For the week of October 20, 2008
A group of insurance "sales leaders" who filed for overtime wages under the Fair Labor Standards Act (FLSA) have been deemed by the 5th U.S. Circuit Court of Appeals to be employees rather than independent contractors, and therefore eligible for overtime pay. Hopkins v. Cornerstone America, No. 07-10952 (5th Cir. October 13, 2008). The court based its decision on the economic realities of the situation, and determined that the managers were economically dependent upon the company for which they worked, instead of being in business for themselves.
Cornerstone America, the sales and marketing division of Mid-West National Life Insurance Company of Tennessee, uses a "pyramid" system of sales agents, all of whom agree to work as independent contractors, with payment on a commission basis. Certain of the agents have been promoted to "sales leaders," a management-level designation. In that position, the opportunity for personal sales diminishes, and income is earned primarily from overwrite commissions on sales made by subordinate agents. In the model used by Cornerstone, there is no formal relationship between the sales leaders and the sales agents. Instead, each sales agent contracts directly with Cornerstone; the company controls the hiring and firing of each agent, along with the assignment and promotion of each, regardless of sales leader group.
Although the sales leaders have a certain amount of flexibility with regard to their own working hours and daily routine, and although they all are designated as independent contractors who receive no employment benefits and very little corporate oversight, a group of those managers filed suit against Cornerstone and its parent companies, alleging that they were "employees" entitled to overtime wages. Both the plaintiffs and the company filed summary judgment motions on the issue of whether the sales leaders were employees or independent contractors. The district court found in favor of plaintiffs, and that decision was appealed to the Fifth Circuit.
The FLSA’s definition of "employee" is extremely broad, and includes some individuals who may not qualify as employees under traditional agency law principles. The Fifth Circuit’s approach to the question of whether the sales leaders are independent contractors or actual employees was premised on a five-factor analysis. To determine whether the workers are economically dependent upon Cornerstone, the court reviewed (1) the degree of control exercised by the company; (2) the extent of the relative investments of the workers and the company; (3) the degree to which the workers’ opportunity for profit or loss is determined by the company; (4) the skill and initiative required for performing the job; and (5) the permanency of the relationship. Under that analysis, the Fifth Circuit upheld the lower court’s determination that the sales leaders were employees, rather than independent contractors.
The court’s decision focused largely on the fact that the company exercises a substantial amount of control over the plaintiffs’ ability to earn income. Such control includes hiring, firing, and assigning sales agents, on whom the sales leaders’ income depends; advertising for new recruits; controlling the number of sales leads the leaders could receive; and limiting the types and price of insurance products the leaders could sell. In addition, Cornerstone precludes sales leaders from being involved in or owning any other businesses while employed with Cornerstone. These facts, in addition to the fact that most of the sales leaders have been with Cornerstone for a substantial period of time, creating more of a long-term employment relationship than a transient independent contractor relationship, led the court to its determination.
The court's opinion is a guide to employers who want to understand what the courts look for when making the determination of whether an individual is an "employee" v. an "independent contractor." In order to establish a true independent contractor relationship, the economic realities of the situation should show that the worker possesses some unique skill, and that he or she is allowed to control the methods and means by which that skill is exercised. If instead, the individual’s duties involve only a standard set of skills (in this case, business sense, salesmanship, and basic management skills), and the company is controlling the individual’s wages by limiting the method by which the individual can earn that wage, the courts are more likely to find a traditional employer/employee relationship. In this case, that determination may lead to unanticipated liability for overtime pay under the FLSA.
Monday, October 20, 2008
Issue: Consensual sexual relationship may not support subsequent claim of retaliation
For the week of October 13, 2008
Title VII’s anti-retaliation provision states that it is unlawful for an employer to discriminate against any individual because he or she opposes an action prohibited by Title VII. The 7th U.S. Circuit Court of Appeals recently found that an individual’s claim of retaliation was not supported by the evidence, because that individual did not necessarily believe that he was being sexually harassed by his supervisor, with whom he was having a consensual sexual relationship. Tate v. Executive Management Services, Inc., No. 07-2575 (7th Cir. October 10, 2008).
Alshafi Tate cleaned office buildings in Indianapolis for Executive Management Services, a commercial cleaning company, where he was supervised by Dawn Burban. Within weeks after beginning his employment in August 2002, Tate began a consensual sexual relationship with Burban. Beginning in October 2003, Tate attempted to end that relationship after Burban began calling Tate’s home, upsetting Tate’s wife. On one occasion when Tate tried to discuss ending the relationship, Burban informed him that if the relationship ended, he would lose his job.
On January 13, 2004, Burban and Tate got into a verbal altercation, after which Burban prepared an "insubordination" incident report. Tate’s employment subsequently was terminated. Tate filed a lawsuit alleging that he had been sexually harassed by Burban, and that his firing was in retaliation for his rejection of her advances.
At trial, the jury returned a verdict in Tate’s favor on the retaliation claim, although it found against Tate on his claim of sexual harassment. The company’s motion for judgment as a matter of law/for a new trial was denied by the trial court. On appeal, the Seventh Circuit reversed that denial, holding that Tate could not support a claim of retaliation because he did not have a "reasonable belief" that he had been sexually harassed by Burban.
In order to support a claim of retaliation, an employee must show: (1) a statutorily protected activity; (2) an adverse employment action; and (3) a causal connection between the two. In order to show that he had engaged in a "protected activity," Tate did not have to prove that Burban sexually harassed him. However, he did have to show that he "reasonably believed in good faith" that the conduct of which he complained violated Title VII, and that he was fired because of that complaint.
The court first addressed the issue of whether Tate actually had made a protected report of sexual harassment, since Tate’s only "complaint" was made directly to Burban. The federal circuits are split on whether a rejection of a supervisor’s sexual advances is, in and of itself, a protected activity, and the Seventh Circuit has not yet ruled on the issue. In this case, the court found it unnecessary to answer that specific question. It found instead that Tate did not show a reasonable belief that Burban’s actions constituted illegal sexual harassment and, therefore, he did not make a complaint of behavior that actually violated Title VII. Tate’s testimony showed that he felt that he was "wrongly mistreated" when he was fired, and that he and Burban were "not good with each other" once Burban began to call his home and argue with his wife. These statements point to personal reasons for ending the relationship rather than concerns about the legality of Burban’s actions. His complaints, therefore, were not protected by Title VII.
