Business Cases to Watch in 2015
1. Insurance: Babcock & Wilcox Co., et al. v. American Nuclear Insurers, No. 2 WAP 2014, 84 A.3d 699 (Pa. 2014)
The Pennsylvania Supreme Court will decide a major issue affecting insurers and policy holders. Most insurance contracts provide that the insurance company will handle all litigation defenses with a specific provision granting the insurer control over the litigation. The court will consider whether the policy holder can exert some control over its defense, specifically settlement offers that have been controlled by the insurer through a “consent-to-settlement” clause. The case was argued in October.
During the course of settlement negotiations, policyholder Babcock & Wilcox negotiated a $95 million settlement without the approval of American Nuclear Insurers. The insurer refused to pay and cited the policy’s “consent-to-settlement” clause, which required the insurer’s approval of any settlement. If the Court were to overturn the decision, policyholders could retain the right to negotiate settlements, at least in circumstances where “the settlement is at arm’s length, is fair and reasonable, and the insurer [who was defending subject to a reservation of rights to disclaim coverage] has failed to offer any amounts in settlement,” as the issue was stated by petitioner.
2. Obstruction of Justice: Yates v. United States, No. 13-7451, 134 S.Ct. 1935 (2014)
This case before the U. S. Supreme Court will consider the scope of 18 U.S.C. § 1519, which criminalizes the actions of anyone who “knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object” with the intent to impede or obstruct an investigation. The law was added under the Sarbanes-Oxley Act and carries a maximum federal prison sentence of 20 years.
The Court will determine whether destroying fish constitutes the destruction of a “tangible object” under the statute. Yates is a commercial fisherman and in 2007 an unannounced inspection showed 72 red grouper from his catch were too small. The inspecting officer issued Yates a citation, placed the undersized fish in warden crates and ordered Yates not to disturb them. Yates’ ordered his crew to throw the small fish back and replace them with larger ones, so when he returned to shore, most of the fish in the crates measured at about the legal limit. The case was argued in November and a decision is expected soon.
If the Court upholds the lower court’s ruling, a broad interpretation of “tangible object” could impose liability on individuals destroying anything while their business is under investigation. The case raises significant concerns for businesses that face inspections by federal agencies, as a broad application of the statute could criminalize normal behaviors like throwing away trash or repairing damage.
3. Workplace Accommodations: Young v. United Parcel Serv., Inc., No. 12-1226, 134 S.Ct. 2898 (2014)
The U.S. Supreme Court will also decide when an employer that provides work accommodations to non-pregnant employees with work limitations must provide similar work accommodations to pregnant employees under the Pregnancy Discrimination Act, 42 U.S.C. § 2000e(k). In Young, the Court will decide if UPS should have provided workplace accommodations for a pregnant employee whose physical condition prevented her from performing normal tasks of the job, specifically heavy lifting. UPS refused to extend Young similar accommodations it made for injured workers, like assignment sorting or desk tasks that did not require lifting. UPS terminated Young, stating she was unable to perform her specific job tasks. The case was argued in December.
If the court decides in Young’s favor, employers will need to provide accommodations to pregnant women when they provide workplace accommodations for other physical conditions, and not simply terminate pregnant workers for being unable to perform their normal workplace tasks. This goes beyond providing maternity leave or equal access to health insurance, ensuring that women retain their employment during pregnancy even when they cannot perform normal job tasks due to physical limitations.
4. Hiring Practices: E.O.C. v. Abercrombie & Fitch Stores, Inc., No. 14-86, 135 S.Ct. 44 (2014)
The U.S. Supreme Court will hear argument concerning whether an employer must possess actual knowledge to be liable under Title VII of the Civil Rights Act of 1964 when refusing to hire an applicant based on a “religious observance and practice.” The case arose when Abercrombie, the popular fashion retailer, failed to hire an applicant due to her wearing a headscarf or “hijab” in conflict with the company’s clothing policy, but had no “actual knowledge” of the need for a religious accommodation resulting from explicit notice from the applicant.
While the Muslim applicant did not inform Abercrombie of the need for an accommodation, the Court will consider if notice can be inferred from the interview process. Normally, liability would only result when a specific request was unreasonably denied, but broader application of inferred notice would not require a specific request. Oral arguments are scheduled for February 25th.
5. FLSA Classification of Employees: Perez v. Mortgage Bankers Ass’n, No. 13-1041, 134 S.Ct. 2820 (2014)
The U.S. Supreme Court will consider the Labor Department’s reclassification of mortgage loan officers as overtime-eligible employees to determine if a federal agency must allow for a notice-and-comment period before altering its interpretation of a rule. The case has been consolidated with other like petitions, and beyond its implications on the specific labor issue, it may impact how all federal agencies adopt changes to their interpretation of rules. The case was argued in December, and a decision is expected soon.
If the Court overturns the lower court decision, businesses that rely on an agency’s definitive interpretation of its rules would have greater input. Much like the public comment period recently provided by the FCC to impose new “net neutrality rules,” any agency significantly altering an interpretive rule would be required to allow public comment on the change. This public comment period would allow businesses and individuals to review proposed changes prior to implementation and suggest revisions as well as provide time to adapt to changes before they are implemented.
6. Classification of Interns: Xuedan Wang v. Hearst Corp., 12 CV 793 HB, 2013 WL 3326650 (S.D.N.Y. June 27, 2013); Glatt v. Fox Searchlight Pictures Inc., 11 CIV. 6784 WHP, 2013 WL 5405696 (S.D.N.Y. Sept. 17, 2013)
The Second Circuit Court of Appeals will decide two cases to determine when interns qualify as employees for the purpose of wage-and-hour laws and class certification. The cases center on the issue of businesses utilizing interns in place of paid employees, specifically in the publishing and movie production industry. While the immediate impact of the decision will only be felt in the Second Circuit, the ruling could provide additional clarity to distinctions between employees and interns. Both cases resulted from the use of unpaid interns to perform tasks of paid employees. The cases were argued in January.
These cases represent a growing number filed around the country by interns who claim the intern classification masks true employment status. Growing sentiment supports that many unpaid interns in film production, publishing and other business fields, as well as in the legal field, deserve adequate compensation for their work. Businesses should draw clear lines between compensated employees and unpaid interns at the company for educational purposes, and not allow interns to perform employee tasks without adequate compensation.
7. Employee Compensation: Braun v. Wal-Mart Stores, Inc., 32 EAP 2012, 2014 WL 7182170 (Pa. Dec. 15, 2014)
The Pennsylvania Supreme Court affirmed a $187 million jury verdict for Wal-Mart employees who were denied compensation when working through rest and meal breaks. The Court determined Wal-Mart forced employees to work while they were “off-the-clock” and not being compensated.
The case was a class-action certifying 187,000 employees as victims of Wal-Mart’s practices. While Wal-Mart has clear rest and meal break policies, the court imposed liability due to the failure of the company to ensure the break policy was enforced. Although Wal-Mart has exhausted its state court appeals, it is widely expected to ask the U.S. Supreme Court to hear a challenge to the ruling.
Beyond strong precedent in Pennsylvania in favor of employee wage protection, the court also increased class-action liability for larger employers. The court allowed a group of thousands of employees to be certified without a showing of systematic harm or specific abuse to each employee. Employers need to ensure breaks are taken and employees do not work “off-the-clock” during breaks.