Tag: Employment Law

Seventh Circuit Reverses Summary Judgment In Kraft ERISA "Excessive Fees" Case

Recently posted by Nancy G. Ross and Chris C. Scheithauer of McDermott Will & Emery details of the recent 7th Circuit reversal of summary judgment involving Kraft Food’s 401(k) plan: 

On April 11, 2011, a divided Seventh Circuit panel reversed summary judgment in favor of Kraft Foods Global, Inc. in a class action ERISA breach of fiduciary duty case involving “excessive fees” claims in connection with Kraft’s 401(k) plan. The main take away from the decision is that fiduciaries must continue to be diligent and thoroughly consider plan administration issues and document why decisions were made or not made or practices followed, even on decisions and practices once thought to be routine or common industry standards. By following such a prudent practice, fiduciaries will substantially increase their ability to defend challenges concerning fiduciary conduct.

In Kraft, plaintiffs alleged three primary claims considered on appeal: that the use of a unitized company stock fund as an investment option was improper; that the plan’s recordkeeping fees were too high and imprudently monitored; and that the fiduciaries imprudently allowed the plan trustee to retain interest income from “float.”

In a 2-1 decision, the panel ruled that the plaintiffs could proceed to trial on their theory that the unitized company stock fund was imprudently designed because of “investment drag” and “transaction drag” that is inherent with the widely popular unitized funds. Like most company stock funds, Kraft plan participants held units of the fund rather than directly holding shares of company stock. The plaintiffs alleged that the fiduciaries should have considered the “drag” that unitized funds cause on gains (and losses). The Seventh Circuit ruled that there was no evidence that the fiduciaries ever consciously decided in favor of a unitized plan finding that the benefits of a unitized fund outweighed the downsides, or whether they just ignored the issue. According to the majority, that was sufficient to proceed to trial. In a strongly worded dissent, Judge Cudahy called the plaintiffs’ theories on this, and others in the case, an “implausible class action based on nitpicking with respect to perfectly legitimate practices of fiduciaries.”

The majority further reversed summary judgment for the defendants on whether the recordkeeping fees were too high. The plaintiffs argued that the fiduciaries should have solicited competitive bids from other recordkeepers about every three years. Kraft had used the same recordkeeper since 1995, without a competitive bid, although Kraft received advice from several third-party independent consultants that the fees were reasonable. The plaintiffs submitted an opinion from an expert finding that the fees were excessive. In a decision with potentially wide-sweeping ramifications, the Seventh Circuit held that while the defendants’ reliance on the contemporaneous opinions of outside independent consultants that the fees were reasonable may be enough to prevail at trial, it was not enough to overcome the plaintiffs’ contrary admissible expert opinion at summary judgment which created a genuine issue of fact. The use of a consultant cannot “whitewash” otherwise unreasonable fees and a trier of fact could conclude that the defendants did not satisfy their duty solely through the use of independent consultants to ensure that the recordkeeping fees were reasonable. The dissent argued that the fiduciaries’ use of an outside consultant to confirm the reasonableness of the fees showed a prudent process and asked “what the majority’s holding means for ERISA fiduciaries” and “what is adequate to support a fee without the fear of litigation?” As noted by the dissent, this decision “will only serve to steer [fiduciaries] attention toward avoiding litigation instead of managing employee wealth.”

The Seventh Circuit upheld summary judgment for the defendants on whether the float income the trustee received was a reasonable part of the trustee’s overall compensation, because the fiduciaries proved that they received reports showing the float income and the plaintiffs failed to offer admissible evidence that such information was not considered.

© 2011 McDermott Will & Emery

Ohio Governor Signs Bill Reducing the Collective Bargaining Rights of Ohio Public Employees

The week’s guest bloggers at the National Law Review are from Ogletree, Deakins, Nash, Smoak & Stewart, P.C..  LerVal M. Elva provides some deatils of the recent Ohio law which significantly reduces the collective bargaining rights of nearly half a million public employees throughout Ohio, including teachers, firefighters and police officers. 

On March 31, 2011, Ohio Governor John Kasich signed Senate Bill 5 into law. The new law significantly reduces the collective bargaining rights of nearly half a million public employees throughout Ohio, including teachers, firefighters and police officers. Below are a few key points of interest.

The new law faces likely opposition by Democrats and union leaders who plan to organize and collect the more than 230,000 signatures needed from at least half of Ohio’s 88 counties within 90 days to place a referendum of the law on the ballot this November. If the Secretary of State determines that there are a sufficient number of valid signatures by the 90-day deadline, the law is placed on hold until the election and would only go into effect if the electorate votes in favor of it in November. 

  • Public employees retain the right to collectively bargain over starting pay, hours, and other terms and conditions of their employment, but will be limited in their ability to bargain over health care, sick time and pension benefits, building assignments and staffing sizes.
     
  • Public employees no longer are permitted to strike.
     
  • Public employees are required to pay at least 15 percent of their health care benefits and 8 to 10 percent of their pension plan benefits.  
     
  • Police and firefighters, who previously did not have the right to strike, would see their right to binding arbitration replaced with last, best-offer arbitration to settle a negotiation impasse that ultimately would be decided by elected officials after full disclosure of all demands and a public hearing so taxpayers may have input.  
     
