What Tom Brady, Underinflated Footballs, and “Deflategate” Teach Employers About Arbitration

Fans of unscrupulous professional football players and coaches often justify their heroes’ misbehavior with a now-classic sports adage: “If you ain’t cheatin’, you ain’t tryin’.”  In the 1970s, for example, legendary Oakland Raiders owner Al Davis allegedly bugged locker rooms, watered down fields, and spied on other teams using a helicopter.  Such extreme shenanigans are less prevalent in today’s NFL, but they still happen.  And as superstar New England Patriots quarterback Tom Brady now knows, it helps a lot if you don’t get caught.  And if you do, the Second Circuit has made even more clear the very high degree of deference afforded to arbitration awards.  This decision serves as a stark (and, for Patriots haters, richly satisfying) reminder that courts have no business reviewing the merits of an arbitrator’s award.

During the second quarter of last year’s AFC championship game—i.e., a game that determined one-half of that year’s Super Bowl matchup—an Indianapolis Colts linebacker intercepted a Brady pass.  Sensing that something was amiss, he turned the ball over to the Colts’ coaching staff.  They determined that the ball was underinflated in violation of league rules, which require a minimum pressure of 12.5 psi.  (Particularly in the cold, wet conditions in which the game took place, underinflated footballs generally are easier to grip, throw, and catch.)  After the Colts alerted NFL officials to the problem, the League tested all of the game balls at halftime.  Each of the four balls provided by the Colts tested within the permissible range.  Each of the Patriots’ eleven balls tested below 12.5 psi.  Uh oh.

Tom Brady Wins Round One in District Court

The NFL retained counsel to investigate the matter, which has since become known as “deflategate.”  The investigation concluded that it was “more probable than not” that two Patriots equipment officials had improperly deflated the Patriots’ footballs before the game began, and—though the evidence was somewhat less clear on this point—that Brady had at least tacitly approved of the scheme.  #ThingsTomBradyDoes  As a result of the investigation, and under a collective bargaining agreement (“CBA”) between the NFL and the NFL Players’ Association, League Commissioner Roger Goodell decided to suspend Brady for the next season’s first four games.  Brady appealed the decision, and a labor arbitration ensued.  As was his right under the (very unusual) CBA, Goodell himself served as the arbitrator.  Shortly before the hearing, it also came to light that, on the day of his interview with the NFL’s investigators, Brady destroyed his cell phone, which he previously had refused to make available for inspection.  (We and the greater Boston area are confident he had a perfectly legitimate reason for doing so.)  To absolutely nobody’s surprise, Goodell upheld Brady’s suspension.

Tom Brady, however, is not a quitter, and the matter didn’t end there.  On his behalf, the NFL Players’ Association sued the NFL in federal district court to vacate the arbitration award.  The district judge later vacated the award based on (1) “inadequate notice to Brady of both his potential discipline (four-game suspension) and his alleged misconduct,” (2) “denial of the opportunity for Brady to examine one of two lead investigators,” and (3) “denial [to Brady] of equal access to investigative files, including witness interview notes.”

The Second Circuit Reverses

On Monday, the Second Circuit reversed.  The court began its analysis by observing that its role was limited to “ensur[ing] that the arbitrator was ‘even arguably construing or applying the contract and acting within the scope of authority’ and did not ‘ignore the plain language of the contract.’”

Its ruling also emphasized the broad authority that the CBA conferred on the NFL:

“[T]he players and the League mutually decided many years ago that the Commissioner should investigate possible rule violations, should impose appropriate sanctions, and may preside at arbitrations challenging his discipline.  Although this tripartite regime may appear somewhat unorthodox, it is the regime bargained for and agreed upon by the parties, which we can only presume they determined was mutually satisfactory.”

Rejecting the district judge’s three grounds for vacating the award, the Second Circuit concluded that that the parties’ CBA—unorthodox as it was—gave Goodell “broad authority to deal with conduct he believes might undermine the integrity of the game,” that the CBA thus gave Brady adequate notice that he might be suspended for his misconduct, and that Goodell’s other decisions were firmly grounded in the CBA’s language.  As crazy as Goodell’s multi-purpose role in the arbitration might sound, the parties had previously agreed to it.

