Author Archives: Holland & Hart

July 31, 2014

OSHA Rising – Forecasting the Impact of Chemical Facility Safety Executive Order On OSHA Enforcement

Overdyke_TBy Trey Overdyke

The Occupational Safety and Health Administration (OSHA) regulates highly hazardous chemicals, in part, through the Process Safety Management (PSM) standard, which states “This section contains requirements for preventing or minimizing the consequences of catastrophic releases of toxic, reactive, flammable, or explosive chemicals.  These releases may result in toxic, fire or explosion hazards.”  29 C.F.R. § 1910.119.  Recent discussions by a federal working group may result in expansion of the PSM standard to include additional industries and could lead to increased OSHA enforcement activities.  In addition, suggestions for strengthening the civil and criminal penalties for safety violations could affect all employers subject to the OSH Act, not just those covered by the PSM standard.

OSHA’s Efforts to Implement Executive Order

In an effort to improve the safety and security of chemical facilities and to reduce the risks associated with hazardous chemicals, President Obama issued Executive Order (EO) 13650—Improving Chemical Facility Safety and Security (EO 13650) last year. The EO 13650 established a working group co-chaired by the Secretary of Homeland Security, the Administrator of the Environmental Protection Agency, and the Secretary of Labor (the Working Group) to address and reduce hazards associated with the hazardous chemicals in the United States. 

Following the issuance of EO 13650, the Working Group published the “Solicitation of Public Input on Options for Policy, Regulation, and Standards Modernization.” That document served as a starting point to identify the preliminary options for stakeholder discussion regarding increased safety and security for hazardous chemicals.  In May 2014, the Working Group published a status report on their efforts to comply with the directives set forth in EO 13650 — Actions to Improve Chemical Facility Safety and Security – A shared Commitment (Status Report. 

OSHA’s Federal Plan of Action

Although it remains unclear what impact, if any, EO 13650 will have on OSHA’s enforcement regime, the Federal Action Plan’s section entitled “Modernizing Policies and Regulations,” strongly suggests that OSHA intends to expand the scope of the PSM standard as well as increase civil and criminal penalties. 

The Status Report states the following: “Using lessons learned from incident investigations, enforcement experience, and comparison with industry practices and regulatory requirements of other States, counties, and countries, OSHA determined that a stronger PSM standard can more effectively prevent incidents and protect workers.”  (Emphasis added).  Many of OSHA’s immediate provisions address ways to clarify the PSM standard.  Specifically, the Status Report states that in the year following the publication of this report, OSHA will clarify a number of elements of the PSM standard, including

  1.  interpretations of various definitional terms such as “retail facilities”;

  2.  revising jurisdictional concentration levels of chemicals covered by the PSM standard;

  3. whether Ammonium Nitrate as a covered chemical under PSM standard; and

  4. determining whether to include oil and gas drilling and servicing operations under PSM standard, which are currently exempt;

More Industries May Be Subject to PSM Standard

Though styled as a means to “modernize” OSHA’s PSM standard to improve safety, the Federal Action plan suggests a much broader OSHA enforcement regime.  Indeed, the Federal Action Plan does contain action items that suggest a concerted effort to clarify various ambiguities in the PSM standard, but the overall thrust of the plan appears to focus heavily on including more industries under the jurisdiction of the standard. 

Increased Penalties Sought for All OSHA Violations

The Status Report also provides a clear indication that OSHA will attempt to increase the civil and criminal penalties through legislation.  Currently, violations of the OSH Act can lead to civil penalties of up to $70,000 per violation.  Criminal penalties, however, are only imposed for willful violations that cause an employee death.  Criminal penalties can total up to $10,000 and not more than six months in jail for a first conviction, and up to $20,000 and not more than twelve months in jail for a second conviction.  The Working Group compared the OSHA civil and criminal penalty provisions to the same provisions under EPA and stated “OSHA’s PSM standard and EPA’s RMP regulation were created at about the same time pursuant to the Clean Air Act Amendments to address the same underlying general hazards.  Yet the OSH Act’s penalty provisions are much weaker than those under the CAA’s RMP program.  This imbalance in penalties should be corrected by strengthening the OSH Act’s civil monetary penalties and indexing them for inflation.”   

Regardless of whether employers are or will be covered by the PSM standard, it appears that OSHA’s stated intent to increase civil and criminal enforcement penalties could impact all employers. 

Stay Tuned and Stay Informed

Employers should continue to monitor the Working Group’s activities in order to stay involved and have a voice in any future rule making or policy changes.

Click here to print/email/pdf this article.

June 27, 2014

U.S. Supreme Court Eliminates Fiduciary Protection for Employer Stock Investment

By Brenda Berg

On June 25, 2014, the U.S. Supreme Court issued its unanimous opinion that retirement plan fiduciaries are not entitled to a presumption of prudence with respect to the plan's investment in employer stock. Fifth Third Bancorp v. Dudenhoeffer, U.S., No. 12-751, 6/25/14. Instead, the fiduciaries are subject to the same duty of prudence that applies to all investment decisions made by ERISA fiduciaries. The rejection of the presumption of prudence might result in an increase in litigation involving employer stock. However, the Court also ruled that the ERISA duty of prudence does not require violating securities laws by disclosing insider information or otherwise taking action that could be in violation of securities laws, and the Court articulated a high pleadings standard for overcoming a motion to dismiss on that point.

