The Next Asbestos? The Next FLSA?

Asbestos Litigation

A 2005 RAND report states that asbestos litigation arose as a result of millions of individuals’ exposure to asbestos and as a result of many asbestos product manufacturers’ failure to protect workers against exposure and failure to warn their workers to take adequate precautions against exposure. The history of the litigation has been shaped by the rise of a sophisticated and well-capitalized plaintiff bar, heightened media attention to litigation, and the information technology revolution.

According to the RAND report:

• At least 8,400 entities have been named as asbestos defendants through 2002.
• Defendants are distributed across most U.S. industries.
• Total spending on asbestos litigation through 2002 was about $70 billion, broken down as set out in the diagram below.

FLSA Litigation

The Fair Labor Standards Act (FLSA) is the federal law of broadest application governing minimum wage, overtime pay, and youth employment. Employees who are covered by the FLSA are entitled to be paid at least the Federal minimum wage as well as time and one-half their regular rates of pay for all hours worked over 40 in a workweek, unless an exemption applies.

Although FLSA litigation can involve a variety of claims, two of the most common are misclassification claims—i.e., allegations that an employer has misclassified an employee, or a group of employees, as exempt from the FLSA’s overtime requirements—and “off-the-clock” claims—i.e., allegations that an employee, or group of employees, has not been paid for all of the time they worked for the employers.

These and other claims under the FLSA can be brought individually or on behalf of all “similarly situated” employees and former employees. As a result, FLSA cases can involve a large number of employees and present significant financial exposure for employers. For instance, in 2008 Walmart agreed to pay as much as $640 million to settle 63 federal and state class actions claiming the company cheated hourly workers and forced them to work through breaks.

The multitude of wage and hour claims and lawsuits that workers have filed under the FLSA, and its state law counterparts, have made wage and hour law the nation’s fastest growing type of litigation. All industries (including retail, financial services, hospitality, construction, technology, and communications) have been susceptible to these lawsuits.

As shown in the graph to the left, the number of wage and hour lawsuits increased significantly over the past reporting year to 8,126, up another 4.7% over the prior 12-month period. 

This is the seventh straight year of increases in federal court wage and hour lawsuits and ups the continuing explosion in these cases over the past decade to 237% and since 2000 to 438%. 

Although anecdotal, a partner at a major labor and employment defense law firm believes that those numbers would be substantially greater if wage and hour lawsuits filed in state courts under state pay practices, tip laws, meal and rest break requirements, independent contractor rules, and the like, were added.

Employment Testing Litigation

Employment testing litigation will have many parallels with asbestos and FLSA litigation, but on an even larger scale.

There are potentially tens of millions of plaintiffs

• Any person who takes an assessment, if the assessment is determined to be a medical examination will be a plaintiff. Appellate courts have held consistently that the prohibition on medical examinations extends to all persons, including persons who are not disabled (see, e.g., decisions from the Second, Sixth, Eighth, Tenth and Eleventh Circuits).
• Any class of disabled persons (i.e., those with mental illness) where the assessment tends to screen out those persons from employment consideration. Unlike disparate impact claims under other employment discrimination laws the ADA  does not require statistical evidence if an expert can confirm that the test would screen out persons with disabilities or categories of disabilities.
• Federal and state agencies seeking to recover billions of dollars spent on SSDI/SSI disability awards, Medicare/Medicaid and other costs expended on persons who were illegally and invidiously discriminated against as a consequence of the use of employment assessments.

There are potentially hundreds of thousands of defendants

• Employers utilizing testing will face claims by (A) applicants and employees for both the illegal use of a pre-employment medical examination and the failure to treat information obtained from such medical examination as confidential medical information, (B) federal and state agencies seeking recovery of costs incurred (disability awards, Medicare/Medicaid, etc.) as a consequence of the illegal testing, (C) claims by insurers denying coverage and (D) claims by testing companies denying liability/rejecting indemnification.
• Testing companies will face claims by (A) applicants whose information was not treated as confidential medical information (a separate cause of action that does not require exhausting of remedies with the EEOC), (B) employers seeking indemnification from the testing companies for claims made against the employers by applicants, government agencies and others, and (C) claims by insurers denying coverage. 
• Insurance companies who underwrite policies for employers and testing companies will face claims from those they insure as well as individuals and government agencies making claims against those employers and testing companies.

Costs to employers, testing companies and their insurers will be in the tens (if not hundreds) of billions of dollars, including:

• Defense transaction costs, including the costs of outside counsel, internal management and employee time, public relations, lobbying, etc.
• Gross compensation, including awards to applicants and payment of costs and fees (i.e., counsel, expert witnesses, e-discovery).
• Reputational damage costs, including lost/reduced sales and brand damage.
• Business restructuring and/or “disinfectant” costs – The employers and testing companies retention and use of confidential medical information in violation of the ADA safeguards has resulted in the applications and solutions that illegally use this data. The data derived from the hundreds of millions of assessments over the past years has created a virus that has "infected" the employer and testing company solutions that integrate this data. 

