January 2, 2009
How to Bail Out Truckers and Lawyers
Steven Pearlstein has an interesting column in the Washington Post discussing ways to reduce some of the sting in the labor market during a recession. As Pearlstein notes, an alternative to significant layoffs during downturns in the labor market is to spread the pain by reducing pay and hours. The Teamsters have just made such a deal with YRC Worldwide, including a stock purchase by employees, and we've obviously seen similar concession in the auto industry among others. Pearlstein then analogizes the trucking industry to law firms:
You may have read that in recent years, the competition among major law firms to attract top talent became so intense that first-year associates were paid as much as $180,000, plus bonus, at the top Wall Street firms -- in some cases, more than federal judges make.
By any standard, it is a ridiculous amount of money. One reason the firms could afford to pay it is because corporate clients are billed at equally ridiculous rates of $250 an hour for greenhorns. The other reason is that the associates are expected to routinely put in 60 and 70 hours a week if they want any chance of making partner. The result has been a system that basically overcharges clients while leaving stressed and overworked associates feeling as if they are trapped in a gilded cage.
With the drought in deal flow and securities work, however, any number of these white-shoe firms have had to retrench. Underperforming partners are quietly being "de-equitized" (a euphemism for being kicked out of the partnership), associates have been laid off, offers of employment to new associates have been rescinded and summer programs for law students are being curtailed. In just the last few weeks, a number of firms have even frozen pay for associates at current levels.
The more interesting question, however, is why the firms haven't gone further and significantly reduced the pay of all associates, as well as the number of hours they are expected to work, along the lines of what the Teamsters and YRC have done. That way, firms could avoid further layoffs and perhaps even continue to hire a modest number of new associates. More significant, the plan might actually put an end to the arms race in associate pay and allow associates to get a life.
Undoubtedly, there would be some highly desirable law school students who would decide not to apply to a firm that dares to break from the pack and reduce associate pay. But given the high levels of dissatisfaction among law firm associates, it's a pretty good guess that there would also be a sizable number of top graduates from top law schools who would flock to a prestigious firm that offers a healthier trade-off between pay and lifestyle. It should tell you something about the legal business that no major firm has had the courage or the imagination to try it.
Personally, I've never understood how savvy corporate clients accepted these huge law firm billables so quietly--although some clients have pushed back more in recent years (Wal-Mart being a prime example). I don't expect to hear about associates have more spare time soon, but it's an interesting thought.
Hat Tip: Dennis Walsh
Owner of LLC Cannot Sue Another Business For Discrimination Under Minn. Law
Friend of the blog, Jack Sargent poses this question: guess who loses what happens when gross sexual discrimination meets statutory construction in the Minnesota Court of Appeals?
Minnesota public radio provides the report of the decision in Krueger v. Zeman Construction Co., 08-0206 (Minn. Ct. App. Dec. 30, 2008).
The state Court of Appeals has ruled against the owner of a limited liability company who tried to personally sue another business for discrimination.
Like corporations, limited liability company owners are typically off the hook personally from lawsuits filed against their companies.
The owner of Diamond Dust drywall, LLC tried to sue Zeman Construction, alleging Zeman's managers sexually harassed and discriminated against her as a subcontractor on a work project.
By a vote of 2 to 1, the panel ruled she did not have the right to sue because her company, rather than the owner herself entered into a contract with Zeman.
But judge David Minge disagreed. He said Minnesota law "in its simplest, stripped-down form prohibits business practices that 'discriminate in the . . . performance of the contract because of a persons . . . sex.'"
I agree with Jack on this one: so much for the liberal interpretation of remedial legislation.
More Confusion with Review of ERISA Denial of Benefits
In taking the case of Metlife v. Glenn, the Supreme Court attempted to bring some clarity to ERISA denial of benefit cases when the insurer is both the one to determine the benefits and pay them. Instead, things are now even more confused.
We already reported how the Fourth Circuit took the new language of Glenn and used it to reverse a decision for the plaintiff. Now comes the Second Circuit in McCauley v. First Unum Life Ins. Co., No. 06-5100 (2d Cir. Dec. 23, 2008), doing the exact opposite.
