Recently, Michael L. Hund, Esq. and Salvatore J. Bauccio, Esq. from McNees Wallace & Nurick LLC’s Business Counseling Group developed a White Paper entitled: Equity Incentive Plans: Compensating Key Employees with Equity, Options and Equity Appreciation Awards (PDF). The White Paper provides an excellent summary of different methods that organizations can use to compensate and reward key employees. To view the White Paper click here.

This post was contributed by Charles T. Young, Jr., Esq., Of Counsel and a member of the Litigation and Insurance Litigation and Counseling Practice Groups

The continuing rise in the cost of health care is increasing the level of scrutiny and risk associated with employer health plans. The financial stresses associated with skyrocketing costs have manifested themselves in a number of different ways. For instance, employers with "insured plans" may find that their insurers are now more likely to perform "coverage audits" to ensure that only eligible employees and dependents are participating in the plan. 

Common audit issues involve former employees and employees on extended leaves of absence who have been permitted to retain coverage beyond their last day of active employment. Employers are well-advised to consult with their carriers to ensure that there is no disagreement as to whether coverage may be extended in these situations, and for how long.

Another common audit issue involves the eligibility of dependents. Does the carrier’s definition of the term "spouse" comport with the definition that the employer uses during open enrollment? Audits also commonly find dependent children who are inadvertently permitted to remain on a plan after surpassing the maximum age limit. Under the Patient Protection and Affordable Care Act ("PPACA"), otherwise known as healthcare reform, most dependents are now entitled to coverage until age 26. This recent statutory expansion of coverage will likely generate a surge in dependent-related coverage audit issues.

Self-insured employers may similarly find that major claims are subject to much greater scrutiny from reinsurers, or stop loss carriers. Common questions raised during claims reviews include: Was the employee properly covered under the plan at the time the claim was incurred? Do all covered spouses and dependents qualify for coverage under the definitions in the plan? Does the employer’s Summary Plan Description accurately reflect all conditions or exclusions required? Has the employer or the employer’s third party administrator failed to apply a plan exclusion to the claim? Self-insured employers should be mindful of these issues during day-to-day administration of their plans; otherwise, a reinsurer may decline coverage when it is needed most by a plan participant.

Disputes often arise when an employer extends coverage to an employee in an effort to avoid liability under employment laws. For example, employers covered by the Family and Medical Leave Act ("FMLA") must provide eligible employees with 12 weeks of leave per year (26 weeks in cases involving certain military exigencies). During this leave, benefits must be provided if the employee continues to pay his or her share of the premium. Once FMLA leave is exhausted, an employer may decide to provide additional leave, with benefits, as a reasonable accommodation under the Americans with Disabilities Act ("ADA"). An insurer or stop loss insurer, in contrast, may take the position that coverage should be terminated upon completion of the required FMLA leave and that any additional "supplemental" coverage should be treated as COBRA continuation coverage. This is yet another area where employers should have a clear understanding of their carrier’s position. 

When an employer outsources its plan administration, another set of issues can arise. Many self-insured employers outsource the administration of their employee benefit plans to third party administrators ("TPA"). A TPA handles the paperwork associated with the plan, and administers the claims process, paying claims with company funds. As in any other industry, the performance and quality of TPAs varies. Some TPAs are excellent, and they timely communicate the information an employer needs to intelligently manage its claims. Unfortunately, some TPAs fail to communicate essential information to their client employers. They may fail to make wise decisions with respect to paying claims, fail to apply benefit exclusions or fail to comply with the sometimes burdensome requirements imposed by stop loss carriers providing coverage for catastrophic losses. With the rising costs of healthcare, a stop loss carrier may increasingly deny claims for reimbursement based on the conduct of an employer’s TPA. At the same time, the employer may be increasingly reliant on the TPA because it lacks the personnel and/or commitment to actively monitor the claims made by its employees. 

