Category Archives: employers

The Trouble with 401(k) Investment Policies

Contributed by Rebecca Dobbs Bush, September 15, 2017

If I had a dollar for every time this conversation occurred…

Lawyer: Do you have a copy of your investment policy?

                Client: Who would have been the one to write that?  Us? Our broker/advisor?

Or, this one…

Lawyer: Is your investment advisor serving as a fiduciary to your plan?

                Client: What does that mean? How would I determine that?

17800977 - an ornate clock with the words time to invest on its faceThe most common area in which 401(k) plans are being scrutinized these days is in their selection and design of investment offerings. While participants often get to direct how their funds are invested, that direction is limited to only those investment offerings that an employer/sponsor makes available as part of the 401(k) plan.

Employers typically rely on investment advisors to help design the options available to participants. In some cases, options are limited depending on the total dollars invested in the plan. In many cases, the investment advisor provides the employer with a model investment selection policy to customize and adopt.

While a model policy is a helpful starting place, in many cases the employer, not quite sure what to do with it, never customizes the model policy and instead sticks it away in a file. The policy is then often forgotten and not reviewed or even referenced each time investment offerings are scrutinized. It is impossible to ensure the selection and design of the investment offerings is in line with the policy if the policy has been completely forgotten.

Every employer that offers a 401(k) plan should ask themselves the following:

  1. What fiduciary status does the plan’s investment advisor maintain? (i.e., who really has the final say on investment option design and selection for the plan?); and
  2. What is our 401(k) investment policy and what are we doing to make sure it’s understood and being followed by decision-makers for the plan?

An employer that can’t answer these questions is not only vulnerable to potential litigation, but also risks the potential of not maximizing the invested assets of all participants.

In most cases with a 401(k) plan, an employer is supposed to serve as a trusted fiduciary maintaining a multi-million dollar investment portfolio on behalf of their employees.  With that much at stake, an employer needs to make sure it is selecting and monitoring investments, along with a skilled investment advisor, carefully and diligently.

How Will the End of the Deferred Action For Childhood Arrival (DACA) Affect Employers?

Contributed by Sara Zorich, September 14, 2017

On September 5, 2017, the Acting Secretary of Homeland Security rescinded the memorandum issued during the Obama administration that had established the Deferred Action for Childhood Arrival (DACA) program, announcing that it will be phased out over the next six months, allowing Congress time to craft a “permanent legislative solution.”

Ending DACA will affect not just the people covered under the program, but also thousands of employers nationwide. A controversial Obama-era policy, DACA has been a program where certain people who came to the United States as minors without documentation, yet met several guidelines, could request consideration of deferred removal proceedings and request authorization to live and work in the United States legally. Currently, the program shields around 800,000 young undocumented immigrants from deportation and allows them to work legally.

U.S. Citizenship and Immigration ServicesU.S. Citizenship and Immigration Services (USCIS) issued new guidance on their website as of September 5, 2017 regarding initial DACA requests and DACA renewals. Here are the key points to note:

  • DACA beneficiaries will not be affected until after March 5, 2018—six months from the date of the announcement
  • No new DACA applications will be considered, but applications filed by September 5, 2017 will still be processed
  • Current DACA recipients whose permits and or work authorization expires between now and March 5, 2018, have until October 5, 2017 to apply for renewal of these benefits

In light of this change, employers are recommended to review their Form I-9’s and identify any individual whose work authorization is going to expire on or before March 5, 2018. Employers should notify these employees of the date their work authorization will expire and remind them that the company cannot continue to employ the employee past this expiration date unless the employee is able to provide proof of continued work authorization. To reiterate, any DACA renewals must be filed no later than October 5, 2017 or USCIS will not process them. Read the USCIS announcement for details.

However, some Employment Authorization Document (EAD) categories (other than DACA) have been granted a 180 day automatic extension to the employee’s work authorization deadline. Visit the USCIS website for more information on the eligibility requirements for the Automatic Employment Authorization Document (EAD) Extension. Thus, employers must be careful to follow the applicable guidelines when addressing the proper end date of an employee’s work authorization and reauthorization requirements.

Final Takeaway: Employers must understand that they MAY NOT discriminate and cannot refuse to hire an individual solely because that individual’s employment authorization document will expire in the future.

We anticipate that Congress may now attempt to fast track some type of immigration reform related to those persons that were formerly covered under DACA, but only time will tell.

Seventh Circuit Opinion Focuses on Employee Handbook in Determining Whether Employer had Constructive Notice of Non-Supervisory Sexual Harassment

Contributed by Allison P. Sues, August 22, 2017

Employee handbookOn August 2, 2017, the United States Court of Appeals for the Seventh Circuit issued a decision in Nischan v. Stratosphere Quality, LLC providing clarity on what constitutes an employer’s “constructive notice” of harassment.

