ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Monday, May 6, 2024

For Every New FTC Rule, There Is a Reaction in the Form of Regressive Legislation in Oklahoma

Oklahoma in the "progressive" camp on non-competes, along with California, Minnesota, and . . . North Dakota.  Well, it was in the motley crew of states that, for one reason or another, ban non-competes.

Oklahoma_State_Capitol
Image © Caleb Long, CC BY-SA 2.5 
via Wikimedia Commons

But Oklahoma's non-compete law, 15 O.S. § 219A, allows for competition, "as long as the former employee does not directly solicit the sale of goods, services or a combination of goods and services from the established customers of the former employer."  So the statute brought protection from non-competes, with a pretty narrow carve-out.  Apparently, there was some dissatisfaction with the terms "directly" and "established."

This year, with SB 1543, our legislature attempted to address that dissatisfaction, by making the carve out so broad as to pretty much swallow the rule.  According to the bill's sponsors, at least as represented here, the revisions enable entities to "protect[] their legitimate businesses interests" and resist "unfair competition."  How?  Well, here's the new version of the law, with additions highlighted and deletions in bold cross-out.

A person who makes an agreement with an employer, whether in writing or verbally, not to compete with the employer after the employment relationship has been terminated, shall be permitted to engage in the same business as that conducted by the former employer or in a similar business as that conducted by the former employer as long as the former employee does not directly solicit, directly or indirectly, actively or inactively, the sale of goods, services or a combination of goods and services from the established customers or independent contractors of the former employer.

This change is purportedly necessary because the language of the original statute was "vague" and caused "confusion." 

But Oklahoma courts had not so found.  Part B of the statute provides  "Any provision in a contract between an employer and an employee in conflict with the provisions of this section shall be void and unenforceable."  In Howard v. Nitro-Lift Techs., L.L.C., Oklahoma's Supreme Court read the statute to empower a court to strike down in its entirety any non-compete or non-solicitation provision that exceeded the limits permitted under the statute.  In Autry v. Acosta, the Oklahoma Court of Appeals similarly set aside an injunction in favor of an employer.  The employer could not succeed on the merits, as its non-solicitation provision, which purported to prohibit an employee from indirect solicitation of her employer's former clients, both current and previous, exceeded what was permissible under § 219A. A and was therefore unenforceable under § 219A. B.

Courts did not find the language of § 219A vague or confusing.  Perhaps the problem with the statutory provision lies elsewhere. Perhaps the law was too effective in prohibiting restraints on trade and employee mobility.

Kevin_StittI am at a loss to understand what would remain of the ban on non-competes if the legislation became law.  I suppose that it still might offer some protections for people who just work for a competitor but are in no way involved in the solicitation of business.  However, "directly or indirectly, actively or inactively" could mean and likely is intended to mean that if your name even appears on your new
employer's website, you are engaged in a prohibited act of solicitation.  And because the word "established" has been eliminated, any solicitation of customers within the industry could be treated as a solicitation of the former employer's "customers," past, current, future, or potential.

In shocking news, although the reform bill sailed through the Oklahoma legislature, Oklahoma's Governor Stitt (left) vetoed the bill.  Here is his veto message:

Senate Bill 1543 would significantly expand employers' power to impede employees' ability to compete with their employer, post-employment, and worse, it would allow employers to restrict individuals' ability to earn a living, especially while using a learned trade or skillset. For these reasons, I have vetoed Enrolled Senate Bill 1543.

By the Governor of the State of Oklahoma
/s/ Kevin Stitt

Thanks, Governor Stitt.  This is something to keep an eye on for the next legislative session, but Governor Stitt will remain in office until 2027, so if he sticks to his guns, Oklahoma's workers are relatively safe from non-competes for a while.

May 6, 2024 in Commentary, In the News, Labor Contracts, Legislation | Permalink | Comments (0)

Friday, April 26, 2024

The FTC's Rule Banning Non-Competes and the Response

FTCThe Federal Trade Commission (FTC) this week announced a new Final Rule on non-competes.  I was hoping for a short document that clearly and concisely lays out the new rule.  Instead, we got a a 570-page document that, truth be told, I will never read.  Here's the summary, which I did mange to read:

The final rule provides that it is an unfair method of competition—and therefore a violation of section 5—for persons to, among other things, enter into non-compete clauses (“non-competes”) with workers on or after the final rule’s effective date. With respect to existing non-competes—i.e., non-competes entered into before the effective date—the final rule adopts a different approach for senior executives than for other workers. For senior executives, existing non-competes can remain in force, while existing non-competes with other workers are not enforceable after the effective date.

According to the FTC's website, the new rule will "will generate over 8,500 new businesses each year, raise worker wages, lower health care costs, and boost innovation."  

Well, that sounds great.  Surely, nobody would oppose all that.

Well, nobody except Ryan, LLC, which was the first to file a federal lawsuit challenging the new rule in Ryan, LLC v. FTC.  The main argument relies on a favored weapon in the anti-regulatory arsenal, the newly minted "major questions doctrine."  The FTC lacks the authority, Ryan argues, under congressional statutes, to issue so sweeping a regulation.  In fact, Ryan argues, the FTC lacks power to regulate unfair competition.  It did not do so until 1962, and it never sought to regulate non-competes until 2022.

As to substance, Ryan argues, "Workers, firms, and the economy all benefit from reasonable non-compete agreements."  The key term here is "reasonable."  Ryan contends that courts have long assessed the reasonableness of non-compete agreements.  Regulation here is unnecessary, as the courts have already struck the right balance among competing interests. 

The causes of action are predictable.  Count I, citing the major questions doctrine, alleges that the FTC lacks authority to adopt the new rule.  Count II, citing the non-delegation doctrine, Schechter Poultry (that old chestnut!), and Justice Gorsuch's dissent in Gundy, alleges that allowing the FTC to regulate in this area would be an unconstitutional delegation of legislative powers to the executive branch.  Count III, citing the Vesting Clause thesis and the unitary executive, alleges that the FTC Act violates Article II, because its commissioners can only be terminated by the President for cause.  Count IV seeks a declaration: vacating the new rule; finding that the FTC has no authority to regulate unfair competition; that the FTC claim of authority to issue the rule violates the non-delegation doctrine; and that the structure of the FTC violates Article II.  

Sounds crazy right?  Not to these folks.

SCOTUS 2022

I mean, should the courts strike down an entire agency because they don't like one rule, for which the agency provided a 570-page explanation?  Needless to say, if an agency got out over its skis, Congress could yank it back by issuing its own clarifying instructions.  But in our world, apparently, the power to do so is vested not through Article I, and not through Article II, but through Article III.  We the people, in order to form a perfect juristocracy . . . 

April 26, 2024 in Current Affairs, In the News, Labor Contracts, Legislation, Recent Cases | Permalink | Comments (0)

Monday, February 26, 2024

SCOTUS Takes Another FAA Case

Arbitration
Image by DALL-E

A couple of years ago, we wrote about the Arbitration for All approach to the Federal Arbitration Act (FAA), which was given extreme expression in a recent Judge Easterbrook opinion.  That opinion builds on a series of SCOTUS cases from a decade ago (we barely took notice of Stolt-Nielsen; here's a guest post on Rent-A-Center; here's our post on Concepcion, and here's our post on Italian Colors).  Now, arbitration is in retreat on a number of fronts.

First, the Consumer Finance Protection Bureau attempted to prohibit class-action waivers in consumer lending agreements.  That regulation was nixed by the Republican-controlled Congress soon after Donald Trump took office.  Second, mass arbitration has lead some companies to remove compulsory arbitration from the their terms and conditions, a development that we most recently covered here.  Finally, SCOTUS recently issued two unanimous opinions limiting business entities' ability to compel arbitration on employees once the litigation has progressed for a while or if the employees are transportation workers.

Pooler -judge-rosemary_croppedThe Supreme Court will now take another crack at the latter issue, having granted cert. in Bissonnette v. LePage Bakeries.  That case is a putative class action by people who deliver baked goods.  They are suing the company that makes those goods.  Defendant LePage Bakeries moved to dismiss the suit and compel arbitration.  Like the plaintiffs in Saxon, which SCOTUS decided in 2022, plaintiffs claimed that they are exempt from the FAA, because Section 1 of the FAA exempts workers involved in interstate commerce.  The district court granted the motion to compel.  A panel of the Second Circuit first decided the case in 2022 and affirmed over a dissent from the late Judge Rosemary Pooler (right).  

The majority opinion kept things simple.  Following the Supreme Court precedent of Circuit City Stores v. Adams, the Court noted that only "transportation workers" come within the Section 1 exemption from the FAA.  The Second Circuit agreed with the district court that delivery workers are not "transportation workers."  Then, after SCOTUS decided Saxon, the panel reconsidered its opinion but arrived at the same conclusion.   

The Second Circuit first elected not to take the off-ramp available through arbitration under state law because the availability of arbitration under Connecticut law in this instance is unsettled.  Turning to the FAA, the majority noted that not everybody who works in the transportation industry is a transportation worker, but more to the point, just because you drive a truck to deliver baked goods does not mean that you are in the transportation industry.  Judge Pooler, citing courts from other jurisdictions, drew a different conclusion, "“[A] trucker is a  transportation worker regardless of whether he transports his employer’s goods or the goods of a third party.”  She sprinkled citations from Saxon liberally throughout her opinion, and she makes a compelling case that, if people who merely load baggage onto planes are "transportation workers," clearly a truck driver is a "transportation worker."  

In February, 2023, the Second Circuit denied rehearing en banc over the dissents of three judges.  Judge Jacobs, who wrote for the majority in the panel decision, and Judge Pooler take the gloves off in their statements regarding the denial of rehearing.  SCOTUS granted cert. back in September 2023.  The issue is "Whether, to be exempt from the Federal Arbitration Act, a class of workers that is actively engaged in interstate transportation must also be employed by a company in the transportation industry."

