Feb. 25th Deadline Approaching for March Publication for the National Law Review Student Legal Writing Contest

Everybody’s talking about how abysmal the job market is for law students – why not build your resume while still in school? Young lawyers are under increasing pressure to start thinking about business development activities earlier than ever in their careers. One tried and true way of building one’s professional reputation is by publishing. One sure way to get noticed and to help others is to write in a style which is helpful and educational to prospective clients. The National Law Review is one of the nation’s premier resources for secondary legal analysis for businesses and in the Spring & Fall we offer students the opportunity to submit consumer-friendly articles for publication.

The winning articles will be published online starting March. The top article(s) chosen will be featured on the NLR home page and will remain in our searchable database for up to two years.

Please note that although students are encouraged to submit articles addressing Intellectual Property Law for the March publication, you may also submit entries covering current issues related to other areas of the law. Please spread the word !!! Thanks!

Should Jurors Use the Internet?

The National Law Review would like to congratulate Gareth Lacy of the University of Washington School of Law as one of our Fall 2010 Law Student Legal Writing Contest Winners!

During trials jurors are increasingly using cell phones and other devices capable of accessing the Internet. Courts are responding by amending court rules to explicitly ban these devices. This Article points out problems with these new court rules. This Article also reviews scientific literature on the effect of pre-trial publicity on jury decision-making to conclude some concerns about outside Internet research may be unwarranted. This Article exposes weaknesses in the arguments against allowing jurors to conduct outside Internet research.

Introduction

“Jurors are rarely brilliant and rarely stupid, but they are treated as both at once.” – Judge Warren K. Urbom[i]

“When lawyers speak about courtroom technology, they are typically debating the merits of making their presentations in Powerpoint.”[ii]

2010 is the year of mobile Internet. One quarter of all Americans get news via their cell phones.[iii] Amazon’s Kindle e-reader allows readers to carry thousands of novels and access the Internet with a single notepad-sized device. As jurors bring these devices into the courtroom, they are causing quite a commotion. Last year several courts ordered mistrials after discovering jurors had accessed Wikipedia or became Facebook friends with their fellow jurors during trial.[iv] Following a case in Florida that ended in mistrial, counsel told the New York Times that courts have been unprepared for this new technology in the courthouse: “It’s the first time modern technology struck us in that fashion, and it hit us right over the head.”[v]Now that 22 million U.S. cell phone users access the mobile Internet on a daily basis, courts must respond quickly and effect-tively.[vi]

This article will first explain why the recent response to increasing use of outside information—“just say no”—will be inadequate. Second, it will question the underlying assumption that access to outside information is always harmful. Third, it will argue that denying useful tools and information is unwise in the face of increasingly complex trials.

I. Judicial Response: “Just Say No”

Courts and commentators fear that access to the Internet could introduce bias into trial proceedings.[vii] The court rules and jury instructions are apparently designed to ensure jurors only consider evidence admitted at the appropriate time.[viii] But the underlying rationale for these rules is not made clear to jurors. Jurors are therefore likely to feel—rightly so—information is being hidden from them.

Courts have recently responded by drafting new jury instructions and admonitions. New York’s criminal jury instruction, for example, explains that basing opinions on news reports, rather than trial testimony, would be unfair to both parties:

Finally, our law requires that you not read or listen to any news accounts of the case, and that you not attempt to research any fact, issue, or law related to the case. Your decision must be based solely on the testimony and other evidence presented in this courtroom. It would not be fair to the parties for you to base your decision on some reporter’s view or opinion, or upon information you acquire outside the courtroom.[ix]

This is a slightly persuasive effort to explain the reasoning behind the court’s rule. An instruction in Oregon goes a bit further by explaining the rule in the context of everyday experience:

In our daily lives we may be used to looking for information on-line and to “Google” something as a matter of routine. Also, in a trial it can be very tempting for jurors to do their own research to make sure they are making the correct decision. You must resist that temptation for our system of justice to work as it should. I specifically instruct that you must decide the case only on the evidence received here in court.[x]

Again this instruction is better than nothing, but it still fails to explain why the “system of justice” requires restricting access to outside information. Any-thing short of transparent explanations will likely continue to feed jury—and public—mistrust for the legal system.

In February 2010, the U.S. Judicial Conference suggested jury instructions on the use of “electronic communication technologies.[xi] The instructions ban a laundry list of devices and resources—“blogs, websites such as Facebook, MySpace, LinkedIn, YouTube or Twitter, to communicate to anyone any information about this case or to conduct any research”—but fail to explain why jurors should not, for example, look up the definition of “lividity.”[xii] Again, if courts want to convince jurors not to “google” on their cell phones, they must give concrete explanations for the court rules.

Failure to explain the reason for a ban can create mistrust for the judicial system. A recent New York Times article on jurors’ use of the Internet gathered 300 comments in one hour,[xiii] some of which expressed belief in a “systemic effort to keep jurors from learning the truth . . . [in which] jurors, therefore, needed to dig deeper to uncover the truth.”[xiv] What can ease this mistrust? Clear and convincing explanations of judicial policies will help. Furthermore, giving jurors the tools and information in court that they need to make informed decisions in court will make them less likely to look out of court for answers.

II. Does Outside Research Really Bias Jurors?

After commentators raise concerns about jurors turning to extrinsic information, their most common recommendation is for courts to issue stronger admonitions to juries.[xv] Other suggestions include more vigorous voir dire or banning cell phones in the courthouse.[xvi] The problem with these recommen-dations is that courts are already doing most of these things. Juries are already told not to conduct outside research. Voir dire is about as vigorous as it can get.[xvii] Cell phone bans might help for one-day trials, but they will have no effect—and maybe even adverse effects—on multiday litigation. In short, commentators have offered few new suggestions for how to respond to juries using the Internet.

The reason these suggestions have been minimal is because they contain an underlying assumption that external information biases jurors. This assumption therefore restricts the judiciary’s options; if external information is always harmful, cell phone and Internet policies should not be liberalized. One California legislator who adopts this view introduced a bill imposing criminal penalties on jurors who access the Internet.[xviii] This assumption behind the restrictive policies—that external information is always harmful—should be questioned.

Courts and commentators have generally not given balanced appraisals of the scientific research on the effect of outside information on jury decision-making.[xix]For example, a recent article on jury Internet usage states confidently: “[j]urors may feel their searching is harmless and will not bias them, something that research has demonstrated is untrue.”[xx] But has scientific research really demonstrated outside research is always harmful? Indeed some research suggests jurors are influenced by pretrial publicity or negative information.[xxi] But the majority of these studies were laboratory simulations, not field studies of actual jury behavior.[xxii]Moreover, a close examination of the scientific evidence reveals more nuanced data than most courts and commentators have acknowledged.[xxiii]

Researchers have found, for example, that in federal criminal cases “it does not appear that highly publicized defendants are treated much differently in terms of ultimate conviction rates than defendants who receive no publicity at all.”[xxiv]Moreover, it was low levels of publicity that resulted in greater probability of conviction.[xxv] Other research found evidence that pretrial publicity did not influence trials outcomes.[xxvi] These results suggest that courts ought to focus on the content and quantity of the information jurors receive, rather than on outright bans.

Researchers have also found that when juries learn substantial and contrary information from evidence and judicial instructions during trial, they are capable of displacing information received before trial.[xxvii] In other words, prior beliefs are diluted by new, relevant information.[xxviii] When trial evidence is strong, this can reduce the effect of bias and external information: “the effect of irrelevant, inadmissible, or biasing information is reduced in its effect to the degree that relevant, probative evidence is available for the jurors’ considera-tion.”[xxix] Again, this suggests that courts should manage the flow of information rather than make unrealistic efforts to weed out all juror exposure to the Internet.

III. Giving The Internet A Second Chance

“A major question is whether the protective cocoon we want to preserve of the courtroom trial, where jurors calmly and dispassionately receive only relevant and reliable information based on evidentiary rules . . . can viably be maintained in the face of the informational tsunami pressing against it.”[xxx]

For decades, various groups of judges and scholars have called for better tools in the courtroom. They have argued for engaging jurors in the legal process by providing trial notebooks summarizing key information, allowing jurors to take notes, granting access to dictionaries, and allowing jurors to ask questions.[xxxi]These calls for juror engagement have met with vocal approval but have led to few concrete changes.[xxxii]

Jurors are not going to stop looking at outside information. The best way to keep jurors away from Wikipedia would be to sequester them. But sequestration is rarely practical on a large scale because it is prohibitively expensive and tends to promote mistrust for the jury system.[xxxiii] A more realistic response would be for attorneys and courts to conduct advance Internet research to identify what information about their case is available online, analyze that information, and then deal with it during trial. Another realistic response would be to give jurors the tools they need to make informed decisions in court so they do not need to conduct outside research.

Jurors want to know everything they can about a case so they can make informed decisions. But rather than promote the jury’s interest in Truth and Justice, courts tend to discourage curiosity and obscure information. For example, some courts still debate the “fairly recent innovation” of “allowing jurors to take notes during trial.”[xxxiv] Note-taking! And while some evidence shows judicial resistance to note-taking may be waning, individual judges still have the final say.

Juries were not always this sheltered. For four-hundred years after William the Conqueror’s reign, jurors were expected to investigate facts and “declare the truth” on the basis of personal knowledge.[xxxv] Even after sworn testimony became common in the sixteenth century, jurors were still permitted to ask questions. It was only when lawyers began to assert the function of law-making and law-finding that “[t]struggle for control over the jury came to a head.”[xxxvi] Rules of evidence then emerged to limit the information available to juries and to control how the information was received.[xxxvii] Jury power was ultimately curbed by strong demands from bankers, merchants, and industrialists for a more predictable—and sympathetic—legal system.[xxxviii] As for the prohibition against note-taking? That arose at a time when most jurors were illiterate.[xxxix]

Today the legal profession may be justified in exercising caution in some circumstances, but it is absurd to continue many of these traditional practices. Trials can involve hundreds of witnesses and thousands of exhibits. No juror can store all that information in his or her head. Even in shorter trials, jurors would be well-served by note-taking. Psychologists (and law students) have known for some time that the dual process of hearing and writing enhances retention.[xl] And lest there be any concern about the law: Trial judges are well within their authority to allow note-taking during trials.[xli]

In the early 1990s, one-hundred law professors, attorneys, judges, researchers, and representatives of business, insurance, and various interest groups met in North Carolina to consider the workings of the jury system and to recommend improvements. The participants did not agree about everything, but the overwhelming proportion strongly supported making jurors more active during trials:

Jurors need not and should not be merely passive listeners in trials, but instead should be given the tools to become more active participants in the search for just results. To that end, trial procedures and evidentiary rules should take greater advantage of modern methods of communication and recognize modern understanding of how people learn and make decisions.[xlii]

Jurors want answers to their questions. Some judges have begun to allow jurors to submit questions to the court and to allow attorneys to provide answers. This is a good start. But courts are competing with pocket-sized encyclopedias inside every cell phone, so they will need to explain to juries exactly why the court rules exist. And of course lawyers must be permitted to deliver useful information to reduce the desire to turn to outside sources.

