The national election results of November 2008 suggest things will only get more contentious. New legislation will likely be pushed through by the Democratic-controlled Congress, and the new administration led by Barack Obama, will undoubtedly create more rights for employees, which could lead to more workplace disputes.
Current federal - and analogous state and local - laws place employers in the uncomfortable position of risking lawsuits or administrative proceedings that can cost hundreds of thousands of dollars in legal fees and millions in damages when their actions allegedly contravene the wide range of wage and hour, employment discrimination, or other workplace rules. And because of often conflicting requirements between federal, state and local laws, employers must be aware that their actions will be measured under the law most favourable to the employee.
Other major industrialised nations have stricter rules governing work hours, termination protections and severance rules (eg, France), employee involvement (eg, unions, works councils and co-determination in Germany); and labour tribunals (eg, the UK and China) that typically favour employees. In many respects, the US has more extensive but looser employment regulations. It also has large numbers of plaintiffs' lawyers available to represent aggrieved workers in costly jury trials that can lead to greater damages, including punitive damages. While employer-mandated arbitrations, as alternatives to court litigation, are typically less costly to defend, legal fees can run to six figures and result in awards of significant monetary damages. On top of all this, the primary driver of high-exposure employment claims is the class-action procedure, which allows the aggregation of thousands of small claims (which in and of themselves would not be feasible to pursue), into a single case allowing for well-financed plaintiffs' lawyers to collect fees in the millions of dollars. Thus, while the regulations and rules governing employment in other jurisdictions appear more restrictive, they may well impose less of a cost burden on employers in the long run, given the comparatively smaller number of adversarial proceedings, the unavailability of the class action mechanism, the lower cost of litigation and limited damages awards compared with the United States.
Moreover, as the US workplace undergoes substantial retrenchment because of the financial crisis, employers are subject to even more exposure as they reduce their workforces. This liability can arise from statutes like the Workers Adjustment and Retraining Notification Act (WARN), which requires advance notice of lay-off, discrimination claims arising from selections made in reductions in force, and increasing numbers of challenges to separation and release agreements.
New employment discrimination legislation promised by President-elect Obama will only increase the cost of doing business in a time when employers are struggling to stay afloat. Finally, as discussed more fully below, we expect substantial legislative changes in labour-management rights to organising and collective bargaining.
The major floodtide in recent years involves wage/hour class actions. Recent reported class settlements and verdicts exceed $1 billion per year. Employment discrimination class actions, as well as individual discrimination charges and lawsuits, are also on the rise. Age discrimination charges filed with the US Equal Employment Opportunity Commission (EEOC) have increased by 30 per cent in 2008.
The EEOC has largely been quiet, and passive, as a federal enforcement agency. It has focused primarily on individual charges and has approximately the same number of lawyers focused on federal employee claims as on employees in the private sector. That, too, will change in an Obama administration. Similarly, the Department of Labor, its Office of Federal Contract Compliance Programs, and related enforcement by the Solicitor of Labor, will see a mandate for more aggressive enforcement of non-discrimination and other workplace laws.
Following the passage of Title VII of the Civil Rights Act of 1964, which prohibits employment discrimination, most related litigation in the late 60s and 70s involved failure-to-hire class actions on race or gender grounds. The hiring wars are long since over. Most US employers have highly diverse workforces. Now, most EEO class actions involve claims by incumbent employees for failure to promote, compensation (equal pay) and, now, terminations.
Several other significant areas of employment protection and related litigation involve retaliation claims arising from whistle-blowing or the assertion of other protected rights, harassment, disability discrimination and trade secrets litigation. Although these areas - other than harassment - have not received as much attention as wage and hour or discrimination class actions, they continue to be areas of developing law requiring the careful attention and advice of management lawyers.
The Americans with Disabilities Act was recently amended to reverse prior Supreme Court rulings. The legislation substantially expands federal disability protection. As a result, management lawyers dealing with clients on disability advice and lawsuit prevention, would be well advised to treat employee disabilities expansively, assume a covered disability and proactively consider whether accommodation is reasonable and feasible.
In sum, we can expect plaintiffs' lawyers, along with the lead federal agencies, EEOC and the DoL/OFCCP, to increase their efforts and focus more on systemic practices affecting incumbent and terminated employees.
LABOUR-MANAGEMENT RELATIONS AND THE NLRB
Union membership over the past 40 years has declined dramatically in the United States, with a consequent loss of power for American trade unions and a loss of importance for the US government agency that administers the labour statutes, the National Labor Relations Board (NLRB). Currently, only 7.5 per cent of the private sector American workforce is represented by unions. However, if the Employee Free Choice Act (EFCA), discussed below, becomes law as expected, there will be a significant resurgence of union activity, union representation and union strength. Moreover, the NLRB will become increasingly important in enforcing the provisions of EFCA.
