I. NEW LAWS AND REGULATIONS

The Sarbanes-Oxley Act: Blowing The Whistle On Everyone. When you think of Sarbanes-Oxley Act, you may think that the provisions of this Act only apply to publicly traded companies and their employees, and to protect the investors in publicly traded companies from corporate financial abuse. But no, ... this Act is sweeping legislation that could regulate areas other than corporate fraud and affect all employers and employees.

Whistleblowing. Section 806 of the Act protects whistleblowers by creating a new federal civil cause of action on behalf of any employee of a publicly traded company who is subject to retaliation for reporting corporate fraud or assisting in a proceeding filed or about to be filed relating to corporate fraud. From the language of the Act, employees of agents, contractors or subcontractors of the publicly traded company may also be protected if they are whistleblowing on the publicly traded company. If an employee "reasonably believes" that a violation of federal securities law, the rules of the SEC, or any provision of federal law relating to fraud against shareholders has occurred or is occurring and the employee shows that the whistleblowing was a "contributing factor" in the adverse employment action, back pay and reinstatement are available.

Furthermore, criminal fines and imprisonment up to ten years can be attached to intentional acts of retaliation against informants under Section 1107 of the Act. If the informant is providing a law enforcement officer with any truthful information relating to the commission or possible commission of any federal offense, intentional retaliation, including interference with the lawful employment of the informant, is prohibited.

Shredding. Before you shred or destroy any documents, current criminal statutes make it a crime for any person to "corruptly" alter or destroy any document with the intent to impair the document's integrity or availability for use in an official proceeding. An "official proceeding" is defined to include, among other things, a proceeding before a federal government agency, which is authorized by law. Therefore, any time an employer is engaged in an administrative proceeding before the Equal Employment Opportunity Commission, National Labor Relations Board, or the Department of Labor, for example, individuals can face up to 20 years of imprisonment and fines for violating this section of the Act if they corruptly alter the records with intent to impair its availability.

Code of Ethics. All publicly traded companies together with the periodic reports required pursuant to sections 13(a) and 15(d) of the Securities Exchange Act of 1934 are required to adopt or provide a reason for its failing to adopt a Code of Ethics for its senior financial officers or persons performing similar actions.

Penalties. The Act also regulates corporate and individual actions in the compensation and benefits area by amending ERISA. With respect to individual account plans, such as 401(k) plans, plan administrators must provide a written notice to plan participants and beneficiaries at least 30 days prior to the commencement of a blackout period. If there is no applicable exception to this rule, the Department of Labor may assess a civil penalty against the plan administrator of up to $100 per participant per day from the date of the plan administrator's failure or refusal to provide the 30-day advance notice. Additionally, the Act has dramatically increased the criminal penalties imposed on persons who willfully violate the fiduciary responsibility provisions of ERISA including an increase in the maximum fine from $5,000 to $100,000 for individual offenders and the maximum imprisonment from one year to ten years. The maximum fine for corporate offenders has been increased from $100,000 to $500,000.

Been To A Doctor Lately? If so, you have been inundated with a form to protect your privacy rights. On April 14, 2003, the Department of Health and Human Services adopted privacy and security regulations in accordance with the Health Insurance Portability and Profitability Act (HIPPA).While it is a small pain at the doctor's office to go through and fill out the form - it can be a real burden on employers as it relates to the use of medical information of its employees. Failure to comply with the HIPPA privacy regulations can result in a series of fines and the possibility of imprisonment for any person who either knowingly discloses "Protected Health Information" (PHI) or obtains inappropriately the PHI of a particular individual. The privacy regulations prohibit "Covered Entities" to use or disclose PHI except as permitted or required by the final rules implementing the Act. PHI is defined as any individually identifiable health information that is transmitted or maintained by electronic or other media that relates to an individual's past, present or future physical or mental health, treatment, payment for services or health care operations.

The privacy regulations should concern an employer for two reasons. First, there is a possibility that it could be determined to be a covered entity as defined by the regulations. A covered entity includes a health plan, a health care provider, or a health care clearinghouse. To the extent that most employers are "plan sponsors" under their group health plan, there are additional requirements for these employers apart from the requirements of a covered entity. A fully insured employer who is not involved in making or reviewing benefit decisions and does not routinely receive PHI should only have to concern itself typically with the authorization requirements explained in more detail below. Employers who become active in the decision making process, in the administration of a self-insured plan, or employers who operate or control the provision of health coverage will have extensive obligations as a plan sponsor and/or a covered entity. Most covered entities should already be in compliance with the Act by now if there is even the risk that they are a covered entity.