The panel . . . factored in the conflict of interest: "Taken in combination, these factors are plainly exacerbated by First Unum's conflict of interest, as both administrator and payor, for what else would have influenced First Unum to avoid following up on simple inquiries prompted by McCauley's June 10 submission?"
The standard enunciated here -- "for what else?" -- seems perfectly opaque to me. But then, maybe the Second Circuit is simply announcing a special "First Unum" rule, for the panel opinion goes on to report:
"First Unum is no stranger to the courts, where its conduct has drawn biting criticism from judges. A district court in Massachusetts wrote that 'an examination of cases involving First Unum . . . reveals a disturbing pattern of erroneous and arbitrary benefits denials, bad faith contract misinterpretations, and other unscrupulous tactics.' Radford Trust v. First Unum Life Ins. Co., 321 F. Supp. 2d 226, 247 (D. Mass. 2004), rev'd on other grounds, 491 F.3d 21, 25 (1st Cir. 2007). That court listed more than thirty cases in which First Unum's denials were found to be unlawful, including one decision in which First Unum's behavior was 'culpably abusive.' Id. at 247 n.20. Also, First Unum's unscrupulous tactics have been the subject of news pieces on '60 Minutes' and 'Dateline,' that included harsh words for the company. Id. at 248-49. First Unum has fared no better in legal academia. See John H. Langbein, Trust Law as Regulatory Law: The Unum/Provident Scandal and Judicial Review of Benefit Denials Under ERISA, 101 Nw. U. L. Rev. 1315 (2007). In light of First Unum's well-documented history of abusive tactics, and in the absence of any argument by First Unum showing that it has changed its internal procedures in response, we follow the Supreme Court's instruction and emphasize this factor here. Accordingly, we find First Unum's history of deception and abusive tactics to be additional evidence that it was influenced by its conflict of interest as both plan administrator and payor in denying McCauley's claim for benefits."
Justice courtesy of network news notoriety? This is the record that a participant must present to win a simple ERISA claim?? I've litigated ERISA cases for some 18 years, but even with my experience I'm having trouble figuring how to piece this all together.
You're not alone, Paul.
January 1, 2009
Board Order Enforced on Secret Permanent Replacements
Way back in 2006, we posted on the Church Homes case, in which the Second Circuit rejected the NLRB's conclusion that an employer's secret hiring of permanent replacements did not suggest an independent unlawful action under Section 8(a)(3). On remand, the Board found that the secret hiring did violate Section 8(a)(3). The Second Circuit has recently denied the employer's petition for review of this order:
The Board appropriately recognized that the logical inference to be drawn from Avery’s [the employer's] secrecy, absent evidence of a legitimate purpose or credible explanation for the secrecy, was that Avery intentionally concealed its hiring of permanent replacements to remove Union members from its workforce and thereby break up the Union. The Board reasonably determined that neither Avery’s assertion of good faith in bargaining nor its actions subsequent to the secret hiring of replacements effectively rebutted the inference that the secret hiring was illegitimate under the circumstances. . . .
Avery contends the Board improperly shifted the burden of proof onto it. In support of the argument, it cites a footnote in which members of the Board, who concurred only reluctantly in the Board’s disposition, asserted that our Court had shifted the burden and expressed disagreement with that action. In Church Homes I [the original case], we did not shift the burden to the employer. We rather ruled that Avery’s secrecy, unless rebutted, supported an inference of an independent unlawful purpose through which the General Counsel could carry the burden of proving violation of the Act.
As we understand the Board’s opinion, it correctly placed the burden of proving a violation of the Act on the General Counsel. Member Walsh noted in the same footnote that Avery’s secrecy “is probative of whether the decision to replace the strikers was motivated by an independent unlawful purpose.” The Board found that the General Counsel sustained his burden of proving Avery’s violation by putting forth evidence of Avery’s secrecy which, when inadequately rebutted by Avery, supported an inference of independent unlawful purpose.
This may represent one of a dwindling number of cases in which circuit courts reverse or drag the NLRB in a direction more favorable to unions. Once the new Obama Board is in place and starts issuing orders, get set for more cases in which the court pushes back in a more pro-employer direction.