  • The law eliminates automatic pay increases for longevity and replaces it with a merit or performance pay system for public employees.
     
  • The law prohibits the practice of selecting employees for layoffs based solely on seniority.  
     
  • The law does not apply retroactively to existing labor contracts, but rather is effective upon a contract’s extension, modification or renewal after the effective date of the law. 

This article was drafted by the attorneys of Ogletree Deakins, a national labor and employment law firm that represents management. This information should not be relied upon as legal advice. 

© 2011, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.

Racial Discrimination and the Hostile Work Environment: Employers May Be Responsible for the Actions of Their Customers and Vendors

Recently posted by Robert Neiman of Much Shelist Denenberg Ament & Rubenstein P.C.:  details of a recent Seventh Circuit Appellate court ruling that a nursing home, by catering to a resident’s preference for white nurses, had created a hostile work environment for its employees based upon race.

All employers know that they must protect their employees from a hostile work environment based upon discrimination and harassment by other employees. A recent federal appeals court decision, however, clarified the steps that employers should take when their customers and vendors discriminate against or harass company employees.

In Chaney v. Plainfield Healthcare Center, the United States Court of Appeals for the Seventh Circuit held that a nursing home, by catering to a resident’s preference for white nurses, had created a hostile work environment for its employees based upon race. This Seventh Circuit decision reversed the trial court’s summary judgment ruling in the nursing home’s favor, ultimately remanding the case for a trial.

Understanding the Issues

In the Chaney case, the resident told the nursing home’s managers that she only wanted white nurses to care for her. Plainfield Healthcare Center acknowledged that it maintained a policy of complying with its residents’ racial preferences. The nursing home also argued that it expected employees to respect these preferences because it otherwise risked violating state and federal laws that grant residents the right to choose providers, as well as the right to privacy and bodily autonomy.

Chaney, an African American nurse’s aide, followed Plainfield’s policy, even though the prejudiced resident continued to appear on her assignment sheet. Chaney reluctantly refrained from assisting the resident, even when she was in the best position to help. However, after Chaney had worked for Plainfield for just three months, the nursing home fired her for alleged misconduct on the job.

Chaney then brought a race discrimination claim against the nursing home, alleging that Plainfield allowed a hostile workplace to exist in violation of Title VII of the Civil Rights Act of 1964. The federal appeals court had “no trouble” ruling that a reasonable person would find the nursing home’s work environment hostile or abusive. The court found that the nursing home fostered a racially charged environment through its assignment sheet, which daily reminded Chaney and her coworkers that certain residents preferred not to receive care from African American nursing assistants. Unlike her white counterparts, Chaney was restricted regarding the rooms she could enter, the care that she could provide and the patients she could assist.

The appellate court ruled that “a company’s desire to cater to the perceived racial preferences of its customers is not a defense under Title VII for treating employees differently based on race.” The court rejected Plainfield’s argument that laws designed to protect residents’ choices and autonomy justified its conduct, holding that residents’ privacy interests did not excuse the nursing home’s disparate treatment of its employees based upon race. Furthermore, the court suggested that Plainfield could have insisted that the racially biased resident employ a white nursing aide at her own expense.

The nursing home also argued that by preventing its African American nurses from treating the prejudiced resident, it was protecting those nurses from harassment, and that it could not simply discharge the resident to avoid exposing its employees to racial hostility. But the court noted that Plainfield had a range of other options, such as warning all residents of the facility’s non-discrimination policy prior to admission, securing written consent to the non-discrimination policy and attempting to reform the behavior of the racially biased resident after admission. The court further noted that the facility could have assigned staff based on race-neutral criteria that minimized the risk of conflict.

Notably, the court also suggested that Plainfield could have advised its employees that the resident was racially prejudiced, and informed them that they could ask the nursing home for protection from this and any other prejudiced residents. That way, the court explained, the nursing home would have allowed all employees to work in a race-neutral, non-harassing environment as the law requires, rather than imposing an unwanted, race-conscious work limitation on its African American employees.

Protective Steps for Employers

The Chaney case offers several lessons that employers should bear in mind. For starters, ensure that your discrimination and harassment policy clearly states that employees have the right to work in an environment free of hostility based on any legally protected class, even if that hostility is generated by customers, vendors or other non-employees. You should also consider informing customers and vendors of your non-discrimination policies where appropriate. If customers or vendors express a preference to deal only with certain employees—to the exclusion of others who belong to a legally protected class—then you should not tacitly cooperate. Instead, theChaney decision suggests that you should remind these third parties of your non-discrimination policy, warn employees that the customer or vendor is prejudiced, protect those employees from any hostility created by the customer or vendor, and help ensure that your employees have an easy way to communicate any hostile work environment to management.

Ultimately, you must measure the benefit of doing business with a prejudiced customer or vendor against the risk that your employees will suffer a hostile work environment, possibly leading to expensive discrimination or harassment claims. The Chaney decision suggests that employers don’t necessarily have to choose one over the other, but that they are required to take steps to protect their employees from racial prejudice.

