Category: Labor & Employment

Sunlight is the best disinfectant: SEC charges oil company for fraud on EB-5 investors

In a recent action, SEC v. Luca International Group, LLC et al. (“SEC v. Luca“), the Securities and Exchange Commission (SEC) has charged a California-based oil and gas company and its CEO with violations of securities laws in connection with a $68 million Ponzi scheme and affinity fraud. The target of the fraud was the Chinese American community. Additionally, a portion of the funds raised by the defendants came from EB-5 investors seeking green cards through the EB-5 Program. The SEC issued both a press release and cease and desist order this week in connection with this most recent action. We think that this case highlights two important and relevant points for our readership, and that the SEC exposing the defendant schemers/fraudsters in SEC v. Luca is good for the EB-5 industry and integrity of the EB-5 program.

Prosecution efforts are going global– government agencies in Hong Kong and China assisted the SEC’s efforts 

Now more than ever before, the SEC is on the path to closing down actors in the EB-5 context that engage in deception and fraud. We are in a new era of enforcement, with the SEC becoming more familiar with the EB-5 Program. We think that this enforcement trend will move at an even faster clip as the SEC and United States Citizenship and Immigration Services (USCIS) become more agile in cooperating and responding to credible allegations of fraud.

EB-5 regional centers and issuers need to put into place sound and workable policies to ensure that marketing practices are in line with securities laws. Note that in SEC v. Luca, there was cooperation with the SEC and two foreign agencies, namely the Hong Kong Securities and Futures Commission and the China Securities and Regulatory Commission. Enforcement and prosecution efforts in this context are going global. Regional centers and issuers should ensure that any offshore sales efforts are in compliance with the laws of the countries in which sales activities are performed.

Overlooked federal and state investment adviser registration requirements  

SEC v. Luca is a reminder that investment adviser requirements may apply broadly in EB-5 transactions and require federal or state registration by regional centers, issuers and/or EB-5 deal facilitators. In SEC v. Luca, the SEC asserted that the defendants acted as “investment advisers” within the meaning of Section 202(a)(11) of the U.S. Investment Advisers Act of 1940 (“Advisors Act”) [15 U.S.C. Section 80(b)-2(a)(11), but had no registrations with the Commission. Confusion over investment adviser registration requirements is a commonplace problem in the EB-5 space. In SEC v. Luca, the defendants were in the business of providing investment advice concerning securities for compensation. According to the SEC, these key facts triggered registration requirements under the Advisers Act.

We will soon be providing an extensive alert with regulatory advice to EB-5 regional centers and issuers on the applicability of both federal and state investment adviser registration requirements. The applicability of such requirements should be made on a case-by-case with qualified securities counsel. There is no “one size fits all” advice. States have their own considerations in interpreting investment adviser registration requirements. And the SEC has its own interpretive guidance on the parameters of the registration requirements of the Advisers Act apply.

Conclusion

The egregious pattern of unlawful behavior by the defendants in SEC v. Luca included deceit in the marketing process, fraud in offering materials, comingling and misappropriation of funds, and violation of registration requirements. These are issues not just in the EB-5 context, but with private placements generally. Affinity fraud is also common in private placements.

EB-5 stakeholders should be aware that we are seeing a visible uptick in securities related prosecutions. No issuer, regional center or deal facilitator is immune from scrutiny. The SEC and USCIS are also working together more nimbly with foreign securities agencies. Sound policies, securities compliance and meaningful due diligence by experts are important in EB-5 offerings.

Sunlight is the best disinfectant. This adage is true for the EB-5 program. Stakeholders who promote a transparent and strong EB-5 program should applaud the SEC’s efforts.

ARTICLE BY Douglas Hauer of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
©1994-2015 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

New York City Investigation of Hiring Practices

New York City’s Commission on Human Rights is now authorized to investigate employers in the Big Apple to search for discriminatory practices during the hiring process. This authority stems from a law signed into effect by Mayor de Blasio that established an employment discrimination testing and investigation program.  The program is designed to determine if employers are using illegal bias during the employment application process.

