This morning the Supreme Court issued its long-awaited opinion in Janus v. AFCSME , holding that requiring public sector employees to pay fair share fees to unions violates the First Amendment. As we discussed in our prior posts , a fair share fee (sometimes called an agency fee) is a fee that non-union members must pay to the union to cover the expenses incurred by the union while representing bargaining unit employees.

Until this morning, fair share fees were legal under most state laws, and required by many collective bargaining agreements. This was true despite the fact that the employees paying the fees had intentionally opted not to join the union, because the union still had a legal obligation to represent all employees within the bargaining unit, regardless of whether the employee is a member of the union. These laws became common after the Supreme Court issued its 1977 opinion Abood v. Detroit Bd. of Educ., which held that fair share fees were constitutional and maintained labor peace by preventing “free riders.”

In recent years, there have been increasing challenges to the constitutionality of fair share fees and the validity of Abood. Back in 2014, we discussed the Supreme Court’s ruling in Harris v. Quinn. The Court in Harris began to question the validity of Abood and its supporting rationale. As we noted, the Court came close to overruling Abood but ultimately decided Harris on its specific facts. It held that collection of the fair share fees in the specific context (personal assistants in Illinois) violated the First Amendment. In 2016, another challenge made it to the Court, but we got a 4-4 split decision, due to Justice Scalia’s passing shortly after oral argument

Now, with Justice Gorsuch on the bench, as was foreshadowed in Harris, the Court ruled that fair share fees violate public sector employees’ right to free speech. As a basic premise, the Court recognized that the right to free speech includes the right to refrain from speaking at all. Thus, “[c]ompelling individuals to mouth support for views they find objectionable violates the cardinal constitutional command, and in most contexts, any such effort would be universally condemned.” Accordingly, forcing employees to pay fair share fees (i.e., compelling employees to speak in support of the union when they may otherwise remain silent) violates the First Amendment. Finally, the Court overruled Abood, dissecting and dismantling its labor peace and free rider justifications.

The end result of the Court’s holding is clear: “States and public-sector unions may no longer extract agency fees from nonconsenting employees. . . . Neither an agency fee nor any other payment to the union may be deducted from a non-member’s wages, nor may any other attempt be made to collect such payment, unless the employee affirmatively consents to pay.”

The Court recognized that the loss of these fair share payments would cause unions to “experience unpleasant transition costs in the short term,” but it did not think that such a challenge justified continued constitutional violations. Rather, it pointed out that such a disadvantage must be weighed against the considerable windfall that unions received in fair share fees for the 41 years after Abood.

Surely, there will be many questions that follow and we will be here to help our public sector clients navigate this new territory.

Yesterday, we reported on a Commonwealth Court decision that basically concluded that an arbitrator’s award ordering the reinstatement of a discharged employee who is incapable of performing his job violates the “essence test.” We also noted that a subsequent decision of the court seems to be a bit in conflict with that holding. Let’s take a closer look at that decision.

The Commonwealth Court addressed (what appeared to be) a similar question in the context of a state trooper. The Trooper, a male, had a romantic relationship with a female, which ultimately failed. Thereafter, the female Trooper filed complaints that alleged the male Trooper was harassing her. The Pennsylvania State Police conducted an investigation and found the complaints unsubstantiated. Alleging the same behavior, the female Trooper filed for a Protection of Abuse order (PFA). A judge ultimately issued the PFA, which had a condition that the male Trooper could not carry a firearm. Because he could not carry a firearm, the male Trooper was placed on restrictive duty pending an additional internal investigation. Upon confirming that the PFA included a condition that barred him from carrying a firearm, the State Police terminated the male Trooper.

The Trooper filed a grievance and ultimately submitted the issue to arbitration. The arbitrator ordered that the Trooper be reinstated. The State Police appealed to the Commonwealth Court. Same result as the correctional officer, right? He cannot perform the essential duties of his position, so requiring his employment infringes managerial rights? Nope.

