In a landmark decision, the Second Circuit (which covers New York, Connecticut, and Vermont), ruled that discrimination based on an employees’ sexual orientation is actionable under Title VII.  The Second Circuit in Zarda v. Altitude Express, Inc. is only the second appellate court in the United States to expressly find that employers who discriminate on the basis of an employees’ sexual orientation violate federal law.  The Second Circuit joins the Seventh Circuit, who reached a similar decision in Hively v. Ivy Tech Cmty. Coll. of Indiana.  The decision in Zarda intensifies an existing circuit split bolstering the argument that the United States Supreme Court should rule on the issue.

On its face, Title VII prohibits discrimination “because of such individual’s race, color, religion, sex, or national origin.”  Notably missing from the text of Title VII is discrimination based upon “sexual orientation.” The absence of sexual orientation within the text has resulted in extensive disputes on the issue, with the vast majority of courts determining that discrimination on this basis is not prohibited.  The Second Circuit’s ruling, however, highlights a growing trend that sexual orientation is a subset of “sex” and should be a protected characteristic under federal law.

In Zarda, the plaintiff, an openly gay skydiving instructor, brought suit against his employer alleging he was terminated on the basis of his sexual orientation.  In short, the plaintiff asserts that he was terminated after his employer discovered his sexual orientation and believed that such termination was based on his failure to adhere to the traditional “straight male macho stereotype.”   The claim was originally dismissed under the guise that Title VII does not protect against discrimination based upon sexual orientation.

Relying heavily on the Seventh Circuit decision in Hively, which found that Indiana educator Kimberly Hively stated a claim for sexual orientation discrimination under Title VII, the Second Circuit in Zarda ruled that “[i]n the context of Title VII, the statutory prohibition extends to all discrimination ‘because of…sex’ and sexual orientation discrimination is an actionable subset of sex discrimination.”  In coming to this conclusion, the Court noted that “[a]lthough sexual orientation is assuredly not the principal evil that Congress was concerned with when it enacted Title VII, statutory prohibitions often go beyond the principal evil to cover reasonable comparable evils.”  Sexual orientation is one “comparable evil.”

To bolster its decision, the Zarda Court relied on three separate and distinct reasons for finding sexual orientation was protected, each of which the Court stated was enough on its own to bar this type of discrimination.  First, the Court found that sexual orientation is an inherent function of sex.  Put simply, the Court reasoned that “[b]ecause one cannot fully define a person’s sexual orientation without identifying his or her sex, sexual orientation is a function of sex….Logically, because sexual orientation is a function of sex and sex is a protected characteristic under Title VII, it follows that sexual orientation is also protected.”  Therefore, the Court concluded sexual orientation is a subset of sex, making discrimination on this basis impermissible.

Next, the Court determined that discriminating on the basis of sexual orientation is a form of gender stereotyping, which is further prohibited under Title VII.  In this regard, the Court explained that discrimination based on sexual orientation is “rooted” in gender stereotyping because it is based upon the idea that an individual is not conforming to the traditional forms of gender- i.e., men should be attracted to women, and women should be attracted to men.  By discriminating for failing to conform to these stereotypes, the Second Circuit reasoned that the employer was engaging in a form of sex discrimination.

Finally, the Court strengthened its holding by finding that sexual orientation discrimination is also “associational discrimination.” Relying on the Supreme Court decision in Loving v. Virginia, which found a law prohibiting interracial marriage to be unconstitutional, the Second Circuit explained that an employee should be able to have romantic associations without fear of reprisal.  By permitting an employer to discriminate on this basis, the Court reasoned that it was allowing decisions to be made solely on who the employee associated with.  Such a determination would permit employers to impermissibly force the employee to conform to what the employer deemed appropriate within the employee’s personal life.

While it is too early to know whether the Supreme Court will take up the issue raised in Zarda and other cases, it is clear that the Zarda decision bolsters an employee’s argument that Title VII protects against sexual orientation discrimination. The Second Circuit’s well-structured three-reasoned approach attacked each argument raised by the employer, setting the framework for employees who wish to bring such claims going forward.

