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
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