Employment Law - Mar 05, 2014

by Manatt, Phelps & Phillips, LLP

In This Issue:

  • Time To Review Severance Agreements

  • Fifth Circuit Limits SOX Whistleblower Protection to Violations of U.S. Law

  • Court Allows EEOC Suit Based On Ups Termination Policy To Move Forward

Time To Review Severance Agreements

Why it matters: The Equal Employment Opportunity Commission filed a complaint against CVS Pharmacy last week. The Illinois federal court suit claims the national chain violated Title VII by using overly broad severance agreements with employees. Specific provisions targeted by the agency include a nondisparagement clause, a cooperation clause requiring the employee to promptly notify CVS of any contact regarding a legal matter, and a covenant not to sue covering “any complaint, claim, action or lawsuit of any kind.” According to the EEOC, the agreement illegally interfered with the ability of employees to file discrimination charges or communicate with the agency. The EEOC also took issue with the “five pages of small print” that included only “a single qualifying sentence” that the agreement was not intended to interfere with employees’ rights to participate in a proceeding with state or federal agency actions or investigations. Characterizing the suit as an effort to “preserve employee access to the legal system,” the EEOC’s action puts employers on notice that a review of their severance agreements might be a good idea, particularly as many of the provisions cited by the agency in the CVS complaint are commonly included in such agreements. A more reader-friendly agreement with prominent disclosures should be considered to avoid agency action in an area included as one of the EEOC’s six strategic enforcement priorities in its recent plan.

Detailed Discussion
The EEOC filed its complaint on February 7 against the national pharmacy chain, seeking “to correct a pattern or practice of resistance to the full enjoyment of the rights secured by Title VII in violation of Section 707(a) of Title VII.”

Specifically, the agency claimed that CVS conditioned the receipt of severance pay on an “overly broad, misleading and unenforceable Separation Agreement that interferes with its employees’ right to file charges with the [EEOC] and Fair Employment Practices Agencies [FEPAs] and communicate voluntarily with and participate in the proceedings conducted by the EEOC and FEPAs.”

The suit cited five provisions from the five-page, single-spaced agreement that was used by CVS since August 2011.

First, the section on cooperation, which required the employee to “promptly notify the company’s general counsel by telephone and in writing” of any “subpoena, deposition notice, interview request, or another inquiry, process or order relating to any civil, criminal or administrative investigation, suit, proceeding or other legal matter relating to the corporation from any investigator, attorney, or any other third party.” The EEOC took particular offense at language requiring notice of an administrative investigation or contact by any investigator.

A nondisparagement clause also caught the attention of the agency, as did a nondisclosure provision. Also troubling: a “General Release of Claims,” which stated, “The Released Claims include . . . any claim of unlawful discrimination of any kind.”

Finally, the EEOC zeroed in on a covenant not to sue section with language that the employee “agrees not to initiate or file, or cause to be initiated or filed, any action, lawsuit, complaint or proceeding asserting any of the Released Claims against any of the Released Parties. . . . Employee agrees to promptly reimburse the Company for any legal fees that the Company incurs as a result of any breach of this paragraph by Employee.”

The covenant not to sue included a qualifying sentence that “[n]othing in this paragraph is intended to or shall interfere with Employee’s right to participate in a proceeding with any appropriate federal, state or local government agency enforcing discrimination laws, nor shall this Agreement prohibit Employee from cooperating with any such agency in its investigation.”

Despite this language, the EEOC claimed the agreement “constitutes resistance to the full enjoyment of rights secured by Title VII because [it] interferes with an employee’s right to file a charge with the EEOC or FEPAs, and to participate and cooperate with an investigation conducted by the EEOC or FEPAs.”

The complaint seeks a permanent injunction from CVS’s use of the current agreement and an order that the defendant reform the existing agreement, as well as issue a corrective communication to its workforce. CVS should also be required to provide 300-day periods for all former employees that signed the allegedly illegal release to file a charge of discrimination with the EEOC or an FEPA.

To read the complaint in EEOC v. CVS Pharmacy, click here.

Fifth Circuit Limits SOX Whistleblower Protection to Violations of U.S. Law

Why it matters: In a victory for employers, the Fifth U.S. Circuit Court of Appeals limited the scope of Sarbanes–Oxley’s whistleblower protections by holding that plaintiffs must report conduct in violation of U.S. law—not illegal activity under the law of a foreign country. A Colombia-based whistleblower filed suit under SOX but an administrative law judge, the Department of Labor’s Administrative Review Board, and the Fifth Circuit all agreed that the case should be tossed because the allegedly illegal conduct the whistleblower reported violated Colombian law, not U.S. law. Importantly, the Fifth Circuit based its decision on this narrower ground and avoided the broader question of whether Section 806 of Sarbanes-Oxley applies extraterritorially—a question that remains unsettled.

Detailed Discussion
A 24-year employee with Saybolt Colombia, William Villanueva lived in Bogota and served as the company’s general manager. Although Saybolt Colombia is a Colombian limited liability company headquartered in Bogota, it is also an indirect affiliate of Core Labs, a Netherlands limited liability company with headquarters in Amsterdam and an office in Houston, Texas. Core Labs’ securities are registered pursuant to the Securities Exchange Act and publicly traded on the New York Stock Exchange. 

Beginning in January 2008, Villanueva began reporting concerns about what he believed to be fraudulent underreporting of taxable revenue to the Colombian government by Saybolt Colombia. He raised his concerns with both Saybolt Colombia and Core Labs employees, including an executive in the Houston office. Core Labs requested that two different law firms provide opinion letters addressing Villanueva’s issues and both concluded that no impropriety had occurred.

