The Benefits and Employment Observer

Video Surveillance and ERISA Disability Claims

2011-12-09T10:34:00.003-05:00

Many insurance companies use video surveillance in an attempt to "prove" that participants in ERISA-governed disability benefit plans are not "disabled" within the meaning of the plans. However, often times, the surveillance video footage doesn't really have any bearing on the individual's claimed disability. Insurance companies frequently require participants to submit to independent medical exams during the benefit application and appeal process and/or after benefits have already been granted. The companies then hire private investigators to take video footage of the participant the day of the exam. The investigators, in turn, videotape the participants leaving their homes, driving to the appointments, and returning home. Frequently, the video footage will show that the participant stopped to pick up a few groceries or dry cleaning on the way home. The insurers then argue that the video footage is proof that the participant is not "disabled" from performing their job duties.

Courts have historically been persuaded by this video evidence, even where it doesn't show the individual doing anything inconsistent with the claimed disability (i.e., just because one can drive to an appointment or carry a few groceries, doesn't mean that one can sit in front of a computer for the entirety of an eight hour work day). A recent case from the United States Court of Appeals for the First Circuit (the federal appellate court covering most of New England) shows that at least some courts will not be persuaded by such tactics. In Maher v. Massachusetts General Hospital Long Term Disability Plan (1st Cir., No. 10-1321, 12/7/11), the First Circuit ruled that a long-term disability benefit plan administrator gave too much weight to video surveillance of a plan participant's activities when it reviewed the participant's benefit claim, and thus the participant's claim had to be remanded to the administrator.

By way of background, Deborah Maher received long-term disability benefits through the Massachusetts General Hospital's long-term disability plan for chronic fibromyalgia. After five years, the plan's claim processor terminated Maher's benefits because surveillance videos showed Maher engaged in physical activity and playing with her son. The claim processor said that Maher was not totally disabled and could perform a sedentary nursing job. On administrative appeal, the plan administrator—Partners HealthCare System Inc.—upheld Maher's benefit termination. Maher then filed a lawsuit U.S. District Court for the District of Massachusetts. Applying a deferential standard of review, the district court upheld the plan's termination of Maher's benefits. In vacating the lower court's motion for summary judgment for the plan, the First Circuit failed to find any inconsistency between the video surveillance and the participant's claim of total disability. After working as a registered nurse, Maher subsequently appealed to the First Circuit. The appeals court was not persuaded, stating that Partners' video surveillance of Maher “confirm[ed] her lifestyle as generally housebound.” According to the court, 30 minutes of playing with her child in 90 hours of surveillance could not support the termination of Maher's benefits. The weight given to surveillance depends on both the amount and nature of the activity, the court said.

Settlement on the Horizon in Wal-Mart "Excessive Fee" 401(k) Lawsuit

2011-12-08T14:05:00.004-05:00

The United States District Court for the Western District of Missouri granted preliminary approval earlier this week to a $13.5 million settlement of a putative "excessive fee" class action filed by participants in Wal-Mart Stores Inc.'s Section 401(k). In granting preliminary approval of the settlement, the District Court in Braden v. Wal-Mart Stores Inc., W.D. Mo., No. 6:08-cv-03109-GAF. noted that it was “preliminarily satisfied” that the settlement was “fair, reasonable, and adequate, such that it is appropriate to consider whether to certify a class for settlement purposes, whether the Settlement is sufficient to warrant issuance of notice to Class members, and whether the proposed notices adequately inform Class members of the material terms of the Settlement and their rights relating thereto.”

If the settlement is approved, Wal-Mart and co-defendant Merrill Lynch & Co. will pay $13.5 million to the participants, which will include attorneys' fees and costs. In addition, Wal-Mart's retirement plan committee will be required to: (1) retain an independent fiduciary to provide advice and recommendations on selecting and monitoring plan investment options; (2) review the consultant or independent adviser for conflicts of interest on an annual basis; (3) continue to make available to participants web-based investment education resources, including a retirement planning calculator; (4) remove and preclude the addition of fund investment options that are retail mutual funds; funds that pay Rule 12b-1 fees under federal securities law; and funds that provide revenue sharing, per-position or per-participant subtransfer agent fees, or other fees, to any party-in-interest as defined in Section 3(14) of the Employee Retirement Income Security Act, including the plan's trustee or recordkeeper; and (5) consider adding additional low-cost index funds as plan options.

By way of background, a plan participant filed a lawsuit in 2008 alleging that between January 2002 and the date he filed the lawsuit, the plan paid somewhere between $62 million and $92 million in fees to the plan's service providers. The plan, one of the largest Section 401(k) plans in the United States, offered its participants various investment choices, including 10 mutual funds, a common/collective trust, Wal-Mart common stock, and a stable value fund. All 10 of the mutual funds were retail class shares, which are generally more expensive than institutional class shares available to large retirement plans. The 10 mutual funds were predominantly actively managed rather than passively managed, which resulted in higher expenses, the lawsuit alleged.The Plaintiff further alleged in his lawsuit that the plan's fiduciaries who were responsible for the selection of the plan's investment options failed to prudently and loyally evaluate the investment options for participants and that they instead selected unreasonably expensive mutual funds that substantially diminished the retirement savings of plan participants. The lawsuit also alleged that the fiduciaries engaged in prohibited transactions under ERISA by allowing plan assets to be paid to the plan's trustee, Merrill Lynch, in the form of revenue-sharing payments. In addition, the lawsuit asserted that the fiduciaries breached their duties by failing to completely and accurately inform the plan's participants about the impact the mutual funds' excessive fees had on their retirement savings.

NLRB Votes To Shorten Timelines in Representation Elections

2011-12-07T10:09:00.004-05:00

The National Labor Relations Board voted 2-to-1 last week to approve a resolution to proceed with a limited number of amendments to the NLRB election process. The amendments are drawn from a more comprehensive proposal put forward by the Board in June. Chairman Mark Pearce and Member Craig Becker voted in favor of the resolution, while Member Brian Hayes voted against it, during a one-hour public meeting at Board headquarters on Wednesday, Nov. 30. A video recording of the meeting is available on the Board website (www.nlrb.gov). As a result of the vote, a final rule will be drafted containing the proposed six amendments, which seek to reduce "delays" and "unnecessary" (in the words of the NLRB") litigation in the pre-election process. The final rule will be subject to approval of the Board, and if approved, will be published in the Federal Register.

The Board's action is a result of the failure of the Employee Free Choice Act ("EFCA") to pass Congress. In June, the Board submitted a proposal to compress the union representation election process into a shorter time frame. That proposal drew criticism from some in Congress and the business community, who argued that shortening the (what many employers view as an already short) time frame would deprive employers of the ability to effectively communicate their views to employees regarding union representation prior to elections. This, according to the critics, would result in an unbalanced playing field - with unions being able to communicate with employees about the benefits of union representation both pre- and post-petition (i.e., over a lengthy period of time) and employers' communications with employees in this regard being limited to a matter of days or weeks.

Last week, Board Chairman Mark Pearce offered a modified version of new regulations without some of the most controversial portions. The cumulative effect of these provisions is to shorten the time before a representation election is conducted following the filing of an election petition by a union seeking to represent a group of employees. As relevant here, the Resolution provides as follows:

• Appeals to the Board pertaining to both pre-election and post-election issues are consolidating into one post-election "request for review," resulting in a shortened period from petition filing to election.
• By eliminating the possibility of appealing pre-election matters, the time between the filing of an NLRB election petition and an election will be significantly reduced.
• The NLRB Hearing Officer will determine whether post-election hearing briefing is necessary.
• The Hearing Officer may reject an attempt by the parties to fully litigate issues not deemed to be related to a "Question Concerning Representation" ("QCR"). Although the Board has not yet defined that term for purposes of the rule, there are indications that the majority does not consider determination of an individual's supervisory status to be relevant to the determination of a QCR. That often crucial initial question for employers would be put off until after the election, where long and drawn out hearings could defeat the majority's articulated quest for speedy resolution.

The portions "left for future consideration" from the original proposal are:
• Electronic filing of election petitions;
• Mandatory scheduling of hearings seven days after the notice of hearing is served;
• Filing of position statements by the parties;
• Inclusion of telephone numbers and e-mail addresses on the Excelsior voting list; and
• Reducing an employer's time to file an Excelsior voting list from seven to two working days.

The Resolution must still go through formal drafting procedures and a final vote followed by review by the Office of Management and Budget. However, since Member Becker's appointment expires at the end of the year and the Board will be unable to act with only two members in place, it is expected that Board action will occur before December 31.

Court Rules for Xerox on Remand in Frommert v. Conkright

2011-12-01T10:11:00.003-05:00

The United States District Court for the Western District of New York ruled recently that Xerox Corp.'s pension plan administrator reasonably determined that Xerox can offset the accrued benefit of employees rehired by the company prior to 1998 by the actuarial equivalent of their earlier lump-sum distributions. (Frommert v. Conkright, W.D.N.Y., No. 00-CV-6311L, 11/17/11). In so ruling the District Court afforded deference to the administrator's plan interpretation, following the United States Supreme Court's remand of the case.

The case arose from a dispute over Xerox's use of a “phantom account offset” to calculate the benefits of employees who were rehired after they had previously received lump-sum distributions of their pension benefits. A group of employees argued that the use of this offset violated ERISA. In 2004, the District Court ruled that Xerox did not illegally reduce benefits by applying the offset . On appeal, the U.S. Court of Appeals for the Second Circuit ruled that Xerox had violated ERISA's anti-cutback provision, and remanded the case to the district court, instructing it to craft a remedy. The administrator proposed taking prior distributions into account by expressing those distributions as an annuity starting at normal retirement age. According to the administrator, this approach would offset each employee's accrued benefit by the actuarial equivalent of the prior lump-sum distribution. The District Court did not give any deference to this proposed interpretation and instead ruled that Xerox had to pay anyone rehired prior to 1998 who had received a distribution of benefits the difference between the lump-sum pension benefits they received when they first left Xerox and the benefit they earned after they were rehired. The Second Circuit affirmed. In April of 2010, the Supreme Court ruled that the lower courts had to give deference to the administrator's interpretation of the plan with respect to the treatment of prior distributions to employees who were rehired prior to 1998 and remanded the case to the Second Circuit, which in turn remanded the case to the district court.

In the current decision, the District Court, guided by the Supreme Court's “admonitions,” ruled the administrator's proposed interpretation was reasonable and accepted that interpretation. The District Court said the administrator's interpretation reasonably and equitably took into account the time value of money. According to the District Court, the administrator's proposal was a reasonable attempt to apply the plan in a way that took into account prior distributions, consistent with what was disclosed to the employees in plan summaries and other communications. The District Court rejected the employees' argument that the administrator's interpretation could not stand because they were not provided with adequate notice of any “appreciated” offset to their benefits. The District Court noted the administrator's proposal was equitable because the employees were on notice that some offset would be applied to their prior distributions.

Is UGLY a Protected Class Under the Employment Discrimination Laws?

2011-11-22T10:12:00.004-05:00

Check out this humorous clip from Comedy Central Network's the Daily Show, in which a well-respected economist at the University of Texas notes that how a person looks has an impact on pay and suggests that "ugly" should be a protected classification under the employment laws. Obviously, the Daily Show clip is meant to entertain (if not offend) and make the viewer laugh (or become enraged), but the issue is a real one. Economic studies show that attractive people earn more on average than less-attractive individuals. A recent article by a well-respected law professor noted that "unattractive" graduates of her law school earned significantly less on average than "attractive" graduates.

http://www.thedailyshow.com/watch/mon-november-14-2011/ugly-people.

Bailey & Ehrenberg Recognized By U.S. News

2011-11-03T08:43:00.002-04:00

The Washington D.C. law firm Bailey Ehrenberg PLLC was recently recognized by, and listed in, U.S. News and World Reports for its ERISA litigation expertise. See http://lnkd.in/M96BS9

Employers Must Be Careful In Regulating Employees' Use of Social Media

2011-09-26T09:24:00.003-04:00

There are interesting article in today's Chicago Tribune and Washington Post regarding companies' efforts to limit what their employees say about work online without running afoul of the law. According to the articles (http://www.chicagotribune.com/business/breaking/chi-nlrb-juggling-more-facebook-social-media-cases-20110926,0,6993316.story) (http://www.washingtonpost.com/business/technology/firings-discipline-over-facebook-posts-lead-to-surge-in-legal-disputes/2011/09/26/gIQAPN1ByK_story.html), confusion about what workers can or can't post has led to a surge of more than 100 complaints at the National Labor Relations Board (most within the past year) and created uncertainty for businesses about how far their social media policies can go. According to the articles, in one case, a car salesman was fired after going on Facebook to complain that his BMW dealership served overcooked hot dogs, stale buns and other cheap food instead of nicer fare at an event to roll out a posh new car model. The NLRB's enforcement office found the comments were legally protected because the salesman was expressing concerns about the terms and conditions of his job, frustrations he had earlier shared in person with other employees. The article notes that the NLRB's attorneys reached the opposite conclusion in the case of a Wal-Mart employee who went on Facebook to complain about management "tyranny" and used an off-color Spanish word to refer to a female assistant manager. In that matter, the board's attorneys said the postings were "an individual gripe" rather than an effort to discuss work conditions with co-workers and declined to take action against Wal-Mart. The articles goes on to note that the number of filings of such complaints increased greatly last year after the NLRB sided with a Connecticut woman fired from an ambulance company after she went on Facebook to criticize her boss. That case settled earlier this year, with the company agreeing to change its blogging and Internet policy that had banned workers from discussing the company over the Internet.

The articles are timely, as employees' use of social media and the limits on employers ability to regulate such use are developing areas of law. Social media comes into play in all aspects of workplace law, including in the area of employee benefits. For instance, many employers and insurance companies have denied (and/or attempted to deny) employees' claims for long term disability benefits or claimed need for family and medial leave where employees claimed an inability to work due to severe depression but subsequently posted pictures of themselves dancing, vacationing and and smiling on Facebook (i.e., the employees were yucking it up while they were out on disability or medical leave allegedly due to severe depression). It will be interesting to see how the law develops around these issues. Employers and employees should stay tuned for more.

DOL To Re-Propose Rule on Definition of Fiduciary

2011-09-25T19:31:00.002-04:00

The U.S. Department of Labor's (DOL) Employee Benefits Security Administration (EBSA) will re-propose its rule on the definition of a fiduciary. According to EBSA, the re-proposal is designed to inform judgments, ensure an open exchange of views and protect consumers while avoiding unjustified costs and burdens. The decision to re-propose is in part a response to requests from the public, including members of Congress, that the agency allow an opportunity for more input on the rule. This extended input will supplement more than 260 written public comments already received by EBSA, as well as two days of open hearings and more than three dozen individual meetings with interested parties held by the agency. According to an EBSA press release, the DOL anticipates revising provisions of the rule including, but not restricted to, clarifying that fiduciary advice is limited to individualized advice directed to specific parties, responding to concerns about the application of the regulation to routine appraisals and clarifying the limits of the rule's application to arm's length commercial transactions, such as swap transactions. Also anticipated are exemptions addressing concerns about the impact of the new regulation on the current fee practices of brokers and advisers, and clarifying the continued applicability of exemptions that have long been in existence that allow brokers to receive commissions in connection with mutual funds, stocks and insurance products. DOL/EBSA is seeking to amend a 1975 regulation, which defines when a person providing investment advice becomes a fiduciary under the Employee Retirement Income Security Act (ERISA), in order to (according to DOL/EBSA) adapt the rule to the current retirement marketplace. The proposal's goal is (again, according to DOL/EBSA) to ensure that potential conflicts of interest among advisers are not allowed to compromise the quality of investment advice that millions of American workers receive.

Bailey & Ehrenberg PLLC Announces Arrival of Terrence M. Deneen

2011-09-25T19:29:00.000-04:00

Bailey & Ehrenberg PLLC is pleased to announce that Terrence M. Deneen, formerly Chief Insurance Program Officer at the federal Pension Benefit Guaranty Corporation, has joined the firm as Of Counsel. As the CIPO from 2004 until his retirement in early 2011, Terry was one of the highest-ranking career employees at PBGC and led the staff of nearly 150 attorneys, financial analysts, and actuaries who represent the agency in negotiations, bankruptcies and litigation with plan sponsors, including in high profile matters such as the Chrysler, General Motors, and Delphi bankruptcies. He is well-known for his work with underfunded multiemployer retirement plans and financially distressed corporate plan sponsors.

Terry began his career with PBGC as a staff attorney from 1978-81 and helped secure the passage of the landmark Multiemployer Pension Plan Amendments Act of 1980, the first significant amendment to ERISA. Terry returned to PBGC in 1992 following a stint in private practice, and served in senior legal positions before his appointment as CIPO. With this move, Terry re-unites with B&E partner Jeff Cohen as they team up for the third time in their careers. In the early 1980’s they worked together on the legal staff of the UMWA Health & Retirement Funds, and then served the public together in senior positions at PBGC for many years. Terry is a Charter Fellow of the American College of Employee Benefits Counsel and a recipient of PBGC’s Distinguished Career Service Award.

The addition of Mr. Deneen and his unparalleled depth and breadth of knowledge and experience in ERISA matters is the latest step in the growth of B&E’s employee benefits practice. The firm advises on all aspects of employee benefits law and litigates a broad range of benefits issues. Bailey & Ehrenberg PLLC handles the most sophisticated legal matters while providing clients with personalized service. Our partners are experienced attorneys with solid reputations as strategic problem solvers, skilled negotiators, and aggressive litigators. Please contact our offices to find out how we can help you or your organization.

EEOC Tries to Catch a Big Fish - Sues Bass Pro Shops

2011-09-25T19:25:00.002-04:00

In a lawsuit filed last week, the United States Equal Employment Opportunity Commission (EEOC) alleged that Bass Pro Outdoor World, LLC (Bass Pro), a nationwide retailer of sporting goods, apparel, and other miscellaneous products, engaged in a pattern or practice of failing to hire African-American and Hispanic applicants for positions in its retail stores nationwide, and retaliated against employees who opposed the discriminatory practices. According to the EEOC’s suit filed in U.S. District Court for the Southern District of Texas, Houston Division (Civil Action No. 4:11-CV-3425), Bass Pro has been discriminating in its hiring since at least November 2005. The EEOC’s suit alleges that qualified African-Americans and Hispanics were routinely denied retail positions such as cashier, sales associate, team leader, supervisor, manager and other positions at many Bass Pro stores nationwide. The lawsuit also alleges that managers at Bass Pro stores in the Houston area, in Louisiana, and elsewhere made overtly racially derogatory remarks acknowledging the discriminatory practices, including that hiring black candidates did not fit the corporate profile. The lawsuit also claims that Bass Pro unlawfully destroyed or failed to keep records and documents related to employment applications and internal discrimination complaints. Bass Pro punished employees who opposed the company’s unlawful practices, in some instances firing them or forcing them to resign. If true, this alleged behavior would violate Title VII of the Civil Rights Act of 1964, which prohibits discrimination based on race and national origin, and prohibits employers from retaliating against employees who complain about employment discrimination and requires them to keep certain employment records.

The EEOC’s administrative investigation culminated in findings of class-wide hiring discrimination based on statistical and anecdotal evidence, and retaliation. The EEOC attempted to reach a voluntary settlement with Bass Pro before filing suit. The lawsuit seeks a permanent injunction prohibiting Bass Pro from engaging in race discrimination, national origin discrimination, retaliation, and improper record destruction. It also seeks back pay on behalf of victims of hiring discrimination and/or retaliation, compensatory and punitive damages and other relief, including implementing fair recruitment and hiring procedures, and reinstatement or rightful-place hiring of mistreated job applicants and former employees.

IRS Announces Independent Contractor Misclassication Correction Program

2011-09-22T15:22:00.003-04:00

The Internal Revenue Service (IRS) has developed a new program to permit taxpayers to voluntarily reclassify workers as employees for federal employment tax purposes. The Voluntary Classification Settlement Program (VCSP) allows eligible taxpayers to voluntarily reclassify their workers for federal employment tax purposes and obtain relief similar to that obtained in the current Classification Settlement Program (CSP). The VCSP is optional and provides taxpayers with an opportunity to voluntarily reclassify their workers as employees for future tax periods with limited federal employment tax liability for the past nonemployee treatment. To participate in the program, the taxpayer must meet certain eligibility requirements, apply to participate in VCSP, and enter into a closing agreement with the IRS.

Whether a worker is performing services as an employee or as an independent contractor depends upon the facts and circumstances and is generally determined under the common law test of whether the service recipient has the right to direct and control the worker as to how to perform the services. In some factual situations, the determination of the proper worker classification status under the common law may not be clear. For taxpayers under IRS examination, the current CSP is available to resolve federal employment tax issues related to worker misclassification, if certain criteria are met. The examination CSP permits the prospective reclassification of workers as employees, with reduced federal employment tax liabilities for past nonemployee treatment. The CSP allows business and tax examiners to resolve the worker classification issues as early in the administrative process as possible, thereby reducing taxpayer burden and providing efficiencies for both the taxpayer and the government.

