Refer This: Referral Sources Can Be a Legitimate Business Interest for Non-Compete Purposes in Florida

By John P. Rodgers on Posted in Noncompete Agreements

Refer to This: Referral Sources Can Be a Legitimate Business Interest for Non-Compete Purposes in FloridaCan relationships with referral sources give rise to a legitimate business interest sufficient to enforce a non-compete? The answer is yes, at least in Florida.

A Little Helpful Background

Generally speaking, non-compete agreements (that prevent a former employee from working for your competitor) are not enforceable unless they protect an employer’s “legitimate business interest.” Non-competes that merely serve to prevent ordinary competition are generally not enforceable because they are simply a restraint on trade. Rather, there has to be something that would give the former employee an unfair advantage in future competition with the employer. This “something more” is oftentimes referred to as a legitimate business interest.

An employer seeking to enforce a non-compete with a former employee must convince the court that it is seeking to protect a legitimate business interest (not just trying to keep the employee from competing). In other words, if there is a legitimate business interest at stake, the court might enforce the non-compete; if there is no legitimate business interest, then the court likely will not. Note that non-compete law is entirely state specific—so check your state statute and caselaw.

What Happened in Florida Last Week (Other than the Hurricane)

Now, back to Florida. Last week, the Supreme Court of Florida ruled that a home healthcare company’s referral sources can be a legitimate business interest. There were two separate cases, both involving a marketing representative for a home healthcare company. Both marketing reps’ job duties primarily consisted of cultivating relationships with referral sources (usually healthcare providers), so those referral sources would refer patients (i.e., paying customers) to the home healthcare companies.

Both of the marketing reps signed non-competes prohibiting them in one way or another from soliciting referral sources for competing home healthcare companies. During their respective employments, the marketing reps developed relationships with referral sources, presumably using their employer’s funds to do so. Subsequently, both of the marketing reps resigned their employment, went to work for competitors, and solicited the referral sources that they had worked with during their prior employment. The former employers said this behavior violated their non-competes (with one even alleging that the employee “absconded” with the referral source list).

The original employers suffered a loss in new patient referrals and revenue, and they filed suit. Florida’s lower courts split on this issue. One court dismissed the case finding that referral sources did not constitute a legitimate business interest. The other court entered a temporary injunction in the employer’s favor, with an implicit finding that referral sources did constitute a legitimate business interest.

The Supreme Court of Florida construed Florida’s non-compete statute and held that it did not exclude referral sources from being a potential legitimate business interest. The court further held that home health service referral sources can be a protected legitimate business interest under Florida’s non-compete statute because they are a home health company’s “most important business asset.” In its unanimous opinion, the court wrote:

“Moreover, it seems obvious that allowing an employee to work for a short period, receive pay to cultivate referral sources using a [home health company’s] resources, and then remove advantageous information to a direct competitor to solicit those same referrals – all of which was precluded by a non-compete contract that the employee signed – would not only condone but actually encourage unfair competition.”

The issue of whether referral sources are legitimate business interests may be hotly contested under many states’ non-compete laws. The Florida high court was quick to caution, however, that its ruling was industry-specific and depended on the facts and circumstances of each non-compete case.

Employers should be cautious not to interpret this decision as a ruling that all relationships with referral sources can give rise to a legitimate business interest sufficient to enforce a non-compete. As lawyers are fond to say, it all depends.

Blocked Shot? Employer Runs into Religious Issues with Mandatory Flu Vaccines

By Anne R. Yuengert on Posted in Discrimination

Blocked Shot? Employer Runs into Religious Issues with Mandatory Flu VaccinesIf you require your employees to get a flu shot, what do you do with the ones who refuse on religious grounds? As with so much in employment law, it depends. In Equal Employment Opportunity Commission v. Mission Hospital, a federal district court in North Carolina denied the hospital’s motion for summary judgment, finding that there were disputes of fact as to whether the Mission Hospital discriminated against three employees on religious grounds.

Mission Hospital’s Flu Vaccine Program

Mission Hospital requires some employees to get flu shots. Foreseeing that some people object to getting flu shots, the hospital provided notices that all employees must be vaccinated by December 1 and that requests for exemption must be filed by September 1. The notice provided instructions specifically about religious exemptions. So far, so good.

The hospital publicized the flu shot requirement in a number of ways—flyers, screensavers, bulletin board postings and other advertisements. It also included the requirement in the offer letter to one of the three employee claimants. So the hospital made clear that it really wanted employees to get the flu shot, and it gave employees a way to get an exemption.

