Monthly Archives: March 2014

March 25, 2014

2014 Wyoming Legislature Keeps Status Quo, But Changes On The Horizon?

By Brad Cave

The 2014 session of the Wyoming Legislature did not pass any significant employment legislation, but the Legislature’s actions on some of the measures it did consider could portend a much more interesting 2015 legislative session. 

Independent Contractors.  The issue of independent contractors garnered the most legislative attention of any employment issue in the 2014 session.  In February, we reported on House Bill 16 which would have created misdemeanor criminal penalties for “knowingly failing to properly classify an individual as an employee” leading to a reduction in unemployment contributions or workers compensation premiums or benefits. (A companion measure, Senate File 112, was introduced in the Senate but failed to get sufficient votes for introduction.)  This measure was sponsored by the Joint Corporations, Elections and Political Subdivisions Interim Committee.   Although it failed to garner the two-thirds vote required for introduction during a budget session, a majority of the representatives in the House voted in favor introduction in the 32-26 vote.  This bill may rear its ugly head again in the 2015 general session, where introduction requires only a majority vote. 

On the bright side of the independent contractor issue, Senate File 96 proposed an amendment that would have relaxed the definition of independent contractor in the unemployment and workers compensation statutes.  Those two identical definitions currently require that a person classified as an independent contractor meet three requirements: 

  • The person is free from control or direction over the details of the performance of services by contract and by fact;
  • The person represents his services to the public as a self-employed individual or an independent contractor; and,
  • The person may substitute another individual to perform his services. 

These three factors have always been part of the commonly accepted definition of an independent contractor, as recognized by courts, other statutes and the Internal Revenue Service.  But courts and the IRS weigh these and several other factors, without any single factor or group of factors controlling the determination.  This approach permits employers to fashion independent contractor relationships under a variety of circumstances.  Because of the “and” between the second and third factor, the Wyoming definition requires employers to meet all three of these factors, regardless of the other circumstances surrounding the independent contractor relationship.  Add to that the fact that the second factor is wholly outside of the employer’s control, and you have a very strict and onerous definition. 

Senate File 96 would have added a second test to the unemployment and workers compensation definitions to give employers two ways to prove independent contractor status.  Under the second option, a person providing services would be properly classified as an independent contractor if the person: 

  • is free from control or direction, asserted directly by the person or entity contracting for the services, over the details of the performance of services by contract and by fact; and,
  • has substantial investment used in connection with the performance of the services.  The investment may include physical assets, financial assets, education, experience, intellectual property or any combination of these factors. 

This proposed change would obviously open the door to a broader range of independent contractor relationships, and recognize the importance and prevalence of the sole proprietor independent contractor, particularly in technology services.  

Senate File 96 passed the Senate with strong support, but the House defeated the measure by a vote of 54 to 6.   Reasons for its demise may include timing – it was brought to the floor of the House on the last day for the entire House to consider new measures.  Also, there may have been some confusion about whether the changes would be consistent with the IRS definitions of independent contractors and other statutory definitions.  Because the House had little or no time to resolve these questions, the measure died.  We encourage the Legislature to address this topic again next session. 

Employer Access to Social Media Accounts.   The surprise proposal of the session was Senate File 81, which would have put Wyoming on the bandwagon of other states which are restricting employer access to employees’ social media accounts.  This proposal would have amended the Wyoming Fair Employment Practices Act to make it an unfair employment practice for employers to “request or require” any employee or applicant to disclose any username, password or other method of accessing personal social medial accounts.  Social media accounts was broadly defined under the proposal, to include videos, images, blogs, podcasts, instant and text messages, email, internet websites or locations and other online services or accounts.  

The measure included exceptions to the general restrictions for (1) access to employer social media accounts used for the employer’s business purposes; (2) when personal social media is reasonably believed to be relevant to an investigation of allegation of employee misconduct or violation of laws or regulations, if access is limited to the investigation or a related proceeding; (3) when conducting an investigation of an employee’s social media when required to comply with the requirements of state or federal law, or the rules of a self-regulating organization; or, (4) when an applicant applies for law enforcement employment. 

Senate File 81 flew through the Senate with strong support, and started strong in the House, but was then defeated by a House vote of 36-16. 

Our experience suggests that this is a solution in search of a problem.  The huge majority of employers already avoid efforts to access employees’ social media because learning such information can cause all sorts of headaches for employers.  In fact, employers usually learn about employees’ social media content when employees report to the employer some other employee’s bad behavior as described on social media, and usually expect the employer to do something about it.  Although the exception for investigation-related access is helpful, even that language forces employers to couch their requests in terms that will simply raise the stakes of workplace situations. 

