Employer Obligations Under the ACA

By Norma Shirk

Manage/Owner

Corporate Compliance Risk Advisor, LLC

The Affordable Care Act (ACA, a/k/a Obamacare) places a number of obligations on employers. The obligations vary depending on the number of employees. Here’s a quick review of some of the employer obligations.

Counting employees. There are two reasons to count employees. The first reason is to determine whether an employer is small (under 50 employees) or large (more than 50 employees).  When doing this head count, the difficulty arises in counting the “full-time equivalents”.

The second reason to count employees is to determine who is eligible to enroll in the group health plan.  When counting for this purpose, the difficulty is counting the hours worked by variable hour or seasonal employees.  If your company has employees who work flexible schedules, as happens for many retailers, then the Look Back Measurement Method will be important.

Notifying employees about the Exchange.  Employers are required to notify their employees about the healthcare Exchange (also called a Marketplace), which gives employees another coverage option if they decide not to enroll in their employer’s group health plan. Employers may use the model form created by the U.S. Department of Labor (DOL).  Employers were required to initially distribute the notice by October 1, 2013, but will also need to distribute the notice to new hires.

IRS reporting. Employers with more than 250 employees are required to report premium costs in box 12 of the W-2.  Eventually employers with fewer than 250 employees can expect to face this requirement.  In addition, large employers will be required to report more details about their group health plans to the IRS under §6056, including how many employees are covered under the plan. The §6056 reports will begin with the 2015 calendar year.

To learn more about these employer obligations and other aspects of the ACA that affect employers, please join us for the Corporate Counsel section’s CLE program on March 3, 2014.

AN ATTORNEY CLIENT PRIVILEGE PRIMER

By Tena T. Roberson

Deputy General Counsel and Chief Privacy Officer

BlueCross BlueShield of Tennessee, Inc

The existence of the privilege is not a given. It can be successfully invoked only if it has been validly created and further, after its creation, not been subsequently waived, so that even if did exist, it does not exist any longer. The privilege protects communications:

• From a client;
• To a lawyer;
• Related to the rendering of legal advice;
• Made with the expectation of confidentiality;
• Not in furtherance of a crime or fraud;
• As long as the privilege has not been waived.

Why does it Exist?

The reason for the existence of the privilege is to create the opportunity for a client to fully divulge all available information to his or her or its attorney, who cannot properly represent their clients without that knowledge. An attorney’s advice to a client to follow a certain course of conduct is only as good as the facts and circumstances known to the attorney.

There is a significant countervailing interest in a contested legal proceeding: knowing all the facts and learning the whole truth. Similar to an attorney’s advice, a decision by a judge, jury or investigator is only as good as the facts presented in evidence.

Due to the very nature of the privilege, the communication from the client to the attorney that may or may not be admissible evidence is generally revealing, perhaps self critical, or even outcome determinative.

Litigation can be won or lost depending upon whether or not the privilege prevents or allows facts from being introduced into evidence.

Because of these contradictory interests, the privilege is difficult to create, hard to maintain, and easy to lose.

Application of the Privilege in a Corporate Setting.

What is a Communication?

In addition to a verbal or written communication, the privilege can sometimes protect communications that the client has created with the intent of providing it to its attorney, even if the substance of that communication has not been communicated to the attorney. Mason C. Day Excavating v. Lumbermen’s Mutual Casualty Co., 143 F.R.D. 601, 607-609 (M.D.N.C. 1992) (plaintiff’s daily log was protected by the privilege because it was created by the plaintiff at the direction of the plaintiff’s lawyer to assist the lawyer in providing legal advice, while defendant’s similar log was not protected by the privilege because it was created in the ordinary course of business).

Who is the Client?

Parents, Subsidiaries and Affiliates.

Every state recognizes that a corporation can have an attorney client relationship with an attorney. In re Grand Jury Proceedings, 219 F.3d 175, 185 (2d Cir. 2000). Most courts protect communications by and among related companies, even if they are not wholly owned affiliates. Admiral Ins. Co. v. U.S. Dist. Ct., 881 F.2d 1486, 1493 n.6 (9^th Cir. 1989).

Successors.

The privilege is an asset of the corporation, so that it transfers to any successor company in the event of a merger or acquisition or to the trustee in the event of a bankruptcy. Commodity Futures Trading Commission v. Weintraub, 471 U.S. 343, 349 (1985) (successor entity to corporation has the right to assert or waive the privilege with regard to communication by the predecessor corporation).

