Category Archives: Employment Counseling

May 6, 2014

Separation Agreements Targeted By EEOC Again

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.

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April 3, 2014

Severance Payments Are Wages Subject to FICA Tax

By Arthur Hundhausen and Mark Wiletsky

Employers offer severance payments to separating employees for numerous reasons, including rewarding long-time employees affected by a plant closure, to maintain goodwill, to secure a release and waiver of existing or potential claims, or to comply with company policies or agreements that require such payments. But whether the severance is dictated by policy or an individually-negotiated benefit, one sticky issue that employers may neglect to address is whether severance payments are subject to FICA taxes. The U.S. Supreme Court recently settled that issue by confirming that severance payments made to employees terminated against their will are taxable wages under FICA. United States v. Quality Stores, Inc., No. 12-1408, 572 U.S. ___ (2014). The Supreme Court’s ruling was consistent with the longtime IRS historical position on this issue.

Involuntary Terminations Due to Bankruptcy Triggered Severance Payments

Quality Stores terminated thousands of employees in connection with its involuntary Chapter 11 bankruptcy filing in 2001. The employees received severance payments under one of two plans, ranging from six to eighteen months of severance pay. Initially, Quality Stores reported the severance payments as wages for FICA purposes on the Forms W-2 filed with the IRS and the employees. Consistent with such reporting, Quality Stores paid the employer’s required share of FICA taxes and withheld the employees’ share of FICA taxes as well. Quality Stores then decided to file FICA tax refund claims with the IRS, totaling over $1 million in paid FICA taxes. The IRS neither allowed nor denied the refund claims, so Quality Stores sought a refund as part of its bankruptcy proceeding. Both the District Court and the Sixth Circuit Court of Appeals concluded that severance payments were not “wages” under FICA, meaning Quality Stores and its affected employees were entitled to a refund of the FICA taxes paid.

The Sixth Circuit’s decision, however, directly contradicted rulings by other Courts of Appeals, which concluded that at least some severance payments constitute “wages” for purposes of FICA taxes. The U.S. Supreme Court agreed to review the issue to resolve the split among the courts.

FICA’s Broad Definition of Wages Includes Severance Payments

FICA defines wages as “all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash.” Under the plain meaning of this definition, the Court found that severance payments made to terminated employees constitutes “remuneration for employment.” The Court noted that severance payments are made to employees only, often will vary depending on length of service, and are made in consideration for past services in the course of employment.

Looking at statutory history, the Court noted that in 1950, Congress repealed an exception from “wages” for “[d]ismissal payments which the employer is not legally required to make” from the Social Security Act and since that time, FICA has not excepted severance payments from the definition of “wages.” Agreeing with the government’s position in the case, the Court ruled that severance payments are taxable wages for FICA purposes.

Implications for Employers

The Court’s ruling confirms that employers are obligated to pay their portion of FICA taxes and withhold the employees’ portion of FICA taxes from severance payments. Depending on the amount of the severance at issue, this FICA obligation can greatly change the total payout amount for the employer. It also can catch unknowing employees off guard if they are expecting to receive a higher severance payment without FICA taxes being withheld. Employers should factor the FICA tax obligation into any severance offer to ensure that both the company and the separating employee understand the total amount that is at issue and the final amount that the employee will receive. In addition, employers offering severance payments should review their policies and practices to ensure that proper tax payments are made.

If employers identify past severance payments where no FICA taxes were paid or withheld, such employers should consult with their tax counsel to determine whether any corrective steps are required. In general, the applicable statute of limitations for an employer’s payroll tax liability begins on April 15 of the year following the year in which wages are paid (when prior year payroll tax returns are “deemed” to be filed), and expires after three years. For example, the applicable statute of limitations for payroll taxes owed for 2010 began on April 15, 2011 and expires on April 15, 2014.

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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 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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February 20, 2014

EEOC Challenges Separation Agreements

By Mark Wiletsky

If you use standard separation agreements to secure a release and waiver of claims from employees who are laid off, fired, or who otherwise threaten a claim, you might want to review your agreement. In a lawsuit filed recently in Illinois federal court, the EEOC alleges that a company with national operations interfered with its employees’ right to file charges with the EEOC and state fair employment practices agencies by conditioning the employees’ receipt of severance pay on signing an overly broad separation agreement.