There are two key differences. First, unlike the correctional officer, whose collective bargaining rights are set out in the Public Employee Relations Act (PERA), the state trooper’s collective bargaining rights are established under Act 111. In reviewing arbitration awards under PERA the court uses the highly deferential essence test. However, in reviewing arbitration awards under Act 111, the court uses an even more deferential and narrow test. It is indeed narrow, justifying a vacation of an arbitrator’s award only if there is a lack of jurisdiction, irregularity of proceedings, excess in the exercise of powers, or deprivation of constitutional rights. The State Police argued that the Trooper’s reinstatement was in excess of the arbitrator’s powers. The court disagreed, finding that there is only an excess use of powers if the award requires an illegal act or performance of an act which cannot be done voluntarily. No such excess was present here.

The second difference is more fundamental: unlike the correctional officer, the State Police’s justification for the Trooper’s termination was not his inability to perform the essential functions of a police officer (carry a firearm), but it was the harassing conduct underlying the issuance of the PFA. According to the State Police, the underlying conduct violated department regulations for “unbecoming conduct” and “conformance of laws.” However, those regulations required physical abuse, commission of a felony or misdemeanor, or use of a firearm. None of the harassing conduct underlying the PFA involved any of this type of conduct. Thus, the court found the arbitrator did not exceed his authority in concluding that there was not just cause for the Trooper’s termination.

So, for our public employer subscribers, these cases serve as a reminder that arbitrator decisions are subject to great deference on appeal, making success during arbitration of critical importance. But more importantly, it makes clear that if you are planning on terminating an employee who has established that he or she is unable to perform the essential duties of his or her position, that must be the documented basis (or at least part) for the termination.

In November 2017, the Commonwealth Court of Pennsylvania issued an opinion concerning an arbitrator’s reinstatement of a state correctional officer (“CO”). The CO was responsible for monitoring inmates who worked on the prison’s loading dock. As far back as 2015, the CO’s supervisors noticed unauthorized food items in the dock area. Despite instruction to remove all unauthorized food from the dock, the CO continued to allow inmates to remove food from deliveries, and he personally took food for himself. Finding that he violated several orders, the CO was temporarily removed from his position and later reinstated. Shortly after his reinstatement, a routine search of the dock again found contraband food. This time he was discharged.

The CO filed a grievance and later submitted the issue to arbitration, claiming that the Department of Corrections violated the collective bargaining agreement by discharging him without just cause. The arbitrator agreed and reinstated the CO with a 30-day suspension. The arbitrator found that the CO was not irredeemable, just that “he should not be in a position which requires his supervision of inmates.” The arbitrator noted that the CO must have agreed with his inability to supervise inmates because he applied for, and was granted, a transfer to a guard tower position prior to his termination. Thus, the arbitrator found there was just cause to discipline the CO, but termination was not warranted.

The Department appealed the arbitrator’s award to the Commonwealth Court. The Court reviewed the award using the well-established “essence test,” which is a highly deferential standard. The essence test requires the court to affirm an arbitrator’s award so long as it can be rationally derived from the collective bargaining agreement. The Department argued that the award was not rationally derived from the CBA. It asserted that the award required it to employ a CO who could not perform the functions of the job, i.e. the care, custody and control of inmates. The Commonwealth Court agreed.

The court held that since the arbitrator found that the CO should not be in a position which requires supervision of inmates, the CO could not perform the statutorily-defined duties of a correctional officer. Thus, reinstatement would force the Department to employ an officer with limitations on his ability to interact with inmates. The court found this was in direct contradiction to the managerial rights enumerated in the CBA, which provided the Department had authority to direct its workforce to satisfy its operational needs. Accordingly, the court found arbitrator’s award was not rationally derived from the CBA.

For many public employers in Pennsylvania, the court’s decision is a welcomed limitation on the seemingly limitless power of arbitrators. It just makes sense that an arbitrator should not be permitted to reinstate an employee who the arbitrator himself has determined is incapable of performing his job.

However, a subsequent decision of the Commonwealth Court, analyzing a similar issue, has left some public employers scratching their heads. We will cover the subsequent decision in a post tomorrow.

