By: Ogletree Deakins

In recent years, there has been a continuing emphasis by the Department of Justice (DOJ) on investigations of corporate wrongdoing, including an increase in the investigation and finding of individual liability for that wrongdoing. This emphasis recently was documented in something now being referred to as the “Yates Memorandum.”

According to Sally Quillian Yates, Deputy Attorney General for the DOJ, “fighting corporate fraud and other misconduct” is one of the DOJ’s top priorities. In a Memorandum dated September 9, 2015, and issued to Assistant Attorney Generals in almost every division of the DOJ and to all 94 of the current U.S. Attorneys for the DOJ, Yates started by explaining how bringing accountability to individuals within corporations is one of the most effective ways to combat corporate misconduct and to promote “the public’s confidence in our justice system.”

The Memorandum spells out six keys mechanisms to be followed by investigators to strengthen the DOJ’s pursuit of potentially culpable individuals. Those six steps are, in summary:

• First, to become eligible for any “cooperation credit” — a mitigating factor of which many companies take advantage when working with the DOJ to come to a prompt and effective resolution of an investigation – companies must “completely disclose to the Department all relevant facts about individual misconduct,” which includes identifying all individuals “involved in or responsible for the misconduct at issue” regardless of position, status, or seniority.

The troubling language in that directive is the sentence that specifies that if a company seeking cooperation credit “declines to learn of such facts,” all credit will be withheld. Yates does not identify who at the DOJ will determine how or whether a company has “declined” to learn relevant facts. She simply states that no credit will be given if an investigator subjectively believes that the company is failing and/or “declining” to provide information.

• Second, Yates stresses that all investigations, both criminal and civil, should begin with a focus on individual wrongdoing. She specifically states that such focus “can increase the likelihood that individuals with knowledge of the corporate misconduct will cooperate with the investigation and provide information against individuals higher up the corporate hierarchy.”

While Yates expresses her belief that such focus will lead to charges against “culpable individuals,” she does not take into account the fact that providing information “against individuals higher up the corporate hierarchy” may, in essence be a mechanism for culpable individuals to offer “bigger fish” to investigators, extricating themselves from fault but complicating the search for truth by including non-culpable persons, or by giving what the investigators “want,” and not the less important but truthful information that the witnesses actually may have.

• Third, Yates asks for “early and regular communication” between civil attorneys and criminal prosecutors handling corporate investigations. According to Yates, such early coordination should occur, “even if it is not certain that a civil or criminal disposition will be the end result” of the investigation.

In other words, more of these investigations will include discussion among DOJ attorneys of potential individual liability to insure that all appropriate charges are brought against those individuals, whether or not future charges are an initial certainty.

Further, while this provision of the Memorandum ostensibly is geared toward a coordination of effort between civil and criminal investigators, it does not address limitations placed by federal rules on sharing, for example, grand jury materials or other privileged or protected materials.

• Fourth, DOJ attorneys are instructed “not to agree to a corporate resolution that includes an agreement to dismiss charges against, or provide immunity for, individual officers or employees.” Should the attorney believe that extraordinary circumstances exist that call for such dismissal or immunity, none will be given without written approval by the relevant Assistant Attorney General or U.S. Attorney.

This increase in bureaucratic involvement could add a layer of complexity to an already procedurally complicated investigatory process.

• Fifth, corporate investigations now will not be resolved without a “clear plan” to resolve associated cases against any related individual. If a decision is made at the end of an investigation not to bring civil or criminal claims against individuals involved , the reasons for that decision mast be documented and approved by the U.S. Attorney or Assistant Attorney General whose office handled the investigation.

Whether or not this provision alone results in more charges ultimately filed against individuals remains to be seen, but seems likely.

• Last, Yates states that the pursuit of civil actions against individuals should not be based solely on the individuals’ ability to satisfy a judgment in the case. According to Yates, “[a]lthough in the short term certain cases against individuals may not provide as robust a monetary return on the department’s investment, pursuing individual actions in civil corporate matters will result in significant long-term deterrence.”

Awkwardly, this provision makes it sound as if the DOJ’s previous focus has been on the “robust monetary return on the department’s investment” but now should be broadened to reinforce the longer-term goal of deterrence.

While the Yates memorandum does not make dramatic changes to the way in which investigations into corporate wrongdoing currently are handled by the DOJ, it ups the ante for investigators pursuing individuals — especially high-ranking corporate officers — in those actions.

Unfortunately, the memo clearly leaves opportunities for subjective decisions regarding how far the DOJ attorneys can go to resolve cases against individuals charged with corporate wrongdoing

In-house and outside counsel who represent corporations and their C-Suite managers should fully leverage their resources to obtain the available universe of information prior to the DOJ’s involvement in any investigation of wrongdoing in order to fully understand the relevant facts, as the potential consequences of not being able to identify culpable individuals could be dire – at least according to the Yates Memorandum.

