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Affirmative Action Lives: All You Need to Know About Gratz & Grutter

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As you probably know by now, today the U.S. Supreme Court issued the two opinions widely expected to determine the fate of affirmative action. Affirmative action proponents, after months of anxiety, were able to collectively breathe major sighs of relief with the issuance of the Court’s opinions. While the Court was split in the two opinions, striking down the University of Michigan’s undergraduate preferential admissions program, while preserving the law school’s problem, affirmative action still lives, as the Court affirms that race can be one of multiple factors (just not the only factor) a university considers when determining which students to offer admission.

Many commentators have already digested the opinions, which due to the number of concurrences and dissents, come in at a whopping 95 (Grutter) and 68 (Gratz) pages each. Given my impending departure for the NELA Annual Convention, and the wealth of existing commentary, here is a compilation of what is currently available on the web regarding these opinions:

Official Supreme Court opinion links

Grutter v. Bollinger, et al.

Gratz v. Bollinger, et al.

Cornell Legal Information Institute (HTML & PDF format, with links to all concurrences and dissents)

Grutter v. Bollinger, et al.

Gratz v. Bollinger, et al.

News Articles

Supreme Court Splits on Diversity Efforts at University of Michigan

Linda Greenhouse, New York Times

In Split Decision, Court Backs Affirmative Action

Charles Lane, Washington Post

Justices Pen Widely Varied Mich. Opinions

Darlene Superville (AP), Washington Post

Conservatives Call Affirmative Action Rulings ‘Disgusting’ and ‘Disappointing’

Robert B. Bluey, Cybercast News Service

Some Big Businesses Applaud High Court Decision on Affirmative Action

John Porretto (AP), Miami Herald

Both Sides Claim Victory in Supreme Court Ruling

David Runk (AP), Detroit News

Court Splits Over U-M Admissions

Sarah Kellogg, Ann Arbor News

Michigan Students Weigh In On Supreme Court Ruling

Shawn Windsor, Detroit Free Press

Listen Here (Real Player required)

Audio Report by NPR’s Nina Totenberg

Affirmative Action Timeline

Associated Press, Detroit News


Upholding the Status Quo

Debra Rosenberg, Newsweek

Anticlimactic Action: Does the Court give us the law we want?

Jeff Taylor, Reason Online

Press Releases/Statements

President Applauds Supreme Court for Recognizing Value of Diversity

Statement by the President, whitehouse.gov

Comments from University Leaders

University of Michigan News

Statement on Court Decision

Michigan Governor Jennifer Granholm

Civil Rights Coalition Calls Supreme Court Michigan Decision Victory for America

Leadership Conference on Civil Rights (LCCR)

While this case involving university and law school admission will not have a direct impact on the workplace, it nonetheless is of great significance to workplace diversity. University and law school graduates hold many positions of key positions of responsibility in the workplace. As the majority opinion in Grutter acknowledged,

universities, and in particular, law schools, represent the training ground for a large number of our Nation’s leaders….In order to cultivate a set of leaders with legitimacy in the eyes of the citizenry, it is necessary that the path to leadership be visibly open to talented and qualified individuals of every race and ethnicity. All members of our heterogeneous society must have confidence in the openness and integrity of the educational institutions that provide this training….Access to legal education (and thus the legal profession) must be inclusive of talented and qualified individuals of every race and ethnicity, so that all members of our heterogeneous society may participate in the educational institutions that provide the training and education necessary to succeed in America.

Today’s opinion ensures that this future leadership pool will continue to as diverse as possible. Moreover, the opinions reflect that for now, anyway, public and private affirmative action programs may continue, whether voluntary or required by law. An opinion which completely eviscerated affirmative action would have had a devastating effect on all diversity programs, even though those programs were not the subject of today’s opinion. Whether voluntary or mandatory, these programs are temporarily safe–although a Supreme Court vacancy could change things considerably, given the fractious nature of the opinions and the obvious division of the Court. So while today, we can breathe a little easier, we cannot completely abandon our vigilance.

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Say What? Now Active

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We have recently added to our site the feature “Say What?” which will include quotes about workplace issues and current events. As we scour the web for the most recent news, which we post in our Today’s News Headlines section, we will add the most noteworthy and interesting quotes to “say what?” on a regular basis. The most recent quote will be available on the left margin of most pages of our web site, while previous quotes will be archived at our “say what?” page in our site’s News and Issues section. While the archive is now practically empty, as we have just started to gather quotes, over time, the archive will become a valuable source for employment-related quotes, as well as pithy commentary on other current events affecting the workplace. And we’re always on the lookout for more good quotes, so if you run across something interesting, please submit it to us via e-mail. [Please be sure to include the internet link or source for the material.] We hope that you like this new feature, and that you will visit the site often to check for new quotes–we hope to do our part to keep it interesting!

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These Days, It’s All About Healthcare

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In a climate where large pay increases are increasingly hard to come by, guess what the main focus of negotiations between employees and employers these days is? You guessed, the cost of healthcare benefits. As insurance costs skyrocket, and employers seek to reduce these costs by reducing benefits and increasing employees share, employees and union negotiators are working hard to try to hold the line on these costs, so that workers don’t suffer a de facto pay decrease caused by paying significantly more each month for health benefits. Good health care is expensive–no doubt about it…and employees used to a certain level of benefits don’t want to see a decline. But will this cause employers seeking to hold the line on costs to also demand more accountability from employees for their lifestyle choices? We’ll see, but it could happen.

In Rockville, Maryland, employees are picketing a local department store, over the issue of who controls the employee health plan. At the Sym’s Department Store, workers hold protest signs and distribute leaflets to store customers over the store’s plan to take over control of the health plan, replacing a program jointly managed by the store’s union and management. (See Washington Post article.) Why all this fuss, when the store is not currently proposing to reduce benefits or charge employees more? Store employees Winona McCullough and Sophya Eydenson say it’s because health care is the most important issue for employees. Without the union’s involvement, employees could pay more in the future (especially since, employees claim, the company has refused to provide contractual guarantees preventing additional costs), so protesting the change now is important.

