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

The economic downturn affects businesses but also impacts the daily lives of employees. An employee’s personal financial problems can lead to bankruptcy, foreclosure and even divorce, any of which may impact his or her job and job performance.

Businesses must be prepared to respond to employee performance issues created by financial problems. Employers should be aware of legal limitations placed on their actions with regard to an employee’s financial problems. In addition, human resource professionals should appreciate the relationship between their performance management program and other resources to address employee issues created by financial distress.

Pennsylvania and federal laws limit actions employers may take against employees that file for bankruptcy or are subject to wage attachments. Many employers, particularly those in the financial sector, face customer relation problems when one of their employees doesn’t pay his or her bills or files for bankruptcy. Legal limitations on employer responses are as follows:

• Garnishment/Attachment of Wages. Pennsylvania does not allow garnishment/attachment of wages for the repayment of personal debts, except in limited circumstances for child support, alimony or student loans.   Employees may not be disciplined, discriminated against or discharged because of wage garnishments.

• Employee Bankruptcy. Section 575 of the Bankruptcy Act protects employees and applicants from discrimination if an individual:
  • is or has been a debtor under this title or a debtor or bankrupt under the Act;
  • has been insolvent before the commencement of a case under the Act or during the case but before the grant or denial of a discharge; or
  • has not paid a debt that is dischargeable in a case under this title or that was discharged under the Act.

Courts have limited the reach of this provision by requiring that the discrimination be "solely because" of the individual's bankruptcy participation.

• Worries About Temptation for Theft. Businesses may become concerned that an employee in financial distress may be more likely to embezzle and react by trying to find out the scope of an employee’s credit problems. The Fair Credit Reporting Act limits an employers use of employee credit information. A business’ usual financial controls should be uniformly applied, but, if inadequate, should be revised for all employees.                                 

Financially distressed employees may exhibit other performance problems ranging from declining productivity to depression. The usual performance management system should be utilized to correct deficiencies; however, special attention should be paid to other resources like the EAP and  Debt/Credit counseling. Some businesses may wish to go further. Susan S. Windham believes that Financial Distress for Employees Means Lower Profits for Employers. She advocates workplace financial education as the answer.

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The EEOC announced a $505,000 sexual harassment settlement with a McDonald’s Franchise on behalf of a class of young female employees, including teens. The EEOC contended that a male supervisor engaged in serious harassment including physical contact, sexual comments and offers of favoritism. In addition to the monetary award, the franchisee was required to provide letters of apology to the victims, conduct training on sexual discrimination for its franchise locations, and post nondiscrimination notices in its workplaces.

The EEOC has a national http://www.eeoc.gov/initiatives/youth/index.html initiative designed to educate young workers on their employment rights. There is a stand-alone website that has been featured on MTV.com highlighting discrimination protections.

Restaurant operators face difficult HR compliance issues based on several factors including the following:

• Workforce Demographics:  Diversity management is a challenge for the entire food service industry. EEOC workforce demographic information for the Accommodations & Food Service Industry reports a workplace composition for workers (operatives, laborers and service) that are 52% female and 47% minority. While managers for the same group are 68.8% male and 74% white. The prevalence of younger workers adds to the management challenge.
• Wages and Employee Turnover:     Lower wage earners make for job hoppers. Pennsylvania reports food service worker wages ranging from $15.05/hr for serving workers to between $7.37 and $7.70/hr for fast food cooks and counter attendants.
• Management Turnover:       The Restaurant Industry Blog by Kenneth Rexrode notes that turnover of managers and employees necessitate constant training and inhibit the development and continuity in a management staff.
• Dispersed Operations:          Some restaurant operations, particularly franchised operations have multiple locations and depend upon managers traveling between locations. This can make for spotty supervision and training.

Solving compliance problems may be a matter of adopting effective policies on EEO compliance, training managers and educating employees. The most frequent misstep I see is concentrating too much control in a site manager so that employees feel they have no avenue to direct concerns to higher levels.

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As Pennsylvania’s Primary Election approaches, one of the unexpected political issues is affirmative action.  Newsweek columnist Seth Colter Walls discusses the situation in Obama’s Postracial Test. The column describes the election battleground created by state ballot initiatives like California’s Proposition 209 and Michigan’s Proposal 2 that prohibit public institutions from considering race, sex or ethnicity in hiring, contracting for goods/services or college admissions. Similar ballot initiatives may appear in Arizona, Colorado, Missouri, Nebraska and Oklahoma.  For now, Newsweek's Dahlia Lithwick states in her column, A Complicated Record On Race, that both sides think Mr. Obama agrees with them.

