Employment Law Update
SCOTUS: Courts shall apply “shall,” so that “stay” means “stay”
By Ethan Foster
On May 16, 2024, the U.S. Supreme Court unanimously held in Smith v. Spizzirri that district courts must stay cases rather than dismiss them when a party invokes its right to compel mandatory arbitration under the Federal Arbitration Act (FAA). In Smith, delivery driver employees challenged their classifications under state and federal employment law in Arizona federal court. The employer-defendants moved to compel arbitration and dismiss the suit. The employee-plaintiffs agreed arbitration was mandatory but asked that the matter be stayed rather than dismissed. The district court dismissed the action. The Ninth Circuit affirmed on appeal, and the Supreme Court reversed.
By way of high-level background, the Supreme Court’s six-page decision relied on the straightforward text, structure and purpose of the FAA to resolve a deepening circuit split.
Section 3 of the FAA reads: “If any suit … be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court … shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement[.]” 9 U.S.C. § 3 (emphasis added).
Prior to Smith, district courts in the Ninth Circuit had discretion to dismiss a suit where the parties agreed that all claims were subject to arbitration. The Smith Court held, however, that “[w]hen a federal court finds that a dispute is subject to arbitration, and a party has requested a stay of the court proceeding pending arbitration, the court does not have discretion to dismiss the suit on the basis that all the claims are subject to arbitration.” (Emphasis added.) Of course, dismissal is sometimes still appropriate for other reasons—such as a lack of subject matter jurisdiction. But the Supreme Court explained that the use of “shall” left district courts no discretion to dismiss cases simply because they were subject to arbitration and “[j]ust as ‘shall’ means ‘shall,’ ‘stay’ means ‘stay.’”
The practical upshot of Smith is that mandatory arbitration clauses are sturdier than ever, but employers should be aware that when such clauses are included in employment agreements and subsequently invoked, a district court is statutorily required to stay the action and retain jurisdiction of the matter in the event the arbitration fails or in the event an order enforcing the arbitral award is sought, creating what the Supreme Court called a “return ticket.” What the district court cannot do is dismiss an action simply because a contractual clause compels arbitration. Smith simultaneously gives plaintiffs some strategic advantage in choosing which court will obtain jurisdiction of an arbitrable dispute, while making arbitration clauses more inviolable.
R-E-S-P-E-C-T, find out what it means to the NLRB: Respect policies in the workplace may violate workers’ Section 7 rights
By Sarah Ferguson
In Starbucks Corp. v. Workers United, (Case No. 07-CA-302784), an administrative law judge (ALJ) for the National Labor Relations Board (NLRB) in Michigan issued a decision applying the NLRB’s recent Stericycle decision to find an employer’s “civility” policy violative of Section 7 of the National Labor Relations Act (NLRA). This May 21, 2024, decision was substantially similar to another decision from an ALJ in Pennsylvania issued in August 2023 (Starbucks Corp. v. Workers United a/w Service Employees International Union, Case No. 04-CA-294636). Though the full Board has yet to rule on this specific issue, it seems likely the recent decisions will be upheld, requiring that employers exercise care in crafting workplace policies that involve employee communications, even those targeted at fostering “respectful” workplaces.
Central to the evaluation of such policies is the NLRB’s 2023 Stericycle decision, which adopted a new legal standard for evaluating employer work rules: if an employee can demonstrate a work rule has a “tendency to chill” employees from exercising their Section 7 rights, then the rule is presumptively unlawful. However, an employer may rebut the presumption if they can show the workplace rule advances a “legitimate and substantial” business interest and that the employer is “unable to advance that interest with a more narrowly tailored rule.” (As a refresher, and broadly speaking, Section 7 of the NLRA protects employees’ rights to organize, join a union, form collective bargaining units and communicate regarding wages and working conditions; and Section 8 of the NLRA prohibits employers from interfering with such rights).
At issue in the May 21 decision, were Starbucks’ “respect policies.” Specifically, its “how we communicate” rule, which provided that “Partners are expected to communicate with other partners and customers in a respectful manner at all times;” and its “commitment to a respectful workplace” rule, which stated that “[w]e treat each other with dignity and respect and connect with transparency.” The ALJ found the “rules requiring employees to limit themselves to ‘respectful’ communications with other partners, including supervisors and managers, would reasonably tend to chill employees’ exercise of their rights under the [NLRA] and, under Stericycle [] is presumptively unlawful.” According to the ALJ, the chilling effect was “heightened” by the use of the rules as a basis to discipline an employee for engaging in protected activity.
