Category: Labor & Employment

EEOC Releases Q&A Fact Sheet On Application of Title VII and ADA to Victims of Domestic Violence, Sexual Assault, and Stalking

Recently, The National Law Review published an article by R. Holtzman Hedrick of Barnes & Thornburg LLP regarding Domestic Violence Victims:

 

The Equal Employment Opportunity Commission’s (EEOC) most recent official guidance involves the application of federal anti-discrimination laws to employees and applicants who have experienced domestic or dating violence, sexual assault, or stalking. The Q&A Sheet can be found here. 

Because victims of these offenses are not explicitly protected under federal law, employers may not realize certain employment decisions can run afoul of Title VII (prohibits discrimination on the basis of sex and sex stereotyping, among other categories) or the Americans with Disabilities Act (ADA).  Examples that might lead to charges of discrimination under Title VII include:

  • Terminating an employee after learning she has been the subject of domestic violence because the employer fears the possible “drama battered women bring to the workplace.”
  • Failing to select a male applicant after learning applicant obtained a restraining order against his male domestic partner because hiring manager believes men can’t be victims of domestic violence and should be able to protect themselves.
  • Allowing males a leave of absence to appear in court for the prosecution of an assault, but denying females leave to testify in domestic violence case.  Employer believes the former to be a “real crime” while the latter is “just a marital problem.”

The ADA prohibits discrimination based on actual or perceived impairments, and one can easily foresee situations when domestic/dating violence or sexual assault can result in such impairments.  Examples where employers may be found liable for unlawful disability discrimination under such circumstances include:

  • Deciding not to hire applicant employer discovers is the complaining witness in a rape prosecution and has seen a therapist for depression because employer believes applicant may need time off in the future to deal with symptoms or for counseling sessions.
  • Failing to address and stop harassment by co-workers regarding employee with facial scars/skin grafts resulting from attack by former domestic partner.
  • Failing to accommodate an employee not eligible for FMLA leave by refusing to give her time off to seek treatment for depression and anxiety following a sexual assault.  The employer tries to justify the refusal by stating that leave and attendance are uniformly applied to all employees.
  • Failing to honor an employee’s request for reassignment to available vacant position at different location for which she is qualified when ex-boyfriend who currently works in the same building is stalking her, causing her major depression.  Employer cites “no transfer” policy as reason for refusal.
  • (Supervisor) disclosing to other co-workers an employee’s post-traumatic stress disorder resulting from incest.

Although these are the examples given by the EEOC, indirect discrimination allegations under Title VII and the ADA can arise in numerous situations that would not necessarily be readily apparent to even well-trained and sophisticated employers. Of course, it is always a good idea to seek guidance from experienced employment counsel when employers are given pause about an employment decision, even when the employer is not entirely sure why they might be hesitating.

© 2012 BARNES & THORNBURG LLP

Is Continued Employment Enough to Uphold Invention Assignment Agreements?

It is a common misconception that employers automatically own the rights to intellectual property created by their employees. Specifically for patents, the default is that an invention and any patents covering it belong to the inventor, unless an agreement is established to the contrary. Nonetheless, the absence of an agreement does not necessarily preclude an employer from claiming a right to an employee’s invention. In such situations, an employer may be entitled to a “shop right”1 to use an invention while the employee retains ownership. As a result of this counterintuitive and complicated framework, without a specific written agreement to partition rights, it can be challenging to ascertain employer-employee rights. This is particularly true when multiple inventors are involved, as is often the case in the corporate context.

As a remedy, employers have often required, as a condition of employment, that employees enter into written agreements requiring that any inventions (and other intellectual property) created as part of their job will be assigned to the employer. However, for any contract to be enforceable – including an intellectual property assignment – there generally needs to be a mutuality of consideration. That is, each party needs to get something out of the deal.

Because of this mutuality requirement, companies often struggle with whether simply providing the employee with continued employment is sufficient to support an intellectual property assignment contract.

