The Fourth Circuit recently provided seemingly good news for those parties wishing to vacate an arbitration award: the argument that an arbitrator manifestly disregarded the law is still available. Wachovia Securities, LLC v. Brand, No. 10-2111, 2012 U.S. App. LEXIS 3047 (4th Cir. Feb. 16, 2012). This question remained unanswered in the Fourth Circuit following the Supreme Court’s decision in Hall Street Assocs. v. Mattel, Inc., 552 U.S. 576 (2008). In fact, both the Fifth and the 11th Circuits had rejected manifest disregard in light of Hall Street and held that parties must instead rely on the statutory grounds for vacating an award under the Federal Arbitration Act (FAA). Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d 349, 358 (5th Cir. 2009); Frazier v. CitiFinancial Corp., 604 F.3d 1313, 1323-24 (11th Cir. 2010). Unfortunately for Wachovia Securities, the resurrection of manifest disregard was still not enough to save it from an arbitrator’s award of $1.1 million in attorney’s fees.
Wachovia Securities arose out of an employment dispute. Wachovia Securities (Wachovia) terminated the employment of four financial advisors working in Florence, South Carolina. These advisors (the former employees) then went to work for a competitor brokerage firm. Wachovia filed a lawsuit in federal court seeking a temporary restraining order and preliminary injunction, barring the former employees from soliciting Wachovia’s clients and from using Wachovia’s confidential and proprietary business information. On the same day, Wachovia initiated an arbitration proceeding before the Financial Industry Regulatory Authority (FINRA) seeking essentially the same relief in the form of a permanent injunction.
In the arbitration proceeding, the former employees denied Wachovia’s allegations and requested that the arbitration panel award them costs and attorneys’ fees incurred in defense of the action. Near the end of the proceedings, the arbitration panel asked the parties to brief the issue of attorneys’ fees. In their brief, the former employees argued for the first time that they were entitled to attorneys’ fees under the South Carolina Frivolous Civil Proceedings Act, codified at S.C. Code. Ann. § 15-36-10 (FCPA). As its name suggests, the state statute provides for sanctions, which include attorneys’ fees, against a party who institutes a frivolous proceeding. Under the statute, if a request for sanctions is made, the accused party has 30 days to respond and is entitled to a separate hearing on the issue. S.C. Code Ann. § 15-36-10(D). Wachovia was not afforded these protections.
Instead, a hearing was held on the issue on the same day briefs were submitted. Wachovia’s counsel expressed concern that the procedural requirements of the FCPA had not been followed. Though the arbitration panel gave Wachovia the opportunity to request additional briefing on this issue, Wachovia failed to do so. The panel subsequently denied Wachovia’s claims and found for the former employees, awarding them $15,080 in treble damages on their counterclaim under the South Carolina Payment of Wages Act and, more significantly, more than $1.1 million in attorneys’ fees under the FCPA.
Wachovia moved to vacate the arbitration award in federal court, arguing that the panel manifestly disregarded the law under § 10(a)(4) of the FAA by awarding sanctions under the FCPA without providing the procedural protections of the FCPA. Wachovia also argued that the FCPA is inapplicable to arbitration proceedings because it refers to a “court” awarding fees following a “verdict.” Wachovia also sought vacatur under §10(a)(3) on the grounds that it was not given the opportunity to rebut evidence that the former employees relied on to support their claim for attorneys’ fees. Judge Wooten rejected these arguments and Wachovia appealed. Wachovia Sec., LLC v. Brand, No. 4:08-2349-TLW, 2010 U.S. Dist. LEXIS 88505 (D.S.C. Aug. 26, 2010).
The Court of Appeals for the Fourth Circuit first rejected Wachovia’s argument that the arbitration panel violated § 10(a)(3) by failing to give it 30 days to respond and a separate hearing on the question of fees, as is required under the FCPA. According to the Fourth Circuit, these statutory prerequisites to an award under state law are simply “procedural requirements,” which do not have to be imported into an arbitration proceeding. Wachovia Securities, 2012 U.S. App. LEXIS 3047 at *15-17. Citing the Supreme Court’s recent decision in AT&T Mobility v. Concepcion, the Fourth Circuit noted that it was “inconsistent with the FAA for one party to demand ex post particular procedural requirements from state law.” Id. at *16.