Presumption of Prudence

Retirement plan fiduciaries have a duty to act prudently: with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity would act. Many federal circuit courts had adopted a rule that if the governing plan document requires an employer stock investment option, especially where such portion of the plan is designated as an ESOP, then there is a presumption that the fiduciary duty of prudence is met. This presumption is often referred to as the Moench presumption, after the case that first articulated it.

Fiduciaries also have a duty to follow the terms of the plan documents, unless doing so would be contrary to ERISA. The Moench presumption of prudence was an attempt to balance the duty or prudence with the duty to follow plan documents, considering Congress's intent to encourage employee ownership through ESOPs. Under the presumption, fiduciaries have a duty to follow plan documents that require an employer stock investment option, unless the employer is in such "dire" circumstances, such as an employer's bankruptcy, that would likely make the employer go out of business.

In the Dudenhoeffer case, the plaintiffs, who were participants in the plan, alleged that the fiduciaries had violated the duty of prudence by permitting participants to invest in employer stock, and that in July 2007, the fiduciaries knew or should have known that the stock was overvalued. From July 2007 to September 2009, when the complaint was filed, the Fifth Third stock price fell 74%. Although the District Court had dismissed the case based on the presumption of prudence, the Sixth Circuit Court of Appeals reversed and held that the presumption of prudence did not apply at the pleading stage, but only at the evidentiary stage. The U.S. Supreme Court rejected that as well, since the Court held the presumption of prudence does not apply at all. The Court found the presumption was not supported by the statutory language, which provides an ESOP exception from ERISA's duty to diversify but not from the duty of prudence – and Congress's intent to encourage ESOP investments does not override that. In addition, even where the plan document requires an employer stock investment, the regular duty of prudence applies rather than a requirement that only "dire" circumstances can override the plan language.

Conflict with Insider Trading Laws

The Court acknowledged that potential for conflict with the insider trading laws is a legitimate concern. In publicly traded companies, plan fiduciaries are often corporate insiders as well. However, the Court held that a presumption of prudence "is an ill-fitting means" of addressing the concern. The Court also recognized that lack of a presumption may put the fiduciary between a rock and a hard place, in that the fiduciary could be sued for failing to divest the stock, or could be sued for failing to allow the stock as an investment option where the plan documents require it. Again, though, the Court held that the presumption of prudence is not the proper way to address this concern; rather, a motion to dismiss for failure to state a claim is the proper mechanism.

Ultimately, the Court vacated the judgment of the Court of Appeals and remanded the case to consider whether the pleadings were sufficient to overcome a motion to dismiss. The Court referred to its previous guidance of considerations on the insider trading issue. As a general rule, where a stock is publicly traded, it would not be sufficient to claim that the fiduciary should have recognized the stock was overvalued based on publicly available information unless the plaintiffs could point to special circumstances affecting the reliability of the market price. With respect to nonpublic information available to the fiduciaries as company insiders, the Court said the plaintiffs must allege an alternative action that the fiduciaries could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund (for example, by driving the price down in a sell-off) than to help it.

Note that the case involved publicly traded employer stock, and does not provide much guidance for fiduciaries of ESOPs with non-publicly traded stock.

Next Steps for Plan Fiduciaries

In light of the Court's Dudenhoeffer decision, fiduciaries of retirement plans that allow investments in employer stock should reevaluate whether employer stock is a prudent plan investment. Fiduciaries can no longer rely on the Moench presumption that the investment would be prudent as long as the documents required the employer stock and the employer was not experiencing "dire" or other extreme circumstances. Instead, fiduciaries must evaluate all of the circumstances of the employer, within the confines of securities laws, and determine on that basis whether employer stock is a prudent investment under the plan. In other words, fiduciaries must treat an employer stock investment just like every other investment offered under the plan. If the fiduciaries determine that employer stock should no longer be offered under the plan, the removal of the stock should be undertaken carefully in order to best protect fiduciaries from participant claims for the removal of the stock.

Click here to print/email/pdf this article.

June 26, 2014

Recess Appointments to NLRB Invalid, Rules U.S. Supreme Court in Noel Canning Opinion

Mumaugh_BrianBy Brian Mumaugh 

In a unanimous decision, the U.S. Supreme Court ruled today that President Obama lacked the authority to make three recess appointments to the National Labor Relations Board (NLRB) while the Senate was in pro forma session in early January 2012.  While affirming the decision of the D.C. Circuit that the appointments fell outside the scope of the Recess Appointments Clause, the Supreme Court came to that conclusion on different grounds.  NLRB v. Noel Canning, No. 12-1281 (June 26, 2014). The decision effectively invalidates the rulings made by the three NLRB members who were improperly appointed via recess appointment. 

Recess Appointments Clause 

The Recess Appointments Clause gives the President the power “to fill up all Vacancies that may happen during the Recess of the Senate.”  This power essentially allows the President to fill vacant federal positions without obtaining Senate confirmation of the appointments and is intended to ensure the continued functioning of the government at those times when the Senate is not in session.  

At issue in the Noel Canning case was whether President Obama’s appointment of three members of the NLRB while the Senate was on a three-day intra-session break in which the Senate was in pro forma session fell within his authority under the Recess Appointments Clause.  The Supreme Court said no. 

