Second Circuit Issues Landmark Decision that Title VII Prohibits Sexual Orientation Discrimination

Overruling its own precedent, the United States Court of Appeals for the Second Circuit became the second federal appeals court to hold that Title VII of the Civil Rights Act of 1964 prohibits workplace discrimination on the basis of sexual orientation.

Zarda v. Altitude Express, Inc., decided on February 26, 2018, arose from the claims of a Long Island sky-diving instructor, Donald Zarda.  Zarda was fired after revealing to a female client, whose boyfriend then revealed to Zarda’s boss, that Zarda was gay.  Zarda alleged that his termination was discriminatory on the basis of his sexual orientation and sex in violation of Title VII, whereas the company attributed it to his behavior.  Title VII expressly prohibits workplace discrimination “because of . . . sex.”  The Second Circuit had previously declined to recognize that sexual orientation is inherently a sex-based consideration and, thus, it held that sexual orientation discrimination claims were not cognizable under Title VII.  Applying that precedent, the federal trial court dismissed Zarda’s case on summary judgment, concluding that Zarda had failed to show he had been discriminated against on the basis of his sex and declining to recognize sexual orientation discrimination as a cognizable claim under Title VII.  Zarda appealed, and the Second Circuit affirmed.  Thereafter, the Second Circuit granted rehearing en banc, which is a mechanism allowing judges to rehear a case upon a majority vote.  This is significant because en banc review rarely happens and is often saved for cases that present a “question of exceptional importance.”

Years after the Second Circuit originally ruled that sexual orientation is not covered by Title VII, the U.S. Equal Employment Opportunity Commission and the Seventh Circuit oppositely held that discrimination on the basis of sexual orientation is a form of sex discrimination barred by Title VII.  Emphasizing the evolving nature of Title VII, the Second Circuit in Zarda overruled its prior caselaw to hold that Title VII prohibits discrimination on the basis of sexual orientation as discrimination “because of . . . sex.”

In dispensing with its prior rulings, the Second Circuit reasoned that sexual orientation is defined by one’s sex in relation to the sex of those to whom he/she is attracted.  Discriminating against an employee because he/she is homosexual means discriminating against him/her because of a) his/her sex, and b) his/her sexual attraction to those of the same sex.  Thus, “because sexual orientation is a function of sex and sex is a protected characteristic under Title VII, it follows that sexual orientation is also protected.”

The Second Circuit disagreed with the United States Justice Department, which argued in a friend-of-the court brief, that Title VII does not cover sexual orientation discrimination.

For now, the ruling that Title VII bars employers from discriminating based on sexual orientation applies to those in the Second Circuit, which includes New York, Connecticut, and Vermont.  However, this decision sharpens the divide among courts, setting the stage for a potential fight in the United States Supreme Court.  The Supreme Court could reverse the Second Circuit, or it could affirm, thereby extending Title VII’s prohibition on sexual orientation discrimination to the rest of the country.

For more information about the potential impacts of this Second Circuit ruling or what steps your company can take to effectively prevent and address complaints of sexual orientation discrimination, please contact John C. Petrella, Esq., Chair of the firm’s Employment Litigation Practice Group, at jpetrella@nullgenovaburns.com, or Dina M. Mastellone, Esq., Chair of the firm’s Human Resources Practice Group, at dmastellone@nullgenovaburns.com, or 973-533-0777.

Second Circuit Outlines The Way for Employers to Hire Unpaid Interns

On July 2, 2015, in a matter of first impression, the Second Circuit issued a ruling in Glatt v. Fox Searchlight Pictures, Inc., Nos. 13-4478, 13-4481 (2d Cir. July 2, 2015), and provided a new test for whether a worker can be classified as an unpaid intern under the Fair Labor Standards Act (“FLSA”) and the New York Labor Law (“NYLL”). and thus entitled to compensation, including minimum wage and overtime.  The ruling by the Second Circuit rejected both the Department of Labor (“DOL”)’s six-factor test to determine whether or not an intern should be classified as an employee, and the U.S. District Court for the Southern District of New York’s previous reliance on the DOL’s test.

In 2013, the U.S. District Court for the Southern District of New York followed the DOL’s 2010 guidance for whether unpaid interns working in the for-profit private sector should be classified as employees.  The DOL test lays out six factors, including, for example, whether the internship experience is for the benefit of the intern, whether the intern displaces regular employees, and whether the employer derives an immediate advantage from the intern’s work. The DOL test requires that each and every factor must apply in order for a position to be an unpaid internship.  The District Court held that since not all of the DOL’s six factors applied, the plaintiffs in Glatt should have been classified as employees under the FLSA and the NYLL.