Case Background

The United States Court of Appeals for the Federal Circuit recently confronted this issue in Preston v. Marathon Oil Company, 684 F.3d 1276 (Fed. Cir. 2012). The court held that no additional consideration beyond the continuation of at-will employment is required to support an employee’s assignment of inventions (and other intellectual property) to the employer.

In the case, Pennaco Energy, a subsidiary of Marathon Oil Company (collectively “Marathon”), hired Yale Preston as a relief pumper in Marathon’s coal bed methane well operation. Preston was hired as an employee at-will, and, consequently, either he or Marathon could terminate the employment relationship at any time for any reason without cause or liability.

After he was hired, Preston signed an agreement that, among other things, assigned all intellectual property rights to Marathon for anything he created related to Marathon’s business or that used Marathon’s confidential information or equipment during his employment. There was no separate or additional consideration for this contract beyond Preston’s continued employment.

During his employment, Preston worked on a baffle plate system used for methane gas extraction. Preston drafted conceptual drawings, met with Marathon’s engineers, engaged a third party on Marathon’s behalf to manufacture the baffle plates, and managed the installation of the baffle plates in Marathon’s gas wells.

While Marathon still employed Preston, the company began preparing a patent application for the baffle plate system. After Preston’s employment ended, Preston filed his own patent application for the baffle plate system. Both patent applications ultimately matured into issued patents, but Preston refused to assign his patent to Marathon.

Marathon brought suit against Preston in Wyoming state court, alleging that Preston had breached his employee agreement by refusing to assign the patent.

Preston, in turn, filed a complaint in the U.S. District Court for the District of Wyoming2, seeking a declaration that he was the sole inventor of the patent in his name, and alleging other related (and later rejected) claims. Marathon counterclaimed in the federal suit, seeking its own declaration that Preston had agreed to assign his rights in the patent to Marathon.

The federal district court found that Preston was the sole inventor of his potential invention, but that Preston was required to assign his interest to Marathon pursuant to his employment agreement. The district court also found that Preston, in failing to assign the patent to Marathon, was in breach of that contract.

Preston appealed to the United States Court of Appeals for the Federal Circuit, with the key issue being whether, under Wyoming law, continuing the employment of an existing at-will employee constitutes adequate consideration to support an agreement containing an invention assignment provision. The Federal Circuit certified this question to the Wyoming Supreme Court, which answered in the affirmative – that continuation of at-will employment is sufficient consideration under Wyoming law3. Preston v. Marathon Oil Co., 277 P.3d 81, 88 (Wyo. 2012). As a result, the Federal Circuit found that the employment agreement at issue was enforceable.

In addition, under the language of Preston’s employment agreement, the Federal Circuit held that even assuming Preston had “conceived” of the invention prior to joining Marathon, he could not establish that he had made the invention in any tangible way – known as “reducing to practice” – before the employment, which the agreement required for an invention to be excluded from the ambit of the assignment. The appeals court, therefore, rejected Preston’s claim that his individual patent should be exempt from the assignment clause, and affirmed the lower court’s finding that Preston had “little more than a vague idea” for the ultimate patented invention prior to his employment.

Lesson for Employers

At first blush, the implication of the Preston holding is to provide a federal-level, unified resolution to the question of whether continued employment constitutes sufficient consideration for an assignment contract. However, because this decision was rendered under Wyoming state law, it may not be capable of being universally applied. Nonetheless, the Federal Circuit’s opinion certainly provides guidance to employers concerning how best to structure intellectual property assignment agreements to ensure that their rights are protected.

1 The “shop right doctrine” holds that when an employee, during hours of employment, uses the employer’s materials and equipment to conceive and perfect an invention for which the employee obtains a patent, the employee must provide the employer with a non-exclusive right to practice the invention. See United States v. Dubilier Condenser Corp., 289 U.S. 178, 188, amended sub nom. United States v. Dubilier Condenser Corp., 289 U.S. 706 (1933).