The most pressing concern for an employer who is not a covered entity and/or a plan sponsor in attempting to comply with the HIPAA privacy regulations pertains to receiving the PHI of an employee from a covered entity. The privacy regulations prohibit a covered entity from disclosing PHI to others for purposes other than treatment, payment, or health care operations unless an authorization is received from the individual. For example, authorizations could be required to obtain information for litigation, for employment-related purposes such as return to work evaluations, possible ADA accommodation issues, FMLA serious health condition certifications, and pre-employment physicals among others.

An authorization is not required under the HIPPA privacy regulations if the information is obtained directly from an employee or other source unrelated to a group health plan or covered health care provider. For example, if an employee calls in sick, the employer is free to discuss the illness with the employee, without needing an authorization (but be wary of the ADA risks in doing this). In addition, the privacy regulations allow a covered entity to disclose PHI to an employer for the administration of workers' compensation if several requirements are met. HIPAA also does not require an employer to get an authorization when they enroll or remove employees from a plan. In addition, a plan sponsor is entitled to receive a summary of health information for the purpose of bidding on insurance premiums in order to make whatever changes are necessary for a group health plan. With this particular exception, the key will rely on the information provided. As long as it is provided in a summary form and does not identify the individual specifically, an authorization would not be needed.

FLSA: The Collar Tightens. The U.S. Department of Labor recently issued proposed modifications to its white collar exemptions to the Fair Labor Standards Act. The white collar exemptions include the heavily litigated overtime exemptions for administrative employees, executive employees and professional employees.

One of the proposed changes is to increase the minimum salary levels under those exemptions. The current minimum salary level is $250 per week. If employees were paid the current minimum wage for 40 hours per week, they would be paid a minimum of $206 per week. Accordingly, the Department of Labor decided to get with the times and proposed to increase the minimum salary level to $425 per week for the white collar exemptions. This amounts to an annual salary of $22,000 which most of the exempt employees probably exceed anyway.

The most significant change to the white collar exemptions is the proposed changes to the tests for each exemption. There will only be one test if the proposed regulations are adopted. Under these proposed regulations, an executive employee must have a "primary duty" of management of the enterprise or a recognized department or subdivision, customarily and regularly direct the work of two or more employees and have the authority to hire and fire, or at least make effective recommendations as to the hiring and firing of other employees. The government takes the position that "primary" means at least 50 percent of the employee's time is spent in exempt duties.

Under the proposed regulations, administrative employees, along with professional and executive employees, will no longer need to exercise discretion and independent judgment. Instead, administrative employees must have a primary duty of office/non-manual work, directly related to management policies or general business operations and the employee must now hold a "position of responsibility." A position of responsibility is defined as performing work of "substantial importance" or work which requires a high level of skill or training. Work of substantial importance means work that affects an employer's operations or finances to a significant degree. A common way to undermine the exemption in the past was for the employee to show that they strictly apply the policies and procedures of the company without any individual discretion.

Finally, the proposed regulations include a rule for highly compensated employees. Employees who receive $65,000 or more per year, including commissions and non-discretionary bonuses, are exempt if they have one identifiable executive, administrative or professional function.

Since the changes reflected above are just proposed regulations, the Department of Labor may issue all of the regulations as is, modify them, or eliminate them altogether when its final regulations are issued. The official comment period for the proposed regulations ends on June 30, 2003. Sometime thereafter the Department of Labor will issue its final regulations. Stay tuned to future editions of the newsletter for updates when the final regulations, if any, are adopted.

II. BIG MONEY JUDGMENTS

FMLA: Speaking Of Money. A federal jury recently awarded an $11.65 million verdict to a veteran hospital maintenance worker who contended that his former employer terminated him in retaliation for using unpaid family leave to care for his ailing parents. The employee had worked for the hospital for nearly 26 years before being terminated.

The employee's mother suffered from heart disease and diabetes. The father's capabilities were declining due to the onset of Alzheimer's disease. As a consequence, the employee took intermittent leave to care for his father but the leave never totaled more than 300 hours. This intermittent leave had an adverse effect on the scheduling at the hospital.

The supervisor established new performance standards for workers in the maintenance department. Despite the supervisor's knowledge that the employee would have to take his intermittent leave sporadically, the supervisor still set and held the maintenance worker to the same performance standards (amount of work completed) as everyone else. The quantity of work assigned could have only been performed had the employee not been out on his family medical leave. After a short period of time under these new rigid performance requirements, the employee was terminated. The former employee filed suit alleging that his supervisor made him choose between his job and the unpaid intermittent leave he was provided under the FMLA to care for his parents. The jury found this was retaliation which cost the hospital $11.65 million.