© 2011 Much Shelist Denenberg Ament & Rubenstein, P.C.

 

Is Your Company's Retirement Plan in Need of a Spring Cleaning?

Recently posted at the National Law Review by Alyssa D. Dowse and Timothy C. McDonald of von Briesen & Roper, S.C. – about whether your company’s retirement plan(s) need a little updating: 

The Internal Revenue Service (the “IRS”) recently issued a list of retirement plan items that employers should review this year. This Update briefly highlights those items and provides you with useful resources for proper operation of your retirement plan.

Is Your Retirement Plan Right for Your Business?

An employer should review its retirement plan periodically to determine whether that plan remains suitable given the employer’s objectives.

Employers sometimes adopt retirement plans that prove to be overly complicated given the employer’s budget, the nature of the employer’s workforce, etc. For example, we recently helped a small non-profit organization unwind its defined benefit retirement plan. Given the organization’s objectives and budget and the nature of the organization’s workforce, the plan was too complex and costly to administer. The organization replaced that plan with a new defined contribution plan that (i) is much easier for employees to understand, (ii) is much less costly to administer, and (iii) provides the organization with needed funding flexibility.

Employers sometimes find that the off-the-shelf plan document that they have been using does not maximize the amounts that could be contributed on behalf of key employees. For example, we recently worked with a professional service corporation that found it could significantly increase its retirement plan contributions for shareholder-employees by implementing a feature known as “cross-testing.”

Some employers find that their business environment has become more uncertain so retirement plan designs that make funding requirements more predictable are desirable. For example, potential swings in the funding requirements under a defined benefit retirement plan could be reduced by converting the plan from a traditional pension formula to a “cash balance” formula and implementing an investment policy that tracks projected plan liabilities more closely.

As your business and business objectives change over time, it is important that you review your retirement plan to make sure it continues to be appropriate for your business. The following are some of the factors you might consider in determining whether your retirement plan is still right for you:

  • Have you experienced or do you anticipate significant growth in your business and workforce?
  • Have you experienced or do you anticipate a reduction in your business or workforce?
  • Do you feel that the benefits your plan provides are sufficient?
  • What are your total annual costs of maintaining your plan (i.e., record keeping, investment, actuarial, legal, trustee, etc.) and are those costs reasonable given the benefits your retirement plan provides to employees?
  • Does your plan document permit, and would it be beneficial to your business to have, the plan pay eligible administrative expenses in accordance with Department of Labor guidance?
  • Is your plan easy to administer and understand or is it so complex that employees do not understand or appreciate the benefits you provide?
  • Do you need more funding stability or flexibility given the cash flow of your business?
  • Are your plan’s special features (e.g., plan loans, hardship distributions, etc.) utilized sufficiently to justify the administrative effort associated with those features?
  • Would you like to consider ways to increase retirement contributions and benefits for key members of your staff?

Careful consideration of these and other factors will help you determine if your retirement plan still suits your business’s needs and goals. The IRS has a website that provides basic information regarding various types of qualified retirement plans: http://www.retirementplans.irs.gov/.

Are There Any New Design Features You Might Want to Add to Your Plan?

It is never too late to redesign your retirement plan to make plan administration and operation more efficient and better tailored to your business’s goals. You may not be aware of optional plan features that benefit employees and/or reduce administrative burdens, such as automatic enrollment, Roth account features, and safe harbor plan designs:

  • Automatic Enrollment: You may want to amend your 401(k) or 403(b) plan to provide that eligible employees will be automatically enrolled, eliminating the need for them to make an affirmative election to participate.
  • Roth Accounts: You may want to amend your 401(k) or 403(b) plan to provide a designated Roth account feature. This feature allows employees to contribute after-tax dollars to their retirement plan account. If certain conditions are met, the employee can receive those contributions and investment earnings on those contributions tax-free when he/she retires.
  • Safe Harbor Designs: You may want to amend your 401(k) plan so it qualifies as a safe harbor 401(k) plan. A “safe harbor” 401(k) plan is not subject to nondiscrimination testing otherwise applicable to traditional 401(k) arrangements. As a result, participating highly compensated employees can maximize their annual deferrals under a safe harbor 401(k) plan without regard to the amounts other employees elect to contribute. We have worked with a number of employers that found they could convert their traditional 401(k) plans to safe harbor 401(k) plans with minimal design and cost changes.

Have You Updated Your Plan for Recent Law Changes?

The laws regarding retirement plans frequently change and plan documents must be amended to reflect such changes. For example, retirement plans were recently required to adopt special rules regarding retirement benefits for uniformed military members, pursuant to the Heroes Earnings Assistance and Relief Tax Act of 2008. The IRS recommends that all retirement plans review current law changes annually.

Although law changes and required deadlines for amendments are listed in various government and practitioner publications, failure to timely adopt a required amendment is a common plan mistake. If a retirement plan fails to adopt a required amendment by the IRS deadline, the employer should remedy that failure using an IRS compliance tool known as the Employee Plans Compliance Resolution System (“EPCRS”). Correcting an error under EPCRS is generally much less costly than correcting an error the IRS discovers on audit.

Do You Know and Understand Your Plan’s Terms?

