A recent decision by the New York Court of Appeals will significantly impact New York City employers. On May 6, 2010, New York’s highest court held that employers covered by the New York City Human Rights Law ("NYCHRL") can be held strictly liable for discriminatory acts or harassment by an employee who “exercised managerial or supervisory responsibility.”
In Zakrzewska v. The New School, the Plaintiff alleged that her “immediate supervisor” subjected her to sexually harassing e-mails and conduct for over a year. She sued her employer in United States District Court, alleging violations of the NYCHRL. The New School moved for summary judgment arguing that it could not be held liable for the supervisor's actions because it had a strict policy against sexual harassment and the Plaintiff waited more than one year to come forward before making her complaint. The District Court held that the claim would indeed by barred under the affirmative defenses articulated in Faragher v. City of Boca Raton and Burlington Industries, Inc. v. Ellerth, applicable to federal law Title VII claims, if those affirmative defenses applied under the NYCHRL. In those cases the United States Supreme Court held that an employer is not liable under Title VII for sexual harassment committed by a supervisory employee if it proves that: (1) no tangible employment action was taken as part of the alleged harassment; (2) the employer exercised reasonable care to prevent and correct promptly any sexually harassing behavior; and (3) the employee unreasonably failed to take advantage of preventive or corrective opportunities provided by the employer.
The District Court also concluded, however, that the language of the NYCHRL suggested that these affirmative defenses were not available for NYCHRL claims and so denied the New School’s motion for summary judgment. The case was then certified for appeal to the United States Court of Appeals for the Second Circuit, which in turn certified the question of whether the defenses were available to the New York Court of Appeals.
The New York Court of Appeals unanimously concluded that the affirmative defenses were not available under the City Law. It noted that the statute provides that: "[a]n employer shall be liable for an unlawful discriminatory practice based upon the conduct of an employee or agent which is in violation of subdivision one or two of this section only where: (1) the employee or agent exercised managerial or supervisory responsibility. ..." Based on this language, the Court held that “the plain language of the NYCHRL precludes the Faragher-Ellerth defense.” In other words, any discriminatory act by an employee or agent who exercised managerial or supervisory responsibility will result in employer liability.
In reaching its decision, the Court also reviewed more broadly the language of the NYCHRL and found that its “legislative scheme simply does not match up with the Faragher-Ellerth defense.” The Court noted that the statute not only states that there is employer liability for acts of individuals exercising their supervisory responsibility, it also provides that an employer's anti-discrimination policies and procedures may be considered only “in mitigation of the amount of civil penalties or punitive damages” recoverable in a civil action (see NYC Admin Code § 8-107 [e]). The Court also reviewed the legislative history of the statute and concluded that it was the intent of the City Council for employers to be held strictly liable for acts of discrimination by supervisors.
Strict liability for employers is arguably poor public policy because it creates the wrong incentive for employees and is unfair to employers who take their legal responsibilities seriously. For employees, it creates a disincentive to report harassment which can then unnecessarily increase damages and delay the employer’s ability to comply with its non-discrimination obligations. Further, employers who are unaware of such conduct, but have provided training and strictly enforced their non-discrimination policies, will still be liable for random and unauthorized acts committed by someone who “exercised managerial or supervisory responsibility.” The Court recognized these concerns but ultimately concluded that such policy judgments were properly made by the legislature, in this case the City Council.
The decision will surely lead to more, and lengthier, litigation. Cases that could have been dismissed at the summary judgment stage on a motion will now proceed to trial and in some cases, employers may now have summary judgment granted against them based on conduct of even low level supervisors. In addition, employers who have operations both within and outside of New York City will be subject to two different standards of liability in harassment cases.
The United States Department of Labor (“USDOL”) recently published a final rule in the Federal Register, which requires covered federal contractors and subcontractors to inform employees of their rights under the National Labor Relations Act (“NLRA"). The final rule is effective June 21, 2010, and the corresponding regulations will be codified at 29 C.F.R. Part 471.
Under the final rule, federal agencies must include a clause in contracts for “personal property” and “non-personal services” requiring certain contractors and subcontractors with which they do business to post specific notices informing employees of their NLRA rights. This new posting requirement does not apply to prime contracts under the Simplified Acquisition Threshold of $100,000 or to subcontracts below $10,000. Additional exemptions are also set forth in the final rule.
The final rule implements Executive Order (“E.O.”) 13496, which President Obama signed on January 30, 2009. E.O. 13496 repealed a previous notice requirement, known as the “Beck Poster,” and prescribed new notice requirements which are codified in the final rule. In contrast to the former Beck Poster (which informed employees of their right to not join a union and to opt out of paying a portion of their union dues used for non-representational activities), the new rule requires that employees be informed, among other things, of their rights to organize and bargain collectively and to engage in other protected concerted activity under the NLRA. In addition, the notice must provide examples of illegal employer conduct and information on where employees may file complaints with the National Labor Relations Board.
