AMERICAN BAR ASSOCIATION
SECTION OF LABOR & EMPLOYMENT LAW COMMITTEE ON FEDERAL LABOR STANDARDS LEGISLATION 2012 MIDWINTER MEETING REPORT OF THE SUBCOMMITTEE ON THE WORKER ADJUSTMENT & RETRAINING NOTIFICATION ACT AND THE EMPLOYEE POLYGRAPH PROTECTION ACT February 2012 Covering 2011 Case Law
NICHOLS KASTER Matthew C. Helland One Embarcadero Center, Suite 720 San Francisco, California 94111 Special Thanks to Law Clerk Sarah Kurachek Toll Free Telephone: (877) 448­0492 Email: [email protected] Website: www.nka.com and www.overtimecases.com CONTENTS RECENT DEVELOPMENTS UNDER THE WARN ACT ................................................................................................. 1 I. EMPLOYER LIABILITY—29 U.S.C. § 2101(A)(1), 20 C.F.R. § 639.3(A)(2). ................................. 1 II. STATUTORY TERMS AND DEFINITIONS . .................................................................................................. 3 A. PLANT CLOSING—29 U.S.C. § 2101(A)(2), 20 C.F.R. § 639.3(J). .............................................. 3 B. MASS LAYOFF—29 U.S.C. § 2101(A)(3). ........................................................................................ 4 C. AFFECTED EMPLOYEE —29 U.S.C. §2101(A)(5). ........................................................................... 5 D. EMPLOYMENT LOSS—29 U.S.C. §2101(A)(6). ............................................................................... 6 1. VOLUNTARY DEPARTURE —29 U.S.C. § 2101(a)(6)(A). .................................................... 6 2. MAKE­WHOLE COMPENSATORY PROVISIONS – 29 U.S.C. § 2104(A)(1)(A) ........................... 8 3. SALE OF BUSINESS EXCLUSION – 29 U.S.C. § 2101(b). .......................................................... 8 III. AFFIRMATIVE DEFENSES. .......................................................................................................................... 9 A. THE UNFORESEEABLE BUSINESS CIRCUMSTANCE EXCEPTION—29 U.S.C. § 2102(b)(2)(A). ......... 9 B. FALTERING COMPANY EXCEPTION ­ 29 U.S.C. § 2102(B)(3). ..................................................... 11 IV. OTHER MISCELLANEOUS ISSUES ...................................................................................................................... 12 RECENT DEVELOPMENTS UNDER THE EMPLOYEE POLYGRAPH PROTECTION ACT (EPPA) ............................. 18 I. PLEADING AN EPPA CLAIM. .................................................................................................................. 18 II. PROHIBITIONS ON LIE DETECTOR USE – 29 U.S.C. § 2002(1) ........................................................ 20 III. EMPLOYER STATUS ................................................................................................................................. 20 IV. ONGOING INVESTIGATION EXEMPTION – 29 U.S.C. § 2006(D) ........................................................ 21 RECENT DEVELOPMENTS UNDER THE WARN ACT
I. EMPLOYER LIABILITY—29 U.S.C. § 2101(a)(1), 20 C.F.R. § 639.3(a)(2). Ferrer v. Citigroup Global Markets, Inc., No. 09-CV-5095 (NGG) (JMA), 2011 WL
1322296 (E.D.N.Y. Mar. 31, 2011) (applying five factor DOL test to grant defendant’s
motion to dismiss)
Morgan Stanley-Smith Barney (“MSSB”) entered into an agreement with Broadridge
Financial Solutions, Inc. (“Broadridge”) to outsource the work performed by its Business
Document Services Department (“BDS”). Consequently, MSSB terminated its BDS
employees and did not provide notice in advance of termination. Plaintiffs, former BDS
employees, allege MSSB and Citigroup Global Markets, Inc. (“Citi”) violated federal and
New York state WARN Acts by failing to provide statutorily required notice (60 days
under the federal WARN Act; 90 days under the New York WARN Act). Defendants
moved to dismiss, which the Court granted in part and denied in part.
The Court dismissed Citi from the complaint, as it was not an employer under the WARN
Act. In doing so, the Court acknowledged that the Second Circuit has not ruled on what
test governs whether a parent or other related entity can be held liable as an “employer”
under the WARN Act, but employed the Department of Labor’s five factor test
enumerated in the regulations: (1) common ownership, (2) common directors and/or
officers, (3) de facto exercise of control, (4) unity of personnel policies emanating from a
common source, and (5) the dependency of operations. 20 C.F.R. § 639.3(a)(2).
Plaintiffs failed to allege facts that could plausibly establish that Citi was their employer.
The Court emphasized “Plaintiffs’ Complaint included only one statement that suggested
any relationship between MSSB and Citigroup . . . ‘Morgan Stanley—Smith Barney is a
joint venture . . . launched in June 2009 in which Citi is a 49% stakeholder.’” While this
may satisfy the “common ownership” factor of the test, Plaintiffs did not allege any other
facts speaking to the other factors. As such, Citi was dismissed.
Guippone v. BH S & B Holdings, LLC, No. 09 Civ. 1029 (CM), 2011 WL 6288396
(S.D.N.Y. Dec. 15, 2011) (denying Plaintiff’s motion for summary judgment and granting
Defendant’s motion for summary judgment on single employer theory)
Plaintiff and Defendant BHY S & B Holdco, LLC (“Holdco”) simultaneously moved for
summary judgment on whether Holdco and its subsidiary, BH S & B Holdings, LLC
(“Holdings”), were a single employer. The Court granted summary judgment in favor of
Defendant Holdco.
The Court applied the five Department of Labor factors to determine when related
corporations may be subjected to liability as a single employer: (1) common ownership,
(2) common directors and/or officers, (3) de facto exercise of control, (4) unity of
1 personnel policies emanating from a common source, and (5) the dependence of
operations. 20 C.F.R. § 639.3(a)(2).
The parties did not dispute that Holdco was the sole member and manager of Holdings.
However, the Court noted this finding was of limited significance because stock
ownership alone is not grounds for holding a parent liable for a subsidiary’s actions. The
Court found one individual was a common director and/or officer among the two entities,
and, again, noted this carries only minimal importance. As for de facto exercise of
control, the Court stated “single employer liability attaches only when a parent disregards
corporate form and actually makes a decision giving rise to a WARN claim at issue.”
The Court found no evidence to suggest Holdco ordered anyone to do anything with
regard to the layoffs. As for unity of personnel policies, the Court admitted Holdco was
the only member and manager of Holdings. In addition, a Holdco board member
commented that he had an open door policy for Holdings employees and another Holdco
board member expressed concerns about keeping layoffs to a minimum. The Court
determined those comments did not establish Holdings and Holdco functioned in unity.
Finally, the Court stated the fifth factor, dependence of operations, “cannot be met by a
parent’s exercise of ordinary powers of ownership.” Plaintiff failed to show Holdco
abused the corporate form by comingling assets, administrative services, employees, or
equipment.
Bagwell v. Peachtree Doors & Windows, Inc., 2:08-CV-191-RWS-SSC, 2011 WL
1497831 (N.D. Ga. Feb. 8, 2011) report and recommendation adopted, 2:08-CV-0191RWS, 2011 WL 1497658 (N.D. Ga. Apr. 19, 2011) (denying Plaintiffs’ motion for
summary judgment on single employer theory and successor liability)
Defendants were a collection of companies who manufactured and sold windows and
doors. Plaintiffs were former employees at Defendants’ Gainesville, GA plant.