2 The Wyoming state court action was then stayed pending the outcome of the federal case.

3 The Wyoming Supreme Court distinguished its previous ruling in Hopper v. All Pet Animal Clinic, Inc., 861 P.2d 531 (Wyo. 1993), which required separate consideration, other than continued at-will employment, for a non-compete agreement, noting “there is a fundamental difference between non-competition agreements and intellectual property assignment agreements,” and that the stability of the business community is served by not requiring additional consideration for intellectual property assignments. Preston, 277 P.3d at 87.

© 2012 Neal, Gerber & Eisenberg LLP

EEOC Continues Focus on Religious and National Origin Discrimination Involving Muslim and Arab Communities

The National Law Review recently published an article by Robert B. Meyer and David L. Woodard of Poyner Spruill LLP, regarding Discrimination:

 

The U.S. Equal Employment Opportunity Commission has announced on its website that it continues to focus on what it considers to be ongoing religious and national origin discrimination in the workplace, especially against Muslim, Sikh, Arab, Middle Eastern, and South Asian Communities.  The EEOC reports that in the initial months after the September 11, 2001 terrorist attacks, the Commission saw a 250% increase in the number of religion-based charges involving Muslims.  Since that time, the EEOC states that it has continued to track an increase in such charges, as well as those alleging national origin discrimination against those with Middle Eastern background.  While the Commission does not specify how many of those charges were found to have merit, it does report that it has filed nearly 90 lawsuits against employers, many of which involve alleged harassment on the basis of religion and national origin.  Thus, it is apparent that the EEOC is aggressively pursuing investigation and enforcement activities in this area.

Title VII of the Civil Rights Act of 1964 prohibits employers from discriminating against employees or job applicants on the basis of religion or national origin.  The harassment of individuals because of their religion or national origin is also prohibited.  Through its interpretations of Title VII, The EEOC has recognized a wide range of actions and conduct that may be potentially unlawful, including: disparate treatment, teasing or insults because of a person’s appearance, customs, language, or accent; requiring employees to speak English in the workplace; disparate treatment, jokes, or insults toward an employee because of the national origin or religion of that person’s spouse; and adverse actions based on perceptions of an employee or applicant’s national origin or religion.

It is important to note that in addition to these prohibitions against discrimination and harassment, Title VII also requires employers to reasonably accommodate the religious practices of an employee or applicant, unless doing so would cause an “undue hardship” for the employer.  The EEOC has suggested that reasonable accommodation may include, for example, providing employees with leave to attend religious observances, providing time and/or a place to pray, and permitting employees to wear religious attire in the workplace.  However, the issue of accommodation requires the employer to consider each request for accommodation on a case-by-case basis in order to determine whether accommodation is possible and reasonable under the circumstances.

The EEOC also states that it has “intensified its outreach” to educate employees in this area of the law by issuing fact sheets on immigrant employee rights, employment discrimination based on religion and national origin, and employer responsibilities under Title VII with respect to the employment of Muslims, Arabs, South Asians, and Sikhs.  These fact sheets provide specific examples of prohibited conduct in the workplace, and also offer instructions on how employees may file charges with the EEOC.  Therefore, and in view of the EEOC’s emphasis on this particular form of discrimination, employers should review carefully these fact sheets as a part of their proactive compliance and training measures.  Employers should also remember that retaliation against anyone who files a charge or otherwise opposes unlawful discrimination is expressly prohibited under Title VII.

© 2012 Poyner Spruill LLP

Sixth Circuit Upholds Wal-Mart’s Termination of Employee for Using Medical Marihuana

The National Law Review recently featured an article regarding Medical Marijuana and Employee Terminations written by Christina K. McDonald of Dickinson Wright PLLC:

 

In a case of significant importance, on September 19, 2012, the United States Court of Appeals for the Sixth Circuit held that a private employer may fire an employee for testing positive for medical marihuana in violation of the employer’s drug use policy under the Michigan Medical Marihuana Act (“MMMA”). The court’s holding in Casias v. Wal-Mart Stores, Inc., sets the precedent that users of medical marihuana are not a protected class in the private sector and that the MMMA only protects users of medical marihuana from state action, such as arrest and prosecution, for legal use of the drug.