Former Subsidiaries.

When a parent corporation sells a subsidiary to another corporation, the new owner generally requests that the seller provide copies of documents relating to that subsidiary. What if those documents include communications to and from an attorney who represented both the corporate seller and the subsidiary when the two entities had a parent subsidiary relationship?

Can the new owner obtain the documents, or, can the former owner successfully assert the attorney client privilege and retain them?

In Fogel v. Zell, 212 B.R. 894, 1997 Bankr. LEXIS 1515 (Bankr. Ill. 1997), a parent and a subsidiary were both represented by the same lawyers. The subsidiary went bankrupt and a trustee was assigned to consider the claims of creditors of the subsidiary. The bankruptcy trustee, on behalf of a particular creditor, tried to obtain documents created during the time the lawyers represented both the parent and the subsidiary organizations. The parent organization objected to the request, asserting that the communications were privileged and did not have to be produced. The bankruptcy court found in the parent’s favor and enforced the privilege.

However, if the request for the communications is not for the benefit of a third party, such as a creditor, but for the subsidiary itself, then a different result occurs. In Santa Fe Trail Transportation Co., 121 B.R. 794, 1990 Bankr. LEXIS 2538 (Bankr. N.D. Ill. 1990), the same background facts existed as in Fogel: an in house attorney represented both a parent and its subsidiary and the subsidiary subsequently filed bankruptcy. In this case, the bankruptcy trustee sought documents from the parent corporation on behalf of the subsidiary. The parent organization’s attempt to avoid production of the documents based upon the privilege was unsuccessful.

Current Employees.

In an attorney client relationship in a corporate setting, the attorney represents the legal entity that is the corporation, not its individual officers, directors or employees. Avianca, Inc. v. Corriea, 705 F.Supp. 666, 680 n.4 (D.D.C. 1989), aff’d, 70 F.3d 637, (D.D.C. 1989).

Since a corporation is a legal fiction, it can only communicate to an attorney by and through a representative. There is an issue as to whether or not the corporation can speak only through its directors, officers, or exempt employees, or instead through any employee, at any level, including non-exempt employees. In Upjohn Co. v. United States, 449 U.S. 383 (1981), the Supreme Court held that employees of any level within a corporation are entitled to have privileged communications with the company’s attorney, provided that certain steps are followed:

• The company’s lawyers have been asked to provide legal advice to their client, the company;
• The employee has factual knowledge that the company’s lawyers require;
• The information is not readily available elsewhere; and
• The employees keep all of their communications with the company’s lawyers confidential, even within the company.

Former Employees.

It is generally held that the attorney client privilege applies to the company’s attorney’s communications with former employees of the company. In re Richard Roe, Inc., 168 F.3d 69, 72 (2d Cir. 1999).

Independent Contractors.

Most courts are reluctant to extend the privilege beyond current or former company employees so as to include the company’s independent contractors. Miramar Construction Co. v. Home Depot, Inc., 167 F.Supp. 2d 182 (D.P.R. 2001).

However, there is an indication of change, as courts have recently found independent contractors that function as corporate employees, such as those performing “outsourced” functions, to be the “functional equivalent” of employees. In re Copper Market Antitrust Litigation, 200 F.R.D. 213, 215, 219 n.4 (S.D.N.Y. 2001) (public relations advisors).

Who is a Lawyer?

For purposes of the privilege, communications with the attorney’s receptionist, secretary, paralegal, copy clerk, or other administrative staff are considered communications with an attorney. von Bulow v. von Bulow, 811 F.2d 136 (2d Cir.), cert denied, 481 U.S. 1015 (1987) (Claus von Bulow’s “steady companion” and an alleged journalist wrote an account of his criminal trials for murder in order to write and publish her own book, not to assist the attorney to provide legal services, even though she attended meetings with that attorney regarding trial strategy, so that the manuscript for the book is not protected by the privilege).

What is Legal Advice?

Defined.

This necessary element for proving and enforcing the privilege is typically problematic. The privilege only protects communications that either to the request for or rendering of legal advice.

There are five types of communications that meet this standard:

• A client’s request for legal advice from a lawyer (it may be explicit or implicit, so that the   sending a draft document to a lawyer, without instruction, may be an implicit request for legal advice about that document);
• A client’s communication to a lawyer of the facts the lawyer needs in order to give the legal  advice (this can also occur in the context of the initial request);
• A lawyer’s request for the facts that the lawyer needs in order to give the legal advice;
• A lawyer’s legal advice; and
• A communication from a non-lawyer company employee to another non-lawyer company  employee discussing the collection of facts the lawyer needs to provide the legal advice or paraphrasing the legal advice that the lawyer has given the company. Long v. Anderson Univ., 204 F.R.D. 129, 134 (S.D. Ind. 2001).

