Tag: Labor Law

Which Employers Will Be Responsible For Health Coverage In 2014?

Recently posted at the National Law Review by Abby Natelson  of  Greenberg Traurig, LLP – provides more details about which employers will be responsible for providing healthcare coverage in 2014:

The new health care law, otherwise known as the Patient Protection and Affordable Care Act (PPACA), requires that, beginning after December 31, 2013, “applicable large employers” must provide affordable health coverage to their full-time employees.   Failure to do so may subject these employers to a shared responsibility payment, or an “assessable payment,” pursuant to Internal Revenue Code §4980H.

An “applicable large employer” is defined as “an employer who employed an average of at least 50 full-time employees on business days during the preceding calendar year.” A full-time employee with respect to a given month is defined as “an employee who is employed on average at least 30 hours of service per week.”

While these definitions may appear to be straightforward, the recent Notice issued by the Internal Revenue Service, together with the Department of Labor and the Department of Health and Human Services, indicates that the analysis is not so simple.

Notice 2011-36 was issued on May 2, 2011, seeking comments and providing suggested rules for interpreting and applying the meaning of “full-time employees” for purposes of IRC §4980H.

Notably, the Notice provides rules for determining whether an employer has “50 full-time employees,” which includes full-time equivalents. This means that, on a monthly basis, an employer must take the following steps to determine whether 50 full-time employees are employed:

1)                  Determine the number “full-time” employees. 
This group includes seasonal employees and all employees of a controlled group, an affiliated group, and a predecessor employer. This group does not include leased employees.

2)                  Determine the “full-time equivalents.”
This number is determined by aggregating the number of hours of service for all employees determined not to have a full-time status for the month, and then dividing these hours by 120.

At the end of a calendar year, the employer must add together the 12 monthly calculations, and divide the sum by 12 to get the average monthly full-time employees for the prior year. If the final number is 50 or more, the employer is an “applicable large employer.” 

For example, if a business employs 40 full-time employees with 40 hours of service per week and 20 part-time employees with an average of 20 hours of service per week, the employer will still be considered an “applicable large employer.”   This is because each month, the employer will have to add approximately 13.3 “full-time equivalents” (approximately 80 hours worked per month by each part-time employee, multiplied by 20 part-time employees, divided by 120) to the 40 full-time employees, bringing the total “full-time employees” for purposes of health coverage obligations to 53.3. As this example demonstrates, an employer that relies on part-time employees may still be subject to the shared responsibility provisions of the PPACA.

The Notice provides for an exception in the case of seasonal workers. This seasonal employees exception applies where an employer’s workforce exceeds 50 full-time employees for 120 days or less during a calendar year and the employees in excess of 50 were employed during those days as seasonal employees. In this case, the employer is not considered an “applicable large employer.”

Employers “not in existence during an entire preceding calendar year,” are not exempt from assessment payment liability pursuant to the Notice, and will be considered an applicable large employer if the employer reasonably expects to employ an average of at least 50 full-time employees on business days during the current calendar year.

The Notice also indicates the intent of the IRS, DOL, and HHS to allow employers to measure 130 hours of service per month to determine full-time status, rather than 30 hours of service per week. Further, the Notice includes a safe harbor for determining an employee’s full time status for future months based on the employee’s status as a full-time employee in prior months, which is intended to make administration of this rule for full-time employees easier.

In short, the proposed guidance set forth in Notice 2011-36 expands upon the inclusive definition of “full-time employees” set forth by the PPACA and reinforces the continuous burden imposed on employers to evaluate the “full-time” status of each of their employees.

©2011 Greenberg Traurig, LLP. All rights reserved.

Illinois Civil Union Law Requires Employer Action

Posted yesterday at the National Law Review by Thomas G. Hancuch and Jessica L. Winski of Vedder Price P.C. a great overview of the implications for employers in Illinois of the law recognizing civil unions which will be in effect June 1st:

The recently enacted Illinois law recognizing civil unions has implications for all Illinois employers.  The law becomes effective June 1, 2011.  Before that date, employers should review and update their policies and employee benefit programs that may be affected by the law.  This is true for both employers that provide domestic partner benefits and those that do not.