Conclusion

“Once a new technology rolls over you, if you’re not a part of the steamroller, you’re part of the road.” – Stewart Brand

It is still quite fashionable to attack the jury system as moribund. Indeed jury participation is at an all-time low. Jurors report feeling unengaged. But it is not correct to blame the jury for the judicial system’s failures. Alexis de Tocqueville found a key purpose of the American jury was to be a “gratuitous public school” that empowers citizens with information about how to take charge of social affairs.[xliii] It is simply time to add some technology to this civics classroom. It is time to give jurors the tools they need to do their job.

[i]Warren K. Urbom, Toward Better Treatment of Jurors by Judges, 61 Neb. L. Rev. 409, 425 (1982).

[ii]Nancy S. Marder, Juries and Technology: Equipping Jurors for the Twenty-First Century, 66 Brook. L. Rev. 1257, 1273. (2001).

[iii] Kristen Purcell, et al., Understanding the Participatory News Consumer, Pew Research Center 5 (Mar. 1, 2010), available at http://www.pewinternet.org/~/media//Files/Reports/ 2010/PIP_Understanding_the_Participatory_News_Consumer.pdf.

[iv]John Schwartz, As Jurors Turn to Web, Mistrials Are Popping Up, N.Y. Times, Mar. 18, 2009, available at http://www.floridasupremecourt.org/decisions/probin/sc10-51_AppendixD.pdf.

[v] Id.

[vi]Enid Burns, Mobile Internet Usage Becomes the Norm for Many in U.S., Search Engine Watch, Mar 17, 2009, http://searchenginewatch.com/3633213.

[vii]Hillary Hylton, Tweeting in the Jury Box: A Danger to Fair Trials?, Time, Dec. 29, 2009, http://www.time.com/time/nation/article/0,8599,1948971,00.html.

[viii]Evan Brown, Some thoughts on jurors doing internet research – keep the process clamped down, Internet Cases, Jan. 2, 2010, http://blog.internetcases.com/2010/01/02/some-thoughts-on-jurors-doing-internet-research-keep-the-process-clamped-down/.

[ix] Jury Admonitions In Preliminary Instructions, May 5, 2009, www.nycourts.gov/cji/1-General/CJI2d.Jury_Admonitions.pdf.

[x]Gregory S. Hurley, Cell Phone Policies/Instructions for Jurors, Jur-E Bulletin, May 1, 2009, http://view.exacttarget.com/?j=fe4f1579726d04747313&m=ff3417737561&ls=fe03 13707667047d74147970&l=feee117976630d&s=fdf015757d6006757d127377&jb=ffcf14& ju=fe2116727c6d0778771377.

[xi]Proposed Model Jury Instructions The Use of Electronic Technology to Conduct Research on or Communicate about a Case (Jan. 28, 2010), http://www.wired.com/images_ blogs/threatlevel/2010/02/juryinstructions.pdf.

[xii]A Maryland appeals court threw out a first degree murder conviction after a juror, confused by the word “lividity” during a murder trial, looked up the term on Wikipedia. Del Quentin Wilber, Social networking among jurors is trying judges’ patience, Wash. Post, Jan. 9, 2010 at C01.

[xiii]John Schwartz, As Jurors Turn to Web, Mistrials Are Popping Up, N.Y. Times, Mar. 18, 2009, available at www.nytimes.com/2009/03/18/us/18juries.html.

[xiv]Douglas L. Keene & Rita R. Handrich, Online and Wired for Justice: Why Jurors Turn to the Internet, The Jury Expert 14 (Nov. 2009) http://www.astcweb.org/public/publication /article.cfm/1/21/6/Why-Jurors-Turn-to-the-Internet.

[xv]See,e.g., Ellen Brickman, et al., How Juror Internet Use Has Changed the American Jury Trial, 1 J. Ct. Innovation 297 (2008).

[xvi] See e.g., Anita Ramasastry, Why Courts Need to Ban Jurors’ Electronic Communications Devices, Findlaw, Aug. 11, 2009, http://writ.news.findlaw.com/ramasastry/20090811.html.

[xvii]Ironically some commentators have recommended doing background checks on jurors by using the very resources, for example Facebook, they seek to ban.

[xviii]Paul Elias, Courts finally catching up to texting jurors, Associated Press, Mar. 6, 2010, http://abcnews.go.com/US/wireStory?id=10028507.

[xix]Ellen Brickman, et al., How Juror Internet Use Has Changed the American Jury Trial, 1 J. Ct. Innovation 287 (2008).

[xx]Id. (emphasis added).

[xxi]See Brickman, et al., supra, note 19, at 290 nn. 2-8 (citing Amy L. Otto et al., The Biasing Impact of Pretrial Publicity on Juror Judgments, 18 Law & Hum. Behav. 453 (1994)); Christina A. Studebaker & Steven D. Penrod, Pretrial Publicity: The Media, the Law, and Common Sense,
3 Pscyhol. Pub. Pol’y & L. 428 (1997); Studebaker, et al., Assessing pretrial publicity effects: Integrating content analytic results, 24 Law & Hum. Behav. 317 (2000); Neil Vidmar, Case Studies of Pre- and Midtrial Prejudice in Criminal and Civil Litigation,26 Law & Hum. Behav. 73 (2002). None of these studies offer full support for Brickman et al.’s assertion that research on pretrial publicity is definitive. Otto et al., found negative information about a defendant’s character can influence initial judgments about the defendant’s guilt, but this bias is weakened by trial evidence. Otto et al., supra, at 453. Studebaker and Penrod assessed pretrial publicity effects reported in previous studies, but did not offer new evidence; they merely “propose[] a multimethod research approach by which meditational mechanisms can be assessed.” Studebaker & Penrod, supra, at 428. Studebaker et al., did not study juries per se, but instead conducted a content analysis of media coverage of the Oklahoma City bombing. Studebaker et al.,supra, at 317. Vidmar points out deficiencies in research on prejudicial publicity and explains how courts have rejected research based on laboratory simulations rather than actual case studies. Vidmar, supra, at 73.

[xxii]See Studebaker, et al., supra note 21, at 317.

[xxiii]SeeJon Bruschke & William E. Loges, Free Press vs. Fair Trials: Examining Publicity’s Roles in Trial Outcomes(2004).

[xxiv] Jon Bruschke & William E. Loges, Relationship Between Pretrial Publicity and Trial Outcomes, 49 J. of Comm. 104, 115 (1999).

[xxv]Id. at 114.

[xxvi]See e.g., J. L. Freedman & T. M. Burke, The Effect of Pretrial Publicity: The Bernardo Case, 38 Can. J. Criminology 253 (1996); John S. Carroll, et al., Free Press and Fair Trial: The Role of Behavioral Research, 10 Law & Hum. Behav. 187 (1986); D. R. Pember, Does Pretrial Publicity Really Hurt? 23(3) Colum. Journalism Rev. 16 (1984); H. E. Rollings & J. Blascovich, The Case of Patricia Hearst: Pretrial Publicity and Opinion, 27 J. of Comm. 58 (1977).

[xxvii]Rita J. Simon, Does the Court’s decision in Nebraska Press Association fit the research evidence on the impact on jurors of news coverage?, 29 Stan. L. Rev. 515 (1977); accord Martin F. Kaplan, Cognitive Processes in the Individual Juror, in The Psychology of the Courtroom 197 (1982); but see Geoffrey P. Kramer et al., Pretrial Publicity, Judicial Remedies, and Jury Bias, 14 Law & Hum. Behav. 409 (1990) (finding judicial admonition had no effect and deliberations exacerbated negative effects of factual or emotional information).

[xxviii]Martin F. Kaplan & Lynn E. Miller, Reducing the Effects of Juror Bias, 36 J. Personality & Soc. Pscyhol. 1443 (1978).

[xxix]Michael J. Saks, What Do Jury Experiments Tell Us About How Juries (Should) Make Decisions?, 6 S. Cal. Interdisc. L.J. 1, 28 (1997).

[xxx]Michael Hoenig, Juror misconduct on the Internet, N.Y. L.J., Oct. 8, 2009.

[xxxi]Interview by Donald C. Dilworth with Judge B. Michael Dann, Arizona Superior Court, Waking up Jurors, Shaking Up Courts, Trial, July 1, 1997, at 20, available athttp://www. thefreelibrary.com/_/print/PrintArticle.aspx?id=19634468; The Honorable B. Michael Dann, “Learning Lessons” and “Speaking Rights”: Creating Educated and Democratic Juries, 68 Ind. L.J. 1229, 1241 (1993); William W. Schwarzer, Reforming Jury Trials, 1990 U. Chi. Legal F. 199, 137 (1990); Warren K. Urbom, Toward Better Treatment of Jurors by Judges, 61 Neb. L. Rev. 409, 425 (1982).

[xxxii]ABA/Brookings Symposium, Charting a Future for the Civil Jury System 16 (1992).

[xxxiii]James P. Levine, The impact of sequestration on juries, 79 Judicature 266 (1995).

[xxxiv]Nancy S. Marder, Juries and Technology: Equipping Jurors for the Twenty-First Century, 66 Brook. L. Rev. 1257, 1276. (2001). Believe it or not, the merits of note-taking is still subject to some scholarly debate. See e.g., Victor E. Flango,Would Jurors Do a Better Job if They Could Take Notes?, 63 Judicature 436 (1979-1980); Steven D. Penrod & Larry Heuer, Tweaking Commonsense: Assessing Aids to Jury Decision Making, 3 Psychol., Pub. Pol’y & L. 259, 271 (1997); Irwin A. Horowitz & Lynee ForsterLee, The Effects of Note-Taking and Trial Transcript Access on Mock Jury Decisions in Complex Civil Trial, 25 Law & Hum. Behav. 373 (Aug. 2001).

[xxxv]Blackstone’s Commentaries on the Law 673-77 (Bernard C. Gavit ed., 1941).

[xxxvi]Morris S. Arnold, Law and Fact in the Medieval Jury Trial: Out of Sight, Out of Mind, 18 Am. J. Legal Hist. 267, 279 (1974).

[xxxvii]Lawrence M. Friedman, A History of American Law 101 (3rd ed. 2005).

[xxxviii]Morton J. Horwitz, The Transformation of American Law 1780-1860 140-41 (1977).

[xxxix]Nancy S. Marder, Juries and Technology: Equipping Jurors for the Twenty-First Century, 66 Brook. L. Rev. 1257 (2001).

[xl]Elizabeth F. Loftus, Memory 19-20 (1980).

[xli]See e.g., Johnson v. State 887 S.W. 2d 957 (Tex Crim. 1994); Sonja Larsen,Taking and use of trial notes by jury, 36 A.L.R. 5th 255 (1996).

[xlii]ABA/Brookings Symposium, supra note32, at16.

[xliii]Alexis De Tocqueville, 1 Democracy in America 266 (Henry Reeve trans., George Adlard 2d ed. 1838) (1830).