Wyoming employers should pay attention next session to see if the Legislature takes up this topic. 

Misconduct Disqualifications from Unemployment Benefits.  Senate File 76 added a new definition of misconduct to the unemployment compensation statute to outline the circumstances under which a former employee may be disqualified from unemployment benefits.  It was signed by Governor Mead on March 10, 2014, and will become effective on July 1, 2014. 

The unemployment compensation statute already states that an employee will be disqualified from benefits if the Department of Workforce Services finds that the employee was discharged for “misconduct connected with his work”  but does not define that phrase.  To fill the gap, several years ago the Wyoming Supreme Court adopted a definition that required a showing of an act of the employee that indicated a disregard of the employer’s interests or the commonly accepted duties, obligations and responsibilities of an employee, to include carelessness or negligence of such a degree or recurrence as to reveal willful intent or intentional disregard of the employer’s interests or the employee’s duties and obligations.  Violation of company policies or rules could qualify as misconduct under the court’s definition, provided the employee acted intentionally.  The court’s definition also provided that inefficiency, failure of good performance due to incapacity or inability, ordinary negligence or good faith errors in judgment were not adequate to disqualify an employee. 

The new definition of “misconduct connected with work” seems to adopt much of the Wyoming Supreme Court’s interpretation of the phrase.  The phrase is now defined as “an act of an employee which indicates an intentional disregard of the employer’s interests or the commonly accepted duties, obligations and responsibilities of an employee.”  The amendment also excludes from the definition of misconduct, (1) ordinary negligence in isolated instances; (2) good faith errors in judgment and discretion, and (3) inefficiency or failure in good performance as the result of inability or incapacity. 

Because the new statutory definition is very similar to the definition the Supreme Court has used for years, we will need to see how the definition is applied by the Department and the courts to determine whether the misconduct standard has changed at all through this amendment. 

Computer Trespass.  Although not an employment measure, House Bill 178 created a new criminal offense that may give employers a new tool to help prevent employee sabotage.  This measure, which passed both houses and was signed by Governor Mead, created the crime of computer trespass.  A computer trespass occurs when a person knowingly and without authorization, with the intent to damage or cause the malfunction of a computer, system or network, sends malware, data or a program which alters, damages or causes the malfunction of the computer, system or network, or causes it to disseminate sensitive information. 

The measure also created a civil remedy for computer trespass, and permits a person who suffers damage due to a trespass to sue the computer trespasser for damage to computers, systems, or networks, and the costs incurred because of the loss of use of those assets.  The person brining the action can recover the damages caused by the trespass, as well as the costs incurred to identify the trespasser and to serve a complaint on the trespasser. 

House Bill 178 was passed by both houses, and signed by Governor Mead on March 10, 2014.  The new law will become effective on July 1, 2014. 

This new law may be useful to employers if former or disgruntled employees attempt to misuse an employer’s computer systems.  Employers should adopt and periodically review technology policies that carefully define when and how employees are authorized to use the employers’ computer, systems and networks.  If an employee causes computer damage under questionable circumstances, such policies may help employers draw clear lines about when an employee’s access is unauthorized and pursue civil remedies under the statute. 

And the Rest of the Pack.  A few other employment measures never saw the light of day during the 2014 session.  House Bill 45, which would have raised the minimum wage, and House Bill 57, which would have restricted employers’ ability to restrict the post-termination value of accrued vacation, both failed to get enough votes for introduction.  

Bottom Line.  The 2015 legislative session should be interesting, with the possible return of independent contractor and social media legislation.  These are significant issues for Wyoming employers.  We will keep you posted.

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March 17, 2014

Beat the H-1B Visa Cap By Filing On April 1, 2014

By Roger Tsai 

The U.S. Citizenship and Immigration Services (USCIS) will begin accepting new H-1B visa applications on Tuesday, April 1, 2014 and it is expected that USCIS will receive more than 140,000 petitions for the 85,000 available H-1B visas.  

H-1B Visa Cap Likely to be Reached in First Week 

The number of available new H-1B visas is limited to 65,000 bachelor degreed positions and 20,000 advanced degree positions.  This applies to an immigrant employee who will fill a specialty occupation in the U.S., which is defined as any position with the minimum requirement of a Bachelors degree in a specific major or the equivalent experience.  For example, H-1B specialty occupations include a wide range of high-tech, medical and managerial professionals (i.e., operations engineers, engineering managers, or accountants). The USCIS will accept three-years of experience for each year of education omitted.  If the immigrant employee has a non-U.S. university degree, USCIS requires a third-party educational evaluation. 

