First in a series on the new health care legislation

"Pay or Play"

Congress recognized the importance of keeping employers incented to provide health care coverage. This incentive is provided through a penalty that is imposed on certain employers who do not provide health care coverage to their employees. Effective January 1, 2014, employers with at least 50 employees who do not offer their employees and dependents with certain specified minimum levels of health coverage and have at least one employee receiving premium assistance from the federal government will have to pay a monthly tax of $166.67 (i.e., one-twelfth of $2,000) per full-time employee (but ignoring the first 30 full-time employees).

A different penalty is imposed if the employer offers coverage but the coverage does not satisfy specified minimum levels. Generally, the specified minimums require: (i) the employee’s cost for the coverage to be less than or equal to 9.5% of the employee’s household income, and (ii) the actuarial value of the benefits covered under the plan to equal or exceed 60% of the cost of the covered services. Employers who offer coverage that does not satisfy these specified minimums must pay a monthly tax of $250 (i.e., one twelfth of $3,000) for each full-time employee who receives federal premium assistance for coverage (with a cap on such penalty equal to $166.67 times the number of the employer’s full-time employees but ignoring the first 30 full-time employees).

The play or pay penalties are indexed for inflation. For purposes of these rules, a full-time employee is an employee who works at least 30 hours per week. Beginning in 2014, penalties are also imposed on certain individuals who do not procure health insurance.

Lactating Mothers' Relief in PPACA

I posted much about the Patient Protection and Affordable Care Act because it focuses so much on regulating the insurance industry and to a lesser extent regulates employers. There's an important protection in it though for women who breastfeed. Section 4207 amends the Fair Labor Standards Act to require employers to give women reasonable breaks and a location that is not a bathroom to express breast milk. Here's the text.

SEC. 4207. REASONABLE BREAK TIME FOR NURSING MOTHERS.
Section 7 of the Fair Labor Standards Act of 1938 (29 U.S.C. 207) is amended by adding at the end the following:
`(r)(1) An employer shall provide--
`(A) a reasonable break time for an employee to express breast milk for her nursing child for 1 year after the child's birth each time such employee has need to express the milk; and
`(B) a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public, which may be used by an employee to express breast milk.
`(2) An employer shall not be required to compensate an employee receiving reasonable break time under paragraph (1) for any work time spent for such purpose.
`(3) An employer that employs less than 50 employees shall not be subject to the requirements of this subsection, if such requirements would impose an undue hardship by causing the employer significant difficulty or expense when considered in relation to the size, financial resources, nature, or structure of the employer's business.
`(4) Nothing in this subsection shall preempt a State law that provides greater protections to employees than the protections provided for under this subsection.'.

While promoting expressing milk may not be problem free as a policy matter, many women rely on the ability to do so to feed their children, and this is a very important step forward that will support more women of who want to breastfeed their children.

NASA blasts off into employment law case

The United States Supreme Court recently granted cert a public employee privacy case which will consider whether NASA, a federal agency, violated the informational privacy rights of employees, who worked in non-sensitive contract jobs, by asking certain invasive questions during background investigations.

The Government is asking the Court to overturn the 9th Circuit decision which directed a district court to issue a preliminary injunction on behalf of contract workers at NASA's Jet Propulsion Laboratory (JPL) operated by the California Institute of Technology under a contract with the federal government. The Government maintains that the privacy expectations of the employees are minimal because they have are in the government employment context, these are standard background forms that the government is using, and the Privacy Act of 1974 protects this information from disclosure to the public.

The case was originally brought in 2007 by twenty-eight scientists and engineers employed as contractors at JPL on behalf of a potential class of 9,000 employees that NASA classifies as low-risk employees. Questions included in the background check ask about “any treatment or counseling” for illegal drug use, and forms issued to references seek “adverse information” about the workers' employment, residence, and activities regarding violations of the law, financial integrity, abuse of alcohol or drugs, mental or emotional stability, general behavior, and “other matters.”

This will be an interesting case for a number of reasons. First, it does not squarely fit into either the public employee drug testing cases (Von Raab & Skinner), nor does it focuses on a public employee's privacy rights in their physical belongings (Ortega). Rather, it focuses on an area of public employment constitutional law that has received less attention: the informational privacy rights of these employees. The Court has "hinted" at a constitutional right to informational privacy in two cases in the 1970s and then "never said another word about it." Judge Kozinski is his dissent from denial of rehearing en banc (citing Whalen v. Roe, 429 U.S. 589 (1977), and Nixon v. Administrator of Gen. Servs., 433 U.S. 425 (1977)).

Normally, because of the fact that the government is acting in its employer capacity, it would have more latitude to infringe on its employee's rights under the Fourth Amendment. This means that a balancing test is most appropriate. Such a test would balance the need of the employee for informational privacy against the needs of the government employer. In this case, it would appear that employees are seeking to protect confidential and potentially embarrassing personal information against the government's need to obtain information to protect and secure its federal facilities.

NASA v. Nelson, No. 09-530

Supreme Court considers oral complaints under FLSA

The U.S. Supreme Court has agreed to consider whether the anti-retaliation
provision of the Fair Labor Standards Act, which prohibits discrimination
against an employee who "filed a complaint," covers an employee who orally
complained to supervisors that the location of time clocks prevented employees
from being paid for time spent donning and doffing required protective gear.

Plaintiff, who was fired by Saint-Gobain Performance Plastics Corp. for
violating time-clock procedures, is asking the justices to overturn the Seventh
Circuit's June 2009 decision that he did not engage in protected activity under
the FLSA because he did not complain in writing. The statute's use of the
language "filed" shows that Congress intended employees to submit written wage
and hour complaints to be shielded from retaliation, the court said.

The Seventh Circuit denied Plaintiff's request for rehearing
en banc. The three dissenting judges asserted that the interpretation that the
FLSA's anti-retaliation provision does not cover oral complaints is "unique
among the circuits" and conflicts with the Labor Department's position.

Kasten v. Saint-Gobain Performance Plastics Corp., U.S., No. 09-834, cert.
granted 3/22/10

Form 5500 Reporting for 403(b) Plans Clarified

As § 403(b) plan administrators and plan auditors prepare to file the 2009 Form 5500 - which, for most plans, will be the initial annual report - the Department of Labor issued new guidance to clarify when certain annuity contracts and custodial accounts can be excluded.

Change in Reporting Obligation for § 403(b) Plans

IRC § 403(b) provides a tax-sheltered annuity program for public school employees, employees of certain tax exempt organizations, and certain ministers. Historically, these arrangements were treated as a collection of individual contracts or accounts controlled by the employee without the involvement of the plan administrator. However, this changed for tax years beginning in 2009, when § 403(b) plans - other than those qualifying as "governmental plans" or non-electing "church plans" - became subject to ERISA's general reporting requirements. As a result, plan administrators became obligated to report financial information regarding pre-2009 individual contracts and custodial accounts over which, in many cases, they had little knowledge. The new reporting also obligated § 403(b) plans with 100 or more participants to file audited financial statements, and obligated all § 403(b) plans to report the plan's aggregate financial information.

2009 FAB Relief

Recognizing the difficulties administrators would face in complying with the new reporting requirements the Department of Labor issued Field Assistance Bulletin 2009-02. For purposes of satisfying the reporting requirements, this FAB allows administrators to exclude annuity contracts and custodial accounts as part of the plan or as plan assets if:

The contract or account was issued to a current or former employee before 2009,
The employer ceased to have any obligation to make, and ceased making contributions to the contract or account before 2009: The rights and benefits under the contract or account are all legally enforceable by the individual owner against the insurer or custodian without involvement by the employer, and the individual owner is fully vested in the contract or account.

2010 Further Relief

In response to questions it received regarding the scope of this relief, the Department issued Field Assistance Bulletin 2010-01. Among the main clarifications are:

Involvement by the Employer - Discretion or Approval not Permitted. The new FAB makes clear that, although the relief under FAB 2009-02 would be available where the employer performs the limited function of making information available to the § 403(b) provider (e.g., reports employment status), the relief would not be available if the employer must consent to, or make discretionary decisions regarding enforcement of, the employee's rights under the contract. Prohibited approval would include, for example, where the employer must certify that the employee is eligible for distribution under the IRC, or must approve a hardship distribution or loan. Q&A-1.

Making Contributions - Loan Repayments Count. If an employer forwards employee loan repayments to the provider, the contract or account would not be eligible for the relief. Where the employee forwards the loan repayments directly to the provider, however, the contract or account would be eligible for the relief if the other requirements are satisfied. Q&A-2.

Large & Small Plans - Relief Applies to Both. The relief applies to large and small plans - both for determining what accounts are plan assets for purposes of the audit and for determining the plan assets to be reported on the financial statement. Moreover, it applies in determining the number of plan participants and whether the plan is a "large plan" subject to the audit requirements. Q&A-5.

Qualified Opinions - Department Will Not Reject Filing. The Department will not reject a Form 5500 filing where the plan's independent accountant issues a "qualified," "adverse" or "disclaimed" opinion if the opinion states that the sole reason for the designation is because pre-2009 contracts were not covered by the audit or included in the financial statements. Q&A-6.

Election to Exclude - Auditor's Role. While the administrator is responsible for determining whether the requirements for relief are met, the FAB makes clear that if the independent accountant discovers contracts were incorrectly excluded from the financial statements, the accountant is expected to alert the plan administrator. If the parties cannot agree, the independent accountant is expected to note the issue in the audit report. Q&A-7.

Post 2009 - Relief Applies. The relief under FAB 2009-02 applies to 2009 and later reporting years. Q&A-11.

