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Recently in Employment Law Category


Robert Panzenbeck
Legal Intern, Manhattan Institute Center for Legal Policy

Last week, the NLRB issued a ruling that could potentially transform the landscape of college sports. In a 24 page opinion, NLRB regional director Peter Orh recognized Northwestern football players as employees of the university with the right to form a union and collectively bargain. Ohr imposed a three-part test that considered the amount of time players spend on non-academic pursuits, the nature of control exerted by non-academic coaches over the players, and the non-academic nature of the scholarships themselves. If the decision is upheld by the NLRB in Washington, it would mean that players could choose a union to bargain with the university on their behalf. That union would likely be the College Athletes Players Association, a labor organization founded with a focus on allowing college athletes to bargain for basic scholarship and injury protections. Kain Colter, the former Northwestern quarterback who initiated the petition, is a founding member.

The media response has been mixed. During the hearings, Northwestern cited its rigorous focus on academics, and its 97 percent football player graduation rate as indicative of a commitment to student athlete education. Bloomberg economist Allison Schrager has defended the current model, noting in her recent piece "In Defense of the NCAA", that from an economic perspective, the current system is preferable to a minor league for most athletes, providing them with an education and the opportunity to earn a degree that is far more valuable than any compensation they would likely get participating in any minor league. NCAA President Mark Emmerich somewhat echoed this sentiment recently on CNBC, noting that while a change might benefit 3 or 4 percent of the players who make it to the NBA, the opportunity for an all-expenses paid degree provides a greater incentive than a paycheck to the vast majority of players.

Even those who criticize the NCAA model are quick to point out the shortcomings of this ruling. Writing at Bloomberg, Megan McArdle writes that "given the realities, it's hard not to cheer the NLRB, but it isn't clear how much allowing football players to unionize will accomplish, as long as the NCAA is still allowed to make rules against paying them. Point of Law contributor Richard Epstein, who has in the past argued that "the NCAA enforces a cartel that denies earned benefits to college athletes," criticized the decision, noting Ohr's failure to examine the absence of the application of the common law standard for "employees" in any other labor related context, and takes Ohr's opinion to task for its notable vagary on issues like who is covered, the extent of negotiations, the conflict between choosing individual schools as bargaining agents and the coherent obligations of a league, and the chaos that might ensue.

Over the last decade, the NCAA has grown s to become a multi-billion dollar cash cow, driven primarily by lucrative television contracts related to BCS Football and March Madness. As the pot has grown without accompanying reform in the realm of player compensation, many have taken notice, and suits have been filed calling into question amateurism policies. The Northwestern ruling is the first to suggest a sea change is afoot. In February, U.S. District Court Judge Claudia Wilken allowed allowed a case brought by former UCLA player Ed O'Bannon challenging the NCAA's ability to profit off the likeness of current and former players without just compensation to move forward. Last week, anti-trust attorney Jeffrey Kessler filed suit against the NCAA seeking an injunction against enforcement of limits on financial aid available to athletes, which if successful would allow players to be paid for their performances. Even if NLRB in Washington should reverse the ruling, as some have suggested is likely, one thing is clear: this is just the beginning.

So I tell ProPublica, though my empirically correct observation is somewhat buried amidst a number of Chicken Little quotes. Walter Olson goes into more detail.

Equal Pay Act redux
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Diana Furchtgott-Roth reminds us that the premise behind the Paycheck Fairness Act is absolutely bogus, and that its implementation would cost jobs. Related; earlier. (h/t T.T.)

Bowman v. Sunoco, a very interesting decision on tort liability waivers, was rendered by a divided Pennsylvania Supreme Court on April 25.

Here's the factual backdrop. P signs on as a security guard for Acme, a firm that sends guards to protect the operations of clients. P's contract with Acme specifies that P is an employee of Acme, not of the client firms where P may work on any individual day. In case of injury, P will be able to benefit from the Workers' Compensation policy paid for (pursuant to its legal obligation) by Acme.