Employers with 100 or more employees (and federal contractors with 50 or more employees) must submit an EEO-1 Report annually, detailing the race, gender, and ethnicity of its workforce. In September of 2016, the Equal Employment Opportunity Commission (“EEOC”) issued a revised EEO-1 Form, which would have required employers to submit extensive data related to employee compensation. For each EEO category, the revised EEO-1 Form would have required employers to identify the number of employees in each of twelve pay bands. Starting with 2017 data, the filing deadline was also pushed back to March 31.

Over the past several months there were calls from the business community for the new Director of the Office of Management and Budget (“OMB”) to initiate a review of the revised EEO-1 Form pursuant to OMB’s authority under the Paperwork Reduction Act – which requires every federal agency to obtain approval from OMB to collect information from the general public in order to ensure that the benefit of the information collection outweighs its burden. On August 29, 2017, the OMB answered that call and issued an immediate stay of the compensation data collection portion of the revised EEO-1 Form. The basis of the stay? Since issuing the revised form, EEOC released data file specifications for employers to use to submit the data. OMB stated that these specification were not included in the public comment process and the specifications change the burden estimate. OMB also found that the revised EEO-1 Form contrary to the standards of the Paperwork Reduction Act and questioned the utility of collecting the information.

So what does this mean for employers submitting EEO-1 Reports? Most importantly, the compensation aspects of the revised EEO-1 Form do not need to be reported. However, the revised filing deadline remains intact. So the 2017 EEO-1 Reports are not due until March 31, 2018. Just as before the revised EEO-1 Form was issued, the reports must contain data related to employee race, gender, and ethnicity. Finally, for our federal contractor subscribers, the stay does not impact the filing of your VETS 4212 form, which must be filed by September 30, 2017.

In September of 2015, two delivery drivers filed a class action lawsuit in the United States District Court for the Middle District of Pennsylvania. The employees alleged that their former employer violated the Fair Labor Standards Act by failing to pay them overtime between 2012 and 2015. The class subsequently ballooned to 474 members (and an additional 588 former and current delivery drivers remain eligible to opt into the class). The members asserted that over that three year period, the employer denied them overtime for five to ten hours per workweek, totaling over $10 million in allegedly unpaid wages.

The employer initially argued that the employees were exempt from overtime requirements. It claimed that in addition to making deliveries, as “Route Sales Professionals,” the drivers could make additional sales, fill orders, and upsell when making deliveries. Therefore, according to the employer, the drivers fell within the FLSA’s “outside sales person” exemption. The drivers maintained that sales were not part of their job duties; they were simply delivery drivers who did not fit within the outside sales exemption.

After two years of discovery, in April of this year, the parties notified the court that they had reached a settlement agreement. They asked the court to approve agreement, as is required with both FLSA claims and class actions lawsuits.

The amount: $2.5 million.

This month, the court approved the FLSA settlement. It also preliminarily granted approval of the class action settlement, subject only to a fairness hearing scheduled for September.

For our blog subscribers that have delivery drivers who also engage in incidental sales, now is the time to reevaluate how you classify those employees. In addition, this case serves as an important reminder for all employers that FLSA classifications turn on the actual job duties of the position, not the job title. In fact, a written job description will not even be controlling, unless it is an accurate reflection of the employee’s job duties.

Back in 2015, Pittsburgh enacted a paid sick leave ordinance, following a trend among cities throughout the country. Pittsburgh’s paid sick leave ordinance required employers with fifteen employees or more to provide up to forty hours of paid sick leave per calendar year. Employers with less than fifteen employees were not spared. The ordinance required that those employers provide up to twenty-four hours per calendar year. The impact: 50,000 workers would receive paid sick leave.

But, what authority did Pittsburgh have to impose such a requirement?

The Pennsylvania Restaurant and Lodging Association, among others, challenged whether Pittsburgh actually had authority to enact the ordinance. Initially, the trial court found that the Steel City had no such authority. Pittsburgh appealed, arguing that because it had adopted a Home Rule Charter, it had authority to exercise broad powers and authority.