An additional 20,000 visas are set aside for graduate degreed positions.  This applies to non-U.S. citizen employees who have obtained a U.S. master’s degree or higher. 

The statutory H-1B cap of 65,000 for the fiscal year will likely be met within the first week of the filing period, which begins on April 1, 2014.  All applications received by the USCIS in the first week of April will be entered into the lottery.  Last April, USCIS received approximately 124,000 H-1B petitions during the filing period and reached the cap within the first five days of accepting petitions.  When it receives more petitions than the cap allows, USCIS uses a computer-generated random selection process known as the “lottery” to select a sufficient number of petitions to fill the 65,000 Bachelor degreed positions and the 20,000 advance degreed positions.  Immigrant employees with a U.S. Masters degree will have an opportunity to be selected under the 20,000 advanced degree cap. This year, the continued economic recovery is causing immigration practitioners to expect even more petitions to be submitted than last year, likely in the range of 130,000 to 150,000. 

H-1B Visa Petition Process 

Employers seeking an H-1B visa for a foreign worker to start work on or after October 1, 2014 should submit their H-1B visa petition as close to April 1, 2014 as possible, but no later than the first week of the filing period.  The petition process includes submitting the following to USCIS: 

1.  All sections of the Form I-129, Petition for a Nonimmigrant Worker, including the H Classification Supplement  and the H-1B Data Collection and Filing Fee Exemption Supplement; and

2.  A signed check or money order with the correct fee amounts (H-1B filing fees, payable to the federal government, are $2,325.00 per petition; and additional $1,225.00 can be paid to expedite the processing time). 

Petitions not selected in the lottery will be rejected and the petition and filing fees will be returned to the employer.  Unfortunately, rejection means that the company may not employ the non-U.S. citizen individual that year and the affected foreign national may need to leave the U.S. 

For accepted petitions, the processing time typically is three to five months, unless the employer submitted a $1,225 expedite fee which reduces the processing time to 15 calendar days.  Upon approval, USCIS will issue an I-797 Approval Notice which authorizes the immigrant employee to begin work immediately. 

Prepare to File At Earliest Date 

To increase your chances of acceptance of your H-1B petitions, plan to get your petitions to USCIS on April 1, 2014, the first day of filing.  Completing the forms takes some time and requires the employer to attest to certain salary requirements and conditions of work.  This means that you must gather the necessary salary, working conditions and other information to get your documents in order now. You have just two weeks before the filing period begins so get your petitions ready. 

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March 13, 2014

Harassment Training for Supervisors is Key in Minimizing Risk

By Mark Wiletsky 

Most employers today have policies prohibiting harassment.  But if your supervisors and employees are not trained on those policies, and if harassment is allowed to occur, your organization could face significant liability.  

Female Bailiff Alleges Egregious Sexual Harassment By Her Supervisor 

Camille Kramer was employed as a jailor and later as a bailiff by the Wasatch County Sheriff’s Department.  While working at the jail, male co-workers allegedly made offensive comments about Kramer’s breasts, she was subjected to sexually explicit materials on work computers and had to listen to graphic sexual conversations.  Kramer complained to Sheriff Kenneth Van Wagoner, the head of the Sheriff’s Department.  Sheriff Van Wagoner said he’d “take care of it” and proceeded to call a staff meeting at which he used Kramer as a volunteer to act out the exact harassing scenarios that she had reported to him.  Van Wagoner told the group: “[t]hat’s harassment. Don’t do it.”  When the harassment got worse after the meeting, Kramer complained again to the Sheriff, who told her she might want to avoid that area. 

Kramer transferred to the courthouse to work as a bailiff.  Sergeant Rick Benson, also a bailiff, supervised both Kramer and one other bailiff. According to Kramer, Benson subjected Kramer to a campaign of sexual harassment and sexual assault that ranged from demanding foot rubs to groping and rape.  Kramer did not report Benson’s conduct to the Sheriff because Benson threatened her job if she said anything and she believed nothing would be done about it anyway. 

Later, Kramer told female co-workers about the rape and assault. She also told them that she was having a consensual affair with another man and was pregnant from that relationship.  Sheriff Van Wagoner found out about Benson’s sexual assault of Kramer and her pregnancy from one of Kramer’s co-workers.  He assigned a detective who was not trained in human resources or in conducting sexual harassment investigations to look into the misconduct.  The detective focused his investigation exclusively on finding out who fathered Kramer’s baby, not on Benson’s conduct.  When it was learned that Kramer was involved with a married county firefighter, the detective urged Kramer to resign and Kramer was disciplined with her certification suspended for six months for “actions unbecoming an officer.”  Although the Sheriff decided to terminate Benson, Benson resigned before that could happen.  