ADEA: How NOT To Do A Layoff! A major shoe store recently agreed to settle an age bias claim over some layoffs for $3.5 million. The Equal Employment Opportunity Commission (EEOC) allegedly uncovered evidence that the company did an age analysis of its workforce and that workers over the age of 40 were targeted for the layoffs. In addition to this evidence, the EEOC also alleged to have uncovered evidence of discriminatory statements and actions linked to corporate executives and decision makers against older employees. Therefore, the EEOC brought a class action lawsuit on behalf of all 678 employees over the age of 40 who were laid off.

Evidence also showed that after the layoff was completed, the company went back and hired younger, cheaper workers to reduce the costs. The regional attorney for the EEOC said that "Firms that attempt to force out and replace their older employees are breaking the law and risk having to make sizable restitution, as was done in this case."

Title VII: Post 9/11 Discrimination (National Origin). In Fiscal Year 2002, charges filed with the EEOC alleging religious discrimination increased 21 percent over the previous year and national origin discrimination complaints increased by 13 percent.

One steel fabricating company recently paid out a $1.11 million consent decree to four former employees. The four employees were Pakistani and they complained that they were repeatedly harassed due to their national origin and religion. In particular, the employees complained that the harassment included ridicule of their daily Muslim prayer obligations and derogatory name calling such as "camel jockey" and "raghead." Thus, the employer agreed to make policy changes, conduct training to prevent future discrimination, and to implement a policy which guaranteed an employee's right to request accommodation for religious needs.

Arbitration: $3.2 Million Reasons To Worry About ADR. Many employers have decided to institute mandatory arbitrations (alternative dispute resolution) in an attempt to keep costs down when employees bring lawsuits. Unfortunately, such arbitrations can be just as dangerous and risky for an employer as a jury.

An arbitration panel recently awarded one employee of a major brokerage firm a substantial sum of money for sexual harassment. The employee's work environment was permeated with discrimination, ridicule and insults according to the arbitration panel and the firm took no action to correct the measures. The employee faced a sexually hostile work environment that included sex-related insults, pornographic videos, and phone sex on the office speaker phones. In addition, unlike her male cohorts, the employee was required to meet a production quota of $10,000 a month and was warned that she would be fired if she failed to meet the quota.

As a result of this treatment, the employee exercised her rights under a previous class action lawsuit which allowed her to have her case heard before a panel of three arbitrators. After reviewing all of the evidence, the arbitrators awarded $3.2 million to the employee. Whether a panel of arbitrators is better than a jury is a decision this employer may want to reconsider.

III. LEGAL UPDATES

COBRA Update: Divorces Hurt Employers Too. As far as this employer knew, an employee and his spouse were happily married. Until one day, the employee entered the personnel director's office and informed the employer that he had divorced his first wife and remarried. Therefore, he wanted to drop the ex-wife off his insurance coverage and add the new one. The personnel manager of the company gave the employee the COBRA election notice to pass on to his former spouse. The employee had given the personnel manager his assurances that his ex-wife would receive the notice. To no one's surprise the employee failed to deliver the notice.

The district court held that when notified of a divorce, an employer acts unreasonable by giving the employee a COBRA election notice so they can provide the notice to their ex-spouse. According to the court, the very nature of divorce turns once loving spouses into bitter enemies. As a result of this hostility, providing the employee COBRA notice for their ex-spouse was not a reasonable attempt to comply with COBRA's notice provisions.

An interesting sidenote, the divorce which caused this entire dispute was declared "null and void" because the spouse never received adequate notice of the foreign divorce proceeding. The federal district court held that the nullified divorce was not a qualifying event and, therefore, the employee's spouse was not entitled to COBRA continuation insurance. The Second Circuit reversed the decision and held that the employer's COBRA notice obligation was triggered when the employer was notified of the divorce. Thus, whether a divorce actually legally occurred is less important than whether an employee notifies the employer of the attempted divorce.

Title VII Update: When Is A "Worker" Really A "Supervisor" For Sex Discrimination Issues? As mentioned in previous newsletters, two 1998 Supreme Court cases referred to as Ellerth and Faragher established the standards under which an employer may be held vicariously liable for the sexual harassment of an employee by a "supervisor" under Title VII. For the most part, courts have interpreted a "supervisor" as being a person who can affect the terms and conditions of the employee's employment. In other words, the supervisor must be able to hire, fire, demote, promote, transfer or discipline the employee. Without these powers, the person would not be a supervisor and the employer would not be liable under a theory of vicarious liability, according to the courts, for the supervisor's harassment. However, the employer could still be held responsible under a negligence standard for harassment by a non-supervisor.

