The U.S. Supreme Court kicked off its new term on October 7, 2024. This term, the Supreme Court has been asked to weigh in on at least four cases that raise important issues that may have far-reaching implications for employers. Below we highlight the main issues that employers should be aware of and the potential implications they should prepare for.
Exhausting State Administrative Remedies as a Prerequisite to Bringing Federal Civil Rights Claims in State Court
First up on the Supreme Court’s docket was Williams v. Washington. Oral arguments were held on October 7, 2024, wherein the Court was asked to decide whether workers must exhaust state administrative remedies as a condition precedent to bringing federal civil rights claims in state court. The Alabama Supreme Court ruled for the Alabama Department of Labor, affirming dismissal of a lawsuit filed by Alabama residents for failure to exhaust administrative remedies. The residents sued the agency under Section 1983 of Title 42 of the U.S. Code, for alleged constitutional rights violations based on the agency’s handling of their unemployment compensation benefits during the COVID-19 pandemic. Section 1983 permits individuals to bring claims of constitutional violations against state actors in federal and state court. However, according to the Alabama court, to bring Section 1983 claims in state court, individuals must exhaust all available administrative remedies before the applicable agency—here, they must exhaust the Alabama Department of Labor’s appeal process for unemployment compensation claims by receiving a notice of decision from either the appeals tribunal or the board of appeals.
One issue raised is the application of a 1982 Supreme Court case, Patsy v. Board of Regents. The residents argue that the Alabama court’s ruling goes against the precedent set by Patsy that plaintiffs are not required to exhaust their state administrative remedies before bringing a claim in federal court for federal civil rights violations. On the other hand, the state agency argues that Patsy does not preempt states from implementing rules requiring exhaustion of administrative remedies before bringing such claims in state court.
The Court’s decision in Williams could resolve the differing applications of Patsy and clarify the precedent set by that decision regarding state courts. Although Williams is narrowly tailored toward Section 1983 claims against state actors, the Court’s ruling may eventually reach into other areas of law, including employment law, and non-state actors, where certain claims against employers require exhausting administrative remedies before filing in state court.
Liability to Employees for Failed Drug Test
The plaintiff in Medical Marijuana Inc. v. Horn, a truck driver, brought a claim under the Racketeer Influenced and Corrupt Organizations Act (RICO) against a CBD maker after he was fired for failing a drug test required by his employer by testing positive for THC. The plaintiff alleges that he failed the drug test and lost his job because a product he was taking was falsely advertised by the CBD maker as containing only CBD.
While RICO is typically invoked in the context of organized crime, it can also be invoked in the context of civil claims for fraud resulting in injury to the plaintiff’s “business or property” and the possibility of plaintiffs collecting triple damages. Relevant to employment law, the plaintiff alleges that he sustained economic harm from personal injuries, in the form of loss of employment, and that such injuries give rise to a RICO. On October 15, 2024, the Supreme Court heard arguments on whether economic harms resulting from personal injuries, including loss of employment, are injuries to “business or property by reason of” the defendant’s acts for purposes of a civil treble-damages action RICO. According to the Second Circuit Court of Appeals, this alleged harm falls within the confines of RICO. However, other circuit courts, such as the Eleventh, Seventh, and Sixth circuits, disagree and have thrown out cases where a plaintiff seeks to invoke RICO to recover economic harm from personal injuries.
The Court’s decision in Medical Marijuana could provide clarity on the types of injuries covered by RICO for civil claims. Although this decision will be limited to RICO claims, it could have far-reaching implications in other contexts down the line. With the increasing legalization of cannabis and evolving regulations concerning the use of cannabis, the Supreme Court’s decision may give rise to certain insights on the expanding law concerning the use and monitoring of cannabis in the workplace. For example, employers with drug and alcohol use policies and/or mandatory drug testing in particular should monitor how the Supreme Court’s decision in this case unfolds.