More than two years after the Edward Snowden leaks, the effects still linger. Most recently, those effects were felt on October 6, 2015, in a decision issued by the European Court of Justice (ECJ) which invalidated the U.S.-EU Safe Harbor Framework (“Safe Harbor”) – a decision which has companies that regularly transfer personal data from the European Union (EU) to the U.S. struggling to understand available alternatives. Schrems v. Data Protection Commissioner, Case C-362/14 (October 6, 2015).

Up until last week’s decision, the Safe Harbor provided a method for U.S. companies to transfer personal data outside the EU in a way that is consistent with the EU Data Protection Directive, and the consolidated Acts of 1988 and 2003. To join the Safe Harbor, a U.S. company had to “self-certify” to the Department of Commerce that it complied with EU standards. Most U.S. companies doing business in the EU were taking advantage of the Safe Harbor, and self-certifying their compliance.

The Schrems case involved a legal challenge brought by Austrian national Max Schrems. Schrems has been a Facebook subscriber since 2008 through Facebook Ireland. Some or all of the data of Facebook Ireland subscribers residing in the European Union is transferred to Facebook USA’s servers (under the Safe Harbor framework) in the United States, where it is kept.

In June of 2013, Schrems, a then 24 year old law student in Vienna, filed a complaint with the Irish Data Privacy Commission (“Commissioner”), where Facebook has its EU headquarters. He crowdsourced the funding for his case online and petitioned Facebook to get his data – through a process that is outlined in detail on the crowdsourcing website.

The history of Schrems’ lawsuit:

Schrems claimed, in essence, that the law and practices of the U.S. offer no real protection of personal data against government surveillance. His allegation was based largely on the revelations made by Edward Snowden earlier in 2013 concerning the activities of U.S. intelligence services, in particular those of the National Security Agency (“NSA”).

According to the Snowden revelations, the NSA established a program called “PRISM” under which it obtained – as described by the ECJ – the “unrestricted access to mass data stored on servers in the United States owned or controlled by a range of companies active in the internet and technology field . . . .”

Initially, the Commissioner rejected Schrems’ claim as frivolous. Schrems then brought proceedings before the Irish High Court for judicial review of the Commissioner’s decision rejecting his complaint. In its review, the High Court concluded – based on the Snowden scenario and information – that once personal data is transferred to the United States, the NSA and other U.S. security agencies are able to “access it in the course of a mass and indiscriminate surveillance and interception of such data.”

On September 24, 2015, the ECJ Advocate General, Yves Bot, issued a non-binding opinion recommending that the ECJ, through the Schrems case, invalidate the Safe Harbor framework in light of Snowden’s revelations.

While the ECJ was not bound to follow the opinion of the Advocate General, it frequently does so, and did so in this case. The ECJ held that the U.S. failed to show that it collects personal data in a way that is “strictly necessary and proportionate to the protection of national security.” It also specifically mentioned that under the current system, U.S. and EU citizens have “no administrative or judicial means of redress” if their data is used for reasons not originally intended. The court determined that the reasonable solution was to invalidate the Safe Harbor mechanism.

What to do now:

This decision will have serious ramifications for the more than 4,500 companies that currently use the Safe Harbor provisions, as those companies now will have to find other legal means to transfer personal data from the EU to the U.S. At the moment, there seems to be no clear path to that means.

According to a Fortune.com article by Vivienne Walt posted on October 6, 2015, “U.S. and EU officials have been negotiating new Safe Harbor rules since 2013, and in recent weeks both sides have said they were close to agreement. The new rules would likely include assurances – never before made – that governments will not access data of regular citizens.”

In an October 9 article in Bloomberg BNA (“EU Privacy Chiefs to Mull U.S. Data Transfer Future”), author David Alpin says that the “Article 29 Working Party, an advisory group to the European Commission that is made up of representatives from the data protection authorities of the 28 EU member states, is slated to meet in Brussels Oct. 15 to consider offering official guidance to companies reeling from the sudden demise of the [Safe Harbor] program.”

What is obvious at this point is that companies transferring personal data from the EU to the U.S. can no longer rely on the Safe Harbor principles to provide adequate protections for the electronic transfer of that data. Transfer of such data under those circumstances may give rise to complaints by employees and/or customers, investigations by individual data protection authorities, and possible enforcement actions and penalties.

What are the current alternatives? Mechanisms could include consistently enforced corporate rules that permit intra-company transfers, model contract clauses adopted by the European Commission, and consents of data subjects. These alternate methods, however, are costly, time consuming, and often difficult to achieve.

