Labor and Employment Update - Summer 2009

STUCK IN THE MIDDLE – RICCI V. DESTEFANO – OR THE EMPLOYERS CHOICE – DISPARATE TREATMENT V. DISPARATE IMPACT

Among other things, Title VII of the Civil Rights Act of 1964 prohibits (a) disparate treatment, which is defined as intentional acts of employment discrimination based upon race, color, religion, sex, and national origin and (b) policies and practices that have a disparate impact on minorities, where the policies or practices were not intended to discriminate but in fact, had a disproportionately adverse effect on minorities. Now, according to the Supreme Court in Ricci v. DeStefano, an employer will face tough decisions when determining whether it will implement or remedy a practice or policy that may have or have had an unintended disparate impact on its minority employees.  

In Ricci, the City of New Haven, Connecticut administered a test for the promotion of its fire fighters. Once the results of the tests came back, it was clear that an overwhelming majority of those that passed the test and ultimately would be promoted were white fire fighters. The City, believing that the test had a disparate impact on minority fire fighters, decided not to certify the test results. The white fire fighters and a minority fire fighter who scored highly on the test and were likely to be promoted, but ultimately were not promoted, claimed that because of the City’s actions, the City intentionally discriminated against them on the basis of race. 

The Supreme Court of the United States held that the City’s failure to certify the test results was intentional discrimination against the white and minority fire fighters who scored higher on the test, despite the fact that the City was attempting to avoid a potential disparate impact claim. The Court explained that the City needed more than just a good faith basis to believe that certifying the test results would have had a disparate impact on the minority firefighters. The Supreme Court further explained that this type of race-based employment decision (discarding the test results to avoid potential disparate impact claims) is impermissible unless the employer can demonstrate by a “strong basis in evidence” that had it not taken the discriminatory action, it would be liable for disparate impact. In other words, the City has to show that it was implementing or about to implement a practice or policy that would have a disparate impact on minority employees. 

The question becomes how does an employer implement, change or remedy a policy, practice or test when it believes that it may become the defendant in a disparate impact or disparate treatment lawsuit. On the one hand, if the employer adopts or keeps the policy or procedure that it believes may have a disparate impact on its minority employees, it may face a disparate impact claim by those employees. The Supreme Court stated that an employer faced with this potential claim may stave off liability for disparate impact, by showing by a “strong basis in evidence,” that it would be subject to disparate treatment liability if it makes the change. On the other hand, if the employer attempts to remedy a previous policy or practice, it may face a disparate treatment/discrimination suit from the majority employees unless it can show that the absent the discrimination it would be liable for disparate impact. 

In light of the ruling in Ricci, employers must proceed cautiously. The employer must carefully analyze policies and practices to ensure they do not have a disparate impact on its employees. Employers should seek counsel of its attorneys and also design policies and procedures using knowledgeable consultants. Employers, when implementing testing like the City in Ricci, should evaluate the test on a sample group before rolling it out to its full employee population.   

GETTING A RELEASE WHEN PAYING SEVERANCE

We believe it is advisable that employers obtain a release/waiver of all claims from employees prior to paying any severance or consideration that the employee is not otherwise due. Most wage payment laws require employers to pay accrued vacation, accrued commissions and other fringe benefits that may be owed at the time of separation. However, if employers intend to pay any additional monies to the employee (or agree to pay COBRA premiums or, in some circumstances, even provide a letter of reference), we believe a separation agreement is the appropriate course to follow. Recently, the Equal Employment Opportunity Commission (“EEOC”) issued a guidance that provides significant information regarding the scope of releases and the circumstances under which they can be obtained. To view the EEOC’s guidance go to http://EEOC.gov/policy/docs/qanda_severance-agreements.html. 

Lastly, if you have obtained form waivers or severance agreements off of the Internet or from seminars, you should consult with an attorney to determine if they comply with various state requirements. For example, in New Jersey, if the Conscientious Employee Protection Act (“CEPA”) is not specifically named in a waiver, the employee has not waived that claim regardless of the amount of severance paid. Other states have similar requirements.

Author: Charles A. Ercole
             cercole@klehr.com           

IN TOUGH ECONOMIC TIMES ARE FURLOUGHS OR SHORTENED SCHEDULES THE WAY TO GO?

Many well-intentioned employers believe that by furloughing employees or reducing their schedules they can save money and at the same time, save jobs. If employers are not careful, however, they may violate a variety of statutes. For example, the Worker Adjustment Retraining Notification Act (“WARN”) provides that if you reduce employees’ schedules by greater than 50% or furlough them for longer than 6 months, that is an “employment loss” and requires sixty (60) days notice. Additionally, certain states have legislation governing any reduced schedules that result in “work share” situations. Approximately 17 states including New Jersey have such laws (Pennsylvania and Delaware do not). Typically, the statutes include provisions that allow employees with reduced hours to recoup a portion of the lost wages through unemployment benefits. However, employers are not permitted to eliminate existing fringe benefits or hire additional employees.  

