Project: Corporate Counsel Part I (Unintended Consequences) - Law Firms Supreme Court Issues Spector Opinion Affecting Reach Of U.S. Labor And Employment Laws To Foreign Business Operations And Employees

Friday, July 1, 2005 - 01:00

Case law respecting application of federal labor and employment laws abroad is unclear and immature. On June 6, 2005, the U.S. Supreme Court in a 6-3 opinion further muddied the waters in Spector v. Norwegian Cruise Line Ltd., 545 U.S. ___ (2005). Spector overturned the Fifth Circuit Court of Appeals and settled law by holding that Title III of the Americans with Disabilities Act ("ADA"), 42 U.S.C. §12101, et. seq ., applies to foreign-flagged cruise ships. As a consequence, at a minimum, Title III of the ADA now applies to those aspects of foreign-flagged cruise ships (restaurants, retail stores, health spas, etc.) that qualify as public accommodations under the ADA. In reaching this result, the court seemingly cast aside its well-settled precedents that require a clear expression of legislative intent before applying U.S. laws abroad. The court's plurality opinion does not substitute an alternative operating principle, thus making it more difficult to predict the circumstances when U.S. laws will apply overseas.

In our ever-increasing global economy, this case reflects the complex and changing issues facing our courts in not only addressing international tax and corporate issues, but developing labor and employment laws as well. American employers must be sensitive to these issues as they open overseas operations, and foreign businesses must be equally cognizant of global employment considerations as they rotate workers into their U.S. facilities. As the Supreme Court has not addressed extraterritorial application of American employment laws in almost a decade, the importance of the Court's decision in Spector cannot be understated. Below we review the Spector decision, and its implications for the extraterritorial application of U.S. employment law in general.

I. The Spector Decision

Spector arises from the Fifth Circuit's consideration of an appeal from the U.S. District Court for the Southern District of Texas. Passengers of Norwegian Cruise Line sued because the company's foreign-flagged cruise vessels did not comply with Title III of the ADA, which requires "public accommodations" to eliminate physical barriers to the disabled. Section 12184(a) of Title III prohibits discrimination against disabled individuals on "specified public transportation services provided by a private entity that is primarily engaged in the business of transporting people and whose operations affect commerce." Based upon this provision, the district court denied Norwegian Cruise Line's motion to dismiss.

The Fifth Circuit reversed on appeal. The Fifth Circuit, relying on Supreme Court precedent, held that to apply domestic law to foreign vessels entering United States waters, "there must be present the affirmative intention of Congress clearly expressed." 356 F.3d at 644, quoting Benz v. Compania Naviera Hidalgo, S.A., 353 U.S. 138, 147 (1957). The Circuit Court found that Title III did not clearly state that it was meant to apply outside the United States and, therefore, dismissed the plaintiff's Title III claim.

The Fifth Circuit's decision was consistent with the then-existing presumption against extraterritorial application of federal statutes absent an express statutory provision to the contrary. EEOC v. Arabian American Oil Co., 499 U.S. 244, 248 (1991) (Title VII of the Civil Rights Act of 1964, 42 U.S.C. §2000e et seq., does not apply to U.S. citizens working for American employers abroad; result subsequently legislatively reversed by Section 109 of the Civil Rights Act of 1991). The Fifth Circuit had noted that other labor and employment laws, in particular the Labor Management Relations Act (LMRA), 29 U.S.C. §141, et. seq., and the National Labor Relations Act (NLRA), 29 U.S.C. §151, et seq., do not apply outside the United States because the statutes themselves are silent respecting their extraterritorial application. 356 F.3d at 645.

The Supreme Court was cognizant of these precedents, which require clear Congressional intent before applying U.S. laws to foreign-flagged ships. A plurality of the court, however, held that as long as Title III does not affect a vessel's "internal affairs," the statute applies to foreign-flagged vessels in U.S. waters notwithstanding the absence of express Congressional intent. The plurality's opinion does not set forth clearly what constitutes a vessel's "internal affairs." Rather, the opinion suggests that to the extent removal of a barrier to the disabled is "readily achievable," such removal does not interfere with a ship's "internal affairs" and, therefore, its removal is required under Title III. The court remanded the case back to the district court to implement its ruling. The court's opinion leaves open the practical question of how much cost and renovation will be necessary for the cruise industry to comply with the decision.

If a federal employment statute expressly provides that it either does or does not apply abroad, then the Spector decision should not cause the courts to interfere with Congressional intent. There are, however, federal employment statutes that are silent respecting their extraterritorial reach. The Spector decision opens the possibility that the courts may now apply these silent statutes abroad on a case-by-case (and potentially inconsistent) basis in the absence of presumption against extraterritorial application of U.S. law. Therefore, it is useful to examine the statutes and existing precedent pre- Spector.

II. Threshold Legal Issues

The starting point for any analysis of the potential extraterritorial application of employment laws is consideration of where an employee works because the express requirements of several statutes only extend to U.S. boundaries.