Time to Retire the ESOP from the 401k: Assessing the Liabilities of KSOP Structures in Light of ERISA Fiduciary Duties and Modern Alternatives

The National Law Review would like to congratulate Adam Dominic Kielich of Texas Wesleyan University School of Law as one of our 2010 Fall Student Legal Writing Contest Winners !!!

I. Introduction

401k plans represent the most common employer-sponsored retirement plans for employees of private employers. They have replaced defined benefit pension plans, as well as less flexible vehicles (such as ESOPs) as the primary retirement plan.¹ However; some of these plan models have continued their legacy through 401ks through structures that tie the two together or place one inside the other. A very common and notable example is the Employee Stock Ownership Plan (ESOP). ESOPs are frequently offered by companies as an investment vehicle within 401ks that allow participants to invest in the employer’s stock as an alternative to the standard fund offerings that are pooled investments (e.g. mutual funds or institutional funds). Participants may be unaware that the company stock option in their 401k is a plan within a plan. These combination plans are sometimes referred to as KSOPs.²

Although this investment vehicle seems innocuous, KSOPs generate considerable risk to both participants and sponsors that warrants serious consideration in favor of abandoning the ESOP option. Participants face additional exposure in their retirement savings when they invest in a single company, rather than diversified investment vehicles that spread risk across many underlying investments. They may lack the necessary resources to determine the quality of this investment and invest beyond an appropriate risk level. Moreover, sponsors face substantial financial (and legal) risk by converting their plan participants into stockholders within the strict protections of ERISA.³ The risk is magnified by participant litigation driven by the two market downturns of the last decade. Given the growing risk, sponsors may best find themselves avoiding the risks of KSOPs by adopting a brokerage window feature (sometimes labeled self-directed brokerage accounts) following the decision in Hecker.⁴

II. Overview and History of ESOPs

A. ESOP Overview

ESOPs are employer-sponsored retirement plans that allow the employee to invest in company stock, often unitized, on a tax-deferred basis. They are qualified defined contribution plans under ERISA. As a standalone plan, ESOPs take tax deferred payroll contributions from employees to purchase shares in the ESOP, which in turn owns shares of the employer’s stock. That indirect ownership through the ESOP coverts participants into shareholders, which gives them shareholder rights and creates liabilities to the participants both as shareholders and as participants in an ERISA-protected plan. They may receive dividends, may have the option to reinvest dividends into the plan, and may be able to receive distributions of vested assets in cash or in-kind, dependent upon plan rules.⁵

ESOPs offer employers financial benefits: they create a way to add to employee benefit packages in a manner that is tax-advantaged while providing a vehicle to keep company stock in friendly hands – employees – and away from the hands of parties that may seek to take over the company or influence it through voting. Additionally, ESOPs create a consistent flow of stock periodically drawn out of the market, reducing supply and cushioning prices. Moreover, with those shares in the hands of employees, who tend to support their employer, there are fewer shares likely to vote against the company’s decision-makers or engage in shareholder activism.⁶

B. Brief Relevant History of ESOPs

ESOPs are generally less flexible and less advantageous to employees than 401ks. ESOPs lack loan options, offer a single investment option, typically lack a hardship or in-service distribution scheme and most importantly, lack diversification opportunities. Individual plans may adopt more restrictive rules to maintain funds within the plan as long as possible, as long as it is ERISA-compliant. Perhaps the most important consequence of that lack of diversity is that it necessarily ties retirement savings to the value of the company. If the company becomes insolvent or the share price declines without recovery, employees lose their retirement savings in the plan, and likely at least some of the pension benefits funded by the employer. The uneven distribution of benefits to employees helped pave the way for ERISA in 1974.⁷

C. Current State of Law on ESOPs

1. ESOPs Within 401k Plans

After the ERISA regulatory regime paved the way for 401k plans, employers began folding their ESOPs and other company stock offerings into the 401ks. For decades employers could mandate at least some plan assets had to be held in company stock. When corporate scandals and the dot com bubble burst in 2001, it evaporated significant retirement savings of participants heavily invested in their employer’s stock, often without their choice. Congress responded by including in the Pension Protection Act of 2006 (PPA) by eliminating or severely restricting several permissible plan rules that require 401k assets in any company stock investment within 401k plans.⁸

2. ERISA Litigation of the 2000s

Participants who saw their 401k assets in company stock vehicles disappear with the stock price had difficulty recovering under ERISA until recent litigation changed how ERISA is construed for 401k plans. ERISA was largely written with defined benefit plans in mind. Defined benefit plans hold assets collectively in trust for the entire plan. Participants may have hypothetical individual accounts in some plan models, but they do not have actual individual accounts. ERISA required that suits brought by participants against the plan (or the sponsor, trust, or other agent of the plan) for negligence or malfeasance would represent claims for losses to the plan collectively for all participants, so any monetary damages would be awarded to the plan to benefit the participants collectively, similar to the shareholder derivative suit model. Damages were not paid to participants or used to increase the benefits payable under the plan.

Defined contribution plans with individual participant accounts, such as 401k plans and ESOPs, were grafted onto those rules. Therefore, any suit arising from an issue with the company stock in one of these plans meant participants could not be credited in their individual accounts relative to injuries sustained. It rendered participant suits meaningless in most cases because the likelihood of recovery was suspect at best.⁹

The Supreme Court affirmed this view in 1985 in Russell, and courts have consistently held that individual participants could not individually benefit from participant suits. Participants owning company stock through the plan could take part separately in suits as shareholders against the company, but these are distinguished from suits under ERISA. In 2008, the Supreme Court revisedRussell in LaRue and held that Russell only applied to defined benefit plans. Defined contribution plan participants could now bring claims individually or as a class and receive individual awards as participants. This shift represented new risks to sponsors that immediately arose with the market crash in 2007.¹⁰

III. Risks to Employees

The primary risk to employees is financial; a significant component of employee financial risk is the investment risk. 401k sponsors are required to select investments that are prudent for participant retirement accounts. This is why 401k plans typically include pooled investments; diversified investment options spread risk. ESOPs are accepted investments within 401k plans, although they are not diversified.¹¹ This increases the risk, and profit potential, participants can expose themselves to within their accounts. While added risk can be exponentially profitable to participants when the employer has rising stock prices or a bull market is present, the downside can also be significantly disastrous when the company fails to meet analyst expectations or the bears take over the markets.

Moreover, employees may be more inclined to invest in the employer’s stock than an independent investor would. Employees tend to be bullish about their employer for two reasons.¹² First, employees are inundated with positive comments from management while typically negative information is not disclosed or is given a positive spin. This commentary arises in an area not covered by ERISA, SEC, or FINRA regulations. This commentary is not treated as statements to shareholders; they arise strictly from the employment relationship. This removes much of the accountability and standards that otherwise are related to comments from the company to participants and shareholders. Management can, and should, seek to motivate its employees to perform as well as possible. While the merit of misleading employees about the quality of operations may be debatable, the ability to be positive to such an end is not.

Second, employees tend to believe in the quality of their employer, even if they espouse otherwise. They tend to believe the company is run by experienced professionals who are leading the company to long term success. Going to work each day, seeing the company operating and producing for its customers encourages belief that the company must be doing well. It can even develop into a belief that the employee has the inside edge on knowing how great the company is, although this belief is likely formed with little or no knowledge of the financial health of the company. The product of the internal and external pressures is a strong likelihood employees will invest in an ESOP over other investment options for ephemeral, rather than financial, reasons.¹³

Additionally, participants may have greater exposure to the volatility of company stock over other shareholders due to 401k plan restrictions. While some plans are liberally constructed to give participants more freedom and choice, some plans conversely allow participants few options. This is particularly relevant to the investment activity within participant accounts. Participants may be limited to a certain number of investment transfers per period (e.g. quarterly or annually), may be subject to excessive trade restrictions, or may even find themselves exposed to company stock through repayment of a loan that originated in whole or in part from assets in the ESOP. Additionally, the ESOP may have periodic windows that restrict when purchases or redemptions can occur. While a regular shareholder can trade in and out of a stock in seconds in an after-tax brokerage account, ESOP shareholders may find themselves hung out to dry by either the ESOP or 401k plan rules. These restrictions are not penal; they represent administrative decisions on behalf of the sponsor to avoid the added expense generally associated with more liberal rules.

Although employees take notable risk to their retirement savings portfolio by investing in ESOPs within their 401k plans, it can add up to a tremendous financial risk when viewed in the bigger picture of an employee’s overall financial picture. Employees absorb the biggest source of financial risk by nature of employment through the company because it is the major, if not sole, income stream during an employee’s working years. This risk increases if the employer is also the primary source of retirement assets or provides health insurance. The employee’s present and future financial well being is inherently tied directly to the employer’s financial well being. This risk is compounded if the employee also has stock grants, stock options, or other stock plans that keep assets solely tied to the value of the company stock. If the employee is fortunate enough to have a defined benefit plan (not withstanding PBGC coverage) or retirement health benefits through the company, then that will further tie the long term success of the company to the financial well being of the employee. Adding diversification in the retirement portfolio may be a worthwhile venture when those other factors are considered in a holistic fashion.

IV. Risks to the Sponsor

ERISA litigation is a serious risk and concern to sponsors. Although there is exposure in other areas related to participants as stockholders, ERISA establishes higher standards towards participants than companies otherwise have towards shareholders. Sponsors once were able to protect themselves under ERISA but since LaRue participants have an open door to reach the sponsor to recover losses related to the administration of the plan.¹⁴ ERISA requires sponsors to make available investment options that are prudent for 401k plans. The dormant side of that rule requires sponsors to remove investment options that have fallen below the prudent standard. Company stock is not excluded from this requirement.¹⁵

Any time the market value of the stock declines, the sponsor is at risk for participant losses for failure to remove the ESOP (or other company stock investment option) as an imprudent investment within the plan. Participants are enticed to indemnify losses through the sponsor. Such a suit is unlikely to succeed when the loss is short term and negligible, or the value declined in a market-wide downturn. However, as prior market downturns indicate, investors look to all possible avenues to indemnify their losses by bringing suits against brokers, advisors, fund companies, and issuers of their devalued assets. There is no reason to believe that participants would not be enticed to try this route; LaRuewas born out of the downturn in the early 2000s.¹⁶

The exposure for sponsors runs from additional costs to mount a defense to massive monetary awards to indemnify participants for losses. In cases where participants are unlikely to recover, sponsors still must finance the defense against what often turns into expensive, class action litigation or a long serious of suits. However, there is a serious risk of sponsors having to pay damages, or settle, cases where events have led to a unique loss in share value. Participants have filed suit under the theory that the sponsor failed to remove imprudent investment options in a timely fashion. BP 401k participants filed suit following the gulf oil leak under a similar theory that the sponsor failed to remove the company stock investment option from the plan, knowing that it would have to pay clean up costs and settlements. While it remains to be seen if these participants will be successful, they surely will not the last to try.¹⁷

Sponsors should take a good, long look at the ESOP to determine whether the sponsor receives more reward than risk – particularly future risk – from its inclusion. The risk to a company does not have as severe as the situation BP faced this year. Even bankruptcy or mismanagement that results in serious stock decline can merit suit when the sponsor fails to immediately withdraw the ESOP, since it has prior knowledge of the bankruptcy or mismanagement prior to any public release.