The terms of your retirement plan document should dictate the way you administer your plan. Unfortunately, many employers are not aware of their retirement plan’s terms and have problems operating their plan correctly.

Make sure you know and understand the following questions regarding your retirement plan:

  • Which employees are eligible to participate in your retirement plan?
  • How does your retirement plan define “compensation” for the purpose of contributions to the plan?
  • When and how much are you required to contribute on behalf of employees under the plan?
  • What types of notices must you provide to employees and how often should the notices be provided?
  • Are you required to test the retirement plan for nondiscrimination and, if so, how often?
  • Are you required to file an annual return for the retirement plan?

Are You Operating Your Plan Correctly?

While it is important that you both amend your retirement plan to reflect law changes and understand your plan’s terms, you must also operate your plan in accordance with the plan’s terms. Incorrect operation of your plan could create serious problems for your business and your employees. In the worst case scenario, incorrect operation can lead to plan disqualification—which would subject your business and your employees to adverse tax consequences.

It is important to regularly review your plan to ensure that:

  • Your employees are allowed to participate in the plan when they are eligible under the terms of the plan;
  • The correct amount of employer and employee contributions are made based on (1) your plan’s definition of “compensation,” (2) your employees’ elections, and (3) your plan’s terms;
  • You deposit all employee contributions on time;
  • Any loans or hardship distributions allowed by the plan are properly administered; and
  • You issue required notices to your employees on time.

If you discover an operational error, please contact your employee benefits counsel. Operational errors can often be easily corrected under the IRS’s EPCRS. Please review the IRS’s Common Plan Mistakes website to learn more about mistakes plans often make and how plans can fix those mistakes:http://www.irs.gov/retirement/sponsor/article/0,,id=137958,00.html.

Are You Taking Advantage of Free IRS Resources?

The IRS provides many free resources to keep you informed, such as:

 ©2011 von Briesen & Roper, s.c 

 

U.S. Supreme Court Adopts "Cat's Paw" Doctrine in Discrimination Cases

Posted today at the National Law Review by Bracewell & Giuliani – details of the Staub v. Proctor Hospital decision handed down by the Supreme Court earlier this week: 

Employers may be liable for discrimination even though the final decision maker had no discriminatory intent

On March 1, 2011, the U.S. Supreme Court issued its much anticipated decision inStaub v. Proctor Hospital, addressing for the first time the “cat’s paw” doctrine of employer liability in discrimination cases. Under the cat’s paw doctrine, an employee seeks to hold his employer liable based on the discriminatory intent of a supervisor who was not responsible for making the ultimate employment decision.

Facts

This case arose under the Uniformed Services Employment and Reemployment Rights Act (USERRA). Staub, an angiography technician for Proctor Hospital, was a member of the Army Reserves, which required him to attend drill one weekend a month and to train full time for two to three weeks a year. Mulally, Staub’s immediate supervisor, and Korenchuk, Mulally’s supervisor, were hostile to Staub’s military obligations. Mulally told one department employee that Staub’s military duty had been a strain on the department and asked the employee to help Mulally “get rid” of Staub. Korenchuk ridiculed Staub’s military service as a waste of time and taxpayer money. In January 2004, Mulally issued Staub a “Corrective Action” disciplinary warning for purportedly violating a rule requiring him to stay in his work area even when he had no patient.  Staub disputed the corrective action claiming there was no such rule and, even if there were, he did not violate it.

On April 2, 2004, Day, a co-worker of Staub’s, complained to Buck, the hospital’s vice president of human resources, about Staub’s frequent unavailability and abruptness.  Shortly thereafter, Korenchuk advised Buck that Staub had left his desk without informing a supervisor, in violation of the January Corrective Action – an accusation disputed by Staub. Buck relied on Korenchuk’s accusation and, after reviewing Staub’s personnel file, decided to fire Staub.  The termination notice stated that the decision was based on Staub’s having ignored the directive in the January Corrective Action.  Staub challenged his termination through the hospital grievance process, denying that he had violated the Corrective Action and claiming that Mulally had fabricated the allegations on which the Corrective Action was based out of hostility toward his military obligations.  However, Buck refused to change her final decision.

The Supreme Court Held That:

  • An employer may be liable for discrimination under USERRA, even though the final decision maker had no discriminatory intent, where another supervisor performs an act motivated by anti-military intent that is intended by the supervisor to cause an adverse employment action, and that act is a proximate cause of the ultimate employment action; in other words, the ultimate decision maker relies on the supervisor’s act in making the final employment decision.
  • Intent and responsibility for the adverse employment action can be attributed to an earlier agent, e.g., Staub’s supervisors, if the adverse action is the intended consequence of the agent’s discriminatory conduct.  As long as the agent intends, for discriminatory reasons, that the adverse action occur, he has the scienter, i.e., knowledge, required for liability under USERRA.
  • The only way an employer can escape liability for discrimination is if the ultimate decision maker’s investigation results in an adverse action forreasons unrelated to the supervisor’s original biased action.
  • The supervisor’s biased report may remain a causal factor for the discrimination if the independent investigation takes it into account without determining that the adverse action was, apart from the supervisor’s recommendation, entirely justified.
  • If the independent investigation relies on facts provided by the biased supervisor – as is necessary in any case of cat’s paw liability – then the employer (either directly or through the ultimate decision maker) will have effectively delegated the fact-finding portion of the investigation to the biased supervisor.

