Labor and Employment Update - Winter 2014

PAY FOR PLAY?
COLLEGE ATHLETES PUSH FOR EMPLOYEE STATUS AND RIGHT TO UNIONIZE

A group of football players at Northwestern University recently submitted a petition to the National Labor Relations Board (“NLRB”), as well as union cards signed by an undisclosed number of players, seeking to form the first official players union in the history of collegiate sports.  Ramogi Huma, the president of the National College Players Association, filed the petition on behalf of Kain Colter, Northwestern’s starting quarterback last season, and his teammates who seek union representation.  The group is reportedly receiving financing and organizational support from the United Steelworkers union.  The group has also received support from the NFL Players Association, which released a statement supporting the move to unionize.

In order to grant the athletes’ petition, the NLRB would be required to find that they are “employees” who have the right to organize and bargain.  The Supreme Court has held that the definition of “employee” under the National Labor Relations Act (“NLRA”) includes “any person who works for another in return for financial or other compensation.”  Although college athletes are not paid by their schools or the NCAA, they could claim that scholarships, tuition credits and other benefits granted to them represent “compensation” for the work they perform on the playing field.

When determining if an individual is an “employee,” courts also evaluate the level of control the proposed employer has over him/her (i.e. whether the proposed employer has the right to direct and control the individual).  This evaluation may result in a finding that the college athletes are employees as, among other things, many athletes are required to miss class in order to travel for games and many schools regulate athletes’ speech on social media such as Facebook and Twitter.

The NCAA is adamant that student-athletes are not employees and that their participation in college sports is voluntary.  However, in reviewing a similar issue. the NLRB has previously found that some students may have a “dual relationship” with their schools as both students and employees.   In 2011, a regional NLRB official determined that some of the graduate students at New York University have “a dual relationship” with the university that is “both academic and economic,” thus meaning they could be considered employees. Similarly, the college athletes who filed this petition could argue that they have a dual relationship based on the amount of hours and effort they put into their sports participation, and the resulting revenue it generates for their schools.  The typical Division I college football player devotes more than 40 hours per week to his sport (more than the typical American work week).  Meanwhile, the NCAA currently produces nearly $11 billion in annual revenue from college sports and the average salary for a BCS eligible football coach was $2.05 million last year.

According to Colter, compensation is not the group’s primary interest in organizing.  Rather, it is medical care, and particularly costs after graduation, which is the group’s biggest concern.  Colter stated that the group is seeking the right to bargain on issues such as relaxing transfer restrictions, scholarships that cannot be revoked because of injury, and a trust fund to support players upon expiration of their NCAA eligibility.  However, if the athletes are found to be “employees,” a multitude of other issues will arise including compliance with wage laws, health insurance mandates, workers’ compensation and unemployment insurance coverage.

THE THIRD CIRCUIT RULES THAT FIRING AN ALCOHOLIC EMPLOYEE FOR A RELAPSE IS NOT AN ADA VIOLATION    

In Ostrowski v. Con-way Freight, the Third Circuit ruled that an employer who fires an alcoholic employee because he relapses does not run afoul of the American with Disabilities Act (ADA) and other antidiscrimination laws.  It has long been the law that a recovering alcoholic who appears for work intoxicated can be terminated without violating the ADA.  But the Ostrowski court went a step further.

Ostrowski was employed with Con-way Freight, Inc., as a Driver Sales Representative.  Pursuant to U.S. Department of Transportation (DOT) regulations, Con-way was required to maintain strict drug and alcohol screening policies for its Driver Sales Representatives. In May 2009, Ostrowski requested a leave of absence under the Family and Medical Leave Act (FMLA) to enter an alcohol rehabilitation program.  Con-way approved his request, but upon his return to work, required him to sign a Return to Work Agreement (RWA), whereby he agreed to remain “free of drugs and alcohol (on company time as well as off company time) for the duration of his employment.”  On October 15, 2009, within a month of signing the RWA, Ostrowski voluntarily entered an alcohol abuse treatment center after he relapsed.  Approximately two weeks later, Con-way terminated his employment because he violated the RWA.