Defendants decided to close the Gainesville plant and transfer operations to Mosinee, WI.
Plaintiffs argued that all Defendants were a single employer for purposes of their Title
VII and WARN Act claims. The Magistrate found Defendants were not a single
employer under Title VII and came to the same conclusion for purposes of the WARN
Act, noting the factors were the same under 20 C.F.R. § 639.3(a)(2).
The Magistrate found there was evidence of common management, ownership, financial
control, and interrelation of operations. For example, the leadership personnel of the
companies served in dual roles, several members of the “executive team” served in dual
roles, the companies shared employees, the companies were represented in this lawsuit by
the same lawyers, job openings across Defendants’ companies were posted on the same
website, and the Human Resources manager supervised employees of all the companies.
However, the Magistrate concluded the extent of interrelatedness was in dispute and who
controlled employment decisions was unclear. Thus, Plaintiffs were not entitled to
summary judgment on the issue of whether Defendants were a single employer under
either Title VII or the WARN Act.
2 In re Tweeter Opco, LLC., 453 B.R. 534 (Bankr. D. Del. 2011) (granting Plaintiffs’
motion for summary judgment and denying Defendants’ motion for summary judgment,
holding Plaintiff established “single employer liability”)
Debtor filed voluntary chapter 11 bankruptcy which was subsequently converted to
chapter 7. Plaintiffs, former employees of Debtor who were fired without the 60 days
written notice as required by WARN Act, commenced a class action proceeding against
Debtor and Schultze Asset Management, LLC (“SAM”), Debtor’s indirect upstream
owner. Parties filed cross motions for summary judgment regarding (1) whether SAM
and Debtor were a single employer; (2) if so, whether SAM was entitled to the faltering
company exception; and (3) whether Debtor acted in good faith, precluding damages.
After establishing Plaintiffs pled each element of the WARN Act, the Court granted
summary judgment in favor of Plaintiffs on single employer liability. The Court
employed the five-factor Department of Labor single-employer test, examining: (1)
common ownership, (2) common directors and/or officers, (3) the de facto exercise of
control, (4) unity of personnel policies emanating from a common source, and (5) the
dependence of operations between the entities. The Court cited heavily to Pearson v.
Component Tech. Corp., 247 F.3d 471, 495 (3d Cir. 2001) in its analysis of these factors.
Plaintiffs failed to address the final two factors (unity of personnel policies and
dependence of operations), and the Court found no evidence supporting either of these
factors relating to SAM and Debtor. However, Plaintiff established the other three
factors. First, rejecting a per se rule that distantly related corporate affiliates, such as
“grandparents,” cannot share common ownership with an indirect subsidiary (as held in
Guippone v. BH S & B Holdings LLC, No. 09 Civ. 1029 (CM), 2010 WL 2077189
(S.D.N.Y. May 18, 2010)), the Court determined Plaintiffs showed SAM had significant
indirect ownership interests in the Debtor and exercised financial control over the Debtor
through its lender relationship (“Financial control itself is sufficient to satisfy the
common ownership factor.”). Second, only one common director and/or officer was
shared between Debtor and SAM, but that same individual executed documents, was a
managing member and owner of SAM, and was a de facto boss of all SAM employees.
Third, Plaintiff established de facto control by SAM of the Debtor’s employment
practices. The Court noted this factor “carries special weight in the five-factor test.”
Furthermore, if such control was “particularly egregious,” as in this case, liability was
warranted. A letter evidenced SAM’s control over Debtor, SAM’s de facto CEO ordered
terminations of employees of Debtor, SAM employees sat on Debtor’s board, and SAM
inside counsel supervised those individuals.
II. STATUTORY TERMS AND DEFINITIONS . A. PLANT CLOSING—29 U.S.C. § 2101(a)(2), 20 C.F.R. § 639.3(j). Bagwell v. Peachtree Doors & Windows, Inc., 2:08-CV-191-RWS-SSC, 2011 WL
1497831 (N.D. Ga. Feb. 8, 2011) report and recommendation adopted, 2:08-CV-0191RWS, 2011 WL 1497658 (N.D. Ga. Apr. 19, 2011) (denying Plaintiffs’ and Defendants’
3 motions for summary judgment, examining definition of “operating unit” within “plant
closing”)
The parties did not dispute that no Plaintiff received 60 days notice or that Defendant laid
off more than 50 employees within a 30 day period. However, the parties disputed
whether Defendants’ layoffs resulted from a “plant closing.” Both parties relied on
Pavao v. Brown & Sharpe Manufacturing Co., 844 F.Supp. 890 (D.R.I. 1994). In that
decision, the court found Defendant’s “Consolidated Parts Department” (CPD)
constituted an “operating unit” and the shutdown of that unit was a “plant closing.” The
CPD had its own managers, its own separate budget separate cost center accounting
number, and its own separate workforce. Id. at 895. Defendant created a separate
organizational and operating structure and “[a]s the DOL regulations make clear, such a
separate organizational structure, imposed by the employer, is at the heart of the
definition of an operating unit for purposes of WARN.” Id. at 895.
Defendants argued they did not shut down an operating unit: some departments made
parts for different product lines; the plant was managed at the plant level, rather than the
department level; department supervisors had limited responsibilities; supervisors were
assigned to oversee multiple departments; and employees frequently switched
departments, but such moves were not tracked by departments for accounting purposes.
Plaintiffs argued in the opposite: distinct product lines were shut down; the plant’s
departments had their own budgets and separate payroll and overtime; employees were
assigned to departments; and employees’ time was tracked so that labor was charged to
the appropriate department.
The Magistrate held the evidence concerning whether the Gainesville plant was an “an
organizationally or operationally distinct product, operation, or specific work function,”
20 C.F.R. § 639.3(j), was in dispute and both parties failed to demonstrate the absence of
a genuine issue of material fact that issue.
B. MASS LAYOFF—29 U.S.C. § 2101(a)(3). Sanders v. Kohler Co., 641 F.3d 290 (8th Cir. 2011) (affirming district court’s grant of
summary judgment to Defendants, as employees whose positions were replaced by union
employees returning to work were not part of a reduction in force and employer did not
create new positions when it hired replacement workers during strike)
Appellants alleged Defendant hired them as temporary workers during a strike and then
dismissed them when the strike ended without providing notice as required by the
WARN Act. The district court, granting Defendant’s motion for summary judgment,
held Appellants failed to establish a “mass layoff” occurred. The Eighth Circuit
affirmed.
Agreeing with the Sixth Circuit in Oil, Chemical, and Atomic Workers Int’l Union v.
RMI Titanium Co., 199 F.3d 881 (6th Cir. 2000), the Eighth Circuit held employees who
are fired but replaced by temporary workers are not part of a reduction in force and do
4 not count as part of the aggregate number of employee layoffs that must be met to satisfy
the numerosity thresholds of the WARN Act under Section 2101(a)(3). “When a
company fires one worker and replaces him with another, there is no net loss in the
number of employees and no ‘reduction in force’ as the term is commonly understood.”
C. AFFECTED EMPLOYEE —29 U.S.C. §2101(a)(5). Bledsoe v. Emery Worldwide Airlines, Inc., 635 F.3d 836 (6th Cir. 2011), reh’g denied
(Mar. 9, 2011), cert. denied 132 S.Ct. 114 (Oct. 3, 2011) (affirming order denying
Plaintiffs’ request for a jury trial right and decision Plaintiffs were not “affected employees”
as they had no reasonable expectation of recall)
Plaintiffs represented a class of former employees of Emery Worldwide Airlines, Inc.
