapter 11 THE REGULATION OF WAGES AND HOURS

B. The FLSA: Minimum Wage and Overtime Provisions 1. The Basics Page 774: Tip-Pooling: Questions concerning employer tip-pooling policies arise with increasing frequency. In a recent case, a class of more than 5,000 former and current Applebees servers and bartenders claimed that the restaurant was failing to pay them minimum wage by paying them the tipped wage ($2.13 per hour) even though they routinely spend significant amounts of time cleaning and setting up the restaurant before opening and after closing, including cleaning bathrooms, sweeping the restaurant, cleaning stock rooms, and rolling silverware, tasks that do not relate to particular customers and so do not carry the potential for tips. See Fast v. Applebees Intl, Inc., 638 F.3d 872 (8th Cir. 2011) (denying employers motion for summary judgment), cert. denied, 132 S. Ct. 1094 (2012). The plaintiffs relied on a Department of Labor Regulation known as the dual jobs regulation which entitles employees to the full minimum wage ($7.25 per hour) for time spent performing a job that does not generate tips, and an interpretive DOL handbook provision that provides that if a tipped employee spends a substantial amount of time (defined as more than 20 percent of her working hours) performing related but nontipped work, the employer may not take the tip credit for that time. See 29 C.F.R. 531.56(e); 1988 DOL Wage and Hour Division Field Operations Handbook. Despite the Starbucks cases discussed in the text authorizing tip credits for tip-pooling arrangements between supervisors and baristas, there are some limits on which employees can be grouped with others for purposes of an employers tip-pooling policy. A recent case made it clear that an owner who also works in a service business cannot share in a tip pool with his employees, even if the tips are the owners primary compensation from the business because he does not draw a salary. See Gionfriddo v. Jason Zink, LLC, 769 F. Supp.2d 880 (D. D.C. Md. 2011) (tavern owner who also served as a bartender could not share in a tip pool with his employeebartenders; to allow an employer to take the tip credit and pay his employees less than the minimum wage while sharing in the tip pool himself would be anathema to the FLSAs purpose). It is important to note that employees may challenge tip-pooling arrangements only where the employer takes the tip-pooling credit to reduce wages paid to them. There is no FLSA-based right to challenge a tip-pooling system where the employer does not take the credit. For example, in Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010), food servers complained that the employer required them to pool their tips with kitchen employees such as dishwashers and cooks. They sought to recover the portion of their tips paid to the kitchen staff as well as to maintain the standard FLSA minimum wage they had been paid. Because the employer had paid the servers the regular minimum wage, however, the court found that the tip-credit rule in FLSA section 203(m) did not apply: [s]ection 203(m) imposes conditions on taking a tip credit and does not state freestanding requirements pertaining to all tipped employees, said the court. Id. at

581. Nor is there any FLSA-based right for an individual server to receive the tips that she is paid, absent a statutory violation. Id. at 583. Compare Lu v. Hawaiian Gardens Casino, Inc., 50 Cal. 4th 592, 598, 604 (2010) (no implied private right of action exists for employee who objects to employers tip-pooling arrangement despite California state law that proclaims tips the sole property of the employee to whom they are given, although a common law claim for conversion or a criminal prosecution by the state might be made). 1. Who is Covered? c. Exemptions from Coverage Page 781: In Long Island Care at Home v. Coke, 551 U.S. 158 (2007), discussed in the main text, the Court deferred to the DOLs interpretation of the companionship services exemption, which permits third party employers or agencies to claim the domestic service exemption for their workers who perform in-home care services for clients, reasoning that the opposite ruling would substantially increase the costs of care for the elderly and infirm by requiring overtime payments. See 29 C.F.R. 552.109(a) (2006). Suppose that the DOL issues a new rule that would narrow the exemption and extend minimum wage and overtime protections to most home care workers, based on findings that the majority of home care workers live near the poverty line, that they are dedicated caregivers who perform medically-related tasks for which training is a prerequisite (and thus, distinct from casual laborers or babysitters covered by the exemption), and that there is an urgent need to attract more persons to the occupation as a result of increased demand for care by an aging population. Should the Court defer to it? Does it matter what the cost impacts would be, or upon whom they might fall? The DOL proposed such a rule on December 27, 2011. For the text of the current proposal and related information, see www.dol.gov/whd/flsa/companionNPRM.htm. d. Determining Coverage Page 788, Note 2. Add the following to the end of Note 2: The Joint Employer Doctrine: In a recent case, the Third Circuit developed a test to be used to assess employer status in joint employer situations involving a parent company and its subsidiaries. See In re Enterprise Rent-A-Car Wage & Hour Practices Litigation, 2012 U.S. App. LEXIS 13229 (3d Cir. 2012). The case involved a collective action claim for unpaid overtime on behalf of the assistant branch managers at various Enterprise locations; the plaintiffs sought to hold the parent company, Enterprise Holdings, Inc., liable on a joint employer theory for the actions of its subsidiaries. The court explained that the following factors should be considered when determining whether the parent company is liable as a joint employer: 1)[T]he alleged employers authority to hire and fire the relevant employees; 2) the alleged employers authority to promulgate work rules and assignments and to set the employees conditions of employment: compensation, benefits, and work schedules, including the rate and method of payment; 3) the alleged employers involvement in day-

to-day employee supervision, including employee discipline; and 4) the alleged employers actual control of employee records, such as payroll, insurance, or taxes. Id. at 5. The court emphasized that the four factors are not exhaustive and should not be blindly applied; the sine qua non of employer status is significant control, which should be assessed on a totality of the circumstances approach. See id. The court denied joint employer status in the case before it. Although Enterprise Holdings provided administrative and human resources services and support to its subsidiaries, including job descriptions, training guides, best practices and compensation guides, recommended salary ranges, standard performance review forms, employee benefit plans, insurance, technology and legal services, none of the services were mandatory; subsidiaries could choose whether or not to accept them. Moreover, Enterprise Holdings lacked actual control over the assistant managers job supervision, job performance, working conditions, and compensation. Page 790, Note 4: Unpaid Interns and Trainees: In 2010, the Department of Labor issued guidance on the question whether unpaid interns are covered employees under the FLSA. See Wage and Hour Division, U.S. Dept of Labor, Fact Sheet No. 71: Internship Programs Under the Fair Labor Standards Act (Apr. 2010), available at www.dol.gov/whd/regs/compliance/whdfs71.htm. The Fact Sheet outlines a six-part test for classification of interns as employees entitled to the protections of the FLSA. The test is drawn from Walling v. Portland Terminal Co., 330 U.S. 148 (1947), discussed in the main text at this note, which established the same test for the purpose of identifying trainees. Interns at forprofit companies will generally be treated as employees unless all six prongs of the test are satisfied: The Test For Unpaid Interns There are some circumstances under which individuals who participate in for-profit private sector internships or training programs may do so without compensation. The Supreme Court has held that the term "suffer or permit to work" cannot be interpreted so as to make a person whose work serves only his or her own interest an employee of another who provides aid or instruction. This may apply to interns who receive training for their own educational benefit if the training meets certain criteria. The determination of whether an internship or training program meets this exclusion depends upon all of the facts and circumstances of each such program. The following six criteria must be applied when making this determination: 1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment; 2. The internship experience is for the benefit of the intern;

3. The intern does not displace regular employees, but works under close supervision of existing staff; 4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded; 5. The intern is not necessarily entitled to a job at the conclusion of the internship; and 6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship. Wage and Hour Division, U.S. Dept of Labor, Fact Sheet No. 71: Internship Programs Under the Fair Labor Standards Act (Apr. 2010), available at www.dol.gov/whd/regs/compliance/whdfs71.htm. What difference should it make whether the intern receives training similar to that provided in a college or educational environment? Isnt the internship valuable to interns precisely because it is not like the training one receives in a classroom context? How would you advise a for-profit organization that wishes to structure an internship experience in such a way that it would survive scrutiny under the DOL test? Do internships primarily benefit the intern, or the employer? What do interns hope to gain from an internship? Who benefits most from an internshipa relatively class-privileged student, or a student from a less economically privileged background? What do employers gain from the arrangement? If the internship benefits both, how should a court weigh the second and fourth factors above? Is anyone harmed by the arrangement? While no court has yet ruled on this question, collective actions are pending in the entertainment industry and the fashion magazine business. See Steven Greenhouse, Interns, Unpaid by a Studio, File Suit, N.Y. TIMES, Sept. 28, 2011 (suit by interns for the blockbuster movie Black Swan, who assert that they performed mostly menial work); Class Action Complaint, Xuedan Wang v. Hearst Corp., No. 12 Civ. 0793 (S.D. N.Y. Filed Feb. 1, 2012) (suit by intern at Harpers Magazine who complains that she worked between 40 and 55 hours per week coordinating pickups and deliveries of fashion apparel, inventorying contents of clothing trunks and closets, performing routine office tasks, and providing on-site assistance at magazine photo shoots). If the real concern is displacement (factor three), which is consistent with the FLSAs jobspreading goals, why should it matter whether the internship is at a for-profit or a non-profit organization? The DOL is currently considering whether the test should apply to non-profits. What arguments might be made for distinguishing the two contexts? What arguments support treating them the same? See Anthony J. Tucci, Worthy Exemption? Examining How the DOL Should Apply the FLSA to Unpaid Interns at Nonprofits and Public Agencies, 97 IOWA L. REV. 1363 (2012). What is the relationship between internships at non-profit organizations and volunteers? See Note 5, in the main text.

2. What is Covered Work? c. Rest and Meal Periods Page 810: State law, rather than the FLSA, governs the question whether employers are required to provide rest and meal periods. If the employer does provide breaks, however, the FLSA controls whether they are compensable. Recall that rest periods of 20 minutes or less are generally included in compensable work time, but bona fide meal breaks of 30 minutes or longer when the employee is completely relieved of duty are not. 29 C.F.R. 785.19 (a). To what degree must an employer police the use of break times in order to avoid being liable for time worked? California law requires one 30-minute meal period if an employee works for more than five hours, and a second meal period if the employee works more than ten hours. Employees must be completely relieved from duty during meal breaks. Failure to furnish the required breaks subjects the employer to damages under the statute. In Brinker Restaurant Corp. v. San Diego County Superior Court, 139 Cal. Rptr.3d 315 (2012), the plaintiffsemployees at restaurants owned by Brinker including Chilis, Maggianos, Macaroni Grill, and On the Borderargued that employers have an affirmative duty to ensure that employees actually cease work during breaks. The employer contended that its obligation was simply to permit the required breaks to be taken. In a decision that arose at the class certification stage, the California Supreme Court held that the obligation to completely relieve employees of all duties during designated meal breaks does not entail a requirement to police the breaks to ensure that no work is performed. Id. at 1034. If employees freely choose to work during meal periods even though relieved of duty, the employer will nevertheless incur liability for straight-time pay; however, the employer will not be liable for the overtime premium. Id. at 1040. The court observed that imposing on employers an obligation to ensure that no work be done during a break was actually antithetical to the idea that the break must involve relinquishing employer control over the employee during the break period; employees should be free to spend their break time in any fashion they choose. Id. at 1040-41. The court cautioned, [p]roof [that] an employer had knowledge of employees working through meal periods will not alone subject the employer to liability for premium pay; employees cannot manipulate the flexibility granted to them by employers to use their breaks as they see fit to generate such liability. . . . [but] an employer may not undermine a formal policy of providing meal breaks by pressuring employees to perform their duties in ways that omit breaks. Id. at 1040. The court summarized: An employers duty with respect to meal breaks [under the California statute] is an obligation to provide a meal period to its employees. The employer satisfies this obligation if it relieves its employees of all duty, relinquishes control over their activities and permits them a reasonable opportunity to take an uninterrupted 30-minute break, and does not impede or discourage them from doing so. What will suffice may vary from industry to industry, and we cannot in the context of this class certification proceeding delineate the full range of approaches that in each instance might be sufficient to satisfy the law.