Now, additional recovery by injured workers has been the bane of many a liability insurer. Perhaps 25% of all products liability suits are filed by workers injured on the job. The latter collect their workers' compensation benefits, cannot sue their employers (that is the statutory quid pro quo for workers' comp), but then turn around and sue the manufacturer of the tool that injured them, on the grounds that said tool was imperfect ("defective") in some way.

In the instant case, the additional suit would not be against a product manufacturer, but against the client, for some alleged negligence. Obviously clients might be disgruntled to be sued in such instances. So Acme added a clause to its employment contract, according to which P waived

"any and all rights I may have to:

-make a claim, or
-commence a lawsuit, or
-recover damages or losses

from or against any customer (and the employees of any customer) of [Acme] to which I may be assigned, arising from or related to injuries which are covered under the Workers' Compensation statutes."

P was injured while guarding a Sunoco refinery, and sued Sunoco for negligence after collecting his workers' compensation benefits from Acme. Sunoco invoked P's contract with Acme, and obtained summary judgment at trial and in the intermediate appellate court. P appealed, and challenged the waiver clause on several grounds, most importantly on the grounds that it was prohibited by Pennsylvania public policy. For § 204(a) of the Pennsylvania Workers' Compensation Act reads in pertinent part as follows:

(a) No agreement, composition, or release of damages made before the
date of any injury shall be valid or shall bar a claim for damages resulting
therefrom; and any such agreement is declared to be against the public
policy of this Commonwealth.

But a majority of the Pennsylvania Supreme Court disagreed with P's statement that the plain meaning of § 204(a) invalidated the waiver. The court pointed out that the article read in its entirety applied clearly only to waivers of the employer's liability, not to waivers of liability to third parties. The court added that waivers of liability for future negligence are in principle possible in Pennsylvania (unlike many other states). The court cited to friendly case-law in two other jurisdictions:

"As the Appeals Court of Massachusetts found in Horner v. Boston Edison Company, 695 N.E.2d 1093 (Mass. App. Ct. 1998), the disclaimer here "extinguishes only the employee's right to recover additional amounts as a result of a work-related injury for which the employee has already received workers' compensation benefits." Id., at 1095. Similarly, the Supreme Court of Arkansas found, with facts nearly identical to the present case, a similar disclaimer did not violate public policy because it did not indicate the employer was "attempting to escape liability entirely, but [was] instead, attempting to shield its clients from separate tort liability for those injuries that are covered by workers' compensation ...." Edgin v. Entergy Operations, Inc., 961 S.W.2d 724, 727 (Ark. 1998)."

The tantalizing question is whether a Pennsylvania employer could similarly contract with its employees to waive liability claims against too manufacturers for workplace injuries. It's hard to see why the same rationale would not obtain. Tool manufacturers would presumably give employers a better deal on tool sales in consideration for such a waiver, were it enforceable.....

So many recruits for this year's FDNY Academy class are unfit and flunking the physical fitness test that the department has had to dip to scores as low as 72 on the written test to keep the class full—normally, anyone below 97 doesn't get admitted. Why is the FDNY dropping its standards so? Because the Vulcan Society disparate impact litigation complained that minorities were underrepresented, so the FDNY only permitted applicants from a gerrymandered pool that had a higher minority percentage than the firehouses currently had. The New York post story focuses on the fatness of the class, but the unfit applicants will likely flunk out; the relaxation of intellectual acuity standards, however, has longer-term consequences and the Post gives short shrift to that aspect. [NY Post]

Note that this test was already watered down considerably because of the Vulcan Society litigation. The court found that the ratio of percentage of whites passing to percentage of minorities passing was too high, even though New York City had spent a small fortune on diversity consultants to make the test racially neutral. Solution? Make the test so easy that anybody can pass! And 97% now do, leading FDNY Deputy Chief Paul Mannix to say "I have no confidence in the test and the list that will come of it." [NY Daily News via Sailer] If you're interested in taking the old tests, you can see for yourself how "unfair" and "racially biased" the old tests were.

As Sailer notes, one cannot even blame the Obama administration for this travesty, as the Bush DOJ brought the original lawsuit.

