Author Archives: Holland & Hart

October 28, 2014

Defeating Micro-Units: Employer Strategies to Challenge Smaller Bargaining Units

Unions are organizing smaller segments of an entire workforce in order to get their foot in the door and keep organizing efforts alive. The National Labor Relations Board (NLRB or Board) has approved so-called micro-units, setting employers up for difficult battles over appropriate bargaining units in the future. Employers should think about the possibility of seeing a micro-unit proposed in their workforce—and how to avoid them.

Unions Can More Easily Win Representation For Smaller Groups

As unions press to increase their membership in the United States, unions are looking for new ways to organize workers and remain relevant. Organizing large workforces requires unions to expend significant resources – money, personnel and time – to collect signatures from at least 30% of the proposed bargaining unit to trigger an election (some unions want to see upwards of 70% signing authorization cards before petitioning for an election). Then additional resources are needed to get out the vote to ensure a majority of votes cast are in favor of the union. Large organizing campaigns also give the company time to mount an anti-union campaign.

Organizing micro-units, however, can be done relatively quickly, cheaply and often without much response from the company. Think about it – organizing a unit of 30 workers in a single department may need only one or two union organizers to persuade the 15 to 20 employees needed to win the organizing campaign. Before you know it, you’ve got a segment of your workforce represented by a third party with whom you must collectively bargain. This can lead to multiple micro-units at your company represented by different unions and the headaches multiply.

Parameters For Micro-Units Are Evolving

The NLRB has discretion in representation cases to determine the appropriate bargaining unit, whether an employer unit, craft unit, plant unit or subdivision thereof, pursuant to section 9(b) of the NLRA. Although decided on a case-by-case basis, the main, long-standing factor for determining an appropriate unit was the “community of interest” of the employees involved. In 2011, however, the Board significantly changed that analysis in a case called Specialty Healthcare, allowing the unit petitioned-for by the union to govern except in those situations where the employer can establish by “overwhelming evidence” that the requested unit is inappropriate. This new approach places a high burden on employers who wish to challenge the make-up of the unit proposed by the union.

In recent months, the Board has decided a couple of micro-unit cases that offer some guidance on what it takes to challenge a micro-unit. In a case involving a Macy’s Department store in Massachusetts, the Board deemed appropriate a micro-unit made up of only cosmetics and fragrances employees at the store. Macy’s Inc., 361 NLRB No. 4 (July 22, 2014). The store argued that the unit was too narrow and that the appropriate unit in a retail store context is a “wall-to-wall unit” or, alternatively, all selling employees at the store. The Board did not agree. It concluded that the cosmetics and fragrances employees were a readily identifiable group that shared a community of interest not shared by other store employees. Factors weighing in favor of the micro-unit included the fact that the cosmetics and fragrances employees were in the same department and were supervised by the same managers. In addition, there was little regular contact between the cosmetics and fragrances employees and other store employees. The NLRB found that Macy’s had not met the high burden of showing that other employees should be included in the unit because they did not share an “overwhelming community of interest.”

Coming to the opposite conclusion, however, the Board rejected a micro-unit of sales associates who sold shoes at the Manhattan Bergdorf Goodman store. The union had petitioned for the unit to be made up of 35 women’s shoes sales associates in the Salon shoes department (high end designer shoes) and 11 women’s Contemporary shoes sales associates in the Contemporary Sportswear department (modestly priced shoes). The Board concluded the proposed unit was inappropriate because the two shoe departments were located on separate floors, did not share the same supervisors and managers, did not have any cross-over or interchange between employees and did not have much contact with employees in other departments storewide. The Neiman Marcus Group, Inc. d/b/a Bergdorf Goodman, 361 NLRB No. 11 (July 28, 2014).

Strategies for Attacking Micro-Units

The Macy’s and Bergdorf Goodman cases offer some guidance to help employers avoid union organizing of micro-units. Strategies to consider now, before a union organizing campaign begins, include:

Combining departments or job classifications that share skills or tasks
Cross-training and cross-utilizing workers across departments, classifications or locations
Allowing for promotional and transfer opportunities across department and organizational lines
Revising supervisory and managerial structures so that more employees report to the same managers
Maintaining pay and bonus structures common to all employees or for all in a larger unit.

Micro-units can be a game-changer when it comes to union organizing so employers have to change their own tactics to combat such bargaining units. Taking time now to change organizational and reporting structures can go a long way in overcoming a proposed micro-unit in the future.

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October 21, 2014

EEOC’s Failure to Engage in Conciliation Dooms Its Separation Agreement Lawsuit Against CVS Pharmacy

By Mark Wiletsky

Chalk up a loss for the Equal Employment Opportunity Commission (EEOC) in its lawsuit against CVS Pharmacy’s separation agreements. As we reported earlier, the EEOC sued CVS alleging that CVS’s separation agreements deterred employees from filing charges and communicating with the EEOC about discrimination and retaliation. Dismissing the case, a federal judge recently ruled that the EEOC failed to engage in the required procedural steps, including conciliation, before filing its lawsuit.