KavanaughAccording to , writing on SCOTUSblog, Justice Kavanaugh (left) took the lead in oral argument, making the case for a narrow reading of Section 1.  Somehow, Justice Kavanaugh believes that the Congress that passed the FAA didn't want anybody to be outside of arbitration.  Workers in the transportation industry were exempt because there was a separate arbitration scheme for them.   But look, if Congress intended for employees to be exempt from the FAA for any reason, including another arbitration scheme, then it intended them to be exempt from the FAA.  If Congress changed its mind about that, it is for Congress to amend the FAA to make it applicable to employees.  It is not for the courts to revise legislation.  SCOTUS should not update the non-delegation doctrine in the guise of the "major questions doctrine" while arrogating to itself the power to decide major questions of statutory interpretation through reference to non-textual sources. 

Moreover, I'm not sure what arbitration scheme he is referring to.  Counsel for the employees, Jennifer Bennett, ably showed that Justice Kavanaugh was just wrong about why seamen and transportation workers were exempted from Section 1. The arbitration schemes that he references were nothing like the FAA.  They provided only an option for arbitration as an alternative to litigation after a dispute arises.  She then goes on to argue that the FAA has no requirement that "transportation workers" be employed in the "transportation industry."

I have a different take.  On my reading of the legislative history of the FAA, the drafters expected it to apply exclusively among business people.  They never wanted it to apply to employment agreements and they never expected arbitration agreements to come in the form of contracts of adhesion.  As the drafters explained the purposes of the FAA to the Senate, “It is purely an act to give the merchants the right or the privilege of sitting down and agreeing with each other as to what their damages are, if they want to do it.  Now, that is all there is in this.”

Justice Kavanaugh is right that the drafters of the FAA assumed that there would be an alternative arbitration scheme for employment agreements.  It was state arbitration statutes such as Connecticut's.  Congress had no power in the 1920s to legislate on the subject of employment agreements that did not implicate interstate commerce as that phrase was understood at the time.  At the time, it was quite narrow.  So the exemption in Section 1 was not meant to protect employees in the transportation industry from arbitration in unique ways.  It addresses the only category of workers whose employment agreements might be subject to arbitration and provides that they are exempt.  Nobody thought in 1925 that the FAA would apply to other employment agreements.  That was a matter for state arbitration statutes.

However, if, as may be the case here, the employer has not properly provided for arbitration consistent with the state statute, well then, litigation it is!  Even if arbitration under state law is appropriate, not all states permit employers to ban class representation through arbitration clause bootstrapping, so a return to the original public meaning of the FAA (see what I did there!) could effect a substantive change in the arbitration law landscape.

Roberts_8807-16_CropJustice Kavanaugh worries that protecting employees from mandatory arbitration would be a major shift.  Indeed.  However, as SCOTUS recently recognized, sometimes a court has to revise its decisions when those decisions were "egregiously wrong from the start."  From that perspective, it should be very telling that the earliest cases that the employer's counsel can cite in support of their narrow understanding of the Section 1 exemption date from the 1970s.  To make matters worse, Chief Justice Roberts (right) asks where the test applied in those 1970s test came from.  He expresses his intuition, which seems spot on, that "they just kind of made [it] up."

February 26, 2024 in Labor Contracts, Legislation, Recent Cases, Weblogs | Permalink | Comments (0)

Thursday, February 22, 2024

Gina Carano Strikes Back!

Gina_Carano_by_Gage_Skidmore
Image by Gage Skidmore
CC BY-SA 3.0

This case was brought to my attention by our blog's Founder and Editor Emeritus Frank Snyder.  He posted a link to the case on the AALS Listserv for contracts professors, and discussion ensued.  I acknowledge that what follows is indebted to that discussion, and I thank my colleagues for alerting me to the issues raised in the litigation.  

ADDENDUM:  Just learned via Riddhi Setty writing on Bloomberg.com that Gina Carano's suit is being funded by Elon Musk.  This makes sense, given Mr. Musk's earlier offer to pay the legal bills of anyone who claims that they were unfairly treated by an employer due to Twitter posts.  Musk v. Disney seems like a good match-up.

On February 6th, mixed martial arts fighter, actor, and professional bad-ass Gina Carano (Ms. Carano, right) filed her complaint against The Disney Company (Disney) and others.  The case is of interest not only because of Ms. Carano's success in her role in the Star Wars/Disney series, The Mandalorian, among other boundary-breaking performances, but also because of the interesting legal issues raised by her complaint.

The Complaint alleges that Disney wrongfully terminated Ms. Carano based on the political content of her social media posts made while away from work.  She further alleges that Disney discriminated against her as a woman, as men who posted similar things on social media did not suffer the same adverse employment decisions.

According to the Complaint, Ms. Carano's character, Cara Dune, was a key element in the success of The Mandalorian.  Undoubtedly, she had more rizz than the faceless protagonist, but nobody on that show could compete with the adorable muppet, Grogu, known to fans as "Baby Yoda" (below left).  She was paid only the applicable minimum salary of $25,000 per episode.  Late in 2020, Jon Favreau, who created The Mandalorian, allegedly represented to Ms. Carano that she would be featured in a new spinoff series, for which her compensation would increase as much as tenfold.

Then, in February 2021, Defendant Lucasfilm made the following announcement:

Gina Carano is not currently employed by Lucasfilm and there are no plans for her to be in the future. Nevertheless, her social media posts denigrating people based on their cultural and religious identities are abhorrent and unacceptable.

Carano characterizes this and other statements by defendants as calculated, malicious, false, and knowingly in violation of California statutes that protect employees from persecution for their political beliefs.  She alleges that, based on such false allegations, Disney not only terminated her but also refused to hire her for additional projects. 

Grogu Issues:

Was Ms. Carano an Employee?

Ms. Carano's first cause of action is for wrongful discharge under California Labor Code §§ 1101, et seq, which prohibits employers from "[c]ontrolling or directing, or tending to control or direct the political activities or affiliations of employees."  One issue that may arise in the case is whether she comes within the ambit of the statute.  She may have not have been an employee at the time that Disney announced that her "termination."  After all, according to the Complaint , in announcing Ms. Carano's termination, defendant Lucasfilm said that she was not "currently employed." 

While her employment status might be relevant to her first cause of action, her second cause of action is for both wrongful discharge and refusal to hire.  So even if Ms. Carano was not an employee for the purposes of here §1101 claim, she would not need to be for her claim under California Labor Code § 98.6.  That section prohibits adverse employment actions against "any employee or applicant for employment" for conduct protected under §§ 1101 et seq.  

Ms. Carano cites to various projects of which she was going to be a part.  The problem is that, with the possible exception of a Mandalorian movie, the projects she mentions do not seem to ever have been made.  I think that might move her alleged harm into the realm of speculation.  If I had a dime for every time someone has approached me with a movie treatment based on this blog, well . . . you can do the math yourself.

Her third claim is sex discrimination, because male employees who engaged in expression similar to hers were not subject to termination.  I think the challenge here will be to show that the other expression is similar in legally relevant ways and to show that Disney had no non-discriminatory ground for deciding to end its relationship with Ms. Carano.  Ms. Carano cites to a social media post by Mark Hamill in which he linked to something from J.K. Rowling and "liked" it.  When people objected to the allegedly transphobic content of Ms. Rowling's post, Mr. Hamill issued a retraction of his "like" to the extent that it extended to that message.  Ms. Carano, by contrasts, insists that she has never, ever engaged in expression that was remotely objectionable.  To a company that cares about its image and disagrees with Ms. Carano's characterization of her social media posts, her refusal to acknowledge poor judgment may be a ground for treating her differently from those willing to recognize error.

Was Her Speech Covered by the Statute?

Disney may claim that her conduct was not "political activity" in the sense of the statute.  Here, the Complaint has to walk a rather narrow line.  On the one hand, Ms. Carano insists that her social media posts did not have the meaning ascribed to them by her detractors.  She insists that there was nothing in her posts that was racist, anti LBGTQ+, or transphobic.  On the contrary, she communicated only messages of love and support for people who are targeted for bullying.  Based on her own account of the events, it is a little hard to identify her political activities. 

She notes that other Disney employees engaged in more overt political statements and suffered no adverse employment effects.  But that may be a product not of whether Ms. Carano or her co-workers were people who were associated with the Star Wars brand were engaging in political activity but whether they were engaging in speech that the audience for Star Wars found objectionable.  Which brings us to our next topic . . . .

If Her Contract Has a Morals Clause, What Impact Does that Have on the California Statute at Issue?

Screenshot 2024-02-22 at 12.47.21 PMThis was the topic that Frank Snyder first broached on the AALS Contracts Listserv, and I, having no expertise in employment law, admit that I do not know the answer.  One would think that a morals clause would have to be interpreted in a manner consistent with California's Labor Code.  My hunch is that the case should turn on whether Disney's interest in enforcing its morals clause involved reasons unrelated to the allegation that Ms. Carano was engaged in political activity.  She was attracting a lot of negative attention on social media at the same time as she was emerging as the human face of The Mandalorian. The series' eponymous character (right) never shows his face (except for that one time when he did).  He is, according to the actor who plays him, "of questionable moral character." We don't even learn his name until episode 8.  Grogu is cute and all, but he's not human.  Ms. Carano's notoriety on social media may just be bad for business, bad for the brand, and they may have distracted attention from the heartwarming story of an isolated intergalactic mercenary with an inexplicable attachment to a child of an alien species with potentially gnarly powers but, if his predecessor is any indication, no hope of ever mastering standard English usage.

The Style of the Complaint

The Complaint's Introduction begins as follows:

A short time ago in a galaxy not so far away, Defendants made it clear that only one orthodoxy in thought, speech, or action was acceptable in their empire, and that those who dared to question or failed to fully comply would not be tolerated. And so it was with Carano. After two highly acclaimed seasons on The Mandalorian as Rebel ranger Cara Dune, Carano was terminated from her role as swiftly as her character’s peaceful home planet of Alderaan had been destroyed by the Death Star in an earlier Star Wars film. 

I have two problems with this way of introducing legal claims to a court.  First, the lame jokes and references to Star Wars themes undermine the seriousness of the document and of Ms. Carano's claims.  Of course, this blog is not above lame jokes and references, but we're a blog.  There's a time and a place.  Second, by casting the defendants in the role of the evil "empire "seeking to enforce "orthodoxy in thought, speech, or action" Ms. Carano risks having this lawsuit dismissed (by the public, if not by the court) as a chapter in the culture wars rather than an attempt to vindicate her legal rights.