Title VII’s anti-retaliation language was designed to protect the right of an employee to protest discrimination that he or she believes, reasonably and in good faith, violates Title VII. That statutory language ensures that employees who make such reports remain free from retaliation or reprisal. While the court’s decision in this case was in favor of the employer, it points out the potential legal issues that arise when supervisors enter into personal relationships with subordinates. Whether or not a company’s handbook includes an anti-fraternization policy, employers should recognize the possibility for potential legal issues in such circumstances, and should take steps to ensure that individuals in a personal relationship are not in a direct reporting relationship within the company.
Title VII’s anti-retaliation provision states that it is unlawful for an employer to discriminate against any individual because he or she opposes an action prohibited by Title VII. The 7th U.S. Circuit Court of Appeals recently found that an individual’s claim of retaliation was not supported by the evidence, because that individual did not necessarily believe that he was being sexually harassed by his supervisor, with whom he was having a consensual sexual relationship. Tate v. Executive Management Services, Inc., No. 07-2575 (7th Cir. October 10, 2008).
Alshafi Tate cleaned office buildings in Indianapolis for Executive Management Services, a commercial cleaning company, where he was supervised by Dawn Burban. Within weeks after beginning his employment in August 2002, Tate began a consensual sexual relationship with Burban. Beginning in October 2003, Tate attempted to end that relationship after Burban began calling Tate’s home, upsetting Tate’s wife. On one occasion when Tate tried to discuss ending the relationship, Burban informed him that if the relationship ended, he would lose his job.
On January 13, 2004, Burban and Tate got into a verbal altercation, after which Burban prepared an "insubordination" incident report. Tate’s employment subsequently was terminated. Tate filed a lawsuit alleging that he had been sexually harassed by Burban, and that his firing was in retaliation for his rejection of her advances.
At trial, the jury returned a verdict in Tate’s favor on the retaliation claim, although it found against Tate on his claim of sexual harassment. The company’s motion for judgment as a matter of law/for a new trial was denied by the trial court. On appeal, the Seventh Circuit reversed that denial, holding that Tate could not support a claim of retaliation because he did not have a "reasonable belief" that he had been sexually harassed by Burban.
In order to support a claim of retaliation, an employee must show: (1) a statutorily protected activity; (2) an adverse employment action; and (3) a causal connection between the two. In order to show that he had engaged in a "protected activity," Tate did not have to prove that Burban sexually harassed him. However, he did have to show that he "reasonably believed in good faith" that the conduct of which he complained violated Title VII, and that he was fired because of that complaint.
The court first addressed the issue of whether Tate actually had made a protected report of sexual harassment, since Tate’s only "complaint" was made directly to Burban. The federal circuits are split on whether a rejection of a supervisor’s sexual advances is, in and of itself, a protected activity, and the Seventh Circuit has not yet ruled on the issue. In this case, the court found it unnecessary to answer that specific question. It found instead that Tate did not show a reasonable belief that Burban’s actions constituted illegal sexual harassment and, therefore, he did not make a complaint of behavior that actually violated Title VII. Tate’s testimony showed that he felt that he was "wrongly mistreated" when he was fired, and that he and Burban were "not good with each other" once Burban began to call his home and argue with his wife. These statements point to personal reasons for ending the relationship rather than concerns about the legality of Burban’s actions. His complaints, therefore, were not protected by Title VII.
Title VII’s anti-retaliation language was designed to protect the right of an employee to protest discrimination that he or she believes, reasonably and in good faith, violates Title VII. That statutory language ensures that employees who make such reports remain free from retaliation or reprisal. While the court’s decision in this case was in favor of the employer, it points out the potential legal issues that arise when supervisors enter into personal relationships with subordinates. Whether or not a company’s handbook includes an anti-fraternization policy, employers should recognize the possibility for potential legal issues in such circumstances, and should take steps to ensure that individuals in a personal relationship are not in a direct reporting relationship within the company.
Wednesday, October 8, 2008
Issue: FMLA’s 1250 hour eligibility requirement is absolute
For the week of September 22, 2008
The Family and Medical Leave Act (FMLA) provides that an employee is entitled to leave under certain circumstances, including a serious health condition that makes that individual unable to perform the functions of his or her job. Employers are prohibited from interfering with an eligible employee’s right to take the leave associated with that act. Under the FMLA, an "eligible" employee is one who has been employed for at least 12 months at the company, and who has worked a minimum of 1250 hours during the 12-month period immediately prior to the leave request.
The 7th U.S. Circuit Court of Appeals recently addressed a situation in which an employee’s working hours fell just below the 1250 hour requirement. In that case, the court found that the 1250 hour hurdle was absolute, and that any lesser number of hours removed the employee from eligibility to assert a claim under the FMLA. Pirant v. U.S. Postal Service, No. 07-1055 (7th Cir. September 4, 2008).
Antoinette Pirant was hired in 1993 by the U.S. Postal Service (USPS) to work as a mail handler. In the years of her tenure with the USPS, Pirant was regularly disciplined for attendance policy violations. In fact, she was "terminated" four times, and on each of the four occasions was able to convince her supervisors to reduce the termination to a suspension.
In March 2001, Pirant was put on a Last Chance Agreement that specifically stated that further attendance problems would lead to termination, and that this was her "absolute last chance" on the issue. When Pirant subsequently was absent without excuse, she received a notice of termination, and her last day of work was set for October 28. However, on October 26, Pirant convinced her supervisor to extend her final day until December 10.