Upcoming Conference on the American Right and U.S. Labor
Nelson Lichtenstein, University of California Santa Barbara, and Chris Tilly, UCLA, have just circulated a call for the conference The American Right and U.S. Labor: Politics, Ideology, and Imagination, to be held January 16-17, 2009 at the University of California, Santa Barbara. The conference will be hosted by the UCSB Center for the Study of Work, Labor, and Democracy and the UCLA Institute for Research on Labor and Employment.
The details are at Mary Dudziak's Legal History Blog.
December 31, 2008
What's a "Thing of Value" Under the LMRA?
The Fourth Circuit recently issued an interesting decision on the LMRA's prohibition under against employers giving anything of value to a union (Section 302). In Adcock v. Freightliner, the court rejected the argument of employees (represented by the Right to Work Foundation) that a card check agreement between an employer and union violated Section 302. According to the court:
The issue presented in this appeal is whether Freightliner LLC (Freightliner) delivered "money or other thing[s] of value" to the International Union, United Automobile and Agricultural Implement Workers of America (the Union) pursuant to a card check agreement with the Union, wherein Freightliner agreed, among other things, to: (1) require some of its employees to attend, on paid company time, Union presentations explaining the card check agreement; (2) provide the Union reasonable access to nonwork areas in company plants to allow Union representatives to meet with employees; and (3) refrain from making negative comments about the Union during organizing campaigns. . . . As the Employees’ argument goes, because these concessions made by Freightliner benefited the Union’s organizing efforts, they were "thing[s] of value" under § 302, because a "thing of value" means anything that has subjective value to the Union. . . .
Under the plain language of the statute, the concessions made by Freightliner in the Card Check Agreement do not involve the payment or delivery of a "thing of value." The concessions provided by Freightliner all involve permitting the Union access to employees during an organizing campaign. Such concessions do not involve the delivery of either tangible or intangible items to the Union. . . .
Our reading of the statute is consistent with the purposes of § 302. . . . [Section] 302 is aimed at preventing "bribery, extortion and other corrupt practices conducted in secret." In this case, the concessions made by Freightliner do not involve bribery or other corrupt practices.
Our interpretation of the phrase "thing of value" also is buttressed by § 302’s penalty provision. Under § 302’s penalty provision, the severity of the sentence is dictated by the monetary value of the thing delivered by the employer or received by the union. A person who willfully violates § 302 is guilty of a felony unless the value of the money or thing involved does not exceed $1,000, in which case the person is guilty of a misdemeanor. Thus, Congress clearly intended § 302’s "thing of value" to have at least some ascertainable value. In this case, unquestionably, the concessions made by Freightliner, which simply involved allowing the Union access to Freightliner’s employees, have no such whatsoever.
I haven't looked at this issue in detail, but it's my sense that this decision is in line with other interpretations of Section 301. Perhaps we'll hear an opposing view from some of our RTWF readers.
State Secret Ballot Laws
As a sign that the political machinations surrounding EFCA has reached a fever pitch, we now have news of a recent initiative to place a secret ballot amendment in various state constitutions. And yes, I'm thinking what you're thinking--could you possibly have a clearer case of NLRA preemption? From the Atlanta Journal-Constitution:
A new business-backed coalition is targeting at least five states in an attempt to require all union elections be conducted by secret ballot. The group, called Save Our Secret Ballot, is proposing a 47-word amendment to state constitutions that reads, in part, "the right of individuals to vote by secret ballot shall be guaranteed." The coalition argues that such secrecy is necessary to protect against union intimidation.
The group plans initiative efforts in Arizona, Arkansas and Missouri and will work through legislatures to refer similar measures to the ballot in Nevada and Utah. The initiative was being launched Tuesday [in Georgia]. Additional states could be added to the campaign in coming weeks, said Tim Mooney, a Scottsdale, Ariz.-based political consultant who is one of the directors of Save Our Secret Ballot. . . .
Mooney declined to identify specific financial contributors to Save our Secret Ballots, saying generally that the group was backed by small businesses and entrepreneurs. Its advisory board includes members from the conservative Heritage Foundation, Goldwater Institute and Americans for Tax Reform.