(“EWA”), a wholly owned subsidiary of CNF Corp. (“CNF”). EWA came under greater
oversight by the Federal Aviation Administration (FAA) which eventually resulted in the
grounding of EWA’s planes and a temporary layoff of over 500 employees. Those
employees received letters stating if EWA was able to resolve issues with the FAA, the
layoffs should last less than six months. However, CNF ultimately concluded it would
close EWA and alerted the remaining employees of a 60 day layoff with pay pending
termination. The previously laid off employees were notified that their layoffs were
permanent without affording them advance notice or pay in lieu thereof.
After conditionally granting certification and defining Plaintiffs’ class of the over 500
initially laid off employees, the federal district court for the Southern District of Ohio
granted Defendants’ motion to strike Plaintiffs’ jury demand, conducted a bench trial, and
found no employment loss occurred and Plaintiffs were not “affected employees.”
Plaintiffs appealed, and the Sixth Circuit affirmed.
EWA sent three sets of letters to Plaintiffs concerning the layoffs. The first stated
EWA’s expectation that “the furlough . . . should last less than six (6) months [if it was
able to resolve issues with the FAA], although it [was] impossible to determine with any
certainty.” The second set notified Plaintiffs that EWA and FAA entered into a
settlement agreement but it was still “impossible to determine with any certainty the
timeline for resolving issues with the FAA” and EWA had “no plans to recall any
furloughed employee [but employees would] be called back to work as soon as the need
for each position [arose].” The FAA subsequently imposed additional requirements prior
to EWA being able to resume flight operations. A third set of letters stated “the
implementation of the agreement with the FAA and the resumption of flight operations
will require a much greater expenditure of time and money than we originally believed,
therefore, it is now estimated that the layoffs will last longer than six (6) months. It has
not yet been determined whether the layoffs will be permanent or temporary. It is now
projected that flight operations will not be resumed before April 1, 2002.” Thereafter,
CNF ceased EWA’s operations based on economic considerations and uncertainty
between it and the FAA.
5 Based on these letters and evidence concerning the relationship between the FAA and
EWA, the district court found Plaintiffs were not “affected employees.” The Sixth
Circuit noted the reasonable expectation of recall is an objective inquiry—“whether a
reasonable employee, in the same or similar circumstances as the employees involved in
the case at hand, would be expected to be recalled.” The Court considered several
factors, such as (1) the past experience of the employer, (2) the employer’s future plans,
(3) the circumstances of the layoff, (4) the expected length of the layoff, and (5) industry
practice, in its analysis.
The Sixth Circuit highlighted the evidence supporting EWA’s attempts to work with the
FAA. The Court concluded economics of complying with the FAA standards did not
make sense. In addition, it highlighted the district court’s description of the letters which
“indicate[d] an increase in the expected length of the layoff period, an increasing
wariness of [EWA’s] ability to resolve the issues with the FAA, and a magnified
expression of the uncertainty about whether employees would ever be recalled,” such that
no reasonable employee would be left with an expectation of recall by the end of the final
set of letters.
D. EMPLOYMENT LOSS—29 U.S.C. §2101(a)(6). 1. VOLUNTARY DEPARTURE —29 U.S.C. § 2101(a)(6)(A). Collins v. Gee West Seattle LLC, 631 F.3d 1001 (9th Cir. 2011) (reversing and
remanding, holding employee who left job because business was closing suffered an
“employment loss”)
On Sept. 26, 2007, Defendant informed its 150 employees it was actively pursuing a
sale of the business, but it would close its doors on Oct. 7 if no buyer was found.
Employees stopped reporting to work, and Defendant was forced to close on Oct. 5.
Only 30 employees remained that day. The former employees sued, alleging
Defendant failed to provide 60 days notice before closing. The District Court granted
Summary Judgment for Defendant concluding the employees did not suffer an
employment loss because they voluntarily departed. The Ninth Circuit reversed.
The Ninth Circuit held if an employee leaves a job because the business is closing,
that employee has not “voluntarily departed,” but rather the employee has suffered an
“employment loss.” The Court reasoned “[u]nless there is some evidence of
imminent departure for reasons other than the shutdown, it is unreasonable to
conclude that employees voluntarily departed after receiving notice of the upcoming
closure.”
The Court rejected Defendant’s argument that because all but 30 employees left their
jobs of their own free will, Defendant’s closing did not qualify as a plant closing
under the WARN Act. Such an argument removes the onus on the employer to give
60 days notice and instead measures an employer’s liability based on the number of
6 employees remaining at the time of closure. Thus, employees who leave because a
business is closing are not voluntarily leaving, but leaving as a consequence of the
shutdown.
Ellis v. DHL Express Inc. (USA), 633 F.3d 522 (7th Cir. 2011), reh’g denied (Feb. 8,
2011), cert. denied 132 S. Ct. 102 (Oct. 3, 2011) (affirming summary judgment to
Defendants, construing departures acquired by severance agreements as “voluntary”)
DHL Express Inc. (“DHL”) and Deutsche Post AG (“Deutsche Post”), subsidiary and
parent companies, announced cessation of U.S. domestic shipping services,
“effectively sound[ing] the death knell for” some of DHL’s facilities.” The union
representing drivers and clerical workers at those facilities successfully negotiated
severance agreements with DHL which included a general waiver and release of
liability. Five hundred and six (506) workers signed the release and resigned,
accepting the severance pay and benefits. Workers who did not sign the plan retained
their seniority status, recall rights, and rights to bring legal claims against Defendant.
The District Court granted DHL’s motion for summary judgment because (1) the
layoffs, which occurred at five facilities, were not a “plant closing” at a “single site of
employment,” (2) the layoffs, which constituted less than 33% of the full time
workforce, were not a “mass layoff,” and (3) Plaintiffs failed to raise a genuine issue
of material fact regarding the voluntariness of the union-negotiated severance
agreements. In addition, the district court sua sponte granted summary judgment for
Deutsche Post. Plaintiff appealed and the Seventh Circuit affirmed.
The Seventh Circuit emphasized the strict numeric thresholds under the Act and
stated the importance of the 506 departures pursuant to the union-negotiated
severance agreements. If those departures are counted in the total number of affected
employees, DHL may have violated the WARN Act. The Court examined whether
those departures were “voluntary,” by examining the Secretary of Labor’s position on
voluntary departures and precedent involving the voluntariness of early retirement
offers.
The Court concluded the 506 workers, who admittedly had a difficult decision to
make in a short period of time, did so voluntarily. The Court highlighted “the need to
make a decision in a short time and under pressure is an unusual definition of
involuntary.” In addition, the Court noted employers, like DHL in this case, are
permitted to “gamble” that enough workers will accept their proffered incentive
packages to absolve them from potential WARN Act liability. Thus, Plaintiffs failed
to meet the WARN Act’s numeric threshold.
The Circuit Court also concluded the district court did not err in granted summary
judgment sua sponte to Deutsche Post. Plaintiffs were on notice that DHL was
pursuing summary judgment on claims common to both Defendants and the fact that
summary judgment was appropriate for DHL raised the necessary implication that
identical claims against Deutsche Post could not succeed.
7 2. MAKE­WHOLE COMPENSATORY PROVISIONS – 29 U.S.C. § 2104(A)(1)(A) Gray v. Walt Disney Co., Civil No. CCB-10-3000, 2011 WL 2115659 (D. Md. May
27, 2011) (denying Defendants’ motion to dismiss, construing pay provisions of Act)
Plaintiffs were notified on Jun. 16, 2010 that Defendant was closing their worksite.
