Category Archives: Litigation

For Whom the Statute Tolls: A Nuance in the Minnesota Human Rights Act Important to Employers

A distinguishing characteristic of employment discrimination claims in their short statute of limitations – for Minnesota Human Rights Act claims the statute is only 12 months. Defamation claims are two years and tort and breach of contract claims are six years, so a one year limitation period is very favorable to employers. Doubtless, the Minnesota Legislature (like Congress with Title VII and its 300 day limitation period) saw employment discrimination claims as volatile and problematic enough to set a short time to make a claim. And many a claim has fallen on a count to the 365th day between the alleged discriminatory act and the filing of a charge.

A recent Minnesota Supreme Court case highlights a nuance to the hard and fast rule of 365 days. There is built into the statute a tolling period for any internal arbitration process or “conciliation”:

The running of the one-year limitation period is suspended during the time a potential charging party and respondent are voluntarily engaged in a dispute resolution process involving a claim of unlawful discrimination under this chapter, including arbitration, conciliation, mediation or grievance procedures pursuant to a collective bargaining agreement or statutory, charter, ordinance provisions for a civil service or other employment system or a school board sexual harassment or sexual violence policy.  – Minn. Stat. 363.28, subd. 3(b).

In Peterson v. City of Minneapolis, the plaintiff brought an age discrimination claim through an internal report and the defendant employer started an internal investigation under a Workforce Policy that contemplated possible resolution. While the trial courts found otherwise, the Minnesota Court of Appeals and ultimately the Minnesota Supreme Court concluded that the internal process constituted “alternative dispute resolution” of the “conciliation” type that suspended the statute. While there was no neutral involved or actual mediation discussions, the Court found that the intentions of the Workforce Policy and possibility of resolution constituted “conciliation” under the tolling provision of the statute.

For Minnesota Employers, this means that the protection provided by the short statute of limitations can be affected by an internal “alternative dispute resolution” process. To offset this potential uncertainty, either there should be no alternative dispute process as defined by Peterson as part of the internal investigation or, if there is, there should be a distinct end so the added tolled period can be accurately calculated. The statute has certain reporting provisions as well.

Takeaway:  Like a referee in a Minnesota United football game, the Minnesota Courts will simply add to statute of limitations “regulation time” any tolled period. Minnesota Employers doing internal investigations should be savvy to this and consult with legal counsel about how best to know if a process likely tolls the one year period or design the process so there is no tolling or its impact is short.

Duty to Indemnify Bars Negligence Claim for Damages

Employees will on occasion negligently perform their duties and as a consequence can often be discharged. But what about any damages caused by their negligence? Who pays the bill for that?

This issue was recently decided by the Minnesota Court of Appeals which held that the employer was not allowed to seek damage payment from the employee. First Class Valet Services, LLC v. Gleason, No. A16-1242 (Minn. Ct. App. March 20, 2017).

In First Class, the employee twice negligently caused damage to customer cars in his position as a parking valet. After reimbursing the car owners for their damages, the company filed a negligence lawsuit against the employee seeking to recover those payments. While prior Minnesota common law suggested that an employer could bring a claim against an employee to recover such payments, the Minnesota Court of Appeals determined that the valet company’s claim was barred by its duty to indemnify the employee for the negligent performance of his duties.

In 1993, the Minnesota Legislature enacted Minn. Stat. § 181.970 which generally requires an employer to defend and indemnify its employee against damages if the employee was acting in the performance of his duties. Although this statute did not expressly abrogate the common law rule, the First Class court held that the common law was indeed abrogated by necessary implication. The court reasoned that indemnification means to “hold harmless” in all respects and that permitting the employer to bring a claim against the employee might lead to the absurd result of the employee circularly seeking indemnification from the company regarding its own claim.

Takeaway: If a claim for damages results from an employee’s negligent performance of his or her job duties, and the employee is not guilty of intentional misconduct, willful neglect of the duties of their position, or bad faith, then the employer is statutorily obligated to indemnify the employee. As a result, an employer claim against the employee to recover payment of those negligently caused damages is barred by the duty to indemnify.