To the extent that this initiative is targeting union elections, it is without a doubt more of a PR move than anything else. Although it could have teeth under state labor laws (to the extent they exist), it is a waste of ink in the private sector. The NLRB's jurisdiction over representational issues in the private sector is given more deference than anything else the Board does, and NLRA preemption clearly applies. But the initiative is obviously more about the political battle over EFCA, and I have little doubt that it will not be the last of its kind.
Hat Tip: Barry Hirsch & Dennis Walsh
December 30, 2008
SSRN Top-10 List of Recent Employment & Labor Downloads
- David C. Yamada, Workplace Bullying and Ethical Leadership (508).
- Anup K. Basu, Alistair Byrne, & Michael E. Drew, Dynamic Lifecycle Strategies for Target Date Retirement Funds (156).
- Francine J. Lipman, The Undocumented Immigrant Tax (136).
- David C. Yamada, Human Dignity and American Employment Law (115).
- Edward A. Zelinsky, Employer Mandates and ERISA Preemption: A Critique of Golden Gate Restaurant Association v. San Francisco (102).
- David J. Doorey, Union Access to Workers During Union Organizing Campaigns: A New Look through the Lens of Health Services (96).
- Katherine Van Wezel Stone, John R. Commons and the Origins of Legal Realism; or, the Other Tragedy of the Commons (94).
- Gaobo Pang & Mark J. Warshawshy, Comparing Strategies for Retirement Wealth Management: Mutual Funds and Annuities (84).
- Brian D. Galle (photo above), Do Hidden Taxes Increase Welfare? (73).
- Simon Deakin, Legal Origin, Juridical Form, and Industrialisation in Historical Perspective: The Case of the Employment Contract and the Joint-Stock Company (72).
December 29, 2008
Hills on Local Democracy and ERISA Preemption
Rick Hills (NYU), one of the more thought-provoking and provocative thinkers over at PrawfsBlawg, has an interesting post on the interaction between the democratic process and the law of ERISA preemption.
His post takes off from the recent ERISA preemption case of Golden Gate Restaurant Association in which the 9th Circuit recently held that a San Francisco ordinance demanding employers provide health benefits is not preempted by ERISA. This holding is contrary to many of the cases in this area (and critiqued by ERISA luminaries like Ed Zelinsky) and the case is currently being considered for en banc review.
Here's a taste of Rick's insights:
San Francisco is now locked in a struggle with business over whether subnational governments can mandate that employers provide their employees with health care benefits. The employers are claiming that ERISA preempts the mandate, and their argument illustrates the insidiously anti-democratic nature of preemption arguments. As a matter of policy, I tend to agree that funding public benefits like health care through mandates on employers is foolish. Such a finance mechanism interferes with the mobility of labor and discourages job creation. Far better, it seems to me, to provide health benefits through general taxes not incident on employment.
But here is where I am a die-hard lover of federalism: As dumb as employer mandates are, centralizing debate over health care through a broad construction of ERISA preemption is even dumber. Such centralization is an outrage against the democratic process both locally (by suppressing the efforts of those zany San Franciscans) and nationally (by letting Congress off the hook of confronting the relationship between health care and employment). San Francisco hurts no one but itself and its own residents by burdening business and driving away capital to the 'burbs. The claim that national businesses will suffer some external cost outside San Francisco from disuniform regulation is patently baloney: Any business that operates in any city already must uncontroversially incur the costs of researching and complying with local zoning codes, local taxes and fees, local building codes, local safety regulations, etc. The marginal cost of insuring that one's local branch complies with the local complying health care law is close to zero . . . .
For those who care about ERISA, why do I claim that preempting San Francisco's ordinance is madness? The Restaurant Association is essentially making an effects-based preemption argument, asserting that SF's ordinance effectively requires employers to change their ERISA benefits plans to comply with San Francisco law. The folly of this argument, however, is that it proves too much: Lots of local laws might have effects on employers' incentives to provide contractual benefits. Medical malpractice lawsuits under state tort law might drive up the cost of insurance, leading the marginal employer to reduce employees' health care benefits. Local zoning law could -- indeed, does -- increase housing costs, which increases the relative attractiveness of housing benefits to employers. But no lawyer in their right mind would argue that these state and local laws "relate to" ERISA benefits plan, because these laws' obligations are not triggered by the existence of ERISA-covered employment benefits . . . .