Pre-2009 Contributions - Includes 2009 Contributions Attributable to 2008. Contributions attributable to 2008, but not deposited until 2009, would not make the account or contract ineligible for the relief. Q&A-13.

The FAB also addresses the regulatory "safe harbor" by which § 403(b) arrangements funded solely through salary reduction contributions are not considered employee pension plans - and, therefore, not subject to the reporting requirement. The safe harbor is set out in Labor Regulation § 2510.3-02(f). It requires (a) employee participation to be voluntary, (b) all rights under the contract to be enforceable only by the employee, (c) the employer to have only limited involvement, and (d) the employer to receive no compensation other than for expenses in handling salary reduction contributions. The FAB clarifies that the employer cannot, consistent with the safe harbor, appoint a third-party administrator to make discretionary decisions, and cannot itself retain discretionary authority to exchange or move funds from the § 403(b) provider. It can, however, select contracts where the provider is responsible for discretionary decisions. The arrangement generally must offer a choice of more than one § 403(b) contractor and more than one investment product.

Facebooking while working carries risks for employers

Last October, the Federal Trade Commission (FTC) issued guidelines stating that bloggers who offer endorsements must disclose any payments they have received from the subjects of their reviews or face penalties of up to $11,000 per violation.

The agency, charged with protecting consumer interests, had not updated its policy on endorsements in nearly three decades, well before the Internet became a force in shaping consumer tastes. Now, new rules attempt to make more transparent corporate payments to bloggers, research firms, and celebrities that help promote a product.

As the importance of social networking and blogging continues to grow in today’s increasingly Internet-dominated business world, the FTC has revised its Guides Concerning the Use of Endorsements and Testimonials in Advertising, published in the Federal Register at 16 C.F.R. Part 255.

These new guidelines address the application of Section 5 of the Federal Trade Commission Act, which prohibits unfair or deceptive acts or practices and unfair competition in or affecting commerce. If your company provides services or sells products and your employees are blogging about them or talking about them on their Facebook accounts, the presumption may be that they are doing so with the company’s support and for the company’s benefit. This could lead to liability for your company for false statements made by your employees under the Federal Trade Commission.

This is another reason to review your employee handbooks and review policy on social networking, especially if your company permits employees to Facebook during regular business hours.

Sixth Circuit errs on the side of Free Speech for public employees

In a surprise for free speech advocates, city police department employees fired after filing a report critical of the department may proceed with a lawsuit asserting their terminations violated the First Amendment and the Kentucky Whistleblower Act, the U.S. Court of Appeals for the Sixth Circuit rules in an unpublished opinion.

Writing for the 2-1 majority, Judge Clay says under precedent from the
Kentucky Supreme Court, the city of Jeffersontown was the former "employer" of
Melvin Kindle for purposes of the whistleblower law. Clay writes that the
district court had also erred in granting summary judgment as a matter of law
to the city on the First Amendment claim because Kindle's misconduct report was
on a "matter of public concern." Clay vacated and remandsed the case to the
district court for further proceedings.

Judge Guy dissents, writing that he would have certified the state law
question to the Kentucky Supreme Court, and that Kindle's report was on purely
internal personnel issues and not of public concern. There is nothing stunning or innovative about the majority or dissent opinions, but it is increasingly rare for public employees to exercise free speech related to their jobs, or even off their jobs, so this case comes as a pleasant surprise.

Kindle v. Jeffersontown, 6th Cir., No. 09-5119, unpublished opinion 3/15/10

UPS Violated SPD by Singling Out Retirees of Teamsters Union Local

In a case that reminds Plan Sponsors to tread carefully when dealing with retire health care in the collective bargaining context, a court has recently ruled that United Parcel Service of America, Inc., violated the terms of a summary plan description when it imposed "increased health care premiums on retirees who were represented by International Brotherhood of Teamsters Local 705, while not imposing the same increases on retirees of the Teamsters International Union.

In a 2002 labor contract with Local 705, United Parcel Service (UPS) agreed to provide health insurance to retirees as outlined in the SPD, which stated that if retirees' contributions were increased, the higher rates would not be implemented until after the expiration of the "current" contract. Another provision of the SPD stated that if UPS's annual cost-per-retiree rose above $6,250, all retired employees would "share equally" in paying increased contributions. In 2006, after costs rose above $6,250, UPS informed retirees that in 2008 their premiums would increase. UPS and the international Teamsters reached an agreement that UPS would not collect increased retiree contributions until the contract with the international expired. UPS did not extend the agreement to Local 705 retirees, who filed suit under the Employee Retirement Income Security Act. A federal district court in Illinois found that UPS had violated the SPD but that the company could impose a premium increase before the expiration of the 2008 contract.

The Seventh Circuit affirmed, finding that the SPDs required that all retirees share equally in the cost of their benefit. The Court also threw a bone to the company and held that UPS would not need to wait until the 2008 contract expired before it could charge all retirees the increased premiums because the SPD "current" language referred to the 2002 contract.

(Green v. UPS Health & Welfare Package, 187 LRRM 3298, 7th Cir., No. 09-2445, 2/10/10)

DOT issues final rules concerning employer release of drug and alohol tests

The Department of Transportation (DOT) is issuing three final rules that allow employers to disclose drug and alcohol test results to state driving licensers and update alcohol testing forms and probedures, according to notices published in the Feb. 25 Federal Register (75 Fed. Reg. 8524).

One of the rules adopts without change an interim final rule authorizing employers in DOT's drug and alcohol testing program to disclose to state commercial driver licensing authorities the drug and alcohol violations of employees who hold commercial drivers' licenses when a state law requires such reporting. DOT said 49 CFR 40.321 generally prohibits the release of individual drug or alcohol test results to third parties without the employee's specific written consent.

Nevertheless, the Transportation Department said, several states have laws requiring employers to provide individual test results to the state entity that issues commercial drivers' licenses "when holders of such licenses test positive for drugs or have a breath alcohol concentration of 0.04 or greater."

DOT issued the interim final rule June 13, 2008 permitting these parties to provide the information required by state laws without violating 49 CFR 40.321. DOT said that unless it modifies its procedures, employers and third patty administrators for owner-operator drivers could be in violation of the regulation
49 CFR 40.321 if they release this information.

A second final rule relates to the use of a new alcohol screening device.
This final rule, also adopts without change the interim final rule, which DOT said did not receive any relevant comments:

Transportation Department regulations require that an alcohol screening device be approved by the National Highway Traffic Safety Administration and be published in the Federal Register. The main procedural difference made by the interim final rule and adopted in this final rule concerns the technician's reading of the alcohol result, DOT explained.

The third final rule makes technical amendments to DOT's drug and alcohol testing procedures so employers can begin using updated versions of DOT's alcohol testing form and management information system data collection form. In the rule, the Transportation Department said the new versions of the forms update the form numbers and DOT's contact information and reduce the legends in the test result boxes so they do not obscure test results printed on the form.

First impressions count

In an issue of first impression deciding whether a teacher at a sectarian school classifies as a "ministerial employee," the court held the district court erred in its legal conclusion classifying plaintiff as a ministerial employee and the "ministerial exception" did not bar her claims against defendant.

The case arose from plaintiff's employment relationship with defendant, which terminated plaintiff from her teaching following an illness. Plaintiff filed a charge of discrimination and retaliation with the EEOC alleging defendant discriminated and retaliated against her in violation of her rights under the ADA. The parties did not dispute "religious institutions" include religiously affiliated schools and defendant met this requirement. Thus, the first requirement under the ministerial exception was present. The primary issue was whether plaintiff served as a ministerial employee. She spent approximately 6 hours and 15 minutes of her 7-hour day teaching secular subjects, using secular textbooks, without incorporating religion into the secular material. Thus, it was clear her primary function was teaching secular subjects, not "spreading the faith, church governance, supervision of a religious order, or supervision or participation in religious ritual and worship." The fact she participated in and led some religious activities throughout the day did not make her primary function religious. Teachers were not required to be "called" or even Lutheran to conduct these religious activities. In addition, the fact defendant had a generally religious character - as do all religious schools by definition - and characterized its staff members as "fine Christian role models" did not transform plaintiff's primary responsibilities in the classroom into religious activities. The district court relied on the fact defendant gave plaintiff the title of commissioned minister and held her out to the world as a minister by bestowing this title on her. "However, the title of commissioned minister does not transform the primary duties of these called teachers from secular in nature to religious in nature." The "primary duties analysis" requires objective examination of "an employee's actual job function, not her title, in determining whether she is properly classified as a minister." Further, contrary to defendant's assertions, plaintiff's claim would not require the court to analyze any church doctrine.

In the end, this is, like we said in Texas, a case of putting lipstick on a pig. Or, a rose by any other name would smell as sweet. Courts are willing to look beyond titles in assessing the substantive position under these circumstances.

EEOC v. Hosanna-Tabor Evangelical Lutheran Church & Sch.

Wage and Hour Reality Check

The Ninth Circuit Court of Appeals recently held that some work performed by employees at home, as well as time spent commuting, may have to be paid in certain circumstances.

The plaintiff in Rutti was a technician for Lojack, Inc. ("Lojack") who installed car alarms. In the morning, Rutti, as well as Lojack's other technicians, would receive their assignments for the day, map the route to their assignments, and prioritize the jobs. While traveling to the first job in the morning, as well as when traveling home at the end of the day, technicians were required to keep their cell phones on and drive directly between home and the job site without making any additional stops. After returning home, technicians were required to upload data received at the job sites from a portable data terminal ("PDT") to the company by hooking the PDT up to a modem.

The Ninth Circuit determined that the technicians' commute time was compensable under state law, but not federal law. The federal Portal-to-Portal Act, as amended by the Employment Commuter Flexibility Act, explicitly provides that employers need not compensate employees for time spent traveling to and from where they perform their job duties. The result under federal law was not changed by the fact that Lojack's technicians drove company cars, or that they were subject to certain employer-mandated restrictions while driving.