According to the EEOC, five separate paragraphs (which are commonly found in separation agreements) are improper:

Cooperation: Employee agrees to promptly notify the Company’s General Counsel by telephone and in writing if the employee receives a subpoena, deposition notice, interview request or other process relating to any civil, criminal or administrative investigation or suit.
Non-Disparagement: Employee will not make any statements that disparage the business or reputation of the company or any of its officers or employees.
Non-Disclosure of Confidential Information: Employee agrees not to disclose to any third party or use for him/herself or anyone else Confidential Information without the prior written authorization of the company.
General Release of Claims: Employee releases company for any and all causes of action, lawsuits, charges or claims, including any claim of unlawful discrimination, that the employee may have prior to the date of the agreement.
No Pending Actions; Covenant Not to Sue: Employee represents that he/she has not filed or initiated any complaints prior to signing the agreement and agrees not to initiate or file any actions, lawsuits or charges asserting any of the released claims.

Disclaimer Allowing Workers to Bring Claims to the EEOC Not Enough

Recognizing that employers may not prevent workers from filing charges with the EEOC or participating in EEOC or state agency investigations, the paragraph containing the covenant not to sue contained a sentence stating “[n]othing in this paragraph is intended to or shall interfere with Employee’s right to participate in a proceeding with any appropriate federal, state or local government agency enforcing discrimination laws, nor shall this Agreement prohibit Employee from cooperating with any such agency in its investigation.” In its complaint, the EEOC says this disclaimer is insufficient as it is contained in only one of the paragraphs that contain limits on the employees’ rights.

What does this mean for employers?

It’s important to remember that the Court has not agreed with the EEOC’s allegations—and, in fact, it might reject them outright. Regardless, the risk of such actions is enough to justify a closer look at your standard separation or release agreement. Even an agreement that has been repeatedly reviewed and revised can likely be improved for clarity. Make sure the agreement is understandable, does not contain excessive “legalese,” and it should not contain provisions that interfere with an employee’s right to file a charge with the EEOC or state agency.

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February 4, 2014

Colorado General Assembly Considers Labor and Employment Bills

By John Karakoulakis

Colorado’s 2014 Legislative Session began on January 8th and nearly 400 bills have been introduced already. Below is a description of proposed legislation impacting labor and employment issues for Colorado employers. The proposed changes to the workers’ compensation system could result in one of the more controversial bills this session. We will keep you apprised of these and any other bills affecting employment matters as they progress through the legislative process.

2014 Labor & Employment Legislation

Number	Title	Summary
Draft	Workers’ Compensation Benefits	The bill seeks to make changes to the following three areas of the workers’ compensation system: 1) Allow for more doctor choice for workers; 2) Address the issue of job separation when a claim is made; and 3) Add a penalty provision for employers that willfully placed employees in a dangerous situation. This last provision is drawing the most concern because it is seen as overly broad and would expose employers to litigation.
Draft	Worker Access to Employment Records	Would allow employees to have access to their personnel records and provide written rebuttal information to be added to their file. Creates a new civil cause of action for an employee to file against an employer for not complying with the provisions of the bill. The employee can seek actual damages, back pay, reinstatement, or other equitable relief, and reasonable attorney fees and costs.
SB-005	Wage Claims	Reintroduced this year after significant changes from the version of the bill that was killed by the business community last year. The bill speeds up the process by which workers can claim they did not get their full wages and creates a process by which the Colorado Department of Labor and Employment can adjudicate those claims. These changes which remove last year’s criminal penalties and a provision to require claims to be settled in district court resulted in most business associations taking a neutral stance on the bill, so it is now expected to pass.
HB-1033	Regulatory Reform	Provides relief for business under 100 employees that unknowingly violate a regulation that was put in place within the prior year and one that is defined as a “minor violation” which is mostly clerical in nature and does not affect the life safety of the public or workers. The first violation of such a rule will result in a warning and written education sent to the business.
HB-1040	Drug Testing Criminal Provisions	Establishes a level 1 drug misdemeanor for an employee who is legally required to undergo drug testing as a condition of the person's job and who uses a controlled substance without a prescription; or knowingly defrauds the administration of the drug test. Also establishes a level 2 drug misdemeanor for any other person who knowingly defrauds a drug test.