Vacancies May Be Filled During Intra-Session and Inter-Session Recesses 

Unlike the D.C. Circuit, the Supreme Court ruled that the Recess Appointments Clause applies during intra-session recesses (breaks in the midst of a formal Senate session) as well as during inter-session recesses (breaks between formal sessions of the Senate).  The Court stated that the Senate is equally away and unavailable to conduct business during both types of breaks.  The Court also looked carefully at the history of recess appointments and found that Presidents have made intra-session recess appointments going all the way back to President Andrew Johnson in 1867.  During that time, the Senate has never taken any formal action to deny the validity of intra-session recess appointments.  Accordingly, the Court gave great weight to the long-standing practice of allowing recess appointments during both intra- and inter-session recesses. 

Recess Must Be Of Sufficient Length 

Although the Recess Appointments Clause does not establish how long a recess must be in order to trigger the President’s recess appointment power, the Court held that the Senate’s recess must be of sufficient duration as to be a significant interruption of legislative business.  Noting that the government’s attorney conceded that a three-day recess would be too short and that throughout history, no recess appointments had been made during an intra-session recess of less than ten days, the Court wrote that a recess of more than three days but less than ten days is presumptively too short to fall within the Clause. 

Vacancies Filled As Recess Appointments Need Not Arise During the Recess 

The Court interpreted the Recess Appointments Clause to allow the President to fill vacancies that existed prior to the start of the Senate’s recess.  The D.C. Circuit had interpreted the Clause differently, applying only to vacancies that first come into existence during a recess.  The Supreme Court chose a broader interpretation to ensure that offices that need to be filled can be filled, even if the vacancy arose before the Senate went into recess.  Again, the Court looked at historical practices and found that nearly every President since James Buchanan (term: 1857-1861) has made recess appointments to pre-existing vacancies.  Unwilling to counter this long-accepted practice, the Court ruled that any vacancy, whether pre-existing or one that arises during the recess, may be filled under the Recess Appointments Clause. 

Applying the Clause to the 2012 NLRB Recess Appointments 

The Court ruled that the President lacked the authority to appoint the three members of the NLRB in early 2012 because the Senate was still in session during that time.  Although the Senate was meeting just every three days in pro forma sessions, it retained the power to conduct business.  Consequently, because the Senate was in session and the three-days between its pro forma sessions was too short of a break to bring it within the scope of the Recess Appointments Clause, the President lacked the authority to make the three NLRB member appointments in January of 2012. 

Big Picture – Effect of Noel Canning  

There are two primary effects that will come out of today’s Noel Canning decision.  First, the NLRB rulings that were made by the improperly appointed members will need to be revisited.  Numerous challenges have already been made in some of the affected cases and the current NLRB, which now has five Senate-confirmed members, may need to revisit those rulings. 

Second, the future of Presidential recess appointments will hinge on the length of a Senate recess.  Political analysts are already stating that both the House and Senate have mechanisms to force the Senate out of a recess into a pro forma session so if those mechanisms are exercised, Congress could limit or block a President’s ability to make recess appointments.  We will likely learn a great deal about the scheduling powers of Congress in the days to come.

Click here to print/email/pdf this article.

June 16, 2014

Sexual Orientation Discrimination By Federal Contractors To Be Prohibited, According to News Reports

Cave_BradBy Brad Cave 

Major news sources are reporting that President Barack Obama plans to issue an executive order prohibiting federal contractors from discriminating against employees based on sexual orientation and gender identity.  The specific details of the executive order have not been finalized and the signing date is not yet known.  The planned order was revealed by administration officials on Monday, June 16, 2014, just before the President attends a lesbian, gay, bisexual and transgender (LGBT) event sponsored by the Democratic National Committee in New York City on Tuesday. 

For twenty years, various federal lawmakers have introduced and tried to pass ENDA, the Employment Non-Discrimination Act, which would prohibit employment discrimination on the basis of sexual orientation by all employers with 15 or more employees.  The most recent ENDA bill passed in the Senate but is dead in the House, as House Speaker John Boehner reportedly has said he will not allow the bill to come to a vote.  Like it has done with its minimum wage and other pay initiatives that stalled in Congress, the White House is furthering its goals for U.S. workers outside the legislative process by issuing an executive order.  Although the executive order applies only to federal contractors, many of whom already have policies prohibiting discrimination based on sexual orientation, the prohibition for contractors on this basis is seen as a step toward protection for LGBT workers in all work contexts. 

Hearing word of the impending executive order, lawmakers and various groups appear to be urging the administration to include an exemption for religious reasons.  That is unlikely to happen with the executive order but until we see the final order, it is unclear if any federal contractors and subcontractors will be exempt.  We will keep you posted as this unfolds.

Click here to print/email/pdf this article.

June 13, 2014

Forced “Onionhead” Practices At Work Result in EEOC Religious Discrimination Lawsuit

CaveBrad_070609_NMBy Brad Cave 

“I love you, man.”  Appropriate for beer commercials but perhaps not for the workplace. A New York employer who allegedly required employees to participate in prayer circles, thank God for their job and say “I love you” to managers and co-workers faces a religious discrimination lawsuit filed recently by the Equal Employment Opportunity Commission (EEOC).  The EEOC seeks compensatory and punitive damages on behalf of three employees who were fired, allegedly for opposing the required “Onionhead” practices, and a class of similarly harmed individuals.  EEOC v. United Health Programs of America, No. 14-cv-3673 (E.D.N.Y. filed June 11, 2014). 