The Timeline of Affirmative Action began with the Civil Rights Act of 1964 and has taken many forms since then. Most of us in the employment world are familiar with the Affirmative Action Programs created by Executive Order 11246. However, there are many other state and federal programs which create preferences based on gender and race. These programs have judicial approval provided the government can pass the “strict scrutiny test” by demonstrating that there is a compelling need for the program and the program is narrowly tailored to meet the need. As the economy contracts, the most contentious areas of debate may focus on government “set-aside” programs for purchased goods and services.

The United States Supreme Court has considered contracting programs in three of its decisions. In its 1980 decision in Fullilove v. Klutznick, the Supreme Court ruled that some modest quotas were perfectly constitutional. The Court upheld a federal law requiring that 15% of funds for public works be set aside for qualified minority contractors. The "narrowed focus and limited extent" of the affirmative action program did not violate the equal rights of non-minority contractors, according to the Court—there was no "allocation of federal funds according to inflexible percentages solely based on race or ethnicity."

In City of Richmond v. Croson, the Supreme Court went the other way ruling that an "amorphous claim that there has been past discrimination in a particular industry cannot justify the use of an unyielding racial quota." It maintained that affirmative action must be subject to "strict scrutiny" and is unconstitutional unless racial discrimination can be proven to be "widespread throughout a particular industry." The Court maintained that "the purpose of strict scrutiny is to ‘smoke out' illegitimate uses of race by assuring that the legislative body is pursuing a goal important enough to warrant use of a highly suspect tool. The test also ensures that the means chosen `fit' this compelling goal so closely that there is little or no possibility that the motive for the classification was illegitimate racial prejudice or stereotype." This case involved affirmative action programs at the state and local levels—a Richmond program setting aside 30% of city construction funds for black-owned firms was challenged. For the first time, affirmative action was judged as a "highly suspect tool."

In Adarand Constructors, Inc. v. Peña,  the Court again called for "strict scrutiny" in determining whether discrimination existed before implementing a federal affirmative action program. "Strict scrutiny" meant that affirmative action programs fulfilled a "compelling governmental interest," and were "narrowly tailored" to fit the particular situation. Although two of the judges (Scalia and Thomas) felt that there should be a complete ban on affirmative action, the majority of judges asserted that "the unhappy persistence of both the practice and the lingering effects of racial discrimination against minority groups in this country" justified the use of race-based remedial measures in certain circumstances.

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Charley Blaine hit the nail on the head with his observation about the Bear Stearns' fallout appearing  in his posting MSN moneyblog:

My guess is that Bear Stearns' 14,000 employees will be the biggest losers. The company's employee-stock-ownership plan owned 23% of the shares as of Feb. 14. The shares that day had a market value of $2.18 billion. It's almost gone now. Needless to say, Bear Stearns employees aren't happy. Check here for a sampling of their anger.

ESOPs and matches in company stock have long been touted as aligning incentives, but this selling point can lead to litigation when the company stock takes a dive or the employer files for bankruptcy protection. It's even more disastrous for employees who have been “incentivized” to put so many of their retirement eggs in one basket. If the company tanks, an employee loses a job and a big chunk of retirement savings.

A statistical profile of Employee Ownership as published by the National Center for Employee Ownership estimates the number of plans, participant employees and asset value for ESOPs and 401(k) plans with significant company stock matches. For early 2008, the estimates are as follows:

Type of Plan	Number of Plans (as of early 2008)	Number of Participants (as of early 2008)	Value of Plan Assets (as of early 2008)
ESOPs, stock bonus plans, & profit sharing plans primarily invested in employer stock	9,774	11.2 million	$928 billion+
401(k) plans primarily invested in employer stock	748	1.5 million	$133 billion

The prevalence of company stock based incentives may make employees nervous in light of the high profile failures. Human Resources may need to manage expectations in its recruiting and retention activities.

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The EEOC’s Report of Discrimination Charge filings notes that Retaliation claims rose 18% to a record high, doubling since 1992. There were 26,663 retaliation based charges filed in 2007 up from 22,555 the previous year. The trend might be explained, in part, by employees filing both a discrimination charge and a retaliation claim; increased awareness by employees, or employers mishandling employee internal complaints of discrimination.

Claims of retaliation take a very predictable path like the one recounted in a recent EEOC lawsuit. Vanguard Group settled a suit filed by the EEOC for a racial retaliation claim for a payment of $500,000.    The suit was based upon an employee’s complaint to management that he was being treated less favorably and discriminated against based on his race. Thereafter, the EEOC contended that the employee began to experience acts of retaliation, including unfavorable changes in his work conditions and assignments, from the managers he accused of race discrimination. The EEOC alleged that this pattern of retaliation resulted in the employee’s termination. The following may help HR Generalist avoid mishandling internal complaints.

