Larkin Hoffman Daly & Lindgren Ltd.

The United States Supreme Court issued its final decision of the 2007 term in June 2008. The Court decided several employment-related cases this term, most resulting in employee-favorable decisions. In a future Alert, we will provide a look ahead to the Court’s 2008 Term, which begins in October. 

In the first four cases discussed below, the Court interpreted various provisions of the Age Discrimination in Employment Act (“ADEA”), which prohibits discrimination against employees over the age of 40. In another case, the Court clarified when a plan administrator of an employer’s disability plan has a “conflict of interest” for determining whether the administrator properly denied an employee disability benefits. The Court also analyzed Section 1981 of the Civil Rights Act, which grants all citizens the right to enter into and enforce contracts. Finally, the Court issued two significant rulings on the Federal Arbitration Act ("FAA").

In an employee’s individual ADEA case, the Supreme Court considered the admissibility of evidence-testimony by former employees of discrimination by supervisors who had no role in the employment decision in controversy. The Supreme Court held that whether to admit such testimony by non-parties is to be decided on a case-by-case basis by the trial court. Although this decision gives employees an evidentiary benefit that they previously did not have in employment discrimination cases, an employee still bears the burden of showing that this type of evidence is relevant.

The Supreme Court found that an employer who takes an employment action that has a disparate negative impact on workers over the age of 40 must show that the action was undertaken based on a “reasonable factor other than age” and that the factor is in fact “reasonable” in cases brought under the ADEA. The case arose from layoffs Knolls conducted in connection with a reduction in force. Based on selection criteria Knolls used in determining which employees to layoff, thirty-one employees were laid-off, thirty of whom were over the age of 40. A majority of the laid-off employees filed suit claiming Knolls’ selection criteria had a disparate impact on older workers in violation of the ADEA. Prior to this case, employers only had to produce a reason other than age for the action and the burden of persuading the court remained with the employee. In short, this ruling increases the burden on employers. For a more thorough analysis of this case and its potential impact on employers, click here.

The ADEA requires a plaintiff to file a "charge" with the Equal Employment Opportunity Commission (“EEOC”) 60 days prior to filing suit. The EEOC has an intake form and a "charge" form. The plaintiff, a FedEx employee, completed an intake questionnaire and an affidavit detailing her allegations, but she did not complete a formal charge form. Although the EEOC argued that the intake form did not qualify as a “charge” under the ADEA, the Supreme Court concluded that an employee’s intake form can qualify as a “charge” to effectively exhaust the mandatory requirement of filing a charge under the ADEA. An intake form will constitute a "charge" when, in addition to the requirements expressly delineated in the ADEA, it can be reasonably viewed as a request for the agency to take remedial action to protect the employee's rights or otherwise settle a dispute between the employer and the employee.  

In this case, the Supreme Court rejected the EEOC’s argument that the ADEA prohibits providing more benefits to employees who become disabled before reaching a retirement plan’s normal retirement age than those with the same years of service who become disabled after normal retirement age. The Court held that where an employer adopts a pension plan that includes age as a factor, and that employer then treats employees differently based on pension status, to state a claim under the ADEA, a plaintiff must provide sufficient evidence to show that the differential status was “actually motivated” by age. The Court determined that the employee failed to meet that burden.

Metropolitan Life Insurance was an administrator and insurer of the employer’s long term disability insurance plan. Met Life both determined an employee’s eligibility for benefits and paid the benefits out of its own pocket. Met Life ultimately determined that the employee in the case, who had a heart disorder, could work and denied her extended plan benefits. The Supreme Court held that the Court of Appeals properly concluded that Met Life’s dual role of both evaluating and paying benefits is a conflict of interest. The Supreme Court determined that the Court of Appeals properly considered the conflict of interest as “a factor” in determining whether the plan administrator properly denied benefits.

The Supreme Court found that Section 1981 of the Civil Rights Act, which grants all citizens the right to enter into and enforce contracts, encompasses employment-related retaliation claims for complaints made by employees about race discrimination. As a result, employees now have another type of claim to consider when filing suit, and employers have another possible claim to defend. Most notably, plaintiffs may choose to bring a retaliation claim under Section 1981, rather than under Title VII, since Section 1981 has a longer statute of limitations and there is no cap on damages.

The Supreme Court was presented with the question of whether a federal court can enforce an arbitration agreement that allows for more expansive judicial review of an arbitration award than the narrow standard of review provided for in the FAA. The Court held that when parties employ the FAA’s procedures for judicial review of arbitration awards, the limited bases for modifying, vacating, or correcting such awards provided for in the FAA are exclusive. This decision only applies to arbitration awards reviewed under the FAA; alternate bases for vacating or modifying arbitration awards may be available if parties seek to confirm such awards under state or common law rather than through the FAA. 

In this case, the Supreme Court was presented with the question of whether the California Talent Agencies Act (“the Act”) was preempted by the FAA because the Act gave the state’s labor commission primary jurisdiction to hear disputes between entertainers and their agents. Emphasizing the national policy favoring arbitration, the Supreme Court held that when parties agree to arbitrate all questions arising under a contract, the FAA overrides state laws that lodge primary jurisdiction in another forum, regardless of whether that forum is judicial or administrative. 

* Ashlee M. Bekish is a law clerk at Larkin Hoffman.