Coverage disputes are expensive to defend and can quickly sour a relationship between an employer and employee. Under PPACA, claims appeals processes will be subject to external review and are likely to be more claimant-friendly. Limited proactive involvement by an employer in its benefit plan can go a long way toward preventing these costly and disruptive disputes. Employers are encouraged to conduct self-audits to identify potential issues and resolve them through discussion with their TPAs, insurers and reinsurers on a proactive basis. Plan documents should be reviewed by counsel to ensure clarity and compliance. In the realm of plan administration, the old adage "an ounce of prevention is worth a pound of cure" clearly applies.

This post was contributed by Tony D. Dick Esq., an Associate and a member of McNees Wallace & Nurick LLC’s Labor and Employment Practice Group in Columbus, Ohio.

In a 6-2 decision, the United States Supreme Court recently ruled in Kasten v. Saint-Gobain Performance Plastics Corp., ___ U.S. ___, No. 09-834 (2011) (pdf), that an employee’s verbal complaint about alleged wage and hour violations can be sufficient to trigger the anti-retaliation protections under the Fair Labor Standards Act (“FLSA”).

At issue was the provision in the statute that makes it illegal “to discharge . . . any employee because such employee has filed any complaint” alleging a violation of the Act. 29 U.S.C. § 215(a)(3). Plaintiff Kevin Kasten, a former employee of Saint-Gobain, alleged he was terminated in retaliation for making oral complaints to his supervisors and human resources personnel regarding the location of the company’s time clocks, which Kasten alleged prevented employees from recording time spent “donning and doffing” protective equipment. The question before the Court was whether the phrase “filed any complaint” in the statutory text of the FLSA included both verbal and written complaints. The District Court granted Saint-Gobain’s motion for summary judgment, concluding the FLSA’s anti-retaliation provision did not cover verbal complaints. The Seventh Circuit affirmed the lower court’s decision.

In reversing the Seventh Circuit’s decision, the Supreme Court first analyzed the actual text of the statute but, finding the text to be open to multiple interpretations, ultimately relied on an examination of congressional intent and the Department of Labor’s and the Equal Employment Opportunity Commission’s interpretation of the phrase. With respect to Congress’s intended purpose in enacting the anti-retaliation provision of the FLSA, the Court stated specifically:

Several functional considerations indicate that Congress intended the anti-retaliation provision to cover oral, as well as written, “complaint[s].” First, an interpretation that limited the provision’s coverage to written complaints would undermine the Act’s basic objectives. The Act seeks to prohibit “labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers.” 29 U.S.C. § 202(a). It does so in part by setting forth substantive wage, hour, and overtime standards. It relies for enforcement of these standards, not upon “continuing detailed federal supervision or inspection of payrolls,” but upon “information and complaints received from employees seeking to vindicate rights claimed to have been denied.” And its anti-retaliation provision makes this enforcement scheme effective by preventing “fear of economic retaliation” from inducing workers “quietly to accept substandard conditions.”

Slip op. at 7.

The Court articulated a test to determine whether a complaint is “filed” for FLSA purposes. Under the test, if a reasonable and objective person would have “fair notice” that the employee is asserting statutory rights, the employee is protected under the FLSA. “Fair notice” is achieved where a “complaint [is] sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights.”

What does the Court’s decision mean for employers? It should be clear that the case expands the bounds of potential employer liability under the FLSA. The Court’s decision may also have farther reaching implications beyond the FLSA as several other federal statutes, including Occupational Safety and Health Act and the Clean Air Act, contain similar anti-retaliation provisions. A cautious employer will treat a verbal complaint the same as a written complaint. In disciplinary investigations, employers should ask supervisors whether the particular employee has made any oral complaints to determine whether the employee may make an argument in the future that any disciplinary action was in retaliation for making the complaint. As always, employers should document the specific reasons for employee terminations and disciplinary actions and follow established company policies to limit later arguments by a terminated employee that he or she was terminated because of a retaliatory motive on the part of the employer.

This post was contributed by Brett E. Younkin, Esq., an Associate and a member of McNees Wallace & Nurick LLC’s Labor and Employment Practice Group in Columbus, Ohio.

