The WIB Legal Line is our new regular feature. Employment laws are confusing. The WIB LEGAL LINE updates members on developments that could impact your business. Robert E. Gregg is a partner in the Boardman Law Firm of Madison and has long been associated with WIB. Want to read even more employment law legal updates? Visit the WIB website, WWW.WIBIZ.ORG and click on LEGAL LINE.

LEGISLATION and ADMINISTRATION ACTION

 

Department of Labor seeks comments on FMLA. The Department of Labor has issued a Request for Information on its FMLA regulations. This may be a once-in-a-decade opportunity for those who are affected by the FMLA to address issues of concern, such as the “sporadic leave” and “reduced schedule leave” regulations, both of which create quandaries in the real world of employment. Comments are due by February 2, 2007 and can be sent to Richard M. Brennan, Senior Regulatory Officer, Wage & Hour Division, U.S. Department of Labor, Room 5-3502, 200 Constitution Avenue, Washington, D.C. 20210 or whdcomments@dol.gov

DHHS issues final regulations on health insurance discrimination. The Federal Department of Health and Human Services, in concert with the Department of Labor and the IRS, has issued its new regulations which forbid health insurance providers from denying coverage or charging higher premiums based on an individual’s genetics, medical history or disability. The rules still allow plans to exclude or charge more for injuries related to a person’s high-risk personal activities (i.e., skydiving, mountain climbing, etc.).

Treasury Secretary urges “streamlined” regulations for Sarbanes-Oxley (SOX) compliance. Secretary Henry Paulson recently stated that Congress does not need to amend SOX to relieve the expensive compliance burden on smaller corporations. His belief is that reasonable, streamlined regulations by the agencies enforcing the law can ease the burden. Treasury is only one agency involved in SOX enforcement, so Secretary Paulson’s view would have to be adopted by other departments as well to be effective.

LITIGATION

Cases of the Month
(Extra liability following the “owner” beyond the employment entity)

Business owner criminally liable for failure to pay wages. A business ceased operations due to financial difficulties and a bank’s foreclosure on the corporate property. In the months prior to closing, the company’s chief stockholder and his wife, the company’s president, failed to pay premiums for employee health insurance and failed to deposit the employees’ own 401(k) contributions, using the money to pay other corporate bills instead. When the company closed, it also did not pay wages to its 33 workers. Then, the employees were notified that their health insurance had been cancelled due to the earlier non-payment, leaving them all with uncovered medical bills. During this same period, the chief stockholder had transferred out $176,000 in assets to set up a new corporation. Two days after the first business closed, the new company began soliciting business from former customers and used the transferred assets to purchase equipment for the new enterprise.

Corporate officers and major stockholders can, at times, be personally liable for unpaid wages of a failed business. However, in this case, the court went further and allowed criminal prosecution as well for intentional acts to defraud the employees. A corporation’s criminal acts “are those of its officers and agents; and thus persons in control of a corporation who knowingly acquiesce may be personally prosecuted for the criminal act.” The court allowed 33 separate counts of criminal activity (one for each employee). The charged person could face fines and incarceration on each count. State of Wisconsin v. Michael Weston (Wis. Ct. App., Dist. II, December 2006).

Company covered by Workers Compensation, but company owner who owns property under another entity has additional liability for worker’s injury. An employee of a sign company was knocked unconscious by an electric shock, fell 45 feet and smacked into the ground, resulting in 80 percent permanent disability. Workers Compensation covered the sign company’s liability. However, the family owning the sign company also owned the property on which the injury occurred. It had created a separate corporation to own the property, and then leased the property to the sign company. The employee sued the property owner for negligence in failing to maintain a safe place. The court ruled that the injured person was fully entitled to sue the property owner for extra damages. Though the owners were the same people as the business owners, the property owner was a separate corporate entity from the employing company. So, it was not protected by the Workers Compensation “preclusion.” An owner who leases property can be liable to the employees of the leasee for unsafe place negligence. Binsfeld v. Conrad Wisconsin Public Service Corp. and Mortinson Properties (Wis. Ct. App., Dist. III, 2006). [For more information, request the article Double Jeopardy from Bob Gregg at rgregg@boardmanlawfirm.com.]

Privacy

Humana pays $50,000 to State Insurance Commission due to laptop theft. A laptop containing personal information on Medicare recipients was stolen from the car of a Humana insurance agent. The North Dakota Insurance Commission brought an enforcement action, alleging delay in notifying affected individuals, failure to notify other regulatory agencies and inadequate security procedures. Only 126 of the several hundred affected individuals lived in North Dakota; however, Humana settled the case by paying $50,000 and agreeing to other ongoing security provisions.

Discrimination

Age

Insurance plan violates ADEA. A disability plan excluded workers from disability retirement benefits after age 55 in hazardous occupations, and age 65 in other job categories. It also paid less to older workers who were in the plan, based on how close they were to the cut-off ages. The court decided that although some employees could get regular retirement at 55 or 65, others cannot qualify at those ages and should not be denied the benefit of insurance, or receive lesser pay if they become disabled, simply due to age. EEOC v. Jefferson County Sheriff’s Department (6th Cir., 2006).