The problems go beyond the introduction.  Pages 10-25, 28-30 of the Complaint consist of long-winded  detours into alleged online harassment of Ms. Carano by people other than defendants.  As far as I can tell, all of this information serves only to show why Disney might have had apolitical concerns about Ms. Carano's activities on social media.  It is not clear that any of this is otherwise relevant to the legal narrative Ms. Carano is trying to tell if she is seeking to vindicate her legal rights. It is highly relevant to the narrative she is trying to tell if she is attempting to burnish her credentials as a victim of the culture wars.  I don't think it is helpful in a Complaint to make the court feel like it is a platform for an agenda.

What's Not in the Complaint

Given the allegations in the Complaint, I'm not sure why there aren't more causes of action.  It seems like Ms. Carano thinks that the defendants have said and published statements about her that she believes are malicious lies.  That seems like a claim right there.  She also alleges that defendants not only wrongfully terminated her and refused to hire her for future projects; they also interfered with her efforts to procure other employment in the industry, including perhaps by pressuring her agents to sever ties with her.  That too, seems like a claim.  Perhaps an amended complaint is coming.  Perhaps I don't know what I'm talking about.

February 22, 2024 in Celebrity Contracts, Current Affairs, In the News, Labor Contracts, Television | Permalink | Comments (0)

Thursday, February 8, 2024

Et tu, Trader Joe's?

SpaceX
SpaceX-Man, Image by DALL-E

We posted recently about an attempt by SpaceX (represented at left) to perpetuate its union-busting activities by throwing a hissy fit in a Texas District Court and screaming at the National Labor Relations Board (NLRB) and its administrative law judges (ALJs), "You're not the boss of me!"  Now, we learn, via , writing for Bloomberg News, that Trader Joe's has adopted SpaceX's arguments at an NLRB hearing in Connecticut. 

So first, I just can't believe that Trader Joe's is in a labor dispute.  I go to Trader Joe's to shop, sure, but mostly I go to hang out with the young, diverse, tattooed and pierced young people who work there.  The cashiers engage me in conversation.  The people stocking shelves are always happy to help me find stuff and to tell me how much they like the product I'm looking for and to recommend others.  The real happiest place on earth is a Trader Joe's at 8 AM on a Saturday morning.  Nobody is shopping then, so the workers have the store all to themselves, and they are loving it!  The tunes are cranked up, EVERYBODY in the building is wearing tie-dye, and they are working and gabbing, gabbing and working, talking about whatever young people talk about in their dialect that a boomer like me has little chance of following.  They are the happiest work force I have ever seen anywhere outside of Disneyland, but in this case I didn't think the Trader Joe's people were putting on an act.  Now I don't know what to think.  Does the store force them to pierce and color their hair in festive colors not found in nature?  Is that store-issued tie-dye? Are those even real tattoos?  Will I re-visit the childhood trauma of watching Micky Mouse remove his head the next time I visit my local Trader Joe's?

It turns out that Trader Joe's United has organized unions at four Trader Joe's stores.  Its attorney is quoted in Bloomberg as follows: “Customers of Trader Joe’s would have serious problems with a company that has rejected the New Deal.”  You got that right.  Trader Joe's concedes that the NLRB is unlikely to find itself unconstitutional.  The company is just preserving the argument for later proceedings.  Let's hope that the company comes to its senses and drops this nonsense.  It's fine.  I'll just shop at Sprouts.

February 8, 2024 in Commentary, Current Affairs, In the News, Labor Contracts, Recent Cases | Permalink | Comments (2)

Tuesday, January 23, 2024

Breach of a Non-Disparagement Clause After Employment Discrimination Claim Settles

DC CircuitIn October 2019, after serving for two years as Vice President of Program and Community at the Eugene and Agnes E. Meyer Foundation, Dr. Terri Wright was fired by the Foundation's CEO, Nicola Goren (Ms. Goren).   Dr. Wright, who is Black, claimed that the reasons given for her termination were pretextual and that the real grounds were discriminatory animus.  The parties entered into a settlement agreement with a mutual non-disparagement clause.    About a month later, Ms. Goren told a colleague that Dr. Wright was  “toxic” and that two-thirds of the Foundation staff would have quit if Wright had not been terminated.  

Dr. Wright sued both the Foundation and Ms. Goren, alleging breach of the severance agreement, discrimination in violation of 42 U.S.C. § 1981, and defamation.  The district court dismissed all three actions, but in Wright v. Eugene and Agnes E. Meyer Foundation, the D.C. Circuit reinstated all three claims.

The district court dismissed the breach of contract claim on the ground that the non-disparagement clause in the severance agreement only bound the Foundation to direct its employees not to disparage Dr. Wright.  If an employee nonetheless did so, even if that employee was the CEO acting on behalf of the Foundation, that conduct did not create a breach.  The D.C. Circuit majority concluded that the provision in question was ambiguous and susceptible to Dr. Wright's reading, which would make the provision an effective prohibition on disparagement by either the Foundation or its agents.  In response to a dissenting opinion, which adopted the district court's reading, the majority gently suggested that its own reading was not only permissible but likely and that the contrary reading could only be arrived at by ignoring canons of construction as well as common sense.  

The district court dismissed Dr. Wright's § 1981 action because it could not be maintained once her breach of contract claim was dismissed.   The D.C. Circuit looked at the claim more carefully.  A § 1981 claimant must establish: membership in a protected class, an adverse employment action, and an inference of that the latter was a product of discrimination.  The first two are not contested.  Dr. Wright sufficiently alleged discriminatory intent for the purpose of surviving a motion to dismiss by alleging that she had had positive performance evaluations that were quite specific in listing Dr. Wright's accomplishments, while she was terminated without notice or warning based on "vague and subjective" criticisms.

The D.C. Circuit upheld the dismissal of the first two claims against Ms. Goren, who was not a party to Dr. Wright's severance agreement.  Dr. Wright's defamation claim was brought only against Ms. Goren.  That's a tort claim, so you can read about in some other blog.  It survived.  That suffices for us.

Judge WalkerJudge Justin Walker (left), writing in dissent, argued that the severance agreement required the Foundation to direct its employees not to disparage Dr. Wright.  As Dr. Wright did not allege that Foundation failed in that duty, she has no claim.  If she wanted to impose a greater obligation on the Foundation, she should have negotiated for different language.  However, the dissent contends that the Foundation would have difficulty policing the on and off-duty statements of its employees. 

In defense of his claim that the severance argument is unambiguous, Judge Walker spends an unseemly amount of space addressing the patent ambiguities of the provision.  It is a mutual non-disparagement provision.  After laying out Dr. Wright's obligations under the provision, the provision provides that the Foundation "likewise" will not disparage Dr. Wright.  But "likewise," Judge Walker informs us "often does not mean 'identically.'"  Bravo.  Does it sometimes mean "identically"?  If so, why we've got ourselves some ambiguity, don't we?  He cites a dictionary.  My Google search turns up a definition that says it means "in the same way."  First hit.  Oxford Dictionary.  Boom!  Ambiguity.

Judge Walker also finds that Dr. Wright did not sufficiently allege that her firing was motivated by racial animus.  Thus, even if she could state a breach of contract claim, he would reject her §1981 claim.  And he rejects the torts claim for torty reasons that we need not concern ourselves with here.

I have been able to find no subsequent history on the case, and the Internet is silent on the matter.  I note that Ms. Goren has moved on.  Perhaps the parties reached a settlement.  The Meyer Foundation, committed to supporting organizations that work "to achieve a racially and economically just Greater Washington" likely does not benefit from continued litigation.

January 23, 2024 in Labor Contracts, Recent Cases | Permalink | Comments (0)

Thursday, January 18, 2024

SpaceX Takes Aim at the NLRB

SpaceX RocketSpaceX is facing an administrative hearing before a National Labor Relations Board (NLRB) administrative law judge (ALJ) on March 5. 2024.  Last week, SpaceX launched its latest projectile, a motion for a preliminary injunction in the District Court for the Southern District of Texas, alleging that it will be irreparably harmed if that hearing takes place.  The argument is that both the NLRB and the ALJ system are unconstitutional because both the NLRB and the ALJs are insulated from removal by the President.  Moreover, seizing on what must have been a very encouraging oral argument before the Supreme Court in SEC v. Jarkesy, SpaceX claims that administrative proceedings such as this violate the Seventh Amendment right to a jury trial. The brief leans heavily on the Fifth Circuit's ruling in Jarkesy, which is a  precedent binding on the District Court. 

The case arose because some SpaceX employees circulated an open letter, soliciting employees to fill out a hyperlinked survey and indicate their level of support for the letter's demands and provide feedback.  SpaceX fired some of the employees responsible for the open letter, alleging that they violated company policy and that their manner of circulating the open letter disrupted SpaceX's operations.  The fired employees filed a complaint with the NLRB, alleging unfair labor practices.   The NLRB was apparently not convinced by SpaceX's 700-page response and notified SpaceX that it had authorized an administrative complaint.  SpaceX's suit followed.

When Jarkesy was argued, people noted that if SCOTUS upheld the Fifth Circuit, the struture of many other executive agencies or their practices could also be attacked as unconstitutional, on either separation of powers or Seventh Amendment grounds.  And here we are.  The motion places the District Court in an awkward position.  It is bound by Fifth Circuit precedent, so denying the injunction might be hard unless there are arguments that the NLRB is in some relevant way different from the SEC.  Ordinarily, the District Court might hold off on ruling, given that SCOTUS is unlikely to rule in Sarkesy until June.  Without such a ruling, it is hard to know which side has the better argument for irreparable harm.   Perhaps the safest solution is to stay the administrative hearing until SCOTUS decides whether to kneecap the administrative state in whole or just in part in Sarkesy.

Stay tuned.

January 18, 2024 in Labor Contracts, Recent Cases | Permalink | Comments (0)

Thursday, October 5, 2023

Training Repayment Agreements in the News

Just yesterday, we posted about the debate over the FTC's plans to rein in non-competes.  One response has been Training Repayment Agreements (TRAs) or better still, Training Repayment Agreement Provisions (TRAPs). Thanks to guest contributions from Jonathan Harris (below left) here and here, as well as Miriam Cherry's review of Jonathan's work over at Jotwell, we have already been able to introduce readers to the topic.  Last week, H. Claire Brown published an article in The New York Times indicating how TRAPs work.

