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“Constructive Discharge” Not an Exception to “Employment at Will”

Gordon v. Armorgoup N.A., A government contractor employee quit his job because racial harassment and discrimination forced him to resign — an alleged “constructive” discharge.  (Constructive discharge means that while one voluntarilly quits his job, he was effectively forced to do so by unfair circumstances).  The Court held that, under Virginia law, “constructive discharge” is not an exception to the general principle that employment in Virginia is “at will.”  One cannot sue for wrongful termination if he actually quit — “constructive discharge” or not.

The plaintiff in this case may still pursue a different prong of his lawsuit.  He also claimed that her employer was defrauding the government.  His False Claims Act allegations were based on his “constructive discharge.”  The Court has permitted these claims to go forward because “constructive discharge” can be used as a predicate to a False Claims Act claim.

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Virginia Supreme Court Changes Non-Compete Law

The Supreme Court of Virginia recently overturned a 1989 decision concerning the validity of a non-compete clause and held that a clause identical to one that it previously held was valid, from the same company, is now invalid. The case is Home Paramount Pest Control Cos. v. Shaffer (Nov. 4, 2011).

Employers commonly use non-compete agreements (or, more fully, non-competition agreements or covenants not to compete) in order to prevent an employee from using information gleaned from the company to help a competitor.  Despite conventional wisdom and employee belief, these agreements are quite enforceable if drafted properly.  Proper drafting means that the contract is narrowly drawn to protect the employer’s legitimate business interest, is not unduly burdensome on the employee’s ability to make a living, and is not against public policy.  The employer bears the burden of proving each of these three factors and, when evaluating whether the employer has met that burden, Courts consider the function, geographic scope, and duration elements of the restriction.

The new rule:  non-compete agreements should rarely include language which prohibits a former employee from performing services “directly or indirectly” and in “any capacity” for a competing business.  The Virginia Supreme Court’s recent decision permits dismissal of such non-competes as a matter of law.  It is important for employers to very narrowly draft these contracts so that they only proscribe directly competitive activities.

In this case, the Supreme Court held that a non-compete clause in an employment agreement was over-broad and, therefore, unenforceable as a matter of law.  The employee/defendant at issue resigned from one pest control company and joined another during the time period for which he was bound to the non-compete agreement.  The former employer (Home Paramount), relying on the non-compete language, initiated a lawsuit alleging inter alia breach of contract and tortuous interference with contract.  The provision at issue stated:

“The Employee will not engage directly or indirectly or concern himself/herself in any matter whatsoever in the carrying on or conducting [the business of exterminating [and other similar] services as an owner, agent, servant, representative or employee . . . or in any manner whatsoever. . . .”

Although the Virginia Supreme Court held 20 years ago that a non-compete with identical language as this one was enforceable, the high court now states that it is not bound by its prior decision because the law has incrementally been changing.

The Court analyzed the growing body of case law on non-compete law – from Blue Ridge Anesthesia & Critical Care, Inc. v. Gidick, 239 Va. 369 (1990) to Omniplex World Services Corp. v. US Investigations Servs., Inc. 270 Va. 246 (2005) – in reaching its decision.  It then concluded that a non-compete which restricts an employee from working for competitors in “any” capacity requires the employer to prove a legitimate business interest to support such a broad prohibition.  It held that the prohibited activity in the non-compete agreement must be of the same type as that actually engaged in by the former employer.   In this case, the Court noted that a strict reading of the non-compete agreement would prohibit the employee from even passively owning stock in a publicly traded international conglomerate with a pest control subsidiary.  It held that this was over-broad.  If a former employer, like Home Paramount, wishes to prohibit its employees from working for its competitors in any capacity as stated in the non-compete, the employer has the burden of proving that it has a legitimate business interest for doing so.  Most employer’s will have a great deal of trouble meeting this burden, which could leave the door open for defendants to swiftly dismiss any claims that rely on such non-compete language.

Under Virginia law, even a narrowly tailored geographic scope and duration could not save a non-compete that was clearly over-broad in its functional prohibitions.  Given the competitive nature of today’s marketplace, businesses should consider a thorough review of its non-compete language to avoid the situation Home Paramount encountered.