According to the court’s opinion, since 2010, Mission Hospital had granted religious exemptions to 250 employees who timely requested an exemption. Apparently, the claimants in this case all missed the hospital’s deadline to request an exemption and were terminated for failure to get the shot (or obtain a timely exemption). The EEOC said Mission Hospital treated the claimants differently because of their religious beliefs in violation of Title VII and filed a lawsuit.

The Law

As we all know, Title VII prohibits discrimination based on religion. Under the law, “religion” need not be a mainstream or widely recognized or practiced religion. In the Fourth Circuit (which includes North Carolina), to prove a threshold (or prima facie) case of religious discrimination, a plaintiff must establish that he or she (1) has a bona fide religious belief that conflicts with an employment requirement, (2) informed the employer of the belief, and (3) was disciplined for failure to comply with the conflicting employment requirement. If a plaintiff establishes a prima facie case, the defendant then must demonstrate that it could not reasonably accommodate the employee’s religious needs without undue hardship. Undue hardship in the religious accommodation context is different than in the ADA disability discrimination context. A religious undue hardship requires only that the employer establish that the accommodation would have required more than de minimis cost.

The Court’s Denial of Summary Judgment

The court assumed for purposes of summary judgment that the claimants established a prima facie case and had sincerely held religious beliefs. Again, the religious beliefs were not necessarily widely held. The claimants professed to believe that (1) “injecting the flu vaccine into my body is morally wrong because my body is a temple given by God”, (2) “I am healed by plants, fruits, and grains” (not chemicals), and (3) “injecting chemicals and diseases into my veins is not something God intends and is wrong.” The hospital did not deny the exemptions based on the religious beliefs but because each claimant missed the September 1 deadline to request the exemption.

The court did not probe into whether the claimants’ professed religious beliefs were sincerely held and seemed to suggest that a reasonable jury could find that these are not sincerely held or religious. The court also noted that a reasonable jury could side with the EEOC and find that the hospital’s refusal of the exemption was discrimination based on religion.

Lessons Learned for Your Flu Shot Program

  • If you want to require employees to get a flu shot, expect some push back. Employees with medical issues and religious beliefs should be given a way to opt out.
  • On the religious side of things, don’t get hung up on whether the employee’s reason sounds “religious” to you. The law broadly defines religion, and it doesn’t take much to qualify as a sincerely held religious belief. Don’t do or say (or allow your supervisors to do or say) things that suggest you think an articulated religious belief is bogus. That is a quick way to get the EEOC’s attention.
  • Be sure to treat employees the same whether they want or don’t want the vaccine. In this case, the EEOC said that Mission Hospital gave employees who missed the December 1 deadline for getting the flu shot a grace period, but did not provide a similar grace period for those who missed the September 1 exemption request deadline. The court noted that a jury could find that the hospital was treating employees who did not request a religious exemption more favorably.

You don’t want to be in court over your flu shot program. Be fair, be flexible, and remember that you may have less than 100 percent participation and, absent a compelling argument that everyone must be vaccinated, there is probably not much you can do about it.

The Demise of DACA – What It Means for Employers

By Keith Covington on Posted in Immigration Law

The Demise of DACA – What It Means for EmployersThe Trump administration has announced that it will end the Deferred Action for Childhood Arrivals (DACA) program, which has provided removal protection (i.e., from deportation) and temporary work permits to nearly 800,000 undocumented immigrants who entered the U.S. as children. The move, which was opposed by many employers, ends speculation about the fate of the controversial Obama-era program.

Fortunately, the Trump administration did not immediately cancel the DACA status of participants, but instead opted to phase out the program over the next couple of years. Although no new DACA applications will be taken after September 5, 2017, current DACA participants will keep their deportation protection status and temporary work permits until those benefits expire. In addition, until October 5, 2017, individual applications for renewal of DACA status will be accepted for those persons whose existing DACA status expires on or before March 5, 2018. However, after October 5, no DACA renewal applications will be allowed.

So what does this mean for employers?