Any other theory will draw the courts into a theory of preemption that could suck every state and local regulation of business into the maw of ERISA preemption -- an outcome utterly unintended by anyone in Congress in the 1970s, when ERISA was enacted. For courts to create such centralization without Congress' assent is, as I noted above, an outrage against common sense and subnational democracy. As I have argued elsewhere (Against Preemption: How Federalism Can Improve the Federal Legislative Process, 82 N.Y.U. L. Rev. 1 (2007)), ERISA preemption has also absolved Congress of the duty to confront the problem of how health care benefits relate to employment. Preemption, in short, destroys both subnational and national democracy . . . .
Although I have not agreed with Rick on other topics like the manner in which public pensions have contributed to NYC's fiscal crisis, I think he is right on here. From a more, technical ERISA standpoint, I wrote on the 9th Cir. opinion back in October:
I am now persuaded that the 9th Circuit's ruling [in Golden Gate] is consistent with the Travelers precedent from 1995 that unless a law is historically a matter of local concern, there should be a presumption against finding ERISA preemption. It seems to me that courts have read ERISA incorrectly in this regard in past cases.
My epiphany came in writing my new paper on the intersectionality of ERISA preemption and remedial provisions. In order for many plaintiffs not to be deprived of the remedy that they deserve, the preemption provision must be strictly construed according to the language in Travelers. This reading will ensure that defendant employers are not able to inappropriately use ERISA as a shield against meaningful health care reform or appropriate types of relief in ERISA cases.
Rick argues for a more limited ERISA preemption doctrine based on federalism principles and I argue for the same limiited doctrine based on the employee-oriented, remedial nature of the statute, but we come out in the same place. I am with Rick that I hope the en banc 9th Cir, understands the compelling arguments that abound to allow local municipalities to democratically decide what responsibilities employers in their jurisdictions have for providing their employees with health care benefits.
My thought is that if we allow federalism to flourish in this context, many jurisdictions will force Congress' hands to reconsider how to protect benefits for employees under ERISA.
Interesting Rule 68 FLSA Decision
Ross Runkel's Employment Law Memo has this fascinating decision from the 5th Circuit Court of Appeals, finding that an employer’s Rule 68 offer of judgment to a class plaintiff in a Fair Labor Standards Act (FLSA) wage and hour case may have acted to moot a potential collective action.
The case is Sandoz v. Cingular Wireless (5th Cir 12/23/2008). Here is some of Ross' summary of the case:
29 USC Section 216 of the FLSA provides that employees may proceed in an opt-in “collective action” analogous to a class action. The court described the primary issue on appeal as “the difficult question of when an employer can moot a purported collective action under the [FLSA] …, by paying an employee’s claim in full.” The court noted that this question involves “the complex interplay between Federal Rule of Civil Procedure 68, which stipulates how a defendant can make an offer of judgment that would fully satisfy a plaintiff’s claim, and the FLSA’s provision for collective actions under Section 216(b) [of the FLSA].” . . . .
In Cameron-Grant v. Maxim Healthcare Servs., Inc., 347 F.3d 1240 (11th Cir 2003), the 11th Circuit concluded that the FLSA’s opt-in requirements for FLSA collective actions “prohibit what precisely is advanced under Rule 23 – a representative plaintiff filing an action that potentially may generate liability in favor of uninvolved class members.” Based on that conclusion, the 11th Circuit held that the employer’s offer of judgment satisfying all of the named plaintiff/employee’s claims mooted the employee’s claims.
The [5th Cir.] concluded, “when [the employer] made its offer of judgment, Sandoz represented only herself, and the offer of judgment fully satisfied her individual claims.” The court observed, “[i]f our analysis stopped there, Sandoz’s case would be moot.” However, the court agreed with Sandoz’ argument that dismissal of her case in this manner “would provide an incentive for employers to use Rule 68 as a sword, ‘picking off’ representative plaintiffs and avoiding ever having to face a collective action.” The court turned to the “relation back doctrine” to avoid such a result. Applying that doctrine to this context, the court held “when a FLSA plaintiff files a timely motion for certification of a collective action, that motion relates back to the date the plaintiff filed the initial complaint, particularly when one of the defendant’s first actions is to make a Rule 68 offer of judgment. If the court ultimately grants the motion to certify, then the Rule 68 offer to the individual plaintiff would not fully satisfy the claims of everyone in the collective action: if the court denies the motion to certify, then the Rule 68 offer of judgment renders the individual plaintiff’s claims moot.” The court remanded for consideration whether Sandoz timely sought certification of her collective action.