Michele Nischan worked as a project supervisor at Stratosphere Quality, LLC, a company that provides third-party inspection and quality-control services to car manufacturers. Nischan alleged that an employee of one of the client manufacturers “relentlessly” sexually harassed her by routinely rubbing himself against her and making offensive comments, amid other inappropriate actions.

Because the alleged harasser did not have supervisory authority over Nischan, Stratosphere could only be held liable for the alleged sexual harassment if it was negligent in discovering or remedying it. Normally, to prevail on this type of claim, the employee presents evidence that she made a concerted effort to report the harassment. Here however, it was undisputed that Nischan did not report the harassment during the relevant time period.

Nevertheless, an employer may be held liable even when an employee fails to report sexual harassment if the employer knew or should have known of the harassing conduct but failed to act. The Federal Appellate Court explained that constructive notice will generally attach when someone who has a duty to pass the information up the chain of command learns of the harassment.

Nischan claimed a fellow project supervisor (her peer) and an operations manager were both present when one of the incidents of harassment occurred. However she testified she was unsure whether the operations manager witnessed the harassment and he denied witnessing any conduct that constituted sexual harassment.  The lower court concluded there was no basis to impute liability to the employer because only her peer, not the higher level employee, knew of the harassment.

The Seventh Circuit disagreed.  Even though the project supervisor who witnessed the harassment held the same low level project supervisor position as Nischan and was not Nischan’s supervisor, the employer’s handbook required that any employee with any supervisory responsibility report observed instances of harassment up the chain of command or to human resources. The Seventh Circuit noted that the employer “is accountable to the standard of care it created for itself” and that because the employer’s own rules “required [the project supervisor] to report the sexual harassment that she observed, Stratosphere had constructive notice of the harassment.”

Bottom Line: This case serves as a reminder that each company’s unique employee policy may guide the court in determining an employer’s legal obligations. Employers should review their harassment and reporting policies and ensure that all employees that fall under its scope receive proper training on identifying harassing behavior—even if it is directed at another—and promptly reporting it.

Responding to Violence in the Workplace – A “Catch 22” for Employers

Contributed by Michael Wong, August 10, 2017

Workplace investigation

The recent instances of violence in the workplace remind us of the complex task facing employers. Employers must maintain a safe work environment for employees while operating within the parameters of the many federal and state laws that may protect certain employee conduct. More importantly, because an employer has no objective “litmus test” for predicting which employee may become violent under particular triggering circumstances, there is no foolproof way to effectively eliminate the hazard.

Employers today can find themselves in a seemingly untenable dilemma when they have violence threaten to invade their workplace, as disciplining or terminating the problem employee can result in a legal claim as well.

In Mayo v. PCC Structurals, Inc., 795 F.3d 941, 942 (9th Cir. 2015), the employer, PCC, terminated the plaintiff, Thomas Mayo, after he made threatening comments to three co-workers that he was going to bring a gun to work and start “shooting people.” After the threats were reported, the employer took the proper precautions by immediately suspending the plaintiff, barring him from company property, and notifying the police. The police took him to the hospital for medical treatment on the basis that he was an imminent threat to himself and others.

After taking three months of leave under the FMLA and Oregon’s equivalent state law, a treating psychologist cleared Mayo to return to work, but recommended a new supervisor assignment. Instead, the employer terminated Mayo. Plaintiff then sued PCC alleging he was terminated because of his disability in violation of the Americans with Disabilities Act (ADA) and state law.

In Mayo v. PCC, the United States Court of Appeals for the Ninth Circuit held that an employee who made serious and credible threats of violence against coworkers is not a qualified individual with a disability under the ADA or Oregon’s disability discriminatory law. In granting summary judgment to the employer, the Court held that an essential function of almost every job is the ability to appropriately handle stress and interact with others, and that an individual is not qualified and cannot perform the essential functions of the job if he or she threatens to kill co-workers – regardless of whether such threats stem from a mental condition or disability.

What should employers do?

Against this potential liability minefield, an employer should develop an effective written workplace violence preventative policy. For those who already have policies in place, it would be a good idea to review your policies and practices with your legal counsel to make sure that these issues and any potential concerns are properly addressed.