The Second Circuit, however, held that a “primary beneficiary test” should be utilized when determining whether or not employers need to pay their interns.  In other words, it must be determined whether the employer, rather than the intern, is the primary beneficiary of the relationship.  The Second Circuit found that the DOL six factor test was “too rigid” and unpersuasive, and was not entitled to deference.

To aid in determining whether the worker or the employer is the primary beneficiary, the Second Circuit articulated a “non-exhaustive” list of seven factors that should be considered and balanced when deciding whether the employer or intern is the primary beneficiary of the relationship:

  • The extent to which the intern and the employer clearly understand that there is no expectation of compensation;
  • The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutes;
  • The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit;
  • The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar;
  • The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning;
  • The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern; and
  • The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship

The Second Circuit made clear that no one factor is dispositive and that every factor need not point in the same direction to conclude that the intern is not an employee. Thus, Courts are free to look to other factors, and the failure to satisfy any one factor is not dispositive.  While the Second Circuit’s list of factors only adopted three of the DOL’s factors, it retained the DOL’s requirement that the position provide an educational value, suggesting that it is crucial to include an educational aspect in an unpaid internship.  The Second Circuit opined that this new test takes into account the “relationship between the internship and the intern’s formal education…by focusing on the educational aspects of the internship our approach better reflects the role of internships in today’s economy.”

The Glatt decision signals positive news for employers in New York, Connecticut and Vermont when determining whether or not they need to pay interns.  Private sector for-profit companies with internship programs should evaluate their programs to ensure that they are in compliance with all state and federal laws.  As the Second Circuit explained, a bona fide internship must “integrate classroom learning with practical skill development in a real-world setting.” It will be interesting to see whether or not other Circuit Courts find this ruling persuasive.

For more information regarding this decision and to learn how your business can implement best practices when implementing internship programs, please contact John C. Petrella, Director of the firm’s Employment Litigation Practice Group at jpeteralla@nullgenovaburns.com or Dina M. Mastellone, Esq., Director of the firm’s Human Resources Practice Group, at dmastellone@nullgenovaburns.com or 973-533-0777.

New York Court of Appeals Issues Opinion Addressing Tip Pool Arrangements

The New York Court of Appeals recently issued an opinion addressing Starbucks’ tip pooling practices with regard to its shift supervisors and assistant store managers, which we discussed here.  New York’s highest court was asked to decide what factors determine which employees may participate in a tip pool and whether employers may exclude otherwise eligible employees from a tip pool under New York Labor Law 196-d.

In answering the first question, the Court declared that customer service employees with “meaningful or significant authority or control over subordinates” – not necessarily full or final authority – may not participate in an employer-mandated tip pool arrangement.  The Court provided examples of “meaningful authority,” such as the ability to discipline employees, assisting in performance evaluations or the hiring or termination process, and influencing the creation of work schedules. But, employees whose principal or regular duties involve serving customers may participate in an employer-mandated tip pool even if they are vested with limited supervisory responsibilities.

The Court answered the second question in the affirmative.  Nevertheless, the Court stated it was leaving “open the possibility that there may be an outer limit to an employer’s ability to excise certain classifications of employees form a tip pool.”  Given the case’s procedural nature, the Second Circuit will ultimately determine how these legal principles apply to Starbucks’ shift supervisors and assistant store managers.

The Court of Appeals’ decision comes weeks after a federal district court judge for the District of Oregon invalidated regulations issued by the United States Department of Labor in 2011.  The regulations prevented employers from including “non-tipped employees,” such as line cooks and dishwashers, in a tip pool when employers did not claim a tip credit.  Oregon Restaurant & Lodging v. Hilda L. Solis, No. 3:12-cv-01261-MO (D. Or. June 7, 2013).

While these decisions are favorable for employers, their precedential value is limited, as both cases control only their respective jurisdictions and neither case is necessarily final.  Accordingly, employers should consult with counsel to evaluate their current tip pool practices and before implementing a new tip pool arrangement.  For more information, please contact John R. Vreeland, Esq., Director of the firm’s Wage & Hour Compliance Practice Group, jvreeland@nullgenovaburns.com, or Joseph V. Manney, Esq., jmanney@nullgenovaburns.com.