May 2014

Key developments in the Employer Express May 2014 newsletter include:

EEOC Continues Legal Attack on Severance Agreements
The “After Acquired Evidence Rule” Could Let Employers Off the Hook for Severance – The Case of the Senior VP’s Pornographic and Racist Emails
Federal Court Rules Employer Has Burden of Proving Physical Presence in Workplace Is Essential Function in Face of Request for Telecommuting Accommodation
Fifth Circuit Enforces NLRB Order Striking Down Non-Union Employer Policy Requiring Confidentiality of Personnel Information
NLRB Expands the Meaning of Protected “Concerted Activities” to Include Individual Action
Supreme Court to Review Whether Time Spent in Mandatory Employee Security Checks Is Compensable
California Court Upholds Post-FMLA Fitness for Duty Evaluations
Deadline Approaching for NYC Employers to Provide Pregnancy Rights Notice
NYC Extends Discrimination and Harassment Protections to Interns
NLRB: Nursing Home’s Off Duty Access Policy Violated NLRA
Conflicting Decisions: Is Judicial Approval Required for FLSA Settlements?
New Model COBRA Notices - Health Insurance Marketplace Now Open
EEOC Continues Legal Attack on Severance Agreements

Severance agreements are among the most common of employers’ tools to reduce their liability, as they trade separation benefits in exchange for a release of claims by former employees. In our March issue, we reported on an Equal Employment Opportunity (“EEOC”) lawsuit against CVS Pharmacies seeking to invalidate the company’s standard severance agreement, including provisions that have become standard fare in separation and release agreements. The EEOC onslaught continues as it pursues a similar lawsuit against a private college.

Late last month, the EEOC filed a lawsuit in Colorado federal court against CollegeAmerica, alleging that the private college’s separation agreement violated the Age Discrimination in Employment Act by improperly preventing employees from filing age discrimination complaints. Specifically, the EEOC alleges that the college improperly conditioned the departing employee’s severance benefits on her promising, among other things, not to file any grievance with a government agency and not to disparage the company. According to the EEOC, the provisions had the effect of interfering with the employee’s unwaivable right to file discrimination charges or cooperate with the EEOC or state fair employment agencies.

The EEOC’s complaint also includes a retaliation claim. In support of this claim, the EEOC points to a breach-of-contract lawsuit that the college filed against the former employee after she filed an age discrimination charge with the EEOC.

The cases against CVS and CollegeAmerica should serve as a warning sign that the EEOC is closely scrutinizing the terms of severance agreements. Employers should proceed with caution when using such agreements, especially template agreements that were obtained online or drafted years ago and have not been reviewed by counsel.

The “After Acquired Evidence Rule” Could Let Employers Off the Hook for Severance – The Case of the Senior VP’s Pornographic and Racist Emails

A recent lawsuit filed by Bon-Ton Stores, Inc. in the Middle District of Pennsylvania attempts to affirmatively use the “after acquired evidence rule” to avoid paying an executive severance under an Executive Severance Pay Plan.

In the lawsuit, Bon-Ton seeks, among other things, a declaration that its former Senior VP Gary Pralle was terminated “for cause” as defined in the parties’ Executive Severance Pay Plan. Bon-Ton terminated Pralle based on his failure to be present in his territory and supervise his stores, his misrepresentation of commuting expenses as business expenses, and his submission of “numerous extravagant expenses for lodging, meals and alcohol” in excess of Bon-Ton’s policies.

Bon-Ton alleged that after terminating Pralle, it searched his emails and discovered “pornographic materials” and “racial slurs.”  Seeking to invoke the “after acquired evidence rule,” Bon Ton alleged that had it discovered these pornographic and racist emails prior to terminating Pralle, it would have terminated Pralle for violation of Bon-Ton’s conduct policies. Bon-Ton seeks a declaration that the termination was for “cause” as provided in the Executive Severance Pay Plan, which would excuse it from paying Pralle severance.

The “after acquired evidence rule” often comes up when an employer learns during discovery that an employee failed to disclose negative information or lied on a job application. Bon-Ton’s affirmative use of the rule may allow it to avoid paying Pralle severance. In a similar case in 2005, the Tennessee Supreme Court found that under that state’s law, after acquired evidence can be a defense to a breach of contract suit by an employee seeking severance, if the employer can show by a preponderance of the evidence at trial that it would have terminated the employee had it known of the misconduct. (See Teter v. Republic Parking System, 2005 WL 316518). However, Bon-Ton could have avoided the expense of litigation had it engaged in a review of Pralle’s emails before terminating him, making sure it acted consistent with its policies and not for any discriminatory purpose.