The Illinois Religious Freedom Protection and Civil Union Act ( the “Civil Union Act”) allows same-sex and opposite-sex couples to enter into a new form of legal relationship called a “civil union.”  Under the Act, persons entering into a civil union are entitled to the same legal protections, benefits, obligations and responsibilities as spouses under Illinois law.  The law provides a process for establishing a civil union and for dissolving one.

The Civil Union Act also contains a reciprocity provision under which Illinois will recognize as a civil union any same-sex marriage, civil union or other substantially similar legal relationship (other than a common law marriage) that was legally entered into in another jurisdiction.  Currently, five states (Connecticut, Iowa, Massachusetts, New Hampshire and Vermont) and the District of Columbia, as well as a number of foreign countries (including Canada) permit same-sex couples to marry.  Other states (including Oregon, Nevada, New Jersey and Washington) have laws similar to the new Illinois Civil Union Act recognizing civil unions or domestic partnerships.  Still other states (including Colorado, Maine, Maryland and Wisconsin) accord more limited legal recognition to such relationships.

Complicating matters, the federal Defense of Marriage Act provides that, for purposes of federal law,  “the word ‘marriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers only to a person of the opposite sex who is a husband or a wife.”  So, while civil union partners generally are to be treated the same as spouses under Illinois law once the Civil Union Act becomes effective later this year, it appears that they will not have the same rights or status as spouses under federal law.

Of course, employers operating in Illinois are subject to both Illinois and federal law.  Certain programs maintained by private-sector employers, such as bereavement leave, are governed exclusively by state law; others, such as retirement plans and flexible spending accounts, exclusively by federal law; and still others, such as insured health benefits plans (but not self-insured plans), by both federal and state law.  Unfortunately, this creates significant complexity for employers.

Illinois employers that currently offer domestic partner benefits should review their domestic partner benefit program in light of the Civil Union Act.  For example, the definition of “domestic partner” in the domestic partner benefits policy and the applicable benefit program documents and leave of absence and other policies may need to be revised to specifically encompass civil union partners.  In addition, consideration should be given to whether an affidavit attesting to the existence of a domestic partnership will continue to be regarded as sufficient, or if Illinois employees should be required to formalize the relationship as a civil union in order to receive domestic partner benefits.

Illinois employers that do not offer domestic partner benefits will need to review their benefit plans and leave of absence and other human resources policies that involve spouses of employees to determine the impact of the Civil Union Act.  For example, an employer with medical or dental insurance funded through a group insurance policy issued in Illinois will find that civil union partners will be eligible for coverage on the same terms as spouses beginning June 1, 2011, even though the employer may not want to provide such benefits.

© 2011 Vedder Price P.C.

Wage and Hour Headaches for Employers: The Department of Labor Has an App for That

Posted this week at the National Law Review  by Mitchell W. Quick, Brian P. Paul and Steven A. Nigh of Michael Best & Friedrich LLP – details for employers about the Department of Labor’s (DOL) new App to track wages and work hours….

The U.S. Department of Labor Wage & Hour Division (“WHD”) recently released a free application (“app”) for iPhone and iPod Touch that allows employees to track their wages and work hours. The “Timesheet” app allows employees to enter their hourly rate and hours worked for multiple employers. The app also lets employees record time spent on meal breaks and “other” breaks. Time can be recorded manually or by using the app’s embedded stopwatch. Timesheet calculates employee pay, including overtime, and lets employees export Timesheet data via e-mail in Microsoft Excel format. While the current version calculates pay based on an hourly rate, WHD is exploring the possibility of adding functions for commission pay, shift differentials and other methods of compensation in future versions, along with Android- and Blackberry-compatibility. The app currently is available in both English and Spanish.

Timesheet presents a number of challenges to employers. WHD perceives the app as an enforcement aid that contains potentially “invaluable” information about alleged hours worked. Timesheet also encourages employees to file claims by giving them contact information for both local and national wage and hour agencies.  Furthermore, employee complaints about pay for alleged “off-the-clock” work—such as voluntarily checking work e-mails when at home—may increase as such time can be easily recorded. Employees might also record any work issues raised during break time, raising the specter of employers having to treat that time as compensable “hours worked.” Finally, employees improperly classified as exempt and for whom the employer kept no time records would now have “documentation” to support their damage claims.