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An Employee Who Can Work Full-Time but not Overtime is Not Disabled Under ADA

While the Americans with Disability Act (ADA) requires employers to reasonably accommodate a qualified individual with a disability, the ADA’s definition of disability excludes many common health conditions.  While the definition of disability was broadened by statute in 2008, the Fourth Circuit recently recognized that a disability did not exist under the old law where an employee could work 40 hours a week, but not overtime.  Thus an employer did not have to accommodate that employee by changing its overtime requirement, which barred him from working for many months.  The case is Boitnott v. Corning Inc., No. 10-1769 (4th Cir. Feb. 10, 2012).

In that case, the employee, Boitnott, a maintenance engineer at the defendant glass manufacturer, Corning Inc., was assigned to work rotating 12-hour shifts requiring that he spend two weeks on the day shift then switch to two weeks on the night shift.  After 13 years of employment, Boitnott had a heart attack resulting in abdominal complications.  After taking some time off, Boitnott returned to work, then experienced more heart trouble and was diagnosed with leukemia, all of which required that he take time off of work.  For almost a year, Boitnott’s doctor told him he could not work more than 8 hours a day, nor more than 40 hours per week, and also could not rotate night and day shifts.  Taking the position that Boitnott was not disabled because he could work a standard 40 hour workweek, Corning did not seek to accommodate Boitnott and refused to reinstate him because he could not comply with its rotating shift schedule.  (After Boitnott’s doctor cleared him to work some overtime, Corning devised a position that Boitnott could perform and reinstated him to that position.)

When he was out of work and restricted to working a normal 40-hour per week schedule, Boitnott filed a charge of disability discrimination against Corning and brought suit claiming that Corning violated the ADA.  The trial court granted summary judgment to the employer, and the Fourth Circuit affirmed based on the pre-2008 ADA definition of disability. The Fourth Circuit held that Boitnott was not “substantially” limited if he could handle a forty hour work week but was incapable of performing overtime due to an impairment. The court stated that the record contained no evidence indicating that Boitnott’s inability to work overtime significantly restricted his ability to perform a class of jobs or a broad range of jobs in various classes.

In so holding, the court cited decisions from a number of other Federal appeals courts (including the 1st, 3rd, 5th, 6th, and 8th Circuits) in finding that the pre-2008 ADA did not consider inability to perform overtime to substantially limit an individual in the major life activity of working.  Nevertheless, the court noted that after the 2008 amendments to the ADA, the regulations no longer require that an impairment substantially limit an employee in a “class of jobs or a broad range of jobs” to be a disability.  Thus it remains to be seen whether the post-2008 ADA requires an employer to reasonably accommodate an ailment that prevents the employee from working overtime.

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Failure to Post NLRB Notice is “Unfair Labor Practice”

On August 30, 2011, the National Labor Relations Board (“NLRB”) issued a rule mandating that all employers subject to the NLRA “post notices to employees, in conspicuous places, informing them of their NLRA rights, together with Board contact information and information containing basic enforcement procedures.”  In addition, the rule stated that “[f]ailure by [employers] to post the employee notice may be found to interfere with, restrain, or coerce employees in the exercise of the rights” guaranteed by the NLRA.  The rule operates to toll the statute of limitations for filing an unfair labor practice charge against the employer.  In the words of one dissenting member of the NLRB, the NLRB has arbitrarily and capriciously “conjure[d] up a new unfair labor practice based on a new statutory obligation.”

This rule will have a dramatic effect on employers throughout the nation and leave them exposed to civil lawsuits by their employees.  Because of this, the National Association of Manufacturers filed a complaint against the NLRB in federal court seeking a judicial declaration that the new rule exceeds the NLRB’s authority.  They are requesting injunctive relief preventing the NLRB from implementing and enforcing the new rule.  As the case proceeds, NAM will, no doubt, argue that when Congress wants a notice-posting requirement, as it has expressly mandated in other federal labor and employment laws, such as Title VII, the ADEA, the FMLA, and OSHA, it puts the requirement in the statute.  Here, the absence of any expressed intent by Congress that employers post notice of NLRA rights is evidence that it did not intend for such a requirement to be imposed.  This is particularly true where the failure to post notice would itself be deemed an unfair labor practice.