In affirming summary judgment in favor of Con-way, the Third Circuit found that an employer does not violate the ADA by entering into RWAs that impose different employment conditions than those placed on other employees.  In doing so, the Third Circuit expressly recognized that the Sixth and Eighth Circuits have endorsed similar RWAs that prohibited employees from consuming alcohol, whether at the workplace or otherwise.  The court also noted that the RWA did not discriminate against Ostrowski for his alleged disability (alcoholism), rather, it simply regulated his conduct (consuming alcohol).  Thus, the RWA was not invalid under the ADA and Ostrowski’s violation thereof was a legitimate, non-discriminatory reason for his termination.  

For similar reasons, Ostrowski’s FMLA claim failed.  The court found Ostrowski could not show that he was terminated because he requested medical leave to seek treatment; rather, the court found it was undisputed that he was terminated for breaching the RWA.  The court also rejected Ostrowski’s contention that the no-alcohol requirement in the RWA was impermissible because it had a chilling effect on his right to request leave under the FMLA.  On the contrary, the requirement was imposed because of Con-way’s obligation to maintain strict alcohol policies for certain employees.

The Third Circuit’s decision should provide employers with confidence that they may terminate an employee with an alcohol/substance abuse problem for violating an RWA.

THE FIFTH CIRCUIT OVERTURNS D.R. HORTON, BUT THE FATE OF CLASS ACTION WAIVERS IN EMPLOYMENT AGREEMENTS REMAINS FAR FROM CERTAIN

The Fifth Circuit Court of Appeals recently issued its long-awaited decision in D.R. Horton, Inc. v. NLRB, reversing the National Labor Relations Board’s (“NLRB”) holding that a class and collective action waiver of employment disputes in an arbitration agreement violates the employees’ rights under Section 7 of the National Labor Relations Act (“NLRA) to engage in concerted activities. In other words, such clauses can be enforceable.  In so holding, the Fifth Circuit joined the Second, Eighth and Ninth Circuit courts and dozens of federal district courts in declining to invalidate arbitration agreements based on this section of the NLRA.    

The Fifth Circuit began by recognizing “the requirement under the [Federal Arbitration Act] that arbitration agreements must be enforced according to their terms.”  The court also cited Supreme Court precedent and decisions from other circuit courts to support its findings that:

1.    arbitration does not deny a party any statutory right;
2.    the use of class action procedures is a procedural, not a substantive, right; and
3.    there is no right to use class procedures under various employment-related statutes even when they provide for class or collective action procedures, such as the Age Discrimination in Employment Act and the Fair Labor Standards Act.  

With these principles in mind, the Fifth Circuit analyzed the only two exceptions to the Federal Arbitration Act’s (“FAA”) requirement that arbitration agreements must be enforced:

1.    an arbitration agreement may be invalidated under the FAA’s “Savings Clause” if it would be invalidated on any ground on which any other contract would be invalidated; and
2.    when another statute contains a congressional command that is contrary to the FAA.  

To determine if the Savings Clause applied to invalidate the agreement, the Fifth Circuit analyzed in detail the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, which involved a California statute that prohibited class waivers in both judicial and arbitral proceedings.  In evaluating whether this statute fell within the Savings Clause, the Supreme Court specifically held that it did not.  It found that it is not appropriate to apply the Savings Clause if, to do so, would disfavor arbitration or “disproportionately impact arbitration agreements.”  The Fifth Circuit considered the Board’s interpretation of the NLRA in D.R. Horton to be like the California statute in Concepcion – they both prohibit class waivers in all proceedings and both strongly disfavor arbitration.  Thus, the Fifth Circuit applied Concepcion and found that the Board’s interpretation did not fall under the Savings Clause.   

The Fifth Circuit then considered whether the NLRA contains a congressional command to preclude arbitration.  It held that the NLRA does not because the statute does not contain express language to override the FAA, does not even mention arbitration, and does not provide for class or collective action procedures.  Also, even though the court recognized that it could infer a contrary congressional command if an inherent conflict exists between the respective purposes of the FAA and NLRA, the Fifth Circuit concluded that there was no such conflict.  Among other things, the NLRA repeatedly has permitted and required arbitration.

Accordingly, the Fifth Circuit reversed, in part, the Board’s decision. It held that the arbitration agreement did not violate the NLRA simply because it precluded class and collective actions.  It is important to note, though, that the Fifth Circuit did uphold the Board’s finding that the arbitration agreement violated Section 8(a)(1) as written because it contained ambiguous language concerning whether employees retained the right to file unfair labor practice charges with the NLRB.  

