HIGHLIGHTS FOR THE MONTH OF FEBRUARY 2009

By: Melissa C. Hammock

RECENT DEVELOPMENTS

Stimulus Bill Includes Significant COBRA Subsidy Resulting In Historic COBRA Changes

The stimulus package signed into law by President Obama on February 17, 2009, contains the most sweeping change to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) since its enactment over twenty years ago. The American Recovery and Reinvestment Act of 2009 (“the Act”), creates a new COBRA qualifying event for all eligible individuals, who were or will be involuntarily terminated between September 1, 2008 and December 31, 2009, and their dependents. Pursuant to the Act:

• Eligible individuals will receive a 65% subsidy on their COBRA premiums for up to nine months.

• The subsidy is available only to individuals who are “involuntarily terminated,” a term which the Act does not define (although we believe that it is intended to cover all COBRA eligible individuals who were involuntarily terminated). The involuntarily terminated individual’s dependents are also eligible for the subsidy.

• Employers must collect 35% of the COBRA premium (thereby “fronting” the 65% subsidy).

• Employers will receive a reimbursement of the 65% subsidy in the form of a credit against FICA taxes and income tax withholding on their quarterly federal tax returns.

• Employers must re-send COBRA notices to all individuals who were involuntarily terminated since September 1, 2008. Individuals who did not elect COBRA coverage or elected COBRA coverage, but are no longer enrolled, will now have sixty days from the date they receive the notice to elect coverage. These retroactive notices must be provided within sixty days of the Act’s enactment.

• Employers must amend their COBRA notices to inform all currently enrolled individuals of the subsidy.

• Involuntarily terminated individuals have ninety days to select a different coverage option that has the same or lower premium than the plan in which they were enrolled at the time of termination.

• The subsidy is not available to individuals with adjusted gross incomes of more than $125,000 ($250,000 for joint filers).

Employers should review their records to determine which individuals must be provided with notice of this new right. Individuals who were offered resignation in lieu of termination should, in our view, be given the notice, as well. Companies that use third party providers to manage their COBRA notices should contact them to ensure that they are prepared to issue the new required notices. Employers that do not use third party providers will need to revise their COBRA notices.

The United States Department of Labor has published guidance regarding the COBRA subsidy, which may be accessed here.

Union Retirees Vested With Retiree Health Benefits Only If Retirement Occurred During Term of Collective Bargaining Agreement

In Winnett v. Caterpillar, Inc., the Court of Appeals for the Sixth Circuit recently held that a long-expired collective bargaining agreement vested lifetime retiree health benefits only in those employees who retired during the term of the agreement.

Facts of the Case: Pursuant to a 1988 collective bargaining agreement (“1988 CBA”), and its accompanying documents, the company agreed to provide retirees with lifetime health benefits at no cost. The 1988 CBA expired in 1991. After negotiations with the union failed to reach a new agreement, the company unilaterally implemented retroactive caps on retiree health benefits, which applied to all employees who retired after January 1, 1992. The company and the union did not reach a successor agreement until 1998 (“1998 CBA”). The 1998 CBA’s retiree health benefits were markedly different from those provided for in the 1988 CBA. A group of workers, who retired between the expiration of the 1988 CBA and the adoption of the 1998 CBA, filed suit arguing that the 1988 CBA vested lifetime retiree health benefits for employees as soon as they became eligible for retirement or a pension, even if they continued working. The trial court denied the employer’s motion to dismiss, and an appeal followed.

The Court’s Ruling: The Sixth Circuit looked to the language of the 1988 CBA and its accompanying documents and held that they vested lifetime retiree health benefits only in “retired employees” and not those who remained active employees, represented by the union. In so holding, the Court of Appeals refused to extend its holding in UAW v. Yard-Man, wherein the Court held that retiree benefits carry an inference “that the parties likely intended those benefits to continue as long as the beneficiary remains a retiree.” The key distinction between this case and Yard-Man involves the employees’ status. Here, the plaintiffs were active employees when the 1988 CBA expired and were represented by a union. The Court decided that the 1988 CBA “carries no inference that the benefits described in it would last beyond its expiration for workers who chose to continue to work. It therefore cannot reasonably be interpreted to mean that retiree medical benefits vested before a worker became a ‘retired employee.’” The Court reversed the trial court’s ruling and remanded, ordering the trial court to dismiss all “claims which depend exclusively on the theory that retiree medical benefits vested before retirement.”

