HIGHLIGHTS FOR THE MONTH OF SEPTEMBER 2008

By: Kraig B. Long

RECENT DEVELOPMENTS

Hospital Responsible As Joint Employer for Paying Overtime to Temporary Agency Employee

The United States Court of Appeals for the Second Circuit recently held that a hospital was a joint employer of a temporary agency employee and, therefore, was responsible for paying the agency employee’s overtime under the Fair Labor Standards Act (FLSA).

Facts of the Case: In Barfield v. Bellevue Hospital Center, the plaintiff was assigned to work at Bellevue through three different temporary referral agencies. The first agency required the plaintiff to sign an agreement that restricted her from working overtime (i.e. more than 40 hours a week) on any assignment, primarily because Bellevue would not pay overtime. However, between October 2003 and January 2005, there were at least 16 weeks that the plaintiff worked overtime at Bellevue, albeit by working through multiple agencies. The plaintiff did not receive any overtime pay. The plaintiff sued Bellevue and one of the agencies for violation of the FLSA, which requires payment for any overtime hours worked at a rate of 1½ times the employee’s normal hourly rate. The district court entered summary judgment in favor of the plaintiff against both defendants, finding that Bellevue was the plaintiff’s joint employer along with the temporary referral agency for purposes of paying overtime. Bellevue appealed the ruling.

Court’s Ruling: In assessing the “economic reality” of the relationship between the plaintiff and Bellevue, the Second Circuit held that the following factors “strongly” indicated that Bellevue was the plaintiff’s joint employer as a matter of law: (1) that the hospital premises and equipment were used for the plaintiff’s work; (2) that the temporary referral agencies did not shift their employees as a unit from one hospital to another, but rather tried to maintain continuity by assigning the same nurses for an extended period of time to the same hospital; (3) that the plaintiff’s job was integral to the hospital’s operations; (4) that the plaintiff’s work responsibilities remained the same regardless of which agency she work for; (5) that the hospital supervised plaintiff’s work; (6) that the plaintiff worked exclusively (or even predominantly) at Bellevue; and, (7) the degree of control that the hospital had over the hiring and firing of agency employees. The Court also noted that because Bellevue set and approved the plaintiff’s schedule and tracked and confirmed the hours she worked (paying each agency its contracted rate only for those confirmed hours worked), Bellevue exercised some control over the plaintiff’s pay. The Court ruled that although the referral agencies may have exercised “ultimate authority” on matters of hiring and firing and pay, Bellevue exercised “some authority” in these areas, which the Second Circuit found was enough to qualify the hospital as a joint employer.

Lessons Learned: No one single factor will determine whether a company qualifies as a joint employer of an agency employee for purposes of the FLSA. Where there is significant direction and control of the agency employee, however, it is likely that such an employment relationship will be found. Thus, it is critical that, even with regard to agency employees, companies ensure that they are accurately tracking the time worked and that the employees are properly compensated for any overtime, whether by the agency or by the company.

No FMLA Protection for Employee Who Refused to Provide Medical Documentation

The United States Court of Appeals for the Seventh Circuit recently held that an employee who refused to work eight-hour days and failed to submit medical certification requiring a reduced schedule under the Family and Medical Leave Act (FMLA) was properly terminated by her employer for insubordination and excessive absenteeism.

Facts of the Case: In Ridings v. Riverside Medical Center, the employee was diagnosed with Graves’ disease and required surgery at the end of 2002. After returning from leave, the employee resumed her full-time schedule, but began leaving work early because she claimed that the medication she was taking caused her to become fatigued at the end of the day. The employee did not request a reduced schedule and the Medical Center did not require her to submit a medical certification for her early departures. This informal situation continued for almost a year.