Villanueva disagreed with the opinion letters and refused to certify and sign Saybolt Colombia’s tax returns. He was then terminated. Villanueva filed a complaint with the Occupational Safety and Health Administration alleging that Core Labs and Saybolt Colombia retaliated against him for blowing the whistle on the scheme to violate Colombian tax law in violation of Section 806 of the Sarbanes–Oxley Act.

OSHA dismissed the complaint and an administrative law judge affirmed, ruling that he lacked jurisdiction to weigh in on the dispute. The Administrative Review Board determined that it had jurisdiction but affirmed dismissal on the extraterritorial nature of Villanueva’s disclosures about alleged violations of foreign law.

The Fifth Circuit agreed.

“Section 806 prohibits retaliation only if the employee provides information regarding conduct that he or she reasonably believes violates one of six enumerated categories of U.S. law,” the federal appellate panel wrote: federal mail-, wire-, bank-, or securities-fraud statutes; any rule or regulation of the SEC; or any other federal law related to fraud against shareholders. “[I]n neither his complaint to OSHA nor in his communications to Core Labs and Saybolt Colombia employees did Villanueva indicate that he was providing information that he reasonably believed violated any of these six categories.”

The court avoided the issue of whether Section 806 can have extraterritorial application, relying upon the narrower grounds that Villanueva failed to engage in any protected whistleblowing activity.

Villanueva attempted to save his suit by pointing out language in his OSHA complaint that he believed income tax was being perpetrated in Colombia “at the express direction of Core Labs’ executive in Houston using mail, e-mail and telephones to accomplish the fraud.”

But the court said a single reference in a nine-page OSHA complaint was “insufficient to demonstrate that he had a reasonable belief that there was a violation of U.S. mail- and wire-fraud statutes.” Rather, the panel wrote, “the focus of Villanueva’s complaint to OSHA was that Core Labs retaliated against him because he complained of Saybolt Colombia’s violation of Colombian tax laws.”

The critical focus of Section 806 is on whether the employee reported conduct that he or she reasonably believed constituted a violation of federal law, the court explained, and “Villanueva’s underlying evidence of record does not evince that he complained to Core Labs or Saybolt Colombia executives that they were violating U.S. law by using domestic mail or wires to orchestrate Colombian tax-law violations.”

Consequently, Villanueva failed to demonstrate that he engaged in any protected activity and was not entitled to the protections of Section 806, the panel concluded, affirming dismissal of the complaint.

To read the opinion in Villanueva v. U.S. Department of Labor, click here.

Court Allows EEOC Suit Based On UPSTermination Policy To Move Forward

Why it matters: Is an employer’s policy of terminating employees who are unable to return to work after 12 months of leave an attendance policy or a 100 percent healed policy in violation of the Americans with Disabilities Act? A federal district court judge in Illinois sided with the Equal Employment Opportunity Commission and denied a motion to dismiss by the United Parcel Service, finding that the policy could be considered an impermissible qualification standard under the ADA.

Detailed Discussion
Since 2002, the United Parcel Service has maintained a leave policy providing that employees will be “administratively separated from employment” after 12 months of leave. The policy is applied to all employees, even those with disabilities who can perform the essential functions of their job with or without a reasonable accommodation.

The EEOC filed suit alleging the policy violated the Americans with Disabilities Act and cited the example of former UPS employee Trudi Momsen as an illustration. Momsen began working at UPS in 1990 and took a 12-month medical leave of absence in 2006-2007. When she returned to work in February 2007, she needed a cane to walk and requested accommodations, such as using a handcart. Momsen injured herself soon after returning to work and sought additional medical leave.

In lieu of granting the leave, UPS terminated her in March 2007 based upon the 12-month leave policy.

The EEOC filed suit, alleging that the policy was a “100 percent healed” requirement that operates as a qualification standard in violation of Section 12112(b)(6) of the ADA, which prohibits employers from “using qualification standards, employment tests or other selection criteria that screen out or tend to screen out an individual with a disability or a class of individuals with disabilities unless the standard, test or other selection criteria, as used by the covered entity, is shown to be job-related for the position in question and is consistent with business necessity.”

In response, UPS argued the policy was an attendance policy and that the ability to regularly attend work is an essential job function – not a qualification standard, employment test, or other form of selection criteria.

But U.S. District Court Judge Sara L. Ellis sided with the EEOC, finding that the policy could be considered a qualification standard and denying UPS’s motion to dismiss the suit.

EEOC regulations define “qualification standards” as “the personal and professional attributes including the skill, experience, education, physical, medical, safety and other requirements established by a covered entity as requirements which an individual must meet in order to be eligible for the position held or desired.” An “essential function” is defined as “the fundamental job duties of the employment position the individual with a disability holds or desires.”

Although acknowledging case law from the Seventh U.S. Circuit Court of Appeals holding that regular job attendance is an essential job requirement, Judge Ellis focused on the EEOC’s characterization of the policy. 

“[T]he EEOC’s Section 12112(b)(6) claim is not premised on attendance but rather on UPS’s imposition of a 100 percent healed requirement on those seeking to return to work,” she wrote. “Framed as such, the 12-month policy can be considered a qualification standard – a medical requirement that an individual must meet in order to maintain his or her position with UPS – and not an essential job function.”

Because the EEOC’s requirement “falls within the definition of a ‘qualification standard,’ and the EEOC has alleged that the policy applies to qualified individuals with disabilities, the EEOC may proceed on its Section 12112(b)(6) claim,” the court concluded.

To read the opinion in EEOC v. United Parcel Service, click here

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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