U.S. companies that transfer personal data from the EU to the U.S. – or use U.S.-based cloud services to store or transfer such data – should immediately review contracts related to that data to assure that the agreements conform to existing EU requirements or otherwise are approved by regulators. Then, stay tuned for more issuances on the subject, which are certain to be coming soon.

Over the past year, employers have bemoaned the fact that the National Labor Relations Board (NLRB) has decided: that two nursing home employees should be reinstated despite performance deficiencies that included patient safety issues; that an employee’s online and obscenity-laced rant was “protected activity” under the National Labor Relations Act (NLRA); and that an employee’s discussion of a help-wanted ad with a co-worker was “concerted activity” under the NLRA.

A recent 8th U.S. Circuit Court of Appeals may change the prevalent downcast mood of employers. There, the Court refused to enforce an NLRB decision in which the Board found a company to have violated the NLRA by terminating a union employee who made what the Court called a “cut throat” gesture. Nichols Aluminum, LLC v. NLRB, No. 14-3202, August 13, 2015.

Background:

  • Nichols Aluminum’s unionized casting plant in Davenport, Iowa, employed approximately 165 employees.
  • On January 20, 2012, the International Brotherhood of Teamsters Union, Local No. 371 (the union) called for a strike;
  • Most employees participated in the strike, and Nichols hired replacement workers to fill some positions;
  • Bruce Bandy, a 34-year Nichols employee, “worked the picket line once a week” but took no strategic or leadership role in the strike.

The union ended the strike in April, and striking workers, including Bandy, were recalled to work. Bandy took a pledge – required by Nichols from returning workers – that he would not strike again over the same dispute.

After returning to work, Bandy was involved in a confrontation with an employee with whom he had an admittedly difficult working relationship. During that confrontation, and according to the other employee, Bandy “drew his thumb across his throat,” which the employee understood as meaning “I’m going to cut your throat.” Bandy ultimately was fired for that gesture, which violated the company’s “zero tolerance policy” against violence or threats.

Procedural history:

The union filed an unfair labor practices charge with the Board, challenging Bandy’s termination. An Administrative Law Judge (ALJ) concluded that Nichols did not violate the NLRA, and that the “cut throat” action could have been reasonably construed as a serious threat.

However, upon review by a three-member panel of the NLRB, the ALJ’s decision was reversed and the panel found that Bandy’s firing violated the NLRA, based primarily on the Company’s allegedly inconsistent response to other violations of its zero tolerance policy (one example cited was that the Company rehired an individual after firing him for cleaning and loading a gun in the workplace).

On appeal, the Eighth Circuit found a lack of connection between Bandy’s discharge and his union-related activity. Because Bandy did not “distinguish himself from the other strikers” who were not terminated after discipline, the NLRB could not carry its burden to show the requisite causal connection between Bandy’s strike activity and his firing and, therefore, could not prove that but-for Bandy’s union activity or membership, he would not have bene discharged.

Conclusion:

This opinion should not be read as a seismic shift in this area of the law. The ultimate decision here was made by a federal court and not the NLRB. Unlike the courts, the NLRB is likely to continue the path it regularly has taken on these cases, evidenced by its decisions earlier this year and last. Here are the things that employers can do to help to avoid liability under Board review of disciplinary actions:

  • Assure consistent application of disciplinary processes;
  • Objectively and fully document termination reasons, including the policy or procedure violated; and
  • Carefully review planned discipline to assure that union activity is not a factor in any decision to impose an adverse employment action.

 

 

(Photo is of Gino Corrado in 1945 Columbia Pictures classic comedy short “Micro-Phonies.”)

Does an individual have to be disabled in order to bring a lawsuit under the retaliation provision of the Americans with Disabilities Act (ADA)? The 6th U.S. Circuit Court of Appeals says No.

In a recent unpublished opinion, that court reversed a lower court’s dismissal of an ADA retaliation claim, pointing out that an individual who is not adjudged to be a “qualified individual with a disability” still may be able to pursue a retaliation claim under that law, if that person took an action that is considered to be “protected” under the ADA and then suffered an adverse employment action. Hurtt v. Int’l Services, Inc., 6th Cir., No. 14-1824, September 14, 2015 (unpubl.).

Under the ADA, it is unlawful to discriminate against an individual because of that individual’s disability. The Act also includes a provision that prohibits retaliation against an individual. That provision states that:

No person shall discriminate against any individual because such individual has opposed any act or practice made unlawful by this chapter or because such individual made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing under this chapter.