Since the rule is scheduled to go into effect on November 14, 2011 and the lawsuit against the NLRB seeks a preliminary injunction, we could soon see a preliminary decision from the court at least outlining its initial view of the merits of the NLRB’s rulemaking.  But how the court may rule is anyone’s guess.  The case is being heard by Judge Amy Berman Jackson, a new judge who was recently appointed to the United States District Court for the District of Columbia by President Obama in 2011.  Previously a criminal and civil litigation defense lawyer in private practice, there is presently little basis for discerning Judge Jackson’s judicial philosophy.

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Employer is Not Entitled to Recover Attorney’s Fees When Victorious Against the EEOC

The Equal Access to Justice Act (EAJA) was designed to address the disparity of resources between the government and a private party to a lawsuit. Its mandatory fee provision requires the government to bear the litigation costs of a prevailing defendant, evening out the playing field between small businesses and the federal government. However, in EEOC v. Great Steaks, Inc., 2012 U.S. App.  LEXIS 1430 (4th Cir. 2012), the Fourth Circuit took away this provision for wrongly-accused employers in Title VII cases.

Usually when an employee files with the EEOC, the individual must ultimately pursue the claim. Only in rare circumstances when the EEOC thinks the claim has real merit or affects many employees will the agency take on the case. After successfully defending a sexual harassment lawsuit, Great Steaks, Inc., moved for an award of attorneys’ fees under three federal provisions: Title VII §2000e-5(k); the Equal Access to Justice Act  (EAJA) §2412(d); and 28 U.S.C. §1927.  The court held that none of the provisions applied, most significantly, the EAJA “mandatory” provision, thus taking away a potential weapon for wrongly-accused employers.

The EAJA’s provision applies to cases in which the United States is a party, and requires that the government bear the expense of litigation when it is the losing party in a civil action “unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust.” The court rejected Great Steak’s argument that the mandatory fee provision was intended to supplement more limited attorneys’ fee provisions, such as the stringent Title VII provision.

Under Title VII’s provision, the trial court is granted the discretion to shift the defendant’s fees to the plaintiff if the plaintiff’s claims were frivolous, unreasonable, or groundless. However, if the judge allows the case to go to trial, and denies the defendant’s motion to dismiss after the presentation of all evidence, it is highly unlikely that the fee-shifting provision will apply.

The Fourth Circuit declined to reverse the trial court’s denial of Great Steak’s request for attorney’s fees for this reason: if the case went to trial, there must have been enough evidence that the case wasn’t groundless, unreasonable, or frivolous.

Great Steaks also argued for 28 U.S.C. §1927, a punitive provision and requires a showing of bad faith by the opposing party who “so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.” The Fourth Circuit found that the EEOC’s case had obvious weaknesses, but that they did not amount to bad faith or vexatious multiplication of proceedings.

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Federal Court Holds That Termination of Employee Based on Wife’s Medical Condition Did Not Violate Federal Law

The federal Genetic Information Nondiscrimination Act (“GINA”) makes it unlawful for an employer “to fail or refuse to hire, or to discharge, . . . or otherwise to discriminate against any employee . . . because of genetic information with respect to the employee.”  The law defines such genetic information as including the genetic tests of family members of an individual.  Does this mean that an employee automatically has a viable lawsuit if he is discharged based on a genetic disease of a family member?  The answer, as a plaintiff in the Western District of Virginia recently discovered, is “no”.

In Poore v. Peterbilt of Bristol, L.L.C., an employee of Peterbilt claimed that he was terminated after disclosing in a health insurance questionnaire that his wife had been diagnosed with multiple sclerosis.  After he submitted the completed questionnaire, Peterbilt’s office manager allegedly asked the plaintiff when his wife was diagnosed with multiple sclerosis and the prognosis.  Three days later, he was terminated.