Privilege for in-house counsel is complex. Educating your company on these matters can be critical so attorney privilege is not over or underutilized.

By Kelly Gooch Carlson

Director/General Counsel

Youth Villages, Inc.

Employers should re-examine their policies regarding accommodation of pregnancy-related work restrictions in light of a recent decision of the U.S. Court of Appeals for the Sixth Circuit, Latowski v. North Woods Nursing Center, No. 12-2408 (Dec. 23, 2013).

The employee in this case, Jennifer Latowski, a certified nurse’s assistant, had satisfactorily performed her job duties since July 2007 and had passed four “essential functions” tests.  In September 2008, North Woods became aware of Latowski’s pregnancy.  She was requested to bring in a doctor’s note stating she had no work restrictions and was told this rule applied to all medical situations.  After Latowski’s doctor faxed a note to the facility stating “only restriction no lifting over 50#,” the Director of Health Care Services informed her that she could not work because North Woods would only accommodate restrictions resulting from work-related incidents. The Director explained that the company could be liable if something happened to her baby.

Latowski declined to take FMLA so early in her pregnancy because she would still be pregnant when the leave expired.  North Woods considered this a “resignation.”  After Latowski  filed an EEOC charge, North Woods’ co-owner and manager again discussed with Latowski the possibility of FMLA leave and commented that later in the pregnancy her “belly would be in the way.” At various times, remarks were made to Latowski  by the Director and other company officials that she wouldn’t want to lose her baby, that lifting weight in excess of her restriction could jeopardize her health or that of the baby, and that the policy of requiring a doctor’s note from pregnant employees was motivated by the desire to “know that the employee is able to work safe for her and her child.”

Eventually, Latowski  filed a lawsuit alleging violations of the Americans with Disabilities Act,  the Family and Medical Leave Act, and Title VII as amended by the Pregnancy Discrimination Act. The district court granted summary judgment in favor of the employer on all claims.

The Sixth Circuit reversed summary judgment on the Pregnancy Discrimination Act Claim, finding that Latowski had established a prima facie case of pregnancy discrimination and that a genuine issue of material fact existed as to whether the employer’s reasons for its actions were a pretext for pregnancy discrimination.  In order to establish a prima facie case of pregnancy discrimination, a plaintiff must show that: 1) she was pregnant, 2) she was qualified for her job, 3) she was subjected to an adverse employment decision, and 4) there is a nexus between her pregnancy and the adverse decision.  For purposes of the second element, the plaintiff’s qualifications are to be measured by whether she met the employer’s expectations prior to and independent of the events that led to the adverse action, the Court noted.

In order to show a nexus between the pregnancy and the termination, a plaintiff can show that she was treated less favorably than “another employee who is similarly situated in her or his ability or inability to work.”  The Court noted that this standard is different from the ordinary Title VII standard, in which the employee must show that the employee who received more favorable treatment was similarly situated in all respects.  Plaintiff met this element by showing that employees with similar lifting restrictions caused by work-related accidents were treated more favorably by being assigned to “light duty.”

North Woods’ asserted legitimate, nondiscriminatory reason for removing Latowski from the work schedule and terminating her employment  was that it has an economics-based policy of refusing to accommodate restrictions arising from injuries incurred outside the workplace.  The Court noted that a policy is not necessarily a pretext for discrimination merely because the Court finds it ill-advised. Nevertheless, the Court found that the reasonableness of the decision can be considered to the extent that it sheds light on whether the employer’s proffered reason for the employment action was its actual motivation.   In this case, the Court found that a jury could easily conclude that North Woods’ policy – to terminate otherwise qualified workers whose doctors imposed any restrictions arising from non-workplace injuries, even if those restrictions do not limit the employees’ ability to competently perform their job – lacks merit and could be a pretext for discrimination.  Additionally, the comments made by various managers and administrators of North Woods revealed discriminatory animus against pregnant women.

In light of this decision, it would be wise for employers to examine their policies related to accommodating restrictions related to work-related injuries as compared to their policies related to pregnancy-related restrictions.  Further, employers should train their supervisors and managers regarding  the types of pregnancy-related remarks that are unacceptable.