Lovin It (Or Not) - McDonald's and the NLRB

The National Labor Relations Board (NLRB) announced on July 29, 2014 that its Office of General Counsel (OGC) authorized the filing of administrative complaints against franchise giant, McDonald’s USA LLC, for unfair labor practices involving workers at franchisee-owned restaurants.

The OGC said that it had investigated 181 cases of unlawful labor practices at McDonald’s franchise restaurants since 2012 and found sufficient merit in at least 43 cases to name McDonald’s as the workers’ “joint employer” creating a legal basis for holding McDonald’s responsible with the franchise owners for the labor violations.  The OGC's findings were made in the form of an Advice Memo supporting the OGC's legal theory. Since this is a matter of ongoing litigation, disclosure of the Advice Memo will not be made at this time.

The NLRB's rationale is likely found in the new “joint employer” test that it is pressing for in Browning-Ferris Industries of California, Inc., a non-franchise case. In its amicus brief, the OGC urges the NLRB to replace the current “joint employer” standard, which examines a company’s direct control over another company’s essential employment decisions specifically affecting hiring, firing, supervision and direction of employment, with the pre-1984 broader-based “industrial realities” test, which focuses on the “economic dependence” between two companies and assumes that a company effectively controls another company’s labor decisions if it dictates standards for every other variable of its business.

McDonald's HR Practices

Heather Smedstad, senior vice president, human resources, of McDonald’s USA, said in a statement that “this decision to allow unfair labor practice complaints to allege that McDonald’s is a joint employer with its franchisees is wrong. McDonald’s will contest this allegation in the appropriate forum.” In the statement, Ms. Smedstad also says that "McDonald’s does not direct or co-determine the hiring, termination, wages, hours, or any other essential terms and conditions of employment of our franchisees’ employees ..."

Ms. Smedstad's statement that McDonald's does not determine or help determine decisions on employment matters appears at odds with her executive bio on the McDonald's website which reads, in part, that "she has lead responsibility for ... execution of all areas of HR for McDonald’s U.S. business and its 14,000 restaurants." (emphasis added) Assuming the accuracy of Ms. Smedstad's bio, McDonald's appears to play a role in employment matters at franchisees, since 90% of those 14,000 restaurants are franchisee-owned.

McDonald's: Hiring Gatekeeper

The process of applying for an hourly job at a McDonald's franchisee requires the applicant to use the application process found on the McDonald's corporate website.  In addition to providing personal information, applicants are required to complete an online assessment. The assessment goes beyond testing skills and evaluating knowledge, and assesses cultural fit, behavior, and potential.

Applicants are required to choose between pairs of statements, including:

• I am usually a very stable person
• I often am not sure why I fell the way I do about certain things
• I am pretty good at understanding what other people are thinking
• If something very bad happens, it takes time before I'm happy again
• I am sometimes not in touch with my feelings
• Most of the time I am not interested in other people's problems
• I prefer to avoid difficult tasks, in case I end up making mistakes
• When I think about the future, I get worried because I know how difficult life can be
• Sometimes I find it hard to sympathize with others' feelings
• I do not like the idea of change, I like things the way they are
• I have certain ways of doing things which I do not like to change
• I am very disorganized, but it works for me
• New experiences often do not turn out well so I like to do what I already like
• I smile more often than not
• I get frustrated doing things in groups because most people are hard to get along with
• I am not very assertive because I do not want to upset anyone

In most instances, the first time the franchisee is aware of the applicant's interest in a job, the applicant has already had several employment-related actions with McDonald's. The franchisee is made aware of the applicant's interest by a report that not only contains personal information supplied by the applicant, but also the results of the assessment - including a dashboard of predictors, tagging the candidate as qualified or not qualified.

McDonald's active and ongoing control of the applicant intake and assessment portions of the hiring process for the franchisees contrasts sharply with its public claims. It is also at odds with advice being provided by labor and employment lawyers who represent employers. Rochelle Spandorf of Davis, Wright Tremaine, writes, "[T]he best advice for franchisors at the moment is to completely distance all operating advice from anything that could remotely be interpreted as suggesting or recommending particular employment practices." Similarly, John T. Lovett of Frost, Brown, Todd writes, "The more influence a franchisor has over the employment practices of the franchisee, the greater the likelihood that the franchisor will be found to be a "joint employer" with the franchisee."

Employment Testing: Hot Button Issue for EEOC and OFCCP

On October 30, 2013, the U.S. Department of Labor announced that federal construction contractor M.C. Dean Inc. had settled allegations that it failed to provide equal employment opportunity to 381 African American, Hispanic and Asian American workers who applied for jobs at the company's Dulles headquarters. A review by the department's Office of Federal Contract Compliance Programs determined that the contractor used a set of selection procedures, including invalid tests, which unfairly kept qualified minority candidates from securing jobs as apprentices and electricians.

"Our nation was built on the principles of fair play and equal opportunity, and artificial barriers that keep workers from securing good jobs violate those principles," said OFCCP Director Patricia A. Shiu. "I am pleased that this settlement will provide remedies to the affected workers and that M.C. Dean has agreed to invest significant resources to improve its hiring practices so that this never happens again."