In order to facilitate voluntary resolution of worker classification issues and achieve the resulting benefits of increased tax compliance and certainty for taxpayers, workers and the government, the IRS has determined that it would be beneficial to provide taxpayers with a program that allows for voluntary reclassification of workers as employees outside of the examination context and without the need to go through normal administrative correction procedures applicable to employment taxes.

The VCSP is available for taxpayers who want to voluntarily change the prospective classification of their workers. The program applies to taxpayers who are currently treating their workers (or a class or group of workers) as independent contractors or other nonemployees and want to prospectively treat the workers as employees. To be eligible, a taxpayer must have consistently treated the workers as nonemployees, and must have filed all required Forms 1099 for the workers for the previous three years. The taxpayer cannot currently be under audit by the IRS. Furthermore, the taxpayer cannot be currently under audit concerning the classification of the workers by the Department of Labor or by a state government agency. A taxpayer who was previously audited by the IRS or the Department of Labor concerning the classification of the workers will only be eligible if the taxpayer has complied with the results of that audit.

A taxpayer who participates in the VCSP will agree to prospectively treat the class of workers as employees for future tax periods. In exchange, the taxpayer will pay 10 percent of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year, determined under the reduced rates of section 3509 of the Internal Revenue Code; will not be liable for any interest and penalties on the liability; and will not be subject to an employment tax audit with respect to the worker classification of the workers for prior years. Additionally, a taxpayer participating in the VCSP will agree to extend the period of limitations on assessment of employment taxes for three years for the first, second and third calendar years beginning after the date on which the taxpayer has agreed under the VCSP closing agreement to begin treating the workers as employees.

Eligible taxpayers who wish to participate in the VCSP must submit an application for participation in the program. Information about the VCSP and the application will be available on www.irs.gov. Along with the application, the name of a contact or an authorized representative with a valid Power of Attorney (Form 2848) should be provided. The IRS will contact the taxpayer or authorized representative to complete the process once it has reviewed the application and verified the taxpayer's eligibility. The IRS retains discretion whether to accept a taxpayer's application for the VCSP. Taxpayers whose application has been accepted will enter into a closing agreement with the IRS to finalize the terms of the VCSP and will simultaneously make full and complete payment of any amount due under the closing agreement.

Not A Happy Chanukah - EEOC Sues "Menorah House" For Religious Discrimination

2011-07-27T14:45:00.005-04:00

A Baca Raton nursing and rehabilitation facility violated federal law by firing an employee over Sabbath-keeping issues, the U.S. Equal Employment Opportunity Commission (EEOC) charged in a lawsuit it filed today. According to the EEOC’s suit (EEOC v. Menorah House, case no. 9:11-cv-80825) filed in the U.S. District Court for the Southern District of Florida, that Boca Group LLC, doing business as Menorah House, denied a religious accommodation to Philomene Augustin and fired her because of her religious beliefs. Augustin, who worked at Menorah House as a certified nursing assistant, is a Seventh-Day Adventist, and her Sabbath is from sundown on Friday to sundown on Saturday evening. Menorah House had accommodated Augustin’s request not to work on her Sabbath for over ten years until management instituted a new policy requiring all employees to work on Saturdays, regardless of their religious beliefs. Such alleged conduct, if proven, would violate Title VII of the Civil Rights Act of 1964, which prohibits religious discrimination and requires employers to make reasonable accommodations to employees’ sincerely held religious beliefs so long as this does not pose an undue hardship. According to the EEOC, “[t]he law seeks to strike a balance between reasonably accommodating religious beliefs and respecting legitimate business concerns ... [u]nfortunately, in this case the employer refused its legal obligation to pursue a solution that’s fair for all concerned.” The EEOC filed suit after first attempting to reach a pre-litigation settlement through its conciliation process. The agency is asking the court to grant a permanent injunction enjoining Menorah House from further engaging in any employment practice that discriminates against employees because of their religious belief and requiring the company to reasonably accommodate the religious beliefs of employees. The suit also asks the court to order Menorah House to reinstate Augustin, grant back pay, provide compensatory and punitive damages and award any other relief the court deems necessary and proper.

EEOC Examines Criminal Background Checks

2011-07-26T09:18:00.004-04:00

The Washington Post reports that the United States Equal Employment Opportunity Commission ("EEOC") is holding a hearing today on whether arrest and conviction records are a hiring barrier for minorities. According to the Post article, an increasing number of employers are seeking background checks out of security concerns. Federal policy currently prevents companies from using criminal records to screen out job applicants unless the criminal conduct is job related. The EEOC and other anti-discrimination advocates argue that because African Americans and Hispanics have higher rates of arrest and convictions than whites, they could suffer discrimination if companies do blanket criminal background checks that eliminate them from consideration for a job. The article also reports that credit background checks, which are permitted under federal law, are not up for reconsideration. See www.washingtonpost.com for the full article.

Employers Cutting Workplace Benefits

2011-07-26T09:10:00.005-04:00

There is an interesting article in today's Chicago Tribune on the decline of workplace benefits. According to the article, traditional pension plans, paid family leave, and even the company picnic are all on the decline, as employers have significantly cut many of the benefits they offer to workers over the past five years. Here is a look at the workplace perks that have significantly declined since 2007. Some of the traditional workplace perks that have declined over the past few years include:

Traditional (i.e., defined benefit) pension plans. Traditional pensions were offered at 40 percent of the companies surveyed in 2007. Now just 22 percent of firms provide access to a retirement plan that guarantees payments for life.

Retiree health care coverage. The proportion of companies offering retiree health insurance declined from 35 percent in 2007 to 25 percent in 2011.

Long-term care insurance. Just over a quarter of employers provide long-term care insurance for workers, down from 46 percent in 2007.

HMOs. The number of companies with HMOs decreased from 48 percent in 2007 to 33 percent today.

Paid family leave. A third of companies offered paid family leave in 2007, but now only a quarter of companies provide paid time off for births, deaths, and other significant family events.

Adoption assistance. Adoption assistance is another waning employer benefit, with just 8 percent of companies helping with adoption costs, down from 20 percent five years ago.

Professional development opportunities. While nearly all (96 percent) companies paid for professional development opportunities in 2007, only 87 percent will in 2011.
Life insurance for dependents. About half (55 percent) of companies provide life insurance for children and other dependents, down from 65 percent in 2007

Incentive bonus plans. Incentive bonus plans for high-level employees are down 10 percentage points since 2007.

Casual dress day. Only about half (55 percent) of employers say they encourage or allow employees to dress casually one day per week, down from 66 percent in 2007. Legal assistance. One in five companies provides legal assistance or services to workers, down from a third of employers five years ago.

The company picnic. Only about half (55 percent) of firms scheduled a company picnic in 2011, down from 64 percent in 2007.

See http://www.chicagotribune.com/features/tribu/ct-tribu-benefits-disappearing-story,0,7928170.story for the full article.

Supreme Court Issues Significant ERISA Remedies Decision

2011-07-22T14:29:00.005-04:00

In CIGNA Corp. v. Amara, the United States Supreme Court vacated a federal district court's decision that had ordered CIGNA Corp. to reform its cash balance pension plan to remedy the company's violations of its ERISA notice obligations. In so ruling, the Court had cause to interpret two frequently litigated sections of ERISA - Sections 502(a)(1)(B) and Section 502(a)(3).

By way of background, in February 2008, the U.S. District Court for the District of Connecticut ruled that CIGNA violated ERISA's notice and disclosure requirements when it issued SPDs and summaries of material modifications that did not explain that participants' benefits would be subject to “wear away." In June 2008, the District Court issued a decision addressing the remedies available to the participants for CIGNA's violation of the notice and disclosure requirements of ERISA. The District Court specifically said that the remedies would fall under ERISA Section 502(a)(1)(B), and the court shied away from determining whether the remedies would qualify as equitable remedies under Section 502(a)(3). The district court said the participants were “likely harmed” by the SPDs' failure to mention that benefits would be subject to “wear away” and rejected CIGNA's contention that the participants needed to show they detrimentally relied on the SPDs. In October 2009, the U.S. Court of Appeals for the Second Circuit affirmed the lower court's decision without giving an explanation for its rationale. CIGNA then filed a petition for Supreme Court review, urging the high court to adopt a detrimental reliance standard. The Supreme Court granted review of the case and heard oral arguments last November.

Once the case reached the Supreme Court, CIGNA argued that the only remedy available to the participants for a deficient SPD would be under the equitable remedies provision of ERISA Section 502(a)(3). Thus, CIGNA argued that the District Court's remedies decision should be vacated because it was premised on ERISA Section 502(a)(1)(B). The Supreme Court accepted this argument and ruled that it was an error for the District Court to base its remedies on Section 502(a)(1)(B). According to the Court, although Section 502(a)(1)(B) allows courts to enforce the “terms of the plan,” nothing in Section 502(a)(1)(B) grants district courts the power to change plan terms. Interpreting Section 502(a)(1)(B), the unanimous Court held that the District Court erred when it issued remedies under this provision of ERISA. According to the Court, Section 502(a)(1)(B) cannot be used to enforce the terms of summary plan descriptions, as SPDs do not qualify as “plan terms.”

The Court’s decision did not stop there, a fact that has created a fair amount of controversy in the legal community. The Court went on to find that while Section 502(a)(1)(B) did not authorize the relief issued by the District Court, ERISA Section 502(a)(3)‘s equitable remedies provision conceivably could provide a source of relief. Cigna had argued that, in order for the participants to obtain relief under Section 502(a)(3) for SPD disclosure violations, they had to demonstrate detrimental reliance. The Supreme Court rejected this argument – sort of – stating that ERISA sets out no particular standard for determining whether participants have been harmed by a faulty SPD. According to the Court, although courts of equity traditionally required a plaintiff to prove detrimental reliance when they brought estoppel claims, equity courts did not insist upon a showing of detrimental reliance in other cases that would be analogous to the participants' case against CIGNA. The Court went on to state that other types of equitable remedies, such as surcharge, only required a showing of actual harm. “[A]ctual harm may sometimes consist of detrimental reliance, but it might also come from the loss of a right protected by ERISA or its trust-law antecedents. In the present case, it is not difficult to imagine how the failure to provide proper summary information, in violation of the statute, injured employees even if they did not themselves act in reliance on summary documents—which they might not themselves have seen—for they may have thought fellow employees, or informal workplace discussion, would have let them know if, say, plan charges would likely prove harmful. We doubt that Congress would have wanted to bar those employees from relief.” The Court said that for the plan participants to obtain relief for CIGNA's violations of ERISA's SPD disclosure requirements, they would need to show that they were actually harmed by the violation, but they would not need to prove detrimental reliance.

Justices Scalia and Thomas joined in the Court's decision, stating they agreed with the court that Section 502(a)(1)(B) does not authorize relief for misrepresentations in SPDs. But the two justices said the Court should have gone no further than to find that Section 502(a)(1)(B) provided no remedy. “Nothing else needs to be said to dispose of this case. The District Court based the relief it awarded upon ERISA §502(a)(1)(B), and that provision alone,” Scalia wrote. Scalia asserted that it was not the Court’s usual practice to decide issues that a lower court did not decide. Here, the District Court did not decide whether remedies would be available under Section 502(a)(3) and thus the Supreme Court should not have delved into that issue. Scalia said the Supreme Court had “guessed” that the District Court would have issued remedies under both Section 502(a)(1)(B) and 502(a)(3) had the District Court not been hesitant about the availability of equitable remedies under Section 502(a)(3). “This speculation upon speculation hardly renders our discussion of §502(a)(3) relevant to the decision below; it is utterly irrelevant.” Scalia also said that the Court’s discussion of the Section 502(a)(3) remedies was “purely dicta” and would not be binding on the Supreme Court in future cases, or on the District Court on remand. “The District Court need not read any of it—and, indeed, if it takes our suggestions to heart, we may very well reverse.”

Employers Should Take Care When Using Unpaid Interns

2011-06-09T08:44:00.003-04:00

In a world where the United States’ economy is attempting to recover from a recession and the work force is saturated, some for-profit entities may receive inquiries from individuals about working for them as unpaid interns. For-profit entities should be aware that allowing individuals to work unpaid internships may run afoul of the Fair Labor Standards Act (“FLSA”) if not done pursuant to the narrow exclusion to the FLSA carved out by the Supreme Court.

By way of background, the FLSA places on employers the requirement of paying to all individuals they employ minimum and overtime wages. Accordingly, if an individual is an employee of the employer the FLSA applies. The FLSA defines broadly the term “employ” to include “‘to suffer or permit to work’ and . . . defines ‘employee’ as ‘any individual employed by an employer.’” Walling v. Portland Terminal Co., 330 U.S. 148, 152 (1947) (quoting 29 U.S.C. § 214 (3)(g)). Conceivably then, all unpaid internship could fall under such a broad definition. The Supreme Court has instructed, however, that the FLSA “was obviously not intended to stamp all persons as employees who, without any express or implied compensation agreement, might work for their own advantage on the premises of another.” Id. In other words, the FLSA “cannot be interpreted so as to make a person whose work serves only his own interest an employee of another person who gives him aid and instruction.” Id. Thus, for-profit entities are not subject to the requirements of the FLSA when they hire an intern whose work serves their own interest and only receives aid and instruction from the for-profit entity.

For-profit entities should note that the exclusion is not dependent on statements by individuals and/or the for-profit entities that the individual is working on a “volunteer” basis. As the Supreme Court has stated, “[i]f an exception to the [FLSA] were carved out for employees willing to testify that they performed work ‘voluntarily,’ employers might be able to use superior bargaining power to coerce employees to make such assertions, or to waive their protections under the [FLSA].” Tony & Susan Alamo Found. v. Sec’y of Labor, 471 U.S. 290, 302 (1985). So when does the exclusion apply to unpaid internships?

Recently, the Wage and Hour Division of the DOL established the following test to assist for-profit entities in making the determination of whether the exclusion applies to individuals working unpaid internships. If all of the following criteria apply, the trainee or students are not employees within meaning of the Act:
1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship. (Internship Programs Under The Fair Labor Standards Act).

The test is essentially one of “economic reality” that should be employed on a case by case basis. See Tony & Susan Alamo Found., 471 U.S. at 301.

In sum, for-profit entities should be careful when considering whether to allow an individual to work an unpaid internship. Failure to adequately consider the “economic reality” of the relationship between the intern and the for-profit entity prior to the commencement of the relationship could result in unintended losses for the employer.

Supreme Court Issues Potentially Signficant ERISA Decision

2011-06-03T12:49:00.006-04:00

In CIGNA Corp. v. Amara, --- U.S. ----, 2011 U.S. LEXIS 3540, 50 EB Cases (BNA) 2569 (2011), CIGNA Corporation changed the pension plan for its employees. The employees challenged the change on the ground that “CIGNA had failed to give proper notice of changes to their benefits, particularly because the new plan in certain respects provided them with less generous benefits.” The District Court sided with the employees and ordered that the new plan be reformed finding legal authority to do so in Section 502(a)(1)(B). The Second Court affirmed the District Court’s decision and the parties appealed to the Supreme Court. The Supreme Court granted certiorari on one issue, “whether a showing of ‘likely harm’ is sufficient to entitle plan participants to recover benefits based on faulty disclosures.”

Before reaching the question on which it granted certiorari, the Supreme Court considered, based on CIGNA’s briefing, whether Section 502(a)(1)(B) authorized the relief the District Court awarded. The Supreme Court held that it does not. Rather than stopping there, the Court went on to state, in dicta, that the relief the District Court awarded could be provided under Section 502(a)(3). The Supreme Court reasoned that the relief provided by the District Court closely resembles three other traditional equitable remedies: reformation; equitable estoppel; and surcharge. Importantly, the Supreme Court opined that surcharge was a form of monetary compensation for a loss resulting from a trustee’s breach of duty, or to prevent the trustee’s unjust enrichment. The further stated, “insofar as award of make-whole relief is concerned, the fact that the defendant in this case, unlike the defendant in Mertens, is analogous to a trustee makes a critical difference.” Nevertheless, the Supreme Court remanded the case to the District Court to revisit its determination of an appropriate remedy for the violations of ERISA it identified.

Justice Thomas joined Justice Scalia in concurring in the judgment. Justice Scalia emphasized, however, that neither the District Court nor the parties to the case squarely addressed whether relief was available under 502(a)(3). Thus, Justice Scalia reasoned, “[t]he Court’s discussion of the relief available under [Section] 502(a)(3) and Mertens is purely dicta, binding upon neither us nor the District Court. The District Court need not read any of it—and, indeed, if it takes our suggestions to heart, we may very well reverse.” The Supreme Court’s decision, therefore, places in doubt what relief is available under 502(a)(3) and exactly under what circumstances. These issues will likely be clarified by the lower courts in the time to come.

Another Ruling in the YRCW Stock-Drop Litigation

2011-04-18T11:32:00.003-04:00

The U.S. District Court for the District of Kansas issued another ruling last Friday in In re YRC Worldwide Inc. ERISA Litigation, D. Kan., No. 2:09-cv-02593-JWL-JPO (April 15, 2011 ) that we recently reported on. Specifically, the District Court ruled that ERISA’s fiduciary safe harbor provision, Section 404(c), does not relieve fiduciaries of liability if they assemble an imprudent menu of plan investments. Section 404(c) provides a defense to a breach of fiduciary duty claim if the loss caused by the breach resulted from a plan participant's exercise of control over his or her investments. The plaintiffs in the case filed a motion to strike several of the defendants' asserted affirmative defenses. In their motion to strike the Section 404(c) defense, the plaintiffs cited to the U.S. Court of Appeals for the Seventh Circuit's recent decision in Howell v. Motorola Inc., 663 F.3d 552 (7th Cir. 2011), where the Seventh Circuit adopted the DOL’s view that Section 404(c) does not immunize plan fiduciaries that make imprudent investment selections. The YRC defendants attempted to downplay the significance of Howell by saying the Seventh Circuit's discussion of Section 404(c) was mere dicta. The defendants also argued that even if the Section 404(c) discussion in Howell was not dicta, it extended only to the “selection” of investment options, not the decision to continue offering an investment once it is selected. The District Court rejected the defendants’ arguments stating that (1) the Seventh Circuit's decision regarding Section 404(c) was not dicta and, (2) the Howell opinion “is in no way limited” to the selection of investment options. According to the District Court, “[t]he opinion expressly references the decision ‘to continue offering a particular investment vehicle'—allegations which are clearly encompassed in the Amended Complaint—and the rationale offered by the Seventh Circuit clearly applies to decisions from the initial selection decision to other decisions relating to the investment menu offered under the Plan.” The District Court also rejected the defendants' argument that the court should follow the lead of a minority of federal courts, including the U.S. Court of Appeals for the Fifth Circuit, that have declined to give effect to the DOL’s interpretation of Section 404(c). The District Court noted its belief that, if confronted with this issue, the U.S. Court of Appeals for the Tenth Circuit would conclude, like the Seventh Circuit, that Section 404(c) does not insulate a fiduciary from liability for assembling an imprudent investment menu.

Federal Court Grants Class Certification in YRC Worldwide "Stock-Drop" Litigation

2011-04-07T10:32:00.006-04:00

The United States District Court for the District of Kansas has certified a class of approximately 17,000 YRC Worldwide Inc. (“YRCW”) employees who invested their retirement plan accounts in YRCW stock, and allegedly saw a decline in their accounts balances as the value of the shares plunged. See In re YRC Worldwide Inc. ERISA Litigation, D. Kan., No. 2:09-cv-02593-JWL-JPO (4/6/11). The class certification ruling comes approximately five months after the District court denied YRCW’s motion to dismiss the stock-drop lawsuit filed by employees who claimed the stock should have been taken out of YRCW’s 401(k) plan.

The decision is significant because it provides support for the minority view that the "Moench “presumption of prudence" discussed in our prior blog entries can be overcome at the pleading stage. As we have noted, the Moench presumption more frequently than not prevents plaintiffs from getting to the discovery phase of litigation – as plaintiffs typically cannot, or do not, allege enough facts in their complaint to show that they can rebut the presumption.

The YRCW case involved some interesting class-action stock-drop defense arguments. By way of background, the plaintiffs alleged that the fiduciaries YRCW’s 401(k) plan breached fiduciary duties under ERISA when they continued to invest in YRCW's stock even as the stock price plummeted. The plaintiffs alleged that YRCW’s stock dropped from a high of $25.96 per share in October 2007 to a low of 45 cents per share in March 2010. The fiduciary defendants offered several arguments as to why the court should not certify the lawsuit as a class action. One argument was that the typicality requirement for class certification could not be met in this stock-drop case, where there was no allegation that the fiduciaries failed to make “full disclosure” about YRCW’s financial struggles. [In most of the stock-drop cases, there are two allegations of wrongdoing on the part of ERISA fiduciaries. First, plaintiffs typically allege that plan fiduciaries breached their duty of prudence under Section 404(a) of ERISA by continuing to invest in company stock, even after the stock price spiraled downward. Second, plaintiffs frequently assert that the fiduciaries made misrepresentations or failed to disclose material information about the company's finances, and that had they known this information, the plaintiffs/participants which would have taken other action.] In the YRCW case, there was no allegation that YRCW had not made full disclosure to the participants about the performance YRWC, and the defendants argued that in the absence of a disclosure claim, class certification was inappropriate because the District would need to examine the prudence claim by looking at participants' individual investment choices. The District Court rejected this argument, stating that it could find no legal authority to support the YRCW fiduciaries' position. According to the District Court, “courts presented with both prudence claims and communications claims consistently treat those claims as entirely distinct such that the alleged misrepresentations or nondisclosures appear to have no bearing whatsoever on the prudence claim.”