To hedge these risks, sponsors can adopt several options. First, sponsors may limit the percentage of any account that may be held in company stock. This is easily justified as the sponsor taking a position in favor of diversification and responsible execution of fiduciary duties. While this may not completely absolve the sponsor of the duty to remove imprudent investment options, it does act as a limit on liability. Although it does provide some protection against risk, it is an imperfect solution.

Second, ESOP plans can adopt pricing structures to discourage holding large positions of company stock for the purpose of day trading. Some 401k plans allow participants to trade between company stock and cash equivalents without restraint. When the ESOP determines share pricing based on the closing price of the underlying stock, it creates a window where participants can play the company stock very differently than the constraints of most 401k investment options.

It is a very alluring reason to take advantage of the plan structure by taking an oversized position in company stock. Add the possibility to indemnify losses in court and it becomes even more desirable. The process is simple: participants can check the trading price minutes before the market closes. If the stock price is higher than the basis, they sell and net profit. If it is below, they hold the stock and try against each day until the sale is profitable. They will then buy back into the ESOP on a dip and repeat the process. This is distinguishable from the standard diversified fund options in 401k plans, where ignorance of the underlying investments preempts the ability to game closing prices. Funds generally discourage day trading – and may even carry redemption fees to penalize it – and encourage long term investing strategies more consistent with the objective of retirement accounts.

Available solutions are directly tied to the cause of the problem; changing the ESOP pricing scheme can eliminate gaming closing prices. ESOPs can adopt other pricing schemes such as average weighted pricing and next day order fulfillment. Average weighted pricing gives participants the average weighted prices of all transactions in the stock, executed that day, by a given entity. For example, if the ESOP is held with Broker X as the trustee, it may rely upon Broker X to provide the prices and volumes of all of its executed orders that day in the stock, which is used to determine the average weighted price participants will receive that day. Alternately, participants could be required to place orders on one day and have the order fulfilled on the following day’s closing with that day’s closing price. Both of these pricing schemes introduce some mystery into the price that diminishes gaming the closing price. This is also an imperfect solution, even if combined with the first option, because it maintains the risks of the ESOP.

Sponsors may also take advantage of brokerage windows to expand employee investment options, including company stock, without the risks afforded to ESOPs. Brokerage windows create brokerage accounts within 401k plans. The brokerage window is not an investment in itself; it is a shell that allows employees to reach through the window to access other investments. Sponsors found good reason to be suspicious of brokerage windows, seeing it as liability for all the available investments that could be deemed imprudent for retirement accounts. A minute minority of participants saw it as a way to have their cake and eat it too during the last rise and fall of the markets; they could invest more aggressively within their 401ks and then demand sponsors indemnify their losses when the markets gave up years of gains on the basis of sponsor failure to review the available contents of the window under the prudence standard.

However, in Deere the court handed down a critcal decision: sponsors could not be responsible for the choices made by participants within brokerage windows. InDeere, several Deere & Co. (John Deere) employees sued the company for making available investments that were imprudent for 401k accounts that caused substantial losses in the 2007 market downturn. John Deere had not reviewed the thousands of available options under the ERISA prudence standard. Although the plaintiffs’ theory was a compelling interpretation of ERISA duties, the court rejected the theory on two grounds. First, it would be impossible for any sponsor to review every investment available through the window. Second, participants had taken ownership of the responsibility to review their investment decisions by choosing to invest through the window.¹⁸

Following the court’s decision in Deere, brokerage windows gained new life as a means for sponsors to expand investment availability at less risk. Rather than having to review a menu of funds and company stock for prudence under ERISA, sponsors can justifiably limit the fund selection directly offered through the plan and leave the rest of the options to the brokerage window. Importantly, this includes offering company stock in the window. By utilizing the brokerage window, sponsors allow access to the company stock without the liabilities of offering an ESOP through the plan. The sponsor will likely lose out on any benefits received from the ESOP, although for most established employers ESOPs are likely more of a convenience factor and a legacy offering rooted in the history of employer-sponsored plans.

Although Deere foreclosed participant abuse of brokerage windows, this option is not without its own negative aspects. Future litigation may reestablish some liability upon the sponsor for the brokerage link. Sponsors may face alternate liability under ERISA for selecting a brokerage window with excessive commissions or fees, similar to requirements for funds under ERISA.¹⁹ Given the flurry of awareness brought to 401k management fees and revenue sharing agreements between sponsors and fund providers following the market crash in 2007, it is likely that brokerage windows will be the hot ticket for participants in the next market crash. Therefore, sponsors should preemptively guard against future litigation by reviewing available brokerage window options to make sure any fees or commissions are reasonable and the categories of investment options are reasonable (even if specific investments in those categories are not).

Perhaps a lesser concern, sponsors need to consider overall plan operation and any negative impacts that may arise from shifting to a brokerage window-based investment offering. These concerns may be less of a legal risk issue than a risk of participant discontent and dealing with those effects. There are primarily two areas that brokerage windows can create discontent. First, when participants want to move from a fund to the brokerage window, they must wait for the sale to settle from the fund and transfer to the window, which generally makes the money available in the window the day after the fund processes the order. Conversely, selling investments in the window may delay transferring money into plan funds because of settlement periods and the added delay of settlement with the fund once the funds are available to move out of the window. Additionally, the settlement periods within the window may frustrate participants, although the plan has no control over those timeframes. Those natural delays in processing the movement of money may create discontent, especially for those participants trying to invest based upon short term market conditions.

Second, those same processes and delays can negatively affect plan distributions. Many plans offer loans and withdrawal schemes, and while sponsors may have their own reasons for making those options available, participants often use those offerings to finance emergency financial needs. Brokerage windows can complicate and delay releasing money to participants. Settlement periods will create delays; if money has to be transferred out of the window to another investment to make those funds available for a distribution that will add at least one more day before money can be released. If participants find themselves in illiquid investments, the money may not be able to move for a distribution at all. Although these issues may not be of legal significance but they will be significant to the people responsible for absorbing participant complaints and there may be additional expenses created in handling those issues.

An additional concern is that the Department of Labor (DOL) is still fleshing out several requirements surrounding brokerage windows and how they relate to ERISA requirements. For example, the DOL October 2010 modification of 401k disclosure rules affects plans as a whole, but it leaves open several areas of ambiguity around the specific effects on brokerage windows. Sponsors may face continuing financial costs complying and determining how to comply with DOL requirements. Future changes in the regulations may negatively affect plans that rely heavily on brokerage windows to provide access to a greater range of investment options.²⁰

These considerations are not exhaustive to the benefits or risks of either ESOPs or brokerage windows, they merely highlight some of the more salient points as they relate generally to the legal and significant financial benefits and risks to sponsors. There may be additional concerns equally salient to sponsors given their particular situation, such as participant suspicion of the removal of the ESOP or unwillingness at the executive level to retire the ESOP.

V. Conclusion

Although brokerage windows may open the door to some new liabilities, it closes the door to the risks of ESOPs, for both participants and sponsors. Sponsor diligence in administering retirement plans will always be the most successful method of checking liability; however, as discussed ESOPs risk putting sponsors in an unwinnable position. Removing the company stock option may not be the most beneficial option in all cases but it may be time for sponsors to consider retiring the ESOP from the 401k in light of the current regulatory regime. A brokerage window option is well suited to take advantage of participant ownership of the employer’s stock, as well as other investment opportunities, while limiting the risk that normally accompanies that ownership. Ultimately, sponsors must consider what is best for the plan and its participants over both the short term and the long term.

Endnotes.

1. Chris Farrell, The 401(k) Turns Thirty Years Old, Bloomberg Businessweek Special Report, Mar. 15, 2010,http://www.businessweek.com/investor/content/mar2010/pi20100312_874138.htm.

2. National Center for Employee Ownership401(k) Plans as Employee Ownership Vehicles, Alone and in Combination with ESOPs, (no date provided),http://www.nceo.org/main/article.php/id/15/.

3. Id.; 29 U.S.C. § 1104 (2010); the term “sponsor” can be used interchangeably with “employer” for purposes of this discussion, however there are some situations where the employer is not the sponsor, such as union plans, or the employer is not the sole sponsor in the case of multi-employer plans. This discussion relates to KSOPs where the sponsor is the employer. Different rules and different liability may apply to other plan structures.

4. Hecker v. Deere & Co., 556 F.3d 575, 590 (7^th Cir. 2009), cert. denied, 130 S. Ct. 1141 (2010).

5. Todd S. Snyder, Employee Stock Ownership Plans (ESOPs): Legislative History, Congressional Research Service, May 20, 2003.

6. William N. Pugh et al. The Effect of ESOP Adoptions on Corporate Performance: Are There Really Performance Changes?, 21Managerial & Decision Econ., 167, 167-180 (2000).

7. Supra note 5.

8. Pension Protection Act of 2006 § 901, 29 U.S.C. 401 (2010).

9. LaRue v. DeWitt, Boberg & Assocs., Inc., 552 U.S. 248, 254-55 (2008).

10. Id. at 255-56.

11. Shlomo Benartzi et al., The Law and Economic of Company Stock in 401(k) Plans, 50 J.L. & Econ. 45, 45-79 (2007).

12. Id.

13. Id.

14. LaRue, 552 U.S. at 254-55.

15. § 1104.

16. LaRue, 552 U.S. at 250-51.

17. E.g., In Re: BP P.L.C. Securities Litigation, MDL No. 2185, 2010 WL 3238321 (J.P.M.L. Aug. 10, 2010).

18. Hecker, 556 F.3dat 590.

19. §1104.

20. 29 C.F.R. § 2550 (2010).

Alternatives to International Criminal Justice – Restorative Justice and Peace Through Peaceful Means

The National Law Review would like to congratulate Heejung Park of Washington University in St. Louis as one of our Fall 2010 Law Student Legal Writing Contest Winners!

“Out of timber so crooked as that from which man is made nothing entirely straight can be carved.” -Immanuel Kant-

Individuals live their own lives, and have their own goals. An entity may be an individual, a group, or a nation. The purposes of two parties may be in harmony with each other and without conflict, or may not. Such purposes may be good, or evil. Essentially, problems occur when the purposes of two or more parties do not coincide. The basic position of the traditional criminal justice system is to address problems simply by punishing the perpetrators. However, over the last several decades, there have been new studies in the area of peace and human rights, and in this environment, new institutions may be welcome. This is inspiring changes from the perspective of human integrity and the right to peace, which pursues harmonious coexistence.

