HR Compliance and Regulatory Update

June 2011 HR Regulatory and Compliance Update

  June 2011 HR Regulatory and Compliance Update

The HR Regulatory and Compliance Update is provided in conjunction with  KPA partner, Ford & Harrison LLC,  a labor and employment law firms with a national practice in all aspects of labor and employment law, providing HR advice to providing HR advice to HotlinkHR™ clients. http://www.fordharrison.com

If you have any questions regarding this decision or other labor or employment law issues, please contact Jim Hendricks, jhendricks@fordharrison.com

Ninth Circuit Finds Employer Has Burden of Proof When Denying Reinstatement After FMLA Leave


Angela Quiles

In a case of first impression on a claim that an employer interfered with an individual's exercise of her rights under the Family and Medical Leave Act (FMLA), the Ninth Circuit Court of Appeals recently held that the employer bears the burden of proving it had a legitimate reason for not reinstating the employee to her former position following FMLA leave. The court further held that the employee is not required to demonstrate that her employer lacked a reasonable basis for its refusal to reinstate her. Sanders v. City of Newport (9th Cir. March 17, 2011).

Background

Sanders, a former utility billing clerk who had worked for the City of Newport for approximately 10 years, began suffering health problems after the City moved her office to a new location and started using lower-grade billing paper. After being diagnosed with "multiple chemical sensitivity" triggered by handling low-grade paper at work and poor air quality in her work area, Sanders requested and was granted one month of FMLA leave. This leave was later extended because of an unrelated medical condition.

Subsequently, Sanders submitted a letter from her doctor stating that she had recovered from her unrelated medical condition and she could return to work, so long as she avoided use of the problem-causing low-grade paper. Sanders also submitted a fitness for work certificate from the surgeon who treated her unrelated medical condition.

On May 5, 2006, the City informed Sanders that she would not be permitted to return to work because the City could not guarantee that her workplace would be safe for her to due to her chemical sensitivity. On January 8, 2007, the City sent Sanders a letter advising her that her employment would be terminated that same day "due to the restrictions placed on [her] by [her] physician, Dr. Morgan, which the City is unable to accommodate." Sanders filed an administrative appeal. In response to her appeal, the City informed her: "The decision to terminate your employment was made for the reason that the City could not provide a safe workplace for you given your sensitivity to chemicals and the lack of knowledge as to the chemicals or concentrations that may cause a reaction."

Sanders subsequently sued the City in federal court, claiming violations of the FMLA, the Americans with Disabilities Act (ADA) and the Oregon Family Leave Act (OFLA), as well as other federal and state laws. After the jury returned a verdict for the City on Sanders' FMLA claim, she filed an appeal with the Ninth Circuit. Sanders argued that the court's FMLA jury instruction improperly placed the burden on her to prove that she was denied reinstatement without reasonable cause and that by adopting a reasonable cause requirement, the court incorrectly stated the elements of her FMLA claim.

The Ninth Circuit agreed with Sanders and reversed the lower court's decision, remanding the case for a new trial.

FMLA Interference Claim

Under 29 U.S.C. §2615(a)(1), it is "unlawful for any employer to interfere with, restrain, or deny the exercise of or the attempt to exercise" the substantive rights guaranteed by FMLA. When a party alleges a violation of §2615(a)(1), it is known as an "interference" or "entitlement" claim. The Ninth Circuit held that the right to reinstatement is the linchpin of the entitlement theory because "'the FMLA does not provide leave for leave's sake, but instead provides leave with an expectation that an employee will return to work after the leave ends.'" (Citations omitted). Thus, evidence that an employer failed to reinstate an employee who was out on FMLA leave to her original (or equivalent) position establishes a prima facie denial of the employee's FMLA rights. See 29 C.F.R. §825.220(a)(1),(b)[1].