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December 26, 2013

ERISA Plan’s Limitation Period Is Enforceable, Says U.S. Supreme Court

By Elizabeth Nedrow

The U.S. Supreme Court recently issued a decision that provides some welcome guidance to insurers and employers sponsoring ERISA employee benefit plans. The Court upheld a three-year limitations period in a long term disability plan. The terms of the plan required participants to file a lawsuit to recover benefits within three years after “proof of loss.” Heimeshoff v. Hartford Life & Accident Ins. Co.,No. 12-729, 571 U.S. ___ (Dec. 16, 2013). The Court ruled that because ERISA itself does not specify a limitations period, the plan’s three year deadline was reasonable and therefore enforceable.

Benefit Plan Participant Filed Lawsuit After Benefits Were Denied

Julie Heimeshoff, a senior public relations manager for Wal-Mart Stores, was a participant in a long term disability plan administered by Hartford Life & Accident Insurance Company (Hartford). In 2005, she filed a claim for disability benefits following a diagnosis of lupus and fibromyalgia. On her claim form, her rheumatologist listed her symptoms as extreme fatigue, significant pain and difficulty in concentration. Hartford denied her claim after her rheumatologist failed to respond to its requests for more information. In 2006, Heimeshoff provided Hartford with an evaluation from another physician who also determined that she was disabled. Hartford retained a physician to review Heimeshoff’s records who concluded that she was able to perform the activities of her sedentary job. Hartford again denied her disability claim.

After granting Heimeshoff an extension to the appeal deadline to provide additional evidence and retaining two additional physicians to review her claim, Hartford issued its final denial of benefits on November 26, 2007. On November 18, 2010, Heimeshoff filed suit in district court seeking review of her denied claim under ERISA’s judicial review provision, known as ERISA Section 502. Hartford and Wal-Mart asked the court to dismiss her suit because she did not file the case within the limitations period provided for in the plan, namely within three years after the time that written proof of loss is required to be furnished to Hartford. The district court agreed that the lawsuit was untimely and dismissed her case. On appeal, the Second Circuit affirmed. The U.S. Supreme Court agreed to hear the case in order to resolve a split among the Courts of Appeal on the enforceability of an ERISA plan’s contractual limitations period.

ERISA Contractual Limitations Provisions Should Be Enforced As Written

The long-term disability plan at issue stated that legal action against Hartford could not be taken more than three years after the time that written proof of loss is required to be furnished according to the terms of the policy. Written proof of loss is necessarily due before Hartford and the participant complete the internal review process and before a plan participant is notified of a final denial of benefits which is necessary before filing a lawsuit in court. The result of this contractual limitations period is that a participant has less than three years to file a lawsuit in court after learning that their benefit claim has been finally denied.

In reviewing whether to enforce this limitations period, the Supreme Court relied on well-established precedent which states that in the absence of a limitations period provided by a controlling statute, a provision in a contract may validly limit the time for parties to bring an action on such contract to a period less than that prescribed in the general statute of limitations as long as the shorter period is reasonable. The Court noted that ERISA does not specify a statute of limitations. Consequently, the Court ruled that a participant and a plan may agree by contract to a particular limitations period as long as it is reasonable.

Heimeshoff argued that the contractual limitations period at issue was not reasonable because it began to run before a claimant could exhaust the internal review process which is required before seeking judicial review. The Court unanimously disagreed, concluding that the three-year limitations period from the date that proof of loss is due was not unreasonably short and therefore, was enforceable. Although Hartford’s administrative review process took longer than usual, Heimeshoff still had approximately one year to file suit before the limitations period was up. Because Heimeshoff filed her lawsuit more than three years after her proof of loss was due, as required contractually by the plan, her complaint was time barred. Therefore, the Court upheld the dismissal of Heimeshoff’s suit.

Significance for Employee Benefit Plans

The Court’s decision is welcome news for insurers and employers who want efficient resolution of ERISA claims disputes. Plan documentation should be reviewed, and where appropriate, language should be added or clarified to provide a reasonable limit on the time a participant has to bring a lawsuit to challenge a denied claim for benefits.

Disclaimer: This article is designed to provide general information on pertinent legal topics. The statements made are provided for educational purposes only. They do not constitute legal advice and are not intended to create an attorney-client relationship between you and Holland & Hart LLP. If you have specific questions as to the application of the law to your activities, you should seek the advice of your legal counsel.

