2002 Volume 5 Issue 3

Supreme Court Sides With Business

Supreme Court Sides With Business

Court narrows ADA protection

A divided Supreme Court works to clarify what business can and cannot do in several areas.

If the recently completed 2001-02 term of the Supreme Court is remembered as the “disabilities act term,” as Justice Sandra Day O’Connor has speculated, then it will also be known as a year of major victories for employers and business interests.

The mere fact that the justices decided four different cases about the Americans with Disabilities Act is by itself significant, considering that it issued only 79 rulings in the entire term. Arguably, the death penalty was the only issue to take more of the court’s time than the ADA. Further, by ruling against those seeking ADA protection in all four cases, the court has continued to narrow the scope of the federal statute passed in 1990. To date, all Supreme Court decisions interpreting the workplace components of the ADA have been decided in favor of the employer.

In surprisingly candid remarks, O’Connor indicated the court’s focus on the ADA is due, at least in part, to ambiguities in the law passed by Congress. “It’s an example of what happens … when the sponsors are so eager to get something passed that what passes hasn’t been as carefully written as a group of law professors might put together,” O’Connor said in March.

While there is little debate about the good purposes behind the ADA, the lack of precision in the statute has caused problems for both employers and employees — and a heavy workload for the Supreme Court. The most important ADA ruling of the term came in January, when the court ruled unanimously that job-related impairments such as carpal tunnel syndrome may not qualify an employee for protection under the disabilities act.

The test for disability is not based only on job-related activities, Justice O’Connor’s opinion in Toyota v. Williams stated, but on whether an individual has a permanent or long-term “impairment that prevents or severely restricts the individual from doing activities that are of central importance to most people’s daily lives.” (For more information on this case and its limited applicability in California, see “Defining Disability Under the ADA” in the Winter 2002 the issue of the GBR.)

ADA and Threat to Self

In the closing months of the Supreme Court’s term, three more ADA decisions continued the refining and narrowing of the law. In another unanimous decision in Chevron v. Echazabal, the court held that an employer can refuse to hire a disabled person when the job could threaten the potential employee’s own health.

Mario Echazabal had worked for 20 years for independent contractors at a Chevron oil refinery in the Los Angeles area. Then Chevron twice refused to hire Echazabal, and ultimately prompted an independent contractor to lay him off, because of his disability, a liver condition. Fearing that continued exposure to chemicals present at the refinery would worsen Echazabal’s liver condition and possibly even threaten his life, Chevron relied on an Equal Employment Opportunity Commission regulation giving an employer a defense to an ADA claim when the worker’s disability poses a “direct threat” to his or her own health.

When Echazabal sued under the ADA, the federal district court agreed with Chevron and granted a summary judgment for the defense. However, the 9th U.S. Circuit Court of Appeals reversed, finding that the EEOC’s “threat-to-self” defense went beyond the terms of the ADA statute and the agency’s rulemaking power. As is often the case when the Supreme Court reviews a ruling of the more liberal 9th Circuit, the 9th Circuit decision was overturned.

In ruling for Chevron, the Supreme Court first noted that the ADA statute clearly includes a defense for employers using hiring standards that are “job-related and consistent with business necessity.” Although the statute specifically allows an employer to act so that “an individual shall not pose a direct threat to the health or safety of other individuals in the workplace,” the court ruled that the inclusion of this “threat-to-others” defense did not prevent the EEOC from adding the “threat-to-self” defense in its regulations interpreting the law.

Echazabal’s lawsuit may not be over, as the dispute over whether the chemicals at the refinery would indeed worsen his liver condition could still be decided by a full trial. However, the legal principle that an employer can use the “threat-to-self” defense is far more significant to employers than the outcome of this one lawsuit.

The decision, written by Justice David Souter, rejected the argument that this is “workplace paternalism” for the disabled, which the ADA sought to prohibit. Rather, this is an employer protecting itself against potential (although uncertain, under current law) liability that might arise from an action brought by either the Occupational Safety and Health Administration or the harmed employee allowed to work in a dangerous situation.

