Oregon Court of Appeals Continues Debate About Status of Wrongful Discharge Claims In Oregon in Kemp v. Masterbrand Cabinets, Inc.

Last week the Oregon Court of Appeals issued its opinion in Kemp v. Masterbrand Cabinets, Inc., holding that the plaintiff’s common law wrongful discharge claim was not precluded by the statutory remedies then available under Oregon or federal anti-discrimination laws, and that claim could properly be decided by a jury.  The case is another wrinkle in the ever-evolving and complex body of case law trying to define the contours of claims for common law wrongful discharge in Oregon.

Oregon Wrongful Discharge 101: A Quick Primer On When Common Law Wrongful Discharge Claims Can Be Precluded By Statutory Remedies

A claim for wrongful discharge is a common law tort claim developed by Oregon courts.  Many states’ courts have recognized the tort; Oregon’s Supreme Court first did so in the 1970s in Nees v. Hocks.  The specifics about what makes a discharge from employment “wrongful” and therefore tortious hinges on whether the employee’s termination violates an important public policy, usually where an employee is fulfilling an important job-related right or public duty.  As we have blogged about previously, courts have had difficulty wrestling with defining “wrongfulness” in specific cases, and divergent results can make it difficult to clearly understand which public duties and job-related rights are covered by the tort.  For example, being discharged for complaining about the employer’s fire code and safety violations (Love v. Polk County Fire Distr.) has been found wrongful, but a car salesman being fired for complaining about the employer’s allegedly deceptive sales tactics (Lamson v. Crater Lake Motors) or private security guards being fired for restraining or arresting concert-goers suspected of drug use and violent behavior (Babick v. Oregon Arena Corporation) was not.  Further, some courts have held wrongful discharge usually covers only conduct-based discrimination (taking action against an employee because of what they do, commonly known as “retaliation”), not status-based discrimination (based on a protected personal characteristic such as race, gender, or age), although this distinction is often inconsistently applied.

Most importantly as it relates to the Kemp case, Oregon courts have held that the claim of wrongful discharge is an “interstitial” tort intended to fill the gaps where there is no other available remedy.  At common law, for example, a successful plaintiff pursuing a wrongful discharge claim could have a trial by jury and could recover both his economic damages (lost wages, back pay, related expenses) and emotional distress damages.  Where other adequate remedies exist, however, such as remedies provided under today’s anti-discrimination statutes in ORS Chapter 659A, the wrongful discharge tort claim can be preempted by those other available remedies and no longer available.  As the Oregon legislature has passed more and more employment discrimination statutes over recent years, those interstitial gaps where wrongful discharge has survived have become fewer and smaller.  In fact, at least since 2008 when the legislature amended Oregon’s primary anti-discrimination statute ORS 659A.030 (prohibiting discrimination based on race, gender, age, disability, etc.), the statutory remedies available are typically better than what was available under common law.  Those statutory remedies include not only the right to a jury trial and recovery of economic damages, but also uncapped compensatory and punitive damages and attorney fees.

Some Oregon courts have also required a second step in the adequate statutory remedy analysis:  not only must the statutory remedy be adequate, but in enacting the statutory remedy the legislature must also have specifically intended to displace any pre-existing common law rights.  The leading case cited for this requirement is the Oregon Court of Appeals’ 2006 opinion in Olsen v. Deschutes County.  This legislative intent is much harder to show, and as a result employers have a more difficult time getting wrongful discharge claims dismissed on this basis.  Some recent statutes have even included express disclaimers stating that the statute is not intended to abrogate pre-existing common law remedies.  See, e.g., ORS 659A.199(2).  Oregon courts have not consistently applied Olsen, however, and some state trial courts have continued to dismiss wrongful discharge claims based on the adequacy of the available statutory remedy alone.  Complicating things further still, Oregon’s federal District Courts routinely ignore Olsen’s second step, finding it contrary to Oregon Supreme Court authority defining wrongful discharge as a narrow, “interstitial” tort.  (Federal district courts usually try to interpret state laws consistent with how the state supreme court would rule on the issue, and can ignore contrary cases from lower state courts).  Federal district courts usually will dismiss wrongful discharge claims when the available statutory remedies are adequate irrespective of the legislative intent behind the statute in question. 