In 2011, Robert Hurtt was recruited to return to work at International Services, Inc. (ISI) as a senior business analyst after leaving the company in 2010. His return included a $70,000 yearly “draw,” and a 12% commission on sales. After returning to the company, Hurtt was required to travel extensively with little time for sleep, and began to have health problems and to experience anxiety. Although Hurtt repeatedly asked for a change in his schedule because of those issues, ISI did not comply with the request.

On September 4, 2012, Hurtt submitted an FMLA request when his anxiety and depression flared up. The following day, ISI terminated Hurtt’s draw and placed Hurtt on a “commission-only” pay scale. Although Hurtt reiterated his request for reinstatement of his draw, he did not return to work after September 4, and sent a letter dated September 18 saying that he would not be returning to ISI. He subsequently filed a lawsuit alleging disability discrimination and retaliation, as well as FMLA interference and retaliation.

ISI filed a motion for summary judgment, arguing in part that Hurtt had not shown that ISI was aware of his disability, and had not shown a “protected action” on which Hurtt could base his retaliation claim. The lower court granted ISI’s motion and dismissed the claims. On appeal, the Sixth Circuit reversed and remanded that decision, finding factual issues that would have to be decided by a jury.

Two of those factual issues are critical points for employers who are dealing with requests for accommodation from employees with medical or psychological impairments:

  • An individual who is adjudged not to be a “qualified individual with a disability” under the ADA still may pursue a retaliation claim under the ADA; and
  • Requests for accommodation are protected acts, sufficient to support a claim of retaliation.

While neither of these points is completely intuitive, there is case law in multiple jurisdictions to support them. Therefore, employers who train supervisors and managers to recognize and respond to requests from employees for accommodation should add these two points to that training to avoid the risk of an adverse decision from a judge or jury.

Ongoing activity by the Department of Labor (DOL) regarding overtime regulations, coupled with recent federal court decisions regarding compliance with the Fair Labor Standards Act (FLSA), have raised the level of attention to wage payment issues — and have increased the risk of employer liability — to new heights. A recent decision by the 5th U.S. Circuit Court of Appeals provides a clear illustration of the type of action that triggers that risk. Miles v. HSC-Hopson Services Company, Incorporated, 5th Cir., No. 14-11237 (September 8, 2015).

Donald Miles, a plumber, brought an action under the FLSA against his employer, HSC-Hopson Services Company (“HSC”). In that lawsuit, Miles claimed that he was not paid for all of the time that he spent at work, and that overtime wages were owed to him. He premised that claim on the facts that:

  • even though the workday began at 8:00 a.m., he was directed to appear at work at 7:30 a.m. to load his truck and receive his first assignment of the day, but was not paid for that 30 minute block of time; and
  • he was not paid for time worked after finishing the last assignment of the day, during which he was required to return and unload the same truck and lock everything up.

The FLSA requires employers to pay to non-exempt employees (which typically includes plumbers) at least one and one-half times the employees’ regular hourly wage for every hour worked in excess of 40 in a week. The Act further requires employers to keep track of and document fully the work-time spent by employees.

Miles’ case was tried to a jury and included testimony from HSC’s owner, Hopson, that not only did HSC not pay for the before-or-after work assignments time, but that if Hopson disagreed with a time indicated on a timecard, he would direct his office manager to change the card, or he would change it himself.

Importantly, Hopson testified that while he did not seek the advice of counsel or contact the DOL for direction or advice on his actions, he visited an “e-law” website to assure himself that those actions were compliant with the FLSA.

A jury reacted by finding in Miles’ favor, and awarding to him actual damages/lost wages in the amount of $16,132.50, with an equal amount in liquidated damages for “willful” violation of the FLSA.

On appeal, Hopson argued that the imposition of liquidated damages was “not fair,” because rather than willfully violating the FLSA, he had acted in “good faith reliance” on the DOL’s regulations regarding overtime payment, based upon his reading of the “e-law” site.

The Fifth Circuit disagreed, citing the language of the FLSA that a violation is willful “if the employer either knew or showed reckless disregard for . . . whether its conduct was prohibited by the statute.” The combination of Hopson’s reliance on an “e-law” site, rather than on legal advice geared to his specific situation, coupled with his arbitrary reduction of and non-payment for work times, led to this adverse decision.

This case adds to the already lengthy list of reasons that employers should work closely with human resource personnel and legal advisors to assure compliance with and awareness of laws related to wage payments to employees, especially in light of the pending revision to the regulations related to the calculation of overtime payments.

This article was written by Carolyn E. Sieve (Of Counsel in the Orange County office of Ogletree Deakins) and Robert R. Roginson (Shareholder in the Los Angeles office of Ogletree Deakins).

On August 21, 2015, the United States Court of Appeals for the D.C. Circuit in Home Care Association of America v. Weil reinstated the U.S. Department of Labor’s regulations extending the federal minimum wage and overtime requirements for home health care workers employed by third-party employers.