Lessons for Employers

Even Patriots rivals can agree that the CBA gives Goodell extraordinary power.  On Wednesday, New Orleans Saints quarterback Drew Brees lamented Goodell’s power under the CBA, which, he said, places Goodell in the position of “judge, jury, and executioner when it comes to all the discipline” and which has been a “black eye” for the NFL.  Problem is, the NFL Players’ Association should’ve negotiated a provision that would require appointment of an impartial arbitrator if it thought having the Commissioner serve as the arbitrator would be problematic.  The answer, as the Second Circuit has made clear, is not to look to the courts for help.  Whether one is a Patriots fan (Ed) or not (Todd—Go Niners!), this decision underscores the high level of deference that courts afford to an arbitrator’s award.  Even if you’re Tom Brady.

California Employers Must Carefully Reconsider Whether Employees Can Be Provided With “Suitable Seats” In Light of New Decision

A recent California Supreme Court decision has the potential to affect all California employees who are required to stand while performing parts of their job.  In response to numerous lawsuits brought by cashiers, retail employees, bank tellers and other employees, the California Supreme Court clarified the meaning of a decades-old law that requires employers to provide their employees with “suitable seats” when the nature of the work permits it.  The Court rejected the interpretation favored by employers—creating instead an interpretation that will make it more difficult for employers to deny their employees a seat.

As a result of this decision, California companies must give careful consideration to whether their employees can perform any of their tasks while sitting.  Employers who fail to provide seats when the nature of the work would reasonably permit their use face significant penalties.

Suitable Seating Laws

Different variations of seating laws have been in place in California since 1911.  The current language dates back to 1976, when the Industrial Welfare Commission modified a wage order to require that “all working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.”  The wage order also requires that “when employees are not engaged in the active duties of their employment and the nature of the work requires standing, an adequate number of suitable seats shall be placed in reasonable proximity to the work area and employees shall be permitted to use such seats when it does not interfere with the performance of their duties.” Continue Reading

HR Urban Legends

Walt Disney had himself cryogenically frozen.  Alligators are alive and well in the NYC sewer system.  You’ll die if you eat a whole bag of Pop Rocks and polish it off with a can of Coke.  2016 was the weirdest primary election season ever . . . oh, wait.  That one’s true.

Human resources has its share of myths.  Here we try to debunk some of the more common ones.

  1. As long as I pay my employee a salary, I don’t have to pay her overtime.

Wrong.  Federal law requires application of both a salary test and a duties test to determine whether an employee is exempt from overtime requirements.  In other words, to be exempt, an employee must be paid a minimum salary and have a certain type of job.  Typically, these are known as the “white collar” exemptions.  Most states have similar requirements.  Employers who misclassify employees are sitting ducks for a class action suit over overtime wages and break and meal periods.

You should also be aware that before President Obama leaves office, the Department of Labor is likely to issue new rules raising the salary requirement for exempt status to over $50,000 per year.  The new rules may also make some changes to the definitions of white collar workers.  Employers should keep an eye out for these new rules because they will present an opportunity to review whether employees are properly classified. Continue Reading

The Third Shoe Drops: The Department of Labor Issues Revised “Advice” Regulations

As we’ve previously blogged, for several years the Obama Administration has been on a calculated campaign to increase unionization in America. Federal agencies, particularly that National Labor Relations Board, have been systematically changing longstanding rules to make it more likely that unions can prevail in election representation campaigns.  We previously blogged about two earlier key components of this campaign: the revised rules from the NLRB approving “quickie” union elections on dramatically shortened time frames; and even earlier efforts to allow unions to designate “micro-units,” increasingly small groups of employees so that unions may narrowly focus their organizing efforts.  Now, in the twilight of the Obama Administration, the final effort in the campaign to increase unionization has just been announced: the Department of Labor has finally issued its long threatened regulations that would dramatically narrow the scope of confidential advice employers can receive when dealing with union organizing campaigns. Continue Reading

Utah Passes Bill Regulating Non-Competes

After heated debate between legislators and among the business community, the Utah state legislature has passed HB 251, the Post-Employment Restrictions Act.  As passed, the Act prohibits “post-employment restrictive covenants” with restrictive periods longer than one year.  The Act defines a “post-employment restrictive covenant” (also identified in the statute as a “covenant not to compete” or “non compete agreement”) as

an agreement, written or oral, between an employer and employee under which the employee agrees that the employee, either alone or as an employee of another person, will not compete with the employer in providing products, processes, or services that are similar to the employer’s products, processes, or services.