EEOC Dismissed Employee’s Charge, Then Went After Employer

This lawsuit is an example of the aggressive, proactive nature of the EEOC in extending the protections of Title VII to new and novel claims. The case arose after CVS terminated Tonia Ramos, a pharmacy manager. Ms. Ramos signed CVS’s standard separation agreement, which included a release of claims and a covenant not to sue. She then proceeded to file a charge with the EEOC claiming that her discharge was based on sex and race in violation of Title VII. Almost two years later, the EEOC dismissed Ms. Ramos’s charge.

The EEOC then contacted CVS asserting that based on the separation agreement, CVS was engaging in a pattern or practice of resistance to their employees’ full enjoyment of rights under Title VII. In other words, the EEOC concluded that even though the individual employee did not have a valid discrimination claim against CVS, it would bring a pattern or practice case against CVS based on the language in its standard separation agreement used with potentially hundreds of former employees.

No Conciliation, No Lawsuit

Under Title VII enforcement procedures, the EEOC has the authority to investigate and act on a charge of a pattern or practice of discrimination, whether filed on behalf of an allegedly harmed employee or by the EEOC itself. The procedures require that the EEOC try to resolve any alleged unlawful employment practices through informal means before filing a lawsuit. Such means include conferences, conciliation and persuasion. Although the EEOC and CVS discussed potential settlement by telephone twice before the EEOC filed suit, the EEOC failed to engage in conciliation, which proved fatal to its case. Because an attempt at reaching a conciliation agreement is a prerequisite to the EEOC filing suit and it was undisputed that the EEOC did not engage in any conciliation process, the federal court dismissed the EEOC’s case against CVS.

Judge’s Guidance is in the Footnotes

The case was dismissed on procedural grounds, but the judge took the opportunity to offer his view on the merits of the EEOC’s arguments in several footnotes in the opinion. First, the EEOC argued that the term “resistance” as used in Title VII should be interpreted broadly to extend to the language in CVS’s separation agreement even if that language did not amount to discrimination or retaliation under the Act. The judge rejected that argument, stating that the term “resistance” requires some retaliatory or discriminatory act.

Second, the judge discussed the “covenant not to sue” provision in CVS’s separation agreement. Even though the provision stated that an employee could not “initiate or file . . . a complaint or proceeding asserting any of the Released Claims,” the release of claims (in another paragraph of the separation agreement) stated that it did not limit “any rights that the Employee cannot lawfully waive.” In addition, the agreement contained two carve out provisions specifying an employee’s “right to participate in a proceeding with any appropriate federal, state or local government agency enforcing discrimination laws” and that the agreement did not prohibit the employee from cooperating with any such agency in its investigation. The judge wrote that these provisions would allow an employee to file an EEOC charge. He went on to write that even if the separation agreement explicitly banned filing charges, those provisions would be unenforceable and could not constitute “resistance” under Title VII.

One Case Down; One Still Pending

The dismissal of the CVS lawsuit is good news for employers who use separation agreements, especially in light of the judge’s comments signaling that the EEOC’s arguments were without merit. However, a similar case filed by the EEOC against College America is still proceeding through the federal court in the District of Colorado. (We wrote about the College America case here.) Like CVS, College America has asked the court to dismiss the EEOC’s case. We will let you know when the court rules on that motion. In the meantime, employers should review their separation agreements to ensure they include a provision that the agreement does not prohibit employees from filing a charge, participating in an investigation or otherwise cooperating with an appropriate federal, state or local government agency that enforces discrimination laws.

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September 23, 2014

Cheyenne Jury Awards $1,481,000+ On FMLA Retaliation Claim

By Brad Cave

The series of large verdicts for Wyoming employees seems to be marching forward. The most recent example occurred recently when a Cheyenne jury awarded over $740,000 to a trona miner after deciding that he was fired because he took FMLA leave. With liquidated damages available in an FMLA case, the Wyoming court entered judgment in an amount in excess of $1.48 million in favor of the employee. This case stands as yet another example about the importance of supervisor training and careful, well-documented and consistent decision making.

Long Term Employee With A Pain in the Neck. We first told you about this case in March of this year, when the Tenth Circuit Court of Appeals sent the case back to Wyoming for trial after reversing the trial court’s dismissal of the case. (Safety Violation or Too Much Intermittent FMLA Leave?). Here is a short recap of the facts.

Steven Smothers had been employed by Solvay Chemical for 18 years when his employment was terminated. Smothers had experienced back problems since 1994 resulting in three surgeries on his neck and other medical procedures, and an extended course of medical treatment by specialists. Over the years, Smothers took intermittent FMLA leave for his medical appointments and when he was unable to work due to the pain. The amount of FMLA leave he took did not go unnoticed. He was pressured by the production superintendent to change shifts to lessen the additional overtime cost caused by his absences, but such a change would have cost him about $7,000 per year in shift differential pay. Solvay also gave Smothers a negative rating on his performance evaluation because of his absences, and he was told that he was rejected for a promotion because of the leave.

Smothers’ Safety Rule Violation. In August 2008, Smothers and his coworkers were performing an acid wash, which Solvay did every six months to clean residual trona out of the equipment. When Smothers noticed that a damaged spool piece had caused a leak, he began to fix it without obtaining a line break permit which was required by Solvay safety rules. Smothers and a co-worker, Mahaffey, argued about whether the permit was necessary, and after Smothers removed the spool piece without first getting the permit, Mahaffey immediately reported Smothers’ actions to a supervisor.