A few weeks ago, the Commonwealth Court of Pennsylvania issued its opinion, agreeing with the trial court that Pittsburgh indeed lacked the necessary authority. The court found that the Home Rule Charter Law has an exception with respect to the regulation of businesses. The exception specifically provides that “a municipality which adopts a home rule charter shall not determine duties, responsibilities or requirements placed upon businesses, occupations and employers . . . except as expressly provided by [separate] statutes . . . .” Although Pittsburgh attempted to point to various statutes which it felt provided it with the needed authority, the court was not convinced. Struck down by the court, it was – and remains – the worst of times for Pittsburgh’s paid sick leave ordinance.

But, what about Philadelphia? It is a home rule charter municipality. It has a paid sick leave ordinance. Does the Commonwealth Court’s opinion effectively render its ordinance invalid, too? Nope. Philadelphia’s authority is derived from a different law, which applies only to cities of the first class (oh, and Philly is the only First Class City in Pennsylvania under the law). It includes no such limitation on the regulation of businesses. Yet, while Philadelphia’s statute may be unaffected by the court’s opinion, it may not be best of times for Philadelphia’s ordinance either. The Pennsylvania State Legislature is making efforts to affect Philadelphia and all municipalities. Senator John Eichelberger’s Senate Bill 128 would ban municipalities from passing sick leave and other leave requirements that are stronger than those required by federal and state governments. The bill was voted out of committee and is set for consideration by the Senate.

So, for our blog subscribers with businesses only in the city limits of Pittsburgh, there is no requirement that you establish a paid sick leave program for your employees. However, Philadelphia’s paid sick leave ordinance remains alive and well, and you must abide by its requirements. While some do not expect the General Assembly to move this bill through both chambers before the end of the current session, we will track the bill’s progress and update this blog should it be considered and voted on by the Senate. So, stay tuned for future posts on legislation effecting Philadelphia’s and all municipalities’ authority to impose paid sick leave requirements.

In 2010, two employees filed a claim against their former employer, Robert Half International, Inc., alleging that it violated the Fair Labor Standards Act (“FLSA”). In addition to individual claims, the plaintiffs brought a collective action on behalf of all other similarly situated employees. The plaintiffs, however, had signed employment agreements containing arbitration clauses, which generally required that any dispute arising out of their employment be submitted to arbitration. It was silent as to class-wide claims.

The employer filed a motion to compel the employees to resolve their claims through arbitration on an individualized basis. The court ordered the employees to submit their claims to arbitration but left for the arbitrator to decide whether the claims could proceed on a class basis. The arbitrator subsequently ruled that class arbitration was permitted under the agreements. The employer appealed and argued that the question of whether the employees could submit claims to arbitration on a class-wide basis is one to be decided by the courts, not an arbitrator.

The First Shoe

The Third Circuit agreed. The court first explained that it is generally the province of the courts to resolve “questions of arbitrability.” That is, courts have narrow authority to decide whether or not an arbitration clause applies to particular claims and/or particular parties. On the other hand, arbitrators decide all issues they have been authorized by the parties to resolve. This includes procedural questions, and in traditional litigation, questions of class are procedural in nature. So, in this case, the court was presented with the following question: when an arbitration clause is silent as to arbitration on a class basis, is the permissibility of class arbitration a “question of arbitrability” to be decided by the court, or is it a procedural question to be decided by an arbitrator?

In a precedential opinion issued in 2014, the Third Circuit held that it was a question of arbitrability reserved for the court, because it was an issue of whether the clause applies to particular claims and/or parties. With this ruling, the Third Circuit then remanded the case to the district court to determine whether the employment agreements authorized class arbitration. On remand, finding no explicit language in the arbitration clauses, and finding no other evidence to the contrary, the district court found that class arbitration was not permitted under the agreement. The employees appealed.

The Other Shoe (sort of)

In a non-binding decision issued at the end of January, the Third Circuit agreed that class arbitration was not permitted. First, the court recognized that “a party may only be compelled to submit to class arbitration if there is a contractual basis for concluding that the party agreed to do so.” Stolt-Nielsen S.A. v. AnimalFeeds Int’l, Inc., 559 U.S. 662, 684 (2010). To determine whether the parties agreed to class arbitration in this case, the court first looked for explicit language of authorization, noting that under Third Circuit precedent, “silence regarding class arbitrability generally indicates a prohibition.” Quillion v. Tenet HealthSystems Phila., Inc., 673 F.3d 221, 228 (3d Cir. 2012). It found no explicit language. Despite this finding and its precedent concerning the silence of class arbitration, the court did not stop there. It went on to look for implicit authorization elsewhere in the employment agreement. It again found nothing and affirmed that the agreement did not authorize class-wide arbitration.