The final rule also specifies that covered entities must post the new notice in “conspicuous places in and about the contractor’s plants and offices so that the notice is prominent and readily seen by employees.” Conspicuous placement includes, but may not be limited to, areas where contractors and subcontractors post other employee notices regarding terms and conditions of employment. The notice must also be posted where covered employees “engage in activities relating to the performance of the contract.” Contractors and subcontractors who post employee notices electronically must post the new notice in the same manner, subject to specific electronic posting requirements. Electronic posts cannot be used as a substitute for physical posting. USDOL has published on its website a copy of the new NLRA poster and an accompanying “Fact Sheet.”
Effective for plan years that begin after September 23, 2010, the recently-enacted health reform legislation ("Health Reform") generally requires group health plans and health issuers that provide dependent coverage for children to continue to make such coverage available to an adult child until the child reaches age 26. Health Reform also modifies the Internal Revenue Code ("Code") to extend the income exclusion for medical care reimbursements under an employer-provided accident or health plan to an employee's eligible children who have not attained age 27 as of the end of the taxable year. In Notice 2010-38 ("Notice"), the Internal Revenue Service ("IRS") provides employers with helpful guidance regarding the federal income tax issues associated with extending medical coverage to an employee's eligible adult children.
Background
The extension of health coverage to adult children until age 26 is among the first provisions to take effect under Health Reform. Plans that operate on a calendar year basis (including self-insured plans and so-called "grandfathered" plans) will be required to make such coverage available effective January 1, 2011. The coverage must be made available regardless of the child's marital status, but (until 2014) generally need not be provided to an adult child who is eligible to enroll for coverage under a group health plan of the child's employer.
Prior to Health Reform, health coverage generally could be extended tax-free to a child of an employee only if the child was the employee's "dependent," as defined under Section 152 of the Code. In many cases, adult children cannot qualify as a dependent under Code Section 152 because they cannot satisfy applicable age, support, residency or other requirements of Code Section 152. As a result, an employer that provided coverage to an adult child generally was required to include the fair market value of the health coverage provided to the child in the employee's income.
As further explained below, the changes to the Code made by Health Reform and the guidance provided in the Notice clarify the circumstances under which adult children may now be eligible for tax-free health coverage, regardless of whether they are considered a dependent of the employee under Code Section 152.
Tax-Exemption For Health Care Coverage Provided to Adult Children
The Health Reform legislation amended Section 105(b) of the Code to provide that employer-provided reimbursements for expenses incurred by an employee for the medical care of an employee's child (as defined under Section 152(f)(1)) of the Code) who has not attained age 27 as of the end of the taxable year ("Eligible Adult Child") are excluded from the employee's gross income. For this purpose, the end of the taxable year is the employee's taxable year and employers may assume that an employee's taxable year is the calendar year. Under Code Section 152(f)(1), an employee's child is an individual who is the son, daughter, stepson, or stepdaughter of the employee and includes both a legally-adopted individual of the employee and an individual who is lawfully placed with the employee for legal adoption by the employee. Child also includes an "eligible foster child," defined as an individual who is placed with the employee by an authorized placement agency or by judgment, decree, or other order.
Although the amendment to Code Section 105(b) is clearly a response to the Health Reform extension of coverage to adult children under the age of 26, the provisions are not exact parallels. For example, the exclusion under Section 105(b) of the Code is effective March 30, 2010, while coverage for adult children under age 26 is not required until the first plan year after September 23, 2010. Further, the income exclusion under Code Section 105(b) applies to children who have not attained age 27 as of the end of the taxable year, while the Health Reform extension only requires extended coverage to adult children under the age of 26.
Section 106 of the Code excludes from an employee's gross income coverage under an employer-provided accident or health plan (i.e., the portion, if any, of the health plan premium paid by the employer). The Notice provides that the IRS and Treasury Department intend to amend the regulations under Code Section 106, retroactively to March 30, 2010, to provide that the coverage under an employer provided accident or health plan for an Eligible Adult Child is also excludable from the employee's income.
As a result, on and after March 30, 2010, both coverage under an employer-provided accident or health plan and amounts paid or reimbursed under such a plan for medical care expenses of an Eligible Adult Child are excluded from the employee's gross income.