The District Court also rejected the defendants’ argument that Section 404(c) of ERISA (which provides a defense to a breach of fiduciary duty claim if the loss caused by the breach resulted from a participant's exercise of control over his or her investments). The District Court also rejected the defendants’ argument that the Supreme Court’s 2008 LaRue decision brought an end to class certifications under Federal Rule of Civil Procedure 23(b)(1)(B) for ERISA fiduciary breach claims brought by defined contribution pension plan participants. [Many defendants in stock drop cases have argued that LaRue casts doubt on whether fiduciary breach claims brought under Section 502(a)(2) of ERISA are suitable for class action treatment given that the Supreme Court found in LaRue that individuals can bring their own claims.] According to the District Court, nothing in LaRue prevents class certification under Rule 23(b)(1)(B) of ERISA breach actions brought under ERISA Section 502(a)(2).

Coca-Cola and the Inconsistent Oral Promise

2011-03-10T11:27:00.002-05:00

A participant in Coca-Cola Enterprises Inc.'s ("Coke") pension plan can continue with his claim alleging Coke calculated his benefits in a way that did not account for an oral agreement to not offset his Coke plan benefits with benefits he accrued while he was a union employee and participated in a retirement plan through the union. See Giordano v. Coca-Cola Enterprises Inc., E.D.N.Y., No. 08-0391 (WDW), 3/7/11. The case involved an "inconsistent oral promise" - a situation often confronted in ERISA benefit cases. The issue in such cases is whether courts should recognize oral agreements that conflict with the terms of written plan documents. In general, courts have found that oral promises cannot modify the terms of written ERISA plan documents.

By way of background, the participant began working for Coca-Cola Bottling Co. of New York (CCBCNY) in November 1971 and participated in the Soft Drink and Brewery Workers Union Local 812 retirement plan. He worked for CCBCNY as a union employee for nearly 26 years, until he was promoted to a nonunion position in March 1997. At that time, he ceased to accrue benefits under the union's plan and became a participant in CCBCNY's retirement plan for nonunion employees. CCBCNY's plan for nonunion employees stated that benefits were subject to a reduction for any benefit an employee was eligible to receive on account of participation in a union retirement agreement to which the company contributed. The participant argued that this provision did not apply to him because of an oral agreement negotiated prior to his accepting the nonunion position. Under that oral agreement, CCBCNY allegedly agreed to pay him benefits based on a hiring date of November 1971 with no offset of any union benefits. The participant also alleged he received benefit statements over the course of 10 years that confirmed this agreement. However, the statements included disclaimers that benefits would be calculated in accordance with plan documents.

In denying Coke's motion for summary judgment as to the participant's benefit claim under ERISA Section 502(a)(1)(B), the court noted that the U.S. Court of Appeals for the Second Circuit has held that oral promises generally are unenforceable under ERISA. However, the court said material issues of fact remained that prevented entering summary judgment for CCE on Giordano's benefit claim. However, the court noted there are exceptions for promissory or equitable estoppel where “extraordinary circumstances” are shown. Facts demonstrating extraordinary circumstances must go beyond a showing of reliance, harm, or injustice, the court said. The court said that regardless of whether the case involved promissory or equitable estoppel, the alleged oral agreement and the 10 years of statements that appeared to confirm the terms of the alleged agreement presented issues of material fact and inferred that they amounted to extraordinary circumstances, if proven. The court added that issues of fact remained regarding the discrepancy between the benefit estimates and the final benefit.

PBGC Proposal Links Timing of Guaranteed Benefits to Plan Shutdowns

2011-03-10T11:23:00.003-05:00

The Pension Benefit Guaranty Corporation ("PBGC") released a proposed rule this morning that would amend PBGC's regulation on benefits payable in terminated single-employer plans by adding rules for phasing in PBGC-guaranteed pension benefits. The proposed amendments would implement Section 403 of the Pension Protection Act of 2006, which makes the phase-in period for guaranteed benefits contingent on the occurrence of an “unpredictable contingent event,” such as a plant shutdown. Under the proposed rule, PBGC-guaranteed benefits could begin no earlier than the date of a plant shutdown or other unpredictable contingent event. The public comment deadline for the proposed rule is May 10.

D.C. Court Denies Motion to Compel Arbitration in MTV "Real World" Litigation

2011-03-09T13:29:00.004-05:00

The United States District Court for the District of Columbia ruled today that a woman who appeared on an episode of MTV's "The Real World" may maintain her lawsuit in federal court and will not have to arbitrate her claims based on video footing the Defendants allegedly obtained without the Plaintiff's authorization while she was intoxicated. Although not an employment or benefits case, we think the case worth mentioning here as it involves the arbitrability of disputes in general, an issue that frequently arises in the employment law context (it is also worth mentioning because our firm represents the plaintiff in the case).

By way of background, the Plaintiff brought suit in the Superior Court of the District of Columbia alleging invasion of privacy, intentional infliction of emotional distress, and negligent infliction of emotional distress against Defendants Viacom, Inc., MTV Networks, and Bunim-Murray Productions, based on her allegedly unauthorized appearance on MTV's "The Real World" reality television show. Specifically, the Plaintiff alleged in Counts I and II of her Complaint, that Defendants invaded her privacy by portraying her in a false light and by disclosing private facts about her without her consent. In Count III, she alleged that Defendants intentionally caused her emotional distress by airing the episodes and outtakes and by continuing to disseminate the footage after she notified Defendants that the footage had caused her severe emotional distress. Lastly, in Count IV, the Plaintiff claimed that the Defendants negligently caused her emotional distress by airing the footage. With regards to Counts III and IV, the Plaintiff emphasized that Defendants knew or should have known that she was particularly susceptible to emotional distress because she stated in part of the footage Defendants obtained and aired on MTV's networks that she suffered from anxiety.

On May 12, 2010, the Defendants removed the action to the United States District Court for the District of Columbia pursuant to 28 U.S.C. §§ 1332, 1441, and 1446. The Defendants then filed a Motion to Compel Arbitration, or in the Alternative, to Stay the Litigation. The Defendants argued that, prior to Defendants obtaining any video footage of Plaintiff, the Plaintiff had signed a release authorizing Defendants to use any video footage taken while Plaintiff was in the Real World house and that the Plaintiff agreed in the release to submit any disputes arising under the release to arbitration. The Defendants argued that the Federal Arbitration Act dictates that the dispute had to be decided in arbitration and not in federal court. The Plaintiff countered that the FAA also dictates that certain issues must be decided by the courts. The Plaintiff noted that Section 4 of the FAA, which was at issue in the case, provides that “[i]f the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof.” The Plaintiff argued that her intoxication placed the “making of the arbitration agreement” at issue and therefore the enforceability of the agreement was for the Court to decide (not surprisingly, the Defendants argued, on the other hand, that the case law compelled the conclusion that the intoxication challenge should be decided by the arbitrator in the first instance).

Ultimately, the Court agreed with the Plaintiff. The Court noted that the Plaintiff challenged the making of the Arbitration Agreement on the grounds of intoxication and that under relevant law, voluntary intoxication is a type of mental capacity defense that permits an individual to avoid a contract if she was so intoxicated at the time of formation that she could not understand the terms and conditions of the agreement. The Court concluded that because this mental capacity defense went to the formation, or the “making” of the Arbitration Agreement, under § 4 of the FAA it must be decided by this Court. Consequently, the Court denied Defendants’ Motion to Compel Arbitration.

Finally, the Court noted that the Defendants also sought, through their motion to compel and stay, summary judgment on Plaintiff’s intoxication defense, arguing that Plaintiff cannot bear her burden of proof. The Court noted that the had offered evidence suggesting that she was inebriated when she signed the Agreement and that the issue of whether Plaintiff was so intoxicated on the night of September 11, 2009, that she was incapable of understanding the terms of the Arbitration Agreement was thus a genuine issue of material fact is in dispute. Consequently, the Court concluded that summary judgment is not appropriate.

Stay tuned for more about this case.

Supreme Court Expands Retaliation Protection

2011-03-04T15:06:00.003-05:00

The United States Supreme Court recently expanded the scope of protection from retaliation under Title VII of the Civil Rights Act of 1964 (“Title VII”) to cover associational retaliation. In Thompson v. North American Stainless, LP, __ U.S. __, 131 S. Ct. 863 (January 24, 2011), the Court ruled that in certain situations, Title VII allows an employee who has not personally previously engaged in protected activity to bring a retaliation claim against an employer who has taken action an adverse employment action against that individual.

By way of background, Thompson and his fiancée were both employed by North American Stainless (“NAS”). NAS fired Thompson shortly after (approximately three weeks) Thompson’s fiancée filed an EEOC sex discrimination charge against NAS. Thompson then filed his own EEOC charge under Title VII’s anti-retaliation provision, claiming that NAS fired him in retaliation for his fiancée’s protected activity. Thompson subsequently filed a lawsuit in federal district court. The district court granted summary judgment to NAS, finding that Title VII does not allow for third-party retaliation claims. On appeal, the United States Court of Appeals for the Sixth Circuit held that Thompson did not have a cause of action under Title VII because he had not personally engaged in statutorily protected activity, such as filing an EEOC charge.

After agreeing to entertain Thompson’s petition for certiorari, the Supreme Court addressed two issues. First, did NAS’s firing of Thompson constitute unlawful retaliation? And second, did Thompson have standing to maintain a cause of action under Title VII? In addressing the first issue, the Court looked to its decision in Burlington N. & S. F. R. Co. v. White, 548 U.S. 52 (2006), where it held that Title VII’s anti-retaliation provision prohibits any action that “well might have dissuaded a reasonable worker from making or supporting a charge of discrimination.” Looking to the facts in Thompson’s case, the Court determined that it was “obvious that a reasonable worker might be dissuaded from engaging in protected activity if she knew that her fiancé would be fired.” Thus, Title VII’s anti-alienation provision covered Thompson’s firing.

In addressing the second, more difficult question, of whether Thompson had standing to bring an action against NAS under Title VII, the Court applied the “zone of interests” test set forth in Lujan v. National Wildlife Federation, 497 U.S. 871 (1992). Under that test, an individual has standing if he or she falls within “the zone of interests sought to be protected by the statutory provisions whose violation forms the legal basis for his complaint.” The Court held that Thompson fell within that zone because Title VII’s purpose is to protect employees from unlawful actions, and that hurting Thompson to punish his fiancée was such an unlawful act. Moreover, the Court found, Thompson was not an “accidental victim” or “collateral damage” in the case, “but to the contrary, injuring him was [NAS’s] means of harming [his fiancée].”

The Court declined to define the class of protected relationships entitled to coverage under Title VII’s anti-alienation provision, stating that “[w]e expect that firing a close family member will almost always meet the Burlington standard, and inflicting a milder reprisal on a mere acquaintance will almost never do so, but beyond that we are reluctant to generalize.” However, the Court emphasized that “the provision’s standard for judging harm must be objective” and not based on an individual’s subjective feelings.

Because the Supreme Court’s ruling in Thompson opens the door to “third party” or “associational” lawsuits against employers -- but does not provide precise guidance on what degree of action and what level of relationship will create potential liability -- employers must recognize the added risk of taking some action that may not only be viewed as retaliating against an employee engaging in protected activity, but also against others in some undefined level of relationship with that person. The Supreme Court has left it to the lower courts, at least for now, to define the class of protected relationships entitled to coverage.

b&e Partner Jason Ehrenberg to Teach Class on “Employment Law: Independent Contractors’ Rights”

2011-02-16T09:45:00.004-05:00

Program Description
Avoid Classification Violations
The federal government has stepped up its enforcement of proper employee classification, and now misclassifying employees as independent contractors can mean hefty fines and back taxes for employers. Are you up to date on the legal definition of an employee versus independent contractor? Do you understand the independent contractor’s rights, as well as the employer’s wage/benefits advantage? Explore the fundamental legal issues of the new Independent Contractor Proper Classification Act and learn best practices for limiting employer liability in this strategic course. Register today!

* Determine how to properly classify workers as employees or independent contractors.
* Recognize the employer penalties associated with misclassifications.
* Understand the rights that independent contractors are entitled to.
* Learn best practices for limiting employer liability in regard to hiring independent contractors.

Who Should Attend
This timely course is designed for attorneys. It may also benefit in-house counsel, human resources directors and risk managers.

Course Content
* Independent Contractor or Employee?
* The Department of Labor’s “Misclassification Initiative”
* The Rights of Independent Contractors
* Independent Contractors and Benefits Issues
* Best Practices for Limiting Liability
* New Legislation
* Other Legal Questions Related to Independent Contractors

Agenda / Content Covered:
Session Time: 2:00 PM – 3:30 PM Eastern
Presenter: Jason H. Ehrenberg

* Independent Contractor or Employee?
* The Department of Labor’s “Misclassification Initiative”
* The Rights of Independent Contractors
* Independent Contractors and Benefits Issues
* Best Practices for Limiting Liability
* New Legislation
* Other Legal Questions Related to Independent Contractors

For more information and to register, cut and paste the following link into your web browser:

http://www.nbi-sems.com/SemTeleDetails.aspx/Employment-Law-Independent-Contractors-Rights/Teleconference/R-55904ER%7C?NavigationDataSource1=Rpp:25,Ro:50,Nrc:id-3-dynrank-disabled,Nra:pEventDate%2bpEventStartTime%2bStates%2bCredits%2bScope+of+Content%2bpLocationCity%2bpDescription%2bpProductId%2bpProductDescription%2bProductCode+%28HIDDEN%29%2bpAdditionalFormats%2bDivision,N:304

Supreme Court Hears "Employee-Relationship" Retaliation Case

2010-12-10T11:08:00.002-05:00

The U.S. Supreme Court heard oral arguments earlier this week in a case that could impact how courts and HR managers define "employee retaliation" under federal anti-discrimination laws. The facts underlying the case, Thompson v. North American Stainless LP, began approximately 13 years ago when Eric Thomspon was hired by North American Stainless (the "Company"). The Company hired Miriam Regalado three years later. The two Company employees soon entered into a relationship, and eventually were engaged to be married. In February 2003, Regalado sued the company, alleging gender discrimination. Three weeks after the Company became aware of Regalado's lawsuit, the Company fired Thompson. Thompson subsequently filed suit in the U.S. District Court for the Eastern District of Kentucky, arguing that he was wrongfully terminated under Title VII of the Civil Rights Act of 1964. The court dismissed his complaint, holding that Title VII doesn't permit claims based upon of third-party retaliation. The U.S. Court of Appeals for the Sixth Circuit affirmed the lower court's decision, and the U.S. Supreme Court eventually agreed to hear the case.

At oral argument, the Supreme Court appeared reluctant to extend its retaliation jurisprudence, and the protections of Title VII's retaliation provisions to such third-party relationships. "Put yourself in the shoes of an employer," said Justice Samuel A. Alito, Jr.. "You want to take an adverse employment action against Employee A. You think you have good grounds for doing that, but before you do it, you want to know whether you're potentially opening yourself up to a retaliation claim." He continued, noting the implausibility of opening up a claim of retaliation for every kind of employee relationship. "Does the employer have to keep a journal on the intimate or casual relationships between all of its employees, so that it knows what it's opening itself up to when it wants to take an action against someone?" The court also debated what kind of relationships would count—a spouse? A friend? A pal? "Can you help provide where the clear line is?" asked Justice Alito. "Does it include somebody who just has lunch in the cafeteria every day with the person who engaged in the protected conduct? Somebody who once dated the person who engaged in the protected conduct?" Thompson's counsel argued the relationship in this case was strong enough to warrant a claim of retaliation. "The reason the relationship is important in this case is because it tends to render plausible the argument that there's a causal connection between the adverse action visited on Thompson in this case." The Company's counsel maintained the line of reasoning that had defeated Thompson in the lower courts. It asserted that the court's previous rulings show that Title VII does not cover third-party employee retaliation, and that because Thompson did not engage in "protected conduct" (i.e. he himself allegedly had not discriminated against), he did not have standing to sue the Company.

Although the Supreme Court appears from its questioning at the oral argument to be reluctant to extend the protections of Title VII's retaliation provisions to Thompson in this case, the case would have far-ranging legal implications for employers and employees if Thompson were to prevail. If Thompson wins, employees who are fired could gain a legal foothold when arguing they were terminated because of retaliation for another employee's behavior.

Empire BCBS Sued Over Denial of Autism Coverage

2010-12-08T11:23:00.005-05:00

Empire Blue Cross ("BCBS") has been sued in federal court in Michigan for allegedly denying health care coverage for autism treatment. Two Michigan residents filed a proposed class action against BCBS earlier this week contending that the insurer ERISA by systematically denying payment for certain treatments for autism. See Lorigan v. Empire Blue Cross Blue Shield, E.D. Mich., No. 10-14842. The lawsuit alleges that BCBS violates ERISA each time it refuses to pay for “applied behavior analysis” ("ABA") received by autistic children insured by BCBS health plans. There have been previous attempts to bring ERISA class actions against BCBS in the past. The lawsuit also alleges that ABA treatment is a “scientifically valid, medically accepted, and mainstream treatment” for autism spectrum disorder, and that by refusing to pay for ABA treatment, Empire Blue Cross has violated the terms of its ERISA health insurance plans.

Other cases have challenged the same actions of other Blue Cross Blue Shield Plans. In March 2009, a federal court in Michigan denied a class certification motion in a health plan participant's case challenging Blue Cross Blue Shield of Michigan's refusal to pay for ABA therapy. In another case dismissed earlier this year, Blue Cross Blue Shield of Tennessee Inc. was also targeted in an ERISA class action over its refusal to pay for ABA treatment. The case was dismissed earlier this year by the U.S. District Court for the Eastern District of Tennessee

Supreme Court to Hear Wal-Mart Bias Case

2010-12-06T11:25:00.003-05:00

The Supreme Court has agreed to entertain an appeal in what has been labeled the biggest employment discrimination case in the nation’s history. The case, Wal-Mart Stores v. Dukes, involves claims that Wal-Mart discriminated against hundreds of thousands of women in pay and promotion. The lawsuit seeks back pay that could amount to billions of dollars. The question before the court is not whether there was discrimination but rather whether the claims by the individual employees may be combined as a class action. Wal-Mart, which says its policies expressly bar discrimination and promote diversity, said the plaintiffs, who worked in 3,400 different stores in 170 job classifications, cannot possibly have enough in common to make class-action treatment appropriate.

In April, an 11-member panel of the United States Court of Appeals for the Ninth Circuit, in San Francisco, ruled by a 6-to-5 vote that the class action could go forward. Judge Michael Daly Hawkins, writing for the majority, said the company’s policies and treatment of women were similar enough that a single lawsuit was both efficient and appropriate. He added that the six women who represent the class, four of whom had left Wal-Mart, had claims typical of the other plaintiffs. The size of the proposed class was not an obstacle, Judge Susan P. Graber wrote in a concurrence. “If the employer had 500 female employees, I doubt that any of my colleagues would question the certification of such a class,” Judge Graber wrote. “Certification does not become an abuse of discretion merely because the class has 500,000 members.” That drew a sharp dissent from Chief Judge Alex Kozinski. “Maybe there’d be no difference between 500 employees and 500,000 employees if they all had similar jobs, worked at the same half-billion square foot store and were supervised by the same managers,” he wrote. “But the half-million members of the majority’s approved class held a multitude of jobs, at different levels of Wal-Mart’s hierarchy, for variable lengths of time, in 3,400 stores, sprinkled across 50 states, with a kaleidoscope of supervisors (male and female).” “They have little in common but their sex and this lawsuit,” Judge Kozinski concluded. In a second dissent, Judge Sandra S. Ikuta said that allowing the case to go forward as a class action would prevent Wal-Mart from presenting tailored defenses to individual claims.

GreatBanc/Tribune Com. ESOP Decision - Court Finds Prohibited Transaction

2010-11-11T10:43:00.001-05:00

The United States District Court for the Northern District of Illinois ruled on November 9, 2010 that GreatBanc Trust Co. breached its fiduciary duties when it approved a massive purchase of unregistered shares of Tribune Co. stock by the media conglomerate's employee stock ownership plan . See Neil v. Zell, N.D. Ill., No. 08 C 6833. In their lawsuit against GreatBanc, the plaintiff plan participants alleged that as the ESOP's trustee, GreatBanc breached its ERISA fiduciary duties by approving the ESOP's purchase of unregistered shares of Tribune because this purchase was a prohibited transaction. In granting partial summary judgment for a class of ESOP participants, the Court determined that the ESOP's purchase from Tribune of nearly 9 million newly issued unregistered shares of Tribune was a prohibited transaction under the ERISA.