Join us for CLE and the chance to spend some time with other in-house counsel.  Need to know about the hottest issues affecting companies and their employees? What about the Affordable Healthcare Act? What is happening in employment law today? These and other questions involving cyber security, attorney well-being, and insurance will be addressed at the Corporate Council Forum on March 3, 2014. We look forward to seeing you there. Five hours General and one hour Dual CLE credits. 

…And now for the legal stuff -- I would be remiss if I did not mention that while the articles in the Corporate Counsel Section Newsletter may express the views of the author of the article, the articles do not express the opinion of the editor, TBA or Corporate Counsel Section.  Further, the articles are given for information purposes only and not as legal advice.

Thanks,

Bill Seale

TBA Corporate Counsel Chair and Vice President General Counsel, Bush Brothers & Company

ANNE PAYNE v. CSX TRANSPORTATION, INC.

CORRECTION: On page 8 of the opinion, the paragraph starting "The trial court entered an order on September 6, 2011, . . ." is modified. On page 32, section VII is modified.

Court: TN Court of Appeals

Attorneys:
Richard N. Shapiro, Virginia Beach, Virginia; Sidney W. Gilreath and Cary L. Bauer, Knoxville, Tennessee, for the appellant, Anne Payne.
Randall A. Jordan, Karen Jenkins Young, and Christopher R. Jordan, St. Simons Island, Georgia; Evan M. Tager and Carl J. Summers, Washington, D.C.; John W. Baker, Jr. and Emily L. Herman-Thompson, Knoxville, Tennessee, for the appellee, CSX Transportation, Inc.

Judge: SUSANO

Winston Payne brought this action against his former employer, CSX Transportation, Inc., under the Federal Employers’ Liability Act (“FELA”), alleging that CSX negligently exposed him to asbestos, diesel fumes, and radioactive materials in the workplace causing his injuries. The jury returned a verdict finding (1) that CSX negligently 1 caused Payne’s injuries; (2) that CSX violated the Locomotive Inspection Act or safety regulations regarding exposure to asbestos, diesel fumes, and radioactive materials; and (3) that Payne’s contributory negligence caused 62% of the harm he suffered. The jury found that “adequate compensation” for Payne’s injuries was $8.6 million. After the jury returned its verdict, the trial court, sua sponte, instructed the jury, for the first time, that, under FELA, its finding that CSX violated a statute or regulation enacted for the safety of its employees meant that plaintiff would recover 100% of the damages found by the jury. The court sent the jury back for further deliberations. It shortly returned with an amended verdict of “$3.2 million @ 100%.” Six months after the court entered judgment on the $3.2 million verdict, it granted CSX’s motion for a new trial, citing “instructional and evidentiary errors.” The case was then assigned to another trial judge, who thereafter granted CSX’s motion for summary judgment as to the entirety of the plaintiff’s complaint. The second judge ruled that the causation testimony of all of plaintiff’s expert witnesses was inadmissible. We hold that the trial court erred in instructing the jury, sua sponte, on a purely legal issue, i.e., that the jury’s finding of negligence per se under FELA precluded apportionment of any fault to the plaintiff based upon contributory negligence, an instruction given after the jury had returned a verdict that was complete, consistent, and based on the instructions earlier provided to it by the trial court. We further hold that, contrary to the trial court’s statements, the court did not make any prejudicial evidentiary rulings in conducting the trial, and that its jury instructions, read as a whole, were clear, correct, and complete. Consequently, the trial court erred in granting a new trial. We remand to the trial court. We direct the first trial judge to review the evidence as thirteenth juror and determine whether the jury verdict in the amount of $8.6 million is against the clear weight of the evidence. If it is not, the trial judge is directed to enter judgment on that verdict. If, on the other hand, the trial judge finds that the larger verdict is against the clear weight of the evidence, the court is directed to enter a final judgment on the jury’s verdict of $3.2 million. The trial court’s grant of summary judgment is rendered moot by our judgment. However, in the event the Supreme Court determines that our judgment is in error, we hold that the grant of summary judgment was not appropriate.

.PDF Version of Case

Comment on this Article

By John R. LaBar*

The U.S. Department of Labor (“DOL”) on September 24, 2013 published two final rules to improve hiring and employment of veterans and for people with disabilities.  These rules will become effective March 24, 2014, and federal contractors will be required to comply with most of the final rule’s requirements by that date.  However, some contractors may have additional time to comply with the requirements which relate to affirmative action plans in that contractors with affirmative action plans in place on March 24, 2014 may maintain them until the end of their plan year and delay their compliance with the final rule’s affirmative action plan requirements until the start of their next plan cycle.