Joseph Casias worked as a Wal-Mart employee in Battle Creek, Michigan for a little over five years when he was terminated for violating the company’s drug use policy. Mr. Casias suffers from sinus cancer and an inoperable brain tumor and endured ongoing pain as a result of his condition. Mr. Casias’ oncologist recommended that he try medical marijuana to treat the pain associated with his medical condition, so Mr. Casias obtained a medical marihuana registry card form the Michigan Department of Community Health under the MMMA, which was enacted in 2008.

Mr. Casias complied with the state laws governing the use of medical marihuana and never used marihuana at work nor did he come to work while under the influence of the drug. During his employment, Mr. Casias took a drug test in accordance with Wal-Mart’s drug use policy, and he tested positive for the use of marihuana. Wal-Mart did not honor Mr. Casias’ medical marihuana registry card and terminated his employment because the use of marihuana violated the company’s drug use policy. Mr. Casias sued Wal-Mart for wrongful termination.

The federal District Court for the Western District of Michigan held that Wal-Mart’s decision to fire Mr. Casias was lawful because the MMMA only provides medical marihuana users with protection from state action, and not from private action.

In affirming the district court’s decision, the Sixth Circuit specifically held that the MMMA “does not impose restrictions on private employers, such as Wal-Mart.” The court noted that similar medical marihuana laws in other states do not regulate private employment actions either. Finally, the court held that Wal-Mart’s decision to terminate Mr. Casias’ employment was not against public policy.

To read the full text of the court’s opinion, click here. Employers should consult with an attorney before taking any action against an employee for use or suspected use of medical marihuana.

© Copyright 2012 Dickinson Wright PLLC

NLRB Strikes Down Employee Handbook Language and Issues First Social Media Decision

The National Law Review recently published an article by Doreen S. Davis, Jonathan C. Fritts, Ross H. Friedman, and David R. Broderdorf of Morgan, Lewis & Bockius LLP regarding the NLRB and Social Media:

 

Continuing its aggressive foray into nonunion workplaces, the NLRB has weighed in on social media and employee handbook issues, finding certain language to be unlawful under Section 8(a)(1) of the National Labor Relations Act.

In September, the National Labor Relations Board (NLRB or Board) issued two decisions confirming that it will now use Section 8(a)(1) of the National Labor Relations Act (NLRA or Act) to find basic (and widespread) handbook and policy language to be unlawful even when it does not involve protected activity under Section 7 of the NLRA. In Costco Wholesale Corp., 358 N.L.R.B. No. 106 (Sept. 7, 2012),[1] the Board reviewed a variety of handbook provisions protecting certain confidential information and found them unlawful under the Act. The Board’s more recent decision in Knauz BMW, 358 N.L.R.B. No. 164 (Sept. 28, 2012),[2] built on the Costco decision and deemed that a rule requiring workplace courtesy violated Section 8(a)(1). The Knauz case is the Board’s first decision in a case involving posts to the social media website Facebook. Given the Board’s expansive interpretation of Section 8(a)(1), it is likely that one or both of these decisions could face appellate court scrutiny in the near future.

Costco Wholesale Case

In its Costco decision, issued on September 7, the Board found that the following policy language was unlawful under Section 8(a)(1) of the NLRA:

  • Prohibiting “unauthorized posting, distribution, removal or alteration of any material on Company property.”
  • Discussing “private matters of members and other employees . . . includ[ing] topics such as, but not limited to, sick calls, leaves of absence, FMLA call-outs, ADA accommodations, workers’ compensation injuries, personal health information, etc.”
  • Disseminating “[s]ensitive information such as membership, payroll, confidential financial, credit card numbers, social security numbers, or employee personal health information.” The policy stated that such information “may not be shared, transmitted, or stored for personal or public use without prior management approval.”
  • Sharing “confidential” information, such as employees’ names, addresses, telephone numbers, and email addresses.
  • Electronically posting statements that “damage the Company, defame any individual or damage any person’s reputation.”

