ERISA Lawyer Blog

In Murray v. Principal Financial Group, Inc., No. 09-16664 (9th Cir. 2010), the plaintiff, Patricia Murray, is a "career agent" for the defendants, collectively called "Principal". Principal's career agents sell Principal products, which include a wide range of financial products and services. Here, Murray sued Principal for sex discrimination in violation of Title VII. The only issue faced by the Ninth Circuit is whether Murray is an "employee" under Title VII, as opposed to being an independent contractor, since she is protected under Title VII only if she is an employee.

The Court noted that insurance agents have consistently been held to be independent contractors, and not employees, for purposes of various federal employment statutes, such as ERISA, the ADEA and Title VII. The question though, is the appropriate test for determining an individual's status under those statutes. There are three candidates that have been used-the common law agency test, the economic realities test and the common law hybrid test: The Court said that the common law agency test, as applied by the Supreme Court in Nationwise Mutual Insurance Co. v. Darden, 503 U.S. 318 (1992), is the correct test. This test focuses on the hiring party's right to control the manner and means by which the product is accomplished. As set out in Darden, the factors relevant to this inquiry are: (1) the skill required; (2) the source of the hired individual's instruments and tools; (3) the location of the work; (4) the duration of the relationship between the hiring and hired parties; (5) whether the hiring party has the right to assign additional projects to the hired party; (6) the extent of the hired party's discretion over when and how long to work; (7) the method of payment; (8) the hired party's role in hiring and paying assistants; (9) whether the work is part of the regular business of the hiring party; (10) whether the hiring party is in business; (11) the provision of employee benefits; and (12) the tax treatment of the hired party.

Applying these factors to the instant case, the Court found that Murray is an independent contractor for purposes of Title VII. She is free to operate her business as she sees fit, without day-to-day intrusions. Murray decides when and where to work, and in fact maintains her own office, where she pays rent. She schedules her own time off, and is not entitled to vacation or sick days. Also, she is paid on commission only, reports herself as self-employed to the IRS, and sells products other than those offered by Principal in limited circumstances. The few factors which support employee status-such as the provision of some benefits, a long-term relationship with Principal, having an at-will contract, and being subject to certain minimum standards imposed by Principal- do not overcome the indications that Murray is an independent contractor.

Based on the discussion by the Court, Murray would likewise be treated as an independent contractor for ERISA purposes.

According to a News Release (dated 6/22/10), the Department of Labor ("DOL") has clarified the definition of "son and daughter" under the Family and Medical Leave Act (the "FMLA") to ensure that an employee who assumes the role of caring for a child (that is, who stands "in loco parentis" to a child) receives parental rights to family leave, regardless of the legal or biological relationship.

The News Release says that the FMLA allows a worker to take up to 12 weeks of unpaid leave during any 12-month period for the birth and care of a newborn child, to adopt or assume care for a foster child, to care for an immediate family member (spouse, child or parent) with a serious health condition or to take care of the worker's own serious health condition. An administrative interpretation (Administrator's Interpretation No. 2010-3), issued by the DOL's Wage and Hour Division, clarifies that these rights extend to the situation in which a worker stands "in loco parentis" to a child (that is, the worker has put himself in the situation of a lawful parent by assuming the obligations incident to the parental relation, without going through any legal formalities).

This interpretation thus extends the right to FMLA leave to various parenting relationships that exist in today's world. It applies to many non-traditional families, including families in the lesbian-gay-bisexual-transgender community, who often in the past have been denied leave to care for their loved ones. As the interpretation makes clear, an uncle who is caring for his young niece and nephew when their single parent has been called to active military duty may exercise his right to FMLA leave. Likewise, a grandmother who assumes responsibility for her sick grandchild when her own child is debilitated will be able to seek FMLA leave. Also, an employee who intends to share in the parenting of a child with his or her same sex partner will be able to exercise the right to FMLA leave to bond with that child.

