Proposed MHRA and Arbitration Changes

With the “changing of the guard” at the Missouri governor’s mansion, the Missouri legislature has introduced sweeping changes to Missouri’s anti-discrimination laws, including changes related to the applicability of arbitration clauses that are frequently included in an employee’s employment “contract.” Although these changes have not been finalized, nor have they been presented to the governor for his signature, it is widely believed that they will be ultimately approved. Thus, although somewhat complicated, the employment lawyers at Hollingshead & Dudley wanted to take a moment to summarize the proposed changes to Missouri’s employment law. For your (i.e. the reader’s) clarity, “SB” refers to a Senate Bill that has been proposed by the Missouri Senate. The letters “MHRA” refer to the Missouri Human Rights Act which is Missouri’s primary anti-discrimination law, and “Title VII” is the federal “equivalent” to the MHRA.

MHRA AMENDMENT-SB 43

OVERVIEW

SB 43 has been introduced with the intention of making major changes to the MHRA to, in essence, make it look similar to Title VII. Additionally, it codifies common law public policy wrongful discharge claims into one statutory action and overrules any common law claims to the contrary. This bill, in addition to SB 45 discussed below, have been introduced many times before, but they were always vetoed by Governor Nixon. In fact, SB 43 was originally introduced in 2012. It is widely expected that SB 43 (and SB 45) will be swiftly signed by Governor Greitens. What is unknown is whether an emergency provision will be placed in the bill(s) allowing it (them) to become effective prior to the typical effective date of August 28^th. In all likelihood, if passed, these bills would become effective on August 28, 2017 along with most other bills passed during this legislative session.

KEY CHANGES PROPOSED

Missouri Human Rights Act

1. Changing “contributing factor” to “motivating factor”: Although this change was widely anticipated, its ultimate impact remains unknown. Defense attorneys seem agitated that the legislature didn’t propose an even higher standard, including the possibility of the “exclusive factor” standard. Most employment law attorneys (including the attorneys at Hollingshead & Dudley) believe that the standard change will have relatively little practical effect in Missouri courts. The prevailing belief is that Missouri’s trial judges will effectively continue to apply the essence of the contributing factor standard, particularly when evaluating summary judgments (which is discussed below).

2. Providing more specificity as to the bright line test for “six or more employees”: SB 43 defines an employer to include “…a person engaged in an industry affecting commerce who has six or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year.” This language change alters the current interpretation of the MHRA which effectively requires an employer to have a total of six or more employees (including part-time, seasonal, and full time employees) during the twelve-month period preceding the last adverse action taken. The current interpretation of the MHRA means that even terminated employees can count. The new rule is simply more specific than the old rule, and it is unknown the ultimate aggregate impact of this proposed change.

3. Eliminating individual liability for supervisors: With the exception of the implementation of the motivating factor standard and limiting damages (as discussed below), this may be one of the biggest changes included in SB 43 as it would impact Missouri plaintiffs. Under the current MHRA, supervisors involved in discrimination or adverse actions against an employee are considered to be an “employer” and are, thus, subject to individual liability. SB 43 eliminates that liability. While one solution would be to add additional tortious counts into an employee’s lawsuit such as civil conspiracy, intentional infliction of emotional distress, or negligent infliction of emotional distress, SB 43 seems to have anticipated that tactic as discussed in (4) below. The effect of this seemingly small change to the MHRA is that plaintiffs’ employment lawyers will be subject to federal court removal on a significant number of cases whereas they are currently able to “destroy” federal diversity jurisdiction. Any out of state company would, in effect, have 100% of its MHRA claims removed. Knowing that removal is imminent, on all race cases (following the inevitable enactment of SB 43), plaintiff’s attorneys will want to include a 42 U.S.C. § 1981 claim to avoid the caps that are also discussed below.

4. To avoid plaintiffs’ employment attorneys from simply adding other tort claims in an effort to destroy diversity jurisdiction, SB 43 includes language stating, “[t]his chapter, in addition to chapter 285 and chapter 287, shall provide the exclusive remedy for any and all unlawful employment practices articulated herein and hereby abrogates any common law causes of action not specifically articulated herein.” This language, while leaving some room for argument to the contrary, seems to suggest that other torts such as civil conspiracy, intentional infliction of emotional distress, or negligent infliction of emotional distress are preempted by the MHRA. When I say “leaving some room for argument to the contrary,” it might be worth including those counts to see how the courts might interpret this provision. The problem is that the defendants will remove the action to federal court and immediately file a motion to dismiss the non-MHRA counts, and the issue will ultimately be decided by a federal judge, rather than a state court judge who may be more likely to test the waters in the Missouri Court of Appeals and, ultimately, the Missouri Supreme Court.