1. What is Unlawful Retaliation?

An employer may not fire, demote, harass or otherwise "retaliate" against an individual for filing a charge of discrimination, participating in a discrimination proceeding, or otherwise opposing discrimination. The same laws that prohibit discrimination based on race, color, sex, religion, national origin, age, and disability, as well as wage differences between men and women performing substantially equal work, also prohibit retaliation against individuals who oppose unlawful discrimination or participate in an employment discrimination proceeding. Retaliation occurs when an employer, employment agency, or labor organization takes an adverse action against a covered individual because he or she engaged in a protected activity.

2. What is “Adverse Action” by an Employer?

An adverse action is an action taken to try to keep someone from opposing a discriminatory practice, or from participating in an employment discrimination proceeding. According to the EEOC, examples of adverse actions include:

• Employment actions such as termination, refusal to hire, and denial of promotion;
• Other actions affecting employment such as threats, unjustified negative evaluations, unjustified negative references, or increased surveillance; and
• Any other action such as an assault or unfounded civil or criminal charge that is likely to deter reasonable people from pursuing their rights.

On the other hand, the EEOC states that adverse actions do not include petty slights and annoyances, such as stray negative comments in an otherwise positive or neutral evaluation, "snubbing" a colleague, or negative comments that are justified by an employee's poor work performance or history.

3. What is “Protected Activity” by an Employee?

Protected activity includes either opposing a practice reasonably believed to be unlawful discrimination or participating in a discrimination procedure. 

Opposition is informing an employer that you believe that he/she is engaging in prohibited discrimination. Opposition is protected from retaliation as long as it is based on a reasonable, good-faith belief that the complained of practice violates anti-discrimination law; and the manner of the opposition is reasonable.  The EEOC cited examples of protected opposition to include:

• Complaining to anyone about alleged discrimination against oneself or others;
• Threatening to file a charge of discrimination;
• Picketing in opposition to discrimination; or
• Refusing to obey an order reasonably believed to be discriminatory.

According to the EEOC, examples of activities that are NOT protected opposition include:

• Actions that interfere with job performance so as to render the employee ineffective; or
• Unlawful activities such as acts or threats of violence. 

Participation means taking part in an employment discrimination proceeding. Participation is a protected activity even if the proceeding involved claims that ultimately were found to be invalid. Examples of participation include:

• Filing a charge of employment discrimination;
• Cooperating with an internal investigation of alleged discriminatory practices; or
• Serving as a witness in an EEO investigation or litigation.
• A protected activity can also include requesting a reasonable accommodation based on religion or disability.

4. Promptly Investigate Comments and Complaints Concerning Discrimination

Some HR action should be taken on all communications from employees that could later be “characterized” as either opposition or participation. At a minimum, get the facts underlying a comment about “unfairness” or “discrimination”. Obviously, you can spend your entire workday chasing down spurious remarks. You can circumvent a lot of problems merely by developing a practice of asking “what do you mean when you say it’s discriminatory?” Not taking complaints or comments seriously can be costly.

5. Monitor Supervisors for Adverse Actions following an Employee Complaint

I would wager that most acts of “retaliation” go unnoticed on HR’s radar screen because no one is actively monitoring the situation. If someone has complained about discrimination by a supervisor, HR should follow up informally with the employee to make sure that there is no real or perceived retaliation. 

* Not meant to be exhaustive.

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Today’s headlines about Governor Eliot Spitzer’s link to a prostitution ring recount another scandal involving a high level government official. Spitzer attempted to “manage” the scandal by calling a press conference, his spouse at his side, apologizing for his behavior and describing the rest as a “private matter”.   After this "ritual of repentance", Spitzer is “weighing his resignation”. To this, I refer back to a statement attributed to  Representative Dick Armey who was asked if he had been in President Clinton’s place after the Monica Lewinsky scandal would he have resigned? He purportedly responded: “If  I were in the President’s place I would not have gotten a chance to resign. I would be laying in a pool of my own blood, hearing Mrs. Armey say : ‘How do I reload this damn thing?’”

While I don't advocate this approach, an organization's or individual's response to a scandal can make or break it.  Human Resources professionals may be called upon in times of turmoil to be the spokesperson for the organization. I have no training in public relations, but from a legal perspective here are some things I can say don’t play well for future litigation:

• The “categorical denial” that proves otherwise like “I never had sexual relations with that woman”.
• Legalistic answers like those that turn on the definition of “is”.
• Opinions offered without facts or investigation.
• Any comments made by a company official in handcuffs or an orange prison jump suit.

Occasionally, I will get contacted by a company facing adverse publicity.  Here are some general rules that I remind clients when they call in a crisis:

• Consider the quick engagement of a PR firm.
• You don’t have to say anything and that may be the best course.
• Identify one spokesperson and tell everyone else to refer questions there.
• Plan what you will say and provide a written press release
• If you don’t know the facts, don’t speculate
• If you don’t have something to say then don’t talk.
• You don’t have to answer questions and be very careful if you do.
• You can end a press conference of interview at any time, just try to do it gracefully.