On the other hand, the employer is not obligated to police meal breaks and ensure no work thereafter is performed. Bona fide relief from duty and the relinquishing of control satisfies the employers obligation, and work by relieved employee during a meal break does not thereby place the employer in violation of its obligations and create liability for premium pay [under California law]. Id. at 1040-41. How would you advise employers to respond to this case? Could an employer ask employees to waive break periods? How will the courts determine whether an employee freely chose to work during a break? What sorts of fact scenarios might give rise to litigation? Does the workplace context make a difference? Suppose the restaurant is presented with a sudden onslaught of customers and the employee would leave customers unserved and coworkers seething by taking the required break? Suppose that the employee clocks out for a break but refuses to go to lunch, instead remaining at her desk and working on a project with a looming deadlinecould the employer discharge the employee for refusing to take a break, on the basis that the employee was insubordinate? See Debra Cassens Weiss, Woman Fired for Working on Lunch Hour Wins Unemployment Benefits Appeal, ABA L.J., Jan. 17, 2012. 3. Enforcement of the FLSA a. Basics Page 821: The FLSA contains an anti-retaliation provision protecting against discharge or discrimination of employees who have filed any complaint or instituted or caused to be instituted any proceeding under or related to [the Act]. 29 U.S.C. 215(a)(3). What constitutes filing a complaint for purposes of this protection? The Supreme Court resolved a circuit split over the question in the following case. Kasten v. Saint-Gobain Performance Plastics Corp., 131 S. Ct. 1325 (2011). Kevin Kasten was an employee at Saint-Gobain who complained orally to Saint-Gobain about the location of timeclocks in the employers facility. Because the clocks were located between the area where the workers donned and doffed protective gear and the place where they performed assigned duties, the workers did not receive credit or pay for donning, doffing, and walking time, to which they were entitled under the FLSA. See IBP, Inc. v. Alvarex; Tumb v. Barber Foods, Inc., 546 U.S. 21 (2005), discussed in the main text in section 3.f; see also Kasten v. Saint-Gobain Performance Plastics Corp., 556 F. Supp. 2d 941, 954 (W.D. Wisc. 2008) (finding time compensable). Saint-Gobain discharged Kasten, allegedly in response to his oral complaints to Kasten officials about the timeclocks. Id. at 1329. Kasten argued that he was complying with Saint-Gobains internal grievance resolution procedure, which required employees to report suspected violations of applicable law, first to supervisors and ultimately to human resources personnel. Kasten pointed out that he had not only complained to his shift supervisor, but also contacted a human resources employee, a human resources manager, and an operations manager, telling them that the location was illegal and that the company would lose in court if the location

and its impact on wage practices was challenged. Id. at 1329-30. Saint-Gobain responded that it discharged Kasten because he refused to punch in and out on the clock. The trial court entered summary judgment in Saint-Gobains favor, reasoning that the FLSA did not protect from retaliation employees who filed oral complaints. The Seventh Circuit affirmed. 570 F.3d 834 (2009). The Court examined the text of the statute, other statutes, and judicial opinions construing them, seeking to extract a meaning for the word filed. After concluding that the word filed could be read to include oral or written complaints, the Court turned to functional considerations. Here it also found support for including oral complaints, offering a useful overview of the Acts enforcement mechanisms: First, an interpretation that limited the provisions coverage to written complaints would undermine the Acts basic objectives. The Act seeks to prohibit labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers. 29 U.S.C. 202(a). It does so in part by setting forth substantive wage, hour, and overtime standards. It relies for enforcement of these standards, not upon continuing detailed federal supervision or inspection of payrolls, but upon information and complaints received from employees seeking to vindicate rights claimed to have been denied. Mitchell v. Robert DeMario Jewelry, Inc., 361 U.S. 288, 2929 (1960). And its antiretaliation provision makes this enforcement scheme effective by preventing fear of economic retaliation from inducing workers quietly to accept substandard conditions. Ibid. Why would Congress want to limit the enforcement schemes effectiveness by inhibiting use of the Acts complaint procedure by those who would find it difficult to reduce their complaints to writing, particularly illiterate, less educated, or overworked workers? President Franklin Roosevelt pointed out at the time that these were the workers most in need of the Acts help. See Message to Congress, May 24, 1937, H.R. Doc. No. 255, 75th Cong., 1st Sess., 4 (seeking a bill to help the poorest of those who toil in factory [sic]). .... To limit the scope of the antiretaliation provision to the filing of written complaints would also take needed flexibility from those charged with the Acts enforcement. It could prevent Government agencies from using hotlines, interviews, and other oral methods of receiving complaints. And insofar as the antiretaliation provision covers complaints made to employers (a matter we need not decide . . .), it would discourage the use of desirable informal workplace grievance procedures to secure compliance with the Act. Cf. Burlington Industries, Inc. v. Ellerth, 524 U.S. 742, 764 (1998) (reading Title VII to encourage the development of effective grievance procedures to deter misconduct); D. McPherson, C. Gates, & K. Rogers, Resolving Grievances: A Practical Approach 38-40 (1983) (describing the significant benefits of unwritten complaints). ....

Saint-Gobain replies that worker protection is not the only relevant statutory objective. The Act also seeks to establish an enforcement system that is fair to employers. To do so, the employer must have fair notice that an employee is making a complaint that could subject the employer to a later claim of retaliation. If oral complaints suffice, SaintGobain adds, employers too often will be left in a state of uncertainty about whether an employee (particularly an employee who seems unusually angry at the moment) is in fact making a complaint about an Act violation or just letting off steam. We agree with Saint-Gobain that the statute requires fair notice. Although the dictionary definitions, statutes, regulations, and judicial opinions we considered . . . do not distinguish between writings and oral statements, they do suggest that a filing is a serious occasion, rather than a triviality. As such, the phrase filed any complaint contemplates some degree of formality, certainly to the point where the recipient has been given fair notice that a grievance has been lodged and does, or should, reasonably understand the matter as part of its business concerns. Moreover, the statute prohibits employers from discriminating against an employee because such employee has filed any complaint. 215(a)(3) (emphasis added). And it is difficult to see how an employer who does not (or should not) know an employee has made a complaint could discriminate because of that complaint. But we also believe that a fair notice requirement does not necessarily mean that notice must be in writing. At oral argument, the Government said that a complaint is filed when a reasonable, objective person would have understood the employee to have put the employer on notice that [the] employee is asserting statutory rights under the [Act]. Tr. of Oral Arg. 23, 26. We agree. To fall within the scope of the antiretaliation provision, a complaint must be sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the statute and a call for their protection. This standard can be met, however, by oral complaints, as well as written ones. .... The Secretary of Labor has consistently held the view that the words filed any complaint cover oral, as well as written, complaints. The Department of Labor articulated that view in an enforcement action filed many years ago, Goldberg v. Zenger, 43 CCH 31, 155, pp. 40,985, 40,986 (D. Utah 1961). It has subsequently reaffirmed that view in briefs. . . . And more recently it has acted in accordance with that view by creating a hotline to receive oral complaints, see Dept. of Labor, Compliance Assistance By LawThe Fair Labor Standards Act (FLSA), http://www.dol.gov/compliance/laws/comp-flsa.htm (as visited Mar. 18, 2011, and available in Clerk of Courts case file) (directing participants who wish to file a complaint to contact a local office or call the Departments Toll-Free Wage and Hour Help Line at 1-866-4-US-WAGE).

.... These agency views are reasonable. They are consistent with the Act. The length of time the agencies have held them suggests that they reflect careful consideration, not post hoc rationalizatio[n]. Motor Vehicle Mfrs. Assn. of United States, Inc. v. State Farm Mut. Automobile Ins. Co., 463 U.S. 29, 50 (1983). And they consequently add force to our conclusion. . . . Id. at 1333-36. The Court declined to consider Saint-Gobains argument that the FLSAs antiretaliation protections should only apply to complaints to the government, not complaints to the employer, because Saint-Gobain had not raised the argument in its response to Kastens petition for certiorari. Id. at 1336. Justices Scalia and Thomas dissented, finding the plain meaning of the phrase clear in historical context and the issue of application to a complaint made to a private employer properly before the Court. Id. at 1337. What is the significance of Kasten? Attorneys who represent immigrant populations hailed the Courts embrace of less formal complaints as very important for low-wage workers with limited English language skills, particularly given the complaint-based nature of FLSA enforcement and the DOLs limited resources. Aside from the Courts apparent concern with shoring up enforcement of FLSA rights for vulnerable workers, what other factors might have influenced the Court in a pro-plaintiff direction, and do those factors have any implications for other areas of employment law, such as in the whistleblowing context? Might Kasten be viewed as of a piece with the Supreme Courts consistent embrace of plaintiffs retaliation claims under Title VII? See Thompson v. North American Stainless, LP, 131 S. Ct. 863 (2011) (discussed further in chapter 9, this supplement). What is it about retaliation claims that makes them so compelling? Consider also the fact that retaliation claims are by their nature individual in characterclass claims are not common. Does that make a difference? How should employers respond to Kasten? Many employers already encourage employees to bring complaints and comments to supervisors through open door policies or ombudsman programs. The Court did not decide whether complaints made internally to company officials would enjoy the FLSAs protection against anti-retaliation. Should they? What is the significance of the Courts reference to its sexual harassment enforcement jurisprudence under Title VII and the system of desirable informal workplace grievance procedures that has developed in response? In one of the first cases to reach the federal courts of appeals after Kasten, the Fourth Circuit ruled that an internal oral complaint to a company official concerning FLSA compliance is protected if it is sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the statute and a call for their protection. Minor v. Bostwick Labs, Inc., 669 F.3d 428, 439 (4th Cir. 2012). The court cited cases from a majority of the circuits reaching the same conclusion prior to Kasten, and pointed to the Kasten Courts emphasis on the broad remedial purpose of the FLSA as strong support for its interpretation. Id. at 433. Many line-drawing questions remain for the lower courts. For example, which oral complaints will suffice? Does it matter whether they are made inside the workplace or outside of it? What about an employees passing remark at a cocktail party to a government official (or, if

internal complaints count, to a supervisor) concerning a Fair Labor Standards Act violation she has observed in her workplace? What about complaints that turn out to be wrong? If the employee raises the complaint in good faith, is he still protected? d. Rule 23 Class Actions and FLSA Collective Actions Page 824: Collective actions under the FLSA typically follow a two-step process. In the initial notice phase or conditional certification stage, a lenient standard for certification is applied: potential class members must present relatively modest evidence that they are similarly situated within the meaning of FLSA section 216(b). Once discovery is completed, the second step typically involves a motion by the employer to decertify the action, at which point courts apply a more stringent standard. The factors that courts consider in determining whether members of a collective class are similarly situated are analytically similar to the factors they assess under Rule 23, which requires a showing of common issues of fact or law. In wage and hour cases under the FLSA, proof of a common policy or practice resulting in wage and hour violations is often critical. Following the Supreme Courts decision in Wal-Mart Stores Inc. v. Dukes, 131 S. Ct. 2541 (2011) (discussed supra, Chapter 9 and Chapter 8.E., this supplement), employers argued that the Dukes standard for class certification under Rule 23 and the Courts rejection of the plaintiffs argument that a corporate culture that facilitates statutory violations is sufficient to raise common questions of fact or law should apply to collective actions under the FLSA (and indeed, to all aggregate claims). Application of the Dukes reasoning to FLSA claims would result in many fewer collective action claims proceeding to court. So far, most courts have rejected the argument on the basis that Rule 23 class actions are governed by different standards than FLSA collective actions. See, e.g., Myles v. Prosperity Mortgage Co., 2012 U.S. Dist. LEXIS 75371 (D. Md. 2012) (rejecting argument and conditionally certifying class of loan officers who established they were similarly situated for FLSA purposes because they share the primary duty of selling loans and the employer had an express policy that allegedly improperly classified them as FLSAexempt outside employees).