Does an Employer Need to Obtain a Judgment on the Merits to Recover Attorneys’ Fees Under Title VII?

No – the U.S. Supreme Court recently held that a defendant need not obtain a favorable ruling on the merits to recover attorneys’ fees under Title VII.

Title VII provides that district court has discretion to award a “prevailing party” reasonable attorneys’ fees and costs in litigation arising under the statute.  42 U.S.C. § 2000e-5(k).  In CRST Van Expedited, Inc. v. EEOC, the Supreme Court addressed the question of whether a “prevailing party” must obtain a favorable ruling on the merits to recover attorneys’ fees or whether a non-merits-based favorable ruling may suffice.  No. 14–1375 (May 19, 2016).

In CRST, a single employee filed a charge of discrimination against her employer alleging sexual harassment.  After investigating, the EEOC determined there was probable cause to support the charge.  The EEOC further found that there was probable cause to show that the employer subjected a class of current and prospective employees to sexual harassment.  The EEOC later filed a lawsuit against the employer on behalf of over 250 allegedly aggrieved female employees.  The district court, however, dismissed the lawsuit on the basis that the EEOC failed to adequately investigate or attempt to conciliate its claims.  Following the dismissal, the EEOC awarded the employer over $4 million in fees.  The Eighth Circuit Court of Appeals eventually reversed the fee award, holding that a Title VII defendant can only be a “prevailing party” by obtaining a “ruling on the merits.”

The U.S. Supreme Court disagreed with the Eighth Circuit’s requirement that a ruling on the merits was a prerequisite to an award of attorneys’ fees under Title VII.  The Court explained that:

The defendant, of course, might prefer a judgment vindicating its position regarding the substantive merits of the plaintiff ’s allegations.  The defendant has, however, fulfilled its primary objective whenever the plaintiff ’s challenge is rebuffed, irrespective of the precise reason for the court’s decision.  The defendant may prevail even if the court’s final judgment rejects the plaintiff ’s claim for a nonmerits reason.

The Court noted that one purpose of the fee-shifting provision was to deter litigation that was “frivolous, unreasonable, or groundless” and requiring a merits-based determination could undermine this objective.  For example, litigation might be frivolous if it was barred by non-merits-based determinations, such as state sovereign immunity or mootness.

Takeaway:  A defendant need not obtain a favorable ruling on the merits to recover attorneys’ fees as the prevailing party under Title VII.

7th Circuit Holds that Class-Waiver Arbitration Agreements Violate the NLRA

The 7th Circuit recently disagreed with other federal courts of appeals and sided with the National Labor Relations Board (NLRB) by holding that class-waiver provisions in arbitration agreements violate the National Labor Relations Act (NLRA).  The ruling creates a circuit split that can only be resolved by the U.S. Supreme Court.

Whether arbitration agreements with class-waiver provisions violate the NLRA has been sharply disputed. The NLRB has consistently held that such limitations on an employee’s ability to file a class or collective action violate the NLRA, even in the face of federal judicial decisions holding otherwise.  The majority of other circuit courts that have addressed the issue have rejected the NLRA’s reasoning. See e.g., Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013, 1018 (5th Cir. 2015); Sutherland v. Ernst & Young LLP, 726 F.3d 290, 297 n.8 (2d Cir. 2013); Owen v. Bristol Care, Inc., 702 F.3d 1050, 1052–54 (8th Cir. 2013).

The 7th Circuit’s decision in Lewis v. Epic Systems Corporation is a departure from the approach taken by other federal circuit courts.  No. 15-2997 (7th Cir. May 26, 2016).  In Lewis, the 7th Circuit based its decision on Section 7 of the NLRA, which protects the rights of employees to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection . . . .”  29 U.S.C. § 157.  The court held that Section 7 protects the rights of employees to engage in class, representative, and collective legal proceedings because Congress was aware of those procedures when it enacted the NLRA and because “[t]he plain language of Section 7 encompasses them . . . .”  Since the arbitration agreement did not permit employees to utilize class or collective procedures, the court concluded that the agreement violated the NLRA and was not enforceable under the Federal Arbitration Act.