The federal appeals court decision overturns a lower court opinion from January of this year that struck down the new regulation just before it was scheduled to go into effect. However, the appeals court decision does not mean that the minimum wage and overtime requirements will go into effect immediately. The case will likely now return to the district court with instructions by the court of appeals to issue a decision upholding the regulations unless there is further review of the case by either the full panel of the D.C. Circuit or the Supreme Court of the United States.

Background

The case arises out of a challenge brought by several home health care associations to the Department of Labor (DOL) regulation. Those associations argued that the regulation was inconsistent with the actual language of the Fair Labor Standards Act (FLSA) and the congressional intent in creating the minimum wage and overtime exemptions. The lower court judge agreed with the associations and invalidated the new regulation, concluding that the regulation contravened the FLSA exemptions.

In its 24-page opinion reversing the lower court, the D.C. Circuit ruled that the DOL’s regulation was grounded in a reasonable interpretation of the federal FLSA. The appellate court relied largely on a 2007 decision issued by the U.S. Supreme Court in determining that the DOL was vested under federal law with the necessary discretion to limit the scope of the minimum wage and overtime exemption that previously had applied to home health care workers.

The court cited “a marked transformation” in the provision of residential care since the minimum wage and overtime exemption was first adopted in 1974, and noted that previously, the provision of professional care primarily took place outside the home in institutions and nursing homes and that the individuals who provided the services in the home were principally “elder sitters” and not the type of professional caregivers employed by third-party agencies in present times.

The appellate court found that the DOL’s regulation to bring home health care workers employed by third-party employers within the FLSA’s minimum wage and overtime protections was reasonable and consistent with congressional intent.

The federal appeals court also struck down the home health care associations’ challenge to the portion of the new regulation defining the scope of the “companionship services” encompassed by the companionship-services exemption under the FLSA. On this issue, the court ruled that the associations do not have standing to maintain the challenge in federal court.

The challenge addressed yet another part of the DOL’s new regulation that narrowed the scope of the remaining minimum wage and overtime exemption. This regulation eliminated the exemption for those individual caregivers who perform general household work and for those individual caregivers who spend more than a limited amount of time devoted to assisting with activities of daily living. The appeals court concluded that since the third-party employers could no longer take advantage of the companionship services exemption, they no longer could claim they were injured by the narrowing of that exemption.

Key Takeaways

The August 21st decision paves the way for the DOL regulation that extends the federal minimum wage and overtime requirements to home health care workers employed by third-party employers to go into effect in its entirety. Third-party employers of home health care workers should take appropriate steps now, if they have not done so already, to ensure they comply with all applicable minimum wage and overtime and record-keeping requirements for their home health care workers if and when it is determined that the new regulation will take effect.

Note that some states already require third-party employers to pay overtime and minimum wage to home health care workers and personal attendants, but those state laws may include requirements that differ from the FLSA’s overtime requirements. For example, California’s Domestic Worker Bill of Rights—Assembly Bill 241, which was signed by the governor in 2013—requires that overtime compensation be paid to personal attendants for hours worked that exceed 9 hours per day or 45 hours per week.

The FLSA, on the other hand, requires overtime payments for hours worked that exceed 8 hours per day or 40 hours per week. In these cases, employers must be careful to ensure that they are complying with both state and federal law.

The 9th U.S. Circuit Court of Appeals has determined that an employee’s reaction to stress that included threats to kill co-workers – made in “chilling detail and on multiple occasions” – meant that the individual could not perform an essential function of his job and, therefore, was not a “qualified individual” for protection under disability discrimination law. Mayo v. PCC Structurals, Inc., 9th Cir., No. 13-35643, July 28, 2015.

Timothy Mayo began working at PCC Structurals in 1987. In 1999, he was diagnosed with major depressive disorder but, with medication and treatment, continued to work without significant incident until 2010. At that point, Mayo and certain co-workers made claims that a supervisor was “bullying them and making work life miserable.”

In January 2011, Mayo and a co-worker met with a company HR director about the situation. After that meeting, Mayo made threatening comments to others, including that he felt like “blowing off” the heads of the supervisor and another manager with a shotgun; that he wanted to “take out” management; and that he wanted to “start shooting people.”

When those threats were reported to management, PCC’s Senior Human Resources Manager called Mayo to ask about the threats. In response, Mayo said that he “couldn’t guarantee” that he wouldn’t follow through. Mayo’s employment then was suspended and Mayo was barred from company property.

That evening, a police officer visited Mayo to discuss the threats. Because Mayo admitted the threats, and explained that he had “two or three” specific people in mind, though he had not decided which of his multiple guns to use, the officer took Mayo to the hospital, with Mayo’s consent.