Fortunately, employers can take steps to protect themselves:

  • Keep accurate records. This obvious best practice has only become more important now that some employees may keep records of their own.
  • Require non-exempt employees to sign off on company time sheets. This will help ensure both sides agree on the number of hours worked, and can help wage and hour disagreements surface—and get resolved—sooner rather than later.
  • Audit exempt employees to make sure they are exempt. This is particularly true for employees for whom the company has limited time records
  • Update employee handbooks. Make sure employees know that they cannot falsify any company records, including time records. Also consider establishing a complaint process for employees to use when they are told not to report work time.
  • Do not retaliate against employees who keep their own time records. Retaliation claims are on the rise, and Timesheet is another possible pitfall for employers.

“Timesheet” should serve as a reminder of the importance of maintaining complete, accurate wage and hour records.

© MICHAEL BEST & FRIEDRICH LLP

Additional Information on this is also available here:

Comprehensive Summary of the Final Regulations to the ADA Amendments Act

This week’s guest blogger at the National Law Review is Jeffrey S. Nowak of  Franczek Radelet P.C..  Jeffrey provides a very comprehensive overview of the final regulations implementing the ADA Amendments Act of 2008 (ADAAA):   

On March 25, 2011, the U.S. Equal Employment Opportunity Commission (EEOC) published final regulations implementing the ADA Amendments Act of 2008 (ADAAA), a statute that now greatly expands the number of employees and applicants who will be considered “disabled.”  The final regulations fundamentally change the manner in which an employer must treat and manage employees with medical conditions in the workplace, since it now will be much easier for individuals to establish that they are disabled.  This Comprehensive Summary provides an overview of some of the key provisions in the final ADAAA regulations to help employers better understand the key changes in the law and adopt strategies to minimize liability.

Background

As originally enacted, the Americans with Disabilities Act (ADA) defines an individual with a disability as a person who has a physical or mental impairment that “substantially limits” one or more “major life activities.”  Individuals may also be covered under the ADA if they have a “record of” a disability or are “regarded as” disabled.  Since the ADA took effect, the Supreme Court and lower federal courts have construed the definition of disability in a relatively narrow fashion.  On September 25, 2008, President Bush signed the ADAAA into law.  Although the ADAAA retains the same definition of “disability” under the original Act, it makes sweeping changes to the manner in which these terms are to be construed.

In short, the ADAAA and its final regulations now shift the focus of virtually every situation that implicates the ADA.  Before the amendments, the interpretation of the ADA largely focused on whether an individual was substantially limited in a major life activity and, therefore, disabled under the ADA.  Under the ADAAA’s broader construction, the focus is not directed toward the actual definition of disability, but rather on discrimination and reasonable accommodation.  Given the ADA’s new statutory framework and new regulations that stretch the statute even further, employers should be prepared now more than ever before to respond to accommodation requests, make accommodations where necessary, and take precautions to avoid discriminatory decisions involving employees and applicants with medical conditions.

A copy of the final regulations can be found here.  The EEOC also has issued a guidance sheet and a fact sheet to aid employers in understanding the final regulations.

The final regulations address key issues, which are covered in this executive summary.

  • Will certain impairments always be considered “disabilities”?
  • What constitutes a “major life activity?”
  • What does it mean to be “substantially limited” in a major life activity?
  • To what extent are temporary or episodic impairments considered disabilities?
  • How do “mitigating measures” affect the analysis of whether an individual is disabled?
  • What does it mean for an employee to be “regarded as” disabled?

Broad Construction of the Definition of “Disability”

Taking its lead from the ADAAA, the final regulations provide that the definition of “disability” should be “broadly” construed “to the maximum extent permitted by the terms of the ADA.”  (The message from Congress and the EEOC to employers could not be any clearer: Stop focusing on whether an individual is disabled and focus instead on reasonable accommodation.)  Although the final regulations track the definition of “disability,” a term which remained intact, the regulations clarify that there is a shift in focus to whether employers have complied with their obligations and whether discrimination occurred, as opposed to whether an individual meets the definition of a “disability.”