Solvay terminated Smothers’ employment on August 28, 2008, based on a joint decision of six Solvay managers. Five of the six decision makers testified that the argument between Smothers and Mahaffey weighed heavily in the group’s decision to fire Smothers. Although the trial court originally dismissed the case, the Tenth Circuit believed that Smothers had presented enough evidence to create doubt about the real reasons for Smothers’ termination. So, the case was sent back to the trial court for trial.

What’s the Real Reason for Smothers’ termination? Like all retaliation cases, the jury in this trial was asked to decide whether Smothers was fired for a safety rule violation, as the employer contended, or because his employer retaliated against him for using intermittent FMLA leave or discriminated against him because of his disability. We don’t have a transcript of the trial, so we cannot tell you what evidence the jury heard or what facts persuaded the jury. We do know that the Tenth Circuit reasoned that the jury could disbelieve Solvay’s reasons because:

Supervisors criticized Smothers informally and in his performance evaluation for taking FMLA-protected leave, and rejected him for a promotion because of his time off;
Solvay did not give Smothers an opportunity to describe or explain his side of the argument with Mahaffey, even though the argument was a central reason for the decision to terminate Smothers’ employment;
Other Solvay employees who committed safety rule violations were not terminated.

And the Jury Returns.The jury found in favor of Smothers on his FMLA claim, and awarded Smothers the amount of $740,535 for his lost wages and benefits from the date of his termination, August 27, 2008, through the date of trial. But the potential damages don’t stop with the lost wages. Under the FMLA, the successful employee may be entitled to an additional amount equivalent to the jury’s award for liquidated damages – in other words, a penalty against the employer for the violation. As a result, the court has entered judgment against Solvay in the total amount of $1,481,070, twice the amount of the jury’s verdict, plus interest since the date of termination. The trial court declined to award Smothers any future lost wages. However, Smothers is entitled to an additional judgment for his reasonable attorneys’ fees and costs, which could add hundreds of thousands of dollars to the total.

Bottom Line. Regardless of the final number after adding prejudgment interest and attorneys’ fees, this is one of the largest judgments ever entered against a Wyoming employer. We cannot speculate about what evidence led the jury to its verdict, but we can share some lessons, with the benefit of twenty-twenty hindsight, that will help any employer avoid this kind of result:

Managers and supervisors must be trained and committed to the fact that taking FMLA leave is protected by federal law, and must not be the reason for formal criticism, denied opportunities, or informal complaining. FMLA-protected leave cannot be held against an employee for any reason whatsoever. Any comment or suggestion to the contrary can be used as evidence of pretext.
Investigations must be thorough and even-handed. While we don’t know all the evidence in this case, the jury may have heard that Solvay spent much more time asking Mahaffey about the argument with Smothers, while never asking Smothers for his side of the argument. Everybody should get the same opportunity to tell their side of the story. An inadequate investigation can be used as evidence of pretext.
Employees must be treated consistently. Smothers had evidence that other Solvay employees intentionally violated safety rules without being terminated. Employers need to mete out comparable discipline for comparable violations, or have a compelling reason why an employee gets tougher punishment.
Employers must respect long years of service. Of course, keeping a job for eighteen years does nothing to technically change the legal relationship or create any new rights or protection for the employee. But, after that length of time with a good performance record, it becomes difficult for a jury to believe that termination is an appropriate response for one incident.

Wyoming juries have delivered substantial employee verdicts over the last few years. Employers should pay attention.

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September 9, 2014

Employee Equity Purchase Programs: Ensuring a Great Idea Remains a Good Idea

By Bret Busacker

With the return of some prosperity in the economy, we have seen an uptick in employers granting or selling equity (stock or partnership interests) in their businesses to their employees. In some cases, these grants are part of a broad-based employee stock purchase program. In other cases, employers use equity to reward and incentivize key players in their business. In all cases, these programs can be very successful in creating loyalty and incentivizing employees. However, these arrangements are subject to a variety of regulatory requirements. A few insights on some common issues that arise with respect to these arrangements:

Sale of Equity to an Employee May be Compensation. The transfer of equity to an employee (or other service provider) in connection with the performance of service to the employer is a compensatory transaction under Internal Revenue Code Section 83. The amount of the compensation income to the employee is the difference between the fair market value of the equity at the time of grant and the amount the employee pays for the equity. Depending on the situation, an independent valuation of the business may be necessary to establish the fair market value of the equity granted. In all cases, the employer should document that a reasonable valuation method was followed in establishing the fair market value of the equity.

Employees May Elect Early Taxation of Unvested Equity. If an equity award requires the employee to continue to provide services after the date of grant in order for the employee to retain the right to the equity, the equity may be unvested. Unvested equity is not taxable to the employee at the time of grant, but becomes taxable to the employee once the equity vests. An employee who believes an equity award will increase in value and generate a larger tax hit on the vesting date rather than the grant date may elect to accelerate the taxation of the equity to the date of grant (and thus pay taxes when the equity is worth less). This election is commonly referred to as an 83(b) election. Employers should ensure that employees are aware of the 83(b) election option.

