I. FMLA

Follow The Rules Or Suffer The Consequences. Most employee handbooks provide for some form of progressive discipline setting forth various steps that will be taken during the disciplinary process. A recent federal court decision has held that employers who establish these steps, and then ignore them, do so at their peril. The employer had a manager who had been performing below acceptable levels for several months. However, her supervisor failed to actively counsel her on her deficiencies as set forth in the employee handbook. Thus, without any warning to the employee, the supervisor decided to demote the manager. However, he failed to act on that decision, and weeks later she presented him with FMLA paperwork relating to her pregnancy. The next day, he carried through with her demotion.

According to the employee manual, a demotion was one of the last steps in the progressive discipline chain. Moreover, demotions were to be preceded by numerous counseling sessions. Despite the fact that the demotion decision had been coming for several months, the court found the timing of the demotion, one day after she requested FMLA leave, suspicious. Go figure! Simply put, the lack of documented discipline left the employer with little evidence to rebut the suspicious timing. Consequently, the employee was able to establish that the employer's legitimate "business reasons" were pretextual and the employer was denied the opportunity to dispose of the case before an expensive trial. The lesson to be learned is clear: follow the procedures established in your employee handbooks.

A Quick Word To The Wise. When an employer: (1) argues with an employee about the timing of a request for FMLA leave; (2) changes an employee's supervisor to one with whom the employee had experienced prior difficulties shortly after the formal request is made; or (3) urges the employee to resign or tells the employee she will likely be demoted after returning from FMLA leave begin preparing for trial, because a judge will probably determine that a fact issue exists as to whether the employee's resignation was really a constructive discharge.

II. TITLE VII

They Can't Keep A Secret ... Or Can They? During the course of an investigation, the EEOC will often ask a company to produce a variety of documents, many of which may contain confidential information. We have always been concerned about confidential information, such as trade secrets, and privacy issues when releasing documents and, in some cases, have even refused to do so. Can the EEOC keep a secret? The answer is ... nobody seems to know, not even the EEOC! Recently a company in Las Vegas sued the EEOC over this very problem. First the EEOC stated that under its current policy, documents designated as confidential by the employer could be shared with third parties during the investigation. Then on appeal the EEOC suggested that confidential information would not be released without prior notice to the company. But, then the EEOC changed its tune again and was uncertain as to whether it even had a policy on disclosing secret information. So what is the answer? At the moment, we don't know for sure. The case has been sent back to the lower court to ascertain what exactly the EEOC policy is and whether that policy violated federal law. Until we know more, our recommendation is to be careful and remember Ben Franklin's warning–three can keep a secret if two of them are dead! If you have this concern, it may be time to give us a call for a more in-depth analysis.

Evaluate This. Generally speaking, job evaluations do not constitute an adverse employment action in Title VII cases. Yet, in a recent Eleventh Circuit case, the court showed employers that even a favorable evaluation that results in a pay increase can still constitute an adverse employment action. The employer in the case instituted a performance evaluation rating system whereby an employee's overall job performance could receive one of three ratings: 1) "met expectations;" 2) "exceeded expectations;" or 3) "did not meet expectations." A three percent raise was given to employees who received an overall rating of "met expectations" and a five percent raise was given to those who received "exceeded expectations." Employees that received a "did not meet expectations" rating were not eligible for any type of salary increase.

A Black female employee received a "met expectations" rating and a three percent salary increase. The employer had given two white male employees "exceeds expectations" ratings. Plaintiff alleged that her supervisor told her, "that no matter what she did on the job, she would never receive an ‘exceeded expectations' rating." Further, the employee claimed she was told that the supervisor made an insulting racial comment about her when she filed a formal grievance with the company about her evaluation. Based on these assertions, she filed her lawsuit.

The court explained that Title VII specifically prohibits an employer from discriminating against an individual with respect to compensation because of his or her race. Consequently, the court found that the employer's decision to provide the employee with a three percent raise, as opposed to a five percent raise, constituted an adverse employment action. Even though the difference between the five percent raise and three percent raise would amount to $76.03 per month or $912.06 per year, the court held that "an evaluation that directly disentitles an employee to a raise of any significance is an adverse employment action under Title VII."

Quid Pro Quo. A standard prerequisite for a viable quid pro claim of sexual harassment is that the alleged harasser is a supervisor. However, a federal district court in Texas found this does not have to be so. Now, what does that mean for you? Well, it exposes employers to potentially greater liability in cases where it is an employee's co-worker who allegedly does the harassing. In a typical quid pro quo case when there is a tangible employment action like a firing or a demotion that is triggered by an employee's rejection of a supervisor's sexual advances, the employer is unable to assert an affirmative defense in order for it not to be held liable for the supervisor's actions. And now, according to the federal court's decision, an employer will be unable to relieve itself from vicarious liability in similar situations where the harassment is at the hands of a co-worker who has the authority to influence an adverse employment action.