HarrisThe article begins with an illustration.  A physician assistant signed a TRAP when she began work, as part of the first day of work ritual at which your employer presents you with the take-it-or-be-unemployed terms of your employment.  The TRAP provided that she would be required to reimburse her employer $50,000 for on-the-job trainings she received if she left the job before 2025.  She left, providing four-months notice, and her former employer sued, seeking to recover $38,000 in training fees (a ridiculous valuation for the training the employee received) plus $100,000 (a suspiciously round and therefore almost certainly made-up number) supposedly representing loss of business.   One wonders on what theory they think they can recover such lost profits.

In a second illustration, we learn of another medical professional who took a job that paid $35,000/year.  After more than two years on the job, she tried to leave, and her employer sued her for $30,000 in training costs.

According to The Times, nearly 40% of nurses who joined the profession in the last decade have to sign a TRAP.  In California, TRAPs are already unenforceable if they amount to an attempt to shift training costs to employees.  They are only enforceable if designed to allow employees to improve their skills sets in ways that will benefit them throughout their careers.  Even so, The Times notes, the FTC has proposed rules that will ban TRAPs to the extent that they function as non-compete clauses.    Some states have already banned TRAPs.  

Jonathan Harris's spidey sense must have been tingling, because he just shared with us news of this story about the National Labor Relations Board suing an employer that allegedly subjects its employees to unlawful confidentiality, non-disparagement, non-compete, no-solicitation, and training repayment provisions.

October 5, 2023 in Contract Profs, Current Affairs, In the News, Labor Contracts, Recent Cases | Permalink | Comments (0)

Wednesday, October 4, 2023

The Short and and the Long of the Debate on Non-Competes

Arnow-Richman_Rachel_500x500 LobelThe Federal Trade Commission has proposed a ban on virtually all non-compete agreements.  Similarly bans are already in effect in California and other states.  Back in January, Rachel Arnow-Richman (left) and Orly Lobel (right) published The Business Case for a Nationwide Ban on Noncompetes in The Hill.  The piece is now available on SSRN, and that's how I got wind of it. 

As their title suggests, Professors Arnow-Richman and Lobel argue that non-competes are bad for business. They cite to a decade's worth of empirical evidence to back their claim. Noncompetes suppress wages and exacerbate pay gaps based on race and gender.  But they are not just bad for workers; non-competes also stifle entrepreneurship and innovation.  It is no coincidence that Silicon Valley, a center for economic dynamism and technological innovation, is located in California, which bans non-competes.  Eliminating non-competes can be especially helpful as we emerge from the Great Resignation associated with the COVID economy.  Medical professionals in particular need to have the ability to offer their services where those services are needed, notwithstanding competition with past employers. 

That is the short.  Now for the long.  

MeeseAlan J. Meese (right) has posted on SSRN his 136-page article, Are Employee Noncompete Agreements Coercive? Why the FTC's Wrong Answer Disqualifies It from Rulemaking (For Now).  I will not attempt to summarize his work.  Here is the abstract: 

The Federal Trade Commission recently proposed a rule banning nearly all employee noncompete agreement (“NCAs”) as unfair methods of competition under Section 5 of the Federal Trade Commission Act. The proposed rule reflects two complementary pillars of an aggressive new enforcement agenda championed by Commission Chair Lina Khan, a leading voice in the NeoBrandeisian antitrust movement. First, such a rule depends on the assumption, rejected by most prior Commissions, that the Act empowers the Commission to issue legislative rules. Proceeding by rulemaking is essential, the Commission has said, to fight a “hyperconcentrated economy” that injures employees and consumers alike. Second, the content of the rule reflects the Commission’s repudiation of consumer welfare and the Sherman Act’s Rule of Reason as guides to implementing Section 5.

Affected parties will no doubt challenge the Commission’s assertion of authority to issue legislative rules. This article assumes for the sake of argument that the Commission possesses the authority to issue such rules enforcing Section 5. Still, prudence can counsel that an agency refrain from issuing rules before it has fully educated itself about the nature of the economic phenomena it hopes to regulate. Such prudence seems particularly appropriate when the Commission has very recently adopted an entirely new substantive standard governing such conduct. Deferring a rulemaking does not mean inaction. The Commission could develop competition policy regarding NCAs the old-fashioned way, investigating and challenging such agreements on a case-by-case basis.

The Commission rejected these prudential concerns and proceeded to ban nearly all NCAs, assuring the public that it had educated itself sufficiently about the origin and impact of NCAs to conduct a global assessment of such agreements. The Notice of Proposed Rulemaking (“NPRM”) offered three rationales for the proposed rule, drawn from a late 2022 Statement of Section 5 Enforcement Policy. First, the Commission opined that NCAs are “restrictive” because they prevent employees from selling their labor to other employers or starting their own business in competition with their employer. Second, NCAs result from procedural coercion, because employers use a “particularly acute bargaining advantage” to impose such agreements. Third, NCAs are substantively coercive, because they burden the employee’s right to quit and pursue a more lucrative opportunity.

The first rationale applied to all NCAs. The second and third applied to all NCAs except those binding senior executives. Such executives, the Commission said, bargain for such agreements with the assistance of counsel and presumably receive higher salary and/or more generous severance in return for entering such NCAs. Because NCAs also have a “negative impact on competitive conditions,” the NPRM also concluded that they are presumptively unfair methods of competition.

The Commission conceded that NCAs can create cognizable benefits. Nonetheless, the Commission concluded that such benefits do not justify NCAs, for two reasons. First, less restrictive means can “reasonably achieve” such benefits. Second, such benefits do not exceed the harms that NCAs produce.

The Commission also rejected the alternative remedy of mandatory precontractual disclosure of NCAs for two interrelated reasons. First, such disclosure would not prevent employers from using overwhelming bargaining power to impose such restraints. Second, disclosure would not alter the number or scope of NCAs and thus would not reduce their aggregate negative economic impact.

The procedural coercion rationale played an outsized role in the Commission’s Section 5 analysis, informing the findings that NCAs are also “restrictive” and substantively coercive. Moreover, the outsized emphasis on procedural coercion dovetailed nicely with the NeoBrandeisian claim that ordinary Americans are routinely helpless before large concentrations of private economic power. Indeed, when the Commission released the NPRM, Chair Khan separately tweeted that NCAs reduced core economic liberties.

Still, the Commission offered no definition of “coercion” or explanation of how to determine whether employers have used coercion to impose NCAs on employees. Instead, the Commission articulated several subsidiary determinations regarding the characteristics of employers and employees that, taken together, established that employers always possess and use an acutely overwhelming bargaining advantage to impose nonexecutive NCAs. Thus, the Commission emphasized that labor market power is widespread, due in part to labor market concentration, most employees are unaware of NCAs before they enter such agreements, NCAs generally appear in standard form contracts, employees rarely bargain over such agreements, most employees live paycheck-to-paycheck and thus have no choice but to accept NCAs, and individuals negotiating over terms of employment discount or ignore the possibility that they will depart from the job they are about to accept and thus downplay the potential impact of an NCA on their future employment autonomy.

This article contends that the Commission’s procedural coercion rationale for condemning nonexecutive NCAs does not withstand analysis. In particular, the Commission’s various subsidiary determinations that support the procedural coercion rationale have no basis in the evidence before the Commission, contradict such evidence and/or disregard modern economic theory regarding contract formation. For instance, a recent study by two Department of Labor economists finds that the average Herfindahl-Hirschman Index in American labor markets is 333, the equivalent of 30 equally-sized firms, each with a 3.33 percent market share, competing for labor in the same market. A previous version of the study was published on the Department of Labor’s website several months before the Commission issued the proposed rule. The NPRM offers no contrary evidence regarding the proportion of labor markets that are concentrated. “Hyperconcentration of labor markets” is apparently a myth.

Moreover, the NPRM ignores record evidence that 61 percent of employees know of NCAs before they accept the offer of employment. The NPRM’s failure to address these data is particularly strange, insofar as the NPRM cites the very same page of the academic article where these data appear three different times for other propositions. The Commission also erred when it assumed that employers with labor market power will use such power coercively to impose even beneficial NCAs. This assumption would have made perfect sense in 1965. However, since the 1980s, scholars practicing Transaction Cost Economics have explained how firms with market power, including labor market power, will not use that power to impose beneficial nonstandard agreements, including NCAs. The Commission was apparently unaware of this literature.

Nor does the lack of individualized bargaining and reliance on form contracts suggest that employers use power coercively to impose NCAs. Form contracts often arise in competitive markets and reduce transaction costs. Background rules governing contract formation, robust state court review of NCAs and exit by potential employees can constrain employers’ ability to obtain unreasonable provisions and induce employers to pay premium wages to compensate employees for agreeing to NCAs. These considerations may explain why a majority of employees who had advanced knowledge of NCAs considered the agreements reasonable, a finding the NPRM ignores.

Nor does it matter that most employees work paycheck-to-paycheck. The Commission ignored the possibility that such individuals may be employed when seeking a new job, bargain from a position of relative security and can thus “walk away” from onerous NCAs. The Commission also ignored economic literature establishing that the presence of some such individuals in a labor market can ensure that employers offer reasonable terms to all potential employees, including unemployed job seekers.

Refutation of the procedural coercion rationale for banning nonexecutive NCAs requires reconsideration of the other two rationales as well. For instance, nonexecutive NCAs are the result of voluntary integration and thus not procedurally coercive or substantively coercive, either. Moreover, because some nonexecutive NCAs are voluntary, the Commission must abandon its erroneous assumption that the beneficial impacts of NCAs necessarily coexist with coercive harms. Proper assessment of business justifications requires the Commission to ascertain the proportion of NCAs that constitute voluntary integration, revise downward its estimate of coercive harms and reassess NCAs’ relative harms and benefits. This revision could result in a determination that NCAs’ benefits in fact exceed their harms. Finally, recognition that beneficial NCAs are the result of voluntary integration requires the Commission to reconsider the mandatory disclosure remedy, which the Commission rejected based on the erroneous belief that employers use bargaining power to impose even fully-disclosed and beneficial NCAs. Such reconsideration could of course lead to revising the scope of the proposed ban or rejection of any ban.