Citing decisions from the Sixth and Seventh Circuits, the Ninth Circuit summarized the elements of an employee's prima facie case where the employer fails to reinstate the employee: "the employee must establish that: (1) he was eligible for the FMLA's protections, (2) his employer was covered by the FMLA, (3) he was entitled to leave under the FMLA, (4) he provided sufficient notice of his intent to take leave, and (5) his employer denied him FMLA benefits to which he was entitled." The court also noted that in interference claims, the employer's intent is irrelevant to a determination of liability.

The court then held that although the FMLA creates a statutory right to reinstatement after taking FMLA leave, this right is not without limits. The court noted that the Department of Labor (DOL) has interpreted this part of the statute in various regulations that set forth the limitations on an employee's right to reinstatement. However, the DOL regulations do not clearly state which party has the burden of the proof when an employer defends against a denial of reinstatement by asserting one of these limitations and the federal appeals courts are divided on this issue.

Burden of Proof for Failure to Reinstate

The regulation at issue in this case, 29 C.F.R. §825.214, addresses an employee's right to return to work following FMLA leave and states that "if the employee is unable to perform an essential function of the position because of a physical or mental condition, including the continuation of a serious health condition, the employee has no right to restoration to another position under the FMLA." Although the text of this regulation is ambiguous with respect to the parties' respective burdens, the Ninth Circuit held that it is clear from other regulations that the burden rests with the employer to establish whether the employee can perform the essential functions of the job. Thus, the employer has the burden of showing that it had a legitimate reason to deny the employee reinstatement and the trial court's contrary jury instruction was erroneous.

The Ninth Circuit also held that the trial court erroneously instructed the jury that Sanders was required to prove that the City did not have "reasonable cause" to deny her reinstatement. The court noted that the DOL regulations interpreting the limitations on an employer's obligation to reinstate an employee include no reference to a "reasonable cause" standard. The Ninth Circuit held that by adding a reasonable cause requirement as an element of Sanders' reinstatement claim, the trial court's instruction permitted the jury to assess the City's overall response to Sanders' complaints rather than directing the jury to consider the specific reasons under DOL regulations why the City refused to reinstate Sanders to her former position after taking FMLA leave. The court held that this approach is contrary to the FMLA. Further, the court held that this instruction was not harmless because it added an unnecessary element to Sanders' burden of proving her FMLA reinstatement claim.

Accordingly, the Ninth Circuit vacated the judgment on the jury's verdict and remanded the case for a new trial.

What This Means for Employers

The effect of the court's decision in Sanders is that when an employer seeks to establish that it had a legitimate reason to deny an employee reinstatement, the employer must be prepared to prove the employee had no right to be reinstated. This is true even though the right to reinstatement from FMLA leave is not absolute. Unlike FMLA discrimination or retaliation cases, which apply the type of burden shifting framework recognized in McDonnell Douglas v. Green to evaluate such claims, employers in FMLA interference and reinstatement cases are at a disadvantage in the Ninth Circuit because they carry the ultimate burden of proof that the employee was not entitled to reinstatement. Thus, employers considering discharging an employee who has taken FMLA leave must ensure that the legitimate business reason for the discharge is clear and adequately documented.

If you have any questions regarding this decision or the requirements of the FMLA, please contact the author of this Alert, Angela M. Quiles, aquiles@fordharrison.com, or Jim Hendricks, jhendricks@fordharrison.com  or the Ford & Harrison attorney with whom you usually work.

[1] The DOL amended its FMLA regulations effective January 16, 2009; however, the regulations discussed by the court were virtually unchanged in substance. Because the events in this case took place prior to the effective date of the amendments, the court cited the 2008 FMLA regulations.

Florida Minimum Wage Increases to $7.31 Effective June 1, 2011

Effective June 1, 2011, Florida's minimum wage will increase to $7.31 per hour. Because this is higher than the current federal minimum wage rate, covered employers will be required to comply with the higher state minimum wage.