Unvested Equity May Not Create Ownership. The Internal Revenue Code provides that an employee is not treated as the owner of the equity granted to an employee unless the equity is fully vested or the employee files an 83(b) election with the IRS. Further, employment agreements, operating agreements and shareholder agreements often contain provisions that create ambiguity as to whether an equity award is vested or unvested. Accordingly, if the parties want to ensure that an employee receiving an equity grant is treated as an owner for tax purposes, including allocations, distributions and dividends, a protective Section 83(b) election could be filed to ensure the employee is treated as the owner of the equity.

Equity Grants May Impact Employee Benefits. Equity grants of partnership interests or stock in an S corporation may have a significant impact on the medical and fringe benefits of employees receiving those grants. If the equity is vested or the employee files an 83(b) election, the employee may be treated as an owner for benefits purposes. Partners in a partnership and owners of more than 2% of the stock of an S corporation are generally not eligible to participate on a pre-tax basis in the medical benefits and other fringe benefit programs otherwise available to employees. In addition, employers should review their retirement plans when granting equity awards to employees to ensure that the compensatory value of the equity awards are accounted for in accordance with the terms of the plan document.

Equity Grants Should Be Accomplished Through a Compensatory Plan. In general, unless securities exemptions exists at both the state and federal levels, the grant or sale of employer stock or partnership interests to employees must be registered under the Securities Act of 1933. This rule applies to private non-publicly traded companies as well as publicly traded companies. Many private companies may take advantage of a special federal securities exemption from the registration requirement by satisfying what is referred to as Rule 701. However, Rule 701 and many state securities laws may only be relied upon if the grants were made pursuant to a written compensation contract or compensatory benefit plan for employees, consultants and/or directors. Further, in some cases it may be required, but it is always a good practice, to provide the award recipients a summary of the material terms of the equity award, a risk of investment statement, and annual financial statements to minimize misunderstanding and the risk of legal claims.

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September 2, 2014

Benefit Plans: Upcoming Compliance Deadlines and End of Year Planning

By Bret Busacker and Bret Clark (formerly of Holland & Hart)

Now that fall is in the air and school has started, we thought this would be a good time to summarize some of the key health and welfare benefit deadlines that are approaching this fall:

September 22

Updated Business Associate Agreements. New HIPAA privacy and security rules adopted last year require revisions to most HIPAA business associate agreements by September 22, 2014. Employer-sponsored health plans that are subject to HIPAA (generally including self-insured health plans and all health flexible spending arrangements (FSAs)) are required to have agreements with business associates, service providers dealing with participant health information on behalf of the plan, that require business associates to comply with the HIPAA privacy and security rules. Your business associates may have already contacted you about revising your agreements. However, employers are ultimately responsible to identify all business associates and ensure that compliant business associate agreements are in place before the deadline.

September 30

Summary Annual Report for Calendar Year Plans. Plans (including retirement plans and welfare plans) that filed the 2013 Form 5500 by July 31, 2014 must provide the Summary Annual Report for the 2013 calendar year to plan participants no later than September 30, 2014. Plans that file the 2013 Form 5500 extension to file by October 15, 2014 must provide the Summary Annual Report by December 15, 2014.

October 14

Medicare Part D Notice of Creditable Coverage. Employers who offer prescription drug coverage to employees and retirees should provide a notice to plan participants and beneficiaries who are eligible for Medicare Part D (or to all participants) by October 14, 2014 stating whether the employer prescription drug coverage is creditable coverage.

November 5

Deadline to Obtain Health Plan Identifier. All self-insured larger group health plans (those with annual costs of $5 million or more) must obtain a unique group health plan identification number (HPID) from CMS by November 5, 2014. The HPID will be used in electronic communications involving plan-related health information. For this reason, third party administrators of self-insured plans will either obtain the HPID or will coordinate with the plan sponsor in obtaining the HPID. Employers should confirm with their TPA that the plan will have an HPID by the deadline. Please note that employers should obtain an HPID for each group health plan they maintain. Accordingly, employers who have established a single wrap-around group health plan that incorporates all of the group health plans of the employer may only need to obtain a single HPID. However, employers who maintain separate HRA, FSA, and/or medical/dental/vision plans may be required to obtain one HPID for each such group health plan. Smaller group health plans have until November 5, 2015 to obtain an HPID. Please go to this website for more information.

November 15

Transitional Reinsurance Fee Enrollment Information Due. Self-insured health plans must submit their enrollment information to HHS by November 15, 2014 for purposes of calculating the 2014 Transitional Reinsurance fee for 2014. Self-insured health plans that are self-administered are exempt from the Transitional Reinsurance Fee in 2015 and 2016, but must pay the fee for 2014. Based on the enrollment information provided to HHS in 2014, self-insured plans will pay the fee beginning in January 2015.

General Fall Planning (no specific deadline)

ACA Shared Responsibility Planning. The Affordable Care Act employer shared responsibility penalties will begin to be imposed on employers with 100 or more full-time or full-time equivalent employees beginning January 1, 2015. Employers should start now to establish a policy for purposes of determining whether the employer will be subject to the ACA employer shared responsibility penalties and whether the employer is covering those full-time employees that must be offered coverage in order to avoid the shared responsibility penalty.