What This Means for Employers

  • An employer will no longer be able to rely on the ultimate decision maker’s independent investigation as a defense to liability for the discriminatory intent of lower level supervisors, unless the employer can identify a reason for the adverse action that is wholly unrelated to the information or reports provided by the lower-level supervisors.
  • To avoid liability, before making employment decisions based on information/reports from an employee’s supervisors, employers will now need to determine whether the employee claims that his supervisors were discriminating against him on the basis of his protected class and whether the adverse employment action can be justified on some basis other than the information/report from the employee’s supervisor.
  • The Supreme Court noted that USERRA is similar to Title VII of the Civil Rights Act of 1964.  Accordingly, courts will in all likelihood apply this same analysis to cat’s paw cases under Title VII, the Americans With Disabilities Act, and the Age Discrimination in Employment Act.

© 2011 Bracewell & Giuliani LLP


Out of Work? Out of Luck

Great posted added today at the National Law Review about the EEOC’s hearing about the impact of employers considering only those currently employed for job vacancies.  

EEOC Examines Employers’ Treatment of Unemployed Job Applicants at Hearing

WASHINGTON—In a public meeting held today, the U.S. Equal Employment Opportunity Commission (EEOC) examined the impact of employers considering only those currently employed for job vacancies.

“Throughout its 45 year history, the EEOC has identified and remedied discrimination in hiring and remains committed to ensuring job applicants are treated fairly,” said EEOC Chair Jacqueline A. Berrien. “Today’s meeting gave the Commission an important opportunity to learn about the emerging practice of excluding unemployed persons from applicant pools.”

According to Helen Norton, Associate Professor at the University of Colorado School of Law, employers and staffing agencies have publicly advertised jobs in fields ranging from electronic engineers to restaurant and grocery managers to mortgage underwriters with the explicit restriction that only currently employed candidates will be considered. “Some employers may use current employment as a signal of quality job performance,” Norton testified. “But such a correlation is decidedly weak. A blanket reliance on current employment serves as a poor proxy for successful job performance.”

“The use of an individual’s current or recent unemployment status as a hiring selection device is a troubling development in the labor market,” said Fatima Goss Graves, Vice President for Education and Employment of the National Women’s Law Center. She noted that this practice “may well act as a negative counterweight” to government efforts to get people back to work. Women, particularly older women and those in non-traditional occupations, are disproportionately affected by this restriction, testified Goss Graves.

Denying jobs to the already-unemployed can also have a disproportionate effect on certain racial and ethnic minority community members, Algernon Austin, Director of the Program on Race, Ethnicity, and the Economy of the Economic Policy Institute, explained. Unemployment rates for African-Americans, Hispanics and Native Americans are higher than those of whites. When comparing college-educated workers, the unemployment rate for Asians is also higher. Thus, restricting applications to the currently employed could place a heavier burden on people of color, he concluded.

The use of employment status to screen job applicants could also seriously impact people with disabilities, according to Joyce Bender, an expert in the employment of people with disabilities. “Given my experience, I can say without a doubt that the practice of excluding persons who are currently unemployed from applicant pools is real and can have a negative impact on persons with disabilities,” Bender told the Commission.

Dr. William Spriggs, Assistant Secretary of Labor for Policy, offered data supporting this testimony. Spriggs presented current national employment statistics showing that African-Americans and Hispanics are overrepresented among the unemployed. He also stated that excluding the unemployed would be more likely to limit opportunities for older applicants as well as persons with disabilities.

“At a moment when we all should be doing whatever we can to open up job opportunities to the unemployed, it is profoundly disturbing that the trend of deliberately excluding the jobless from work opportunities is on the rise,” said Christine Owens, Executive Director of the National Employment Law Project. In addition to presenting statistical evidence, she recounted stories unemployed workers have shared with her organization where they were told directly that they would not be considered for employment due to being unemployed.

James Urban, a partner at the Jones Day law firm, who counsels employers, expressed doubt as to the extent of the problem. Fernan Cepero, representing the Society of Human Resource Professionals, told the Commission that his organization is not aware of this practice being in regular use. But both Mr. Urban and Mr. Cepero noted that the automatic exclusion of unemployed persons from consideration does not constitute “due diligence” in the screening of job applicants.

© Copyright 2011 – U.S. Equal Employment Opportunity Commission

Ice Inspection Hits Close to Home – Guilty of I-9 Form Violations

Recently posted by Jennifer G. Parser of Poyner Spruill LLP at the National Law Review – details about a recent employer immigration fine – where the employer had a legal workforce…..