Mayo then took three months of leave under the FMLA and Oregon’s equivalent state law. At the end of that time, a treating psychologist cleared Mayo to return to work, but recommended a new supervisor assignment. Instead, PCC terminated Mayo’s employment.

Mayo sued, alleging that the termination violated Oregon’s state-law counterpart to the Americans with Disabilities Act (ADA). The district court granted PCC’s motion for summary judgment, and Mayo appealed that decision to the Ninth Circuit.

The Ninth Circuit upheld the dismissal on the premise that Mayo was not “qualified” for his position and, therefore, was not protected by the disability discrimination laws. According to the Ninth Circuit, an essential function of almost every job is the ability to “appropriately handle stress and interact with others.” Calling it a common sense principle, the court’s basis for its decision is that “[a]n employee whose stress leads to serious and credible threats to kill his co-workers is not qualified to work for the employer, regardless of why he makes those threats.”

While this holding may be based on “common sense,” it also illustrates the difficulties faced by both employers and employees when dealing with psychological disorders. Had Mayo’s threats been less dramatic and more benign (a threat to “take it outside,” perhaps, or “I’ll deal with you later”), would the employer instead have had to make an individualized assessment of the actual future risk of harm before firing him? Would there have been a requirement to engage in an interactive process to determine whether an additional medical leave could reasonably accommodate a depressive episode?

In fact, a footnote references the “extreme facts” before the court, and points out that the court does “not suggest that off-handed expressions of frustration or inappropriate jokes necessarily render an employee not qualified [under disability discrimination laws].” While court direction always is welcomed, the extremes of behavior addressed by the court (repeated violent threats versus “off-handed expressions of frustration”) leave a large grey area of employee behavior with which employers must grapple without instruction.

Employers should seek out available resources to assist in dealing with mental illness and psychological disabilities among employees to assure legal compliance in the most effective and productive manner for both the employer and its employees. The Society for Human Resource Management (SHRM) has posted articles that offer advice and direction to employers, and several other countries, including Canada and Australia have government-sponsored initiatives to assist managers in dealing with these issues. The EEOC’s guidance on psychiatric disabilities has not been updated since 1997, in spite of the 2008 amendments to the ADA.

By Maria Greco Danaher (Shareholder, Ogletree Deakins) and Christopher M. Danaher (Director, Client Partnership & Growth for Bellefield Systems)

Is the annual performance review a value-added event for employees . . . or is it an anxiety-generating mechanism that could be eliminated without the loss of any forward momentum to a company?

Here are a few facts about performance reviews (based, not on any scientific calculations or extensive polling results, but on the authors’ combined experience with corporate management practices, training, and litigation avoidance):

  • Supervisors and managers frequently misstate the true nature of the performance issues being addressed, generally describing each issue as less of a problem than it is;
  • Many employees are unable to understand the exact nature — and effect — of the resulting evaluation;
  • Written performance reviews often are used as evidence in employment litigation to support an employee’s claim of discrimination;
  • The practice of annual performance reviews has been criticized by employers, employees, and media, alike; and (most surprisingly),
  • Most companies continue to implement annual performance reviews in the same way that they’ve done over past years.

The Pros and Cons:

There are strong supporters for and strong detractors of the typical annual performance evaluation. The New Yorker summarized those arguments concisely in its July 24, 2015 edition, with “The Push Against Performance Reviews.”

With corporate employers’ increasing attention on employee engagement, individual accountability, and value-added efforts, companies are asking whether or not performance evaluations should remain part of management’s tool box for performance improvement. Look at the primary arguments for each side:

  • FOR: Advocates of annual reviews assert that it creates a mechanism for managers to identify “top performers” and “problem employees” and to explain to the “average” employee the steps that he or she can take to move into the highest tier.
  • AGAINST: The problem with that rationale is that it typically is based on an assumption that there is a “top” and a “bottom” group of performers. With that mindset, some managers and supervisors create artificial categories of deficiencies (“not outgoing enough,” “unable to accept criticism gracefully,” etc.) to assure that they can populate each performance level. Further, it is the unusually thoughtful and far-sighted manager who takes the initiative to explain to the middle-of-the-deck employee what must be done to rise to the top.

What Is The Alternative?:

The alternative to the dreaded review process can be summarized in three words: frequent meaningful feedback. Regular meetings (optimally, at least monthly) do several things, including:

  • Allow employees to have a voice in the relationship with their supervisors;
  • Lessen the anxiety that is a typical result of the anticipation of the yearly event on which all raises, promotions, and job possibilities rest;
  • Help weaker performers to understand the steps needed to move toward improvement; and
  • Assure that managers and subordinates are on the same page when it comes time to make decisions regarding raises, promotions, or disciplinary actions.