Certain impairments “virtually always” covered

Further illustrating the point, in spite of the ADAAA’s (and the final regulations’) rejection of the notion of a “per se” disability, the final regulations take the extraordinary step of listing certain impairments that “will, as a factual matter, virtually always be found to impose a substantial limitation on a major life activity.”  The EEOC suggests that these assessments should be “particularly simple and straightforward” (tellingly, the title of the subsection is “Predictable Assessments”).  These impairments include:

  • Deafness
  • Blindness
  • Intellectual disability (formerly known as mental retardation)
  • Partially or completely missing limbs
  • Mobility impairments requiring the use of a wheelchair
  • Autism
  • Cancer
  • Cerebral palsy
  • Diabetes
  • Epilepsy
  • HIV or AIDS
  • Multiple sclerosis
  • Muscular dystrophy
  • Major depression
  • Bipolar disorder
  • Post-traumatic stress disorder
  • Obsessive compulsive disorder
  • Schizophrenia

This list includes many conditions that often were not substantially limiting impairments under the pre-ADAAA.  Nevertheless, the list tends to undermine the EEOC’s long-held position that an “individualized assessment” should be conducted to determine whether an impairment is indeed a disability.

Notably, the final regulations removed a section from the proposed regulations that listed certain impairments that “may be disabling for some individuals but not for others,” such as asthma, back/leg impairment, carpal tunnel syndrome, high blood pressure, psychiatric impairment (less severe than major depression) and learning disability.  In light of the expansive sweep of the final regulations, however, plaintiffs with impairments like these, as well as others, likely will not face a difficult task in convincing a court that they are disabled.

Less Demanding Standard for “Substantially Limits”?

To be disabled, one must have an impairment that “substantially limits” a major life activity.  Under the pre-ADAAA, employers often questioned the extent to which an impairment must “substantially limit” before an individual is considered disabled.  Unfortunately for employers, the EEOC declined to quantify the term “substantially limits” in the final ADAAA regulations, explaining that “a new definition would…lead to greater focus and intensity of attention on the threshold issue of coverage than intended by Congress.”  As such, the final regulations offer employers little concrete guidance in identifying the threshold at which an impairment qualifies as “substantially limiting,” aside from the presumption that it must be a lower threshold than previously adopted by the U.S. Supreme Court in its decisions leading up to passage of the ADAAA.

Instead, the regulations provide “nine rules of construction” to be applied in determining whether an impairment “substantially limits” a major life activity.  Most of the rules come directly from the language of the ADAAA, but several have been added by the EEOC:

  1. “The term ‘substantially limits’ shall be construed broadly in favor of expansive coverage, to the maximum extent permitted by the terms of the ADA.  ‘Substantially limits’ is not meant to be a demanding standard.”
  2. The determination of whether an impairment is “substantially limiting” should be made by comparing the ability of an individual to the general population.  The impairment does not need to “prevent, or significantly or severely restrict” the performance of a major life activity in order to be substantially limiting.
  3. In all ADA cases, the focus should be on whether the employer has complied with its statutory obligations, since the “threshold issue” of substantially limits should not require extensive analysis.
  4. “The determination requires an ‘individualized assessment,’ but the assessment should be done by requiring “a degree of functional limitation that is lower than the standard for ‘substantially limits’ applied prior to the ADAAA.”
  5. Comparing an individual’s performance of a major life activity to the general population should not generally require scientific, medical or statistical analysis.
  6. The determination should be made without regard to the “ameliorative effects of mitigating measures” other than ordinary contact lenses and eyeglasses.
  7. “An impairment that is episodic or in remission is a disability if it would substantially limit a major life activity when active.”
  8. An impairment need not limit more than one major life activity.
  9. The effects of an impairment lasting or expecting to last fewer than six months can be “substantially limiting.”