General Electric narrowly averted a strike after reaching an agreement with its employees who were members of the International Union of Electronic Workers-Communications Workers of America. (See New York Times article.) Again, the biggest issue at stake in these negotiations was health care: GE originally had hoped to have its employees shoulder 30 percent of overall health costs, while the union sought to maintain the current rate of 18%. G.E. executives argued early on that it was only fair for workers to absorb more of the health costs because the company’s health bill soared ann additional 45 percent, to $1.4 billion, last year, with the per worker cost rising to $6,500 this year. Union officials maintained that the General Electric, one of the world’s most profitable companies, should absorb the additional cost, as the company earned more than $45,000 in profits per employee last year. While workers’ health care costs will still go up significantly, as a result of the signed contract, they will not be assuming a greater percentage of the total as GE had originally sought, and an accompanying wage and benefit increase more than offsets the difference. (See GE Workers United release.)

The success of GE’s union is an example for other employees to emulate: experts predict that it will favorably influence upcoming negotiations at Verizon Communications and with the Big Three automakers, General Motors, Ford and DaimlerChrysler, where contracts all expire in September. The union attributes its success to a two-day walkout earlier this year, GE’s first national strike in over 30 years. According to IUE-CWA President Edward Fire, “[t]he two-day strike drew a line in the sand that GE could not cross. Our members won this settlement through their sacrifice on the picket line on those two bitterly cold days in the dead of winter this past January.” Employees at several other corporations have followed this approach as well: other recent walkouts include 3,000 employees at Hershey Foods Corp. who participated in a 44-day strike last year, a two-week strike by machinists at Lockheed Martin Corp. in April, and a three-week October strike by janitors in Boston.

Public employees will not be so lucky, however, as those at GE. The California Public Employees’ Retirement System (CalPERS) just announced an increase today in copayments for its 900,000 members insured by health maintenance organizations. (See San Diego Union Tribune article.) CalPERS’ premiums also went up as well, which will force public agencies, most already strapped for cash, to look for alternatives to CalPERS, and may ultimately cost employees more, depending on the outcome of future contract negotiations. (See San Francisco Chronicle article.)

Regardless of the outcome of future employee-employer negotiations over health care, and who bears the brunt of increased expenses, it appears likely that employers will increasingly be looking for ways to reduce health care costs. One recent article reports that a group of large employers, including Ford, General Mills and PepsiCo, have joined forces in a campaign to encourage overweight workers “to slim down as a way to improve both their personal health and the corporate bottom line.” (See New York Times article.) (I’m sure the products those companies sell have absolutely nothing to do with obesity, right?) The article, however, is relatively silent as to what corporate activities are planned, aside from posting nutritional information in company cafeterias, and encouraging employees to take the stairs (not feasible in some locations and for some individuals, including those who are already disabled or who have health problems resulting from severe obesity). Will the companies that don’t already do so: cover weight loss programs not currently covered by insurance plans? change the food sold in the company cafeteria and vending machines? provide on-site workout facilities? And with the ongoing battle about which weight loss plans are most effective (low-fat, low-carb, or a balanced plan), will the companies be forced to make controversial decisions about which plan to promote? Certainly employees should be on guard that plans to in some way penalize or discriminate overweight employees do not creep into these workplace initiatives, as weight discrimination is not sufficiently protected under the law in most parts of the country. (See Anti-Weight Discrimination Laws.) However, employers who are unable to pass along their health care cost increases onto employees, are also going to be looking for a way to hold the line on those expenses, so some workers may ultimately pay the price, not just in higher health care costs, but also in increased discrimination and employer involvement in their personal lifestyle choices.

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Proposed Overtime Changes: Bad News for Workers

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The Bush Administration is acting to make it easier for businesses to work employees longer hours without paying overtime compensation. While the proposed changes are being marketed as employee-friendly efforts to increase “flexibility” and benefit low-income workers, the reality is far different. Instead of trying to further weaken the rules, we should be strengthening what we already have. Comments on the proposed regulations are due on June 30, 2003, so the time to speak out is now.

The overtime rules under the Fair Labor Standards Act (FLSA) established the 40-hour workweek in 1938. By making every hour worked beyond 40 in a week 50% more expensive for the boss, the law discourages employers from assigning longer hours and rewards employees for the sacrifice of their personal or family time. Other than union contracts, the FLSA is the most important brake on longer work hours. The overtime law also helps limit the number of unemployed workers, by making it most cost-effective for employers to spread work around to more employees, rather than to employ a smaller number of overworked employees.

Few dispute that some change is definitely needed: for example, the salaries at which employees become exempt from the law’s protections were set in 1975. Federal law currently allows employees who make as little as $13,000 a year to be considered “highly paid executives” and denied overtime protection. They can be required to work 50, 60, or 70 hours a week with no pay beyond their set salaries. Businesses ranging from fast-food restaurants to insurance companies have exploited this unfair and ridiculous loophole in the law. Partly as a result of such loopholes, the average American — and especially the average woman — is working longer hours while wages fail to keep pace.

Instead of protecting more workers and improving enforcement of overtime laws, however, the proposal minimizes the number of people eligible for overtime protection, through changes proposed by the Department of Labor to the regulations interpreting the FLSA, and through its support of the Family Time Flexibility Act (HR 1119). The changes work in tandem, first to drastically narrow the number of employees who are eligible for overtime, and then to deny overtime pay to the few employees who remain eligible, by substituting comp time on the employer’s terms. By expanding the definitions of exempt “professional, administrative, and executive” employees, and by allowing employers to substitute comp time for overtime pay, the proposals will cut the cost to employers of longer work hours and seriously erode the 40-hour workweek.