In early 2004, the employee received several warnings for poor attendance after she ignored her supervisor’s repeated direction that she had to start working a full eight-hour day. On March 22, 2004, the employee provided a note from her doctor, which stated that the employee “could not work an eight hour day because of a medical condition until further notice.” On April 1, following up on the doctor’s note, the supervisor told the employee that she had to complete an FMLA leave application and obtain medical certification from her doctor within 15 days. The employee ignored the request, and received two separate warnings for her continued failure to complete the FMLA paperwork. The second warning required the employee to submit FMLA paperwork and informed her that if she did not do so within a week, she would be suspended, followed by termination if she returned from her suspension without the completed paperwork. Because the employee still failed to submit the paperwork, she was suspended and then terminated in accordance with the warning. The employee filed suit alleging that her employer interfered with her rights and retaliated against her in violation of the FMLA. The district court granted the employer’s motion for summary judgment and the employee appealed.

The Court’s Ruling: In upholding summary judgment for the Medical Center, the Seventh Circuit acknowledged that the employer initially failed to inform the employee that she might be entitled to FMLA, but ruled that the employee was adequately notified of her FMLA rights when the employer subsequently provided her the FMLA leave application and medical certification. The Seventh Circuit also rejected the employee’s claim that she was retaliated against for working a reduced schedule. The Court explained that, in the absence of sufficient documentation establishing that the employee was eligible for FMLA leave, the employer was entitled to ask her to work a full schedule. The Court held that, “an employee cannot simply inform the employer when and from where she would like to work.” The Court ruled that, because the employee failed to fulfill her FMLA obligations by providing the required medical documentation for reduced leave, she was not protected by FMLA and, as such, her termination for insubordination and absenteeism was justified under the Medical Center’s policy.

Lessons Learned. The FMLA permits employers to require that an employee provide medical certification issued by a health care provider confirming that a serious health condition exists. If the employee does not provide proper medical certification within the FMLA-specified 15-day time period, the employer may delay the leave until the certification is provided. If the employee never provides the certification, he is not considered to be on FMLA leave and is not entitled to the protections of the FMLA. (It is worth noting, however, the employer may still have to grant FMLA leave if the employee has made a good faith but unsuccessful effort to obtain the medical certification.)

TAKE NOTE

Whistleblower Protection. The recently passed federal Consumer Product Safety Improvement Act of 2008 gives whistleblower protection to retail and manufacturing employees who reasonably believe that their employer violated any provision of the Act. The Act, which has been described as the most comprehensive overhaul of the consumer product safety laws, covers virtually all manufacturers, importers, distributors and retailers of consumer products. The whistleblower provisions protect employees of these entities against discrimination and discharge when they: provide information relating to any violation of the Act; testify, assist or participate in a proceeding concerning a violation of the Act; or refuse to participate in any activity, policy or practice that the employee reasonably believes violates the Act. If a violation is found, the U.S. Department of Labor (DOL) can order that the employee be reinstated with back pay. If the DOL finds the complaint was frivolous, it can order the employee to pay the company’s legal fees up to $1,000. Most of the Act’s provisions take effect immediately, but some will be phased in over time.

Maryland Wage Payment Law. The Maryland Court of Special Appeals held that a shareholder’s compensation that was tied to the profits of the business is “wages” under the Maryland Wage Payment and Collection Law, even when that compensation is conditioned upon a covenant not to compete. In Aronson & Company v. Fetridge, a former shareholder and officer had an employment agreement that entitled him to quarterly payments from a deferred compensation account, to which the firm’s profits from the prior fiscal year were allocated, upon his involuntary termination. The employment agreement also contained a covenant not to compete that required payment to the firm of a percentage of any compensation that the shareholder received from competing services that exceeded $25,000. Under the agreement, the termination payments could be offset against payments for violation of the non-compete provision. After he was terminated, the shareholder started his own consulting business, and the firm refused to make any of the quarterly termination payments based on its belief that he had violated the covenant not to compete.

In its opinion, the Court of Special Appeals (CSA) recognized that Maryland’s highest court, the Court of Appeals, had previously held that when termination payments are conditioned on the employee’s compliance with a covenant not to compete, the payments are not recoverable under the Wage Law because they did not qualify as a wages “due for work that the employee performed before termination.” In the present case, however, the CSA held that the shareholder’s noncompete agreement was “of a different nature” because the shareholder was entitled to continue receiving the termination payments even if he violated the non-compete provision. The CSA further held that, although payments directly tied to a business’ profits are typically not considered wages, the payments here were promised under the agreement as compensation for the shareholder’s continued employment with the firm, and therefore must be considered “wages” under the Wage Law.