The increase is the result of a lawsuit filed earlier this year, which challenged the way the Florida Agency for Workforce Innovation (AWI) calculated adjustments to the state minimum wage rate in 2010 and 2011. See Cadet v. Fla. Agency for Workforce Innovation. Florida law requires the AWI to adjust the minimum wage rate each year for inflation based on the consumer price index for certain workers. The lawsuit claimed the AWI erroneously decreased the state minimum wage rate in 2010 and used this rate to calculate the 2011 rate. The court agreed with the plaintiffs, holding that the method the AWI used to calculate the state minimum wage rate violated state law. Accordingly, the court ordered the agency to issue a notice stating that the state minimum wage will increase to $7.31 per hour effective June 1, 2011.

Florida's minimum wage law applies to all employees in the state of Florida who are covered by the federal minimum wage law. Employers of "tipped employees" who meet eligibility requirements for the tip credit under the Fair Labor Standards Act (FLSA) may count tips actually received as wages under the Florida minimum wage. However, the employer must pay "tipped employees" a direct wage. The direct wage is calculated as equal to the minimum wage ($7.31) minus the 2003 tip credit ($3.02), or a direct hourly wage of $4.29 as of June 1, 2011.

Employers who must pay their employees the Florida minimum wage must post a notice of the state minimum wage requirement (in addition to posting a notice as required by the FLSA). A Florida law poster can be downloaded from the AWI web site at: http://www.floridajobs.org/workforce/posters.html.

If you have any questions regarding this issue, please contact the Ford & Harrison attorney with whom you usually work or Jim Hendricks, jhendricks@fordharrison.com

Legal Alert: DOL Launches Smartphone Timesheet App

5/13/2011

Executive Summary: The Department of Labor's (DOL)'s new smartphone app, a timesheet that enables employees to track their hours and determine the wages they may be owed, makes it more important than ever for employers to ensure that they have accurate and effective record-keeping procedures and that exempt employees are appropriately classified.

The New Timesheet App

The app, a link for which is available on the Wage and Hour Division's web page, http://www.dol.gov/whd/, includes overtime pay calculations at a rate of one and one-half the employee's regular rate of pay but does not handle items such as tips, commissions, bonuses, deductions, holiday pay, pay for weekends, shift differentials, or pay for regular days of rest.

The app permits users to add comments on any information related to their work hours; view a summary of work hours in a daily, weekly and monthly format; and email the summary of work hours and gross pay as an attachment. Additionally, the app includes a glossary with the DOL's important terms and a "contact us" button with links to the DOL's Wage and Hour division.

Currently the app is compatible with the iPhone and iPod Touch. The DOL has stated it will explore updates that could enable similar versions for other smartphone platforms, such as Android and BlackBerry, as well as other pay features

The App Will be Useful in Wage Hour Investigations

In the press release announcing its launch, the DOL stated that the app is significant because "instead of relying on their employers' records, workers now can keep their own records. This information could prove invaluable during a Wage and Hour Division investigation when an employer has failed to maintain accurate employment records." Thus, it is clear that the DOL views this app as an important tool for employees who want to challenge their employer's pay practices.

A number of other issues are not so clear, however. For example, can an employer require employees to turn in the timesheets created from the app so these records can be compared to the employer's records to ensure there are no discrepancies? What action should an employer take if there are discrepancies between the records? Can an employer fire an employee for refusal to turn in these records when requested? Or would such action violate the FLSA's antiretaliation provision? If the records are created from an app installed on an employer-provided smartphone, does that change the answer to any of the prior questions? It is possible the DOL will issue guidance that clarifies some of these issues; however, other issues may not be resolved short of litigation.

If you have any questions regarding the new app or other wage and hour issues, please contact the Ford & Harrison attorney with whom you usually work or Jim Hendricks, jhendricks@fordharrison.com

CMS Issues Unreasonable Rate Increase Final Rule

6/1/2011
Daniel Sulton

Executive Summary: The recently published Rate Increase Disclosure and Review Final Rule, which takes effect July 18, 2011, provides that certain health insurance issuers with a rate increase filed in a state or becoming effective on or after September 1, 2011, will be subject to review for reasonableness if the rate increase is 10% or more. This could create problems for employers with fully-insured health plans utilizing a small group policy.