The plaintiff claimed that his termination violated GINA based on the theory that he was terminated as a result of his wife’s medical condition.  The plaintiff argued that because the statute defines “genetic information” as including “genetic tests of family members of an individual,” and because he was allegedly fired based on the results of his wife’s genetic tests, he was entitled to compensation for his termination.  The judge disagreed.

Consulting the statute’s legislative history, the judge noted that the intent of GINA is to prohibit employers from making a predictive assessment concerning an individual’s propensity to have an inheritable genetic disease or disorder based on an inheritable disease or disorder of a family member.  The key, according to the court, is whether the family member’s genetic traits are being used as a surrogate for the genetic traits of the employee.  The fact that an individual family member has been diagnosed with a disease or disorder is not considered “genetic information” if that disease or disorder relates only to the afflicted family member and not to the employee as a disease or disorder that he may also have.  Because the family member was a spouse, and not a blood relative of the employee, the employee could not show that the employer viewed the disease as one that he may have.  Thus, a claim that the employee was terminated because of a family member’s genetic traits that do not plausibly suggest any genetic traits of the employee is insufficient to maintain a lawsuit under GINA.

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Employers Cannot Put Class Action Waivers in Employment Agreements

Employment arbitration agreements that bar employees from filing class actions against their employers, and instead require cases to be brought separately, violate federal labor law, the National Labor Relations Board (“NLRB”) held this month.  The decision is D.R. Horton, Inc. and Michael Cuda. 357 NLRB No. 184. (http://tinyurl.com/89ec6w7). In that case, Michael Cuda worked for D.R. Horton, Inc., a new home builder, as a supervisor for ten months. Two years after resigning, he filed an unfair labor practice charge alleging that D.R. Horton’s Mutual Arbitration Agreement unlawfully barred him from filing a collective claim on behalf of a class of employees.

The NLRB agreed, finding a “substantive right to engage in specified forms of associational activity” in the statutory language of Section 7 of the National Labor Relations Act (“NLRA”), which grants employees the right “to engage in…concerted activities for the purposes of collective bargaining or other mutual aid or protection…” 29 U.S.C. §157. D.R. Horton’s chief defense was that the Federal Arbitration Act allows for the enforcement of arbitration agreements “so long as the litigant can effectively vindicate his or her statutory rights through arbitration.” Gilmer v. Interstate/Johnson Lane Corp., 500U.S. 20, 28 (1991).  In rejecting this argument and finding that the NLRA bars this common term of employment arbitration clauses, the NLRB effectively held that the NLRA trumped the FAA, and extended its own reach into territory typically governed by other federal law.

The Board held that the NRLA protected employees who signed these arbitration terms from losing their right to bring class actions, finding that the NRLA guaranteed employees access to these collective proceedings. Since this right was waived by D.R. Horton’s arbitration agreement, the NLRB found that the agreement was unlawful under the NLRA.

The Board nonetheless recognized some limits to its power over arbitration clauses, reasoning that, “an agreement requiring arbitration of any individual employment-related claims, but not precluding a judicial forum for class or collective claims, would not violate the NLRA, because it would not bar concerted activity.”

Amici curiae in this matter included the AFL-CIO, the United States Chamber of Commerce, the U.S. Secretary of Labor and the Equal Employment Opportunity Commission. 

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An Employee Sexually Assaulted Twice within Four Days Loses Harassment Claim – Employers Must Move Fast, but Not that Fast.

Under Federal law, an employer can be held liable for sexual harassment among co-employees, regardless of whether one has supervisory authority over the other. However, the employer will not be held liable if it promptly responds in a reasonable manner to stop the harassment. Additionally, to sustain a Title VII claim, the plaintiff must allege that the employer allowed harassment that was severe or pervasive.

In Davis v. City of Charlottesville School Board, 2011 U.S. Dist. LEXIS 137875 (2011), the Charlottesville School Board (CSB) was not held liable under Title VII of the Civil Rights Act of 1964, 42 U.S.C. §2000 et seq., for two instances of sexual harassment by one employee against another occurring four days apart on a Friday and Monday, nor was the employer held liable for transferring, but not firing the offender.