The Act prohibits employers and employees from entering into post-employment restrictive covenants of more than one year and declares such agreements void.  The Act specifically requires that non-competition must comply with other requirements for enforceability that have developed under common law.  Finally, the Act provides that employers who unsuccessfully attempt to enforce such agreements are liable for actual damages, court or arbitration costs, and attorney fees. Continue Reading

Utah Provides Additional Protections for Pregnant And Breastfeeding Women in the Workplace

The Utah Legislature has passed SB 59, which amends the Utah Antidiscrimination Act to provide additional protections for pregnant and breastfeeding women in the workplace.

This law requires employers to provide reasonable accommodations to employees upon request for conditions related to pregnancy, childbirth, and breastfeeding, unless doing so would create an “undue hardship.”  Employers are also prohibited from terminating or denying employment opportunities to an employee to avoid providing reasonable accommodations.

Reasonable accommodations can take many forms, such as providing a private room for employees to pump breast milk or providing more frequent rest breaks.  The law explicitly states, however, that an employer is not required to permit an employee to bring her child to work as an accommodation.

An employer can refuse to provide a reasonable accommodation only by demonstrating that it would create an “undue hardship” on the operations of the employer.  Whether an undue hardship exists will depend on the difficulty or expense of providing the accommodation in relation to the size of the employer, its financial resources, and the nature and structure of its operations.

An employer may require an employee to provide a medical certification before granting a reasonable accommodation.  This certification should include the date the accommodation becomes medically advisable, the probable duration of the accommodation, and an explanation of the medical advisability of the accommodation.  An employee cannot require a certification, however, if the request for a reasonable accommodation is limited to more frequent restroom, food, or water breaks.

Employers will also be required to provide written notice of an employee’s rights under this law in an employee handbook or in a conspicuous place in the workplace.

This law will apply to all employers with 15 or more employees within Utah.  It follows two new laws from 2015 that protect breastfeeding women in the workplace.

HB 105 added “breastfeeding and medical conditions related to breastfeeding” to the definition of “pregnancy, childbirth, or pregnancy-related conditions” to ensure that breastfeeding employees receive the same protection as pregnant employees under existing laws.

HB 242 requires public employers to provide a public employee who is breastfeeding with reasonable breaks, access to a clean, private room with an electrical outlet, and access to a refrigerator or freezer for the temporary storage of the employee’s breast milk.  SB 59 amends this law to allow a public employer to provide a nonelectric insulated container instead of a refrigerator when the employee does not work in an office building.  SB 59 does not, however, extend these specific requirements to the private sector. It only requires that employers provide reasonable accommodations, as explained above.

SB 59 is awaiting the Governor’s signature. Once signed, it will go into effect in May 2016.

Ninth Circuit Declares Tip Pools Invalid Under FLSA Even Where Employers Pay More Than Minimum Wage

In Oregon Rest. & Lodging Ass’n v. Perez, the Ninth Circuit ruled this week that federal law restricts a restaurant employer from maintaining a tip pool that includes “back-of-the-house” employees and requires directly tipped employees to share their tips, regardless of whether a tip credit is taken and employees are paid at least minimum wage.

The FLSA permits an employer to count a tipped employee’s tips toward its hourly minimum wage obligation.  This is known as a “tip credit.”  Section 203(m) of the FLSA requires employers who take a tip credit to give notice to employees and allow employees to retain all of the tips they receive, unless such employees participate in a valid tip pool.  Under section 203(m), a tip pool is valid if it is comprised exclusively of employees who are “customarily and regularly” tipped, commonly referred to as “front-of-the-house” employees.

The employers in Oregon Rest. & Lodging Ass’n, however, did not take a tip credit against their minimum wage obligation.  (Indeed, Oregon does not permit a “tip credit,” and requires that all employees receive the state-mandated minimum wage.)  Rather, the employers in Oregon Rest. & Lodging Ass’n paid their tipped employees at least the federal minimum wage and required their employees to participate in tip pools.  Unlike the tip pools contemplated by section 203(m), however, these tip pools included both front- and back-of-the-house employees.

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Bill to Regulate Non-Compete Agreements Continues to Move through Utah Legislature

UPDATE: after this post went to press, HB 251 was amended by substitution a second time and passed the House on a unanimous vote on February 24, 2016. As passed, the bill contained substantive changes to the provisions outlined in the post below. HB 251 is now headed to the Utah State Senate for consideration, where we will be tracking developments.

We recently posted here about a bill in the Utah State legislature, HB 251, which would have essentially prohibited non-competition agreements in Utah.  While awaiting debate and final vote in the Utah House, the bill was amended by substitution.  While the original bill had support from some in the Utah business community and at least one conservative political organization, the amendments were presumably made to address concerns by other segments of the business community.