Details of Final Rule

The Affordable Care Act requires the Department of Health and Human Services in conjunction with states to establish an annual review process for unreasonable rate increases in health insurance coverage. The Center for Consumer Information and Insurance Oversight and the Centers for Medicare and Medicaid Services (CMS) published the rate increase disclosure and review final rule on May 23, 2011, which will become effective on July 18, 2011.

Under the Rate Increase Disclosure and Review Final Rule ("Rate Review Rule"), health insurance issuers offering health insurance in the small group or individual market whose rate increase meets or exceeds certain thresholds must disclose certain information to allow the state or CMS to determine if the rate increase is reasonable. The Rate Review Rule only applies to health insurers (i.e., insurance companies) issuing individual or small group policies. Small group is defined in accordance with the applicable state's insurance laws, or in the absence of a definition under the state's insurance laws, small group is defined as employers with 50 or fewer employees. The Rate Review Rule also does not apply to grandfathered health policies or policies providing only excepted benefits (i.e., limited scope dental and vision benefits, etc.).

The Rate Review Rule states that any product (i.e., package of health insurance benefits with its own set of rating and pricing methodologies a health insurer offers in a state) with a rate increase filed in a state or becoming effective on or after September 1, 2011, will be subject to review for reasonableness if the rate increase is 10% or more, or the rate increase meets or exceeds the applicable state-specific threshold. CMS will provide notice no later than June 1 of each year, indicating for each state whether the 10% threshold or the state-specific threshold will apply. For the 12-month period beginning September 1, 2011, the 10% threshold will apply in all states.

The rate increase meeting or exceeding the threshold will be reviewed by CMS only in the absence of an "Effective Rate Review Program" in the state in which the product is offered. Even if there is an Effective Rate Review Program in the state, a preliminary justification of the rate increase must be submitted to CMS and the state prior to implementing the rate increase or, if applicable, on the date the proposed rate increase is required to be submitted to the state for review. Information submitted as part of the preliminary justification will be posted on the CMS website except portions that contain trade secret or confidential information. A rate increase will be considered unreasonable under a CMS review or state review if it is excessive, unjustified, or unfairly discriminatory. In the case of a state review, a rate increase is also unreasonable if it is otherwise unreasonable as determined by the state. If a state reviews the rate increase, CMS will accept the state's final review determination. Final determinations made by CMS or by the state will be posted on the CMS website. Timeliness of a state's review presumably will be governed by state law. The Rate Review Rule states that CMS must complete its review in a timely manner. However, no guidance is provided to clarify what will be considered a timely review.

If an insurer decides to implement a rate increase which has been determined to be unreasonable, the insurer must provide a final justification to CMS responding to the final determination from CMS or the state. This final justification must be posted on the insurer's website and the CMS website for a minimum of three years. Although some states have authority to deny rate increases, CMS does not. However, CMS may provide supplemental performance grant funding to states with such rate denial authority or to states which seek such authority. Recipients of such grants must make recommendations to the state's Health Exchange regarding whether or not to exclude a health insurer based on a practice of unreasonable rate increases. The Exchange must consider such recommendations, but is not required to follow them.

Employers' Bottom Line

Employers with small fully-insured health plans may be impacted by the Rate Review Rule if their policy is from a product under CMS or state review for rate increase reasonableness. It is unclear how long the review will take or even if the insurer will modify the rate increase if it is found to be unreasonable. In a state without the authority to deny the rate increase, this may cause some difficulties for the employer. An employer in such a state may need to determine whether to switch policies and/or carriers because of the unreasonable rate increase or implement the policy with the unreasonable rate increase with the hope of a possible refund if the rate increase is lowered at a later time. Employers with small fully-insured health plans should monitor the CMS website for information on health insurance coverage products with possible unreasonable rate increases.

If you have any questions regarding this Legal Alert or need assistance with any of the Health Care Reform law changes, please contact Daniel T. Sulton ,   dsulton@fordharrison.com or any member of Ford & Harrison's Employee Benefits Group or Jim Hendricks, jhendricks@fordharrison.com

 Additional information regarding Health Care Reform may be found on the Ford & Harrison LLP website at www.fordharrison.com.

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