Alternatively, the court held that even if the FCPA’s procedural protections applied, Wachovia’s § 10(a)(3) argument nonetheless failed because Wachovia had not alleged the type of misconduct and misbehavior necessary for relief under § 10(a)(3). Factoring into the court’s analysis was the fact that Wachovia had the opportunity at the arbitration hearing to request additional briefing on the question of attorneys’ fees but failed to do so. Because Wachovia was “the architect of its own misfortune,” relief was unavailable under § 10(a)(3). Id. at *18.
Next, the court considered Wachovia’s argument that the arbitration panel manifestly disregarded the law when it refused to import the FCPA’s procedural requirements into arbitration. Before reaching the merits of this argument, the court had to first decide if “manifest disregard” was still available as a basis to challenge an arbitration award. The court examined the Supreme Court’s decision in Hall Street and its more recent opinion in Stolt-Nielsen v. Animal Feeds, 130 S. Ct. 1758 (2010), which expressly declined to decide whether “manifest disregard” survived Hall Street. In what is the most significant legal development from the opinion, the Fourth Circuit held that manifest disregard survives Hall Street as an independent ground for vacating an arbitration award, rejecting the contrary conclusions reached by the Fifth and 11th Circuits.
The court applied its pre-Hall Street two-part test to determine if an arbitrator manifestly disregarded the law, considering whether “(1) the applicable legal principle is clearly defined and not subject to reasonable debate; and (2) the arbitrator refused to head that legal principle.” Wachovia Securities, 2012 U.S. App. LEXIS 3047 at *28. Applying that test to the case before it, the court found that not applying the FCPA’s procedural requirements is a question that was not clearly defined and subject to debate. Thus, the court affirmed the decision of the district court and upheld the award of attorneys’ fees.
Wachovia Securities highlights the fact that judicial review of an arbitration award is extremely limited. In this case, the arbitration panel arguably handpicked sections of a state law and disregarded others in awarding $1.1 million in attorneys’ fees to the former employees. Nonetheless, according to the Fourth Circuit, the panel did not manifestly disregard the law. This opinion reminds the employment practitioner of the risks inherent in arbitration and the importance of carefully selecting arbitrators. Even though “manifest disregard” lives on as an option to challenge an arbitration award, it is not an option to bank on after Wachovia Securities.
On February 22, 2012, the Equal Employment Opportunity Commission (EEOC) announced its Strategic Plan for Fiscal Years 2012-2016, described as “reflect[ing] a bold new strategy” that “requires significant changes in the agency’s approach to fulfilling its mission.”
Unlike the numbers-driven Strategic Plan for Fiscal Years 2007-2011, the current plan “prioritizes a coordinated, holistic approach to law enforcement” and is devoted to three strategic objectives: combatting employment discrimination through strategic law enforcement (Strategic Objective 1), preventing employment discrimination through education and outreach (Strategic Objective 2), and delivering excellent and consistent service through a skilled and diverse workforce and effective systems (Strategic Objective 3).
Most of the EEOC’s financial and human resources are devoted to Strategic Objective 1, with two outcome goals: (1) having a broad impact on reducing employment discrimination at the national and local levels, and (2) remedying discriminatory practices and securing meaningful relief for victims of discrimination. The EEOC’s efforts in this area are intended to ensure the integrity of the investigation process and focus the agency on targeting charges that will have the broadest impact on reducing unlawful employment discrimination in light of the large number of individual charges of discrimination received by the agency; in the past two years alone, the EEOC has received annually nearly 100,000 individual private sector charges and 14,000 federal sector requests for hearing and appeals. By 2016, the EEOC aims to develop and implement a Strategic Enforcement Plan to establish the EEOC’s priorities and integrate its enforcement responsibilities and research, policy development and outreach activities.