The receipt of a federal lawsuit is generally viewed as a bad day for any employer; seeing that a plaintiff is seeking class action status on behalf of hundreds or thousands of current and past employees is enough to turn a bad day into an unenviable nightmare. Such was the situation when Wal-Mart, one of the country’s largest employers, was notified that a female manager, Betty Dukes, was suing the company on behalf of all female managers alleging a pattern and practice of discriminatory pay and promotion practices. Ms. Dukes alleged that despite the company’s non-discrimination policy, the Arkansas-based employer paid their female managers at lower rates than their male counterparts on a nationwide scale and women were promoted less often than men.

Recently, the issue of certifying the class of female employees became the focal point of what many view to have been one of the liveliest oral arguments before the United States Supreme Court in years. During each side’s hour-long presentation, it seems that the Justices spoke almost as much as the attorneys, often-times overlapping each other’s questions and even interrupting a colleague’s question in an attempt to make their own point. However, the result of the heated debate is far from clear. Will Wal-Mart be faced with a multi-million dollar class action for discriminatory practices or will it be just another single-litigant against one of the world’s largest retail empires?

Class certification is governed by Rule 23 of the Federal Rules of Civil Procedure and generally requires (1) that there to be too many potential members to identify and join each of them; (2) a common question of law or fact; (3) a commonality of claims or defenses; and (4) that the representative parties will adequately protect the interests of the entire class. It’s generally agreed that the potential plaintiffs here would meet most of these requirements. However, the focus of the discussion before the Court was whether the proposed class of female managers truly shared common legal and factual issues. One key question from Justice Kennedy has led many to speculate that Ms. Dukes and her potential class members have a fatal flaw in their argument.

During the plaintiffs’ presentation, Justice Kennedy asked the rather straight-forward question: “What is the unlawful policy that Wal-Mart has adopted?” The response was that the store managers have “unchecked discretion” in the decision-making process and have used that power to create a culture of discrimination throughout the corporation. The problem with this response is that it contradicts the position that Wal-Mart’s headquarters enforces a consistent, nationwide policy, which is a key aspect of the plaintiffs’ case and may be necessary to establish corporate-wide liability.

The plaintiffs’ attorney tried to argue both sides of an opposing view – that there is a top-down corporate culture to discriminate against females, and that the actual decision-makers in the individual stores themselves have too much power and discretion. It was on this point where Justice Scalia accused the plaintiffs’ counsel of trying to “whipsaw” the Court stating that the power given to store managers is too subjective while there is a corporate culture to guide those same managers to discriminate against women. While the commonality issue appeared to weigh in Wal-Mart’s favor, how the court will decide the case is unclear at this time. A decision is expected sometime this summer, and we will be sure to provide an update when it is issued.
 

This post was contributed by Eric N. Athey, Esq., a Member in McNees Wallace & Nurick LLC’s Labor and Employment Law Practice Group.

Over the past several years, federal courts across the United States have experienced a surge in class action lawsuits alleging wage and hour violations by employers. In many of these cases, the primary allegation is that employees were not paid for all of their activities that are considered "compensable work" under federal regulations. An employer’s failure to pay employees for short breaks and for work from home are often cited violations. In an apparent attempt to provide support for such claims, the U.S. Department of Labor (DOL) has announced the launch of its first application, or "app," for smartphones. The iPhone-compatible app is an electronic timesheet that is intended "to help employees independently track the hours they work and determine the wages they are owed."

The DOL announcement notes that this new technology is significant because, "instead of relying on their employers’ records, workers now can keep their own records," which can "prove invaluable during [a DOL]…investigation when an employer has failed to maintain accurate employment records." The DOL further indicated that future apps may be launched to assist employees with compliance issues relating to payment of tips, commissions, bonuses, holiday pay, weekend pay, shift differential and pay for regular days of rest, as well as for impermissible pay deductions.

The introduction of the new DOL app serves to highlight the importance of carefully drafted employer wage policies and practices. Such policies include procedures for proper timekeeping, a requirement that overtime be authorized in advance, a procedure for reporting and correcting payroll errors (overpayments and underpayments) and a sound understanding by managers of what activities must be treated as paid work.

