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In a recent case, decided on June 19, the Supreme Court of Pennsylvania granted appeal to clarify the scope of subrogation reimbursement under the Pennsylvania Workers Compensation Act (the “Act”).

By way of background, the Act makes an employer liable for paying disability benefits and medical expenses of an employee who sustains an injury in the course of his/her employment, regardless of whether the employer was negligent. Under Section 319 of the Act, however, employers are entitled to reimbursement for certain expenses where a third party caused the employee’s injury. Specifically, an employer (or its insurance carrier) has the absolute right to collect the workers’ compensation benefits it paid if the employee recovers from the third party who caused the injury. This is known as subrogation.

The Supreme Court in its recent decision addressed the scope of the reimbursement under Section 319 of the Act. Section 319 states, in pertinent part:

Where the compensable injury is caused in whole or in part by the act or omission of a third party, the employer shall be subrogated to the right the employe…against such third to party to the extent of the compensation payable under this article by the employer; reasonable attorney’s fees and other proper disbursements incurred in obtaining a recovery or in effecting a compromise settlement shall be prorated between the employer and employe…Any recovery against such third person in excess of the compensation theretofore paid by the employer shall be paid forthwith to the employe…and shall be treated as an advance payment by the employer on account of any future instalments of compensation.

The critical question the Court addressed was whether the term “future instalments of compensation” encompasses both future disability benefits and payment of future medical expenses. In other words, the Court addressed whether an employer can credit the excess third part recovery against both future disability and future medical payments.

The Commonwealth Court, our intermediate appellate court, concluded that the term “instalments of compensation” encompasses both disability and medical expenses. The Commonwealth Court reasoned that since the objective of subrogation is to protect the presumably innocent employer from ultimate liability, the credit should apply to both medical expenses and disability benefits.

In its June 19th ruling, the Supreme Court disagreed. The Court’s assessment of the issue was in some ways quite straightforward, but it requires an understanding of how an employer must pay disability and medical expenses. The long and short of it is that disability benefits are required to be paid in installments, while medical expenses are not. Accordingly, the Court found that the term “instalments of compensation” under Section 319 spoke for itself and meant “compensation that is paid in installments” which can only include disability benefits, not medical expenses.

In a nutshell, the Court found that when a workers’ compensation claimant recovers proceeds from a third-party settlement under Section 319, the employer (or the insurance carrier) is limited to drawing down against that recovery only to the extent that future disability benefits are payable to the claimant.

What does this mean in plain language?

If the third-party recovery exceeds the employer’s accrued subrogation lien (workers’ compensation payments made prior to resolution of the third-party claim), the employer can treat the excess recovery (which will be paid to the employee) as a credit against future workers’ compensation payments. However, the credit may only be taken against future disability (aka wage loss or indemnity) benefits. There may be no credit taken against future medical benefits.

For this reason, employers looking to settle with an employee who has sustained a serious work injury that was caused by the negligence of a third party should proceed with caution! This is especially true when only the wage loss portion of the claim is resolved in the settlement and the medical portion is left open (either indefinitely or for some set time in the future). When resolving a claim in this way, employers must remember that no excess recovery credit can be taken against future medical benefits. This new reality should be factored into the valuation of the case.

If you need any assistance with subrogation rights or have any questions regarding this Article, please feel free to reach out to any member of our Labor and Employment group for assistance.

On June 6, 2018, Governor Wolf signed Executive Order 2018-18-03, which is designed to combat the gender pay gap in Pennsylvania. The Executive Order directs all state agencies under the governor’s jurisdiction to:

  • no longer inquire about a job applicant’s current compensation or compensation history at any stage during the hiring process;
  • base salaries on job responsibilities, position pay range, and the applicant’s knowledge, skills, competencies, experience, compensation requests, or other bona fide factor other than sex, except where compensation is based on:
      • a collective bargaining agreement;
      • a seniority system;
      • a system of merit pay increases;
      • a system which measures earnings by quantity or quality of production, sales goals, and incentives
  • clearly identify the appropriate pay range on job postings.

The Executive Order does expressly state that applicants are not prohibited from volunteering information about their current compensation level or salary history in negotiating a salary. However, no agency can request that an applicant disclose current salary or salary history information.