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The number of Discrimination Charges filed with the EEOC increased to 82,792 in 2007, up from 75,768 the previous year. Race, Gender and Retaliation charges were the most frequently reported charges.  The EEOC’s nonsensical reporting style makes it difficult to glean much more information since the report doesn’t account for individuals claiming multiple types of discrimination. Also irritating for employers is the EEOC’s explanation for the increase in the number of charges:

EEOC Commission Chair Naomi C. Earp chastised employers in her press release noting that “Corporate America needs to do a better job of proactively preventing discrimination and addressing complaints promptly and effectively. To ensure that equality of opportunity becomes a reality in the 21st century workplace, employers need to place a premium on fostering inclusive and discrimination-free work environments for all individuals.”

Jon Hyman’s Ohio Employer’s Law Blog correctly notes that the increased number of charges has many origins other than a lack of corporate commitment to equal employment opportunity. The unfortunate bias here seems to be the EEOC’s presumption that employers aren’t doing enough to prevent discrimination claims without regard to any evaluation of the merit of charges.

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The subject of “ageism” is a hot topic in the press and among employment commentators. As Baby Boomers grow older so does the  percentage of the United State population perceived as old and protected by age discrimination laws.

According to AARP, the percentage of people 65 and older who work has grown from 10.8 percent in 1985 to 16 percent last year. For people ages 55 to 64, the numbers also are up, from 54.2 percent in 1985 to 63.8 percent in 2007. The statistics on the aging workforce are astounding as demonstrated by Ira Wolfe in his book  and blog called The Perfect Labor Storm 2.0. This effect is seen everywhere and plays out differently in different forums.

In politics age is a negative. Michael Hirsh of Newsweek writes about McCain’s Unseen Adversary: Ageism in which he cites some survey information and posits  that “Indeed, according to a survey done by the Pew Research Center, Americans are a lot less comfortable voting a man in his 70s into the Oval Office than they are voting for a woman or an African-American for president.”

In law, age is a positive. Mark Sherman of The Boston Globe notes that the Supreme Court considering 5 ageism cases the growing prevalence of which he attributes to the aging population. He also notes that it “There is only one antibias law - the one against discrimination based on age - that would cover all nine Supreme Court justices, if such laws applied to them.”

In the workforce age is both a positive and a negative. Kate Lorenz at CareerBuilder.com opines that Ageism on the Job can be turned into an advantage by older workers because of their education, sophistication and clout.

The tension between “young” and “old” is summed up in Granny verses the Mercedes: 

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We have all witnessed dangerous driving maneuvers by individuals talking on cell phones. What if this driver is one of your employees? What if the employee causes an accident while conducting company business on a cell phone?

Employers may be liable for accidents where an employee’s job-related cell phone use contributed to the accident. Whether the cell phone use is within the scope of employment depends upon many factors including such things as the employee’s job duties, who provided the phone, when the accident occurred, whether it was a business call, and whether the employee was complying with the employer’s policy on cell phone use.

Don Heyrich at the Washington Labor, Employment & Employee Benefits Law Blog notes a $5.2 million settlement by an employer whose employee caused a serious traffic accident while talking on her company-supplied cell phone. Details of the case appearing in a newspaper account describe a very typical scenario for employees who multi-task while driving. There is no mention as to whether the employer had a policy prohibiting or limiting employee cell phone use while driving, so the impact of such a policy on the employer’s liability is unclear.

• Company’s can try to manage their liability by adopting a policy on cell phone use and then enforcing it. A policy should consider the following:
• Directing employees to comply with all applicable state and local laws governing cell phone use. Banning cell phone use while driving.
• Requiring employees to use hands-free devices while driving.
• Providing company cell phones with hands free features.
• Prohibiting the use of text message and e-mail features while driving.
• Requiring employees to pull over to take phone calls.
• Instructing employees to avoid or to terminate phone calls involving stressful or emotional conversations.
• Limiting the scope of job descriptions for some positions exclude using cell phones while driving.
• Prohibiting cell phone use in adverse weather or difficult traffic conditions.
• Restricting driver cell phone use to brief conversations.
• Emphasizing safety while taking phone calls on the road.

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The United State Supreme Court ruled that ERISA allows individual claims by plan participants for breach of fiduciary duty that result in losses to an individual account rather than only to the entire plan. In LaRue v. DeWolff, Boberg, & Assoc., Inc., an employee brought an ERISA claim against his employer who was the plan administrator of a 401k plan. The employee claimed $150,000 in losses to his 401k account caused by his the failure to make the changes the employee directed in the investments held in his account. The employee claimed that the failure to make the changes was a breach of fiduciary duty under ERISA. The Court noted the change in the retirement plan landscape from defined benefit plans to defined contribution plans necessitates the recovery of fiduciary breaches in a participant’s individual account. The Court did not decide whether the employer breached its fiduciary duty.