The Effect of Condition, Manner and Duration

Commenting further on the “substantially limits” prong, the final regulations explain that, to determine whether an individual is “substantially limited” in a major life activity, it may be useful to consider the condition under or the manner in which an individual performs a major life activity; the duration of time it takes the individual to the activity as compared to most people in the general population; and the difficulty, effort, pain or amount of time required to perform the activity.

For example, under the new regulations, it does not matter whether an individual with a learning disability can read and write like the majority of people in the general population.  The regulations focus instead on how difficult it was for the individual to reach the level of literacy, (i.e., how long it took and the conditions which the individual had to overcome).  As a result, an individual may be substantially limited in a major life activity even if he or she can perform the activity at the same level as the general population, if it took more time, effort or work to become proficient compared to most people in the general population.

The Interpretation of “Major Life Activities” is Expanded Further

To be disabled under the law, one must have a physical or mental impairment that “substantially limits” one or more “major life activities”.  When determining whether an individual is substantially limited in a major life activity, according to the final regulations and EEOC’s interpretive guidance provide, the process should “not demand extensive analysis” and “usually will not require scientific, medical or statistical analysis.”

Notably, the final regulations expand an already “non-exhaustive” list of what may be deemed major life activities to include eating, sleeping, standing, lifting, bending, reading, concentrating, thinking and communicating.  The final regulations also include additional examples of major life activities, such as sitting, reaching and interacting with others.  When determining other examples of major life activities, the final regulations expressly reject the pre-ADAAA interpretation that the activity must be of “central importance to daily life,” a rule which expressly rejects the Supreme Court’s ruling in Toyota Motor Manufacturing v. Williams.  In effect, an activity no longer is required to be of “central importance.”

In a significant departure from the past, the ADAAA and final regulations expand the definition of “major life activities” to include the “operation of major bodily functions,” such as the immune system and normal cell growth, and neurological, bowel, bladder, circulatory and reproductive functions.  The final regulations list several additional functions, such as cardiovascular, lymphatic and musculoskeletal, and specify that the operation of a major bodily function includes the operation of an individual organ within the body (such as the liver or heart).  The appendix to the final regulations provides several examples of impairments that affect major bodily functions, e.g., cancer affects normal cell growth; diabetes affects functions of the pancreas and endocrine system; and rheumatoid arthritis affects musculoskeletal functions.

Work as a “major life activity”

The regulations also breathe new life into the “major life activity” of working.  Under the pre- ADAAA, a plaintiff’s claim that he or she was substantially limited in the major life activity of work almost always was dismissed by the court, largely because the employee was unable to show that the impairment substantially limited the employee’s ability to perform a “broad range” of jobs.  The final regulations maintain this requirement but lower the employee’s burden, claiming that this previous standard was “overly strict.”  Under the new regulations, if an individual’s job requires heavy lifting but the employee cannot lift heavy items and cannot perform the job or other jobs that require heavy lifting, then the employee is substantially limited in performing the class of jobs that require heavy lifting.  Is this shift in the rule all for naught?  As the final regulations point out, an impairment that substantially limits working will in most situations also substantially limit another major life activity.

Other Significant Regulatory Changes

Nearly All “Mitigating Measures” Are No Longer Considered

Under prior Supreme Court and federal appellate court precedent, employers were allowed to consider “mitigating measures” in determining whether an individual’s impairment substantially limits a major life activity under the ADA.  For example, if an individual used a hearing aid or cochlear implant due to a hearing impairment, it typically was not considered a disability because the individual was not substantially limited in the major life activity of hearing.  Because of the mitigating measure (i.e., the hearing aid), they could hear perfectly well.  Under the new regulations, however, employers are no longer allowed to consider such measures.  As a result, employers will be required to analyze each individual’s impairment in its unmitigated state.  Thus, the individual with a hearing aid would likely be substantially limited in hearing because we are obligated now to consider them without the use of a hearing aid.

The final regulations do provide one important exception: employers are permitted to consider the ameliorative effects of using ordinary eyeglasses or contact lenses.  The term “ordinary eyeglasses or contact lenses” is defined as lenses that are intended to fully correct visual acuity or to eliminate refractive error.  For example, an individual with severe myopia whose visual acuity is fully corrected is not substantially limited in seeing because the ameliorative effect of the lenses must be considered.  Similarly, eyeglasses or contact lenses that are the wrong or outdated prescription may nevertheless be “ordinary” if there is evidence that a proper prescription would fully correct visual acuity or eliminate refractive error.