Takeaway: The 7th Circuit’s decision in Lewis provides support for the NLRB’s continued efforts to challenge class-waiver arbitration agreements, and it creates a circuit split regarding the enforceability of those agreements.

How Much Does an Employee Charge of Discrimination Cost?

The average cost of defense and settlement of an employee charge of discrimination is $125,000, according to a recent study by insurance provider Hiscox. The study focused on 446 claims reported by small and medium-sized businesses with fewer than 500 employees. Here are some of the key highlights from the study:

  • The average duration of an employment matter from start to finish was 275 days.
  • The average cost of both defense and settlement was $125,000.
  • The average self-insured retention deductible for companies with employment practices liability insurance was $35,000.
  • Only 19% of the matters resulted in both defense costs and a settlement payment. That means that 81% of the charges (or about 4 out of 5) were nuisance suits that did not result in any settlement.
  • The median judgment for employment matters that ended up in court and resulted in a finding of liability was $200,000, in addition to defense costs.

Takeaway: Employment litigation can be expensive, even if the employer wins. Working proactively to prevent problems from occurring in the first place is the most effective strategy for avoiding the potential costs of employment claims.

Five Things An Employer Should Do After Receiving a Charge of Discrimination

So, you’ve just received a charge of discrimination from the Equal Employment Opportunity Commission or a state agency, like the Minnesota Department of Human Rights? Now what?

Here are five steps an employer should take after receiving a charge of discrimination:

  1. Gather Relevant Documents: One of the primary sources of evidence to defend against employment claims is documentary evidence, including electronically stored information. Accordingly, employers should identify and gather relevant documents relating to the challenged decision (such as the employee’s personnel file or any relevant emails) and preserve those documents.
  2. Identify Witnesses: Apart from documentary evidence, the other primary source of evidence in an employment dispute is witness testimony. As a result, employers should identify potential witnesses who were involved in the challenged decision. These individuals will be helpful in investigating and defending against the charge of discrimination.
  3. Determine Whether to Retain Legal Counsel: After receiving a charge of discrimination, an employer should consider whether to retain legal counsel to defend against the charge.  Legal counsel can provide guidance, help develop a strategy, and either help to mediate the dispute or prepare the employer’s position statement.  Whether legal representation will be necessary will depend on a variety of factors, including the nature of the allegations, the nature of the evidence available to defend against the claim, the employer’s budget, and whether in-house staff have the availability and experience to investigate and respond to the charge.
  4. Decide Whether to Mediate or Oppose the Charge.  The agency investigating the charge will generally offer a choice to the employer of either engaging in early mediation or providing a written response disputing the allegations.  Which choice is best depends significantly on the facts of each case and what the employer wants to accomplish.
  5. Prepare a Position Statement.  If the employer decides not to mediate, it will need to provide a written position statement to the investigating agency.  In general, a good position statement affirmatively tells the employer’s side of the story and responds to the allegations made by the opposing party.  Although it’s not always necessary, there may also be a need to address legal issues or arguments raised by the charging party.

Is a Parent Company The Employer of a Subsidiary’s Employees?

On occasion, an aggrieved employee of a subsidiary may seek to assert claims not only against their employer, but also against related entities including the parent company.  The Minnesota Federal District Court recently reviewed, and dismissed, such a claim in Sasorith v. Detector Electronics Corporation, Civ. No. 14-5045 (D. Minn. July 22, 2015).

In Sasorith, the plaintiff claimed that she had been sexually harassed by a co-worker at the subsidiary.  In part, her lawsuit claimed that the parent company was also liable for this alleged harassment because it knew or should have known that she was being harassed.  On a motion to dismiss, the court rejected this claim because the employee did not establish an employment relationship with the parent company.

As stated by the court:  “There is a strong presumption that a parent company is not the employer of the subsidiary’s employees.” (quoting Brown v. Fred’s Inc., 494 F.3d 736, 739 (8th Cir. 2007)).  Sasorith failed to overcome this presumption by showing that the parent company dominated the subsidiary’s operations to the extent that the two entities actually operated as one or that the parent company controlled individual employment decisions of the subsidiary.  As a result, the court dismissed the claims against the parent company.