California, however, maintains stricter wage and hour laws. Under California law, the relevant question is whether the employee's time is "subject to the control" of the employer. The Ninth Circuit found that because technicians had to keep their cell phones on, and could not make additional stops while going to and from the job site (such as dropping children off at school), the time was subject to the employer's control and had to be paid under California law.

The Ninth Circuit went on to find that under federal law, the technicians' job tasks before the "start" of the work day were not compensable, but that time spent uploading data from the PDT "after work" might have to be paid. Under federal law, the question of whether these types of "preliminary and postliminary" activities must be paid depends on whether they are part of the "principal activities" that the employee is employed to perform. Even if these tasks are part of the employee's "principal activities," they need not be paid if they are de minimus. In deciding whether certain job tasks are de minimus under federal law, courts examine the practical administrative difficulty of recording the additional time, the aggregate amount of time at issue, and the regularity of the additional work.

Applying those factors, the Court held that even if the tasks performed by technicians prior to leaving home were part of their "primary activities," they were de minimus. These tasks took only a matter of minutes to complete, and it would be very difficult to record the time that technicians spent working on them. However, time spent uploading data from the PDT might be compensable. There was evidence that this task took anywhere from 5 to 15 minutes each night. While the Court acknowledged that there would likely be some administrative difficulty recording this time, it found that the time added up to over an hour per week, and was a regular part of the employees' job duties, and therefore might not be de minimus. Accordingly, the time might have to be paid, depending on the specific facts.

Still, even if this activity was found to be compensable under federal law, that did not mean that the technicians' travel time home had to be compensated, even under the "continuous workday doctrine." Under this doctrine, which the U.S. Department of Labor has adopted, an employee's workday generally lasts until he has completed all of his principal activities during the day. The Ninth Circuit found that the "continuous workday" rule did not apply in these circumstances because technicians were relieved of all duties upon returning home, and could input the data from the PDT at a time of their choosing. Federal regulations preclude application of the "continuous workday doctrine" where employees are relieved from all duty for a long enough period to be able to use that time for their own purposes. Still, this commute time generally has to be paid under California law. Here, the Ninth Circuit did not reach the issue of whether the "preliminary and postliminary" activities performed by the technicians had to be paid under California state law.

This case reminds employers that there can be significant differences between federal and state law in the wage and hour areas, and that they need to ensure that their practices comply with both sets of laws.

Rutti v. Lojack Corporation, Inc., March 2, 2010

IRS takes the initiative

Employers of all sizes and types should be aware of a major IRS audit initiative focusing on underpayment of employment taxes.

The IRS has launched a new employment tax National Research Program that it has been planning for at least a year. As part of the program―the first in the employment tax area since 1984―the IRS will randomly select 6,000 taxpayers (2,000 taxpayers in 2010 for the 2008 tax year and 2,000 taxpayers each in 2011 and 2012 for the 2009 and 2010 tax years, respectively) and conduct in-depth audits of those taxpayers’ employment tax issues, tracing them into federal income tax returns that report deductions of the payments as well as federal income tax returns that report the income from such payments. The IRS described the audits as “comprehensive in scope.” The IRS is using the program to accurately gauge the extent to which taxpayers and tax-exempt entities properly comply with employment tax laws.

The IRS has two main goals for the program:
• Securing statistically valid information for computing the “gap” between taxes that are accurately reported to the IRS and those actually owed; and
• Determining common compliance characteristics so that the IRS can concentrate on the most significant compliance issues.
The audits likely will begin with a review of IRS Forms 941 (federal employment tax returns) but will further involve detailed information requests by the IRS. In addition to identifying organizations that fail to file employment tax returns at all, the comprehensive audits will focus on at least four major employment tax issues:
• Classification of workers as employees or independent contractors;
• Reasonableness of executive compensation;
• Tax treatment and reporting of fringe benefits as tax-free or as taxable compensation; and
• Tax treatment and reporting of employee reimbursements.

The IRS also will review the taxpayer’s history of reporting payments other than wages or compensation (e.g., such as dividends reported on IRS Forms 1099) and backup withholding. Additionally, we expect that the IRS will focus on recently promulgated Treasury Regulations that require disregarded entities to withhold, report, and pay employment taxes in their own name. (See “Final Regulations Treat Disregarded Entities as Separate for Employment Tax and Related Reporting Requirements” (December 11, 2007) and “Disregarded Entities Are Now Responsible for Their Own Employment Taxes” (July 20, 2009))

Although the reasonableness of executive compensation is usually thought to involve the payment of excessive compensation, the program likely will focus on the underpayment of compensation to shareholder-employees of S corporations. Such shareholder-employees are perceived to avoid employment tax by receiving dividends and other corporate distributions in lieu of compensation for services.

To the extent that a taxpayer has consistently treated workers as independent contractors and the IRS properly determines that the workers should have been treated as employees, the audited taxpayer still may avoid owing back taxes, interest, and penalties if it satisfies the now notorious Section 530 of the Revenue Act of 1978. If certain requirements are satisfied, Section 530 prevents the IRS from retroactively reclassifying workers. Although we do not know how much support there is in Congress, in the Fiscal Year 2011 budget, the Obama Administration proposed eliminating Section 530 and believes that a crackdown on employment tax issues could yield as much as $7 billion over the next 10 years.

Finally, the in-depth nature of the audits will provide the IRS with an opportunity to review an employer’s executive compensation arrangements. In addition to confirming that such arrangements are compliant with the employment tax rules, employers should review the extent to which their executive compensation arrangements are compliant with other federal income tax rules, such as the section 162(m) and section 280G deduction limits and the section 409A deferred compensation restrictions. Employers who act quickly may be able to take advantage of recent IRS correction guidance for section 409A violations, which offers the possibility of reduced penalties. (See “IRS Releases Section 409A Correction Program for Nonqualified Plan Document Failures” (January 6, 2010))

Drafting reminder

The Michigan Court of Appeals waves a red flag for employers who use employment agreements by ruling that a trial court erred by granting defendant's motion for summary disposition and dismissing the plaintiff's discrimination claim against him under the Michigan Civil Rights Act (CRA) based on an arbitration agreement in plaintiff's employment contract. It was clear from the terms of the agreement the only parties to the contract were the Ennis Center and plaintiff.

The employment contract defined the Ennis Center as "the Agency," and provided if the employee had "any dispute with the Agency" the dispute would be submitted to arbitration. Although defendant signed the employment contract, the contract specified he did so "For the Agency." The contract language specifying he signed it "For the Agency" clearly indicated he signed the contract solely as an agent for the Ennis Center. Plaintiff's claim against defendant implicated his potential personal liability under the CRA, not the Ennis Center's potential vicarious liability for his alleged discriminatory conduct.

The court rejected defendant's argument that the clause specifying the "agreement shall be binding on the heirs and representatives of parties hereto" allowed him or any other person, as Ennis Center's agent, to compel arbitration in an individual capacity. The phrase did nothing more than state what the law might presume in the absence of express language to bind heirs and representatives of a contracting party. The phrase also did not make defendant an intended third-party beneficiary of any contractual promise under MCL 600.1405. The court declined to apply the broad construction given to an arbitration provision in a stock purchase agreement in Arnold for purposes of holding that corporate agents had a right to compel arbitration of claims brought against them in an individual capacity. The fact that an individual is a corporate agent does not reveal an intent to protect the individual through arbitration. Unlike the broad language in Arnold found to reflect a basic intent to provide for a single arbitral forum to resolve any disputes arising out of a stock purchase agreement, plaintiff and the Ennis Center did not agree to arbitrate any dispute arising out of the employment relationship. The arbitration provision was confined to disputes with "the Agency," which was defined as the Ennis Center. Although plaintiff's claims against defendant might be interwoven with her claims against the Ennis Center, because plaintiff and the Ennis Center did not agree to give the Ennis Center's agents the protection of the arbitration provision in the employment contract with respect to their own potential individual liability, the court held defendant could not compel arbitration.

This case is a reminder for all those employers who use employment agreements with arbitration clauses to protect individual corporate agents as well as the corporation. A suit that proceeds against individual corporate agents could manifest issues that might be preclusive against the corporate entity. The goal of limiting discovery and other costs associated with a lawsuit that arbitration is intended to accomplish are also frustrated in this situation.

Riley v. Ennis, Michigan Court of Appeals (unpublished)

COBRA extension extended

Last Tuesday night, President Obama signed into law legislation that provides a stopgap, 31-day extension of federal subsidies of COBRA health care premiums.

The measure was approved earlier Tuesday by the Senate on a 78-19 vote, while the House cleared it last week.

Under H.R. 4691, the 65%, 15-month premium subsidy for laid-off workers is extended to those involuntarily terminated from March 1 through March 31.

Without the extension, employees laid off after Feb. 28 would have been ineligible for the subsidy.

The measure also will allow employees to receive the subsidy if they first lost group coverage due to a reduction in hours and then were terminated after enactment of the legislation, if certain conditions are met.

Consideration of an extension of the premium subsidy to employees laid off through Dec. 31, 2010 continues.

HR Professionals beware! Potential Emerging Split concerning individual liability

In a ruling that defines the scope of individual liability under the Family and Medical Leave Act (FMLA), a federal judge has refused to dismiss claims against individual human resources executives and a manager who allegedly set out to find a reason to fire a worker soon after learning that he needed to schedule a leave for a surgery.