ADA and Seniority

A less clear victory for employers came in U.S. Airways v. Barnett, where a 5-4 decision of the court said the terms of an established seniority system normally will take precedence over an employer’s duty to provide reasonable accommodations to a disabled employee under the ADA. Robert Barnett, a customer service agent for U.S. Airways who hurt his back moving cargo, initially requested and received a transfer to a mailroom job. But employees with greater seniority then requested his mailroom position, relying on the company’s seniority system. Although Barnett sought to keep his mailroom job as a reasonable accommodation under the ADA, U.S. Airways refused to grant an exception to the seniority plan.

After the trial court ruled for U.S. Airways, the 9th Circuit Court of Appeals reversed and ordered a full trial. While the 9th Circuit said a voluntary seniority system should be a factor to consider in deciding whether the accommodation would cause an undue hardship to the employer, it was not willing to say that such a system should always overcome an ADA request.

The Supreme Court’s majority opinion, written by Justice Stephen Breyer, took more of a middle ground approach, although one clearly leaning toward the employer rather than the disabled employee. Breyer’s opinion said that the “seniority system will prevail in the run of cases,” and that the ADA “ordinarily” does not require an employer to make a job assignment that would conflict with that system.

However, the splintered majority opinion left open the possibility that a disabled employee could overcome the presumption for the seniority system by showing “special circumstances,” such as that the employer frequently made changes or granted exceptions to the seniority system. Among the four dissenters, two agreed with the employee and would have upheld the 9th Circuit decision, while two others would have gone further in ruling for U.S. Airways.

In yet another ADA case, Barnes v. Gorman, the court ruled unanimously that a court cannot award punitive damages in ADA cases brought against state and local governments. Although of limited significance to private employers, this ruling furthered angered disability rights advocates who contend that the court is gutting the landmark law. However, as the federal ADA’s reach continues to diminish, that likely will cause employees in California to turn instead to the more generous disability law provisions under state law.

Other Job Bias Cases

Beyond these ADA cases, employers and business interests had a more mixed record in this year’s Supreme Court term. Several decisions could pose problems for employers facing various types of job bias lawsuits. For example, a 6-3 ruling in EEOC v. Waffle House states that, even though an employer and employee have agreed to submit a job dispute to mandatory arbitration and the employee is thus prevented from going to court, the EEOC can still sue the employer for back pay and reinstatement for the employee.

A 5-4 decision in National Railroad Passenger Corporation v. Morgan made it possible for employees bringing “hostile environment” claims (used most often in sexual or racial discrimination cases) to complain of conduct that happened perhaps even years earlier. While normally an employee must bring a discrimination claim within either 180 or 300 days of the alleged misconduct, “the entire time period of the hostile environment may be considered by a court for purposes of determining liability,” according to the majority opinion by Justice Clarence Thomas, so long as at least one such act fell within the filing period of 180 or 300 days.

Finally, a case that the Supreme Court ultimately chose not to decide could be of great importance to both employers and to older employees. After initially accepting the case, the court heard oral arguments on whether older workers could win an age discrimination claim when their company’s layoffs during a corporate reorganization disproportionately affected those over age 40 (the minimum age to be protected by federal age discrimination laws). Then, in an unusual move, the court dropped the case from its docket without explaining why. Since the lower court had ruled against the older employees, this particular case ended with a victory for the employer. But with no clear answer from the Supreme Court, it is still uncertain exactly what conduct by an employer might prove age discrimination.

Patents and Doctrine of Equivalents

Businesses and inventors holding patents gained a qualified victory in another important decision, although many questions remain after the court’s unanimous decision in Festo v. Shoketsu. The case involved a patent concept called the “doctrine of equivalents,” which says a patent holder can successfully claim patent infringement by a copycat or other equivalent invention that has only minor differences from the patented product.

Courts have long struggled with exactly how to apply the doctrine of equivalents. In Festo, the Court of Appeals for the Federal Circuit ruled that the doctrine could not be used by the patent holder for any claim that was amended in the patent application process. Since amendments to patents are typical in the patenting process, that decision endangered the strength of as many as a million patents now in use.