What is also important to note is that both the ameliorative and non-ameliorative effects of mitigating measures, as well as the individual’s use or non-use of such measures (e.g., taking or refusing to take medication, even though prescribed by a physician) can be considered when determining whether the employee is a “qualified” individual with a disability or whether the employee poses a direct threat to safety; however, it will not affect whether the individual meets the definition of being disabled.

Temporary and Episodic Impairments May Constitute disabilities

Under the final regulations, short-term impairments and chronic impairments with short-term symptoms may be considered disabilities.  In the past, many courts declined to extend ADA coverage to individuals whose impairments were substantially limiting for only a short or limited period of time.  The new regulations reject this reasoning and prescribe that the duration of an impairment or symptom should not be dispositive in determining whether an individual is disabled.

Temporary and Short-Term Impairments

Clearly, one of the most significant changes to the final regulations is the EEOC’s decision to reject the long-held view that temporary impairments are not substantially limiting.  The EEOC previously took the position that the duration or expected duration of an impairment should be considered in determining whether the impairment is disabling.  That no longer appears to be the case.  The final regulations ambiguously state that “an impairment lasting or expected to last fewer than six months can be substantially limiting.” (Emphasis added).  When this language was first proposed, many commenters expressed that the new language would create confusion as to how long an employer’s impairment must last or be expected to last in order to impose ADA obligations on the employer.  (Further complicating matters, the regulations state that an employee who is regarded as having a “transitory and minor” impairment that is expected to heal shortly is not considered disabled.  Thus, it is conceivable that individual with a temporary impairment, such as a broken hand, may be disabled because the impairment substantially limits a major life activity, but may not be “regarded as” disabled for purposes of the Act.)

In response to these concerns, the EEOC opined that specifying a durational minimum for a disability would impose a more stringent standard than what Congress required.  In fact, the final regulations go even further than the proposed regulations on this point.  In the proposed rules, the EEOC identified a category of temporary non-chronic impairments that usually would not be considered a disability—for example, the common cold, seasonal influenza, a sprained joint, minor and non-chronic gastrointestinal disorders, a broken bone expected to heal completely, appendicitis and seasonal allergies.  The EEOC deleted this category in the final regulations, explaining that the provision caused confusion and was too limiting.

The EEOC’s position on the issue of temporary impairments is debatable.  It is not clear that Congress intended to extend ADA coverage to short-lived impairments.  Moreover, it is still likely that certain impairments of short duration which are expected to heal quickly, such as a common cold or a sprained ankle, will not be considered disabilities.  However, the regulations make clear that employers must consider all impairments, even short term ones, on a case-by-case basis.

Episodic Impairments

Under the ADAAA and the final regulations, an episodic impairment or impairment in remission is a disability if the impairment would substantially limit a major life activity when active.  This means that an individual with a serious chronic condition such as epilepsy or cancer could be considered disabled under the Act even if that person rarely or never experiences symptoms that would impact their employment.  The regulations provide specific examples of impairments that may be episodic in nature, including epilepsy, cancer, multiple sclerosis, hypertension, diabetes, asthma, major depressive disorder, bipolar disorder and schizophrenia.

The Act’s express inclusion of episodic impairments presents some practical challenges for employers.  Many episodic impairments are unpredictable in their effects on the individual.  For example, an employee diagnosed with asthma may not experience an attack for several months.  However, the fact that an asthma attack could limit a major life activity may require the employer to provide a reasonable accommodation.  The same is true for progressive impairments, such as Parkinson’s or Alzheimer’s Disease.  Many Parkinson’s and Alzheimer’s patients do not experience any symptoms in the early stages of the disease.  Nevertheless, the fact that an individual could at some point in the future experience symptoms that would substantially limit a major life activity likely would render the person disabled even before the condition worsens and (practically speaking) substantially limits a major life activity.