So why the need for the Executive Order? Some argue that by asking an applicant to reveal their current salary or salary history, employers are perpetuating pay inequality between men and women. The reasoning is that because women have been paid less than men historically, asking applicants their salary history and then basing salary determinations on prior pay information further continues the cycle of pay inequality.

While the Executive Order is only applicable to Commonwealth agencies under the Governor’s jurisdiction, it may signal a push to address the gender pay gap throughout Pennsylvania.

Please feel free to contact any member of the McNees Wallace & Nurick Labor and Employment Practice if you have any questions regarding this article.

If you have followed our blog over the past year, you are aware of the long and tortured history of the National Labor Relations Board’s joint employer standard.  The recent history starts with the Obama Board’s decision to overturn decades of case law.  But the saga continued.

Just last month, we reported on the Trump Board’s proposal to promulgate regulations adopting a joint employer standard.  According to the Board, issuing regulations will clear up the uncertainty currently surrounding the standard that was created by years of case law.  Those who have been following this matter might view the Board’s proposed rulemaking as a welcome opportunity for clarity on an issue that has vexed employers and unions alike in recent years.

But not everyone was pleased by the Board’s announcement.  In a joint letter to Trump-appointed Board Chairman John Ring, United States Senators Elizabeth Warren, Kirsten Gillibrand, and Bernie Sanders questioned the Board’s ability to remain independent on the issue given its overturned decision in Hy-Brand (in February 2018, the Board reversed its own ruling after its Ethics Officials determined that one of the Board Members should have been disqualified from participating in the case due to a conflict of interest).  Essentially, Senators Warren, Gillibrand, and Sanders accused the Board of using rulemaking to reinstate the Hy-Brand decision.  In other words, they believe that the Board has already decided on the final rule to be issued based on personal bias and without regard for the notice-and-comment process.  Serious allegations, to be sure.

Earlier this week, Chairman Ring responded to the Senators with a letter of his own.  The Chairman explained, in no uncertain terms, that a majority of the Board will engage in rulemaking on the joint employer issue and that it intends to issue a notice of proposed rulemaking sometime this summer.  He reminded the Senators that all Board Members, both past and present, have personal opinions formed by years of experience.  After assuring the Senators that the Board has not pre-determined the final joint employer rule, Chairman Ring also pointed out that the courts have held that personal opinions do not render Members incapable of engaging in rulemaking unless it can be shown that their mind is “unalterably closed” on the issue.

If we’ve learned anything from this dust-up between the Senators and the Board, it’s that the Board will proceed with rulemaking on the joint employer standard, and that accusations of bias from U.S. Senators will not stop it from doing so.  As we said last time – stay tuned.  More news is coming, and soon.

The Supreme Court of the United States held today that arbitration agreements, which waive the right to proceed as part of a class or collective action, are enforceable in the employment context. In Epic Systems Corp. v. Lewis, the Court held that employment agreements that call for individualized arbitration proceedings to resolve workplace disputes between employers and employees are lawful. Interestingly, the Court’s 5-4 decision was authored by the newest Justice, Justice Gorsuch.

In a series of cases, employees and former employees had asserted that agreements requiring individual arbitration violate the National Labor Relations Act, because the NLRA protects employee rights to proceed in class or collective actions. Although it had previously taken a different position, in 2012, the National Labor Relations Board agreed that arbitration agreements, which waive the right to proceed in class or collective actions, violate the NLRA. The Board’s controversial position was set forth in D.R. Horton and Murphy Oil USA.

Employers countered that the Federal Arbitration Act expresses a strong preference for arbitration and makes clear that arbitration agreements are presumptively valid. The FAA requires that courts enforce arbitration agreements, including procedural terms related to the arbitration process itself. The FAA does provide that arbitration agreements will not be enforced if there is a legal basis to set aside the agreement, such as fraud or duress in the making of the contract. However, in this case, the only argument presented was that the individual arbitration agreements violate the NLRA.

The Supreme Court rejected that contention. Ultimately, a slim majority of the Supreme Court agreed with the employers and held that the FAA requires enforcement of arbitration agreements, including agreements that call for individual proceedings, because such agreements do not violate NLRA. The Court noted that in order for a law such as the NLRA to trump the FAA, there must be a clear statement of intention in the law. The Court found no such clear intention in the NLRA.