The Commission may well be entirely capable of assessing the global impact of NCAs on economic variables such as price, output, and wages. However, the Commission rejected such a rule of reason approach in favor of a standard that turns in part on the process of contract formation. Thus, the Commission necessarily took on the task of gathering information regarding the process of forming NCAs and of assessing that data in light of applicable economic theory. The Commission’s demonstrably poor execution of this task reveals that it lacks the capacity to conduct a generalized assessment of NCAs under a governing standard that treats procedural coercion as legally significant.

Because it lacks the capacity to assess the process of forming nonexecutive NCAs, the Commission should withdraw the NPRM and start over. There are two alternative paths the Commission may take to develop well-considered competition policy governing NCAs. First, the Commission could revert to the rule of reason approach it rejected in 2021. The Commission could draw upon its considerable study of the impact of NCAs on wages, prices and employee training and promulgate a rule that bans those agreements the Commission believes produce net harm, after reconsidering regulatory alternatives such as mandatory disclosure.

Second, the Commission could continue to embrace its new Section 5 standard but take an “adjudication only” approach to implementation. The Commission could simultaneously take other steps through various forms of public engagement to educate itself about contract formation in general and the formation of NCAs in particular. The Commission could build on data it has to this point ignored regarding various attributes of employers, employees and labor markets more generally. Adjudication and self-education could be mutually reinforcing. Self-education could inform the Commission’s determination of which NCAs to challenge, while information generated in adjudication could improve the Commission’s knowledge base about NCAs. Ultimately this two-track approach could generate sufficient information to justify a well-considered rule governing NCAs.

October 4, 2023 in Commentary, In the News, Labor Contracts, Recent Scholarship | Permalink | Comments (0)

Friday, September 29, 2023

The SAG-AFTRA Strike

We wrote last week about the auto workers strike.  We have been remiss in not having covered the strike of the Screen Actors Guild and American Federation of Television and Radio Artists (SAG-AFTRA) against the Alliance of Motion Picture and Television Producers (AMPTP), and the related strike of the Writers Guild of America (WGA) that began in May and just concluded this week. 

Although when I first drafted this post, there was no hint that the WGA strike was about to end, I will not claim that I alone fixed it. 

But did I?  I'm just asking questions.

In any case, it is time to catch up.

Writers_Guild_of_America_West_logo
The WGA strike was the longest work-stoppage involving that group since 1988.  One of the main issues in the strike was the writers' access to residuals from streaming media.  Writers, like all of us, are also concerned that the studios might replace them with some new version of artificial intelligence.   The parties started off pretty far apart, with the WGA saying that its proposals would yield benefits of $429 million a year; the AMPTP's offer would yield $86 million. For months, there seemed to be no prospect of a resolution.  This month, negotiations seemed to make promising progress.

Suddenly, over the weekend, there was a breakthrough.  A tentative deal has been signed and, as Brooks Barnes of The New York Times reports, writers began returning to work this week.  The parties are expected to enter into a new three-year agreement, and most reporting suggests that the writers got most of what they were seeking, including 

  • a 76% increase in residuals payments;
  • a bonus to writers from streaming services; 
  • guarantees of minimal staffing; and 
  • no AI encroachment on writers' credits and compensation.

So now the writers can write.  But who will perform what they have written?

SAG-AFTRASAG-AFTRA joined the strike in July.  This is the first such industry strike since the actors' strike in 1980, and it is the first time writers and actors have gone on strike simultaneously since 1960.  The actors' concerns are similar to those of the writers.  They seek residuals from broadcasts over streaming services, and they too have worries about being replaced through artificial intelligence.

\According to Wikipedia, actors can still appear on podcasts, micro-budget independent films, student films, unscripted television work such as game shows, reality competition shows, documentaries, and talk shows.  This might be a boon to podcasts, and I assume that if the casts of Oppenheimer and Barbie want to make a video appearance on this blog, that would be no problem.  

So, for example, there has been at least one positive externality of all of this.  Jeri Ryan, unable to work due to the strike, has more time to spend on social media.  Two weeks ago, she used some of that time to like something I posted on BlueSky.  

Screenshot 2023-09-12 at 10.19.38 AMI have followed Ms. Ryan's career since getting to know her as 7 of 9 on Star Trek Voyager.   Let's just say I am a fan.  I wanted to name my daughter "Seven," but my wife, also a fan, won that battle.  Still, twenty years later, one "like" from Jeri Ryan was mind blowing.  I asked my Associate Dean if I could cancel class due to being on Cloud 7 of 9.  She suggested that I instead share my joy with my students.  Which I did.  They had no idea who Jeri Ryan is, but that is their loss.  Also, as Seven would say, irrelevant.

Edited with helpful corrections from David August.

September 29, 2023 in Commentary, In the News, Labor Contracts | Permalink | Comments (0)

Tuesday, September 19, 2023

Strike!

Theodor_Kittelsen_Streik_1879
"Stike," by Theodor Kittelsen

Remember the days when Henry Ford stiffed his investors so that he could reduce the price of his cars and pay his workers a living wage (and also deprive the Dodge brothers of capital they could use to  start a rival company)?  A very different ethos inspires the managerial class at the Big Three automakers these days. 

According to Adam S. Hersh, writing for the Economic Policy Institute, profits at the Big Three have increased 92% over the past decade and are expected to be over $30 billion in 2023.  CEO pay is up 40% over the same period, and the companies have paid out $66 billion in dividends and stock buy-backs.  Worker pay, by contrast, adjusted for inflation, has decreased over 19% over the same period.  Unions made concessions to save the industry during the 2008 crisis.  The government bailed out the companies and their shareholders, but workers were expected to believe that keeping their jobs was benefit enough.

However, as Jack Ewing reports in The New York Times, unions sometimes bump up against structural economic changes, including new groups, such as immigrants, people of color, and women, joining the labor force, mechanization, and in this case, the shift to electric vehicles (EVs).  EVs have much simpler engines, which require fewer workers to build.  Moreover, Tesla, a leading EV manufacturer, has fiercely resisted unionization and has labor costs far below those of the Big Three.  Management is trying to frame the issue as pitting the unions against the drive to develop cars that contribute less to global climate change.  The reality is more complicated.  The Biden Administration is providing economic incentives for the shift to EVs, so the money that the Big Three spends on those efforts is partly provided through government subsidies.  

The unions are concerned about the shutdown of plants in the Midwest dedicated to the production of components for internal combustion engines.  Workers could shift to battery manufacturing plants, but those tend to be located in so-called "right-to-work" states where union organizing is much more difficult.  

The timing of the strike seems very well-chosen.  Despite their profits, the Big Three cannot afford a prolonged shutdown.  They run the risk of losing market share to other manufacturers of EVs.  Tesla continues to grow, as do new boutique start-ups that specialize in electric pick-up trucks and SUVs.  And then there are the foreign manufactures that have long located their factories in the U.S. South, where unions are scarce.  

As Michael D. Shear reports in The New York Times, President Biden has backed the union, but he is caught between his gut support for workers' rights and his environmental policies.  The White House has sent mediators hoping to avert a prolonged strike.  There is a lot at stake here, not only for workers and the automobile industry.  Mr. Biden must be aware that his re-election chances are linked to the state of the economy, and a significant strike at the Big Three could have national economic ramifications.

Yesterday, we blogged about Taylor Swift's impact on the fortunes of movie theaters.  Let us hope that a new contract for the autoworkers' unions will provide similar benefits for the rest of the economy.

September 19, 2023 in Current Affairs, In the News, Labor Contracts | Permalink | Comments (0)

Friday, June 30, 2023

Tamar Meshel on the Revisions to the FAA

TamarWe are delighted to welcome Tamar Meshel (right) back as a guest blogger!

Dr. Tamar Meshel is an Associate Professor at the University of Alberta Faculty of Law. She researches, teaches, and consults primarily in the areas of domestic and international arbitration and her work has been cited by the Supreme Court of Canada, the Supreme Court of Israel, and the Delaware Court of Chancery, as well as by numerous scholars.

The New Chapter in the Life of the FAA

The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (aka EFASASHA, EFASA, or EFAA)—codified at 9 U.S.C. §§ 401–02 (Chapter 4 of the FAA)—came into effect on March 3, 2022. It is the first substantive limit placed by Congress on the scope of the FAA since the statute was enacted nearly 100 years ago. The Act provides that “at the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute . . . no predispute arbitration agreement . . . shall be valid or enforceable with respect to a case which is filed under Federal, Tribal, or State law and relates to the sexual assault dispute or the sexual harassment dispute” (§ 402(a)).

The Act also renders three arbitration principles inapplicable in sexual assault and sexual harassment disputes. First, it permits the unilateral revocation of a “joint, class, or collective action” waiver (§ 402(a)), which would otherwise be enforceable pursuant to AT&T Mobility LLC v. Concepcion. Second, it requires courts to decide the validity and enforceability of an arbitration agreement even where a party challenges the underlying contract rather than the arbitration clause (§ 402(b)), a challenge that would otherwise be decided by the arbitrator pursuant to the severability principle and Prima Paint Corp. v. Flood & Conklin Mfg. Co. Third, it requires courts to decide the validity and enforceability of an arbitration agreement even where the parties intended to delegate this determination to the arbitrator (§ 402(b)), a delegation that would otherwise be enforced pursuant to Rent-A-Center, West, Inc. v. Jackson.

At the same time, the Act gives rise to many questions that courts must now grapple with:

  1. Chapter 4’s application to non-employment disputes

The most obvious context to which Chapter 4 applies is employment. Indeed, out of about two dozen cases that have considered Chapter 4 (that I’ve examined), all but two were in the employment context. In the two non-employment cases the plaintiffs were a patient in a care facility (Ferrell v. Imperial Care Center LLC) and a college student. In the former the court explicitly held that Chapter 4 applies to sexual assault/harassment claims that are not work-related or that do not arise from employment contracts. In the latter the court did not consider this question, because it found Chapter 4 temporally inapplicable (see below).

While the congressional record suggests a focus on employment disputes, nothing in the language of Chapter 4 restricts it to that context. So it is likely to be applicable in any case involving a sexual assault and/or sexual harassment dispute.