If the criminal justice system, which aims to punish perpetrators, takes an interest in the perpetrators as well as the victims by enabling the perpetrators to truly repent for their offenses and voluntarily make restitution to their victims, while allowing the victims to accept the restitution based on a principle of forgiveness and tolerance, a foundation for peace and respect of others in the community will be formed. As such, it is very significant to prepare for a system wherein the pepetrator and the victim can remediatetheir hurt,and recover. If we are working from a principle that values life above all, and values human rights to the extent that they carry more weight than the earth itself, such an approach must be inspiring. It is not that easy to buildasociety that is better and more peaceful, in which everyone can live together harmoniously. When criminals are punished, this does not mean that everything has been resolved. Often,the root causesof a crime can be foundin the community, or even in the victim himself or herself. On this basis, victims and communities also have a responsibility to take an interest in the perpetrators of crimes. The intent must be to identify the fundamental causes of crimes, and by addressing these causes, to create a better society and a better country, byseeking an alternative to the international criminal justice system based on peaceful means.

To achieve this, one or more of the following three approaches may be effective. The first is to constitute a truth commission to pursue truth and reconciliation. This approach has been successful in South Africa, as well as in some Latin American and Asian countries. Truth will be identified, and reconciliation will be made based on investigations into violations of human rights and provisions concerning ethical and legal responsibilities and duties. The Report of the Truth and Reconciliation Commission that was prepared by the government of South Africa in 2003 also addressed this issue. Through the Truth and Reconciliation Commission, violations of human rights relating to apartheid have been addressed.[i] The second is to hold public inquiries. This is closely related to post-conflict management. “Bloody Sunday[ii]” in the UK is a representative sample. In this event, 13 people were shot to death and several were injured on January 30, 1972, a Sunday. A high-profile public inquiry, it was led by English Supreme Court Justice Mark Saville together with a judge from New Zealand and a judge from Canada, and was established on April 3, 1998. The last is “Community-based Restorative Justice”, which is the most important and is addressed intensively herein. This is a mechanism that focuses on the post-conflict environment, and is deeply related to the peaceful coexistence of a community. In this area, new justice systems have emerged, called “gacaca” and restorative justice.[iii] Gacaca is a new court system that was launched by the Rwandese government on June 18, 2002. This new court system follows the customary system for community hearings, which have been used whenever a conflict occurs in the community. Begun at a Canadian church in the 1970s, restorative justice is a crime-fighting approach for victim-sensitive victim-offender mediation.

Criminal prosecution is not always the right solution. It is a good method only when it can benefit society and nation. If we acknowledge that unexpected pitfalls exist for everyone, then people should be given one more chance, even if they have committed a crime. The proposition of the “restoration of offenders” is not suitable for all conflicts. Nonetheless, it is a new approach to consensus, and aims at facilitating mutual understanding. The Bible features an approach similar to this restorative justice.[iv] It also refers to accountability for healing that goes through discipline to move toward a peaceful environment, which is different from the existing criminal justice system.[v] The Bible considers every individual a sinner. It says that an individual can receive forgiveness when he/she sincerely repents, surrenders to God, and produces the fruit of repentance.[vi] It further says that reconciliation will take place when one makes restitution and reparation for the harm, and this action bears fruit.[vii] When this is done, the offender is able to commit himself/herself to the community and the nation by producing the fruit of the Spirit[viii], through his/her indebtedness and freedom from being forgiven. Curing offenders, allowing them to repent for their wrongdoings and to voluntarily make restitution and reparation, a win-win situation for perpetrator and victim, is possible in the love of God through the remediation of hurt, restoration, forgiveness, and tolerance. Through this, the community can seek peace through social justice and tolerance. Both perpetrators and victims have fundamental rights as human beings. In this area, the roles of national reconciliation/mediation agencies, protection agencies, and NGOs are important.

These approaches may equally be applied to international criminal justice. As demonstrated above, post-conflict management should be approached peacefully. Disputes occur when the purposes of parties do not coincide with each other. This discord emerges in the form of conflict. A conflict is a polarization of opinions or powers. Ultimately, such polarization may reach the level of violence, which leaves residual trauma. This process repeats itself, continuously. The ring of this vicious circle should be peacefully severed. Such an approach to peaceful means advocates solving problems through mediation (this is directed toward the future, and it is better than “victory”) at the stage of conflict; through the positive involvement of peace-building at the stage of polarization; and through nonviolence rather than violence, and reconciliation and conciliation (which is against the past, and requires healing) instead of trauma.

[i]Mark Freeman, Truth Commissions and Procedural Fairness, Part 1:‘Introduction’ 3 (Cambridge University Press, 2007).

[ii]Angela Hegarty, “Truth, Law and Official Denial: The Case of Bloody Sunday”15Criminal Law Forum 199 (2004).

[iii]Phil Clark, “Hybridity, Holism and ‘Traditional’ Justice: The Case of the Gacaca Community Courts in Post- Genocide Rwanda”, 39 Geroge Washinton International Law Review 4 20 (2007).

[iv]Tony F. Marshall, Restorative Justice An Overview 6 (Research Development and Statistics, 1998).

[v]Edward Bouverie Pusey, The Confessions Of Saint Augustine 5-6 (Kessinger Publishing, 2004).

[vi]Matthew, New International Version Bible,The New Testament: Matthew 2 (Word Of Life Press, 2009).

[vii]Jeremiah, New International Version Bible, The Old Testament: Jeremiah 706 (Word Of Life Press, 2009).

[viii]Paul, New International Version Bible, The New Testament: Galatians 185 (Word Of Life Press, 2009).

How the Supreme Court Skirted ADEA Issues During Reductions in Force and What Must be Done to Fix It

Congratulations to the Fall 2010 National Law Review Student Legal Writing Contest Winners Charles “Chip” William Hinnant III and John Erwin Barton of the Charlotte School of Law.

Jack Gross was born in 1948, and grew up in Mt. Ayr, Iowa.[i] His father was an Iowa Highway Patrolman and his mother was a 3^rd grade teacher.[ii] Throughout his childhood and into his adult life, health issues defined Mr. Gross.[iii] He developed chronic ulcerated colitis, and as a result underwent multiple operations involving the removal of his colon, and a part of his large intestine.[iv]When he graduated from Drake University with a B.S. in Personnel Management, he weighed 87 pounds.[v]

Upon graduating Mr. Gross went to work for Farm Bureau as a claims adjuster, eventually becoming the highest volume adjuster in the company.[vi]He stood out for his outstanding contributions, earned many professional designations, and began teaching classes to other employees.[vii]Mr. Gross’ exceptional work performance and contributions to his company were reflected in his annual reviews, which were in the top 3-5% of his company for 13 consecutive years.[viii]Yet, notwithstanding Mr. Gross’ improbable story, in 2003, all claims department employees over the age of 50 with a title of supervisor and above were demoted on the same day.[ix]Mr. Gross was replaced by a person he had hired who was in her early forties, did not have the required skills for the position as stated on the company job description, nor his breadth of experience.[x]Mr. Gross would later file an age discrimination lawsuit pursuant to the Age Discrimination in Employment Act (ADEA)[xi]in federal court, and the rest as they say, is history.

On June 18, 2009, the Supreme Court of the United States decided Gross v. FBL Financial Services, Inc.,[xii] which simultaneously held that mixed-motive theories are never proper in ADEA cases and that a plaintiff bringing a disparate-treatment claim pursuant to the ADEA must prove that age was the “but-for” cause of the challenged adverse employment action.[xiii] In effect, the Gross holding abrogated the mixed-motive theory presumably applicable to ADEA cases established inPrice Waterhouse v. Hopkins,[xiv]and led to a celebrated victory for employers to the detriment of older, ADEA protected employees just like Jack Gross, the prototypical individual that the ADEA was created to protect.

While Gross has considerably heightened the burden placed upon ADEA plaintiffs, particularly given the near universal absence of direct evidence of age discrimination in ADEA cases,[xv] its holding imposes a logically impossible burden upon ADEA plaintiffs in Reduction in Force (RIF) cases that the Supreme Court seems to have not contemplated given that Gross did not involve a RIF.[xvi] In short, during a RIF, an ADEA plaintiff always loses. In order to correct this logical inconsistency, either the Supreme Court must grant certiorari to an ADEA RIF case to affirmatively correct its mistake, or Congress must pass legislation limiting the holding of Gross to non-RIF scenarios, if not all ADEA cases.

**How Gross Prevents an ADEA RIF Plaintiff from Ever Prevailing at Trial**

Gross prevents an ADEA RIF plaintiff from ever prevailing at trial because an employer will always be able to claim that a legitimate, non-discriminatory reason for the adverse action taken against the employee exists. Inherent in any RIF are financial troubles that force an employer to terminate some of its employees in an effort to remain in business; as a result, the courts have recognized that a RIF is a legitimate business justification for an adverse employment action.[xvii]

Consequently, prior to Gross, when an employer utilized a RIF as a legitimate business justification for an adverse employment action, the plaintiff was required to make an “additional showing” that age was a motivating factor in their termination in order to prevail using a mixed-motive theory of discrimination.[xviii]

However, because Gross simultaneously eliminated the mixed-motive theory as a viable option for ADEA plaintiffs and heightened the requisite showing necessary for a plaintiff to prevail from age as a “motivating-factor” of the adverse employment action to age as the “but-for” cause of the adverse employment action, such an “additional showing” can neverbe made under the law as it is currently interpreted.

Because an employer will always be able to claim that a RIF constitutes a legitimate business reason for termination, under Gross, a plaintiff cannot ever offer evidence that “illegal … motives … were the ‘true’ motives”[xix]for the adverse employment action taken against them.

As a result, an ADEA RIF plaintiff can never prove that “but-for” their age, the employer would not have initiated the adverse action against them given the ever-present excuse of a RIF. Thus, while Gross is detrimental to all ADEA plaintiffs, it is particularly prejudicial to ADEA plaintiffs whose adverse action is a result of a RIF, as it creates a logical impossibility for these plaintiffs to everhave a chance of prevailing against their employer.

**What the Supreme Court Can Do to Fix the Gross Problem**

The Supreme Court can and needs to fix the Gross problem and the confusion it has created for lower courts by granting certiorari to an ADEA RIF case and explicitly stating that mixed-motive theories are and must be applicable to ADEA RIF cases, and that evidence of age discrimination can be considered a “motivating factor,” rather than the “but for” cause, of illegal age discrimination within the burden shifting framework articulated within McDonnell Douglas Corp. v. Green.[xx]

As of this moment, the lower district and circuit courts are confused as to the application of Gross and its relationship with the McDonnell Douglas prima facie case and burden-shifting framework. Furthermore, this confusion is certain to increase as more RIF and non-RIF ADEA cases are filed in the near future as a result of the current economic recession, and as the unworkable nature of theGross holding in ADEA RIF cases is further exposed. Notably, post-Gross ADEA cases are relatively few and far between at the time this article is being written; however, early signs support the contention that the lower courts are not in conformity with how to interpret Gross.