Benson directly supervised Kramer’s work as a bailiff.  He wrote her performance evaluations, which could cause her to be promoted, demoted or fired.  He could create a corrective action plan for her which might include transfer, reassignment or separation, if he deemed her performance was substandard. At all times, however, the Sheriff was the final decision-maker and the only person who had the actual authority to take tangible employment actions against Kramer. 

Kramer sued the County and the Sheriff for sexual harassment in violation of Title VII, among other claims.  The district court granted summary judgment to the County, holding that because Benson did not have the actual authority to unilaterally fire Kramer, the County could not be vicariously liable for Benson’s conduct.  It also ruled that supervisor status could not be based on Benson having apparent authority over Kramer because no reasonable juror could find that Kramer reasonably believed that Benson had the power to fire her.  On appeal, the Tenth Circuit Court of Appeals reversed the grant of summary judgment in favor of the County and remanded the case to the trial court for further proceedings. Kramer v. Wasatch Cty. Sheriff's Office, No. 12-4058 (10th Cir. Feb. 25, 2014).

Delegation of Power and Apparent Authority 

The Tenth Circuit pointed to wording in the Supreme Court’s recent case, Vance v. Ball State, 570 U.S. ___ (2013), to determine whether the County could be vicariously liable for Benson’s conduct.   Vance held that a “supervisor” for purposes of determining employer liability for workplace harassment under Title VII includes only those individuals who have the authority to take tangible employment actions against the victim.  Although that seemed like a bright-line test, the Tenth Circuit stated that if Benson had or appeared to have the power to take or substantially influence tangible employment actions or used the threat of taking such actions to subject Kramer to a hostile work environment, then the County could be vicariously liable for Benson’s severe or pervasive sexual harassment.  Because the Court found sufficient evidence in the record that raised genuine issues of fact as to whether the Sheriff effectively delegated to Benson the power to cause tangible employment actions by relying on Benson’s recommendations and performance evaluations when making decisions regarding firing, promotion, demotion and reassignment, the Court reversed the grant of summary judgment to the County.  The Court stated that even if the Sheriff took some independent analysis when considering input from Benson on employment decisions, Benson could qualify as a supervisor if his recommendations were among the proximate causes of the Sheriff’s decision-making.  The Court also found that there was evidence to suggest that Kramer reasonably believed that Benson had the power to take tangible employment actions against her meaning Benson qualified as a supervisor under apparent authority principles.  

No Tangible Employment Actions 

If Benson is a supervisor under the definition established in Vance, the County would be strictly liable for Benson’s harassment if it resulted in a tangible employment action.  Kramer asserted that four actions constituted tangible employment actions.  First, she argued that Benson’s rape was a tangible employment action.  The Court disagreed, stating that while the rape was inarguably a severe form of sexual harassment, Benson did not commit the rape in an official company action.  Next, Kramer asserted that Benson prepared a negative performance evaluation of her and argued that was a tangible employment action.  However, Benson improved the evaluation after speaking with Kramer and before submitting it to the Sheriff, so even though the threatened poor evaluation contributed to a hostile work environment, it did not constitute a tangible employment action.  The Court similarly rejected the final two alleged employment actions, a denial of leave time and assigning Kramer to an unfavorable duty that denied her the training needed for a promotion.  The Court found that the loss of one day’s leave time was not a “significant” change in Kramer’s benefits and the assignment to an unfavorable duty did not have a deleterious economic consequence for Kramer or reduce her opportunity for advancement.  Finding that Kramer did not suffer a tangible employment action, the Court remanded for consideration of whether the County established the Faragher/Ellerth defense. 

Teachable Moments from the Tenth Circuit 

The Court’s thorough discussion of Benson’s conduct and what the Sheriff did/did not do when he learned of potential misconduct reveals many teachable moments for employers.  First and foremost, make sure to train your supervisors and employees on prohibited forms of harassment, and how important it is to promptly and appropriately address issues when they arise.  For example, when an employee reports harassing behavior, as Kramer did when she first worked at the jail, take it seriously.  Do not simply tell workers to “stop it” or tell the person who complained to “avoid the area” or stay away from the perpetrators.  Make sure that the person conducting the investigation is trained in workplace harassment investigations.  Do not focus the investigation solely on the potential wrongdoing of the complaining party, as the detective did when trying to determine the father of Kramer’s baby.  Talk to all parties implicated in the misconduct, including any witnesses who may have knowledge of the hostile work environment.  If the investigation reveals harassing behavior, take immediate steps to correct it and prevent it from happening again.  Follow up with the person who reported it to make certain your corrective actions are effective and that no further incidents have occurred. And finally, do not retaliate against the complaining employee.  Learning from these missteps will go along way in minimizing your risk of harassment liability.