In Duvall v. Georgia Pacific Consumer Products, L.P., No. 08-7096 (10th Cir. 2010), the Court faced the question of whether a position is "vacant" for purposes of the Americans with Disabilities Act ("ADA"), so that a disabled employee may request reassignment to that position as a reasonable accommodation.

In this case, the plaintiff, Travis Duvall, who suffers from cystic fybrosis, worked in the shipping department of a paper mill owned by defendant, Georgia Pacific ("GP"). When GP decided to outsource the running of its shipping department, Duvall transferred to another department but found that the paper dust in the air made it impossible for him to work there. As a reasonable accommodation, Duvall requested that he be put back in his old shipping position, which was then occupied by a temporary contract worker pending the permanent outsourcing of the department, or in a position in the mill's storeroom, which was also in flux at the time, being staffed with a number of temporary workers filling some of the storeroom positions. GP refused Duvall's requests for reassignment, and Duvall sued under the ADA. The District Court granted summary judgment in favor of GP, and Duvall appealed.

The 10th Circuit Court held that the shipping department and storeroom positions, which had been filled by temporary workers, were not "vacant" within the meaning of the ADA, and consequently affirmed the District Court's decision. In doing so, the Circuit Court said that an employer's duty under the ADA to reassign a disabled employee to a vacant position is mandatory (unless the reassignment would be unreasonable). The question here is whether the employer had a vacant position. For ADA purposes, when a disabled employee requests reassignment to a new position as a reasonable accommodation, that position is "vacant" if it is available to similarly-situated nondisabled employees to apply for and obtain. Here, the positions in question-already occupied by temporary workers and unavailable to GP employees-were not vacant.

In IR-2010-69, the Internal Revenue Service (the "IRS") encourages small businesses to take advantage of tax-saving opportunities included in recently enacted federal legislation. The Release says that a variety of business tax deductions and credits were created, extended and expanded by the American Recovery and Reinvestment Act of 2009, this year's Hiring Incentives to Restore Employment and the Affordable Care Act (the recent health care legislation). Because some of these changes are available only for this year, eligible businesses have only a few months to take action and save on their taxes.

The tax incentives include the following:

--the new tax credit for health care contributions;

--the new payroll tax exemption and tax credit for new hires;

--the work opportunity tax credit for hiring employees that belong to certain targeted groups (including individuals aged 18 to 39 and living in designated communities in 43 states and the District of Columbia, recipients of various types of public assistance, certain veterans, ex-felons and certain youth workers);

--the exclusion of gain on the sale of certain small business stock; and

--the 65% COBRA premium subsidy

These days, it seems that it is becoming increasingly difficult to create an enforceable non-competition or non-solicitation covenant. But that is what the plaintiff did in H & R Block Eastern Enterprises, Inc. v. Morris, No. 09-11184 (11th Circuit 2010). In this case, defendant Vicki D. Morris ("Morris"), a tax professional, had entered into an employment agreement (the "Agreement") with her employer, plaintiff H&R Block Eastern Enterprises, Inc. ("Block"). The Agreement included a non-competition covenant and a non-solicitation covenant. After Block terminated her, Morris started Dreams Tax Service, Inc. and personally prepared tax returns for 47 former Block clients. Block filed suit against Morris, claiming she violated the terms of the Agreement by soliciting Block's clients, providing tax-preparation services to Block's former clients, and soliciting and hiring Block's employees.

The non-competition covenant stated that : (1) for a period of two years following the expiration of the Agreement (or the resignation or termination of Morris), Morris could not, directly or indirectly, provide any tax (or tax-related) services to any of Block's clients with whom Morris had contact while working at Block, and (2) this restriction is limited to Morris's district of employment, and a 25 mile radius from the office at which Morris worked. The non-solicitation covenant stated that, for the same 2-year period, Morris could not, directly or indirectly, solicit any of Block's clients, with whom she had contact while working at Block, for the purpose of providing tax (or tax-related) services.