Takeaway:  While a strong presumption in the law exists to protect a parent company from employment claims by subsidiary employees, a parent company seeking to avoid liability should ensure that it does not appear to dominate employee relations of its subsidiary.  The employment relationships at the subsidiary level should operate independently and outside of the control of the parent company.

Supreme Court Holds That The EEOC’s Conciliation Efforts Are Subject To Judicial Review

In Mach Mining, LLC v. EEOC, the U.S. Supreme Court resolved the issue of whether courts may review conciliation efforts made by the Equal Employment Opportunity Commission (EEOC) prior to filing suit and what standard courts should apply when reviewing this issue. No. 13–1019 (Apr. 29, 2015).

Before the EEOC may file a lawsuit against an employer, federal law requires that the EEOC must first “endeavor to eliminate [the] alleged unlawful employment practice by informal methods of conference, conciliation, and persuasion.” 42 U. S. C. §2000e–5(b). Nothing said or done during these conciliation efforts may be used as evidence in a subsequent proceeding “without written consent of the persons concerned.” Id.

In Mach Mining, LLC, the Court reversed the Seventh Circuit’s holding that courts lacked the authority to review whether the EEOC has satisfied its conciliation obligations. As a result, whenever an employer is sued by the EEOC, courts have authority to review whether the EEOC satisfied the statutory prerequisite of endeavoring to resolve the matter through conciliation.

The Court also addressed the scope of judicial review that a Court should apply when reviewing whether the EEOC has met its conciliation obligations. The Court described the level of review as “relatively barebones” and limited to the following three issues:

  1. The EEOC must inform the employer about the specific allegation, as the Commission typically does in a letter announcing its determination of “reasonable cause;”
  2. The notice must properly describe both what the employer has done and which employees (or what class of employees) have suffered as a result; and
  3. The EEOC must try to engage the employer in some form of discussion (whether written or oral), so as to give the employer an opportunity to remedy the allegedly discriminatory practice.

If the EEOC meets these conditions, it will have satisfied its conciliation obligations and may proceed with the lawsuit. The Court explained that a sworn affidavit from the EEOC will typically suffice to establish that the conditions were met. When a court determines that the requirements were not met, however, the proper remedy is for the court “to order the EEOC to undertake the mandated efforts to obtain voluntary compliance.”

The Court also explained that this kind of judicial review is consistent with the statute’s non-disclosure provisions concerning what is said or done during conciliation because “a court looks only to whether the EEOC attempted to confer about a charge, and not to what happened (i.e., statements made or positions taken) during those discussions.”

Takeaway: When the EEOC sues an employer, the employer should review the EEOC’s conciliation efforts to determine whether the EEOC satisfied the statutory prerequisites for the lawsuit. If not, the court may order the EEOC to attempt to conciliate before allowing the lawsuit to proceed.

Adrian Peterson Prevails In Overturning NFL Suspension

On February 26, 2015, the U.S. District Court for the District of Minnesota vacated the arbitration decision upholding Minnesota Viking Adrian Peterson’s suspension from the NFL.  In challenging the arbitration decision, the NFL Players’ Association had a difficult legal standard to overcome, but the Association prevailed, and the court vacated the arbitration decision.

In the court’s decision, the court explained that although arbitrator’s decisions are entitled to substantial deference, the court must vacate an arbitration award if it fails to “draw its essence” from the parties’ collective bargaining agreement – including the “past practices of the industry and the shop.”  The court then explained that the arbitration decision upholding AP’s suspension was inconsistent with past practices because it was based on retroactive application of a new NFL policy.  The court noted that in another recent NFL disciplinary matter – the Ray Rice arbitration – the arbitrator “unequivocally recognized that the New Policy cannot be applied retroactively . . . .”  In contrast, the arbitrator who decided AP’s case “simply disregarded the law of the shop” by allowing the policy to be applied retroactively.  As a result, the court concluded that the arbitrator’s award did not “draw its essence” from the parties’ agreement.