The Board’s decision confirms that even basic policy language common in nonunion workplaces will be struck down if there is a reference to one “inappropriate” item. In this case, a reference to “payroll” information (as in the third bullet above) rendered an entire section unlawful. As a result, employers should carefully review their employee handbooks to avoid an adverse finding by the NLRB.

Knauz Case

Knauz—issued on September 28, three weeks after Costco—involved a nonunion car dealership with a handbook provision stating that

[c]ourtesy is the responsibility of every employee. Everyone is expected to be courteous, polite and friendly to our customers, vendors and suppliers, as well as to their fellow employees. No one should be disrespectful or use profanity or any other language which injures the image or reputation of the Dealership.

The Board majority found this rule unlawful under Section 8(a)(1) of the NLRA because employees would reasonably view the prohibition against “disrespectful” conduct and the “language which injures the image or reputation of the Dealership” to encompass Section 7 activity. Employees who wished to avoid discipline, according to the majority, would mind this rule in the context of disputes related to wages, hours, or terms and conditions of employment and therefore would be inhibited in exercising NLRA rights. It also is noteworthy that the Board upheld, in a footnote, the administrative law judge’s (ALJ’s) dismissal of the allegation that the dealership fired an employee based on his Facebook postings about an automobile accident at one dealership. These Facebook postings were deemed unprotected under Section 7. The judge had reasoned that the employee posted the information apparently “as a lark, without any discussion with any other employee of the [dealership], and had no connection to any of the employees’ terms and conditions of employment.”

The one Republican NLRB member, Brian Hayes—who was not on the panel for theCostco case—issued a dissenting opinion on Knauz. Member Hayes discussed the Board’s overreach in applying Section 8(a)(1) and cited a great deal of precedent in support. He also signaled that the appellate courts likely would pare back the Board’s recent expansion into the world of employee handbooks and social media policies. Specifically, Member Hayes cited case law holding that the Board must not review policy language in isolation or come up with a theory whereby employees “conceivably could construe [language] to prohibit protected activity,” as opposed to whether they “reasonably would do so.” Member Hayes pointedly argued that the majority’s “analysis instead represents the views of the Acting General Counsel and Board members whose post hoc deconstruction of such rules turns on their own labor relations ‘expertise.'”

Conclusion

While the Acting General Counsel’s view and the views of some ALJs on these issues have been widely publicized, the decisions in Costco and Knauz provide the first look at the Board’s majority view. The law is changing, and handbook language should be reviewed to determine if the language “could be” read to restrict Section 7 activity, even with a strained interpretation. The Acting General Counsel will continue to prosecute these types of cases against nonunion employers, which constitute 93% of all private sector workplaces. While many employers have already reviewed their policy language based on the legal developments in this area over the past several years, as developed by the Acting General Counsel’s three guidance memoranda, the Costco and Knauz decisions provide another opportunity to review policy language in order to minimize the risk of a violation. Notably, unions have and will continue to use handbook policies to threaten and file unfair labor practice charges against an employer at strategic times—including organizing campaigns and collective bargaining negotiations.

[1]. Read the Costco decision at here.

[2]. Read the Knauz decision here.

Copyright © 2012 by Morgan, Lewis & Bockius LLP

USCIS Announces Comment Period for E-Verify Program

Nataliya Binshteyn of Greenberg Traurig, LLP recently had an article regarding E-Verify published in The National Law Review:
GT Law
 

On September 11, U.S. Citizenship and Immigration Services (USCIS)announced a 60-day period for submitting comments about the E-Verify program. Comments are encouraged and will be accepted until November 13, 2012. Additional details about the Federal Register notice announcing the comment period as well as submission procedures are re-printed below.