“Regarded As” Individuals Need Only Prove Perception of an “Impairment”

Under the original ADA as interpreted by the courts, an individual was “regarded as” disabled only when the employer perceived the individual to have an impairment that “substantially limited” him or her in a major life activity.  Under the final regulations, the same individual seeking to bring a “regarded as” claim need not prove that the employer believed the individual to have an impairment that substantially limits a major life activity, but merely that the employer perceived the employee as having an “impairment,” and based an employment decision on that perception.

Under the ADAAA, an individual subjected to a prohibited action (e.g., failure to hire, denial of promotion, termination or harassment) because of an actual or perceived impairment will meet the “regarded as” definition of disability whether or not the impairment “substantially limits” a major life activity unless the impairment is both transitory and minor.  The ADAAA further clarifies that a person who is “regarded as” disabled is not entitled to a reasonable accommodation unless the person also fits within one of the other two prongs of the definition of “disability.”

Notably, the final regulations specify that the “regarded as” prong should be the primary means of establishing coverage in ADA cases that do not involve reasonable accommodation, and that consideration of coverage under the first and second prongs will generally not be necessary except in situations where an individual needs a reasonable accommodation.

The final regulations further clarify that establishing that an individual is “regarded as having such an impairment” does not, by itself, establish liability.  Thus, even where an individual proves that an employer made a decision on the basis of an actual or perceived impairment, the employee must still show that he was “qualified” for the position in question in order to establish an ADA violation (i.e., he can perform the essential job functions of the position with or without a reasonable accommodation).   The employer may also utilize any otherwise available statutory defenses.  For example, an employer may still defend a decision to refuse to hire an applicant on the grounds that the individual would pose a “direct threat” to health and safety due to the nature of his impairment.

The proposed regulations originally identified several concrete examples of “transitory and minor” impairments that would not be sufficient to meet the “regarded as” prong of the statute, such as a broken bone that is expected to heal normally or a sprained wrist that was expected to heal in three weeks.  Unfortunately, these concrete examples were omitted from in the final regulations, leaving employers without clear guidance as to what constitutes a “transitory and minor” impairment.  Instead the appendix to the final regulations stress only that the inquiry as to whether an impairment is “transitory and minor” is an objective standard and provides these examples:

For example, an employer who terminates an employee whom it believes has bipolar disorder cannot take advantage of this exception by asserting that it believed the employee’s impairment was transitory and minor, since bipolar disorder is not objectively transitory and minor.  At the same time, an employer that terminated an employee with an objectively ‘‘transitory and minor’’ hand wound, mistakenly believing it to be symptomatic of HIV infection, will nevertheless have ‘‘regarded’’ the employee as an individual with a disability, since the covered entity took a prohibited employment action based on a perceived impairment (HIV infection) that is not ‘‘transitory and minor.’’

Notably, the final regulations give no example of an impairment that EEOC would find to be “transitory and minor” under this standard.

What about an employee’s symptoms?

In a nod to employers, the final regulations do not include a provision contained in the proposed regulations providing that actions taken because of an impairment’s symptoms (or because of the use of mitigating measures) constitute actions taken because of an impairment under the “regarded as” prong.  Employer commentary pointed out that this proposed standard could create liability for an employer when, for example, disciplining an employee for violating a workplace rule, even where the violation resulted from a symptom of an underlying impairment of which the employer was unaware.  This would have resulted in a clear departure from the EEOC’s existing policy guidance and court decisions, which recognize, among other things, that an employer may discipline an employee for job related misconduct resulting from a disability if the rule or expectation at issue is job related and consistent with business necessity.  EEOC Enforcement Guidance on the Americans with Disabilities Act and Psychiatric Disabilities, EEOC Notice No.  915.002 Mar. 25, 1997 http://www.eeoc.gov/policy/docs/psych.html.  The preamble to the Final Regulations states that this prior Guidance remains in effect, at least for now.

How Do Employers Respond to the New Regulations?

One might ask whether any employee is considered disabled under these new regulations.  Clearly, the ADAAA and its final regulations change how employers respond to and manage employees with medical conditions and who request accommodations in the workplace.  At a minimum, we suggest employers take the following approach to the “new” ADA.