The Tenth Circuit explicitly states that Gross has created some uncertainty regarding burden shifting in the ADEA context.[xxi] The Jones decision discusses in detail the application of Gross to McDonnell Douglas and clearly states that the court will not overturn their prior decisions applying the burden-shifting framework to ADEA claims.[xxii]

Furthermore, the Sixth Circuit attempts to reconcile Gross’ “but for” language with the burden shifting test in McDonnell Douglas. By applying similar language from the application of Title VII in McDonnell Douglas, that “where there is a reduction in force, a plaintiff must … show that age was a factor [emphasis added] in eliminating his position”[xxiii]the court attempts to pigeonhole the two decisions together. The use of the language “a factor” instead of “the factor” in the Johnsondecision enunciates the line that the court has drawn between “but for” causation of age discrimination and age being a “motivating factor” in determining whether illegal age discrimination is afoot.

The Ninth Circuit on the other hand, has essentially followed Gross to the letter.[xxiv] In the McFadden decision, the Ninth Circuit holds alongside the Supreme Court and agrees that the McDonnell Douglas burden-shifting framework does not apply to ADEA claims, and that a plaintiff must carry the burden of persuasion throughout the case. Therefore, no burden shifting occurs, and causation must be “but-for.”

These cases, et al., are the first evidence of post-Gross confusion, and illustrate the growing problem facing the lower courts as well as plaintiffs soon to bring mixed-motive age discrimination cases involving RIFs. Some circuits and district courts continue to apply theMcDonnell Douglas burden-shifting framework and will consider whether age was a “motivating factor” of an adverse employment action, while others require a heightened burden of proof that age was the “but for” cause of an adverse employment action. Such varying interpretations of Gross will inevitably lead to circuit splits, the absence of uniformity in the application of federal law, and a future Supreme Court decision to clean up the mess.

Thus, the Supreme Court should grant certiorari to an ADEA RIF case and seek to dispel the impossible burden it has placed upon RIF plaintiffs.

**What Congress Can Do to Fix the Gross Problem**

Congress can fix the Gross problem by enacting legislation that limits the scope of the Gross decision to non-RIF ADEA cases, or, in the alternative, to all ADEA cases by explicitly stating that the mixed-motive theory articulated in Price Waterhouse v. Hopkins,[xxv] as well as the burden shifting framework articulated in McDonnell Douglas Corp. v. Green,[xxvi] are fully applicable to ADEA cases.

As this article is being written, both houses of Congress have responded to theGross problem by proposing bills entitled the “Protecting Older Workers Against Discrimination Act,”[xxvii] the stated purpose of which are “to amend the Age Discrimination in Employment Act of 1967 to clarify the appropriate standard of proof.”[xxviii] While these bills clearly reflect Congressional understanding of the harm that Gross causes ADEA plaintiffs, their current language as well as their present place in the legislative process creates foreseeable problems that should be swiftly resolved.

First and foremost, both bills are presently tied up in Committees.[xxix]As a result, amidst a nationwide economic recession resulting in numerous corporate RIFs as discussed infra, plaintiffs filing age discrimination lawsuits while in post-Gross, pre-Congressional action “purgatory” will be left without a remedy.

Second, because such “purgatory plaintiffs” will likely exist given the current economic recession, Congress should seek to include retroactive language in the proposed bills in an effort to afford these plaintiffs a remedy. Currently, no such retroactive language exists in either bill proposal.[xxx]

Third, the proposed bills as presently written include no language recognizing theGross problem’s disproportionate and logically impossible burden it places on ADEA RIF plaintiffs, as opposed to the more classic, non-RIF ADEA plaintiff.[xxxi]While it may be reasonably presumed that general language that disavows the Gross decision’s applicability to ADEA cases would prevent its application to ADEA RIF plaintiffs as well, there is no sense in leaving any provisions of these bills subject to judicial interpretation.

The role of Congress cannot be understated in fixing the Gross problem, and while it has taken the proper initial steps to remedy the subversion of federal law thatGross represents, timeliness, retroactivity, and precision in language choice to guarantee the protection of ADEA RIF plaintiffs soon to be effected is essential in ensuring that the rule of law is upheld. As Justice Ginsburg famously stated in another recent travesty of judicial interpretation in the employment context,[xxxii]“the ball is in Congress’ court.”[xxxiii]

**Why Fixing the Gross Problem Matters Now More than Ever**

A survey of ADEA charges filed with the EEOC from 1997 to 2009 indicates that in 2008 and 2009, more ADEA charges were filed with the EEOC than in any other fiscal year in the 12-year sample size.[xxxiv]Furthermore, a tremendous increase in ADEA charges is glaringly apparent from 2007 to 2008.[xxxv]While no known data exists to support the contention, it can be reasonably inferred that such a substantial rise in ADEA charges filed with the EEOC is a byproduct of the ongoing economic recession in the United States.

As this article is being written and during the time period reflected in the EEOC charge data, numerous corporate employers, all of which are subject to the protections of the ADEA, are reducing their workforces in droves in an effort to reduce operating costs and maintain profit margins. To name a few that can be quickly found with a simple Google search, the health insurer Humana,[xxxvi] the discount retailer Target,[xxxvii] the drug manufacturers Sanofi-Aventis,[xxxviii]Eli Lilly,[xxxix]and Bristol-Meyers Squib,[xl] the oil giant Shell,[xli] the healthcare giant Cardinal Health,[xlii]and the telecommunications provider AT&T,[xliii]are all reducing their workforces during the current economic recession.

With every RIF that takes place between now and the moment that either the Supreme Court or Congress act to eliminate the applicability of the Gross decision to ADEA RIF cases if not ADEA cases as a whole, multitudes of ADEA protected plaintiffs adversely effected by a RIF that may or may not have a compelling case for illegal age-motivated discrimination against their employer, will ultimately be denied the legal protections afforded to them under federal law.[xliv]

Above all else, the Supreme Court, Congress, and the readers of this article must remember that people like Jack Gross are exactly those that the ADEA was meant to protect. Now, the Supreme Court has to fix its mistake, or Congress must do it for them.

[i]Testimony of Jack Gross: Hearings Before the Senate Judiciary Comm., 111^thCong. (2010).

[ii]Id.

[iii]Id.

[iv]Id.

[v]Id.

[vi]Id.

[vii]Id.

[viii]Id.

[ix]Id.

[x]Id.

[xi]29 U.S.C.A 621 (1967)

[xii]129 S. Ct. 2343 (2009).

[xiii]Id.

[xiv]109 S. Ct. 1775 (1989).

[xv]See Generally, Desert Palace, Inc. v. Costa, 123 S.Ct. 2148 (2003).

[xvi]See 129 S.Ct. 2343 (2009).

[xvii]See Hardin v. Hussmann Corp., 45 F.3d 262 (8^th Cir. 1995); Coleman v. Quaker Oats Co., 232 F.3d 1271 (9^th Cir. 2000).

[xviii]See Hardin v. Hussmann Corp., 45 F.3d 262 (8^th Cir. 1995).

[xix]NLRB v. Transp. Mgmt. Corp., 103 S. Ct. 2469, 2473 (1983).

[xx]93 S. Ct. 1817 (1973).

[xxi]Jones v. Okla. City Pub. Schs., 617 F.3d 1273, 1278 (10^th Cir. 2010).

[xxii]Id.

[xxiii]Johnson v. Franklin Farmers Cooperative, 378 F. Appx. 505, 509 (6^th Cir. 2010).

[xxiv]McFadden v. Krause, 357 F. Appx. 17 (9^th Cir. 2009).

[xxv]109 S. Ct. 1775 (1989).

[xxvi]93 S. Ct. 1817 (1973).

[xxvii]H.R. 3721, 111^th Cong. (2009), 2009 FD H.B. 3721 (NS) (Westlaw), See also S. 1756, 111^th Cong. (2009), 2009 FD S.B. 1756(NS) (Westlaw).

[xxviii]Id.

[xxix]Id. (H.R. 3721 presently rests in the Subcommittee on Health, Labor, Employment, and Pensions, while S. 1756 presently rests in the Committee on Health, Education, Labor, and Pensions.)

[xxx]See http://www.govtrack.us/congress/billtext.xpd?bill=h111-3721 andhttp://www.govtrack.us/congress/billtext.xpd?bill=s111-1756

[xxxi]See Id.

[xxxii]Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618, 127 S. Ct. 2162 (2007)

[xxxiii]Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618, 661, 127 S. Ct. 2162, 2188 (2007) (Ginsburg, J., Dissenting).

[xxxiv]http://www.eeoc.gov/eeoc/statistics/enforcement/adea.cfm (24,582 charges were filed in 2008 and 22,778 charges were filed in 2009.)

[xxxv]Id. (Only 19,103 charges were filed in 2007.)

[xxxvi]Catherine Larkin and Alex Nussbaum, Humana Plans to Reduce Workforce by 1,400 This Year, Bloomberg Businessweek, Feb. 17, 2010,http://www.businessweek.com/news/2010-02-17/humana-plans-to-reduce-workf…

[xxxvii]Scott Mayerowitz and Alice Gomstyn, Target Among the Latest Chain of Grim Layoffs: Major Companies From Communications to Retail Layoff 40,000; More Americans Lose Jobs, ABC News, Jan. 27, 2009,http://abcnews.go.com/Business/CEOProfiles/story?id=6731375&page=1

[xxxviii]Linda A. Johnson, Sanofi-Aventis to Reduce US Workforce by 1,700, The Boston Globe, Oct. 8, 2010,http://www.boston.com/news/health/articles/2010/10/08/sanofi_aventis_to_…

[xxxix]Eli Lilly to Reduce Workforce, United Press International, Sept. 14, 2009,http://www.upi.com/Business_News/2009/09/14/Eli-Lilly-to-reduce-workforc…

[xl]Ellen Gibson, Bristol-Myers to Cut 3% of Workforce to Reduce Costs, Bloomberg Businessweek, Sept. 23, 2010,

http://www.businessweek.com/news/2010-09-23/bristol-myers-to-cut-3-of-workforce-to-reduce-costs.html

[xli]Shell To Layoff Workforce To Reduce Cost, Energy Business Review, April 30, 2009, http://utilitiesnetwork.energy-business-review.com/news/shell_to_layoff_…

[xlii]Press release, Cardinal Health, Cardinal Health to Reduce Workforce to Respond to Economic Conditions, (March 31, 2009.)

http://cardinalhealth.mediaroom.com/index.php?s=43&item=295 (

[xliii]AT&T to reduce workforce by 12,000, San Antonio Business Journal, Dec. 4, 2008,

http://www.bizjournals.com/sanantonio/stories/2008/12/01/daily29.html

[xliv]See the Age Discrimination in Employment Act at 29 U.S.C.A 621 (1967)

National Law Review's Student Legal Writing Contest Deadline is Friday November 12th

Everybody’s talking about how abysmal the job market is for law students – why not build your resume while still in school? Young lawyers are under increasing pressure to start thinking about business development activities earlier in than ever in their careers. One tried and true way of building one’s professional reputation is by publishing. One sure way to get noticed and to help others is to write in a style which is helpful and educational to prospective clients. The National Law Review is one of the nation’s premier resources for secondary legal analysis for businesses and twice a year we offer students the opportunity to submit consumer-friendly articles for publication.