In the suit, plaintiff, an industrial designer, claims that just a few days after he informed his bosses at Cardone Industries of his need for surgery, he was called in to a meeting and confronted with a pornographic e-mail found on his work computer. Plaintiff responded by filing a suit that named not only the company, but also the company president and four other individuals who, he claims, each played a role in orchestrating and carrying out a plan to violate his rights under the FMLA and the Employee Retirement Income Security Act (ERISA). Defendants filed answer to the suit for Cardone Industries that denied the allegations, but argued in a separate motion that the individual defendants should be dismissed from the case.

Plaintiff argued that each of the five named individuals qualifies as an "employer" under the FMLA, and that the allegations in the suit went beyond merely citing their job titles.

The District Court found that while "conclusory" allegations are insufficient, Plaintiff had gone further by alleging that each of the individual defendants "participated in the forensic search of his computer with the goal of finding a reason to justify his termination because he had requested FMLA leave." The Court concluded that all five of the individuals were properly named as defendants because each one is alleged to have had the power to fire and to have played a role in the decision to oust the plaintiff.

Similarly, the Court concluded that all five must answer ERISA claims of interfering with his plan benefits because the suit properly alleged that they were the "decisionmakers" who allegedly decided to conduct a forensic search of the plaintiff's computer within a few days of learning that he was planning to take a medical leave. Timing was the crucial issue for the Court.

The significance of the case is that the Court refused to follow a string of decisions from federal courts in Utah, Minnesota and Kansas that have said FMLA's individual liability provisions apply only to corporate officers.

This case represents a crack in the door for opening liability under FMLA to individuals who are not corporate officers.

Narodetsky v. Cardone Industries, No. 09-4734, February 24, 2010

Remember Goldilocks in filing your lawsuit

It's important for plaintiffs to be aware that, once you initiate litigation, you no longer retain the initiative in all instances.

A post from the Blog of Legal Times lays out the basics. Plaintiff sued in state court; the employer removed the case to federal court and filed an answer. Six months later the plaintiff decided that she wanted to dismiss the complaint voluntarily and filed a motion to do so. The court denied the motion, on the procedurally correct ground that that once an answer is filed a case cannot be dismissed unilaterally by the plaintiff. Thus, the order forced the action to continue.

But why would a defendant turn down a voluntary dismissal? One possibility is that, because an age discrimination case is a fee-shifting case, the defendant may think that it will prevail on the merits and can force the plaintiff to pay their attorney's fees. This would be rare. Another possibility is that the defendant wants further terms in the dismissal, like a "with prejudice" designation, or some other settlement details, like nondisclosure. This has been my experience when my plaintiff wanted to dismiss voluntarily.

In sum, for plaintiffs and their lawyers, while it's important to observe the time limitations in many employment actions and get to the courthouse on time, at the same time you want to look before you leap. That is, there is a "Goldilocks period" where filing your suit will be just right.

Unintended Consequences

Paul Secunda recently posted an article on SSRN (Social Science Research Network): Addressing Political Captive Audience Workplace Meetings in the Post-Citizens United Environment. Here's the abstract:

Citizens United has wrought widespread changes in the election law landscape. Yet, a lesser-known impact of this watershed case might have a significant impact in the workplace: It may permit employers to hold political mandatory captive audience meetings with their employees.

To eliminate this danger, and consistent with the First Amendment framework for election law issues post-Citizen United, this Article urges Congress to consider language similar to that enacted by the Oregon Worker Freedom Act Law, SB 519 (effective Jan. 1, 2010). SB 519 prohibits termination of employees for refusing to attend mandatory political, labor, or religious meetings held by their employers.


Such a federal law would constitute permissible employment standards legislation and also would not run afoul of the First Amendment speech rights of employers under Citizens United. Employers would still able to communicate their views about political candidates and parties with their employees as the First Amendment now contemplates, but they will not be able to force them to listen to such speeches at the risk of losing their jobs or other benefits of employment.

This would be an intriguing issue for the NLRB to address at some point...by the time such an issue found its way to the Board, perhaps there might even be three members.

The Ninth Circuit has a Tip for You

The Ninth Circuit clarified the validity of tip pools under the Fair Labor Standards Act (FLSA) where the tip pool includes employees who are not customarily and regularly tipped. The Court of Appeals, in a case of first impression in that circuit, held that where workers make more than the minimum wage and the employer takes no tip credit, tip pools including non-tipped employees do not violate the FLSA.

Plaintiff was a server at the Vita Café in Portland, Oregon, which is owned and operated by Defendants (collectively "Woo"). Woo's servers were paid a wage at or exceeding the Oregon minimum wage, which at the time was higher than the federal minimum wage, and also received a portion of their daily tips. The servers were required to contribute their tips to a "tip pool" that was redistributed to all restaurant employees, except managers. Between 55% and 70% of the tip pool went to the kitchen staff (e.g. dishwashers and cooks), who are not customarily tipped in the restaurant industry. The remainder of the tip pool (between 30% and 45%) was returned to the servers in proportion to their hours worked.

Plaintiff alleged that Woo's tip pooling policy violated the FLSA's minimum wage provisions. She argued that the FLSA requires employers to allow employees to keep all of their tips, except where the employee participates in a tip pool with other customarily tipped employees. Because Woo's tip pooling policy included employees who are not customarily and regularly tipped, Plaintiff argued it was invalid under the FLSA and Woo was required to pay her the minimum wage plus all of her tips.

The Court of Appeal held that Woo's tip pooling policy did not violate the FLSA because the FLSA only restricts tip pools to employees who are customarily tipped when the employer takes a tip credit. Tip pools are valid where there is an explicit arrangement to turn over or redistribute tips and there is no "statutory interference" that would invalidate the arrangement. The Court found that the language of the statute limiting tip pools to customarily tipped employees imposes a condition on taking a tip credit and does not state a freestanding requirement. A "tip credit" is where an employer is allowed to take credit for a certain amount of tips earned by their employees toward the employer's payment of the minimum wage. Tip credits are not allowed under Oregon law, and so Woo was not allowed to, and did not, take one. Because Woo did not take a tip credit, its tip pooling requirement was not subject to this limitation. Therefore, the Court found that there was no "statutory interference" and Woo's tip pooling requirement was valid.

This case provides employers with greater clarity under federal law regarding which employees can be included in a tip pool when their employees make at least the minimum wage and the employer does not take a tip credit. However, employers are cautioned to ensure that any tip pooling policy complies with both the law in their respective state as well as federal law. Beware: a tip pooling policy valid under federal law does not necessarily mean that it is legal under state law.

Cumbie v. Woody Woo, Inc., No. 08-35718

The Second Circuit Schools us in Harrassment Defenses

A recent Second Circuit Court of Appeals decision reversed a JetBlue Airways’ favorable summary judgment in a case brought by a former customer service supervisor who complained to her supervisor about a hostile work environment because other avenues of complaint may have appeared to be futile.

The employee presented evidence that was sufficient to create a genuine issue of fact as to whether the employee faced a hostile work environment.

A defending employer may avoid liability in similar circumstances by raising the Faragher/Ellereth affirmative defense, which requires the employer to show that it “exercised reasonable care to prevent and correct promptly any discriminatory harassing behavior”; and “the plaintiff employee unreasonably failed to take advantage of any preventative or corrective opportunities provided by the employer or to avoid harm otherwise.”

JetBlue argued that it was entitled to the Faragher/Ellereth affirmative defense because the employee failed to pursue alternative options listed in the policy for reporting alleged harassment. Even though JetBlue’s sexual harassment policy gave the employee options for reporting harassment to persons other than her supervisor, the Court held that JetBlue was not entitled to the Faragher/Ellereth affirmative defense as a matter of law.

The Court explained that it must determine whether it was unreasonable as a matter of law for an employee to complain about harassment only to her harasser, if that person is designated in the employer’s plan as one of several with whom an employee may lodge a complaint. The Court concluded that whether the employee’s complaint to her harasser was a reasonable availment of JetBlue’s harassment policy must be determined by the facts and circumstances of each case.

JetBlue argued that the employee did not reasonably avail herself of its sexual harassment policy because she complained only to her harasser and not to other members of management and the human resource department, which were also referenced in the policy. The Court “rejected such a brittle reading of the Faragher/Ellereth defense,” stating that it did not believe that “the Supreme Court, when it fashioned this affirmative defense, intended that victims of sexual harassment, in order to preserve their rights, must go from manager to manager until they find someone who will address their complaints.”

Significantly, the Court observed that there “is no requirement that a plaintiff exhaust all possible avenues made available where circumstances warrant the belief that some or all of those avenues would be ineffective or antagonistic.” The Court then held that an employer is not entitled to the affirmative defense as a matter of law simply because its policy has multiple avenues for complaint and the plaintiff-employee could have complained to other persons in addition to the alleged harasser and that it would look at the facts and circumstances of each case.

In this case, the employee and other employees had complained to the supervisor’s boss, who was also the harrasser, about other issues and his responses to those complaints showed that he was not receptive to receiving complaints. And when another employee complained to JetBlue’s human resource department about the same supervisor, she was suspended within days of that complaint. Given that several of the alternative channels for making complaints appeared to be ineffective or even threatening, the Court found an issue of fact to be resolved by a jury regarding whether it was reasonable for the employee to believe that other avenues for complaining would be futile.

This case emphasizes the importance of providing multiple avenues of complaints and of encouraging employees to take their complaint further if they do not believe it is being heard. Employers should ensure that supervisors are not designated as a reporting point of contact. Instead, reporting points of contacts should be limited to Human Resource staff and upper management personnel, and employees should be directed to utilize alternative points of contact if one point of contact is the alleged harasser. The case also teaches that employers must train managers and supervisors to be receptive to employee complaints and serves as a caution to employers that, when supervisors and managers appear to retaliate against an employee who complains, the employer may lose the opportunity for summary judgment based on the Faragher/Ellereth defense.