Fast Food Franchisee In Fayetteville, NC Fined Over $27,000 — Despite Legal Workforce

In a decision dated December 22, 2010, the US Department of Justice Executive Office for Immigration Review’s Office of the Chief Administrative Hearing Officer (OCAHO) found a fast food franchisee in Fayetteville, North Carolina, guilty of I-9 violations and fined the company $27,150. Count I alleged that the franchisee hired 11 individuals from 2006 through early 2009, yet failed to ensure that they properly completed Section 1 of the I-9 Form and/or failed itself to properly complete Section 2 or Section 3. Count II alleged that the franchisee hired 97 individuals during the same time period for whom it failed to prepare any I-9s. Penalties were sought in the amount of $1,028.50 for each violation, for a total of $111,078. OCAHO found that, based upon a visual inspection, the I-9 Forms for the 11 individuals named in Count I contained substantive violations, and no I-9 Forms could be produced for any of the 97 employees named in Count II. For reasons discussed below, OCAHO ultimately fined the franchisee $27,150, approximately 25% of the penalties sought by ICE.

Never Backdate I-9 Forms

Employers should be aware that the substantive violations found in Count I were caused in part by the ICE auditor subtly marking a Form I-9 to determine if it was later tampered with, something that the franchisee tried to do, demonstrating bad faith. In this case, the ICE auditor made “three subtle marks” to determine later whether the forms produced were backdated or completed after service of the Notice of Inspection on the franchisee in the context of the auditor simultaneously providing a sample I-9 Form and a copy of the Handbook for Employers (M-274). At that time, the ICE auditor expressly warned the franchisee’s employee not to backdate the I-9 Form if new ones were prepared. When the I-9s were subsequently reviewed by ICE, however, it was determined that they had all been completed after the Notice, and that 7 of the 11 forms were backdated with the employer attestation at Section 2 still left blank.

Factors Used by OCAHO in Setting Penalties

Turning to assessing the amount of fines to be levied, OCAHO considered the following five factors which were not given equal weight:

  • Size of the business,
  • Good faith of the employer,
  • Seriousness of the violation(s),
  • Whether or not the individuals involved were unauthorized aliens, and
  • Any history of previous violations of the employer.

 Each factor will be reviewed in light of the fines levied against the franchisee.

Size of Employer

OCAHO found the franchisee’s relatively small size to be a mitigating factor in assessing the fines. Analyzing its number of employees, OCAHO determined that despite being part of a national fast food franchise, the franchisee was in fact a small employer with a large turnover common in the fast food industry, hence the 97 former employees.

Good Faith

Any analysis of an employer’s good faith focuses first on whether or not the employer reasonably attempted to comply with its obligations prior to issuance of the Notice of Inspection. Here, OCAHO determined that:

“…there is not a scintilla of evidence that suggests [the franchisee] made any effort whatsoever to ascertain the requirements of the law…[The franchisee] made no effort at all to ascertain what the law required and lacked the reasonable diligence required: there was simply no attempt at compliance prior to the Notice of Inspection. [The franchisee’s] subsequent attempts at compliance have minimal bearing on an analysis of its good faith because conduct occurring after the investigation is over is ordinarily outside the permissible scope of consideration.”

It is important for employers to note that mistakes found in Section 1 completed by the employee can be attributable to the employer as the employer is obligated to ensure that the employee properly completes Section 1: “[The franchisee] not only made no effort at all to ascertain what the law requires or to conform its conduct to it, it also attempted deception by permitting employees to backdate I-9 forms, and this is sufficient to support an assessment of bad faith.”

Further, the franchisee’s belated and disingenuous attempt to complete the I-9s by failing to attest to its own compliance in Section 2 implies an avoidance of liability for perjury.

Seriousness of the Violation(s)

OCAHO noted that a failure to prepare an I-9 at all is among the most serious of paperwork violations. As described above as a demonstration of a lack of good faith, OCAHO found the franchisee’s failure to complete Section 2 to imply an avoidance of liability for perjury.

Employees were not Unauthorized and Employer had no History of Previous Violations
None of the employees whose I-9s were involved was an unauthorized to work, nor had the franchisee a history of violations, probably mitigating the fines levied.

Mitigating or Exacerbating Factors in Assessing Penalties

Here, OCAHO took into account the depressed state of the economy and the difficulty any displaced employee would have in finding other work and reduced the penalties accordingly. As a result, the franchisee was directed to pay $27,150 in civil money penalties and not the $111,078 sought by ICE.

Conclusion

Employers should be aware that they will be blamed by ICE and penalized accordingly for failing to ensure their employees are properly completing Section 1, for permitting backdating or tampering with incomplete or missing I-9s for failing to complete its Section 2. Merely employing a legal workforce will not absolve an employer from imposition of penalties if Section 1 of its I-9 Forms are not meticulously completed by the employee on day one of hire for pay and Section 2 by the employer by day three.  

© 2011 Poyner Spruill LLP. All rights reserved.

Discrimination Charges Against Employers Hit Record High in 2010

Posted yesterday at the National Law Review by Laura Broughton Russell and David L. Woodard of Poyner Spruill LLP – EEOC statistics recently released  revealing a record-breaking number of charges of workplace discrimination filed against private sector employers in 2010. 

The Equal Employment Opportunity Commission (EEOC) has recently released its charge statistics for fiscal year 2010 (which ended September 30, 2010). The EEOC enforces federal laws prohibiting employment discrimination, which includes Title VII of the Civil Rights Act of 1964, the Equal Pay Act, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the Genetic Information Nondiscrimination Act.