All this legal wrangling may seem esoteric, but it has practical effects.  Until a few years ago, the remedies available for wrongful discharge claims were better than those available under Oregon’s anti-discrimination statutes. Since 2008, however, the remedies under those statutes have been roughly the same. In addition, the statute of limitations period is longer for wrongful discharge claims (2 years) than for claims under Oregon’s ORS chapter 659A (1 year) or Title VII (300 days). Finally, plaintiffs asserting wrongful discharge claims do not need to first file a charge with the Oregon Bureau of Labor and Industries (“BOLI”) or Equal Employment Opportunity Commission (“EEOC”). Such “administrative exhaustion” is required for Title VII claims, and while optional under Oregon law, most plaintiffs asserting state discrimination claims file administrative charges before filing a lawsuit.

What Kemp v. Masterbrand Adds To the Wrongful Discharge Debate

The plaintiff in Kemp worked for Masterbrand in its warehouse until 2005 when her employment was terminated. She alleged she was terminated because she was pregnant at the time, and also because she complained to her employer about how her supervisor treated her due to her pregnancy. Kemp sued, asserting both statutory claims for discrimination and retaliation under ORS 659A.030 and common law wrongful discharge. The case ultimately went to a trial where Kemp prevailed on all claims (because the pre-2008 version of ORS 659A.030 did not provide for a jury trial those claims were tried to the judge; the common law wrongful discharge claim was tried to the jury).

The primary issue on appeal was whether the remedies then-available under ORS chapter 659A and Title VII were sufficiently adequate to preclude Kemp’s common law wrongful discharge claim, which would have required the trial court to dismiss that claim before trial. The Court first found that under the first step of the Olsen test the pre-2008 remedies available under ORS 659A.030 were not adequate to preclude wrongful discharge claims. This outcome is fairly unsurprising and largely consistent with other cases analyzing the adequacy of the pre-2008 statutory remedies. Then, regarding Title VII, the Court specifically declined to find whether the remedies were adequate but found that, even if they were, Title VII did not preclude the common law wrongful discharge claim under the second step of the Olsen test because the relevant Title VII damages provision expressly stated it was not intended to replace any preexisting state law remedies. See 42 U.S.C. § 2000e-7. 

It is not clear how much Kemp will affect how courts analyze wrongful discharge claims going forward. First, it is a bit of an anachronism since it dealt with the pre-2008 remedies available under ORS 659A.030, and it is now fairly well-settled that the today’s remedies under that statute are sufficiently comparable to those available under common law. The court’s reliance on the second step of the Olsen test (whether the legislature intended a statutory remedy to abrogate a common law tort cause of action) may make it more likely that Oregon state trial courts follow that two-step analysis, and therefore less likely that wrongful discharge claims will be dismissed on that purely legal basis before trial. On the other hand, Kemp does not elaborate much on Olsen, and courts that were unlikely to follow Olsen in the past may not be any more likely to do so now.  In particular, the federal district courts in Oregon may continue to ignore the second step (legislative intent) in both Kemp and Olsen finding that requirement is contrary to Oregon Supreme Court authority that narrows the application of wrongful discharge to only situations where there is no statutory remedy.

Finally, Kemp held that the plaintiff was entitled to recover attorney fees related to her wrongful discharge claim under ORS § 20.107. (Usually recovery of attorney fees is not available in tort causes of action absent some statutory or contractual provision).  That statute provides for attorney fees in claims for “unlawful discrimination,” defined to mean “discrimination based upon personal characteristics including, but not limited to, race, religion, sex, sexual orientation, national origin, alienage, marital status or age.” ORS § 20.107(4).  Despite the fact that many cases hold wrongful discharge generally encompasses only conduct-based discrimination (retaliation) and not personal status-based discrimination, the court held that because the plaintiff’s wrongful discharge claim included allegations of retaliation related to her complaints about sex- and pregnancy-based discrimination, it was sufficiently related to “unlawful discrimination” to be covered by ORS § 20.107.

While Kemp does not dramatically change the legal landscape, the case serves as a useful reminder of some of the nuances regarding wrongful discharge claims in Oregon.  We will continue to monitor developments in this always-evolving area of law.

 

Court of Appeals Interprets Definition of "Independent Contractor" Under ORS 670.600

A new case from the Oregon Court of Appeals, Compressed Pattern LLC v. Employment Department, provides some clarity about the “maintain a separate business location” prong of Oregon’s unique independent contractor statute, ORS 670.600.

