Pennsylvania Employment Lawyer & Attorney : Russell Krafft & Gruber Law Firm : Lancaster, York, Harrisburg

The White House announced that President Bush signed of the National Defense Authorization Act (H.R. 4986) which includes additional FMLA leave for military families.  Section 585 (full text set forth below) of the bill (similar to the one vetoed in December) adds two new FMLA-qualifying events, expanding FMLA to include employees caring for an injured service member as well as family members who have a family member called to active duty.

The DOL has summarized the provisions and indicated that the caregiver provisions of the law are effective immediately while the other provisions aren’t effective until DOL issued final regulations. The DOL is “working quickly” to prepare comprehensive guidance, and will require employers to act in good faith until guidance is issued. Employers should immediately adopt FMLA-type procedures for substitution of paid leave and notice as it applies to the new legislation.

Under the new law, FMLA-eligible employees will now be entitled to the following:

Caregiver Leave for an Injured Servicemember:  This benefit permits a “spouse, son, daughter, parent, or next of kin” to take up to 26 workweeks of leave to care for a “member of the Armed Forces, including a member of the National Guard or Reserves, who is undergoing medical treatment, recuperation, or therapy, is otherwise in outpatient status, or is otherwise on the temporary disability retired list, for a serious injury or illness.”

Family Leave Due to a Call to Active Duty:   This benefit provides 12 weeks of FMLA leave for “any qualifying exigency (as the Secretary [of Labor] shall, by regulation, determine) arising out of the fact that the spouse, or a son, daughter, or parent of the employee is on active duty (or has been notified of an impending call or order to active duty) in the Armed Forces in support of a contingency operation.”

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            There has always been tension between the arbitration process and the judicial process, particularly when it comes to judicial review of an arbitrator's decision. In its decision in Westmoreland Intermediate Unit #7 v. Westmoreland Intermediate Unit #7 Classroom Assistants Educational Support Personnel Association, PSEA/NEA, the Pennsylvania Supreme Court reaffirmed Pennsylvania's policy favoring arbitration and the finality of an arbitrators decision. The Court expressly reaffirmed the "essence test" as the proper standard to be employed by a court; adopted a public policy exception to the essence test; and rejected the prior "core functions exception".

            If my description is making your head spin, welcome to the world of grievance arbitration. Although the case is set in the context of a grievance arbitration for public employees, it has important instructional value for all unionized employers as well as those employers who are tempted to adopt contractual arbitration agreements to avoid the expense of litigation. The possibility of getting a "crazy" decision reversed in court is remote.

            The facts of the Westmoreland Intermediate Unit case demonstrate how an arbitrator's decision can have significant implications for an employer's workforce leaving an employer almost no option when it comes to appealing the award. The case involved a public school's decision to terminate a classroom assistant for a work related substance abuse episode. The employee had twenty-three years experience and no prior disciplinary action. The classroom assistant was under the treatment of a physician who had prescribed several medications. She made the decision to supplement her physician prescribed medications with another prescription medication a friend had given her. The misuse of the friend's prescription medication is a crime for which the classroom assistant was later prosecuted.

            On the day she misused the friend's prescription medication, she had an adverse reaction at work resulting in her being found unresponsive in a restroom while she was to be attending to her classroom duties. Emergency personnel were summoned to assist her and the entire school was placed under a "code blue" which is essentially a lock down.

            The school terminated the classroom assistant for "immorality" which is one of several statutorily enumerated causes for termination of a school district's professional employees. The union grieved the termination and an arbitrator found that the employee's behavior was "foolish" and "irresponsible" but did not rise to the level of "immorality". The arbitrator determined just cause did not exist under the collective bargaining agreement to terminate the employee. The school appealed the decision into court where the first level of appellate court reversed the decision of the arbitrator finding that the unique nature of the school's function (educating children) allowed for the application of the "core functions" exception to determine whether the arbitrator's award was rationally derived from the collective bargaining agreement.