Under this program, which is to begin by October 1, 2015, the Commission is to use a technique known as “matched pair testing” to conduct at least five investigations into the employment practices of New York City employers.  The law requires the Commission to use two “testers” whose credentials are similar in all respects but one: their protected characteristics, i.e., actual or perceived age, race, creed, color, national origin, gender, disability, marital status, partnership status, sexual orientation, alienage, citizenship status, or another characteristic protected under the New York City Human Rights Law.  The testers will apply for jobs with the same employer to evaluate whether that employer is using discriminatory practices during the hiring process.

Employers may wish to notify their human resources personnel about the program and have them remind individuals who review job applications and conduct interviews to focus on job-related skills and abilities, not protected characteristics.  Job postings/advertisements should also be reviewed to ensure that they are neutral.

ARTICLE BY Laura A. Stutz of Epstein Becker & Green, P.C.

©2015 Epstein Becker & Green, P.C. All rights reserved.

EEOC Sues Wal-Mart for Disability Discrimination And Harassment: Agency Says Retailer Denied Accommodations to Disabled Cancer Survivor

Agency Says Retailer Denied Accommodations to and Harassed a Disabled Cancer Survivor

CHICAGO – Wal-Mart Stores, Inc. violated federal law by failing to provide reasonable accommodations to an employee at its Hodgkins, Ill., store who was disabled by bone cancer and failing to stop harassment of the employee, the U.S. Equal Employment Opportunity Commission (EEOC) charged in a lawsuit it filed yesterday.

According to Julianne Bowman, the EEOC’s district director in Chicago, who managed EEOC’s pre-suit administrative investigation, the Walmart store initially agreed to comply with employee Nancy Stack’s request that the company provide a chair in her work area in the fitting room and limit her scheduled work hours because treatment for bone cancer in her leg limited her ability to walk and stand. After complying with her scheduling accommodation for many months, the store revoked it for no reason. And the store did not ensure that a chair was in Stack’s work area, at one point telling her that she had to haul a chair from the furniture department every day, which was of course hard for her to do given her disability. Finally, the store transferred Stack from the fitting room to a greeter position, which did not comply with her restrictions on standing.

To add insult to injury, Bowman added, a co-worker harassed Stack by calling her names like “cripple” and “chemo brain,” imitated her limp, and removed or hid the chair the employee needed in her work area. Stack complained repeatedly, but the store took no action to stop the co-worker’s harassment.

Such alleged conduct violates the Americans with Disabilities Act (ADA), which prohibits discrimination on the basis of disability, which can include denying reasonable accommodations to disabled employees and subjecting disabled employees to a hostile work environment.

The EEOC filed suit after first attempting to reach a pre-litigation settlement through its conciliation process. The case, EEOC v. Wal-Mart Stores, Inc., Civil Action No. 15-5796, was filed in U.S. District Court for the Northern District of Illinois, Eastern Division, and was assigned to U.S. District Judge Sharon Coleman. The government’s litigation effort will be led by Trial Attorney Ann Henry and supervised by EEOC Supervisory Trial Attorney Diane Smason.

“It’s hard to believe a retailer the size of Wal-Mart could not manage to consistently provide such a simple accommodation as a chair,” said John Hendrickson, the regional attorney for EEOC’s Chicago District Office. “Telling a disabled employee that she needs to drag a chair across the store every day is no accommodation at all. Employers have to provide reasonable accommodations unless doing so would be an undue hardship. EEOC is aware of no hardship that required Wal-Mart to suddenly change Stack’s schedule, deny her the use of a chair, and transfer her out of the fitting room where she had performed her job well for years.”

EEOC Trial Attorney Ann Henry commented, “No employee should have to go to work and face mocking and name calling because she had cancer. Employers who know about such vile harassment in their workplace have an obligation to stop it. Wal-Mart did not do that here, and the EEOC will seek to hold the company liable for that violation.

In July 2014, the EEOC filed a lawsuit against Wal-Mart alleging that it violated the ADA by firing an intellectually disabled employee at a Rockford Walmart store after it rescinded his workplace accommodation.