Federal Register Volume 77, Number 176 (Tuesday, September 11, 2012)]

Pages 55858-55859

From the Federal Register Online via the Government Printing Office

FR Doc No: 2012-22256

Written comments and suggestions regarding items contained in this notice, and especially with regard to the estimated public burden and associated response time, should be directed to the Department of Homeland Security (DHS), USCIS, Office of Policy and Strategy, Laura Dawkins, Chief, Regulatory Coordination Division,

20 Massachusetts Avenue NW., Washington, DC 20529.

Comments may be submitted to DHS via email at uscisfrcomment@dhs.gov and must include OMB Control Number 1615-0092 in the subject box. Comments may also be submitted via the Federal eRulemaking Portal at http://www.regulations.gov under e-Docket ID number USCIS-2007-0023.

If submitting comment on one of the six E-Verify Memoranda of Understanding (MOU), please identify the MOU that concerns your business process, and, if possible, the article, section and paragraph number within the MOU that is associated with the comment.

All submissions received must include the agency name and Docket ID. Regardless of the method used for submitting comments or material, all submissions will be posted, without change, to the Federal eRulemaking Portal at http://www.regulations.gov, and will include any personal information you provide. Therefore, submitting this information makes it public. You may wish to consider limiting the amount of personal information that you provide in any voluntary submission you make to DHS. DHS may withhold information provided in comments from public viewing that it determines may impact the privacy of an individual or is offensive. For additional information, please read the Privacy Act notice that is available via the link in the footer of http://www.regulations.gov.

Written comments and suggestions from the public and affected agencies should address one or more of the following four points:

(1) Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;

(2) Evaluate the accuracy of the agencies estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;

(3) Enhance the quality, utility, and clarity of the information to be collected; and

(4) Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.

©2012 Greenberg Traurig, LLP

Diversity Visa Lottery Registration Opens October 2, 2012

Varnum LLP

Each year the U.S. Department of State distributes 50,000 immigrant visas to applicants from qualifying countries in a random drawing pursuant to the Diversity Visa Lottery Program. The application period for the 2014 Diversity Visa Lottery is 12:00 p.m. EST Tuesday, October 2, 2012 through 12:00 p.m. EST Saturday, November 3, 2012.

Applicants must apply on-line at http://www.dvlottery.state.gov/. The Department of State will disqualify all entries by an applicant if more than one entry for that applicant is received. More information on qualifying countries, education and work experience requirements, and the application process is available at http://travel.state.gov/visa/immigrants/types/types_1318.html.

© 2012 Varnum LLP

Seventh Circuit Joins Ranks of Courts Holding that Internal Grievances about Employer Fiduciary Duty Breaches is Actionable Under ERISA Section 510

Seventh Circuit Joins Ranks of Courts Holding that Internal Grievances about Employer Fiduciary Duty Breaches is Actionable Under ERISA Section 510, an article by Mark E. Furlane of Drinker Biddle & Reath LLP recently appeared in The National Law Review:

 

In Victor George v. Junior Achievement of Central Indiana Inc.,decided September 24, 2012, the Seventh Circuit joined the Fifth and Ninth Circuits in holding that Section 510 of ERISA applies to unsolicited, informal grievances to employers.  The courts of appeals have disagreed about the scope of §510, and the Second, Third and Fourth Circuits have permitted Section 510 retaliation claims only where the person’s activities were made a part of formal proceedings or in response to an inquiry from employers (i.e., §510’s language does not protect employees who make “unsolicited complaints that are not made in the context of an inquiry or a formal proceeding.”).  Concluding that the language of Section 510 of ERISA was “ambiguous” and “a mess of unpunctuated conjunctions and prepositions,” the Seventh Circuit concluded that, “an employee’s grievance is within §510’s scope whether or not the employer solicited information.”  The court did, however, reiterate the high threshold to prevail on a Section 510 claim:  “It does ‘not mean that §510 covers trivial bellyaches—the statute requires the retaliation to be ‘because’ of a protected activity…. What’s more, the grievance must be a plausible one, though not necessarily one on which the employee is correct.”

