Employment Law - October 2017

by Manatt, Phelps & Phillips, LLP
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Manatt, Phelps & Phillips, LLP

In This Issue:
  • Employer Bound by Oral Contract, California Appellate Court Affirms
  • Beyoncé Concert Visit Ends Employee’s FMLA Suit
  • Seventh Circuit: ADA Not ‘A Medical Leave Entitlement’
  • Social Media, Behavior Policies Tossed by NLRB ALJ
  • EEOC Wellness Regs Could Feel Better in 2018

Employer Bound by Oral Contract, California Appellate Court Affirms

Why it matters

Upholding an oral contract, the California Court of Appeal agreed with an employee that she should be paid a commission for certain work—despite an employment letter that expressly stated it superseded any oral agreements. M&C Hotel Interest, Inc., hired Jackie Chen in 2010 with a written job offer that “superseded” any oral statements by managers or supervisors. Chen later claimed her boss promised her 5 percent commission on the total revenue of any hotel room sales she made. The employer declined to pay the commission and Chen sued for breach of contract. A trial court found she was entitled to the commission based on an oral contract with her employer. The appellate panel affirmed, ruling that the offer letter referred to any oral statements that existed at the time Chen accepted the job and did not apply to subsequent statements. The court explained that the 5 percent commission was independent and collateral, supported by new consideration and extra sales duties. For employers, the opinion provides an important reminder to include language broad enough to cover all oral statements in order to avoid a similar fate.

Detailed discussion

Jackie Chen began working as the director of central procurement for M&C Hotel Interest, Inc., the owner of the Millennium Biltmore Hotel in downtown Los Angeles, in 2010, with responsibilities including cost control and savings for items such as furniture and equipment. The next year, her supervisor suggested she help bring in more Chinese business to the hotel and told her he would get her additional compensation because sales were not part of her regular job.

Chen began working to get an agreement with China Southern Airlines and indicated that 5 percent was the industry standard on commissions for room sales. She obtained a memorandum of understanding with the airline for a one-year period, and her supervisor told her the hotel would pay her the 5 percent for every room sale. The airline renewed its contract at least two times.

In 2013, Chen sent her production report requesting commission for 2012 room sales. The hotel refused to pay her. After she resigned, the hotel sent a letter stating that it had a policy of not paying commission on crew room sales and claimed she was repeatedly informed of this policy.

She sued, asserting causes of action for breach of oral contract and declaratory relief. Following a bench trial, the trial court found her supervisor had actual authority to enter the agreement on behalf of the hotel and that the plaintiff was owed a 5 percent commission on her room sales for a three-year period. The court ordered payment of contractual damages of $149,283.11.

The hotel appealed. It argued that the plaintiff’s written employment agreement precluded the existence of the oral contract, that the supervisor lacked the authority to enter the contract, and that damages should not have been awarded for three years, which included time after Chen left the hotel’s employment. The panel affirmed the trial court verdict on all counts.

The court quickly rejected the hotel’s argument based on the employment offer. The plaintiff’s employment agreement stated: “Please note that any oral statements on the part of supervisors, managers, or other employees of [defendant] concerning conditions of employment are superseded by the terms of this letter … ”

“Implicit in the present tense use of ‘are’ is that the written employment agreement supersedes any oral statements in existence at the time plaintiff entered into employment,” the panel wrote. “However, the employment offer’s language does not mention anything about future oral statements or agreements.”

Chen’s employment agreement concerned her salary and her job duties as director of central procurement, the court added, while the subsequent oral contract involved a new job duty—sales—with a different form of compensation. “The oral contract was thus independent and collateral to her written employment agreement,” the court said, “supported by new consideration, namely new compensation.”

The appellate panel also agreed with the trial court that Chen’s supervisor had the authority to enter the oral contract on behalf of the defendant and that the evidence of mutual assent between the parties was “quite clear.”

As for the length of the oral contract, the panel was not persuaded by the hotel’s position that it should have ended when the plaintiff left the defendant’s employ. At trial, the supervisor testified that the standard duration of such contracts was three years and that he agreed the commission payments should last for the life of the China Southern Airlines business relationship with the hotel. Further, the parties did not include a requirement in the oral contract that the plaintiff had to be a current employee to receive the commission, the court noted.