I like the innovation of the 5th Circuit approach and the ways in which avoids the pitfalls of the 11th Circuit approach. Although this sounds like an arcane issue, with the number of FLSA collective actions out there, this could turn out to be an important decisional innovation which compromises nicely the competing employer and employee interests involved.
Bush OSHA "Mired In Inaction"
Color me unsurprised: the Washington Post has a story out today on OSHA's lack of enforcement during the Bush Administration. A major problem appears to be the influence of political appointees at the agency interfering with career scientists' findings. According to the Post:
Current and former career officials at OSHA say that . . . a recurrent feature during the Bush administration [was the fact that] . . . political appointees ordered the withdrawal of dozens of workplace health regulations, slow-rolled others, and altered the reach of its warnings and rules in response to industry pressure.
The result is a legacy of unregulation common to several health-protection agencies under Bush: From 2001 to the end of 2007, OSHA officials issued 86 percent fewer rules or regulations termed economically significant by the Office of Management and Budget than their counterparts did during a similar period in President Bill Clinton's tenure, according to White House lists.
White House officials have dismissed such tallies, emphasizing in recent regulatory overviews that their "objective is quality, not quantity," and that heavy restrictions on corporations harm economic performance. During Bush's presidency, they said in a September report, average annual regulatory costs were kept 24 percent lower than during the previous two decades. OSHA says it has issued many rules of lesser consequence that nonetheless clarified industry responsibilities. . . .
More than two dozen current and former senior career officials further said in interviews that the agency's strategic choices were frequently made without input from its experienced hands. Political appointees "shut us out," a longtime senior career official said. Among the regulations proposed by OSHA's staff but scuttled by political appointees was one meant to protect health workers from tuberculosis. Although OSHA concluded in 1997 that the regulation could avert as many as 32,700 infections and 190 deaths annually and save $115 million, it was blocked by opposition from large hospitals. . . .
The agency's first director under Bush, John L. Henshaw, startled career officials by telling them in an early meeting that employers were OSHA's real customers, not the nation's workers. "Everybody was pretty amazed," one of those present recalled. "Our purpose is to ensure employee safety and health. . . . He just looked at things differently." . . .
In 2006, Henshaw was replaced by Edwin G. Foulke Jr., a South Carolina lawyer and former Bush fundraiser who spent years defending companies cited by OSHA for safety and health violations. Foulke quickly acquired a reputation inside the Labor Department as a man who literally fell asleep on the job: Eyewitnesses said they saw him suddenly doze off at staff meetings, during teleconferences, in one-on-one briefings, at retreats involving senior deputies, on the dais at a conference in Europe, at an award ceremony for a corporation and during an interview with a candidate for deputy regional administrator.
His top aides said they rustled papers, wore attention-getting garb, pounded the table for emphasis or gently kicked his leg, all to keep him awake. But, if these tactics failed, sometimes they just continued talking as if he were awake. "We'll be sitting there and things will fall out of his hands; people will go on talking like nothing ever happened," said a career official, who spoke on the condition of anonymity because he was not authorized to talk to a reporter. . . .
The full article includes numerous examples of health and safety rules being spiked by political appointees--many of whom were in a revolving door of fighting OSHA as corporate representatives, working at OSHA, and then back to the corporate world. A further theme is an increased push to "compliance assistance" and away from enforcement. One thing that has heartened me about Obama's nominations thus far, especially on the energy/environmental side, is that he seems to be placing a renewed emphasis on science. Political decisions must still be made at the end of the day, but those decisions should be made with the benefit of scientific findings--even those that counter the ultimate decision--not by pretending that such findings don't exist. We'll see if the actual administration lives up to this initial optimism.