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March 10, 2014

Safety Violation Or Too Much Intermittent FMLA Leave? Tenth Circuit Says Jury Must Decide Wyoming Employee’s FMLA and ADA Case

By Brad Cave 

Did Solvay Chemicals fire long-time employee Steven Smothers because of a first-time safety violation or because the company was tired of his frequent absences due to an ongoing medical disability?  The Tenth Circuit Court of Appeals recently ruled that Smothers provided sufficient evidence to suggest that Solvay’s stated reason for his termination was pretextual, allowing his claims for unlawful retaliation under the Family and Medical Leave Act (FMLA) and discrimination under the Americans with Disabilities Act (ADA) to proceed.  Smothers v. Solvay Chem., Inc., No. 12-8013 (Jan. 21, 2014).  The Court affirmed the grant of summary judgment on his state law claim for breach of an implied employment contract. 

Medical Treatments and Severe Pain Lead to Frequent FMLA-Protected Absences 

For eighteen years, Smothers worked as a surface maintenance mechanic in Solvay’s trona mine in Sweetwater County, Wyoming. The company considered him to be an excellent mechanic who did great work and got along with everyone.  In 1994, Smothers injured his neck and developed degenerative disc disease in his spine.  Over the next five years, Smothers had three surgeries to his neck as well as numerous other medical procedures.  Despite treatment by a specialist, Smothers continued to have severe ongoing neck pain, severe migraine headaches and lower back problems.  At times, Smothers was unable to work without pain treatments and he often was able to sleep only a few hours each night due to the pain. 

Smothers asked for and was granted FMLA leave for intermittent absences caused by his condition.  Managers and co-workers began to complain about his absenteeism, especially because he worked on the graveyard shift where there were fewer workers to absorb his absences resulting in increased overtime costs.  Solvay’s production superintendent Melvin Wallendorf pressured Smothers to change to the day shift, but Smothers refused as the shift change would have cost him about $7,000 a year.  Solvay’s human resources department advised Wallendorf that urging Smothers to switch shifts would violate the FMLA so Wallendorf stopped pressuring Smothers but did not stop complaining about his absences. 

At one point, Wallendorf and Rick Wehrle, Smothers’ direct supervisor, gave Smothers a poor performance rating on his evaluation due to his absenteeism.  In 2005 or 2006, Smothers applied for a promotion but was told that he was rejected because of his absences. 

Safety Issue Explodes into Argument 

In 2008, the graveyard crew conducted a routine maintenance acid wash to remove build up in its equipment.  After a line ruptured, Smothers saw that a damaged “spool piece” had caused the problem and prepared to remove it.  Another mechanic, Dan Mahaffey, suggested that Smothers wait for a line break permit, which is a form that certifies that employees have completed a checklist of precautions before a line can be safely disconnected.  Smothers said that a permit wasn’t required because the line was already broken.  Mahaffey and Smothers then argued.  Mahaffey offered help on the repair which Smothers refused.  Mahaffey took offense and accused Smothers of hypocrisy since Smothers had previously reported others for safety violations.  Smothers made an offensive comment to Mahaffey and told him he did not want his kind of help.  Smothers removed the broken piece and began the repair.  

Mahaffey immediately reported the argument and Smothers’ removal of the spool piece without a line break permit to the area supervisor.  Later that same day, three managers called Smothers in to discuss the safety violation.  Although completing the line break permit may not have been absolutely necessary, Smothers later conceded that he should have locked out the pump valve before removing the part according to Solvay’s safety policies. Smothers apologized for not locking the pump valve before removing the piece and promised it wouldn’t happen again.  Smothers was sent home pending an investigation.  

Six managers were involved in deciding what to do about the argument and the safety violation.  Three of the managers personally talked with Mahaffey about the argument but no one spoke to Smothers about it.  About eight days later, Solvay fired Smothers.  Smothers sued in Wyoming federal court, alleging, among other claims, unlawful FMLA retaliation, ADA discrimination and breach of an implied employment contract based on Solvay’s employee handbook. 