OFCCP Interim Guidance. The Office of Federal Contract Compliance Programs (OFCCP) has issued an interim guidance regarding the use of the new EEO-1 race and ethnicity categories in affirmative action plans required of federal contractors. In 2007, the Equal Employment Opportunity Commission revised the ethnic and racial classifications on the EEO-1 Report. The OFCCP acknowledged that it had not provided any guidance on the use of the new EEO-1 categories, particularly that of “Two or More Races,” which has resulted in contractors not having a clear understanding about how to classify their employees. The interim guidance instructs employers to consider individuals identified as belonging to “Two or More Races” as minorities: (1) when comparing the utilization of minorities in each job group in the employer’s workforce to those available in a reasonable recruitment area; and (2) when examining whether their employment practices result in disparities in the employment or advancement of minorities. The OFCCP also confirms that contractors are not expected to establish separate placement goals for individuals identified as belonging to more than one race. Instead, contractors should continue to establish a single goal for minorities as a whole. The OFCCP makes clear that contractors can use either the revised EEO-1 categories or the original EEO-1 categories.

New Jersey Discrimination Case. A state appellate court in New Jersey found that an employer can be liable for the discriminatory bias of its supervisor even though the supervisor did not make the actual decision to terminate the employee. In Kwiatkowski v. Merrill Lynch, the employee, who is gay, worked as customer service representative for Merrill Lynch. On December 29, 2003, the employee’s supervisor told her manager that the employee had disobeyed an order, and the manager determined that the employee should be terminated for insubordination. The employee claimed that, two days after the incident, he heard his supervisor call him a “stupid fag” under her breath, but he did not report this to anyone. The employee was subsequently terminated based on the December 29 incident, and he filed suit for discriminatory discharge.

In reversing the trial court’s ruling for the employer, the appellate court specifically adopted for the first time the “cat’s paw” theory, which it described as follows: “a biased low-level supervisor with no disciplinary authority might effectuate the termination of an employee from a protected class by recommending discharge or by selectively reporting or even fabricating information in communication with the formal decisionmaker.” The manager admitted that her decision to terminate the employee was based on what the supervisor had reported about the December 29 incident. The appellate court held that, although the information that the supervisor gave the manager was “ultimately true,” the trial court failed to recognize the extent of the supervisor’s influence on the termination decision.

TOP TIP

“Best Hiring Practices” To Ensure Compliance With Immigration Laws

On September 12, 2008, the U.S. Immigration and Customs Enforcement (ICE) exercised its debarment authority for the first time when it notified seven companies in Kentucky, Maine, Maryland, Missouri, New York and Virginia that they are being proposed for debarment from federal contracts for knowingly hiring or continuing to employ unauthorized workers. The companies are immediately prohibited from competing for new government contracts, and their names are entered into the Excluded Parties List System (EPLS), a web-based database that contains the names of companies that have been suspended, debarred, proposed for debarment or otherwise excluded from receiving federal contracts.

This is yet another sign that ICE is serious about enforcing federal immigration laws, and employers should ensure that they are in compliance with immigration laws when hiring. On its website, ICE considers the following to be “Best Hiring Practices” for employers:

• Use the government’s Basic Pilot Employment Verification Program for all hiring.
• Arrange for annual I-9 audits by an external auditing firm.
• Establish procedures for reporting to ICE violations or discovered deficiencies.
• Establish a protocol for responding to Social Security number no-match letters.
• Establish a hotline for employees to report activity relating to the employment of unauthorized aliens, and a protocol for responding to employee tips.
• Establish and maintain safeguards against use of the verification process for unlawful discrimination.
• Establish a protocol for assessing whether the “best practices” guidelines are being adhered to by the company’s contractors/subcontractors.
  

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