E. The Overtime Bargain: Time, Money and Class Status 3. High-End Exemptions: White-Collar Employees a. Traditional White-Collar Employees: Executives, Administrative Employees and Professionals i. Executive Employees Page 852: In Morgan v. Family Dollar Stores, summarized in the main text at pages 852-53, the Eleventh Circuit ruled that store managers at Family Dollar did not fall within the executive employee exemption. The Fourth Circuit reached the opposite result in a more recent case involving Family Dollar, Grace v. Family Dollar Stores, 637 F.3d 508 (4th Cir. 2011). The plaintiff testified that she spent the vast majority of her time95-99 percenton nonmanagerial tasks such as freight unloading and unpacking, stocking shelves, running a cash register, and performing janitorial work. Nevertheless, the court found that she carried out managerial and nonmanagerial tasks concurrently; since no one else in the store directed others performing nonmanagerial tasks on a regular basis, she effectively never ceased exercising discretion in her job. Id. at 515-16. Moreover, since her compensation depended in part on increasing the stores profitability (her bonus was linked to the stores profitability), her decision to perform nonexempt work herself rather than scheduling others to do it simultaneously served her managerial interests. Id. at 517-18. Further, her district manager visited her store only once every two or three weeks, so that she was relatively free from supervision. Finally, her salary was higher than that of nonexempt employeesshe earned $655 per week, for which she worked 50-65 hours weekly. Id. at 511. Do you agree with the Fourth Circuits analysis above, or the Eleventh Circuits analysis in the main text? Should a salaried store manager who earns roughly $10 per hour be characterized as an executive employee on the basis that the store is leanly staffed and other employees below her in the supervision chain earn only minimum wage? How much should the bonus structure of the store managers compensation matter in assessing whether she is performing nonmanagerial or managerial tasks? On the other hand, isnt there a significant difference between a manager and nonmanagerial employee in a retail operation? Managers at Family Dollar Stores routinely supervise, discipline, terminate, and assign work to employees. Page 854: Pendlebury v. Starbucks, discussed in the main text at the class certification stage, survived the companys motions for decertification and for summary judgment and settled in the summer of 2011 for $1.55 million. Concerned by the trend within the Eleventh Circuit of plaintiffs prevailing in retail management exemption cases (exemplified by Morgan v. Family Dollar Stores, where the size of the plaintiff class1424 store managersand the courts finding of a willful violation resulted in a $35.6 million award including back pay, liquidated damages and attorneys fees), Starbucks agreed to pay the plaintiff class of 553 current and former managers

$613,000 in overtime pay and $950,000 in attorneys fees. Starbucks to Pay $1.55 Million to Settle Case Seeking Overtime Pay for Store Managers, Daily Lab. Rep. (BNA) No. 163, at A-2, Aug. 23, 2011. b. Outside Sales Employees Pages 869-70: The question whether pharmaceutical representatives are covered by the outside sales employee exemption was resolved by the Supreme Court in the following case on a 5-4 vote. Christopher v. SmithKline Beecham Corp. d/b/a Glaxo-SmithKline, 132 S. Ct. 2156 (2012). Michael Christopher worked as a pharmaceutical representative or detailer for SmithKline. In that capacity, he was responsible for calling on doctors within his assigned sales territory to provide them with details and information about the benefits and risks of the companys products. His goal was to obtain nonbinding commitments from doctors to prescribe the drugs to patients. Toward that end he spent 40 hours per week in the field and another 10-20 hours per week attending events, reviewing product information, and performing other tasks related to the job. He was subject to minimal supervision, and was not required to punch a clock. His annual gross pay was $72,000, which included a base salary and incentive pay based on his sales volume and market share of drug sales in his assigned territory. (The median gross pay for pharmaceutical detailers nationwide is over $90,000 per year. Id. at 2164 n.7). He did not receive overtime pay. The district court granted summary judgment for SmithKline, finding that Christopher was exempt as an outside salesman, and the Ninth Circuit affirmed. 635 F.3d 383 (2011). Meanwhile, the Second Circuit had ruled to the contrary in In re Novartis Wage and Hour Litigation, 611 F.3d 141 (2010). The Second Circuit accorded significant deference to an amicus brief filed by the DOL in support of the plaintiffs. The DOLs previous position had been that its regulations implementing the exemption required only that an employee in some sense make a sale, resulting in its acquiescence in the sales practices of the drug industry for over 70 years. In its Novartis brief and in its brief to the Ninth Circuit in Christopher, however, the DOL argued that a sale for purposes of the exemption requires a consummated transaction directly involving the employee for whom the exemption is sought. Secretarys Novartis brief, quoted at 132 S. Ct. 2166. After the Supreme Court granted certiorari in Christopher, the DOL changed course yet again, filing a brief that argued that [a]n employee does not make a sale for purposes of the outside salesman exemption unless he actually transfers title to the property at issue. Brief for United States as Amicus Curiae 12-13, quoted at 132 S. Ct. 2166. The Court refused to defer to the Secretarys interpretation of its regulations, reasoning that the DOLs consistent inaction despite the industrys decades-long practice of classifying pharmaceutical detailers as exempt employees effectively signaled its acquiescence in the practice. The DOL has an obligation to provide regulated entities with clear notice of the meaning of ambiguous regulations; to change its stance now would visit unfair surprise and create massive liability for the companies that employ over 90,000 pharmaceutical sales representatives, whose work has not changed in any material way for decades. Id. at 2167-68.

Having dispensed with the DOLs interpretation, the Court explained why a broad interpretation of the meaning of the word sale was both more consistent with the text of the statute but also in keeping with the purpose of the exemption: We begin with the text of the FLSA. Although the provision that establishes the overtime salesman exemption does not furnish a clear answer to the question before us, it provides at least one interpretive clue: It exempts anyone employed ... in the capacity of [an] outside salesman. 29 U.S.C. 213(a)(1) (emphasis added). Capacity, used in this sense, means [o]utward condition or circumstances; relation; character; position. Websters New International Dictionary 396 (2d ed.1934); see also 2 Oxford English Dictionary 89 (def.9) (1933) (Position, condition, character, relation). The statutes emphasis on the capacity of the employee counsels in favor of a functional, rather than a formal, inquiry, one that views an employees responsibilities in the context of the particular industry in which the employee works.
....

That petitioners bear all of the external indicia of salesmen provides further support for our conclusion. Petitioners were hired for their sales experience. They were trained to close each sales call by obtaining the maximum commitment possible from the physician. They worked away from the office, with minimal supervision, and they were rewarded for their efforts with incentive compensation. It would be anomalous to require respondent to compensate petitioners for overtime, while at the same time exempting employees who function identically to petitioners in every respect except that they sell physician-administered drugs, such as vaccines and other injectable pharmaceuticals, that are ordered by the physician directly rather than purchased by the end user at a pharmacy with a prescription from the physician. .... Our holding also comports with the apparent purpose of the FLSAs exemption for outside salesmen. The exemption is premised on the belief that exempt employees typically earned salaries well above the minimum wage and enjoyed other benefits that se[t] them apart from the nonexempt workers entitled to overtime pay. Preamble 22124. It was also thought that exempt employees performed a kind of work that was difficult to standardize to any time frame and could not be easily spread to other workers after 40 hours in a week, making compliance with the overtime provisions difficult and generally precluding the potential job expansion intended by the FLSAs time-and-a-half overtime premium. Ibid. Petitionerseach of whom earned an average of more than $70,000 per year and spent between 10 and 20 hours outside normal business hours each week performing work related to his assigned portfolio of drugs in his assigned sales territoryare hardly the kind of employees that the FLSA was intended to protect. And it would be challenging, to say the least, for pharmaceutical companies to compensate detailers for overtime going forward without significantly changing the nature of that position. See, e.g., Brief for PhRMA as Amicus Curiae 1420 (explaining that key

aspects of [detailers] jobs as they are currently structured are fundamentally incompatible with treating [detailers] as hourly employees). Id. at 2170-74. The dissenting Justices argued that the primary duty of pharmaceutical representatives was not to obtain a promise to prescribe a particular drug, but instead to provid[e] information so that the doctor will keep the drug in mind with an eye toward using it when appropriate. Id. at 2177 (Justice Breyer, dissenting). Pharmacists, not pharmaceutical detailers, sell drugs. Detailers do not enter into any binding contract with the doctorsnor could they. They do not consign, ship, or sell any product at all. At most, the dissent argued, the detailer advances a concept, an idea, information, designed to obtain a nonbinding commitment [which] is, at most, a nonbinding promise to consider advising a patient to use a drug where medical indications so indicate (if the doctor encounters such a patient) and to write a prescription that will likely (but may not) lead that person to order that drug under its brand name from a pharmacy. Id. at 2176. NOTES 1. Functional Versus Formal Definitions. Christopher is the first white-collar exemption case that the Supreme Court has taken, and as a result it has been closely watched by employers across many industries. What is the significance of the Courts determination that assessing coverage under the white-collar exemptions requires a functional inquiry viewed in the context of the particular industry rather than a formalistic reading of the regulations and the statute? Should the functional approach extend to the other white collar exemptions too? What difference would that make in the outcomes of some of the cases we have studied? In a footnote to its opinion, the Court also rejected the plaintiffs reliance on the wellestablished canon that FLSA exemptions should be narrowly construed: In the past, we have stated that exemptions to the FLSA must be narrowly construed against the employers seeking to assert them and their application limited to those [cases] plainly and unmistakably within their terms and spirit. Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392 (1960). Petitioners and the DOL contend that Arnold requires us to construe the outside salesman exemption narrowly, but Arnold is inapposite where, as here, we are interpreting a general definition that applies throughout the FLSA. 132 S. Ct. 2172 n. 21. What difference does this canon of FLSA construction make? What effect is the Courts limitation of this canon likely to have on the rapidly burgeoning area of white-collar exemption litigation? 2. The Administrative Exemption. SmithKline also argued that the pharmaceutical detailers were exempt administrative employees. The lower courts did not reach the question, and neither did the Supreme Court. Id. at 2164 n.9. In consolidated cases involving pharmaceutical detailers for Eli Lilly & Co. and Abbott Laboratories decided prior to Christopher, the Seventh Circuit found that the employees fell within the administrative exemption because they perform

nonmanual work directly related to the general business operations of the pharmaceutical companies, act as the public face of the companies, and exercise discretion and independent judgment with respect to matters of significance to the businessthe sales calls, which are their core function. See Schaefer-LaRose v. Eli Lilly & Co., 679 F.3d 560 (7th Cir. 2012). See also Smith v. Johnson & Johnson, 593 F.3d 280 (3d Cir. 2010) (finding that pharmaceutical representative fell within the administrative exemption because she had to form a strategic plan to maximize sales in her territory, functioned without direct oversight, and ran her territory as she saw fit). On the other hand, the Second Circuit had concluded that pharmaceutical representatives at Novartis were nonexempt because they were accorded no discretion and were not permitted to exercise independent judgment. Novartis strictly controlled the sales pitch, the detailers had no role in establishing marketing strategy or developing the message, and Novartis detailers were not permitted to deviate from the companys core promotional script. Indeed, they were not allowed to answer questions that lacked a scripted answer. See In re Novartis Wage & Hour Litig., 611 F.3d 141, 157 (2d Cir. 2010). These cases are largely irrelevant now, assuming that most pharmaceutical companies continue to structure the detailer positions in the same fashion so that they are exempt as outside salespersons. But the cases do underscore the significance for the scope of managerial control of which exemption applies. Had the Court ruled the other way in Christopher, detailers would have been exempt only where the employer afforded them considerable discretion and did not require adherence to a promotional script. Thus, Christopher allows drug companies to tightly control and script the performance of detailers while still treating them as exempt from the FLSAs requirements under the outside sales exemption. 3. Deference to the DOLs Interpretation of its Regulations. The Courts refusal to defer to the DOLs shifting interpretation of its regulations may have significant ramifications for other aspects of the FLSA, where the Secretarys interpretation of ambiguous regulations has long been afforded significant deference by the courts under a doctrine announced by the Court in Auer v. Robbins, 519 U.S. 452 (1997). Many of these shifts in the agencys interpretation of its regulations appear to be driven by changes in agency personnel and ideology traceable to Presidential turnover. For example, in 2006 the Bush-era DOL issued an opinion letter, FLSA2006-31 (referenced in the main text at page 858) concluding that mortgage loan officers had a primary duty other than salesadvising customers about the risks and benefits of loan alternatives in light of their individual financial circumstancesand thus were exempt administrative employees. However, in 2010 the Obama-era DOL reversed course in an Administrative Interpretation issued sua sponte, opining that the typical mortgage loan officer has a primary duty of making sales of loans (products) and thus performs production work, rendering the employee non-exempt if the majority of her time is spent on making sales of loans. 2010 Administrative Interpretation. See WHD Moves From Opinions to Interpretations, Finds FLSA Rights for Typical Mortgage Rep, Daily Lab. Rep. (BNA) No. 56, at AA-1, Mar. 25, 2010. In the same decision, the Wage and Hour Division announced that it planned to shift away from providing detailed opinion letters dealing with particular factual scenarios, and toward general interpretations that would apply across-the-board to all affected employees. Id. A federal district court in Washington, D.C. rejected a challenge by the banking association to this interpretation, reasoning that the DOL was within its authority to reverse views expressed in earlier opinion letters and to issue new guidance. See Mortgage Bankers Assn v. Solis, 2012

U.S. Dist. LEXIS 78270 (D.D.C. 2012). The Courts decision in Christopher casts doubt on this analysis.