FMLA Claim Bolstered By Disparate Treatment and Previous Retaliatory Acts 

The trial court granted summary judgment to Solvay on Smothers’ FMLA and ADA claims.  On appeal, the Tenth Circuit decided that Smothers presented enough evidence for a trial about whether Solvay’s real reason for his termination was his use of FMLA leave or his disability.  Smothers provided evidence that other employees who committed similar safety violations were not fired.  Five of the six decision-makers who fired Smothers were also involved in at least one decision in which a similarly situated employee was treated more favorably after violating the same or comparable safety rules.  Smothers also pointed to the negative comments, negative performance rating, failure to promote and pressure to change shifts because of his FMLA-protected absences as evidence that the safety violation was a pretext for firing him for his FMLA leave.  Moreover, Smothers showed that the decision-makers had failed to sufficiently investigate the argument he had with Mahaffey, basing their decision almost entirely on Mahaffey’s version of events.  The Court decided that a reasonable jury could find that Solvay’s investigation into the quarrel was not fair or adequate.  Based on this evidence, the Court found that there were issues of fact on whether Solvay’s termination reasons were pretextual and reversed the dismissal of Smothers’ FMLA retaliation claim. 

Smothers Was Disabled Under ADA 

Smothers also asserted that his firing was in violation of the ADA.  He presented evidence that his medical condition was an impairment that substantially limited a major life activity, specifically his ability to sleep.  Because the facts would allow a reasonable jury to conclude that Smothers’ sleep was substantially limited, Smothers satisfied his burden of establishing a prima facie case of disability discrimination.  As with the FMLA claim, the Court found sufficient evidence that Solvay’s stated termination reasons may have been a pretext for disability discrimination. Therefore, the Court reversed the dismissal of Smothers’ ADA claim as well. 

No Breach of Implied Contract Based on Employee Handbook 

Smothers also alleged that Solvay violated the terms of its employee handbook, giving rise to a claim for breach of implied contract under Wyoming law.  The Court disagreed.  Wyoming recognizes a claim for breach of implied contract if an employer fails to follow its own required procedures, such as the procedures laid out in an employee handbook.  Solvay’s handbook contained a four-step progressive disciplinary process, with termination as the last step.  But it also contained a provision that allowed Solvay to terminate an employee immediately for a serious offense, including a safety violation.  Because the discipline policy unambiguously gave Solvay the discretion to fire employees who violate safety rules, the Court found that Solvay’s decision to terminate Smothers for violating a safety rule did not violate the terms of the employee handbook.  Therefore, the appeals court upheld the trial court’s dismissal of Smothers’ breach of implied contract claim. 

Back To Court They Go 

We don’t know whether Smothers or Solvay will prevail if this case goes to trial but we do know that the appellate court thought that some of the evidence about the actions of Solvay managers could demonstrate that Solvay acted with a discriminatory motive:   

  • Supervisors and co-workers gave Smothers a hard time about taking FMLA-protected leave.
  • Solvay failed to properly investigate all sides in the quarrel, accepting one employee’s version of events as fact.
  • The decision-makers treated Smothers more harshly than other similarly-situated employees who had violated similar safety rules.
  • Managers and supervisors considered Smothers’ FMLA absences when providing his performance evaluation and rejecting him for a promotion.  

Evidence of these actions prevented Solvay from obtaining a grant of summary judgment on appeal. While Solvay may dispute Smothers’ evidence when the case actually goes to trial,  this case stands as a lesson about the kinds of supervisory comments and actions that can feed into a discrimination claim, and a good reminder of how carefully employers must manage employees with injuries or disabilities.

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March 6, 2014

SOX Whistleblower Protection Extends to Employees of Private Contractors, According to Supreme Court

WhistleblowerBy Jude Biggs and Jeff Johnson 

On March 4, 2014, the U.S. Supreme Court ruled that employees of private contractors and subcontractors who contract with public companies are protected under the whistleblower provisions of the Sarbanes-Oxley Act of 2002 (SOX).  Lawson v. FMR LLC, 571 U.S. ___ (2014).  The ruling means that private employers who have a contract with a public company may not retaliate against their employees who report a potential fraud.  As pointed out in the dissenting opinion, the holding by the six-justice majority creates the potential for increased litigation as it offers private sector employees another avenue to bring retaliation claims.  In addition, it implies private sector employers with such contracts may need to strengthen their corporate compliance and complaint procedures to discover and fix problems early. 

Whistleblowers Reported Potential Fraud In Mutual Fund Operations 

Two former employees of private companies that contracted to advise and manage mutual funds filed separate administrative complaints alleging retaliation under 18 U.S.C. §1514A, the whistleblower provision of SOX.  The mutual funds themselves were public companies, but they did not have any employees.  Instead, the funds contracted with private companies to handle the day-to-day operation of the funds, including making investment decisions, preparing reports for shareholders and filing reports with the Securities and Exchange Commission (SEC).  