Section 510 of ERISA prohibits retaliation “against any person because he has given information or has testified or is about to testify in any inquiry or proceeding relating to this [Act].”  Remedies for violation of that section are limited to “injunctive and other ―appropriate equitable relief,” which would not include back pay typically, but could include an injunction and reinstatement.  Attorney’s fees are also possible.  In the case, Victor George was a former vice president of Junior Achievement who sued his former employer alleging he was terminated after complaining that money withheld from his pay was not being deposited into his retirement and health savings accounts.  He complained to management, outside accountants, the board, the Department of Labor (although he did not file a complaint).  The District Court dismissed the case on summary judgment, holding George’s informal complaints to his employer did not constitute an “inquiry” under ERISA.  The appellate court reversed holding that George’s informal proceedings do trigger the statute’s protections.

©2012 Drinker Biddle & Reath LLP

Quality Stores Decision Could Lead to Significant Refunds of FICA Tax

The U.S. Court of Appeals for the Sixth Circuit recently held that certain dismissal payments were Supplemental Unemployment Compensation Benefits (SUB) exempt from FICA taxes—a clear split with the U.S. Court of Appeals for the Federal Circuit’s decision in line with an Internal Revenue Service (IRS) Revenue Ruling that significantly narrowed the criteria for determining whether certain separation payments qualify as SUB pay.  For employers that have made significant reductions in force payments in open years, the Quality Stores decision could lead to significant refunds of FICA tax.

In a long-awaited decision, the U.S. Court of Appeals for the Sixth Circuit held inUnited States v. Quality Stores, Inc., September 7, 2012, that certain dismissal payments were Supplemental Unemployment Compensation Benefits (SUB) exemptfrom FICA taxes.  This decision creates a clear split with the U.S. Court of Appeals for the Federal Circuit’s decision in CSX Corporation v. United States (518 F.3d 1328 (Fed. Cir. 2008)), which followed an Internal Revenue Service (IRS) Revenue Ruling that significantly narrowed the criteria for determining whether certain separation payments qualify as SUB pay.  For certain employers that have made significant reductions in force payments in open years, the Quality Stores decision could lead to significant refunds of FICA tax.

The Ruling

The Internal Revenue Code excludes any SUB payments to employees from the definition of “wages” for federal income tax purposes.  The statute essentially sets forth two requirements in order for severance or dismissal payments to constitute SUB pay.  The amounts must be paid to an employee:

  • Because of an employee’s involuntary separation from employment
  • Resulting directly from a reduction in force, the discontinuance of a plant or other similar conditions (IRC §3402(o)(2)(A).)

Based on the Sixth Circuit decision in Quality Stores, and the reasoning of the lower court decision in CSX (reversed by the Federal Circuit), it could be argued that these are the sole criteria to also exempt such payments from FICA and FUTA taxes.  However, the IRS in Rev. Rul. 90-72 (1990-2 C.B. 211) significantly narrowed the criteria for determining whether such payments will qualify as FICA/FUTA-exempt payments.  The IRS requires that separation payments not be made as a lump sum, that they be specifically designed to supplement state unemployment benefits and that the individual satisfies the requirements to receive state unemployment benefits.

The Sixth Circuit disagreed with the Federal Circuit, concluding:

“While the Supreme Court may ultimately provide us with the correct resolution of these difficult issues under the law as it currently stands, only Congress can clarify the statutes concerning the imposition of FICA tax on SUB payments.  Our role is to interpret the statutory law as it presently exists, and we have done that today.”

In a series of informal remarks on September 14, 2012, at the American Bar Association’s Section of Taxation Joint Fall CLE Meeting, a knowledgeable spokesperson from the IRS Office of Chief Counsel advised that, outside of the Sixth Circuit, the IRS maintains its previous position under Rev. Rul. 90-72 regarding the employment tax treatment of SUB pay.  The IRS is still deciding whether to seek a rehearing by the Sixth Circuit, or to request certiorari to the Supreme Court in response to the recent decision in Quality Stores.

Consider Filing a Protective Claim Now to Preserve Refund Opportunity

Although filing a complete refund claim can be burdensome from an administrative perspective, it is relatively easy for an employer to file a protective claim to preserve the statute of limitations on employment tax refund claims for open years and later file a supplementary claim with necessary employee consents and exact calculations.  The due date for the protective claim is three years from April 15 of the calendar following the year in which the severance payments were made.  For example, for FICA taxes paid in 2009, a protective claim should be filed by April 15, 2013.