            The Pennsylvania Supreme Court reversed the ruling holding that the "essence test" is the proper standard to be employed by a court when reviewing a grievance or arbitration award and adopting a public policy exception to that test while rejecting the "core functions" exception. Along the way, the court made the following important observations about a court's judicial review of an arbitration award:

• “The General Assembly requires that the decision of the arbitrator shall be final and binding upon the parties. Therefore, final and binding arbitration is not only highly valued in labor relations for its speed, inexpensiveness and efficiency, it is required under the law.”
• “Broad judicial review of an arbitrator's award . . . would undercut these attributes of arbitration, and thus, thwart the Legislature's intentions regarding resolution of labor disputes. Specifically, judicial review that would allow the regular vacating of arbitration awards would not only encourage extended litigation through court review of arbitration awards, but would add time and expense to the process and would take the resolution of disputes from a person chosen by the parties and give it to a court to decide.”
• “An arbitrator is confined to interpretation and application of the collective bargaining agreement; he does not sit to dispense his own brand of industrial justice. He may, of course, look for guidance from many sources, yet his award is legitimate only so long as it draws its essence from the collective bargaining agreement."
• “The arbitrator's award will be upheld if the arbitrator's interpretation can rationally be derived from the collective bargaining agreement. That is to say, a court will only vacate an arbitrator's award where the award indisputably and genuinely is without foundation in, or fails to logically flow from, the collective bargaining agreement.”
• “The essence test does not permit an appellate court to intrude into the domain of an arbitrator and determine whether the award is ‘manifestly unreasonable.’”
• The Pennsylvania Supreme Court adopts the principles established in federal arbitration that is "courts should not enforce an arbitration award that contravenes public policy." This exception is grounded in the general rule that a court will not enforce a contract which is unlawful or in violation of public policy.
• “The public policy must be well defined and documented and is to be ascertained by reference to the laws and legal precedents and not from general considerations of proposed public interests.”

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The Manpower Employment Blawg post on $319 Million Fine for FedEx? highlights the enormous downside of misclassifying workers. There are many motivations to classify a worker as an independent contractor rather than an employee including payroll tax savings, benefit plan and insurance savings, increased workforce flexibility and headcount management to name a few. The test for worker classification isn’t crystal clear but there are some common errors. The first two points involve classification mistakes that are entirely avoidable and easily discovered by the IRS:

1. Same Job but Different Classification.  If your employees are working next to your independent contractors, doing the same or similar jobs, you have a problem with classification. The problem becomes worse when the job being performed is an integral part of your business. I see this problem frequently in some industries such as  transportation, trade services  like telecommunications and HVAC, and construction.

2. Retire or Fire Employee and then Rehire as Independent Contractor. Sometimes its attractive for both the employee and the employer to allow someone to “retire” and then be hired back as an independent contractor. The employee starts collecting a pension, social security and still has some income from the old job. There are many problems with this situation and it is easily discovered by the IRS since the worker will likely receive both a Form W-2 and Form 1099 from the same company in the same tax year.

3. Misclassification has Benefits Plan and Insurance Issues.  A worker incorrectly characterized as an independent contractor may have been eligible to participate in your health, retirement and other benefit programs available to employees. In addition, the worker should have been covered under your worker’s compensation policy. Finally, there may be back wages for unpaid overtime, vacation and other benefits. On the other hand, incorrectly treating an independent contractor as an employee (although rare) has the opposite impact. The worker may have been provided medical and retirement benefits to which he or she was not entitled resulting in a violation of the terms of the plan.

4. State Law Classification Test may Differ from Federal Law. As I have previously commented, state laws may differ from federal laws in classifying workers. Some states, like Pennsylvania, use a test that requires independent contractors to be free from control or direction over the performance of the services involved and be customarily engaged in an independent trade, occupation, profession or business. 

5. Misclassification Fixes. The IRS provides for tax relief for misclassified workers if the employer can demonstrate a “reasonable basis” for treating a worker as an independent contractor rather than an employee. Reasonable Basis can be demonstrating as follows:
   • Reliance on court decisions or IRS rulings;
   • Prior IRS audit where similar workers were not reclassified
   • Treatment of workers as independent contractors by a significant industry segment;
   • Reliance on professional advice of a lawyer or accountant who knows the facts about your business.