Cafeteria Plans, FSAs, and HSAs
The Notice clarifies that because coverage for an Eligible Adult Child is excludable from income under Code Sections 105 and 106, such coverage is considered a "qualified benefit" for cafeteria plan purposes, including health flexible spending accounts ("FSA"). Thus, effective March 30, 2010, employees may make pre-tax contributions under an employer's cafeteria plan (including pre-tax contributions to a health FSA) to provide benefits to an Eligible Adult Child.
Employers may also allow employees to make mid-year cafeteria plan election changes for an Eligible Adult Child, even if the child is not otherwise the employee's dependent under Code Section 152. The Notice provides that the IRS and Treasury intend to amend the regulations, retroactive to March 30, 2010, to include change in status events affecting Eligible Adult Children (including becoming newly eligible for coverage or eligible for coverage beyond the date on which the child otherwise would have lost coverage).
The Notice provides that amendments to cafeteria plans that are required to cover Eligible Adult Children may be made by December 31, 2010 (and made retroactive to the first day of the year), even if an employer wishes to permit employees to immediately make pre-tax salary reduction contributions for health benefits under a cafeteria plan (including a health FSA) for Eligible Adult Children. Normally, an amendment may be made to a cafeteria plan on a prospective basis only.
One issue to note for employers is that neither the Health Reform legislation nor the Notice modified the reimbursement rules governing Health Savings Accounts ("HSAs"). Thus, until further guidance is issued, reimbursements from an HSA may not be made on a tax-free basis for medical expenses incurred on behalf of an Eligible Adult Child.
Employer Considerations
Employer Considerations
The Notice provides employers with much needed guidance regarding the tax consequences associated with the Health Reform extension of coverage to adult children under the age of 26. Because the effective date of the tax-exclusion with respect to coverage provided to an Eligible Adult Child is March 30, 2010, employers that wish to extend coverage to adult children prior to the date they are required to do so under Health Reform may do so without creating negative tax consequences for employees.
Medical plans that provide coverage to children will need to be amended to reflect the Health Reform requirements. As indicated in the Notice, amendments will also need to be made to cafeteria plans to permit pre-tax salary reduction contributions with respect to coverage for Eligible Adult Children. Such amendments may be made retroactively (by December 31, 2010), if the employer wishes to allow employees to make such contributions immediately.
On May 12, 2010, the New York State Senate, in a 45-16 vote, passed a bill that would establish a civil cause of action for employees who are subjected to an "abusive work environment." (S.1823-B). This bill would permit employees who have been harmed psychologically, physically or economically by being deliberately subjected to an "abusive work environment" to sue their employers. Currently, no state has passed a workplace bullying law, but similar legislation has been introduced in at least 16 other states.
New York's workplace bullying bill contains a provision that would allow an employer to avoid liability if it exercised reasonable care to prevent and promptly correct the abusive conduct, essentially permitting a Farragher affirmative defense to such claims.
Although the idea of a civility law might seem reasonable at first blush, such legislation would almost certainly create a new wave of employment litigation against employers, at a time when most employers can least afford it. Given the amount of litigation that has occurred over what constitutes sexual harassment, it would appear to be a foregone conclusion that defining actionable "abusive conduct" under this legislation would result in similar widespread litigation.
New York's legislation defines "abusive conduct" to include "verbal abuse such as the use of derogatory remarks, insults, and epithets ... that a reasonable person would find threatening, intimidating or humiliating ... or the gratuitous sabotage or undermining of an employee's work performance." The reality is that "derogatory remarks" are probably made in most workplaces. Indeed, some workplaces, like law firms, are notorious for having "yellers." Seemingly almost any employer might have exposure under this legislation.
New York's workplace bullying bill provides for broad remedies including punitive damages unless the employer is found to have caused or maintained an abusive work environment that did not result in a negative employment decision, in which case damages for emotional distress would be limited to $25,000 with no opportunity for punitive damages.
If the legislation is enacted, it would also essentially destroy any lingering notion that New York remains an employment at-will state. There is little doubt that plaintiff attorneys will be able to draft allegations that would easily meet the broad definition of abusive conduct. The legislation also provides for the recovery of attorneys' fees, thus, laying the groundwork for actions brought against employers for "nuisance" settlements by disgruntled employees. Bullying of any type, whether on the school ground or in the board room, should not be tolerated. However, employers have a right to question whether this type of legislation is necessary or warranted.
Employers who "look the other way" to known bullies in the workplace, particularly supervisors, could potentially face liability under various laws, including a negligent retention cause of action. Bullying in the form of verbal abuse that involves any type of protected characteristic could be actionable under existing discrimination laws.
Furthermore, employers would be wise to ensure they have implemented an appropriate workplace violence policy. Indeed, OSHA has issued a fact sheet on workplace violence suggesting that failure to take appropriate measures to prevent workplace violence may violate OSHA's general duty clause. Arguably, the general duty clause would also apply to severe and repeated verbal abuse.