The winning articles will be published online starting in Mid November 2010. The top article(s) chosen will be featured on the NLR home page . Up to 5 runner-up articles will also be posted in the NLR searchable database.

Please note that although students are encouraged to submit articles addressing Labor & Employment Law, the featured topic for the November issue, they may also submit entries covering current issues related to other areas of the law.

Why Students Should Submit Articles

Students have the opportunity to publicly display their legal knowledge and skills.
The student’s photo, biography, and contact information will be posted with each article, allowing for professional recognition and exposure.
Winning articles are published alongside those written by respected attorneys from Am Law 200 and other prominent firms as well as from other respected professional associations.
Now more than ever, business development skills are expected from law firm associates earlier in their careers. NLR wants to give law students valuable experience generating consumer-friendly legal content of the sort which is included for publication in law firm client newsletters, law firm blogs, bar association journals and trade association publications.
Student postings will remain in the NLR online database for up to two years, easily accessed by potential employers.
Click Here to review the winning submissions from October: An Analysis of South Africa’s Mental Health Legislation; A n Overview of the Hedge Fund Industry and What’s Coming Next for Hedge Funds; and The Impact of ACTA on China’s Intellectual Property Enforcement.

For more Information and contest rules, please click here.

An Analysis of South Africa’s Mental Health Legislation

The National Law Review is pleased to congratulate Natalie LaToya McCrea of American University- Washington College of Law winner of the Fall 2010 Law Student Writing contest.

If one were to measure a society’s health by its historical environment, then something can indeed be said of South Africa. This nation is known for its long abhorrent history with apartheid entrenched with a political and human rights struggle. In 1995, the world witnessed the evisceration of apartheid and the birth of a new democratic South Africa. In light of the struggle endured by a visible portion of the South African population, a question asked is, what about the forgotten and somewhat invisible individuals, those who suffer with mental illness. The purpose of this work is to discuss South Africa’s mental health legislation, namely Mental Health Care Act, No. 17 [MHCA 2002], and conduct a comparative study with the African Banjul Charter, the UN Principles for the Protection of Persons with Mental Illness [MI Principles], and the World Health Organization Principles.

Historical Mental Health Legislation

While South Africa has had numerous mental health statutes, our discussion will commence with the 1973 Act.

Mental Health Act 18 of 1973 [MHA 1973] grew out of a “public panic” that ensued after the assassination of then Prime Minister, Dr. Hendrik French Verwoerd by someone deemed to be mentally ill.[i] A Commission that inquired into his death concluded that many assassinations “are committed by mentally disordered persons.”[ii] The Commission’s conclusion spawned a proposed amendment, which eventually culminated into MHA 1973.[iii]

Scholars and psychiatrists have noted that MHA 1973 did not have an individual rights concern. Rather, its primary focus was on patient control and treatment, along with the “welfare and safety” of the society.[iv] The fact that this Act was propelled during the apartheid era cements the view that the human rights of the patients were not necessarily the priority. Specifically, MHA 1973 has been criticized because (i) it only required a reasonable degree of suspicion to be certified to a mental institution;[v] (ii) individuals could be denied their freedom and placed in a mental facility based on prejudices and vendettas.[vi] In fact, finding someone mentally incapable was sometimes utilized solely for political means in the apartheid era. Freedom fighters were often silenced by being placed in a mental facility; (iii) once deemed mentally ill and certified, patients went without the assistance of the law, and could spend a considerable amount of time in the mental institutions against their will[vii]; and (iv) patients did not have a significant right of appeal or representation.[viii]

According to the South Africa Federation for Mental Health, while MHA 1973 was in existence, it facilitated disproportionate mental health care based on race, with blacks receiving the least care. In effect, the MHA 1973 provisions did not promote personal autonomy, dignity or justice for individuals with mental illness. Instead, it highlighted a paternalistic principle which allowed mentally ill patients to be alienated, stigmatized and disempowered. It became apparent that MHA 1973 needed to be reconsidered and changed.

South Africa’s Present Mental Health Legislation

South Africa entered into a state of transition after the presidential election of Nelson Mandela in 1994. The nation was moving from a repressive regime into a new democratic era. According to the World Health Organization [WHO], Mandela’s administration was particularly focused on ridding the nation of all apartheid polices, and instituting new ones that met the needs of groups previously disadvantaged.

The new South Africa adopted its Constitution with an accompanying Bill of Rights on May 8, 1996, which came into force on February 7, 1997. It became even more evident that MHA 1973 needed to be brought in step with the newly adopted principles of the South African Bill of Rights.[ix] Specifically, it needed to reflect the rights expounded in Chapter 2, §§§ 9, 10, and 12; recognizing respectively, issues of equality; the right to the respect and protection of human dignity; and the freedom and security of person.

South Africa’s new Mental Health Care Act (MHCA 2002) was passed in 2002 and promulgated on December 15, 2004.[x] It came in force in line with other positive international initiatives in mental health legislation, such as the London Mental Health Act 2007, The Scotland Mental Health (Care and Treatment) 2003, and the Jamaica Mental Health Act 1998. In effect, MCHA 2002 seeks to: (1) shift the system from a past custodial approach to one encouraging community care; (2) make certain that appropriate care, treatment and rehabilitation are provided at all levels of the health service; and (3) highlight that individuals with mental disabilities should not be discriminated against, stigmatized or abused.[xi]

MCHA 2002’s Key Provisions

Mental illness is defined under the Act as a “positive diagnosis of a mental health related illness in terms of accepted diagnostic criteria” made by a mental health care practitioner authorized to make such diagnosis.[xii] The Act outlines the rights and duties to mental health patients, and highlights that their human dignity and privacy must be respected; that they should not be unfairly discriminated against because of their mental status; and that they should be protected from “exploitation, abuse and any degrading treatment” [xiii]

Involuntary Treatment:

Regulation No. 27117 of 2004 governs MCHA 2002.[xiv] This Regulation and § 33 of the Act, states that in order to commence a proceeding to have someone involuntarily committed, “an application must be made to the Head of a Health Establishment (HHE) by a spouse, next of kin, partner, associate, parent or guardian”, who must have seen the person within the past seven days.[xv] Once the application is received, the HHE must have the person examined by two mental health care practitioners who perform independent assessments of the patient, and must report their findings and recommendations.[xvi] If the assessments of the two practitioners are different, then the HHE must have the patient assessed by another practitioner.[xvii] The HHE can approve an application only if the two mental health care practitioners agree together that involuntary care is needed.[xviii]

MHCA 2002 is clear that only individuals suffering from mental illness are eligible for involuntary care.[xix] According to the Act, an involuntary mental health user “must be provided with care, treatment and rehabilitation at a health establishment if at the time of application, there is a reasonable belief that the mental health care user has a mental illness,” and is likely to cause serious harm to their person or others.[xx]

If the HHE recommends involuntary care, treatment and rehabilitation, the patient must be admitted to a health establishment within 48 hours.[xxi] The HHE must then arrange for the assessment of the patient’s physical and mental health status for 72 hours.[xxii] After the 72-hour assessment, based on the medical health care practitioner’s reports, the HHE must decide if the patient requires further involuntary care, treatment and rehabilitation services as an inpatient. If the HHE determines that the patient does not require further treatment, care or rehabilitation, the patient must be discharged immediately, unless the patient gives consent to further care. Invariably, depending upon the HHE’s determination, the patient can be discharged or have their status changed to a voluntary inpatient or outpatient. [xxiii]

Voluntary Treatment:

MHCA 2002 directs that an individual who voluntarily submits to a mental health facility for care and treatment, and who consents to such care, is “entitled” to care and treatment, or referral.[xxiv]

Procedural Protections and Precautions:

MHCA 2002 incorporates several procedures, and precautions to ensure that patient’s rights are fully protected. One notable precaution is that persons directed by the HHE to examine the prospective patient must be qualified mental health practitioners.[xxv]

Another important precaution and procedural protection is the establishment of the Mental Health Review Boards, which are to be constituted in every province.[xxvi]The primary aim of the Boards is to ensure that the rights of the prospective patients are not violated. The Boards must be comprised of one magistrate, one attorney, and a mental health practitioner.[xxvii] Where the HHE subjects an involuntary patient to the 72 hour assessment, and concludes that the patient should receive further involuntary care, treatment and rehabilitation, the HHE must submit a report within 7 days of the expiration of the 72-hour assessment requesting the Board to approve further involuntary care.[xxviii]

One striking element of the Act is that while the Board considers the HHE’s decision to continue involuntary treatment, all (the applicant, the mental health providers), except for the reluctant patient is afforded the opportunity to present their representations to the Board.[xxix] Additionally, it is interesting that after the Board makes its deliberations, there is no mention of them sending a notification of the results to the potential patient. The Act, however, notes that decision letters are sent to the HHEs and the applicant who requested that the patient be treated.[xxx] Once the Board decides to adhere to the HHE’s assessment that the involuntary patient should continue to be so treated, the Board must submit their decision for judicial review and send all documentations to the High Court for consideration of the matter. The Court has a month to consider.[xxxi]

The aforementioned concerns are somewhat ameliorated by the Act’s provision that mental health care users have a right to legal representation, and to appeal to the Board about the decisions of the HHE to continue involuntary treatment.[xxxii]One problem, however, is that the HHE’s decision in favor of involuntary care is not submitted to the patient, but to the applicant. Since the reluctant patient was not notified of the HHE’s decision in the first place, it is rather difficult for the patient to submit an appeal. If the Board finds for the reluctant patient, s/he must be released immediately. If the Board finds in favor of the HHE’s decision, the Board must submit their decision to the High Court for judicial review.[xxxiii]

Another important procedural protection applicable to both voluntary and involuntary mental patients is that their conditions must be periodically reviewed, and annual reports must be submitted to the Board for review.[xxxiv]

MHCA 2002 Compliance with Other Human Rights Principles

The African Banjul Charter on Human and People’s Rights was ratified by South Africa on June 9, 1996, and accordingly, its principles are binding on South Africa. The Charter calls for the protection of the dignity of mental health patients; their equality before the law; their right not to be deprived of their liberty and security; and the right to obtain good mental health. [Articles 5, 3, 6, 16, respectively]. Some of these proscriptions were called to the forefront before the African Commission on Human and Peoples’ Rights in the landmark case, Purohit and Moore v. Gambia No. 241/2001 (2003). The Commission held that all states party to the Banjul Charter should guard and protect the rights of the mentally disabled to dignity and the enjoyment of life.[xxxv]

South Africa’s MHCA 2002 recognizes and subscribes to the importance of protecting individuals with mental illness.[xxxvi] The Act further recognizes that this protection is called for in the state Constitution. There is a clear indication that South Africa wants to protect the rights and interests of the mentally ill.[xxxvii] The human dignity and respect principles evoked in Purohit are enforced and protected in §§8, 10 and 11 of the Act.