The Trump administration’s decision to roll back the DACA program has raised a number of important questions for businesses that employ DACA workers:

  • Do you have to terminate employees who have DACA temporary work permits?
    No, at least not initially. Employees who have received work permits – known as Employment Authorization Cards – through the DACA program may continue to work until their work permits expire.
  • What about when the work permit expires?
    It depends. When an employee’s work permit expires, the employer must re-verify the employee on Form I-9 – just as it would with any other employee having temporary work authorization. If the employee presents documents establishing work eligibility at that time, the employee may continue working. If not, the employer must terminate the employee or potentially face fines for violating federal immigration law. Employers should understand, however, that the employee need not provide another work permit under DACA at the time of re-verification. Work authorization may be established by presenting any form of documentation acceptable for Form I-9 purposes. Many DACA participants have sought green cards or other forms of immigration relief and may be able to present documents that establish work eligibility even without continued DACA protection.
  • Can employers terminate DACA employees now, rather than waiting to see if the employees will be able to continue to work later?
    No. Some employers may be tempted to terminate employees whose future work eligibility is uncertain (to avoid unnecessary training costs or to prevent staffing issues later) — but don’t do it. Terminating DACA employees with valid work permits could lead to discrimination claims based on national origin or race.
  • Could the DACA program be revived?
    It’s possible, although uncertain. A number of lawsuits challenging the ending of DACA have already been filed, but it’s not clear how those will play out. If those legal challenges are not successful, the only hope is for a legislative solution that statutorily restores DACA’s protections and benefits. In announcing DACA’s rollback, Attorney General Jeff Sessions noted that the program was being phased out rather than abruptly ended to “create a time period for Congress to act – should it so choose.” And, in the days since the announcement, President Trump has signaled that he’s open to cutting a bipartisan deal to preserve DACA’s protections. However, given the divisiveness that currently exists in Congress, any possible legislative fix will likely face an uphill battle.
  • Is there anything an employer can do to reassure an apprehensive DACA employee?
    Understandably, some employers will want to help DACA employees during this uncertain time. Employers, however, should avoid making any promises, including promises about future employment, which they may not be able to keep. Of course, employers who are concerned about DACA’s demise, and the impact this will have on their employees, may contact their representatives in Congress and lobby for legislation to maintain the protections that DACA has afforded.

Honesty Is the Best Policy . . . Until It Isn’t – Employer Denied Summary Judgment After Distributing Letter About Former Employee’s Charge of Disability Discrimination

By Racquel B. Martin on Posted in ADA, Disability Discrimination, EEOC, Interference, Retaliation

Honesty Is the Best Policy . . . Until It Isn’t – Employer Denied Summary Judgment After Distributing Letter About Former Employee’s Charge of Disability DiscriminationHow much should you tell your employees about a pending charge of discrimination from a former employee? Should you let them know that the EEOC might contact them? Is complete honesty really the best policy? Maybe not, according to a federal district court in Connecticut that found an employer’s oversharing about a charge precluded summary judgment. In EEOC v. Day & Zimmerman NPS, Inc., the EEOC sued DZNPS for interference and retaliation under the ADA after the company distributed a letter to a group of employees disclosing various details about a former employee’s disability discrimination charge.

The Facts and the EEOC’s Lawsuit

In the fall of 2012, DZNPS hired approximately 150 temporary electricians, including Gregory Marsh, to work at a nuclear power station during a shutdown. After Marsh began training, he provided a doctor’s note stating that he could not work around radiation due to his lung disease and requested a reasonable accommodation. DZNPS terminated him.

In October 2012, Marsh filed an EEOC charge, alleging that DZNPS violated the ADA. About 15 months into the investigation, the EEOC requested a list of all electricians at the site during the fall of 2012, including their contact information. Before providing the requested information, in June 2014, DZNPS sent a letter to approximately 146 electricians, identifying Marsh by name, noting he filed an EEOC charge alleging disability discrimination, giving details of his request for accommodation, denying the allegations, and informing them that an EEOC investigator might contact them. The letter specifically stated:

It is your decision whether you wish to speak with the investigator and your decision will not have an adverse impact on your current or future employment with DZNPS. . . . DZNPS also prohibits any form of retaliation against an employee, including those who chose to participate in the EEOC investigation.

If you choose to speak with the EEOC investigator and would like to have a counsel for DZNPS present while you speak to the investigator, please let us know and we will make the necessary arrangements.

The EEOC was not happy about the letter and sued DZNPS under the ADA. The suit alleged that the company’s letter was retaliation against Marsh for filing an EEOC charge. It further alleged that the letter interfered with Marsh’s and the letter recipients’ exercise and enjoyment of rights as protected by the ADA. Despite Marsh’s original allegations, the EEOC did not assert that DZNPS failed to provide a reasonable accommodation, and Marsh apparently did not file his own lawsuit on that claim.