The effect of allowing breach of fiduciary duty claims by individual participants is yet unknown. John Phillips at The Word on Employment Law observes that “Many are predicting that the Court’s ruling will result in a slew of meritless litigation from employees whose 401(k) plans aren’t doing as well in a shaky economy.” Some additional observations about ERISA plan administration may help evaluate this premise:

• Defined Contribution Plans typically identify the employer as the Plan Administrator but very few employers actually administer their plans.
• The Employer acting as Plan Administrator will contract out investment and other day-to- day “administrative” activities to other providers such as banks, mutual funds, consultants, etc.
• These other providers may or may not be “fiduciaries” within the meaning of ERISA. So ERISA-type claims by participants may not lie against them.
• An ERISA fiduciary breaches its duty if it fails to discharge his duties with respect to a plan with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.
• An employer may limit its fiduciary liability by selecting competent expert advisors and then monitoring their performance. The Boston ERISA & Insurance Litigation Blog’s post on The Benefits of Relying On Investment Managers is a great summary of this concept. The DOL also has tips for selecting and monitoring service providers including consultants and auditors.
• If other providers fail to perform there responsibilities their liability may be limited to contractual damages and subject to limitations of contractual indemnity. Employers should carefully review contacts with providers that limit liability of a provider with terms like “gross negligence.”
• The result may be that the employer faces the ERISA claims alone and is left with contract claims against the providers for resulting damages.
• ERISA provides for attorney’s fees for successful employee claims.

The answer may be that LaRue opens another avenue for lawsuits against employers, but an employer that carefully selects and monitors its relationships with pension plan providers will be in a better place to defend claims that it breached its fiduciary duty.

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I consulted the on line Encarta Encyclopedia for the origins of Valentine’s Day and found the following description:

The holiday probably derives from the ancient Roman feast of Lupercalis (February 15), also called the Lupercalia. In an annual rite of fertility, eligible young men and women would be paired as couples through a town lottery. Briefly clad or naked men would then run through the town carrying the skins of newly sacrificed goats dipped in blood. The women of the town would present themselves to be gently slapped by the strips and marked by the blood to improve their chances of conceiving in the coming year.

In one sense, the holiday’s evolution to cards and candy has been well received, at least by the goat population. I don’t think Lupercalis is celebrated at the EEOC. Nonetheless, workplace romance gone bad accounts for a significant number of sexual harassment claims as noted on my prior post Fishing off the Company Dock: A Legal Perspective. Similar advice and anecdotal observations appear at the Ohio Employer’s Law Blog’s post on When office romances go bad and the Washington Labor, Employment & Employee Benefits Law Blog’s post on Romance in the Workplace & “Love Contracts”.

So what are the legal ins and outs of office romance and how can a business employ prophylactic measures to protect itself. Here is a list of things I can recommend:

Implement a Strong Policy Against Sexual and other Harassment

The EEOC has issued extensive guidance on sexual harassment policies and there ability to reduce an employer's liability for harassment.   One of the most critical components of such a policy is an effective complaint procedure to redress claims of harassment.

Develop a Policy on Office Romance without calling it "Fraternization"

It doesn't take a NASA scientist to realize organizations may need a policy addressing workplace romance (or maybe it does). According to Office Politics, thirty-five percent of companies have no formal workplace romance policy. Develop a policy, but avoid overly broad definitions and in particular the word "fraternize' which was the court's primary objection in the in Guardsmark case.

Train Supervisors

Supervisory training on sexual harassment can demonstrate a company's good faith attempts to comply with the law. Such training should explain the types of conduct that violate the employer's anti-harassment policy; the seriousness of the policy; the responsibilities of supervisors and managers when they learn of alleged harassment; and the prohibition against retaliation.

Proactively Evaluate and Confront Situations

Most employers are content to sit passively and watch "As the World Turns". Many will not act unless it "becomes a disruption". Consider some proactive steps. If the romance is between co-workers, make sure they understand that it cannot impact productivity. If it is between a supervisor and subordinate, evaluate whether there should be changes in the reporting structure. Don't automatically transfer or reassign the female in the relationship or you will risk a discrimination claim.