5. Codification of the “business judgment rule”: SB 43 states, “[i]t shall be the presumption that for a fair presentation of the case, a jury shall be given an instruction expressing the business judgment rule.” Coupled with a change discussed later mandating that trial courts rely heavily on relevant federal law when interpreting the changes to the MHRA, this change creates the potential for a lot of “smoke and mirrors” by defense attorneys at trial. Missouri cases have already, albeit inconsistently, applied the business judgment rule in a number of contexts, although rarely in employment cases. A review of federal opinions regarding the business judgment rule in employment cases reveals that most courts find the rule to be of relatively little value given the employee’s already existing obligation to prove the existence of discrimination. In Sanchez v. Philip Morris Inc., the Tenth Circuit Court of Appeals stated, “…district courts are not in a position of determining whether a business decision was good or bad…Title VII is not violated by the existence of erroneous or even illogical business judgment…[a]n employer’s business judgment is relevant only insofar as it relates to the motivation of the employer with respect to the allegedly illegal conduct.” 992 F.2d 244, 247 (10th Cir. 1993). The Eighth Circuit has held, “…an employer has the right to make business decisions—to assign work, to change an employee’s duties, to refuse to assign a particular job, and to discharge—for good reason, bad reason, or no reason at all, absent intentional…discrimination.” Walker v. AT&T Technologies, 995 F.2d 846, 850 (8th Cir. 1993). Practically speaking, in order to prove up an employee’s case, his or her attorney would have to demonstration that discrimination took place regardless. Thus, this instruction really only has the practical effect of confusing the jury on an issue that must already be proven in order for an employee to prevail at trial.

6. Deference to federal case law: SB 43 states that, “[i]n interpreting and applying chapter 213 in employment cases, courts shall rely heavily upon judicial determinations of Title VII…the Age Discrimination in Employment Act…and the Americans with Disabilities Act…as amended.” The language “rely heavily” creates an opportunity for argument that the judge is not required to apply federal case law but, rather, to give federal case law strong deference. Of particular note, SB 43 doesn’t state which circuit the state court judges are expected to “rely heavily upon.” Thus, an excellent argument can be made that, even if the judge was inclined to directly apply federal court decisions, any circuit would do (assuming SCOTUS had not ruled on the matter of course). Also of particular note are previous federal court opinions that have interpreted the provisions of Title VII as applicable to cases involving sexual orientation. In the legislature’s rush to change the MHRA, it may be unwittingly opening the door for plaintiff’s to bring an MHRA claim on the basis of sexual orientation.

7. Encouraging Missouri trial judges to consider summary judgment: Similar to “6” above, SB 43 effectively adopts the federal courts’ analysis in discrimination cases as enumerated in Price Waterhouse v. Hopkins, 490 U.S. 228, 258 (1989) and McDonnell Douglas Corp. v. Green, 411 U.S. 792, 800-01 (1973). The Price Waterhouse opinion relates to direct evidence of discrimination. The case held, among other things, that employers aren’t liable if they can prove that, “…even if [they] had not taken [an employee’s protected class] into account, [they] would have come to the same decision regarding a particular person…” Id. at 242.

The Price Waterhouse court explained that its opinion really only requires the employee to prove that discrimination was a motivating factor in the adverse action. The employer then had an affirmative defense that it would have reached the same decision regardless. In theMcDonnell Douglas Corp. case, the SCOTUS held that the employee has the initial burden of making a prima facie case of discrimination. Id. at 802. After the employee has made a prima facie case of discrimination, “[t]he burden then must shift to the employer to articulate some legitimate, nondiscriminatory reason for the employee’s rejection…” Id. If the employer presents a legitimate, nondiscriminatory reason for its adverse action, the burden then shifts back to the employee to, “…be afforded a fair opportunity to show that [the employer’s] stated reason for [taking the adverse action] was in fact pretextual.” Id.

SB 43 does leave a loophole by stating that these two cases “…shall be considered highly persuasive.” In theory, a trial court would be free to disregard these cases’ analysis as it sees fit. Ultimately, the extent of a trial court’s ability to disregard these cases will have to be determined in the Missouri Court of Appeals and, ultimately, the Missouri Supreme Court. The practical effect will be that a lot of jury verdicts may be subject to reversal while the Missouri appellate courts determine the extent of trial court’s discretion to disregard federal case law.

In speaking with employment defense attorneys, it is widely believed that Missouri judges will still deny the vast majority of summary judgments. The defense attorneys believe that the practical effect of SB 43’s summary judgment analysis will be that defense firms will file significantly more summary judgments in state court that they currently are (which is basically never). However, they do not believe that, in most cases, state court judges will be any more inclined to grant summary judgment. That said, there is a general consensus among all employment lawyers that weaker cases that would currently survive summary judgment could be thrown out by state court judges. The real effect of this change is that small to medium sized businesses will be forced to pay their attorneys more in legal fees, as defense attorneys will undoubtedly argue to their clients that they should file a motion for summary judgment in every MHRA case.