Company Required “Harnessing Happiness” or “Onionhead” Practices 

According to the EEOC complaint, three former employees of United Health Programs of America filed charges alleging religious discrimination in violation of Title VII because the company required employees to engage in practices under a belief system called “Harnessing Happiness” or “Onionhead.” According to the Harnessing Happiness website, Onionhead is an “incredibly pure, wise and adorable character” who “wants everyone to know how they feel and then know what to do with those feelings.”  The three women claim that the company required them to participate in various Onionhead-related activities on a daily and weekly basis, including praying, reading spiritual texts, burning candles, keeping lights at work very dim, thanking God for their employment and saying “I love you” to colleagues and managers.  They assert that every day, employees were asked to select Onionhead-related cards to keep next to their computers and to wear Onionhead-related pins.  In addition, one of the company’s upper managers and the aunt of the company owner, “Denali,” was the leader of the Onionhead practices and allegedly would require employees to attend one-on-one sessions with her in order to read and discuss books about “divine plans,” “moral codes” and “enlightenment.”  

Fired – Allegedly for Opposing Onionhead Practices 

Each of the three Charging Parties, Elizabeth Ontaneda, Francine Pennisi and Faith Pabon, were allegedly fired for objecting to the Onionhead practices.  Pennisi, an Account Manager and IT Project Manager, spoke up at a managers’ meeting in July 2010, stating that she was Catholic and did not want to participate in the Onionhead activities.  Ontaneda, a Senior Accounting Manager for Customer Service, also spoke up at the meeting, saying she felt the same way.  A few weeks later, both women were relocated to work in an open area on the customer service floor, rather than in their offices, and their duties were changed to require answering phones.  Denali placed a large statue of Buddha in Pennisi’s empty office.  Denali also spoke of “demons” in connection with Ontaneda’s and Pennisi’s resistance to Onionhead practices.  The day after losing their offices, the women called in sick and were terminated by the company owner by phone and voicemail. 

Pabon, a Customer Care Consultant, attended a spa weekend in Connecticut with Denali and about 20 other customer service employees.  Pabon alleges that Denali stated that the purpose of the trip was spiritual enlightenment and that they were to be together at all times, holding hands, praying and chanting.  Pabon refused to participate in some of the group activities and on Monday following the spa weekend, Denali fired Pabon for “insubordination.” 

Hostile Work Environment, Failure to Accommodate and Retaliation 

The EEOC asserts numerous religious discrimination claims against the company, including creating a hostile work environment based on religion, failure to accommodate the employees’ own religious beliefs or lack thereof, terminating employees based on religion and retaliating against employees for opposing the required Onionhead practices in the workplace.  The EEOC also alleges that some employees were constructively discharged when they felt compelled to leave the company to avoid participating in the required Onionhead activities.  

Reports suggest that the company denies any merit to the lawsuit and that they expect it to be dismissed.  We don’t yet know the basis of their defense and must remember that at present, the allegations are unproven.  It will be an interesting case to follow.  We will keep you posted as it proceeds through the court

Click here to print/email/pdf this article.

June 2, 2014

Disabled Employee Not Entitled to Additional Leave as Reasonable Accommodation

Biggs_JBy Jude Biggs 

After Kansas State University denied her request to extend a leave of absence for longer than six months, assistant professor Grace Hwang, who suffers from cancer, filed suit against the University alleging disability discrimination and retaliation under the Rehabilitation Act.  The Tenth Circuit Court of Appeals ruled that the University had not violated the Rehabilitation Act because Ms. Hwang could not show that she was able to perform the essential functions of her job.   In addition, the Tenth Circuit held that requiring the University to extend the six-month’s leave was not a reasonable accommodation.  Hwang v. Kansas State Univ., No. 13-2070 (10th Cir. May 29, 2014). 

Policy Provided Six-Month’s Paid Leave of Absence 

Ms. Hwang was set to teach classes at Kansas State University under a one-year contract that covered all three academic terms — fall, spring and summer.  Before the fall term, Ms. Hwang was diagnosed with cancer. She asked for a leave of absence to seek medical treatment.  The University granted her a paid six-month leave under its regular policy which capped the length of a leave at six months.  

As the six-month leave was coming to an end, Ms. Hwang’s doctor advised her to seek more time off of work.  She asked the University to extend her leave through the end of the spring semester, intending to return before the summer term.  The University refused to extend her leave but instead arranged for Ms. Hwang to receive long-term disability benefits, effectively ending her employment with the University. 

Ms. Hwang sued the University in federal court alleging that the University’s denial of her request for extended leave constituted disability discrimination under the Rehabilitation Act.  The Rehabilitation Act prohibits disability discrimination by entities that receive federal funds, such as Kansas State.  29 U.S.C. § 794(a).  The federal district court dismissed her lawsuit on a motion to dismiss (before any discovery was done), and Ms. Hwang appealed to the Tenth Circuit Court of Appeals, which covers the states of Colorado, Utah, Wyoming, Kansas, Oklahoma and New Mexico. 

Extended Leave Not A Reasonable Accommodation Under Rehabilitation Act  

The University did not dispute that Ms. Hwang was a capable teacher and that her cancer rendered her disabled as defined by the Rehabilitation Act.  The central issue in the appeal was whether the University was required to ignore the six-month time limit in its leave policy to extend Ms. Hwang’s leave of absence beyond six months. The Court said no.  Because Ms. Hwang wasn’t able to work for an extended period of time, she was not capable of performing the essential functions of her job.  In addition, requiring the University to keep her job open for that extended period of time did not qualify as a reasonable accommodation.  The Court wrote: “[a]fter all, reasonable accommodations – typically things like adding ramps or allowing more flexible working hours – are all about enabling employees to work, not to not work.” 