The plaintiff, Sheila Davis, was first assaulted on Friday, December 11, 2009, by Warren Mawyer when he attempted to touch her breast and asked her if they were real or not. Immediately after this incident, Davis notified the assistant principal. In the second incident, the following, Monday, Mawyer grabbed Davis’ breast. Davis fought back to protect herself and reported it to her supervisors, who transferred Mawyer to another work location. Davis obtained a warrant against Mawyer, who was convicted and sentenced to 60 days in jail.

Davis’ Title VII employment discrimination claim was dismissed, however, for failure to present facts to show that the CSB was liable for Mawyer’s harassment. Employer liability results when the employer becomes aware of discrimination, fails to take effective action to stop it, and the discrimination is “severe or pervasive so as to alter the conditions of employment and create an abusive work environment.”

The court ruled that Mawyer’s harassment could not be imputed to the CSB; that “the allegation that the CSB failed to act fast enough between a Friday and the following Monday is insufficient to constitute a violation of Title VII.”

Access the opinion here: http://law.justia.com/cases/federal/district-courts/virginia/vawdce/3:2011cv00026/80403/26

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Terminating an Employee for Her Refusal to Have an Abortion Does not Contravene Virginia’s Public Policy

While Virginia strongly adheres to the employment-at-will doctrine, many employers have worried that the Virginia Supreme Court’s recognition of a public policy exception to this doctrine would make employers vulnerable to a host of wrongful discharge claims.  However, a Federal Court has recently emphasized the narrowness of this public policy exception, refusing to expand its reach, even to a situation where the employer’s actions “offend[ed] the conscience of the Court.”  The case is Shomo v. Junior Corp.,  Civil Action No.: 7:11-cv-508 (W.D.Va.  Jun. 1, 2012), and the employee claimed she was wrongfully terminated because she refused to have an abortion.

The defendant Corporation owns and operates restaurants in the Virginia area.  The President’s son is a co-owner and manager of one of these restaurants.  According to the Complaint, in September 2010, a restaurant server became pregnant with the President’s son’s child.  In October 2010, the son told the server that she would be fired if she did not terminate her pregnancy.  On January 30, 2011, the President of the Corporation told the server that, although he was satisfied with her work, she was being fired because of her pregnancy.

The server filed suit against her former employer, claiming among other things, that the Corporation wrongfully terminated her employment in violation of Virginia common law.  Virginia adheres to the at-will employment doctrine, which means that if the contract is for an unspecified term, then either the employer or the employee can terminate their relationship at any time, for any reason, or for no reason at all.  Based on the at-will employment doctrine, the Corporation filed a Motion to Dismiss.  Meanwhile, the server argued that she fell within the recognized “public policy exception” to the at-will doctrine, which states that it is unlawful for an employer to fire an employee if the firing was contrary to the public policy of Virginia.  Not surprisingly, the server argued that she was fired because she refused to abort her unborn child and this was contrary to Virginia public policy, and therefore unlawful.

Nonetheless, the court reiterated that such public policy exceptions, or “Bowman Claims” are very narrow.  An employee bringing such claims must identify the sources of public polices allegedly violated with specificity.  In this case, the server specifically argued that her termination was a violation of Virginia public policy because requiring her to have an abortion is effectively requiring her to commit battery, which is a criminal act, in order to keep her job.  The court rejected this argument because the Corporation never required her to actually commit battery; and if the server had obtained an abortion, this would not have been considered a “battery.”  Second, the employee argued that a Virginia statute prohibits denial of employment to any person who refuses to participate in abortion.  However, the court held that this statute is geared more towards medical professionals, and requires an employee to state his/her objection to abortion in writing, but the server had not done so.  Lastly, the server argued that the Corporation violated the Virginia Constitution’s policy of religious liberty by attempting to force the employee to have an abortion in contravention of her religious beliefs. The court rejected this final argument as well because it was not stated in the server’s complaint and because discrimination on the basis of religion is specifically outlined in the Virginia Human Rights Act (“VHRA”).  An individual cannot bring a Bowman claim based upon a policy that is reflected in the VHRA.  Thus, the server’s common law wrongful discharge claim was dismissed.