In addition to affirming the verdict in favor of the plaintiff, the panel found that attorneys’ fees were appropriate because the room sales commission fell under the California Labor Code’s definition of “wages,” remanding the calculation of a fee award to the trial court.

To read the opinion in Chen v. M&C Hotel Interest, Inc., click here.

Beyoncé Concert Visit Ends Employee’s FMLA Suit

Why it matters

A Texas federal court reaffirmed an employer can terminate an employee who is out on Family and Medical Leave Act (FMLA) leave but fails to communicate with the employer, and threw out a plaintiff’s charge of interference and retaliation under the statute. Struggling with her workload, a marketing director was put on a performance improvement plan. Upset, the employee had a breakdown and requested short-term leave under the statute. The employer granted the leave. A few days later, while still on leave, the employee attended a Beyoncé concert in the employer’s corporate box. A human resources employee then reached out with phone calls and emails to determine why the worker was well enough to attend a concert but not to work. When the employee failed to respond by a deadline, she was terminated and then filed a lawsuit alleging violations of the FMLA. The court granted the defendant’s motion to dismiss, finding that not only did the employer have an honest suspicion that the plaintiff was abusing her leave, but also that it was fair to conclude she was abusing her leave when she failed to respond to multiple inquiries.

Detailed discussion

In 2002, Michelle Jackson began working for BNSF Railway Co. After more than a decade, she accepted a position as a marketing manager and relocated to Texas. She struggled with the increased workload and limited her travel in an attempt to increase her proficiency in the new position.

Just a month later, however, her supervisor put her on a performance improvement plan (PIP). Unhappy with the plan, Jackson suffered a breakdown a few days later and notified her supervisor that she was “not well to return back to work,” requesting short-term disability. Over the next week, the employer reached out on multiple occasions about administrative issues, such as a delinquent charge on the company credit card and setting up an out-of-office response for Jackson’s email and phone.

One week after her breakdown, while still on leave, Jackson attended a Beyoncé concert in the employer’s suite. When the company found out, a human resources (HR) representative reached out to Jackson to discuss why she thought it was appropriate to attend the concert when she was not working.

Jackson—who had not responded to several of the earlier administrative messages—responded that she had not been released by her doctor to meet and that as soon as she was cleared, she would contact her employer. The HR representative replied with a request to speak with Jackson by the close of business, cautioning her that she could be terminated if she failed to do so.

When she did not meet the deadline, BNSF terminated her employment. As the reasons for her termination, the employer pointed to Jackson’s poor work performance, her attendance at the concert while being off work and her refusal to communicate when requested to explain her attendance at the concert.

Jackson filed suit under the Family and Medical Leave Act (FMLA), alleging the employer interfered with the exercise of her rights under the statute and retaliated against her for taking leave.

The employer moved to dismiss, arguing that the plaintiff was terminated for legitimate business reasons. U.S. District Judge John McBryde agreed, granting the motion. Employees who request or take leave under the FMLA are not entitled to any greater rights or benefits than they would be entitled to had they not requested or taken leave, the court said.

“Here, the summary judgment evidence is that defendant suspected plaintiff of committing fraud, that is, claiming a benefit to which she was not entitled,” the court wrote. “Defendant attempted to investigate, but plaintiff refused to cooperate, leading to her termination. Defendant’s honest suspicion of abuse is sufficient to defeat plaintiff’s substantive FMLA rights.”

As for Jackson’s retaliation claim, even assuming she could make a prima facie case, the court agreed with the employer that Jackson failed to show that its reason for discharging her was not the true reason for her termination. Her supervisor and the HR representative testified that they believed the plaintiff was abusing her medical leave because she started it shortly after receiving a PIP, attended a Beyoncé concert within days in the defendant’s luxury suite, and then refused to discuss her reasons for attending the concert when she claimed to be too ill to work.

Even if the employer was incorrect in its assessment, the belief “constitutes a legitimate, nondiscriminatory reason for the termination,” Judge McBryde wrote. “Plaintiff has not come forward with summary judgment evidence to show that this was pretext for retaliation.”

The court granted the employer’s motion to dismiss.