Thereafter, Plaintiffs were placed on administrative leave for 60 days and paid based
on the weekly average of their total hours for the six months preceding the shutdown.
They were terminated on Aug. 15 and thereafter sued under the WARN Act. The
Court denied Defendants’ motion to dismiss.
First, the Court determined the parent company’s motion to dismiss for lack of
personal jurisdiction was premature. Whether Plaintiffs could prove that the
corporate veil should be pierced in order to attribute a subsidiary’s actions to the
parent company was a close call. In addition, Plaintiffs proffered at least some facts
suggesting the parent company was involved with terms of employment and
terminations at issue.
Second, the Court denied Defendants’ motion to dismiss on Plaintiffs’ WARN Act
claim. While the Court noted Fourth Circuit precedent protects “employees’
expectation of wages and benefits, not expectation of performing work,” Plaintiffs
plausibly asserted they would have earned significantly more money during the two
months they were on administrative leave. The six preceding months included the
slower winter season and severe storms which caused early closings. The amount
paid by Defendant was not based on the “make-whole compensatory provisions of the
Act,” which requires the higher of a three-year average or the final regular rate. 29
U.S.C. § 2104(a)(1)(A). Without discovery, it was not clear whether the alleged
reduction in pay, combined with the offset of severance, may have amounted to a
constructive termination triggering the compensatory provisions of the Act. In
addition, there were factual questions about the “voluntary and unconditional” nature
of the severance payments used to offset WARN Act payments.
3. SALE OF BUSINESS EXCLUSION – 29 U.S.C. § 2101(b). Day v. Trucking Services, Inc., No. 4:09CV00031 SWW, 2011 WL 4889247 (Oct. 13,
2011) (granting partial summary judgment for Plaintiffs on the issue of liability, finding
Defendant, buyer of former employer, was Plaintiffs’ employer at the time of sale and
was responsible for providing advance notice of layoffs)
Class of Plaintiffs, former employees of Continental Express, Inc. (“Continental”),
sued Defendant under the WARN Act, claiming Defendant purchased Continental
and terminated their employment without providing 60 days advance notice. The
District Court granted Plaintiffs’ motion for partial summary judgment.
8 The Court began by noting an exception to the Act’s definition of “employment loss,”
emphasizing “any person who is an employee of the seller . . . as of the effective date
of the sale shall be considered an employee of the purchaser immediately after the
effective date of the sale.” 29 U.S.C. § 2101(b)(1). As such, the WARN Act
allocates notice responsibility upon the party actually causing an employment loss
due to plant closing or mass layoff.
Defendant entered into an asset purchase agreement with Continental on Dec. 4th.
That same day, Plaintiffs alleged they were told for the first time that Continental had
been sold and their employment would end soon thereafter. Plaintiffs argued this sale
amounted to a sale of part or all of Continental’s business and they became
Defendant’s employees immediately after the sale. The Court agreed with Plaintiffs,
finding the undisputed evidence demonstrated Defendant purchased Continental’s
assets with the intent to run the business as a going concern, and, thus, Plaintiffs
became Defendant’s employees.
The Court rejected Defendant’s argument that Plaintiffs should be judicially estopped
from proceeding on their WARN Act claim. Some Plaintiffs allegedly filed breach of
contract actions against Continental in state court. However, those claims were not
inconsistent with Plaintiffs’ WARN Act claim.
III. AFFIRMATIVE DEFENSES. A. THE UNFORESEEABLE BUSINESS CIRCUMSTANCE EXCEPTION—29 U.S.C. § 2102(b)(2)(A). United Steel Workers of America Local 2660 v. U.S. Steel Corp., Civil No. 09-2223
(JRT/LIB), 2011 WL 3609490 (D. Minn. Aug. 16, 2011) (granting Defendant’s motion
for summary judgment on unforeseeable business circumstances defense, finding the
sudden economic downturn affecting Defendant’s business was unforeseeable and
Defendant provided sufficient notice)
Defendant’s business was affected by the sudden economic downturn of 2008.
During such periods of lower demand, Defendant idled blast furnaces, including one
it operated in Keewatin, MN. Such action was a “generally accepted” practice in the
steel industry. Ninety-seven percent of the Keewatin iron was used at two
steelmaking facilities to produce sheet steel for the construction and automotive
industries. As the economic crisis deepened, Defendant was required to take further
action, and laid off over 300 of the Keewatin employees. Plaintiffs, laid off
employees, sued, alleging Defendant failed to provide 60 days notice as required by
the WARN Act. Defendant asserted the “unforeseeable business circumstances”
exception applied, excusing it from providing notice. The District Court granted
Defendant’s motion for summary judgment.
9 The Court addressed the applicability of the exception by analyzing causation,
foreseeability, and sufficiency of the notice given. Causation was undisputed. On
foreseeability, the operative question was “when it was foreseeable that the downturn
would affect [Defendant] such that it knew it would have to lay off workers.” The
Court determined the economic downturn was well known 60 days prior to the date of
the layoffs. However, it was not obvious that such a decrease in demand for steel
would occur. Defendant had just finished a record quarter for demand of its products
and the government was considering a potential bailout of the auto industry. “Given
that [Defendant] was balancing the unprecedented high demand for steel and the
possibility of the government bailout of the auto industry, the choice to delay plant
closings [by idling blast furnaces] would not have raised the eyebrows of any prudent
business person [i.e., the choice was commercially reasonable].” As such, the Court
held Defendant was entitled to the exception.
The Court also found Defendant’s notice to be sufficient. Defendant’s notice stated
the layoffs were “due to the recent major and unanticipated downturn in the United
States and global economy, and the resultant sharply lowered demand for the plant’s
products.” Such notice was neither a mere recitation of the statute nor illusory.
In re Advanced Accessory Systems, LLC, 443 B.R. 756 (Bankr. E.D. Mich. 2011)
(granting Defendant’s motion for summary judgment, as Defendant was entitled to the
“unforeseeable business circumstances” exception to the WARN Act)
Defendant manufactured roof racks. Its customers were manufacturers within the
auto industry. Defendant began having problems with profitability in 2008 due to the
economic downturn in general, and, specifically, its affect on the auto industry. In
February 2009, Defendant’s plants closed, and in June 2009, Defendant filed for
chapter 7 bankruptcy. Plaintiffs, class of former employees, sued alleging Defendant
failed to provide 60 days advance notice of layoffs. Both parties filed for summary
judgment.
Defendant defended under the unforeseeable business circumstance exception. The
Court stated Defendant was entitled to the exception if (1) the circumstance was
unforeseeable; and (2) the layoffs were caused by that circumstance.
In addressing foreseeability, the Court emphasized a qualifying circumstance is an
objective inquiry, “caused by some sudden, dramatic, and unexpected action or
condition outside the employer’s control.” 20 C.F.R. 639.9(b)(1). The test for
foreseeability “focuses on commercially reasonable business judgment. The
employer must exercise such commercially reasonable business judgment as would a
similarly situated employer in predicting the demands of its particular market.” 20
C.F.R. 639.9(b)(2).
Defendant hired a financial advisor who advised Defendant on marketing and met
with Defendant’s customers to request funding. The Court determined this action
was commercially reasonable and consistent with similarly situated employers.
10 Defendant's goal was to sell the business as a going concern and Defendant adopted a
business strategy to accomplish that goal. However, Defendant’s customers’
decisions to terminate their business relationships were not foreseeable.