The Supreme Court’s decision is the law of the land, and that means that arbitration agreements in the employment context that require individualized claims are lawful. Employers looking to update their employment agreements in light of this decision can reach out to any member of the McNees Labor and Employment Group. In addition, if you are thinking about implementing arbitration requirements for the first time, we can help.

For several years we have been providing updates on the Obama-era National Labor Relations Board’s rather employer-unfriendly joint employer standard.  We have yet another. We believe the final episode in this saga should be good news for employers.  We’re just not sure whether the good news will come from the Courts, from the regulatory process, or both.

This may be hard to follow, but stay with us…

To recap, in 2015, the Obama Board issued a decision in Browning-Ferris Industries of California, and vastly expanded the situations in which a franchisor or a source employer could be deemed a joint employer with its franchisee or with a supplier of a contingent workforce.  All that needed to be shown under this new standard was some reserved ability by the franchisor or source employer to potentially control the terms and conditions of the other entity’s employees. To the relief of employers, Browning-Ferris quickly appealed this decision to the United States Court of Appeals for the D.C. Circuit.

As we reported in the Spring of 2017, the Board’s new standard appeared to receive a cool reception from the Court of Appeals during oral argument. We waited and waited, but no opinion came from the Court.

Then, in December 2017, the Trump Board decided Hy-Brand Industrial Contractors, and announced that it would return to the prior standard that required proof of a joint employer’s actual exercise of control over essential employment terms, rather than merely having reserved the right to exercise control. After Hy-Brand was issued, Browning-Ferris was no longer relevant, so the Court of Appeals remanded that appeal back to the Board.  All appeared to be right in the world.

Alas, this return to normalcy was short-lived.  In late February 2018, the Board issued an Order vacating Hy-Brand based on a determination by the Board’s Ethics Official that one of the three Members who participated in the matter should have been disqualified. With that disqualification no Board quorum existed.  So, what next?  The Board asks the Court of Appeals for a “do-over”: please recall Browning-Ferris and issue a decision. Please?!

On April 6, a divided Court of Appeals granted the Board’s request and recalled Browning-Ferris, and just like 2017, we again await that appellate decision.

But hold on.  There’s more.  Yesterday the Board announced that it is considering rulemaking to address the standard for determining joint-employer status. That would be actual regulations, folks. New Board Chair John Ring’s comments accompanying the announcement are telling: “Whether one business is the joint employer of another business’s employees is one of the most critical issues in labor law today. The current uncertainty over the standard to be applied…undermines employers’ willingness to create jobs and expand business opportunities. In my view, notice-and-comment rulemaking offers the best vehicle to fully consider all views on what the standard ought to be.”

So, stay tuned for more news.  We know it’s coming.  Just not sure which channel will air it first.

Winter is coming…still.  Some parts of the state are expected to receive possible snow squalls as well as a potential rain/snow storm in the weeks to come.  Weather conditions such as these often create challenges with business closures and employee absences.  With that in mind, employers should consider the following issues that may arise due to inclement weather:

Are employers required to pay employees when the business is closed because of inclement weather?

If weather conditions cause an employer to shut down operations and close, non-exempt employees need not be paid for time they did not work because of the closing. On the other hand, exempt employees must be paid their salary for the week regardless of the business closure.  An employer may require that exempt employees use accrued paid time off (PTO).

Must employees be paid if they do not report to work due to inclement weather when the business is open?

Non-exempt employees need not be paid for the time they are absent from work.  An employer may, however, at its discretion, allow non-exempt employees to use PTO for the absence. Additionally, exempt employees need not be paid for a whole day’s absence due to inclement weather. An exempt employee absent for part of a day may be required to use accrued paid time off.  If the exempt employee has no accrued paid time off, however, his or her salary may not be docked for a partial day absence.

May an employee be disciplined or discharged for failing to report to work due to weather conditions when the business is open?