The Court applied Georgia law to the question of whether the non-competition and non-solicitation covenants were enforceable. As to the non-competition covenant, the Court applied the three-element test of duration, territorial coverage, and scope of the covenant. The Court ruled that the non-competition covenant is enforceable, because it is reasonable, considering the nature and extent of the business, the situation of the parties, and other relevant circumstances. Similarly, the Court ruled that the non-solicitation covenant is enforceable, because it is reasonable with respect to duration and activity covered, and it does not prohibit Morris from accepting unsolicited business.

In Information Release 2010-64, the Internal Revenue Service ("IRS") announces that it has issued a newly revised payroll tax form that most eligible employers can use to claim the special payroll tax exemption that applies to many new workers hired during 2010. The Information Release provides the following information pertaining to this revised tax form.

Employers who hire unemployed workers this year (after Feb. 3, 2010, and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from the employer's share of Social Security tax on wages paid to these workers after March 18. In addition, for each qualified employee retained for at least a year whose wages did not significantly decrease in the second half of the year, businesses may claim a new hire retention credit of up to $1,000 per worker on their income tax return.

The payroll tax exemption is claimed as follows. Form 941, Employer's Quarterly Federal Tax Return, now revised for use beginning with the second calendar quarter of 2010, will be filed by most employers claiming the payroll tax exemption for wages paid to qualified employees. The exemption may not be claimed for wages paid in the first quarter. The Form's instructions explain how the exemption for wages paid from March 19 through March 31 can be claimed on the second quarter return.

The Information Release also reminds us that, to claim both the payroll tax exemption and the new hire retention credit, an employer is required to obtain a signed statement from each eligible new hire. In this statement, the new hire certifies, under penalties of perjury, that he or she was not employed for more than 40 hours during the 60 days before beginning employment with that employer. An employer may use new Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, released last month, to meet this requirement.

In Goelzer v. Sheboygan County, Wisconsin, No. 07 C 451 (7th Circuit 2010), plaintiff Dorothy Goelzer was fired from her job with the county government. Her supervisor had informed her of the termination two weeks before she was scheduled to begin two months of leave under the Family and Medical Leave Act ("FMLA"). She had taken FMLA leave a number of times before. After being fired, Goelzer brought this suit, alleging that her employer had violated the FMLA by interfering with her right to reinstatement under the FMLA and retaliating against her for taking FMLA leave.

The District Court granted summary judgment against Goelzer. However, the Seventh Circuit Court concluded that Goelzer had furnished enough evidence for her case to reach a trier of fact, and therefore reversed the summary judgment. The Court based its decision on comments suggesting Goelzer's supervisor's dissatisfaction with her prior use of FMLA leave, her positive performance reviews, and the timing of her termination, just two weeks before the FMLA leave was to begin. This evidence could allow a jury to find that Goelzer's employer had violated the FMLA, as Goelzer had alleged.

In Zakrzewska v. The New School, Decision No. 62 (May 6, 2010),the plaintiff, Dominika Zakrzewska, had brought a lawsuit in federal court against defendants, Kwang-Wen Pan and The New School, for sexual harassment and retaliation under the New York City Human Rights Law (the "NYCHRL"). As part of the proceeding, the Second Circuit Court of Appeals asked the New York Court of Appeals whether the affirmative defense to employer liability, articulated in Faragher v City of Boca Raton, 524 US 775 (1998) and Burlington Industries, Inc. v Ellerth, 524 US 742 (1998)(the "Faragher/Ellerth Defense"), applies to sexual harassment and retaliation claims under the NYCHRL.

In this case, the plaintiff had enrolled as a freshman at the New School, and had worked part-time in the schools' computer center. She alleges that defendant Pan was her immediate supervisor and subjected her to sexually harassing emails and conduct. The plaintiff complained to New School officials, and she further alleges that Pan covertly monitored her internet usage at work in retaliation for her accusation. The question arose as to the New School's liability for Pan's conduct, and whether the Faragher-Ellerth Defense could shield the New School from this liability.

