Supreme Court Hears "Employee-Relationship" Retaliation Case

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

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

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

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

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

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

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.