Both the EEOC and the company filed cross motions for summary judgment. The EEOC moved only on the interference claim, while DZNPS moved for judgment as to the entire complaint, arguing that the EEOC lacked standing to bring the claim, its letter was protected under the First Amendment and Connecticut’s litigation privilege, and the EEOC could not make out claims for retaliation or interference under the ADA. To the parties’ dismay, the district court denied both motions and stated that the EEOC’s claims would proceed to trial.

The District Court’s Opinion

The district court rejected DZNPS’s standing, First Amendment, and litigation privilege arguments, in part because DZNPS offered no authority to support them. There are plenty of employment statutes that limit an employer’s speech (e.g., Title VII, NLRA), so the court reasoned that if the letter was found to be retaliatory or interfering with ADA rights, the First Amendment would not prevent such a finding.

The Retaliation Claim. As threshold issues on the retaliation claim, the EEOC had to prove that the company’s letter was an “adverse employment action” against Marsh and that it was causally connected to his charge. Recall that by the time DZNPS sent the letter, Marsh had not been working for them for more than 18 months—so was the letter an adverse action? The district court found that there were disputes of fact, noting that “when an employer disseminates an employee’s administrative charge of discrimination to the employee’s colleagues, a reasonable factfinder could determine that such conduct constitutes an adverse employment action.”

Recall also that there were almost two years between Marsh filing his charge and the letter being distributed to employees, so DZNPS argued that they were not causally connected. On that issue, the court held that a reasonable jury could find a causal connection and that the period between the initial filing of the charge and the alleged adverse action was not the only relevant time frame. Although there was a 20-month gap between the charge and the letter, there was only a three-month gap between the EEOC’s request for information on other electricians and the letter. Furthermore, the letter specifically referred to Marsh’s charge and the EEOC’s investigation and “[was] clearly a response to those things.” Consequently, the court held that the EEOC survived summary judgment on causation.

DZNPS offered a legitimate, non-discriminatory reason for the action—it sent the letter to prevent business disruption and efficiently inform the recipients that DZNPS would be producing their contact information to the EEOC. The court found that a reasonable jury could conclude that the explanation was pretextual (i.e., a lie) and the real reason was a desire to interfere with ADA rights. For example, a jury could determine that the letter did not need (1) to mention Marsh or his claims, (2) to explain that recipients did not need to speak to the EEOC, and (3) to offer a company lawyer’s presence at any interview.

The Interference Claim. The ADA prohibits “interference” by providing that no one can “coerce, intimidate, threaten, or interfere” with someone’s rights under the statute. Noting the dearth of law on this issue, the district court stated that “the disclosure of personal information about an individual could well dissuade that individual from making or supporting a charge of discrimination under the ADA.” The court ultimately held that a reasonable jury could conclude that that the letter could interfere with or intimidate both Marsh and the other electricians with respect to communicating with the EEOC about possible disability discrimination. The company’s motive in sending the letter was deemed irrelevant.

Helpful Dos and Don’ts

So just how honest is too honest when faced with the decision to notify employees that you’ve given the EEOC their contact information? Employers should learn from this tale and err on the side of caution. If you decide to provide notice to employees who may be contacted by the EEOC:

DO let them know the EEOC may contact them.
DO let them know that if they have questions, they are free to contact HR.
DON’T name the employee(s) who filed or are involved in the EEOC charge.
DON’T provide details of the allegations.
DON’T provide advice about what employees should or should not do or say if contacted.
DON’T volunteer the services of your lawyers.

These guidelines are based on this one court’s ruling and, as a result, are probably overly cautious. It is unclear how the court would have ruled if the letter hadn’t provided the information about Marsh and his claims. However, this decision could make the EEOC a little more aggressive when it wants other employees’ contact information and feels that an employer isn’t being forthcoming. If you want to give your employees a heads-up, remember that less is more and only provide sensitive information to necessary employees on a limited, need-to-know basis.

Relishing the Moment: Tenth Circuit Allows Restaurant to Keep Server Tips and Rejects DOL Regulation

By T. Matthew Miller on Posted in FLSA, Wage and Hour

Relishing the Moment: Tenth Circuit Allows Restaurant to Keep Server Tips and Rejects DOL RegulationIn a victory for restaurant employers, the Tenth Circuit Court of Appeals has ruled that Relish Catering can keep customer tips without violating the Fair Labor Standards Act (FLSA), so long as the employee is paid at an hourly rate above minimum wage. The court also found that the U.S. Department of Labor overreached in its regulatory rulemaking in this area and rejected the department’s interpretation of the law.