Employers with questions about the impact of the Second Circuit’s ruling should consult with counsel to ensure compliance with Title VII.

Since the Americans with Disabilities Act–often referred to as the ADA—was passed by Congress in 1990, lawsuits under the Act have been quite common.  These lawsuits, until recently, have focused on physical or architectural barriers to places of public accommodation such as restaurants, retail stores and strip malls.  The emphasis has been on items such as handicapped parking spaces, entrance ramps into buildings, public restrooms and doors with the allegation being that such items have not been accessible to persons with defined physical disabilities.

A whole new trend, however, is taking shape with respect to lawsuits under the ADA.   Courts throughout the country are seeing more and more ADA cases where the claim is that the owner or operator of a website has not taken appropriate measures or steps to make that website accessible to the legally blind or visually impaired.   These are routinely referred to as website accessibility cases, and we are seeing what is, perhaps, a disproportionate number of these being filed in federal district courts in Florida.

One of the biggest issues with website accessibility cases is that websites did not exist when the ADA was enacted nearly 30 years ago.  Certainly, the Congress could not have envisioned website accessibility lawsuits back then.  There are no regulations and no mandates on website accessibility.   All that exists, at this point, are the Web Content Accessibility Guidelines or WCAG.  These are simply guidelines developed by a number of private organizations whose desire is to make websites accessible to or for all people.

While the number of website accessibility cases is growing, to date, there appears to have been only one such case that has actually gone to a trial on the merits.  The case, Gil v. Winn-Dixie Stores, Inc., was filed in the United States District Court for the Southern District of Florida.  The court there found against Winn-Dixie and concluded that its website violated the visually-impaired plaintiff’s rights under the ADA.  Apparently, the vast majority of the search tabs, as well as the search box, on Winn-Dixie’s website did not function with screen reader software designed for those with visual impairments.

A proposed amendment to the ADA, the ADA Education and Reform Act, has passed the House of Representatives and is pending before the Senate.  This amendment requires notice of ADA violations to a defendant, prior to the filing of a lawsuit, and the opportunity to cure.   If passed, it remains to be seen how this amendment will impact website accessibility lawsuits.

As the winter months bear down on us, many of us find our thoughts wistfully drifting to sun, sand, and all things summer.  Summer months, however, also bring (for most employers) summer interns and one of the more befuddling employment issues: do I have to pay my summer intern?  Stated another way: is my intern, in actuality, an “employee” under the Fair Labor Standards Act (“FLSA”) and therefore entitled to wages?

This confusion concerning the scope of the FLSA with respect to interns has been driven by the lack of any uniform standard for assessing whether an intern is an “employee.”  Although comprehensive, the FLSA does not define “employee” in any meaningful fashion.  To the contrary, an “employee” is defined in a circular, broad fashion as “any individual employed by an employer.”  29 U.S.C. § 203(e)(1).  To cope, both the courts and the United States Department of Labor (“DOL”) have relied upon a variety of competing analytical frameworks to analyze whether an individual falls within the foregoing definition.  By way of example, the DOL previously relied upon a “rigid” six-factor all-or-nothing test while the Second, Ninth, and Eleventh Circuit Courts (to name a few) have relied upon a more flexible balancing of seven factors, an analysis, referred to as the “primary beneficiary test,” to determine employee status.

Earlier this month, however, some much-needed clarity and uniformity on the issue arrived.  As of January 5, 2018, the DOL abandoned its previous approach to the issue and accepted the “primary beneficiary test” as the standard for determining whether an individual is an employee under the FLSA.  See Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act.  Reminiscent of the colloquial “if it looks like a duck, quacks like a duck, then it’s a duck” mentality, the primary beneficiary test focuses on seven factors aimed at ascertaining the true “reality” of a relationship between the employer and the intern/employee.  As set forth in the DOL’s January 2018 Fact Sheet, these factors include:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee, and vice versa;
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions;
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit;
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar;
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning;
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern; and
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

No single factor is dispositive; rather, the test is flexible and intended to accommodate the unique circumstances of each case.  The DOL’s acceptance of this test will likely usher in the beginning of more wide-spread acceptance, use, and perhaps uniformity with regard to the treatment of interns.

