Current News and Legal Updates Fall 2019

NINTH CIRCUIT REINSTATES EMPLOYEES’ SUITS OVER PAYMENT FOR POST-SHIFT INSPECTION PERIODS

EMPLOYEES OF NIKE AND CONVERSE MAY PROCEED with class action suits alleging that the athletic wear companies violated California law by refusing to pay them for time spent during mandatory post-shift security checks, the U.S. Court of Appeals for the Ninth Circuit has ruled. Rodriguez v. Nike Retail Services, 2019 U.S. App. LEXIS 19475 (9th Cir. June 28, 2019); Chavez v. Converse Inc., 2019 U.S. App. LEXIS 19494 (9th Cir. June 28, 2019).

The appeals court reversed two rulings by the U.S. District Court for the Northern District of California entering summary judgment for Nike and Converse in class actions brought by Isaac Rodriguez and Eric Chavez on behalf of employees of retail stores operated by the two companies in California. The suits allege that employees were required to submit to inspections of their belongings after punching out for the day and were not paid for their time in violation of the California Labor Code.

In two separate rulings, the district court held that the employees’ claims are barred by the federal de minimis doctrine, which precludes recovery under the Fair Labor Standards Act (FLSA) for otherwise compensable amounts of time that are small, irregular or difficult to record administratively.Rodriguez and Chaves appealed. The Ninth Circuit stayed proceedings pending the California Supreme Court’s ruling in Troester v. Starbucks Corp., 5 Cal. 5th 829 (Calif. Sup. 2018). In that case, a Starbucks shift supervisor alleged that the company’s failure to pay for closing tasks performed after he clocked out violated state law. Starbucks contended that the time spent was de minimis. The state high court held that the de minimis doctrine does not apply to wage and hour cases brought under state law.

Citing Troester, the Ninth Circuit vacated the entry of summary judgment in both cases and remanded for reconsideration by the district court, rejecting the argument by Nike and Converse that the exit inspections are de minimis even under the Troester holding.

“To the extent Nike urges us to interpret Troester as replacing the federal de minimis doctrine’s 10-minute daily threshold with a state-law 60-second analogue, we decline to do so,” the court said. “Not only would this interpretation read far too much into Troester’spassing mention of ‘minutes,’ but it would also clash with Troester’sreasoning, which emphasized the requirement under California labor laws that ‘employee[s] must be paid for all hours worked or any work beyond eight hours a day.’ We doubt that Troester would have been decided differently if the closing tasks at issue had taken only 59 seconds per day.”

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RESEARCH PATH: Labor & Employment > Wage and Hour > Compensation > Articles

SUPREME COURT TAKES ON QUESTION OF HEALTH INSURER REIMBURSEMENT UNDER ACA

THE U.S. SUPREME COURT WILL HEAR THREE CASESnextterm that raise the issue of whether health insurers are entitled to reimbursement for $12 billion in losses incurred under the Affordable Care Act (ACA). (Moda Health Plan Inc. v. United States, 2019 U.S. LEXIS 4338 (June 24, 2019); Maine Community Health Options v. United States, No. 18-1023; Land of Lincoln Mutual Health Insurance Co. v. United States, 2019 U.S. LEXIS 4281 (June 24, 2019).

At issue is the so-called risk corridors, a three-year stabilization program set forth in Section 1342 of the ACA intended to encourage insurers to participate in the ACA by capping financial losses. The program required the Secretary of Health and Human Services (HHS) to administer a payment adjustment system for qualified health plans based on the ratio of the allowable costs of the health plan to its aggregate premiums. However, Congress specifically excluded payments under Section 1342 from the HHS budget in fiscal years 2015, 2016, and 2017.

Three insurers—Moda Health Plan Inc., Maine Community Health Options, and Land of Lincoln Mutual Health Insurance Co.—filed separate suits in the U.S. Court of Federal Claims, seeking recovery of money due under the program. The insurers argued that removal of the funding for the risk-corridors program did not negate the government’s responsibility to make the payments since the statute was not amended or repealed.

The Claims Court ruled for Moda but found for the government in the suits filed by Land of Lincoln and Maine Community Health, finding that the removal of funding negated the HHS’ responsibility under the statute. On appeal, the U.S. Court of Appeals for the Federal Circuit reversed with respect to Moda and affirmed on the other two cases, effectively ruling for the government in all three cases.

The insurers filed separate petitions for writ of certiorari; all three were granted on June 24. The cases were consolidated for oral argument, expected to take place in the Supreme Court’s next term, which begins on Oct. 7.

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RESEARCH PATH: Employee Benefits & Executive Compensation > Health and Welfare Plans > Health Plans and Affordable Care Act > Articles

BAN ON “IMMORAL,” “SCANDALOUS” TRADEMARKS VIOLATES CONSTITUTION, SUPREME COURT RULES

A FEDERAL BAN ON THE REGISTRATION OF “IMMORAL” OR “scandalous” trademarks violates the First Amendment to the U.S. Constitution, the U.S. Supreme Court ruled June 24 in Iancu v. Brunetti, 2019 U.S. LEXIS 4201 (2019). The court’s ruling means that the owner of a clothing line can register the trademark FUCT to identify his products and that other trademarks previously barred from registration on the same grounds may now be registrable.

Citing its June 2017 decision in Matal v. Tam, 137 S.Ct. 1744 (2017), which invalidated the Lanham Act’s ban on registering disparaging marks as discriminatory “on the basis of viewpoint,” the court said, “Today we consider a First Amendment challenge to a neighboring provision of the Act, prohibiting the registration of ‘immoral[]’ or ‘scandalous’ trademarks. We hold that this provision infringes the First Amendment for the same reason: It too disfavors certain ideas.”