Chapter 12 HEALTH AND PENSION PLANS ERISA REGULATION

Add following narrative to prefatory materials on p. 881: At the end of the 2012 Supreme Court Term, the Court upheld a crucial part of the health care reform legislation, most commonly referred to as the Affordable Care Act. In a 5-4 decision, notable because Chief Justice Roberts wrote the majority opinion, the Court upheld what is known as the individual mandate portion of the law under the governments taxing power. By a different 5-4 alignment, with Chief Justice Roberts again in the majority, the Court invalidated an expansion of Medicaid provisions, but the Act itself was not invalidated. See Natl Fedn of Indep. Business v. Sebelius, __ US __, 2012 U.S. LEXIS 4876 (2012). Despite its importance for employment-based health insurance, we are here providing only a very brief summary of the holdings because the Courts decision is principally grounded in the Constitution and will most likely be a staple in Constitutional Law courses. There is little in the opinion that directly relates to employment law, other than the holding relating to the individual mandate. As noted in the text, the Affordable Care Act was passed in 2010, and was immediately subjected to series of challenges to its validity, some of which may continue but the Supreme Courts decision sends a signal that the Act is constitutionally valid. It is worth emphasizing that the health care legislation does not change the basic employer-provided insurance system, other than to impose some restrictions on what the insurance must cover. But for the most part, employees who currently obtain their insurance through their, or their spouses, workplace will continue to do so. The individual mandatewhich requires individuals to obtain health insurance or to pay a tax if they fail to do sowill have the greatest effect on employees who currently decline health insurance offered by their employers or those who do not have access to employer-provided insurance. The individual mandate, as well as many other provisions, will not go into effect until 2014, and there remains some uncertainty regarding how the law will be implemented. Several provisions of the law have already gone into effect, including a provision that allows students to remain on their parents health insurance until they turn 26. As we also indicated in the text of the Second Edition, once the federal law becomes implemented many, if not all, of the issues relating to state law preemptionsan issue that has occupied a disproportionate amount of judicial time over the yearsshould be displaced, and the focus is likely to turn to interpreting the various mandates that accompany the federal law.

Chapter 14 ARBITRATION OF WORKPLACE DISPUTES

B. PREDISPUTE ARBITRATION AGREEMENTS IN THE NONUNION WORKPLACE Page 1043, Note 3: Substitute the following for Note 3. 3. Application of Gilmer to Whistleblower Claims. One might distinguish the Gilmer rationale in situations where the public interest is explicitly advanced by the statutory claim at issue. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, passed in response to the financial crisis of 2007-09, addressed this question in the context of federal law that protects certain corporate whistleblowers. As discussed in Chapter 4, supra, Dodd-Frank amended the whistleblower protections established by the Sarbanes-Oxley Corporate Reform Act of 2002 to provide for a jury trial and to prohibit predispute agreements requiring arbitration of these claims. Further, Dodd-Frank creates additional whistleblower protections for employees who report violations of the Commodity Exchange Act, federal banking law or federal securities laws to certain government agencies and forbids mandatory predispute arbitration agreements of the first two types of claims. Omit Part D, pages 1057-1076, and substitute the following in its place: D. LIMITATIONS ON THE ENFORCEABILITY OF ARBITRATION AGREEMENTS Following the Supreme Courts endorsement of mandatory predispute arbitration in Gilmer, many employers implemented arbitration agreements conditioning employment on an agreement to arbitrate claims arising out of employment. Survey data on the percentage of private nonunion employers using employment arbitration revealed dramatic growth in the period between 1992 and 2003: estimates are that 2.1% of employers used predispute arbitration agreements in 1992, compared with 22.7% by 2003. See Alexander J.S. Colvin, Empirical Research on Employment Arbitration: Clarity Amidst the Sound and Fury?, 11 EMP. RTS. & EMPLOY. POLY J. 405, 408-11 (2007). Adoption rates for dispute resolution programs tend to be highest for employers with litigation experience (typically larger firms) and for those operating in states with workerprotective laws. Id. at 411-12. The employment dispute caseload of the American Arbitration Association (AAA), the leading independent provider of private employment arbitration in the United States, doubled between 1993 and 1996, and the number of employees covered by AAA employment arbitration plans grew from three million in 1997 to six million in 2002. Elizabeth Hill, Due Process at Low Cost: An Empirical Study of Employment Arbitration Under the Auspices of the American Arbitration Association, 18 OH. ST. J. ON DISP. RESOL.777, 779-80 (2003). Arbitration agreements are generally enforceable under the FAA as long as there is a valid agreement to arbitrate and the dispute in question falls within the scope of the agreement. Sherer v. Green Tree Servicing LLC, 548 F.3d 379 (5th Cir. 2008). When determining whether a particular dispute is encompassed within an arbitration agreement, the Supreme Court applies a presumption in favor of arbitrability, a standard first developed in the labor arbitration context. See United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83 (1960) ([A]n

order to arbitrate the particular grievance shall not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage). This presumption defeats most plaintiff challenges to scope, although plaintiffs are occasionally successful in establishing either that no employment relationship existed (for example, because the plaintiff was an independent contractor or volunteer rather than an employee), or that the dispute arose outside of the employment relationship and thus was not encompassed within the agreement. See, e.g., Davis v. Gen. Dynamics Land Sys., 217 P.3d 1191 (Wash. Ct. App. 2009) (no requirement that race discrimination claim alleged by contract worker be arbitrated, because by its plain terms the agreement applied only to plaintiffs application for employment, employment, or termination of employment); Jones v. Halliburton Co., 583 F.3d 228 (5th Cir. 2009) (plaintiff who alleged sexual assault by coworkers in her employment-provided housing in Iraq could not be required to arbitrate dispute because the assault did not arise out of the employment relationship). Initially (and to some extent this is still the case) many predispute employment arbitration agreements were lopsided and operated to the disadvantage of plaintiff-employees relative to what they might have been able to obtain in litigation. For example, some purported to limit remedies, including imposing caps on back pay and punitive damages and precluding the award of attorneys fees and costs generally available under employment statutes to prevailing plaintiffs. Some shifted the costs of arbitration to the employee, or required the employee to share them with the employer. Others provided for shorter statutes of limitation for claim filing, or severely circumscribed discovery. Still others blocked employees from suing their employers in court, but preserved employer rights to sue employees. Some barred class claims. In the years after Gilmer, a jurisprudence evolved on the enforceability of predispute arbitration agreements. Three bases for challenging validity have emerged. First, some courts have ruled that in order to be enforceable as effective mechanisms for the vindication of the underlying statutory rights, predispute arbitration agreements must as a matter of due process satisfy certain minimum standards. Second, courts have utilized state law contract principles of unconscionability, bad faith, lack of consideration or lack of assent (including notice and acceptance) to set aside agreements. Third, challenges have been mounted to predispute arbitration agreements that bar class claims. Fourth, predispute arbitration agreements have been challenged where they interfere with the statutory scheme for enforcing workers rights. The following materials explore these rapidly developing areas of law. Finally, we review the limited bases on which an arbitration decision may be challenged after it is rendered. 1. Due Process Considerations and Vindication of Statutory Rights The Gilmer court limited its ruling to valid arbitration agreements that enable plaintiffs effectively [to] vindicate their substantive statutory rights. Gilmer, 500 U.S. at 28 (citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637 (1985)). In the wake of Gilmer, arbitrator-appointing organizations developed rules designed to ensure fairness in arbitration, both procedurally and substantively. Three organizationsthe American Arbitration Association (AAA), the Judicial Arbitration & Mediation Services (JAMS) and the Center for Public Resources (CPR)were at the forefront of evolving such guidelines. Selfpolicing by the third party neutral community was not entirely adequate to the task, however.

See Margaret M. Harding, The Limits of the Due Process Protocols, 19 OH. ST. J. ON DISP. RESOL. 369, 421-37 (2004) (warning against reliance on due process protocols and selfregulation because of lack of universal commitment to turn away business from those who fail to comply, and lack of monitoring and sanctions against those who renege on promises to comply). The federal judiciary soon stepped in. In Cole v. Burns International Security Servs., 105 F.3d 1465 (D.C. Cir. 1997), the D.C. Circuit took the lead in developing due process standards for evaluating predispute arbitration agreements in nonunion employment contexts. Cole was a security guard at Union Station in Washington, D.C., who filed a complaint in federal court alleging race discrimination and retaliatory discharge claims under Title VII. His employer moved to compel arbitration and dismiss Coles complaint pursuant to a predispute resolution agreement channeling all employment-related disputes to arbitration proceedings conducted in accord with the rules of the AAA, which did not prescribe any particular allocation of responsibility for payment of the arbitrators fees (estimated to be $500 to $1,000 or more per day). The district court granted the employers motion and dismissed Coles complaint. Writing for the D.C. Circuit, Judge Harry Edwards applied Gilmer and upheld the arbitration agreement but limited enforceable predispute arbitration agreements to those that do not undermine the relevant statutory scheme. Id. at 1468. Because employers routinely paid all arbitral fees under the agreement in the securities industry at issue in Gilmer, the question whether an enforceable agreement could require an employee to pay all or part of the arbitration fee was a novel one. The court construed the ambiguity in the arbitration agreement regarding the party responsible for payment of arbitration fees against the employer as drafter, and interpreted it to require the employer to pay all arbitrator fees associated with resolution of the dispute. The court explained: In our view, an employee can never be required, as a condition of employment, to pay an arbitrators compensation in order to secure the resolution of statutory claims under Title VII (any more than an employee can be made to pay a judges salary). If there is any risk that an arbitration agreement can be construed to require this result, this would surely deter the bringing of arbitration and constitute a de facto forfeiture of the employees statutory rights. The only way that an arbitration agreement of the sort at issue here can be lawful is if the employer assumes responsibility for the payment of the arbitrators compensation. Id. The court went on to articulate a set of standards for assessing the enforceability of a predispute arbitration agreement. The court ruled that a predispute arbitration agreement is enforceable only if it: (1) provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award, (4) provides for all of the types of relief that would otherwise be available in court, and (5) does not require employees to pay either unreasonable costs or any arbitrators fees or expenses as a condition of access to the arbitration forum.

Id. at 1482. Distinguishing arbitration clauses in collective bargaining agreements, which are not generally reviewed by courts under any sort of due process standards, the court justified the expanded oversight role for federal courts evaluating predispute waivers of statutory forum rights in this way: The fundamental distinction between contractual rights [such as those at issue in arbitration under collective bargaining agreements], which are created, defined, and subject to modification by the same private parties participating in arbitration, and statutory rights, which are created, defined, and subject to modification only by Congress and the courts, suggests the need for a public, rather than private, mechanism of enforcement for statutory rights. Id. at 1476. NOTES 1. Judicial Overreaching? Prior to his appointment to the bench, Judge Edwards was a highly respected labor law professor and labor arbitrator. For these reasonsas well as the logic and comprehensiveness of the Cole courts analysisthe decision proved very influential. See Martin H. Malin, Due Process in Employment Arbitration: The State of the Law and the Need for Self-Regulation, 11 EMP. RTS. & EMPLOY. POLY J. 363, 366 (2007). The dissent in Cole complained, however, that the majority was engaging in judicial activism: . . . By conditioning arbitration on the employers assumption of arbitrator costs, the majority engages in pure judicial fee shifting which finds no support in the FAA, Gilmer or the parties agreement, not one of which addresses arbitration fee allocation. Yet, relying on this very silence, the majority now declares that the employer must bear the costs, regardless of the outcome or the merits of the parties positions, because of the majoritys own speculation on what the arbitration costs will be and who will be required to pay themfactual matters never presented to the district court or even argued by the parties on appeal. The issues of costs and their allocation were first posed by the panel sua sponte during oral argument. . . . In any event, the majority has now resolved those issues on the basis of its own research and its construction of the AAA Rules, which were introduced only after argument at the panels request. Because the district court dismissed the complaint on a bare record consisting of the pleadings and attached exhibits, I would at a minimum remand to afford that court the opportunity to develop an evidentiary record and to make findings of fact regarding the likely costs and their allocation. . . . 105 F.3d at 1489 (Henderson, J., concurring in part and dissenting in part). Do you agree? Is Judge Edwards justification for federal court oversight persuasive? 2. A Federal Common Law of Individual Employment Arbitration? The Cole court embraced federal court oversight of the procedures applicable to individual employment arbitration on due process grounds. Although predispute arbitration agreements are upheld in the vast majority of cases, courts refuse to enforce agreements that overreach in ways that undermine