Retirement Plan Blog post on What to do when an independent contractor is really an employee describing the pension plan self-correction procedures with the IRS.

* Not intended to be exhaustive.

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In my previous post, I explained how a court can seize on one remark by a supervisor to infer a discriminatory motive for an employment decision. I have also commented that even a single remark, if sufficiently sever, can create a hostile work environment for the purposes of a harassment claim. What does this do to communication in the workplace? Perhaps The Boss on Dilbert could concoct a policy requiring legal pre-approval of workplace remarks. For the rest of us, we are better served by managing the situation after it occurs.

How an employer responds to an inappropriate remark can make all the difference in managing the legal fallout. I believe the ingredients of a response are (1) a succinct acknowledgement of the inappropriateness (but not necessarily the illegality) of the remark; (2) an apology from the company and the maker of the remark; (3) a reaffirmation that such conduct is not acceptable in the employer’s workplace; and (4) some appropriate remedial or disciplinary action.

Take for example, the Golf Channel’s suspension of anchor Kelly Tilghman for two weeks for saying that young players who wanted to challenge Tiger Woods should “lynch him in a back alley.” The Golf Channel’s Editor’s Note is a roadmap for handling the situation:

Editor's Note: The GOLF CHANNEL released the following statement on Jan. 9th:
 
The GOLF CHANNEL regrets the poorly chosen remarks made by Kelly Tilghman on a recent broadcast and, again, extends our apologies to anyone who was offended.
 
There is simply no place on our network for offensive language like this.
 
While we believe that Kelly's choice of words were inadvertent and that she did not intend them in an offensive manner, the words were hurtful and grossly inappropriate.
 
Consequently, we have decided to suspend Kelly for two weeks, effective immediately.

Ms. Tilghman was completely contrite about her misstep, but some employees are not. Nonetheless, the employer must take action and oft times wade into difficult situations. Such an example is reported by Ann Belser in her Pittsburgh Post-Gazette article Ex-employee of Mellon loses religious bias suit.

The bank was sued for religious discrimination after it disciplined an employee for his offensive reply to e-mail sent by fellow employees inviting him to a luncheon hosted by Mellon’s gay, lesbian, bisexual and transgender employee group. His note stated that he did not want to be lumped in with other groups including those that “have this sickness called gay or lesbian.”

After a complaint to HR, the employee was told that his reply was offensive and that he was required to treat his co-workers with respect. He replied, “The true friend of gays and lesbians is the one who points them to help.” For this, the employee was disciplined. He then filed a religious discrimination claim based upon his Orthodox Jewish religious beliefs. The court dismissed the case, finding that the employee was disciplined because his actions were offensive, not because of his religion.

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A recent federal court of appeals decision in Simple v. Walgreens Company is a case study on two important points. First, how the pressures of marketing in a competitive retail environment can overtake the limits of discrimination laws. Second, how a supervisor’s communication with an employee can create an issue of discrimination.

Like many retailers, Walgreens tracks demographic data and relates it to each retail store. At issue in the case was whether the racial demographic data was used in promotion decisions to assign personnel to “black” or “white” stores depending on the race of the employee. The court noted as follows:

There is no evidence that [the successful white candidate] was more qualified to manage the store in Pontiac[, Michigan] than the plaintiff, who had twice her experience as an assistant manager, the mandatory stepping stone to store manager. But she is white, and the store is in a predominantly white neighborhood, while the plaintiff is black and so was twice offered a "black" store--and when the store manager's job at the "white" store fell vacant he was ignored.

The evidence of the company’s racial motivation was found in a supervisor’s comments to the plaintiff in an effort to make him feel better:

"I may have stated that Pontiac was possibly not ready to have a black manager. It is well known in this area that some of the smaller, outlying towns have some very racist tendencies, and I was simply trying to make [the plaintiff] feel better because my feeling was he may not have been very happy working there."