First, the facts.  In the summer of 2009, a design company retained a recently-laid-off architectural intern to provide drafting services on some of its projects. The design company’s owners agreed to pay him $35.00 an hour for his services, and paid him periodically based on statements of his work he prepared and submitted. The design company provided the architect-intern with general specifications and timelines for the drafting projects, but didn’t otherwise instruct him on how to complete them. It also didn’t provide him with scheduled hours, a workspace, supplies and equipment, an email address or business cards. In fact, the architect-intern performed his drafting work free of charge at the offices of the architectural firm that had laid him off. The architectural firm was not affiliated in any way with the design company. The architect-intern performed drafting services for clients other than the design company, and even hired a friend to help him with an especially big drafting project. Meanwhile, the architect-intern spent his spare time preparing for the exams necessary to become a licensed architect. The licensing authority charged the architect-intern hundreds of dollars to take each exam.

The Oregon Employment Department sent the design company a letter notifying it that it was past due on its employment tax payments because it hadn’t been paying taxes on the amounts it paid the architect-intern. The design company argued that it didn’t owe employment taxes for the architect-intern because he was an independent contractor under ORS 670.600. (Employers must pay employment taxes on wages they pay their employees, but not for amounts they pay independent contractors.)

The Definition Of "Independent Contractor" Under Oregon Law

ORS 670.600 says that, for purposes of Oregon’s unemployment and workers’ compensation laws, an individual is only an independent contractor if a multi-part test is satisfied. The test has several different elements:

 

  1. The individual must be free from the employer’s direction and control. 
  2. The individual must operate an “independently established business,” which requires that three of the following five statements be true:
    1. The person maintains a business location separate from the employer
    2. The person bears the risk of loss related to the business
    3. The person provides services for two or more customers per year, or routinely engages in business advertising
    4. The person makes a significant investment in the business
    5. The person has the authority to hire and fire assistants.

At face value, the architect-intern appeared to satisfy the statute. The Employment Department agreed that he operated free from the design company’s direction and control and that he provided services to more than one customer per year. There was evidence in the record to show that the architect-intern indeed had the authority to hire and fire his assistants, and he completed his drafting work at a business location that didn’t belong to the design company. 

 

Just the same, the Employment Department, an Administrative Law Judge (“ALJ”) and the Oregon Court of Appeals all agreed that the architect-intern was an employee rather than an independent contractor.  So where did things go wrong? 

First, the court concluded that the architect-intern didn’t “maintain” a business location as the law required because he used the offices of the architectural firm that had laid him off to complete his drafting work, not space that he paid for himself.  The Court indicated that, to satisfy the “maintain” requirement, the individual must bear some responsibility to make the business location his own, although it offered few details about how that might be shown.  Second, the Court concluded that the architect-intern didn’t make a significant investment in his business, even though he spent thousands of dollars on his architectural licensing courses, because the architect’s license wasn’t necessary to his performance of drafting services for the design company.  Instead, the courses were necessary for his future career as an architect.

The Take Aways: How To Help Ensure Your Independent Contractors Are Really Independent Contractors

There are a few take-away points from the Court’s decision.  First, if your business has retained independent contractors to perform certain tasks, it probably makes sense to ask some questions about where they perform their work.  If they’ve set up shop for free at another business, without doing anything to suggest that the space is their own, the Court’s decision makes fairly clear that they won’t satisfy the separate-business-location element. Second, and more generally, if you’re unsure whether your relationship with an independent contractor will meet the statutory test, note how narrowly the Court parsed the requirements in this case. In a close case, the benefit of the doubt will almost certainly belong to the Employment Department.

Oregon Court of Appeals Upholds Enforceability of Employer Arbitration Agreement

In the recent case Hatkoff v. Portland Adventist Medical Center, the Oregon Court of Appeals affirmed enforcement of a company arbitration provision in an employee handbook requiring that a former employee bring his employment discrimination claims in binding arbitration. The Court’s opinion offers a straight-forward application of the law regarding the enforceability of arbitration agreements, and the outcome is probably not surprising.  Nevertheless, it contains a helpful and well-reasoned survey of the current state of Oregon law in this area, and provides another helpful case for Oregon employers interested in resolving employment disputes using arbitration or similar alternative dispute resolution (“ADR”) procedures. 

Arbitration Agreements Are Upheld Where They Are Not “Unconscionable”

Arbitration is a form of private ADR in which the parties agree to waive the right to go to court and instead adjudicate disputes privately before an arbitrator. In the employment context, arbitration can be a cost-effective and quicker alternative to litigation.  While the details of arbitration agreements can vary greatly, they may frequently be confidential (lawsuits are public proceedings), provide more limited procedures (especially with respect to discovery), require trial before a neutral arbitrator (not a jury), and provide a limited right to appeal. In general, Oregon courts, like most courts, uphold such employment arbitration agreements as long as they are not “unconscionable,” either procedurally (with respect to how the agreement was formed) or substantively (with respect to its terms).