Finally, employers using workers with H-1B visas must be careful that they do not violate the pay requirements for such workers. For example, in one case a New Jersey consulting group was found liable for failing to pay an alien worker’s salary during periods of idleness. The employer was also assessed a civil penalty because the Department of Labor’s administrative review board found that the employer was familiar with the requirements of the H-1B visa program and should have known that it was responsible for paying the worker even during periods of idleness. 

As with many other employment decisions, it is wise to consult with your counsel if you are considering modifying employee work schedules or implementing furloughs as a cost saving device. 

  Author: Charles A. Ercole
cercole@klehr.com

COBRA SUBSIDIES UNDER ARRA

In February of 2009, the Obama adminstration passed the American Recovery and Reinvestment Act of 2009 (“ARRA”) in an effort to inject stimulus money into the failing economy and provide financial relief to employees negatively impacted by the downturn. One of the measures included in ARRA was a temporary reduction of the premium costs for certain qualified individuals opting to continue health care coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). The reduction is in the form of an employer provided subsidy, reimbursable as a tax credit and refund. In the past, employees electing to continue their employer provided healthcare coverage under COBRA were required to pay the entire premium plus a 2% administration fee.  This made medical benefit continuation financially impossible for many individuals. Pursuant to ARRA, employers are now required to subsidize 65% of COBRA premiums for “assistance eligible individuals,” leaving employees responsible for just 35% of their premium payment.

ARRA defines an “assistance eligible employee” as an individual who is: otherwise qualified for COBRA coverage between September 1 of 2008 through December 31, 2009; elects COBRA coverage during the election period; and, whose election opportunity relates to the involuntary termination of their employment between September 1, 2008 and December 31, 2009. As has been historically the case with COBRA eligibility interpretation, this new regulation poses significant potential for misinterpretation and misapplication by virtue of the lack of time Human Resources departments have been given to understand this immediately effective legislation, as well as the legislation’s lack of a strict definition of an “involuntary termination.” 

The only guidance provided on what constitutes an involuntary termination under the new COBRA regulations are those set forth by the IRS. Moreover, these IRS guidelines (which are intended only as guidelines and are not codified in any way) seem to create even more opportunity for confusion as to eligibility. For instance, the IRS guidelines state that an “involuntary termination” could be a termination “for good reason due to employer action that causes a material negative change in the employment relationship for the employee.” Without any statutory guidance, this reference to a “material negative change” could be interpreted in a myriad of ways by a potentially eligible employee. The IRS guidelines further state an “involuntary termination” could include a situation in which an employer failed to renew a contract if the employee was willing and able to continue with a new contract with similar terms and conditions. 

Naturally, the lack of historical precedent and strict guidelines have resulted in many employers mistakenly deeming a former employee ineligible for the subsidy.   According to the Department of Labor, nearly 75% of the 6,500 appeals filed by former employees since May related to denials of COBRA subsidies have been overturned. On top of that, recent reports demonstrate there has been a doubling of enrollments for potentially eligible workers as a result of COBRA’s new affordability. This significant increase in individuals electing to continue COBRA coverage, coupled with the potential for misinterpretation, makes this a critical business issue for companies and one that should be given adequate administrative, and potentially legal resources. 

UPDATE: Pennsylvania recently passed a “Mini-COBRA” law which applies to employers with 2 to 19 employees (federal COBRA only applies to employers with 20 or more employees). Under this Mini-COBRA law, employees terminated in Pennsylvania after July 10, 2009, are eligible for up to 9 months of health benefit continuation, and they are covered by the COBRA-related ARRA regulations. 

The Labor and Employment Group represents and counsels employers in all aspects of the employment relationship, including EEO litigation, union avoidance, negotiations, arbitrations, executive compensation, corporate transactions, and non-competition/non-solicitation agreements, as well as compliance with federal and state laws such as the Family and Medical Leave Act, the Americans with Disabilities Act, the Health Insurance Portability and Accountability Act, the Fair Labor Standards Act and the Occupational Safety and Health Act.

This document is published for the purpose of informing clients and friends of Klehr Harrison about developments in the areas of labor, employment and benefits, and should not be construed as providing legal advice on any specific matter. For more information about this publication or Klehr Harrison, contact Charles A. Ercole, Chair of the Labor and Employment Group, at (215) 569-4282 or visit the firm’s Web site at www.klehr.com