Summary of Benefits and Coverage, Women’s Health and Cancer Rights Act Notice, Medicaid/CHIP Premium Assistance Notice, HIPPA Notice of Privacy Practices, and Exchange Notice. Employers should confirm that these notices are included with the enrollment materials provided to participants during open enrollment and to participants at the time of any mid-year enrollment due to becoming newly eligible for the plan. If these notices are not included with enrollment materials prepared by your provider, consider supplementing the enrollment materials with these notices. Employers should also confirm that their COBRA notices have been updated to reflect recent changes to the model COBRA notice to reflect the establishment of the Health Marketplace Exchanges.

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August 7, 2014

Favoritism to Paramour is Not Gender Discrimination

By Brad Cave

Friendship, cronyism, nepotism, affairs – many types of personal relationships may result in one employee being treated better than another employee. But is that favoritism discriminatory? Does the non-favored employee have a discrimination claim against the employer? No, Title VII does not prohibit favoritism based on a special relationship, says the Tenth Circuit Court of Appeals.

“I Like You Best”

If an employer pays the CFO’s sister a higher wage than other employees doing similar work, offers the most lucrative deals to an employee who is the boss’s best friend or gives playoff tickets as a bonus to the manager’s boyfriend who works at the company, that special treatment is permissible because it is based on the special relationship or bond between the parties, not on a protected characteristic. It is only when the differential treatment is based on an impermissible classification, such as gender, race or age, that it crosses the line into unlawful discrimination. In a recent decision, the Tenth Circuit Court of Appeals affirmed that distinction, ruling that a supervisor’s favoritism toward a female subordinate based on their purported intimate relationship did not amount to reverse gender discrimination against her male counterpart. Clark v. Cache Valley Elec. Co., No. 13-4119 (10th Cir. July 25, 2014).

Reverse Gender Discrimination Under Title VII

Project manager Kenyon Brady Clark sued his employer, Cache Valley Electric Company, alleging violations of Title VII. Clark’s discrimination claim alleged that his supervisor, Myron Perschon, favored a female project manager, Melissa Silver, over him because Perschon and Silver were in a romantic relationship. Clark asserted that Perschon gave Silver better work assignments, paid her more for performing less work and performed most of Silver’s job duties himself. Although it turned out that there had been no affair, Clark still asserted that “whether they were having sex or not, there was favoritism.” When asked about the reason for the favoritism at his deposition, Clark admitted that if the favoritism was not due to a romantic relationship, he did not know the reason for it.

The Court analyzed Clark’s claim as a reverse gender discrimination case under which Clark needed to show circumstances that would support an inference that his employer discriminates against the majority (i.e., males) or that “but for [his] status the challenged decision would not have occurred.” Significantly, Clark did not assert that the favoritism was due to Silver being a female or that Cache Valley treated women more favorably than men. Instead, Clark focused on the preferential treatment that his supervisor offered to one specific female employee. That deficit was fatal to his reverse gender discrimination claim. The Court cited numerous cases where the motives for preferential treatment were other special relationships, such as friendship, nepotism or personal fondness or intimacy, in which it had ruled that such favoritism was not within the purview of Title VII’s anti-discrimination provisions. Because Clark’s discrimination claim was based only on the favoritism shown to a special friend and not on a protected characteristic, his claim was not covered by Title VII. The Court affirmed summary judgment in favor of Cache Valley.

Retaliation Claim Fails Too

Clark also raised a retaliation claim in his lawsuit against Cache Valley. Clark asserted that his supervisor, Perschon, retaliated against him by trying to get a competitor to hire him, refusing to communicate with him and otherwise distancing himself from Clark. Clark also alleged that he was fired in retaliation for complaining about Perschon’s favoritism and retaliation. He had complained to management about the alleged affair between Perschon and Silver, stating that it was difficult to continually respond to vendors and suppliers who had questions about the purported relationship. He reported that they were acting like a married couple. He later complained about the preferential treatment that Silver received from Perschon, including receiving better job assignments and higher bonuses. In a letter to the company’s CEO and to human resources, Clark wrote that over the past three years, he had personally and professionally suffered serious and real adverse effects to his employment due to the alleged affair. He wrote that the affair created a hostile work environment and that it was the company’s responsibility to ensure that the workplace was free of harassment and retaliation. Shortly after meeting with HR and the company’s legal counsel to discuss his letter, Clark was terminated.

The Court rejected Clark’s retaliation claim. To make out a Title VII retaliation claim, Clark needed to show that (1) he engaged in protected opposition to discrimination, (2) a reasonable employee would have found the challenged action materially adverse, and (3) a causal connection existed between the protected activity and the materially adverse action. The Court concluded that Clark failed to show that he engaged in protected opposition to discrimination. He needed to show that he had a reasonable good-faith belief when he complained to the company that he was engaging in protected opposition to discrimination and that his good-faith belief was reasonable both subjectively and objectively. He failed to do so. Although he made statements about a “hostile work environment” and “discrimination” in his complaints to the company, the Court found such statements to be conclusory and not related to gender discrimination. The statements were about Perschon’s favoritism to Silver based on the alleged inappropriate relationship, which was not gender discrimination. Therefore, Clark’s retaliation claim failed.