To view the memorandum opinion and order in Jackson v. BNSF Railway Company, click here.

Seventh Circuit: ADA Not ‘A Medical Leave Entitlement’

Why it matters

Once an employee has used up his Family and Medical Leave Act (FMLA) allotment, he is not entitled to take additional time off pursuant to the Americans with Disabilities Act (ADA), the U.S. Court of Appeals, Seventh Circuit recently ruled. A fabricator for Heartland Woodcraft, Inc., Raymond Severson took 12 weeks of FMLA leave for back pain. On his last day of leave, Severson had back surgery that necessitated up to three months of time off. He asked for additional leave pursuant to the ADA, but his employer denied the request and terminated his employment, suggesting he reapply for his job after being medically cleared for work. Instead, Severson filed suit. Affirming summary judgment in favor of the employer, the Seventh Circuit explained that a multimonth leave of absence was beyond the scope of a reasonable accommodation, which is limited to measures that enable an employee to work. Employees who need long-term medical care cannot work and are therefore not qualified individuals with a disability under the ADA, the panel said, which is “an antidiscrimination statute, not a medical leave entitlement.”

Detailed discussion

From 2006 to 2013, Raymond Severson worked as a fabricator of retail display fixtures for Heartland Woodcraft, Inc. The work was physically demanding and Severson suffered from back pain for several years. In 2013, he took a 12-week leave pursuant to the Family and Medical Leave Act (FMLA) after wrenching his back and aggravating his condition.

Toward the end of his leave, Severson reached out to his employer to explain that because the injury had not improved, his doctor recommended he undergo surgery that would require an additional two to three months of recovery time. But because Severson had already maxed out his FMLA leave, Heartland denied the leave request. The company encouraged Severson to reapply for his job once he was medically cleared to work.

Severson underwent surgery and was eventually permitted to return to work by his doctor. Instead of reapplying for his job, however, he filed suit alleging the employer discriminated against him in violation of the Americans with Disabilities Act (ADA) by not accommodating his physical disability when it denied his request for a two-to-three-month leave of absence.

Heartland moved for summary judgment, arguing that the proposed accommodation was not reasonable. A district court judge in Wisconsin sided with the employer and granted the motion.

Severson appealed, but the U.S. Court of Appeals, Seventh Circuit affirmed.

While the concept of a “reasonable accommodation” is flexible, the baseline requirement found in the definition of a “qualified individual” is concrete, the court said: “A ‘reasonable accommodation’ is one that allows the disabled employee to ‘perform the essential functions of the employment position.’ If the proposed accommodation does not make it possible for the employee to perform his job, then the employee is not a ‘qualified individual’ as that term is defined in the ADA.”

“Putting these interlocking definitions together, a long-term leave of absence cannot be a reasonable accommodation,” the federal appellate panel concluded. “Simply put, an extended leave of absence does not give a disabled individual the means to work; it excuses his not working.”

A brief period of leave to deal with a medical condition could be a reasonable accommodation in certain circumstances, the court acknowledged, as could intermittent time off. “But a medical leave spanning multiple months does not permit the employee to perform the essential functions of his job,” the panel said. “To the contrary, the ‘[i]nability to work for a multi-month period removes a person from the class protected by the ADA.’”

Long-term medical leave is the domain of the FMLA, the court added.

The panel was not impressed with an amicus brief filed on behalf of the plaintiff by the Equal Employment Opportunity Commission (EEOC). The agency argued that a long-term medical leave of absence should be recognized as a reasonable accommodation when the leave was of a definite, time-limited duration, requested in advance, and likely to enable the employee to perform the essential job functions when he returns.

But the court expressed concern that the length of leave did not matter in the EEOC’s position, transforming the ADA “into a medical-leave statute—in effect, an open-ended extension of the FMLA. That’s an untenable interpretation of the term ‘reasonable accommodation.’”

“The ADA is an antidiscrimination statute, not a medical leave entitlement,” the panel wrote. “An employee who needs long-term medical leave cannot work and thus is not a ‘qualified individual’ under the ADA. … A multimonth leave of absence is beyond the scope of a reasonable accommodation under the ADA.”

To read the opinion in Severson v. Heartland Woodcraft, Inc., click here.