Owing to recent decisions by the US Supreme Court and several courts of appeals relating to the standard of review and the scope of admissible evidence, the benefits claim process and subsequent litigation are becoming more complex. Plaintiffs' lawyers are increasingly seeking to turn these claims into litigation involving extensive investigation and discovery, which makes the defence of such claims significantly more expensive.
Employers also face an explosion of class-action ERISA cases relating to drops in the price of the employer's stock and payment of excessive fees to ERISA plan service providers. The stock-drop cases typically concern pension plans in which a significant portion of the plan assets is the employer's stock or 401(k) plans, which offer employer stock as an investment option. If the employer's stock price drops, the plaintiffs typically allege that the employer breached its fiduciary duty to the plan participants by failing to disclose the risks, by failing to exercise prudent judgement in having a significant percentage of the plan assets be composed of employer stock, and other theories. In the excessive fees cases, the plaintiffs allege that the employer breached its fiduciary duty by paying excessively large fees to plan service providers (for example, investment advisers) and not taking adequate care with plan assets. All of these class action cases are very costly to defend, although fiduciary insurance policies may cover some of the expense.
A perfect storm
As a result of the US national election, in 2009 the Democratic majority in Congress and the new President promise to produce major changes to federal labour law and employment discrimination statutes. In the context of an economy in turmoil, government agencies, labour unions and employees, along with plaintiffs' lawyers, are looking to expand employee protections in conjunction with legislative expansion of employee rights, and aggressively pursue damage claims in courts and administrative agencies.
The most significant legislation on the horizon is the Employee Free Choice Act. This Act is likely to be approved by Congress and by then President Obama in 2009. A version of this law already operates in Canada. Passage of EFCA, in particular its card-check process, is expected to make organising of employees much easier and, in the coming years, is predicted to result in a doubling of the number of union members in the US, according to several labour union officials. Under the current law, for a union to be certified as the collective bargaining representative in an appropriate bargaining unit, it must win an election where a majority of employees voting in a secret ballot choose the union. Such elections occur after a lengthy campaign where the employer has an opportunity to explain to employees why a union might not be in their or the company's best interest. Under the card-check procedure, a union will be certified if a majority of employees simply signs a union authorisation card, before an employee has had an opportunity to hear the employer's view.
More significant, however, may be the provision in the EFCA for first-contract arbitration. This is the holy grail for labour unions. First-contract arbitration will enable labour unions to achieve a first contract even if they reach an impasse in negotiations, because an arbitrator will be brought in to consider the parties' views and to impose the terms of a first contract. Under current law, if the employer and the union are unable to reach an agreement after the union is certified and lengthy negotiations take place, the union's only weapon is to call for a strike, and eventually the employer can replace economic strikers. This process of fast negotiations, with binding arbitration if a contract is not agreed upon quickly, will likely increase wages significantly and the cost of doing business through the imposition of workplace rules for many affected employers.
Ledbetter Fair Pay Act
In 2007, the US Supreme Court handed employers a major victory in Ledbetter v Goodyear Tire & Rubber, which concluded that absent evidence of an intentional, systemic practice, the alleged pay discrimination (lower pay to the female plaintiff in each paycheck) constituted a discrete act, was not a continuing violation, and narrowly construed Title VII time limits for discrete pay discrimination claims. The proposed Lilly Ledbetter Fair Pay Act will reverse that decision and do more.
As noted above, other proposed legislation in the present Congress may be reintroduced early in the next Congress to expand employee rights to recover damages and require jury trials, instead of employee-adopted employment arbitrations that are now permissible under the Federal Arbitration Act.
For many US management labour and employment lawyers, their principal focus has been advising American clients on federal and state law. However, more and more US companies, including many small to mid-sized companies, have operations overseas. In a number of situations, US companies assign employees to work overseas. As a result, expertise on employment agreements, data privacy protections, employee rights and employer obligations; choice of law issues; and rights under local foreign laws, as well as the extraterritorial effect of US laws to citizens working overseas, are required by US management lawyers. Moreover, as the financial crisis spreads around the globe, retrenchment by US employers abroad will result in redundancies that require adherence to the very different employment laws of the respective local countries. Finally, non-US companies operating in the US need substantial advice on navigating the maze of national employment laws, and also need to ensure that managers sent to the US are carefully trained in the letter and the nuances of US employment law, especially with respect to discrimination and harassment.
A global financial crisis and extensive new employee and union-friendly legislation that will likely become law under the new Obama administration will create many new challenges for multinational companies. In navigating the new legal landscape of the workplace, management lawyers will play an increasingly important role in helping employers manage the risks and prosper in the future.