Federal Court Rules Employer Has Burden of Proving Physical Presence in Workplace Is Essential Function in Face of Request for Telecommuting Accommodation

We previously reported on a welcome federal court decision holding that regular attendance is an essential function under the Americans with Disabilities Act ("ADA") and that an employer has no obligation to grant a request for a flexible work schedule. Recently, the Sixth Circuit took a different tack and held that an employer may have an obligation to offer telecommuting as a reasonable accommodation for a disabled employee.

The case, EEOC v. Ford Motor Co., involved the employment of Jane Harris—an employee who worked for Ford as resale buyer. The position involved individual tasks such as computer-based data entry and periodic site visits. But the most important function of the resale buyer was to strategize with steel suppliers and other members of the resale team when supply problems arose in order to insure there was no delay in the production cycle. In Ford’s judgment, such group interactions were most effectively handled face-to-face, rather than through email or teleconferencing.

Unfortunately, Harris suffered from irritable bowel syndrome, which resulted in frequent absenteeism. As her condition worsened, Harris requested that she be permitted to telecommute on an as-needed basis as an accommodation for her disability. Ford denied her request after concluding that Plaintiff’s position was not suitable to telecommuting given the team-based nature of the department and the emphasis on group problem-solving. Ford suggested several alternative accommodations, including transfer to another position more suitable for remote working. But Harris rejected each of these options and filed a charge of discrimination with the EEOC. Thereafter, the EEOC initiated a lawsuit on Harris’s behalf, alleging that Ford violated the ADA by failing to accommodate Harris’s disability.

In light of precedent establishing that it was not for the court to second guess an employer’s business judgment behind personnel decisions, the district court found that Harris’s request to telecommute was not a reasonable accommodation for her position. The Sixth Circuit disagreed, finding a genuine dispute on the issue of whether physical presence was an essential function of the resale buyer position.

The court recognized that regular physical presence in the workplace is an essential function of most jobs, but said such a conclusion was not automatic. The court pointed to advances in technology and the growing reliance on remote work arrangements in support of its holding that “attendance at the workplace can no longer be assumed to mean attendance at the employer's physical location.” Similarly, the court was “not persuaded that positions that require a great deal of teamwork are inherently unsuitable to telecommuting arrangements.”

In light of the Ford decision, employers can expect to receive more employee requests to work remotely. However, as the decision highlights, it is no longer safe for employers to reject these requests outright. Employers can no longer assume that on-site attendance is an essential function or instinctively point to job descriptions articulating that attendance is critical. Rather, and as with most ADA issues, the question is a highly fact specific one. Employers must undertake an individualized inquiry into whether physical presence is critical and, in doing so, must consider the specific duties of the job, the realities of the workplace, and technological resources available.

The Sixth Circuit has jurisdiction over Michigan, Kentucky, Ohio, and Tennessee, but the court’s decision is simply the most recent in a long line of cases challenging attendance as an essential function. This trend is sure to continue, and we will keep you apprised of advancements in this area.

Fifth Circuit Enforces NLRB Order Striking Down Non-Union Employer Policy Requiring Confidentiality of Personnel Information

The National Labor Relations Board (“NLRB”) has been on a mission to extend its reach by applying the National Labor Relations Act (“NLRA”) to non-union employers. In pursuing this activist agenda, the NLRB has attacked common handbook provisions and employment policies addressing, among other things, social media use, workplace investigations, confidentiality, and employee behavior. In a surprising turn, a federal appeals court recently enforced one such decision of the NLRB.

In Flex Frac Logistics LLC v. NLRB, the Fifth Circuit upheld a decision of the NLRB that an employer’s confidentiality policy violated the provisions of the NLRA prohibiting employers from infringing on the rights of employees—both union and not—to engage in concerted protected activity for their mutual aid and protection.

The confidentiality policy at issue in Flex Frac prohibited employees from sharing or copying “confidential information” without prior management approval. The policy stated that unauthorized disclosure of confidential information could lead to termination or other legal action. For purposes of the policy, “confidential information” was defined to include not only sensitive business information and intellectual property, but also “personnel information and documents.”