Although some have pontificated that this change in the DOL’s position may “revive” unpaid internships, the true effect of the shift in position remains to be seen.  While there is now greater uniformity in how the government and courts may view an “employee” under the FLSA, the matter is far from settled.  Indeed, courts have yet to determine a uniform approach to the issue and, as a result, the framework under which an internship program is assessed will still depend on the jurisdiction.  Employers utilizing unpaid internship programs should continue to familiarize themselves with the analysis utilized in their state as well as the primary beneficiary test.  Employers must also remember that each case is, of course, fact-specific and context-driven.

The new Tax Cuts and Jobs Act (the “Act”) makes many changes to federal tax law, but one provision of the Act should be of interest to employers and claimants settling claims of sexual harassment and abuse.

In the wake of the Harvey Weinstein scandal, some have argued that the use of nondisclosure agreements in harassment and abuse cases may lead to continued abuse by perpetrators.  In an effort to discourage the use of nondisclosure agreements, New Jersey Senator Robert Menendez introduced a provision that penalizes perpetrators by taking away the tax incentive for their businesses to pay their legal fees and settlements in such cases.

New section 162(q) in the Tax Code provides as follows:

(q) Payments Related to Sexual Harassment and Sexual Abuse—No deduction shall be allowed under this chapter for—

(1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or

(2) attorney’s fees related to such a settlement or payment.

(emphasis added).

This provision has been widely criticized as hastily enacted and, as a result, overbroad and even unclear.  Many have noted the provision’s unintended adverse effects.

First, often the business’ reputation and the victim’s privacy are deemed to be more valuable than the tax deduction, so the provision may not in fact deter companies and victims from entering into nondisclosure agreements.  Moreover, it should be noted that the provision does not apply to the government (e.g., members of Congress) and tax-exempt entities (e.g., Catholic Church), because they are not “taxpayers.”

Another important criticism is that the provision says “under this chapter,” which applies to all income tax, both business and personal.  As a result, the provision may hurt the victim as well, who will be unable to deduct legal fees from the settlement amount received.  Currently, the tax law provides an above-the-line (dollar-for-dollar) deduction for legal fees in employment cases, resulting in tax to the claimants on net recoveries, not the gross settlement amount.

In addition, the reference to claims “related to” sexual harassment makes it difficult to know how to treat a settlement payment, and related legal fees, where numerous claims are asserted, only some of which relate to sexual harassment.  This provision will encourage the claimant and the employer to agree on an express allocation of some portion of the settlement amount to sexual harassment claims.

Finally, Section 13307(b) of the Act states that the new provision applies “to amounts paid or incurred after the date of the enactment.”  This means that it applies to settlements entered into before the enactment date, if part of the settlement has not yet been paid.  Thus, it could potentially force victims to seek renegotiation and/or revocation of existing nondisclosure agreements.

Nondisclosure agreements are a mainstay of sexual harassment settlements and often the key provision for which employers are bargaining, even if they deny the allegations, as there is significant value in keeping their reputation and eliminating “me too” suits.  Accordingly, it is unlikely that the new tax law provision will deter employers from requiring nondisclosure agreements, although it may affect the amounts for which these cases settle in order to account for the extra cost to all parties.

The new tax provision eliminating the deduction for payments related to sexual harassment and abuse cases raises many issues, some of which are not easily resolvable.  In addressing such claims and negotiating settlements, employers and claimants are well-advised to consider the impact of this new law and its far reaching implications.

In a monumental decision last week, the National Labor Relations Board (“NLRB” or the “Board”) overruled 13 years of precedent and reframed the test for determining whether “facially neutral” employer handbooks, rules, and policies can be “reasonably construed” to violate the National Labor Relations Act (“NLRA”).  A link to the NLRB’s decision can be found by clicking here. Critically, the decision impacts all businesses because it is an unfair labor practice under the NLRA to set workplace rules or take an employment action that restrains or coerces an employee from exercising certain rights under the Act, regardless of whether the employer is a unionized or non-unionized workplace.