Here are some of the proposed changes most likely to affect workers:

Salary Test

Serious problems arise from the fact that the salaries at which employees become exempt from the law’s protections were set in 1975. Federal law currently allows employees who make as little as $13,000 a year to be considered “highly paid executives” and denied overtime protection. They can be required to work 50, 60, or 70 hours a week with no pay beyond their set salaries. Businesses ranging from fast-food restaurants to insurance companies have exploited this unfair and ridiculous loophole in the law. Employees’ salary levels are a good indicator of whether or not they should be exempt from the overtime requirements of the FLSA. Employees who receive higher pay typically have more discretion, independent judgment in their jobs, and certainly have more economic power to bargain for better pay or working conditions.

Minimum salary threshold: While the increase in the minimum salary level above which an employee is presumed to be exempt may appear to benefit many low-income workers, the reality is far different. The Department of Labor’s estimate that as many as 1.3 million low-wage workers could benefit is simply not supportable. The proposed regulations raise the 1975 minimum salary level from $250 per week to $425 per week. Eighty percent of the workforce already makes $425 a week or more. Few of the remaining 20% of workers earning less than $425 per week qualify as legally exempt under the existing regulations, so the salary test revision does little, if anything, to help those workers. Also, as those who drafted the proposed regulations themselves acknowledge, there has already been more than a threefold increase in the consumer price index since 1975. Adjusted for inflation, the 1975 minimum threshold of $250 today equals $774 per week. This is almost twice as high as the minimum salary for exemption now proposed.

Maximum salary threshold: While it might not seem troubling at first that the new proposals make exempt from overtime any white collar worker making $65,000 or more annually regardless of duties, keep in mind that it has taken the Department of Labor 28 years to consider seriously raising the salary basis from $250 to $425 per week. If inflation continues as it has since the last time the minimum salary was set, it won’t be too long before $65,000 is worth only $22,000 of today’s dollars, which is $425 per week. As discussed in the preceding paragraph, 80 percent of the workforce today earns at least $425 per week. A very real possibility therefore exists that, when our grandchildren enter the workforce, only the bottom 20 percent will have even an arguable right to the 40-hour week. Both the minimum and maximum salary thresholds should have built-in adjustments for inflation, if they are to remain meaningful in future years.

The Executive, Administrative, and Professional Exceptions

Each of these three exceptions currently exist in the FLSA and regulations as an attempt to quantify the types of higher-level jobs that are intended to be exempt under the FLSA. Each individual’s employment situation is different, however, and technology affecting the workplace has evolved considerably since the FLSA was passed in the 1930s. Here are some of the proposed changes that will dramatically increase the pool of exempt employees not entitled to overtime pay:

Executive Exception: In an attempt to “simplify” the regulations, the Department of Labor has proposed to change the definition of “primary duty” used to determine whether the nature of the work performed by executive employees makes them exempt from overtime. The proposal would eliminate the important, current regulation that in order to be exempt, an employee performs non-exempt duties no more than 20% of the time. The proposed elimination of this guideline broadens the exemption to include workers who spend the majority of their time performing non-exempt duties. This would permit employers to manipulate job titles and evade overtime premium pay to low-level employees. Rather than simplify the regulations, the multi-factor “primary duty” test in the proposal will only increase the number of lawsuits concerning white collar exemptions.

The proposed regulations also consider changing the current requirement for the executive exemption that the employee supervise two or more employees. The proposal invites comments on whether that definition should be modified to include ‘the customary or regular leadership, alone or in combination with others, of two or more other employees’.” If this new, expanded definition of the executive exemption were to be adopted, employers could consider as few as two employees who are non-exempt (eligible for overtime) to be under the “leadership” of every other employee, which would make all the other employees meet the “executive” definition and thus make them ineligible for overtime. This is clearly not the appropriate standard for the executive exemption.

Administrative Exception: The proposed regulations would also modify the administrative exemption to replace the concept of “discretion and independent judgment” with a new requirement that the employee “hold a position of responsibility.” Contrary to the rule that a job title alone does not make a worker exempt, this rule proposes that the fact that an employee holds a “position of responsibility” is sufficient to meet the exemption. The proposed standard can be met merely by showing that the position requires a “high level of skill or training,” a term which is so loosely defined that practically any employee could qualify.

The proposal would eliminate the important, current regulation that in order to be exempt, an employee performs non-exempt duties no more than 20% of the time (40% for retail establishments). This change would broaden the exemption to include workers who spend the majority of their time on non-exempt duties, permitting employers to manipulate job titles and evade overtime premium pay to low-level employees.

Professional Exception: The proposal expands beyond the current standard that limits this exception to jobs requiring “advanced knowledge in a field of science or learning customarily acquired by a prolonged of specialized intellectual instruction,” for the first time allowing the advanced knowledge to also be acquired by work experience rather than education.

Other Proposed Changes Affecting Workers

Working Supervisors: The proposed rule’s descriptions of management duties for “working supervisors” and in retail establishments are too broad. The definitions would exempt from overtime fast food “managers” who spend the “majority of the time on non-exempt work.” This language makes it possible for fast food establishments to exempt nearly all line employees from receiving overtime pay. The “working supervisors” rule again emphasizes the job title of the employee, which violates the general principle that an employee’s job title is not sufficient to confer exempt status.

Sole Charge Executive: The proposed “sole charge executive” regulation would exempt from overtime anyone who receives a salary of $425 per week or more and is “in sole charge of an independent establishment or a physically separated branch establishment.” These employees will now be considered “bona fide executives,” regardless of whether their primary duty is management, they customarily and regularly direct the work of two or more employees, or have supervisor authority over any employees. This exemption is likely to result in one employee in each branch location to be considered to be a “bona fide executive” regardless of the individual’s performance of any management duties.

Many companies, such as retail car rental agencies, payday loan companies, ticket sales offices, and hot dog vendors, conduct business by opening very small branch offices which may only have one employee in the branch, whose primary duty is customer service. Under the proposed sole charge executive regulation, these individuals would likely be considered exempt from the overtime requirements without the company being required to establish that the individuals are truly “executives.”

No special exception to the general rules for executive employees is necessary for these individuals because if they are subject to the general rule for executive employees, they will be considered “bona fide executives” regardless of whether they are the sole person in charge of the branch. If these individuals do not meet this general rule, they do not have management as their primary duty and should not be considered exempt executives.