The Court noted that a “brief absence from work” for medical care may be required as a reasonable accommodation, as it likely allows the employee to continue to perform the essential functions of the job.  Determining how long employers must provide for leave as a reasonable accommodation depends on factors such as the duties essential to the job in question, the nature and length of the leave sought and the impact of the leave on co-workers.  That said, the Court stated that it would be difficult to find a six-month leave of absence in which the employee performs no work (e.g., no part-time hours or work from home) reasonable in any job in the national economy today.  Ms. Hwang’s terrible problem, in the Court’s view, was one other forms of social security aim to address.  In addition, the Court noted that the aim of the Rehabilitation Act is to prevent employers from denying reasonable accommodations that would allow disabled employees to work, not to turn employers into a “safety net” for those who cannot work. 

“Inflexible” Six-Month Leave Policy Not Inherently Discriminatory 

Ms. Hwang asserted that the University’s “inflexible” sick leave policy that capped the maximum length of sick leave at six months violated the Act.  She cited the EEOC’s guidance manual which states that if a disabled employee needs additional unpaid leave as a reasonable accommodation, the employer must modify its “no-fault” leave policy to provide the additional leave, unless the employer can show that there is another effective accommodation that would allow the individual to perform the essential functions of her job, or that granting additional leave would cause the employer an undue hardship.  The Court, however, pointed to another section of the EEOC’s guidance manual to counter Ms. Hwang’s argument, as the EEOC manual states “ . . . six months is beyond a reasonable amount of time.”  In fact, the Court stated that an “inflexible” leave policy can actually help protect the rights of disabled employees rather than discriminate against them because such a policy does not permit individual requests for leave to be singled out for discriminatory treatment. 

Not all leave policies will past muster, however.  The Court stated that policies that provide an unreasonably short sick leave period may not provide enough accommodation for a disabled employee who would be capable of performing his or her job with just a bit more time off.  Alternatively, policies that are applied inconsistently, such as where some employees are allowed more time off and others are held to a strict time limit, could be discriminatory.  In this case, however, the Court found that Ms. Hwang did not allege any facts to support a claim that she was treated differently than other similarly situated employees. 

Retaliation Claim Fails As Well 

Ms. Hwang also asserted that she was unlawfully retaliated against for reporting disability discrimination.  In particular, she based her claims on two theories : (1) the University failed to explain her COBRA health benefits before or immediately after her termination; and (2) she wasn’t hired for two other positions at the University that she applied for after losing her teaching job.  The Court easily dispensed with both theories. 

First, COBRA allows thirty days for an employer to provide separating employees with a COBRA notice.  Consequently, the University was not required to provide Ms. Hwang with notice of her COBRA benefits before or immediately after her termination of employment.  Second, although Ms. Hwang alleged that she was not hired for two other University positions for which she applied, she failed to allege any facts suggesting that the University’s decision not to hire her was because she had engaged in legally protected opposition to discrimination.  She not only failed to provide facts showing that she was qualified for the two jobs, but she also failed to offer facts suggesting that the University officials who decided not to hire her knew about her disability and her complaint about disability discrimination.  Without such allegations, the Court ruled that Ms. Hwang’s retaliation claim failed. 

ADA Application 

Although this case alleged a violation of the Rehabilitation Act, courts typically analyze such claims similarly to those alleging a violation of the Americans With Disabilities Act (ADA).  Consequently, this case may prove helpful to employers defending ADA claims where the employer denies an employee’s request for an extended leave of absence.  Employers should heed the Court’s warning about leave policies that may be discriminatory if they provide an unreasonably short leave or are inconsistently applied.  However, lengthy leaves of six months or more, or leaves of an unlimited duration in which the disabled employee provides no work, will likely not be considered a reasonable accommodation.

Click here to print/email/pdf this article.

May 13, 2014

Independent Contractor Status — Colorado Supreme Court Sets Forth Applicable Test

Brad WilliamsBy Bradford J. Williams 

Yesterday we posted an article describing the unsettled test for independent contractor status under Colorado’s unemployment insurance benefits laws after the Colorado Court of Appeals issued a new decision last week.  Now, that test has been settled as the Colorado Supreme Court issued its decision in the Softrock and Western Logistics cases.

The Colorado Supreme Court ruled yesterday that determining whether a worker is “customarily engaged in an independent trade, occupation, profession, or business” in order to be deemed an “independent contractor” under Colorado’s unemployment insurance benefits laws requires an evaluation of the totality of the circumstances surrounding the relationship between the worker and the putative employer.  In two companion cases, the Court rejected a stringent, single-factor test for determining whether a worker is an employee or independent contractor for purposes of unemployment insurance tax liability and benefits.  Reversing decades of case law, the Court ruled that no single factor is dispositive of an employer-employee relationship.  Instead, courts and agencies may consider nine factors enumerated in a statute pertaining to independent contractor agreements, as well as “any other information relevant to the nature of the work and the relationship between the employer and the individual.”  ICAO v. Softrock Geological Servs., 2014 CO 30; Western Logistics, Inc. v. ICAO, 2014 CO 31. 

Putative Employer Must Prove Independent Contractor Status 

Under the Colorado Employment Security Act (CESA), employers must pay unemployment taxes on wages paid to employees, but not on compensation paid to independent contractors.  Similarly, employees are entitled to collect unemployment insurance benefits under the CESA whereas independent contractors are not.  Putative employers bear the burden of proving that workers are independent contractors, not employees, for purposes of the CESA. 