Not surprisingly, there has already been strong opposition to the bill including from Mayor Bloomberg's administration. In addition, Susan John, the head of the Labor Committee of the State Assembly, where the bill is currently sitting, says it would create a disincentive for companies to relocate to New York and believes it may result in others leaving the state.
Whether the legislation eventually becomes law still remains to be seen, however, employers have a right to be concerned about the potential consequences of this landmark legislation.
A version of this post was previously published as an article in the May 24, 2010 edition of Law360.
Municipal providers of essential services have limited options when attempting to cope with the current fiscal crisis while still providing essential public services. Faced with dwindling revenue, they are also locked into collective bargaining agreements which require raises and/or “step” increases and lane movement. Consequently, while a non-unionized, private-sector employer may avoid layoffs by imposing a salary freeze, public employers have no such option. Without that flexibility, layoffs and a consequent loss of services by the public becomes the only option.
But, as a memorandum recently released by the Empire Center for New York State Policy concludes, a public sector wage freeze imposed through an enactment by the State Legislature is legal under both New York and federal law, if it is based on proper factual findings of fiscal emergency. Since its publication, the memorandum has received positive support from numerous news sources and political figures, including current Republican Gubernatorial candidate and Suffolk County Executive Steve Levy. According to the memorandum, a State statute that freezes salaries, including abrogating so called “step” increases and lane movement in existing collective bargaining agreements, will be valid under both state and federal law as long as specific legislative findings demonstrate that the scope and duration of the freeze is reasonable and necessary to protect the public. A brief summary of the memorandum is provided below.
The memorandum concludes that existing New York and federal case law supports the legality of a legislatively imposed wage freeze in New York. In Buffalo Teachers Federation v. Tobe, 464 F.3d 362 (2d Cir. 2006), the United States Court of Appeals for the Second Circuit rejected a challenge to a wage freeze imposed by the Buffalo Fiscal Authority (the “Authority”), a public benefit corporation created by statute. Under the enabling legislation, the Authority had the power to impose a wage and/or hiring freeze upon finding that such a freeze was “essential to the adoption or maintenance of a city budget or a financial plan….” The Authority determined that due to massive budget deficits a wage freeze was necessary. The wage freeze prevented members of several unions from receiving two percent wage increases under negotiated agreements. The unions sued, claiming that the wage freezes violated the Contracts Clause of the United States Constitution.
The Second Circuit upheld the constitutionality of the wage freeze. The Contracts Clause provides that no state shall enact any law “impairing the Obligation of Contracts.” Whether a state law impermissibly impairs contract rights depends on: (1) whether the contractual impairment is substantial and, if so; (2) does the law serve a legitimate public purpose such as remedying a general social or economic problem and, if such a purpose is demonstrated; (3) are the means chosen to accomplish this purpose reasonable and necessary.
Applying the test to the case before it, the Second Circuit found there was a substantial impairment of contract rights. But the Court also found that: “The New York legislature had a legitimate public purpose in passing the statute because Buffalo was suffering a fiscal crisis, and the Legislature passed the statute to address specifically the City’s financial problems. In addition, the Court concluded that for a wage freeze that impairs public sector collective bargaining agreements to be deemed reasonable, it must be shown that the state did not: (1) consider impairing the ... contracts on par with other policy alternatives; nor (2) impose a drastic impairment when an evident and more moderate course would serve its purpose equally well; nor (3) act unreasonably in light of the surrounding circumstances. The Second Circuit determined that the Buffalo wage freeze statute passed Constitutional muster under this test because: the fiscal emergency furnished a proper reason to impose a wage freeze to "protect the vital interests of the community;" the existence of the emergency "cannot be regarded as a subterfuge or as lacking in adequate basis;” and the wage freeze was not “unreasonable or unnecessary to achieve the important public purpose of stabilizing Buffalo's fiscal position.”
In reaching its decision, the Second Circuit was guided by the New York Court of Appeals decision in Subway-Surface Supervisors Ass’n v. New York City Trans. Auth., 44 N.Y.2d 101 (1978). There, the Court of Appeals ruled that a statute implementing a wage freeze for all New York City employees, and which precluded payment of wage increases provided for in collective bargaining agreements, was constitutional. When it passed that statute, the Legislature found there was a financial emergency in the City of New York requiring State action to remedy the crisis. Because there was no dispute that there was in fact a fiscal crisis in the City of New York, the Court held that it was "undisputed" the wage freeze served an "important public purpose."