The Strategic Plan departs from prior strategic plans with a heavy emphasis on outreach efforts. Strategic Objective 2 is aimed at promoting and understanding of the laws enforced by the EEOC and ensuring voluntary compliance by employers. The outcome goals for Strategic Objective II are (1) for the members of the public to understand how to exercise their right to employment-free discrimination, and (2) for covered entities to better address equal employment opportunity issues. Based upon the findings of the Small Business Task Force, the EEOC needs to make additional efforts to reach small businesses, as well as new businesses. Additionally, the EEOC will be developing a social media plan to “ensure that the EEOC moves into the 21st century by utilizing social media technologies to reach its customers.”
Strategic Objective 3 is aimed at improving the EEOC’s customer service through a skilled and diverse workforce and effective systems. Specifically, the EEOC’s primary goal in this regard is for all interactions with the public to be timely, of high quality and informative. To this end, the EEOC will be focusing on workforce development, charge and case management systems, and the use of technology “to facilitate responsive interactions and streamline agency processes.”
The EEOC notes that its ability to achieve the strategic objectives will be affected by budgetary, demographic, legal and technological factors. Though a number of the measures set forth in the Strategic Plan are still in development, there will be a “more focused look at systemic and policy issues,” with a hot topic being arrest and conviction issues, says Reuben Daniels Jr., director of the EEOC’s Charlotte District Office. Mr. Daniels says that employment practitioners “should not expect to see anything radically different” from the agency, but there will be an effort to make the EEOC’s policies more accessible to employers, in plain language, so the employers can be as effective as possible in achieving and maintaining discrimination-free workplaces. The agency will be making a greater effort to reach vulnerable populations and underserved communities, which will vary depending upon the needs of each district. Whether this will include Twitter feeds and Facebook postings from the Charlotte District Office remains to be seen; the office is going to “test the waters” and figure out what social media outreach will be feasible in light of their existing workload.
When asked what the members of the employment bar should expect as a result of the Strategic Plan, Mr. Daniels said, “There should be no surprises, as the private bar is usually right there with us …We will be taking a broad look at the landscape of employment discrimination and trying to get ahead of the employment discrimination trends we see.”
Maryland is about to become the first state in the nation to ban employers from requesting access to the social media accounts of employees and job applicants. New legislation that passed both houses on April 7, 2012, and only requires Gov. Martin O’Malley’s signature prohibits employers in both the private and public sectors from requiring or seeking user names, passwords or any other means of accessing personal Internet sites such as Facebook as a condition of employment. See, S.B. 433 and H.B. 964.
The American Civil Liberties Union (ACLU) of Maryland was a big supporter of the legislation. Maryland ACLU legislative director Melissa Goemann stated the prohibition “is a really positive development because the technology for social media is expanding every year, and we think this sets a really good precedent for limiting how much your privacy can be exposed when you use these mediums.” The Maryland Chamber of Commerce, on the other hand, opposed the prohibition because the bills did not acknowledge there could be legitimate issues for some employers to want to review applicants’ or workers’ social media messages.
While employers may not seek usernames and passwords from employees’ personal Internet sites, the bills do allow employers to require employees to provide passwords and login information for non-personal accounts that are part of the employer’s own systems, such as company e-mail accounts. In addition, the bills prohibit employees from downloading “unauthorized employer proprietary information or financial data” to personal accounts or to websites, and it allows employers to investigate these activities to ensure “compliance with applicable securities or financial law or regulatory requirements.”
Lastly, it is rumored lawmakers in Congress are working on legislation that would ban the practice nationally. United States Sens. Richard Blumenthal, D-Conn., and Charles E. Schumer, D-N.Y., called on the U.S. Equal Employment Opportunity Commission and the U.S. Department of Justice to launch a federal investigation into the emerging trend among employers. Schumer said in a statement: “Employers have no right to ask job applicants for their house keys or to read their diaries—why should they be able to ask them for their Facebook passwords and gain unwarranted access to a trove of private information about what we like, what messages we send to people, or who we are friends with?”
Will Congress ban the practice nationally or will South Carolina pass the bill introduced in the House? Stay tuned.