On October 5, Pirant’s supervisor ordered her to clock out two hours early, based upon an incident of alleged insubordination. Pirant did so, but complained to a USPS Dispute Resolution Specialist (Andrews) that she had been wrongfully accused. She was informed of her right to file a formal grievance on the issue, but did not do so within the allotted time.
On December 6, Pirant was absent from work, and did not provide a medical reason other than she "had not been feeling well." On December 10, Pirant went to an emergency room and was examined for carpal tunnel syndrome and for arthritis in her knee. She was directed by a doctor not to work from December 10 to December 17.
On January 4, Pirant’s employment was terminated for her violation of the Last Chance Agreement. She filed a federal court complaint, claiming that the USPS violated the FMLA when it terminated her for missing work, since at least one of her absences was related to her "arthritic knee." In an initial response to that complaint, the USPS admitted that Pirant was qualified for FMLA coverage. However, after checking the official time records, and in light of the two hours that Pirant did not work because of the suspension imposed on October 5, the USPS amended its answer to state that Pirant had worked only 1248.8 hours in the preceding 12 months, and therefore was not eligible for FMLA leave. The district court dismissed Pirant’s claim. The dismissal was upheld on appeal.
The Seventh Circuit held that there was no factual dispute regarding Pirant’s eligibility, since the official payroll records showed a less-than-1250 hour work history – although barely less. Although Pirant argued that she should have been credited with the two hours missed while suspended, she was unable to show that she had appealed that suspension. Therefore, those two hours were not counted toward the 1250 hour minimum. In addition, the court held that Pirant’s time spent "donning and doffing" her uniform was not "work time" under the Fair Labor Standards Act, as it was not integral to her job. Therefore, that additional time did not count toward the FMLA’s 1250 work hour requirement.
The USPS’ ability to offer formal documentation of Pirant’s exact work hours was the factor that led to its success in this case. Although the shortfall between Pirant’s hours worked and the hours required for FMLA eligibility was a de minimus amount of time, the court was unwilling to act outside of the statutory mandate of 1250 hours. This case is a clear example to employers of the importance of complete and accurate payroll and work-time records.
The Family and Medical Leave Act (FMLA) provides that an employee is entitled to leave under certain circumstances, including a serious health condition that makes that individual unable to perform the functions of his or her job. Employers are prohibited from interfering with an eligible employee’s right to take the leave associated with that act. Under the FMLA, an "eligible" employee is one who has been employed for at least 12 months at the company, and who has worked a minimum of 1250 hours during the 12-month period immediately prior to the leave request.
The 7th U.S. Circuit Court of Appeals recently addressed a situation in which an employee’s working hours fell just below the 1250 hour requirement. In that case, the court found that the 1250 hour hurdle was absolute, and that any lesser number of hours removed the employee from eligibility to assert a claim under the FMLA. Pirant v. U.S. Postal Service, No. 07-1055 (7th Cir. September 4, 2008).
Antoinette Pirant was hired in 1993 by the U.S. Postal Service (USPS) to work as a mail handler. In the years of her tenure with the USPS, Pirant was regularly disciplined for attendance policy violations. In fact, she was "terminated" four times, and on each of the four occasions was able to convince her supervisors to reduce the termination to a suspension.
In March 2001, Pirant was put on a Last Chance Agreement that specifically stated that further attendance problems would lead to termination, and that this was her "absolute last chance" on the issue. When Pirant subsequently was absent without excuse, she received a notice of termination, and her last day of work was set for October 28. However, on October 26, Pirant convinced her supervisor to extend her final day until December 10.
On October 5, Pirant’s supervisor ordered her to clock out two hours early, based upon an incident of alleged insubordination. Pirant did so, but complained to a USPS Dispute Resolution Specialist (Andrews) that she had been wrongfully accused. She was informed of her right to file a formal grievance on the issue, but did not do so within the allotted time.
On December 6, Pirant was absent from work, and did not provide a medical reason other than she "had not been feeling well." On December 10, Pirant went to an emergency room and was examined for carpal tunnel syndrome and for arthritis in her knee. She was directed by a doctor not to work from December 10 to December 17.
On January 4, Pirant’s employment was terminated for her violation of the Last Chance Agreement. She filed a federal court complaint, claiming that the USPS violated the FMLA when it terminated her for missing work, since at least one of her absences was related to her "arthritic knee." In an initial response to that complaint, the USPS admitted that Pirant was qualified for FMLA coverage. However, after checking the official time records, and in light of the two hours that Pirant did not work because of the suspension imposed on October 5, the USPS amended its answer to state that Pirant had worked only 1248.8 hours in the preceding 12 months, and therefore was not eligible for FMLA leave. The district court dismissed Pirant’s claim. The dismissal was upheld on appeal.
The Seventh Circuit held that there was no factual dispute regarding Pirant’s eligibility, since the official payroll records showed a less-than-1250 hour work history – although barely less. Although Pirant argued that she should have been credited with the two hours missed while suspended, she was unable to show that she had appealed that suspension. Therefore, those two hours were not counted toward the 1250 hour minimum. In addition, the court held that Pirant’s time spent "donning and doffing" her uniform was not "work time" under the Fair Labor Standards Act, as it was not integral to her job. Therefore, that additional time did not count toward the FMLA’s 1250 work hour requirement.
The USPS’ ability to offer formal documentation of Pirant’s exact work hours was the factor that led to its success in this case. Although the shortfall between Pirant’s hours worked and the hours required for FMLA eligibility was a de minimus amount of time, the court was unwilling to act outside of the statutory mandate of 1250 hours. This case is a clear example to employers of the importance of complete and accurate payroll and work-time records.
Wednesday, September 17, 2008
Issue: Calling in sick without providing additional information is not sufficient to trigger FMLA
For the week of September 15, 2008
Under the Family and Medical Leave Act (FMLA), eligible employees are entitled to up to 12 weeks of unpaid leave during a 12-month period. The FMLA specifically prohibits employers from interfering with an employee’s attempt to exercise his or her rights under that Act. In order to exercise those rights on the basis of an employee’s own "serious medical condition," the employee must provide notice to the employer of the seriousness of the health condition that forms the basis of the leave request. Recently, the 7th U.S. Circuit Court of Appeals found that calling in sick, without providing additional information, does not provide sufficient notice of a "serious health condition" under the FMLA. De la Rama v. Illinois Dept. of Human Services, No. 07-1156 (7th Cir., Sept. 2, 2008).