the remedial or deterrent purposes of the relevant employment statutes. See, e.g., Alexander v. Anthony Intl, L.P., 341 F.3d 256 (3d Cir. 2003) (finding predispute arbitration agreement unenforceable where agreement imposed 30-day claim limit, losing party was required to pay arbitration expenses, each party was to bear its own costs and expenses including attorneys fees, and remedies were limited to reinstatement and net pecuniary damages); Morrison v. Circuit City Stores, Inc., 317 F.3d 646 (6th Cir. 2003) (en banc) (finding agreement unenforceable where it contained a cost-splitting provision that would operate to deter similarly situated employees from vindicating statutory rights and limited remedies to injunctive relief, reinstatement, one year of back pay, two years of front pay, compensatory damages, and punitive damages capped at $5,000 or the sum of the back pay and front pay awards, whichever was greater); McCaskill v. SCI Management Corp., 298 F.3d 677 (7th Cir. 2002) (refusing to enforce agreement that prohibited award of attorneys fees to successful claimants); Shankle v. B-G Maintenance Mgmt. of Colorado, Inc., 163 F.3d 1230 (10th Cir. 1999) (ruling that agreement requiring claimant to pay one-half of arbitration costs failed to provide an accessible forum in which [claimant] could resolve his statutory rights). The Supreme Court curtailed the judicial development of due process standards somewhat in Green Tree Financial Corp. v. Randolph, 531 U.S. 79 (2000), a commercial arbitration case involving a consumer financing agreement channeling all disputes to arbitration. The Court enforced the arbitration agreement even though it did not specify which party would be liable for costs of the proceeding and thus posed a risk that plaintiff might incur substantial costs to vindicate her statutory rights under the Truth in Lending Act and the Equal Credit Opportunity Act. Reiterating the strong federal policy favoring arbitration, the Court held that just as a party seeking to resist arbitration must carry the burden to show that the particular statutory claim at issue is not appropriate for arbitral resolution, so the same party carries the burden of establishing that excessive costs impede access to the arbitral forum in that particular factual context. Id. at 81. Courts addressing the issue of cost-splitting subsequent to Green Tree Financial Corp. v. Randolph have employed a case-by-case analysis that assesses the impact of fees on individual plaintiffs. See, e.g., E.E.O.C. v. Woodmen of the World Life Insurance Society, 479 F.3d 561 (8th Cir. 2007) (enforcing arbitration clause that provided for fee-splitting despite plaintiffs bankruptcy where fee-splitting provision was severable from arbitration agreement and defendant employer had agreed to pay arbitration costs in full); James v. McDonalds Corp., 417 F.3d 672 (7th Cir. 2005) (compelling arbitration despite proof that arbitration fees and costs would range from $38,000 to $80,500 and affidavit from plaintiff that she lacked financial resources to pay them, because plaintiff did not apply to AAA for a fee waiver). The combination of the heavy burden of persuasion and individual case focus imposed by Green Tree Financial Corp. v. Randolph makes it far more difficult for employees to resist arbitration. See Martin H. Malin, Ethical Concerns in Drafting Employment Arbitration Agreements After Circuit City and Green Tree, 41 BRANDEIS L. J. 779, 793 (2003). Moreover, even if the court finds that the arbitration agreements cost allocation does block access to arbitration for the plaintiff in the case before it, the employer may still channel the matter to arbitration by stipulating that it will not enforce the offensive portions of the agreement against that individual employee and offering to pay the costs. See Malin, supra, at 792, 801; see, e.g., Mazera v. Varsity Ford Mgmt. Servs., LLC, 565 F.3d 997, 1004-06 (9th Cir. 2009) (finding that a cost-

splitting provision in an arbitration agreement requiring a $500 deposit from an employee who earned $10 per hour was unreasonable given the size of the payment and the short time frame within which it was due, but remanding to the district court to compel arbitration because of the presence of a waiver provision regarding the deposit and the absence of any evidence that the employer would not agree to waive it). 3. Drafting Enforceable Arbitration Agreements. If courts back away from Cole-type oversight of employment arbitration agreements, management-side lawyers will be the architects of employee rights to vindicate statutory claims. What ethical issues does this raise in drafting arbitration clauses? Should the company lawyer draft the most employer-advantageous agreement that she believes will be enforced, or does the attorneys duty as an officer of the court to maintain the integrity of the public justice system impose limits on the duty to zealously advocate on behalf of the client? See Malin, supra. If the court is willing to sever or bluepencil the agreement to eliminate any clauses that over-reach, what is the incentive for the employer or its counsel to police itself? See Cynthia L. Estlund, Between Rights and Contract: Arbitration Agreements and Non-Compete Covenants as a Hybrid Form of Employment Law, 155 U. PA. L. REV. 379, 435 (2006). 4. Discovery in Arbitration vs. Litigation. Dramatic differences exist between discovery available in court litigation as opposed to arbitration. Under the Federal Rules of Civil Procedure, litigants have the right to engage in broad discovery, including compelling participation by non-parties, backed by the courts power to impose contempt sanctions for failure to comply. By contrast, discovery proceedings in arbitration are limited to what the parties have agreed to in advance. Moreover, the arbitral power to compel non-party participation stems from the FAA and is relatively limited. See Jason F. Darnall & Richard Bales, Arbitral Discovery of Nonparties, 2001 J. ON DISP. RESOL. 321. Some arbitration agreements further restrict or even eliminate discovery. See, e.g., Ferguson v. Countrywide Credit Indus., Inc., 298 F.3d 778, 786-97 (9th Cir. 2002) (limiting each sides discovery to three depositions and limiting deposition of defendants corporate representatives to four subjects). Should these types of arbitration agreements be enforceable, or do they violate due process standards? 2. Limitations on Enforceability Stemming From State Contract Law Principles

As a federal statute, the FAA preempts inconsistent state law. It does not, however, preempt general state contract law. Recall that section 2 of the FAA requires enforcement of arbitration agreements save upon such grounds as exist at law or in equity for the revocation of any contract. 9 U.S.C. 2. Accordingly, state contract defenses such as fraud, duress, unconscionability, or lack of consideration may be applied to invalidate arbitration agreements, as long as they are of general applicability and are not applied only to arbitration agreements. The two most common grounds for lack of enforcement are bad faith and unconscionability. The two cases below are illustrative.

Hooters of America, Inc. v. Phillips, 173 F.3d 933 (4th Cir. 1999). Annette Phillips alleged that she was sexually harassed by a Hooters official while working as a bartender at a Hooters restaurant in Myrtle Beach, quit her job, and hired an attorney who threatened to sue Hooters. Hooters filed a preemptive suit to compel arbitration under the FAA pursuant to a dispute resolution process (DRP) that included a predispute arbitration agreement. The Court found the DRP utterly lacking in the rudiments of even-handedness, ordered rescission of the contract, and affirmed the district courts refusal to compel arbitration. Id. at 935. The court described Hooters DRP as follows: The Hooters rules . . . are so one-sided that their only possible purpose is to undermine the neutrality of the proceeding. The rules require the employee to provide the company notice of her claim at the outset, including the nature of the Claim and the specific act(s) or omission(s) which are the basis of the Claim. Hooters, on the other hand, is not required to file any responsive pleadings or to notice its defenses. Additionally, at the time of filing this notice, the employee must provide the company with a list of all fact witnesses with a brief summary of the facts known to each. The company, however, is not required to reciprocate. The Hooters rules also provide a mechanism for selecting a panel of three arbitrators that is crafted to ensure a biased decisionmaker. The employee and Hooters each select an arbitrator, and the two arbitrators in turn select a third. Good enough, except that the employees arbitrator and the third arbitrator must be selected from a list of arbitrators created exclusively by Hooters. This gives Hooters control over the entire panel and places no limits whatsoever on whom Hooters can put on the list. Under the rules, Hooters is free to devise lists of partial arbitrators who have existing relationships, financial or familial, with Hooters and its management. In fact, the rules do not even prohibit Hooters from placing its managers themselves on the list. Further, nothing in the rules restricts Hooters from punishing arbitrators who rule against the company by removing them from the list. Given the unrestricted control that one party (Hooters) has over the panel, the selection of an impartial decisionmaker would be a surprising result. Nor is fairness to be found once the proceedings are begun. Although Hooters may expand the scope of arbitration to any matter, whether related or not to the Employees Claim, the employee cannot raise any matter not included in the Notice of Claim. Similarly, Hooters is permitted to move for summary dismissal of employee claims before a hearing is held whereas the employee is not permitted to seek summary judgment. Hooters, but not the employee, may record the arbitration hearing by audio or video taping or by verbatim transcription. The rules also grant Hooters the right to bring suit in court to vacate or modify an arbitral award when it can show, by a preponderance of the evidence, that the panel exceeded its authority. No such right is granted to the employee.

In addition, the rules provide that upon 30 days notice Hooters, but not the employee, may cancel the agreement to arbitrate. Moreover, Hooters reserves the right to modify the rules, in whole or in part, whenever it wishes and without notice to the employee. Nothing in the rules even prohibits Hooters from changing the rules in the middle of an arbitration proceeding. If by odd chance the unfairness of these rules were not apparent on their face, leading arbitration experts have decried their one-sidedness. George Friedman, senior vice president of the American Arbitration Association (AAA), testified that the system established by the Hooters rules so deviated from minimum due process standards that the Association would refuse to arbitrate under those rules. George Nicolau, former president of both the National Academy of Arbitrators and the International Society of Professionals in Dispute Resolution, attested that the Hooters rules are inconsistent with the concept of fair and impartial arbitration. . . . Additionally, Dennis Nolan, professor of labor law at the University of South Carolina, declared that the Hooters rules do not satisfy the minimum requirements of a fair arbitration system. He found that the most serious flaw was that the mechanism [for selecting arbitrators] violates the most fundamental aspect of justice, namely an impartial decision maker. Finally, Lewis Maltby, member of the Board of Directors of the AAA, testified that This is without a doubt the most unfair arbitration program I have ever encountered. In a similar vein, two major arbitration associations have filed amicus briefs with this court. The National Academy of Arbitrators stated that the Hooters rules violate fundamental concepts of fairness . . . and the integrity of the arbitration process. Likewise, the Society of Professionals in Dispute Resolution noted that it would be hard to imagine a more unfair method of selecting a panel of arbitrators. It characterized the Hooters arbitration system as deficient to the point of illegitimacy and so one sided, it is hard to believe that it was even intended to be fair. Id. at 938-39. The court reasoned that Hooters had undertaken to establish a dispute resolution system in which disputes would be fairly resolved by an impartial third party, and [b]y creating a sham system unworthy even of the name of arbitration, Hooters breached the contract. Id. Moreover, the Hooters rules also violated Hooters contractual good faith obligation because they amounted to evasion of the spirit of the bargain and demonstrated an abuse of a power to specify terms. Id. at 940 (quoting RESTATEMENT (SECOND) OF CONTRACTS 205 (1981)). A set of procedures so wholly one-sided as to present a stacked deck frustrated Phillips reasonable expectations of fair, prompt and economical resolution of her claims. Id. _____

Armendariz v. Foundation Health Psychcare Services, Inc., 99 Cal. Rptr. 2d 745 (Cal. 2000). Two employees filed a complaint for wrongful termination against their former employer, alleging that their supervisors and coworkers engaged in sexually based harassment and discrimination in violation of the California Fair Employment and Housing Act (FEHA), and asserting related tort and contract theories of recovery. The employer moved to compel arbitration pursuant to a predispute arbitration agreement that the employees had signed as a condition of obtaining employment. The arbitration agreement limited remedies to a sum equal to the wages . . . earned from the date of . . . discharge until the date of the arbitration award. The trial court denied the employers motion, invalidating the contract on the grounds that it was adhesive and unconscionable: so one-sided as to shock the conscience. The Court of Appeal agreed with the trial courts unconscionability analysis but concluded that the agreement was enforceable except for its damages provision. The California Supreme Court reversed, ruling that the entire agreement was unenforceable. Citing Cole v. Burns International Security Servs., Inc., the court outlined the procedural protections that it considered essential to the integrity of the arbitration process: a neutral arbitrator; provision of adequate discovery; a written award subject to judicial review; permitting recovery of all relief otherwise available in court, including punitive damages and attorneys fees; and no requirement that the employee bear expenses that he would not be required to incur if he were free to bring the action in courtthus, the employer is impliedly obligated to pay all costs unique to the arbitral forum. Id. at 759. The court found the agreement in the case before it adhesive (since imposed on the employees as a condition of employment and with no opportunity to negotiate) and unconscionable (because it lacked bilateralityit required employees to arbitrate claims against the employer but did not impose the same obligation on the employer), flaws compounded by the agreements restrictions on damages. Id. at 766-73. Although the court acknowledged that trial courts are empowered to sever offending terms or to refuse to enforce an unconscionable contract, the court found this agreement tainted with the illegality, so that its central purposes could not be achieved without the clause. Accordingly, it struck down the contract in its entirety. Id. at 774-76. NOTES 1. Defining Unconscionability. In Alexander v. Anthony Intl L.P., 341 F.3d 256 (3d Cir. 2003), the court further described the unconscionability analysis as follows: Courts have generally recognized that the doctrine of unconscionability involves both procedural and substantive elements. Procedural unconscionability pertains to the process by which an agreement is reached and the form of an agreement, including the use therein of fine print and convoluted or unclear language. This element is generally satisfied if the agreement constitutes a contract of adhesion. A contract of adhesion is one which is prepared by the party with excessive bargaining power who presents it to the other party for signature on a take-it-or-leave-it basis. A contract, however, is not unconscionable merely because the parties to it are unequal in bargaining position. An adhesion contract is not necessarily unenforceable.