Social Media, Behavior Policies Tossed by NLRB ALJ

Why it matters

Prohibiting social media activity by employees that “reflect[s] poorly” on the employer violates the National Labor Relations Act (NLRA), an administrative law judge (ALJ) determined. Employees filed an unfair labor charge against National Captioning Institute (NCI), challenging two rules they alleged infringed on their Section 7 rights under the statute. In addition to the problems with the social media policy, the ALJ found that an “unacceptable behavior policy” could reasonably be read by employees to ban them from criticizing NCI, and ordered the employer to rescind both policies. The ALJ also held that the termination of two workers because of their union activity should be remedied by rehiring them and providing back pay.

Detailed discussion

A nonprofit corporation, National Captioning Institute, Inc., provided closed-captioning, subtitling and other media services for national broadcasters, cable TV networks, corporations and universities.

In early 2016, the National Association of Broadcast Employees & Technicians-Communications Workers of America attempted to unionize the company’s offices. The employer began monitoring its employees’ union activities, searching chat logs on the company’s messaging system and identifying workers supporting the movement.

During the same time period, the company decided to close its Texas office and offered some of its workers the option to apply for remote, work-from-home positions or transfer to other offices. Two employees previously identified as pro-union had their requests to work from home denied, even though they both had positive performance reviews and one had already been working remotely for years.

After both were terminated, they filed unfair labor charges with the National Labor Relations Board (NLRB). As part of the action, they also challenged two personnel policies.

The social media policy stated: “If you opt to post about your job on social media, it must be done responsibly … [Here are] … our guidelines …” Specific instructions detailed a prohibition on posts about NCI’s software as well as subjective commentary that “could reflect poorly upon NCI’s professionalism or reputation” or commented on the quality of other captioning. Further, the employer instructed workers not to “use the NCI name on any posts that are Google-searchable,” reminding them that “[y]ou are NOT anonymous on the internet.”

A second policy addressed “Unacceptable Behavior,” prohibiting employees from accusing NCI management of dishonesty and acting in bad faith, complaining in an “aggressive and hostile manner” to either management or coworkers, disparaging and bullying management, and spreading personal information about NCI employees.

Considering the personnel policies, Administrative Law Judge (ALJ) Robert A. Ringler found both violated Section 8(a)(1) of the National Labor Relations Act (NLRA).

The social media policy was unlawful in several ways, the ALJ said. Employees could reasonably construe the restriction on generating social media posts that do not “reflect well upon NCI” to ban their Section 7 right to collectively criticize their employer or workplace, he wrote. The policy also improperly banned usage of the company’s name on searchable posts, which “could reasonably be construed by employees to ban them from naming NCI in posts about their wages, hours or other terms and conditions of employment on any ‘Google-searchable’ platform.”

The “online harassment” prohibition could be read by employees to bar online Section 7 activities such as solicitations to initially resistant coworkers to support the union, while the software posting ban left no exception for software postings that do not reveal proprietary matters while simultaneously touching upon collective concerns.

Similarly, the Unacceptable Behavior policy violated the NLRA by prohibiting disrespectful workplace commentary, “which could reasonably be construed by employees to ban statements of criticism of their employer,” while the bar on “spreading … personal information” about coworkers could be understood to ban sharing wage and other workplace data for collective purposes, Ringler wrote.

Additional violations of the NLRA included the employer’s surveillance of email, chat logs and other electronic communications, as well as the discharge of both employees.

The ALJ ordered the company to rescind the overbroad policies and offer both workers full reinstatement to their former jobs without prejudice to their seniority or any other rights or privileges, making them whole for any loss of earnings and other benefits including back pay.

To read the decision and order in National Captioning Institute, Inc., click here.

EEOC Wellness Regs Could Feel Better in 2018

Why it matters

The Equal Employment Opportunity Commission (EEOC) has promised to revise its regulations for employer wellness programs by mid-2018 in a new filing in Washington, D.C., federal court. In 2016, the agency issued final rules attempting to clarify how the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA) apply to workplace wellness programs. The AARP challenged the new rules, arguing they violate antidiscrimination provisions found in both statutes by forcing nonparticipating employees to effectively pay a penalty in the form of higher insurance premiums than do those who elect to share their disability and genetic information with employers. Last month, the D.C. court granted summary judgment in favor of the AARP but declined to throw out the rules, expressing concern that vacating the rules would “cause potentially widespread disruption and confusion.” Instead, the court remanded the rules to the EEOC for reconsideration. The agency recently filed a status report with the court that its “present intention” is to propose new rules by the middle of next year, estimating that this would result in a new rule taking effect in 2021. However, the EEOC was careful to note that the timeline could change, offering to provide the court with an update in April 2018.