December 9, 2013

Holiday Party Checklist—Plan Ahead to Minimize Employer Risks

By Mark Wiletsky

Delicious food, fine wines, music, camaraderie, laughter – all ingredients for a great holiday get-together. What could go wrong? Too much, unfortunately. Employees may drink too much, act inappropriately, offend co-workers or guests, hurt themselves or others, or even start a brawl. Depending on the circumstances, your company may find itself potentially liable for the inappropriate or unlawful actions of your employees at company-sponsored parties. You can help minimize the risks associated with holiday parties by following these five tips.

Avoid or Limit Alcohol

Employers face potential liability when providing alcohol at a company holiday event when someone gets hurt due to drunk driving, falling down, etc., or when inappropriate behavior crosses the line from embarrassing to unlawful, such as sexual harassment or violence during an argument. You can limit your company’s exposure for such conduct by either banning alcohol entirely (we know that may not be well-received in some situations), or limiting each person’s consumption through the use of drink tickets or a 2-drink limit. If you choose to allow alcohol at your events, don’t allow free access to the alcohol (e.g., open bar, self-serve beer or unlimited wine bottles). Instead have a professional, licensed bartender serve the alcohol as they are trained not to over-serve patrons. Be sure to offer plenty of food and non-alcoholic beverages. Arrange for taxis or hotel stays if someone over-indulges. Schedule the event during the week so folks are less inclined to get carried away. Set an end time for the party and shut down the bar at least a half hour before the event closes. Do not authorize or condone “after parties.” Finally, designate some supervisors or managers to refrain from drinking alcohol to make sure things don’t get out of hand.

Keep Harassing Behavior in Check

Make sure that your sexual harassment policy is up-to-date and that it applies to company parties, even if held off company premises. Send out a reminder to employees in advance of the party that all company policies, including those prohibiting harassment and other inappropriate conduct, apply to the party. Consider making the event a family party where employees may bring their spouse, significant other, or children as the presence of family members and children often deters inappropriate behavior which could give rise to a harassment complaint. Make sure that supervisors and managers watch out for potentially harassing conduct and are trained to intervene as necessary.

Respect Religious Differences and Keep the Party Neutral

Although many holidays toward the end of the year are religious in nature, be sensitive to your employees’ varying religious beliefs and avoid any conduct that could be construed as favoring one religious group over another. Refrain from calling your party a “Christmas Party” and stick with the neutral “Holiday Party” instead. Do not make attendance at the company-sponsored events such as parties, volunteer activities, food drives or other holiday outings mandatory. Make sure the timing of the company party does not exclude any employees for religious reasons. For example, because the Jewish Sabbath starts on Friday night, a party on a Friday evening may exclude Jewish employees. Avoid decorating with religious symbols, such as nativity scenes, menorahs or angels. There are plenty of neutral decorations, such as snowflakes, holly and reindeer, that can be used instead.

Be Wary of Gift Exchanges

Gift exchanges between employees may seem innocuous enough, but consider the potential issues a gift exchange may cause. Employees may not be able to afford to participate, even within a recommended cost guideline. Other employees may give sexy or “funny” gifts that end up offending others. The best practice is to avoid a company or department sponsored gift exchange altogether. If you decide to allow one among your employees, make sure it is entirely voluntary and no one is pressured or made to feel uncomfortable for not participating. Set cost guidelines and remind participants that gifts must be appropriate for the workplace.

Remember Wage and Hour Laws

If you assign any non-exempt employees to plan, prepare for and staff the party, their hours are likely work hours for which they must be paid. For example, if your office receptionist is required to be at the door of your holiday party to greet guests and hand out name tags, that individual is likely working and you need to include those hours in his or her weekly work hours when determining regular and overtime wages. You do not need to pay employees who are attending the party if their attendance is voluntary and they are not expected to provide services that benefit your organization.

Follow this checklist and you’ll avoid last minute holiday headaches and keep your organization out of trouble.

December 3, 2013

Divided Fifth Circuit Overturns D.R. Horton on Enforceability of Employer’s Arbitration Agreement Prohibiting Class Claims

By Jeffrey T. Johnson

In a much-anticipated decision, the Fifth Circuit Court of Appeals rejected the National Labor Relations Board’s controversial D.R. Horton decision, which held that an arbitration agreement requiring an employee to waive his or her right to bring class claims violated the National Labor Relations Act (NLRA). Agreeing with its sister circuit courts, the Fifth Circuit held that the NLRA did not override the Federal Arbitration Act (FAA) meaning the employer’s arbitration agreement must be enforced according to its terms, including the agreement’s preclusion of class claims. D.R. Horton, Inc. v. NLRB, No. 12-60031 (5th Cir. Dec. 3, 2013). The Court upheld, however, the NLRB’s finding that the arbitration agreement could be misconstrued by employees as precluding the filing of unfair labor practice charges which violates Section 8(a)(1) of the NLRA.