  1. Chapter 4’s temporal application

Section 3 of the Act provides that it “shall apply with respect to any dispute or claim that arises or accrues on or after the date of enactment of this Act,” which is March 3, 2022. The courts have unanimously interpreted this provision to mean that Chapter 4 does not apply retroactively. Creative attempts to establish an “accrual” date post-March 3, 2022—for instance, when the defendant filed its motion to compel arbitration or when the Equal Employment Opportunity Commission issued a notice of right to sue—have failed. Courts have also rejected the following arguments: 1) that Chapter 4 eliminates the FAA’s pre-emption of state law that prohibits arbitration of sexual assault/harassment claims even if these “accrued” prior to March 3, 2022; 2) that Chapter 4 evidences a public policy that disfavours arbitration of sexual harassment/assault claims accruing before this date; 3) that Chapter 4 renders agreements to arbitrate such claims per se unconscionable; and 4) that individual claims accruing before March 3, 2022 may be saved by asserting class-wide claims on behalf of potential plaintiffs who may have been harmed after that date.

However, there is disagreement over when would be latest “accrual” date possible for the purpose of applying Chapter 4. Some courts have found the latest possible date to be when the plaintiff filed the lawsuit, while others have found that date to be when the alleged conduct occurred. In one case, Chapter 4 was found applicable to an alleged continuing violation (hostile work environment and retaliatory conduct) that spanned both before and after March 3, 2022. The U.S. District Court of the Eastern District of New York held that pursuant to the “continuing violation” doctrine, the plaintiff’s claims “accrue on the day of the last act in furtherance of the violation,” which in the context of the hostile work environment and retaliatory conduct claims continued after March 3, 2022.   

It also remains unclear what, if any, is the difference between a “dispute” and a “claim” and between “arises” and “accrues” in § 3. For instance, the U.S. District Court for the Southern District of New York found no meaningful difference and suggested that the Act refers to both “claims” and “disputes” simply “in order encompass various kinds of proceedings.” The U.S. District Court for the Southern District of Florida (in Hodgin v. Intensive Care Consortium Inc.) disagreed and separately considered whether the plaintiff’s “claim” had “accrued” (meaning she had a “complete and present cause of action”) before March 3, 2022 and whether her “dispute” had “arisen” (meaning there was a “disagreement, not just the existence of an injury) before that date.

While the “accrual” date has been hotly contested in the courts, as time passes this issue will become less relevant to the application of Chapter 4.

  1. Standard for pleading a sexual assault/harassment dispute

SDNYIn three cases, the U.S. District Court for the Southern District of New York has considered the standard that a plaintiff must meet in order for § 402(a) to invalidate an arbitration agreement. The court in some of these cases also considered whether meeting this standard should prohibit arbitration of the entire “case” or only of the sexual assault/harassment claims.  

Johnson v. Everyrealm and Yost v. Everyrealm involved claims brought by two former employees against the same employer for sexual harassment under the New York State Human Rights Law and the New York City Human Rights Law (which the court found to qualify as “state law” under § 402(a)), as well as for whistleblower retaliation and intentional infliction of emotional distress. Mera v. SA Hospitality Group involved claims for sexual harassment under the same New York laws as well as wage and hour claims brought under the Fair Labor Standards Act and the New York Labor Law on behalf of a group of employees.   

In all three cases, the district court held that the plaintiffs were required to meet the FRCP Rule 12(b)(6) standard of plausibility with respect to their sexual harassment claims, and that once that standard was met, all “related” claims in the action would also be non-arbitrable.

In Johnson, Judge Engelmayer held that the plaintiff had plausibly pled a claim of sexual harassment under the New York City Human Rights Law and therefore Chapter 4 applied. Judge Engelmayer acknowledged that the FAA permits the splitting of arbitrable from non-arbitrable claims. Yet he also found a “contrary congressional command” in § 402(a), which makes a pre-dispute arbitration agreement invalid and unenforceable “with respect to a case which is filed under Federal, Tribal, or State law and relates to the ... sexual harassment dispute.” Therefore, Judge Engelmayer concluded that a well-pled sexual harassment claim makes an arbitration clause unenforceable “as to the other claims in the case.” He noted, however, that because the plaintiff’s claims all arose from his employment, he was not considering whether “claim(s) far afield might be found to have been improperly joined with a claim within the EFAA so as to enable them to elude a binding arbitration agreement.”   

Applying these principles in Yost, Judge Engelmayer found that the plaintiff’s factual allegations in support of a claim of sexual harassment were “threadbare” and failed to allege a “plausible claim” of sexual harassment under the New York City Human Rights Law. Judge Engelmayer therefore dismissed the plaintiff’s sexual harassment claims. He then held that, as a result, Chapter 4 could not prevent the arbitration of the remaining claims.  

Finally, in Mera, Judge Aaron found that the plaintiff had plausibly pled a claim of sexual harassment under the New York State Human Rights Law, and therefore that claim could not be arbitrated. However, he found that § 402(a) rendered arbitration agreements unenforceable “only with respect to the claims in the case that relate to the sexual harassment dispute.” Unlike in Johnson, the plaintiff’s wage and hour claims in Mera did not “relate in any way to the sexual harassment dispute.” Therefore, the plaintiff was compelled to arbitrate those claims. The action was stayed with respect to the wage and hour claims pending arbitration, while the sexual harassment claims proceeded in court.

The fate of claims joined with a sexual assault/harassment dispute may thus turn on how “related” they are to that dispute. This means that claims that are not directly sexual assault/harassment claims but are related to the underlying conduct may become non-arbitrable as long as the sexual assault/harassment claims are plausibly plead in the same “case”. In contrast, plaintiffs may not be able to easily bootstrap claims that are entirely unrelated to the underlying conduct or to the plaintiff’s sexual assault/harassment dispute in order to render them non-arbitrable.

These are still early days for FAA Chapter 4, and some of the cases discussed above are currently pending appeal. It is also important to note that neither the Act nor Chapter 4 of the FAA address other mechanisms that are used to avoid the litigation and/or the publication of conduct underlying sexual assault/harassment disputes, such as settlement agreements, confidentiality agreements, and NDAs.

June 30, 2023 in Commentary, Contract Profs, Current Affairs, In the News, Labor Contracts, Legislation | Permalink | Comments (0)

Friday, June 23, 2023

Fourth Circuit Reverses Arbitral Award Because Award "Failed to Draw Its Essence" from the Arbitration Agreement

Sarah Black, a union-represented employee, worked at a nursing care facility for military veterans operated by plaintiff Advantage Veterans Services of Walterboro (AVSW).  AVSW terminated Black for discrimination, harassment, or bullying, and for falsifying records.  The union protested on Black's behalf, and the dispute was sent to arbitration.  The arbitration was governed by a collective bargaining agreement (CBA), Article 13 of which provided that in “all discipline cases, the arbitrator shall determine whether AVSW had a reasonable basis for concluding that the employee engaged in the conduct for which he/she is being disciplined.”

4th CircuitIn Advantage Veterans Services of Walterboro v. Industrial and Service Workers Int'l, Local 7898, the Fourth Circuit referred to this language as requiting a "reasonable basis determination."  The arbiter interpreted Article 14 of the CBA to require "strong, convincing evidence" of the violation.  The arbiter determined that this standard was not met and that AVSW had failed to provide the required notice to Ms. Black.  The arbiter ordered that Black be reinstated.

AVSW brought suit in District Court pursuant to the federal Labor Management Act seeking to vacate the award on the ground that the arbiter had failed to apply the appropriate "reasonable basis" standard and thus its award was not consistent with the CBA.  The District Court upheld the award, finding that the standard had been properly applied, and even if it had not been, review of arbitral awards was limited.  It was enough that that the arbiter's reading of what the CBA required was plausible.  

While the Fourth Circuit noted the narrow scope of review of an arbitral award in the labor law context, an award is illegitimate if it “fails to draw its essence” from the agreement.  Although the arbiter recited facts relevant to assessment of whether AVSW had a reasonable basis for its action, and although arbiters are not required to provide the reasoning for their decisions, the Fourth Circuit nonetheless found that found that the arbiter never made the required reasonable basis determination, and thus her ruling failed to draw its essence from the CBA.    

This was no mere procedural hiccup.  Rather, the arbiter ignored the substantive rules that were to govern her analysis.  It would be paradoxical, the court noted, to use the highly deferential standard of review, which is rooted in principles of contract, "to look past the arbitrator’s failure to follow contractually agreed-upon procedural rules for the arbitration."  If this goes back to the same arbiter, it is hard to imagine a different conclusion on the merits.

June 23, 2023 in Labor Contracts, Recent Cases | Permalink | Comments (0)

Tuesday, June 13, 2023

Human Beings Are Still Better than Bots

NEDATwo weeks ago, I reported on a decision by the National Eating Disorders Association (NEDA) to replace its Helpline, staffed by actual human beings, including six recently-unionized workers, with an AI bot named Tessa. 

Tessa has been unplugged.

As Chris Morris reports in Fortune, NEDA took down the bot after receiving complaints that it was responding in ways that promote eating disorders.  NEDA, which really needs to do some soul-searching, first responded by claiming on social media that the reports were a lie.  However, once it saw evidence of the "lie" in the form of screenshots, it shut down the bot and launched an investigation -- or so it says.  I'll have to see screenshots to believe it.  

In related news, today I beat the Wordle Bot.  It's a sore loser and protests that my third guess was lucky.  Hey, Wordle Bot, you have ONE JOB!

Screenshot 2023-06-13 at 6.22.53 AM

June 13, 2023 in Commentary, Current Affairs, In the News, Labor Contracts, Web/Tech | Permalink | Comments (0)

Ninth Circuit Affirms District Court's Denial of Amazon's Attempt to Compel Arbitration

Screenshot 2023-06-10 at 8.53.23 AMAmazon Flex drivers make deliveries of food and other goods, using their own vehicles, for Amazon.com.  In February 2021, Drickey Jackson sued Amazon, seeking to represent a class of Amazon Flex drivers and alleging privacy violations.  He claimed that Amazon wiretapped and monitored off-hours conversations among the drivers in private Facebook chat groups.  The District Court held that, because the drivers did not have adequate notice of a 2019 update to Amazon Flex's terms of service (ToS), the parties were bound by the 2016 ToS.  The arbitration provision in the 2016 ToS do not cover this dispute, and so the District Court denied Amazon Flex's motion to compel arbitration.  In Jackson v. Amazon.com, Inc., the Ninth Circuit affirmed.