While this ruling resolves this case and gives guidance moving forward, it does not definitively answer whether the absence of explicit language precludes class arbitration. To the contrary, the court’s analysis suggests that class arbitration could be inferred from other language in the employment agreement. So, going forward, to avoid a court making such an inference – one contrary to your true intent – inclusion of explicit language prohibiting class arbitration remains the best policy. However, you must be aware that the National Labor Relations Board takes the position that explicit prohibitions of class arbitration violate the National Labor Relations Act. Three courts of appeals, among other courts, have disagreed and overturned the Board’s position. Stay tuned, as the Supreme Court of the United States is set to resolve this question later this year.

A few weeks ago, a jury in New Jersey federal court found that Lockheed Martin discriminated against a former employee. The employee claimed that Lockheed violated federal and state laws by discriminating against him on the basis of age, including by paying him less than his younger co-workers. The jury’s award: $51.5 million ($1.5 million in compensatory damages and $50 million in punitive damages).  Although the claim was only partially based on unequal pay, and although the punitive damages award is constitutionally suspect (U.S. Supreme Court precedent holds that punitive damages should generally not be more than ten times the amount of compensatory damages), the award is indicative of an ever-emerging emphasis on pay equity.

Since January of 2016, several states have enacted equal pay statutes, and several others have pending legislation. California, New York, Maryland, and Massachusetts all have statues that prohibit pay discrimination on the basis of sex (Maryland’s also includes gender identity). Each of these statutes makes it easier for employees to establish pay discrimination claims, including requiring no proof of intent. One state, however, allows employers to establish an affirmative defense. Under Massachusetts’ statute, which is set to go into effect in July 2018, an employer has an affirmative defense if it completed a self-evaluation of its pay practices within three years of the claim, and it made reasonable progress toward eliminating pay differences revealed by the self-evaluation.

It is not just states that have turned their focus toward compensation. Our federal contractor subscribers – recognizing that Lockheed Martin is a federal contractor (the biggest, actually) – may find themselves wondering how aggressive the Office of Federal Contract Compliance Programs (OFCCP) has become with respect to compensation. If its lawsuit against Google is any indication, OFCCP has become quite aggressive. Typically, during a compliance audit OFCCP will require employers to provide compensation data for all current employees to ensure no disparity across races and genders. With Google, it went further. It demanded wage histories, changes in compensation, and employee contact information. When Google refused, OFCCP filed a lawsuit seeking an injunction and threatened to cancel all of Google’s federal contracts.

Finally, even if you are not in a state that has current or pending pay equity statutes, and even if you are not a federal contractor, employers may need to report compensation in the future. For employers with 100 employees or more, the Equal Employment Opportunity Commission has proposed to collect compensation data by sex, race, and ethnicity for each job category. Thus, starting in March 2018 – assuming no changes occur under the new Trump administration – those employers will be required to include compensation information in their EEO-1 report. According to the EEOC, this “will provide a much needed tool to identify discriminatory pay practices where they exist in order to ensure that fair pay practices are put in place.”

Considering all this momentum toward ensuring pay equity, compensation has possibly become one of employers’ greatest vulnerabilities.  Now may be the time to conduct an internal analysis – preferably one shielded by attorney-client privilege – to determine whether disparities exist within your compensation structure. Stay tuned for future podcasts, webinars, and seminars that will address this issue in part.

Just over thirty years ago, Congress passed the Immigration Reform and Control Act (“the Act”). It requires that employers verify the identity and work authorization of the people they hire. It also mandates that such verification be done on a form designated by the Attorney General. We know that form as the I-9. From time to time, the U.S. Citizenship and Immigration Service (USCIS) issues revised versions of the I-9. It did so again last November.