The Facts

Bridgette Marlow worked for Relish Catering at an hourly rate of $12 ($18 for overtime). If customers paid a gratuity, Relish kept the money. Ms. Marlow didn’t like that and sued Relish and its manager/part owner in federal court, alleging that Relish had violated the minimum-wage provisions of the FLSA because it kept customer tips she claimed should have gone to her and other catering workers.

The FLSA (Section 203(m)) gives employers of “tipped employees”—such as hotels and restaurants—the option of paying a reduced hourly wage of $2.13 so long as their workers receive enough tips to bring them to the $7.25 minimum wage. If there are not enough tips, the employer must pay the difference; if there are more than enough, the excess tips go to employees.

The court granted Relish’s motion for judgment on the pleadings and dismissed the case, and the Tenth Circuit has now affirmed that dismissal.

What the Appeals Court Said and Why It is Important

The Court of Appeals found that the FLSA’s restrictions on employers’ use of tips apply only when the employer uses tips as a credit against the employee’s minimum wage. If an employer such as Relish pays its employees more than the minimum wage without regard to tips, the FLSA does not restrict the employer’s use of tips. The court also found that a DOL regulation categorically barring employers from retaining tips is invalid because it exceeded the DOL’s authority.

This case serves as an example of the importance of the FLSA’s technical language and how such language can sometimes actually favor the employer. It also serves as an example of the increasing number of cases where the courts have found that an agency of the federal government has exceeded its authority in issuing a regulation, standard or interpretation.

After the Flood: How to Deal with Employment Issues

By J. William Manuel on Posted in Wage and Hour

After the Flood: How to Deal with Employment IssuesWe all continue to send our support to the people affected by Hurricane Harvey.  Unfortunately, even as the waters eventually recede, Texas employers will now be dealing with leave and wage issues in addition to the cleanup.  Here is a past blog post that addresses some of those concerns: Blizzards, Hurricanes, and That Dreaded TORCON Index.

Soup, Salvation and Overtime: Sixth Circuit Takes Up Televangelist’s FLSA Appeal

By Keith S. Anderson on Posted in Department of Labor, Employer Liability Issues, FLSA, Wage and Hour

Soup, Salvation and Overtime: Sixth Circuit Takes Up Televangelist’s FLSA AppealAre you entitled to FLSA coverage if you are doing the Lord’s work? In March 2017, a federal district court in Ohio answered “yes” and awarded almost $400,000 to unpaid employees/volunteers of a church restaurant. The Cathedral Buffet and the Rev. Ernest Angley are now casting a wing and prayer to the Sixth Circuit Court of Appeals to reverse the large judgment against them.

“Volunteers” and the Church

Rev. Angley and his Grace Cathedral mega-church near Cleveland, Ohio, operated Cathedral Buffet, a for-profit restaurant owned by Grace Cathedral, Inc. (which closed its doors to the public after the trial court’s ruling). For most of its existence, the Cathedral Buffet relied on church “volunteers” to operate the restaurant. Angley, as president of Cathedral Buffet, was heavily involved in the management and operations, and actively recruited volunteers from the church.

The restaurant maintained two classes of workers: employees who were paid an hourly wage and unpaid “volunteers.” The volunteers constituted the bulk of the restaurant’s workforce and performed virtually all the same jobs as the paid workforce.

As we all know, under the FLSA, covered employers must pay covered employees the minimum hourly wage and overtime compensation. The FLSA’s requirements cannot be waived as the FLSA affects public interest and protects against unfair competition in the economy. Decades ago, in Tony & Susan Alamo Found. v. Sec. of Labor, the Supreme Court ruled that individuals working in commercial businesses operated by religious organizations are covered by the FLSA’s minimum wage and overtime protections. An employer cannot evade the FLSA’s requirements simply by labeling workers as “volunteers” (even if the individuals considered themselves volunteers), even if the business was “infused with a religious purpose.”

The Department of Labor filed suit against Cathedral Buffet in August 2015 seeking back wages, liquidated damages, and a permanent injunction. After a bench trial, the district court found that the Cathedral Buffet, as a commercial, for-profit business, was a covered employer under the FLSA. Angley was also found to be an employer and personally liable for the judgment as allowed under the FLSA. Considering the economic realities of the relationship, the court also held that the multiple “volunteers” were, in fact, employees and, thus, entitled to minimum wages. The court rejected the Cathedral Buffet’s First Amendment, Free Exercise argument, finding nothing in the FLSA to create an exemption based on the workers’ motivation, be it religious or otherwise. The restaurant was found liable for liquidated damages as well as for acting in bad faith because of previous citations. In the end, the judgment totaled $388,507.