By way of background, until 2006, Tribune was a publicly traded company worth billions of dollars. Tribune owned 10 daily newspapers, 25 television stations, more than 50 websites, and the Chicago Cubs baseball team. Tribune's profits began to decline dramatically in 2006 as the media industry shifted to the Internet. To deal with some of its financial turmoil, Tribune began in 2007 to shift ownership of the company to the ESOP. One step of the process in making the ESOP the company's sole shareholder was a purchase by the ESOP on April 1, 2007, of nearly 9 million newly issued unregistered shares of Tribune for $28 per share. In exchange for the shares, the ESOP gave Tribune a promissory note in the amount of $250 million to be paid over 30 years. In addition to being unregistered, the ESOP's Tribune shares were subject to trading limitations. GreatBanc, as the plan's trustee, agreed that the ESOP's shares would be transferable only pursuant to a public offering registered under the Securities Act of 1933, under Rule 144 or 144A of the Securities and Exchange Commission, or some other unspecified, legally available means of transfer. At the time transfer of shares to the ESOP took place, more than 240 million shares of Tribune stock were available for public trade on the New York Stock Exchange, but starting April 25, 2007, Tribune began a tender offer to repurchase up to 126 million publicly traded shares. Following the stock repurchase, Tribune merged with the ESOP and all Tribune shares not held by the ESOP were retired or canceled, making the ESOP Tribune's sole shareholder

In granting partial judgment for the participants, the court first noted that ESOPs are generally exempt from ERISA's prohibited transaction rules that apply to the purchase of employer stock, so long as certain requirements are met. One of those requirements is that the company stock purchased must satisfy the Internal Revenue Code's definition of “qualifying employer securities.” The court then explained how the tax code interacts with ERISA when it comes to the regulation of ESOPs. The court came to the conclusion that the tax code's definition of “qualifying employer securities,” which is defined as “common stock issued by the employer ... which is readily tradable on an established securities market,” is not inconsistent with ERISA's use of that term in its prohibited transaction rules. Accordingly, the court thus found that for an ESOP's purchase of stock to be exempt from ERISA's prohibited transaction rules, “employer securities” purchased by an ESOP must meet the definition of that term in tax code Section 409(l), which requires that the stock be “readily tradable on an established securities market.” Here, according to the court, the nearly 9 million shares in unregistered stock purchased by the ESOP were not tradable on established securities markets and therefore, the ESOP's purchase of Tribune's stock was a prohibited transaction under ERISA.

DOL Files Amicus Brief in Ninth Circuit Stock Drop Case

2010-11-10T12:00:00.003-05:00

The United States Department of Labor ("DOL") recently urged the U.S. Court of Appeals for the Ninth Circuit to grant rehearing and overturn a three-judge panel's recent ruling embracing what is known as the “presumption of prudence” that often places a heavy burden on plaintiffs in employer stock-drop lawsuits, by filing an amicus brief in Quan v. Computer Sciences Corp., 9th Cir., No. 09-56190. The brief, which is posted to the DOL's website , argues that the three-judge panel's adoption of the “presumption of prudence” conflicts with the plain statutory language of ERISA. According to DOL, by adopting the presumption, the three-judge panel replaced ERISA's objective “prudence” standard of care with a “more lenient, judicially-created standard,” the brief said. DOL also argued in its brief that the full panel of Ninth Circuit judges should rehear the case because the three-judge panel's decision conflicts with U.S. Supreme Court and Ninth Circuit decisions concerning the court's authority to create federal common law that contravenes ERISA's plan language and purposes. DOL also argued that rehearing is warranted because the three-judge panel's decision improperly created a “safe harbor” from fiduciary obligations for employer stock investment, which could put billions of dollars in pension plan assets “at undue risk.”

We have written and reported about several recent "stock drop" cases over the past several months. Many courts deciding these cases have adopted the "Moench" presumption of prudence, which provides plan fiduciaries with significant safeguards in their determination as to whether and when to rid a pension plan portfolio of the option of offering employer stock. DOL obviously sees such decisions as a threat to the potential well-being plan participants and beneficiaries and, through this amicus brief, seeks to hold fiduciaries to standards that require more diligence. It will be interesting to see whether DOL's brief impacts the Ninth Circuit's decision and whether other courts will follow suit.

EEOC Issues Final GINA Regulations

2010-11-10T11:52:00.005-05:00

On November 9, 2010, the U.S. Equal Employment Opportunity Commission ("EEOC") issued final regulations implementing the employment provisions of the Genetic Information Nondiscrimination Act of 2008 ("GINA"). GINA prohibits use of genetic information to make decisions about health insurance and employment, and restricts the acquisition and disclosure of genetic information. The regulations include clarifications and refinements made in response to comments received during the regulations' notice and comment period.

Congress enacted GINA with strong bipartisan support in 2008, in response to concerns that patients would decline to take advantage of the increasing availability of genetic testing out of concern that they could lose their jobs or health insurance if such tests revealed adverse information. Title II of GINA prohibits employment discrimination based on genetic information, and restricts the acquisition and disclosure of genetic information. Genetic information includes information about individuals’ genetic tests and the tests of their family members; family medical history; requests for and receipt of genetic services by an individual or a family member; and genetic information about a fetus carried by an individual or family member or of an embryo legally held by the individual or family member using assisted reproductive technology.

The final regulations provide examples of genetic tests; more fully explain GINA’s prohibition against requesting, requiring, or purchasing genetic information; provide model language employers can use when requesting medical information from employees to avoid acquiring genetic information; and describe how GINA applies to genetic information obtained via electronic media, including websites and social networking sites.

The regulations are significant in that they represent the first expansion of EEOC's scope and authority since the enactment of the Americans with Disabilities Act of 1990.

NLRB Complaint Alleges Illegal Termination For Facebook Comments

2010-11-09T08:55:00.008-05:00

A complaint issued by the National Labor Relation Board's ("NLRB") Hartford regional office on October 27 alleges that an ambulance service illegally terminated an employee who posted negative remarks about her supervisor on her personal Facebook page. The complaint also alleges that the company, American Medical Response of Connecticut, Inc., illegally denied union representation to the employee during an investigatory interview, and maintained and enforced an overly broad blogging and internet posting policy.

When asked by her supervisor to prepare an investigative report concerning a customer complaint about her work, the employee requested and was denied representation from her union, Teamsters Local 443. Later that day from her home computer, the employee posted a negative remark about the supervisor on her personal Facebook page, which drew supportive responses from her co-workers, and led to further negative comments about the supervisor from the employee. The employee was suspended and later terminated for her Facebook postings and because such postings violated the company’s internet policies.

An NLRB investigation found that the employee’s Facebook postings constituted protected concerted activity, and that the company’s blogging and internet posting policy contained unlawful provisions, including one that prohibited employees from making disparaging remarks when discussing the company or supervisors and another that prohibited employees from depicting the company in any way over the internet without company permission. Such provisions constitute interference with employees in the exercise of their right to engage in protected concerted activity. A hearing on the case is scheduled for January 25, 2011.

As this case shows, the tracking of employees' use of social media is a hot issue in the employment and labor law arena. We previously discussed an employee benefits matter in which an insurer denied long-term care disability insurance to an employee based on pictures the employee had posted of herself on a beach vacation on Facebook.

The National Labor Relations Board is an independent federal agency vested with the authority to safeguard employees’ rights to organize and to determine whether to have a union as their collective bargaining representative. The Agency also acts to prevent and remedy unfair labor practices committed by private sector employers and unions, as well as cases arising from the United States Postal Service.

Tufts Professor Sues For Sex Discrimination

2010-11-03T07:32:00.002-04:00

A former department chairwoman at Tufts University's dental school is suing for sex discrimination and retaliation, alleging she earned a lower salary than a male counterpart. The plaintiff, Catherine Hayes, was chairwoman of the Department of Public Health and Community Service at the Tufts University School of Dental Medicine from August 2006 to September 2010. She filed the case, Hayes v. Tufts University, in the United States District Court for the District of Massachusetts on Oct. 28. Her legal claims include violation of Massachusetts and federal gender discrimination laws, violation of the Massachusetts and federal equal pay acts, retaliation under state and federal anti-discrimination and equal pay laws and interference with rights under the Massachusetts anti-discrimination law. The defendants include Tufts, its dental school, the current dental school dean, and the dental school's executive associate dean.

The lawsuit alleges that, in the midst of a salary dispute with the dental school, Hayes learned that the chairman of the school's pediatric dentistry department was earning $250,000 per year. The lawsuit claims he was hired at the same time as Hayes but at a lower full-time equivalent. At the time, Hayes earned $184,000 per year. The lawsuit also alleges that Hayes' department includes seven divisions employing 115 faculty and staffers compared to the two divisions and 16 employees in the pediatrics department - implying that Hayes had greater duties and responsibilities (and therefore should have been paid at least as much as her male counterpart). The lawsuit also alleges that Hayes' relationship with her dean and executive associate dean "began to suffer immediately after she brought her concerns to them in April 2009." The dean and executive associate dean allegedly cancelled meetings, excluded Hayes from hiring and salary decisions about new employee, sand cut her out of fiscal 2011 budget discussions.

The lawsuit also alleges damage to Hayes' character. By way of example, the lawsuit alleges that a university office of equal opportunity investigation made incorrect findings that "impugned her character." Hayes also claims that the dean made misstatements about her actions related to a joint project with the Tufts University School of Medicine. She also claims that the defendants improperly and publicly accused her of running a budget deficit in her department in the fall of 2009. According to the lawsuit, their conclusion was based on failing to count existing grant funding and placing faculty costs from another department into her budget. The lawsuit further alleges that, after Hayes also began a doctor-approved medical leave under the Family and Medical Leave Act in July 2010 because of work-related stress, the defendants engaged in surveillance of Hayes and her activities and sent her harassing e-mail. After Hayes returned to work in August 2010, the defendants denied her request for an additional week of medical leave, and she resigned in September 2010.

GM Plans to Infuse Pension Plans With Six Billions Dollars

2010-11-01T14:57:00.001-04:00

General Motors Co. reported last week that in advance of its planned initial public offering, it took a series of steps aimed at reducing debt, shoring up its financial position, and funding the company's pension plans. GM said it repaid $2.8 billion on a 9 percent secured note provided to the United Auto Workers Retiree Medical Benefits Trust. In addition, GM obtained a $5 billion five-year revolving credit facility from a syndicate of banks, and plans—on completion of the IPO—to purchase all $2.1 billion of 9 percent Series A preferred stock held by the Treasury Department. GM also plans to contribute at least $4 billion in cash and $2 billion in common stock to its hourly and salaried pension plans. The stock contributions to the pension plans are subject to Labor Department review, and the number of shares will depend on the offering price for GM common stock, GM said. It will be valued as a plan asset for pension funding purposes at the time of contribution and for balance sheet purposes when the shares become fully transferable, the company said.

PBGC Alert - Terrence Deneen To Step Down

2010-11-01T14:49:00.002-04:00

The Pension Benefit Guaranty Corporation ("PBGC") issued a press release stating that Terrence M. Deneen, PBGC's veteran Chief Insurance Program Officer, has announced plans to retire from public service in mid-January. PBGC is the federal agency that guarantees payment of private pension benefits when companies and pension plans fail. It purports to protect some 44 million Americans in over 29,000 private defined benefit pension plans. The PBGC pays benefits using insurance premiums and assets and other recoveries from plans and their sponsors; it receives no taxpayer funds. New PBGC Director Josh Gotbaum stated in the press release that “Terry Deneen has provided outstanding leadership,” and that “[w]e will miss his wise counsel and his extraordinary breadth of experience with both bankruptcy and pensions." Mr. Gotbaum added that, filling Mr. Deneen's shoes will be challenging. In his current post since 2005, Mr. Deneen oversees a wide range of risk management and loss mitigation functions. He leads teams of financial analysts, lawyers and actuaries who have achieved great success in negotiating recoveries in bankruptcies and corporate restructurings. He administers a multiemployer insurance division that is currently focused on remediating the complex problems of troubled multiemployer plans. Mr. Deneen also supervises the PBGC professionals who monitor and analyze risks to corporate plan sponsors and work with companies to secure financial protection for their plans.

Court Hands Down SunTrust ERISA "Stock Drop" Decision

2010-10-28T11:05:00.002-04:00

The United States District Court for the Northern District of Georgia dismissed portions of an ERISA "stock-drop lawsuit" brought by employees who alleged that SunTrust should have dumped its stock as a pension plan investment option in light of the financial difficulties it faced because of the subprime meltdown. See In re SunTrust Banks Inc. ERISA Litigation, N.D. Ga., No. 1:08-CV-3384-RWS, 10/25/10. The District Court followed the trend of other courts within the U.S. Court of Appeals for the Eleventh Circuit, by ruling that the employees' imprudent investment claim failed because they were simply alleging that the fiduciaries of SunTrust's retirement plans should have better diversified the plan. According to the court, there is no duty to diversify eligible individual account plans that invest in employer stock. The court also noted that it was not adopting the “presumption of prudence” often used in other ERISA stock-drop cases. The court also dismissed the employees' claim that plan fiduciaries breached their ERISA duties by making false statements in Securities and Exchange Commission filings and other documents that were distributed to plan participants. The court said that even assuming that an ERISA claim can be based on false or misleading SEC filings incorporated into plan documents, here the employees' complaint failed to identify any false or misleading statements contained within any of the incorporated SEC filings. The court did rule, however, that the employees could continue in part with their claim that the plan fiduciaries breached their ERISA fiduciary duties by failing to provide plan participants with information about SunTrust stock that would allow them to accurately evaluate their investment in the stock.

Interesting Retaliation Article

2010-10-28T11:00:00.003-04:00

There is an interesting article on law.com today discussing current trends in workplace retaliation and recent Supreme Court cases on this topic. A link to the article appears below. While not comprehensive, the article provides a nice basic discussion of the issue for in-house attorneys.

http://www.law.com/jsp/cc/PubArticleCC.jsp?id=1202474011917&How_General_Counsel_Can_Recognize_and_Manage_the_Growing_Risk_of_Retaliation_Claims

DOL Proposes New Definition of ERISA Fiduciary

2010-10-21T11:19:00.003-04:00

The Department of Labor's Employee Benefits Security Administration ("EBSA") has announced a proposed rule under ERISA that purports to protect beneficiaries of pension plans and individual retirement accounts by more broadly defining the circumstances under which a person is considered to be a “fiduciary” by reason of giving investment advice to an employee benefit plan or a plan’s participants. The proposal amends a thirty-five year old rule that may, according to EBSA, inappropriately limit the types of investment advice relationships that give rise to fiduciary duties on the part of the investment advisor. According to EBSA, the proposed rule takes account of significant changes in both the financial industry and the expectations of plan officials and participants who receive investment advice and is designed to protect participants from conflicts of interest and self-dealing by giving a broader and clearer understanding of when persons providing such advice are subject to ERISA’s fiduciary standards. By way of example, the proposed rule purports to define certain advisers as fiduciaries even if they do not provide advice on a “regular basis.” The full text of the proposed rule may be found at www.dol.gov.

You Want Fries With Your Harassment?

2010-10-21T11:12:00.001-04:00

McDonald’s will pay $50,000 to settle a sex discrimination suit brought by the U.S. Equal Employment Opportunity Commission (EEOC), the agency announced. The EEOC charged that McDonald’s USA, LLC unlawfully subjected an employee to sexual harassment at one of its Perth Amboy, N.J., restaurants. According to the EEOC’s lawsuit (Civil Action No. 2:09-Civ-05028 (WJM)(MF)), filed September 29, 2009 in U.S. District Court for District of New Jersey, an assistant store manager made lewd comments to a teenage crew member and touched, spanked and hugged him in a way that made him very uncomfortable. The crew member was only 16-17 years of age when these incidences took place. The case was resolved pursuant to a consent decree signed by Judge William J. Martini on October 19. Besides paying the victim $50,000 in compensatory damages, McDonald’s will also take steps to prevent future workplace harassment. The company will post and maintain EEOC remedial notices and posters; train all employees and managers at the restaurant on the federal laws that prohibit discrimination; maintain an anti-discrimination policy and complaint procedure; and cooperate with EEOC’s compliance monitoring.

The Stock Drops -- On First Horizon

2010-10-21T10:59:00.003-04:00

The United States District Court for the Western District of Tennessee recently denied First Horizon National Corp.'s motion for reconsideration of the court's earlier ruling refusing to apply the “presumption of prudence” at the pleadings stage of an ERISA “stock-drop” lawsuit. See Yost v. First Horizon National Corp., W.D. Tenn., No. 08-2293-STA-cgc, 10/19/10. As we have reported on this blog, a number of federal courts recently have decided such cases and have been divided on the issue of whether the “presumption of prudence” used in such cases should be applied at the pleadings stage. Although the courts have been somewhat divided, the majority of courts have applied the presumption at the pleadings stage.

The case against First Horizon was filed in 2008 after the value of the company's stock dropped by nearly 90 percent, due primarily to First Horizon's exposure to subprime and related mortgage loans. The lawsuit, brought by First Horizon employees, alleged that the company's stock was an imprudent investment and that the fiduciaries of First Horizon's defined contribution plan breached their duties by continuing to offer the stock as an investment choice. The court initially (about a year ago) granted in part and denied in part First Horizon's motion to dismiss the case. The Court allowed the employees to go forward with their "stock-drop" claim -- that the plan's fiduciaries breached their duties by failing to remove company stock as a plan investment option as the company's losses from subprime mortgage lending mounted. First Horizon then sought interlocutory review from the United States Court of Appeals for the Sixth Circuit, which declined to hear the appeal. After the Sixth Circuit refused to take up the case, First Horizon returned to the district court and filed a motion for reconsideration, which the Court denied, saying the motion was “not well taken” because First Horizon failed to show any basis for reconsideration. Among other things, the court said that while First Horizon cited an extensive body of case law that applied the presumption of prudence at the pleadings stage, the vast majority of those cases came from courts outside the Sixth Circuit and, therefore, were not of precedential value.

DOL Grants Prohibited Transaction Exemption to General Motors

2010-10-13T14:46:00.003-04:00

The United States Department of Labor's ("DOL") Employee Benefits Security Administration ("EBSA") has granted an individual prohibited transaction exemption -- PTE No. 2010-30 --that will allow General Motors Co. to transfer company securities (including common stock, preferred stock, and a $2.5 billion promissory note) to a health plan established for GM retirees. The exemption, which covers the the United Auto Workers GM Retiree Medical Benefits Plan and its associated UAW Retiree Medical Benefits Trust is effective retroactive to July 10, 2009. Generally speaking, the exemption allows GM to transfer certain assets to its voluntary employees' beneficiary association ("VEBA") plan to provide for post-retirement health benefits. Without the exemption, the large transfer of employer securities to the plan likely would have resulted in a violation of ERISA's prohibited transaction rules, which prohibit certain benefit plans from holding large percentages of plan assets in the form of employer securities. See www.dol.gov for more information and the text of the PTE.

Transgender Woman Sues LPGA Over Right to Golf Professionally

2010-10-13T14:29:00.004-04:00

The New York Times reported yesterday that a transgender woman has filed a federal lawsuit against the Ladies Professional Golf Association ("L.P.G.A."), alleging that the LPGA's requirement that competitors be “female at birth” violates California civil rights law (California is one of 14 states, including the District of Columbia, that has laws prohibiting discrimination on the basis of gender identity). According to the Times article, Lana Lawless, a 57-year-old retired police officer who had gender-reassignment surgery in 2005, made her name as an athlete in 2008 after winning the women’s world championship in long-drive golf. But this year, Lawless was ruled ineligible in the same championship because Long Drivers of America, which oversees the competition, changed its rules to match the policy of the L.P.G.A. Lawless wrote a letter in May asking for permission to apply for L.P.G.A. qualifying tournaments and was told by a tour lawyer that she would be turned down. Lawless has also named as defendants in her law suit Long Drivers of America, two of its corporate sponsors — Dick’s Sporting Goods and Re/Max — and CVS, the sponsor of the L.P.G.A. Challenge. According to the article, Lawless has claimed that she has no competitive edge over other female golfers - she asserts that the reassignment surgery she underwent removed her testes, and her hormones and muscle strength are in line with someone who is genetically female. See http://www.nytimes.com/ for the full article.

Another "Stock-Drop" Case Dismissed - But for Different Reasons...

2010-10-05T10:16:00.004-04:00

On September 30, 2010, the United States District Court for the Eastern District of Michigan dismissed a putative class action law suit brought by General Motors Corp. employees against State Street Bank and Trust Co. ("State Street"). See Pfeil v. State Street Bank and Trust Co., E.D. Mich., No. 09 CV 12229. The lawsuit alleged that State Street breached its fiduciary duties owed to the employees by waiting too long to divest GM's tax code Section 401(k) plans of their holdings in GM stock. The District Court found that, although the GM employees were likely to overcome the “presumption of prudence” that attaches to pension plans that invest in employer stock, State Street did not cause losses to the employees' pension accounts because the employees retained control over their investment selections in their 401(k) accounts. According to the Court, “[a]s alleged in their complaint, Plaintiffs had knowledge at the time State Street became the fiduciary, that GM was in financial trouble yet they continued to invest in the [employee stock ownership plan]. State Street cannot be held liable for actions which Plaintiffs controlled."