As we outlined in our original blog post, the new version, found here, contains a few modifications. First, it is designed to be more computer-friendly, with dropdown lists, calendars for filling in dates, and on-screen instructions – all useful in eliminating common errors discovered during audits. Additionally, it has prompts to ensure information is entered correctly, the ability to have multiple preparers, a dedicated area for additional information, and a supplemental page for the preparer. Finally, the new version changes Section 1. Instead of asking for “other names used” by the employee, it asks for “other last names used.”

While employers had the option to start using the new version immediately, they are required to start using the new version no later than January 22, 2017. On the lower left corner of the form, you will see that the form has a revision date of “11/14/2016 N.” The “N” denotes that after the effective date of the form, previous versions are no longer valid, and employers cannot use them to satisfy the requirements of the Act. In its news release about the update, the USCIS indicated that the new Form I-9 will become effective on January 22, 2017.

So, if you have yet to make the switch, now is the time. Keep in mind, however, that despite the implementation of the new form, employers must continue to comply with existing rules for storage and retention with respect to all previously completed forms.

Back on September 7, 2015, President Obama signed Executive Order 13706, which requires that certain federal contractors provide their employees up to fifty-six hours of paid sick leave per year. In February of this year, the United States Department of Labor issued proposed rules to implement the Executive Order, and it invited public comment on recommended changes. Our blog subscribers may remember that we posted an outline of the requirements under the proposed rules in March. You can find that blog post here. Following the submission of over 35,000 comments, the Department of Labor issued the final rules on September 30, 2016, leaving the proposed rules largely untouched. The final rules become effective on November 30th and apply to new contracts entered into after January 1, 2017 (except those unilaterally renewed by the government pursuant to a pre-negotiated option).

In the aftermath of last Tuesday’s election, we now know that Donald Trump will assume the Presidency on January 20, 2017. Your feelings about the outcome of the election aside, we know two important things about President-Elect Trump that are relevant to federal contractors: (1) he is of a political ilk quite different than President Obama; and (2) because of his contra political affiliation, he has promised to rescind most, if not all, of President Obama’s executive orders. So, with paid sick leave regulations set to go into effect, and a President-Elect who has promised to rescind such an order, what is a federal contractor supposed to do?

In short – comply with the regulations. Why? First, the regulations go into effect before President-Elect Trump is even sworn into office. Thus, the regulations will be binding on covered federal contractors and will have the same force and effect as all other regulations. Second, there is no certainty that President-Elect Trump will actually rescind Executive Order 13706. While he has spoken generally about rescinding President Obama’s executive orders, he has not specifically referenced the paid sick leave order. Indeed, during his campaign, President-Elect Trump announced a plan for six weeks of paid maternity leave. Such a plan would largely be at odds with rescinding Executive Order 13706, which requires paid leave be permitted for the same purpose. Third, assuming he does actually intend to rescind Executive Order 13706, it is not likely to happen early in his presidency. He has published his plan for the first one-hundred days of his term; paid sick leave is not on list.

Although federal contractors should comply with the regulations, contractors may want to reevaluate their compliance strategy in the short term. For example, the regulations provide that contractors must allow employees to accrue up to fifty-six hours of paid sick leave over the course of a year. Alternatively, a contractor, in lieu of calculating the accrual of paid sick leave, can simply give employees all fifty-six hours at the beginning of the year. Both methods have pros and cons. The accrual method has administrative costs associated with tracking hours worked, but the regulations allow a contractor to limit the number of hours an employee has available for use. The up-front method has no administrative cost for tracking hours, but the regulations provide that contractors cannot limit the number of hours an employee has available for use. A contractor, considering the long-term costs and benefits, may choose, for example, to select the up-front method because the cost associated with the accrual method, for them, outweighs the benefit of limiting the availability of use. But the same may not be true in the short term. Thus, given the potential that the Executive Order may ultimately be rescinded in the next few years, a different strategy may be appropriate.

So, if you are a federal contractor that employs any of the 1.2 million employees that will ultimately be covered by the regulations, you should continue to plan, prepare, and implement your compliant paid sick leave policy. But, while you continue that process, it may be worth taking the time to reevaluate your strategy.