Not surprisingly, these statistics reveal a record-breaking number of charges of workplace discrimination filed against private sector employers in 2010. The number of charges filed hit 99,922, an unprecedented number which amounts to a more than 7% increase over the previous year’s filings. The somber economy and the accompanying layoffs in 2009 and 2010 may be behind this increase, as well as the EEOC’s expansion of educational training and other outreach efforts to approximately 250,000 persons.

What the Statistics Foreshadow for 2011 

  • In its release, the EEOC noted its “concerted effort to build a strong national systemic enforcement program,” which resulted in 465 systemic investigations, involving more than 2,000 charges, being undertaken. This emphasis on systemic or class-wide discrimination means the EEOC is devoting more of its resources to bringing more multiple plaintiff cases against employers. This trend is expected to continue.

  • The new Genetic Information Nondiscrimination Act resulted in 201 charges being filed. Significantly more charges are expected in this area in 2011, due to the release of the accompanying regulations at the end of 2010 and the continuing publicity about and public awareness of this law.
     
  • Disability discrimination claims numbered 25,165 in 2010, which constituted slightly more than 25% of all claims filed with the EEOC. With the recent expansion of the Americans with Disabilities Act (ADA) by the ADA Amendments Act, and the anticipated 2011 release of the accompanying regulations, claims in this area are expected to continue to increase.

Some Final Observations 

The EEOC has been energized by the December 2010 Senate confirmations of its new Chair, as well as its General Counsel and two new Commissioners. The EEOC now has a full complement of members, which it has been lacking for quite some time. In addition, the EEOC recently has added to its front-line staff. Notably, the EEOC recently has held two significant Commission meetings during which it explored the use of credit histories as employment screening devices, and the impact of the economic situation on older workers. By reviewing their employment decisions in advance with counsel, as well as generally reviewing their employment policies and practices to ensure compliance with the law, employers can lower the risk of expensive and onerous legal proceedings filed by individuals and by the EEOC.
 

© 2011 Poyner Spruill LLP. All rights reserved.

Federal Scrutiny of Social Media Policies – Facebook posting subject of NLRB settlement with employer

The much publicized case in front of the National Labor Relations Board (NLRB)  concerning the employer  charged by the NLRB with terminating an employee for posting disparaging comments about her supervisor on Facebook has been settled.   Bracewell & Giuliani posted the following on the National Law Review yesterday: 

 

On Monday, February 7, 2011, the National Labor Relations Board (NLRB) reached a settlement with American Medical Response of Connecticut, Inc., the employer recently charged by the NLRB with terminating an employee in violation of federal labor law for posting disparaging comments about her supervisor on Facebook. The NLRB complaint alleged that the employer’s policy regarding “Blogging and Internet Posting” was overly-broad and unlawfully interfered with employees’ rights under Section 7 of the National Labor Relations Act (NLRA) to engage in “concerted, protected activity.” As written, the challenged policy stated that “Employees are prohibited from making disparaging, discriminatory or defamatory comments when discussing the Company or the employee’s superiors, co-workers and/or competitors.”

Under the terms of the settlement agreement, the employer agreed to revise this policy to allow employees to discuss wages, hours, and working conditions with co-workers outside of the workplace, and agreed to refrain from disciplining or firing employees for engaging in such discussions. The matter of the employee’s discharge was resolved through a separate, private agreement between the employee and the employer.

Why is this important?

The NLRB’s involvement in this case indicates an increased focus on the enforcement of employee rights under Section 7 of the NLRA and on employers’ social media policies. Section 7 protects employees regardless of whether their workplace is unionized; therefore all employers must be cognizant of policies and practices that might be interpreted to limit employees’ right to engage in concerted action.

Actions needed?

The NLRB’s stated position on this issue is that employees are allowed to discuss the conditions of their employment with co-workers on Facebook, or other social media websites, to the same extent they are permitted to do so at the water cooler or a restaurant. To this end, policies or practices which could be interpreted as limiting such right should be modified to include a statement that the policy will not be construed or applied in any manner that interferes with employees’ rights under the NLRA.

© 2011 Bracewell & Giuliani LLP

Can a 401(k) Plan Member Recover Damages to His Individual Account Caused By a Plan Administrator’s Breach of Fiduciary Duty?

Recently posted at the National Law Review by guest blogger David B. Cosgrove – a question many unhappy 401(k) plans members may have pondered: 

An ERISA Plaintiff cannot seek individual monetary damages for a Plan Administrator’s breach of fiduciary duty to the plan. Importantly, however, seeking damages on behalf of the 401(k) Plan as a result of a Plaintiff’s losses in his individual account is explicitly permitted under LaRue v. DeWolff, Boberg & Associates, Inc., 552 U.S. 248 (2008), which held that ERISA Section 502(a)(2) authorizes recovery by a plan participant for fiduciary breaches “that impair the value of plan assets in a participant’s individual account.” 522 U.S. at 256. The Supreme Court in LaRue made clear its reasoning for this holding:

Whether a fiduciary breach diminishes plan assets payable to all participants and beneficiaries, or only to persons tied to particular individual accounts, it creates the kind of harms that concerned the draftsmen of § 409.  Id. at 256.