Generally, an employer may apply its normal attendance policy to weather related absences. However, there is one major exception. Under Pennsylvania law, an employer may not discipline or discharge an employee who fails to report to work due to the closure of the roads in the county of the employer’s place of business or the county of the employee’s residence, if the road closure is the result of a state of emergency. The law does not apply to the following jobs: drivers of emergency vehicles, essential corrections personnel, police, emergency service personnel, hospital and nursing home staffs, pharmacists, essential health care professionals, public utility personnel, employees of radio or television stations engaged in the gathering and dissemination of news, road crews and oil and milk delivery personnel.

Ultimately, to avoid confusion about how weather-related closures and absences will be handled, employers should have a written inclement weather policy in their employee handbooks.  The policy should be clear that employee safety is the main concern.  The policy should also be clear as to the employees’ responsibility to give notice if they cannot make it to work due to bad weather.

Please feel free to contact any member of the McNees Wallace & Nurick Labor and Employment Practice Group for assistance with labor and employment law issues and/or if you have any questions regarding this article.

The Sixth Circuit Court of Appeals has held that discrimination against transgender/LBGTQ employees is discrimination on the basis of sex that violates Title VII of the Civil Rights Act of 1964.  Equal Employment Opportunity Commission v. R.G. & G.R. Harris Funeral Homes, Inc.  Moreover, the court held that the employer could not use the Religious Freedom Restoration Act (RFRA) as a defense to justify such discrimination.

The Plaintiff began work as a funeral director and presented as a male (birth sex).  Eventually, Plaintiff informed the funeral home that she had a gender identity disorder and would transition to female.  Plaintiff was fired when she informed the funeral home she was no longer going to present as a male and would transition and dress as a female.  The funeral home contended that continued employment would harm its business clients and violated the funeral home’s owner’s Christian beliefs.

The federal Equal Employment Opportunity Commission (EEOC) filed suit under Title VII alleging unlawful discrimination on the basis of sex.  The funeral home owner defended the termination under the RFRA.  The RFRA prohibits enforcement of a religiously neutral law that substantially burdens religious exercise, unless the law is the least restrictive way to further a compelling government interest.

The district court held that Plaintiff was discriminated against based upon sex stereotypes, but held the EEOC could not enforce a Title VII claim because it would burden the employer’s exercise of religion in violation of the RFRA.  The court granted summary judgment to the funeral home.

The Sixth Circuit reversed and held that Title VII prohibits discrimination on the basis of LGBTQ status.  Perhaps more importantly, the court held that the funeral home was not entitled to a RFRA defense on the ground that continuing Stephens’ employment would not, as a matter of law, burden the employer’s exercise of religion and, even if it did, the EEOC had established that enforcing Title VII is the least restrictive means of furthering the EEOC’s compelling interest in combating and eradicating sex discrimination.

Keeping up with compliance requirements under Pennsylvania and federal laws can be challenging enough; however, for Pennsylvania employers that do business in multiple states, the compliance burden can grow exponentially.  It is expected that we will see little new federal employment legislation over the next few years.  However, the lack of legislative activity in Washington may prompt some state legislatures to place a greater emphasis on employment issues than usual.  It already appears that 2018 will yield a bumper crop of new state employment laws across the nation.  California, as usual, leads the league in new employment laws with a dozen new state employment laws taking effect on January 1, 2018.  Pennsylvania has no new notable employment laws scheduled to take effect; however, as we previously reported, Governor Wolf is aiming to revise overtime regulations under the Pennsylvania Minimum Wage Act.  Several of our neighboring states (New Jersey and West Virginia) have no new employment laws taking effect in 2018 – while New York has a number of new laws on the books.  Here is a very quick look at new state employment laws taking effect in 2018 among the states that border Pennsylvania.

New York

Paid Family Leave – This law is perhaps the most likely to trip up unwary Pennsylvania employers.  Any employer that employs at least one employee in New York for at least 30 days during the calendar year is covered; however, employees are not eligible for benefits until they have worked 26 consecutive weeks (or 175 days of employment for employees who average fewer than 20 hours per week).  Eligible employees will be eligible for 8 weeks of paid family leave in 2018 and this entitlement gradually increases to 12 weeks by 2021.  Pay during leave is based on a fraction of the state’s average weekly wage.  Employers may purchase coverage or self-insure.  Employees may be charged to cover all or part of the premium via payroll deduction.

Workplace Safety (Smoking) – Effective November 22, 2017, employees are now prohibited from vaping in workplaces (and other public places).