Finally, the memorandum concludes that the Taylor Law – which confers on public sector employers and unions in New York State a statutory right to bargain collectively – would not bar a wage freeze because that right to bargain “may be circumscribed by a proper exercise of the police power… to maintain a stable economic environment.” Committee of Interns v. City of NY, 87 Misc. 2d 504 (Sup.Ct. N.Y. Co. 1976). As with Contracts Clause challenges, a challenge under the Taylor Law can be defeated by a factual record demonstrating that the exercise of the State’s police power is necessary to protect the public from the fiscal crisis. In order to meet its intended purpose, a wage freeze statute should expressly suspend the Triborough Law, which prohibits a public employer from altering any provision of an expired labor agreement until a new agreement is reached, including automatic pay increases under a salary step or longevity schedule. This is necessary to ensure that these increases will not simply roll over or be deferred during the period of the freeze only to become due the year the freeze is lifted.
As hopes for a quick economic recovery have sagged, many employers have been left with little choice but to reduce the size of their workforces. In some instances, laid-off employees are being offered severance in exchange for their release of all claims against their employer. Indeed, obtaining such a release is an indispensable component of a well designed severance package. And if a release is properly drafted, it generally does protect the employer from a subsequent lawsuit brought by the departing employee.
Too often though, the details of the release language are an afterthought. Unsuspecting employers, unaware of the applicable legal authorities, recycle old releases on the assumption that a generic release is as effective in a layoff as when a single employee is being discharged. Other employers have at least some awareness that the Older Workers Benefit Protection Act (“OWBPA”) requires additional language in a release in order to obtain a valid waiver of federal age discrimination claims. Yet not all such employers know that OWBPA may impose additional requirements when the release is requested in connection with a layoff.
In the ordinary situation, the requirements of OWBPA are relatively straightforward. As a general matter, the statute provides that, in order to release age discrimination claims under the federal Age Discrimination in Employment Act (“ADEA”), the written release must be drafted in such a way that the employee’s waiver of rights under the ADEA is “knowing and voluntary.” To that end, OWBPA sets forth several specific requirements:
1. The release must be written so that it may be understood by an average individual;
2. The release must specifically refer to the age discrimination claims being released;
3. The release cannot cover claims that may arise sometime in the future;
4. The employee must receive consideration (i.e., a payment or some other benefit) above and beyond that to which he or she is already entitled;
5. The employee must be advised, in writing, to consult with an attorney;
6. The employee must be offered at least 21 days to consider the release; and
7. The employee must be given a seven-day period to revoke the release.
Many employers have incorporated these requirements into their standard release language. There is, however, considerably less awareness of OWBPA’s additional requirements for releases issued in connection with an “exit incentive” or “other employment termination program offered to a group or class of employees.” The additional requirements apply, for example, when an employer offers an early retirement package or when employees are being offered severance during a layoff. In such situations, employers must be certain that, in addition to the requirements discussed above, the release includes the following:
1. The employee must be given at least 45 days (as opposed to 21 days) to consider the release; and
2. The employee must be provided with specific information concerning the group of employees affected by the layoff, including: (1) the factors used to determine whether employees were eligible for the termination program; (2) any time limits applicable to the termination program; (3) the identity of any “class, unit, or group of individuals covered by such programs;” (4) the job titles and ages of all individuals either eligible for or selected for the termination program; and (5) the ages of all individuals in the same job classification or organizational unit who were not eligible or selected for the termination program.
Assembling this information is often not a simple task. It requires close analysis of the workforce and is usually guided by the Equal Employment Opportunity Commission’s governing regulations and guidance documents. Despite the potential difficulty of the task, it is important that the information is properly presented. More than the effectiveness of the release may hang in the balance. If an employee decides to pursue an age discrimination claim, the information is likely to draw considerable attention during the litigation.
Employers must be careful to ensure that the provisions of OWBPA are fully satisfied. In Oubre v. Entergy Operations, Inc., the United States Supreme Court held that the release requirements of OWBPA must be strictly adhered to in order for the release of the ADEA claims to be valid and enforceable. Thus, the federal courts in New York and elsewhere have consistently held that substantial compliance with OWBPA is not enough. The release must contain all of the necessary components prescribed by the statute.
As summer nears, employers may be asked by college students about unpaid internship opportunities. Unpaid internships frequently benefit both the employer and the student. The student gains real-life experience, resume enhancement, networking opportunities, and perhaps a step toward a paid position after graduation. The employer has a low cost opportunity to evaluate a potential applicant. But employers must exercise caution in the way the internship program is set up and in the functions the intern performs.