If you have any questions regarding this article or suggested wage policies, please contact any member of our Labor and Employment Law Group.
 

In a recent precedent-setting opinion, the Third Circuit Court of Appeals significantly restricted the ability of police departments to suspend police officers pending investigation in Pennsylvania. The decision in Schmidt v. Creedon, __ F.3d __ (3rd Cir. 2011) (pdf) makes clear that absent extraordinary circumstances, prior to suspending a police officer for any reason, a police department must provide the officer with notice and a hearing.

In Schmidt, the plaintiff, a police officer, was suspended and ultimately terminated after he entered criminal charges against his superior officers into a criminal record data base. According to the employer, following a dispute, the officer left his duty area, entered information that there was probable cause to arrest some of his superiors officers, and failed to report these allegations through his chain of command. After the department conducted a brief investigation into the incident, the plaintiff was suspended pending further investigation. The officer was suspended three days after the incident occurred, and was not questioned or interviewed before he was suspended. The officer was eventually terminated, but reinstated by an arbitrator with no back pay.

The plaintiff filed suit against the department and some of his superior officers, alleging that they violated the 14th Amendment of the United States Constitution by suspending him without providing him with notice of the charges against him or a hearing. Under the 14th Amendment, a government actor cannot deprive an individual of life, liberty or property without due process. In the employment context, the courts have held that if another statute, such as a civil service statute, provides employees with protection from suspension or termination, then such employees have a property interest that cannot be taken away without due process. Interestingly, the court relied on a provision in the Borough Code to find that the plaintiff had a property interest in his job because the Borough Code provides that police officers may not be suspended or terminated without just cause.

The court concluded that the plaintiff was deprived of his rights under the 14th Amendment because he was not afforded due process before he was suspended pending investigation. The court held that, except for extraordinary circumstances, under Pennsylvania law, notice of the charges and a brief and informal pre-suspension hearing is necessary, even if the officer has access to a collectively bargained grievance procedure or other appeal process.

Only a brief and informal hearing is necessary in this context, and it appears that departments can satisfy these requirements by stating, verbally or in writing, the nature of the investigation, the nature of evidence currently available, and by allowing the officer to provide a statement. In addition to interviewing the officer before suspending him or her pending investigation, which has always been a good practice, departments should be sure to issue a written suspension notification.

The court made clear that there is an exception to the pre-suspension hearing requirement for "extraordinary circumstances," and further defined that term to include those situations in which some valid government interest is at stake that justifies postponing the hearing until after the suspension. However, the court did not determine whether such circumstances existed in this case, and provided no further explanation or guidance as to what may constitute extraordinary circumstances. Importantly, waiting a few days to suspend an officer while additional information is gathered may undermine a claim that an important interest existed that required immediate suspension without a hearing. The court also noted that the United States Supreme Court has held, in Gilbert v. Homar, 520 U.S. 924 (1997), that if a third party has determined probable cause existed to believe that a serious crime occurred, such as when an officer has been arrested and charged with a crime, a department may suspend an officer without a hearing.

The court appeared to go to great lengths to limit its decision in this case, and to provide departments with as much guidance as possible. For example, the court noted that if an officer is suspended with pay, the analysis would have very likely been different. However, while the court’s decision appears to be limited to police officers, the due process requirements would apply to any public employee who is protected by statute from being suspended or terminated without good cause, unless the statute provides an exception or one of the exceptions noted above applies. Therefore, in addition to police departments, all public sector employers in Pennsylvania should be sure to review their suspension procedures to ensure compliance with this decision.

This decision will require some police departments to change their practices regarding suspensions pending investigation, and may hamper a department’s ability to take immediate action in certain cases.
 

This week, Philadelphia Mayor Michael Nutter signed the Fair Criminal Record Screening Standards Ordinance (the "Ordinance").  This “ban the box” legislation is designed to limit Philadelphia employers’ ability to request applicants’ criminal history information in the initial steps of the hiring process. 

  • Who is Covered?  The Ordinance covers any person, corporation, company, labor organization or association that employs 10 or more persons within the City of Philadelphia.        
     