If the Department decides to include its proposed “sole charge executive” exemption in the proposed regulations, it must apply a minimum salary level to these individuals. Otherwise, companies will be allowed to place an individual in charge of a small branch establishment that has no other employees and pay that individual any pay rate (even a rate that is less than minimum wage) because this individual (as the de facto sole charge executive) will automatically be considered a “bona fide executive.”

Reductions in Pay for Partial-Day Absences: The current “no pay docking” rule, which prevents an employer from reducing an exempt employee’s pay for a partial-day absence, reflects the tradeoff that an employer must accept in exchange for the reality that exempt employees are paid to accomplish a job rather than by the hour, and that they often work far in excess of 40 hours per week. If an employer is permitted to dock an employee’s pay because an employee had to leave work early one afternoon, that employee is an hourly employee and not truly a salaried one.

The Department of Labor says permitting disciplinary deductions is a common sense change that will permit employers to hold exempt employees to the same standards of conduct as nonexempt hourly workers. 68 Fed. Reg. at 15572. Nothing in the current regulations prohibits employers from holding their exempt employees to the highest standards of conduct in their jobs. The regulations simply prohibit employers from docking exempt employees’ pay for disciplinary reasons.

The proposed regulations should also include a prohibition against reducing the employees’ benefits. If it is fundamentally unfair to dock an employees’ salary for working only part of a day, it is also fundamentally unfair to dock that employees’ vacation leave or other paid leave benefit.

Window of Correction: The proposed regulations allow for a “window of correction” which would give the employer a period of time in which to correct overtime violations before a lawsuit may be brought. However, the proposed regulations go too far, as they allow the employer to “correct” the problem at any time, even after litigation has been brought. An employer who deliberately makes deductions that it knows to be inconsistent with the salary basis test, and is then sued in an FLSA suit, could easily escape liability by merely correcting the problem.

No employer should be allowed access to the “window of correction” unless the employer meets a burden of establishing that any deductions made were “inadvertent,” that all deductions made were reimbursed as soon as they came to the employer’s attention, and that the employer has revised all of its rules, codes, policies, practices and procedures which leave no doubt that as a practical matter the affected employee will not be subject to such deductions in the future. As the proposed regulation stands, there is an extremely broad “safe harbor” provision, exceedingly difficult for employees to overcome, which, in practice, will only reward and encourage employers to knowingly break the law.

At the Workplace Fairness web site, we provide you with an opportunity to comment on some or all of these changes, and to have your comments delivered to the Department of Labor. If those most affected by the changes do not speak out, we have no hope of turning back some of the worst aspects of the proposals. As comments are due by June 30, 2003, it is critical that you act now, and forward this alert to colleagues, friends and family.

Comment on Proposed Changes to FLSA Overtime Regulations:

Speak Out Now to the Department of Labor

(note: some information for this blog entry was provided by the National Employment Lawyers Association, the National Employment Law Project and the Economic Policy Institute.)

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Class Action Fairness Act Passes House

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Yesterday (6/12), the House of Representatives passed the Class Action Fairness Act, a bill designed to move most class actions from state to federal court, where, it is perceived, judges will be less receptive to the rights of plaintiffs. (See Washington Post article.) The vote in the House was 253-170, generally but not exclusively along party lines, with a few Democrats joining the majority and two Republicans opposing the bill.

The bill now moves to the Senate, where a similar proposal, S 274, already has significant support, including endorsements from some Senate Democrats such as Sens. Dianne Feinstein of California, Blanche Lincoln of Arkansas, Herb Kohl of Wisconsin, Zell Miller of Georgia and Thomas Carper of Delaware. (See AP article.). While there have been efforts over the last several years to pass such legislation, and similar bills have passed the House three times, they have traditionally stalled in the Senate. If the Senate coalesces around a proposal this time, especially considering the support of the moderate Senate Democrats, then it is increasingly unlikely that this proposal can be stopped.

President Bush supports the proposal, and is expected to sign the bill if the two chambers can resolve the differences between the two bills. AP reports that the White House said Thursday that “[t]he bill will remove significant burdens on class-action litigants and provide greater protections for the victims whom the class-action device originally was designed to benefit.” The bill is also part of the President’s tort-reform agenda, driven by adviser Karl Rove (see Washington Post article) which includes medical malpractice reform and other measures designed to limit lawsuits and reduce the influence of trial lawyers.

The key differences between the House and Senate versions of the bill involve retroactivity. The House version is retroactive, and would apply to all class action lawsuits, even those already being heard. The Senate version is not retroactive, and only applies to class action lawsuits, and not to similar actions, including lawsuits consolidated into one case or state attorney general actions. House Republicans say the legislation needs to apply to all class action lawsuits, even the ones already being heard. That “language eliminates any incentive to rush to the courthouse to avoid the reforms contained in the legislation,” said Rep. Lamar Smith, R-Texas. “It also prevents individuals from being made part of a frivolous suit that has been filed before enactment of the new laws.” Both versions of the bill would require that class-action lawsuits in which the primary defendant and fewer than one-third of the plaintiffs were from the same state be heard in federal court.

As previously discussed in the April 1 blog entry, the Class Action Fairness Act is anything but fair to class action plaintiffs. The proponents of this bill have an interest in moving class actions to federal court, as federal court litigation can be more complex and costly. There are a number of rules applicable in federal courts that most states have not yet adopted that make litigation in federal court more time-consuming and expensive, and juries tend to be more conservative in federal court. The bill also contains a number of other provisions all designed to make it hard for employment and civil rights plaintiffs, as well as other groups of individuals who are taking on big business, to file a group lawsuit.

While it might not be possible to stop this proposal from charging forward, it is very important that your Senators hear from you. Let them know that your concept of “fairness” does not include proposals that make it much more difficult for those wronged by widespread and discriminatory practices to fight back in court.