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Employment Practices Liability Insurance (EPLI) may be a relative bargain in the continued “soft” insurance market and employers should consider adding or increasing insurance coverage to protect against employment claims. EPLI insurance is somewhat quirky and the following are some considerations when evaluating policies:

1. Coverage:  EPLI policies typically cover claims of wrongful discharge, workplace harassment and discrimination. Many offer a more comprehensive list of covered acts, including negligent hiring/supervision/evaluations, invasion of privacy, defamation and intentional infliction of emotional distress.  Coverage typically applies to claims made by full time employees so as to exclude those by part-timers, temporary, seasonal and independent contractors.  In comparing policies, look for one that has the most expansive coverage. 
2. Exclusions.  EPLI policies exclude many claims based on the statute that creates the legal right or the activity that gives rise to the claim. Exclusions apply to the Fair Labor Standards Acts; the National Labor Relations Act; the Worker Adjustment and Retraining Notification Act (WARN); the Consolidated Omnibus Budget Reconciliation Act (COBRA); the Employee Retirement Income Security Act (ERISA); the Occupational Safety and Health Act (OSHA); the costs associated with providing "reasonable accommodation" under the Americans with Disabilities Act (ADA); as well as  claims arising out of downsizing, layoffs, workforce restructurings, plant closures or strikes. Punitive damages are always excluded. Carefully evaluate the excluded claims in light of your business practices. In the case of multi-state operations, be aware that some state laws create substantial employment rights that must also be evaluated under the policy language.
3. Policy Limits and Deductibles: Policy limits and deductibles usually apply on a per claim and aggregate basis. For example, coverage may be limited to $250,000 for each separate claim with an overall aggregate cap of $1 million for all claims. Employers must formulate their insurance goals in setting the appropriate deductibles and limits. Some employers view EPLI insurance as catastrophic coverage and are willing to accept a high deductible that allows them to handle smaller claims themselves.  However, other employers are looking for more blanket coverage.
4. Defense Costs, Selection of Counsel and Settlement: Defense costs are usually included within the EPLI policy’s limits, which has good and bad points. Many times, the legal expense is the largest cost to an employer in dealing with merit less claims. However, including defense costs means that every dollar an employer spends defending a claim reduces the amount available for settlement or to pay a judgment.  Since the existence of insurance coverage must be disclosed as part of discovery in most law suits, a plaintiff’s attorney will factor insurance coverage into his or her case evaluation. The defense cost feature may influence plaintiffs’ counsel to try to settle early, rather than force an employer to incur litigation costs that will only erode the insurance dollars available for potential settlement.  Employment claims often have significant employee relations ramifications making settlement a particularly important issue. Insurers view employment claims the same as any other insurance matter by evaluating only the potential for liability and the amount of damages. The employer and insurer may be at odds over settling a case. EPLI policies address this stalemate by either giving the insurer the right to settle without the employer’s approval or, more frequently, giving  an employer control over settlement, but adding a “hammer clause”. These clauses are designed to limit the insurer’s potential exposure if the policyholder passes up an opportunity to settle a claim recommended by the insurer.  Hammer clauses provide that if there is an offer to settle a claim that the policyholder refuses accept, then the insurer will not be liable for a subsequent settlement or judgment in excess of a rejected settlement amount.  
5. Policy Types and Insurance Company Notification: EPLI policies are typically written on a “claims  made” basis meaning that the claim must be incurred during the coverage period and reported to the insurer during an extended reporting period. Since employment actions may take years to turn into a claims, an employer may be left with no coverage if the policy is dropped or tail coverage isn’t purchased.  Untimely notice to an insurance carrier can void coverage for and employment claim.

* Not intended to be Exhaustive.

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The Department of Labor released the new proposed FMLA regulations on Monday, February 11, 2008. I am in the process of digesting the new regs and will post a summary shortly. Thanks to Michael Fox at Jottings By An Employer’s Lawyer for the early release tip.

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Microsoft Corp. tendered an unsolicited takeover offer of $44.6 billion for Yahoo, Inc. As with any acquisition/merger, both businesses need to calm the troops by making assurance of job security. In today’s world, every employee knows that the buzz words like “business synergies” and “market overlap” mean layoffs for employees whose jobs are “redundant”. As reported by MSNBC,  Microsoft said” it sees at least $1 billion in cost savings generated by the combination, and intends to offer significant retention packages to Yahoo engineers, key leaders and employees.”

Retention Bonuses are an important talent management tool for all size companies when the organization faces uncertainty due to merger, bankruptcy or other business transition that creates uncertainty for employees. I have seen retention bonuses used successfully by businesses in financial hardship because of the loss of a large contract, exiting form bankruptcy protection, or to counter a competitors raiding of its talent. However, the communications and documentation of a bonus program must be carefully managed to avoid unintended consequences.

Kate DCamp takes the contrary view in her posting “Do Retention Bonuses Work? She believes that the money motivator almost never works:

In most situations, what works is specific to the problem diagnosed. In a business turnaround, tripling communications and sharing some of the "upside" can be very effective to keep critical talent. An opportunity to have more impact on the business and a chance to earn extra money by achieving business goals sends a clear signal about someone's importance to the company.