Elizabeth de la Rama, a Filipino-American, worked as a registered nurse at a Mental Health Center, run by the Illinois Department of Human Services for mentally ill adults. Under the Center’s leave policy, de la Rama was entitled to 12 sick days each year, accrued at a rate of one per month. In 2004, de la Rama called in sick for the period from July 19 through August 19. At one point during that period, she verbally informed her supervisor that she was suffering from back pain, and needed to take a week off. On July 27, she provided a doctor’s note that stated that she was under a doctor’s care and could not return to work until August 10. At that point, her employer explained that in order to request medical leave, de la Rama would have to submit a written request and complete certain written forms. Although de la Rama continued to submit doctor’s notes requesting time off, those notes did not state her medical condition, nor describe its severity, and de la Rama did not complete the required forms requesting medical leave during this period. In addition, although she was diagnosed with fibromyalgia in early August, de la Rama did not inform her employer of that diagnosis.
On October 4, 2004, de la Rama submitted the required forms, explaining that she suffered from fibromyalgia and a herniated disk. The Center retroactively granted FMLA leave to de la Rama, beginning on September 2. De la Rama returned to work on January 3, 2005, after 17 weeks of medical leave. At that point, de la Rama’s record reflected 24 days of "unauthorized absence" (UA) for July and August, and future absences would have triggered a disciplinary proceeding against her.
De la Rama pursued a grievance in order to remove the UAs from her employment record. At a hearing, management and the union agreed that the UAs would remain on de la Rama’s record, but that those absences never would be used in any disciplinary proceedings against her. De la Rama subsequently filed a lawsuit, including a claim of interference with her FMLA rights. The district court granted summary judgment to the defendants, and the Seventh Circuit affirmed that decision.
The appellate court found that de la Rama had provided insufficient notice to alert her employer of a "serious medical condition" until October 2004, when the leave was granted. When de la Rama called in sick in July and August, she did not indicate that she suffered from a condition that would require an extended leave, and did not provide documentation of the fibromyalgia until October. The fact that the leave was granted once documentation of the serious medical condition was provided undercut de la Rama’s argument that her employer interfered with her ability to exercise her rights under the FMLA.
An employee may be excused from expressing the need for medical leave when circumstances themselves provide the employer with sufficient notice of the need for extended leave, for instance, when an employee’s family calls from the emergency room to inform employer of a serious auto accident. But – in the words of the Seventh Circuit - the FMLA "does not require employers to play Sherlock Holmes, scanning an employee’s work history for clues as to the undisclosed, true reason for an employee’s absence." Employers should not interpret this case as license to step outside of the parameters of the FMLA, which requires them to review medical information provided by employees, and to grant leave when appropriate. But it reminds employers that they are entitled to certain information from employees in order to make a full and fair decision with respect to the leave requested.
Under the Family and Medical Leave Act (FMLA), eligible employees are entitled to up to 12 weeks of unpaid leave during a 12-month period. The FMLA specifically prohibits employers from interfering with an employee’s attempt to exercise his or her rights under that Act. In order to exercise those rights on the basis of an employee’s own "serious medical condition," the employee must provide notice to the employer of the seriousness of the health condition that forms the basis of the leave request. Recently, the 7th U.S. Circuit Court of Appeals found that calling in sick, without providing additional information, does not provide sufficient notice of a "serious health condition" under the FMLA. De la Rama v. Illinois Dept. of Human Services, No. 07-1156 (7th Cir., Sept. 2, 2008).
Elizabeth de la Rama, a Filipino-American, worked as a registered nurse at a Mental Health Center, run by the Illinois Department of Human Services for mentally ill adults. Under the Center’s leave policy, de la Rama was entitled to 12 sick days each year, accrued at a rate of one per month. In 2004, de la Rama called in sick for the period from July 19 through August 19. At one point during that period, she verbally informed her supervisor that she was suffering from back pain, and needed to take a week off. On July 27, she provided a doctor’s note that stated that she was under a doctor’s care and could not return to work until August 10. At that point, her employer explained that in order to request medical leave, de la Rama would have to submit a written request and complete certain written forms. Although de la Rama continued to submit doctor’s notes requesting time off, those notes did not state her medical condition, nor describe its severity, and de la Rama did not complete the required forms requesting medical leave during this period. In addition, although she was diagnosed with fibromyalgia in early August, de la Rama did not inform her employer of that diagnosis.
On October 4, 2004, de la Rama submitted the required forms, explaining that she suffered from fibromyalgia and a herniated disk. The Center retroactively granted FMLA leave to de la Rama, beginning on September 2. De la Rama returned to work on January 3, 2005, after 17 weeks of medical leave. At that point, de la Rama’s record reflected 24 days of "unauthorized absence" (UA) for July and August, and future absences would have triggered a disciplinary proceeding against her.
De la Rama pursued a grievance in order to remove the UAs from her employment record. At a hearing, management and the union agreed that the UAs would remain on de la Rama’s record, but that those absences never would be used in any disciplinary proceedings against her. De la Rama subsequently filed a lawsuit, including a claim of interference with her FMLA rights. The district court granted summary judgment to the defendants, and the Seventh Circuit affirmed that decision.
The appellate court found that de la Rama had provided insufficient notice to alert her employer of a "serious medical condition" until October 2004, when the leave was granted. When de la Rama called in sick in July and August, she did not indicate that she suffered from a condition that would require an extended leave, and did not provide documentation of the fibromyalgia until October. The fact that the leave was granted once documentation of the serious medical condition was provided undercut de la Rama’s argument that her employer interfered with her ability to exercise her rights under the FMLA.