The EEOC’s Chicago District Office is responsible for processing discrimination charges, administrative enforcement and the conduct of agency litigation in Illinois, Wisconsin, Minnesota, Iowa and North and South Dakota, with Area Offices in Milwaukee and Minneapolis.

The EEOC is responsible for enforcing federal laws prohibiting employment discrimination. Further information about the EEOC is available on its website at www.eeoc.gov.

This press release originally appeared in the EEOC Newsroom. 

ARTICLE BY U.S. Equal Employment Opportunity Commission
© Copyright U.S. Equal Employment Opportunity Commission

New Overtime Rules: $970 Per Week Salary Proposed For White Collar Exemptions in 2016

The minimum weekly salary for exempt employees will be raised from the current $455 to a likely $970 in 2016, if the Department of Labor’s (DOL’s) overtime pay revisions go into effect as proposed. In its long-awaited proposed revisions to overtime rules, the DOL estimates that 4.6 million U.S. workers who are currently exempt will be entitled to minimum wage and overtime compensation under the new salary level requirements.

Salary Level Would Automatically Adjust on an Annual Basis

Under its proposed rules, the DOL sets the salary threshold for the white collar exemptions at the 40th percentile of weekly earnings for full-time salaried workers nationwide. For 2013, using data from the Bureau of Labor Statistics, that figure was $921 per week, or $47,892 per year. The DOL anticipates that when its Final Rule goes into effect in 2016, the salary level will be $970 per week, or $50,440 per year.

In order to maintain the salary levels at a fixed percentile of earnings, the DOL proposes that the salary threshold automatically update annually. The automatic adjustment is intended to prevent the salary level from diminishing through inflation and to potentially make additional rulemaking adjusting the salary basis unnecessary. The DOL believes that this will provide more certainty to employers with a meaningful, bright-line test while improving government efficiency.

Highly Compensated Employee Exemption: $122,148 Salary

The current exemption for highly compensated employees requires an annual salary of $100,000. The DOL proposes to raise that salary threshold also based on an annualized value of a percentile of weekly earnings for full-time salaried workers. This proposal sets the salary level of highly-compensated employees at the 90th percentile, which was $122,148 per year for 2013. That number will likely be higher by the time the Final Rule is implemented. This salary requirement would also adjust automatically to the level equal to the 90th percentile of earnings for full-time salaried workers.

No Proposed Changes to Duties Requirements

Since 2004, the duties tests for the white collar exemptions have not included a limit on the amount of time that an employee can spend on nonexempt duties before the exemption is lost. Believing that a rise in the salary level will provide an initial bright-line test for the exemptions, the DOL refrained from proposing changes to the duties tests but will consider requests for changes during the comment period.

In its proposal, the DOL noted that employer stakeholders opposed any changes to the duties requirements as percentage limits on the amount of time spent on nonexempt duties are sometimes difficult to apply and hinder flexibility for work duties. Employee groups, on the other hand, expressed concern that certain businesses treat workers as exempt even though the employees perform mostly nonexempt duties, especially (they claim) in the retail industry. Without proposing its own duties requirements, the DOL seeks input from interested parties on whether changes to the duties tests are necessary in light of the salary level increases proposed.

Nondiscretionary Bonuses May Be Included in Salary Level Requirement

In the past, the DOL has not included nondiscretionary bonus payments when determining whether an employee’s salary meets the white collar exemption threshold; it looked only at actual salary or fee payments made to employees. In its proposed rules, the DOL seeks input on whether it should permit some amount of nondiscretionary bonuses and incentive payments to count toward a portion of the salary level requirement for the executive, administrative and professional exemptions. The DOL states that for these bonuses or incentive payments to count toward the weekly salary requirement, the bonuses and incentive payments would need to be paid monthly or more frequently, not as a yearly “catch-up” payment.

Next Steps

If you want to submit any comments on the DOL’s proposed changes to the overtime rules, you have 60 days in which to submit your input either electronically or by mail. Instructions are at the beginning of the Notice of Proposed Rulemaking.