Two GM employees filed the lawsuit against State Street in June 2009, alleging that as a fiduciary of the ESOP component of GM's Section 401(k) plans, State Street had a duty to rid the plans of GM stock by no later than July 15, 2008, because at that point the stock was no longer a prudent investment for plan participants. State Street was, at the time, the independent fiduciary for the ESOP. The GM employees alleged that in that same year, analyst reports consistently warned that GM's future was bleak, and that despite these warnings and numerous others that followed in 2007 and 2008, State Street kept the plans invested in GM stock. State Street eventually began to sell off GM stock in March 2009 and completed the sale of all GM stock on April 24, 2009. GM filed Chapter 11 bankruptcy on June 1, 2009. The lawsuit alleged that in its role as the independent fiduciary of the ESOP, State Street had a fiduciary duty under ERISA to determine whether GM stock remained a prudent investment for the plan. According to the lawsuit, GM stock became an imprudent investment for the plans long before the date in which State Street began to sell off the GM stock.

State Street argued in a motion to dismiss the lawsuit that the GM employees had not alleged facts that would overcome the “presumption of prudence” that attaches to plans that invest in employer stock - commonly referred to as the "Moench" presumption. In addition, State Street asserted that the plaintiffs failed to allege facts showing that State Street proximately caused any loss to plan participants. As to the Moench presumption, the court found that the trustee agreement between GM and State Street limited State Street's discretion over the ESOP. The agreement required State Street to invest exclusively in GM stock unless: (1) there was a serious question concerning GM's short-term viability as a going concern without resorting to bankruptcy proceedings, or (2) there was no possibility in the short-term of recouping any substantial proceeds from the sale of stock in the bankruptcy proceedings. In rejecting State Street's Moench defense, the court found that the employees had sufficiently alleged that GM was in serious financial trouble in June 2006 when State Street became the ESOP plan fiduciary. The court further found that the complaint alleged sufficient facts to allow the reasonable inference that there existed a serious question concerning GM's short-term viability as a going concern without resorting to bankruptcy proceedings or there was no possibility in the short-term of recouping any substantial proceeds from the sale of stock in bankruptcy proceedings sufficient for State Street to exercise its fiduciary discretion. The court further noted that the complaint sufficiently alleged numerous “red flags” that should have placed State Street on notice of a need to cease offering GM stock to Plan participants or to liquidate the ESOP funds prior to March 2009.

Although the court found that the employees had alleged sufficient facts to rebut the Moench presumption, the court agreed with State Street that the GM employees had not shown that State Street proximately caused any loss to the employees. According to the court, the plans offered several diverse investment options for participants to choose for themselves and the participants had total control over how to allocate their investments. The court said that the participants had knowledge at the time State Street became the fiduciary that GM was in financial trouble yet they continued to invest in GM stock. The Court found that State Street could not be held liable for the employees' investment choices, and, therefore, determined that State Street had not caused the participants' investment losses.

EEOC Sues Fox News

2010-10-05T10:10:00.003-04:00

Fox News Network allegedly retaliated against news reporter Catherine Herridge after she complained to Fox that she was subjected to disparate pay and unequal employment opportunities because of her gender and age, the U.S. Equal Employment Opportunity Commission ("EEOC") announced in a lawsuit filed earlier this week. According to the EEOC’s complaint, during 2007 Herridge made several complaints to management officials at Fox News about employment practices that she believed were discriminatory. Fox conducted an investigation into Herridge's allegations beginning around December 2007, but notified Herridge that no evidence of age and sex discrimination had been found. The complaint alleges that, around the summer or fall of 2008, Fox News included language in Herridge's employment contract, which was set for renewal, that referenced Herridge's discrimination complaints and was intended to stop Herridge from making more of them in the future. Herridge refused to sign the employment contract until the language was removed. Thereafter, Fox refused to negotiate further with Herridge, would not respond to counteroffers as to substantive issues in the proposed contract, and ceased speaking to her agent or to her about her contract. As a result of Fox’s refusal to proceed with a new employment contract absent the retaliatory language, Herridge became an “at-will” employee without any job protections, causing her considerable stress, the EEOC alleged. It was only after Herridge filed a charge of discrimination with the EEOC, and an EEOC investigator conducted an on-site investigation, that Fox agreed to take out the retaliatory language and presented Herridge with a new contract with the retaliatory language removed, in June 2009 which she signed. The EEOC filed suit in the U.S. District Court for the District of Columbia (EEOC v. Fox News Network LLC, Civil Action No. 1:10-cv-01660) after first attempting to reach a pre-litigation settlement. The EEOC’s lawsuit seeks monetary relief for Herridge, including compensatory and punitive damages and an injunction enjoining Fox News from engaging in further retaliation against employees based on their opposition to employment practices which the employee reasonably believes to be unlawful under the federal statutes enforced by the EEOC. More information on this case and the EEOC may be found at www.eeoc.gov.

Yet Another Stock-Drop Case Dismissed

2010-10-04T15:07:00.004-04:00

On September 24, 2010, the U.S. District Court for the Middle District of Florida dismissed a the second in a series of ERISA “stock-drop” lawsuits against Community National Bank Corp. ("CNB"). See Guididas v. Community National Bank Corp., M.D. Fla., No. 8:10-cv-1410-T-30TBM, 9/24/10). In June of this year, the same court had granted CNB's motion to dismiss a lawsuit by two employees who claimed CNB and certain of its officers and directors breached fiduciary duties by continuing to hold and acquire CNB stock for the bank's retirement plan at a time when the stock was allegedly an "imprudent" investment. The court dismissed the earlier lawsuit, holding that that the employees in that case should have first exhausted the plan's administrative remedies before heading to federal court. See Swetic v. Community National Bank Corp., 49 EBC 2305 (M.D. Fla. 2010).

The plaintiffs in the Guididas case asserted claims identical in all respects to those brought in Swetic. As in Swetic, the court dismissed the Guididas case for the employees'/participants' failure to exhaust their administrative remedies. The court based its decision on Lanfear v. Home Depot Inc., 536 F.3d 1217 (11th Cir. 2007), a case where the Eleventh Circuit held that exhaustion of administrative remedies is required before plaintiffs can pursue ERISA fiduciary breach claims, unless the plaintiffs can show it would have been futile to go through the administrative appeals process.

In Guididas, the plaintiffs attempted to get around the Lanfear ruling by arguing that they exhausted their administrative remedies when they filed a claim for individual benefits. The court was not persuaded by this argument, finding the plaintiffs' claim for individual benefits did not put CNB on notice that the plaintiffs were alleging a fiduciary breach claim. According to the court, “[p]laintiffs cannot meet the administrative exhaustion requirement under ERISA by merely making requests for individual benefits that are completely unrelated to their claims in this case. Plaintiffs' complaint involves putative class-wide complaints of breaches of fiduciary duty. It is axiomatic that these claims should have first been presented to the administrative review process as outlined in the Plan.” Although the court granted CNB's motion to dismiss, it did so without prejudice so as to allow the plaintiffs to exhaust their administrative remedies before refiling their lawsuit, if necessary.

D.C. Court Clarifies Pleading Requirements in Employment Cases

2010-10-04T10:30:00.003-04:00

In Rouse v. John Berry, Civil Action No. 06-2088, Judge Richard W. Roberts of the U.S. District Court for the District of Columbia denied the Office of Personnel Management Director’s (“OPM Director”) and Long Term Care Partners’ (“LTC Partners”) motions to dismiss a complaint brought under § 501 of the Rehabilitation Act, arguing that the plaintiff failed to allege sufficient facts that demonstrate that the administration of the plan was a subterfuge for discrimination. The plaintiff, who has paraplegia and uses a wheelchair, alleged that the defendants unlawfully discriminated against him because of his disability when they rejected his Federal Long Term Care Insurance Program (“FLTCIP”) application due to his wheelchair use.

This case is significant for its interpretation of the heightened pleading standards of Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009) in the context of an employment discrimination case. Citing Swierkiewicz v. Sorema N.A., 534 U.S. 506, 534 (2002), Judge Roberts noted that in a fairly straightforward employment discrimination complaint, plaintiffs traditionally have not been subject to a heightened pleading standard. Importantly, he pointed out that Twombly explicitly disavowed any retreat from Swierkiewicz, and that Iqbal did not discuss, much less disavow it. Judge Roberts sided with the plaintiff and his counsel, Jim Bailey, of Bailey & Ehrenberg PLLC, holding that “because Rouse has pled facts demonstrating that he has suffered an adverse employment event because of his disability, he has established a claim under § 501 even without establishing that the administration of the benefits plan is a subterfuge for discrimination.”

Significant Stock-Drop Decision Adopts Presumption of Prudence

2010-10-01T08:44:00.003-04:00

In what many are already calling a major victory for the ERISA defense bar, the U.S. Court of Appeals for the Ninth Circuit recently adopted the rebuttable “presumption of prudence” for fiduciaries defending ERISA "stock-drop" lawsuits in Quan v. Computer Sciences Corp. (9th Cir., No. 09-56190, 9/30/10). Following what has been labeled as the “Moench” presumption, the Ninth Circuit joined with the U.S. Courts of Appeals for the Third, Fifth, and Sixth Circuits, which have all applied the presumption in cases where employers who offered employer stock in their defined contribution plans were sued by plan participants after the value of the employer stock sharply decreased. The presumption originated with the Third Circuit's decision in Moench v. Robertson, 62 F.3d 553, 19 EBC 1713 (3d Cir. 1995), and is often relied upon by the defense bar in support of early motions to dismiss in such stock-drop lawsuits.

According to the Ninth Circuit, "if properly formulated, the Moench presumption can strike the appropriate balance between the employee ownership purposes of [employee stock ownership plans and other eligible individual account plans], and ERISA's goal of ensuring proper management of such plans.” “We adopt the Moench presumption because it provides a substantial shield to fiduciaries when plan terms require or encourage the fiduciary to invest primarily in employer stock. Fiduciaries are not expected to predict the future of the company stock's performance." The Ninth Circuit noted its view that the Moench presumption will not “entirely insulate” a fiduciary from liability, because the presumption can be rebutted by a showing that a fiduciary abused its discretion by investing in employer stock. To overcome the presumption, a plaintiff must make allegations that “clearly implicate a company's viability as an ongoing concern” or show a “precipitous decline in employer stock ... combined with evidence that the company is on the brink of collapse or is undergoing serious mismanagement,” the court said. In addition, the court said there is no bright-line rule as to how much evidence is needed to rebut the Moench presumption. “A guiding principle, however, is that the burden to rebut the presumption varies directly with the strength of a plan's requirement that fiduciaries invest in employer stock,” the court said. The court then found that the CSC plan participants were unable to overcome the Moench presumption because they presented no evidence that it was unreasonable for the plan fiduciaries to believe that CSC would overcome its financial problems. The Ninth Circuit also determined that the CSC plan fiduciaries did not breach their ERISA duties by allegedly making misrepresentations to plan participants about the quality of CSC stock.

Beware the Cat's Paw

2010-09-24T13:03:00.003-04:00

In Lindsey v. Walgreen Co., No. 10-1036 (7th Cir. August 11, 2010), the United States Court of Appeals for the Seventh Circuit rejected a former employee’s “cat’s paw” argument. The plaintiff, Katie Lindsey, was 53 years old when she sued her former employer under the Age Discrimination in Employment Act ("ADEA"). A few years after she began her employment with the drug store chain Walgreens, Ms. Lindsey was promoted from staff pharmacist to pharmacy manager by her district pharmacy supervisor. Before long, Walgreens received complaints from Ms. Lindsey’s co-workers, and the same district pharmacy supervisor determined that Ms. Lindsey was not fit to continue in a managerial position (in part because she allegedly was not following pharmacy procedures). The district pharmacy supervisor demoted Ms. Lindsey back to a staff pharmacist position, transferred her to another store, and warned her that she would be fired the next time she failed to follow pharmacy procedures. The district pharmacy supervisor later determined that Ms. Lindsey had once again violated company policy and ultimately terminated her employment.

After filing suit in federal court, Ms. Lindsey alleged several theories of discrimination, including the "cat’s paw" theory, a phrase used in the employment law world that refers to an allegedly unbiased decision-maker who is used as a proxy for an allegedly biased manager/employee. Ms. Lindsey argued that the district pharmacy supervisor was a cat’s paw for a co-worker, who she claimed disliked her because of her age. Ms. Lindsey insisted that the district pharmacy manager decided to fire her after “blindly relying” on biased information from the co-worker. Ms. Lindsey alleged that her new co-workers (after she had been transferred) called her “lazy” and “slow” and questioned why Walgreens exiled “old,” “demoted” pharmacists to their store. She also alleged that the biased co-worker made disparaging remarks about her age and abilities. The court rejected Ms. Lindsey’s argument because it determined that Walgreens employer had adequately demonstrated that its employment decision was based on an independent evaluation/review and was not tainted by any alleged bias.

DOL Issues Safe Harbor for Internal Claims and Appeals Processes

2010-09-22T09:51:00.003-04:00

The departments of Labor, Treasury, and Health and Human Services issued Technical Release 2010-02 on September 20, 2010. The Release provides an enforcement grace period until July 1, 2011, to give group health care plans and insurance issuers more time to comply with regulations on new internal claims and appeals procedures. On July 22, 2010, the departments released regulations standardizing and strengthening the process by which consumers can appeal medical coverage or claims denials by their health insurance. The rules apply to nongrandfathered health plans and are effective for plan years beginning on or after Sept. 23. The release said that the Labor Department and Internal Revenue Service will not take any enforcement action against a group health plan, and HHS will not take any enforcement action, during the grace period, against a self-funded nonfederal governmental health plan, that is working in good faith to implement such additional standards but does not yet have them in place. The agencies also released a series of FAQs addressing a range of other topics under the health reform law, including compliance with the rules, grandfathered plans, internal and external reviews processes, and dependent care coverage.

D.C. Federal Court Clarifies EEO Charge-Filing Timelines

2010-09-22T09:45:00.003-04:00

In Lee v. District of Columbia, Civil Action No. 09-CV-1832, Judge Ricardo M. Urbina of the U.S. District Court for the District of Columbia denied the District of Columbia’s motion to dismiss a complaint brought under the American with Disabilities Act of 1990 (“ADA”), 42 U.S.C. §§ 12101 et seq., arguing that the plaintiff did not timely file a charge of discrimination with the U.S. Equal Employment Opportunity Commission (“EEOC”) within 180 days as required by 42 U.S.C. § 2000e-5(e).

The plaintiff, a person with a disability based on his diabetes, alleged in the lawsuit that the District of Columbia’s Department of Corrections discriminated against him by failing to accommodate his condition by offering him meal breaks to stay alert due to the effects of low blood sugar and then terminating him for failing to stay alert during his work shift. The plaintiff acknowledged in his lawsuit that he did not file a charge of discrimination with the EEOC within 180 days but maintained that his charge was timely filed because it was filed in 205 days, and, given that the District of Columbia Office of Human Rights has a worksharing agreement with the EEOC, the filing deadline is extended to 300 days.

Judge Urbina sided with the plaintiff. He reaffirmed that an individual asserting a claim under the ADA must generally file a charge of discrimination with the EEOC within 180 days; but, “when a worksharing agreement exists between the EEOC and a state or local Fair Employment Practices (“FEP”) agency, the filing window widens to 300 days.” Judge Urbina then determined that the plaintiff’s discrimination charge was timely because “[t]he DCOHR has entered into such an agreement with the EEOC, and therefore the applicable time limitation for filing a charge of discrimination in the District of Columbia is 300 days.”

According to the plaintiff's lawyer, James C. Bailey of Bailey & Ehrenberg PLLC in Washington, D.C., the decision is important because it provides clarification concerning the charge-filing time lines for prospective plaintiffs.

Bang Bang You're Fired

2010-09-21T08:51:00.003-04:00

A former employee of Iron Mountain Information Management Inc. has challenged the company to a legal duel in Gwinnett County Superior Court in Georgia over its employees' rights to possess guns while on the clock at work. Jamie Lunsford had worked for the document-shredding company for six years when she was fired for carrying a handgun in her car. Lunsford had driven with a co-worker to the Federal Reserve Bank in Atlanta on business for Iron Mountain. When she entered the Federal Reserve Bank's parking garage, she was asked by security whether she was carrying any firearms. She responded in the affirmative. She was then instructed to leave and park elsewhere. When Lunsford returned to work, she was suspended and then fired. According to Iron Eagle, Lunsford violated the company's gun policy when she drove herself and another employee to a customer's facility while in possession of a gun. Iron Eagle noted that Georgia law allows workers to have guns in company parking lots. The law, however, according to Iron Eagle, does not permit an employee to carry a firearm while conducting company business. Given that, and general employee safety issues, Iron Eagle felt compelled to terminate Lunsford. Employers should take note of this lawsuit. and consider whether their workplace firearms policies are in compliance with relevant state laws. It should be noted that such laws vary from state to state.

IRS, DOL and HHS Issue New Claims Rules for Group Health Plans

2010-07-22T12:57:00.003-04:00

The Internal Revenue Service, the Department of Labor's Employee Benefits Security Administration, and the Department of Health and Human Services issued today interim and final rules for group health plans and health insurance issuers relating to internal claims and appeals and external review processes under the Patient and Affordable Care Act. The text of the rules can be found at www.dol.gov.

New DOL "Guidance" on Fees to Plan Service Providers

2010-07-21T14:58:00.003-04:00

In recent years, the way services are provided to employee benefit plans (such as record keeping services and investment services) and the way service providers are compensated have become increasingly complex. Indeed, in the 401(k) plan context, there have been over the past few years myriad "excess fee" lawsuits challenging the fees paid by plans and plan fiduciaries to services providers. To address the issue, the United States Department of Labor ("DOL") announced last week an interim final rule that purports to "enhance disclosure to fiduciaries of 401(k) and other retirement plans." Although DOL has in the past issued (it its own words) "considerable guidance" relating to the obligations of plan fiduciaries in selecting and monitoring service providers, the interim final rule "establishes, for the first time, a specific disclosure obligation for plan service providers."

According to DOL, the rule will assist fiduciaries in determining both (1) the reasonableness of compensation paid to plan service providers, and (2) any conflicts of interest that may impact a service provider's performance under a service contract or arrangement. Generally speaking, the interim final rule will enhance disclosure to pension plan fiduciaries by requiring the disclosure of the direct and indirect compensation certain service providers receive in connection with the services they provide. The rule applies to plan service providers that expect to receive $1,000 or more in compensation and that (1) provide certain fiduciary or investment advisory services to plans, (2) make available plan investment options in connection with brokerage or record keeping services, or (3) otherwise receive indirect compensation for providing certain services to plans.

Plan service providers will now have to provide the plan fiduciaries they service a substantial amount of information, in writing. Information that must be disclosed includes a description of the services to be provided and all direct and indirect compensation to be receievd by the service provider (or its affiliates or subcontractors). Because certain services and costs are so significant and/or present the potential for a conflict of interest, information concerning those services and costs must be disclosed without regard to whether services are furnished as part of a bundle or package. Service providers must also disclose whether they are providing any services as a fiduciary to the plan. According to DOL, these new requirements will result in reduced time and cost for fiduciaries to obtain the compensation information needed to fulfill their fiduciary duties.

The full text of the interim regulation may be found at http://www.dol.gov.

The Force Is Not With You Mr. Lucas

2010-07-01T09:11:00.002-04:00

The San Fransisco Chronicle reports that a California jury awarded $113,800 in damages against Lucasfilm Ltd earlier this week for withdrawing a job offer from a San Francisco woman after she disclosed that she was pregnant. Lucasfilm Ltd. is film director George Lucas' film production company. Mr. Lucas directed the Star Wars movies. The woman had applied to become an assistant manager at Lucasfilms' personal headquarters in April 2008. She signed a contract for a 30-day position two months later, but said she was told it was a probationary period for a permanent $75,000-a-year job. Two days later, and only days before she was to start work, the woman told her prospective supervisor that she was pregnant. Her job offer was subsequently withdrawn.

DOL Extends FMLA Leave to Gay Workers

2010-06-23T10:17:00.002-04:00

The United States Department of Labor ("DOL") announced yesterday that it was "clarifying" the definition of "son and daughter" under the Family and Medical Leave Act ("FMLA") to ensure that an employee who assumes the role of caring for a child receives the parental rights to family leave regardless of the that employee's legal or biological relationship with the child. The FMLA generally allows employees to take up to twelve (12) weeks of unpaid leave during any twelve (12) month period to care for loved ones or themselves. The FMLA also allows employees to take time off for the adoption or birth of a child. The DOL's press release (see www.dol.gov) proclaims that its clarification "is a victory for many non-traditional families" and "sends a clear message to families in the lesbian-gay-bisexual-transgender community, who often in the past have been denied leave to care for their loved ones." According to National Public Radio (www.npr.org), this clarification, coming less than five months before November's congressional elections, likely will incite conservatives and Republicans who earlier opposed the Obama administration's efforts to repeal a ban on gays and lesbians serving openly in the military.

