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.
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