Just ‘Cuz It’s Legal Doesn’t Make It Smart

Clark’s reverse discrimination claim was a little more cut and dried than most because he essentially admitted that the preferential treatment shown by his supervisor to a female colleague was not due to her status as a female. Consider whether the outcome would have been different had Clark provided evidence that the supervisor historically treated women better than men. Or think about other situations where special relationships result in favoritism, such as when the boss takes all his male cronies to play golf with clients while the female employees toil away at work. Even though the courts have been clear about distinguishing favoritism based on special relationships from discrimination based on a protected class, employers are wise to steer clear from favoring some employees over others, especially when it comes to pay, bonuses and benefits where the non-favored employees can prove financial harm. Keeping the terms and conditions of employment on an even footing will help keep your workplace productive, the morale of employees high and your company out of court.

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July 31, 2014

OSHA Rising – Forecasting the Impact of Chemical Facility Safety Executive Order On OSHA Enforcement

By Trey Overdyke

The Occupational Safety and Health Administration (OSHA) regulates highly hazardous chemicals, in part, through the Process Safety Management (PSM) standard, which states “This section contains requirements for preventing or minimizing the consequences of catastrophic releases of toxic, reactive, flammable, or explosive chemicals. These releases may result in toxic, fire or explosion hazards.” 29 C.F.R. § 1910.119. Recent discussions by a federal working group may result in expansion of the PSM standard to include additional industries and could lead to increased OSHA enforcement activities. In addition, suggestions for strengthening the civil and criminal penalties for safety violations could affect all employers subject to the OSH Act, not just those covered by the PSM standard.

OSHA’s Efforts to Implement Executive Order

In an effort to improve the safety and security of chemical facilities and to reduce the risks associated with hazardous chemicals, President Obama issued Executive Order (EO) 13650—Improving Chemical Facility Safety and Security (EO 13650) last year. The EO 13650 established a working group co-chaired by the Secretary of Homeland Security, the Administrator of the Environmental Protection Agency, and the Secretary of Labor (the Working Group) to address and reduce hazards associated with the hazardous chemicals in the United States.

Following the issuance of EO 13650, the Working Group published the “Solicitation of Public Input on Options for Policy, Regulation, and Standards Modernization.” That document served as a starting point to identify the preliminary options for stakeholder discussion regarding increased safety and security for hazardous chemicals. In May 2014, the Working Group published a status report on their efforts to comply with the directives set forth in EO 13650 — Actions to Improve Chemical Facility Safety and Security – A shared Commitment (Status Report.

OSHA’s Federal Plan of Action

Although it remains unclear what impact, if any, EO 13650 will have on OSHA’s enforcement regime, the Federal Action Plan’s section entitled “Modernizing Policies and Regulations,” strongly suggests that OSHA intends to expand the scope of the PSM standard as well as increase civil and criminal penalties.

The Status Report states the following: “Using lessons learned from incident investigations, enforcement experience, and comparison with industry practices and regulatory requirements of other States, counties, and countries, OSHA determined that a stronger PSM standard can more effectively prevent incidents and protect workers.” (Emphasis added). Many of OSHA’s immediate provisions address ways to clarify the PSM standard. Specifically, the Status Report states that in the year following the publication of this report, OSHA will clarify a number of elements of the PSM standard, including

interpretations of various definitional terms such as “retail facilities”;
revising jurisdictional concentration levels of chemicals covered by the PSM standard;
whether Ammonium Nitrate as a covered chemical under PSM standard; and
determining whether to include oil and gas drilling and servicing operations under PSM standard, which are currently exempt;

More Industries May Be Subject to PSM Standard

Though styled as a means to “modernize” OSHA’s PSM standard to improve safety, the Federal Action plan suggests a much broader OSHA enforcement regime. Indeed, the Federal Action Plan does contain action items that suggest a concerted effort to clarify various ambiguities in the PSM standard, but the overall thrust of the plan appears to focus heavily on including more industries under the jurisdiction of the standard.

Increased Penalties Sought for All OSHA Violations

The Status Report also provides a clear indication that OSHA will attempt to increase the civil and criminal penalties through legislation. Currently, violations of the OSH Act can lead to civil penalties of up to $70,000 per violation. Criminal penalties, however, are only imposed for willful violations that cause an employee death. Criminal penalties can total up to $10,000 and not more than six months in jail for a first conviction, and up to $20,000 and not more than twelve months in jail for a second conviction. The Working Group compared the OSHA civil and criminal penalty provisions to the same provisions under EPA and stated “OSHA’s PSM standard and EPA’s RMP regulation were created at about the same time pursuant to the Clean Air Act Amendments to address the same underlying general hazards. Yet the OSH Act’s penalty provisions are much weaker than those under the CAA’s RMP program. This imbalance in penalties should be corrected by strengthening the OSH Act’s civil monetary penalties and indexing them for inflation.”

Regardless of whether employers are or will be covered by the PSM standard, it appears that OSHA’s stated intent to increase civil and criminal enforcement penalties could impact all employers.

Stay Tuned and Stay Informed

Employers should continue to monitor the Working Group’s activities in order to stay involved and have a voice in any future rule making or policy changes.