From this statement, the court concluded as follows:

The significance of [the supervisor's] remark about racism in Pontiac lies in the fact that as an experienced Walgreens store manager (it appears that she had been one for at least four years) she was undoubtedly aware of what [the district manager] was looking for in a store manager in Pontiac, and one interpretation of the remark is that the plaintiff's race would bar him from consideration…. The plaintiff would not feel "happy" among Pontiac's white racists, which is a standard euphemism for refusing a job to someone of a different race from the people he would be associating with. Racial segregation is obviously a form of racial discrimination.

The presumption underlying “customer preferences” is that people prefer to interact with those of the same race, gender, religion, or other characteristic. Employment decisions are justified by appealing to a target demographic group. Courts have universally rejected customer preference as a basis for employment decisions except in the narrow case where it is a Bona Fide Occupational Qualification (BFOQ).

The attorneys at Godfrey & Kahn have a great post analyzing the role of customer preference in health care marketing called Can We Use Gender in Our Hiring Decisions? The Discrimination Bona Fide Occupational Qualification (BFOQ) Applied to Health Care.  Fay Hansen’s post Recruiting on the Right Side of the Law describes the pressures of retail establishments to market an image through their sales associates and the resulting discrimination issues.

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The Associated Press reports that Bush Administration blogging Mideast trip and notes that “Everybody's doing it, so why not the White House? President Bush's team is joining the blogosphere, planning regular postings during his Mideast trip.”   The blog can be found at http://www.whitehouse.gov/infocus/mideast/notes/index.html. Let the comments begin!

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Ford Motor Co., along with two related companies and a national union, will pay $1.6 million and provide other remedial relief to a class of nearly 700 African Americans to settle a major race discrimination lawsuit brought by the U.S. Equal Employment Opportunity Commission (EEOC). The EEOC had charged in the litigation that a written test used by Ford and the UAW, Visteon and Automotive Components Holdings (ACH) to determine the eligibility of hourly employees for a skilled trades apprenticeship program had a disproportionately negative impact on African Americans.

The EEOC in its Press Release  touts two of its initiatives. First, the E-RACE Initiative (Eradicating Racism And Colorism from Employment), a national outreach, education, and enforcement campaign to raise public awareness about new and emerging race and color issues in the 21st century workplace. Further information about the E-RACE Initiative is available on the EEOC’s web site. Second, the EEOC issued a new Employment Testing Fact Sheet which cites the Ford case.   The Fact Sheet is not particularly illuminating from a legal or policy standpoint, but it does highlight the agency’s interest in employer testing practices.

There are general legal restrictions on the use of employment testing (whether pre or post employment) in addition to the general prohibitions on discrimination found in Title VII and the Pennsylvania Human Relations Act. The Uniform Guidelines on Employee Section Procedures prohibit the use of a test or selection process that has an adverse impact on individuals in a protected class unless the test has criterion-related, content and construction validation studies. The validation studies must consist of empirical data demonstrating that the test is (1) predictive of performance of important elements of job performance; (2) contains content which tests important aspects of performance on the job; and (3) consists of procedures that assess identifiable characteristics that have been determined to be important to job performance.

We have previously blogged on the subject of Pre-employment testing at Employment Screening and Background Checks - Part III.

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As to our previous post on taking seriously complaints of racial harassment, thanks to Jon Hyman at the Ohio Employer’s Law Blog who posted the EEOC’s press release and commented on the case. The press release details the types of harassment as follows:

The EEOC charged that Daniels [the employee] was the target of persistent verbal abuse by coworkers and a supervisor whose racial slurs and offensive language included calling him the “N-word” and saying “we should do to blacks what Hitler did to the Jews” and “if the South had won then this would be a better country.”  Daniels was also subjected to multiple physical threats, such as lynching and other death threats after he reported the harassment.

Commentators have observed that the settlement amount paid [$2.5 million] “seems excessive for someone who was subjected to words, no matter how offensive they might be”. I know what they are driving at because, in many contexts, the law expects people to have a thick skin as it relates to the free expression of ideas (no matter how offensive).   However, unlawful harassment  arises from conduct that is severe or pervasive enough to create a work environment that a reasonable person would consider intimidating, hostile, or abusive.