After considering comments from interested parties, the DOL will decide whether to make any revisions to its proposed overtime rules and will issue its Final Rule sometime thereafter. Although the final version of the rules may change slightly, you should begin preparing for the changes now.

Examine your payroll records to determine which employees are currently treated as exempt under the various white collar exemptions. Determine which, if any, would or would not meet the new salary thresholds: $50,440 per year for executive, administrative and professional exemptions and $122,148 for highly compensated employees. Review the duties tests to make sure your exempt employees are performing exempt tasks.

After this review, consider how your organization is going to handle those employees who may not qualify as exempt under the new rules. Do you want to increase their salary to meet the new threshold? Change their status to nonexempt and pay them minimum wage and overtime? Do you need to change their duties to make sure they meet the duties tests? Have these internal conversations now so that you are not caught off guard when the Final Rule goes into effect in the coming months.

ARTICLE BY R. Calder Huntington of Holland & Hart LLP
Copyright Holland & Hart LLP 1995-2015.

New York City Mayor Signs “Ban the Box” Law

Mayor Bill DeBlasio signed a bill (Int. No. 318) that amends the New York City Human Rights Law (“NYCHRL”) to further restrict employers (with four or more employees) from inquiring into or otherwise considering an applicant’s or employee’s criminal history in employment decisions.  The new NYC law will take effect on October 27, 2015.

As we detailed in our prior post, the new NYC law prohibits employers from asking about criminal history on an initial employment application (“ban the box”) and at any time prior to extending a conditional offer of employment.  The new NYC law also forbids employers from stating on any job advertisement or other solicitation or publication that employment is conditioned or limited based on an applicant’s arrest or conviction history.

For years, before an NYC employer could take adverse action on the basis of criminal history, it had to first engage in a multi-factor analysis under Article 23-A of the New York State Correction Law to determine whether a sufficient nexus exists between the offense and position sought.  Now, under the new NYC law, before taking adverse action the employer also must:

  • furnish a written copy of the criminal history inquiry to the applicant in a form determined by the New York City Commission on Human Rights (“NYCCHR”);

  • provide a written Article 23-A analysis to the applicant in a form determined by the NYCCHR, together with “supporting documents” setting forth the basis and reasons for the adverse action; and

  • after providing the applicant with the required documentation, allow him or her at least three business days to respond and, during that time, hold the position open for the applicant.

To redress violations of the new NYC law, aggrieved applicants and employees may file a complaint with the NYCCHR or in court, with the promise of lucrative remedies under the NYCHRL.

The new NYC law does not apply where the employer must take action pursuant to any federal, state, or local law that requires criminal background checks for employment purposes or bars employment based on criminal history.  For purposes of this exception, “federal law” includes the rules or regulations of a self-regulatory organization as defined by the Securities Exchange Act of 1934 (like FINRA).  The new NYC law also excepts various public employment positions.

NYC now joins a growing number of jurisdictions across the nation that have “banned the box” and otherwise regulated employer use of criminal history in hiring and other personnel decisions.  To ensure compliance with the new NYC law, employers should start to review and, where necessary, make changes to their background check procedures and forms.

ARTICLE BY Katharine H Parker & Daniel L. Saperstein of Proskauer Rose LLP
© 2015 Proskauer Rose LLP.

President Obama Makes Announcement on Overtime Regulations

On Monday, June 29, President Obama announced a change in rules that would expand overtime eligibility to millions of Americans.

CHARLOTTE NC - SEP 21: Democratic nomonee Barack Obama makes a campaign stop in Charlotte NC on Sept 21 2008Beginning with the observation that “It’s been a few good days for America,” Obama announced the salary threshold where workers wouldautomatically qualify for time-and-a-half overtime wages would be raised from  $23,660 to $50,440.  This change in regulation can be made by the Administration, with no need for Congressional approval. The announcement came through a blog post written by the President for the Huffington Post, you can read it here.