In the case presented to the federal court, a star insurance salesman allegedly harassed his female co-worker (who worked at a different location) by repeatedly calling her and asking her out on dates in spite of her refusals. One day, he allegedly called her and asked her to spend the weekend with him and share a hotel room. According to the female employee, when she rejected her co-worker's slumber party invitation he threatened to have her terminated and requested that she transfer the call to her supervisor who terminated her later on that very day. She filed a quid pro quo sexual harassment claim against the employer even though the alleged harasser was not her supervisor. The court determined that this pesky little detail was not fatal to her claim. The court held that a reasonable jury could find that even though the alleged harasser was not a supervisor, since the male employee was a top salesman, he could have exerted influence over the supervisor's decision to terminate the female employee in order to punish her for refusing his sexual advances. Therefore, the female employee will pursue her quid pro quo claim in front of a jury.

Supervisors Have A Duty To Sing Like A Canary. In Title VII cases where a supervisor is the one responsible for harassing conduct toward employees and no tangible employment action has occurred, employers are able to avoid liability for the acts of the supervisor. An employer does so by demonstrating that it acted reasonably in preventing and correcting harassment and that the victimized employee unreasonably failed to take advantage of the employer's complaint procedures. However, simply having a harassment policy in place will not relieve employers from liability. The Sixth Circuit recently held that the policy must be effective in preventing and correcting the harassment. In the case presented to the Sixth Circuit, an employee alleged that lower to mid-level supervisors observed an upper-level supervisor engage in harassing and inappropriate conduct but did not report the incidents. The court found that even though the employer did have a harassment policy in place, it may not have been effective in practice.

The policy placed a duty on all supervisors, regardless of their standing in the supervisory chain of authority, to report harassment to the appropriate personnel and in this case the lower to mid-level employees allegedly failed to do so. The court found that there was a fact issue as to whether the implementors of the harassment policy, i.e., the supervisors, acted reasonably in response to the conduct they observed in order to prevent and correct harassment. Therefore, the court decided that the employer would have to defend itself at trial with the real potential of being unable to avoid liability for one supervisor's allegedly inappropriate conduct because of the inaction of other supervisors.

By now, most employers have implemented harassment policies, and for those of you who haven't done so, it is time! Many policies place a duty on all supervisors and/or management to report incidents of harassment to specific personnel. If your harassment policy assigns such a duty, then you must insure that all supervisors and management are informed of their responsibility to report inappropriate and harassing conduct and are trained adequately to perform this obligation, or you may wish to design your harassment policy to place the burden solely on the employee to report harassment to a certain person or persons. In effect, any and all employees your policy assigns the responsibility of reporting harassment must be informed of this duty and trained accordingly.

No Good Deed Goes Unpunished. Let's face it, telling an employee their performance is not meeting expectations can be uncomfortable. However, giving an employee a glowing review when her performance is actually falling well below the acceptable level is just dumb. Nevertheless, that's exactly what happened in this case.

The plaintiff had a great deal of difficulty getting along with her boss and some of her co-workers, and her work performance barely met acceptable levels. However, in an effort to send her an "encouraging" message, the plaintiff's supervisor gave her a "successful" rating on her performance review. The message was apparently ineffective, as the plaintiff's performance continued in downward spiral. Consequently, the supervisor terminated her employment, citing numerous performance issues.

As you may have guessed, she subsequently filed a Title VII lawsuit and used her performance review as evidence that the articulated performance deficiencies were pretextual. The D.C. Circuit agreed with the plaintiff's argument, and it held that the conflicting review and subsequent articulated performance deficiencies were for a jury to sort out. Thus, the supervisor's failure to properly manage his subordinate denied the employer an opportunity to dispose of the case before an expensive trial. The lesson to be learned: let employees know when their performance is lacking, even if it means having an uncomfortable meeting. Otherwise, you may squirm later.

