HR and the Supreme Court

For the current U.S Supreme Court session, experts say the few HR-related cases in front of the U.S. Supreme Court could have repercussions for employers, though nothing at the level of a Dukes v. Wal-Mart.

Wednesday, October 30, 2013
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The U.S. Supreme Court will hear a few cases on its 2013-14 docket that may have an impact on HR and employers in general, but depending on the specific type of employer, none should cause any earth-shattering repercussions, according to labor law experts.

For example, Jim Burns, a partner and labor attorney in the Chicago office of Reed Smith, says that while the cases in front of the country's highest court could create some ripples in the HR/employer world, there is nothing on the scale of, say Vance v. Ball State (defining the term "supervisor" as it relates to retaliation) or Dukes v. Wal-Mart (narrowed class-action-case certifications for employers) that have been decided in the recent past.

"I would say at this point, while it is possible the court will continue to hear some new cases that may come up, right now compared to past years this is kind of a middle of the road group of cases," Burns says. "There are some important issues, but nothing that will keep every employer sitting at the edge of their seats."

"I don't see one case here of huge import," he adds. "Everyone is talking about the Canning case [NLRB v. Noel Canning] and that has some very powerful repercussions. But as a practical matter, its impact will be short-term."

In that case, the Court will decide if President Barack Obama's recess appointments to the National Relations Board in January 2012 were constitutional. Hanging in the balance, says Burns, are scores of NLRB decisions made after the president's appointment.

Michael Lotito, a San Francisco-based shareholder and co-chair of the Workplace Policy Institute at the law firm Littler, called Canning "critically important for two main reasons. For one, in the short terms, many NLRB cases may live or die, depending on if the court finds the appointments valid or not. On a broader level, he says the decision could affect presidential appointment power.

"If the court rules the appointments unconstitutional, when NLRB openings come, it's unlikely the nuclear option of recess appointments will be in play," Lotito says.

On a constitutional basis, he says the decision is important because it will deliver guidance on the differentiation of power between the executive and legislative branches of government, with the judicial branch being the arbiter.

"As an exercise of checks and balances," he says, "it's a very important case."

In this case, Burns says, the court will decide when the Constitution allows the president to make recess appointments to offices that require Senate confirmation.  Noel Canning, an employer, argued that the NLRB lacked authority to issue a decision against it because three of the board's five members, including two of those who served on the panel that decided the case, had not been confirmed by the Senate. 

For its part, the NLRB says that those three members were properly appointed by the president using his constitutional power to make temporary appointments while the Senate was in recess. The D.C. Court of Appeals took Noel Canning's side, saying the appointments were unconstitutional because neither they nor the vacancies they filled had occurred in the official period between Senate sessions that, in the court's view, is what the Constitution means by "recess."  

The Supreme Court will decide whether the president's recess appointment power may be exercised during a recess that occurs within a session of the Senate, or is instead limited to recesses that occur between specifically enumerated sessions of the Senate, among other related issues. No date has yet been set for argument on the case.

"If the Supreme Court agrees with the appellate court that these three appointments were invalid, more than 200 cases decided by the NLRB could be subject to reversal," Burns says, adding that since the president made those appointments, the NLRB situation has been settled in an agreement between the White House and the Senate. So now, there is a full five-member Board in place.

"If the court upholds the lower court ruling, it would look like a panacea for employers in those affected decisions," Burns says. However, what will happen is those cases will go back to the NLRB, and the 3-2 Democratic majority will probably decide them the same way.

Apart from the NLRB case, during the current term, the court will decide such questions as:

  • Which employees have whistleblower protection under the Sarbanes-Oxley Act?
  • Are union neutrality agreements tantamount to employers bribing unions?
  • Is severance pay subject to FICA taxes?

In Lawson v. FMR LLC, the court will decide if employees of privately held contractors or subcontractors of publicly traded companies bring retaliation claims under the Sarbanes-Oxley Act. In this case, two employees of a privately held company that contracted to manage publicly held mutual funds claim their employer violated Sarbanes-Oxley by firing one of them and forcing the other to resign because they reported allegedly improper registration statements and accounting practices. Lower courts had conflicting views on the case.

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If the employees win, Burns says, it would dramatically expand the reach of Sarbanes-Oxley's whistleblower protections, requiring many more employers to implement the same sort of internal reporting and investigation procedures that public companies have adopted to reduce the risk of whistleblower claims.

"The upshot is if you are a privately held contractor or subcontractor for a publicly-held company, the burden and expense of complying with this part of Sarbanes Oxley is broadened for you," he says, noting that the case is expected to be argued on Nov. 12.

In the union-related case, Unite Here Local 355 v. Mulhall, the court will decide if an employer can be held liable for taking steps that make it easier for a union to organize after making a deal with a union. In this case, Burns explains, a gaming company agreed, in exchange for a union's agreement to provide financial support for a local gaming ballot initiative, to grant a local union access to non-public work areas, provide it with employees' contact information and remain neutral during the union's efforts to organize employees.

An employee sued, arguing that his employer and the union had violated a part of the Taft-Hartley Act that makes it illegal for an employer "to pay, lend or deliver any money or thing of value" to a union. The Supreme Court will hear the case on Nov. 13.

"As a traditional labor lawyer, I believe the Mulhall case is important because it deals with the concept of what is and what is not a thing of value for management in making a deal with a union," Lotito says. "The wrong decision could make it easier for unions to organize. The hope is the Court will give some guidance [on] how far they can go because the case could have a potentially profound impact on corporate campaigns."

Lotito calls this a "sleeper" case, but, for employers following the trend of organized labor trying to obtain recognition in the workplace, it could prove to be very important.

Finally, Burns cited United States v. Quality Stores Inc., a case that will determine if severance payments are subject to FICA taxes. In this case, the Court will resolve a split in the appellate courts over when employers providing severance pay must pay their share, and deduct the employees' share, of FICA taxes. 

In the past, the IRS has taken the position that severance pay amounts to "wages" subject to FICA taxes unless the severance is paid under a very specific area of the IRS code. An appeals court disagreed, saying the severance pay in this case was not subject to FICA taxes because it was paid to employees, among other related conditions. If the Supreme Court also rejects the IRS' position, employers will be able to seek millions of dollars in FICA tax refunds.

"My advice would be to continue to pay withholding taxes in severance situations until there is a decision," Burns says.

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