The party challenging the contract therefore must also establish substantive unconscionability. This element refers to terms that unreasonably favor one party to which the disfavored party does not truly assent. According to the commentary accompanying section 208 [of the Restatement (Second) of Contracts]: [G]ross inequality of bargaining power, together with terms unreasonably favorable to the stronger party, may confirm indications that the transaction involved elements of deception or compulsion, or may show that the weaker party had no meaningful choice, no real alternative, or did not in fact assent or appear to assent to the unfair terms. Restatement (Second) of Contracts, supra, section 208 cmt. d. In the end, unconscionability requires a two-fold determination: that the contractual terms are unreasonably favorable to the drafter and that there is no meaningful choice on the part of the other party regarding acceptance of the provisions. Id. at 265-66. The court concluded that an arbitration agreement presented on take-it-or-leave-it basis to low level employees with limited education, that allowed only 30 days to file employment-related claims, restricted available remedies to reinstatement, did not allow the prevailing claimant to recover attorneys fees, and required the loser to pay all arbitration costs, was procedurally and substantively unconscionable and therefore unenforceable. Compare Zimmer v. CooperNeff Advisors, Inc., 523 F.3d 224 (3d Cir. 2008) (finding one-sided arbitration provision in employment contract signed by hedge fund manager not unconscionable on either procedural or substantive grounds where employee was a highly-educated and sophisticated party with multiple employment opportunities, even though agreement allowed resort to courts for employer but barred it to employee). 2. Predispute Arbitration Agreements at Law Firms. A number of the predispute arbitration clause cases have arisen in the law firm context. The reason was succinctly summarized by a partner at Paul, Hastings, Janofsky & Walker, who commented: We recommend [alternative dispute resolution] to our clients, and we practice what we preach. Judge Orders Fired Law Firm Receptionist to Arbitrate FMLA, Disability Bias Claims, Daily Lab. Rep. (BNA) No. 100, May 23, 2002, at A-1, reporting on Stewart v. Paul, Hastings, Janofsky & Walker, LLP, 201 F. Supp. 2d 291 (S.D.N.Y. 2002) (ruling that former law firm receptionist must arbitrate her FMLA and disability discrimination claims pursuant to predispute arbitration agreement drafted by law firm). Should higher standards for assessing unconscionability apply to agreements drafted and implemented by highly sophisticated lawyers? See Davis v. OMelveny & Myers, 485 F.3d 1066 (9th Cir. 2007) (finding law firms dispute resolution program procedurally and substantively unconscionable as applied to paralegal and noting that it was written by a sophisticated employera national and international law firm, no less. . . .). 3. The Armendariz Factors. In Armendariz, the California Supreme Court offered a checklist of requirements that it considered essential to an enforceable predispute arbitration agreement. Is this a more useful formulation than the approach taken by the Fourth Circuit in Hooters?

4. Lack of Consideration/Illusory Promises. Claimants may also challenge arbitration agreements on the traditional contract ground of lack of consideration. Courts generally consider the promise to arbitrate itself adequate consideration. See, e.g., Soto-Fonalledas v. Ritz-Carlton San Juan Hotel Spa & Casino, 640 F.3d 471 (1st Cir. 2011) (bilateral promises to arbitrate constitute adequate consideration). Suppose, however, that the arbitration agreement is contained in an employee handbook and the employer reserves the right to alter, modify, amend or revoke at any time and without notice. Is the promise then illusory? Some courts have held that such qualified promises to arbitrate are unenforceable for lack of consideration. See, e.g., Carey v. 24 Hour Fitness, USA, Inc., 669 F.3d 202 (5th Cir. 2012); Davis v. Joseph J. Magnolia, Inc., 640 F. Supp. 2d 38 (D. D.C. 2009). What if the employer requires applicants to sign an arbitration agreement in order to be considered for employment? In Walker v. Ryans Family Steak Houses, Inc., 400 F.3d 370 (6th Cir. 2005), the Sixth Circuit found such an arbitration agreement unenforceable for lack of consideration because the employees received nothing of value; the employer could not demonstrate that its promise to consider an employment application was adequate consideration for a promise to arbitrate disputes wholly unrelated to the application or hiring process. Id. at 381. Moreover, some of the employees had actually begun working for the employer before they signed the application forms, making it clear that the employers promise to consider them for employment was illusory, and therefore furnished inadequate consideration for the promise to arbitrate. Id. 5. Notice Requirements for Imposition of Mandatory Arbitration Clauses. Another potential contract defense is the lack of acceptance. In order to find acceptance, most courts require a meeting of the minds, which contemplates notice and informed consent. What notice will suffice? In Seawright v. American Gen. Fin. Servs., Inc., 507 F.3d 967 (6th Cir. 2007), the court found that notification of employees by letter stating that [s]eeking, accepting, or continuing employment with AGF means that you agree to resolve employment related claims against the company or another employee through this process instead of through the court system was effective to render continued employment acceptance without the need for an express waiver in writing. Id. at 971. On the other hand, an employee who signed a form acknowledging that she had read and understood the employers employee handbook was not bound to arbitrate where the handbook referenced a separate dispute resolution procedure that included arbitration but which was not made available to employees. Hergenreder v. Bickford Senior Living Group, LLC, 656 F.3d 411 (6th Cir. 2011). Suppose an employer sends a mass e-mail message that mentions the new arbitration plan. Would this constitute sufficient notice? See Skirchak v. Dynamics Research Corp., 508 F.3d 49, 60 (1st Cir. 2007) (striking down waiver on class actions in arbitration agreement on unconscionability grounds where waiver was sent via e-mail two days before Thanksgiving and was contained in appendices to a fifteen-page description of a new dispute resolution program, and noting that although there was nothing objectionable about the use of e-mail itself, [t]he timing, the language, and the format of the presentation of the [DRP] obscured, whether intentionally or not, the waiver of class rights); Campbell v. General Dynamics Govt Sys. Corp., 407 F.3d 546, 556-559 (1st Cir. 2005) (finding mass e-mail containing web links to

information about the companys new dispute resolution policy insufficient notice where the company had no history of communicating significant personnel matters to employees via email, the e-mail did not explicitly state that the new dispute resolution policy contained a mandatory arbitration clause, and the e-mail required no affirmative response from employees). Another question that arises with increasing frequency is whether notice in English will suffice when the workforce is composed of employees who are not fluent in English. Must the employer translate the arbitration provision in order for it to be binding? Most courts say no, placing the burden on the employee to undertake translation before signing. See, e.g., Morales v. Sun Constructors, Inc., 541 F.3d 218 (3rd Cir. 2008) (holding arbitration clause binding upon Spanish speaking welder who could not read English and understood little spoken English, where manager who conducted orientation session asked a coworker to translate for the plaintiff and the coworker failed to convey the arbitration clause). But see Samaniego v. Empire Today LLC, 205 Cal. App. 4th 1138 (2012) (applying Armendariz and finding that arbitration provision contained in an 11-page, single-spaced document presented only in English to non-English reading workers was unconscionable under California law; the workers were not provided with a copy of the arbitration rules and were told that no Spanish translation was available). 6. Who Decides? Can the parties agree to submit the threshold question of enforceability of the agreement to the arbitrator, or must the courts make this determination? The Supreme Court ruled in Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772 (2010) that the parties may agree to have the arbitrator resolve challenges to the validity of the contract as a wholesuch as whether the agreement is unconscionable. On the other hand, challenges raised to the validity of the precise agreement to arbitrate that is at issue must be resolved by the federal court. Id. at 2773. The Rent-A-Center agreement specifically delegated exclusive authority to the arbitrator to resolve any contention that the agreement was void or voidable, and the plaintiff challenged the enforceability of the contract as a whole, not the validity of the delegation clause. Thus, the dispute was arbitrable. See also Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 452-53 (2003) (rather than raising issues about whether the parties intended to arbitrate in the first instancei.e., whether they have a valid arbitration agreement at all or whether a concededly binding clause applies to a particular controversy, both questions appropriate for a reviewing courtthe question whether an arbitration clause forbids class action claims is a question concerning what kind of arbitration proceeding the parties agreed to, and is reserved to the arbitrator). Id. at 452-53. What difference does it make who decides? One recent study finds that entrenched sexism, particularly in the securities industry permeated by a highly gendered Wall Street culture, leads to smaller awards for female claimants and for any claimant represented by a female attorney. See Study Finds Securities Industry Arbitration Biased Against Women, Female Attorneys, Daily Lab. Rep. (BNA) No. 9, Jan. 13, 2011, at B-1 (examining 3,200 arbitration awards issued between 1986 and 2008 and finding that gender of claimants and claimants attorneys had significant effects on the size of awards recovered). Another recent empirical study of employment arbitration outcomes in 3,945 cases administered nationally by the AAA between 2003 and 2007 finds that employees on average have lower win rates and receive smaller damage awards in arbitration than in litigation, particularly where the same arbitrator is involved in more than one case with the same employer, indicating a repeat employer-arbitrator pairing

effect. See Alex Colvin, An Empirical Study of Employment Arbitration: Case Outcomes and Processes, 8 J. EMPIRICAL LEG. STUDIES 1 (2011). 3. Arbitration Agreements That Block Class Claims Suppose that the arbitration agreement contains a clause waiving the right to bring class action claims in court or through arbitration. Should the clause be enforceable? In the commercial context, the Supreme Court has been presented with a series of cases involving businesses or consumers who were signatories to predispute arbitration agreements and sought to expand the case to include class claims through the arbitration process. These cases have significant implications for the employment context, as we shall see. The Court has made it clear that the FAA requires consent to arbitration, and that arbitration normally means one plaintiff and one defendant. In Stolt-Nielsen S.A. v. AnimalFeeds Intl Corp., 103 S. Ct. 1758 (2010), a maritime trade contract between a group of shipping companies (including Stolt-Nielsen) and their customers (including AnimalFeeds) contained an arbitration clause that was silent on the question of class arbitration. After a Department of Justice investigation revealed that the shipping companies were engaging in illegal price fixing, AnimalFeeds brought a class action asserting antitrust claims against Stolt-Nielsen and the other shippers. The parties stipulated that the contract was silent on the availability of class arbitration and that they had reached no agreement on the matter, and submitted the question of arbitrability to the arbitration panel. The panel determined that the contract permitted class arbitration. The Supreme Court ruled (5-3) that the arbitration panel had exceeded its power by imposing its own view of desirable public policy regarding class arbitration, instead of interpreting and enforcing the arbitration agreement under the FAA. Emphasizing that arbitration under the FAA is a matter of consent, not coercion, the Court ruled that a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so. Id. at 1775. Parties to arbitration may structure their arbitrations as they see fit, including limiting the issues they choose to arbitrate, the rules under which the arbitration will proceed, the arbitrators who will resolve the disputes, and the parties with whom they agree to arbitrate disputes. Because class action claims alter the fundamental nature of the arbitration agreed to, it was inconsistent with the FAA for an arbitrator to infer agreement to class arbitration solely from the fact of an agreement to arbitrate, where the agreement was silent on the issue of class claims. Id. The dissenting Justices worried that the issue was not ripe for judicial review, since the arbitration panel had not yet reached the question whether the particular claims advanced by AnimalFeeds were suitable for class resolution. Id. at 1778-79. Moreover, the Courts decision appeared to undercut the deferential standard of review ordinarily applied to arbitral decisionmaking. Finally, the dissent pointed out that the Court appeared to require contractual language affirmatively authorizing class arbitration, a higher standard than that imposed in other areas of contractual interpretation. Id. at 1782. Concerned that individual claimants might have little incentive to seek vindication of their rights when their claims were modest in size, the dissent observed that Stolt-Nielsen, which involved sophisticated business entities, might be distinguished from cases involving contracts of adhesion (such as consumer cases or employment claims). Id. at 1783.