The Fifth Circuit—generally viewed as an employer-friendly jurisdiction—enforced the NLRB’s order that the confidentiality policy was facially unlawful. The court noted long-standing precedent that workplace rules forbidding discussions among employees of their wages are per se invalid under the NLRA. Finding that employees could reasonably interpret the Flex Frac policy’s ban on disclosing personnel information as encompassing wage information, the court struck down the policy. In doing so, the court noted that no language in the policy excluded such subjects from its apparent reach.

This is not to say that employers cannot prohibit employees from disclosing confidential information, including confidential personnel information such as social security numbers and medical information. However, employers would be well-served to review their confidentiality policies to ensure that they cannot be interpreted to bar discussions of employee compensation and benefits.

NLRB Expands the Meaning of Protected “Concerted Activities” to Include Individual Action

Under Section 7 of the NLRA, employees have the right to engage in concerted activities with other employees in order to improve working conditions, and it is unlawful for employers to interfere with, restrain or coerce employees in the exercise of these rights. This has always applied to two or more employees – but may now extend to the actions of single individuals.

Although the term “concerted activities” has traditionally been interpreted to encompass the concerted efforts of at least two employees, an April 29, 2014 decision by Administrative Law Judge (“ALJ”) Raymond Green in New York expanded this definition and held that one employee’s filing of a FLSA class action triggered Section 7 rights.

The employee at issue was terminated after filing the wage and hour lawsuit, although the evidence also showed he had engaged in an affair with a coworker. In reinstating the employee, the ALJ found that while the lawsuit was not filed with the consent “or except in one case, even with th[e] knowledge” of other employees, the employee “sought ‘to initiate or to induce or prepare for group action,’” which was sufficient to constitute a concerted activity. In addition, the ALJ concluded that when the employer received the FLSA complaint, it “believed or at least suspected” that the employee was engaged in group action, and, even if that belief were mistaken, the discharge would be unlawful. This decision is yet another example of the NLRB’s expansion of Section 7 rights.

Supreme Court to Review Whether Time Spent in Mandatory Employee Security Checks Is Compensable

During its October 2014 term, the U.S. Supreme Court will hear a case that could have far-reaching implications on what types of pre- and post-shift activities are compensable under the Fair Labor Standards Act.

The Supreme Court recently granted review of a case that would determine whether private companies must pay their non-exempt employees for time spent waiting in security checks at the end of a shift.

The case, Integrity Staffing Solutions v. Busk, revolves around workers at Amazon.com’s warehouse and distribution centers who were required to pass through bag checks at the end of their shifts to check for stolen merchandise. Time spent waiting in line for and undergoing such bag checks—which some workers claim took as many as 25 minutes each day—was not treated as paid time.

The workers argue that the time spent in the security check is required, primarily for the benefit of the employer, and a necessary activity for the performance of their jobs fulfilling online purchase orders. Accordingly, the workers argue that this time should be treated as compensable hours worked under the FLSA pursuant to the Portal-to-Portal Act. The employer, on the other hand, argues that the time spent in security screenings, although required, is fundamentally distinct from the employees’ actual job duties and should be treated like time spent waiting at the time clock, walking between the parking lot and the workplace, waiting to pick up a paycheck, and putting on protective gear—all tasks that have been found to be non-compensable under the FLSA. After the Ninth Circuit found such time to be compensable—despite the Second and Eleventh Circuits previously holding otherwise, the employer appealed to the High Court.

The Integrity Staffing Solutions case is just one of a handful of cases challenging this sort of pre- and post-shift security clearance process. If the Supreme Court rules in favor of the workers, retail employers and those with distribution and fulfillment operations that employ such security measures in an attempt to minimize employee theft can expect to see a spate of class action litigation by employees seeking back pay for time spent in security screenings. We will keep you apprised of developments in this case.

California Court Upholds Post-FMLA Fitness for Duty Evaluations

A recent decision by the notoriously employee-friendly California Court of Appeal is instructive for an employer questioning an employee’s ability to perform the functions of his or her job following return from Family Medical Leave Act (“FMLA”) leave. While the employer must comply with the FMLA’s requirements regarding restoration of the employee, the employer has a right to evaluate the employee’s fitness to perform the essential job duties following such restoration.