The severity and the pervasiveness are the focus of the legal analysis. This is a very fact sensitive inquiry. For example, the New Jersey Supreme Court has held that some racial slurs are so historically offensive that their use in the workplace, even once, can lead to liability for an employer who doesn’t respond appropriately. A single utterance of an epithet can create a hostile work environment if it is view as “severe” and it is aimed at the individual rather than a generalized comment. I believe the weight of court authority would probably evaluate both the severity and the pervasiveness of the racial comments and that one comment might not be sufficient to create a hostile work environment. Certainly the use of racial slurs by a decision maker is evidence of discriminatory motive in adverse employment decisions as noted by the Supreme Court in Ash v. Tyson Foods.

Why did Lockheed pay $2.5 million to settle this case? The words were severe, the words were threats directed at an employee, and the company didn’t take appropriate remedial action.

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When an employee complains about how co-workers are treating him or her it is never appropriate to respond, “That’s just boys being boys, and that’s the way it is here at [insert defendant company’s name].”

According to media accounts that is how Lockheed handled complaints of racial harassment that included being called derogatory names and being threatened by co-workers.  Lockheed settled for a record $2.5 million (the largest settlement of an individual race discrimination case filed by the EEOC).

Discrimination claims involving harassment by co-workers are some of the more manageable HR situations. However, if the first point of contact for a complaint doesn’t treat the allegations seriously, the employer loses its ability to manage the situation. Employers have a good defense to harassment claims if the following are present: an effective complaint procedure; an adequate investigation into the complaint; and prompt and appropriate remedial action.

The effectiveness of the complaint procedure is greatly enhanced if first line supervisors and managers are trained to treat seriously conversations with or comments by employees that may later be characterized as complaints of discrimination.

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Effective December 26, 2007, employers were required to use the new version of the I-9 Form. The new form and instructions are available on line. Highlights of the changes in acceptable documentation were previously posted: Revised I-9 Form Issued: Changes Acceptable Documentation.

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The EEOC issued final regulations that create a specific exemption from the Age discrimination laws (ADEA) allowing employers to coordinate (meaning alter, reduce or eliminate) health benefits for retirees who become eligible for Medicare. The EEOC regulations describe the exemption as follows:

Some employee benefit plans provide health benefits for retired participants that are altered, reduced or eliminated when the participant is eligible for Medicare health benefits or for health benefits under a comparable State health benefit plan, whether or not the participant actually enrolls in the other benefit program. Pursuant to the authority contained in section 9 of the Act and in accordance with the procedures provided therein and in Sec. 1625.30(b) of this part, it is hereby found necessary and proper in the public interest to exempt from all prohibitions of the Act such coordination of retiree health benefits with Medicare or a comparable State health benefit plan.

According to the NY Times, 10 million retirees rely on employer-sponsored health plans as their primary source of coverage or as a supplement to Medicare. With the rising cost of healthcare, many employers were considering the elimination of retiree benefits. The motivation for employers to eliminate retiree health coverage was greatly increased following a ruling by the Third Circuit Court of Appeals in 2000. In its decision in Erie County Retirees Association v. County of Erie, the Court held that the ADEA required that health benefits offered to Medicare-eligible retirees must be the same, or have the same cost to the employer, as benefits offered to employees under age 65. The ruling prohibited an employer from taking into account Medicare coverage in providing health benefits to retirees. Employers scrambled to justify plan designs that almost universally coordinated with Medicare.

In 2004, the EEOC issued proposed regulations that created an exemption in response to the Erie County decision. The American Association of Retired Persons (AARP) filed suit and won an injunction barring the EEOC from implementing the exemption. On appeal, the same Third Circuit Court of Appeals that decided Erie County ruled that the EEOC had properly issued the exemption under its authority in the ADEA. AARP has sought an appeal to the US Supreme Court.

The EEOC exemption gives employers an important cost control option in designing retiree health benefit programs. Barring an unexpected ruling by the U.S. Supreme Court, the uncertainty created in this area should subside.

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