Calling on a Higher Authority

Angley and the church have appealed the decision to the Sixth Circuit, contending that because the restaurant was owned and subsidized by a tax-exempt church, did not make a profit even though it was a for-profit entity, and operated with the charitable intention of providing low-cost meals to the community through church volunteerism, the FLSA should not apply. Further, they argued that the volunteers did not expect to be paid and did not feel coerced to volunteer as shown by 134 affidavits submitted to the district court – a claim of questionable credibility, according to the DOL’s impeachment of several affiants. Testimony at trial suggested that Angley would personally exert pressure and influence upon would-be volunteers by threatening spiritual harm and God’s displeasure if they did not work at the restaurant when asked.

The DOL responded sharply in its recent briefing that the Cathedral Buffet was not a public agency to qualify for the FLSA’s narrow statutory exclusion and that, even if it were, such public agencies cannot use coercion or pressure to procure volunteers. Finally, the DOL emphasized that the FLSA prohibits the use of volunteer labor at for-profit businesses.

Takeaways

Commercial enterprises that are operated by religious or charitable organizations should take careful note of the district court’s ruling and stay tuned for the outcome of the appeal. Generally speaking, individuals who are part of a for-profit employer’s business, even if performed for a charitable purpose, will be deemed to be employees under the FLSA rather than volunteers, and businesses should act accordingly.

Well, Well, Wellness: DC Court Strikes Down EEOC Rules on Corporate Wellness Programs

By J. William Manuel on Posted in ADA, EEOC, GINA, Wellness Programs

Well, Well, Wellness: DC Court Strikes Down EEOC Rules on Corporate Wellness Programs

When is a financial incentive in an employee-sponsored wellness program so high that employees can’t afford not to participate—rendering the program no longer voluntary? Well (pun intended), the District Court for the District of Columbia believes that the EEOC doesn’t know (yet). In the last 15 years or so, many employers started wellness programs to promote worker health and reduce healthcare costs. As an incentive to getting people into the gym and having their health monitored, employers would usually offer financial or other incentives to employees who participate. Just how much of an incentive is okay was the question before the court.

What’s Wrong with Promoting Healthy Employees?

What makes wellness programs potentially controversial is that they almost always require employees to undergo medical examinations and to allow their employers access to sensitive medical and genetic information. Under both the ADA and GINA, an employer can only conduct medical exams and collect certain medical information as part of a “voluntary” employee health program. Of course, neither statute defines the term “voluntary.” Here’s the question:

When does a financial incentive for participating in a wellness program get so high that it actually acts as a penalty against those that don’t participate—and makes the program essentially involuntary?

There has been some litigation trying to figure out where that point is.

As we reported in 2015, the EEOC proposed regulations trying to answer the voluntariness question. The regulations provided that an employer can use a penalty or an incentive of up to 30 percent of the cost of self-only coverage without rendering a wellness program “involuntary” under the ADA and GINA. Those regulations went into effect in the spring of 2016.

In October 2016, the AARP filed suit against the EEOC arguing that the 30 percent incentive was inconsistent with the “voluntary” requirements of the ADA and GINA. Employees who could not afford to pay a 30 percent increase in premiums would be forced to disclose protected medical information that they otherwise would not choose to disclose. The AARP did not dispute that some level of incentives might be permissible under the statutes, it just argued that the EEOC’s 30 percent standard was not supportable.

Is the Rule Supported?

As an agency action, the EEOC’s regulations are challenged under an “arbitrary and capricious” standard. The court looks to see if an agency acted within its legal authority; whether the agency explained its decision; whether the facts on which the agency relied have some basis in the record; and whether the agency considered the relevant factors. Since neither the ADA nor GINA defined “voluntary,” the court looked to see if the EEOC’s interpretation of the term had a reasoned explanation. The court evaluated numerous reasons that the EEOC gave for the picking the 30 percent level, but ultimately decided that the EEOC failed to provide any study, analysis or evidentiary basis for selecting that number. The court went on to note that the EEOC “does not appear to have considered any factors relevant to the financial and economic impact the rule is likely to have on individuals who will be affected by the rule.” The court concluded that the EEOC failed to adequately explain the decision to construe the term “voluntary” to permit the 30 percent incentive level in the rules.