FLSA Misclassifications and Overtime Exemption
Under the Fair Labor Standards Act (FLSA), employers have the burden to demonstrate that employees are properly classified under the FLSA. However, the standard of proof employers must meet to satisfy their burden is unclear and has only been further muddied by the Fourth Circuit Court of Appeal’s decision in E.M.D. Sales Inc. v. Carrera U.S. On November 5, 2024, the Supreme Court will hear the parties on whether employers must satisfy the “preponderance of evidence” standard or meet the heightened “clear and convincing evidence” standard when defending their decisions on employee classifications under the FLSA.
Under the FLSA, employees are generally entitled to overtime pay for hours worked in excess of 40 hours per week. However, there are certain exemptions under the FLSA, and employees who meet the exemption requirements are typically not entitled to overtime pay. Under the preponderance of evidence standard, employers arguing that an employee is exempt under the FLSA must show that it is more likely than not that the employee is exempt. The clear and convincing evidence standard is a much higher burden to meet and requires showing that it is far more likely than not that the employee is exempt.
In E.M.D. Sales, the Fourth Circuit held in favor of three employees of a grocery distribution company who alleged that they were misclassified under the FLSA and were owed overtime pay. In doing so, the Fourth Circuit held that the company failed to show “clear and convincing” evidence that the employees were exempt from the overtime provisions of the FLSA. Of the federal appeals courts that have weighed in on this issue, the Fourth Circuit is now the only one that has applied the clear and convincing evidence standard. On the other hand, the Fifth, Sixth, Seventh, Ninth, Tenth, and Eleventh circuits have all applied the preponderance of evidence standard.
Employers should ensure that they pay close attention to the Supreme Court’s decision in E.M.D. Sales, as a ruling in favor of either side will have significant implications for employers in how they classify employees and defend against FLSA claims for alleged unpaid overtime resulting from misclassification. If the Supreme Court reverses the Fourth Circuit and applies the preponderance of the evidence standard, employers will have an easier time successfully meeting their evidentiary burden and defeating FLSA misclassification and overtime claims. However, a ruling affirming the Fourth Circuit’s decision to apply the heightened clear and convincing evidence standard would make it much more difficult for employers to defend against such claims. This result would expose employers to an increase in FLSA liability for misclassification and unpaid overtime. However, given the current split among the courts, the implications for employers will differ, depending on how the Court rules and the jurisdiction(s) within which the employer operates. In either case, employers should be proactive in reviewing their procedures for FLSA classifications and overtime payments to prepare for whatever result comes from the Supreme Court’s decision.
ADA Protections for Former Employees
The Supreme Court in Stanley v. City of Sanford has been asked by a former Florida firefighter to consider whether, under the Americans with Disabilities Act (ADA), a former employee—who was qualified to perform her job and who earned post-employment benefits while employed — loses her right to sue over discrimination with respect to those benefits solely because she no longer holds her job. In Stanley, the former firefighter took early retirement due to disability. After retiring, she learned that the City of Stanford had previously lowered post-employment benefits for retirees who retired due to a qualifying disability. The former employee subsequently sued the city, alleging that this change in lowering benefits discriminated against retirees with disabilities, in violation of the ADA.
Under the ADA, employees and job applicants have the right to sue their employer/prospective employer for discrimination on the basis of a qualified disability. The ADA’s protections extend to claims of discrimination related to benefits; however, according to the Eleventh Circuit Court of Appeals, former employees cannot invoke such protections post-employment.
The Supreme Court’s decision is expected to resolve a split among the federal circuit courts on the issue of the scope of the ADA’s protections as they relate to former employees. Thus, the implications for employers resulting from this decision will vary. But regardless of how the Court rules, its decision should provide clarity on the types of protections, if any, that are afforded to former employees under the ADA. Employers that offer post-employment benefits should pay particular attention to the outcome of this decision and ensure they fully understand the potential legal exposure related to decisions concerning such benefits.