President Obama argued that by failing to change the regulations, they had modified their original intentions–instead of highly-paid white collar workers being exempt from overtime, this was negatively impacting workers making as little as $23,660 a year, no matter how many hours they put in during the week. He asserted that “A hard day’s work deserves a fair day’s pay,” and that’s “how America should do business.”  This study, published in late 2013 by Jared Bernstein and Ross Eisenbrey of the Economic Policy Institute, increased the momentum for movement on this issue.

Conservative and Retail groups oppose this idea, claiming it will cost jobs and negatively impact the industry, including negative impacts on customer service.  The National Retail Foundation argues against the measure, saying their research indicates, “overtime expansion would drive up retailers’ payroll costs while limiting opportunities to move up into management. Most workers would be unlikely to see an increase in take-home pay, the use of part-time workers could increase, and retailers operating in rural states could see a disproportionate impact.”

Observers don’t expect this rule to be set into motion until 2016.

Read more at the New York Times here.

ARTICLE BY Eilene Spear of The National Law Review / The National Law Forum LLC
Copyright ©2015 National Law Forum, LLC

U.S. Supreme Court Finds a Constitutional Right to Same-Sex Marriage: Implications for Employee Benefit Plan Sponsors

On June 26, 2015, the U.S. Supreme Court issued a historic decision in Obergefell v. Hodges, holding that the Fourteenth Amendment’s Due Process and Equal Protection Clauses require states to allow same-sex marriage and to recognize same-sex marriages performed in other states.  The decision comes exactly two years to the day from the Court’s decision in Windsor defining “spouse” to include same-sex spouses for purposes of federal law.

As a result of the Court’s decision, the existing 14 state bans on same-sex marriage are invalid, and same-sex spouses are entitled to all of the rights extended to opposite-sex spouses under both federal and state law.

From an employee benefits perspective, it appears thatObergefell may most significantly impact sponsors ofinsured health and welfare plans in states that currently ban same-sex marriage.  Employers and other plan sponsors in those states will be required to offer insured benefits to same-sex spouses because state insurance law will require that the term “spouse” be interpreted to include them.  Based on government guidance issued following the Windsor decision, it seems unlikely that the decision would have retroactive effect, though such claims are possible.

For sponsors of self-insured benefit plans, a question may exist as to whether Obergefell directly impacts a sponsor’s decision not to provide health coverage to same-sex spouses (because state law does not apply to such plans).  However, it would appear that there would be heightened risks under federal and state discrimination laws for plans that define “spouse” in a manner that is inconsistent with the federal and state definitions, particularly since the Court held that marriage is a fundamental right under the Constitution, and an ERISA preemption defense likely would be weaker in this new climate.

It is also noteworthy that, as a result of the Court’s decision, there will no longer be imputed income for state tax purposes with respect to employer-provided health coverage for same-sex spouses, allowing for consistent administration in all states in which an employer operates.  Since Windsor, there have not been federal tax consequences with respect to these benefits, but some states continued to impute income for state tax purposes.

Finally, with respect to federally-regulated benefits such as qualified retirement plans and Code Section 125 benefits (for example, flexible spending accounts), the Court’s decision does not necessarily warrant any change, since those plans have been required, since Windsor, to recognize same-sex spouses.  Of course, plan language should be reviewed for consistency with the decision, and employers in some states may find that there are new spouses seeking benefits under those plans.  There also will be some administrative and enrollment issues, similar to when Windsor was decided.

Employers, particularly those operating in states that currently ban same-sex marriage, should review their benefit plans and policies and consider whether any changes need to be made in light of Obergefell.  Some employers may also reconsider their domestic partner benefits programs now that same-sex couples have the right to marry and have their marriage recognized across the entire country.

We expect that there will be guidance from the U.S. Department of Labor and the Internal Revenue Service regarding the employee benefit plan issues that emanate from Obergefell, so stay tuned.

ARTICLE BY Roberta K Chevlowe of Proskauer Rose LLP

© 2015 Proskauer Rose LLP.