The Principles for the Protection of Persons with Mental Illness and the Improvement of Mental Health Care (MI Principles)[xxxviii]

As illustrated below, MHCA 2002 comports with many of the tenets of the United Nations’ MI Principles:

Chapter III of the Act is a reflection of MI Principle 1 enumerating some basic rights for the mentally ill, such as respect for human dignity and privacy;[xxxix] the consent to care factor;[xl] and rules against discrimination, exploitation and abuse.[xli] MI Principle 4 is reflected in Section 12 of the Act. Specifically, similar to the MI Principles, MHCA 2002 § 12 directs that a determination of an individual’s mental health status should not be based on their socio-political, cultural or economic background. The MI Principle of Notice of Rights (Principle 12) can be found in § 17 of the Act providing that mental health patients must be informed of their rights before any administration of care or treatment. The Act follows MI Principle 16 on involuntary admission in that it considers the dangerousness factor before committing an individual involuntarily. The Act, like Principle 16, recognizes the importance of the concurrence of two mental health practitioners, and that involuntary preliminary treatment should be brief pending a review.[xlii] Additionally, both the Act and the MI Principles contain provisions for the creation of Review Boards [Principle 17; MHCA § 18]. They both also have provisions for periodical reviews of involuntary patients [Principle 17, MHCA § 30]; and the right of the patient to appeal [Principle 17, MHCA §29]. The MI Principle of monitoring is reflected in the Act in the form of judicial reviews in §§ 34, 35, 36 and 37.

The World Health Organization Principles

According to the WHO, South Africa’s MHCA 2002 “is consistent with international human rights standards…and appears to be a highly appropriate and important milestone in the development of the mental health system in South Africa.[xliii]

Many of the principles reflected in MHCA 2002 are in line with the WHO’s concept that the aim of a mental health legislation is to “protect, promote, and improve” the lives of the mentally ill.[xliv] Significantly, WHO’s concepts are reflected in a number of the Act’s principles, namely that mental health services should offer care, treatment and rehabilitation; and that recipients should be treated with the least possible restriction on their freedom.

Concerns with the New Mental Health Care Legislation

Despite the fact that MHCA 2002 represents a major milestone in South Africa’s history, the WHO has noted that it does not appear to be enough to bring forward major reforms greatly needed in South Africa’s mental health system.[xlv] In fact scholars have commented that the system is plagued with human resource constraints and infrastructure restraints, and thus implementation of the Act’s requirement in community and district hospitals is problematic.[xlvi] According to Moosa, South Africa has a limited amount of specialized psychiatric hospitals, and those that are available are ill equipped to properly abide by the 72-hour provision. Additionally, many South African psychiatric hospitals do not separate the patients by age groups; and there is a significant lack of beds.[xlvii] Other problematic areas that undermine the Acts successful implementation are lack of proper training, inadequate skills; and a lack of proper understanding of the Act.[xlviii]

Conclusion

South Africa’s new mental health care act is an important instrument implemented to advocate for the best interest of mental health care users. Although there are problems, one must remember that the nation had a horrid past, and remnants of the past system are still ingrained therein. The redeeming factor is that South Africa has made the step to correct the deficiency and has moved towards enabling its citizens to have access to obtaining optimal mental health care.

[i] Nicholas Haysom, Martin Strous, and Lloyd Vogleman, The Mad Mrs. Rochester Revisited: The involuntary confinement of the mentally ill in South Africa, 6 SAJHR 341, 343 (1990).

[ii] Id.

[iii] Id.

[iv] Burns, JK Implementation of the Mental Health Care Act (2002) at district hospitals in South Africa: Translating principles into practice, S Afr Med J 2008; 98 46-49.

[v] Id.

[vi] Id.

[vii] Id.

[viii] Id.

[ix] Bonthuys, Elsje, Involuntary Civil Commitment and the New Mental Health Bill,118 SALJ 667 (2001).

[x] Mental Health Care Act 17 of 2002 (S.Afr.),http://www.info.gov.za/view/DownloadFileAction?id=68051

[xi] MYH Moosa and FY Jeenah, Involuntary treatment of psychiatric patients in South Africa, 11(2)Afr Journal of Psychiatry, 109, 110 (2008).

[xii] Mental Health Care Act 17 of 2002 Chapter 1, § xxi (S. Afr.).

[xiii] Id. atChapter 3, §§§ 8, 10 and 11.

[xiv] http://www.info.gov.za/gazette/notices/2004/27117.pdf

[xv] Mental Health Care Act 17 of 2002 §33 (1,2) (S. Afr).

[xvi] Id. at § 33(4,5).

[xvii] Id. at § 33(6).

[xviii] Id. at §33(7).

[xix] Id. at § 32.

[xx] Id.

[xxi] Id. at §33(9).

[xxii] Id. at § 34.

[xxiii] Id. at §34(3).

[xxiv] Id. at §§ 25, 26.

[xxv] Id. at §27(4), §33(4).

[xxvi] Id. at § 18.

[xxvii] Id. at § 20.

[xxviii] Id. at §34(3)(c).

[xxix] Id. at §34(7)(a).

[xxx] Id. at §34(7)(b).

[xxxi] Id. at §34(7)(c).

[xxxii] Id. at §§ 15, 35.

[xxxiii] Id. at §35(3)(4).

[xxxiv] Id. at §§30, 37.

[xxxv] Michael L. Perlin, Arlene S. Kanter, Mary P. Treuthart, Eva Szeli & Kris Gledhill, INTERNATIONAL HUMAN RIGHTS and COMPARATIVE MENTAL DISABILITY LAW840-841 (Michael L. Perlin eds., 2006).

[xxxvi] Mental Health Care Act 17 of 2002 Preamble (S. Afr).

[xxxvii] Id. at §4(c)(d).

[xxxviii] The Protection of Persons with Mental Illness and the Improvement of Mental Health Care, G.A. Res. 46/119, U.N. Doc. A/Res/46/119 (Dec 17, 1991).

[xxxix] Mental Health Care Act 17 of 2002 §§8, 13 (S. Afr).

[xl] Id. at §9.

[xli] Id. at §§10, 11.

[xlii] Id. at §§26, 33.

[xliii] WHO, Mental Health Policy Development and Implementation in South Africa: A Situation Analysis, 10 [January 31, 2008].

[xliv] Id.

[xlv] Id.

[xlvi] MYH Moosa and FY Jeenah, Involuntary treatment of psychiatric patients in South Africa, 11(2)Afr Journal of Psychiatry, 109, 110 (2008).

[xlvii] Id.

[xlviii] Burns, JK Implementation of the Mental Health Care Act (2002) at district hospitals in South Africa: Translating principles into practice, S Afr Med J 2008; 98 46-49.

About the Author:

Natalie Latoya McCrea received her J.D. from Syracuse University College of Law in 2009. She also holds a Master’s Degree in International Affairs from Maxwell School of Citizenship and Public Affairs at Syracuse University. She is currently pursuing a LLM with a specialty in international business from American University Washington College of Law. www.wcl.american.edu / 347-886-6900

Deadline for the National Law Review's Law Student Writing Contest Extended Until Friday Nov. 12th

The National Law Review has extend the date to Friday November 12th for the final 2010 Law Student Writing Contest.

By inviting your law students to enter, you are offering them a chance to build their resumes and a professional online presence that will help them to stand out to legal industry recruiters in an increasingly competitive job market.

The NLR consolidates practice-oriented legal analysis from a variety of sources for no-cost, easy access by lawyers, law students, business executives, insurance professionals, accountants, human resource managers, and other professionals who wish to better understand specific legal issues relevant to their work.

Why Students Should Submit Articles

Students have the opportunity to publicly display their legal knowledge and skills.
The student’s photo, biography, and contact information will be posted with each article, allowing for professional recognition and exposure.
Winning articles are published alongside those written by respected attorneys from Am Law 200 and other prominent firms as well as from other respected professional associations.
Now more than ever, business development skills are expected from law firm associates earlier in their careers. NLR wants to give law students valuable experience generating consumer-friendly legal content of the sort which is included for publication in law firm client newsletters, law firm blogs, bar association journals and trade association publications.
Student postings will remain in the NLR online database for up to two years, easily accessed by potential employers.
For an example of a contest winning student written article from Northwestern University, please click here.
For more Information and contest rules, please click here.

National Law Review's Student Legal Writing Contest – October is Health Care Month!

Alert the Media! The National Law Review is offering law students the opportunity to publish their work in the months of October & November. No entry fee is required.

Entries will be judged and the top two articles chosen will be featured in the NLR monthly magazine prominently displayed on the NLR home page. Up to 5 runner-up entries will also be posted in the NLR searchable database each month.
Each winning article will be displayed accompanied by the student’s photo, biography, contact information, law school logo, and any copyright disclosure.
All winning articles will remain in the NLR database for two years (subject to earlier removal upon request of the law school).
For more details go to NLR Writing Competition.

Why Students Should Submit Articles

Students have the opportunity to publicly display their legal knowledge and skills.
The student’s photo, biography, and contact information will be posted with each article, allowing for professional recognition and exposure.
Winning articles are published alongside those written by respected attorneys from Am Law 200 and other prominent firms as well as from other respected professional associations.
Now more than ever, business development skills are expected from law firm associates earlier in their careers. NLR wants to give law students valuable experience generating consumer-friendly legal content of the sort which is included for publication in law firm client newsletters,law firm blogs, bar association journals and trade association publications.
Student postings will remain in the NLR online database for up to two years, easily accessed by potential employers.
For an example of a contest winning student written article from Northwestern University, please click here.

The Submission Deadline for October is Monday September 27th!

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Introduction

I. Judicial Response: “Just Say No”

II. Does Outside Research Really Bias Jurors?

III. Giving The Internet A Second Chance

Conclusion

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I. Introduction

II. Overview and History of ESOPs

A. ESOP Overview

B. Brief Relevant History of ESOPs

C. Current State of Law on ESOPs

1. ESOPs Within 401k Plans

2. ERISA Litigation of the 2000s

III. Risks to Employees

IV. Risks to the Sponsor

V. Conclusion

Endnotes.

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How Gross Prevents an ADEA RIF Plaintiff from Ever Prevailing at Trial

What the Supreme Court Can Do to Fix the Gross Problem

What Congress Can Do to Fix the Gross Problem

Why Fixing the Gross Problem Matters Now More than Ever

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Historical Mental Health Legislation

South Africa’s Present Mental Health Legislation

MCHA 2002’s Key Provisions

Involuntary Treatment:

Voluntary Treatment:

Procedural Protections and Precautions:

MHCA 2002 Compliance with Other Human Rights Principles

The Principles for the Protection of Persons with Mental Illness and the Improvement of Mental Health Care (MI Principles)[xxxviii]

The World Health Organization Principles

Concerns with the New Mental Health Care Legislation

Conclusion

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Why Students Should Submit Articles

The Submission Deadline for October is Monday September 27th!

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**How Gross Prevents an ADEA RIF Plaintiff from Ever Prevailing at Trial**

**What the Supreme Court Can Do to Fix the Gross Problem**

**What Congress Can Do to Fix the Gross Problem**

**Why Fixing the Gross Problem Matters Now More than Ever**