This case is another reminder that Bowman is a very narrow exception to Virginia’s employment at-will doctrine, and does not easily allow employees to file common law causes of action for wrongful discharge against their employers.

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Fourth Circuit Rules that an Employee Taking and Misusing Confidential Computer Data Does Not Violate the Computer Fraud and Abuse Act

In a recent decision that the court acknowledged would disappoint employers hoping to rein in rogue employees, the Fourth Circuit refused to apply the federal Computer Fraud and Abuse Act (“CFAA”) to workers who access computers or information in bad faith, or who disregard a technology use policy. That decision is WEC Carolina Energy Solutions, LLC v. Miller.

The CFAA is primarily a criminal statute designed to combat computer hackers.  However, the statute also provides a civil remedy to a private party, such as an employer, who suffers damage or loss by reason of a violation of the statute.  Employers have increasingly been relying on the statute to seek damages from former employees who accessed a computer without authorization or exceeded their authorized access.  Typically, the central issue in such cases is whether the former employee was permitted to access the computer data when it was retrieved.

In the Miller decision, the employee allegedly downloaded information from the employer’s computer system while working there, then resigned and used that information to obtain a potential client for a competitor.  While some courts have held that such conduct violates the CFAA because it violates the employee’s duty of loyalty, thereby terminating her agency relationship and automatically stripping her of any authority to access the computer, other courts have adopted a narrower approach.   These courts have limited their interpretation of the CFAA, which prohibits computer access that is “without authorization” or “exceeds authorized authority.”  They have held that the CFAA only applies to situations where an individual accesses a computer or computer data without actual permission.  In affirming dismissal of the CFAA claim against the employee, the Fourth Circuit adopted this latter approach.

Noting that the CFAA does not define “authorization,” the court held that the ordinary meaning of “authorization” means “approved” or “sanctioned by,” and that an employee “exceeds authorized access” when he has approval to access a computer, but uses his access to obtain or alter information that falls outside the bounds of approved access.  Thus, because the employee had authorization when she allegedly downloaded the computer data of her employer, she did not violate the CFAA, even if she kept that data and later used it for competitive purposes.

The court noted the problems that would logically follow if it were to interpret “authorization” more broadly.  For instance, if “authorization” were broadly construed, an employee might be liable under the CFAA if the employee disregards his employer’s policy against downloading information so that he can work from home in order to meet deadlines set by his employer. Furthermore, the court rejected the cessation-of-agency theory adopted by some courts, noting that if the rule were taken seriously, it “would mean that any employee who checked the latest Facebook posting or sporting event scores in contravention of his employer’s use policy would be subject to the instantaneous cessation of his agency and, as a result, would be left without any authorization to access his employer’s computer systems.”

Because of the split between the federal circuit courts on breadth of this increasingly important statute, this issue may ultimately have to be addressed by the Supreme Court.  Until then, employers in Virginia now face more difficulties in suing former employees under the CFAA.

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Answer to the Employment Law Question for September 2012

As a recent lawsuit shows, an employer can generally discipline an at-will employee for such conduct, and may even bring legal action against him or her. (Employment at will is the default and most common employment relationship, allowing termination for any reason or no reason.) Before reacting, however, an employer should take care to avoid several common pitfalls. Important legal considerations apply that employers should know about before they take action against an employee who has posted grievances online.

 Claims of Illegal Actions. First, if the employee complains of illegal actions by the employer, the employer should proceed cautiously. Federal whistleblower and retaliation laws protect employee complaints of unlawful conduct such as discrimination or harassment, unsafe working conditions, or fraud in servicing government clients. Generally speaking, posting such claims on the internet instead of notifying the employer weakens the employee’s protection and, in certain circumstances, may even justify discipline or discharge. Nevertheless, to protect against liability, employers should consult legal counsel to investigate the claims and to guide their response to the employee’s claims.

• Complaints about Terms of Employment. Second, if the employee complains about terms of employment like pay, hours, or hiring or firing decisions, federal labor law likely protects the employee. The National Labor Relations Act protects employees who communicate with other employees about their terms of employment at the company. Several large companies have had to change their social media policies at the insistence of the National Labor Relations Board so that they do not discourage acts of employee solidarity. Nevertheless, with appropriate legal advice, employers can often effectively counter such online complaints about working conditions within the limitations imposed by federal labor law.