  • The range of impairments that may substantially limit a major life activity has widened considerably.  Although not every impairment will constitute a disability, the analysis of whether an impairment “substantially limits” a major life activity will not be the focus of a court’s inquiry.  In light of this change in emphasis, employers should not focus on whether an employee is actually “disabled;” rather, they should focus on insuring that they are in compliance with the statute.  Therefore, as an initial matter, employers should review and revise workplace reasonable accommodation policies to ensure employees are aware of the policies and to make clear the lines of communication as to accommodations in the workplace.  Similarly, employers should maintain processes for identifying, evaluating, documenting and providing reasonable accommodations as required.
  • Employers should be proactive about engaging in an interactive process with employees who have an impairment.  In doing so, they should identify which among their personnel will be responsible for addressing issues of accommodation, and actually engage in an interactive process when an individual makes a request for assistance in the workplace.  An employer’s best tactic in defending an ADA lawsuit is to demonstrate that it made good faith efforts to accommodate an employee, rather than questioning or challenging the employee’s medical condition.  Thus, the interactive process above must become the norm.
  • Review all job descriptions to ensure they specifically and accurately describe the essential functions of the job.  Notably, under the new definition of a “regarded as” disability, any decision that relies in whole or in part on any perceived or actual physical impairment will be subject to scrutiny under the ADAAA.  It is now more important than ever to insure that any physical or mental job requirements are truly necessary.Employers should insure that all anti-harassment policies explicitly prohibit harassment based on disability, or perceived or actual physical or mental impairments.  Potential liability for disability-related harassment claims has increased because offensive statements that relate in any way to a mental or physical impairment may give rise to liability, regardless of whether the alleged victim actually suffered from an impairment or was otherwise disabled.  For example, an employee who calls a co-worker “psycho” or “retarded” could potentially create an actionable hostile work environment under the ADA even if the co-worker has no mental health history and has an above-average IQ.
  • Properly and contemporaneously document employment decisions involving an employee who is an individual with a disability or has a record of a disability.
  • Analyze pre- and post-employment testing and screening (including language contained in employment applications) to ensure they are job-related and consistent with business necessity.
  • Train supervisors and managers as to the broad coverage of the ADAAA and their responsibilities under the new Act.  At a minimum, the focus of training should include: 1) how they identify requests for workplace modifications; and 2) who they partner with in Human Resources as to the “interactive process” regarding modifications.

© 2011, Franczek Radelet P.C. 


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

The Immigration Implications of Japan’s Disaster

Recently posted by guest blogger Andrew P. Galeziowski of Ogletree, Deakins, Nash, Smoak & Stewart, P.C. – issues related to immigration  from Japan’s recent disasters: 

Just as with the earthquake in Haiti, the recent earthquake and tsunami in Japan causes not only massive physical destruction but can significantly impact and complicate an affected person’s immigration status. Japanese citizens already in the United States may be logistically unable to comply with the terms of a visa status, perhaps because their status is expiring and there is no practical way to return to Japan. Those persons residing in Japan who are seeking visas to come to the United States may find it difficult to process a visa at a U.S. Consulate due to closures, cancellations and delays. Furthermore, as some businesses continue to evacuate personnel from Japan and in some cases seeking to temporarily transfer such personnel to other offices in Asia, special processes may have been established (for example, by immigration authorities in Hong Kong) to facilitate the processing of business visas to allow for such emergency relocations.

There are several general resources affected persons can reference for additional information:

  • For Japanese nationals in the United States, for example visitors travelling under the Visa Waiver Program who are unable to depart the country before their status expiration, see the USCIS website;
     
  • For Japanese residents who may be seeking visa services through a U.S. Consulate in Japan, visit the specific Consulates website. Specific information is posted at Consular websites, for example notices regarding visa appointments in Tokyo can be found at the Tokyo Consulate’s website; and
     
  • For foreign nationals currently in Japan, visit the Immigration Bureau of Japan website for current information.

Persons affected by the Japan crisis are encouraged to contact the immigration professional with whom they normally work for specific guidance.     

Note: This article was published in the March 2011 issue of theImmigration eAuthority. 

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

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