Diane Gorzynski v. JetBlue Airways Corporation, United States Court of Appeals Case No. 07-4618-cv (2d Cir. Feb. 19, 2010)

Adminstrative Rundown: EBSA, EEOC, and CMS

The Department of Labor's Employee Benefits Security Administration has posted a dedicated web page for 403(b) plan officials, including a new Field Assistance Bulletin, 2010-01. The new 403(b) web page is available at http://www.dol.gov/ebsa/403b.html, and the Field Assistance Bulletin at http://www.dol.gov/ebsa/regs/fab2010-1.html.

Also, the EEOC now has a press release up with a link to the published NPRM about RFOA under the ADEA as well as background about the proposed rule.

Based on the Supreme Court ADEA decisions in Smith v. Jackson, 544 U.S. 228 (2005), and Meacham v. Knolls Atomic Power Lab., 128 S.Ct. 2395 (2008), the EEOC released a proposed rule defining the “reasonable factor other than age” (RFOA) defense available to employers under the Age Discrimination in Employment Act (ADEA).

The EEOC proposes to amend its existing regulations to meet the new standards in Smith and Meacham. Smith provided for a limited ADEA disparate impact claim. Meacham found that employers have the burden of proving the RFOA defense (that a challenged employment practice causing adverse impact was based on a “reasonable factor other than age”).

In response to the two U.S. Supreme Court decisions, the U.S. Equal Employment Opportunity Commission (EEOC) has released for public comment a proposed rule construing the “reasonable factor other than age” (RFOA) defense under the ADEA.

In an effort to provide a more objective standard for determining whether an RFOA exists and clarify the scope of the defense, the EEOC seeks to revise paragraph 1625.7(b) of the existing regulations addressing the RFOA defense. Although the standard remains lower than Title VII’s business necessity defense, 1625.7(b)(1) makes it clear that the RFOA is not to be viewed under a “rational-basis” standard. Employers will be required to show that the challenged practice was reasonably designed to further or achieve a legitimate business purpose and was reasonably administered to achieve that purpose.

The EEOC proposes a “prudent employer” standard to determine whether or not an employer relied upon reasonable factors in making the challenged employment decision and included a list of non-exhaustive factors to consider, including:

1.The commonality of the business practice used by the employer;
2.The manner in which the practice was administered;
3.The employer’s awareness of a possible age-adverse impact before making their decision;
4.Steps taken by the employer to “accurately and fairly” assess the impact of their decision upon older persons as well as steps taken to mitigate unnecessary harm to older workers;
5.The existence of a lesser discriminatory alternative;
6.The extent to which the employer or supervisors engaged in age-based stereotyping; and
7.The extent to which employers gave supervisors guidance or training about how to avoid discrimination.
While no single factor would be dispositive of reasonableness under the EEOC’s proposed rule, the EEOC suggests that an employer is more likely to succeed on the RFOA defense if the bulk of these factors weigh in the employer’s favor.

For the RFOA defense to apply, the EEOC makes clear in its proposed rule that the challenged practice in fact must be based on a non-age factor. Recognizing that the courts have held that objectively measurable factors such as salary and seniority are non-age factors, even though they sometimes correlate with age, the EEOC’s rule instead focuses on the unchecked use of subjective criteria that can often be age-based stereotypes about older workers’ flexibility, willingness to learn, or technological skills.

The proposed regulations, therefore, set forth a non-exhaustive list of factors to help employers determine whether an employment practice is based on a non-age factor, including:

1.The extent to which the employer gave supervisors unchecked discretion to assess employees subjectively;
2.The extent to which supervisors were asked to evaluate employees based on factors known to be subject to age-based stereotypes; and
3.The extent to which supervisors were given guidance or training about how to apply the factors and avoid discrimination.

The EEOC is accepting public comment until April 19, 2010. A proposed final rule covering this and the March 2008 proposed rules will then be coordinated with other federal agencies and reviewed by the Office of Management and Budget before becoming effective.

Finally, CMS (Centers for Medicare & Medicaid Services) reported that it will delay implementation of Medicare Secondary Payer mandatory reporting, which was to begin April 1, to Jan. 1, 2011. Medicare Secondary Payer reporting requirements are intended to ensure that Medicare remains the secondary payer when a Medicare beneficiary has medical expenses that should be paid primarily by a liability, no-fault, or workers compensation plan. The reporting requirement originated in the Medicare, Medicaid, and the SCHIP Extension Act of 2007 and insurers and self-insured employers sought a delay in the reporting deadline, citing a lack of guidance on reporting requirements among other issues. The delay applies only to non-group health plan reporting. It does not apply to group health plan reporting.

Fire in the Hole!

Having reached the one-year anniversary of the HITECH Act ("Health Information Technology for Economic and Clinical Health Act"), enacted as part of the American Recovery and Reinvestment Act of 2009, many changes to the HIPAA Privacy and Security Rules are now effective. Unfortunately, since the Department of Health and Human Services has not yet issued guidance with respect to most of these changes, Covered Entities and Business Associates must begin good faith compliance based solely on the language of the HITECH Act.

First, some background. HIPAA mandates that a "covered entity" possessing "personal health information" ("PHI") comply with certain privacy and security requirements in order to maintain the confidentiality and security of PHI. A covered entity is a health care provider, health care clearinghouse, or health plan. For this purpose, a "health plan" includes insured and self-insured group health plans and HMOs, flexible benefit plans with medical savings accounts, employee assistance plans and wellness benefit programs. An employer that sponsors a health plan is not a covered entity. However, such an employer may still be affected by HIPAA in two ways.

First, as a health plan sponsor, the employer is responsible for the health plan's compliance with HIPAA. Accordingly, the employer must determine how the plan should comply with HIPAA and ensure that it does so comply. In carrying out its responsibilities under the plan, an employer may delegate some or all of those responsibilities to business associates, but the employer remains ultimately responsible for the plan's HIPAA compliance. A business associate is a third party entity that either (i) on behalf of a covered entity, performs or assists in the performance of a function or activity involving the use or disclosure of PHI or (ii) provides services to a covered entity that involve the disclosure of PHI by the covered entity or its business associates. Often, an employer sponsoring a self-funded health plan or a health flexible spending account ("health FSA") will enter into a business associate agreement with a third party administrator to process benefit claims or requests for reimbursement from the health plan or health FSA.

Second, if the employer sponsoring a health plan performs certain plan administrative functions (e.g., reimbursing health care expenses or deciding health benefit appeals), the employer likely will have access to PHI obtained from the health plan. In that case, the employer itself must comply with HIPAA's privacy and security requirements as a condition to receiving PHI from the health plan.

Accordingly, in conducting its operations involving health benefits, a covered entity and an employer sponsoring a health plan often will make use of third parties that may be "business associates" of the covered entity.

Now, highlights of HITECH include:

Direct Liability for Business Associates

Most significantly, Business Associates are now directly subject to the HIPAA Security Rule and most aspects of the HIPAA Privacy Rule, which, among other things, includes taking the following actions:

•Designate a HIPAA security officer and provide security awareness and training for the workforce.
•Conduct a written risk analysis to identify the potential risks and vulnerabilities to the confidentiality, integrity, and availability of electronic protected health information held by the Business Associate.
•Establish policies and procedures for the implementation specifications required by the HIPAA Security Rule.

Changes to the Privacy Rule

Additional changes now effective under the HIPAA Privacy Rule include:

•Minimum Necessary Restrictions. Under the minimum necessary standard, Covered Entities and Business Associates using or disclosing Protected Health Information (PHI) must take reasonable efforts to limit PHI to the “minimum necessary” to accomplish the intended purposes. Until HHS issues guidance to define “minimum necessary” (expected by Aug. 17, 2010), the safe harbor to automatically comply with this standard now requires that Covered Entities and Business Associates limit use and disclosure of PHI to the “Limited Data Set.”

•Right to Electronic Copy. For PHI maintained in an electronic health record, an individual now has the right to receive an electronic copy and/or designate that the PHI be sent to another entity or person.
•Right to Require Non-Disclosure for Out-of-Pocket Services. Health care providers must now comply with an individual’s request that PHI regarding a specific health care item or service not be disclosed to a health plan for purposes of payment or health care operations if the individual paid out-of-pocket, in full, for that item or service.
•Mandatory Audits. The Secretary of HHS must perform periodic compliance audits on Covered Entities and Business Associates.

Sanctions for Failure to Provide Breach Notifications

To provide adequate time for Covered Entities and Business Associates to implement and begin good faith compliance with the breach notification final interim regulations, HHS temporarily suspended imposing sanctions for six months. Consequently, the enforcement provisions now become effective for breaches of unsecured PHI discovered on or after Feb. 22, 2010.

An employer with a health plan that uses the services of one or more business associates should confirm that each business associate providing services to the health plan is aware of its enhanced HIPAA obligations, which became effective February 17, 2010. Such confirmation may already have been obtained by the plan's insurer or third party administrator, but if it has not, communication with the business associate is advised. An employer might also consider seeking an acknowledgement that the business associate is in full compliance with its enhanced obligations under HIPAA.

Arnow-Richman strikes again

As some of you may know, I'm a fan of Professor Arnow-Richman. I find her insights into employment law interesting, and have taught her Employment Law: Private Ordering and its Limitations, co-authored with Timothy P. Glynn and Charles A. Sullivan, in my own law class. Professor Rachel Arnow-Richman has recently posted on SSRN her article Just Notice: Re-Reforming Employment At-Will for the 21st Century. Here's the abstract:

This Article proposes a fundamental shift in the movement to reform employment termination law. For forty years, there has been a near consensus among employee advocates and worklaw scholars that the current doctrine of employment at will should be abandoned in favor of a rule requiring just cause for termination. This Article contends that such calls are misguided, not (as defenders of the current regime have argued) because it grants workers too much protection vis-à-vis management, but because it grants them too little.