The Second Circuit (where else but New York City?)expanded that definition in a case where the harasser was a tool carrying worker who gave "fetch ‘em" instruction to a helper. In addition to those work related instructions, he made some clearly non-work related suggestions to the attractive female helper. She sued the company based on the conduct of the worker who did not have the authority to hire, fire, demote, promote, transfer or discipline the employee. Unfortunately the court sought to interpret what the Supreme Court meant by "supervisor" and found that the harasser had authority to give out overtime and he was the most senior employee at the job site. Based on those two factors the court found that the harasser would be considered a "supervisor" for which an employer could be held vicariously liable. Since this case reopens the door as to what responsibilities a supervisor truly has, employers need to be very cautious as the number of employees who could be deemed "supervisors" has now grown almost exponentially with just this one case.

Labor Arbitration Update: Criticism Makes Some Workers Sick. After being requested to do some repair work on a part, a welder was informed by his foreman that his work was inadequate and that the part was in worse condition than it was before. The foreman told the welder that if he couldn't do a better job, then the foreman would have to find somebody who could. The welder and the foreman then got into a heated argument in which profanity was used, and the welder threw the wrench he was using on the ground in anger. After this heated discussion, the foreman returned to his office.

Later, the foreman returned to the welder's workstation and, while the welder was talking with a shop steward, handed the welder a written warning for substandard work. This obviously did not please the welder who replied with an expletive and advised that "if that's the way it's going to be, I'm leaving." So, the company treated the welder as if he had quit his job since he left work without permission. However, when departing he had noted on his time card that he was sick.

The next day, the welder returned to work and presented a doctor's slip from the day before. The welder claimed that he went home and spent the day in bed and went to see a doctor later that night who prescribed Tylenol. The company refused to accept the doctor's slip because the employee's action of leaving without permission indicated an intent to quit.

Arbitrator John R. Thornell agreed with the welder and said that since the employee wrote sick on his time card, he clearly did not intend to quit his job, whether or not he was actually sick. Although the welder wrongly left work without permission because of what he perceived as an unfair reprimand, he did not quit his job. Likewise, his confrontational argument with his supervisor, according to the arbitrator, did not reach the level of just cause for discharge. The welder was fully reinstated to his position despite how sick it might have made the welder's foreman.

A Retreat In The War Against Drugs. A company was having a serious drug problem at its operation. Several accidents occurred that were caused by illegal drug use, including one accident in particular that was extremely costly. As a result, the company became decidedly more aggressive in attempting to stamp out this problem. A disturbance among employees occurred when rumors were circulating of an employee's purchase and use of cocaine. Based solely on this rumor, a drug test was ordered of the employee. The employee was tested and failed, as he had tested positive for, surprisingly, cocaine. As a result of his failed drug test, the employee desired to be placed in the rehabilitation program offered by the company. The explicit contract language stated the company "may" allow an employee to enter the rehabilitation program.

Rather than just admit the employee into the program like it had done in the past, the company conditioned his admission to the program on his informing management of all employees who are using drugs and the employee will be allowed into the rehabilitation program.

The employee refused to cooperate, so the rehabilitation program was not provided to him and he was then terminated for failing the drug test. Arbitrator Thomas L. Hewitt held that an employer has no right to make such a request. According to the arbitrator, even though he admitted this was an effective way to police the workforce, he felt it was repugnant to continued employment because he would not be accepted back into the workforce by his other co-workers who were drug users. As a result, the company was ordered to provide the employee the rehabilitation program and, upon its successful completion, reinstate the employee. The moral: make the contract clearer and be really careful of who you chose as an arbitrator.

Union Organizational Activity Since Our Last Newsletter. Three petitions for certification have been filed by unions. Three petitions for decertification have been filed by management. One decertification election was held and the union fought off decertification. Five certification elections have been held, of which management won three.

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The Quarterly Update is a newsletter providing recent items of interest to our clients in the various areas of employment law. While the Update is to alert you to potential new problem areas or changes in the law, it is not to be considered legal advice or a legal opinion. Such can only be given after careful consideration of the facts unique to any situation. The contents of this newsletter are copyrighted and may not be used without express written consent of Neel & Hooper, P.C.

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