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June 27, 2014

U.S. Supreme Court Eliminates Fiduciary Protection for Employer Stock Investment

By Brenda Berg

On June 25, 2014, the U.S. Supreme Court issued its unanimous opinion that retirement plan fiduciaries are not entitled to a presumption of prudence with respect to the plan's investment in employer stock. Fifth Third Bancorp v. Dudenhoeffer, U.S., No. 12-751, 6/25/14. Instead, the fiduciaries are subject to the same duty of prudence that applies to all investment decisions made by ERISA fiduciaries. The rejection of the presumption of prudence might result in an increase in litigation involving employer stock. However, the Court also ruled that the ERISA duty of prudence does not require violating securities laws by disclosing insider information or otherwise taking action that could be in violation of securities laws, and the Court articulated a high pleadings standard for overcoming a motion to dismiss on that point.

Presumption of Prudence

Retirement plan fiduciaries have a duty to act prudently: with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity would act. Many federal circuit courts had adopted a rule that if the governing plan document requires an employer stock investment option, especially where such portion of the plan is designated as an ESOP, then there is a presumption that the fiduciary duty of prudence is met. This presumption is often referred to as the Moench presumption, after the case that first articulated it.

Fiduciaries also have a duty to follow the terms of the plan documents, unless doing so would be contrary to ERISA. The Moench presumption of prudence was an attempt to balance the duty or prudence with the duty to follow plan documents, considering Congress's intent to encourage employee ownership through ESOPs. Under the presumption, fiduciaries have a duty to follow plan documents that require an employer stock investment option, unless the employer is in such "dire" circumstances, such as an employer's bankruptcy, that would likely make the employer go out of business.

In the Dudenhoeffer case, the plaintiffs, who were participants in the plan, alleged that the fiduciaries had violated the duty of prudence by permitting participants to invest in employer stock, and that in July 2007, the fiduciaries knew or should have known that the stock was overvalued. From July 2007 to September 2009, when the complaint was filed, the Fifth Third stock price fell 74%. Although the District Court had dismissed the case based on the presumption of prudence, the Sixth Circuit Court of Appeals reversed and held that the presumption of prudence did not apply at the pleading stage, but only at the evidentiary stage. The U.S. Supreme Court rejected that as well, since the Court held the presumption of prudence does not apply at all. The Court found the presumption was not supported by the statutory language, which provides an ESOP exception from ERISA's duty to diversify but not from the duty of prudence – and Congress's intent to encourage ESOP investments does not override that. In addition, even where the plan document requires an employer stock investment, the regular duty of prudence applies rather than a requirement that only "dire" circumstances can override the plan language.

Conflict with Insider Trading Laws

The Court acknowledged that potential for conflict with the insider trading laws is a legitimate concern. In publicly traded companies, plan fiduciaries are often corporate insiders as well. However, the Court held that a presumption of prudence "is an ill-fitting means" of addressing the concern. The Court also recognized that lack of a presumption may put the fiduciary between a rock and a hard place, in that the fiduciary could be sued for failing to divest the stock, or could be sued for failing to allow the stock as an investment option where the plan documents require it. Again, though, the Court held that the presumption of prudence is not the proper way to address this concern; rather, a motion to dismiss for failure to state a claim is the proper mechanism.

Ultimately, the Court vacated the judgment of the Court of Appeals and remanded the case to consider whether the pleadings were sufficient to overcome a motion to dismiss. The Court referred to its previous guidance of considerations on the insider trading issue. As a general rule, where a stock is publicly traded, it would not be sufficient to claim that the fiduciary should have recognized the stock was overvalued based on publicly available information unless the plaintiffs could point to special circumstances affecting the reliability of the market price. With respect to nonpublic information available to the fiduciaries as company insiders, the Court said the plaintiffs must allege an alternative action that the fiduciaries could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund (for example, by driving the price down in a sell-off) than to help it.

Note that the case involved publicly traded employer stock, and does not provide much guidance for fiduciaries of ESOPs with non-publicly traded stock.

Next Steps for Plan Fiduciaries

In light of the Court's Dudenhoeffer decision, fiduciaries of retirement plans that allow investments in employer stock should reevaluate whether employer stock is a prudent plan investment. Fiduciaries can no longer rely on the Moench presumption that the investment would be prudent as long as the documents required the employer stock and the employer was not experiencing "dire" or other extreme circumstances. Instead, fiduciaries must evaluate all of the circumstances of the employer, within the confines of securities laws, and determine on that basis whether employer stock is a prudent investment under the plan. In other words, fiduciaries must treat an employer stock investment just like every other investment offered under the plan. If the fiduciaries determine that employer stock should no longer be offered under the plan, the removal of the stock should be undertaken carefully in order to best protect fiduciaries from participant claims for the removal of the stock.

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June 26, 2014

Recess Appointments to NLRB Invalid, Rules U.S. Supreme Court in Noel Canning Opinion

By Brian Mumaugh

In a unanimous decision, the U.S. Supreme Court ruled today that President Obama lacked the authority to make three recess appointments to the National Labor Relations Board (NLRB) while the Senate was in pro forma session in early January 2012. While affirming the decision of the D.C. Circuit that the appointments fell outside the scope of the Recess Appointments Clause, the Supreme Court came to that conclusion on different grounds. NLRB v. Noel Canning, No. 12-1281 (June 26, 2014). The decision effectively invalidates the rulings made by the three NLRB members who were improperly appointed via recess appointment.

Recess Appointments Clause

The Recess Appointments Clause gives the President the power “to fill up all Vacancies that may happen during the Recess of the Senate.” This power essentially allows the President to fill vacant federal positions without obtaining Senate confirmation of the appointments and is intended to ensure the continued functioning of the government at those times when the Senate is not in session.