• Anonymous Complaints or Re-Posts. Third, an employer must cautiously approach situations in which it merely suspects an employee of posting anonymous complaints, or in which it learns that the employee has “Like”-d, “Re-Tweet”-ed, or forwarded links to complaints by others. A local federal court decision recently held that employees of a public official are not protected from discipline for “Like”-ing his opponent on Facebook. Yet a Federal law passed in the 1990s, the Communications Decency Act, protects most users from legal liability for re-posting web content. While employers may generally discipline or discharge employees who re-post or forward others’ criticisms, this immunity limits the types of legal action an employer may take. Additionally, these protections also apply to internet providers and thus create obstacles to proving who posted anonymous complaints online.

Given the complicated legal landscape surrounding employee online conduct, employers should seek legal assistance in confronting these situations, and implement effective technology use and social media policies. With this guidance, employers can prevent harm to their businesses and protect themselves against potential legal liability from employee online complaints.

This is intended for educational purposes only, and is not intended to provide legal advice nor is it intended to create an attorney client relationship with the recipient of this email.

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Automatic Deduction of Meal Periods Is Acceptable but Risky

Every employer knows that the Fair Labor Standards Act requires that nonexempt employees be paid the federal minimum wage for all time worked and that they receive overtime pay for all hours worked in excess of 40 hours per week.  Employers are also keenly aware of the need to maintain time records that document the employee’s hours.  If employees are not paid for all time worked, significant monetary liability can result.

Some employers have adopted policies requiring their employees to take 30 minute breaks.  In accordance with this break policy, employers may choose to automatically deduct a 30 minute break from the employee’s daily hours.  But what happens if the employee disregards the employer’s break policy and opts to work through lunch? This situation was recently addressed in Quickley v. University of Maryland Medical System Corporation, et al. where a hospital found out that giving employees a little extra freedom to control their workday cost may potentially come at a high cost to the employer.

In Quickley, the hospital employees clocked in at the beginning of a shift and clocked out at the end of their shift.  The employees did not clock out for lunch, but the hospital maintained a policy of automatically deducting 30 minutes per day to account for lunch.  If the employee worked through lunch, it was up to the employee to notify the hospital so that the 30 minute break would not be deducted from their hours.

The plaintiff in Quickley sued the hospital over the automatic 30 minute deduction, claiming that she was “suffered or permitted to work” during her lunch and that the hospital must pay her for it regardless of its break policy.  In its defense, the hospital argued that the automatic deduction of time did not violate the FLSA and that the employees had the responsibility of informing it that they were working through their meal break period.

The court agreed with the hospital that the automatic deduction of time was not a per se violation of the FLSA, but noted that this was not the real issue.  An automatic deduction of time is permissible, but it is incumbent on the employer to ensure that the employees are not, in fact, working during that time.  When the employer shifts the burden to the employee to report time worked during meal breaks, the employer must make that responsibility clear to the employee and must make every effort to facilitate the employee’s reporting opportunities.

In Quickley, the court noted that based upon the pleadings it appeared that the employer did not provide an easy mechanism for the employee to inform the employer of the need to credit portions of the meal period back to the employee.  While this is not the end of the case for the employer, and the employer may still be able to prove that it did, in fact, provide the employee with reasonable ways of reporting work during meal periods, the employer now faces the prospect of prolonged litigation in order to prove that it did not violate the FLSA.

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How does Obamacare affect my company? The answer to the Employment Law Question for July 2012

The answer to this question will largely depend on the size of your business.

 

Medium-to-Large Businesses
Small Businesses

The Patient Protection and Affordable Care Act of 2010, commonly referred to as Obamacare, goes into full effect in 2014; however, employers are already struggling to comply with its many mandates, some of which are already in effect.