In White v. County of Los Angeles, decided by the California Court of Appeal last month, an employee took FMLA leave to undergo treatment for severe depression she suffered following the death of a family member. At the end of the leave, White’s physician released her to return to her former position, which involved the arrest and interrogation of suspects and required White to carry a firearm. Although White was restored to her former position, the county questioned her ability to perform her job safely in light of her erratic and overly emotional pre-leave behavior. After White returned to the job, the county immediately requested a second medical opinion as to White’s fitness for duty. She refused to submit to such an evaluation and filed a lawsuit alleging that the county’s demand violated her rights under the FMLA.

In reversing the lower court’s decision, the California court dismissed her claim. The Court noted that an employee, upon her healthcare provider's certification that she is able to resume work, must be reinstated to her same position or an equivalent position without delay. However, the Court held that an employer may require a second medical opinion after the employee has been restored to work because the employee is no longer on FMLA leave. In such instances, the employer who has concerns about the employee’s ability to safely perform the key functions of the job and who is unsatisfied with the certification of the employee’s physician, can require an independent medical evaluation pursuant to the guidelines of the Americans with Disabilities Act.

Under the ADA, a medical examination may be required provided it is “job-related and consistent with business necessity.” The employer can choose the health care provider to conduct the exam, subject to some limitations, but must assume the expense of the examination.

Employers are wise to remember the ADA requires an individualized analysis and a second opinion may not be appropriate in all instances. Employees should only be required to submit to an independent medical evaluation where the employer has a legitimate concern about the employee’s ability to safely perform the job and can clearly articulate the basis for such concern, after careful review of the employee’s job duties.

Deadline Approaching for NYC Employers to Provide Pregnancy Rights Notice

On January 30, 2014, an amendment to the New York City Human Rights Law took effect, increasing the protections against discrimination for pregnant employees. For more on this law, see our article on this topic in our January 2014 newsletter. Another deadline in connection with this amendment is quickly approaching.

Under the new law, employers are required to provide written notice to existing employees by May 30, 2014, detailing their rights to be free from pregnancy discrimination and to request reasonable accommodations due to pregnancy. New employees should receive the notice at the time of hire.

The New York City Commission on Human Rights has published the Pregnancy and Employee Rights Notice to satisfy this requirement in seven languages. The law encourages, but does not require, employers to post the Notice in the workplace.

NYC Extends Discrimination and Harassment Protections to Interns

In our April Employer Express, we reported on a unanimous vote by the New York City Council to pass a bill to amend the New York City Human Rights Law ("NYCHRL") to bring interns within the ambit of the law. On April 15, 2014, Mayor di Blasio put pen to paper and signed the bill into law.

With the passage of bill Int. No. 173-A, interns—both paid and unpaid—now have the same rights and protections under the NYCHRL as were previously granted only to employees. These include, among other things, the rights:

  1. to be free from discrimination and harassment on any protected trait;

  2. to seek a reasonable accommodation for religious beliefs;

  3. to be free from retaliation for filing a charge or otherwise protesting unlawful activity under the Law;

  4. to file a charge of discrimination or retaliation with the New York City Commission on Human Rights; and

  5. to recover damages for being the target of unlawful activity.

For purposes of the law, “intern” is narrowly defined to include only those individuals who “work for an employer on a temporary basis whose work: (a) provides training or supplements training given in an educational environment such that the employability of the individual performing the work may be enhanced; (b) provides experience for the benefit of the individual performing the work; and (c) is performed under the close supervision of existing staff.” This definition is a reduced version of the test used by the New York State Department of Labor to determine if an intern is exempt from the requirements of the Minimum Wage Act and Orders.

With the passage of the law, New York City joins Washington, D.C. and Oregon as jurisdictions which extend civil rights protections to unpaid workers. A similar bill is currently pending before the state legislature, which would amend the New York State Human Rights Law to extend equal employment protections to interns.

The amendment takes effect on June 14, 2014, just in time for summer internship season. Because interns are now just as free as employees to file discrimination and harassment claims against the companies for which they work, New York City employers should ensure that their anti-harassment and equal opportunity policies are up-to-date and distributed to interns. Appropriate management and supervisory personnel should also be trained on their new obligations under the NYCHRL.