I sincerely hope a qualified aspiring firefighter sues over his or her own exclusion on racial grounds, given that the subpar applicant pool was specifically selected on grounds of race. Meanwhile, New York City residents and firefighters will be less safe because of the dropped standards. But we'll have more diversity!

Related: Mac Donald; POL on Wax on disparate impact; POL Ricci coverage; Olson @ Forbes; Overlawyered.

Charles Hugh-Smith and Jim Geraghty note that if an employee cannot generate revenue to cover his or her wages plus overhead costs, he or she won't be hired. This is absolutely true, but both understate the problem, and the degree to which the Obama administration has made it worse, and is planning on exacerbating it.

One of the biggest overhead expenses is the expected litigation expense of an employee. Employees have a wide variety of rights under federal and state law to sue their employer—not just for the hiring and firing decision, but for promotions or work conditions. A dishonest employee can impose a great deal of cost on an employer by bringing a meritless suit; whether the employer takes a hard line or pays the Danegeld, these are very real expenses. (For example, defending against the notorious meritless Jamie Leigh Jones suit cost KBR $2 million.) It's little surprise that California, where employees can sue for a variety of technicalities in a lawyer-friendly litigation environment, has a much higher unemployment rate than the rest of the nation, despite a dynamic technology industry and being so attractive to millionaires that the state thinks it can raise revenue rather than drive away taxpayers with a 13.3% tax rate.

That overhead cost isn't just awards to plaintiffs with meritorious, or even plaintiffs with unmeritorious, grievances. It's the lawyers, on both plaintiffs' and defense sides, who collectively receive more than employees take home from litigation victories and settlements. But it's also the (as-far-as-I-know yet-unmeasured) compliance costs: the vast human resources bureaucracy that keeps track of these laws and maintains the paperwork to protect the company in the event of future litigation. The compliance costs can have non-monetary effects as well. But take, for example, something as simple as employee appearance. Even something as simple as "It's not good for the corporate image to have someone with a Maori face tattoo interacting with customers" has an litigation minefield overlay, including EEOC litigation. That costs money, and that money comes at the expense of hiring.

So it's worth noting that these laws, on balance, hurt the average employee. Plaintiffs' attorneys' fees often outstrip the returns to the clients; add to that the defense attorneys' cost, and the cost of a human resources apparatus to ensure compliance, and the vast majority of the benefits of employment litigation is going to white-collar professionals, and most of that going to attorneys in the top decile, or even the top 1%. That overhead cost may add up to more than 10 percent of wages: a $30/hour employee is, instead of being paid $33/hour, getting a $3+/hour "benefits" package, most of which ends up in the pockets of people wealthier than him or her. Now, perhaps we as a society are willing to accept these costs to vindicate the relatively rare cases where a bigot or predator unfairly treats an employee and management acts against the company's interest in letting qualified employees be chased away. (One of the silliest things about the Wal-Mart employment litigation was the premise that the most aggressive cost-cutting company in the world would systematically choose to throw money out the window just to discriminate against qualified women in promotion decisions.) But these costs are rarely ever acknowledged in the policy debates in the first place.

And, even as structural unemployment rises to scary levels, this administration has sought to increase these overhead expenses to make hiring more expensive. The Lilly Ledbetter Fair Pay Act makes it easier to bring meritless suits by obliterating the statute of limitations. (Statutes of limitations are important for justice. Without a statute of limitations, someone can sue for very old alleged injuries, and a defendant would not have a fair chance to defend herself. (Ledbetter sued over her pay after she was retired!) Memories fade, evidentiary documents are discarded, people change employers. If an employee can wait until a middle manager of years ago died before accusing the company of discrimination, justice is impossible.) The EEOC has become increasingly intrusive. Though courts have largely rejected the move as arbitrary and capricious, Obama's NLRB appointments have sought to abolish arbitration agreements as an unfair labor practice. All in the supposed name of increasing workers' rights, but with the effect of exacerbating inequality and unemployment.