DOL’s Upcoming Proposed Revisions to the FLSA’s White Collar Exemption Regulations

This month the Department of Labor is expected to propose, for the first time since 2004, revised regulations concerning the executive, administrative, professional, outside sales, and computer exemptions under the Fair Labor Standards Act. These revisions were prompted by President Obama’s March 13, 2014 memorandum to the Secretary of Labor, which stated that the exemptions “have not kept up with our modern economy” and which “direct[ed] [the DOL] to propose revisions to modernize and streamline the existing overtime regulations.” After the memorandum was issued, the agency began writing proposed regulations and announced on May 5, 2015, that it had completed drafting them and had submitted them (as required by Executive Order 12866) to the Office of Management and Budget for review.

Procedurally, the “proposed rules” will be published in the Federal Register (an action known as a “Notice of Public Rulemaking” or “NPRM”) for public comment following the OMB’s review, and the DOL has stated that it expects to take this step this month. After the public comment period closes, the DOL will consider the public comments in drafting “final rules;” submit them for a final review by the OMB; and then publish them in the Federal Register with an effective date on which they become law. Although implementation of the final rules may not occur until well into 2016, traditionally the final rules do not differ substantially from the proposed rules. Accordingly, employers should get a sense this month of what the future regulatory landscape will look like.

So what can we expect from these revisions? As an initial matter, it’s almost certain that the DOL will raise the $455 minimum salary requirement, which hasn’t changed since 2004. With regard to the other revisions, however, the DOL’s drafting process has been opaque, and official pronouncements have been largely limited to the Presidential Memorandum and the DOL’s description of the regulatory action on its Spring 2015 agenda, neither of which provide any specific detail. Nonetheless, unofficial pronouncements (including the Secretary of Labor’s remarks before the International Association of Firefighters on March 18, 2014) have repeatedly stressed the DOL’s position that the current regulations result in too many employees falling under the exemptions, particularly retail managers who spend a large portion of their time performing non-exempt duties. Accordingly, there is speculation that the DOL may eliminate the “concurrent duties” provision of 29 CFR 541.106, which provides that simultaneously performing both exempt and nonexempt duties will not automatically disqualify an otherwise exempt employee from the executive exemption. There is also speculation that the regulations may impose a set percentage cap on the amount of time an exempt employee may spend on non-exempt duties, similar to exemption provisions under some state laws (such as California and Connecticut) and to some provisions of the pre-2004 FLSA regulations.

In any event, one thing is certain – some employees who are properly classified as exempt under the current regulations will no longer be exempt under the new rules. Employers will shortly have a preview of just how drastic these changes will be, and should begin evaluating their compliance with the regulations well in advance of the implementation of the final rules.

ARTICLE BY Dennis M. Mulgrew, Jr. of Drinker Biddle & Reath LLP
©2015 Drinker Biddle & Reath LLP. All Rights Reserved

A Look Ahead to The Supreme Court’s 2015-16 Term

As the Supreme Court winds down its 2014-15 term, the Benefits Law Advisor looks ahead to the ERISA cases and issues the Supreme Court may confront in its next terms. The Supreme Court’s recent ERISA jurisprudence has touched on issues such as remedies (CIGNA Corp. v. Amara and US Airways v. McCutchen), retiree entitlement to healthcare benefits (M&G Polymers v. Tackett), time-based defenses to ERISA claims (Tibble v. Edison Int’l and Heimeshoff v. Hartford Life & Accident Ins.), and the now-defunct “presumption of prudence” that lower courts had applied to ERISA plans’ decision to offer employer stock as an investment option (Fifth Third Bank v. Dudenhoeffer).

As of this writing, the Court has only granted certiorari in one ERISA case for next year’s term, Montanile v. Board of Trustees, No. 14-723, cert. granted Mar. 30, 2015. The Montanile case arose from the familiar situation where an ERISA plan seeks to recover medical benefits paid to an injured participant, after that participant receives a tort recovery for those injuries. Both lower courts granted summary judgment to the plan, with the additional proviso that the plan could impose an equitable lien (under the terms of the plan) on Montanile’s settlement proceeds, even if those monies have been dissipated.