So What Happens Now?

This is where it gets interesting. After blasting the EEOC for failing to provide any support for the 30 percent rule, the court could have simply vacated the rule completely. Instead, the court notes that since the rules took effect in 2016, many 2017 employer wellness plans were designed with the 30 percent voluntariness regulation in mind. If the court vacated the rule, those employers, and their employees, could be punished for relying on the EEOC standard. Medical information already disclosed under those programs cannot be made confidential again by the wave of the vacatur wand. In the end, while very disturbed by the EEOC’s lack of support for the rule, the court found that the concerns were outweighed by the “disruptive consequences” that were likely to result from vacating the rule at this time. Instead, the court gave the EEOC another chance to reconsider (and possibly support) the rule.

In the end, therefore, it appears that the EEOC put forth an unsupported rule that is ultimately left standing due to circumstances. If you are an employer that has a wellness program using the 30 percent cost standard, go forward and keep an eye out for further guidance (and maybe the AARP’s appeal of this decision). If you are an employer thinking about putting a wellness program in place, you may want to wait to see how the courts handle this.

“It Wasn’t Me!” – Sixth Circuit Rules that Management Consultant Wasn’t Joint Employer under the WARN Act

By Racquel B. Martin on Posted in Class Action, Joint-Employer Liability, WARN Act

“It Wasn’t Me!” – Sixth Circuit Rules that Management Consultant Wasn’t Joint Employer under the WARN ActCan your consultant-consultee relationship with an employer who allegedly violates the Worker Adjustment and Retraining Notification (WARN) Act subject you to liability as well? Not according to the U.S. Court of Appeals for the Sixth Circuit. In McKinney v. Carlton Manor Nursing and Rehabilitation Center, Inc., former nursing home employees sued Carlton Manor and its management consultant for alleged violations of the WARN Act.

The Facts

In July 2013, the Ohio Department of Health cited Carlton Manor for failing to meet 27 federal health and safety regulations and gave it until January 2014 to fix the problems. Carlton Manor hired Sovran, a management consultant, to help and by the deadline had resolved 26 of the 27 deficiencies. The health department rejected its plan to comply with the final regulation and began the process of revoking Carlton Manor’s operating license. The nursing home closed soon after.

Before closing, Carlton Manor gave little notice to its employees (and certainly not the 60 days the WARN Act requires). Consequently, Debi McKinney filed a putative class action against Carlton Manor and Sovran under the WARN Act. Although the employees received a default judgment against Carlton Manor, they received nothing because the nursing home had no assets. As one would expect, they turned to Sovran, the only solvent defendant in the case. However, the employees still hit a brick wall, as the district court ruled that Sovran was not liable under the act because it was not the employees’ employer and did not decide to close the nursing home. The district court granted summary judgment for Sovran, and the employees appealed.

The Sixth Circuit’s Opinion

In reaching its ruling, the Sixth Circuit first focused on the words of the WARN Act, explicitly articulating that “employers” were liable for violations. Specifically, “[o]nly ‘employers’ that ‘order[ed]’ a plant closing face[d] regulation by the Act or liability under it.” The Sixth Circuit emphasized that there was no dispute that Carlton Manor, not Sovran, employed the nursing home workers. Likewise, Carlton Manor, not Sovran, made the final decision to close the nursing home. Based on these facts, Sovran was not an employer under the terms of the act.

Despite McKinney’s attempt to argue that Sovran and Carlton Manor were either a “single employer” or “separate employers,” the Sixth Circuit easily rejected these theories. On the single employer theory, the Sixth Circuit held that none of the factors that make two entities a single employer were present. There was no common ownership, they did not share any directors, officers, or personnel policies, and they kept separate payrolls. They also operated two distinct businesses that were not dependent on each other. Although the court acknowledged that one might argue that Sovran exercised some control over Carlton Manor employees (it allegedly had the authority to fire nursing home employees), it was unclear if this power was the type of control that would indicate that Sovran and Carlton Manor were a single employer. Thus, while no one factor was dispositive in determining whether the entities were a single employer, McKinney could not meet any of the listed factors, and her first argument failed.

Regarding the defendants being separate employers, the Sixth Circuit reiterated that the factors in the WARN Act’s regulations, whether examined singly or taken together, did not show that Sovran was McKinney’s separate employer. There was no evidence that Sovran hired McKinney, fired McKinney, or otherwise treated her as one of its employees. Furthermore, there was no evidence that Sovran ordered the closing of the nursing home. The court explained that Sovran and Carlton Manor had a consultant-consultee relationship in which Sovran offered management advice to Carlton Manor, but never became the owner of the nursing home in the process. As such, Sovran was not liable to McKinney, or any other nursing home employees, under the WARN Act.