The court also held that the arbitrator exceeded his authority under the parties’ agreement because he adjudicated the hypothetical issue of whether the suspension could be sustained under the NFL’s previous policy.  The only issue presented to the arbitrator was “whether the New Policy could be applied retroactively.”  There was no evidence in the record that the parties’ asked the arbitrator to decide whether the suspension could be upheld under the previous policy.  Accordingly, the court held that the arbitrator “strayed beyond the issues submitted by the NFLPA and in doing so exceeded his authority.”

Takeaway:  The NFL will likely appeal the district court’s decision.  For now, the AP case shows that it is possible to vacate arbitration awards, even though it is often difficult to do so.

What Does Adrian Peterson Need To Prove To Vacate The Arbitration Order Upholding His Punishment?

Minnesota Viking Adrian Peterson has an uphill climb in trying to overturn his punishment from the NFL. In order to win, AP will need to show that the arbitrator clearly exceeded his authority under the collective bargaining agreement.

On Friday, February 6, 2015, attorneys from the National Football League Players Association (“NFLPA”) appeared in the United States District Court of Minnesota to argue that an arbitration order upholding the NFL’s punishment of AP for alleged child abuse should be overturned. The applicable legal standard is so deferential to arbitrators, however, that it will likely be difficult for the NFLPA to prevail.

For example, it will not be sufficient for AP to show that the arbitrator merely got the facts or the law wrong. The United States Supreme Court has held that the federal policy favoring the arbitration of labor disputes is so strong that courts should not review “claims of factual or legal error by an arbitrator as an appellate court does in reviewing decisions of lower courts.” Paperworkers v. Misco, Inc., 484 U.S. 29, 38 (1987). Rather, “as long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, that a court is convinced he committed serious error does not suffice to overturn his decision.” Id.

Nor will it be sufficient for AP to show that the arbitrator misinterpreted the collective bargaining agreement.  Although an arbitrator may not ignore the plain meaning of a contract, courts have held that because the parties “authorized the arbitrator to give meaning to the language of the agreement, a court should not reject an award on the ground that the arbitrator misread the contract.”  Misco, Inc., 484 U.S. at 38.

On the other hand, an arbitrator’s power is not unlimited. The Federal Arbitration Act (“FAA”) authorizes a court to vacate an arbitration award in a limited number of circumstances, including fraud, corruption, “evident partiality,” or when the arbitrator exceeds his or her authority. 9 U.S.C. § 10. Under these circumstances, courts will vacate an arbitration award if it “fails to draw its essence from the agreement” or if it “manifests disregard for the law,” such as “where the arbitrators clearly identify the applicable, governing law and then proceed to ignore it.” Boise Cascade Corp. v. PACE, Local 7-0159, 309 F. 3d 1075, 1080 (8th Cir. 2002). Given the leeway allowed for arbitrators to determine the facts and interpret (or misinterpret) the collective bargaining agreement, these are relatively difficult standards to satisfy.

In the AP case, the NFLPA argued both that the arbitrator was biased (because he was a former NFL executive) and that he exceeded his authority under the collective bargaining agreement. To show that the arbitrator exceeded his authority by upholding the NFL’s punishment of AP, the NFLPA argued that:

  1. The NFL’s six-game punishment for players involved in domestic violence, which was announced in August and finalized in December of 2014, was retroactively applied to AP for conduct that occurred in May of 2014;
  2. The collective bargaining agreement did not authorize the NFL to require AP to participate in assigned counseling chosen by the NFL; and
  3. The NFL’s placement of AP on the special exempt list before he pled guilty to the offense in Texas court, and before the six-game punishment was imposed, was “pre-discipline discipline” that was not authorized by the collective bargaining agreement.

Although AP has stated that he wants to return to the Vikings, the NFLPA wants the court to issue a decision on the case before March 10, 2015, when the NFL’s free agency and trading period starts.  The matter is now before the court to determine whether the NFLPA met the high standard necessary to vacate the arbitration award.

Takeaway: Although it’s not impossible, the NFLPA has a difficult legal standard to overcome in its efforts to vacate the arbitration decision upholding the NFL’s punishment of Adrian Peterson.

New Minnesota Expungement Law Protects Employers

An amendment to Minnesota’s laws concerning the expungement of criminal records is designed to help protect employers from claims based on the conduct of their employees.