A just cause rule provides only a weak cause of action to a narrow subset of workers – those able to prove their firing was for purely arbitrary reasons. It fails to account for the justifiable, but still devastating, termination of workers for economic reasons, by far the most common reason for job loss today. In this way, the rule is not only inadequate, but anachronistic. Just cause protection is consistent with a mid-twentieth century view of the social contract of employment, which anticipates a long-term, symbiotic relationship between employer and employee in an economy dependent on internal labor markets. Under such a system, the just cause rule gave legal force to parties’ social contract of employment.

In contrast, today’s employers operate principally in an external labor market in which implicit promises of long-term employment have been replaced by implicit promises of long-term employability. Both companies and workers anticipate significant job turnover both in times of economic turbulence, such as the current downturn, in which employers are forced to shed numerous workers due to financial hardship, as well as during economic bubbles, in which companies lay off workers and reorganize for strategic reasons. Given these practices and expectations, the goal of termination law ought not to be protecting individual jobs but rather assisting workers in the inevitable situation of job loss.

To that end, the Article proposes the adoption of a universal “pay-or-play” system of employment termination. Absent serious misconduct, employers would be required to provide advance notice of termination or offer wages and benefits for the duration of the notice period. In contrast to just cause proposals, “pay-or-play” recognizes the necessity and value of employment termination. Rather than encouraging parties to maintain status quo relationships, “pay-or-play” seeks to facilitate transition. It affirms managerial discretion in hiring and firing by eliminating fact intensive inquiries into employer motive. At the same time, it makes real employers’ implicit promise of employability by granting workers a window of income security in which they can comfortably search for the next opportunity.

Under "for cause" job security, the employer has to prove it had a good reason. The terminated employee does not have to prove that the employer lacked good cause. The system proposed is essentially the Canadian system. Canadian law has, however, made it complicated by having statutory notice requirements but with a common law overlay, requiring the employer to determine a reasonable period, given all the circumstances. And, of course, that leads to litigation challenging the determination made by the employer.

A gentle reminder

With all of the changes to COBRA, due to the ARRA extension and questions about the subsidy for COBRA participants, it is important to keep in mind that accuracy of information is still significant. Plan administrators should keep in mind that the $110/day penalty should still focus the mind when dealing with COBRA content of notices and timing of distribution.

In a recent a bankruptcy case, an employee terminated his employment and the employer sent a COBRA notice four months late, with a termination date (qualifying event date) that corresponded with a later termination date. The employer asserted that claims denied during those four months were denied in error, and that the employee's actual qualifying event date was the later date. Because the employee was in bankruptcy, the issue was presented to a bankruptcy court. The court awarded $13,000 in penalties to the employee because of the intentional "misstatement" of the qualifying event date in the COBRA notice. The Court found that *even though the employee's claims were paid* by the health insurance carrier, damages were still warranted because the dating of the notice was not merely a clerical error and was not made in good faith. The equities may have played a role here in that, to the court, the "misstatement" appeared intentional by the company to protect the company.

DOL COBRA regulations require the election notice to identify the qualifying event and the date that coverage will terminate unless COBRA is elected, but not the specific date of the qualifying event. If the qualifying event date is provided in the notice, however, it must accurately reflect the actual qualifying event date. In this case, the penalties covered the 120 days between the actual qualifying event date and the one erroneously reported on the notice.

This decision is a gentle reminder to plan administrators that information provided to COBRA-eligible participants should be timely and accurate. Even though the participant might not actually be prejudiced by the receipt of incorrect information, it can still give rise to penalties under the regulatory framework.

In re Olick, (2009 WL 5214583)

Appraise This!

The Sixth Circuit has ruled a former Kmart Corp. store associate who was selected for a reduction in force while she was out on six weeks of medical leave is entitled to a jury trial to decide whether the company interfered with her rights under the Family and Medical Leave Act and retaliated against her for taking leave.

Reversing a lower court's grant of summary judgment to Kmart, the appeals court finds in an unpublished opinion that a reasonable juror could reject Kmart's contentions that Susan Cutcher's performance was problematic and instead find that her status on FMLA leave affected her RIF appraisal ratings, leading to her selection for termination.

The key issue: the court points out that Cutcher's RIF appraisal was significantly lower than her annual performance review given just 20 days earlier and that none of the reasons given for the lower score had been documented previously.

This case is a reminder to HR: Handle workforce reductions for those on medical leave with care. Whether in times of force reductions or simply standard business operations, attention must be paid to how managers evaluate their employees. It will always be the case that certain managers rate high or low as a practice, so if you can’t train the manager to rate in a more realistic manner, then at least document that particular manager’s practice. This will help avoid the post-hoc allegation Kmart confronted and also lay the groundwork for later explaining potential differences in appraisals made by others.

At the least, remember, a "leave of absence" notation on the section of a reduction in force form identifying the reason for a termination decision will beg a court to deny summary judgment.

Cutcher v. Kmart Corp., 6th Cir., No. 09-1145, unpublished opinion 2/1/10

Conan's Contract

Matthew Belloni at The Hollywood Reporter, Esq., has a copy of the 'Tonight Show' contract that's been the subject of much speculation over the past few weeks. He described with detail the parties' positions:

[W]e've finally tracked down a copy of the O’Brien contract, and -- lo and behold -- NBC did define “Tonight” as the series that airs at 11:35 as far back as 2002. However, what may have emboldened NBC to move the program anyway was the absence of that key language from later amendments to the deal.

Belloni continues,

Insiders familiar with settlement negotiations say NBC jumped on that fact to argue that the "operative" deal was silent on the timeslot issue and even contained some NBC profit-participation boilerplate allowing NBC discretion to move shows as it chooses.

The problem with NBC's position is that you've got to read an amended contract in the context of all other prenegotiated elements. O'Brien's 2004 deal incorporated by reference and ratified all the terms of his prior deals -- including the "Tonight Show" definition. Any conflicts between NBC's standard terms and the negotiated terms are governed by what's been negotiated, and therein lies the rub.

An amendment is an amendment, not a new deal, even if you also call it a separate agreement. NBC's argument that the amendment — which specifically incorporated the old deal — was nonetheless actually a new deal is a bad argument. O'Brien no doubt held firm throughout the negotiations to that principle. The language from the old deal they held firmly to was this: "Tonight Show" was defined as the "series that airs at 11:35," more specifically the "second network series after the end of primetime."

O'Brien contracted for a particular slot in the evening lineup. They understood the client's goals and implemented it in the contract in a clear, unambiguous manner that withstood a challenge. On the other hand, NBC--some studio exec who probably didn't have a long time horizon anyway-- probably didn't anticipate the kerfuffle of the change of shows, or if it did decided to accept that risk.

Best Buy buys a settlement

Best Buy has requested that a judge approve a $900,000 settlement in a New York State wage-hour class action in which the plaintiffs sought payment for time worked “off-the-clock.” That working time comprised the minutes spent going through security clearings at the end of the work day, assumedly to ensure that employees did not steal anything during their shifts.

The parties decided to settle the action, although they maintained their respective positions. The employer, however, has agreed to modify its operating procedures to allow all employees to remain on the clock until their manager allows them to leave the store.

Employer compulsion or the lack thereof is the key. Where the employer compels an activity related to the job, the activity is working time and compensable. The other element is how integrally related to the main job is the side activity.

These preliminary and postliminary issues are a real danger to the employer because, often, the employer may not even appreciate that this “little” activity or routine or inconvenience to employees is actually “work,” which can then lead to a single employee filing an action (as was done here) and everybody else coming on board. Be proactive! Analyze every non-exempt job and ascertain if there are preliminary or postliminary activities involved or related to these jobs, then apply the above-referenced analysis and make the call on whether it is or is not working time.

Turner v. Best Buy Company, Inc.

Supreme Court Beat

As I have opined before, with the Democratic majority running for the hills, and the Administration keen on spending whatever capital it has left on health care, we're unlikley to see any employment law legislation this year. But that doesn't mean that other branches haven't been busy. Here's a brief synopsis of cases pending before the Supremes, some of which I have discussed previously.

City of Ontario v. Quon looks to be the decision with the most blockbuster potential, although there is certainly latitude to bring it well within precedent. The question presented is whether employees have a reasonable expectation of privacy in personal text messages transmitted over employer-supplied devices, against a background of a formal no-privacy policy in conflict with a practice that sanctioned personal use. Although this case involves public employees -- police officers -- it may have implications for all employers, both public and private.

New Process Steel v. NLRB raises an issue of considerable import to labor lawyers and their clients. The National Labor Relations Board has an authorized strength of five members, and three is generally considered to be a quorum to decide cases. For the past couple of years, however, the NLRB has had only two sitting members. During that time they have decided around 400 cases. The question before the court is whether those two-member decisions were valid. It's not a clear-cut question, and there are good arguments on both sides. The three circuit courts to have considered the question have split. A ruling against the Board could cause a thermonuclear legal mess.

Lewis v. City of Chicago presents the Court with another firefighter qualification test case, like last year's Ricci v. DeStefano. Lewis deals with the more abstract question of whether the 300-day limit to file a claim with the EEOC runs from the date the test results were announced or the date that hires were made based upon those test results.

We're likely to hear more about these cases in the spring.