Even after the decision of the Fifth Circuit, the law remains unsettled.  First, on January 28, 2014, the Fifth Circuit issued a mandate that foreclosed the Board’s opportunity to petition for rehearing or rehearing en banc and on February 4, 2014, the Fifth Circuit rescinded that mandate to allow the Board 45 days to file such a petition.  If the Board decides to do so, the case could remain with the Fifth Circuit for quite some time and may result in a different decision by the court.  

Second, at least one district court and one administrative law judge (“ALJ”) have still applied the Board’s D.R. Horton analysis to find that class action waivers in the employment context violate the NLRA.  Specifically, a few weeks ago in Herrington v. Waterstone Mortgage Corp., the District Court for the Western District of Wisconsin declined to reconsider its ruling that the plaintiff “must be allowed to join other employees to her case” in arbitration. The district court decided to “adhere to the [D.R. Horton] decision of the Board” until such time as its Circuit Court – the Seventh Circuit – or the Supreme Court agreed with defendant’s position.  The court emphasized that the decision of the Fifth Circuit “is neither final (because it could be overturned en banc or by the Supreme Court) nor binding (because neither [the district] court nor the National Labor Relations Board is bound to follow the Court of Appeals for the Fifth Circuit).”  

In addition, the Herrington court found that the Board’s D.R. Horton decision was correct and the Fifth Circuit did not adequately justify its decision to reverse it.  According to the Herrington court, the Fifth Circuit did not question or give a reason to not defer to the principles that:

1.    employees have the right to engage in concerted activities under Section 7 of the Act;
2.    wage and hour lawsuits are “concerted activity” protected under that section; and
3.    employers who interfere with this concerted activity by prohibiting collective actions commit an unfair labor practice.

Also, the Herrington court disagreed with the Fifth Circuit’s determination that there was no inherent conflict between the FAA and the NLRA.  The court found that the NLRA does contain language of congressional intent to override the FAA in that it gives employees the right to act collectively and concertedly.  In addition, the Herrington court characterized the right to pursue a collective action as a substantive, not procedural, one in the NLRA, which cannot be waived with an arbitration agreement.  Further, the district court distinguished Concepcion as the Board did in D.R. Horton based on the fact that the statute in Concepcion did not involve the waiver of a substantive federal right.  Finally, the court stated, “the majority [of the Fifth Circuit] . . . never explained why, if there is tension between the NLRA and the FAA, it is the FAA that should trump the NLRA, rather than the reverse.”

At about the same time the Herrington court rendered its decision, an NLRB ALJ in Leslie’s Poolmart, Inc., similarly relied on the Board’s D.R. Horton decision to find that an employer violated the NLRA when it relied on its arbitration agreement to attempt to prohibit the plaintiff from pursuing his class claims.  Like the Herrington court, the ALJ considered the Board’s decision in D.R. Horton, not the Fifth Circuit’s decision, binding upon her because the Supreme Court had not expressly overruled the Board’s decision.  Also, the ALJ, like the court in Herrington, found that the right to engage in protected concerted activity under Section 7 of the NLRA is a substantive right that cannot be precluded and that the plaintiff’s filing of a class action lawsuit was protected concerted activity.  Further, the ALJ rejected the argument that the Supreme Court already had “determined that, to the extent the NLRA conflicts with the FAA vis-a-vis the permissibility of mandatory binding arbitration of employment matters, the NLRA is preempted by the FAA.”  

For now, it appears the Fifth Circuit is yet another court that has rejected the Board’s expansive reading of the NLRA with respect to wage and hour class and collective action waivers.  In addition, as we wrote in our Fall 2013 publication, there is some indication that ALJs may begin to read Concepcion as an implicit rejection of the Board’s position.  As is apparent from the recent decisions on this topic, though, employers who find themselves in front of the Board or in a court that is in a circuit other than the Second, Fifth, Eighth or Ninth Circuit, still may see their class and collective action waivers invalidated based on the finding that all such waivers violate the NLRA.  It appears that employers will not have any certainty on the fate of these waivers until the Supreme Court renders a decision directly on point.          

By:  Lee D. Moylan
lmoylan@klehr.com