The Oregon Court of Appeals applied this analysis to find Portland Adventist’s “Grievance and Arbitration Procedure” in an employee handbook was not unconscionable. It found the agreement was not substantively unconscionable, because while it did waive the right to a jury trial (like all arbitration agreements), it did not unreasonably limit the employee's rights or remedies that would be available in court. Interestingly, the Court specifically held that the fact the agreement required that employees file a complaint within 90 days of the complained-of employment action was not substantively unconscionable, even though the applicable statute of limitations was one year. The Court also went on to find the agreement was not procedurally unconscionable: the employee, a sales and marketing professional, signed multiple acknowledgments that he received the employee handbook containing the arbitration agreement and was aware of what he had signed.

Law On Arbitration Continues To Develop

Despite the fact that many cases come out similarly to Hatkoff and the law on arbitration agreements is generally favorable for employers, the enforceability of such agreements is routinely litigated in employment cases. For that reason, and also because the unconscionability analysis is very fact-specific and the outcome can be very different in each case, arbitration continues to be a “hot” and fluid area of employment law both in Oregon and around the country. 

Sometimes that fluidity leads to conflicts in the law, such as between courts and legislatures.  For example, since 2008 Oregon has had a statute, ORS 36.620(5), that prohibits employee arbitration agreements under certain circumstances where the agreement does not contain “magic words” provided in the statute, and where the employee does not have at least 72 hours advance written notice before starting work (the legislature lowered the advance notice requirement to 72 hours in 2011; it originally required 14 days). However, that Oregon statute itself may be unenforceable, because it may be preempted by a federal statute, the Federal Arbitration Act (“FAA”), that strongly endorses the use of arbitration and contains no such limitation.  Several federal district courts in Oregon have found that ORS 36.620(5) is preempted by the FAA, and have enforced arbitration agreements that did not provide the advance notice required by that statute, although no Oregon state appellate court has yet considered the issue (the agreement in Hatkoff preceded the Oregon statute, so it was not a factor in the analysis in that case).

Other potential conflicts exist not between state and federal law, but between different parts of federal law.  As we have blogged about previously , just such a conflict has been brewing between the U.S. Supreme Court and the National Labor Relations Board (“NLRB”) over whether arbitration agreements can include waivers of class action claims—the Supreme Court says they can; the NLRB says they violate federal labor laws allowing employees to engage in “concerted activity” relating to working conditions. We are waiting to see how the federal appellate courts resolve that conflict.

Ultimately, Hatkoff will likely stand, not as a departure from existing law, but instead as the latest in a series of federal and state cases over the past few years that are broadly supportive of employer efforts to utilize arbitration and ADR to resolve employment disputes.  But, as we've said, this continues to be an evolving area of employment law, so employers will need to stay tuned to new developments.

In the meantime, here are a few things employers should keep in mind when crafting arbitration agreements to maximize the chance they will be enforceable:

  • Make sure your arbitration agreement, whether a stand-alone agreement or part of a handbook, is clear, understandable, and well publicized.  Include the "magic words" in ORS 36.620 to make it expressly clear to employees that arbitration involves waiving some legal rights, especially the right to a jury trial.  Employees should sign acknowledgments that they have received and understand the agreement.  
  • If you have employees who don't speak English as a first language, have a translated version of the agreement to ensure it is understood.
  • Give new employees the 72 hour advance written notice required by ORS 36.620 wherever possible.  While some courts have found that statute is preempted and unenforceable, there's no guarantee every court will.
  • Under ORS 36.620, current employees can only sign arbitration agreements at the time of "bona fide" promotion or advancement.  Again, courts may find this requirement is also preempted and unenforceable, but if you can comply with it, all the better.  
  • Arbitrators are paid by the parties, unlike judges.  While in theory the parties can split the cost, the agreement should not impose costs on employees unreasonably in excess of what they would pay to file a lawsuit in court.  Many employers agree to pay a large portion, or even all, of the arbitration fees.
  • Specify the rules and procedures that will apply.  The American Arbitration Association's ("AAA") specific rules for employment arbitration are one option; other state or local arbitration forums are other (and sometimes cheaper) options.

Above all, work with your employment counsel in the crafting and implementation of the agreement.  Many enforceability pitfalls can be easily avoided with careful planning, but the devil can be in the details.  That is especially true for any state-specific rules or "gotchas," as arbitration agreements may be perfectly enforceable in some states but not in others.