In order to establish that a worker is an independent contractor, a putative employer must prove that the individual (i) is free from control and direction in the performance of his or her service, and (ii) is customarily engaged in an independent trade, occupation, profession, or business related to the service performed.  C.R.S. § 8-70-115(1)(b).  The CESA does not define what must be shown to satisfy the second part of this test.   

2012 Court of Appeals Decisions on the Single-Factor Test 

For years, the Colorado Division of Employment and Training and most courts have applied a single-factor test, rejecting claims that workers are independent contractors, and thus ineligible for unemployment insurance benefits, where they do not provide similar services to others while working for the putative employer.  It has not mattered, for instance, whether the workers were directed or controlled by the putative employer, whether they maintained separate business entities, whether they set their own hours, whether they were trained by the putative employer, whether they were paid an hourly or fixed rate, whether they provided their own equipment, whether they had their own offices, or whether they advertised their own businesses.  If they did not provide similar services to others while working for the putative employer, they were almost always deemed to be employees for purposes of receiving unemployment insurance benefits. 

In 2012, one division of the Colorado Court of Appeals reaffirmed this decades-old case law effectively mandating a single-factor test.  Western Logistics, Inc. v. ICAO, 2012 COA 186.  Another division of the Court of Appeals, however, rejected the stringent, single-factor test, holding for the first time that agencies and courts must instead apply a multi-factor test to determine whether an individual “is customarily engaged in an independent trade, occupation, or business related to the service performed.”  Softrock Geological Servs. v. ICAO, 2012 COA 97.  In Softrock, the Court of Appealsstated that the factors to be considered in the “customarily engaged” inquiry are the nine factors set forth in statutory section 8-70-115(1)(c), which defines evidence that must be included in an independent contractor agreement to create a presumption that a worker is an independent contractor rather than an employee.  In March 2013, the Colorado Supreme Court agreed to hear the appeals in both the Western Logistics and Softrock cases in order to finally determine the appropriate test for deciding whether a worker is customarily engaged in an independent business for purposes of the CESA. 

Single-Factor Test No Longer Dispositive 

In its decision yesterday, the Supreme Court concluded that the appropriate test for courts and agencies to apply is a totality of the circumstances test that looks at all the relevant factors bearing upon the relationship between a worker and his or her putative employer.  The Court rejected the stringent, single-factor test used in Western Logistics and numerous other cases, finding that relying on a single factor – i.e., whether a worker provides similar services to others at the same time he or she works for the putative employer – is unfair to putative employers because it leaves the independent contractor determination up to the unpredictable decisions of workers.  For instance, it ignores the putative employer’s own intent regarding the working relationship, and also ignores whether workers even desire to find other work in the same field. 

In its decision, the Court broadly adopted the Court of Appeal’s approach in Softrock, concluding that the statutory factors should be considered in determining whether a worker is engaged in an independent business under the CESA.  However, the Supreme Court went even further, holding that other factors may also be relevant to this determination.  The Court rejected “a rigid check-box type inspection,” and opted instead for a fact-specific inquiry into the nature of the working relationship between a worker and his or her putative employer where no single factor is dispositive of the worker’s status. 

Interestingly, just last week, yet another division of the Colorado Court of Appeals anticipated the Supreme Court’s ruling in these two cases, concluding that virtually any relevant circumstances may be considered in weighing independent contractor status.  The decision rejected both the Western Logistics single-factor test and the Softrock multi-factor test that limited the determination to just those factors specifically delineated in statute.  See Visible Voices, Inc. v. ICAO, 2014 COA 63. 

Many Factors May Determine Independent Contractor Status 

The Supreme Court’s new totality of the circumstances test is very helpful to putative employers because it allows them to prove independent contractor status based on the entire working relationship between the worker and the putative employer.  A putative employer seeking to prove that a worker is an independent contractor engaged in an independent business or trade may now produce evidence bearing upon the nine factors set forth in statute, showing that the putative employer did not: 

  1. Require the worker to work exclusively for the putative employer; except that the worker may choose to work exclusively for that business for a finite period of time specified in the independent contractor agreement;
  2. Establish a quality standard for the worker; except that the putative employer can provide plans and specifications regarding the work but cannot oversee the actual work or instruct the worker as to how the work will be performed;
  3. Pay a salary or hourly rate but rather a fixed or contract rate;
  4. Terminate the worker during the contract period unless the worker violates the terms of the contract or fails to produce a result that meets the specifications of the contract;
  5. Provide more than minimal training for the worker;
  6. Provide tools or benefits to the worker; except that materials and equipment may be supplied;
  7. Dictate the time of performance; except that a completion schedule and a range of mutually agreeable work hours may be established;
  8. Pay the worker personally but rather makes checks payable to the trade or business name of the worker; and
  9. Combine the putative employer’s business operations in any way with the worker’s business, but instead maintains such operations as separate and distinct. 

The putative employer may also invoke other evidence not set forth in the statute, but nonetheless relevant to whether the worker maintains an independent trade or business.  As suggested in recent cases, these factors include, but are not limited to, whether the worker: 

  • Maintains an independent business card, listing, address, or telephone;
  • Has a financial investment in the project or risks suffering a loss;
  • Uses his or her own equipment on the project;
  • Sets the price for performing the project;
  • Employs others to complete the project; or
  • Carries liability insurance. 

Although we have yet to see how the courts and agencies will apply this new totality of the circumstances test, putative employer should try to satisfy as many of these factors as possible in order to establish that workers are independent contractors, not employees.  Putative employers should also continue to use independent contractor agreements that satisfy all the statutory factors needed to create a presumption that workers are independent contractors.  However, there is now no limit to the types of evidence putative employers may invoke to establish independent contractor status, and putative employers are no longer bound by the outdated rule that workers must always offer their services to others at the same time the work for the putative employer in order to be considered independent contractors.