Under the terms of the agreement, M.C. Dean will pay $875,000 in back wages and interest to 272 African American, 98 Hispanic and 11 Asian American job applicants who were denied employment in 2010. The contractor will also extend 39 job offers to the class members as opportunities become available. Additionally, M.C. Dean has agreed to undertake extensive self-monitoring measures and personnel training to ensure that all of its employment practices fully comply with Executive Order 11246, which prohibits federal contractors and subcontractors from discriminating in employment on the bases of race, color and national origin.

As stated in the Affirmative Action & OFCCP Law Advisor:  

This settlement provides (at least) two lessons to all federal contractors.  First, the OFCCP is digging deeper than just the overall applicant-to-hire adverse impact analyses.  Where there is overall applicant-to-hire adverse impact in the hiring process, the Agency will analyze each stage (screen, test, interview, offer, etc.) in the hiring processes for adverse impact.  Second, where there is adverse impact at the testing stage, employers must evaluate the validity of their “tests.”  In these cases, OFCCP will request and send the validation materials to its Industrial-Organization Psychologist for review, so it must be able to withstand scrutiny, including whether the test has been (i) validated recently, (ii) validated for the employer’s specific position, and (iii) that there are not less discriminatory methods for achieving the same predictive results of job performance.   

In particular, employers who are using employment tests that have never been validated, have not been validated for the specific position for which they are being used, have not been validated for their specific company, have not been reviewed by someone other than the testing vendor who created the test, or have not been revalidated as the position changed over time may not realize they may be “at risk” in these audits. 

In short, own each step of your hiring process – even if a third-party testing vendor created and/or administers your test, the employer will be held accountable if the test causes adverse impact and is not properly validated.  Employers need to get in front of these testing issues by analyzing the test’s potential adverse impact and existing validation to minimize exposure during audits.  Notably, this has also become a “hot button” for EEOC, so taking a close look at your tests can help minimize exposure to both OFCCP and EEOC claims.

Tests Discriminate Against Returning Veterans

As our armed forces demobilize from wars in Iraq and Afghanistan, a material segment of veterans returning to the civilian workforce - those soldiers suffering from post-traumatic stress disorder (PTSD) - will face challenges finding employment in the private sector.

After more than a decade of war, many U.S. military veterans have lived through extended periods of combat stress and the trauma of losing colleagues. Nearly one in five of the troops returning from Iraq and Afghanistan suffer from PTSD, according to a 2008 study by the Rand Corp. By contrast, a  national survey, conducted between February 2001 and April 2003, estimated lifetime prevalence of PTSD among adult Americans to be 6.8% - about one-third of the percentage of troops returning from Iraq and Afghanistan.

PTSD is an anxiety disorder that can develop in response to exposure to an extreme traumatic event. These traumatic events may include military combat, violent personal assaults, terrorist attacks, natural or man-made disasters, or serious accidents. The trauma can be directly experienced or witnessed in another person, and involves actual or threatened death, serious injury or threat to one's physical integrity. The person's response to the event is one of intense fear or helplessness.

High levels of neuroticism have been consistently correlated with PTSD. As noted in the ADA, FFM and DSM post, an employers profile for its assessment testing looks for low levels of neuroticism. Consequently, an FFM-based assessment screens out those suffering from PTSD from employment consideration. 

Numbers support the screening out of returning veterans. According to a recent Department of Labor report, the unemployment rate for male Gulf War II-era veterans (those serving at any time since September 11, 2001) age 18 to 24 was 20.0 percent. Pre-employment assessment testing is more broadly utilized as part of the recruiting and hiring process for entry-level positions, thus the focus on the 18-24 year old cohort.

In addition, when the Society for Human Resource Management surveyed its members in June 2010, 46% of respondents said they believed PTSD and other mental health issues was the third most significant challenge of hiring returning veterans.

A June 2012 report from the Center for a New American Security, a Washington, D.C.-based think tank, found executives from more than half of 69 leading companies had negative stereotypes about veterans because of concerns about combat stress. Gwen Ford, head of the San Jose nonprofit Project Hired that helps the disabled, including veterans, find employment, said companies have told her point-blank: Don't send us veterans with PTSD. "What they then hear from me is the lecture of their life because it's illegal to discriminate against someone with a disability," Ford said. 

Benefits of Employment

Employment enables many people with disabilities and combat-related conditions, including those with PTSD, to fully participate in society. In fact, according to the National Council on Disability, people who regain employment following the onset of a disability report higher life satisfaction and better adjustment than do people who are not employed. 

At the most fundamental level, employment generates income that is vital to individual and family economic well-being. Given how closely our identities are tied to our occupation, employment plays a critical role in maintaining our self-concept. Further, employment affords opportunities to experience success and build self-esteem, which are critical elements toward psychological health. It facilitates social interaction and connections that can reduce the isolation that is commonly experienced through depression and PTSD. For these reasons, gainful employment can be an important component in the recovery and rehabilitation of people with PTSD.

Click for additional information on PTSD resources