The U.S. Department of Labor (“DOL”) recently issued a new Fact Sheet reminding employers that unpaid interns may be “employees” under the Fair Labor Standards Act (“FLSA”), the federal minimum wage and overtime law. For employers considering unpaid internships, the key question is whether the unpaid intern is “suffered or permitted” to work within the meaning of the FLSA. DOL stresses that in the “for-profit” sector, internships will most often be viewed as employment. However, there is a narrow exception for training programs. DOL has identified six criteria which must exist to satisfy the exception:
The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
The internship experience is for the benefit of the intern;
The intern does not displace regular employees, but works under close supervision of existing staff;
The employer that provides the training derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded;
The intern is not necessarily entitled to a job at the conclusion of the internship; and
The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
In determining whether an intern is really an employee, DOL distinguishes those experiences that are similar to an educational environment from those that are not. If the program is structured around a classroom or academic experience, the student gets educational credit, or the experience provides skills that could be used in multiple employment settings the intern is less likely to be deemed an employee. If, however, the business is dependent on the intern’s work or the intern is performing productive work, the intern is more likely to be deemed an employee – even if the intern may receive some benefits (e.g., developing a new skill or improving work habits).
Another key consideration is workforce displacement. According to DOL, an intern is an employee if the employer would have employed additional workers or would have required existing employees to work additional hours but for taking on the intern.
A determination that an unpaid intern is, in fact, an employee can have consequences beyond minimum wage and overtime obligations. Discrimination laws, worker’s compensation coverage, state and federal tax laws, employee benefits and unemployment insurance coverage are all implicated in the event of a misclassification. Because the impact of a potential misclassification is so significant, before accepting any unpaid interns an employer, in particular, a for-profit employer, should, at a minimum, take the following steps:
Provide an agreement or letter making it clear there is no pay and no guaranteed job in the future;
Adopt a policy that sets up strict supervision of the internship program and the intern and assigns a mentor;
Train supervisors and managers regarding the limits of what interns are permitted to do;
Ensure the primary benefit of the internship is for the student, not the employer -- minimize assigning the same duties given to regular employees, and do not use interns to displace any employees;
Arrange for a structured program of internal and, if possible, external instruction; and
If possible, formalize arrangements with the intern’s college or university, and ensure that the work is being done for college credit.
A recent case decided by the United States Court of Appeals for the Eleventh Circuit serves as a helpful reminder that an employee is not immune from performance-based discipline just because the employee has taken leave protected by the Family and Medical Leave Act (“FMLA”). Earlier this month, in Schaaf v. SmithKline Beecham Corp. d/b/a GlaxoSmithKline, the Eleventh Circuit held that the demotion of a female vice president returning from maternity leave did not violate the FMLA because her demotion stemmed not from taking FMLA leave, but rather from performance issues which the employer learned about during her absence.
According to the Court’s written opinion, the plaintiff, Ellen Schaaf, worked for GlaxoSmithKline (“GSK”) as a Regional Vice President. In 2003, she took FMLA leave for the birth of her child. While on maternity leave, Schaaf’s subordinates reported to GSK’s management that Schaaf’s region was performing significantly better in her absence. Overall, productivity increased, communication improved, and morale was markedly higher as well.
Also according to the Court’s opinion, when Schaaf returned to work, GSK told her that she could accept a demotion to District Sales Manager – the position she held prior to her promotion to the position of Regional Vice President – or she could leave the company. Schaaf ultimately accepted the demotion. GSK explained that its decision was based on complaints from Schaaf’s subordinates regarding her aggressive management style and the fact that Schaaf’s region performed significantly better when she was out on leave. Schaaf sued GSK, alleging: (1) interference with her FMLA rights; and (2) a claim of retaliation for exercising her FMLA rights.
To state an FMLA interference claim, an individual need only allege that she was denied a benefit to which she was entitled under the statute. Schaaf claimed that her FMLA reinstatement rights were denied when GSK refused to reinstate her to the Regional Vice President position following her return from maternity leave. GSK contended that Schaaf was not returned to her position due to performance-related concerns. Schaaf countered by arguing that because GSK learned of the performance issues during her maternity leave, the leave, in effect, caused her demotion. In other words, but for Schaaf taking maternity leave, she would not have been demoted. The Court rejected that argument, explaining that Schaaf was demoted because of managerial ineffectiveness discovered while she was on FMLA leave, not because she took FMLA leave.
With respect to her retaliation claim, the Court found Schaaf could establish a prima facie case of retaliation based on the timing of the demotion, which occurred very shortly after the leave. However, GSK met its burden of proof by articulating a legitimate, nondiscriminatory reason for the adverse employment action – namely Schaaf’s managerial ineffectiveness coupled with a noticeable improvement in performance from Schaaf’s region during her absence. Because Schaaf was unable to demonstrate that GSK’s stated reasons for her demotion were a pretext for discrimination, the Court dismissed Schaaf’s retaliation claim.