The Court also determined Defendant demonstrated that the customers’ transfer of its
work to alternative suppliers was the cause of the business closing. Although
Defendant had been having financial troubles for a while, the decision to shut the
business only came after Defendant had lost 95% of its customers in a 24 hour period.
In addition, the Court also found Defendant demonstrated it gave as much notice as
practicable under 29 U.S.C. § 2102(b)(3). Defendant was notified on Feb. 11 and
Feb. 12 that customers who purchased 95% of Defendant’s product were terminating
their business immediately. On Feb. 12, Defendant verbally explained to its
employees that its plants would close and provided reasons supporting that decision.
Finally, the Court rejected Plaintiffs’ contention that Defendant was not entitled to the
exception because Defendant did not provide written notice, and the notice was not
60 days prior to the plant closing. The Court stated the unforeseeable business
exception only requires notice that is practicable under the circumstances. “An
employer cannot give sixty days advance notice of the plant closing if, on the sixtieth
day before the plant closes, the employer still has a reasonable expectation that the
plant will remain open. The failure to give sixty days notice only defeats a
defendant's defense if the employer could have given sixty days notice and failed to
do so.” In this case, 60 days prior to closing its plants, Defendant still believed it
could sell its business as a going concern.
B. FALTERING COMPANY EXCEPTION ­ 29 U.S.C. § 2102(B)(3). In re Tweeter Opco, LLC., 453 B.R. 534 (Bankr. D. Del. 2011) (granting Plaintiffs’
motion for summary judgment and denying Defendants’ motion for summary judgment,
rejecting faltering company and good faith defenses) Earlier in its opinion, the Court determined Schultze Asset Management, LLC
(“SAM”) and Debtor were a single employer. SAM raised faltering company and
good faith defenses. The Court rejected both.
The faltering company exception is a statutory excuse for non-compliance with the
60day notice requirement under the WARN Act. SAM asserted Debtor had
insufficient capital to continue functioning and, thus, was in a faltering state.
The faltering company exception requires an employer to (1) give as much notice as
is practicable and (2) set forth specific facts in the notice that explain the reason for
reducing the notice period. 29 U.S.C. § 2102)b)(3). The Court only examined the
second factor. Debtor’s notices stated, “[D]ue to adverse business conditions outside
our control, we are not able to give you advance notice,” and “As a result of our
bankruptcy filing and the elimination of some services to our customers, today we are
11 conducting a significant reduction in our workforce and your position is directly
affected by this reduction.” The Court held these notices failed to set forth specific
facts in giving notice that explain the reason for reducing the notice period. Quoting
Grimmer v. Lord Day & Lord, 937 F.Supp. 255 (S.D.N.Y. 1996), the Court stated
“Congress indicated that it intended something more than a citation to the statute or a
conclusory statement summarizing the statutory provision,” and, instead, an employer
must set forth specific facts that explain to workers why the shortened notice period
was necessary.
The Court rejected SAM’s good faith defense because it failed to raise it in its
answer.
IV. OTHER MISCELLANEOUS ISSUES Guippone v. Bay Harbour Management, LC, 434 Fed.Appx. 4 (2d Cir. 2011) (dismissing
appeal for lack of jurisdiction)
The District Court for the Southern District of New York granted Defendants motion to
dismiss Plaintiffs’ complaint alleging WARN Act violations and entered partial final
judgment in favor of Defendants. Plaintiff appealed, arguing entry of partial final
judgment in favor of Defendants under Rule 54(b) was improper because the court failed
to give a reasoned explanation for entering partial final judgment.
The Second Circuit dismissed the appeal for lack of appellate jurisdiction. In this case,
the district court made no explanation as required in Rule 54(b). In fact, the Court noted
the district court’s order entering partial final judgment “was clearly inadequate.” But
because it reviews Rule 54(b) certifications for abuse of discretion, absence of a reasoned
explanation justified dismissal.
The Second Circuit also rejected Defendants’ reliance on Vona v. Cnty. of Niagara, 119
F.3d 201 (2d Cir. 2007) for the proposition that the district court’s order was proper. In
Vona, the case had been closed, leading the Court to determine there was a final
judgment. The instant case, however, was never closed, and proceedings were ongoing.
Bledsoe v. Emery Worldwide Airlines, Inc., 635 F.3d 836 (6th Cir. 2011), reh’g denied
(Mar. 9, 2011), cert. denied 132 S.Ct. 114 (Oct. 3, 2011) (affirming order denying
Plaintiffs’ request for a jury trial right and decision Plaintiffs were not “affected employees”
as they had no reasonable expectation of recall)
Plaintiffs appealed district court’s order denying a jury trial and the Sixth Circuit
affirmed. The Sixth Circuit examined the WARN Act in light of the Seventh
Amendment’s test for jury trials by (1) comparing the Act to 18th-century actions
brought in the courts of England prior to the merger of law and equity and (2) examining
the remedy sought and whether it is legal or equitable in nature. The Court agreed with
the district court’s comparison of the WARN Act to a breach of an employer's fiduciary
duty—an action equitable in nature. Similarly, the Court concluded the remedy sought
12 by Plaintiffs was equitable restitutionary relief because the WARN Act remedies restore
the pay and benefits that the employer should have provided to its aggrieved employees
during or in lieu of a 60–day notice period, the Act places the entire amount of the
liability in the district court’s discretion, and the Act is not akin to the FMLA, which is
recognized as providing a right to a jury trial on claims for damages.
Austen v. Catterton Partners V, LP, 3:09CV1257 MRK, 2011 WL 1374035 (D. Conn.
Apr. 6, 2011) (granting in part and denying in part Defendants’ motion to communicate with
putative class members, as no class certification motion had yet been granted and certain
restrictions on communications were appropriate)
Plaintiffs filed suit against Defendants for violations of the federal and California WARN
Act for failure to provide employees 60 days advance notice on the plant closing. Earlier
in the litigation, Plaintiffs motion for class certification was denied, but without prejudice
to renewal because additional discovery was needed to determine whether it would be
appropriate to certify a class. Thereafter, Defense counsel contacted the vice president of
human resources, who was a putative class member. The two had a prior working
relationship. Defendants then noticed a deposition of the vice president. The Court
encouraged another attorney to lead the deposition and even agreed to join the deposition
via telephone to encourage the putative Plaintiff to tell the truth and not be intimidated by
presence of her former colleague. Thereafter, the Court ordered the parties to submit
briefs on whether Defendants’ counsel could contact putative class members without
notice to Plaintiffs’ counsel and without presence of Plaintiffs’ counsel and whether
Plaintiffs’ counsel represented putative class members even though no class had yet been
certified. Plaintiffs had not yet renewed their motion for class certification and
Defendant Catterton moved for an order permitting them to contact putative class
members and clarifying the status of representation of putative class members.
The Court began with a lengthy analysis of Supreme Court and Second Circuit precedent
regarding the restriction of communications with putative class members. The Court
relied heavily on Gulf Oil v. Bernard, 452 U.S. 89 (1981) for imposing limited
restrictions on both parties’ communications. It also noted such communications
implicated ethical rules. It set out the following restrictions on both plaintiffs’ and
Defendants’ counsel: counsel must inform a putative class member that s/he is an
attorney, identify the party s/he represents in the case, inform the putative class member
s/he may be a plaintiff in the case, ask the putative class member if s/he is represented by
counsel or if s/he would like to consult one before engaging in communication, refrain
from communicating about opting out of a potential class or case settlement, keep a
detailed list of all the putative class members contacted prior to certification, and submit
those lists to the Court when class cert motion is filed.