Detailed discussion

With the goal of providing greater clarity to employers about the application of the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA) to workplace wellness programs consistent with the Health Insurance Portability and Accountability Act (HIPAA), the Equal Employment Opportunity Commission (EEOC) published a pair of final rules last year.

HIPAA prevents health plans and insurers from discriminating on the basis of “any health status related factor,” but allows covered entities to offer “premium discounts or rebates” on a plan participant’s copayments or deductibles in return for that individual’s compliance with a wellness program. Employers have struggled with the collection of employee health information, however, as the data often implicates the ADA and/or GINA. Both statutes permit such collection for wellness programs as long as participation by the employee is “voluntary,” an undefined term.

The new rules established that employer wellness programs are voluntary if health coverage is not conditioned on participation and if a penalty for nonparticipation is no more than 30 percent of an employee’s health insurance premium.

In response, the AARP filed suit, noting that the new rules were a stark departure from the prior EEOC position, which maintained that employee wellness programs implicating confidential medical information were voluntary only if employers neither required participation nor penalized employees who chose to keep their information private.

Further, the rules violated the antidiscrimination provisions in both the ADA and GINA by forcing nonparticipating employees to effectively pay a “penalty” in the form of higher insurance premiums than do those who elect to share their disability and genetic information with employers, the AARP argued. The 30 percent threshold permits a penalty so substantial as to make an employee’s participation involuntary, the AARP told the court, at an average cost of $1,800 to $5,200 per year.

Applying the two-step analysis found in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., U.S. District Judge John D. Bates agreed with the AARP that the EEOC failed to offer a reasoned explanation for the creation of the 30 percent threshold.

The parties agreed that the meaning of “voluntary” as used in the ADA and GINA is ambiguous, but the court declined to defer to the EEOC’s chosen interpretation of the term. Some level of incentives may be permissible under the statutes, but “the agency has not provided a reasoned explanation for its interpretation,” the court said, with “nothing in the administrative record that explains the agency’s conclusion that the 30 percent incentive level is the appropriate measure for voluntariness.”

Although the court granted the AARP’s motion for summary judgment, the remedy proved tricky given the consequences. The rules have already been in force for eight months, and employees who received incentives from their employers would presumably be obligated to pay them back; those who chose to disclose their protected medical information cannot make it confidential again, the court recognized.

Given that vacating the rules in their entirety “appears likely to cause potentially widespread disruption and confusion,” Judge Bates remanded the rules to the EEOC for reconsideration “for the present,” assuming the agency can address the rules’ failings in a timely manner.

In September, the EEOC provided the court with a timeline for the required change, stating that its “present intention” is to issue a notice of proposed rulemaking by August 2018 and a final rule by October 2019.

“This amount of time is necessary for the EEOC to further consider the issues at stake in the challenged rules, evaluate input from stakeholders within and outside the government, vote on any regulatory actions, obtain authorization from the Office of Management and Budget to promulgate regulations, and ultimately issue a final rule,” the agency explained. “Given the time that employers need to bring their plans into compliance with new regulatory requirements, any substantively amended rule likely would not be applicable until the beginning of 2021.”

The EEOC cautioned that its plans could change. Consideration of the relevant issues during the course of the rulemaking process could prove time-consuming, the potential for changes to the agency’s composition (nominees for two vacancies, including chair of the commission, are currently pending in the U.S. Senate) could derail the current plan, and the Solicitor General has yet to decide whether to take an appeal from the court’s August order.

Given these variables, the agency suggested “it would be most efficient for the Court to direct the EEOC to submit a further status report in April 2018, by which time the EEOC’s remand process should be significantly more developed,” the agency proposed.

To read the status report in AARP v. EEOC, 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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