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
Friday, February 26, 2010
Thursday, February 25, 2010
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)
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)
Wednesday, February 24, 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.
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.
Tuesday, February 23, 2010
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.
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.
Monday, February 22, 2010
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.
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.
Wednesday, February 17, 2010
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)
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)
Tuesday, February 16, 2010
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
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
Monday, February 15, 2010
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.
[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.
Saturday, February 13, 2010
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.
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.
Friday, February 12, 2010
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.
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.
Thursday, February 11, 2010
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.
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.
Wednesday, February 10, 2010
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
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
Tuesday, February 9, 2010
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
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
Monday, February 8, 2010
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.
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.
Saturday, February 6, 2010
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.
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.
Friday, February 5, 2010
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!
“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!
Thursday, February 4, 2010
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.
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)
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)
Tuesday, February 2, 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.
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.
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.
Monday, February 1, 2010
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)
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)
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