Take Action Now: Oppose the Class Action “Fairness” Act

More Information on the Class Action Fairness Act:

Public Citizen’s Unfairness Incorporated: The Corporate Campaign Against Consumer Class Actions

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Happy 40th Anniversary, Equal Pay Act

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This week marks the 40th anniversary of the Equal Pay Act, landmark legislation which help pave the way for increased gender equality in the workplace. On June 10, 1963, President Kennedy signed the Equal Pay Act (EPA) into law, at a time when full-time working women were paid on average 59 cents to the dollar earned by their male counterparts, according to government data. (See The Equal Pay Act Turns 40). President Kennedy, at the White House signing ceremony, said the EPA: “Adds to our laws another structure basic to democracy” and “affirms our determination that when women enter the labor force they will find equality in their pay envelope.” While as the Virginia Slims ads used to say, “you’ve come a long way baby,” it’s clear that even after 40 years, there is more ground to cover if women are to close the pay gap in the workplace.

The Equal Pay Act predated the passage of Title VII, the Civil Rights Act of 1964, by one year. In the debate before Congress on the bill, supporters argued that the bill would confer economic benefits on the nation at large, and that passage was also a matter of equality. (See Quotations from the Congressional Debate.) As Congresswoman Florence Dwyer of New Jersey pointed out,

Passage of a meaningful equal pay bill will end a long and unfortunate pattern of discrimination against women and it will place the Federal Government in the same desirable position as the 20 states which have enacted equal pay laws. It will help all areas of the economy, men as well as women, by stabilizing wage rates, increasing job security, and discouraging the replacement of men with women at lower rates of pay.

Debate on the bill also reflected one of the concerns on everyone’s list at the time: beating the Russians.

Khrushchev has predicted that by 1970 Russia will overtake this country economically. We need all the incentive that we can provide to the labor force of this Nation to keep America superior in economic power and progress in the free world today.

(Congressman Pepper) Supporters also pointed out the benefits also accruing to males by the law’s guarantees.

Another desirable product of this legislation would be discontinuance of the process of allowing unscrupulous employers to profit by exploiting women for the purpose of gaining a competitive advantage, while at the same time rejecting the services of men to whom they would have to pay better wages. Thus this legislation would establish fair play in the area of employment and wages for both men and women…”

(Congressman Rivers). The bill was not without its opponents, however. One member of Congress noted,

This bill does not take into account the higher cost, averaging about 30 cents an hour, involved in the employment of women. This is due to greater turnover and absenteeism, State laws limiting hours of employment of women and placing restrictions on lifting, longer lunch and relief periods for women, higher insurance rates for women, and the cost of providing women with special facilities

One group opposed to the legislation, the National Retail Merchant Association, expressed concern that employers would have to provide women with “additional facilities such as seats, lunchroooms, and toilet rooms.” (Pretty outrageous stuff, I guess it seemed at the time.) However, the legislation ultimately passed through Congress, was signed by President Kennedy, and still exists today as the oldest law enforced by the Equal Employment Opportunity Commission (EEOC). (The EPA was enforced by the Department of Labor between 1963 and 1979.)

The Equal Pay Act simply states:

No employer having employees subject to any provisions of this section shall discriminate, within any establishment in which such employees are employed, between employees on the basis of sex by paying wages to employees in such establishment and they rate less than the rate at which he pays wages to employees of the opposite sex in such establishment for equal work on jobs, the performance of which requires equal skill, effort, and responsibility and which are performed under similar working conditions…

Some facts about the EPA:

• It is unlawful for employers to reduce the wages of either sex to equalize pay between men and women;
• A violation may occur where a different wage is paid to a person who worked in the same job before or after an employee of the opposite sex;

• A violation may also take place where a labor union causes the employer to violate the law;

• An employer is permitted to base salary differences on seniority, merit, and quantity or quality of production – in fact, generally any other business-related factor, as long as it is not based on a person’s sex; and

• Employers found in violation of the EPA can be compelled to pay back pay, punitive relief, and liquidated damages if the violation is shown to be willful.

For more information about pay discrimination, see our web site’s page on sex/gender discrimination. And for highlights of some key Equal Pay Act cases brought by the EEOC, see Highlights of Equal Pay Act Cases. EEOC Chair Cari Dominguez released the following statement on Thursday, June 10, in observance of the EPA’s 40th anniversary:

Since its enactment on June 10, 1963, the Equal Pay Act has withstood the test of time and has been helping to pave the way for equality in the workplace for four decades. When the EPA was signed into law 40 years ago, the American labor force was radically different than the one we see today. Women have slowly climbed the corporate ladder and made in-roads to many traditionally male dominated professions. Although pay discrimination still rears its ugly head in the 21st century workplace, the EPA continues to be an effective force to remedy and deter such injustices.

Employers should continue to be vigilant in preventing EPA violations and proactive in breaking down workplace barriers that operate to exclude on the basis of gender. We continue to see cases of blatant pay discrimination between men and women doing equal work. We continue to see cases of wage discrimination against people of color as well as individuals with disabilities. This should not be tolerated in the year 2003. Pay discrimination depresses the wages of working men and women and the families who rely on them for support. It also creates marketplace inefficiencies by not making optimum use of available labor resources.

The Commission is firmly committed to the task of ensuring that all individuals have the freedom to compete and advance in the workplace on a level playing field. Strong enforcement of the EPA, coupled with vigorous education and outreach, remains a key component of ensuring equality of opportunity in the workplace. As we observe this 40th anniversary of the Equal Pay Act, let us recommit to its principles and vision: a workplace that is fair and inclusive in all its aspects.

But where do we go from here? How relevant is the Equal Pay Act today? The wage gap between male and female employees still exists, and although some improvement was shown in this past year, many decry the lack of significant progress in closing the gap. (See Wage Gap Continues.)