At issue in the Noel Canning case was whether President Obama’s appointment of three members of the NLRB while the Senate was on a three-day intra-session break in which the Senate was in pro forma session fell within his authority under the Recess Appointments Clause. The Supreme Court said no.

Vacancies May Be Filled During Intra-Session and Inter-Session Recesses

Unlike the D.C. Circuit, the Supreme Court ruled that the Recess Appointments Clause applies during intra-session recesses (breaks in the midst of a formal Senate session) as well as during inter-session recesses (breaks between formal sessions of the Senate). The Court stated that the Senate is equally away and unavailable to conduct business during both types of breaks. The Court also looked carefully at the history of recess appointments and found that Presidents have made intra-session recess appointments going all the way back to President Andrew Johnson in 1867. During that time, the Senate has never taken any formal action to deny the validity of intra-session recess appointments. Accordingly, the Court gave great weight to the long-standing practice of allowing recess appointments during both intra- and inter-session recesses.

Recess Must Be Of Sufficient Length

Although the Recess Appointments Clause does not establish how long a recess must be in order to trigger the President’s recess appointment power, the Court held that the Senate’s recess must be of sufficient duration as to be a significant interruption of legislative business. Noting that the government’s attorney conceded that a three-day recess would be too short and that throughout history, no recess appointments had been made during an intra-session recess of less than ten days, the Court wrote that a recess of more than three days but less than ten days is presumptively too short to fall within the Clause.

Vacancies Filled As Recess Appointments Need Not Arise During the Recess

The Court interpreted the Recess Appointments Clause to allow the President to fill vacancies that existed prior to the start of the Senate’s recess. The D.C. Circuit had interpreted the Clause differently, applying only to vacancies that first come into existence during a recess. The Supreme Court chose a broader interpretation to ensure that offices that need to be filled can be filled, even if the vacancy arose before the Senate went into recess. Again, the Court looked at historical practices and found that nearly every President since James Buchanan (term: 1857-1861) has made recess appointments to pre-existing vacancies. Unwilling to counter this long-accepted practice, the Court ruled that any vacancy, whether pre-existing or one that arises during the recess, may be filled under the Recess Appointments Clause.

Applying the Clause to the 2012 NLRB Recess Appointments

The Court ruled that the President lacked the authority to appoint the three members of the NLRB in early 2012 because the Senate was still in session during that time. Although the Senate was meeting just every three days in pro forma sessions, it retained the power to conduct business. Consequently, because the Senate was in session and the three-days between its pro forma sessions was too short of a break to bring it within the scope of the Recess Appointments Clause, the President lacked the authority to make the three NLRB member appointments in January of 2012.

Big Picture – Effect of Noel Canning

There are two primary effects that will come out of today’s Noel Canning decision. First, the NLRB rulings that were made by the improperly appointed members will need to be revisited. Numerous challenges have already been made in some of the affected cases and the current NLRB, which now has five Senate-confirmed members, may need to revisit those rulings.

Second, the future of Presidential recess appointments will hinge on the length of a Senate recess. Political analysts are already stating that both the House and Senate have mechanisms to force the Senate out of a recess into a pro forma session so if those mechanisms are exercised, Congress could limit or block a President’s ability to make recess appointments. We will likely learn a great deal about the scheduling powers of Congress in the days to come.

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June 16, 2014

Sexual Orientation Discrimination By Federal Contractors To Be Prohibited, According to News Reports

By Brad Cave

Major news sources are reporting that President Barack Obama plans to issue an executive order prohibiting federal contractors from discriminating against employees based on sexual orientation and gender identity. The specific details of the executive order have not been finalized and the signing date is not yet known. The planned order was revealed by administration officials on Monday, June 16, 2014, just before the President attends a lesbian, gay, bisexual and transgender (LGBT) event sponsored by the Democratic National Committee in New York City on Tuesday.

For twenty years, various federal lawmakers have introduced and tried to pass ENDA, the Employment Non-Discrimination Act, which would prohibit employment discrimination on the basis of sexual orientation by all employers with 15 or more employees. The most recent ENDA bill passed in the Senate but is dead in the House, as House Speaker John Boehner reportedly has said he will not allow the bill to come to a vote. Like it has done with its minimum wage and other pay initiatives that stalled in Congress, the White House is furthering its goals for U.S. workers outside the legislative process by issuing an executive order. Although the executive order applies only to federal contractors, many of whom already have policies prohibiting discrimination based on sexual orientation, the prohibition for contractors on this basis is seen as a step toward protection for LGBT workers in all work contexts.

Hearing word of the impending executive order, lawmakers and various groups appear to be urging the administration to include an exemption for religious reasons. That is unlikely to happen with the executive order but until we see the final order, it is unclear if any federal contractors and subcontractors will be exempt. We will keep you posted as this unfolds.

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interpretations of various definitional terms such as “retail facilities”;

revising jurisdictional concentration levels of chemicals covered by the PSM standard;

whether Ammonium Nitrate as a covered chemical under PSM standard; and

determining whether to include oil and gas drilling and servicing operations under PSM standard, which are currently exempt;

More Industries May Be Subject to PSM Standard