To preserve the statute for FICA refund claims already disallowed by the IRS (many have simply been held in abeyance by IRS), made in prior years, employers need to review the dates for the IRS notices of disallowance carefully, in order to ensure they preserve the period to bring a suit for refund against the IRS.

Continue Withholding FICA Taxes

Until this controversy is resolved, employers are advised to continue withholding FICA taxes on separation payments made in connection with the present or future involuntary termination of employees, which do not meet the strict Rev. Rul 90-72 definition for exemption.

© 2012 McDermott Will & Emery

NLRB Mandates Wholesale Changes to Costco’s Social Media Policy

The National Law Review recently published an article by David M. Katz of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. regarding the NLRB and Costco:

 

There is no denying that the NLRB has recently devoted significant attention to employee’s use of social media.  Since August 2011, the Board’s Acting General Counsel, Lafe Solomon, issued three reports outlining his view of how the NLRA applies to employers’ social media policies and employees’ social media postings.  Click here and here for our commentary on those GC reports and for links to the reports themselves.  Until earlier this month, however, the Board itself had not weighed in on social media policies.

On September 7, the NLRB issued a Decision and Order (which you can access here) invalidating Costco Wholesale Corporation’s electronic posting rule, found in its employee handbook, that prohibited employees from making statements that “damage the Company, defame any individual or damage any person’s reputation.”  With little analysis, the Board found Costco’s policy overly broad, concluding that “the rule would reasonably tend to chill employees in the exercise of their [NLRA] Section 7 rights,” as employees would “reasonably construe the language to prohibit Section 7 activity.”  Section 7 of the NLRA provides to all employees—unionized and non-unionized—the right to engage in protected “concerted activities for the purpose of collective bargaining or other mutual aid or protection.”  Such protected concerted activity includes, for example, the right to protest an employer’s treatment of its employees or other working conditions.

The Costco decision adopts the legal reasoning set forth in the three GC reports, much of which is based upon traditional principles developed prior to the advent of social media as we know it.  And, similar to the three GC reports, the Board’s decision in Costco fails to articulate any social media-specific criteria to assist employers in crafting policies that do not inhibit employee rights under the NLRA,  although it does offer a couple of hints.

First, the Board distinguished prior cases addressing rules prohibiting employee “conduct that is malicious, abusive or unlawful,” including rules concerning employees’ “verbal abuse,” “profane language,” “harassment,” and “conduct which is injurious, offensive, threatening, intimidating, coercing, or interfering with” other employees. Criticizing Costco’s electronic posting rule, the Board stated that its social media policy “does not present accompanying language that would tend to restrict its application.”  If Costco had been more specific, then, by providing examples of prohibited conduct, its policy may have passed muster.  .  In doing so, employers should focus on the types of electronic postings that they truly seek to prohibit, such as defamatory, harassing or other egregious comments, or disclosure of employer trade secrets, proprietary information, or co-workers’ private information.

The second hint dropped by the Board in Costco is the suggestion that an employer’s inclusion of a savings clause or disclaimer may protect the employer from allegations that a social media policy inhibits employees’ protected concerted activities.  The Board concluded that Costco’s “broad” prohibition against making statements that “damage the Company” or “damage any person’s reputation” “clearly encompasses concerted communications,” but continued by noting that “there is nothing in the rule that even arguably suggests that protected communications are excluded from the broad parameters of the rule.”  This statement signals that the Board may have found Costco’s electronic posting rule acceptable had the rule included language specifically exempting protected concerted activities under the NLRA, which is in contrast to the GC’s position on such savings clauses.

As we noted in our previous postings on the subject, in light of the Board’s clear stance on social media policies (now confirmed in its Costco decision), and its application to both unionized and non-unionized employers, we recommend that all employers rigorously review their social media policies to ensure that they do not contain “broad” prohibitions that would not survive NLRB scrutiny.

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