A new study also reaches some interesting conclusions about how men and women negotiate pay. (See Study: Men negotiate better pay) Professor Lisa Barron, of the UC-Irvine Graduate School of Management, found that women who negotiate job offers generally ask for lower initial salaries than do men, in part because of different beliefs about worth, entitlement and proving oneself. (See UC-Irvine News Release.) The study included realistic mock negotiations between 38 “new hires” and four professional women recruiters for a mock position offering a salary of $61,000. After the negotiations, Barron interviewed the “new hires” to understand why the men tended to ask for higher salaries than women. She found that 71 percent of the men said they believed they were entitled to more money than other job prospects. Conversely, 70 percent of the women indicated they were entitled to a salary equal to other job candidates.

The study’s results should not be cited in support of the conclusion that pay discrimination is all a result of gender differences in pay negotiations, and that no pay discrimination exists. A very limited study of a small number of MBA students is certainly not reflective of all that is happening in the workplace today. It does remind us, however, that the gender gap and continued lack of true equal pay, even after 40 years of the EPA’s protections, is a multi-faceted and at times, seemingly intractable problem. Only through continued research of its dimensions and ongoing vigilance can we hope to erase it, even in the next 40 years.

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Finally, a Judge that Gets the Tax Issue…With Humor, Even

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Regular readers of this blog know that one of the subjects that gets covered on a regular basis is the taxation of damage awards. So bear with me as I write about the latest court case to tackle this issue…because it understands the magnitude of the problem and is considerably more funny than your average case about tax law.

In the case of Jalali v. Root, the California Court of Appeal, Fourth Appellate District, Division Three encountered a common problem, the double taxation of attorneys fees in employment cases, in an unusual way. Rather than the plaintiff battling the IRS over whether taxes are to be paid on the attorney’s portion of the fee award, instead the plaintiff is up against her former attorney in a legal malpractice action., who she claims failed to inform her that she would be taxed on the attorney’s portion as she considered whether or not to accept the settlement offered her by the company.

Jalali had brought a race discrimination and sexual harassment lawsuit against her (unnamed) former employer, and was represented by attorney Walter Root III. When she went to trial on her claims, the jury awarded her $750,000 in compensatory damages for her pain and suffering. The trial was ready to proceed to its next phase, where the jury would determine how much in punitive damages to award Jalali, when the defendant employer offered Jalali $2.75 million for all claims, with a condition of confidentiality. While we know relatively little about Jalali’s underlying case, as a result, the opinion comments, “one could not say…that the circumstances behind Jalali’s claim were necessarily ‘most egregious,’ and that “[w]ithout in any way condoning the actions of the manager or (inferentially) her employer, it is fairly easy to find examples where the racial discrimination or sexual harassment was clearly more egregious.” In addition, the U.S. Supreme Court, in the case of State Farm v. Campbell, has even further limited the possibilities of extremely high damage awards, which made it less likely that Jalali could have received an award greatly in excess of the $2.75 million she was offered to settle her case. All in all, it’s fair to say that the court thought Jalali got offered a pretty good deal to settle her claim, concluding “Our point is not to minimize Jalali’s discrimination, but to note that in obtaining a large multimillion dollar settlement — which is money now, not after years of briefs and appellate wrangling — her lawyer had done a very good job for her.”

The court was thus astonished (as Root must have been as well) that after receiving such a generous settlement, that Jalali chose to sue Root for legal malpractice. She claimed that during the settlement negotiations and before she accepted the settlement, Root told her that her taxes would be “‘forty percent of your share,’ that is, Jalali’s share after deducting Root’s contingency fee.” After she settled the case and then paid taxes on her settlement, Jalali found that she was required to pay taxes on the entire $2.75 million, rather than just the portion she received after Root’s fee was deducted. In her legal malpractice action, she sought, and was initially awarded, $310,000, the difference between what she expected to receive and what she actually retained, after taxes. Root appealed this judgment, bringing this case before the California Court of Appeal.

What was it exactly that Jalali was claiming in this case? Is it that she could have held out for more money in a settlement? Or is it that if she knew her award would have been so diminished by taxes, she would have preferred to take the case to trial? The court said that while Jalali could have claimed the former, that she would have received more money had it not been for her attorney’s supposed negligence, that she did not do so. Even if she had made that particular claim, however, the court took a rather dim view of her ability to succeed under that theory, based on the relative strength of her case and restrictions on large punitive damage awards discussed above. The court does take more seriously the latter claim: that she would have preferred to go to trial. The court notes that

her theory is that, had Root not given her a faulty prophecy of what the tax law would do, she would have rejected the settlement offer, and forced a trial in open court of the punitive damage issue, even if it meant a lesser result. Her loss was thus not monetary. It was psychic. It was the loss of the opportunity to lay her employer’s dirty linen out for the world to see. It is the deprivation of that right — the right to publicly expose her former employer — that Root’s alleged malpractice caused Jalali to lose.

It is noteworthy for a court to recognize and seemingly understand that the so-called “psychic value” attached to litigation can be considerable. For many plaintiffs, having one’s “day in court” personally means more than any amount of money that can be or is ultimately awarded, and many a reasonable settlement has been derailed by employees who would rather “lay out the dirty linen” than accept a settlement denying them that opportunity. Ultimately, however, the court determined that even if this “psychic value” was considered tangible, that Jalali did not set out sufficient evidence of harm. Jalali could not show that her case had a value significantly higher than $2.75 million, such that by bringing it to trial, she could have recovered the $1 million after taxes she expected to receive (instead of the $700,000 she did receive) in exchange for forfeiting the right to a public trial. Therefore, she was ultimately out of luck.

What is exceptional about this case, however, in the annals of taxation of damage awards cases, is how the court simultaneously understands the gravity of the double taxation of attorneys fees problem, and throws in a little humor along the way, making it significantly more interesting than your average tax case. (My apologies to any tax attorneys or other tax professionals who read this opinion–my intent is not to disparage your profession, but merely to point out that most don’t consider it the most scintillating area out there.) The court recognizes that to understand Jalali’s position, you have to look at what has been happening in regards to the taxation of damage awards generally, and takes a general tour through the field.