An employee may be excused from expressing the need for medical leave when circumstances themselves provide the employer with sufficient notice of the need for extended leave, for instance, when an employee’s family calls from the emergency room to inform employer of a serious auto accident. But – in the words of the Seventh Circuit - the FMLA "does not require employers to play Sherlock Holmes, scanning an employee’s work history for clues as to the undisclosed, true reason for an employee’s absence." Employers should not interpret this case as license to step outside of the parameters of the FMLA, which requires them to review medical information provided by employees, and to grant leave when appropriate. But it reminds employers that they are entitled to certain information from employees in order to make a full and fair decision with respect to the leave requested.
Third Circuit clarifies the “faltering company” exception to notice requirements of the WARN Act
For the week of September 8, 2008
The purpose of the Worker Adjustment and Retraining Notification (WARN) Act is to protect workers by requiring advance notice of plant closings. Such notice allows workers some time to adjust to the prospective loss of employment, and to seek other jobs or retraining. The WARN Act requires generally 60 days’ written notice before a closing or mass layoff by covered employers (typically, those with at least 100 full-time employees at a site). Companies that violate the Act are liable for back pay and benefits for each day that the required notice is not provided, up to the 60 day maximum.
The WARN Act includes three specific affirmative defenses to the 60-day notice requirement: the "business circumstances" exception, the "natural disaster" exception, and the "faltering company" exception. Recently the 3d U.S. Circuit Court of Appeals reversed summary judgment on behalf of an employer that had relied on the "faltering company" exception as an explanation for failure to provide more than a week’s notice before a total shut-down of the company. In Re: APA Transport Corp. Consolidated Litigation, 3d Cir., No. 07-1050, 07-1051, 07-1052, August 29, 2008.
In that case, APA Trucking Corporation (APA) entered a Loan Agreement with Transamerica Business Capital Corporation in 1996, which allowed APA the use of a revolving line of credit in the amount of $40 million secured by real property, equipment, and accounts receivable. After entering into the Agreement, APA suffered continuous losses and, in October 2001, began a series of meetings, requested by Transamerica, to discuss APA’s financial future. The Loan Agreement was set to expire on February 28, 2002, at which time the entire loan amount would become due. That Loan Agreement required a 60 day notice from APA to Transamerica for requests to extend the loan. As of the end of 2001, APA had not made a timely request to extend or renew the Loan Agreement.
However, during the month of January 2002, APA sent two separate letters to Transamerica, each requesting additional financing. Neither letter was followed by any action on the part of APA to support the requests, and Transamerica did not provide a credit memorandum or credit approval in response to either letter. Transamerica then formally notified APA that the Loan Agreement would terminate on February 28, 2002, pursuant to its terms. Unable to function without financing, APA notified its employees, in a letter received by the president of the local union on February 14, that the company would permanently close its Philadelphia terminal effective on February 20. APA asserted that it had provided the "shortened" notice because it had been "actively seeking financial assistance to alleviate its severe economic problems."
A number of lawsuits were filed against APA, including one by the company’s employees, who alleged a WARN Act violation. APA asserted a "faltering company" defense to that claim. In order to succeed under that theory, a company must show that it was actively seeking capital or business at the time that the 60-day WARN Act notice would have been required, that it had a realistic opportunity to obtain that financing, that the capital would have been sufficient to avoid the shutdown, and that sending the required 60-day notice would have precluded it from obtaining the financing.
The district court granted summary judgment to the company, based on the faltering company defense. On appeal, however, the Third Circuit reversed, and found in favor of the employees on that issue. First, the court held that the faltering company exception is to be construed narrowly, and that it requires proof that the company was "actively seeking" financing at the time that the 60-day notice was required to have been given to employees. APA was unable to provide that proof. On the date 60 days prior to the February 20 terminal closing, the company had made no formal request for financing from Transamerica or any other financial backer. In addition, the court held that the words "actively seeking" should be construed literally, and found that meetings called by Transamerica to discuss loan status, and correspondence without follow-up were insufficient to demonstrate that level of engagement. In spite of the fact that APA knew that the Loan Agreement was to expire on February 28, 2002, it made no formal request for extension, nor did it take other steps to secure financing. The court characterized APA’s efforts as "waiting for Transamerica to offer additional financing," and found that action to be insufficient to meet the interpretation of the term "actively seeking" financing.
In these difficult financial times, companies contemplating plant shut-downs or large lay-offs should have a clear recognition of the pre-conditions and requirements set forth in the WARN Act. Companies seeking to assert an available exception or defense to the requirements of the Act should work closely with legal counsel, human resource personnel, and funding sources in order to avoid the financial penalties associated with violation of that Act.
The purpose of the Worker Adjustment and Retraining Notification (WARN) Act is to protect workers by requiring advance notice of plant closings. Such notice allows workers some time to adjust to the prospective loss of employment, and to seek other jobs or retraining. The WARN Act requires generally 60 days’ written notice before a closing or mass layoff by covered employers (typically, those with at least 100 full-time employees at a site). Companies that violate the Act are liable for back pay and benefits for each day that the required notice is not provided, up to the 60 day maximum.
The WARN Act includes three specific affirmative defenses to the 60-day notice requirement: the "business circumstances" exception, the "natural disaster" exception, and the "faltering company" exception. Recently the 3d U.S. Circuit Court of Appeals reversed summary judgment on behalf of an employer that had relied on the "faltering company" exception as an explanation for failure to provide more than a week’s notice before a total shut-down of the company. In Re: APA Transport Corp. Consolidated Litigation, 3d Cir., No. 07-1050, 07-1051, 07-1052, August 29, 2008.
In that case, APA Trucking Corporation (APA) entered a Loan Agreement with Transamerica Business Capital Corporation in 1996, which allowed APA the use of a revolving line of credit in the amount of $40 million secured by real property, equipment, and accounts receivable. After entering into the Agreement, APA suffered continuous losses and, in October 2001, began a series of meetings, requested by Transamerica, to discuss APA’s financial future. The Loan Agreement was set to expire on February 28, 2002, at which time the entire loan amount would become due. That Loan Agreement required a 60 day notice from APA to Transamerica for requests to extend the loan. As of the end of 2001, APA had not made a timely request to extend or renew the Loan Agreement.