8. Limiting damages: Like Title VII, SB 43 limits damages under MHRA claims to:

1. 1. Actual back pay and interest on back pay; and

   2. The sum of all other damages based on the size of the company being sued. For companies with 6-100 employees, non-economic damages are capped at $50,000. For companies with 101-200 employees, the cap is $100,000. For companies with 201-500 employees, the cap is $200,000. For companies with 501+ employees, the cap is$300,000.

Additionally, SB 43 states, “…punitive damages shall not be awarded against the state of Missouri or any of its political subdivisions.”

9. Finally, as it relates to the MHRA, SB 43 states that, “[a]ny party to any action initiated under this section may demand a trial by jury.” This provision may be very interesting because it seemingly conflicts with SB 45 regarding the enforceability of arbitration clauses. If an employee has a right to demand a trial by jury, how can the employee be forced into arbitration?

Creation of the “Whistleblower’s Protection Act”

1. Since all common law claims are purportedly eliminated by SB 43, the bill creates the “Whistleblower’s Protection Act.” The Act has many problems, particularly damages, as discussed below.

2. The act incorporates the “motivating factor” standard.

3. Like the common law, the Act excludes the State of Missouri and its political subdivisions which would presumably include municipalities. It also codifies the MHRA’s general exclusion of “religious and sectarian groups.”

4. The Act protects employees who: 1) reports an unlawful act of an employer or its agents to …“a governmental or law enforcement agency, an officer, the employee’s supervisor, or the employee’s human resources representative employed by the employer” (the bolded language is the Act’s definition for “proper authorities” for all purposes under the Act), 2) “…reports to an employer serious misconduct of the employer or its agent that violates a clear mandate of public policy as articulated in a constitutional provision, statute, or regulation promulgated under statute”, 3) refuses “…to carry out a directive issued by an employer or its agent that if completed would be a violation of the law”, or 3) engages “…in conduct otherwise protected by statute or regulation.”

5. The Act excludes employees who are “…a supervisory, managerial, or executive employee or officer of the employer…”

6. The Act also excludes employees who are “…employed to report or provide professional opinion.” This provision will be the subject of extensive litigation because it fails to define such employees.

7. The Act very specifically states that it is “…intended to codify the existing common law exceptions to the at-will employment doctrine and to limit their future expansion by the courts.” Accordingly, it states that the Act (in addition to the MHRA), “…shall provide the exclusive remedy for any and all unlawful employment practices articulated herein and hereby abrogates any common law causes of action to the contrary.”

8. The Act did at least expand the common law wrongful discharge policy to also include retaliation. Under the existing common law exceptions to at-will employment, only terminated (including constructively terminated) employees are protected. Thus, an employer would be free to make an employee’s life miserable up to the point of (but excluding) termination without any civil liability.

9. The Act limits damages on whistleblower cases to “…actual damages…but not for punitive damages.” It also states, “…if a private right of action for actual damages exists under another statutory or regulatory scheme, whether under state or federal law, no private right of action shall exist under this statute.” The practical effect of this would be that attorneys will need to exhaustively determine if another state or federal statute or regulation would apply. For the vast majority of Hollingshead & Dudley’s cases, this would mean that we would have to pursue OSHA’s conciliation process prior to filing suit through the private right of action under OSHA, for example.

10. The Act limits damages to:

1. 1. Back pay;

   2. Medical bills;

   3. If the employee “…proves, by clear and convincing evidence, that the conduct of the employer was outrageous because of the employer’s evil motive or reckless indifference to the rights of others, then in addition [to back pay and medical bills], an additional double amount as liquidated damages may be awarded.” The provision for liquidated damages specifically excludes attorneys’ fees in the calculation; and

   4. The prevailing party may be awarded reasonable attorneys’ fees and all court costs.

The Act provides no provision for garden variety emotional distress and creates the risk that the employee may be responsible for paying the company’s attorneys’ fees and court costs.

ARBITRATION CLAUSES-SB 45

1. SB 45 codifies that at-will employment constitutes valid consideration for a binding arbitration clause, but only if:

   1. The agreement requires both the employer and employee to arbitrate;

   2. The employer notifies the employee, in writing, of the terms of the agreement;

   3. The employee acknowledges acceptance of the terms in writing or continues to be employed after receiving written notice; and

   4. The agreement contains a provision that any modifications to the agreement shall not: 1) apply to any claim accrued prior to the effective date of the modification, or 2) allow unilateral modification of the agreement.

2. SB 45 requires the applicability of an arbitration clause to be determined by the arbitrator if not otherwise specified in the agreement. This provision is huge in that, under existing law, the applicability of an arbitration clause is left up to the trial court to decide. By allowing the arbitrator to make that determination, it basically guarantees that the agreement will be held valid because the arbitrator will want to handle the case and receive payment through arbitration.

3. SB 45 states that the arbitrator “…shall be selected by mutual agreement of the parties or, in the event that an arbitrator is not mutually agreed upon, through a strike and ranking process.” It is unclear where the list would come from for “striking and ranking.”