Dr. John Sullivan posting on “Retention Bonuses – Are they a good idea?” has a great laundry list of “unintended consequences” including:

• Creating uncertainty in those who are not offered the bonus
• Exacerbating a we verses them mentality in the case of a merger of two companies
• Having those employees who will depart anyway conduct their job search on your time
• Denigrating the principle that performance matters
• Creating job security for those who may not deserve it

From a legal point of view, any bonus plan should be in writing with specific eligibility and trigger requirements. Careful consideration must be given to selection criteria to defend against discrimination claims. Bonus payments are treated as wages and subject to payroll taxes.

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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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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 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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Since I am a relative newcomer to the blogosphere, I tried to follow the lead of my counterparts in recognizing the end of the year. I looked around and what I learned is there are no traditions. Most blogs let the year expire without any fanfare or even acknowledgment.

Under “Modern Practices”, January 1^st marks a period of remembrance of a particular passing year and includes the making of New Year’s resolutions. The history of resolution is recounted at the GoalsGuy. There are Lists of Top Ten New Year’s Resolutions like the one prepared by Kimberly & Albrecht Powell at About.com: Pittsburgh (David Letterman’s 2006 list is all we can refer to now)

There as some good posts on New Year’s Resolutions in the HR World as follows:

• Penelope Trunk’s Brazen Careerist has advice on How to make a New Year’s resolution that you’ll keep.
• Kathryn Elizabeth Tuggle at Fox Business calculates the ROI of resolutions in her post Calculating the Cost of Your New Year’s Resolutions.
• Susan Sabo at the Productivity Café advises us to Get Rid of New Year Resolutions Forever.
• Jonathan Hyman at the Ohio Employer’s Blog is all business with his post on My New Year’s resolutions for everyone.

My approach will be reflecting on the blessings of the year with my family and hoping for a great 2008. Happy New Year!

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One December 16, 2007, the Board issued its much anticipated decision in Guard Publishing Company d/b/a Register Guard and Eugene Newspaper Guild, CWA Local 37194 holding an employer did not violate section 7 by maintaining a policy that prohibited employees from using the employer’s e-mail system of any “non-job-related solicitations.”

The NLRB’s 3-2 decision also announced and applied a new standard for determining whether an employer has violated the act by discriminatorily enforcing its policies to disadvantage protected union-related activity. The new standard distinguishes between personal nonwork-related messages and “group” or “organizational” messages such as a union. Therefore, “discrimination under the Act means drawing distinctions along Section 7 lines.”

In Guard Publishing, the employer had a written policy prohibiting e-mail use for non-work-related solicitations. However, the employer allowed several such communications like jokes, party invitations, request for services such as dog walking, etc, but it never allowed e-mail use for solicitation by or on behalf of outside organizations other than the United Way. The employer issued two warnings to an employee who sent three union-related e-mails, which lead to the charge of discriminatory enforcement of the policy.

The Board majority held that two of the three e-mail communications were direct solicitations to join the union and violated the policy; however, the third message was not a solicitation, merely a clarification of events surrounding a union event. Therefore, under the newly announced standard, the employer did not discriminate along section 7 lines when it disciplined the employee for the two union solicitation e-mails since it had never allowed employees to use its e-mail system to solicit on behalf of any other outside group. However, the employer’s enforcement of the policy with respect to the third e-mail which was not a solicitation was unlawful.

The new standard should have an important impact on employer’s e-mail policies and charges related to discriminatory enforcement of employer’s policies.

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Most of the Human Resources world looks to federal law when it considering the classification of a worker as an employee or an independent contractor. The IRS and most federal employment statutes use a common law rules which analyze the degree of control and the degree of dependence in the relationship between the business and the worker. The IRS recommends using Form SS-8 for this determination; however, the usefulness of this process is marginal.

To make matters more difficult, state laws also impact worker classification using sometimes differing legal standards. The post –gazette NOW Business reports that FedEx Grounds was fined $190,000 by the Massachusetts Attorney General for misclassifying 13 drivers as independent contractors. The Massachusetts test for an independent contractor differs focusing on three factors: the degree of control; work outside the usual course of business of the company; and the person engaging in a business that is customarily conducted as an independent trade or profession.

Pennsylvania has similar test for independent contractors which requires that the individual 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. The impact of misclassification frequently appears in unemployment and workers’ compensation cases, but also had important tax and other compliance issues.

The state law employment classification issue may well be fertile ground for multistate litigation and class actions. Employers face real difficulties in complying with 50 states laws on employment classification along with a nebulous federal standard. Likewise, I don’t see how a worker could be classified as an employee for state law purposes and an independent contractor under federal law.