In a subsequent case applying Stolt-Nielsen in the employment context, Jock v. Sterling Jewelers, Inc., 646 F.3d 113 (2011), the Second Circuit found that an arbitrator had not exceeded her authority by ruling that class arbitration of sex discrimination claims was permissible under an employment arbitration agreement that lacked an express provision authorizing arbitration of class claims. The court concluded that the Supreme Court had not created a bright-line rule that arbitration agreements can only be construed to permit class arbitration where they contain express provisions permitting class arbitration. The court relied upon the FAAs strong policy favoring deference to arbitration awards, and noted that in the case before it the parties had conceded only that the agreement was silent; they had not stipulated to having reached no agreement on the question of class arbitration, as had the parties in Stolt-Nielsen. Thus, the arbitrator acted within her authority when she construed the arbitration agreement as manifesting an intent to allow for class arbitration. The dissent disagreed, believing that Stolt-Nielsen was a binding precedent on all fours with the case before the court. Id. at 128. _____ Some courts worried that class or collective action waivers were inconsistent with the underlying goals of statutory schemes that authorize such actions as essential mechanisms to enforce the rights guaranteed by the statute, because the waiver effectively prevents plaintiffs from vindicating their rights in any forum. In another case from the commercial context, the Court cast doubt upon the continuing validity of this argument, upholding a class action waiver provision in a consumer contract. The case has significant implications for employment arbitration agreements. AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011). The Concepcions purchased cellular phones as part of an AT&T promotion advertising free phones. They received the phones but were charged $30.22 in sales tax, based on the retail value of the phones. The Concepcions brought suit in federal court alleging false advertising and fraud. Their claim was subsequently consolidated with a similar case that had been filed as a class action. AT&T sought to compel arbitration pursuant to a provision in the cell phone service agreement that required claims to be arbitrated by the moving party in his or her individual capacity, rather than as a plaintiff or class member in a class or representative proceeding. Relying on precedent from the California Supreme Court (Discover Bank v. Superior Court, 36 Cal. 4th 148, 30 Cal. Rptr. 3d 76, 113 P.3d 1100 (2005)), the district court denied the motion to compel and ruled that class action waivers in arbitration agreements are unconscionable if the agreement is contained in an adhesion contract, the dispute is likely to involve small amounts of damages, and the party with inferior bargaining power alleges a deliberate scheme to defraud large numbers of consumers out of small sums of money. The Ninth Circuit affirmed. The Supreme Court reversed in a 5-4 decision. After reviewing the purposes of the FAA and the strong federal policy favoring arbitration, the Court turned its attention to the saving clause of FAA section 2, which provides that a court may not invalidate an arbitration agreement save upon such grounds as exist at law or in equity for revocation of any contract. Id. at 1744 (quoting from 9 U.S.C. 2). The Court explained that the saving clause permits arbitration agreements to be invalidated by generally applicable contract defensesfor example, fraud,

duress, or unconscionabilitybut not by defenses that apply only to arbitration or derive their meaning from the arbitration context. Id. at 1746. The Court rejected the Concepcions argument that Californias Discover Bank rule fell into the category of unconscionability analysis, and thus fell within the saving clause of the FAA. The Court instead found the clause inapplicable to state law rules that stand as an obstacle to the accomplishment of the FAAs objectives. Id. at 1743. Said the Court, The overarching purpose of the FAA . . . is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings. Requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA. Id. at 1748. The Court referenced its earlier decision in Stolt-Nielsen as instructive, and reiterated the reasons why it considered the shift from bilateral arbitration to class-action arbitration fundamental: Classwide arbitration includes absent parties, necessitating additional and different procedures and involving higher stakes. Confidentiality becomes more difficult. And while it is theoretically possible to select an arbitrator with some expertise relevant to the class-certification question, arbitrators are not generally knowledgeable in the oftendominant procedural aspects of certification, such as the protection of absent parties. The conclusion follows that class arbitration, to the extent it is manufactured by Discover Bank rather than consensual, is inconsistent with the FAA. Id. at 1750-51. The Court was particularly concerned about the risks posed to defendants by class arbitration given the high stakes of class litigation. The Court noted the higher aggregate damages, the risk of arbitral error, and the limited review process available for arbitral determinations as contrasted with court decisions, and concluded: We find it hard to believe that defendants would bet the company with no effective means of review, and even harder to believe that Congress would have intended to allow state courts to force such a decision. Id. at 1752. The dissenting Justices argued that the Discover Bank rule fell directly into the FAAs saving clause because it applies equally to class action litigation waivers whether contained in an agreement to arbitrate or not. Moreover, they pointed out, California could have rationally concluded that the Discover Bank rule was necessary in order to avoid depriving claimants of their claims, and that it was justified by the advantages of class arbitration over class litigation, or by a comparison of class arbitration with no recourse at all for plaintiffs. After all, the dissent complained, What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim? See, e.g., Carnegie v. Household Intl, Inc., 376 F.3d 656, 661 (7th Cir. 2004) (The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30). Id. at 1761.

NOTES 1. Post-Concepcion Rulings. State and federal court rulings since Concepcion have almost uniformly upheld arbitration agreements that contain class action waivers. See, e.g., Litman v. Cellco Pship, 655 F.3d 225, 232 (3d Cir. 2011) (applying Concepcion and holding preempted New Jersey law finding waivers of class arbitration are unconscionable); Green v. Super Shuttle, Inc., 653 F.3d 766 (8th Cir. 2011) (applying Concepcion and finding Minnesota state-law-based challenges preempted by the FAA); see also Alan S. Kaplinksky et. al, Arbitration Developments: ConcepcionThe Supreme Court Decisively Steps In, 67 BUS. LAW. 629 (Feb. 2012) (collecting cases). 2. Employer Responses to Concepcion. How should management counsel advise clients to respond to these cases? One response to Concepcion might be to advise employer-clients with predispute arbitration agreements to consider inserting an explicit class action waiver. See Supreme Court 5-4 Decides FAA Preempts State Court Rule on Class Arbitration Waivers, Daily Lab. Rep. (BNA) No. 81, Apr. 27, 2011, at AA-1, AA-3. Although this may seem prudent at first blush, consider a scenario in which the same law firm files separate but identical wage and hour claims on behalf of 40 different employees (as could easily happen if the employer has misclassified an entire occupational group as exempt from the FLSAs overtime pay requirements, for example). If the arbitration provision bars class arbitration, the employer will be required to bear the costs of 40 arbitration proceedings with different arbitrators assigned to each proceeding, including the lost time entailed in 40 separate depositions of the same managers and 40 hearings in which the company is represented by its lawyers or human resources personnel. In addition, the company may be required to deposit the estimated fee for each arbitrator up front, as for example the AAA rules require, necessitating significant out-of-pocket costs (one arbitrator estimated that the total deposit for 40 arbitrations might be as high as $500,000 to $1,000,000). Could a class action waiver in an arbitration agreement backfire? Ironically, the ABA Journal recently reported that AT&T Mobilitys win in the Concepcion case has become something of a Pyrrhic victory. The company is facing over 700 individual notices of dispute and arbitration demands from consumers complaining that its merger with TMobile violates the antitrust laws. The same law firm represents all the consumers. See Martha Neil, Law Firm Makes Lemonade After Supremes Nix AT&T Class Action, Now Pursues Individual Arbitrations, ABA Journal, July 2011. 3. Legislative Responses to Concepcion. The Arbitration Fairness Act, originally introduced in 2007 and again in 2009, would amend the FAA to provide that No predispute arbitration agreement shall be valid or enforceable if it requires arbitration of(1) an employment, consumer, or franchise dispute; or (2) a dispute arising under any statute intended to protect civil rights or to regulate contracts or transactions between parties of unequal bargaining power. Arbitration under collective bargaining agreements is exempted. See S. 1782, 110th Cong. 4 (2007); H.R. 3010, 110th Cong. 4 (2007); H.R. 1020, 111th Cong. 4 (2009); S. 931, 111th Cong. 4 (2009). The decision in Concepcion prompted the re-introduction of the Arbitration Fairness Act in the Senate and the House. See S. 987, H.R. 1873. The Act has not progressed in previous legislative sessions, and seems unlikely to gain traction in the future.

4. Agreements That Interfere with the Statutory Scheme for Enforcement of Workers Rights a. Predispute Arbitration Agreements and NLRA Rights As we saw in Chapter 8, employee rights to engage in concerted activity protected under 7 of the NLRA arguably include the right to solicit and maintain class action litigation to enforce statutory or contractual employment rights. It is well-established that employers cannot require employees to waive their rights to engage in concerted activity. Do provisions in arbitration clauses blocking class action claims thus violate the NLRA by requiring waiver of 7 rights or otherwise interfering with concerted activity? In D.R. Horton, Inc., 357 N.L.R.B. No. 184 (2012), discussed supra in Chapter 8.E., this supplement, the employer required new and current employees to sign a predispute arbitration agreement that restricted the arbitrator to hearing individual claims, explicitly depriving the arbitrator of the authority to fashion a proceeding as a class or collective action or to award relief to a group or class of employees in one arbitration proceeding. In exchange for the right to arbitrate claims, employees waived the right to file a lawsuit or other civil proceedings relating to employment, including the right to trial by a judge or jury. Id. at 2. An employee who had signed the arbitration agreement asserted that he had been misclassified as exempt from the overtime pay requirements of the Fair Labor Standards Act, and sought to initiate arbitration on behalf of a nationwide class of similarly classified employees. When the employer refused, citing the contractual language barring arbitration of collective claims, the employee filed an unfair labor charge with the NLRB, alleging that the arbitration agreement interfered with employees rights to engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection. The Board found that the class action waiver violated section 8(a)(1) of the NLRA because the contractual language would lead employees reasonably to believe that they were prohibited from exercising their associational rights under section 7 of the NLRA. The Board offered the following analysis of the potential conflict between the FAA and its interpretation of the NLRA: Holding that the [arbitration agreement at issue here] violates the NLRA does not conflict with the FAA or undermine the pro-arbitration policy underlying the FAA under the circumstances of this case for several reasons. First, the purpose of the FAA was to prevent courts from treating arbitration agreements less favorably than other private contracts. The Supreme Court . . . has made clear that [w]herever private contracts conflict with [the] functions of the National Labor Relations Act, they obviously must yield or the Act would be reduced to a futility. J.I. Case Co., [v. NLRB, 321 U.S. 332 (1944)] supra, at 337. To find that an arbitration agreement must yield to the NLRA is to treat it no worse than any other private contract that conflicts with Federal labor law. . . . Second, the Supreme Courts jurisprudence under the FAA, permitting enforcement of agreements to arbitrate federal statutory claims, including employment claims, makes clear that the agreement may not require a party to forgo the substantive rights afforded by the statute. Gilmer, supra, at 26. The question presented in this case is not whether employees can effectively vindicate their rights under the Fair Labor Standards Act in an arbitral forum. See Gilmer, supra. Rather, the issue here is whether [the arbitration agreements] categorical prohibition of joint, class, or collective federal or state