Schaaf serves as a reminder that an individual who has taken FMLA leave is not insulated from disciplinary action, or other performance-based decisions, simply because that individual has taken protected leave. Nevertheless, employers should be cautious and conservative when taking such actions. An adverse employment action following a protected leave will be suspect, and can enable the employee to establish a prima facie case based on timing alone. In particular, employers should not act without well-documented proof of the performance problems, and should not treat the FMLA-protected employee less favorably than a non-FMLA-using employee who exhibits similar performance problems.
Another federal court has recently decided that the New York State Human Rights Law (“NYSHRL”) and New York City Human Rights Law (“NYCHRL”) can protect employees who do not live or work in New York. In Rohn Padmore, Inc. v. LC Play Inc., the plaintiff, Ron Padmore, alleged discriminatory discharge based on sexual orientation. During the initial month of his employment, Padmore worked at defendant’s offices in New York City. Thereafter, he worked mainly from his home in Los Angeles, but returned to the employer’s New York City offices on three occasions. His employment was terminated by an e-mail generated from the employer’s New York City offices, which contained apparent evidence that the termination was based on sexual orientation.
The employer sought summary judgment dismissing the complaint on the ground, among others, that as a non-resident of New York, the protections of the NYSHRL and NYCHRL did not apply to Padmore. After a thorough review of the conflicting decisions that had previously considered the issue, the Court sided with the courts which have held that the two laws apply when a discriminatory act is committed in New York, even if the impact of the act is felt outside of New York. Because the employer’s offices were in New York City, the allegedly discriminatory termination decision was made in New York City and the e-mail evidencing discriminatory animus was sent from New York City, the Court found Padmore was protected by both the state and city laws.
The Padmore court’s interpretation of the geographic reach of the NYSHRL and NYCHRL is becoming the majority view, and is the view of New York’s Appellate Division, First Department. If Padmore is followed by other courts, potential plaintiffs across the country, even those who never set foot in New York, may be able to avail themselves of the generous protections of the NYSHRL and NYCHRL, so long as an arguably discriminatory decision was made in New York.
Section 193 of the New York Labor Law prohibits employers from making deductions from an employee’s wages, except for certain deductions made for the benefit of the employee which are authorized by the employee in writing in advance, such as deductions for employee contributions to employee benefit plans. It also prohibits separate transactions between the employee and employer which would amount to the same thing as a prohibited deduction. In a surprising and disappointing change of direction, the New York State Department of Labor (“NYSDOL”) now takes the position that deductions from an employee’s wages for money owed to the employer (e.g., a loan, or overpayment of wages) are prohibited by Section 193 even with the employee’s written consent, because they are not similar to the types of permissible deductions enumerated in Section 193.
In addition, while it is permissible for an employer to ask an employee to pay the money back, if the employer threatens the employee with discipline for failure to pay back the money, NYSDOL will consider that conduct to be a prohibited separate transaction under Section 193. In fact, NYSDOL states that in making such a request the employer must clearly communicate that the employee’s refusal will not result in discipline or retaliatory action. NYSDOL believes that a legal proceeding to collect the money is the employer’s only legal recourse if the employee voluntarily fails to repay.
Yesterday, April 14, 2010, among ten bills signed into law by Governor David A. Paterson was Senate Bill S-6972/Assembly Bill 10065 (the “55/25 legislation”), which is the early retirement incentive bill for members of New York State United Teachers ("NYSUT") who belong to either the New York State Employee Retirement System ("ERS") or the New York State Teachers Retirement System ("TRS"). The 55/25 legislation was first announced as part of the Tier V pension legislation that was signed into law and previously discussed on this blog. The 55/25 legislation allows NYSUT members who are members of ERS or TRS, are at least 55 years of age, and have attained at least 25 years of creditable service to retire without the reduction in retirement benefits that would normally apply to retirement system members who are on Tiers 2, 3, or 4, who do not have 30 years of service.
Below is a summary of the 55/25 legislation and what it means for employers of NYSUT members.
1) Eligibility for 55/25 Legislation
Must be a member of ERS or TRS;
Must be a member of NYSUT;
Must be an employee of an educational employer (school district, board of cooperative educational services, vocational education and extension board, institution for instruction of the deaf or blind, State University of New York ("SUNY"), and community colleges) that employs members of NYSUT;
Must be at least 55 years of age and have 25 years or more of creditable service;
Must be on active service, which is defined as being in continuous service and on the payroll from February 1, 2010 until June 1, 2010. However, the following classes of employees are deemed to be on “active service” by the legislation and thus eligible for the early retirement benefit:
Those employees on a paid leave of absence; and
Those employees on an unpaid leave of absence that does not exceed 12 weeks from February 1, 2010 to the commencement of the “open period” (which is June 1, 2010 for school districts).