Supreme Court Decides ERISA Attorneys' Fee Case -- And Doesn't Answer Any Questions

2010-05-26T09:52:00.007-04:00

In its latest ERISA decision, and in a decision that will leave practitioners and litigants scratching their heads, the Supreme Court ruled on Monday that attorneys' fees are available in ERISA benefits cases to parties that have achieved "some degree of success on the merits." The Court's ruling, in this practitioner's view, did nothing but further confuse the issues.

By way of background, the case arose from Reliance Standard Life Insurance Company's ("Reliance") denial of Bridget Hart's claim for long term disability benefits. Hart filed suit in federal district court challenging the denial. The district court held that Reliance did not properly review Hart's benefit claim and remanded the case to Reliance for further consideration with instructions to properly review the evidence in the administrative record. On remand, Reliance reversed its decision and awarded Hart benefits. Hart subsequently moved for attorneys' fees in the district court, which fees the district court awarded and the United States Court of Appeals for the Fourth Circuit reversed.

In reversing the Fourth Circuit's denial of attorneys' fees, the Supreme Court focused its attention on the circumstances under which a court may award attorneys' fees under section 502(g)(1) of ERISA. Citing its 1983 decision in Ruckelshaus v. Sierra Club, the Court said that because the words "prevailing party" do not appear in the next of Section 502(g)(1), and nothing else in Section 502(g)(1) showed that Congress meant to abandon the traditional American Rule (that each party is responsible for their own attorneys' fees unless a statute says otherwise), some degree of success on the merits would be necessary for an award of fees. The Court continued by noting that "[a] claimant does not satisfy that requirement by achieving 'trivial success on the merits' or a purely procedural victor[y],' but does satisfy it if the court can fairly call the outcome of the litigation some success on the merits without conducting a 'lengthy inquiry into the question whether a particular party's success was 'substantial' or occurred on a 'central issue". The Court determined that Hart had obtained some degree of success on the merits in the case before it because the district court had determined that the plan administrator did not follow ERISA's guidelines when reviewing the Hart's benefit claim and had instructed the administrator to re-review the claim, taking into consideration all of the evidence, or the district court would enter judgment for Hart.

Quite simply, the Court really did nothing to clarify the issue of when attorneys' fees are appropriate in an ERISA benefits dispute. The Court's ruling will just create more confusion in the district courts and basically allows the district courts to award or deny attorneys' fees on a whim.

Warning to Hooters Girls - Don't Eat The Wings

2010-05-25T10:46:00.003-04:00

The Wallstreet Journal reports today that Hooters has been sued in Michigan for allegedly violating a state law that bars discrimination on the grounds of religion, race, age, sex, height and, of all things, weight. Cassandra Marie Smith, 20, alleges in her lawsuit that she began working at a Hooters in 2008. At the time, she weighed 145 pounds. In a performance evaluation earlier this month, she claims, management advised her to join a gym in order to improve herself and her ability to fit into the extra small-sized uniform. The official uniform for Hooters waitresses, she claims, comes in 3 sizes: extra extra small, extra small, or small. Smith alleges she was advised to sign an agreement placing her on 30 day “weight probation” as a condition of retaining her employment and that she was 5’8 and 132.5 pounds at the time of the evaluation. Smith claims she was unable to return to Hooters after the humiliation of being put on weight probation. Although this case may seem "silly" to some, it is a reminder to employers that many state anti-discrimination laws are more expansive in breadth than federal laws that prohibit discrimination in the workplace. For example, many states (and municipalities) have workplace antidiscrimination laws that prohibit discrimination based on sexual orientation. In contrast, to date, Congress has not extended the reach of federal antidiscrimination laws to that group.

Blue Cross Thinks Chiropractors Are a Pain in the [...]!!!

2010-05-22T18:15:00.001-04:00

The United States District Court for the Northern District of Illinois ruled on May 17, 2010 that a group of chiropractors can go forward with their claim that Blue Cross Blue Shield Association entities violated the Employee Retirement Income Security Act ("ERISA") by devising an alleged scheme in which the entities paid the chiropractors and then turned around and asked the chiropractors for reimbursement. See Pennsylvania Chiropractic Ass'n v. Blue Cross Blue Shield Ass'n, N.D. Ill., No. 09 C 5619, 5/17/10). The lawsuit was filed against dozens of Blue Cross entities by numerous chiropractors and associations that represent chiropractors. The plaintiffs alleged that the Blue Cross entities violated ERISA through a scheme in which they would initially reimburse the chiropractors for services provided to individuals insured by Blue Cross plans, and then sometime afterward the Blue Cross entities would make a “false or fraudulent” determination that the payments were made in error. Blue Cross would then allegedly demand repayment from the chiropractors and if the chiropractors refused, Blue Cross would force recoupment by withholding payment on other unrelated claims for services that the chiropractors provided to other Blue Cross insureds, the plaintiffs alleged. The plaintiffs asserted that the Blue Cross entities' repayment requests and forced recoupments violated ERISA.

In denying the Blue Cross entities' motion to dismiss ERISA claims (the plaintiffs also brought RICO claims, which were dismissed), the District Court rejected several challenges Blue Cross made to the chiropractors' ability to support an ERISA claim. Briefly summarizing, the District Court rejected Blue Cross's contention that the Blue Cross entities were plan administrators and thus were not proper defendants under ERISA. The District Court rejected the Blue Cross entities' contention that they were not proper defendants because the U.S. Court of Appeals for the Seventh Circuit has held that plans, and not plan administrators, are proper defendants. The District Court said that the Seventh Circuit has not been so strict as to rule that plan administrators are never the proper defendant in an ERISA action. Instead, the Seventh Circuit has said plan administrators can be sued if they are “closely intertwined” with the plan. The District Court found that in this case, the chiropractors had sufficiently alleged that Blue Cross was “closely intertwined” with the plans because it had the sole authority to make the decisions about repayment and recoupment.

The District Court also rejected the Blue Cross entities' assertion that the ERISA claims should be dismissed because the chiropractors' complaint did not identify even a single ERISA plan, a single plan participant, or a single plan provision that was violated by the Blue Cross companies. According to the District Court, this argument would have carried more weight had it not been for the fact that the chiropractors' complaint alleged that they did not identify an ERISA plan, participant, or plan provision because the Blue Cross entities had refused to tell them which patients and plans were affected by the repayment demands. The chiropractors claimed the Blue Cross entities did this “in an effort to frustrate any attempt to appeal the determination.” Finally, as relevant here, the District Court was not persuaded by the Blue Cross companies' contention that the court lacked subject matter jurisdiction over the chiropractors' ERISA claims to the extent that the chiropractors had obtained assignments of rights from their patients that were not permitted under Blue Cross' ERISA plans. To support this argument, the Blue Cross companies cited to language in their ERISA plans and contracts that prohibit plan participants from assigning their benefits to medical providers. The District Court said that while this bar on assignment of benefits might later defeat some of the chiropractors' claims, it would not divest the court of jurisdiction of the ERISA claims.

A Gentle Reminder To Withdrawing Employers -- Arbitrate!!!

2010-05-22T17:48:00.002-04:00

The United States District Court for the District of New Jersey ruled on May 17, 2010 that an employer waived its right to contest withdrawal liability by not timely pursing its arbitration rights. Granting summary judgment for William J. Einhorn as the plan administrator for the Teamsters Pension Fund of Philadelphia & the Vicinity, the District Court rejected the employer's argument that the arbitration deadline should be equitably tolled because it waived its administrative remedies in reliance on a conversation with a fund trustee who allegedly assured the company that, even though it had stopped employing union members, it would not face withdrawal liability if it hired one union member. The District Court noted that, among other things, the fund clearly notified the produce seller that the hiring of a union member would not remedy its withdrawal liability, and that the company had ample time after that notice to initiate arbitration within the Multiemployer Pension Plan Amendment Act's ("MPPAA") deadline.

By way of background, the fund assessed withdrawal liability against the employer in July 2007 after it determined that the employer had completely withdrawn from the fund when it ceased employing union members and stopped making contributions to the fund as required by collective bargaining agreements with a local union. In late October 2007, after missing its first scheduled payment, the employer contested the fund's determination that it had completely withdrawn from the fund and requested review of the withdrawal liability assessment in accordance with the MPPAA. The employer's letter also informed the fund that it had hired a union employee and would begin making contributions, thereby mooting the withdrawal liability.
The following month, the fund rejected the employer's request for a review and informed it that whether the contributions would abate the withdrawal liability depended on MPPAA Section 4207's provision for the reduction or waiver of complete withdrawal liability. The employer did not respond to this letter and the fund sued in federal district court. After the lawsuit was filed, the employer filed a demand for arbitration.

This is yet another reminder to employers to demand arbitration as to both the existence, and amount, of withdrawal liability. The arbitration requirement is absolute.

Jeffrey Cohen Joins Bailey & Ehrenberg PLLC

2010-05-21T12:00:00.002-04:00

We are pleased to announce that Jeffrey B. Cohen, former Chief Counsel to the Pension Benefit Guaranty Corp. has joined our firm as a Partner in Washington, DC. Jeffrey's thirty year career has been split almost evenly between the private sector and government. The one constant has been his singular focus on employee benefits litigation. His distinguished tenure at the federal Pension Benefit Guaranty Corporation culminated in his appointment as Chief Counsel, where he led the legal staff in representing the agency in ERISA litigation and in bankruptcy proceedings, including the largest, most complex, and highest profile corporate reorganizations of that era. He has litigated a wide range of employee benefit disputes at all levels of the federal judicial system, as well as in arbitrations and state courts. He is also a nationally recognized expert on employee benefits issues in bankruptcy. He earned his law degree from Georgetown University Law Center in 1980 and his Bachelor of Arts from the State University of New York at Binghamton in 1977. Mr. Cohen is a Fellow of the American College of Employee Benefits Counsel and was named as a “Dealmaker of the Year” by the American Lawyer in 2006. He has been recognized in the 2010 edition of Best Lawyers in America and as a DC Superlawyer. He is admitted to practice in the District of Columbia, New York, and Virginia, as well as the Supreme Court of the United States and a number of federal courts of appeals and district courts.

Stormy Weather for CBS News

2010-05-21T09:17:00.004-04:00

The Wallstreet Journal reported today that longtime CBS News weatherman George Cullen has filed suite against CBS in federal court alleging that he was terminated due to his age (Cullen is 58). The lawsuit alleges that CBS terminated Cullen (after 29 years with the network) in favor of a younger, less experienced staffer. The lawsuit also alleges that CBS purportedly terminated Cullen for failing to show up for a mandatory training session. This should be an interesting case, which will turn on whether Cullen and his legal team can prove that CBS's reason for his termination - his alleged failing to attend the training session - was merely a pretext. The fact that Cullen has been replaced with a younger, less experienced staffer will help his case, but is not dispositive. Cullen will need to marshal additional evidence to prove that he was terminated solely, or predominantly, because of his age. The Journal reports that Cullen appeared on The CBS Evening News, The CBS Early Show, and The CBS NFL Today over the years. Cullen was CBS's chief meteorologist. (see www.wsj.com for more)

Yet Another "Stock Drop" Decision...

2010-05-07T10:21:00.001-04:00

In yet another “stock-drop” decision, the United States District Court for the Northern District of Illinois denied on Thursday a company’s motion to dismiss an ERISA lawsuit stemming from the offering of company stock in its 401(k) plan.

The facts of In re General Growth Properties Inc. ERISA Litigation, Case No. 08cv6680 (N.D. Ill.) are all too familiar. General Growth is a self-administered real estate investment trust that conducts most business through its operating partnership GGP Limited Partnership. General Growth and GGP both filed for bankruptcy protection in April 2009. In 2008 and 2009, General Growth was one of many U.S. companies devastated by the subprime lending crisis. During the relevant time period -- running from April 30, 2007, to April 16, 2009 -- General Growth's stock lost 99 percent of its value, falling from high of $65.81 per share to a low of $.49 per share. The participants alleged in their lawsuit that the General Growth and its top officials breached fiduciary duties by continuing to offer General Growth's stock in the Company's 401(k) plan during a time when they knew or should have known that the subprime lending crisis and declines in consumer spending made expansion of the company's real estate holdings “an ill-advised business plan.” The participants also alleged that the Company breached its fiduciary duties by failing to disclose to participants the adverse effect of the real estate market's collapse on the Company's real estate holdings.

The defendants filed a motion to dismiss, requesting the court to dismiss the entire lawsuit. In denying the defendants' motion to dismiss part of the participants' claims, the District Court refused to use the “presumption of prudence” analysis that many courts have applied in the context of stock-drop cases (the “presumption of prudence” analysis generally weighs in favor of company’s that offer company stock in their retirement plans). The Court determined that presumption would not apply here because the Company’s 401(k) plan did not mandate that Company stock be offered under the 401(k) plan. Further, the District Court determined that the participants had asserted sufficient facts that to allow a potential finding that it was imprudent for the fiduciaries to continue offering company stock in the Company’s 401(k) plan after the stock had lost nearly 99 percent of its value. The Court granted the motion to dismiss as to claims alleging that the defendants breached fiduciary duties by failing to tell participants about the company's financial struggles during the subprime mortgage meltdown and by incorporating misleading and inaccurate Securities and Exchange Commission filings in the plan documents. According to the court, “[w]hile Plaintiff is correct that some courts have found that incorporated SEC filings do constitute fiduciary speech, recent jurisprudence has declined to hold ERISA fiduciaries liable for SEC filings.” The Court further noted that any allegedly misleading statements made by the defendants to the participants were made in their corporate capacities, not in their plan fiduciary capacities.

Interesting "Stock Drop" Decision

2010-05-06T09:36:00.004-04:00

The United States District Court for the Northern District of Illinois held on Monday that Baxter International Inc. did not breach its fiduciary duties when it offered its stock in the company's tax code Section 401(k) plan at a time when the stock price was dropping (due to the company's failure to meet earnings projections). The Court's decision in Rogers v. Baxter International Inc., N.D. Ill., No. 04 C 6476 (N.D. Ill.) is significant because unlike other “stock-drop” cases -- where courts applied a “presumption of prudence” standard -- to dismiss fiduciary breach claims, the Court here based its decision (for the most part) on the safe harbor provision of ERISA Section 404(c) of the Employee Retirement Income Security Act.

The case history is quite long. The action, brought by a Baxter employee and plan participant, stems from Baxter's announcement in July 2002 that it had inflated its expected earnings, which caused Baxter's stock price to drop sharply. The employee sued Baxter, the plan's administrative and investment committees, and several individuals including two chief financial officers and two former chief executive officers. In his lawsuit, the employee alleged that the defendants breached their fiduciary duties by: (1) failing to diversify investments and by selecting Baxter stock as an investment option when the defendants knew or should have known the price was inflated, (2) imprudently investing in Baxter common stock and wrongfully presenting Baxter stock as an investment alternative, (3) making material misrepresentations and nondisclosures, and (4) “dividing loyalty” by engaging in a scheme to artificially inflate the price of Baxter's stock so as to allow executives to benefit in the form of higher stock options. The defendants filed a motion to dismiss, which the Court denied in February 2006. The Court subsequently certified the relevant claims as class action claims. The defendants filed an interlocutory appeal to the United States Court of Appeals for the Seventh Circuit, which appeal was denied, and the Seventh Circuit sent the case back to the district court.

The defendants subsequently filed a motion for summary judgment, arguing that their 401(k) plan qualified as an ERISA Section 404(c) plan, thus relieving the plan's fiduciaries of liability. Section 404(c) exempts defined contribution pension plan fiduciaries from liability if the plan meets five requirements. Those requirements are that the plan (1) provide for individual accounts, (2) allow participants the opportunity to exercise control over their accounts, (3) provide participants with the opportunity to choose from a broad range of investment alternatives, (4) give participants sufficient information to make informed investment decisions, and (5) provide additional safeguards if the plan offers qualifying employer securities. The Court determined that Baxter's tax code Section 401(k) plan met the requirements of an ERISA Section 404(c) plan, thus exempting the plan's fiduciaries from liability. In granting Baxter's motion for summary judgment, the court found that Baxter had satisfied Section 404(c) by providing participants with sufficient information to allow them to make informed decisions about their investment in Baxter stock. The court also found significant the fact that, plan participants, and not the plan fiduciaries, directed investment of plan assets. According to the Court, “[b]y providing Plan participants and beneficiaries with the requisite control over their accounts (in addition to the requisite information and range of investment alternatives) to satisfy the safe harbor defense, defendant fiduciaries ceded control over the assets in each individual Plan participant's account to each participants." In so doing, the Court noted, the defendant fiduciaries ceded responsibility for decisions regarding how those assets would be invested and agreed to follow participants' investment instructions.

The Court also disposed of the employee's argument that ERISA Section 404(c) did not absolve the defendants from liability with respect to his claim that the plan violated ERISA by acquiring and holding more than 10 percent of the plan assets in Baxter stock. According to the Court, the "10 percent claim" and the applicability of the safe harbor defense hinged on who “caused” the plan to hold more than 10 percent of its assets in Baxter stock. The court found it was the participants, and not the Baxter defendants, who caused the plan to hold more than 10 percent of its assets in company stock because the investments were made by the participants. The Court noted that "[b]ecause the fiduciary is obligated to comply with investment instructions, the Department of Labor has determined that the safe harbor shields a fiduciary from an individual participant's concentration of all of his account assets in a single stock, ... even though that concentration of assets in a single stock might be imprudent if the fiduciary had chosen to do so in exercise of its discretion." The Court further noted that "[t]here is no indication that the Department of Labor interprets the safe harbor differently if several participants decide to make the same non-diversified investment so that a large percentage of plan assets would be invested in a single stock.”

Federal District Court Dismisses Fiduciary Breach Lawsuit Brought Against Fidelity and Unysis Corp.

2010-04-29T09:27:00.006-04:00

The United States District Court for the Eastern District of Pennsylvania dismissed an ERISA fiduciary breach lawsuit brought against Unisys Corp, and Fidelity on Monday of this week. In Renfro v. Unisys Corp. (E.D. Pa., No. 07-2098, 4/26/10), the plaintiff's alleged that Unisys's Section 401(k) plan held $2 billion in assets between 2000 and 2007. The plan had 30,000 participants, placing it in the top 1 percent of all Section 401(k) plans in the United States. The plan offered participants 70 investment options, including mutual funds, index funds, commingled pools, fixed income funds, and a money market fund. The Plaintiff's alleged that the investment funds offered fees ranging from as little as 0.10 percent to as high as 1.21 percent. It was alleged that nearly $1.9 billion of the plan's assets were held in Fidelity-branded retail mutual funds and all of the assets were held in vehicles managed or operated to some extent by a Fidelity affiliate, the court said. A group of Unysis 401(k) plan participants participants filed a lawsuit against Unisys, the plan fiduciaries, and the Fidelity companies. They claimed that the defendants breached their ERISA fiduciary duties by causing plan participants and beneficiaries to pay excessive administrative and investment management fees. In particular, the participants asserted that Unisys should have taken advantage of the plan's large size to negotiate lower fees or increased services for the plan's participants and beneficiaries.

In granting Unisys's motion to dismiss, the District Court found that there was nothing in ERISA that would have required the fiduciaries of Unisys's Section 401(k) plan “to get the best deal imaginable.” Rather, the Court found, ERISA merely requires fiduciaries “to act carefully, skillfully, prudently, diligently, and solely in the interest of participants and beneficiaries." According to the Court, "[w]hile this is not a light duty, it does not support a lawsuit that simply claims the fiduciaries could have done better had they worked harder to leverage their market power.” The Court further noted that “[t]here is nothing about the slate of investment options the Plan offered that suggests the Unisys Defendants did not meet the requisite standard of care. The Plan offered participants a number of investment options with varying fees, risks, and potential rewards...." The Court also commented found that even if Unisys selected overly expensive funds for the plan, it would still be entitled to summary judgment because its plan met the safe harbor provisions of ERISA Section 404(c). In so ruling, the court rejected the plaintiffs' reliance on Department of Labor regulations indicating fiduciaries will not be shielded by Section 404(c) when they select imprudent investments for the plan. The court said it would not defer to the Department of Labor's interpretation of Section 404(c).

The District Court also dismissed fiduciary breach claims that had been brought against the 401 (k) plan's service and investment providers Fidelity Management Trust Co., Fidelity Investments Institutional Operations Co., and Fidelity Management & Research Co. The Court held that none of the Fidelity defendants acted as fiduciaries of Unisys's Section 401(k) plan. In rejecting the plaintiffs' contention that Fidelity Management had “veto power” over the selection of plan investment options and as such it had the requisite discretionary authority or responsibility that would render it a plan fiduciary. The court said Fidelity Management had no “veto power” because at all times it was Unisys's fiduciaries that had authority to decide which investments would be offered under the plan. The court also rejected the plaintiffs' allegation that Fidelity Management was a fiduciary because it exercised discretion over “float interest” on plan contributions. [Float interest is the interest earned on plan contributions from the time that they were received by Fidelity Management until the time they were credited to participant accounts.] The Court noted that, “[e]ven if FMTC is a fiduciary with respect to float interest, that does not render it a fiduciary with respect to investment selections,” the court said.