In rejecting the absolute approach used by the lower court, the Supreme Court opinion, written by Justice Anthony Kennedy, was at least some good news for patent holders. However, the ruling may still prove to do great harm to the doctrine of equivalents, as the court sought a middle ground. The high court ruled that there is indeed a presumption against using the doctrine of equivalents whenever the patent is amended in the application process. However, the patent holder can try to overcome that presumption, and thus still use the doctrine to claim patent infringement, by showing that the amendment had nothing to do with the differences between the patented product and the copycat.

The eventual impact of this decision will depend on how various lower courts interpret this somewhat ambiguous guidance from the Supreme Court on what is already a very complicated area of law. Current patent holders have no choice but to learn to live with this decision and what it could do to their amended patents. But those applying for patents in the future may want to be more precise in their original applications for patents, and less amenable to amendments suggested by the Patent and Trademark Office, to avoid the potential pitfalls of patent amendments.

Property Owners and Development Moratoriums

In a significant defeat for property owners and land developers, the Supreme Court refused to say that a government-imposed temporary moratorium on development is automatically a “taking” of property that requires the government to compensate the property owner. Tahoe-Sierra Preservation Council v. Tahoe Regional Planning Agency involved 450 Lake Tahoe area landowners who had been prevented from building on their properties. The moratorium at stake in the court case lasted almost three years, although in fact some of the plaintiffs had owned their property for 20 years without being able to build on it.

On a 6-3 vote, the Supreme Court rejected any categorical or automatic rule that such a temporary taking of property was one that required compensation under the Takings Clause of the U.S. Constitution. Rather, according to the majority opinion by Justice John Paul Stevens, courts should consider all the relevant circumstances, with length of the delay being just one factor, in deciding whether a particular moratorium had denied a landowner all the effective value of the property.

Even more significantly, this ruling stops, at least temporarily, a trend at the high court in favor of property owners. Further, the majority opinion might be read to limit some of the landmark rulings of the past 15 years in favor of property owners and their rights. If that ultimately proves to be true, the Tahoe decision will be a major victory for environmentalists and governmental planning agencies.

HMOs and Federal Preemption

In another 5-4 decision, the court upheld the right of state governments to impose independent review of coverage decisions made by health maintenance organizations. In Rush Prudential HMO v. Moran, the HMO argued that an Illinois state law requiring such an independent review was preempted by the Employee Retirement Income Security Act (ERISA), the main federal law governing employee benefits.

Although ERISA normally preempts conflicting state laws in an effort to provide employers some uniformity of regulation nationwide, there is an exception for state laws regulating insurance, banking, or securities. The Supreme Court majority ruled that the Illinois law was covered by this exception as HMOs provide a type of insurance, and thus was not preempted by ERISA.

What this decision does to the ongoing debate over a federal patients’ bill of rights is uncertain. The two houses of Congress have passed significantly different versions of this proposed legislation, and compromise looks doubtful. But with 42 states, including California, having laws providing some type of independent review of HMO decisions, some argue that this court decision reduces the need for a federal law doing much the same. On the other hand, now that it is clear that these state laws will withstand court challenges, others say that merely enhances the need for a federal law that would provide more consistent and uniform answers in the battles between patients and their HMOs.


Although Justice O’Connor is probably correct in predicting that the latest court term will be remembered for its ADA cases, they clearly were not the only rulings important to the business world. Roughly half of all 79 cases decided had at least some impact on business. Of those, business won more than it lost. For the most part, the court continues to show a narrow, although at times fragile, conservative majority.

That may remain true for at least another year. Despite rumors that one or more of the justices might decide to step down this year, no retirements were announced at the most typical time, the end of the Supreme Court term in June. It has now been eight years since the last vacancy on the court. Remarkably, that is the longest the court has gone without a new justice since the 1820s. Although a vacancy conceivably could come at any time, the lack of any retirement announcement this June likely maintains a court composition that is sharply divided, but leaning toward a pro-business stance.

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Author of the article
Larry Bumgardner, JD
Larry Bumgardner, JD
Larry Bumgardner, JD, is an associate professor of business law at Pepperdine Graziadio Business School. Previously, he served as executive director of the Ronald Reagan Presidential Foundation and the Reagan Center for Public Affairs in Simi Valley, California. A graduate of Vanderbilt University School of Law, he has also taught political science, public policy, and communications courses at Pepperdine.
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