The Faragher-Ellerth Defense provides that an employer is not liable under Title VII for sexual harassment committed by a supervisory employee, if it sustains the burden of proving that (1) no tangible employment action such as discharge, demotion, or undesirable reassignment was taken as part of the alleged harassment, (2) the employer exercised reasonable care to prevent and correct promptly any sexually harassing behavior, and (3) the plaintiff employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm otherwise. But does this defense apply under the NYCHRL? The question found its way to the New York Court of Appeals.

In answering this question, the New York Court of Appeals notes that Section 8-107 (1) (a) of the NYCHRL prohibits discrimination on the basis of gender, and section 8-107 (13) (b) states that an employer shall be liable for an employee's violation of the prohibition when: (1) the employee exercised managerial or supervisory responsibility, (2) the employer knew of the employee's discriminatory conduct, and acquiesced in the conduct or failed to take immediate and appropriate corrective action or (3) the employer should have known of the employee's conduct and failed to exercise reasonable diligence to prevent it.

The New York Court of Appeals stated that the plain language of the NYCHRL-which holds the employer liable when the employee in question is a manager or supervisor or the employer knew, or should have known about the employee's discriminatory conduct- is inconsistent with and precludes the Faragher-Ellerth Defense, which is based on anti-discrimination policies and procedures. As such, the Court concluded that the Faragher-Ellerth Defense does not apply under the NYCHRL.

The Department of Labor ("DOL") has announced that it has revised its e-VETS Advisor. This Advisor is an interactive, online tool, which is designed to help Veterans, Service Members and their families and caregivers to quickly and easily navigate Web-based information on a variety of topics, including education, job training and employment.

The DOL says that the updated e-VETS Advisor offers access to more than 11,000 services and resources at the national, state and local levels. In addition to education, job training and employment, it provides information on benefits and compensation, family and caregiver support, health, housing, homeless assistance and transportation and travel. It integrates with the National Resource Directory (NRD), a Web-based index of services and resources collaboratively managed by the Departments of Defense, Labor and Veterans Affairs.

The Department of Labor ("DOL") has set up a new web tool, called the Disability Nondiscrimination Law Advisor, to help employer understand disability law.

According to the DOL, this interactive, online web page helps employers quickly determine which federal disability nondiscrimination laws apply to their business or organization and their responsibilities under them. To do this, it asks users to answer a few relevant questions and then generates a customized list of federal disability nondiscrimination laws that likely apply, along with easy-to-understand information about employers' responsibilities under each of them.

Take a look!

In Colwell v. Rite Aid Corporation, No. 08-4675 (3rd Circuit 2010), the plaintiff, Jeanette Colwell, a former part-time retail clerk at a Rite Aid store in Pennsylvania, appealed the district court's summary judgment against her in her suit claiming disability discrimination.

The plaintiff had been diagnosed with "retinal vein occlusion and glaucoma in her left eye," and eventually became blind in that eye. Due to her blindness, the plaintiff asked to be assigned to the day shift, so she would not have to drive to or from work at night. However, Rite Aid continued to schedule the plaintiff for a mixture of day and night shifts. The plaintiff then resigned, and filed this lawsuit against Rite Aid, listing, among other claims, a violation of the Americans with Disabilities Act (the "ADA") for failure to accommodate the plaintiff's partial blindness.

In addressing the plaintiff's ADA claim, the Court found that the plaintiff was "disabled", within the meaning of the ADA. The question then became whether Rite Aid had a duty to accommodate her shift request. Rite Aid's the position (accepted by the district court) was that employers are not required to accommodate the inability to commute to work independently, because commuting falls outside the work environment. However, the Court disagreed, and held that, as a matter of law, changing the plaintiff's working schedule to day shifts in order to alleviate her disability-related difficulties in getting to work is a type of accommodation that the ADA contemplates. A jury must decide whether a shift change was a reasonable accommodation, and does not impose undue hardship in this particular case. As such, the Court reversed the district court's grant of summary judgment against the plaintiff as to Rite Aid's failure to accommodate plaintiff's disability, and remanded the case for further proceedings.