Salary History (New York City Ordinance) – Following suit with the City of Philadelphia, the Big Apple now prohibits covered employers from asking applicants about their salary history and from relying on that history unless the information is offered by the applicant voluntarily.  Note: Philadelphia’s Ordinance is currently being challenged in federal court and enforcement of the Ordinance has been stayed pending outcome of this litigation.

Delaware

Salary History – On December 14, 2017, Delaware’s law prohibiting employers from seeking an applicant’s pay history from current or former employers took effect.  Delaware is the third state to pass such legislation, joining California and Massachusetts.  As noted above, several cities (including Philadelphia) have passed ordinances with similar requirements.

Data Breach Notifications – Delaware was one of several states to update its laws governing notifications in the event of data breaches (i.e. identity theft prevention).  The new requirements take effect April 4, 2018.

Maryland

Data Breach Notifications – Like Delaware, Maryland has updated its law governing notifications in the event of data breaches.  The amendments took effect January 1, 2018.

Paid Sick Leave – Maryland’s “Healthy Working Families Act” is scheduled to take effect February 11, 2018; however, recent legislative efforts have been made to delay the effective date until July 2018.  Under the law, employees who have completed 106 days of employment and who work at least 12 hours per week are entitled to accrue sick leave at a rate of 1 hour per 30 hours worked – subject to a 40 hour annual cap.  For employers with 15 or more employees, the sick leave must be paid.  Smaller employers may provide the leave on an unpaid basis.  Covered employers are required to maintain records of accrual and usage for at least three years.

Ohio

Unemployment Insurance – Ohio’s law governing unemployment insurance has been amended effective January 1, 2018 to require employers to submit quarterly wage and contribution reports electronically.

We hope that this quick summary is helpful.  If you have questions, please contact any member of our Labor and Employment Law Practice Group.

Under the Fair Labor Standards Act (“FLSA”), employers are permitted to pay non-exempt employees a fixed salary to cover straight-time earnings for all hours worked in a week, provided several conditions are met: a) the employee’s hours must fluctuate week to week; b) the employee must be paid the fixed salary in weeks where employee works less than 40 hours; c) there must be a clear understanding that the salary is intended as straight-time compensation for all hours worked; d) the employee’s “regular rate” of pay (calculated by dividing the salary amount by the total weekly hours worked) must be at least the federal minimum wage; and e) for each hour worked in excess of 40 in a week, the employee must be paid an overtime premium of at least ½ the employee’s regular rate for that week.  This pay plan, commonly referred to as the “fluctuating work week” method (“FWW”), was long thought to be lawful in Pennsylvania.  However, in two federal court decisions issued in 2012 and 2014, FWW pay plans were found to violate the Pennsylvania Minimum Wage Act (“PMWA”).  Put another way, a pay practice that is permitted under federal FLSA regulations was found to violate Pennsylvania’s state law governing wages and overtime.

The earlier court decisions striking down FWW pay plans were both authored by federal judges who were interpreting state law.  Some employers have held out hope that the Supreme Court of Pennsylvania might disagree with their interpretation of the PMWA and resurrect FWW pay plans in Pennsylvania.  This issue has not yet reached Pennsylvania’s highest state court.  However, in Chevalier v. General Nutrition Centers, Inc. the Superior Court of Pennsylvania (an intermediate appellate court) considered the status of FWW plans under the PMWA.

In Chevalier, GNC’s store managers and assistant managers were treated as “salaried non-exempt” employees.  That is, they were paid a fixed salary regardless of how many hours they worked.  GNC also paid its managers an overtime premium consistent with the FWW method; i.e., a “regular rate” was calculated for each week (salary divided by total hours worked) and managers were paid ½ of the regular rate as a premium for each overtime hour worked.

Citing the prior federal court decisions referenced above, the plaintiffs argued that GNC’s FWW plan violated the PMWA.  From the plaintiff’s perspective, GNC was required to calculate each manager’s regular rate by dividing his or her weekly salary by 40 hours – and then pay 1 ½ times this rate for each hour worked in excess of 40.