However, during the month of January 2002, APA sent two separate letters to Transamerica, each requesting additional financing. Neither letter was followed by any action on the part of APA to support the requests, and Transamerica did not provide a credit memorandum or credit approval in response to either letter. Transamerica then formally notified APA that the Loan Agreement would terminate on February 28, 2002, pursuant to its terms. Unable to function without financing, APA notified its employees, in a letter received by the president of the local union on February 14, that the company would permanently close its Philadelphia terminal effective on February 20. APA asserted that it had provided the "shortened" notice because it had been "actively seeking financial assistance to alleviate its severe economic problems."
A number of lawsuits were filed against APA, including one by the company’s employees, who alleged a WARN Act violation. APA asserted a "faltering company" defense to that claim. In order to succeed under that theory, a company must show that it was actively seeking capital or business at the time that the 60-day WARN Act notice would have been required, that it had a realistic opportunity to obtain that financing, that the capital would have been sufficient to avoid the shutdown, and that sending the required 60-day notice would have precluded it from obtaining the financing.
The district court granted summary judgment to the company, based on the faltering company defense. On appeal, however, the Third Circuit reversed, and found in favor of the employees on that issue. First, the court held that the faltering company exception is to be construed narrowly, and that it requires proof that the company was "actively seeking" financing at the time that the 60-day notice was required to have been given to employees. APA was unable to provide that proof. On the date 60 days prior to the February 20 terminal closing, the company had made no formal request for financing from Transamerica or any other financial backer. In addition, the court held that the words "actively seeking" should be construed literally, and found that meetings called by Transamerica to discuss loan status, and correspondence without follow-up were insufficient to demonstrate that level of engagement. In spite of the fact that APA knew that the Loan Agreement was to expire on February 28, 2002, it made no formal request for extension, nor did it take other steps to secure financing. The court characterized APA’s efforts as "waiting for Transamerica to offer additional financing," and found that action to be insufficient to meet the interpretation of the term "actively seeking" financing.
In these difficult financial times, companies contemplating plant shut-downs or large lay-offs should have a clear recognition of the pre-conditions and requirements set forth in the WARN Act. Companies seeking to assert an available exception or defense to the requirements of the Act should work closely with legal counsel, human resource personnel, and funding sources in order to avoid the financial penalties associated with violation of that Act.
Monday, September 8, 2008
Issue: Employer’s directive for inpatient alcohol treatment does not violate ADA
For the week of September 1, 2008
An employee may be entitled to the protections of the Americans with Disabilities Act if he is "regarded as" disabled by his employer. An employer regards an employee as disabled when it mistakenly believes that the employee’s impairment substantially limits his ability to work. The "regarded as" provision of the ADA was meant to combat erroneous views related to impaired individuals, and to keep employers from basing employment-related decisions on myths or stereotypes.
Recently, the 8th U.S. Circuit Court of Appeals upheld judgment in favor of an employer who terminated an individual’s employment after the employee refused to enter an in-patient alcohol treatment program recommended by a psychologist. Although the employee claimed that the termination was based upon a "perceived" disability in violation of the ADA, the Eighth Circuit found that because the mandatory inpatient treatment was based upon the recommendation of a qualified medical provider and not upon myths or stereotypes about the disabled, it did not establish a perception of disability and, therefore, was not a violation of the ADA. Kozisek v. County of Seward, Nebraska, 8th Cir., No. 07-3682, Aug.,27, 2008.
In 1994, after 13 years of employment with Seward County, Nebraska as a weed control officer, Fredrick Kozisek applied for and obtained the position of County Veterans Service Officer (CVSO), which included work related to veterans’ issues. However, the job was considered to be a "multi-position" that also included Building and Grounds supervisor and General Assistance Administrator. During his tenure as CVSO, Kozisek and the County disagreed on the nature of the job, with Kozisek arguing to devote more time to veterans’ issues, and less to the other two portions of the position. Kozisek himself is a Vietnam veteran, and suffers from Post Traumatic Stress Disorder, for which he regularly took medication. Kozisek did not inform his employer of his PTSD.
One evening in July 2005, having failed to take his prescribed medication for a number of days, Kozisek left work early and began drinking. Under the influence of alcohol he then shot a number of his family’s farm animals, including the family dog, and subsequently threatened his wife. He was arrested the next morning by the County Sheriff. Based on the incidents, the County and Kozisek agreed that Kozisek would get a psychological/substance abuse evaluation. After a meeting with Kozisek, a mental health practitioner from the Veterans Administration recommended that Kozisek complete inpatient alcohol treatment. Kozisek did not want to undergo inpatient treatment, and informed the County that he would prefer outpatient counseling and AA meetings. The County then informed Kozisek that he had 10 days to enroll in an inpatient treatment or lose his job. Kozisek refused, and his employment ultimately was terminated.
Kozisek then filed a lawsuit claiming, in part, that he was fired because the County regarded him as disabled by alcoholism, as evidenced by its requirement that he complete inpatient treatment as a condition of his continuing employment. The lower court granted summary judgment in favor of the County. That decision was upheld on appeal by the Eighth Circuit, which found that the County’s decision was "not based upon misconceptions, myths or stereotypes" related to Kozisek’s drinking problem. Rather, it was based upon a licensed mental health therapist’s recommendation of inpatient treatment. According to the Court, the County’s insistence that Kozisek fulfill that recommendation does not violate the ADA’s prohibitions on regarding employees as disabled.
The "regarded as" provision of the ADA was meant to combat "archaic attitudes, erroneous perceptions, and myths" working to the disadvantage of the disabled or perceived disabled. According to the Court, then, "[i]f a restriction is based upon the recommendations of physicians, then it is not based upon myths or stereotypes about the disabled and does not establish a perception of disability." The County’s success in this case was based on the fact that it obtained an opinion from a mental health professional after an incident that involved a violation of law by Kozisek, and then acted upon that recommendation, without making independent judgments related to Kozisek’s impairment or to that impairment’s effect on his ability to function in any particular major life activity.