I.  Affirmative Action and Nondiscrimination Obligations of Federal Contractors and Subcontractors Regarding Individuals with Disabilities.

Enacted in 1973, the purpose of section 503 of the Rehabilitation Act, as amended, is twofold.  First, Section 503 of the act prohibits employment discrimination on the basis of disability by Federal Government contractors and subcontractors.  Second, it requires each covered Federal Government contractor and subcontractor to take affirmative action to employ and advance in employment qualified individuals with disabilities.  The nondiscrimination and general affirmative action requirements of Section 503 apply to all Government contractors with contracts or subcontracts in excess of $10,000 for the purchase, sale, or use of personal property or nonpersonal services (including construction).  The requirement to prepare and maintain an affirmative action program applies to those Federal contractors that have a contract or subcontract of $50,000 or more and 50 or more employees.

The final rule published by the Office of Federal Contract Compliance Programs (“OFCCP”) implements revisions to the current non-discrimination and affirmative action regulations of Section 503.  The following major provisions are contained in the Final Rule:

•  Establish, for the first time, a 7 percent workforce utilization goal for individuals with disabilities.  This goal is not a quota or a ceiling that limits or restricts the employment of individuals with disabilities.  Instead, the goal is a management tool that informs decision making and provides real accountability.  Failing to meet the disability utilization goal, alone, is not a violation of the regulation and it will not lead to a fine, penalty, or sanction.  The final rule permits Federal contractors with a total workforce of 100 or fewer employees to apply the 7 percent goal to their entire workforce, rather than to each job group.

•  Require Federal contractors to invite job applicants to voluntarily self-identify as an individual with a disability at the pre-offer stage of the hiring process, in addition to the existing requirement that Federal contractors invite applicants to voluntarily self-identify after receiving a job offer.  The purpose of this data collection is stated to be to provide Federal contractors with useful information about the extent to which their outreach and recruitment efforts are effectively reaching people with disabilities.

•  Require contractors to invite incumbent employees to voluntarily self-identify on a regular basis.  The OFCCP notes that the status of employees may change and a regular invitation to self-identify provides employees a way to self-identify for the first time, or to change their previously reported status.  In addition, the OFCCP also notes that providing a regular invitation to employees should contribute to increased self-identification rates and that improving data collection is important to assessing employment practices.

•  Require Federal contractors to maintain several quantitative measurements and comparisons for the number of individuals with disabilities who apply for jobs and the number of individuals with disabilities such Federal contractors hire in order to create greater accountability for employment decisions and practices.  The OFCCP notes that having this data will enable Federal contractors and the OFCCP to evaluate the effectiveness of such contractors’ outreach and recruitment efforts, and examine hiring and selection processes related to individuals with disabilities.

•  Require prime contractors to include specific, mandated language in their subcontracts in order to provide knowledge and increase compliance by alerting subcontractors to their responsibilities as Federal contractors.

•  Implement changes necessitated by the passage of the ADA Amendments Act (ADAAA) of 2008 by revising the definition of ‘‘disability’’ and certain nondiscrimination provisions of the implementing regulations.

The OFCCP estimates that for Federal contractors with 50–100 employees that the first-year cost of this rule to a contractor will be approximately $3,318.  And, that the first-year cost of this rule to Federal contractors with 100 to 500 employees will be approximately $5,197.

II.  Affirmative Action and Nondiscrimination Obligations of Contractors and Subcontractors Regarding Special Disabled Veterans, Veterans of the Vietnam Era, Disabled Veterans, Recently Separated Veterans, Active Duty Wartime or Campaign Badge Veterans, and Armed Forces Service Medal Veterans.

The second final rule published by the OFCCP implements revisions to the current regulations of the Vietnam Era Veterans’ Readjustment Assistance Act of 1974, as amended by the Jobs for Veterans Act of 2002 (“VEVRAA”).  The OFCCP is responsible for enforcement of VEVRAA, which prohibits employment discrimination against protected veterans by covered Federal contractors and subcontractors.  VEVRAA also requires each covered Federal contractor and subcontractor to take affirmative action to employ and advance in employment these veterans.