Although the motion sought to clarify that counsel for named Plaintiffs do not yet
represent putative class members was granted in part and denied in part, the Court did not
explicitly analyze this issue in its opinion.
13 Sides v. Macon County Greyhound Park, Inc., No. 3:10-cv-895-MEF, 2011 WL 2728926
(M.D. Al. July 13, 2011) (granting Defendant’s motion to compel arbitration of Plaintiffs’
WARN Act claims)
Plaintiffs sought class action status under the WARN Act, alleging Defendants failed to
provide 60 days advance notice of a mass layoff. Defendants moved to compel
arbitration of two Plaintiffs. Those individuals signed a “Statement of Applicants” which
contained language requiring controversies arising out of employment with Defendant to
be resolved by arbitration. The Court granted Defendant’s motion.
The Court determined two issues were before it: whether the parties agreed to arbitrate
claims of the sort Plaintiffs have brought and whether any such agreement to arbitration
was unconscionable. The Court applied state-law principles governing contract
formation in determining whether the parties agreed to arbitrate. It concluded the parties
agreed to arbitrate because both parties assented to the terms of the agreement—Plaintiffs
signed the agreement, Defendant prepared offer of contract contained in the Statement of
Applicant, and Defendant hired Plaintiffs after they signed the contract. Even though the
Statement of Applicants contained one error and one misstatement, they were not enough
to render the arbitration agreement vague or unenforceable. In addition, the Court
summarily dismissed Plaintiffs’ unconscionability argument. There was nothing
unconscionable about the agreement and enforcement of the arbitration agreement did not
violate public policy. Interestingly, the Court did not address any of the recent Supreme
Court cases regarding arbitration.
Davis v. Signal Intern. LLC, No. 2:10-CV-62-TJW-CE, 2011 WL 2462296 (E.D. Tx.
June 17, 2011) (granting Defendants’ motion to transfer, but rejecting argument that proper
venue must be division in which wrong took place or employer transacts business)
Plaintiffs brought suit in the Eastern District of Texas, Marshall Division. Defendants
sought to transfer venue to the Beaumont Division of the Eastern District of Texas. The
Court began its analysis by rejecting Defendants’ argument that the only proper venue
under the WARN Act is the division where the alleged wrong occurred or where the
employer transactions business. The Court looked to the plain language of the Act,
which provides that a suit must be brought in any district court in which the violation is
alleged to have occurred or in which the employer transacts business. 29 U.S.C. §
2104(a)(5).
The Court then applied forum non conveniens factors. Even though this case had been
litigated in the Marshall Division for over a year and Defendants protracted bringing their
motion to transfer, other factors weighed in favor of transfer—specifically, relative ease
of access to sources of proof, cost of attendance for willing witnesses, and local interest.
As such, the Court determined the Defendants met their burden to show the Beaumont
Division was clearly more convenient than the Marshall Division.
14 Teamsters Local 705 Pension v. A.D. Conner, Inc., No. 10 C 6352, 2011 WL 1674839
(N.D. Ill. May 4, 2011) (denying Defendant’s motion to consolidate ERISA and WARN Act
cases)
Defendant sought to consolidate the instant case, alleging delinquent payments to ERISA
funds, with another case involving same Plaintiffs regarding WARN Act notice
requirements. The District Court denied Defendant’s motion.
A Local Rule required movant to show that the cases are related, i.e., involving some of
the same issues of fact or law or arising out of the same transaction or occurrence. In this
situation, both criteria were satisfied.
However, the Local Rule also required movant to show (1) both cases are pending in the
same Court, (2) the handling of both cases by the same judge is likely to result in a
substantial saving of judicial time and effort, (3) the earlier case has not progressed to a
point where designating a later filed case as related would be likely to delay the
proceedings in the earlier case substantially, and (4) the cases are susceptible of
disposition in a single proceeding. In addition, the Local Rule required movant to
“specifically identify in its motion why each of the four conditions . . . is met.”
Defendant failed to do so.
Finally, the Court determined that even if Defendant had indicated it met the four
conditions, it would deny the motion. The cases were fundamentally distinct (brought by
two different plaintiffs pursuant to two different statutes) and each required proof of
different factual elements. In addition, no common issues of law existed and the fact
issues differed substantially.
Service Employees Intern. Union, United Healthcare Workers—West v. Prime Health
Care Services, Inc., No. 10-16832, 2011 WL 5147897 (9th Cir. Nov. 1, 2011) (affirming
summary judgment for Defendant and holding Plaintiff waived argument in brief)
Plaintiff, Union representing healthcare workers, contended Defendant failed to notify
employees at least 60 days prior to a change in hospital management that resulted in a
workforce reduction and loss of union representation. District Court granted summary
judgment to Defendant. Plaintiff appealed, and the Ninth Circuit affirmed.
In Plaintiff’s brief, Plaintiff argued only that a mass layoff occurred at the hospital.
Plaintiff sent a letter to the court and verbally confirmed at oral argument that it was
withdrawing that contention, and, instead, Plaintiff sought to argue that the change in
hospital management constituted a plant closing. The Court held because Plaintiff did
not raise it in its opening brief, Plaintiff waived that argument.
Adams v. Columbus Lumber Co., LLC, Civil Action No. 3:10CV475TSL-MTP, 2011
WL 1899805 (S.D. Miss. May 19, 2011) (granting Defendants’ motion to dismiss, Plaintiffs
failed to respond)
15 Plaintiffs filed a class action alleging Defendant Columbus Lumber Company, LLC
failed to provide employees 60 days notice before closing one of its plants in violation of
the WARN Act. Plaintiffs also named the parent company (Brookhaven Sawmill
Company), Ross Arnold (majority owner of both companies), and Douglas Boykin
(shareholder of Brookhaven and officer/director of Columbus Lumber) as Defendants.
Brookhaven, Arnold, and Boykin moved to dismiss, and the District Court granted their
motion.
Brookhaven and Boykin moved to dismiss for failure to timely effect service of process.
Plaintiffs served both 95 days after filing of the complaint and failed to offer any
explanation why process was not timely served.
Arnold moved to dismiss on the basis that he was not properly served with process since
the individual served was not majority owner’s authorized agent. Because the 120 day
time period for service of process had passed, the opportunity to cure plaintiffs’
ineffective service had also passed. Plaintiffs offered no argument to the contrary.
Nieves v. Cmty. Choice Health Plan of Westchester, Inc., 08 CIV. 0321 VB PED, 2011
WL 5533328 (S.D.N.Y. Aug. 31, 2011) report and recommendation adopted, 08 CV 321
VB PED, 2011 WL 5531018 (S.D.N.Y. Nov. 14, 2011) (denying Plaintiffs’ motion to
enforce settlement, as settlement agreement draft contained merger clause exhibiting parties’
intent not to be bound in the absence of a signed writing; denying Defendant Mount
Vernon’s cross-motion to dismiss for lack of subject matter jurisdiction, as Defendant was
not a sovereign; denying Defendant CCHP’s motion for sanctions against Defendant Mount
Vernon, as Plaintiffs’ motion to enforce settlement agreement was denied and Defendant’s
sovereign immunity argument was not without color)
Plaintiffs filed class action suit against Community Choice Health Plan of Westchester,
Inc. (“CCHP”), Mount Vernon Neighborhood Health Center, Inc. (“Mount Vernon”) and
Sound Shore Medical Center of Westchester, Inc. (“Sound Shore”) alleging Defendants,
as a single employer, violated the WARN Act. Before discovery was completed, the
parties engaged in settlement discussions which resulted in an agreement to settle the
case. Plaintiffs’ counsel and counsel for CCHP worked on the necessary paperwork in
order to settle. After several drafts of the settlement documents were circulated, counsel
for Mount Vernon notified Plaintiffs’ counsel that his client was subject to legal
restrictions on its use of funds and could not participate in the settlement. The Magistrate
addressed three motions.