  • What Inquiries Are Prohibited?  Employers cannot inquire (directly or indirectly) about an applicant’s criminal convictions at any time during the application process, before the first interview, or during the first interview.  Notably, an employer that does not conduct an interview is prohibited from making any inquiries or gathering any information regarding the applicant’s criminal convictions. 
     
  • What Inquiries Are Allowed?  The Ordinance does not prohibit employers from making hiring decisions based upon criminal conviction history; however, such inquiries must be delayed until a second interview (or as part of a post-conditional offer criminal history check).  Additionally, if an applicant voluntarily discloses his or her own criminal history during the application process or the first interview, the employer then is permitted to discuss the disclosed information. 
     
  • What is the Penalty for Violations?  Violations of the Ordinance can result in the assessment of a maximum civil penalty of $2,000 per violation.  

The Ordinance becomes effective on July 17, 2011.  If you are an employer with 10 or more employees within the City of Philadelphia, now is the time to review your application and interview materials to ensure compliance with the new Ordinance.  In addition, employers should remain aware of their obligations under Pennsylvania’s Criminal History Record Information Act, which permits consideration of felony and misdemeanor convictions only to the extent that they impact an individual’s suitability for the position in question.  The Act also requires employers to give a rejected applicant written notice that the criminal conviction was used in whole or in part as the basis for the employment decision.

On March 24, 2011, the Equal Employment Opportunity Commission (EEOC) issued the final version of the regulations (pdf) implementing the Americans with Disabilities Act Amendments Act (ADAAA).  The final regulations were modified as compared to the EEOC’s initial proposed regulations, and the changes to the regulations made will likely be welcomed by employers.  For more information from the EEOC on the ADAAA please click here.

Even with the changes, the regulations make clear that the ADAAA broadened the definition of disability under the Americans with Disabilities Act (ADA).  Under the ADAAA that far more impairments will now meet the definition of disability.  Importantly however, the regulations state that whether or not an individual has a disability will still be determined on a case-by-case basis. 

The ADAAA and the regulations attempt to shift the focus in ADA claims from whether or not an individual has a disability to whether or not prohibited discrimination has occurred.  As a practical matter for employers, this approach will shift the focus to the interactive process and the information exchanged during that process. 

This post was contributed by Eric N. Athey, Esq., a Member in McNees Wallace & Nurick LLC’s Labor and Employment Law Practice Group.

Title VII of the Civil Rights Act, the Americans with Disabilities Act, the Uniformed Services Employment and Reemployment Rights Act, and the Age Discrimination in Employment Act are widely known as the primary federal laws governing employment discrimination. Many employers are surprised to learn that the U.S. Bankruptcy Code also contains employment discrimination provisions. Section of 525 of the Code prohibits certain types of employment discrimination against individuals who have claimed bankruptcy. However, this obscure provision is rarely the subject of lawsuits and, consequently, there is little guidance from federal courts as to its meaning. In Rea v. Federated Investors, the U.S. Court of Appeals for the Third Circuit considered the fundamental question of whether Section 525 prohibits a private sector employer from discriminating against a job applicant in the hiring process on the basis of his prior bankruptcy.

Mr. Rea applied for employment with Federated Investors in 2009 through a placement firm and, after a successful interview, was informed that he would not be hired due to a 2002 bankruptcy. Rea filed suit in federal court claiming that Federated discriminated against him in violation of Section 525 of the Bankruptcy Code.

Section 525(a) of the Code states that it is unlawful for any "governmental unit…[to]…deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under [the Code]" solely because the individual has been a debtor under the Code, has been insolvent or has not paid a debt that is dischargeable under the Code. Clearly, a government employer could not have refused Mr. Rea employment solely on the basis of his prior bankruptcy without violating Section 525(a). However, as a private sector employer, Federated was governed by Section 525(b) of the Code.