ADEA and workforce reductions; the latest in the Sixth Circuit

The latest restatement of ADEA standards in the Sixth Circuit is the usual bottle with new wine. The court recently held the plaintiff failed to establish her prima facie case of age discrimination and even if she had, she could not show defendant's proffered reason for terminating her (reduction in work force) was pretext for discrimination. Defendant Spartan offers sheet fed web offset printing and screen-printing, mainly used in advertising. Plaintiff began working there in 1995 as a bindery worker. She worked the third shift, along with four others. In October 2006, Spartan eliminated plaintiff (then 58) and Evert (then 65), as part of a reduction in work force (which she did not dispute). Plaintiff's manager, Pease, said in early fall 2006, work was slow, and the managers decided at a production meeting to cut costs. The managers evaluated their departments for cost savings and the decision to cut costs was a general consensus. Pease testified he decided to lay off two people from the third shift because the first and second shifts were more productive, and kept three people one of whom was Taylor, 29 and allegedly a better team player.

Plaintiff filed suit under the ADEA, Spartan moved for summary judgment, and the district court held plaintiff failed to establish a prima facie case of age discrimination in a work force reduction setting.

The court noted based on the law of the circuit, which is not unusual, when a termination arises as part of a work force reduction, the fourth element of the McDonnell Douglas test is modified to require the plaintiff to provide "additional direct, circumstantial, or statistical evidence tending to indicate that the employer singled out the plaintiff for discharge for impermissible reasons." Under the law of the circuit, plaintiff would have to show she possessed superior qualities to Taylor in order to meet her burden of making a prima facie showing in the context of a reduction in work force.

Plaintiff did not show age discrimination and did not establish the kind of "additional evidence" of discrimination the law requires in a reduction-in-force setting. Further, she could not prove Spartan's proffered reason - low productivity and the inability to get along with others -- had no basis, did not actually motivate the defendant's challenged conduct, or was insufficient to motivate her termination. Plaintiff also did not show Spartan's decision to terminate her was so unreasonable as to give rise to an inference of pretext. She failed to create a triable issue as to pretext, and the Sixth Circuit affirmed the lower court.

Schoonmaker v. Spartan Graphics Leasing, Inc.

Equitable Lien on Future Benefits Inequitable

The 6th Cir. recently held that the an ERISA plan couldn’t put an equitable lien on future Social Security benefits to recover overpayment of benefits paid from a long-term disability policy.

Sonya Hall went on disability in 2002. She was required to seek Social Security disability benefits under her disability policy, so that the the social security benefits were to offset a portion of her insurance payments. Between 2002 and 2006, she was denied benefits several times. Finally, in 2006, she was granted benefits retroactively to 2002 for her disability.

Liberty Life, the disability insurer, sought an equitable lien as restitution for the amount she was overpaid when she received retroactive social security benefits. The court said that, while Liberty Life was entitled to the equitable lien, by statute, such lien could not be placed on future social security benefits:

A plan fiduciary is permitted to bring a claim for equitable relief to enforce the terms of the plan. 29 U.S.C. § 1132(a)(3). For restitution of insurer overpayments to be of an equitable nature, the restitution must involve the imposition of a constructive trust or equitable lien on “particular funds or property in the [insured’s] possession.” The plan must identify a particular fund, distinct from an insured’s general assets, and the portion of that fund to which the plan is entitled. Courts are not permitted, however, to place a lien directly on the Social Security benefits themselves. 42 U.S.C. § 407(a) … The equitable lien in this case must therefore be limited to a specifically identifiable fund (the overpayments themselves) within Hall’s general assets, with the Plan entitled to a particular share (all overpayments due to her receipt of Social Security benefits, not to exceed the amount of benefits paid).

The lien imposed by the district court imposed the lien directly on the Social Security benefits received by Hall. This is impermissible because the Plan has no claim to Hall’s future Social Security benefits prior to the point at which they are in her possession. The Plan conceded this point during oral argument. Accordingly, the Sixth Circuit found that the district court erred in imposing an equitable lien directly upon Hall’s future Social Security benefits.

Hall v Liberty Life Assurance Co of Boston

Shifting Reasons Builds a Case with Sandy Foundations

A federal district court recently reinforced how an employer's shifting reasons for its actions may affect a discrimination case, basically, precluding summary judgment. The plaintiff, an employee, sued her employer for discrimination and retaliation in violation of Title VII and associated state law claims. The plaintiff claimed that she was transferred to a lateral position in a different division because of her gender and because she actively supported the gender discrimination claims of other employees. The County filed a motion for summary judgment. The parties conceded that the plaintiff had engaged in protected activity. One of the issues involved the shifting rationale for the action.

Because the plaintiff met her burden of proving a prima facie case of retaliation, the burden shifted to the County to offer a legitimate nondiscriminatory reason. The County offered more than one legitimate non-discriminatory reason for the transfer. The plaintiff, however, offered evidence that the County's reason for the transfer shifted over time from one reason to another. The court concluded that the shift from one reason to another was sufficient to create an issue of fact for a jury whether the non-discriminatory reasons offered by the County were pretexts for unlawful discrimination and retaliation. Accordingly, the court denied the County's motion for summary judgment.

This case is a cautionary tale for employers to give the honest, or at least consistent, reason for an employment action at the beginning, and not profer differing and conflicting reasons over time.

Coyne v. County of San Diego, No. 08-CV-639 JLS (CAB) Dec. 21, 2009

Putting yourself out there

Recently, while attending an event in Miami, New York Jets head coach, Rex Ryan, apparently made an obscene gesture at some Miami Dolphin fans who were taunting him. Ryan was attending the event, which was neither team nor NFL-sponsored, on his own time, but the team obviously felt that as head coach, Ryan is their representative even when he is "off duty" and that he must conduct himself accordingly. The Jets fined Ryan $50,000. I'd love to see the personal contract that permits that!!!!

In the real world, most employees are not celebrities that the general public will try to egg on until they do or say something stupid. Nevertheless, it is important for all of us to remember that the world is now filled with opportunists with camera phones and easy access to YouTube and, er, blogs.

First, employees need to recognize when they are out in public that there is a significant risk that anything that they do or say that either embarrasses or otherwise reflects poorly on their employer ultimately may get back to the employer. On the other hand, employers should exercise restraint before taking disciplinary action against employees for their off duty conduct to make sure that the conduct truly does negatively impact the company's business or reputation.

In another example recently posted on Above the Law, there apparently may be employment risks for posters at Top Law Schools ("TLS"), a message board for gunners planning to apply to law school. This is one of those places online where people talk about what to bring to the LSAT and trumpet their acceptances by various law schools.

Recently, Top Law Schools claimed that test prep company TestMasters is discriminating against its readers. A TLS moderator wrote a post alleging that a reader's application to work as an LSAT instructor for TestMasters was rejected based on his being a frequent TLS poster. The moderator posted the rejection email, which I reproduce in pertinent part:

... Applications are currently at an all-time high, and we do not have the time or resources to interview TTT candidates whose social lives consist of making thousands of posts on internet discussion boards. TestMasters only hires people who are cool, and unfortunately you do not meet that requirement...

This is perhaps another example of internet postings which can have deleterious effects on hiring, which we have all heard about. I suspect that as social media becomes more ubiquitous and everybody begins to have *something* out there that is less than squeaky clean, standards will relax. Like 'casual Fridays', I also predict the legal profession will be one of the last areas to relax those standards.

Chief CHIPRA

On February 4, 2010, the DOL provided a model notice for use by employers with group health plans, in accordance with the Children’s Health Insurance Program Reauthorization Act of 2009 (CHIPRA).

CHIPRA requires employers offering group health plans to notify all employees of their potential CHIPRA rights to receive premium assistance under a state’s Medicaid or CHIP program. Employers may combine this notice with other information (e.g., open enrollment materials) as long as it goes to the entire employee population, not just participants.

The requirement applies to employers that offer medical care benefits in any of 40 states that currently provide premium assistance. The 10 states that do not currently provide premium assistance are: Connecticut, Delaware, Hawaii, Illinois, Maryland, Michigan, Mississippi, Ohio, South Dakota and Tennessee.

Employers must comply as long as they have participants in at least one of the 40 states. Employers need not notify participants residing in the 10 non-participating states, but they may provide the notice anyway due to administrative convenience. For example, an employer with participants in Illinois, Michigan and Indiana would need to send the notices to Indiana employees but could send to employees in all three states. On the other hand, an employer based wholly in Michigan would not need to send notices under this mandate.

Employers must send the notice annually, starting with the first plan year after February 4, 2010. For plan years from February 4, 2010, through April 30, 2010, the initial notice deadline is May 1, 2010. For plan years starting after May 1, 2010, the notice deadline is the first day of the next plan year. For example, the deadline would be January 1, 2011, for calendar year plans.

CHIPRA also requires group health plans to disclose information about their medical care benefits to State Medicaid and CHIP programs, upon request. The DOL and two other agencies are developing a model disclosure form for this purpose. States may begin requesting this information as of the first plan year after the release of this model disclosure form. The rationale for this rule is that states may want to evaluate whether providing premium assistance is a cost-effective way to provide medical care.

Can't We All Just Get Along?

Today, in response to numerous press inquiries, National Labor Relations Board Chairman Wilma Liebman made the following statement regarding nominations to the Board of Craig Becker, Mark Pearce and Brian Hayes that have been pending before the Senate since July of 2009:

“I am disappointed that we still do not have a fully constituted Board despite the naming of three nominees last summer. The Board has been in limbo for a long time. For more than two years, the Board has had to operate with three vacancies, leaving only myself and Member Peter Schaumber to decide the hundreds of cases that come before us. We have done our best to carry out the Board’s important work, issuing more than 500 decisions in cases involving thousands of workers across the country. But our authority to do so has been challenged and now the Supreme Court will decide whether we can continue to function. At the same time, the Board has been unable to move forward on the most significant cases before it. I look forward to a time in the near future when the Board is back at full capacity resolving issues vital to American workers and their employers.”