The State of the Union bodes more of the same. Not just the proposed minimum wage increase from $7.25 to $9, which will fall disproportionately upon unskilled workers who already have a double-digit unemployment rate. But the administration is reiterating its proposal for a "Paycheck Fairness Act that will surely increase unemployment as well. (More from Hans Bader.)

A Lilly Ledbetter reminder
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As we've repeatedly pointed out over the years, not only did Lilly Ledbetter deservedly lose her lawsuit, the bill passed in her name has cost jobs and done nothing to reduce the gender gap in wages, which, in the 21st century, is a result of phenomena other than discrimination. Heaven forfend all the fact-checkers incorrectly calling out the Romney campaign on welfare do their jobs in this particular instance.

It's not clear why BAE Systems Tactical Vehicle Systems fired 680-pound $21/hour forklift operator Ronald Kratz II; the EEOC alleges that he was told he was too obese to perform his job, and was thus fired because of a "disability." BAE denies this, saying that Kratz "was not able to perform the functions of his job without posing a direct threat to his own health and safety or the health and safety of others," and that no accommodation was asked for or even possible. But the stakes were too small to litigate; the $55,000 BAE paid in settlement was less than it would have cost them to win the case on summary judgment, so future employers will not have a clear statement of the law, and the EEOC can continue to engage in ADA-creep at taxpayer expense. And employers have to account for that litigation risk when they hire, which deters job creation. [Houston Chronicle via ABAJ]

The case is EEOC v. BAE Sys., Inc., No. 4:11-cv-03497 (S.D. Tex.).

I've repeatedly noted on this site the costs to employees of increasing litigation rights; any expected increase in the cost of defending against employee lawsuits is going to come at the expense of wages and perhaps jobs. E.g., Jan. 12; June 6.

The economics bloggers are currently discussing the same principle, and the empirical evidence for it: Tabarrok; Yglesias. This continues an earlier discussion where Cowen and Tabarrok (and Gordon via Cowen) had useful thoughts on "coercion" in the workplace.

The state Supreme Court has agreed to hear an appeal on whether a $187.6 million class action award against retail titan Wal-Mart over allegations that its Pennsylvania employees were not properly compensated for off-the-clock work and missed rest breaks violated Pennsylvania law.

The court granted allocatur on "whether, in a purported class action tried to verdict, it violates Pennsylvania law (including the Pennsylvania Rules of Civil Procedure) to subject Wal-Mart to a 'trial by formula' that relieves plaintiffs of their burden to produce classwide 'common' evidence on key elements of their claims."

Plaintiffs, however, dispute that there was a trial by formula in the first place. It's one or the other. Unfortunately, the Legal Intelligencer doesn't tell us which side is lying. One reading the Superior Court description of the evidence might come to the conclusion that it is the plaintiffs, but perhaps the quotation of witnesses using statistical evidence to calculate damages was one of the errors of the Superior Court opinion. The Pennsylvania Supreme Court punted on this question last year in Samuel-Bassett v. Kia Motors. Of course, extrapolating from data to decide individualized issues was criticized in the Dukes case last year, and creates due process concerns, so plaintiffs' attorneys' bluster that this will necessarily be decided on state-law grounds with no hope of appeal to the U.S. Supreme Court suggests whistling past the graveyard. But, again, the Legal Intelligencer doesn't call them on this.

Though Wal-Mart had a policy of disciplining managers who violated the company's internal rest-break rules, the jury was asked to find (and did find) that Wal-Mart's policy of seeking to reduce labor expenses—i.e., the same policy that every business has—acted to trump this and incentivized managers to shortchange employees. Thus, this rationalized a finding of "bad faith" that entitled the plaintiffs to $62 million in liquidated damages. It's hard to see how this does not transform the "good faith" defense into simple de facto strict liability, if such a flimsy theory can provide a bad-faith finding, but the Pennsylvania Supreme Court is not considering this issue.

Earlier on POL: March 2007; October 2007. More: Wajert. And as Kantke notes, the court upheld a finding that the Wal-Mart employee handbook created contractual obligations that led to liability, despite the handbook explicitly disclaiming that it was a contract.



The Excuse Factory: How Employment Law is Paralyzing the American Workplace


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