As explained in greater detail in a prior alert, Virginia has enacted a number of new employment laws that increase employee rights and protections. Most of these new laws took effect on July 1, 2020. One major impact of the laws is that employers are likely to have more discrimination claims adjudicated in Virginia state courts instead of federal courts. Shifting the forum for adjudication in this way may pose a significant disadvantage to employers, as the applicable procedures in Virginia courts can make it more difficult to win before trial. Because of the significant legal expenses incurred in litigating a case through trial, this may significantly increase the legal expense to employers even in cases where their defenses are strong, in some cases above the value of the claim itself. We discuss several considerations relating to this change below, including the benefits and drawbacks of requiring employees to enter into arbitration agreements.
New law expands potential state court litigation
Effective July 1, 2020, the Virginia Values Act modified existing Virginia discrimination laws to cover more employers and more protected classes and to provide additional remedies available to employees who bring claims. Previously, Virginia’s discrimination laws applied only to small employers. As such, discrimination claims against most Virginia-based employers could be brought only under federal anti-discrimination laws. As a practical matter, any such claims that were filed in court (after the employee had filed an administrative charge with the U.S. Equal Employment Opportunity Commission or a state or local Fair Employment Practices Agency and received a “right to sue” letter) were adjudicated in federal court. This is because the employee would either file the claim directly in federal court, or the employer could “remove” any such claim to federal court because such claim would be an action “arising under the Constitution, laws, or treaties of the United States.”
The new amendments – which provide that all violations of federal anti-discrimination laws, like Title VII of the Civil Rights Act of 1964, now violate Virginia’s state laws as well – mean that claims that once arose only under federal law now arise under state law. As a result, employees claiming discrimination can choose to sue only under Virginia’s laws, and if they do so, the case generally would not be removable to federal court as arising under the laws of the United States, unless the employee made other federal law based claims. In some situations, a case with only state-law discrimination claims could still be removed to federal court if the requirements for federal diversity jurisdiction are satisfied. This generally requires that the corporate employer “reside” in a state (i.e., the state(s) of its incorporation and principal place of business) outside of Virginia and a state different than the state where the employee resides (the analysis for other forms of business entities, e.g., partnerships and limited liability companies, differ in the particulars, but the result usually will be the same). The bottom line is that removal is likely not available when an employee sues a Virginia-based employer under Virginia employment discrimination law; thus, such claims likely must be heard in Virginia state court.
Litigating discrimination claims in Virginia state courts can be quite different from litigating those claims in federal court, even if the substantive claims themselves are identical. Among other things, the Rules of the Supreme Court of Virginia permit discovery to be served with the Complaint. So unlike in federal court, where discovery ordinarily does not start until after the parties have conducted a discovery conference (which in some courts may be weeks or months later), in state court a plaintiff can serve discovery on the defendant with the complaint, with a response due 21 days later.
More significant, however, is the difference in summary judgment procedures. Many federal discrimination claims in federal court end before trial as a result of an employer’s motion for summary judgment, which typically relies heavily on the deposition testimony of the employee-plaintiff. Ending a case before trial has significant benefits for an employer: including substantial cost savings as well as avoiding the unpredictability of a jury verdict.
In contrast, except as to requests for punitive damages, a Virginia court ruling on a motion for summary judgment generally cannot consider deposition testimony: it may only do so if both parties consent to it. Notably, while Virginia recently amended Section 8.01-420 of the Virginia Code so that discovery depositions can be considered in some cases, that amendment allows consideration of deposition transcripts only “when the only parties to the action are business entities and the amount at issue is US$50,000 or more.” Since the plaintiff in a discrimination case is not a business entity, an employer may not rely on deposition transcripts unless the employee consents, something he or she is unlikely to do. In the absence of deposition testimony, the primary evidence that can be used is answers to interrogatories and requests for admission. Not surprisingly, these discovery responses, typically written carefully by lawyers with several weeks to respond, do not frequently establish that the lawyer’s client loses as a matter of law.
In short, the inability of a defendant to rely on deposition testimony in Virginia historically has made achieving summary judgment in Virginia courts more difficult than in federal court, and discrimination cases are not likely to be any different. Employees may therefore view the ability to bring claims in state court as providing them with a new advantage in litigation.
In light of the disadvantages and increased costs of litigating discrimination cases in Virginia state court, employers should consider whether it makes sense to require employees to agree to submit employment claims to arbitration.
Virginia has adopted the Uniform Arbitration Act, which in Section 8.01-581.01 provides as follows: “A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, except upon such grounds as exist at law or in equity for the revocation of any contract.” It also specifically confirms its applicability to arbitration provisions in employment agreements, stating that it “applies to arbitration agreements between employers and employees or between their respective representatives unless otherwise provided in the agreement…” Relatedly, relying on a host of U.S. Supreme Court decisions upholding employment arbitration agreements, the U.S. Equal Employment Opportunity Commission recently rescinded its prior position that expressed disapproval of requirements that employment claims be adjudicated through arbitration.
An arbitration agreement could not prohibit an employee from filing a charge with the U.S. Equal Employment Opportunity Commission or the Virginia Department of Human Rights, nor could it prohibit such organization from investigating such charge. It could, however, prohibit an employee who agrees to arbitration from filing a claim in court.
In drafting an arbitration provision, employers can choose the rules and procedures that will apply to the proceedings. Many of the most common arbitration rules provide for dispositive motions in advance of the evidentiary hearing. Although organizations like the American Arbitration Association (AAA) and JAMS do impose certain limitations on arbitration provisions applicable to the employment relationship, there does not appear to be any restriction on employers and employees agreeing that the summary judgment standard and precedent in the federal courts will govern such a motion. In addition, those rules provide for discovery and depositions, and under Section 8.01-581.06 of the Virginia Code, arbitrators are authorized to issue deposition subpoenas. So an arbitration where the plaintiffs’ deposition testimony can be considered on a dispositive motion may be possible.
That said, it should be noted that arbitration is not necessarily a perfect solution to reduce costs, especially in smaller cases. Unlike judges, arbitrators have to be paid by the parties, and AAA and JAMS collect their own fees on top of the arbitrators’ fees. Moreover, the stated policy of AAA and JAMS is that the employer has to pay the vast majority of the fees, with the employee’s fees being capped at relatively low amounts. The amount of the arbitration fees vary generally with the size of the case, and employers will need to balance those costs against the potential attorneys’ fees saved from avoiding trial in non-meritorious cases.
Additionally, in recent years, particularly in light of the #MeToo movement, arbitration provisions have come under fire from employee-advocacy groups which state that they are unfair to employees and hide sexual harassment in the workplace. Some states (not Virginia) have passed legislation limiting arbitration of certain employment claims, although this legislation may be preempted and invalid as a result of Supreme Court precedent. Employers must consider whether the benefits of arbitration exceed the costs – including financial costs as well as dissatisfaction by employees in being required to arbitrate claims.
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Our Virginia litigation and employment teams would happy to help you to evaluate these strategic considerations or to discuss any of these issues further.