Ask yourself the following questions to see if your policy needs to be modified in light of the recent lawsuits:

  1. Do your policies advise employees that they will be subject to discipline (up to and including termination) if they “fail to foster collegiality, harmony, positive attitude, and good relations in the workplace?”
  2. Do you have a statement that there is “zero tolerance” regarding threats or acts of violence?
  3. Do your managers/supervisors know what steps should be taken if there is a threat, complaint of bullying or violence?
  4. Have your managers, supervisors and employees been trained on identifying signs and symptoms of behavior which may predict potential violence (erratic behavior; comments regarding violence, homicide or suicide; provocative communications; disobedience of policies and procedures; presence of alcohol, drugs or weapons on the worksite; evidence of violent tendencies or abuse of alcohol or drug use)?
  5. Have your managers and supervisors been trained and regularly reminded about the importance of good documentation and dangers of bad documentation?

Employer May Be Held Liable For Employing Murderer!

Contributed by Noah A. Frank, July 27, 2017

Claims of negligent hiring, training, and retention is alive and well. Employers must be prepared to investigate, and fully remediate supervisors’ misconduct.

code of conduct

Recently, the Seventh Circuit Court of Appeals (Illinois, Wisconsin, Indiana) held that an employer may be liable for intentional acts committed by supervisory employees against other employees outside of work if the employer has been negligent. The tragic case, Anicich v. Home Depot USA, Inc., 852 F. 3d 643 (7th Cir. 2017), arose from the death and rape of a pregnant employee at the hands of her supervisor.

Background

Home Depot and its garden centers subcontractors (together, the “Employer”) jointly employed Brian Cooper as a regional manager. The victim’s estate alleged the employer knew Cooper had a history of sexually harassing, verbally abusing, and physically intimidating female subordinates, which included making crude and lewd comments, yelling and swearing at them, rubbing against them, controlling their conduct by pressuring them into spending time with him alone, and even throwing things.

The supervisor’s mistreatment of one subordinate, Alisha Bromfield, began in 2006 when she started working for the employer seasonally as a teenager. Cooper fixated his attention on her, calling her his “girlfriend” at work and repeating the above misconduct with her. Senior management, aware of Bromfield’s repeated complaints, failed to take reasonable steps to protect Bromfield, ensure that Cooper completed mandated anger management training or remove his supervisory duties. This ended in tragedy.

In 2012, when Bromfield was 7 months pregnant, Cooper threatened her. Using his supervisory authority, he demanded that she attend an out-of-town wedding with him, telling her he would fire her or reduce her hours if she refused. Bromfield acquiesced, but denied Cooper’s recurring demand to “be in a relationship.” After the wedding, Cooper murdered Bromfield, and then raped her corpse.

The Court held that employers have a duty to act reasonably in hiring, supervising, and retaining their employees, and that this was part of a broader trend toward recognizing employer liability for supervisors’ intentional torts committed outside the scope of employment – even where the harm caused was wholly disproportionate to more predictable harms (e.g., murder/rape versus continued sexual harassment, emotional/mental trauma). Because Cooper was alleged to have abused the employer’s grant of supervisory authority over Bromfield, the employer could be vicariously liable for Cooper’s torts committed against Bromfield.

Employers’ Duty in Light of the Seventh Circuit Court Ruling

Anicich is instructive. Employers that fail to act to stop an employee’s abuse of supervisory authority could be held liable for even the most extreme and gruesome intentional tortious and criminal conduct.

As such, employers must protect their businesses, including the following minimum steps:

  • Understand the risks associated with subcontracting and joint employer relationships, including supervision and control;
  • Implement and train employees on anti-discrimination, harassment, and sexual harassment policies, including a published complaint/reporting procedure, and prohibiting retaliation;
  • Take seriously and investigate all reports and complaints – no matter how minor, and even for repeat complainants;
  • Remediate any issues – including stripping supervisory authority, mandating training, and transferring/terminating employees;
  • Prohibit and protect those involved from, retaliation;
  • Respect and comply with collective bargaining rights – and get the union’s buy-in when necessary; and
  • Seek the advice of and guidance from experienced employment counsel when issues arise to ensure legal compliance and implementation of best practices to mitigate exposure.

Seventh Circuit Opinion Clarifies What Language is Necessary for Collective Bargaining Agreements to Require Arbitration of Statutory Claims

Contributed by Allison Sues, July 14, 2017

The seventh circuit recently clarified under what circumstance a collective bargaining agreement may restrict an employee’s access to a judicial forum for purposes of resolving statutory claims. In Vega v. New Forest Home Cemetery, the appellate court reversed the lower court’s dismissal of a Fair Labor and Standards Act (FLSA) claim brought by a former employee who had not complied with the grievance process provided in his collective bargaining agreement (CBA).