On December 6, 2011, the 11th Circuit Court of Appeals upheld a lower court’s grant of summary judgment in an employment discrimination case. For those who practice in employment law, this would seem to be par for the course. However, on this day, the 11th Circuit broke with tradition and upheld a grant of summary judgment in favor of a plaintiff, Vandiver Elizabeth Glenn, who alleged sex discrimination against her employer on the basis of her gender identity.
Glenn, hired as a male in 2005, was employed by the Georgia General Assembly’s OLC. In 2006, Glenn informed her direct supervisor that she was transgender and would be transitioning to female. On Halloween 2006, OLC employees were allowed to come to work in costume. Glenn reported to work dressed as a female. The head of OLC, Brumby, saw Glenn and asked her to leave the office because he deemed her appearance inappropriate. Brumby later testified in his deposition that he found it “unsettling to think of someone dressed in women’s clothing with male sexual organs inside that clothing.” In the fall of 2007, after Glenn notified her immediate supervisor, who in turn notified Brumby, that she was proceeding with her gender transition and would be reporting to work as a female and changing her name, Brumby terminated Glenn. He testified that her transition from male to female was inappropriate and that some people would view it as a moral issue. Glenn brought suit, alleging discrimination under the Equal Protection Clause because of her sex, including her gender identity and her failure to conform with gender stereotypes and because of her medical condition, Gender Identity Disorder. The district court ruled on cross motions for summary judgment in favor of Brumby on Glenn’s medical condition discrimination claim and in favor of Glenn on her sex discrimination claim. Both parties appealed.
Relying on Price Waterhouse v. Hopkins, the 11th Circuit upheld the ruling on sex discrimination. The court stated, “[T]he very acts that define transgender people as transgender are those that contradict stereotypes of gender-appropriate appearance and behavior” and held that discrimination against a transgender employee because of gender non-conformity is sex discrimination. The court further explained that “all persons, whether transgender or not, are protected from discrimination on the basis of gender stereotype.” Brumby’s own testimony that he terminated her based on “the sheer fact of the transition” was the linchpin in the case against him. The court held that Brumby could not demonstrate an “exceedingly persuasive justification” under Equal Protection’s heightened scrutiny analysis as he had only one stray comment in his testimony to support any governmental purpose in terminating Glenn.
Most recently, an EEOC decision signed on April 20, 2012, definitively ruled that Title VII’s protection against sex discrimination extends to transgender, also referred to as gender identity, discrimination. In Macy v. Holder, the Commission, relying on Glenn and Price Waterhouse, held that “discrimination based on gender identity, change of sex, and/or transgender status is cognizable under Title VII …” Macy, a transgender woman, was a police officer who applied for a position with the Bureau of Alcohol, Tobacco, Firearms and Explosives (Agency) for which she was qualified. When she initially applied and discussed the position with the director of the crime laboratory, she had not begun presenting as a woman. Macy asserted that the director told her she would have the position assuming there were no issues with her background check. She later notified her employer that she would be presenting as a female. Shortly thereafter, she was informed that the position had been eliminated due to budgetary restrictions. Macy learned from an Agency EEO counselor that the position was filled by another applicant. She then filed a complaint. In response to her complaint, the Agency stated that gender identity was not a valid claim to make before the EEOC. Macy then appealed.
Applying the rationale asserted by federal courts that gender is no different from religion, the Commission found that so long as an employee considers him or herself a specific gender and identifies as such, then for purposes of making a prima facie case, all that must be established is that the employer impermissibly used gender in making its decision. In Schroer v. Billington, the District of Columbia District Court found that as Title VII applies to a change in religion, it so applies to a change in gender.
Prior to the above decisions, the federal government announced that it would not discriminate based on gender identity in its personnel decisions. Likewise and closer to home, the City of Columbia changed its personnel policy to include gender identity in 2011. The City of Columbia’s policy now states, in part, “any other identifying characteristic unrelated to a person’s ability to perform assigned job responsibilities and with proper regard for the privacy and constitutional rights of employees.” To this writer’s knowledge, the City of Columbia is the only municipality in the State of South Carolina that protects employees and applicants against discrimination based on gender identity.
In summary, the recent trend of the courts and EEOC is changing the Title VII landscape to afford protection to transgender employees under Title VII’s prohibition against sex discrimination.
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