Interestingly, the Superior Court did not side entirely with either party.  The Court found that GNC properly calculated each manager’s regular rate by dividing his or her weekly salary by the total number of hours worked by the manager in the week (and not by 40, as argued by the plaintiffs).  This holding results in a lower regular rate in weeks during which overtime is worked.

However, upon reviewing Section 231.43(b) of PMWA regulations, the Court agreed with the plaintiffs that overtime hours must be paid at a rate of 1 ½ times the regular rate for all hours worked in excess of 40 – or three times more than the ½ time premium that was being paid by GNC to its salaried non-exempt managers.  By way of example, if a non-exempt manager is paid a fixed salary of $1,000 each week, regardless of hours worked – then his or her “regular rate” is $20/hour in a week during which the manager works 50 hours.  Applying the Superior Court’s reasoning, this manager must then be paid $30/hour (1 ½ X $20) for each of the 10 overtime hours worked that week.

Notably, while the Chevalier case was pending, the Superior Court invited the Pennsylvania Department of Labor and Industry (“L&I”) to state its position as to whether the FWW method of calculating overtime pay is permitted under PMWA.  L&I declined to do so, explaining that, by taking a formal position on the issue, the Department would arguably be taking regulatory action without following the required regulatory review process.

In sum, the Chevalier decision makes it clear that employers may realize some wage savings by treating certain employees as “salaried non-exempt.”  However, the PMWA applies a stricter standard for calculating overtime pay than is permitted under FLSA regulations for FWW pay programs.   While Pennsylvania employers may calculate a salaried non-exempt employee’s “regular rate” in the same manner as they would under an FWW, the PMWA requires payment of 1 ½ times that rate for each overtime hour – and not merely payment of a ½ time premium.

Until the Supreme Court of Pennsylvania says otherwise (or the PMWA is amended), employers who employ salaried non-exempt employees in Pennsylvania should be careful to ensure that their overtime pay practices are consistent with the Chevalier decision.  If you have any questions regarding the Chevalier case or any other wage and hour compliance issue, please contact any member of our Labor and Employment Practice Group.

Typically, a drug test cannot be certified as positive until a Medical Review Officer (“MRO”) verifies the result.  For drivers subject to the Federal Motor Carrier Safety Act, Department of Transportation Regulations state that an MRO must verify as positive a confirmed test result for drugs, unless the employee presents a legitimate medical explanation for the presence of the drug in his/her system.  The employee bears the burden of establishing the legitimate medical reason for the positive test.

With the passage of state laws legalizing the use of medical marijuana, including here in Pennsylvania, many have questioned whether the use of medical marijuana, pursuant to state law, constitutes a legitimate medical reason for a positive drug test. In an updated “Medical Marijuana Notice” issued this fall, the Department of Transportation answered the question.  The DOT said “No.”

The DOT’s Notice makes it clear that marijuana, in all forms, remains illegal under federal law and the DOT expects that MROs will treat marijuana, whether used recreationally or medicinally, as illegal.  Accordingly, the Notice provides that “Medical Review Officers will not verify a drug test as negative based upon information that a physician recommended that the employee use ‘medical marijuana’ . . . It remains unacceptable for any safety‐sensitive employee subject to drug testing under the Department of Transportation’s drug testing regulations to use marijuana.”

The implications of medical marijuana use for CDL drivers is now clear.

But, what about drug tests for employees not regulated by the DOT?

The reality is that most MROs follow DOT testing guidelines for all drug tests in an effort to ensure consistency.  Accordingly, even when a non-DOT regulated employee tells the MRO that he/she is certified to use medicinal marijuana, the MRO will nonetheless certify the test as positive.  The MRO may include an external note to the employer that the employee claimed medicinal use.  However, the MRO will not seek to confirm the employee’s claim or to otherwise determine if the employee is a certified user.

The take-away is this . . . drug testing facilities will not help employers decide how to handle medical marijuana use.  A positive drug test will be a positive drug test, regardless of whether the employee is certified to use medical marijuana.  Accordingly, at the end of the day, outside of the CDL context the burden remains on the employer to decide, in accordance with its policies, how, if at all, the employee’s medicinal use impacts employment status.

Should you have any questions about your company’s drug testing procedures or your drug testing policies as the Pennsylvania Medical Marijuana Act nears full implementation, do not hesitate to contact us.