Winston & Strawn LLP: Supreme Court's Final Employment Decisions of the 2007 Term Are a Mixed Bag for Employers

As the 2007 Term draws to a close, the Supreme Court has issued several decisions in the employment arena, offering mixed news for employers.

In an important victory for the business community, the Supreme Court ruled 7-2 last week that the National Labor Relations Act (NLRA) pre-empts state funding requirements designed to restrict employer speech regarding many union activities. Specifically, the Court struck down a California statute prohibiting employers who receive more than $10,000 annually in state grants from using those funds “to assist, promote, or deter union organizing.”

Originally enacted in 1935, the NLRA contained provisions creating a right to unionize and making it an “unfair labor practice” for employers to interfere with, or “coerce,” employees in the exercise of that right. In adopting the Labor Management Relations Act of 1947, Congress amended the NLRA to emphasize that employees also have the right to “refrain from” union activities. At that time, Congress also added Section 8(c), which protects speech by both unions and employers from regulation by the National Labor Relations Board (NLRB).

In Chamber of Commerce v. Brown, the Court held that certain provisions of a California statute were pre-empted under a doctrine that forbids both the NLRB and States from regulating conduct that Congress intended to “be left unregulated because left ‘to be controlled by the free play of economic forces.’” See Machinists v. Wisconsin Employment Relations Comm’n, 427 U.S. 132, 140 (1976). Applying this doctrine, the Court held that Section 8(c) expressly precludes regulation of speech about unionization so long as the communications do not contain a “threat of reprisal or force or promise of benefit.” Thus, California’s provisions preventing employers from using state funds to “assist, promote, or deter union organizing” constituted impermissible regulation.

In rejecting the union’s arguments, the Court was unpersuaded by the fact that the law at issue restricted union-related speech only as a condition of state funding, rather than as a direct restriction on speech. The Court found that the regulations were drafted so as to impose substantial compliance costs and litigation risks on employers who may seek to use other funds to these ends. For example, the California statutes conclusively presumed that any expenditure made from “commingled” funds constituted a pro rata violation. Additionally, the term “any expense” was defined so broadly as to include both discrete expenses (e.g., legal and consulting fees) and an allocation of overhead, including “salaries of supervisors and employers.” The penalties imposed for violations could be up to three times the amount spent on the prohibited activity, and in some cases included attorneys fees and costs. “By making it exceedingly difficult for employers to demonstrate that they have not used state funds and by imposing punitive sanctions for non-compliance,” the Court explained, California law “effectively reaches beyond ‘the use of funds over which California maintains a sovereign interest.’”

The Court also rejected the argument that California’s regulations should be permitted because other federal statutes impose similar restrictions on recipients of federal funds under programs such as Head Start, the Workforce Investment Act, and the National Community Service Act. As the Court noted, these other provisions “neither conflict with the NLRA nor otherwise establish that Congress ‘decided to tolerate a substantial measure of diversity’ in the regulation of employer speech.”

As a result of the Court’s decision, employers will enjoy more freedom in California—and other States with similarly limiting regulations—to engage in “robust and wide-open debate” with employees concerning labor issues.

In Meacham, the Supreme Court made it more difficult for employers to defend themselves against age discrimination suits. The Court held that employers—not plaintiffs—bear the burden of persuading a court that discriminatory employment decisions were based on “reasonable factors other than age.”

The plaintiffs in the case were all laid off in 1996 from Knolls Atomic Power Laboratory, a joint project between the Navy and the Department of Energy responsible for nuclear-powered warships. As work tailed off at the end of the Cold War, the Laboratory laid off 31 salaried workers—nearly all of whom were over 40. These workers sued, alleging both disparate impact and disparate treatment claims under the ADEA. Under that Act, an employer does not discriminate if its employment decisions are based on “reasonable factors other than age.” The issue in the case was who should bear the burden of proof under this exception.

In a 7-1 decision written by Justice Souter, the Court held that this exception was an affirmative defense that must be proven by the employer. The Court emphasized that employees alleging discrimination must first overcome a non-trivial burden in “isolating and identifying the specific employment practices” that allegedly discriminate against older employees. But Congress placed the burden on employers to prove that their decisions were ultimately motivated by reasonable factors other than age. The Court acknowledged that “putting employers to the work of persuading factfinders that their choices are reasonable makes it harder and costlier to defend” and that “this will sometimes affect the way employers do business with their employees.” But “at the end of the day, [employers’] concerns have to be directed at Congress, which set the balance where it is.”

Only Justice Thomas dissented, explaining that he did not believe that disparate impact claims were cognizable under the ADEA. Justice Breyer did not take part in the judgment.

While the Meacham decision increased the burdens on employers defending ADEA actions, the Court’s decision in Kentucky Retirement Systems reinforced a high standard for proving ADEA disparate treatment claims generally. Under that standard, the plaintiff must show that age “actually motivated” the employer’s employment decision.

The State of Kentucky, like several other States, adopted a special retirement plan for government employees engaged in hazardous work, such as firefighters and police officers. Such workers can receive retirement benefits in one of two ways: by working for 20 years, or by working for five years and attaining the age of 55. The benefits are calculated in part on the number of years actually worked, so benefits increase with additional service. At issue in this case was a provision that automatically confers these retirement benefits if a worker becomes disabled but is not yet retired. Under that provision, benefits are based on the imputed number of years that the worker would have worked until reaching retirement, if not for the disability. For example, a 48-year-old worker who becomes disabled after 17 years of service would have three additional years imputed to reach the 20 years necessary for retirement. However, a 54-year-old worker with 17 years of service would have only one year imputed, since that worker is one year away from the retirement age of 55. As a result, the disability benefits for the younger worker would be based on 20 imputed years of service, while the older worker’s benefits would be based on only 18 imputed years.

In this case, a 61-year-old law enforcement officer became disabled, but because he was already eligible for retirement, he received no additional imputed years of service. He sued for age discrimination, alleging that a younger worker in his position would have received additional benefits. The question in the case was whether disparate treatment under a retirement plan like this one is actionable under the ADEA.

The Court decided the case 5-4 in favor of the employer—in a vote that did not break down along what many regard as the traditional liberal/conservative line. Writing for the majority, Justice Breyer (joined by Chief Justice Roberts and Justices Stevens, Souter, and Thomas) explained that the plan in this case conferred retirement benefits based on pension status, which the Court found to be “analytically distinct” from age. In fact, Congress specifically permitted employers to take age into account when designing pension plans. Furthermore, the State had a “clear non-age rationale for the disparity here,” which was to treat non-retired disabled workers as if they had reached retirement status. Finally, the court also pointed out that this same system could work to the advantage of older workers in some circumstances. Justices Kennedy, Scalia, Ginsburg, and Alito dissented, opining that employees need only demonstrate a “facially discriminatory policy” without needing to show “additional proof of a less-than-benign motive.”

This case is good news for employers. It demonstrates that the Court takes seriously its precedent and the statutory language limiting claims under the ADEA to situations where age was actually a motivating factor behind the employment decision. Thus a non-age-based policy that may coincide with age will not likely be enough to show discrimination.

Supreme Court Decisions