NLRB: Nursing Home’s Off Duty Access Policy Violated NLRA

The ability to control activity on its own premises has long been regarded as among employers’ basic rights – and responsibilities. On May 1, however, the NLRB ruled that a nursing home’s off duty policy violated the NLRA, because it required pre-authorization by a supervisor, and thus, gave the employer "broad—indeed unlimited—discretion to decide when and why employees may access the facility.”

The policy prohibited employees from remaining on the premises after their shift “unless previously authorized by” their supervisor. While the rule did generally prohibit post-shift access, the need for supervisor pre-authorization was “indefinite in scope” and thus, the rule did not apply to all off-duty employees equally, as opposed to just those employees engaging in union activity. 

The NLRB further found that the nursing home had violated Section 7 of the NLRA by applying the policy against two employees who sought access to the building “to engage in the protected activity of aiding the Union in presenting employee complaints to management.”

For assistance in drafting compliant policies, including off duty access policies, feel free to reach out to our Labor and Employment Department.

Conflicting Decisions: Is Judicial Approval Required for FLSA Settlements?

Employers are accustomed to entering into private settlements in employment litigation, without the oversight (and potential interference) of a court. Employers should be aware that, when it comes to wage and hour claims under the federal Fair Labor Standards Act, it may not be so simple – or clear.

The FLSA itself is silent on whether Department of Labor (“DOL”) or court approval is required for settlements. Since 2012, there has been a Circuit split on whether such approval is required. To date, the Second Circuit has not decided the issue.

In 2012, the Supreme Court denied certiorari of the Fifth Circuit’s Martin v. Spring Break ’83 Productions decision, which enforced a private settlement that released claims under the FLSA, even though the settlement did not receive court approval and was entered into without DOL supervision. Martin broke with the 11th Circuit, which had held 30 years ago in Lynn’s Food Stores v. U.S. that a settlement and release of FLSA claims, absent DOL supervision, can be enforced only where a court has approved the settlement after scrutinizing for fairness.

Since the denial of certiorari in Martin, the confusion has only grown. In the Eastern District of New York alone, some courts have required a fairness hearing (Socias v. Vornado Realty, January 16, 2014) and others have held that no judicial approval is required in order to settle a private FLSA lawsuit (Picerni v. Bilingual Seit & Peschool Inc., February 22, 2013). The Second Circuit has not considered this issue. 

Kelley Drye’s Wage and Hour Class Action Defense practice group can assist with all aspects of wage and hour issues, including FLSA settlements. 

New Model COBRA Notices - Health Insurance Marketplace Now Open

Employers should be aware that, on May 2, 2014, the U.S. Department of Labor released proposed regulations that modify the model notices deemed to satisfy the notice content requirements of COBRA.

Pursuant to COBRA, group health plans are generally required to notify each covered employee and qualifying beneficiaries of their right to continue coverage under the plan after certain qualifying events, such as termination of employment. Notices must be provided both at the time coverage commences (i.e., the General Notice) and at the time of the qualifying event (i.e., the Election Notice). Until regulations are finalized, the use of the new model COBRA notices, appropriately completed, constitute good faith compliance with COBRA content requirements.

As modified, the model COBRA notices greatly expand on language meant to inform plan beneficiaries of the health coverage alternatives available on the Health Insurance Marketplace, as well as special enrollment rules. For instance, notice recipients are now advised they have 60 days from the time they lose job-based coverage to enroll in Marketplace coverage. Note, however, that this special enrollment period does not necessarily apply to state-based exchanges (i.e. states that set up their own exchange, rather than rely on the federal exchange) because each state-based exchange may choose whether to adopt such an enrollment period. 

When deciding on which coverage option to elect, notice recipients will need to consider cost and timing. With regard to cost, notice recipients may find that the health coverage offerings on the Marketplace have lower premiums than COBRA coverage. If notice recipients elect Marketplace coverage, however, any healthcare expenses incurred prior to enrolling in Marketplace coverage will not be covered. This stands in contrast to COBRA coverage, which can cover expenses retroactive to the qualifying event.

Although use of the DOL’s new model COBRA notices is not mandatory, it is generally recommended. The modified notices are currently available at the DOL’s website, and must be completed by inserting information specific to the group health plan where appropriate.