The final rule strengthens several provisions that are intended to aid in recruitment and hiring efforts, such as clarifying the mandatory job listing requirements, requiring data collection pertaining to protected veteran applicants and hires, and establishing hiring benchmarks to assist in measuring the effectiveness of their affirmative action efforts.  VEVRAA was initially enacted into law in 1974 and has been amended several times in the intervening years.  The purpose of VEVRAA is twofold.  First, VEVRAA prohibits employment discrimination against specified categories of veterans by Federal contractors and subcontractors.  The universe of protected veterans under VEVRAA includes disabled veterans, veterans who have separated from the military within the past three years (recently separated veterans), veterans who received an Armed Forces service medal while on active duty, and veterans who served in active duty during a war or in a campaign or expedition for which a campaign badge was authorized.  The second purpose of VEVRAA requires each covered Federal contractor and subcontractor to take affirmative action to employ and advance in employment each of the above classes of veterans. 

The VEVRAA regulations generally apply to (i) Government contracts of $25,000 or more entered into before December 1, 2003 (the threshold amount for coverage is a single contract of $25,000 or more, which contracts not being aggregated to reach the coverage threshold); and (ii) Government contracts entered into on or after December 1, 2003 with the threshold amount being a single contract of $100,000 or more (again, contracts are not aggregated to reach the coverage threshold).  Federal contractors and subcontractors that meet the respective coverage threshold and have 50 or more employees must develop an AAP.  The regulations also apply to modifications of otherwise covered Federal contracts made on or after December 1, 2003 (e.g. for a contract that was entered into before December 1, 2003, such contract will only be subject to the VEVRAA regulations if it is modified on or after December 1, 2003, and meets the contract dollar threshold of $100,000 or more).

The following major provisions are contained in the final rule:

•  Provide Federal contractors with a quantifiable means to measure their success in recruiting and employing veterans by requiring, for the first time, that Federal contractors establish their own or adopt a predetermined annual hiring benchmark (currently 8 percent based on national labor force data).

•  Create greater accountability for employment decisions and practices by requiring that contractors maintain several quantitative measurements and comparisons for the number of veterans who apply for jobs and the number of veterans they hire. Having this data will also assist Federal contractors and the OFCCP in measuring the effectiveness of Federal contractors’ outreach and recruitment efforts.

•  Provide knowledge and support to veterans seeking jobs by improving the effectiveness of the VEVRAA requirement that Federal contractors list their job openings with the appropriate state employment service agency.  Federal contractor job listings must be provided in a format that the state agency can access and use to make the job listings available to job seekers.

•  Provide knowledge and increasing compliance by subcontractors with their obligations by requiring prime contractors to include specific, mandated language in their subcontracts alerting subcontractors to their responsibilities as Federal contractors.

•  Create flexibility for Federal contractors when they are establishing formal relationships with organizations that provide recruiting or training services to veterans.  Such relationships or ‘‘linkage agreements’’ can be established to meet the Federal contractors’ specific needs, while assuring outreach to veterans seeking employment.

•  Clarify the Federal contractor’s mandatory job listing requirements and the relationship between the Federal contractor, its agents, and the state employment services that provide priority referral of protected veterans.

The OFCCP estimates that for Federal contractors with 50–100 employees, that the first year cost of this rule will be approximately $1536.  And that for a Federal contractor with 100–500 employees, that the first year cost of this rule will be approximately $2,518.

_________________________

John R. LaBar is a named member of Henry, McCord, Bean, Miller, Gabriel & LaBar, P.L.L.C. in Tullahoma, Tennessee. He is a frequent speaker at legal and human resource seminar on employment law topics.  John can be reached at jlabar@henry-mccord.com or (931) 455-9301.

By Bruce E. Buchanan*

As Social Media use continues to grow, so does the number of federal court decisions involving Social Media and the workplace.[i]  This article covers three recent federal court decisions related to Facebook.

In Smizer v. Community Mennonite Early Learning Center (7^th Cir. Oct. 25, 2013), the Court upheld an employer’s termination of an employee based on its honest belief that he had posted a disparaging remark on Facebook, creating workplace issues.

The Facebook post arose after a family dispute as to whether the Plaintiff’s sister should regain custody of her son, over the objections of the Plaintiff’s mother, who was the Director of the Center, where the Plaintiff worked. The Plaintiff sided with his sister in the custody battle.

After a state judge awarded custody of a child to the mother, the Plaintiff’s sister, a former employee sent an email to the Plaintiff, wherein she made profane disparaging comments, and made it appear this was a message from the Plaintiff.  The Director/mother sent an email to her boss asserting the Plaintiff had posted this profanity-laced message on Facebook.