The 2016 ToS provided that Amazon Flex could modify the terms at any point simply by giving notice to drivers that it was doing so.  By continuing to serve as drivers, the drivers accepted new terms. 

Amazon may modify this Agreement, including the Program Policies, at any time by providing notice to you through the Amazon Flex app or otherwise providing notice to you . . . . If you continue to perform the Services or access Licensed Materials (including accessing the Amazon Flex app) after the effective date of any modification to this Agreement, you agree to be bound by such modifications.

The most relevant difference between the 2019 ToS and the 2016 ToS is that the former provided that questions of arbitrability were to be determined by the arbiter.  Because Amazon provided neither the e-mail that purported to alert Mr. Jackson to the new ToS nor evidence that it was delivered to Mr. Jackson, the District Court held that the 2016 ToS applied.  Amazon had the burden of showing that Mr. Jackson had assented to the new terms, and it did not meet its burden.  The Ninth Circuit agreed. 

Screenshot 2023-06-10 at 9.33.22 AMThe Ninth Circuit, per Senior Judge Schroeder (left), also rejected Amazon's alternative argument that Mr. Jackson was bound because the new ToS were on the Amazon Flex app, and he was obligated under the 2016 ToS to check the app for updates.  Citing the new Restatement of Consumer Contracts Law and its prior decisions, the Ninth Circuit  noted that assent requires both reasonable notice of a term and a reasonable opportunity to reject.  Generalized notice that new terms might be coming are not enough.  This is the first citation to the new Restatement that I have seen, and it is exciting to see it!

The District Court then determined that the conduct alleged was not covered by the arbitration provision, which covered that "any dispute or claim . . . arising out of or relating in any way to this Agreement, including . . . participation in the program or . . . performance of services."  The Ninth Circuit again agreed.  

If first noted that the complaint did not make any claims relating to the drivers' contractual relationship with Amazon.  Rather, it alleged violations of federal and state law.  Attentive readers might here be expecting a reference to  David Horton and his article, Infinite Arbitration Clauses, which, as we noted, was relevant to the Southern District's decision in Davitashvili v. GrubhubYou will be disappointed.  C'mon Ninth Circuit, he's in your jurisdiction!  Nevertheless, the same reasoning applies.  Even when an arbitration provision is very broad, in order to be applicable, the factual allegations of the complaint must "touch matters covered by the contract containing the arbitration clause."  Here they don't.  People who were not Amazon Flex drivers were allowed to join the Facebook groups.  According to the complaint, Amazon violated those non-drivers' state and federal privacy rights as well.  The factual allegations do not relate to the contract that contains the ToS.

Judge Graber
Image by Fmuzzio, CC BY-SA 4.0, via Wikimedia Commons

Senior Judge Graber (right) who was born in Oklahoma City dissented from the denial of the motion to compel arbitration, arguing that the broad arbitration clause in the 2016 ToS did indeed cover the dispute.  In her view, the only requirement is that the dispute "touch matters" covered by the 2016 agreement.  According to the complaint, Amazon was motivated by its desire to monitor its drivers and to learn what it could about their conversations relating to work conditions, unionizing, and strikes, among other things.  The dissent does not seem to believe that anybody other than drivers were able to access the chat group and dismisses as speculative the idea that non-driver union officials or spouses might have been on the chat.  The majority responds that this reasoning confuses Amazon's motives with the nature of plaintiffs' claims. 

Moreover, it is not entirely clear to Judge Graber that the claims do not raise claims of contractual interpretation.  It is entirely possible that the ToS entail some sort of consent that Amazon engage in some monitoring of its drivers .  As creepy and unsettling as she acknowledges the alleged conduct is, Judge Graber would dismiss the suit and compel arbitration.

June 13, 2023 in Labor Contracts, Recent Cases | Permalink | Comments (0)

Friday, June 9, 2023

Glacier Northwest: Why Did SCOTUS Bother to Issue an Opinion?

Amy_Coney_BarrettBack in January, I provided a preview of Glacier Northwest v. International Brotherhood of Teamsters.  The Court granted cert in order to address whether the National Labor Relations Act (NLRA) preempts a state tort claim against a union for failing to take reasonable precautions to prevent the destruction of an employer’s property in the course of a labor dispute?  In an 8-1 opinion authored by Justice Barrett (right), the Court decided . . . . well, not very much actually.

The applicable standard is that, in order to avail itself of what is called "Garmon preemption," the union must undertake reasonable precautions to protect the employer's property from foreseeable harm.  If Garmon preemption applies, the state proceedings are stayed pending a determination by the National Labor Relations Board (NLRB) of whether the union activity is permissible under the National Labor Relations Act (NLRA). 

The company alleged that the workers had gone on strike without notice, leaving cement in trucks.  Although the company could not claim that any trucks were  damaged, it did allege that at least some of the cement dried and became unusable.  Accepting the facts as alleged in the employer's complaintthe majority found that the workers had not taken the necessary reasonable precautions, and thus the company's state tort claim was not subject to Garmon preemption.

Big whoop.  Why decide this case?  When the case goes back down, the facts as alleged in the complaint may not be provable.  And then what do we have?  We have a spot of mischief: a SCOTUS opinion that offers employers the possibility of holding unions responsible for economic harms attendant to a strike, based on mere allegations.  Justice Barrett's majority opinion adopts the complaint's tone of moral outrage before the veracity of any of the facts of the complaint have been established.  So the entire case is a hypo.  Sounds a lot like an advisory opinion.

Justice Barrett has advice for the unions about how to take reasonable precautions:

It could have initiated the strike before Glacier’s trucks were full of wet concrete—say, by instructing drivers to refuse to load their trucks in the first place.  Once the strike was underway, nine of the Union’s drivers abandoned their fully loaded trucks without telling anyone—which left the trucks on a path to destruction unless Glacier saw them in time to unload the concrete. Yet the Union did not take the simple step of alerting Glacier that these trucks had been returned. Nor, after the trucks were in the yard, did the Union direct its drivers to follow Glacier’s instructions to facilitate a safe transfer of equipment. 

In short, the union, which had no legal obligation to provide notice to the company of its strike, is here expected not to take "reasonable precautions" but to take every precaution, including instructing striking workers to follow the employer's instructions.  It's almost as if none of the Justices who joined in the judgment have ever been in a union.

Justice Kagan, who joined the majority for reasons about which I speculate below, was persuasive on this issue during oral argument.

. . . [W]orkers unions do things all the time intentionally to maximize economic harm. You know that if there is a seasonal component of a business, workers will try to time their strike in order to maximize the economic harm because, you know, more of the business is conducted in the summer than in the winter and things like that, that there are all kinds of things which are perfectly intentional to maximize economic harm. . . . 

Strict ScrutinyThe point of a strike is to bring economic pressure to bear on the company so as to induce a settlement.  Allowing tort cases against unions seeking to recover the economic costs of the strike shifts the balance of power in the bargaining relationship.   As Jenny Hunter explained on this week's Strict Scrutiny podcast, the Court's approach is not even-handed.  Labor law permits employers to lock out workers.  The issue was not raised in this case but it is hard to imagine the Court imposing a reciprocal duty on employers to take "reasonable precautions" to insure that the timing of a lockout does not have foreseeable negative economic consequences for the workers and their families.  

The majority opinion does significantly less harm than it might have done.  It is incredibly narrow and fact-specific.  It expressly does not hold that workers can be liable whenever the strike will foreseeably cause harm to perishable goods.  It acknowledges that workers are not legally obligated to provide notice of a strike.  It acknowledges that workers may sometimes elect to strike during the workday.  Most importantly, the majority dodges the administrative law question raised by the case.  Because the Court found that the conduct alleged was not subject to Garmon preemption, it did not address whether the National Labor Relations Board or the state courts should decide the tort issue in the first instance.

Justice Thomas, joined by Justice Gorsuch, concurred to signal their hostility to the scope of Garmon preemption, which pauses state tort claims whenever union activities are arguably protected under the NLRA.  That, the concurring Justices signal, is too much preemption.  Justice Alito, joined by Justices Thomas and Gorsuch concurred to emphasize that the conduct alleged clearly was not protected under Garmon.  I thought that's what the Justice Barrett's opinion said, but whatever.

KBJacksonFrankly, the whole case should have been dismissed because the petition was improvidently granted.  The Court likely took cert. because there were at least four Justices who do not like Garmon and wanted to make it easier for state courts to rule on tort claims in connection with union activities rather than allowing a federal agency, with relevant expertise, to address such claims.  But the posture is inopportune.  All we have are allegations, and it makes no sense for SCOTUS to rule on this case before the facts are fully developed.  That is especially so in this case because, as Justice Jacksons dissent rightly emphasizes, the NLRB's general counsel filed a complaint alleging that the NLRA does indeed protect that union activities at issue here.   Justice Alito's concurring opinion includes a footnote in which he states that if the Washington state courts were to adopt Justice Jackson's view of Garmon on remand, he would vote to hear the case again, presumably so that he and his like-minded colleagues could summarily reverse.

Justice Jackson (right) also points out that what the other opinions all cass "Garmon preemption" is really just a hiatus.  State tort claims are suspended until the NLRB makes a determination on the facts.  If the NLRB determines Garmon is not implicated, the case proceeds.  In this case, Justice Jackson seems confident that if one looks beyond the facts as alleged in the company's complaint, the allegedly tortious union activities were likely protected strike activities.

In this context, I think it makes sense that Justices Kagan and Sotomayor joined Justice Barrett's very narrow opinion rather than writing with Justice Jackson.  Justice Jackson's dissent makes clear that Garmon was implicated in this case, because the NLRB action against Glacier means that the union's challenged activities clearly met the standard of being "arguably protected."  If Justice Kagan and Sotomayor had joined Justice Jackson, the conservative Justices might have felt compelled to address Garmon, and I'm pretty sure they would have killed it in favor of letting state courts rule on tort issues in the first instance.  Justices Kagan and Sotomayor may have elected to join Justice Barrett's opinion because that opinion allowed Garmon to live to fight another day.  

June 9, 2023 in Labor Contracts, Recent Cases | Permalink | Comments (0)

Thursday, June 1, 2023

AI Assists in Union Busting

As we noted last August, 2022 saw a dramatic uptick in unionization in the United States.  Not surprisingly, for every action, there is a dastardly corporate reaction.  But this is pretty extraordinary.  