The trend clearly is in that direction. Adobe has instituted “check-in conversations” with employees; earlier this year, Deloitte completely redesigned its appraisal system; Microsoft abolished its evaluation system in 2013 ; and Accenture is getting rid of performance rankings altogether in September.

How To Do It Right:

Whether or not a company continues using an annual performance review or moves to a more frequent meeting schedule, the mechanism should include the following elements:

  1. A pre-set written agenda, with actual talking points, which allows both the manager and the employee to give realistic thought to comments and discussion topics;
  2. Objective measurements – set during the meeting to allow for employee input and questions – for which the employee should strive before the next meeting;
  3. Concise documentation of the meeting itself, which is made available to the employee for convenient review; and
  4. Time during the session for productive discussion and honest feed-back.

Conclusion:

There’s an important consequence to providing frequent meaningful feedback, as opposed to a once-a-year anxiety producing meeting: it encourages managers to think of “managing” as an action word, rather than just a job title. This new mind-set could lead directly to increased employee engagement.

It takes sincere attention and honest effort to stay in touch with employees for more than a single scheduled “checklist review.” But teams often emulate their managers, so an investment of time and effort by a manager could very well lead to more effective output from the whole team, who then view the manager as doing more than just the “bare minimum.”

 

The Administrator of the US Department of Labor’s (DOL) Wage & Hour Division, David Weil, has issued a formal Interpretation on the subject of “The Application of the Fair Labor Standards Act’s ‘Suffer or Permit’ Standard in the Identification of Employees Who Are Misclassified as Independent Contractors,” the DOL’s first on the issue since President Obama took office in 2008. Administrator’s Interpretation No. 2015-1, July 15, 2015.

The Interpretation is not so much an unanticipated directive or a presentation of new methods, as a detailed reminder on the factors used by the DOL to distinguish between employees and independent contractors for purposes of that differentiation. Along with that Interpretation, Weil has drafted a blog post on the topic, summarizing the basic issues effectively.

In short, the DOL will continue to rely on the “economic realities” test that has been the standard analysis tool since at least the 1990’s (and set forth by the DOL in a Fact Sheet as recently as 2014). At that time, the economic realities test eclipsed the long-applied common law “control” test, which analyzed whether an individual was an employee based upon the amount of employer’s control over the work being done. The economic realities test is a multi-factored analysis of the effect of the relationship among a worker, a company, and the specific terms of the relationship between the two.

According to Administrator Weil, the definition of “employ” under the Fair Labor Standards Act (FLSA) – to “suffer or permit” to work – was designed to insure as broad a scope of statutory coverage as possible, and should be interpreted in that way. The first three pages of his 15 page guidance spell out the history of the “suffer or permit” standard, and highlight that broad applicability.

The remainder of the document sets out the six questions used to determine the independent contractor/employee status of an individual under the economic realities test, and includes numerous case cites and examples to illustrate each point. Here are those questions, with some of those illustrative points:

  • Is the Work an Integral Part of the Employer’s Business?
    • If an individual’s work is integral to the company, that individual is likely to be an employee.
    • Work can be integral to an employer’s business even if it is performed away from the employer’s premises.
  • Does the Worker’s Managerial Skill Affect the Worker’s Opportunity for Profit or Loss?
    • This factor focuses on “whether the worker has the ability to make decisions and use his or her managerial skill and initiative to affect opportunity for profit or loss.”
    • An independent contractor faces the possibility to not only make a profit, but also to experience a loss.
  • How Does the Worker’s Relative Investment Compare to the Employer’s Investment?
    • Independent contractors typically make some investment (and therefore undertake at least some risk for a loss) in the business.
    • But the individual’s investment must be “significant in nature and magnitude relative to the employer’s investment in its overall business” to lead to an ultimate designation of independent contractor.
  • Does the Work Performed Require Special Skill and Initiative?
    • A worker’s business skills, judgment, and initiative – and not simply his technical skills – are critical factors in determining whether a worker is an independent contractor.
    • “[F]or skills to be indicative of independent contractor status, they should be used in some independent way, such as demonstrating business-like initiative.”
  • Is the Relationship Between the Worker and the Employer Permanent or Indefinite?
    • “A worker’s lack of a permanent or indefinite relationship with an employer is indicative of independent contractor status if it results from the worker’s own independent business initiative.”
  • What is the Nature and Degree of the Employer’s Control?
    • The worker himself must be in control of meaningful aspects of the work performed in order to be viewed as an independent contractor.
    • However, “workers’ control over the hours they work is not [by itself] indicative of independent contractor status.” (In other words, a flexible work schedule alone does not make an individual an independent contractor.)