First, the Magistrate denied Plaintiffs’ motion seeking enforcement of the settlement.
The Magistrate applied a four-pronged balancing test to determine whether the parties,
who orally agreed to settle but failed to fully execute the necessary documents, intended
to be bound. The first factor, express reservation of the right not to be bound in the
absence of a signed writing, weighed “heavily” in favor of Mount Vernon. The draft of
the proposed settlement agreement contained a merger clause which was persuasive
evidence that the parties did not intend to be bound prior to the execution of a written
agreement. Similarly, other parts of the draft as well as other written material relevant to
16 the settlement discussions contained evidence that the parties intended to be bound only
by written and executed instrument.
The Magistrate noted this finding alone was sufficient to deny Plaintiffs’ motion. Still, it
analyzed the other factors in order to bolster its conclusion and found the remaining
factors—whether there had been partial performance of the contract, whether all terms
were agreed upon, and whether the agreement at issue was of a type of contract that is
usually committed to writing—all weighed against Plaintiff. However, the District Judge
disagreed with the Magistrate’s conclusion that there remained material terms upon
which the parties had not reached an agreement, but the importance of this conclusion
was minor, as it only weighed slightly in favor of finding an intention to be bound.
Second, the Magistrate denied Mount Vernon’s motion to dismiss for lack of subject
matter jurisdiction under the doctrine of sovereign immunity. Mount Vernon argued its
assets were immune from collection because the law and regulations restrict such
expenditures and Congress did not waive immunity for WARN Act claims. The
Magistrate rejected this argument, finding Mount Vernon was neither a sovereign nor an
agency or instrumentality of the United States.
The Magistrate further asserted its subject matter jurisdiction under the 28 USC § 1331 as
the complaint alleged a violation of the WARN Act which arises under federal law. It
also emphasized Mount Vernon may, in the future, seek to enjoin the acquisition of its
federal assets. However, such future action did not concern an issue before the court in
the instant action and did not divest the Court of its jurisdiction at present.
Finally, CCHP asserted Mount Vernon and its counsel should be sanctioned pursuant to
the Court’s inherent power to sanction and 29 USC § 1927 for unnecessarily protracting
the litigation by refusing to settle and raising the issue of sovereign immunity. Because
the Magistrate denied Plaintiffs’ motion to enforce the settlement agreement, there was
no basis to sanction Mount Vernon or its counsel for its conduct in relation to that matter.
In addition, the Magistrate noted Mount Vernon’s sovereign immunity argument was
irrelevant, but could be raised in the future, and, as such, that argument was not “entirely
without color.”
17 RECENT DEVELOPMENTS UNDER THE EMPLOYEE POLYGRAPH PROTECTION ACT (EPPA) I. PLEADING AN EPPA CLAIM. Bass v. Wendy’s of Downtown, Inc., No. 1:11 CV 0940, 2011 WL 3647920 (N.D. Ohio
Aug. 18, 2011) (preserving Plaintiff’s in forma pauperis EPPA claim as he may have stated a
claim).
Plaintiff worked for Defendant when he was told to take a polygraph test after company
funds were stolen. Plaintiff claimed he was innocent but expressed concern about taking
the test because he had previously failed a polygraph administered by a former employer.
As predicted, Plaintiff failed the test. Still, he was asked to return to work. Thereafter,
Plaintiff had a discordant relationship with Defendant and its employees. Plaintiff
eventually resigned after being accused of inappropriately touching another employee.
Plaintiff’s private files were released, including information regarding the polygraph
exam, during the course of an investigation of discrimination. After the EEOC provided
him with a Dismissal and Notice of Right to Sue, Plaintiff, pro se, timely filed a
complaint in forma pauperis alleging claims under Title VII, the ADEA, and the EPPA.
Specifically, Plaintiff claimed Defendant used the polygraph information to deny him a
full time management position in violation of the EPPA.
The Court dismissed Plaintiff’s discrimination claims, but allowed his EPPA claims to
survive. The Court began its examination of Plaintiff’s EPPA claim by noting the EPPA
severely restricts the use of lie detector devices by private employers. The Court
concluded Plaintiff may have stated a claim to the extent he argued that Defendant used
the results of his polygraph exam to deny him a promotion.
Miller v. Natural Resources Recovery, LLC, Civil Action No. 10-537, 2011 WL 3841641
(M.D. La. Aug. 29, 2011) (denying Defendant’s motions to dismiss, Plaintiff stated claim
under EPPA, Defendant failed to meet elements of EPPA’s “ongoing investigation”
exemption and other notice requirements, and construing “employer” under EPPA to
potentially include polygraph examiner and polygraph company)
Plaintiff was working for Natural Resources Recovery, LLC (“NRR”) when cash went
missing from NRR’s cash box. Plaintiff claims she was asked by an NRR office manager
whether she would take a polygraph examination. Plaintiff did not refuse to take the test
and, in fact, took it the next day. After the exam, Woody Overton (“Mr. Overton”),
owner of Overton Polygraph (“OP”) (collectively “Overton Defendants”) which
administered the test, stated she had failed the exam. In response, Plaintiff requested a
second exam, but because she had “clearly failed,” Mr. Overton denied her request.
Plaintiff alleged Mr. Overton told NRR senior management the results. After, Plaintiff
was told report to NRR’s main office, instead of her usual office, the next day. Plaintiff
received another call alerting her not to come in at all, and, instead, she was being
suspended with pay because of the polygraph results. Later, an NRR office manager
visited Plaintiff and took her office keys, work phone, and laptop, and told Plaintiff to
18 report to NRR’s main office. Plaintiff complied. She was presented with two choices:
either resigning and collecting unemployment benefits or participating in a second
polygraph exam. If she took the exam and failed, she would be fired. Conversely, if she
passed, she would be reinstated to her former position. Plaintiff opted for a second
polygraph exam and was told to locate a new polygraph examiner. At this point, Plaintiff
was also told she was suspended without pay until she passed the polygraph exam.
Plaintiff contacted another polygraph examiner which declined to administer the exam, as
he believed the request was a violation of the EPPA. Upon hearing this, Plaintiff
declined to participate in a second exam. NRR then placed her on indefinite suspension
without pay.
Plaintiff sued NRR, Mr. Overton, and OP for violating the EPPA, retaliating against her,
and other state law claims. All Defendants moved to dismiss. The Court denied their
motion.
First, the Court disagreed with NRR’s argument that Plaintiff’s consent to the first exam
absolved itself from liability. The Court could not find any Fifth Circuit cases that came
to that conclusion and, at any rate, the EPPA does not contain an exemption in cases
where an employer makes a prohibited request. Second, the Court disagreed with NRR’s
argument that the use of the polygraph was in conjunction with an ongoing investigation
of theft. NRR did not assert it executed a written statement pursuant to Section
2006(d)(4), an essential element of the exemption. Even if the exemption applied, NRR
failed to comply with other notice requirements of the EPPA, such as alerting the
employee scheduling and location, describing the instruments to be used, allowing
Plaintiff the opportunity to review all questions asked, and informing her of the right to
terminate the exam. Finally, the court flatly rejected NRR’s argument that Plaintiff was
unable to show she was terminated from employment. NRR was unable to cite authority
that indefinite suspension without pay does not amount to termination.