Thereafter, the Director/mother and the Plaintiff’s grandmother, a Center volunteer, sent a memo to the Center’s Board of Directors - stating they did not feel safe in the Plaintiff’s presence and requested his discharge for creating a “hostile work environment.”  In this memo, the director detailed instances of the Plaintiff’s workplace misconduct, such as wearing “open-toed shoes”, which she had previously been willing to overlook.  The Center discharged the Plaintiff for “insubordination and unprofessional conduct” and the Plaintiff was told the “Facebook posting” caused his dismissal. 

The Plaintiff asserted his discharge was caused by his gender as he was the only male employee of the Center.  His only evidence of sex discrimination was that four women had worn open-toed shoes and that he had been accused of viewing pornography on a shared computer because “women don’t like porn.”

After the Plaintiff sued, the Center was unable to produce a screen shot of the Facebook post or any Facebook record of its existence.  Rather, the Center offered statements of three employees, who stated they viewed the post on the Plaintiff’s Facebook page, which posted the email.

The 7^th Circuit held the Plaintiff failed to establish the alleged Facebook posting was a pretext for sex discrimination.  The Court found the Center reasonably believed he posted disparaging and profanity-laced comments on Facebook and this was a legitimate, non-discriminatory reason for terminating the Plaintiff’s employment.

The 11^th Circuit Court of Appeals held, in Gresham v. City of Atlanta (Oct. 17, 2013), a law enforcement officer failed to establish she was not promoted due to a Facebook post criticizing another officer for unethical conduct.

Although the Plaintiff’s Facebook page was set to “private”, some “friend” saw the post and alerted the police department, who investigated the matter.  The alleged violation was for criticizing a fellow police officer though other means than through official channels.

The Court used the following four-part analysis to analyze the case - whether: (1) Plaintiff’s speech involved a matter of public concern; (2) Plaintiff’s interest in speaking outweighed the government’s legitimate interest in efficient public service; and (3) the speech played a substantial part in the government’s challenged employment decision. If Plaintiff establishes the foregoing, then she would prevail unless Defendants prove that (4) they would have made the same employment decision even in the absence of the protected speech. In conducting the balancing test under part 2 - Plaintiff’s interest in speaking vs. the government’s interest in efficient public service, the Court found the law is well-established that maintaining discipline and good working relationships amongst employees is a legitimate government interest.

The Plaintiff asserted the Department failed to provide any evidence that her Facebook post caused any disruption.  However, the Court found the government did not need to establish actual disruption, only “a reasonable possibility of adverse harm.”  The Department proved this plus it showed the Plaintiff violated the work rule in question.  Furthermore, the Plaintiff’s speech was not calculated to bring an issue of public concern to authority figures.  For all of those reasons, the Court of Appeals affirmed the lower court’s granting of summary judgment to the City of Atlanta and its police department.

Another issue arising in Social Media cases is whether Facebook posts are within the protection of the Stored Communications Act.[ii] The Court, in Ehling v. Monmouth-Ocean Hospital Service Corp. (D.N.J. Aug. 20, 2013), faced this issue when the Plaintiff, a paramedic, posted on her wall that paramedics in Washington D.C. should not have saved a “white supremacist”, who killed a guard at the Holocaust Museum. 

The Plaintiff’s Facebook page was private - for friends only but a co-worker gave the employer a copy of the post.  As a result of the post, the employer suspended the paramedic for “a deliberate disregard for patient safety.”

After the employee was discharged for other offences, she filed a lawsuit alleging a violation of the SCA.  SCA applies to: (1) electronic communications; (2) that were transmitted via an electronic communication service; (3) are in electronic storage; and (4) are not public.  SCA provides for damages for entities that violate the law.

The Court ruled the posts were covered under the SCA because they were supposed to be private.  However, the Court found the “authorized used exception” applied because (1) access to the communication was “authorized,” (2) “by a user of that service,” (3) “with respect to communication … intended for that user.” Specifically, the co-worker was a user and had authorized access to that Facebook post. Thus, the Court ruled against the employee. 

Clearly, these decisions demonstrate a number of interesting issues are arising out of Social Media cases in the workplace and one can only expect more to follow.

*Bruce E. Buchanan is an attorney at the Nashville Office of Siskind Susser, P.C., where he represents employers in employment/labor law matters and all aspects of immigration law, with a special emphasis on immigration compliance. He graduated from Vanderbilt School of Law. Mr. Buchanan is the editor of this publication. He may be reached at bbuchanan@visalaw.com or (615) 345-0266.