Most workers will be “employees” rather than “independent contractors” under the FLSA’s broad definitions and the economic realities analysis. Also, the fact that so many court opinions were cited in the Interpretation to support this conclusion may indicate the DOL’s attempt to convince courts to give the Administrator’s Interpretation more weight than would typically be given to a guidance of this nature.

The correct classification of workers as employees or independent contractors, especially in combination with the recent proposed changes to white-collar overtime regulations, is a clear indication of the focus of the DOL’s future compliance enforcement efforts regarding employee classification issues. Employers ignore this indication at their peril.

The 8th U.S. Circuit Court of Appeals has determined that a customer service representative who was fired for performance issues during the same period of time in which she requested leave under the Family and Medical Leave Act (FMLA) to care for her child could not support her FMLA discrimination claim. Burciaga v. Ravago Americas, LLC, 8th Circ., No. 14-3020, July 2, 2015. The court’s dismissal of the claim was based on the fact that the employee was unable to show that the reason set forth by the company for her discharge — multiple shipping errors within a 17 day period – was a pretext for discriminatory treatment based on her request for leave.

The FMLA provides unpaid leave to eligible for certain specific reasons, as spelled out under the statute. Employers may not “interfere with, restrain, or deny the exercise of” any rights under that Act. An individual can bring an entitlement claim for interference with FMLA rights, or a discrimination claim, alleging that she was treated differently because of an FMLA leave or request for leave. An employee making a discrimination claim must prove that the employer’s action was motivated by the exercise of FMLA rights by the employee.

Once an employee shows that she has engaged in an activity protected under the FMLA, that she has suffered an adverse employment action, and that some “causal connection” exists between the two, the burden shifts to the employer to articulate a legitimate, non-discriminatory reason for the challenged action. The burden then shifts back to the employee to show that the proffered reason was simply a pretext for discrimination.

Elizabeth Burciaga began working for Ravago Americas, LLC in 2007 as a customer service representative, contacting sales representatives and customers, receiving and processing orders, and resolving customer issues. In 2008 and again in 2010, Burciaga requested and was granted two separate FLMA leaves for the births of her two children, from which she returned and after which she remained employed and received annual raises.

In 2011, Burciaga began to have performance problems, including a shipping error which she mistakenly shipped twice. The errors were noted by her supervisor, Jeremy Howe, who told Burciaga that if errors continued, she may be terminated.

In July 2012, Burciaga requested and was granted intermittent FMLA leave to care for her son. She did not inform Howe that she was taking FMLA leave, but told him that she would be absent when her son needed care. Howe allowed time off to Burciaga when she requested it, and allowed flexibility with her schedule to attend necessary medical appointments. Between August 8 and September 6, 2012, Burciaga took three half-day leaves.

Then, between September 10 and September 27, 2012, Burciaga committed a series of four shipping errors, including one in which she failed to discern between two of her own customers. On September 28, 2012, her employment was terminated for her performance errors.

Burciaga filed a lawsuit against the company, alleging that the firing was based on her FMLA leave. The lower court granted summary judgment in favor of the company, finding that Burciaga failed to establish a causal connection between her FMLA leave and her firing.

On appeal, the Eighth Circuit affirmed the lower court’s decision, but did so on the basis that Burciaga was unable to show that the legitimate non-discriminatory reason proffered by the company — that Burciaga had made four shipping errors in a three-week period, in spite of her five years of experience with the company – was a pretext for discrimination.

In its opinion, the Eighth Circuit reviewed all of the points put forward by Burciaga in support of her pretext argument, and found none of them sufficient to support her claim of discrimination.

For example, although Burciaga listed a number of non-FMLA employees who had made errors but who were fired, the court found that those individuals were not “similarly situated” to Burciaga, because those employees did not have the same amount of experience as did Burciaga when their errors were committed.

One critical point raised by the court was that the company’s explanation for Burciaga’s firing remained constant throughout the process. According to the court: “When an employer does not waiver from its explanation, the circumstances militate against a finding of pretext.” Because the company documented the performance issues, and remained constant in its assertion of those issues as the basis for Burciaga’s firing, it was able to overcome Burciaga’s pretext argument.

This is an important take-away for employers. Requesting FMLA leave does not give an employee greater protection against firing for reasons unrelated to FMLA. However, when an adverse employment action is considered against an employee who ultimately may assert a legally protected status — including FMLA protection — attention should be paid to the existence of supporting documentation, the objective factual background, and the consistent application of discipline.

Once the basis for the proposed disciplinary action is determined to be appropriate, the action should be taken and accurately documented, in order to avoid a “shifting” explanation that could trigger an argument of pretext, and an ultimate finding of legal liability.