Big Blow To Wal-Mart

2010-04-26T17:24:00.003-04:00

CNN reports that the U.S. Court of Appeals for the Ninth Circuit has certified the largest class-action employment lawsuit in U.S. history, in a long-standing dispute against retailer Wal-Mart Stores Inc. over alleged gender bias in pay and promotions. According to CNN, the Ninth Circuit ruled Monday that the combined multiparty litigation can move ahead to trial, where a decision against the company could result in billions in damages. At issue in the case is whether more than a million current and former Wal-Mart employees can band together in their claims of discrimination, which they say has occurred over the past decade, at least. The plaintiffs allege that women were paid less than, and were given fewer opportunities for promotion than, their male counterparts. They seek back pay and punitive damages against the world's largest retailer. (See http://www.cnn.com/ for more on this case).

Supreme Court Rejects "One Strike And You're Out Approach" To Review Of Plan Administrators' Decisions

2010-04-22T14:03:00.009-04:00

The Supreme Court handed down a significant - and, quite frankly, obvious and unnecessary - benefits decision yesterday. In Conkright v. Frommert, No. 08–810, participants in an ERISA pension benefit plan, who had left the employment of Xerox Corp., received lump-sum distributions and later been rehired by Xerox, sued Xerox and others for improper calculation of their benefits. Following a partial grant of Xerox's motion to dismiss, the United States District Court for the Western District of New York granted summary judgment for Xerox, and the participants appealed. The Second Circuit Court of Appeals, affirmed in part, vacated in part and remanded. On remand, following the recalculation of benefits by Xerox, the District Court declined to afford Xerox's determination any deference based on Xerox's earlier error, and entered order from which the defendants appealed. The Court of Appeals affirmed in part, vacated in part and remanded. Certiorari was granted by the Supreme Court.

The Supreme Court held that the District Court should have applied a deferential standard of review to the Plan Administrator's interpretation of the Plan on remand. The Supreme Court noted that its earlier decision in Firestone Tire & Rubber Co. v. Bruch looked to “principles of trust law” for guidance, and that under trust law, the appropriate standard depends on the language of the instrument creating the trust. When a trust instrument gives the trustee “power to construe disputed or doubtful terms, ... the trustee's interpretation will not be disturbed if reasonable." Under Firestone and the Xerox Plan's terms, the Plan Administrator should have been entitled to deference when interpreting the Plan. The Supreme Court noted, however, that the Court of Appeals below had crafted an exception to Firestone deference, when it held that a court need not apply a deferential standard when a plan administrator's previous construction of the same plan terms was found to violate ERISA. The Supreme Court noted that the Second Circuit's “one-strike-and-you're-out” approach had no basis in Firestone, which set out a broad standard of deference with no suggestion that it was susceptible to ad hoc exceptions. The Supreme Court also noted that it had recently held in Metropolitan Life Ins. Co v. Glenn, that a plan administrator operating under a systemic conflict of interest is nonetheless still entitled to deferential review. In light of that ruling, the Court found it difficult to see why a single honest mistake should require a different result. The Court also noted that ERISA represents a “ ‘careful balancing’ between ensuring fair and prompt enforcement of rights under a plan and the encouragement of the creation of such plans,” and that Firestone deference preserves this “careful balancing” and protects the statute's interests in efficiency, predictability, and uniformity.

Do Employers Have To Accommodate Employees' Disability Related Difficulties In Getting To Work?

2010-04-19T10:41:00.006-04:00

In an important case with significant implications for employers and employees, the United States Court of Appeals for the Third Circuit ruled April 8, 2010 that, under certain circumstances, the Americans With Disabilities Act can obligate an employer to accommodate an employee’s disability-related difficulties in getting to work (if reasonable).

The case, Colwell v. Rite Aid Corp., No. 08-4675 involved an employee who was hired in April 2005 as a part-time clerk, Coldwell, at one of Rite-Aid’s stores. Her schedule varied but she generally worked the 9 a.m. – 2 p.m. shift or the 5 p.m. – 9 p.m. shift. During the summer 0f 2005, she was diagnosed with retinal vein occlusion and glaucoma in her left eye and she later lost vision in her left eye. As a result, she could no longer drive at night. Because she lived in an area without public transportation or taxis, Colwell had no reliable way to get to work for the evening shift. She asked to be assigned only to the day shifts but her supervisor refused, saying that it “wouldn’t be fair” to other employees. Colwell provided her supervisor with a doctor’s note as proof that she could not drive at night. Again, her supervisor declined Colwell’s request to be assigned only to day shifts. Colwell had to rely on family members to transport her to and from work on the days she was scheduled to work at night. Coldwell eventually submitted a letter of resignation.

Coldwell filed suit in federal district court in Pennsylvania. The trial court ruled in favor of Rite-Aid (on the employer's motion for summary judgment prior to trial), finding that the ADA was designed to cover barriers to an employee’s ability to work that exist inside the workplace, not difficulties over which the employer has no control, such as whether an employee can get to or from work.

On appeal, the question before the United States Court of Appeals for the Third Circuit was “whether a shift-change request can be considered a reasonable accommodation for an employee who cannot drive at night” because of a disability. The Third Circuit held that under certain circumstances the ADA can obligate an employer to accommodate an employee’s disability-related difficulties in getting to work, if reasonable. According to the Court, “[o]ne such circumstance is when the requested accommodation is a change to a workplace condition that is entirely within an employer’s control and that would allow the employee to get to work and perform her job.” The Court noted that a change in shifts could be that kind of accommodation.

Significantly, the court distinguished this from an employee’s request for assistance in getting to work. For example, according to the Court, an employer would not have a duty to provide an employee with transportation to or from work. But an employer does have a duty, where reasonable, to accommodate an employee by changing the times that the employee is required to be at work. Thus the Third Circuit overruled the district court’s grant of judgment in favor or Rite-Aid and remanded the case back to the federal district court for a jury trial.

Jason Ehrenberg Quoted In Law360 Article Discussing Mandatory Requirement Policies

2010-04-15T12:50:00.004-04:00

Bailey & Ehrenberg partner Jason Ehrenberg recently was quoted in the Law360 article titled, "Kelley Drye May Set Trend In Ending Retirement Policy" Mr. Ehrenberg comments on law firm mandatory retirement policies. To read the full article, visit www.law360.com (subscription required). To view a PDF version of the article, visit www.becounsel.com.

Social Media Websites and Restrictive Covenants

2010-04-05T10:47:00.004-04:00

There is an interesting article on the website Portfolio.com today about a new restrictive covenant lawsuit involving the use of the social-networking site LinkedIn. Portfolio.com reports that TEKsystems has accused some former employees of its Edina, Minnesota office of violating non-compete and non-solicitation agreements the individuals had signed while employed with the company. In a suit filed in federal court in Minneapolis in mid-March, TEKsystems alleged that the former employees wrongfully contacted former clients and co-workers in violation of their non-competition and non-solicitation agreements. The company pointed to the former employees' LinkedIn web pages as evidence of the breach of the agreements. The company alleged, among other things, that the former employees messaged invitations to existing TEKsystems employees and customers and included TEKsystems customers on their contacts lists. According to the article, as case law develops, (a) courts could decide whether the online connections employees make at work belong to the employee or employer, and (b) courts will have a lot of discretion in deciding whether comparable customer lists and contacts are trade secrets and whether social-networking activity can be covered by competitive agreements.

Wall Street Journal Reports Sharp Increase in Workplace Harassment Claims by Men

2010-03-25T09:27:00.003-04:00

The Wallstreet Journal reported yesterday that, since the start of the recession, a growing number of sexual harassment complaints have come from men. The Journal reports that some 16.4% of all sexual harassment claims—or 2,094 claims—were filed by men in fiscal 2009, up from 15.4%, or 1,869 claims, in fiscal 2006, according to the U.S. Equal Employment Opportunity Commission. The Journal's LawBlog contains an interesting discussion of this issue.
(See www.wsj.com/law).

New Lawsuit Charges Goldman Sachs With Pregnancy Discrimination

2010-03-25T09:22:00.004-04:00

Businessweek reports today that the Goldman Sachs Group Inc. has been charged with employment discrimination by a former vice president who alleges that she was pushed onto the “mommy-track” and eventually fired after she chose to work part-time following her pregnancy. The lawsuit -- Hanna v. Goldman, 10-cv-02637, U.S. District Court, Southern District of New York (Manhattan) -- alleges violations of the Family Medical Leave Act, as well as gender and pregnancy discrimination. By way of background, Charlotte Hanna joined Goldman in 1998 as an associate and rose to vice president while at Goldman Sachs University, an internal training program, according to the complaint. After deciding to work part-time when she became pregnant with her first child, she said she was channeled into lesser positions that compromised her earnings and prospects for better jobs. According to the lawsuit, “[t]he ‘off-ramp’ was a direct path to a mommy-track that ultimately derailed Ms. Hanna’s career.” Hanna, who is unemployed, said she was demoted, lost her office and pushed into a job in operations in the training program, according to the complaint. She said she was fired before her return from her second maternity leave in 2008.

Medical Marijuana and the Workplace

2010-03-24T15:11:00.004-04:00

There is an interesting short story on cnn.com today on the intersection of medical marijuana and employment. As the story notes, to date, 14 states have laws allowing the use of medical marijuana, which shield legal users from criminalization but don't protect them from them penalties enforced by their employers. As more people are being prescribed marijuana across the nation, they are wrestling with a caveat: they could be fired. This story raises interesting legal issues - namely, whether medical marijuana users have any protection under state and federal employment discrimination laws. The story does not discuss the potential application of the Americans with Disabilities Act to the issue. One issue to consider is whether employees can reasonably argue that, under existing law, employers should be prohibited from enforcing otherwise neutral drug testing policies against medical marijuana users due to the users' underlying medical conditions. In other words, should medical marijuana users be exempted from such testing as a "reasonable accommodation" in the workplace? We will discuss this issue in further detail in the near future.

Second Circuit Overturns Jury Verdict in "Shy Bladder" Case

2010-03-24T10:35:00.003-04:00

The United States Court of Appeals for the Second Circuit recently overturned a jury verdict for an employee who claimed that he was denied a reasonable accommodation for his “shy bladder” syndrome during a random government-mandated drug test. The employee, Joseph Kinneary, was a sludge boat captain employed by the City of New York’s Department of Environmental Protection - making him subject to drug and alcohol testing under federal Department of Transportation regulations. Kinneary was terminated by the City for failing to retain his captian's license - as a result of refusing to submit to a urine test.

Kinneary alleged that he suffered from paruresis, also known as “shy bladder” syndrome, which made it difficult for him to urinate on demand (as required for a drug test). Kinneary claimed that this condition constituted a disability, that the City failed to reasonably accommodate his disability, and that he was terminated unlawfully because of his disability. Kinneary prevailed at a jury trial, asserting that he had been terminated for refusing to provide a urine sample when required to do so. A jury awarded him $100,000 in back pay and $125,000 in non-economic damages.

On appeal, the United States Court of Appeals for the Second Circuit concluded that the City had, indeed, provided Kinneary with the accommodation he sought. The Court found that the City had permitted Kinneary to be evaluated by a physician and had provided instructions to the physician that were consistent with the applicable DOT regulations. The Court further found that the note Kinneary’s physician provided to the City did not constitute a basis for cancelling his test because it did not say that Kinneary had a medical condition that did, or with a high probability could have, precluded Kinneary from providing a sufficient amount of urine for the test. Instead, the note simply stated the name of the condition, noted that it was chronic and could be helped by an alpha blocker that Kinneary had been given, and indicated that Kinneary was not a substance abuser. As such, the note did not comply with relevant Department of Transportation and Coast Guard regulations. The Court therefore held that the evidence unequivocally demonstrated that the City gave Kinneary the accommodation he sought (the opportunity to have his drug test cancelled based upon a physician’s evaluation pursuant to relevant Department of Transportation regulations), but Kinneary failed to comply with the regulatory requirements that would have allowed him successfully to cancel his test and save his license. Because Kinneary failed to retain his captain’s license despite receiving the accommodation, he was not otherwise qualified to perform the essential functions of his job and could not make out a successful claim under the ADA.

Do Employers Performing Background Checks Risk Discrimination Lawsuits?

2010-03-18T10:02:00.004-04:00

An article in today's Pittsburgh Post-Gazette has an interesting discussion of the recent surge in employment discrimination claims based on background checking and the Equal Employment Opportunity Commission's ("EEOC") recent launch of its "E-Race" initiative (Eradicating Racism and Colorism from Employment), which is aimed specifically at combating discrimination in employment selection.

The article appropriately notes that, in some cases, the mere act of running a background check can land employers in a costly lawsuit (because certain minority groups have a disproportionate rate of negative records, such as convictions, arrests and poor credit ratings, screening for that information in background checks can exclude higher numbers of those applicants).

To read the arcile, visit http://www.post-gazette.com.

COBRA Subsidy Extended Again

2010-03-11T09:17:00.002-05:00

The U.S. Government has once again extended the sixty-five percent (65%) federal COBRA subsidy under the American Recovery and Reinvestment Act ("ARRA") available to employees who have been involuntarily terminated from their employment. Signed into law on March 2 by President Obama, this "stop-gap" measure extended February 28, 2010 to March 31, 2010, the prior deadline. The measure also made other changes to the existing law, including (among other things): (a)providing that health plan participants who initially lose coverage due to a reduction in hours, but are later involuntarily terminated, will be eligible for the COBRA subsidy; (b) creating a new penalty of up to $110 per day for plan sponsors or health insurers that fail to comply Department of Labor ("DOL") determinations that an individual’s qualifying event was, in fact, an “involuntary termination”; and (c) protecting employers from inadvertently overstating their employment tax credits based on the COBRA subsidy. More information about this issue can be found on the DOL's website (www.dol.gov).

DOL Issues Final Rule Regarding Provision of Plan Documents

2010-03-08T10:50:00.004-05:00

The United States Department of Labor ("DOL") has issued a final rule requiring multiemployer benefit plans to provide copies of certain actuarial and financial documents regarding the plan upon written request. The DOL published the new plan document requirements in the March 2, 2010 Federal Register.

Generally speaking, the final rule provides that requested documents must be furnished within 30 days of the date a written request is made by a plan participant, beneficiary, employee representative or contributing employer. Failure to timely provide the requested documents may result in a civil penalty of up to $1,000 per day late (note that this is significantly more than the $110/day penalty plan administrators historically have faced for failing to turn over copies of benefit plans and summary plan descriptions).

More specifically, the following documents must now be provided upon written request:
(a) a copy of any periodic actuarial report (including sensitivity testing) received by the plan for any plan year which has been in the plan’s possession for at least 30days prior to the date of the written request; (b) a copy of any quarterly, semi-annual, or annual financial report prepared by any plan investment manager or advisor or other fiduciary which has been in the plan’s possession for at least 30 days before the plan receive written request; and (c) a copy of applications filed with the Secretary of the Treasury requesting an extension under Internal Revenue Code Section 431(d) or ERISA Section 304 and the determination of such Secretary pursuant to such application. There are also limits to what plan administrators are required to furnish upon request. A plan administrator is not required to produce the following:(a) more than one copy of a document during any 12-month period; (b) any report or application that has been in the plan’s possession for 6 years or more as of the date on which the request was received by the plan; (c) information that has not been in the plan’s possession for less than 30 days prior to the date of the written request - because requestors may not know about this limitation, plan administrators must provide a notice to the requestor informing them of the existence of the report and the earliest date it may be available; (d) any information or data that served as the basis for any report or application that is required to be furnished; or (e) individually identifiable information regarding any plan participant, beneficiary, employee, fiduciary, or contributing employer or proprietary information.

The final rule is effective April 1, 2010. Multiemployer plans will need to amend their summary plan descriptions to include language that informs participants and beneficiaries of their disclosure request rights.

Walmart Settles EEOC Sex Discrimination Suit

2010-03-02T14:04:00.002-05:00

Walmart Stores ("Walmart) will pay approximately $11.7 million in back wages and compensatory damages, its share of employer taxes, and up to $250,000 in administration fees and will furnish other relief, including jobs, to settle a sex discrimination lawsuit filed by the U.S. Equal Employment Opportunity Commission ("EEOC"). According to the EEOC’s lawsuit, Walmart’s London, Kentucky distribution center denied jobs to female applicants from 1998 through February 2005. During that time period, the EEOC alleged, Walmart regularly hired male entry-level applicants for warehouse positions, but excluded female applicants who were equally or better qualified. The EEOC also alleged in the lawsuit that Walmart regularly used gender stereotypes in filling entry-level order filler positions.

DOL Issues Proposed Regulation to Increase Workers' Access to High Quality Investment Advice

2010-03-02T13:58:00.003-05:00

The Pension Protection Act of 2006 (“PPA”) amended the Employee Retirement Income Security Act of 1974 (“ERISA”) to create a new statutory exemption from the prohibited transaction rules to expand the availability of investment advice to participants in 401(k)-type plans and individual retirement accounts (“IRAs”), subject to safeguards and conditions. The Department of Labor (“DOL”) announced on February 26, 2010 that it is publishing in the Federal Register a proposed rule to implement these PPA provisions and make investment advice more accessible for millions of Americans in 401(k) type plans and IRAs.

According to DOL’s notice, as of 2007, more than one-half of private-sector employees participated in defined contribution plans that allow for participant direction, with these plans covering 60 million active participants and holding about $3 trillion in assets. In general, investment advice given by an investment adviser to plan participants on investments that pay additional fees to the adviser or its affiliates can violate the prohibited transaction rules of ERISA and the Internal Revenue Code. This has limited the types of investment advice arrangements available to participants in 401(k) plans and IRAs. Given the rise in participation in 401(k) type plans and IRAs, the retirement security of millions of America’s workers increasingly depends on their investment decisions. Thus, there is increased recognition of the importance of investment advice in helping participants avoid costly investment errors.

The proposed regulation allows investment advice to be given under the statutory exemption in two ways: (1) through the use of a computer model certified as “unbiased”; or (2) through an adviser compensated on a “level-fee” basis (meaning that fees do not vary based on investments selected by the participant). Several other requirements also must be satisfied, including disclosure of fees the adviser is to receive. The regulation contains some key safeguards and conditions, including: (a) requiring that a plan fiduciary (independent of the investment adviser or its affiliates) select the computer model or fee leveling investment advice arrangement; (b) imposing recordkeeping requirements for investment advisers relying on the exemption for computer model or fee leveling advice arrangements; (c) requiring that computer models must be certified in advance as unbiased and meeting the exemption’s requirements by an independent expert; (d) establishing qualifications and a selection process for the investment expert who must perform the above certification; (e) clarifying that the fee-leveling requirements do not permit investment advisers (including its employees) to receive compensation from affiliates on the basis of their recommendations; (e) establishing an annual audit of investment advice arrangements, including the requirement that the auditor be independent from the investment advice provider; and (f) requiring disclosures by advisers to plan participants.

The Department published the proposed regulation in the Federal Register on March 2, 2010. The Notice of Proposed Rulemaking (NPRM) invites public comments from interested persons on the proposed regulation’s conditions applicable to investment advice arrangements.

EEOC Issues Notice of Proposed Rulemaking Regarding Defense to Age Discrimination Claims

2010-02-19T09:22:00.003-05:00

The Equal Employment Opportunity Commission ("EEOC") released yesterday a Notice of Proposed Rulemaking that proposes to redefine a defense now available to employers facing age discrimination claims. The EEOC's proposed amendment, would change its “Differentiations Based on Reasonable Factors Other than Age” regulation, (29 C.F.R. § 1625.7) by identifying new criteria for the “reasonable factor other than age” defense in age discrimination cases. [See EEOC.gov.]

EEOC Settles Age Discrimination Case With University of Puerto Rico

2010-02-05T18:36:00.002-05:00

The University of Puerto Rico has agreed to settle a class age discrimination lawsuit brought by the U.S. Equal Employment Opportunity Commission ("EEOC"), according to a press release issued by the EEOC on February 2, 2010. The EEOC had alleged that the University discriminated against public employees age 55 and older by not allowing them to obtain pension credit because of their age. The EEOC’s suit, filed in federal court in Puerto Rico alleged that prior to 2001, the University did not allow older employees to become members of pension systems. The lawsuit also alleged that, in 2001, the University changed its rules to allow older employees to become members, but required that employees age 55 and older pay, in addition to the employee’s contribution to the retirement system, the University's contribution as well.