Section 525(b) of the Code, unlike subsection (a), makes no mention of "denying employment to" an individual who has declared bankruptcy. Section 525(b) reads: "No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under [the Code]" solely because the individual has been a debtor under the Code, has been insolvent or has not paid a debt that is dischargeable under the Code. The issue presented in the Rea case was whether 525(b) could be interpreted to prohibit private employers from discriminating against job applicants on the basis of prior bankruptcies.

Mr. Rea argued that Section 525(b)’s prohibition against "discriminat[ion] with respect to employment against" individuals who have filed for bankruptcy should be interpreted to protect job applicants. However, the Third Circuit noted that "where Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely…" Since Section 525(a) specifically includes "denying employment to" individuals as unlawful discrimination – and 525(b) does not – the Court concluded that private sector employers are not prohibited from discriminating against applicants on the basis of prior bankruptcies.

This recent decision may come as particularly welcome news for employers in the financial services industries who may be reluctant to employ individuals with multiple prior bankruptcies. Although the Rea decision certainly gives private sector employers greater flexibility in the hiring process, it is important to remember that terminating or discriminating against a current employee solely on the basis of a prior bankruptcy remains unlawful.
 

This post was contributed by Schaun D. Henry, Esq., a Member in McNees Wallace & Nurick LLC’s Labor and Employment Practice Group.

In this difficult economy, funding sources can be scarce. The financial climate makes government contracts appear quite lucrative. Every industry should seriously consider the ramifications of their actions on other areas of the business when entering into government contracts. We frequently see situations where the sales force of an organization enters into a contract without coordination with the sections of the business responsible for compliance with the multiple reporting procedures, that often go along with government contracts. In fact, there have been a number of occasions where a company’s contracting agents had no idea that the work being secured for the company would result in significant reporting requirements. Two relatively new developments should give companies pause when considering government contracting.

Executive Order 11246 requires that all government contractors undertake affirmative action in the hiring of traditionally disenfranchised groups where the contractor or subcontractor has a government contract of $10,000 or more. Contractors who have contracts of $50,000 or more must prepare, maintain and comply with a written affirmative action program. Compliance with affirmative action plans is onerous enough, but the bigger issue is that these plans may be classified as admissible evidence to prove reverse discrimination. See Stimeling v. Board of Education Peoria Public School Dist.  To be sure this issue has been visited in the past by appellate courts, with recent case law successes in the reverse discrimination field. See Christianson v. Equitable Life Assurance Society, 767 F.2d 340, (7th Cir. 1985).  At least one court has recently found that a former employee of the Peoria School District in Illinois could use the existence of the District’s affirmative action plan as evidence of discriminatory intent, so long as other evidence of intent was also present. This case is evidence of the fact that Office of Federal Contract Compliance Programs’ ("OFCCP") mandates for affirmative action plans can create hidden dangers to a company. These factors should be considered prior to entering into any government contract.

The second fairly new issue of concern is the fact that government contractors are now required to disclose the compensation earned by certain company executives. This information will be made publicly available once it has been reported to the government. An amendment to the federal acquisition regulation which became effective March 1, 2011, requires all contractors and first-tier subcontractors to report the executive compensation (in all forms) of their top five most highly compensated executives for the contractor’s previous fiscal year (the amendment has been in place since July 2010, and has been implement in phases).  The reports will be applicable to all contracts where the prime contract is for $25,000 or more. Contractors and first-tier subcontractors must report the information by the end of the month following the month of the award of the contract and annually thereafter. Many companies will be less than thrilled about such information becoming public.

The wise move is to think long and hard about entering into any government contract. Once the decision is made, companies would do well to recognize the risks of such contracts and take steps to limit those risks. Here are some dos and don’ts when considering entering into government contracts:

• Advise your sales force of the potential attendant requirements of any government contract.

• Require sales executives to get approval of a management official before proceeding with any government contract.

• Carefully examine all requirements of the contract before signing.

• Assign reporting requirements to a specific entity within the company.

• Know the end date for the contract. You are not required to continue any contract-related reporting or other record keeping after the completion of the contract. Doing so may subject the company to discrimination claims and unnecessary scrutiny.

Should you require additional information about any of the information discussed above, please feel free to contact Schaun Henry at (717) 237-5346.