The Overton Defendants argued they were not “employers” within the meaning of the
EPPA. The Court noted a polygraph examiner ordinarily would not be deemed an
employer with respect to the examinees. However, the Court agreed with Plaintiff,
noting a polygraph examiner may be considered an employer for purposes of the EPPA,
depending upon the role the examiner played in the employer’s compliance with the
EPPA. Whether or not the Overton defendants were employers under the EPPA required
a factual inquiry beyond the scope of the pleadings.
Finally, the Defendants attacked Plaintiff’s retaliation claim in violation of the EPPA.
Again, the Court disagreed with Defendants. Plaintiff alleged NRR placed her on
indefinite suspension without pay because of her alleged failure of the polygraph exam
and her decision not to submit to a second exam. Given its prior conclusions on
Plaintiff’s complaint alleging violations of the EPPA, the Court found that she stated a
claim as to which relief may be granted against all Defendants and denied Defendants
motions.
19 II. PROHIBITIONS ON LIE DETECTOR USE – 29 U.S.C. § 2002(1) Sanchez v. Prudential Pizza, Inc., No. 10 cv 6289, 2011 WL 5373976 (N.D. Ill. Nov. 2,
2011) (granting Plaintiff’s motion for partial summary judgment, holding Defendant
indirectly suggested Plaintiff should submit to polygraph).
Plaintiff worked at restaurant owned by Prudential Pizza, Inc. (“Prudential”) when she
was allegedly sexually harassed by Alex Marquez (“Marquez”), a manager. An
investigation of the incident took place. Marquez stated the claim was a lie and he would
take a lie detector test to prove it. At a meeting with the Plaintiff, John Apostolou
(“Apostolou”), the primary shareholder of the restaurant’s franchisor, stated in a
deposition that he “told Juana Sanchez that Alex Marquez had indicated that he would be
willing to take a lie detector test.” Apostolou’s son testified in his deposition that his
father said to Plaintiff, “Alex is willing to take one, are you.” Plaintiff never took the test
and was ultimately terminated.
After Plaintiff was terminated, she filed suit alleging various claims, including a violation
of Section 2002(1) of the EPPA when Apostolou requested or suggested she take a lie
detector test. In the instant motion, Plaintiff moved for partial summary judgment on the
EPPA claim. The Court began by noting that the EPPA is interpreted “quite broadly.”
Even viewing the statement in the light most favorable to Apostolou, it held Apostolou’s
statement that Marquez was willing to take a lie detector test was an indirect suggestion
that Plaintiff should submit to one as well, rejecting Defendants’ argument that
Apostolou was merely repeating Marquez’s statement.
III. EMPLOYER STATUS Sanchez v. Prudential Pizza, Inc., No. 10 cv 6289, 2011 WL 5373976 (N.D. Ill. Nov. 2,
2011) (granting Plaintiff’s motion for partial summary judgment, construing “employer” to
include primary shareholder of franchisor-employer under EPPA)
Defendants argued the primary shareholder of franchisor-employer (“Apostolou”), was
not Plaintiff’s employer. The Court rejected this argument. The Court, following Rubin
v. Tourneau, 797 F. Supp. 247 (S.D.N.Y. 1992), which looked to the FLSA in construing
the term “employer.” In Rubin, the court held a person or entity acts in the interest of an
employer in relation to an employee if, as a matter of economic reality, that person or
entity exerts some degree of control over the employer’s compliance with the EPPA.
While Apostolou did not own the restaurant and was not Plaintiff’s supervisor or
manager, the entirety of the situation suggested that he acted in the interests of an
employer. Plaintiff met with Apostolou at his office building. In addition, the owner of
the franchise and restaurant in which she worked, as well as counsel, attended the
meeting. In this situation, Apostolou was acting indirectly in the interest of Plaintiff’s
direct employer when he made the indirect suggestion she submit to a polygraph exam,
20 thus, there was no genuine issue of material fact that Apostolou was an employer of
Plaintiff under the EPPA.
IV. ONGOING INVESTIGATION EXEMPTION – 29 U.S.C. § 2006(d) Cummings v. Washington Mutual, 650 F.3d 1386 (11th Cir. 2011) (affirming summary
judgment for Defendant on Plaintiff’s EPPA claim, examining “ongoing investigation” and
“reasonable suspicion” prongs of ongoing theft exemption)
Plaintiff managed two of Defendant’s branch locations. An audit resulted in a shortage
of approximately $58,000 from one of the branches. Surveillance camera images and
interviews with witnesses led investigators to believe Plaintiff and his employees violated
Defendant’s policy requiring two persons to be present when cash was being handled.
Investigators interviewed Plaintiff and asked him to take a polygraph test. Plaintiff
declined. Defendant terminated Plaintiff, but told him it was due to the policy violations,
not because he refused to take the polygraph exam. Plaintiff filed a complaint with the
Department of Labor, alleging Defendant violated the EPPA. The Department of Labor
informed Plaintiff his claim could not be substantiated. Plaintiff filed a civil action,
again, alleging Defendant violated the EPPA. The district court granted summary
judgment for Defendant. Plaintiff appealed.
The Eleventh Circuit affirmed summary judgment for Defendant on the EPPA claim.
First, Plaintiff argued district court erred concluding that an “ongoing investigation”
existed. Looking at the federal regulations, the Court noted an ongoing investigation
must be of a specific incident or activity. The Court determined Defendant was, in fact,
conducting an investigation of a specific incident. In addition, the Court rejected
Plaintiff’s argument that Defendant lacked evidence conclusively showing Plaintiff’s
violations of the policy pertained to the specific cash dispensers from which the funds
were missing. The regulations do not require employers to have conclusive evidence of a
violation before requesting or administering a polygraph test; the regulations require only
“additional evidence” suggesting that the employee in question “was involved in the
incident.” Defendant had obtained evidence—surveillance images and testimony from
other employees—of violations of the policy by Plaintiff and his employees. That policy
is designed for the specific purpose of preventing losses, as in the instant case.
Defendant’s request for polygraph testing was not the kind of “fishing expedition” that
the EPPA regulations prohibit.
Second, Plaintiff argued the district court erred concluding Defendant had a “reasonable
suspicion” of Plaintiff. Again, the Court looked to the Regulations: “reasonable
suspicion” is “an observable, articulable basis in fact which indicates that a particular
employee was involved in, or responsible for, an economic loss.” Mere “access or
opportunity, standing alone,” cannot establish a reasonable suspicion; but “the totality of
circumstances surrounding the access or opportunity (such as its unauthorized or unusual
nature or the fact that access was limited to a single individual) may constitute a factor in
determining whether there is a reasonable suspicion.” Information from co-workers can
also “be [a] factor[ ] in the basis for reasonable suspicion.”
21 Under the totality of the circumstances, Defendant had a reasonable suspicion that
Plaintiff was involved in the cash shortage. Only four other employees had access to the
areas from which the money was taken, and Plaintiff—as branch manager—was
responsible for all four of those employees. Defendant’s investigators viewed
photographic evidence that they believed showed Plaintiff and his employees accessing
money and secure areas in violation of the Dual Control Policy. And Plaintiff’s
coworkers corroborated that evidence, telling the investigators that Plaintiff repeatedly
violated the policy. These facts establish more than just that Plaintiff had the opportunity
to steal funds; they gave Defendant reason to believe that Plaintiff was actually
capitalizing on that opportunity. As such, Defendant had a “reasonable suspicion” of
Plaintiff.
22