Jackie Hosang Lawson was the Senior Director of Finance for a private advisory firm that contracted to provide services to the Fidelity family of mutual funds.  Lawson alleged that she suffered a series of adverse employment actions that resulted in her constructive discharge after she raised concerns about certain cost accounting methods being used with the funds.  She alleged that she believed that expenses associated with operating the funds were being overstated. 

The second petitioner, Jonathan M. Zang, was a portfolio manager for a different division of the company that advised Fidelity mutual funds.  Zang alleged that he was fired after he expressed concerns about inaccuracies contained in a draft SEC registration statement concerning some of the mutual funds.  

After pursuing their administrative complaints, both whistleblowers filed retaliation lawsuits under §1514A in federal court in Massachusetts.  Their employers, collectively referred to as FMR, moved to dismiss the suits, arguing that §1514A only protects employees of public companies, and because FMR is a private company, neither plaintiff had a viable claim under §1514A.  The District Court denied FMR’s motion to dismiss.  FMR sought an interlocutory appeal to the First Circuit, which reversed, ruling that §1514A only refers to employees of public companies, not a contractor’s own employees.  The Supreme Court agreed to hear the case to resolve a division of opinion on the issue.   The question before the Supreme Court was whether the SOX whistleblower provision shields only those employed by a public company itself, or also shields employees of privately held contractors and subcontractors who perform work for the public company. 

“Employee” Presumes an Employer-Employee Relationship Between the Retaliator and the Whistleblower 

Section 1514A provides: “No [public] company . . ., or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of [whistleblowing or other protected activity].”  FMR argued that the prohibition against retaliating against “an employee” meant an employee of the public company.  The Court (in an opinion by Justice Ginsburg) disagreed.  It looked at the provision as stating that “no . . . contractor . . . may discharge . . . an employee” and found that the ordinary meaning of “an employee” in that context was the contractor’s own employee.  The Court stated that contractors are not ordinarily in a position to take adverse actions against employees of the public company for which they contract so to interpret the provision as FMR did would “shrink to insignificance the provision’s ban on retaliation by contractors.”  The Court rejected FMR’s argument that Congress included contractors in §1514A’s list of governed parties only to prevent companies from hiring contractors to carry out retaliatory terminations, such as the “ax-wielding specialist” portrayed by George Clooney in the movie “Up in the Air.” The majority believed that Congress presumed that there must be an employer/employee relationship between the retaliating company and the whistleblower. 

Purpose of SOX Supports Extending Whistleblower Protections to Employees of Private Contractors 

The Court emphasized that SOX was enacted to safeguard investors in public companies and to restore trust in the financial markets after the collapse of Enron Corporation.  The Court found that because outside professionals, such as accountants, lawyers and consultants, have great responsibility for reporting fraud by the public companies with which they contract, such employees of contractors and subcontractors must be afforded protection from retaliation by their employers when they comply with SOX’s reporting requirements.   The fear of retaliation was a major deterrent to the employees of Enron’s contractors in reporting fraud.  Consequently, the Court’s reading of §1514A extending whistleblower protection to the employees of private contractors is consistent with the purpose for which SOX was enacted. 

Mutual Fund Industry Should Not Escape Ban on Retaliation 

Because virtually all mutual funds are structured as public companies without any employees of their own, the Court expressed the need to protect the employees of the investment advisors who are often the only firsthand witnesses to shareholder fraud in the mutual fund industry.  To rule otherwise, said the Court, would insulate the entire mutual fund industry from §1514A. 

Dissent Worries About Opening the Floodgates to More Retaliation Claims 

Justice Sotomayor, joined by Justices Kennedy and Alito, dissented from the majority, believing that the Court’s holding creates an “absurd result” that subjects “private companies to a costly new front of employment litigation.”  According to Sotomayor, the Court’s ruling means that any employee of an officer, employee, contractor or subcontractor of a public company, including housekeepers, nannies and gardeners, can sue in federal court under §1514A if they suffer adverse consequences after reporting potential fraud, such as mail fraud by their employer’s teenage kids.  The majority dispels this concern, stating that there is “scant evidence that [this] decision will open any floodgates for whistlelowing suits outside §1514A’s purposes” given that FMR did not identify a single case in the past decade in which an employee of a private contractor had asserted a §1514A claim based on anything other than shareholder fraud.  Still, the dissent believes that only employees of a public company should be protected from retaliation for whistleblowing activities under §1514A. 