DOL and Treasury Publish Request for Information and Comment Regarding Lifetime Income Options for Plan Participants

2010-02-05T18:24:00.004-05:00

The Department of Labor ("DOL") and the Department of the Treasury ("DOT") (collectively, the "Agencies") are currently reviewing the rules under ERISA and the plan qualification rules under the IRC to determine whether the Agencies could or should enhance, by regulation or otherwise, the retirement security of participants in employer-sponsored retirement plans and in individual retirement arrangements by facilitating access to, and use of, lifetime income or other arrangements designed to provide a lifetime stream of income after retirement. On February 2, 2010, the Agencies published a request for information in the Federal Register to solicit views, suggestions and comments from plan participants, employers and other plan sponsors, plan service providers, and members of the financial community, as well as the general public, on this issue. [For more information, see the DOL's website - www.dol.gov] The request for information contains an interesting - albeit brief - discussion of the trend away from traditional defined benefit plans towards defined contribution plans, as well as the "longevity" risks associated with lump-sum payouts upon retirement.

EEOC Sues New York Law Firm Kelley Drye & Warren For Alleged Age Discrimination

2010-01-29T10:22:00.005-05:00

The New York Law Journal reports today that the United States Equal Employment Opportunity Commission ("EEOC") has sued New York-based law firm Kelley Drye & Warren, claiming that the firm's compensation system discriminates against partners based on their age. The lawsuit was filed in U.S. district court in Manhattan on behalf of 79-year-old partner Eugene D'Ablemont and other allegedly "similarly situated" employees. The lawsuit alleges that the firm discriminated against D'Ablemont and other attorneys by forcing them to give up their equity stakes once they turned 70, therefore making them earn less than younger firm lawyers with similar collections and billings. D'Ablemont remains employed by the firm in its New York office. The EEOC claims that D'Ablemont routinely brought in more than $1 million in fees from clients, but in 2008 his annual bonus was reduced from $75,000 to $25,000. The lawsuit is similar to the suit the Chicago-based law firm Sidley Austin settled with the EEOC two years ago, in which the EEOC accused Sidley Austin of age discrimination against 32 partners. Most of those partners at issue in that case were in their 50s and 60s when they were demoted to "counsel" status in 1999. Prior to settling that case, Sidley Austin had claimed that the demotions were based on performance.

Judge Dismisses Northrop Grumman Corp. ERISA Case

2010-01-28T10:26:00.004-05:00

A federal district court in California dismissed on Tuesday a putative class action lawsuit against Northrop Grumman Corp. The case, Charles D. Skinner, et al. v. Northrop Grumman Retirement Plan B, et al., CV 07-3923-JFW (JTLx) (Central District of California), involved claims relating to Northrop's acquisition of Litton Industries, Inc. in 2001 and Northrop's subsequent consolidation of the Litton Industries Pension Plan into a single, uniform plan (along with the plans of several other companies Northrop acquired). We will post additional information about the court's decision in the near future.

What Can Employers Learn From The Jay Leno - Conan O'Brien Fiasco?

2010-01-21T12:53:00.002-05:00

There is an interesting article in today's Wallstreet Journal suggesting that NBC's handling of the Jay Leno-Conan O'Brien succession provides lessons for employers and management in how not to handle promotion and succession issues. According to the article, management consultants feel that NBC made two critical missteps six years ago when the network signed Mr. O'Brien to replace Mr. Leno in 2009. It's a bad idea to promise someone a promotion in order to retain him, they say, and so is naming a successor too far in advance. [See www.wallstreetjournal.com]

Supreme Court to Hear ERISA Attorney Fee Case

2010-01-20T11:13:00.002-05:00

The United States Supreme Court granted certiorari on Friday in Hart v. Reliance Standard Insurance Company where the issue before the Court will be whether only "prevailing parties" are entitled to attorneys fees in ERISA benefits actions. By way of background, Hardt sued Reliance Standard claiming that the insurer violated ERISA by wrongfully denying her long-term disability benefits. As is often the case in benefits matters, the district court did not overturn or approve Reliance Standard's benefits denial. Rather, the district court remanded the matter to Reliance Standard for reconsideration of Hart's disability benefits claim. Reliance Standard subsequentlyreversed its earlier decision and awarded Hardt full benefits. The district court then awarded Hardt $39,149 in attorney fees. The United States Court of Appeals for the Fourth Circuit ("4th Circuit") reversed the District Court's award of attorneys' fees to Hart. The 4th Circuit's holding was that (1) ERISA § 502(g)(1) provides a district court discretion to award attorney fees only to a "prevailing party," and (2) Hardt was not a "prevailing party" because her only request for relief was the award of benefits, which the District Court did not award (rather, as noted, the District Court remanded the case back to Reliance Standard). The Fourth Circuit's decision is in conflict with decisions of the Second, Fifth and Eleventh Circuits, who have declined to read a "prevailing party" requirement into § 502(g)(1). The two specific issues that will be presented to the Supreme Court are: (1)whether the Fourth Circuit erred in holding that ERISA § 502(g)(1) provides a district court discretion to award reasonable attorney’s fees only to a prevailing party; and (2) whether a party is entitled to attorney’s fees pursuant to § 502(g)(1) when, as in Hart's case, she persuades a district court that a violation of ERISA has occurred, successfully secures a judicially-ordered remand requiring a redetermination of entitlement to benefits and subsequently receives the benefits sought on remand.

Are Emotional Distress Damages In Employment Cases Tax-Exempt?

2010-01-15T11:01:00.004-05:00

In Wells v. Commissioner, United States Tax Court Memo 2010-5 (Jan. 5, 2010) the United States Tax Court reiterated that damages received by a plaintiff for emotional distress (manifested in the form of depression) -- suffered as a result of alleged employment-related retaliation -- are not exempt from taxation as a "personal physical injury" under Internal Revenue Code Section 104(a)(2). The Tax Court explained that for the damages to be excludable under this provision, the underlying cause of action must be based in tort or tort-type rights and the proceeds must be damages received on account of personal physical injury or physical sickness. The Tax Court further explained that when, as in the instant case, the amount paid is pursuant to a settlement agreement, the nature of the claim that was the basis for settlement -- and not the validity of the claim -- controls whether such amount is excludable under section 104(a)(2). Althought the Tax Court found that the settlement agreement in the instant case expressly stated that payment was for emotional distress (and not wages), the Court nevertheless held that the payment was in fact "made as damages for emotional distress due to depression and, as a matter of law, such damages, not being attributable to physical injury or sickness, but to a nonphysical injury (namely, her claims of suffering gender-based discrimination and unlawful retaliation with respect to her employment) are not excludable from her gross income under section 104(a)(2) ...."

Federal Judge Finds NYC Discriminated Against African-American Fire Department Applicants

2010-01-14T10:07:00.003-05:00

The New York Times reported this morning that a federal judge ruled on Wednesday that New York City intentionally discriminated against black applicants to the Fire Department by continuing to use an exam that it had been told put them at a disadvantage. According to Judge Nicholas G. Garaufis of the United States District Court for the Eastern District of New York (in Brooklyn), it was not a “one-time mistake or the product of benign neglect....It was a part of a pattern, practice and policy of intentional discrimination against black applicants that has deep historical antecedents and uniquely disabling effects.” The Court did not rule on what remedy should apply, reserving judgment on that issue for a later date. In his Judge Garaufis highlighted in his decision how “black and other minority firefighters have been severely underrepresented,” characterizing that as a “persistent stain on the Fire Department’s record.” [For more information on this issue, please see www.nytimes.com.]

DOL Issues Final Safe Harbor Rule On Employee Contributions To Small Pension And Welfare Plans

2010-01-14T10:03:00.005-05:00

The U.S. Department of Labor ("DOL") today announced the publication of a final rule to protect employee contributions deposited to small pension and welfare benefit plans with fewer than 100 participants by providing a "safe harbor" period of seven business days following receipt or withholding by employers. According to the head of DOL's Employee Benefits Security Administration ("EBSA"), the new rule "will give employers greater clarity in remitting participant contributions to small pension and welfare plans in a timely manner." According to DOL's guidance, employers of all sizes currently must transmit employee contributions to pension plans as soon as they can reasonably be segregated from the general assets of the employer, but no later than the 15th business day of the month following the month in which contributions are received or withheld by the employer. Under current guidance, the latest date for forwarding participant contributions to health plans is 90 days from the date on which such amounts are received or withheld by the employer. The final rule amends the participant contribution rules to create a "safe harbor" period under which participant contributions to a small plan will be deemed to comply with the law if those amounts are deposited with the plan within seven business days of receipt or withholding. [For more information about this issue, please see www.dol.gov.]

Is "The Office" A Good Tool For Stopping Workplace Harassment?

2010-01-14T09:52:00.004-05:00

National Public Radio today posted an interesting and amusing article on whether the television sitcom "The Office" can be used as a model for what human resources departments should not do. [See www.npr.org.] The article discusses how the show is a good example of why companies need (and should provide) diversity training and harassment seminars.

Those readers/viewers interested in learning about B&E's views regarding the importance of diversity training and sexual harassment prevention seminars for employers, should feel free to contact a B&E attorney (our information is to the left of this posting, under "Welcome").

DOL Sues Illinois Trucking Company Over Failure To Protect Employee Pension and Health Benefits

2010-01-13T10:28:00.003-05:00

The U.S. Department of Labor ("DOL") has sued the owners of bankrupt Mid-States Express Inc. of Aurora, Illinois for allegedly failing to protect the interests of the participants and beneficiaries in the company's 401(k) and health plans. DOL's lawsuit alleges that the owners failed to disclose to employees that their medical bills were not likely to be paid, even as the company continued to take deductions from their paychecks for medical coverage. As a result, despite the fact that $1.26 million in employee health plan contributions were withheld, $3 million in employee medical claims allegedly were not paid - a potential violation of the Employee Retirement Income Security Act ("ERISA"). DOL's lawsuit also alleges that the owners of Mid-States Express violated their fiduciary duties when they failed to remit $65,000 in contributions and loan re-payments, and to timely remit more than $1.5 million in 401(k) plan participant contributions and loan re-payments. The company allegedly retained these contributions and loan repayments for its own benefit at the expense of participants and beneficiaries. DOL's lawsuit seeks a court order to require that the defendants restore any losses, with interest, suffered by the plans or their participants and beneficiaries and to undo any prohibited transactions involving the plans. The suit also asks the court to remove the owners from their fiduciary positions to the plans and to permanently bar each of them from serving in a fiduciary capacity, or service provider, to any plan governed by ERISA. [See the DOL's website, www.dol.gov, for more information on the case.]

New ERISA Class Action Filed Against Sterling Savings Bank

2010-01-13T10:17:00.003-05:00

An ERISA class-action lawsuit was filed Monday by an employee of one of Washington State's largest commercial banks, Spokane-based Sterling Savings Bank. The lawsuit, filed in United States District Court, claims that the bank and its holding company failed to protect employees’ investment in company stock through the company’s 401(k) Plan. The lawsuit alleges that Sterling's stock price has imploded as the result of ill-advised commercial real estate, construction and land loans, improper accounting and inadequate capitalization. The lawsuit also alleges that Sterling and other defendants failed to properly manage pension funds by maintaining a large investment in Company stock long after the stock became an imprudent investment. The lawsuit also charges that the company deliberately misled employees and shareholders on the value of the stock and failed to secure adequate reserves against its credit portfolio. [For more information about the lawsuit, see the website for the Plaintiff's attorneys http://www.hagens-berman.com/]

DOL Posts "A Safe and Sober Message About Workplace Parties and Drinking"

2010-01-11T10:03:00.002-05:00

The United States Department of Labor ("DOL") recently posted "guidance" regarding workplace parties and alcohol consumption. The guidance notes that the workplace is frequently a place where employees and employers get together to celebrate special events and that such celebrations frequently include alcohol, which increases the potential for unfortunate consequences. The guidance also notes that improper use of alcohol may expose employers to liability under tort, workers' compensation or other laws. For example, according to the guidance, an employer may be held liable if a person consumes alcoholic beverages at a company-sponsored party and subsequently causes a crash. Some employers have been held liable because negligent acts by employees under the influence of alcohol consumed at employer-sponsored events were found to be within the scope of their employment. In other cases, individuals have been held liable merely because they provided alcohol to social guests. [For the DOL's complete "guidance" on this issue, see http://www.dol.gov/asp/programs/drugs/workingpartners/sp_iss/send.asp.]

Wal-Mart Settles "Union Busting" Charges

2010-01-08T11:19:00.003-05:00

Minnesota's "Finance and Commerce" business daily reports today that Wal-Mart Stores Inc. ("Wal-Mart") has settled charges lodged by a St. Paul-area union last summer that the retail chain threatened to fire a worker at its Hastings, Minnesota store over his alleged "union" activity. Under the settlement agreement, Wal-Mart has agreed to prominently post notices inside the Hastings store stating that Wal-Mart will not frustrate or threaten to terminate workers for engaging in "union activities," including the right to form or join a labor group. Wal-Mart has also agreed not to solicit employee grievances as a way to discourage workers from exercising their union rights. According to the Finance and Commerce daily, the settlement is a "symbolic if not substantive" victory for the United Food and Commercial Workers Local 789, which last July filed charges with the regional National Labor Relations Board while waging an organizing campaign at several Twin Cities area Wal-Mart stores. Under current labor law, the notice posting requirement is the maximum penalty for such activity.

85,000 Jobs Lost in December 2009

2010-01-08T10:08:00.002-05:00

The Washington Post reports that the nation shed 85,000 jobs in December, worse than expected, according to a government report released Friday that suggests the economic recovery still is too weak to lead employers to add to their payrolls.

Trends - Job Bias Claims Based On Disability, National Origin and Religion Increased In 2009

2010-01-07T10:54:00.004-05:00

The Equal Employment Opportunity Commission ("EEOC") said Wednesday that the number of workers claiming job discrimination based on disability, religion or national origin increased to new highs last year, as federal job bias complaints overall stayed at near-record levels. According to the EEOC, charges of disability discrimination rose about 10% to 21,451 claims, the largest increase of any category. The increase coincided with changes to the Americans with Disabilities Act last year that made it easier for people with epilepsy, diabetes and other treatable conditions to say they are disabled. Overall, the EEOC received more than 93,000 discrimination claims during the 2009 fiscal year, a 2% decrease from the record set in 2008, but still the second-highest level in the commission's history. As in previous years, claims based on race, sex and retaliation were the most frequent. (See http://www.eeoc.gov/eeoc/newsroom/release/1-6-10.cfm).

Vanguard Group Settles EEOC Lawsuit Alleging Racial Bias

2010-01-06T18:12:00.002-05:00

Vanguard Group Inc agreed on Monday to pay $300,000 to settle a U.S. Equal Employment Opportunity Commission ("EEOC") lawsuit accusing it of racial bias in hiring. In a Sept. 29 complaint, the EEOC alleged that Vanguard decided not to hire Barbara Alexander as a financial planning manager because she was black even after she was told throughout the hiring process, including at roughly 13 in-person interviews, that she was qualified for the job. Despite Alexander's 14 years of financial management experience and master's degree in finance, Vanguard instead offered the Charlotte, North Carolina job to two less qualified white men, and one accepted, the EEOC said. According to papers filed Monday with the federal court in Philadelphia, Vanguard will pay the $300,000 to Alexander, and entered a two-year consent decree calling for greater anti-discrimination training for managers and supervisors, and other remedies. It did not admit liability. The case is Equal Employment Opportunity Commission v. Vanguard Group Inc, U.S. District Court, Eastern District of Pennsylvania, No. 09-04424.

D.C. Circuit Rules in Favor of GEICO In FLSA Suit

2010-01-06T18:08:00.003-05:00

In Robinson-Smith v. GEICO, auto damage field adjusters sued GEICO asserting claims for unpaid overtime compensation under the Fair Labor Standards Act ("FLSA"). The trial court granted summary judgment in favor of the employees. The DC Circuit reversed, concluding that the employees fell within the scope of the FLSA's exemption for "bona fide" administrative employees under the 2003 version of the "short test" set forth at 29 CFR Section 541.2. The principal issue on appeal was whether the employees' "primary duty" included work "requiring the exercise of discretion and independent judgment." The Court of Appeals held that it did, noting that the short test does not require that discretion and independent judgment be exercised "customarily and regularly." The Court of Appeals noted that "the ...auto damage adjuster exercises discretion as often as 60 times per year in negotiations with customers over total loss claims alone." The Court reasoned that "[t]he frequency of such negotiations may be enough to satisfy even the ‘customarily and regularly' requirement of the ‘long test.'"

Appeals Court Holds That Insurer's Benefits Determination Was "De Novo" Wrong

2010-01-06T15:04:00.005-05:00

The United States Court of Appeals for the Eleventh Circuit (which hears and decides appeals of decisions from the federal courts in Florida, Alabama and Georgia) held yesterday that Aetna Life Insurance Co. violated ERISA by failing to properly investigate a benefits plan participant's benefits claim. See Capone v. Aetna Life Insurance (11th Cir 01/05/2009) (http://case.lawmemo.com/11/capone.pdf).

By way of background, the participant/claimant suffered a spinal injury diving into the ocean after consuming alcohol. The conflicted plan administrator (acting as both evaluator and payor of claims) denied the claim under the insurance policy's alcohol exclusion provisions. The participant sued the plan administrator for violation of ERISA alleging wrongful denial of benefits. The trial court granted the plan administrator's motion for summary judgment. The 11th Circuit reversed.

On appeal, the 11th Circuit resolved the case applying the "de novo standard" of review and determined that the plan administrator's decision was "wrong," and reasonable grounds did not support the denial. Applying Georgia's "accidental means" test to the circumstances of the participant's accident, the Court of Appeals determined that the participant had established a prima facie case that an unforeseen wave had created a shallowness in the ocean that had not otherwise existed (i.e., the accident was an actual accident and not the result of the participant's intoxication). Because the Court of Appeals determined that the plan administrator had not properly investigated the participant's claim, the Court concluded that the denial of benefits without a proper investigation was "de novo wrong." Furthermore, the court found that the record did not sufficiently connect the participant's decision to dive with his state of intoxication - thus, the denial of benefits based upon the alcohol exclusion of the policy without more was "de novo wrong."

Radiocative Waste Processing Company Settles Race Discrimination Lawsuit

2010-01-05T09:49:00.002-05:00

A Memphis radioactive waste processing company will pay $650,000 to 23 African American employees and provide other relief to settle a race and retaliation discrimination lawsuit filed by the U.S. Equal Employment Opportunity Commission ("EEOC"), the EEOC announced last week. According to the EEOC’s suit against Race, LLC, doing business as Studsvik, LLC (Civil Action No. 2:07-cv-2620, filed in U.S. District Court for the Western District of Tennessee, Western Division), Courtney Britton, who worked as a lead worker in the shop for Studsvik, and other African American employees, were subjected to racially offensive comments by their white supervisor. Further, the complaint alleged that Britton’s supervisor regularly referred to him and other African American employees with the N-word and other derogatory slurs, such as “boy.” In addition, the EEOC alleged, white managers subjected Britton and other African American employees to excessive radiation exposure, more than their white co-workers. The EEOC also charged that Britton was suspended for 15 days and then laid off in retaliation for complaining about the racial harassment. Besides the monetary relief, the three-year consent decree resolving the case enjoins Studsvik from discriminating against its employees because of their race and from retaliating against workers who assert their rights, and enjoins Studsvik from making assignments in the shop area based on race. Studsvik agreed to adopt and maintain an anti-discrimination policy prohibiting discrimination, to distribute the policy and complaint procedure to all employees, and to provide mandatory training to all employees regarding the policy

2010-01-04T15:03:00.002-05:00

The Wall Street Journal published an interesting article today on small business owners and trends in working from home.

See http://online.wsj.com/article/SB126246733831713647.html

EEOC Sues Sparks Steak House for Alleged Male-On-Male Sexual Harassment And Retaliation

2010-01-04T15:00:00.002-05:00

Sparks Steak House, an upscale restaurant in New York City, allegedly violated federal law by creating a hostile work environment for male employees, including physical and verbal sexual harassment, the U.S. Equal Employment Opportunity Commission ("EEOC") charged in a lawsuit it filed today. According to the EEOC’s suit, male managers and workers at Sparks subjected male employees to ongoing abuse. The misconduct allegedly included groping their buttocks, attempting to touch their genitals and rubbing their bodies into the employees while at work. The managers and co-workers also allegedly made numerous crude, obscene comments. The lawsuit against the steakhouse also charged that an employee who complained about the harassment was retaliated against by getting less desirable assignments and was ultimately terminated. All this alleged conduct violates Title VII of the Civil Rights Act of 1964, which prohibits employment discrimination based on race, color, religion, sex (including sexual harassment or pregnancy) or national origin, and protects employees who complain about such offenses from retaliation. The EEOC filed the lawsuit in U.S. District Court for the Southern District of New York (civil number 09 CV 10601) after first attempting to reach a voluntary settlement out of court with the steakhouse.

“The managers’ and employees’ offensive conduct at Sparks has absolutely no place in any working environment,” said Charles F. Coleman, Jr., a trial attorney in the EEOC's New York District Office. “When employees spoke out against the abuse, their pleas were either ignored or resulted in punishment. With this suit, the EEOC is sending the message that this type of behavior is illegal and will not be tolerated.”