According to IR-2010-43, dated April 7, 2010 (the "Announcement"), the Internal Revenue Service (the "IRS") has released a new form that will help employers claim the special payroll tax exemption that applies to many newly-hired workers during 2010. This exemption was created by the Hiring Incentives to Restore Employment ("HIRE") Act signed by President Obama on March 18.

The Announcement says that New Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, is now posted on IRS.gov, along with answers to frequently-asked questions about the payroll tax exemption and the related new hire retention credit. The new law requires that employers get a statement from each eligible new hire, certifying under penalties of perjury, that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for anyone during the 60-day period. Employers can use Form W-11 to meet this requirement.

Most eligible employers then use Form 941, Employer's Quarterly Federal Tax Return, to claim the payroll tax exemption for eligible new hires. This form, revised for use beginning with the second calendar quarter of 2010, is currently posted as a draft form on IRS.gov and will be released next month as a final along with the form's instructions. Though employers need the statement from the eligible new hire to claim both the payroll tax exemption and the new hire retention credit, employers do not file these statements with the IRS. Instead, they must retain them along with other payroll and income tax records.

The Announcement summarizes the provisions of the HIRE Act as follows. The HIRE Act created two new tax benefits designed to encourage employers to hire and retain new workers. As a result, employers who hire unemployed workers this year (after Feb. 3, 2010, and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from the employer's share of social security tax on wages paid to these workers after March 18. This reduction will have no effect on the employee's future Social Security benefits, and employers would still need to withhold the employee's 6.2-percent share of Social Security taxes, as well as income taxes. In addition, for each unemployed worker retained for at least a year, businesses may claim a new hire retention credit of up to $1,000 per worker when they file their 2011 income tax returns.

The Announcement says that these two tax benefits are especially helpful to employers who are adding positions to their payrolls. New hires filling existing positions also qualify but only if the workers they are replacing left voluntarily or for cause. Family members and other relatives do not qualify for either of these tax incentives. Businesses, agricultural employers, tax-exempt organizations, tribal governments and public colleges and universities all qualify to claim the payroll tax exemption for eligible newly-hired employees. Household employers and federal, state and local government employers, other than public colleges and universities, are not eligible. IRS.gov has more details.

In Krutzig v. Pulte Home Corporation, No. 09-12512 (11th Circuit 2010), the plaintiff had been terminated from employment with her employer, the defendant, and had claimed that the termination was an act of retaliation and interference with her rights under the Family and Medical Leave Act ("FMLA") to take FMLA leave, and an act of interference with her request under ERISA for short-term disability benefits. The district court had entered summary judgment on those claims in favor of the defendant.

In analyzing the case, the Court said that a prima facie case of retaliation under the FMLA requires a showing that: (1) the employee engaged in statutorily protected conduct, (2) the employee suffered an adverse employment action, and (3) there is a causal connection between the two. The causal connection is established if a plaintiff shows that the protected activity and adverse action were not wholly unrelated, such as by showing that the decision maker was aware of the protected conduct at the time of the adverse employment action. Temporal proximity alone, however, is not sufficient to establish a causal connection, when there is unrebutted evidence that the decision maker was not aware of the protected activity. For this purpose, knowledge on the part of persons, e.g., supervisors, cannot be imputed to the decision maker. A prima facie case of an ERISA interference claim requires a similar showing.

The Court then said that the only issue presented in this case, with respect to the plaintiff's prima facie case of FMLA retaliation and ERISA interference, is whether the plaintiff created a question of material fact as to whether the decision maker was aware of her request for FMLA leave or short-term disability benefits before deciding to terminate her employment. Here, the employer/defendant offered affirmative, unrebutted evidence that the decision makers in question were not aware of these requests at the time of the termination. Thus, the Court ruled that the plaintiff failed to establish her prima facie cases of FMLA retaliation and ERISA interference, and upheld the summary judgment against her on those matters.