By Jennifer Rusie*

Payroll cards are having a moment.  Recent articles in the New York Times, USA Today and ABC News have all highlighted the growing trend of employers paying wages to their employees via debit card.  We have also begun to see the first few lawsuits regarding payroll cards.   So, what exactly are payroll cards—and more importantly, should employers use them?

Payroll cards are simply a form of electronic payment of wages.  An employer deposits the employee’s wages onto a reloadable prepaid card that is issued to the employee, and the employee can then use the payroll card as if it were a typical debit card - can withdraw cash from an ATM or bank teller, make point-of-sale purchases, make internet purchases and pay bills online.  These cards are an alternative to other forms of electronic payment, such as direct deposit or traditional methods of payment such as a paper check. 

Why are payroll cards becoming so popular?  The answer is simple—money and ease.  Payroll cards, like direct deposit, save employers a significant amount of costs associated with paying wages to their employees.  Additionally, payroll cards provide employers with a convenient means of initiating final wage payments to workers instead of cutting a physical check and overnighting it to the terminated employee. 

Payroll cards provide many advantages to employees as well.  A significant (and rapidly growing) percentage of the working population is “unbanked”, meaning these employees do not have or are not eligible for bank accounts.  Unbanked employees cannot take advantage of direct deposit, and prior to the advent of the payroll card, were forced to receive their wages via a traditional paper paycheck and would incur high fees to cash these checks.  Unbanked employees also were deprived of the convenience of a debit card to make point-of-sale purchases or online bill payments—that is, until the dawn of the payroll card age.    

You may be asking yourself, “should I be advising clients to pay their employees with payroll cards?”  In order to answer this question, you must consider both federal and state law.  The only federal law that explicitly deals with payroll cards is Regulation E of the Electronic Fund Transfer Act, although innovative plaintiffs are arguing that payroll card fees may reduce their wages below minimum wage and therefore run afoul of the Fair Labor Standards Act.

Regulation E states that no “financial institution or other person” (i.e., employer) can mandate that an employee receive direct deposit into an account at a particular institution (i.e., a specific payroll card).  In other words, Regulation E prohibits employers from mandating that employees receive wages via a payroll card of the employer’s choosing with no other options available.  These options could be direct deposit, check, cash or any combination of the three.  Regulation E preempts state laws relating to payroll cards, but only to the extent that the state law is inconsistent with Regulation E. 

On September 12, 2013, the Consumer Financial Protection Bureau issued a bulletin regarding payroll cards and the effect the Electronic Fund Transfer Act has upon it.  This bulletin does not change the current state of federal law regarding payroll cards, and it does not have any effect on state laws; however, it does let the consuming public know that the CFPB is very interested in payroll cards.

Importantly, federal law is not the only consideration—employers must consider the state law(s) where the employees are located, as the law in this area is rapidly evolving.  While a number of states expressly permit the use of payroll cards, it is important to read the fine print on these regulations and the payroll card paperwork, as many of the laws (and payroll cards) have catches.  Some pitfalls include:

·      Some states allow employers to mandate payroll cards (usually as an alternative to direct deposit), while others only permit the use of payroll cards if the employee voluntarily (and knowingly) elects the option; and

·      Some states require that employees be allowed a specific number of free withdrawals from ATMs, while others only require that an employee must be able to obtain the full amount of wages on the card once without fees—this can be accomplished through a courtesy check or a cash withdrawal from a bank teller.

Many of the terms of the payroll cards may be negotiated between the vendor and the employer—and many of the fees that employees may incur could be avoided if they are properly informed.  As such, employers should take steps to negotiate the fewest and lowest fees possible, and should provide as much information about payroll card options and possible fees to their employees. 

It is clear that payroll cards are not going away any time soon, and neither are the agencies who regulate them.  That said, it is in the best interest of employers to dot their I’s and cross their T’s when dealing with payroll cards to avoid being targeted by government agencies or possibly defending a class action.

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*Jennifer Rusie is a shareholder with the Nashville Office of Ogletree Deakins, where she represents management in the area of labor and employment law with an emphasis on employment litigation, including cases involving Title VII, the ADAAA, ADEA, FMLA, FLSA, SOX and common law wrongful termination.  She is a graduate of New York University Law School. Ms. Rusie may be reached at 615-687-2223 or jennifer.rusie@ogletreedeakins.com.