Lessons Learned. An expired collective bargaining agreement can have continuing implications, even twenty years later. All collective bargaining agreements and health benefits plans must be carefully drafted to avoid unintended pre-retirement vesting. Employers must ensure that all documentation supplied to their employees clearly outlines the benefits provided and to whom those benefits apply.

Failure To Assess Employee’s FMLA Eligibility Results in Liquidated Damages

The District Court for the Eastern District of Pennsylvania recently found that an employer’s failure to take any steps to ascertain an employee’s rights pursuant to the Family Medical Leave Act (“FMLA”) entitled plaintiff to liquidated damages.

Facts of the Case: In Brown v. Nutrition Management Co., the plaintiff was hired in 2002 as a food service director for a nursing home. In August 2004, the nursing home contracted with another company to provide its food service. The contracted company hired the plaintiff to continue on in her role as food service director. Two months later, the plaintiff was terminated after informing her new employer that she was pregnant. The company’s director of human resources “testified at trial that he thought it was ‘okay’ to terminate [plaintiff] because she was a ‘brand new employee.’” The jury found the company violated the FMLA and awarded plaintiff back pay. The plaintiff filed a motion to amend the judgment and requested pre-judgment interest and liquidated damages.

The Court’s Ruling: Pursuant to the FMLA, an employee who has been employed for at least twelve months and 1,250 hours during the preceding twelve-month period is eligible for leave. Here, prior to terminating the plaintiff, the company made no inquiry to determine whether the plaintiff’s prior employment with the nursing home satisfied this requirement. The FMLA also provides for liquidated damages in an amount equal to the damages award (plus interest) unless the company acted in good faith and had a reasonable belief that its actions were lawful. The Court found that the company’s “cursory determination was inadequate” to reasonably determine whether the company was a successor in interest to the nursing home. Moreover, the Court was critical of the fact that the company “presented no evidence that it researched or had an attorney research the requirements of the FMLA, or was otherwise aware of the factors governing whether the FMLA would apply to [plaintiff’s] request for leave.” The Court found that because the company completely failed to make “a legal inquiry into the requirements of the FMLA, [it] had no reasonable ground to believe [plaintiff’s] termination was not a violation.” The Court granted plaintiff’s motion and awarded liquidated damages, thereby doubling the jury’s award.

Lessons Learned. Employers must have a reasonable good faith basis before taking any action that could potentially violate the FMLA. An employer’s actions are reasonable only if it takes “affirmative steps to ascertain the requirements of the law.” Here, had the employer asked its legal counsel for an opinion, or merely researched the law on its own, the Court likely would have found its actions reasonable.

TAKE NOTE

Attorneys’ Fees Awarded Against the EEOC. The Court of Appeals for the Fifth Circuit recently held that the Equal Employment Opportunity Commission’s (“EEOC”) failure to reasonably investigate a discrimination charge or conciliate in good faith justified an award of attorneys’ fees to the employer. In EEOC v. Agro Distribution, LLC, an employee alleged that his employer failed to accommodate his disability and terminated him in violation of the Americans with Disabilities Act (“ADA”). After making a probable cause determination, the EEOC proposed a conciliation agreement demanding that the employer post a notice, submit to EEOC oversight, and pay back pay, medical expenses, and compensatory damages. In response, the employer offered $3,500 to settle the matter. Ten months later, the EEOC rejected the company’s offer and filed suit. During the charging party’s deposition, he admitted that the company had provided him with reasonable accommodations throughout his employment. In light of this testimony, the district court granted summary judgment to the company finding there was no issue of material fact as to whether the employer denied the charging party a reasonable accommodation, and awarded the employer its attorneys’ fees from the date of the charging party’s deposition. In affirming the trial court’s decision, the Fifth Circuit held that the EEOC violated its duty to reasonably investigate and conciliate in good faith, thus warranting an award of attorneys’ fees.