In granting Montanile’s petition, the Court interprets, once again, the term “equitable relief” in ERISA §502(a)(3) – an issue the Court has addressed has repeatedly revisited. In particular, the Montanile case gives the Court a chance to address an open question from its equitable-remedies jurisprudence: is there an “equitable tracing” requirement that obligates ERISA plaintiffs to identify a specific sum of money that may be the subject of an equitable recovery?

The existence of an equitable-tracing requirement has been hotly debated since at least 2003, when the Court’s decision in Great West Life & Annuity v. Knudson firmly established that equitable relief under ERISA was limited to those forms of relief traditionally available in the courts of equity. Since Knudson, many ERISA defendants have successfully argued that equitable relief was only available where plaintiff could identify a particular asset or sum of money that could be made subject to a restitutionary recovery, constructive trust or equitable lien. As a result, the Court has struggled (in this author’s view) with how to apply traditional “tracing” rules, because the Court’s answer could have far-reaching implications both for plans seeking reimbursement, and for participants invoking ERISA §502(a)(3) for redress in fiduciary-breach claims or other violations of ERISA.

It seems that the Court is ready to answer that question in Montanile, judging from the question presented in the Court’s writ. Another similar case, Elem v. AirTran Airways, No. 14-1061 (cert. pet. filed Feb. 27, 2015). is pending before the Court on the participant’s petition.

Beyond Montanile, the Court has several other writ petitions pending, including three cases where the Court has invited the Solicitor of Labor to weigh in with an amicus brief. These cases include:

  • Smith v. Aegon Cos. Pension Plan – In this case, the lower courts dismissed benefits claims on grounds of improper venue. In doing so, the lower courts held that an exclusive-venue provision in the plan required the participant to bring his benefits suit in the specified venue. The Department of Labor (DOL) had submitted an amicus brief to the Sixth Circuit, arguing that venue-selection provisions ran afoul of ERISA’s goal of providing participants with ready access to the courts. The Sixth Circuit, however, rejected DOL’s position and enforced the plan’s venue provision. A Supreme Court decision on this issue would likely be significant, because many plan sponsors are using the plan document to “hard wire” certain defenses to benefits claims – for example, the Court’s recent Heimeshoff decision approved a limitations period established by the plan.
  • Gobeille v. Liberty Mut. Ins. Co. – This case presents a pre-emption question – specifically, whether ERISA pre-empts a Vermont law requiring healthcare payors (including ERISA plans) to submit certain claims data to the state. A split panel of the Second Circuit held the Vermont law was pre-empted because it imposed additional reporting requirements on those already imposed by ERISA. At the Court’s invitation, DOL filed an amicus brief opining that ERISA does not pre-empt the Vermont statute because it applies to non-ERISA entities, as well, and does not impose significant reporting burdens. The DOL brief added, however, that the Court’s review was not currently warranted, and suggested that “further percolation” of the issue in the appellate courts would be beneficial. Given that the Court’s last decision on ERISA pre-emption was over 10 years ago, the Court may nevertheless be signaling its readiness to take the case, and to issue further guidance on ERISA’s pre-emptive reach.
  • RJR Pension Inv. Comm. v. Tatum – The Tatum case arose from a dispute over plan fiduciaries’ decision to divert the plan of company stock, at a time when the stock was distressed. After the company stock recovered dramatically, participants asserted ERISA claims that plan fiduciaries had acted imprudently in selling the stock at a time when the price was down significantly. The Fourth Circuit held, among other things, that (1) the burden of proving loss causation shifted to plan fiduciaries, upon a showing that the fiduciaries had breached their duty of prudent investment; and (2) plan fiduciaries must show a hypothetical prudent fiduciary “would have” (as opposed to “could have”) made the same investment decision, where there was no evidence that the plan’s fiduciaries had undertaken robust deliberations before divesting the plan’s holdings in company stock. The Court invited the DOL to brief both issues. If the Court takes the case, its decision could be significant. On the former issue, a decision from the Court would resolve diverging lower-court decisions on whether the plaintiff bears the ultimate burden of proof (including loss causation), or whether the burden-shifting approach of trust law – requiring a trustee, upon a showing of a breach of duty, to demonstrate that the breach did not cause the loss – is more appropriate for ERISA cases. On the latter issue, a decision from the Court could provide much-needed guidance on the proper scope of judicial review of fiduciary decision-making.