The amended bill  prohibits “post-employment restrictive covenants,” generally defined as agreements under which an employee promises not to directly or indirectly compete with an employer after the termination of employment.  In short, the bill would make traditional non-competition agreements void in Utah.  But, unlike the original HB 251, the amended bill expressly allows other kinds of restrictive covenants.  The amended bill, for example, would allow

  • Agreements to protect trade secrets and proprietary confidential information
  • Agreements prohibiting solicitation of customers or employees
  • Agreements to reimburse employers for specialized training, education or signing bonuses
  • Agreements by business owners in connection with the sale of a business

The bill would impose a one-year temporal restriction on all of the allowed agreements identified above, except those relating to trade secrets.

It remains to be seen whether these amendments will adequately address concerns raised about the original bill.  As of this writing, the amended bill has been “circled,” indicating a request by at least one legislator that the bill not move forward to debate and final vote at the present time.  If the amended bill passes the House, it will then be referred to the Senate for consideration by the appropriate committee and the full body.

We will keep you apprised of developments on HB 251 on other legislative developments in Utah.

“Employer-Friendly” Utah Legislature Considers Regulating Non-Compete Agreements

Many employers in Utah use non-competition agreements to protect their confidential information, customer relationships and investment in employee training and development. In a somewhat surprising move, the usually employer-friendly Utah State legislature has signaled its willingness to join California and a handful of other states in attempting to regulate these kinds of agreements.

The Utah Legislature is currently considering two bills that would significantly limit a Utah employer’s ability to structure and use non-competition agreements.

HB 88 would place new statutory restrictions on the contractual provisions employers could include in their agreements. The bill would, for example, make a non-competition agreement unenforceable unless an employer provided additional consideration (beyond continued employment) when it was executed. The bill would also make unenforceable any non-competition agreement for an employee terminated without cause within one year of signing the agreement. Finally, the bill would allow a court to award attorney fees to an employee who prevails in a lawsuit brought by an employer or former employer to enforce a non-competition agreement.

While HB 88 raises some concern for employers, HB 251 will be of even greater concern. Unlike HB 88, which limits the use of non-competition agreements, HB 251 would actually prohibit any agreement that would prevent an employee from working for a competitor after leaving a company. Similar to HB 88, HB 251 would allow a court to award attorney fees to an employee who successfully challenges a non-competition agreement. Moreover, this bill seems to be gaining more traction at the Legislature, and could soon be scheduled for a vote in the Utah House of Representatives.

Non-competition agreements are widely used by many employers in Utah and elsewhere. Employers understand that employees can learn important information about an industry or even a specific business and can develop important customer relationships during their employment. Consequently, they use non-competition agreements strategically to protect against having that experience and those customer relationships used unfairly to compete with them when an employee leaves the company. The use of these agreements as a tool by employers would be significantly curtailed by HB 88 and ended as a legitimate business practice altogether by HB 251.

Most immediately, the fate of these bills is in the hands of Utah’s legislators. Business groups such as the Salt Lake Chamber of Commerce, concerned about the impact, are in process of gathering data about Utah employers’ use of noncompetition agreements. The next step for employers interested in influencing the outcome of the legislation will be to participate in the political process and contact their state legislators.

We are monitoring both HB 88 and HB 251 closely, and will provide World of Employment readers an update on the business practices impact, should either bill become law.

It’s a Trap!  Students Receiving Credit Need Not Be Paid? 

As colleges and universities begin new terms, not all students are returning to the classroom.  Some students are headed into the “real world,” to work alongside corporate titans, small-business owners, or moms and pops in their shops, while receiving academic credit—and not wages—for their efforts.  These students are applying the lessons learned in their prior studies to real-world scenarios to gain valuable experience, build their skills, and make connections to help them succeed upon graduating.  Or at least they should be.  If they are instead used merely as a source of labor, they must be paid.  But many employers mistakenly assume that because these students are getting school credit, they need not be paid.  That is a trap into which employers reading this blog will not fall.

The Fair Labor Standards Act (“FLSA”) and state laws require employers to pay all employees for work performed.  If students who participate in unpaid internships with private employers do not qualify as “employees,” they need not be paid.  Whether those students qualify as “employees” depends on several factors, but the general rule is that these programs are lawful as long as the student, not the employer, is the primary beneficiary of the internship program.

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