Private Employer Take-Aways 

Despite the majority’s reassurances that employers will not see a substantial increase in new whistleblower retaliation cases, only time will tell if they are right.  Private employers who contract with public companies should review their employment policies to ensure that employees are protected from retaliation as a result of reporting concerns or unlawful activities involving the public companies with whom they do business.  Employers also should train their managers, supervisors and human resources professionals on this new development so that decision-makers do not inadvertently expose their company to the risk of a whistleblower retaliation claim under §1514A.

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March 5, 2014

NLRB GC Identifies Initiatives and Policy Concerns

By Steve Gutierrez 

Richard Griffin, General Counsel for the National Labor Relations Board (NLRB) recently issued a memorandum that identifies his initiatives and the areas of labor policy and law that are particularly concerning to him.  The memo informs the NLRB regions which cases must be submitted to the Division of Advice at the Board’s Washington, D.C. headquarters so that the General Counsel’s office may “provide a clear and consistent interpretation of the [National Labor Relations] Act.” 

The list of mandatory advice cases is split into three categories: (1) matters that are particularly concerning to the General Counsel and involve his initiatives; (2) cases involving difficult legal issues that are relatively rare in the regions and issues where there is no established precedent or the law is changing; and (3) cases that have traditionally been submitted to headquarters for legal advice.  A look at the issues identified in the first two categories provides employers with useful insight into areas that will be targeted for further legal scrutiny and possible reversal of existing labor precedent. 

General Counsel Initiatives and Issues of Labor Policy Concerns 

GC Griffin points out a dozen labor issues that are top initiatives for him, including the following: 

  • The applicability of Weingarten rights in non-unionized settings. (Weingarten rights provide union employees the right to have a union representative present during an employer’s investigation interview that could result in disciplinary action against the employee.  In 2004, the NLRB ruled that non-union employees are not entitled to have a representative present during such meetings.  IBM Corp., 341 NLRB 1288 (2004)).
  • Whether employees have a right to use an employer’s e-mail system for union-related communications and the standard concerning discriminatory enforcement of company rules and policies. (In 2007, the NLRB established a narrow standard for discrimination regarding company rules about solicitation and communications, ruling that an employer could make distinctions in its rules that might adversely affect employees’ NLRB Section 7 rights so long as the policies (and enforcement of the policies) did not discriminate along union-related lines.  Register Guard, 351 NLRB 1110 (2007)).
  • Whether a “perfectly clear” successor must bargain with a union before setting the initial terms of employment.  (The NLRB takes the position that in cases when it is obvious that a new employer that acquired a unionized workplace will retain all of the employees in the bargaining unit, the successor employer is obligated to bargain even over the initial terms of employment – the so-called “perfectly clear” exception.)
  • Whether an employer violates the NLRA when it acts with an unlawful motive in hiring permanent strike replacements.  (Under NLRB precedent going back to 1964, the employer’s motive for replacing economic strikers is essentially irrelevant. Hot Shoppes, 146 NLRB 802 (1964).  The GC is likely looking for an appropriate case to overrule this long-standing decision so that an employer’s desire to defeat the economic strikers’ rights to reinstatement will be deemed unlawful. 

Additional issues that are on the GC’s list include cases where the possible remedies for unfair labor practices related to an organizational campaign include access to nonwork areas, access to the employer’s electronic communications systems and equal time for the union to respond to captive audience speeches. 

Difficult Labor Issues or Cases Without Clear Precedent 

Griffin also instructs the regions to submit to headquarters cases that involve difficult legal issues or those without clear, established legal precedent.  Some of those issues include: 

  • Mandatory arbitration agreements with class action waivers not resolved by D.R.Horton
  • Cases involving “at-will” provisions in employer handbooks that are not resolved by existing advice memoranda.
  • Cases concerning undocumented workers where the issues are unresolved.
  • Union access to lists of employee names and addresses during an organizing campaign where the employees are widely dispersed or have no fixed work location.
  • The validity of partial lockouts.
  • Cases involving novel conduct, such as excessive use of loudspeakers, coordinated “shopping” or corporate campaigns. 

Don’t Be The Precedent Setting Case 

Employers should review and become familiar with the GC’s list of priority issues.  If any of the noted issues arise in your workplace, you’d be wise to consult with legal counsel early on because if the NLRB gets involved, the regional directors and officers will be forwarding your case to Washington for advice from the GC’s office.  Proper handling of the matter from the start may help avoid your case being the conduit for the GC to establish new precedent that furthers his initiatives. 

A copy of the memorandum may be found here.

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