U.S. Supreme Court Issues Three Decisions Favorable to Employers

August 1, 2013

By the end of this year’s term, the United States Supreme Court had issued three “employer-friendly” decisions. While the decisions do not dramatically alter the employment law landscape, employers will still welcome the rulings, as they generally make it more difficult to prevail in Title VII suits, as well as to pursue class actions in the face of an arbitration agreement that precludes class claims. The decisions also highlight the Court’s reluctance to construe and apply employment-related statutes in a broad fashion.

1. Court Opts for a Narrow Definition of “Supervisor” in Title VII Harassment Suits

In Vance v. Ball State, the Court addressed the proper test for determining who is a “supervisor” for purposes of Title VII harassment claims. In summary, this determination matters because a supervisor’s harassment can, under some circumstances, lead to “vicarious” or “strict” liability for an employer. The broader the definition, the easier it is for an employee alleging harassment to establish employer liability. In Vance, the employee alleged that her supervisor subjected her to racial harassment and discrimination. However, the lower court found that the person she alleged was responsible for harassing her was not her supervisor, and therefore the employee could not recover unless she proved that her employer was negligent in responding to her complaint, which the court said was not proved.

The Supreme Court set aside as ambiguous the U.S. Equal Employment Opportunity Commission’s definition of a “supervisor” as anyone who exercises discretion over an employee’s daily work. The Court ruled that an employer can only be strictly liable for an employee’s unlawful harassment “when the employer has empowered that employee to take tangible employment actions against the victim, i.e., to effect a ‘significant change in employment status such as hiring, firing, failing to promote, reassignment with significantly different responsibilities or a decision causing a significant change in benefits.’” In doing so, the Court opted for a narrower definition of “supervisor,” requiring the individual in question to be “empowered by the employer to take tangible employment actions against” the employee.

In Title VII matters, the ruling in Vance is significant for employers because it limits the number of employees that can be deemed supervisors and, in turn, whose actions can subject an employer to strict liability. Following Vance,employers should review the job descriptions of those employees whose duties might make them candidates for the status of “supervisor,” and assess whether revisions are appropriate in the interest of reducing the potential for strict liability. It should be noted that in California (or any jurisdiction that defines “supervisor” differently under state law), the Vance decision will likely have little practical effect. The California Fair Employment & Housing Act defines “supervisor” more broadly and includes those employees that possess “the responsibility to direct” other employees, or effectively recommend certain actions. Similarly, other federal statutes have their own, broader constructions of the term “supervisor.” So, while Vance is generally a pro-employer decision, employers must nevertheless remain vigilant and attentive to employee co-worker interactions. In addition to adopting and following anti-harassment policies, training remains essential (in California many employers are required to provide such training for “all supervisory employees”). Employers should promptly respond to any harassment complaints, including investigating the complaints and taking appropriate remedial action.

2. Title VII Retaliation Claims Require a Showing of “But-For” Causation

In another Title VII ruling, the Court clarified that retaliation claims must be proved according to traditional principles of “but-for” causation rather than the lower “motivating factor” standard applicable to most status-based discrimination claims (e.g., discrimination based on race or gender). In University of Texas Southwestern Medical Center v. Nassar, the plaintiff claimed that he was denied permanent employment at a medical center after complaining about discrimination by his supervisor. In 1991, Congress amended Title VII by adding a new subsection to §2000e-2, which stated that “an unlawful employment practice is established when the complaining party demonstrates that race, color, religion, sex, or national origin was a motivating factor for any employment practice, even though other factors also motivated the practice.”1 In Nassar, the Court majority reasoned that Congress inserted the motivating-factor provision only with respect to status-based discrimination and not retaliation and, as such, acted deliberately in omitting retaliation claims from §2000e-2(m). Post-Nassar, “Title VII retaliation claims must be proved according to traditional principles of but-for causation, not the lessened causation test stated in §2000e-2(m)." 

According to the Court, proving Title VII retaliation claims will require “proof that the unlawful retaliation would not have occurred in the absence of the alleged wrongful action or actions of the employer”—in other words, proof that the desire to retaliate was the “but-for” cause of the challenged employment action. Such a standard will of course make it more difficult for Title VII plaintiffs to prevail on retaliation claims. Here too, however, state-law retaliation prohibitions may not hold employees to such a high standard. For example, in California, an employee wishing to prove retaliation generally does not need to prove that retaliatory animus was the sole (or “but-for”) factor motivating an adverse employment decision; the employee needs only to prove that it was a substantial or motivating factor. Therefore, prudent employers should remain mindful of the danger of retaliation claims, which often are worse than the underlying discrimination claims.

3. Court Upholds Enforcement of Arbitration Agreements Containing Class Waivers Even Where Cost of Arbitrating Individual Claims Would Be Prohibitively Expensive

In American Express Co. et al. v. Italian Colors Restaurant et al., a merchant sued American Express, alleging the violation of federal antitrust laws. The lower court of appeals rejected AmEx’s move to enforce the parties’ arbitration agreement that required the dispute to move forward as an individual arbitration, rather than the class action the plaintiff filed. The arbitration agreement expressly provided that “[t]here shall be no right or authority for any Claims to be arbitrated on a class action basis.” The Supreme Court reversed that decision, ruling that the Federal Arbitration Act requires courts to enforce arbitration provisions as written, including where they contain a class action waiver. The Court stated that this was true even if the cost of individually pursuing a federal statutory claim in arbitration will exceed the potential recovery and notwithstanding the fact that enforcing the arbitration agreement had the practical effect of denying an aggrieved party’s effective vindication of his or her federal rights. The Court made clear that only under narrow circumstances (e.g., fraud or duress in the formation of the agreement, or where Congress has dictated otherwise) will a class action waiver not be enforced. In reaching its result, the Court reiterated that arbitration agreements are a matter of contract and that courts must rigorously enforce them according to their terms, including terms specifying with whom the parties choose to arbitrate their dispute (e.g., an individual and not a class). A more detailed discussion regarding the effect of American Express on class arbitration waivers may be found here.

The use of class action waivers is on the rise, including by employers. Despite the fact that their use by employers in some jurisdictions (including California) remains uncertain and potentially risky, it is expected that American Express will accelerate the use of class waivers by employers with their employees. Post-American Express, employers opting for explicit class waivers in their arbitration agreements will have an easier time enforcing those agreements in most jurisdictions. In jurisdictions where the use of a class waiver raises questions as to the enforceability of the arbitration agreement even in the individual case, employers will need to assess whether that is a risk worth taking.

Wilson Sonsini Goodrich & Rosati is actively following developments around the country with respect to all aspects of employment law, and the firm is available to assist companies, employees, newly formed businesses, and investors with employment litigation and counseling. For more information, please contract Rico Rosales, Marina Tsatalis, Laura Merritt, Charles Tait Graves, or another member of the firm’s employment and trade secrets litigation practice.

1 §2000e-2(m).