In the case of The Boeing Company and Society of Professional Engineering Employees in Aerospace, 365 NLRB No. 154 (2017)(the “Boeing Company”), the NLRB was confronted with the issue of whether the employer’s policy of restricting the use of camera-enabled devices on its property, which was facially neutral, was lawful under the precedent established in Martin Luther Memorial Home, Inc. d/b/a Lutheran Heritage Village-Livonia and Vivian A. Foreman, 343 N.L.R.B.  646 (2004) (hereinafter, “Lutheran Heritage”).  Under the prior test in Lutheran Heritage, if a rule or regulation didn’t explicitly restrict Section 7 activity under the NLRA (i.e. the right to engage in concerted activities for the purposes of collective bargaining or other mutual aid and protection), in order to determine whether the rule was unlawful, the NLRB had to examine whether: “(1) employees would reasonably construe the language to prohibit Section 7 activity; (2) the rule was promulgated in response to union activity; or (3) the rule has been applied to restrict the exercise of Section 7 rights.”

Under the new standard announced in the Boeing Company, when the NLRB is presented with a “facially neutral policy, rule or handbook provision” that could potentially interfere with the exercise of NLRA rights, the NLRB will evaluate two things: (i) the nature and extent of the potential impact on NLRA rights, and (ii) the legitimate justifications associated with the rule.  See the Boeing Company decision.  The NLRB anticipates having 3 categories of employer policies:

Category 1 will include rules that the Board designates as lawful to maintain, either because (i) the rule, when reasonably interpreted, does not prohibit or interfere with the exercise of NLRA rights; or (ii) the potential adverse impact on protected rights is outweighed by justifications associated with the rule….Examples of Category 1 rules are the no-camera requirement in this case….

Category 2 will include rules that warrant individualized scrutiny in each case as to whether the rule would prohibit or interfere with NLRA rights, and if so, whether any adverse impact on NLRA-protected conduct is outweighed by legitimate justifications.

Category 3 will include rules that the Board will designate as unlawful to maintain because they would prohibit or limit NLRA-protected conduct, and the adverse impact on NLRA rights is not outweighed by justifications associated with the rule.  An example of a Category 3 rule would be a rule that prohibits employees from discussing wages or benefits with one another.

See the Boeing Company decision (emphasis in original).  The NLRB made clear that the foregoing categories are not technically part of the new test; however, the Board will determine, in future cases, what types of employer rules fall into each category.

In advancing the new test, the NLRB noted inconsistencies in application of the Lutheran Heritage test, and that the prior test failed to take into account legitimate justifications by an employer that might be associated with a particular rule or policy.  The NLRB believes the test set forth in the Boeing Company addresses these concerns, and will lead to predictable and uniform decisions regarding employer policies.

Applying the new standard to the Boeing Company, the NLRB found that the no-camera rule could potentially affect the exercise of Section 7 rights, but the impact was minimal, and it was outweighed by the company’s justifications for the rule (falling into Category 1).  Thus, the NLRB determined that the company lawfully maintained a no-camera rule.

The decision in the Boeing Company case is being viewed by many as a rollback of the “employee-friendly” NLRB policies ushered in during the Obama Administration.  The decision in the case was made by a 3-2 majority of the Board, which fell along party lines despite the NLRB theoretically being a non-partisan body.  Notably, the decision in the Boeing Company case was made just days before the expiration of the term of the Chairman of the NLRB, Philip Miscimarra, who declined to serve a second term.  Mr. Miscimarra’s absence will leave the NLRB with a likely 2-2 deadlock on cases until a new member of the Board is nominated and confirmed.

At press time, no appeal of the decision in the Boeing Company case had yet been filed, and the full impact of the decision remains to be seen.  Employers are well-served to consult with counsel to determine whether any facially neutral policies previously considered to be unlawful under the Lutheran Heritage rule may now survive scrutiny under the new standard in the Boeing Company.