An employee may be entitled to the protections of the Americans with Disabilities Act if he is "regarded as" disabled by his employer. An employer regards an employee as disabled when it mistakenly believes that the employee’s impairment substantially limits his ability to work. The "regarded as" provision of the ADA was meant to combat erroneous views related to impaired individuals, and to keep employers from basing employment-related decisions on myths or stereotypes.
Recently, the 8th U.S. Circuit Court of Appeals upheld judgment in favor of an employer who terminated an individual’s employment after the employee refused to enter an in-patient alcohol treatment program recommended by a psychologist. Although the employee claimed that the termination was based upon a "perceived" disability in violation of the ADA, the Eighth Circuit found that because the mandatory inpatient treatment was based upon the recommendation of a qualified medical provider and not upon myths or stereotypes about the disabled, it did not establish a perception of disability and, therefore, was not a violation of the ADA. Kozisek v. County of Seward, Nebraska, 8th Cir., No. 07-3682, Aug.,27, 2008.
In 1994, after 13 years of employment with Seward County, Nebraska as a weed control officer, Fredrick Kozisek applied for and obtained the position of County Veterans Service Officer (CVSO), which included work related to veterans’ issues. However, the job was considered to be a "multi-position" that also included Building and Grounds supervisor and General Assistance Administrator. During his tenure as CVSO, Kozisek and the County disagreed on the nature of the job, with Kozisek arguing to devote more time to veterans’ issues, and less to the other two portions of the position. Kozisek himself is a Vietnam veteran, and suffers from Post Traumatic Stress Disorder, for which he regularly took medication. Kozisek did not inform his employer of his PTSD.
One evening in July 2005, having failed to take his prescribed medication for a number of days, Kozisek left work early and began drinking. Under the influence of alcohol he then shot a number of his family’s farm animals, including the family dog, and subsequently threatened his wife. He was arrested the next morning by the County Sheriff. Based on the incidents, the County and Kozisek agreed that Kozisek would get a psychological/substance abuse evaluation. After a meeting with Kozisek, a mental health practitioner from the Veterans Administration recommended that Kozisek complete inpatient alcohol treatment. Kozisek did not want to undergo inpatient treatment, and informed the County that he would prefer outpatient counseling and AA meetings. The County then informed Kozisek that he had 10 days to enroll in an inpatient treatment or lose his job. Kozisek refused, and his employment ultimately was terminated.
Kozisek then filed a lawsuit claiming, in part, that he was fired because the County regarded him as disabled by alcoholism, as evidenced by its requirement that he complete inpatient treatment as a condition of his continuing employment. The lower court granted summary judgment in favor of the County. That decision was upheld on appeal by the Eighth Circuit, which found that the County’s decision was "not based upon misconceptions, myths or stereotypes" related to Kozisek’s drinking problem. Rather, it was based upon a licensed mental health therapist’s recommendation of inpatient treatment. According to the Court, the County’s insistence that Kozisek fulfill that recommendation does not violate the ADA’s prohibitions on regarding employees as disabled.
The "regarded as" provision of the ADA was meant to combat "archaic attitudes, erroneous perceptions, and myths" working to the disadvantage of the disabled or perceived disabled. According to the Court, then, "[i]f a restriction is based upon the recommendations of physicians, then it is not based upon myths or stereotypes about the disabled and does not establish a perception of disability." The County’s success in this case was based on the fact that it obtained an opinion from a mental health professional after an incident that involved a violation of law by Kozisek, and then acted upon that recommendation, without making independent judgments related to Kozisek’s impairment or to that impairment’s effect on his ability to function in any particular major life activity.
Monday, August 25, 2008
Issue: The USERRA supersedes employer’s “fitness for duty” procedures
For the week of August 25, 2008
The Uniformed Services Employment and Reemployment Rights Act (USERRA) was enacted to protect the rights of veterans and members of the uniformed services, and is broadly construed in favor of those individuals. The Act specifically states that a returning veteran must be "promptly reemployed" after an honorable discharge from military service and requires that, in most cases, reinstatement is made to the position which the individual would have held had he or she not left for military leave. The 6th U.S. Circuit Court of Appeals has held that a police department’s delay in re-employing a returning Army reservist violated the USERRA, even though the delay was based upon the employee’s suspected dishonesty. Petty v. Metropolitan Govt. of Nashville-Davidson County, 6th Cir., No. 07-5649, Aug. 18, 2008.
Brian Petty was a member of the Army Reserve with the Army National Guard. In 1991, Petty was hired by the Metropolitan Government of Nashville-Davidson County ("Metro") as a police officer. In October of 2003, Petty’s unit was called up to active duty in Operation Iraqi Freedom. Petty was assigned to Camp Navistar in Kuwait, where he was in charge of running a section of that camp. In mid-2004, an inspector discovered a five-gallon container of homemade wine during an inspection of Petty’s quarters. Although Petty claimed that his supervisor asked him to manufacture the wine, he ultimately admitted some personal use and also admitted sharing some alcohol with a female enlisted soldier, both of which were against the Military Code of Justice. After his arraignment, Petty submitted a request to resign his commission. Upon his resignation, the charges against him were dismissed and Petty was discharged "under honorable conditions (general)" on February 1, 2005.
On February 28, 2005, Petty visited Metro to request re-instatement to his position. On that date, the Police Department instituted a return-to-work process, which was applied to all officers returning from an extended leave, regardless of the reason for that absence. As part of that process, Petty provided to Metro an incomplete copy of his discharge form DD-214 (minus the language related to the specifics of the charges against him), but signed a form which would have allowed Metro to obtain all of his military paperwork.