NEDAAccording to , writing in The Business Insider, the National Eating Disorder Association (NEDA) is shutting down its human-run helpline and replacing it with an artificial intelligence program called Tessa.  Staff members who worked on the hotline were recognized as part of a labor union on March 17th.  Two weeks later, NEDA announced that it was firing its employees and replacing them with a chatbot, effective June 1st.  The human hotline was staffed by six paid workers and 200 volunteers.  If you call it now, you receive an automated message that advises people in need of human contact to use the Crisis Text Line

Kate Wells of National Public Radio reported that nearly 70,000 people called the Helpline in 2022, double the number who called before the COVID pandemic.  NEDA notes that the Helpline is overburdened, and people often have to wait before they can talk to someone.  A NEDA spokesperson noted that the Helpline was staffed with volunteers who were not trained to deal with crisis situations. 

Guess what the unionizing workers wanted.  More money?  No.  More training and more staff!  

The creator of Tessa, Ellen Fitzsimmons-Craft, speaking to NPR, acknowledged that the program is not capable of the kind of empathy that comes from an actual human being, but it beats just being put on a waitlist.  Okay.  That sounds like there could be a role for Tessa.  Still, Tessa is no panacea.  According to Dr. Fitzsimmons-Craft, Tessa is "really a tool in its current form that's going to help you learn and use some strategies to address your disordered eating and your body image."  But she does not represent Tessa as a substitute for the helpline.  "It's not an open-ended tool for you to talk to and feel like you're just going to have access to kind of a listening ear, maybe like the helpline was."

But I'm no expert on the AI potential for helping people with eating disorders, so I asked my good friend ChatGPT whether is it a good idea to replace an eating disorder helpline with AI.

Here is ChatGPT's response

HAL_9000Replacing an eating disorder helpline with AI alone may not be a comprehensive or effective solution. While AI can provide certain benefits in the field of mental health, it is important to consider the limitations and potential risks involved.

Here are a few points to consider:

  1. Emotional support: Eating disorders are complex mental health issues that often require empathy, understanding, and emotional support. Human helpline operators, who are trained professionals, can provide a compassionate and empathetic response, which is crucial for individuals struggling with eating disorders. AI, on the other hand, may lack the emotional intelligence and sensitivity needed to address the nuanced needs of those seeking help.

  2. Personalization: Each individual's experience with an eating disorder is unique. Human helpline operators can tailor their responses to the specific needs of the caller, providing personalized advice and guidance. AI, while capable of processing large amounts of data, may struggle to offer the same level of personalization and individualized care.

  3. Ethical considerations: Privacy and confidentiality are of utmost importance when dealing with mental health issues. AI systems need to ensure the protection of personal information and adhere to ethical guidelines. However, concerns about data security and privacy breaches remain, potentially leading to trust issues and reluctance among individuals to seek help.

  4. Diagnostic accuracy: Eating disorders require careful assessment and diagnosis. Qualified professionals are trained to recognize the signs and symptoms, conduct assessments, and make appropriate referrals. While AI can assist in providing information and resources, it may not possess the same level of accuracy and clinical judgment as human experts.

However, it's worth noting that incorporating AI into existing helpline services can be beneficial. AI can augment human operators by providing additional resources, information, and tools that can enhance the quality and efficiency of the service. For example, AI can help automate administrative tasks, offer educational materials, or provide self-help resources.

In conclusion, while AI can play a supportive role in eating disorder helplines, completely replacing human operators with AI may not be ideal. A combination of human expertise and AI technology can provide a more comprehensive and effective solution, ensuring that individuals receive the necessary emotional support and personalized care.

June 1, 2023 in Current Affairs, In the News, Labor Contracts, Web/Tech | Permalink | Comments (0)

Wednesday, April 12, 2023

LPE Project on Religious Accommodations for Postal Workers

We have been posting occasionally on the intersection of contracts rights and the First Amendment, with special focus on SCOTUS cases on that subject.  Links to various posts are provided in this post on Orin Kerr's work on contracts and the Fourth Amendment.  

But , & have done us one better posting How the Court is Pitting Workers Against Each Other on the Law & Political Economy Projects Blog.  The post anticipates what might lie ahead in the aftermath of a case, Groff v. Dejoy, that SCOTUS is due to hear next week.  The case addresses the rights of postal workers to accommodations for their religious beliefs.

LpePlaintiff Groff was a mail carrier working for the U.S. Postal Service (USPS).  USPS entered into an agreement with Amazon to provide delivery services, including on Sundays.  As an evangelical Christian, Mr. Groff requested an accommodation, but USPS could not always find other postal carriers to take his shift, and on more than twenty Sundays, he was expected to work.  He refused to do so and eventually quit in order to avoid being fired.  He claims that USPS violated his right to a reasonable accommodation under Title VII of the Civil Rights Act.

While Groff seems to offer the possibility of interest conversion between people seeking religious accommodations and workers' rights, the blog post points out that the cost of the reasonable accommodation of Mr. Groff's religious interest will fall on other workers, who will have to give up their Sundays to cover Mr. Groff's shifts.  As the LPE authors put it:

Interpreting Title VII to require employers to impose hardships on other workers to accommodate religion would threaten the preconditions for viable collective action. Workplaces and unions rely on a sense of reciprocity, mutual support, or solidarity. And labor agreements reflect that spirit of shared interest and mutual compromise among workers. But a religious accommodation doctrine that lets some employees foist the cost of their religious exercise onto others threatens to tip these delicate balances, cutting against worker interests rather than in their favor.

And once the door is open to requiring businesses to accommodate religious employees even if that accommodation comes at the expense of other employees, the authors predict that more cases will follow that will erode protections for vulnerable minorities both as customers and as employees.  Their focus is more on the broader societal impact of religious accommodations than on the intersection between employment law and First Amendment rights.

The post notes that the old standard under Trans World Airlines, Inc. v. Hardison called for accommodation of religious observance only if the accommodation does not impose an undue hardship on the employer.  An undue hardship could be anything more than a de minimis cost imposed on an employer or a union.  The post concedes that the Hardison standard does not provide adequate protections for employees seeking accommodations.  It provides no clear guidance as to how to accommodate religious observance without eroding workplace solidarity.

I wonder if there is not a way to preserve the part of Hardison that calls for imposing no more than a de minimis cost on other workers or on unions.  The employer itself could reasonably be expected to bear a cost that is greater than de minimis.  In this case, for example, USPS might hire additional workers for Sunday shifts so as to accommodate Mr. Groff's religious beliefs while not eroding worker solidarity.  In the alternative, the employer could be required to pay additional compensation (or grant extended vacation time) to workers willing to work Sundays up to the point where all the shifts are taken, so long as doing so does not eliminate the advantages of the contract with Amazon.

April 12, 2023 in Commentary, Current Affairs, Labor Contracts, Recent Cases, Weblogs | Permalink | Comments (0)

Tuesday, February 28, 2023

Jonathan Harris on How to Get out of TRAPs with Consumer Law as Work Law

HarrisWe've talked about Training Repayment Agreement Provisions or (TRAPs) recently here.  Over on the Law and Political Economy Project Blog, Jonathan Harris has a new post on the subject.  He tells the story of Breanne Scally and her class-action lawsuit against PetSmart, who worked briefly as a pet groomer and then was charged $5500 under a TRAP when she quit before the TRAP's two year term had expired.

Jonathan also has a forthcoming article, Consumer Law as Work Law (forthcoming Calif. L. Rev. 2024), about how consumer law encompasses protecting employees from TRAPs and other unfair and deceptive acts and practices.

February 28, 2023 in Contract Profs, Current Affairs, Labor Contracts, Recent Cases, Recent Scholarship | Permalink | Comments (0)

Wednesday, February 15, 2023

From the Frying Pan of Non-Competes into the Fire of TRAs/TRAPs

We wrote about non-competes as recently as Monday.  Previously, we featured a guest post by Jonathan Harris (left) Harrisabout news ways employers are finding to bind workers to their positions without non-competes.*   Now, of The Washington Post has also got wind of Jonathan's work, and she's written about it here (if you don't subscribe, you can do the next best thing and follow her Twitter feed here).

The story focuses on a dog-trainer.  She learns how to train work detection dogs that can sniff out drugs, bombs, or bedbugs.  Bedbugs?!?  In order to get what seemed like a fun job, the trainer had to sign on for three years.  If she quits before her three-year term is up, she has to pay the company $35,000 to reimburse it for the training she has received.  The is a Training Repayment Agreement (TRA), also known as a Training Repayment Agreement Provision (TRAP).  The "training" consists of her employers treating her shabbily and yelling at her for every mistake.  She is miserable and wants to leave but cannot afford to do so.  According to Jonathan Harris, TRAPs are on the rise in many categories of high-turnover, low-pay jobs, including transportation, health-care, retail, construction, and service industries.

Screenshot 2023-02-10 at 8.04.25 AMThe article also quotes from Rachel Dempsey (right), an attorney with Towards Justice, which together with the Student Borrower Protection Center, is representing workers subject to TRAPs.  The employers who are the targets of these lawsuits are charging workers for training that the companies themselves provide.  It is not as if the workers are getting degrees or certificates that would be valuable to them in seeking future employment.  The dollar value of on-the-job training is likely minimal and certainly well shy of the $5000-$35,000 that employers seek to claw back from departing employees. 

Moreover, the commitment is one-sided.  Employees have to pay if they leave -- and in some cases, even if they are fired -- but employers are under no obligation to retain employees until the end of their term of indentured servitude.  Unconscionability perhaps?  The circumstances under which employees agree to TRAPs have some indicia of procedural unconscionability.   The one-sidedness of the provisions suggests substantive unconscionability.  Rachel Dempsey points out that TRAPs may also violate state or federal statutes.

California and Connecticut already impose limits on the enforceability of TRAPs.  The new FTC rules on non-competes might also cover schemes like TRAPs that have the same effect, and the CFPB is also considering regulation in this area.  

* Via SSRN, I just learned of this nifty short piece that Jonathan published in the Northwestern University Law Review's blog, Of Note.

February 15, 2023 in Contract Profs, Current Affairs, In the News, Labor Contracts | Permalink | Comments (0)