Although the Court has taken no action yet on the petition, it may be worth watching to see whether the Court takes up the case of UnitedHealthcare of Arizona, Inc. v. Spinedex Physical Therapy USA, Inc., No. 14-1286 (cert. pet. filed April 24, 2015). There, the Ninth Circuit held that a claims administrator is a proper party defendant in a medical benefits claim, even though it otherwise had no obligation as the benefits payer. Because ERISA §502(a)(1)(B) only authorizes suit for “benefits due … under the terms of his plan,” the Ninth Circuit’s reading of the statute – which purports to make claims administrators liable for benefits in a manner not contemplated by “the terms of the plan” – clearly seems overbroad. If left unaddressed, the Spinedexdecision could ultimately prove counter-productive, in that it will inevitably raise costs for service providers, which in turn, will be passed along to the plans, and ultimately to the participants in the form of higher premiums, larger deductibles, or less-generous coverage.

The Supreme Court has demonstrated some enthusiasm for ERISA in recent years. The Montanile case represents a significant beginning to the Court’s ERISA work for the next term. Given the cases and issues before it, however, the odds are that the Court will consider more ERISA cases in the next twelve months.

This post was written with contributions from William H. Payne IV.

ARTICLE BY Charles F. Seemann III of Jackson Lewis P.C.
Jackson Lewis P.C. © 2015

Colorado Employers Can Fire Workers for Off-Duty Medical Marijuana Use

The Colorado Supreme Court ruled on June 15, 2015, that an employee can be fired for using medical marijuana even though the drug is legal in Colorado and the employee was not at work at the time. The unanimous decision upholds lower courts’ opinions that an employer has the right to terminate an employee for violating a company’s zero-tolerance policy for controlled substances, despite a Colorado law protecting employees from being punished for legal, off-duty activities.

This decision is significant because it confirms an employer’s right to terminate an employee who violates a company’s drug policy, notwithstanding Colorado’s legalization of marijuana. Colorado is one of only four states to date to legalize marijuana for both medical and recreational use. The Court’s ruling, which is similar to a California decision, provides support and guidance for non-Colorado employers who may have employees travelling to Colorado for work or recreation. Other states are in various stages of considering legalizing medical and/or recreational marijuana.

At issue before the state’s highest court was a suit filed by Brandon Coats, a former employee of Dish Network, LLC, whose employment had been terminated by Dish after a random drug test revealed the presence of THC, the psychoactive chemical in marijuana, in Coats’ system. Coats was a registered medical marijuana patient who consumed medical marijuana at home, and after work, and in accordance with his license and Colorado state law.

In his suit against Dish for wrongful termination, Coats argued that the company violated Colorado’s “lawful activities statute,” which makes it an unfair and discriminatory labor practice to discharge an employee based on the employee’s “lawful” outside-of-work activities. Dish filed a motion to dismiss, arguing that Coats’ medical marijuana use was not lawful for purposes of the statute under either federal or state law. The trial court granted Dish’s motion and dismissed Coats’ claim.

The Colorado Court of Appeals, in a split decision, affirmed the lower court’s dismissal of Coats’ lawsuit, but on a different ground. It found that because the use of marijuana is prohibited under the federal Controlled Substances Act, Coats’ conduct was not a “lawful activity” protected by the Colorado statute. The Colorado Supreme Court agreed with the Court of Appeals that “lawful” for purposes of Colorado’s “lawful activities statute” means activities that comply with applicable law, including state and federal law. Because Coats’ use of medical marijuana was unlawful under federal law, it was not protected under the Colorado statute.

ARTICLE BY Kimberly A. Smiley, Bradley M. Bakker, John P. Hasman, Jeremy M. Brenner, Shelley I. Ericsson & Bradley S. Byars of Armstrong Teasdale
Eric Walters and Calvin Matthews also contributed to this article.
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