Practice Points

So what should a consultant do to protect itself from being deemed either a single employer with its consultee or a separate employer of its consultee’s employees? Follow Sovran’s example, and keep the factors that constitute a joint employment relationship in mind so that you actively avoid them.

  • Keep your business distinct and independent of your consultee.
  • Do NOT share ownership with your consultee.
  • Do NOT share common directors or officers with your consultee.
  • Do NOT share personnel policies, employee handbooks, and/or policy and procedure manuals.
  • Most importantly, do NOT exercise control over the terms and conditions of employment of your consultee’s employees or over the consultee’s business operations.

DOH! Nuclear Safety Regs Trump ADA Accommodation Request (Thankfully)

By J. William Manuel on Posted in ADA, Disability Discrimination, Reasonable Accommodations, Termination, Worker Safety

DOH! Nuclear Safety Regs Trump ADA Accommodation Request (Thankfully)In a battle between a mentally ill employee seeking accommodation for his job at a nuclear plant and federal nuclear safety codes—-which wins out? The Third Circuit Court of Appeals ended up going with safety codes.

Looking Out for an Erratic Employee

Mr. Daryle McNelis was an armed security guard at Pennsylvania Power and Light’s (PPL) nuclear power plant in Susquehanna. As a nuclear power plant operator, PPL was required by the Nuclear Regulatory Commission (NRC) to have a “fitness for duty” program to show that no employees were mentally or physically impaired in any way that would affect their ability to safely and competently perform their duties. In addition, the NRC required PPL to monitor employees who had access to sensitive areas of the plant to make sure that those employees did not constitute an “unreasonable risk to public health and safety or the common defense and security.” This required employees in those positions to undergo a psychological assessment and be under a “behavioral observation program” to identify aberrant behavior. If an employee’s trustworthiness or reliability was determined to be questionable, the NRC required that PPL terminate the employee’s access.

McNelis had unrestricted access and was responsible for protecting vital areas from radiological sabotage, so he was subject to monitoring. He also was armed. In 2012, McNelis started exhibiting bizarre paranoid behavior (he thought his children’s toys were plotting against him) and was abusing alcohol and “bath salts” (a synthetic recreational drug). A coworker reported this behavior to a supervisor. McNelis was examined by a psychologist who performed fitness-for-duty examinations at nuclear facilities nationwide. The psychologist determined that McNelis was considered not fit for duty. Based on that report, PPL revoked McNelis’s access authorization and terminated his employment. McNelis filed an ADA claim alleging that the psychologist wrongfully diagnosed him and that he could have performed the essential functions of his job, with or without an accommodation. The lower court granted summary judgment in favor of the power company.

Safety First

On appeal, the Third Circuit stated that McNelis could not prove that he was fit for duty under the NRC’s regulations and therefore his claim failed. The court cited numerous opinions holding that nuclear power plant employees who lost security clearance or were deemed not fit for duty are not qualified employees under the ADA. By setting such a standard, the NRC made the legally defined qualification an essential function of certain jobs at nuclear power plants. The court went on to analogize the situation to federal DOT regulations for driving a commercial motor vehicle. If an employee could not pass the DOT medical certification, they were not considered qualified under the ADA. Employers covered by the DOT regulations, such as the power plant being covered by the NRC regs, were not insisting on a job qualification of their own devising, but instead were complying with a regulation that had the force of law.

McNelis attempted to argue that the lower court’s holding diminished ADA protections for workers in sensitive positions of the nuclear industry. The Third Circuit stated that due to the potential danger to the public, it was perfectly rational for the NRC to explicitly require nuclear power plants to screen for traits and behaviors that in other contexts might violate the ADA. The Third Circuit upheld the dismissal of McNelis’s claim.

What Did We Learn?

At first glance, this opinion may only seem to apply to high-public-risk employers such as nuclear plants. However, the Third Circuit pointed to a great deal of case law showing that many other occupations are affected by federal safety regulations—-most commonly, DOT regulations. Employers that are explicitly required to have their employees meet federal safety and medical standards should be aware that those can be considered essential functions of that job. This decision also illustrates that safety, and how an ADA accommodation may affect that safety, is always a consideration during the accommodation interactive process.

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