For instance, a Plaintiff may rely upon ERISA Section 502(a)(1)(B) for a Defendant’s failure to provide the Plaintiff with the full 401(k) benefits owed to him under the 401(k) Plan at issue. And the Plaintiff may also rely upon ERISA Section 502(a)(2) for a Defendant’s breaches of fiduciary duties. A plain reading of Sections 502(a)(1)(B) and 502(a)(2) establishes that the two sections provide for different relief. Indeed, as the 9th Circuit explicitly noted in Harris v. Amgen, Inc.:

Section 502(a)(1)(B) allows a plan participant “to recover benefits due to him under the terms of his plan.” By contrast, Section 502(a)(2) encompasses claims based on breach of fiduciary duty and allows for the more expansive recovery of “appropriate relief,” including disgorgement of profits and equitable remedies.  573 F.3d 728, 734, n. 4 (9th Cir. 2009) (citations omitted).

Regardless, some defendants incorrectly assert that “the Eighth Circuit and other courts alike have repeatedly held that participants cannot state claims for breach of fiduciary duty under ERISA Section 502(a) when they are also seeking to recover the same benefits under ERISA Section 502(a)(1)(B).” The falsity of this assertion is clear upon a review of the federal caselaw. Indeed, the cases usually cited are inapplicable in that each is either irrelevant or is limited in scope to claims brought under ERISA Sections 502(a)(1)(B) and 502(a)(3), not Sections 502(a)(1)(B) and 502(a)(2). See Geissal ex rel. Estate of Geissal v. Moore Medical Corp., 338 F.3d 926, 933 (8th Cir. 2003) (narrowly holding that a beneficiary cannot bring a claim for benefits under Section 502(a)(1)(B) and Section 502(a)(3)(B));Conley v. Pitney Bowes, 176 F.3d 1044, 1047 (8th Cir. 1999) (citing Wald v. Southwestern Bell Corporation Customcare Medical Plan, 83 F.3d 1002, 1006 (8th Cir. 1996) in holding that “where a plaintiff is ‘provided adequate relief by [the] right to bring a claim for benefits under [Section 502(a)(1)(B)],’ the plaintiff does not have a cause of action to seek the same remedy under [Section 502(a)(3)(B)]”). Some defendants also cite Coyne & Delaney Co. v. BCBS of Va., Inc., 102 F.3d 712 (4th Cir. 1996). However, Coyne is not relevant in that it analyses whether aplan fiduciary can bring a claim for benefits under ERISA Section 502(a)(3). 102 F.3d at 713.

Some plan defendants also rely upon the U.S. Supreme Court’s holding in LaRue v. DeWolff, Boberg & Assoc., Inc., 552 U.S. 248 (2008) for the proposition that duplicative claims under ERISA Section 502(a)(1)(B) and 502(a)(2) are inappropriate. Specifically, defendants may rely upon commentary by Chief Justice Roberts in that case, without revealing that Justice Roberts wrote the concurring opinion rather than the opinion of the Court. Accordingly, his analysis is not binding. Id. at 249. In fact, at the conclusion of his concurring opinion, Justice Roberts acknowledged that his analysis is not binding on the issue: “In any event, other courts in other cases remain free to consider what we have not—what effect the availability of relief under § 502(a)(1)(B) may have on a plan participant’s ability to proceed under § 502(a)(2).” Id. at 260.

Indeed, in Crider v. Life Ins. Co. of N. Am., 2008 WL 2782871 (W.D. Ky. 2008), the Western District of Kentucky acknowledged that Justice Roberts’ analysis inLaRue is not binding, and therefore noted that in deciding whether to allow a claim under both ERISA Section 502(a)(1)(B) and Section 502(a)(2), the question for the court is whether the facts the plaintiff alleges “state a claim for breach of fiduciary duty under Section 502(a)(2) which is separate from her claim for benefits under Section 502(a)(1)(B).” Id. at *2. The court further noted that in deciding this question, the Sixth Circuit has on at least three occasions “allowed plaintiffs to pursue both a claim for benefits under Section 502(a)(1) and also to attempt to hold a plan responsible for breaches of fiduciary duty under a separate Section 502(a) action.” Id. Finally, In Hill v. Blue Cross & Blue Shield of Mich., the Sixth Circuit observed that plan-wide claims are distinct from claims seeking to correct the denial of individual benefits. 409 F.3d 710, 718 (6th Cir. 2005).

Finally, it is well-established that “[i]n ruling on a motion to dismiss, a court must view the allegations of the complaint in the light most favorable to the plaintiff.”Guarantee Co. of North America, USA v. Middleton Bros., Inc., 2010 WL 2553693, at *2 (E.D. Mo. June 23, 2010). To survive a motion to dismiss, a claim need only be facially plausible, “meaning that the factual content…allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”Id. (quoting Cole v. Homier Dist. Co., Inc., 599 F.3d 856, 861 (8th Cir. 2010)).

Copyright © 2011 Cosgrove Law, LLC.