employment law claims in any forum directly violates the substantive rights vested in employees by Section 7 of the NLRA. Gilmer addresses neither Section 7 nor the validity of a class action waiver. The claim in Gilmer was an individual one, not a class or collective claim, and the arbitration agreement contained no language specifically waiving class or collective claims. Here, although the underlying claim the Charging Party sought to arbitrate was based on the FLSA . . . the right allegedly violated by [the arbitration agreement] is not the right to be paid the minimum wage or overtime under the FLSA, but the right to engage in collective action under the NLRA. Thus, the question presented is not whether employees can effectively vindicate their rights under the FLSA in arbitration despite a prohibition against class or collective proceedings, but whether employees can be required, as a condition of employment, to enter into an agreement waiving their rights under the NLRA. Any contention that the Section 7 right to bring a class or collective action is merely procedural must fail. The right to engage in collective actionincluding collective legal actionis the core substantive right protected by the NLRA and is the foundation on which the Act and Federal labor policy rest. . . . Id. at 2-12. The Board emphasized the limitations of its ruling. First, the ruling applies only to agreements made by employees covered by the NLRA; thus, supervisors, managers, independent contractors, and many others are excluded. Second, the Board did not decide whether arbitration agreements that prohibited class or collective actions in court but allowed them in arbitration would be permissible. Finally, the Board noted that its ruling pertained only to arbitration agreements that were required as a condition of employment; it did not reach more difficult question . . . whether, if arbitration is a mutually beneficial means of dispute resolution, an employer can enter into an agreement that is not a condition of employment with an individual employee to resolve either a particular dispute or all potential employment disputes through non-class arbitration rather than litigation in court. Id. at 12 & n.28. NOTES 1. Squaring D.R. Horton with Stolt-Nielsen and Concepcion. Can the Boards ruling in D.R. Horton be harmonized with the Courts analysis of provisions banning classwide arbitration in Stolt-Nielsen and Concepcion, supra? The Board distinguished them, observing that neither case involved a waiver of rights protected by the NLRA; indeed, neither even involved the employment context. Id. at 16. Further, Concepcion involved a conflict between a federal statute (the FAA) and state contract law that was governed by the Supremacy clause, while D.R. Horton dealt with two federal statutesthe FAA and the NLRA. Finally, the Board noted, its ruling did not require any party to permit or to be bound by a class-wide arbitration proceeding: We need not and do not mandate class arbitration in order to protect employees rights under the NLRA. Rather, we hold only that employers may not compel employees to

waive their NLRA right to collectively pursue litigation of employment claims in all forums, arbitral and judicial. So long as the employer leaves open a judicial forum for class and collective claims, employees NLRA rights are preserved without requiring the availability of classwide arbitration. Employers remain free to insist that arbitral proceedings be conducted on an individual basis. Id. How persuasive are these efforts to distinguish D.R. Horton? The Supreme Court decided another case during its 2012 term that may bear on the question of how to resolve conflicts between the FAAs pro-arbitration policy and protecting rights conferred by other federal statutes in the employment context. In Compucredit Corp. v. Greenwood, 132 S. Ct. 665 (2012), the court found a class action ban in an arbitration agreement enforceable against the consumer-plaintiffs despite a provision in the Credit Repair Organizations Act (upon which their claims were based) purporting to bar waivers of rights under the statute, because the CROA was silent on whether claims under the Act could proceed in an arbitral forum. Absent clear evidence that the FAAs pro-arbitration policy has been overridden by a contrary congressional command, the majority suggested, the FAAs proarbitration policy would trump. Id. at 669 (quoting Shearson/American Express Inc. v. McMahon, 482 U.S. 220, 226 (1987)). 2. Reconciling D.R. Horton with 14 Penn Plaza LLC v. Pyett. Recall that the Supreme Court ruled in 14 Penn Plaza LLC v. Pyett, reproduced supra part C, that a union may agree during collective bargaining to an arbitration clause that waives employees individual rights to file a claim in court alleging employment discrimination. Moreover, a union may waive many of the section 7 rights of the employees that it represents, such as the right to strike, in exchange for concessions from the employer at the bargaining table. See Mastro Plastics Corp. v. NLRB, 350 U.S. 270, 280 (1956). The Board explained that these doctrines were not inconsistent with its ruling in D.R. Horton because [t]he negotiation of such a waiver stems from an exercise of Section 7 rights: the collective-bargaining process, distinguishing it from a waiver of rights imposed on individual employees by the employer as a condition of employment. D.R. Horton, 357 N.L.R.B. No. 184 at 13. To the extent that the Penn Plaza Court did not see any distinction between waivers of rights signed by an individual employee and those signed by a union, it was speaking in the context of individual statutory rights, not the right to concerted activity protected by the NLRA. Id. In addition, the Boards ruling goes to great pains to explain that the substantive rights impaired by the class action waiver are NLRA rights, not FLSA rights. Since both are federal statutes, why should this matter? Is the Board asserting that NLRA rights have a more privileged status than other statutory rights because they are collective rather than individual? Are you persuaded that the Court would see any distinction between them in the context of an agreement to arbitrate? Did the NLRB conflate the power of employees to collectively assert their legal rights, which the NLRA protects, with the ability of workers to collectively adjudicate their claims, which it does not? 3. Subsequent Developments. D.R. Horton is currently on appeal to the Fifth Circuit. D.R. Horton, Inc. v. NLRB, appeal docketed, No. 12-60031 (5th Cir. May 31, 2012). In addition, at least one additional circuit court case pending in the Second Circuit involves the argument that arbitration agreements that bar employees from pursuing collective actions under the FLSA

violate the NLRA. See Raniere v. Citigroup, Inc., 827 F. Supp. 2d 294 (S.D.N.Y. 2011), appeal docketed, No. 11-5213 (2d Cir. Dec. 19, 2011) (refusing to enforce an arbitration agreement barring class, collective, or representative action[s] against employees who alleged that they had been misclassified as exempt from the FLSA and denied overtime pay, because collective action waiver effectively prevented them from vindicating statutory rights under the FLSA due to the small amounts of recovery and the costs involved in pursuing them). The National Employment Lawyers Association has raised the NLRA/D.R.Horton argument in an amicus brief filed as part of the appeal. See Brief for National Employment Lawyers Association, National Employment Law Project, and The Employee Rights Advocacy Institute for Law & Policy as Amici Curiae Supporting Plaintiff-Appellees, available at http://www.gdblegal.com/documents/Amicus_Briefs/Raniere-ECF-63-2-Amicus-Brief.pdf. 4. Vindication of Statutory Rights Theory. In D.R. Horton, the Board relied to some degree on the vindication of statutory rights argument derived from Gilmer and Mitsubishi, and discussed in Cole, suprai.e., that arbitration is an adequate substitute for a judicial forum only where the employee can effectively vindicate her statutory rights through the arbitral process. What, if anything, remains of this argument after Stolt-Nielsen and Concepcion? A California appeals court recently concluded that Concepcion rendered the argument irrelevant in a state law context because states cannot require procedures in arbitration that are inconsistent with the FAAs pro-arbitration policy, even if it would be desirable to do so for public policy reasons including the effective vindication of statutory rights. See Iskanian v. CLS Transportation Los Angeles LLC, 2012 Cal. App. LEXIS 650 (discrediting Gentry v. Superior Court, 165 P.3d 556 (Cal. 2007)). The Eleventh Circuit reached the same conclusion in Cruz v. Cingular Wireless LLC, 648 F.3d 1205 (11th Cir. 2011) (rejecting the vindication of statutory rights theory in a consumer arbitration case). Several cases in the Second Circuit which present the vindication of statutory rights argument in the employment context are currently winding their way through the legal system. See, e.g., Sutherland v. Ernst & Young LLP, 2012 U.S. Dist. LEXIS 31512, appeal docketed, No. 12-304 (2d Cir. Jan. 24, 2012) (ban on collective action in arbitration agreement prevents plaintiff from vindicating her statutory rights to overtime pay under the FLSA); Raniere v. Citigroup, Inc., supra. b. The Impact of Arbitration Agreements on Statutory Enforcement by Government Agencies Some labor and employment statutes provide for an administrative agency thatalong with individualsenforces the statute. If an individual employee or group of employees is bound by a predispute arbitration agreement, may the agency still proceed with its own enforcement action? Does it matter what sort of relief it seeks? The Supreme Court took up this question in the following case involving the EEOC. Equal Employment Opportunity Commission v. Waffle House, Inc., 534 U.S. 279 (2002). Eric Baker, a grill operator at Waffle House, suffered a seizure at work and was discharged shortly thereafter. Baker filed a charge of discrimination with the EEOC alleging that his discharge violated the ADA. The EEOC filed an enforcement action in federal district court alleging ADA violations and seeking make-whole relief (including backpay, reinstatement, and compensatory damages) as well as punitive damages. The employer invoked a predispute

arbitration agreement and sought to compel arbitration under the FAA in lieu of the EEOC action in court. The Court of Appeals for the Fourth Circuit found that although the arbitration agreement did not foreclose the enforcement action because the EEOC was not a party to the contract, it precluded the EEOC from seeking victim-specific relief in order to give effect to the arbitration agreement and the policies articulated in the FAA, limiting the EEOCs remedies to injunctive relief. The Supreme Court considered the policies behind the enforcement scheme provided in Title VII (which are applicable to ADA enforcement actions by the EEOC) and reviewed the policies behind the FAA. Noting that the EEOC files fewer than 2% of all antidiscrimination claims in federal court, the Court reasoned that permitting the EEOC to pursue victim-specific relief in court would have a negligible effect on the federal policy favoring arbitration. Id. at 290 n.7. Moreover, once the plaintiff files a charge with the EEOC, it is in command of the investigation, conciliation, and suit-filing process: If the EEOC chooses to file suit, the employee has no independent cause of action. Id. at 291. The Court explained: The statute clearly makes the EEOC the master of its own case and confers on the agency the authority to evaluate the strength of the public interest at stake. Absent textual support for a contrary view, it is the public agencys provincenot that of the courtto determine whether public resources should be committed to the recovery of victimspecific relief. And if the agency makes that determination, the statutory text unambiguously authorizes it to proceed in a judicial forum. . . . Even if the policy goals underlying the FAA did necessitate some limit on the EEOCs statutory authority, the line drawn by the Court of Appeals between injunctive and victim-specific relief creates an uncomfortable fit with its avowed purpose of preserving the EEOCs public function while favoring arbitration. For that purpose, the category of victim-specific relief is both overinclusive and underinclusive. For example, it is overinclusive because while punitive damages benefit the individual employee, they also serve an obvious public function in deterring future violations. Punitive damages may often have a greater impact on the behavior of other employers than the threat of an injunction, yet the EEOC is precluded from seeking this form of relief under the Court of Appeals compromise scheme. And, it is underinclusive because injunctive relief, although seemingly not victim-specific, can be seen as more closely tied to the employees injury than to any public interest. . . . [W]e are persuaded that, pursuant to Title VII and the ADA, whenever the EEOC chooses from among the many charges filed each year to bring an enforcement action in a particular case, the agency may be seeking to vindicate a public interest, not simply provide make-whole relief for the employee, even when it pursues entirely victimspecific relief. To hold otherwise would undermine the detailed enforcement scheme created by Congress simply to give greater effect to an agreement between private parties that does not even contemplate the EEOCs statutory function. Id. at 291-92, 294-96. Justices Thomas, Rehnquist and Scalia dissented. The dissent complained that permitting the EEOC to pursue victim-specific remedies for Baker amounted to an end run around the arbitration agreement by allowing employees two bites at the appleone in arbitration and one in litigation conducted by the EEOC. Such a result would discourage the use

of arbitration agreements, and had no basis in Title VII, which only confers upon the EEOC the right to bring suit, not the right to obtain any particular remedy. Id. at 300-01, 309-10. NOTE Ramifications of Waffle House. Is the Courts reasoning in Waffle House undercut by its subsequent decision in Concepcion? Is its reasoning limited to class actions initiated by the enforcing agency? What about a class action initiated by a labor union on behalf of employees that it represents, or wishes to represent? 5. Judicial Review of Arbitration Awards A central feature of the predispute arbitration agreements used by most employers is their finality. Unlike judicial decisions, arbitration decisions are generally not reviewable. Section 10 of the FAA describes the narrow grounds upon which arbitration awards may be vacated: (1) Where the award was procured by corruption, fraud, or undue means. (2) Where there was evident partiality or corruption in the arbitrators. . . . (3) Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced. (4) Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. In a decision outside the employment context, Hall St. Assocs. LLC v. Mattel Inc., 552 U.S. 576 (2008), the Court ruled that the FAAs specified grounds for vacating or modifying an arbitration ruling are the exclusive grounds for judicial review; the parties may not expand the grounds by private agreement. Thus, even mistaken interpretations of law or decisions made in manifest disregard of the law may not be grounds for vacating an arbitration award. That particular question remains open, however, because the Hall Court was careful to say that it was only addressing the limits of review under the FAA, and not the scope of review under state statutory or common law. Id. at 590. The Courts subsequent decision in Stolt-Nielsen SA v. AnimalFeeds, 103 S. Ct. 1758 (2010), discussed supra, also left the question open. See id. at 1768, n.3 (We do not decide whether manifest disregard survives our decision in Hall Street . . . as an independent ground for review or as a judicial gloss on the enumerated grounds for vacatur set forth [in the FAA].). Not surprisingly, the circuit courts are divided on the question. What is the rationale for the narrow standard of review under the FAA? If courts refuse to review employment arbitration awards for errors of law, is the public law essentially transformed into a system of private justice? Is there anything wrong with this from the standpoint of labor and employment policy?