Arbitration Agreement Prohibiting Class Claims Does Not Violate NLRA

The Fifth Circuit’s ruling puts to rest a thorny issue for employers who have struggled with the Board’s D.R. Horton decision. The controversy arose in early 2012 when the NLRB concluded that home builder D.R. Horton violated Sections 7 and 8(a)(1) of the NLRA by requiring employees to sign a Mutual Arbitration Agreement that precluded employees from filing class or collective claims related to their wages, hours or other working conditions. In re D.R. Horton, Inc., 357 NLRB No. 184 (Jan. 3, 2012). The Board found that the agreement interfered with the exercise of employees’ substantive rights under Section 7 of the NLRA which allows employees to act in concert with each other for their mutual aid or protection.

Two of the three judges on the Fifth Circuit panel disagreed. First, the majority found that the use of class action procedures is not a substantive right but is instead a procedural device. Then, the judges analyzed whether there is a conflict between the NLRA and the FAA that would preclude application of the FAA to enforce the arbitration agreement according to its terms. Relying on the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), the Fifth Circuit determined that requiring a class mechanism is an impediment to arbitration and violates the FAA so the Board’s attempt to fit its rationale into the FAA’s “savings clause” failed. The Court then concluded that neither the NLRA’s statutory text nor its legislative history contains a congressional command to override the FAA. Failing to find an inherent conflict between the NLRA and the FAA, the Court ruled that the arbitration agreement must be enforced according to its terms under the FAA.

The Fifth Circuit pointed out that every one of its sister circuits to consider this issue had refused to defer to the NLRB’s rationale in D.R. Horton, and had held arbitration agreements containing class waivers enforceable. The two judges in the majority stated, “we are loath to create a circuit split.” Judge Graves dissented, stating that he agreed with the Board that the arbitration agreement interfered with the exercise of employees’ substantive rights under Section 7 of the NLRA.

Agreement Violates NLRA Because Employees Might Believe it Prohibits Filing Unfair Labor Practice Charges

The arbitration agreement used by D.R. Horton required that employees agree to arbitrate “without limitation[:] claims for discrimination or harassment; wages, benefits, or other compensation; breach of any express or implied contract; [and] violation of public policy.” Although the agreement provided four exceptions to arbitration, none of the exclusions referred to unfair labor practice charges. All three judges found that this could create a reasonable belief that employees were waiving their administrative rights, including the right to file unfair labor practice charges under Section 8(a)(1) of the NLRA. Therefore, the Court enforced the Board’s order that D.R. Horton violated Section 8(a)(1) because an employee would reasonably interpret the arbitration agreement as prohibiting the filing of a claim with the Board, validating the need for D.R. Horton to take the ordered corrective action.

Challenges to Composition of the Board Rejected

While this case was on appeal to the Fifth Circuit, the D.C. Circuit issued its Noel Canning decision which vacated an order of the three-member panel of the Board by ruling that recess appointments of the panel members were invalid. Noel Canning v. NLRB, 705 F.3d 490 (D.C.Cir. 2013) cert. granted 133 S.Ct. 2861 (U.S. June 24, 2013)(No. 12-1281). Because the panel that decided the D.R. Horton case included a member appointed by recess appointment, the Fifth Circuit asked the parties to submit briefs on whether it must consider the constitutionality of the recess appointments. The Court ultimately decided it need not consider the issue, finding that it retained jurisdiction to resolve the dispute at hand and leaving it to the U.S. Supreme Court to decide the constitutionality of the Board’s recess appointments. The Fifth Circuit also rejected D.R. Horton’s challenges that Board Member Becker’s recess appointment expired before the Board issued its decision, and that the Board had not been delegated authority to act as a three-member panel.