Critically, the ALJ found the chilling effect was not mitigated by the provision in the handbook that the policies therein “should not” be interpreted to interfere with employee communications regarding terms and conditions of employment (commonly called a “savings clause”). This was especially so, the ALJ ruled because the savings clause was not located close to the respect policies in the handbook itself. The ALJ additionally rejected the sufficiency of the savings clause as it “only acknowledges the employees’ rights to engage in communications regarding terms and conditions of employment, not the full panoply of rights under the [NLRA] and, in particular, does not mention unions or employees’ right to engage in union activity.” The ALJ was further troubled by the fact that on the same page as the savings clause, Starbucks reserved the right to change “anything in the guide at any time, with or without notice,” and could “separate a partner from employment at any time, with or without notice.” Given this context, the ALJ observed the savings clause would afford employees “cold comfort,” even assuming the employee had the savings clause in mind when they read the respect policies.
In light of the recent trend, it is important for employers to review their handbooks to ensure compliance under the Stericycle framework. Going forward, a generally applicable savings clause in the first section of a handbook is unlikely to survive a challenge. Likewise, broadly-worded savings clauses may be found unlawful if challenged. Absent further guidance from the NLRB, it is unclear what would constitute a lawful respect policy; however, in view of these decisions, it is advisable for every employer policy regarding employee communications to have individual, targeted disclaimers outlining in detail which employee rights are exempted from the policy. Other changes may become necessary and will be evaluated as the NLRB issues further guidance. In the meantime, employers are urged to consult counsel regarding their current employee policies and any possible changes to them.
DOL issues revised EAP rule
On April 23, 2024, the Department of Labor (DOL) announced a final overtime rule. The final rule revises the regulations issued under the Fair Labor Standards Act (FLSA) that implement the exemptions from minimum wage and overtime pay requirements for executive, administrative and professional (EAP) employees. The first phase of the rule becomes effective July 1, 2024, and the second phase becomes effective Jan. 1, 2025.
This new rule presents an opportune time to consult with counsel and review current employee classifications. Practically speaking, employers with exempt employees whose salaries fall below the new threshold will either have to raise those salaries or reclassify their employees as non-exempt and subject to FLSA’s overtime rules.
By way of background, according to the DOL, to fall within the EAP exemption for FLSA’s overtime rules, an employee generally must meet three tests: (1) be paid a salary, meaning that they are paid a predetermined and fixed amount that is not subject to reduction because of variations in the quality or quantity of work performed; (2) be paid at least a specified weekly salary level; and (3) primarily perform executive, administrative or professional duties as provided in the Department’s regulations. The Department’s regulations also provide an alternative test for certain highly compensated employees (HCE) who are paid a salary, earn above a higher total annual compensation level and satisfy a minimal duties test. Previously, the annual salary threshold for the EAP exemption was $35,568 and $107,432 for the HCE exemption.
The final rule updates the thresholds for EAPs as follows:
· Effective July 1, 2024, the threshold will increase to $844 per week, which is the equivalent of an annual salary of $43,888.
· Effective Jan. 1, 2025, the threshold will then increase to $1,128 per week, which is the equivalent of an annual salary of $58,656.
For HCEs, the final rule provides the following revised thresholds:
· Effective July 1, 2024, the total annual compensation requirement for highly compensated employees will be $132,964.
· Effective Jan. 1, 2025, the annual compensation requirement will increase to $151,164.
Finally, the final rule provides for automatic updates every three years to reflect current earnings data.
On May 22, 2024, a lawsuit was filed in the U.S. District Court for the Eastern District of Texas by various business groups seeking to enjoin and overturn enforcement of the rule (Plano Chamber of Commerce, et al., v. Su, et al., No. 4:24-cv-00468, E.D. Tex. May 22, 2024). Given the impending July 1 implementation date, it is expected a motion for preliminary injunction is imminent, though as of the date of this update has yet to be filed. Accordingly, employers should prepare for the rule to go into effect on July 1.