Expungement is a process authorized by statute that allows an individual to seek to have records related to prior criminal convictions or charges sealed so that they are no longer accessible by the public. Expungement is only available in limited circumstances, such as after an individual has successfully completed a diversion program, has been exonerated, or if the individual was convicted of a low-level crime and has had no other convictions for several years. Expungement is not available for high-level crimes like murder, kidnapping, or criminal sexual conduct. See Minn. Stat. § 609A.02.

The new amendment to Minnesota’s expungement laws took effect on January 1, 2015, and protects employers by prohibiting expunged criminal records from being admitted into evidence in a civil case against an employer based on an employee’s conduct. The new provision states that:

Information relating to a criminal history record of an employee, former employee, or tenant that has been expunged before the occurrence of the act giving rise to the civil action may not be introduced as evidence in a civil action against a private employer or landlord or its employees or agents that is based on the conduct of the employee, former employee, or tenant.

Minn. Stat. § 609A.03, subd. 5(e).

Takeaway: The new amendment to Minnesota’s expungement laws will help protect employers against claims based on employee conduct, such as claims for negligent retention or claims based on respondeat superior liability.

11th Circuit Rejects Overbroad EEOC Subpoena Against Cruise Ship

Although the EEOC’s subpoena authority is broad, a recent 11th Circuit Court of Appeals case shows that it has limits.

In EEOC v. Royal Caribbean Cruises, Ltd., the 11th Circuit affirmed the lower court’s holding that an EEOC subpoena was overbroad and unenforceable. The case began when a single employee from the cruise ship filed a charge of alleged disability discrimination with the EEOC. The employer defended its decision not to re-hire the employee by arguing that it could not employ the employee due to standards developed by the Bahamas Maritime Authority (BMA). After the charge was filed, the EEOC issued an administrative subpoena that requested the employer to produce the following information:

  1. A list of all employees who were discharged or whose contracts were not renewed due to a medical reason since August of 2009;
  2. For each employee identified in response to request number 1, the employee’s name, citizenship, employment contract, position title, reason for and date of discharge, a copy of the separation notice and the last known contact information for each individual;
  3. For each employee listed in response to request number 1, the employee’s employment application and related correspondence, interview notes, the identity of the person who hired the employee, how the employee obtained the position (e.g., online, in person, recruiter), the location where the employee was interviewed, and the identity and location of the person who made the final hiring decision;
  4. A list of all persons who applied for a position but were not hired within the relevant period due to a medical reason; and
  5. For each employee listed in response to request number 4, the employee’s citizenship, employment application and related correspondence, interview notes, the identity of the person who hired the employee, how the employee obtained the position (e.g., online, in person, recruiter), the location where the employee was interviewed, and the identity and location of the person who made the final hiring decision.

The district court refused to enforce the subpoena on the grounds that the information sought was not relevant to the underlying charge of discrimination, and the EEOC appealed.

The 11th Circuit explained that when investigating a charge of discrimination, the EEOC is entitled to subpoena information that “is relevant to the charge under investigation.” 42 U.S.C. § 2000e-8(a). Although courts have interpreted relevancy broadly in this context, it is not limitless.

The 11th Circuit held that it was not clear “why company-wide data regarding employees and applicants around the world with any medical condition, including conditions not specifically covered by the BMA medical standards or similar to [the employee’s medical condition], would shed light on [the employee’s] individual charge . . . .” The court noted that because the employer admitted terminating the employee due to his medical condition, as required by BMA standards, there was no need for statistical data to determine whether the employer’s reason for the termination was a pretext for discrimination – that issue was settled. The court further explained that it would be unduly burdensome for the company to comply with the subpoena given its company-wide scope and the extensive requests for supporting documentation. As a result, the 11th Circuit affirmed the lower court’s refusal to enforce the subpoena.

Takeaway: The EEOC’s subpoena power is broad, but not unlimited. If information sought by an EEOC subpoena is not relevant to the underlying charge of discrimination, there may be a basis for an employer to oppose the subpoena. But employers need to act quickly when they receive an EEOC subpoena because EEOC regulations only give employers a limited period of five days to object to a subpoena.