It's a shame that with so many people out of work, the Board can't get more help. This politically charged statement with its lofty rhetoric is sure to move Congress ASAP. With the new Republican from MA, and with Senator McCain opposed to Becker, I don't give his appointment very good chances. Is the President going to go to the mat on this one? I don't think so!

DOL Employment Priorities

Last Monday, the U.S. Department of Labor (DOL) released its budget for the 2011 fiscal year. In a 95-page summary of the new budget, the DOL elaborated upon its plans for the approximately $14 billion it seeks in discretionary budget authority. According to the summary, the DOL will focus its efforts in 2011 on supporting reform of the Workforce Investment Act, rebuilding Worker Protection Programs, initiating a multi-agency legislative proposal to establish automatic workplace pensions, and boosting funds for unemployment insurance integrity efforts. From our perspective, however, the two most notable aspects of the 2011 budget are its provisions concerning employer misclassification of workers and paid family leave.

The DOL proposes to devote $25 million to a joint Labor-Treasury Misclassification Initiative that will enable the agency to better detect, investigate, and prosecute employers who misclassify their workers, and to offer competitive grants to boost states’ incentives to address the problem. In addition, the DOL proposes to further limit the possibility of employer misclassification by:

1.requiring employers to demonstrate that their employees are classified correctly,
2.closing the safe harbor created by Section 530 of the Revenue Act of 1978, and
3.making misclassification of employees an explicit violation of the FLSA.

This Initiative has a dual focus of adding to state and federal government revenues by ensuring that businesses pay appropriate payroll taxes on behalf of individuals would be more properly classified as employees and ensuring that those persons who should be classified as employees receive the overtime and benefits to which they would be entitled. Assuming that the DOL’s budget is approved, employers will need to pay even more attention ensure their intended independent contractor relationships will pass muster. Errors in classification undoubtedly will prove to be very expensive.

Finally, another important provision of the DOL’s budget for this next fiscal year is additional funding to establish more state paid leave funds. Currently, three states (California, Washington, and New Jersey) have state paid leave insurance programs which allow workers, who cannot afford to take unpaid leave under FMLA, to take time off to care for an ill child, spouse, parent, or bond with a newborn while still receiving benefits from the state. The 2011 Budget establishes a $50 million fund within the DOL that provides competitive grants to states that choose to launch such paid-leave programs. These funds will be allocated to assist states with planning and start-up activities related to paid-leave programs.

Employer: Here Be Dragons on your Legal Map

The Second Circuit Court of Appeals has held that a regional director of advertising sales for the Elite Traveler magazine was non-exempt under the Fair Labor Standards Act. The Court rejected the contention that the employee fell within the administrative exemption.

The administrative exemption and inside sales people have enjoyed a fraught history in the courts. Courts have held that such employees are “white collar production employees” in that they are really only “producing” the goods of the employer and not engaging in the ancillary, back-office kinds of duties that are deemed administrative under the FLSA. In this case, the Second Circuit continued that line of reasoning.

The Court found that as the primary duty of the employee was selling advertisements to individual customers and not promoting sales generally, the employee was only a producer, not an administrative employee.

Although there was evidence that the plaintiff developed new clients with the goal of increasing advertising sales generally, her primary duty remained selling specific advertising space to clients.

The administrative exemption is very fuzzy, and this case is a good example of the problems involved in claiming it--an employer may succeed, but only after paying a hefty toll to find out. There is a continuing tension between whether an employee is merely producing goods or is performing the more esoteric duties that support and comprise the business. Those duties are administrative, but precise definitions are difficult to come by. The upshot: 'here be dragons' an employer's legal map----if you go all in on the administrative exemption, be prepared to have a beefy stack for an attorney in your litigation budget.

Reiseck v. Universal Communications of Miami Inc., 09-1632 (2nd Cir 2010)

Mental Health Parity Act

The Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), which amended the Public Health Service Act, the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code, generally is effective for plan years beginning on or after October 3, 2009. For calendar year plans, the effective date is January 1, 2010. The Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury have published an interim final rule implementing the provisions of MHPAEA. The regulation is effective on April 5, 2010, and applicable to plan years beginning on or after July 1, 2010.

Also available is a DOL Fact Sheet that explains the anticipated changes and impact of the provisions in the interim final rule. It is not anticipated that this "interim" final rule will be changed between now and the July 1, 2010 final effective date.

If you are familiar with the Mental Health Parity Act of 1996 (MHPA), you are probably aware of the requirements that there be parity with respect to aggregate lifetime and annual dollar limits for mental health treatment and other major medical benefits. Since MHPA did not apply to substance use disorder benefits, MHPAEA was enacted to continue the MHPA parity rules as to limits for mental health benefits, and amended them to extend to substance use disorder benefits. Therefore, plans and issuers that offer substance use disorder benefits subject to aggregate lifetime and annual dollar limits must comply with the MHPAEA’s parity provisions.

I expect more guidance to be issued, but for plan sponsors that are concerned about compliance with the new act, start with the assumption that treatment for addiction gets the same protection as treatment for other mental illness claims.

Thanks for the advice, coach

The Texas Tech Law Review has published an article by now former coach Mike Leach, A Legal Education Applied to Coaching College Football, 42 TEXAS TECH LAW REVIEW 77 (2009). Read in light of how Leach's season ended, the article is a glance at Leach's coaching philosophy and how his law school experience at Pepperdine may have shaped his attitude towards players.

Leach writes:
Both law school and college football view it as important to harden and battle test your charges the best you can before you turn them out into the real world.
He then recalls a discussion from his first year contracts class:
In my class, the unlucky student called upon to recite Pennoyer [v. Neff] was brutalized from beginning to end. When the student finished, the professor said in a rather sinister tone, “Sit down, Mr. Smith. Call your parents and tell them that there is very little chance of you ever successfully becoming an attorney. However, I understand there are openings for assistant managers at McDonald's.” This was said in front of approximately ninety people. . . . Certain individuals could not deal with having to stand up in front of people to recite a case, not to mention handle the combative nature of the comments and questions from the professor and fellow students.

Pretty harsh. And the whole 'call your parents' thing is so unoriginal, too.

First Impression: Court can pick up SOX ball after 180 days

In an appellate court rule of first impression concerning the whistleblower provisions of Sarbanes-Oxley Act, a former employee's claim was not precluded by an adverse ruling from a DOL ALJ. Where the DOL has not issued a 'final decision' on an administrative complaint, the Act permits an employee to apply for a 'de novo' review from a federal district court.

The DOL has a timer running, from 180 days after the administrative complaint is filed, to issue a final decision.

As you all probably know, there is no general federal whistleblowing statute, and SOX is remarkable in that it is the first federal enactment to reach into the the private sector (excepting statutes providing for disclosures relating to specific regulatory regimes like nuclear energy, transportation, or the discrimination laws.) The court probably struck the right balance here--employees shouldn't have their claims held up forever in administrative limbo. SOX has a remarkably short statute of limitations--90 days. So you have to get hoppin' with OSHA fast if you smell one of these.

Finally, it will be interesting to see how the district court weighs the preclusive effects of the adverse DOL ruling in making its determinations. My guess is that we may not have seen the last of Mr. Stone in the Fourth Circuit!

SOX is potentially broad and still a relatively young statute...there is still so much room for growth! Frankly, I'm kind of shocked we haven't seen more SOX whistleblower issues related to the recent economic meltdown.

(Stone v. Instrumentation Lab. Co., 4th Cir., No. 08-1970, 12/31/2009)

First Impression: WPA, ministerial exception

In an issue of first impression, the Michigan Court of Appeals held the "ministerial exception" may be applied to WPA claims involving a religious institution and a "ministerial employee," and the trial court properly granted summary disposition as to plaintiff's WPA claim in favor of the defendants.

Also, based on the record, the court held the trial court did not err in determining consideration of the relevant factors established plaintiff was a ministerial employee and defendants were entitled to summary disposition of her CRA claim.

Plaintiff, a teacher, alleged violations of the CRA and the WPA after her contract was not renewed for the 2005-2006 school year. Regarding the first factor used in determining if a plaintiff was a ministerial employee, the court found no error in the trial court's conclusion plaintiff's duties were primarily religious, despite the fact she taught four mathematics and two religion classes in her last year of teaching. She stated she incorporated her religious teachings into her mathematics lessons. As to the second factor, plaintiff's teaching of religion classes and her involvement in planning masses and preparing students for confirmation and reconciliation services clearly had religious significance. Concerning the third factor, the trial court found plaintiff's position was primarily religious because, as a teacher of religion, she was involved in proselytizing on behalf of the Church. The court agreed. As the trial court noted, educating and indoctrinating the children was important to and furthered the purposes of the Church. The court held the fourth factor presented a closer question, given plaintiff did not assume a liturgical role within the entire congregation. However, she was intimately involved in liturgical planning of worship services, as well as confirmation and reconciliation services, for students. Further, her role as a religion teacher involved propagation of defendants' doctrine to students, which included guidance in worship services and rituals. The court noted some claims by ministerial employees are not necessarily foreclosed by the ministerial exception, but none of those exceptions applied because plaintiff's WPA claim alleged retaliation by termination.

The case represents a further setback for employees and demonstrates that the judiciary charged with interpreting the law is just as important as the legislature in shaping employee rights and expectations, as well as the hurdles for employees in pursuing those expectations when they are created.

Weishuhn v. Catholic Diocese of Lansing. (Michigan Court of Appeals) No. 07-72277 (Shapiro, J., joined by Meter and Borrello, JJ.)