Since it strikes most people as highly counterintuitive (a fancy way of saying unfair) that a civil rights plaintiff should not be able to either exclude the fees she pays her contingency-fee attorney from her gross income, or at least get a deduction for those fees, it is worth taking a small detour to understand the problem that got Root into trouble.

Would that more people would be aware of and understand the patent unfairness! It immediately gets to the “root” of the problem (pun intended) by noting the often-insidious nature of the alternative minimum tax:

The alternative minimum tax was originally designed to insure that millionaires (back when millionaires were really millionaires) couldn’t use itemized deductions and tax credits to shield themselves entirely from federal taxes. However, it has metamorphosed into a terror for civil rights plaintiffs.

Yes, indeed, it has. The court alludes to the current tax debate over whether to tax dividents, stating

Taxation of civil rights awards is normally not a case of classic double taxation like corporate dividends — successful civil rights plaintiffs still get to deduct their lawyers’ fees from their gross income on their regular 1040. The problem is that the alternative minimum tax doesn’t allow for the deduction of legal fees incurred in the production of income like the regular 1040 does. Because the successful civil rights plaintiff must include 100 percent of his or her recovery in calculating the alternative minimum tax, but can’t deduct the attorney’s portion, the plaintiff winds up paying taxes on income that he or she never really had. That is double taxation — the winning plaintiff pays taxes on the same income which the attorney pays taxes on. If the attorney’s fees are too high in proportion to the recovery, the results can be downright ludicrous.

[Emphasis added.] Next, the court notes the division in authority around the country on this issue (which alone makes it a good resource for those needing sites to the various cases), noting the differences between courts which despite the policy inequities, feel constrained to apply the alternative minimum tax as required by law, and those which have taken a different approach, descriptively noted by the court as follows:

Courts which have taken the taxpayers’ side have likened an attorney’s right to receive a portion of a judgment to a partner’s right to receive a share of income from a partnership (citation omitted) and you do not have to pay taxes on your partner’s income. Or, to use the dominant metaphor of the [law review article cited for this theory], there is more than one tree in the orchard and you aren’t responsible for the fruit from the ones that aren’t yours.

Ultimately, the court concludes:

The whole area is tailor-made for a national moot court competition, since it involves a substantial split in the federal appellate courts, and ultimately turns on a common law doctrine (the “assignment of income” doctrine) on which reasonable minds could differ, depending on how you see contingency fee agreements. (citations omitted) It is enough to say here that for Jalali to have successfully excluded Root’s fee from her gross income would have required nonmoot participation in the real world equivalent of such a competition at the highest possible level.

I’m certain that all plaintiffs, attorneys and other tax professionals looking at this problem would absolutely concur.

Despite its insight and humor, this case will not on its face directly affect that many people. Hopefully, given the flux of the law and the growing expertise of employment practitioners in this area, there are not very many malpractice cases based on this issue anyway. However, it does represent the ever-growing and near-universal recognition by the courts that current tax law is patently unfair to civil rights plaintiffs. Perhaps someday soon, Congress will listen. If you haven’t written your members of Congress yet, then do so today, and encourage them to listen to you!

Take Action Now: Stop Taxing Discrimination Awards Unfairly

Special Alert For Current Plaintiffs

More Information on the Civil Rights Tax Relief Act

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Supreme Court Loosens Evidence Standard in Mixed-Motive Cases: Workers to Benefit from Ruling

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In a rare unanimous decision (which is even more rare when you consider that it’s an employee-friendly decision written by Justice Clarence Thomas), the U.S. Supreme Court today ruled in favor of the employee’s position in Desert Palace, Inc. v. Costa. While employee advocates and attorneys are generally applauding this victory because of its modifications to the already-difficult proof standards in certain types of cases, and the likelihood that more cases will survive summary judgment, workers should rejoice as well, because the result most likely means that fewer employment cases will be thrown out of court prematurely.

The case was initiated by Catherina Costa, a warehouse worker and heavy equipment operator for Desert Palace, Inc., the owner of the famous hotel and casino in Las Vegas, Caesar’s Palace. For most of her life, Costa had worked in a male-dominated environment, operating heavy equipment and driving trucks, and this job was no different: she was the only woman in this job (operating the forklifts and pallet jacks) and in her local Teamsters bargaining unit. Before long on the job, Costa began to have trouble at work, experiencing a number of problems with management and her co-workers that led to an escalating series of disciplinary sanctions, including informal rebukes, a denial of privileges, and suspension. Costa ultimately was fired after she was involved in a fight in a warehouse elevator with fellow Teamsters member Herbert Gerber. Because the facts surrounding the incident were in dispute, both Costa and Gerber were subject to discipline, but since Gerber had a clean disciplinary record, he received only a 5-day suspension rather than termination like Costa. (See On the Docket for further factual information about this case.)

In response to her firing, Costa filed a lawsuit against her employer in the federal district court of Nevada, bringing claims of sex discrimination and sexual harassment under Title VII. The District Court dismissed the sexual harassment claim, but allowed the claim for sex discrimination to go to the jury. At Costa’s trial, she presented evidence to a jury that (1) she was singled out for “intense ‘stalking’ ” by one of her supervisors, (2) she received harsher discipline than men for the same conduct, (3) she was treated less favorably than men in the assignment of overtime, and (4) supervisors repeatedly “stack[ed]” her disciplinary record and “frequently used or tolerated” sex-based slurs against her. Although her employer asked for the case to be thrown out at trial (called a “motion for judgment as a matter of law,”) the judge denied that motion and submitted the case to the jury. The jury was given a set of instructions to help decide the case properly under the law, and two are relevant to this case. One instruction told the jury that >”[t]he plaintiff has the burden of proving … by a preponderance of the evidence” that she “suffered adverse work conditions” and that her sex “was a motivating factor in any such work conditions imposed upon her.”

The second jury instruction at issue was the following “mixed-motive” instruction:

You have heard evidence that the defendant’s treatment of the plaintiff was motivated by the plaintiff’s sex and also by other lawful reasons. If you find that the plaintiff’s sex was a motivating factor in the defendant’s treatment of the plaintiff, the plaintiff is entitled to your verdict, even if you find that the defendant’s conduct was also motivated by a lawful reason.