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Many employers struggle with business closings and delays necessitated by inclement weather. I recommend adopting a policy that addresses at least the following three areas:

Will employees be paid for the time when the business is closed?

Nonexempt employees need not be paid for time when they do not work because the business is closed. Exempt employees must be paid their salary for the week regardless of the business closing. PTO or vacation may be charged, but exempt employee salaries may not be docked for time when the business is closed. A Department of Labor Compliance Assistance Letter details some of the Wage and Hour considerations applicable to the payment of wages for exempt employees.

Will employees be paid if they don’t report to work due to inclement weather when the business is open?

Nonexempt employees need not be paid for times they are absent from work. Exempt employees need not be paid for a whole day absence taken due to inclement weather. An exempt employee absent for part of a day may be forced to use vacation or PTO time. If the exempt employee has no vacation or PTO time, his or her salary may not be docked for a partial day absence.  The same Department of Labor Compliance Assistance Letter addresses this situation.

Can an employer discipline or discharge and employee for failing to report to work due to weather conditions when the business is open?

An employer may generally apply its normal attendance policy to weather related absences; however, most will make an exception for absences due to weather if the employee makes a reasonable effort to get to work. Collateral issues abound such as childcare, public transportation, and the “snow phobic” employee (chionophobia). Keep in mind that “exceptions” should be uniformly made to avoid discrimination claims.

There is one major legal exception. Under Pennsylvania law (43 P.S. §§ 1481-1485), an employer may not discipline or discharge an employee who fails to report to work due to the closure of the roads in the county of the employer's place of business or the county of the employee's residency, if the road closure is the result of a state of emergency declared by the Governor.  The most obvious and likely scenario is a snow storm or other inclement weather.

Employers are not required to pay an employee who is a no show based on road closures. An employee who can prove the employers "knowing and intentional" violation of the law may recover lost pay, be reinstated or have discipline revoked, and may collect attorneys fees and costs.

The law does not apply to the following jobs: drivers of emergency vehicles, essential corrections personnel, police, emergency service personnel, hospital and nursing home staffs, pharmacists, essential health care professionals, public utility personnel, employees of radio or television stations engaged in the gathering and dissemination of news, road crews and oil and milk delivery personnel.

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The CEO of the American Red Cross resigned after disclosure of a relationship with an employee.  The Red Cross Board of Governors stated that his resignation was requested for using “poor judgment” that “diminished his ability to lead the organization in the future”.   It amazes me that this type of leadership gaff can be repeated across so many organizations.

Strictly speaking, “sexual favoritism” is not unlawful sex discrimination so long as the relationship is consensual and does not discriminate against other men and women in the workplace. The EEOC’s Guidance on Employer Liability for Sexual Favoritism which was last updated in 1999 states as follows:

It is the Commission's position that Title VII does not prohibit isolated instances of preferential treatment based upon consensual romantic relationships. An isolated instance of favoritism toward a "paramour" (or a spouse, or a friend) may be unfair, but it does not discriminate against women or men in violation of Title VII, since both are disadvantaged for reasons other than their genders.

Strictly speaking, sexual favoritism by a high level executive is an employee relations problem and an unacceptable legal risk. Organizations cannot rely on the relationship remaining consensual and hazard the legal and public relations consequences.

Nonetheless, office romance is more prevalent than I ever appreciated until I researched a prior post on Fishing off the Company Dock: A Legal Perspective. Here are some of the proactive steps an employer can take to anticipate and manage the situation:

Implement a Strong Policy against Sexual and other Harassment

The EEOC has issued extensive guidance on sexual harassment policies and there ability to reduce an employer's liability for harassment.   One of the most critical components of such a policy is an effective complaint procedure to redress claims of harassment. Obviously, the avenue for making a complaint cannot be exclusively with a supervisor.

Develop a Policy on Office Romance without calling it "Fraternization"

According to Office Politics, thirty-five percent of companies have no formal workplace romance policy. Develop a policy, but avoid overly broad definitions and in particular the word "fraternize' which was the court's primary objection in the in Guardsmark case.

Train Supervisors

Supervisory training on sexual harassment can demonstrate a company's good faith attempts to comply with the law. Such training should explain the types of conduct that violate the employer's anti-harassment policy; the seriousness of the policy; the responsibilities of supervisors and managers when they learn of alleged harassment; and the prohibition against retaliation.

Proactively Evaluate and Confront Situations

Most employers are content to sit passively and tolerate the employee relations fall out of an office romance. Many will not act unless it "becomes a disruption". Consider some proactive steps. If the romance is between co-workers, make sure they understand that it cannot impact productivity. If it is between a supervisor and subordinate, evaluate whether there should be changes in the reporting structure. Don't automatically transfer or reassign the female in the relationship or you will risk a discrimination claim.