The court, in a 6-3 decision written by Justice Elena Kagan, upheld a ruling by the U.S. Court of Appeals for the Federal Circuit reversing a holding by the Trademark Trial and Appeal Board that the proposed trademark was unregistrable under Section 2(a) of the Lanham Act ̧15 U.S.C.S. § 1052, which lists “immoral” or “scandalous” material among the content that is not registrable.

“[E]ven assuming the Government’s reading would eliminate First Amendment problems, we may adopt it only if we can see it in the statutory language. And we cannot,” the court said. “The statute as written does not draw the line at lewd, sexually explicit, or profane marks. Nor does it refer only to marks whose ‘mode of expression,’ independent of viewpoint, is particularly offensive. It covers the universe of immoral or scandalous—or (to use some PTO synonyms) offensive or disreputable—material. Whether or not lewd or profane. Whether the scandal and immorality comes from mode or instead of viewpoint. To cut the statute off where the Government urges is not to interpret the statute Congress enacted, but to fashion a new one.”

Dissenting, Chief Justice John G. Roberts Jr. said that while the “immoral” portion of the statute violates the First Amendment, the “scandalous” portion is susceptible of a narrowing construction. Justice Stephen G. Breyer also wrote in favor of bifurcating the “immoral” language from the “scandalous” portion, noting that a ban on registration of vulgar or obscene marks would not prohibit unregistered use of those marks.

Justice Sonia Sotomayor also agreed with the majority’s reasoning on the “immoral” portion of the statute, but she said that striking down the “scandalous” portion will mean that “the Government will have no statutory basis to refuse (and thus no choice but to begin) registering marks containing the most vulgar, profane, or obscene words and images imaginable.” Justice Breyer joined in Justice Sotomayor’s dissent.

Following the Supreme Court’s ruling, trademark owners are free to register trademarks that consist of or comprise immoral or scandalous matter (if such marks are otherwise registrable). The eagerness of brand owners to do so remains to be seen.

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RESEARCH PATH: Intellectual Property & Technology > Trademarks > Trademark Registration > Articles

THIRD CIRCUIT UPHOLDS NATIONWIDE INJUNCTION AGAINST ACA CONTRACEPTION REGULATIONS

THE U.S. COURT OF APPEALS FOR THE THIRD CIRCUIT HAS upheld a preliminary nationwide injunction against enforcement of proposed regulations that would expand the category of employers who can refuse to offer contraceptive coverage to employees on religious or moral grounds (Commonwealth of Pennsylvania v. President United States of America, 2019 U.S. App. LEXIS 20778 (3rd Cir. 2019).

A three-judge panel affirmed an order by U.S. Judge Wendy Beetlestone of the Eastern District of Pennsylvania blocking enforcement of two regulations that would have taken effect on Jan. 14, 2019. Religious Exemptions and Accommodations for Coverage of Certain Preventive Services Under the Affordable Care Act, 83 Fed. Reg. 57,536 (Nov. 15, 2018) and Moral Exemptions and Accommodations for Coverage of Certain Preventive Services Under the Affordable Care Act, 83 Fed. Reg. 57,592 (Nov. 15, 2018). While religious organizations were already exempted from the obligation to provide coverage, the new regulations would apply to non-religious employers, including publicly traded companies.

The regulations, issued by the U.S. Departments of Health and Human Services (HHS), Labor and the Treasury, and finalized in November 2018, stem from an executive order issued in May 2017 by President Donald J. Trump directing federal agencies to consider issuing amended regulations to address “conscience-based objections” to a provision in the Patient Protection and Affordable Care Act (ACA) (Pub. L. No. 111-148, 124 Stat. 119 (Mar. 23, 2010)) requiring employers to provide no-cost birth control coverage to employees. “Promoting Free Speech and Religious Liberty,” Exec. Order No. 13798, 82 Fed. Reg. 21,675 (May 4, 2017)

The Commonwealth of Pennsylvania and the State of New Jersey challenged the rules and moved for preliminary injunctive relief.

Granting the motion, Judge Beetlestone said that the regulations exceed the scope of the authority granted to the three agencies under the ACA and are not authorized by the Religious Freedom Restoration Act (RFRA) (42 U.S.C.S. § 2000bb). Further, she said, Pennsylvania and New Jersey have demonstrated the sufficient requisite likelihood of irreparable harm in the absence of injunctive relief to justify issuance of an injunction.

Affirming, the Third Circuit panel held that the two states are likely to succeed in proving that the agencies did not follow the Administrative Procedure Act’s notice and comment requirements in promulgating the regulations. Further, the panel said, the regulations are not authorized by the ACA or the RFRA.

Finally, the appeals court said, the states have shown that a nationwide injunction, rather than an order limited to the states within the Third Circuit, is necessary to provide relief.

In a similar proceeding, the U.S. Court of Appeals for the Ninth Circuit heard arguments on June 6 in an appeal from a January 2019 ruling by a federal judge in Oakland, California, enjoining enforcement of the same regulations in 13 plaintiff states (California, Connecticut, Delaware, Hawaii, Illinois, Maryland, Minnesota, New York, North Carolina, Rhode Island, Vermont, Virginia, and Washington) and the District of Columbia. Prior to the hearing, the appeals court ordered supplemental briefing by the parties on the impact of the Pennsylvania court’s ruling. California v. United States HHS, 2019 U.S. App. LEXIS 12917 (9th Cir. April 29, 2019).

Both cases are likely to be appealed to the U.S. Supreme Court, regardless of the outcome in the Ninth Circuit.

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