Click here to print/email/pdf this article.

May 12, 2014

Independent Contractor Status Dependent On More Than One Factor, Says Second Colorado Court

Brad WilliamsBy Bradford J. Williams 

A second division of the Colorado Court of Appeals has just rejected a stringent, single-factor test for determining whether a worker is an employee or independent contractor for purposes of receiving unemployment insurance benefits. On May 8, 2014, a division of the Court of Appeals issued a decision in an unemployment insurance tax liability case, rejecting longstanding case law holding that a worker is an employee, and thus entitled to unemployment insurance benefits, unless he “actually and customarily provides similar services to others while working for the putative employer.” Visible Voices, Inc. v. ICAO, 2014 COA 63.  

For years, the Colorado Division of Employment and Training has rejected claims that workers are independent contractors, and thus ineligible for unemployment insurance benefits, based solely upon the fact that they do not provide similar services to others while working for the putative employer. It has not mattered whether the workers were directed or controlled by the putative employer, whether they maintained separate business entities, whether they set their own hours, whether they were trained by the putative employer, whether they were paid an hourly or fixed rate, whether they provided their own equipment, whether they had their own offices, or whether they advertised their own businesses. If they did not provide similar services to others while working for the putative employer, they were almost always deemed to be employees for purposes of receiving unemployment insurance benefits. 

In rejecting this stringent, single-factor test, the Visible Voices court followed the 2012 lead of another division of the Colorado Court of Appeals in Softrock Geological Servs. v. ICAO, 2012 COA 97 (cert. granted Mar. 25, 2013). First breaking with the decades-old, single-factor assessment, the Softrock court held that the Division of Employment and Training must instead apply a multi-factor test to determine whether an individual “is customarily engaged in an independent trade, occupation, or business related to the service performed.” This multi-factor test considers factors set forth in Colorado statute. 

While broadly adopting the Softrock court’s reasoning, the Visible Voices court went even further, holding that factors not listed in the Colorado statute may also be considered in assessing independent contractor status. The Visible Voices court further noted that some of the statutory factors might also not be relevant to a particular worker depending on the circumstances. In short, the Visible Voices court concluded that virtually any relevant circumstances may be considered when weighing independent contractor status, and rejected the argument that the multi-factor test is limited to just those factors specifically delineated in statute. 

By choosing to consider multiple factors, the Visible Voices court expressly declined to follow Western Logistics, Inc. v. ICAO, 2012 COA 186 (cert. granted Mar. 25, 2013), in which yet another division of the Colorado Court of Appeals recently reaffirmed the decades-old cases effectively mandating a single-factor test. Unlike the Western Logistics court, the Visible Voices and Softrock courts have decided that no single factor is determinative of independent contractor status. 

Two divisions of the Colorado Court of Appeals have now rejected the single-factor test that has long stymied putative employers’ attempts to prove that their workers are independent contractors for purposes of unemployment insurance benefits. However, the Colorado Supreme Court will have the last word on the proper test for determining independent contractor status as it is currently reviewing both the Softrock and Western Logistics cases. The Supreme Court heard oral arguments in both cases on March 6, 2014 (audio of the oral arguments may be accessed here), and a decision is expected in the coming months. Based on the oral arguments, a favorable ruling for putative employers seems possible. We will let you know the outcome as soon as the Supreme Court rules on this issue.

Click here to print/email/pdf this article.

May 9, 2014

Colorado Legislative Wrap-Up: Wage Theft, Disability Definition and Workers’ Comp Physician Choice Bills Pass

By Emily Hobbs-Wright 

The Colorado General Assembly wrapped up its 2014 Legislative Session this week, passing a number of bills that change the landscape for Colorado employers.  Here is a look at the significant employment-related bills that passed and are expected to be signed into law by Governor Hickenlooper as well as other bills that were introduced but did not make it through the legislative process. 

Bills that Passed This Session. 

Wage Protection Act of 2014.  Senate Bill 14-005 establishes an administrative procedure to adjudicate wage claims under Colorado law. For wages and compensation earned on or after January 1, 2015, the Colorado Division of Labor may receive complaints and adjudicate claims for nonpayment of wages or compensation of $7,500 or less.  The written demand for unpaid wages to the employer may come from or on behalf of the employee and is satisfied if a notice of complaint filed with the Division is sent to the employer.  In addition to existing fines that may be levied against employers who fail to pay wages, the new law allows the Director of the Division of Labor or a hearing officer to impose a fine of $250 on an employer who fails to respond to a notice of complaint or any other notice from the Division when a response is required.  All fines collected will be credited to the State Wage Theft Enforcement Fund to be used for enforcement of this law. 

The Wage Protection Act also requires Colorado employers to keep payroll records, including the information contained in an employee’s itemized pay statement, for at least 3 years after payment of wages and to make such records available to the employee and the Division of Labor. (C.R.S. §8-4-103 (4.5)).  Employers who violate this record retention requirement are subject to a fine of $250 per employee per month, up to a maximum fine of $7,500.  

This new law also provides for the recovery of reasonable attorney fees and court costs for an employee who recovers unpaid wages under Colorado’s minimum wage requirement.  Additionally, the new law sets forth procedural requirements for employers responding to a demand for payment and procedures for resolving wage disputes through the administrative procedure.  The majority of the new provisions in this law go into effect on January 1, 2015. 