III. FACT ACT

Do You Know the Latest Facts on the FACT Act? As of June 1, 2005, employers are required to properly dispose of any information derived from consumer reports for a business purpose. This rule implements section 216 of the Fair and Accurate Credit Transactions Act of 2003 (FACT Act) and is designed to reduce the risk of consumer fraud, including identify theft, created by the improper disposal of consumer information. Under this new rule employers need to take reasonable measures to protect against unauthorized access to or use of the information obtained regarding applicants or employees in connection with initial screening or other employment decisions. If your company has copies of applicants' or employees' credit reports, driving records, criminal background and other public record checks, or reference checks completed by a third party service, you need to take reasonable measures when discarding such records. Under the new rule shredding the documents (as well as burning or pulverizing them) would be considered "reasonable" as long as the information cannot be read or reconstructed. Additionally, if any of this information is contained on company computers, reasonable care must be taken before discarding the computers to ensure the information cannot be obtained from the computers.

This may be a good time to do a quick audit of your company's policies regarding discarding of any sensitive material, whether in paper form or held in computer hard drives. You do not want your company's trade secrets or confidential information falling into the wrong hands nor do you want to expose your applicants or employees to possible identify theft. It pays to know the FACTS!

IV. FLSA

You Can Bank On That! One of the big targets by Plaintiff's lawyers is banking institutions' loan officers. A recent case involving a mort gage company loan officer emphasizes the exposure. An employee compensated on a commission basis must be paid an amount not less than the statutory minimum wage for all hours worked in each workweek. Loan officers at the mortgage company were paid commissions on loans they originated. Not only did the court find the loan officers were entitled to minimum wage, they were also entitled to liquidated damages in the amount equal to an award of minimum wage where the employer failed to satisfy its burden of showing that it acted in good faith with a reasonable belief that it was in compliance with the FLSA. Ignorance is definitely not bliss and will not be a defense to liquidated damages under the FLSA, nor will good faith be demonstrated by the absence of complaints on the part of employees or conformity with industry-wide practices. In this particular case, the court noted that almost a year after the action had been filed the employer still had not changed its payroll practices to bring them into compliance with FLSA's minimum wage requirements. As the old saying goes – you can pay me now or pay me (double) later!

No Minimum Wage Equals Maximum Problem. One very common error by employers is their assumption that commission salespersons are exempt from the wage and hour laws. The truth is that outside salespersons are exempt, but a salesperson who spends at least a majority of work time either in the company's offices or in any designated location (such as home office) is NOT exempt no matter how much commission is received (unless they qualify for the retail sales commission exemption). A few more little wrinkles in the rules of non-exempt commission salespersons are: (1) an accurate record of their hours of work must be kept; and 2) they must receive at least the minimum wage for each week which can only be averaged over their regular pay periods (once a week, bi-weekly or, in some limited situations, monthly). Thus, if the salesperson makes big ticket item sales which gene-rate big commissions, but there may be weeks or even months between sales and commissions, the employee must receive at least the minimum wage for all hours worked during the normal pay period. This can be satisfied by giving the employee a weekly draw, paying the employees at least minimum wage for each work week (which is then deducted from the commissions when due and payable), but remember the employees' accurate hours worked each week must be recorded and utilized for overtime calculations.

V. NLRA

I Spy! According to a recent D.C. Circuit opinion, the National Labor Relations Act (NLRA) prohibits employers from installing and subsequently using hidden surveillance cameras without first bargaining over their use. In a recent case, a brewery supervisor found cardboard mats, as well as table and chairs, while conducting a routine inspection of an elevator motor room within the plant. Suspecting that employees were engaging in misconduct in the room, the brewing company installed hidden surveillance cameras. As suspected, the hidden cameras revealed that employees were sleeping and smoking marijuana during their shift (at least they weren't stealing beer).

Once the identities of the guilty parties were ascertained, the company sought to discipline 16 employees. The union, however, protested the manner in which the company obtained the evidence. It argued that hidden surveillance cameras were like drug or polygraph tests, thereby requiring bargaining before implementation. Both the NLRB and the D.C. Circuit agreed, holding that the use of hidden cameras requires bargaining before use. However, the court also held that in spite of its duty to bargain, it did not have to disclose the location or the times in which the cameras would be used. Moreover, the opinion appears to only apply to the use of hidden cameras, which would imply that employers do not have to bargain for the use of overt surveillance cameras. In short, employers with unionized workforces have three options: 1) quit disciplining employees using evidence obtained with hidden surveillance cameras, 2) begin bargaining with the union over the use of hidden cameras, or 3) make sure surveillance cameras are in conspicuous locations.