 

Starting in 2014, every individual with annual income over $9,500 for whom health insurance is considered affordable based on family income must be insured or face a penalty. Individuals can turn to government-run “insurance exchanges” for coverage, and low-income employees may receive tax credit subsidies if their employers provide no health insurance, or unaffordable/insufficient health insurance. (“Unaffordable” health insurance requires an employee to pay premiums or co-pays of more than 9.5% of wages, and insufficient benefits fail to cover at least 60% of costs). The Government will finance these subsidies, however, by penalties assessed against the individuals’ employers if they have 50 or more full-time employees (or part-time equivalents).

Medium-to-Large Businesses. Under Obamacare, many medium-to-large businesses will need to adjust health insurance or staffing to comply with the law’s requirements. Obamacare requires businesses with 50 or more employees to offer affordable and sufficient health care coverage to each full-time employee or pay a penalty. This penalty is assessed if even one full-time employee receives a subsidy. The penalty varies depending on whether the employer offers no health insurance, or unaffordable/insufficient insurance. If it provides no health insurance, the penalty equals the total number of full-time employees, minus 30, times $2,000. If it provides unaffordable or inadequate insurance, the penalty is the lesser of either (i) the total number of full-time employees, minus 30, times $2,000; or (ii) the number of subsidized employees times $3,000.

For example, if a 50-person employer provides no health insurance and only two full-time employees receive government subsidies, then that employer would be charged $40,000 in penalties. If it provides unaffordable or insufficient insurance, it would only pay $6,000 in penalties (2 x $3,000 = $6,000, which is less than 20 x $2,000 = $40,000).

Despite these penalties, however, the likely increases in health care costs under Obamacare may make it cheaper for medium-to-large companies to stop providing health care coverage to employees. Obamacare will increase health insurance costs because it will add millions of people to Medicaid (including households below 133% of the Federal Poverty Level), which will likely cause hospitals and doctors to increase costs for private insurers. Additionally, Obamacare imposes expensive new mandates on employer benefits, including:

1. requiring that employee dependents remain covered until age 26;

2. eliminating caps of annual and lifetime reimbursement limits; and

3. imposing new burdens on employers when it comes to reporting costs, including that employer-sponsored insurance report costs on employees’ W-2 Forms beginning in the 2012 tax year.

For many medium-to-large employers, the best course of action will be to adjust wages and staffing. Many employers hovering at the 50-employee threshold can lower their workforce size to below 50 employees by replacing full-time positions with part-time employees. (Obamacare does not penalize employers for uninsured employees working less than 30 hours per week.) Employers can also use independent contractors to stay under the 50-employee threshold. Alternatively, employers can increase salaries or provide alternative benefits to prevent employees from receiving a government subsidy, rather than provide insurance, or reduce wages to recoup any penalties paid. The National Federation of Independent Business provides a useful resource in analyzing the impact of the law.

Small Businesses. Employers with fewer than 50 full-time employees or their equivalent are exempt from penalties, and thus have less incentive to provide health insurance to employees in 2014 and after. To counter this dynamic, the law provides that businesses with 25 employees or less that do provide insurance can qualify for a tax credit if their employees’ average wages are below $50,000. Currently this tax credit is 35 percent (set to increase to 50 percent in 2014). In addition, small businesses with up to 100 employees will have access to government-based Small Business Health Options Program (SHOP) Exchanges to expand their purchasing power with insurance companies. Nevertheless, many small businesses will likely find it cheaper and easier to leave employees on their own to buy insurance through the government-run exchanges.

Increased Medicare Withholding. After December 31, 2012, employers will also be required to withhold additional Medicare tax from the wages of high-earning employees. The Medicare tax is set to increase from 1.45 percent to 2.35 percent for an employee who receives wages of more than $200,000. Businesses are only required to withhold this additional tax if the employee receives over $200,000 from that employer. (Businesses need not consider a spouse’s earnings or earnings from a second job.) This additional tax also applies to wages over $250,000 for joint filers, and wages over $125,000 for separate filers who are married.

To ease the impact of these changes, employers should seek legal guidance and discuss with a qualified employment lawyer the effect of Obamacare’s provisions on their businesses.

This is intended for educational purposes only, and is not intended to provide legal advice nor is it intended to create an attorney client relationship with the recipient of this email.

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