Religion

Religious challenge to health insurance law fails. A group of Catholic and Baptist Social Service organizations challenged a state law that requires health insurance coverage for prescription drugs to include coverage of contraceptives. They demanded the right to eliminate coverage of contraceptives from their plans, due to religious objection to contraception. The state law in fact already contained an exception for “religious values” and allows organizations that primarily employ and serve people of a given faith to opt out of covering any form of medicine or health care in conflict with the religion. However, the court ruled that the organizations in this case did not fit into the exception. They were all non-profit corporations with a stated mission of serving the needy regardless of faith and did not limit employment to members of any specific religion. So, the elimination of the prescription coverage would impose a particular religious belief on many employees of a variety of other faiths. Catholic Charities of the Diocese of Albany v. Serio (N.Y. S.Ct., 2006).

Race

Human resource manager’s racial slur makes case, in spite of reinstatement. A female hospital employee in the Maintenance Department was subjected to verbal and physical sexual harassment by co-workers. She was told that she would have to engage in sex “to survive” in a man’s job; a co-worker body-slammed her into a desk, causing injury, and she was twice put in a head lock. Only minor discipline was given to the male employees. During the investigation of her complaints, the African American human resource manager told her that she was just a “stupid White woman.” The same HR manager presided over the hearing to terminate when the employee was medically absent for two months due to Post Traumatic Stress Disorder. The fired employee filed an EEOC complaint, and the hospital promptly reinstated her with full back pay. Then the hospital argued that she should not be allowed to continue her lawsuit because it had “made her whole” and “solved the problem.” The court disagreed; the actions of Human Resources showed a “refusal” to reasonably respond to the harassment and could warrant further punitive damages. Phelan v. Cook County Hospital (7th Cir., 2006).

Sex

Strength test was invalid. A canned food processor’s preemployment strength test was found to be discriminatory against women. Female job applicants failed the test at a far greater rate than men. The company claimed that the new test was implemented to prevent hiring people likely to suffer work-related injury. However, the evidence showed no such result after the test was in place. Even more significant was the fact that women had fewer injuries doing the work than men before the test was implemented, and the new test seemed to serve to weed out the potentially safer female applicants in favor of the less safe men. EEOC v. Dial Corp. (8th Cir., 2006).

Disability

$68,000 awarded against Ohio Civil Rights Commission for discriminating against employee. A jury decided that the very state agency responsible for preventing discrimination repeatedly failed to engage in the “interactive process” when one of its own investigators requested a disability accommodation. The evidence showed repeated requests for accommodation, with little or no response from management. Benaugh v. Ohio Civ. Rts. Comm. (S.D. Ohio, 2006).

No privacy right to claim disability, then refuse to provide information. An employee was disciplined for sleeping on the job. He claimed that medication he took for a disability made him drowsy. However, the employee then refused to identify the disability or provide the name of the medication, claiming that the request for the information violated his privacy rights. An arbitrator upheld the discipline, ruling that once an employee raises the issue of disability there is a duty to provide corroborating information. Clinical sleep standard not required: The arbitrator also ruled that the employer did not have the burden to prove the employee was “clinically or medically in a sleep state.” The evidence that he had his head lying on the table, eyes closed, was unresponsive, and snoring was sufficient for a logical conclusion of “sleeping.” In re New Columbia Joist Co. (2006).

Texting was not viable accommodation for security job. A store shoplifting prevention job required the security employee to keep consistent visual contact with any suspected shoplifter in order to apprehend, and later provide witness to the unbroken observation. The security watcher kept in contact with central security via an unobtrusive walkie-talkie microphone. A deaf store employee was denied promotion to the position because he could not use the walkie-talkie to communicate with other security personnel. His suggested accommodation of a “T-Mobile Sidekick” to text message was found by the court to be unreasonable because it would require him to watch a screen to send and read the communication, thus frequently taking his eyes off the shoplifter. This defeated the essential functions of consistent visual contact and the ability to later provide effective, unimpeachable witness testimony. Barnhart v. Wal-Mart Stores, Inc. (11th Cir., 2006).

Dress Codes

Employees fired for untucked shirts. A state park required employees to tuck in their shirts and wear sleeves long enough to cover tattoos, even on hot days. Three employees objected and wore their shirts untucked because it was more comfortable in the heat. They were fired. In the resulting suit, the court ruled that objections based on personal comfort and personal style did not rise to a First Amendment speech “matter of public concern” to justify disobedience of the rule.
Roberts v. Ward (6th Cir., 2006).

National Labor Relations Act

Whistle blower may sue AFSCME union. A federal court has found sufficient evidence to warrant a trial against a Local of the American Federation of State, County and Municipal Employees. A Local member spoke out against alleged corruption in the union. He was then promptly removed from his union position and expelled from the union. The timing and negative comments by union officials were seen as sufficient evidence of retaliation. Commer v. McEntee (S.D. NY, 2006).

Favor to friends is theft. An arbitrator upheld the discharge, without prior discipline, of an airline service agent. She had done a favor for three co-workers by letting them use their employee discount and getting them on an already over-booked flight. This meant bumping paying passengers, who were then entitled to a hotel stay and an extra $500 future flight credit, totaling an extra $1,800 expense to the airline. Though she thought she was just doing a favor for friends, the airline considered it an act of theft. The arbitrator agreed and validated the firing. In re Air Canada (2006).

Family and Medical Leave Act

On-call time does not count as hours worked. An airline pilot was paid for on-call time, but a court ruled that this was not “hours worked” for the purpose of accumulating the 1,200 hours she needed for FMLA eligibility. The pay was for off-duty time during which a pilot might, or might not, get a call to report for actual work. Knapp v. Am. West Airlines (10th Cir., 2006).

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