During the three weeks of the return-to-work process, Petty did not receive any salary or benefits. Upon his return to work in March, Petty was assigned to an office job, and not to his original position. At that point, Metro initiated a formal investigation centering on a charge that Petty was untruthful in his return-to-work paperwork. In spite of the fact that Metro determined the charge to be "unfounded" and returned Petty to work, the head of the Police Department’s Office of Professional Accountability (OPA), Kennetha Sawyers, continued to look into the issue, and ultimately obtained a complete copy of the DD-214, which indicated the reason for Petty’s resignation from the Army to be "in lieu of trial by court martial." Sawyers then began a second investigation, and Petty continued his desk-job assignment.
Petty filed a lawsuit alleging that Metro delayed his rehiring and then did not properly reinstate him, both in violation of the USERRA. When the lower court granted summary judgment in favor of Metro, Petty appealed. The Sixth Circuit reversed, finding in favor of Petty. The appellate court based its decision on the fact that Petty had fulfilled the criteria for reinstatement – his request for reemployment was timely, and his discharge was "honorable" – but that Metro did not comply with the Act’s requirement to promptly reinstate Petty to his former position. When Metro raised Petty’s possible dishonesty as a defense, the Court responded by reminding Metro that the USERRA allows an employer to terminate a former serviceman for "cause" after reemployment, but does not allow an employer to use that same "cause" as an excuse not to reinstate that individual at all.
This decision was based upon the amount of time it took to reemploy Petty and the fact that he never was re-placed into his former position, in spite of the lack of evidence that he was able to do that job. Although Metro isn’t ruling out further action in this matter (it could ask for a hearing of the entire Court, since this matter was decided by a single judge), the decision that USERRA does not permit a delay in reinstatement is noteworthy. While the argument that a police department should be able to "screen" returning employees for safety reasons has some intuitive logic, the Court’s language was clear and uncompromising: "Metro was not permitted to limit or delay Petty’s reemployment by requiring him to comply with its return-to-work process." Employers should be aware that the language of the USERRA expressly states that the Act supersedes any policy, plan, or practice that limits the rights or benefits accorded to returning military personnel.
The Uniformed Services Employment and Reemployment Rights Act (USERRA) was enacted to protect the rights of veterans and members of the uniformed services, and is broadly construed in favor of those individuals. The Act specifically states that a returning veteran must be "promptly reemployed" after an honorable discharge from military service and requires that, in most cases, reinstatement is made to the position which the individual would have held had he or she not left for military leave. The 6th U.S. Circuit Court of Appeals has held that a police department’s delay in re-employing a returning Army reservist violated the USERRA, even though the delay was based upon the employee’s suspected dishonesty. Petty v. Metropolitan Govt. of Nashville-Davidson County, 6th Cir., No. 07-5649, Aug. 18, 2008.
Brian Petty was a member of the Army Reserve with the Army National Guard. In 1991, Petty was hired by the Metropolitan Government of Nashville-Davidson County ("Metro") as a police officer. In October of 2003, Petty’s unit was called up to active duty in Operation Iraqi Freedom. Petty was assigned to Camp Navistar in Kuwait, where he was in charge of running a section of that camp. In mid-2004, an inspector discovered a five-gallon container of homemade wine during an inspection of Petty’s quarters. Although Petty claimed that his supervisor asked him to manufacture the wine, he ultimately admitted some personal use and also admitted sharing some alcohol with a female enlisted soldier, both of which were against the Military Code of Justice. After his arraignment, Petty submitted a request to resign his commission. Upon his resignation, the charges against him were dismissed and Petty was discharged "under honorable conditions (general)" on February 1, 2005.
On February 28, 2005, Petty visited Metro to request re-instatement to his position. On that date, the Police Department instituted a return-to-work process, which was applied to all officers returning from an extended leave, regardless of the reason for that absence. As part of that process, Petty provided to Metro an incomplete copy of his discharge form DD-214 (minus the language related to the specifics of the charges against him), but signed a form which would have allowed Metro to obtain all of his military paperwork.
During the three weeks of the return-to-work process, Petty did not receive any salary or benefits. Upon his return to work in March, Petty was assigned to an office job, and not to his original position. At that point, Metro initiated a formal investigation centering on a charge that Petty was untruthful in his return-to-work paperwork. In spite of the fact that Metro determined the charge to be "unfounded" and returned Petty to work, the head of the Police Department’s Office of Professional Accountability (OPA), Kennetha Sawyers, continued to look into the issue, and ultimately obtained a complete copy of the DD-214, which indicated the reason for Petty’s resignation from the Army to be "in lieu of trial by court martial." Sawyers then began a second investigation, and Petty continued his desk-job assignment.
Petty filed a lawsuit alleging that Metro delayed his rehiring and then did not properly reinstate him, both in violation of the USERRA. When the lower court granted summary judgment in favor of Metro, Petty appealed. The Sixth Circuit reversed, finding in favor of Petty. The appellate court based its decision on the fact that Petty had fulfilled the criteria for reinstatement – his request for reemployment was timely, and his discharge was "honorable" – but that Metro did not comply with the Act’s requirement to promptly reinstate Petty to his former position. When Metro raised Petty’s possible dishonesty as a defense, the Court responded by reminding Metro that the USERRA allows an employer to terminate a former serviceman for "cause" after reemployment, but does not allow an employer to use that same "cause" as an excuse not to reinstate that individual at all.
This decision was based upon the amount of time it took to reemploy Petty and the fact that he never was re-placed into his former position, in spite of the lack of evidence that he was able to do that job. Although Metro isn’t ruling out further action in this matter (it could ask for a hearing of the entire Court, since this matter was decided by a single judge), the decision that USERRA does not permit a delay in reinstatement is noteworthy. While the argument that a police department should be able to "screen" returning employees for safety reasons has some intuitive logic, the Court’s language was clear and uncompromising: "Metro was not permitted to limit or delay Petty’s reemployment by requiring him to comply with its return-to-work process." Employers should be aware that the language of the USERRA expressly states that the Act supersedes any policy, plan, or practice that limits the rights or benefits accorded to returning military personnel.
Subscribe to:
Posts (Atom)