Determining an employee's work location differs depending upon the underlying federal statute at issue and specific factors relating to the employee's terms and conditions of employment. For instance, courts have held the NLRA inapplicable to employees working outside the United States, even on a temporary assignment. See, e.g., Asplundh Tree Expert Co. v. NLRB, 365 F.3d 168 (3d Cir. 2004). On the other hand, the determination of an employee's location of employment for Title VII, the ADA and the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. §621 et seq., focuses on the location of the employee's "primary workstation." Shekoyan v. Sibley Int'l Corp ., 217 F. Supp.2d 59, 68 (D.D.C. 2002), aff'd, ___ F 3d ___, 109 BNA Daily Labor Report A-6 (June 8, 2005) citing, Denty v. SmithKline Beecham Corp., 109 F.3d 147, 150 (3d Cir. 1997).

Courts have held that an individual whose primary workstation is abroad cannot characterize otherwise extraterritorial employment as domestic solely because employment decisions were made and training occurred in the United States. See, e.g., Shekoyan, supra ; Hu v. Skadden, Arps, Meagher & Flom, LLP, 76 F.Supp.2d 476 (S.D.N.Y. 1999). Instead, courts use a multi-factored, fact-based analysis in which the actual geographic location of the employee is not necessarily decisive. See, e.g., Torrico v. International Business Machines Corp., 319 F.Supp.2d 390, 405-06 (S.D.N.Y. 2004).

After consideration of the threshold issue of where the employee works, the analysis turns to whether the underlying labor or employment law statute provides for extraterritorial application. This varies by statute, as a sample of major federal employment statutes demonstrates below.

III. Pre- Spector Statutory And Case Law Analysis

Statutes That Expressly Apply Abroad: Title VII, the ADA and the ADEA may apply outside the United States depending upon the circumstances. These statutes, however, generally protect only U.S. citizens working abroad. A legal resident alien working abroad usually receives no protection from Title VII, the ADA, or the ADEA. See, e.g., Shekoyan, supra (permanent U.S. resident from Armenia who was recruited, interviewed, hired and trained in the United States for work that he performed at his primary work station in the Republic of Georgia held to have no remedy under Title VII for discrimination he suffered while at his foreign worksite); Hu, supra (ADEA held not to apply to claim of resident alien who applied for employment in one of firm's overseas offices).

Congress expressly precluded Title VII's and the ADA's extraterritorial scope from covering aliens. See 42 U.S.C. §2000e-1 and 42 U.S.C. §12112(c)(1), respectively. Likewise, case law interpreting the ADEA makes clear that the "ADEA does not extend to a foreign national working abroad for American companies or their subsidiaries." Iskandar v. American University of Beirut, 1999 U.S. Dist. LEXIS 12195 *5 (S.D.N.Y.) (collecting cases). The ADA, ADEA and Title VII as a general matter also do not protect foreign nationals who apply abroad for jobs in the United States. See, e.g., Reyes-Gaona v. North Carolina Growers Ass'n, 250 F.3d 861 (4th Cir.), cert. denied, 534 U.S. 995 (2001).

Statutes That Expressly Do Not Apply Abroad: The Fair Labor Standards Act, 29 U.S.C. §201, et seq., does not apply with regard to any employee whose services "during the workweek are performed in a workplace in a foreign country." 29 U.S.C. §213(f). The same rule applies with regard to the Equal Pay Act, which amended the FLSA. See 29 U.S.C. §212(d). OSHA expressly states that its reach is limited to "employment performed in a workplace in a State, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, American Samoa, Guam, the Trust Territory of the Pacific Islands, Lake Island, Outer Continental Shelf lands . . . Johnston Island, and the Canal Zone." 29 U.S.C. §659(a).

Silent Statutes: Both the courts and the National Labor Relations Board generally have ruled that the NLRA and LMRA do not apply to employees of U.S. companies working abroad. See, e.g., Asplundh Tree Expert Co. v. NLRB, supra; Computer Sciences v. Raytheon, 318 NLRB 966, 968 (1998). These decisions, however, applied the pre- Spector presumption that U.S. laws should not be applied extraterritorially absent clear Congressional intent that they do so. Similarly, the Family Medical Leave Act, 29 U.S.C. §2601, et seq., does not address whether it applies outside of the United States. But see 29 C.F.R. §825.105(b) (regulation providing that FMLA applies only to U.S. employees). Therefore, after Spector, there is an open issue as to whether the courts will apply the FMLA abroad.

IV. Conclusion

Application of U.S. law to employment outside the United States raises complex issues. There are relatively few reported judicial decisions, and the cases require detailed analysis of their facts before relying upon them as a guide to employer conduct. The law respecting the application of U.S. employment laws abroad remains nascent, often requiring a case-by-case analysis. The Supreme Court's Spector decision has made matters more uncertain respecting those statutes in which Congress was silent regarding extraterritorial application by calling into question the principle that express Congressional intent is required before courts apply federal law abroad.

Robert H. Bernstein is Global Head of Reed Smith's Labor and Employment practice. Gregory B. Reilly is Counsel to the Firm, active in this practice. They are located in the Newark, New Jersey office of Reed Smith LLP. Reed Smith LLP, a top-25 international law firm with over 1,000 lawyers located throughout the United States and Europe, represents Fortune 100 as well as mid-market and emerging companies.

Please email the authors at rbernstein@reedsmith.com or greilly@reedsmith.com with questions about this article.