However, if you find that the defendant’s treatment of the plaintiff was motivated by both gender and lawful reasons, you must decide whether the plaintiff is entitled to damages. The plaintiff is entitled to damages unless the defendant proves by a preponderance of the evidence that the defendant would have treated plaintiff similarly even if the plaintiff’s gender had played no role in the employment decision.

The employer unsuccessfully objected to this instruction, claiming that Costa had failed to show any “direct evidence” (evidence that definitively proves a discriminatory motive by itself, with no further explanation or context necessary) that sex was a motivating factor in her firing or in any of the punitive actions taken against her. (Other courts had previously required that some direct evidence be shown (along with the defendant’s lawful reason) before the jury would be allowed to decide whether a “mixed motive” (where a legitimate reason is combined with an improper, discriminatory one) entitled an employee to an award of damages. However, this judge rejected the logic behind those cases and allowed the case to proceed) The jury awarded Costa $364,377 in damages, including back pay, compensatory damages and punitive damages.

The employer then appealed this decision to the next highest court, the 9th Circuit Court of Appeals, and the 9th Circuit upheld the lower court’s decision, ruling in favor of Hibbs. (A smaller panel of 9th Circuit judges initially ruled against Costa, but was later overruled by the larger panel of the 9th Circuit, in what is called an “en banc” review) In January, the Supreme Court decided to hear the case, and heard arguments in April about whether the jury in Costa’s case had been given the appropriate jury instructions.

Here’s what all nine members of the Supreme Court agreed to when ruling in Costa’s favor: In 1991, when Congress amended Title VII (the federal antidiscrimination law) in the Civil Rights Act of 1991, Congress did not intend to create an additional burden for employees to win mixed-motive cases. Since direct or circumstantial (evidence that is not directly from an eyewitness or participant and requires some additional reasoning to prove a fact) evidence is permitted to show discrimination in other kinds of employment discrimination cases, in order to be consistent, it should be allowed in mixed-motive cases as well. While the Court engages in some additional analysis of the language found in various laws and previous rulings (and clears up some confusion about the import of some of its previous rulings) to reach this conclusion, this ruling is relatively very simple and straightforward: no direct evidence is required in mixed motive cases.

What does this mean for employees who bring lawsuits against their employer? It means that throughout the country, those who had mixed motive cases (estimated in the thousands) will have a much easier time moving forward, as the 9th Circuit was previously the only federal appellate court to permit circumstantial evidence in mixed motive cases. (See New York Times article.) There are a number of cases where courts have argued about whether certain evidence presented by the employee should be considered direct evidence or circumstantial evidence, because the distinction was critical as to whether the case would go forward; since cases will now be allowed to go forward in either event, fewer cases will be dismissed, either before trial in summary judgment (a pre-trial determination as to whether the case has sufficient legal merit to move ahead) or at trial after all the employee’s evidence has been submitted. Eric Schnapper, a University of Washington law school professor who represented Costa, said the ruling should make companies pay more attention to discrimination complaints. “Now it’s going to be easier to win these cases. Employers are going to have to be careful about their practices,” Schnapper said. Defendants bemoaned the decision, as the Desert Palace lawyer claimed that “many employers accused of workplace discrimination will be considered guilty until they can prove themselves innocent.” (See Washington Post article.) While this case may be of most interest to lawyers rather than members of the public, it is still a very good outcome for workers to celebrate.

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Comp Time Bill Pulled From the House, But Still Poses a Threat

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Yesterday (6/5), the House of Representatives pulled from consideration the Family Time Flexibility Act (HR 1119). The move signaled that Republicans in the House did not have enough votes secured in favor of the measure to guarantee passage. (See New York Times article.) This was extremely good news, both because it signaled that there are a few moderate Republicans who will listen to their constituents on labor issues, and because the Republican party leadership (at this time anyway) does not consider this battle one that requires adherence to the leadership party line.

As previously discussed here on April 12, the Family Time Flexibility Act promises flexibility and family time that it ultimately doesn’t deliver. The bill does nothing to address the problem of mandatory overtime, and what’s worse, it actually provides an incentive to require workers to spend many extra hours on the job. Employers, rather than directly paying employees each time they order overtime, instead can merely offer comp time at some later date convenient for the employer, so there is no financial “brake” on extra hours. Because the employer can ultimately refuse the use of comp time when the employee’s absence would “unduly disrupt the employer’s business operations,” employers could actually deny comp time at the point at which it is most needed: during school vacations, teacher conferences, or when a family member is ill. Workers already complain that they are unable to spend vacation time when they need it (see USA Today article), so it is unlikely that spending accumulated comp time will be any easier.

HR 1119 also doesn’t provide any solutions for low-paid workers who need to work overtime because they need the cash. Workers who need overtime assignments due to low pay on their jobs fear, and rightly so, a switch to comp time. The employer chooses who gets overtime assignments and if workers don’t agree to time off instead of pay, it’s likely they won’t be chosen. What workers need is a higher minimum wage, not an erosion of the Fair Labor Standards Act’s overtime pay protections. Also, why is Congress promoting a bill that is likely to increase the number of unemployed workers, rather than diminish it? Rather than hiring more employees and spreading excess work around, companies will instead just require more and more compensatory time–time that may never be taken by the employee when it’s advantageous for him or her.

While it looks like HR 1119 is not going to move ahead right now, this situation could change at any time. Business leaders, including the U.S. Chamber of Commerce, have been pressing hard for the bill, and will not give up, despite this setback. Republican leaders will continue to push party moderates opposed to this bill to rethink their position. If you haven’t done so already, it’s very important that you contact your member of Congress, to make sure this bill stays where it belongs: in limbo and not going anywhere.

Take Action Now: Protect Your Right to Overtime Pay

Additional Reading:

All Work and No Play

The Naked Truth About Comp Time

Family Time Bad for Families

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