Definition of Disabled Individuals Aligned with Americans With Disabilities Act. Senate Bill 14-118 conforms state law definitions of a disability to match definitions under the federal Americans with Disabilities Act (ADA).  Specifically, the terms “disability” and “qualified individual with a disability” under Colorado Revised Statute section 24-34-301 are given the same meaning as under the ADA. This bill also moves the definition of “sexual orientation” out of the Employment Practices definition section (C.R.S. § 24-34-401) and into the general definition section for the Civil Rights Division (C.R.S. § 24-34-301.) It also changes the term “assistance dog” to “service animal” and provides additional penalties for violations of the rights of an individual with a disability who uses a service animal and for persons who cause harm to service animals.  The law also expanded the available remedies for retaliation and violations of the fair housing and public accommodations discrimination prohibitions.  Once signed into law by the Governor, these provisions will go into effect on August 6, 2014. 

Expanded Doctor Choice for Workers’ Compensation. House Bill 14-1383 changes the Colorado workers’ compensation law to allow injured workers more choice of doctors.  Currently, an employer or workers’ compensation insurer must provide a list of at least 2 physicians or corporate medical providers from which an injured employee may select a treating physician.  This bill expands that number to 4.  There are additional provisions related to the location and shared ownership status of the health care providers.  After signed into law by the Governor, this law will become effective on April 1, 2015. 

Clarification of Credit Report Restriction Allowing Employment Use By Financial Institutions.  Senate Bill 14-102 amends last year’s Employment Opportunity Act which restricts an employer’s use of credit reports.  This amendment clarifies that all positions at a bank or financial institution are jobs for which credit information is deemed to be “substantially related to the employee’s current or potential job.” As a result, financial institutions will be able to obtain and use credit information on employees and applicants when making employment decisions for all job positions.  Governor Hickenlooper signed this bill into law on March 27, 2014 and it became effective immediately. 

Bills that Failed to Pass This Session. 

Paid Sick Leave.  Called the Family and Medical Leave Insurance Act (FAMLI), Senate Bill 14-196 sought to create an insurance program to provide pay to employees who take unpaid FMLA or sick leave.  The program would be paid for by employees who pay premiums into a “fund” in the state treasury; employers would not be funding it.  Eligible employees would be able to receive a percentage of their pay while on leave, not to exceed $1,000 per week. The bill would have prohibited Colorado employers from discharging, discriminating or retaliating against employees who seek to use benefits under the program or assist in a related-proceeding.  Advocated by the Colorado chapter of 9 to 5, this bill, introduced on April 15th, differed from previous paid sick leave bills as it did not require employers to fund the program.  On May 1, this bill was postponed indefinitely in committee and therefore, did not make it to a vote. 

Drug Testing Misdemeanor. House Bill 14-1040 would have established a drug misdemeanor for an employee who is legally required to undergo drug testing as a condition of his or her job and either tests positive for a controlled substance without a prescription, or knowingly defrauds the administration of the drug test by an employer.  To “defraud the administration of a drug test” is defined in the bill to include submitting a sample from someone else or a sample collected at a different time or some other conduct intended to produce a false or misleading outcome.  This bill passed the House but the Senate sent it to committee where it was postponed indefinitely. 

Anti-Union Bills. – House Bills 14-1087 would have prohibited collective bargaining for the state’s public employees.  House Bill 14-1098 and Senate Bill 14-113 would have prohibited employers from entering into agreements to require employees to join a union.  All three bills failed shortly after introduction as expected due to the democratic majority in both chambers of Colorado’s legislature. 

The bills that passed in the 2014 Legislative Session reflect a continued trend at the state level to implement new or refine existing employment-related laws.  We will keep you posted on any further developments.    

Click here to print/email/pdf this article.

May 6, 2014

Separation Agreements Targeted By EEOC Again

Wiletsky_Mark_20090507_NM_crop_straightBy Mark Wiletsky 

The Equal Employment Opportunity Commission (EEOC) recently filed a lawsuit seeking to stop a Colorado employer from using its form separation and release agreement and to allow employees who have signed the form agreement to file charges of discrimination and participate in  EEOC and state agency fair employment investigations.  In its federal court complaint, the EEOC alleges that CollegeAmerica Denver violated the Age Discrimination in Employment Act (ADEA) by conditioning employees’ receipt of severance benefits on signing a separation and release agreement which, according to the EEOC, chills and interferes with the employees’ rights to file charges and/or cooperate with the EEOC and state fair employment practice agencies.  

As we wrote on this blog earlier, the EEOC has been scrutinizing employers’ separation agreements.  This is the second such lawsuit challenging language in the separation agreements that does not permit the filing of discrimination or retaliation charges with the EEOC or other government agencies.  As in the EEOC’s earlier complaint against a national pharmacy, the recent complaint against CollegeAmerica Denver targets numerous provisions in the separation agreement, including the release of claims, a non-disparagement clause and provisions in which the employee represents that he/she has not filed any claims, has disclosed to the company all matters of non-compliance and will continue to cooperate with and assist the company with any investigation or litigation.  

Many of the targeted provisions are standard clauses in form separation agreements.  Although it remains to be seen whether the courts will agree with the EEOC’s claims, it is always a good idea for organizations to review their agreements and ensure they do not raise any red flags for the EEOC while still protecting the company from future payouts for employment-related claims.  We will continue to provide updates as new developments arise.

Click here to print/email/pdf this article.