Favorable Result for Employers

Although there are pros and cons to using arbitration agreements in the employment context, today’s ruling by the Fifth Circuit (absent review by the Supreme Court) removes the impediment to incorporating class action waivers in employment arbitration agreements. The decision reinforces, however, that certain language within an arbitration agreement may violate the NLRA if it is reasonably seen as limiting an employee’s right to file an unfair labor practice charge. Employers should consult with employment counsel to review whether arbitration agreements are appropriate for their workforce, and if so, to ensure the wording of the agreement is enforceable.

November 14, 2013

No Age Discrimination Established by “Shelf Life” Comment

By Mark Wiletsky

An HR manager asks about an employee’s “shelf life” in an instant message to another HR manager. Evidence of age discrimination? The employee argued it was, but the Tenth Circuit Court of Appeals ruled it was not. In Roberts v. IBM, the Court recently held that the comment did not amount to direct evidence of age discrimination and “was nothing worse than an inartful reference to [the employee’s] queue of billable work.” The employee’s alternative argument that the term “Project Blue” somehow constituted evidence of age discrimination similarly failed.

Employee Terminated For Poor Performance

George Roberts worked for IBM and was assigned to provide technical assistance to one of IBM’s clients, the Williams Companies (Williams). Williams’ employees repeatedly complained about Roberts’ work, resulting in a critical performance review. Although a subsequent review reflected some improvement, he later received more criticism. IBM offered Roberts the option of resigning with a severance package or committing to a 60-day performance improvement program with the understanding that failure to show sustained improvement would lead to termination. Roberts chose to complete the program. Once again, although he showed some improvement, the client continued to complain. IBM terminated Roberts for his continued negative performance.

Absence of Direct Evidence of Age Discrimination

Roberts sued IBM in federal court, alleging that instant messages between two HR managers showed that IBM fired him because of his age. The HR managers were discussing whether IBM should eliminate Roberts’ position because he did not have enough billable work to do. One of the HR managers questioned Roberts’ “shelf life,” which he argued referred to his age. The Court, however, disagreed, finding that the fair reading of the comment within the context of their discussion was that it referred to his workload, not his age. The Court found that any inference related to the “shelf life” comment would, at most, be circumstantial rather than direct evidence of age discrimination.

Roberts then asserted that the name “Project Blue,” which was IBM’s program of eliminating positions that were not cost-justified, constituted direct evidence of age discrimination. Surmising that Roberts believed that “blue” referred to older people who sometimes have blue hair, the Court rejected the argument, stating that the HR department’s use of the color blue cannot reasonably be taken as a reference to anyone’s age, especially in light of the fact that IBM is itself often called “Big Blue.” Moreover, because Roberts was not terminated as part of that project but through a different process months later, the project name could not lead to the conclusion that IBM fired him because of his age.

No Evidence of Pretext

Leaving no stone unturned, the Court then considered whether Roberts’ claim could proceed as a circumstantial case of age discrimination. Under the McDonnell Douglas burden-shifting analysis, if a terminated employee can establish a prima facie case of discrimination, the burden shifts to the employer to provide a legitimate, non-discriminatory reason for firing the employee. Upon such showing, the employee can still succeed on his or her claim by establishing that the employer’s reason is a mere pretext for discrimination. In this case, assuming (without deciding) that Roberts could establish a prima facie case of discrimination, the Court held that Roberts could not show that IBM’s legitimate, non-discriminatory reason for terminating him was pretext.

Roberts’ poor performance was well-documented and even if there were times where his performance improved, the prior improvements were not sufficient to show that later unsatisfactory evaluations were pretextual. Roberts also tried to show pretext by pointing to a handful of other employees for whom IBM received customer complaints but who were not disciplined for it. The Court found that some of the other employees were not similarly situated as they were not supervised by the same HR manager as Roberts. In addition, none of the other employees had the extensive history of performance issues as Roberts. Therefore, the Court held that Roberts failed to establish any sign of pretext.

The Court went on to reject Roberts’ state law claims as well.

Even Informal Communications Can Land You in Court

While IBM won this case, it also serves as an important reminder for managers and human resources personnel to be careful when discussing employees via e-mail and instant messaging. Avoid using words or phrases that can be taken out of context or have multiple meanings. It is sometimes easy to use shorthand or be informal when communicating via e-mail, or text or instant messaging. But such communications are discoverable, and when taken out of context or misinterpreted, they can turn an otherwise legitimate termination into a hotly contested case. To avoid that from happening, train your managers, supervisors and HR personnel to draft all communications carefully and deliberately, even if using more informal communication technology.