Loud Mouths are Protected Too. As most people know, Texas law disfavors covenants not to compete as restraint on trade. Nevertheless, Texas statutory law permits these agreements as long as they are reasonable as to "time, geographical area and scope of activity to be restrained," and it "is ancillary to or part of an otherwise enforceable agreement at the time the agreement it made." In a recent case presented to the National Labor Relations Board (NLRB), a supervisor opened the floor to employees at a non-union employee function to ask work-related questions. One of the employees began asking questions "on behalf of himself and other co-workers" concerning pay and benefits and during the course of the discussion, the employee's tone of voice became "loud" and "boisterous." About a week after this conversation, the employee's supervisor sent a letter to the employee informing him that his tone of voice at the function was loud, animated and insubordinate and also caused the supervisor embarrassment. The supervisor suggested that the employee could "survey other companies" because "it is possible that somewhere there is something better or more attractive." The supervisor instructed that the employee sign the letter as an acknowledgment of it. The employee refused to do so because he did not agree with the assertions that he was insubordinate at the function. The company president then in-formed the employee that if he did not sign the letter, the company would be "cutting ties" with him. It does not take a genius to figure out what happened next. The union employee refused again to sign the letter and the employer fired him.

The employee filed unfair labor charges against the employer, asserting that his asking questions to management despite his loud tone of voice was protected concerted activity under the National Labor Relations Act (the "Act"), the employer's actions tended to coerce or intimidate employees from exercising his rights and the employer terminated him in violation of the Act. The employer conceded that the content of the employee's speech was protected under the Act, but argued that the manner in which he spoke rendered the employee's speech unprotected. The NLRB disagreed with the employer's argument and ruled that the employee's speech was not unprotected because he simply spoke in a loud and boisterous tone. The NLRB explained that had the employee's conduct been "unlawful, violent, in breach of contract, egregious or indefensible" then it would not have been protected by the Act. The NLRB further ruled that the employer's letter in itself was unlawful because it was a disciplinary measure targeting protected activity and, therefore, coercive when it suggested to the employee that he should "survey other companies."

It is quite possible that you may find yourself in a heated discussion with employees concerning pay or benefits or any other work-related issue. You may even feel that an employee's tone of voice is so disrespectful that it warrants discipline. But before you issue any form of discipline, remember that loud mouths are protected too!

VI. ARBITRATION

Employer Penalized For Making Offers Employees Couldn't Refuse. The Texas Court of Appeals recently refused to compel arbitration of an employee's claim because the arbitration agreement was procured through economic duress. Apparently, the employer presented an employee with an arbitration agreement after she had been working for the company for an undisclosed period of time. However, when the agreement was presented, the employee refused to sign it. The employer explained that her refusal would have negative consequences (fortunately, the employer did not make any references to sleeping with fishes). The employer also told the employee that it would withhold her paycheck if she did not sign the agreement. Given that the employee wanted remuneration for her past efforts, she signed the agreement.

While there was no gun to the employee's head, the Texas Court of Appeals held that she signed the agreement under duress. Consequently, it refused to enforce the agreement. Moral of story: Employers should leave their economic weapons in their holster when asking employees to sign agreements.

Hot Dog! One arbitrator recently issued a quite fiery decision: an employer violated the collective bargaining agreement when it canceled the annual picnic without prior notification to the union, even though there was no mention of the annual picnic in the agreement itself. Every year for 80 years (with the exception of two years) the company sponsored and paid for a summer picnic for its employees, retirees and their family members. But over the past couple of years, the union had become less involved in the planning and carrying out the logistics of the picnic, like setting up tents and equipment and securing food and beverages. As a result, the employer hired an outside vendor to plan and carry out the entire picnic, which cost the company around $60,000. In light of the fact that the union's participation as well as attendance had considerably decreased and the cost of the picnic and the burden on the company had significantly increased, the company made a logical financial decision to cancel the company picnic. This decision, however, created a lot of smoke.

The union filed a grievance against the employer, arguing that the company picnic was a past practice and a long-standing benefit, which the employer could not unilaterally discontinue. The employer argued that the picnic was not a practice that was established and binding on the employer, but rather it was a gratuity that was created by the company and could be discontinued by the company. The arbitrator found that over the years of numerous contract negotiations, the subject of the company picnic had never been raised by the union nor had it been included or referred to in any respect in the collective bargaining agreements. Even during the most recent contract negotiations, there was no discussion or reference to the company picnic. However, the arbitrator decided that the company picnic had become a custom which rose to the level of a past practice and since the company had not objected to the continuance of this past practice during contract negotiations, it was obligated to sponsor the company picnic throughout the duration of the contract! Therefore, if there are any past practices that you might like to discontinue, even if they are not mentioned in your collective bargaining agreement, it might be wise to put them all out on the (picnic) table during negotiations.

Union Organizational Activity Since Our Last Newsletter. Four petitions for certification have been filed by unions. One petitions for decertification have been filed by management. Two elections have been held, one of which has been won by management.

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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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