Luis Vega filed an FLSA lawsuit claiming New Forest failed to pay him for 54 hours of work. Vega was a union member and therefore subject to the union’s CBA which included a mandatory grievance process culminating in arbitration. The district court dismissed Vega’s claim because he had not exhausted his contractual remedies under the CBA.

contract 2

Hand signing contract on white paper

The seventh circuit heard the appeal to answer a straightforward question: “Does the collective bargaining agreement require Vega to resolve his FLSA minimum wage claim through the specified grievance process, or does it allow him to ask a court to resolve that claim regardless of whether he has exhausted his contractual remedies?”

In answering this question, the seventh circuit confirmed several key points:

  1. An employee’s contractual obligations under a CBA are independent from an employee’s statutory rights, such as those under the FLSA, and therefore, a CBA cannot waive an employee’s statutory rights.
  2. However, a contractual agreement to arbitrate a statutory claim does waive that statutory right. Accordingly, a CBA can compel a union employee to pursue statutory claims through arbitration instead of in court.
  3. But, an arbitration provision in a CBA will only operate to compel arbitration of individual union member’s statutory claims if its intent to do so is stated in “clear and unmistakable terms.”

The court concluded that Vega’s CBA did not state in sufficiently “clear and unmistakable terms” that the grievance system, culminating in arbitration, was the exclusive remedy for alleged FLSA violations or pay disputes, and therefore, Vega’s failure to pursue a grievance was irrelevant and he was allowed to pursue his claim in court.

To add clarity, the court provided examples:

  • An arbitration provision that lists a variety of statutory claims and states that all such claims “shall be subject to the grievance and arbitration provision […] as the sole and exclusive remedy for violations” constitutes an explicit waiver of access to a judicial forum.
  • On the other hand, arbitration provisions merely stating that disputes as to any provision of the agreement, pay, or working conditions must be resolved through arbitration is not a clear and unmistakable waiver, because an employee could read the provision as covering only disputes over the CBA requirements themselves as opposed to statutory violations.

Employers should take care when drafting mandatory arbitration provisions to ensure that provisions intended to mandate arbitration of statutory claims are stated in sufficiently “clear and unmistakable terms.”

For Employee to Be Compelled to Pursue FLSA Claims Pursuant to Contract Grievance Procedures, Language of CBA Must be Clear and Unmistakable

Contributed by Carlos Arévalo, June 6, 2017

On May 15, 2017, the seventh circuit ruled that unless the language in a collective bargaining agreement (“CBA”) explicitly states that the employee must resolve his statutory and contractual rights through the grievance procedures in the contract, an employee is free to file suit in court to resolve his statutory claims.

36419114 - hand about to bang gavel on sounding block in the court room

Judge holding gavel 

After being terminated from employment, Luis Vega, a seasonal employee at Forest Home Cemetery, attempted to collect unpaid wages by resorting to the grievance procedures of his CBA.  When these efforts proved futile, Vega filed a Fair Labor Standards Act (FLSA) claim in the United States District Court for the Northern District of Illinois. Vega’s employer filed a motion to dismiss based on Vega’s failure to exhaust the grievance procedures in the CBA. Judge Charles Norgle agreed with the employer’s argument and entered judgment against Vega.

On appeal before the seventh circuit, the employer asserted that the CBA, by establishing a grievance procedure to resolve disputes over pay, compelled Vega to go through said procedure to resolve his FLSA claim. This argument prompted the question of whether the terms of the CBA required Vega to resolve his FLSA wage claims through its grievance procedures, or whether Vega could pursue a FLSA claim in court even if he had not yet exhausted his contractual remedies.

Writing for the court, Judge Ilana Rovner ruled in Vega’s favor reversing the district court ruling. In the decision, the court noted that an employee has statutory as well as contractual rights and that the former are independent from any rights under the union contract. Moreover, citing 14 Penn Plaza LLC v. Pyett, a 2009 Supreme Court case, the court also stated that an agreement to arbitrate statutory claims is enforceable against an aggrieved employee if the language of the agreement to that end is “clear and unmistakable.” In Vega’s case, the court found that generalized language regarding pay disputes was insufficient and that the agreement could not be read to compel an employee to resolve his rights under FLSA through the grievance process. Accordingly, Vega did not have to exhaust his contractual remedies.

The Vega decision clearly establishes that employers looking to have statutory claims resolved through arbitration grievance procedures must pursue explicit language to that end. However, before doing so, employers should carefully consider if arbitration represents the best method for resolution of such claims. Grievance procedures may be suitable for resolution of some statutory rights, but not for others. And while arbitration may expedite claims and even limit remedies, vacating unfavorable awards can be an unsurmountable task. Bottom line, before bargaining for such language, employers should consult counsel to determine the proper course of action.