2) Timing of Benefit
The open period for employees of school districts begins on June 1, 2010 and ends on August 31, 2010. For SUNY and community colleges, while the open period is capped at 90 days, and must end on or before December 31, 2010, the legislation does not mandate a certain date for the commencement of the open period. In order for the law to apply, the effective date of the retirement must be during the open period.
Employees who wish to apply for early retirement without penalty under this benefit must fill out the appropriate retirement application not less than 14 days prior to the effective date of their retirement.
3) Cost of 55/25 Legislation
The per-member cost for each employee who receives this early retirement benefit will be approximately 110% of the employee's final average salary.
The total cost of this legislation is estimated to be $13.2 million, or .09% of payroll.
For every 100 employees that retire under this legislation, there will be an increased cost of approximately $260,000 to the State and $360,000 to participating employers.
The legislation estimates the number of people who will retire under this legislation will be under 1000.
4) Impact on Retirement Incentives in Collective Bargaining Agreements
The legislation explicitly states that it does not affect in any way other retirement incentives provided by collective bargaining agreements that were negotiated prior to the effective date of the legislation.
Last week, the New Jersey Supreme Court ruled that an employee has a reasonable expectation of privacy in communications with her lawyer via a personal, password-protected e-mail account, even if accessed on company-issued computer equipment. InStengart v. Loving Care Agency, Inc., a forensic expert was hired by Loving Care to image Stengart’s laptop after she left her position and filed a lawsuit against the company. In the process, several e-mails exchanged between Stengart and her lawyer through her personal Yahoo e-mail account, were retrieved. The e-mails were reviewed by Loving Care’s counsel, and at least one was utilized in responding to discovery demands. The trial court found no violation of the attorney-client privilege, ruling that Loving Care’s electronic communications policy placed Stengart on sufficient notice that her e-mails were considered company property. However, an intermediate appellate court reversed. It found that the attorney-client privilege applied to the e-mails and ordered the return of the e-mails. In addition, it sent the case back to the trial court for a hearing on potential sanctions against counsel.
After Loving Care appealed those rulings, New Jersey’s highest court agreed, finding that Stengart had a subjective expectation of privacy because she took steps to protect her e-mails, sending them from her personal, password-protected account and not saving her password to the computer. Several factors also convinced the Court that her expectation of privacy was objectively reasonable. For one thing, the precise scope of the company’s e-mail policy was unclear. It did not address use of personal web-based e-mail accounts on company equipment nor did it warn employees that e-mails sent through personal accounts could be forensically retrieved and reviewed. And although the policy provided that e-mails were not to be considered private and confidential, it nevertheless permitted “occasional personal use”, thereby creating ambiguity as to whether personal e-mail was company or private property. The Court also found it significant that the e-mails did not constitute illegal or inappropriate material stored on company equipment, and that the e-mails from Stengart’s attorney included a standard notice as to the personal, confidential, and, possibly, attorney-client nature of the communication. Because Stengart reasonably expected her e-mails would remain private, the court concluded, the attorney-client privilege protected those e-mails from disclosure and no waiver occurred. The Court then expanded on its ruling, declaring that even if a policy expressly banned all personal computer use and unambiguously notified employees that the company could retrieve and read their attorney-client communications sent via a personal, password-protected e-mail account on company equipment, it would nevertheless be outweighed by the public policy concerns underlying the attorney-client privilege and rendered unenforceable.
The New Jersey decision is not binding precedent in New York, although it could be influential. Neither the Second Circuit nor New York’s Court of Appeals have addressed this issue. However, in Scott v. Beth Israel Medical Center, a New York trial court found no privilege where the attorney-client e-mails were exchanged via a company-issued e-mail address on company equipment. In that case, however, the employer’s e-mail policy – which expressly banned any personal e-mail use and further provided that any e-mails received or sent using company equipment were company property – was “critical” to the Court’s decision.
New York employers who permit some personal e-mail use should consider taking a proactive approach by revising their existing technology policies with the Stengart and Scott decisions in mind. Suggested revisions include expressly notifying employees that all e-mails sent or received using company equipment may be reviewed at the company’s discretion, and that all materials accessed, created, received or sent on company-issued computer equipment, including e-mail communications, may remain stored on that equipment even after deletion and retrieved by the employer. Employers should also establish protocols and train appropriate employees in handling potentially privileged communications that may turn up in the course of electronic monitoring.