Project Labor Agreements. On February 6, 2009, President Obama signed an Executive Order authorizing executive agencies to require a project labor agreement (“PLA”) on any large scale construction project. A PLA is a “pre-hire collective bargaining agreement with one or more labor organizations that establishes the terms and conditions of employment for a specific construction project.” The Order applies to any construction project where the total cost to the federal government is at least $25 million. An executive agency may require a PLA on a “project-by-project basis” where its use will: “(i) advance the Federal Government’s interests in achieving economy and efficiency in Federal procurement, producing labor-management stability, and ensuring compliance with laws and regulations governing safety and health, equal employment opportunity, labor and employment standards and other matters, and (ii) be consistent with law.” Finally, the Order directs the Director of the Office of Management and Budget (“OMB”), in consultation with the Secretary of Labor and other officials, to provide President Obama, within 180 days of the Order, “recommendations about whether broader use of project labor agreements, with respect to both construction projects undertaken under Federal contracts and construction projects receiving Federal financial assistance, would help to promote the economical, efficient, and timely completion of such projects.” This is the fourth pro-labor Executive Order issued by President Obama. To learn more about the three pro-labor Executive Orders issued on January 30, 2009, see our prior E-lert.

Sarbanes-Oxley Act. The Court of Appeals for the First Circuit, in a case of first impression for that Circuit, held that a complainant must have an objectively reasonable belief that one of the applicable laws set forth in the Sarbanes-Oxley Act (“SOX”) has been violated in order to be entitled to whistleblower protection. In Day v. Staples, Inc., plaintiff alleged that his employer violated SOX when he was terminated for reporting fraud. In affirming the trial court’s grant of summary judgment in favor of the employer, the First Circuit held that an employee is entitled to whistleblower protection for reporting fraud only if the employee has an “objectively reasonable belief” that the complained of conduct amounted to securities fraud. To establish an objectively reasonable belief, the employee’s complaint must “at least approximate the basic elements of a claim of securities fraud.” The Court held that “[a] disagreement with management about internal tracking systems which are not reported to shareholders [are] not actionable.” Moreover, the Court held that the employee’s belief in the fraud became “less reasonable as he was given an explanation by the company.” This decision is in accord with the United States Court of Appeals for the Fourth Circuit’s recent decision in Platone v. U.S. Department of Labor. To learn more about that decision, see our prior E-Update.

TOP TIP

Undocumented Workers Entitled to Overtime Pay

Although undocumented workers are not legally authorized to work in the United States, they are still entitled to receive overtime compensation for all hours worked in excess of forty hours per week. Thus, employers who engage the services of undocumented employees must take care to ensure they comply with the Fair Labor Standards Act (“FLSA”) regarding overtime pay. A recent case serves as a warning to employers that fail to pay overtime to their non-exempt undocumented workers. In Galdames v. N & D Investment Corp., two undocumented workers sued their employer, alleging they were entitled to overtime pay for all hours worked in excess of forty hours per week. The employer argued that the workers “are illegal immigrants and not entitled to FLSA protections.” In support of its argument, the employer relied upon Hoffman Plastic Compounds, Inc. v. NLRB, where the United States Supreme Court held that a worker who had violated federal immigration law to secure his job was not entitled to back pay under the National Labor Relations Act (“NLRA”).

The United States District Court for the Southern District of Florida rejected the employer’s argument, finding that the Supreme Court decided the back pay entitlement issue only in the context of the NLRA. In line with several other federal and state court decisions, the district court held that undocumented workers are entitled to pursue claims under the FLSA for overtime relief and liquidated damages.

The United States Supreme Court has not yet ruled on this issue. Because a majority of jurisdictions have found undocumented workers to be entitled to overtime pay, employers should pay overtime compensation to all non-exempt employees, regardless of legal work status. This issue also serves as a reminder that employers must keep abreast of the documentation requirements for workers, including I-9 verifications.

For greater clarification of any of these issues, you may contact any Shawe Rosenthal attorney.