As to the plaintiff's claim of interference with her FMLA rights, the Court said that the right to take an FMLA leave is not absolute. An employee can be dismissed, preventing her from exercising her right to take FMLA leave, without thereby violating the FMLA, if the employee would have been dismissed regardless of any request for FMLA leave. In this case, the unrebutted evidence that the decision maker was not aware, at the time of the decision to terminate the plaintiff, of her request to take FMLA leave establishes as a matter of law that the plaintiff's termination was for reasons other than her requested leave. As such, the Court ruled that the plaintiff's FMLA interference claim fails, and upheld the summary judgment against her on that claim.

In Schaar v. Lehigh Valley Health Services, Inc., No. 09-1635 (3rd Circuit 2010), the district court held that the employee/plaintiff did not qualify for leave under the Family and Medical Leave Act (the "FMLA"), because she did not present evidence of a serious health condition. The question on appeal was whether a combination of expert and lay testimony can establish that an employee was incapacitated for more than three days, as required by the FMLA regulations in order for the employee to be treated as having a serious health condition. The plaintiff had been fired, and had brought suit in federal court against her employer, claiming interference and discrimination in violation of the FMLA. The district court granted summary judgment in favor of the employer, and plaintiff appealed.

In analyzing the case, the Court said that to prevail on her appeal, the employee had to be entitled to take FMLA leave. To be so entitled, among other things, the employee had to be suffering from a serious health condition. As relevant to this case, the FMLA defines "serious health condition" as an illness, injury, impairment, or physical or mental condition that involves continuing treatment by a health care provider. In turn, the FMLA regulations at (29 C.F.R. section 825.114(a)) defines "continuing treatment by a health care provider" as a period of incapacity of more than three consecutive calendar days that also involves treatment by a health care provider on at least one occasion which results in a regimen of continuing treatment under the supervision of the health care provider. That regulation defines "incapacity" as the inability to work, attend school or perform other regular daily activities due to the serious health condition, treatment therefore, or recovery therefrom.

The Court then said that the issue in dispute in this case is whether the employee has presented evidence that she was incapacitated for more than three days. Here, the employee's only medical evidence of the incapacity was a doctor's note, which established incapacity for just two days. The employee has to rely on her own testimony to establish incapacity for the remaining days. The Court noted that the courts (including district courts in the Third Circuit) have adopted three approaches for determining whether the more than three days of incapacity requirement is met: (1) the evidence of incapacity must come exclusively from a medical professional; (2) lay testimony, on its own, is sufficient; or (3) lay testimony can supplement medical professional testimony or other medical evidence. Based on its reading of the statute and the regulations, the Court took another approach, holding that an employee may satisfy her burden of proving three days of incapacity through a combination of expert medical and lay testimony.

In this case, the employee's own testimony raised a material question of fact as to whether she was incapacitated for the additional days, so that she had a serious health condition. The Court overturned the district court's grant of summary judgment for the employer, and remanded the case back to the district court to answer this question.

In a News Release (IR-2010-33, March 18), the Internal Revenue Service ("IRS") announced that two new tax benefits are now available to employers hiring workers who were previously unemployed or only working part time. These provisions are part of the Hiring Incentives to Restore Employment (HIRE) Act enacted into law on Thursday, March 18.

According to the New Release, employers who hire unemployed workers this year (after Feb. 3, 2010 and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers after March 18, 2010. This incentive will have no effect on the employee's future Social Security benefits, and employers would still need to withhold the employee's 6.2-percent share of Social Security taxes, as well as income taxes. The employer and employee's shares of Medicare taxes would also still apply to the wages of these workers. In addition, for each worker retained for at least a year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.

Further, the News Release says that, to be eligible for these tax breaks, the new law requires that the employer get a statement from each eligible new hire certifying that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period. The IRS is currently developing a form employees can use to make the required statement.

Businesses, agricultural employers, tax-exempt organizations and public colleges and universities all qualify to claim the payroll tax incentive for eligible newly-hired employees. Household employers cannot claim this new tax benefit. Employers claim the payroll tax incentive on the federal employment tax return they file, usually quarterly, with the IRS. Eligible employers will be able to claim the new tax incentive for retaining workers on their revised employment tax form for the second quarter of 2010. Revised forms and further details on these two new tax provisions will be posted on IRS.gov during the next few weeks.