Supreme Court: Two 5-4 Decisions On FLSA and ERISA

This morning, the United States Supreme Court issued two employment decisions which had two things in common.  They both were both 5-4 decisions and they both reversed the Third Circuit Court of Appeals.  Justice Kennedy was the swing vote.  In the first case, Justice Thomas’ opinion found that a FLSA lawsuit brought by a single plaintiff on behalf of herself other others similarly situated could not proceed after her individual claim was mooted by her failure to accept an offer of judgment from the defendant hospital employer.  In the second lawsuit, Justice Kagan’s opinion found that an employer’s ERISA plan could properly recover in a lawsuit from its employee/beneficiary funds which employee recovered in a personal injury lawsuit from a third-party based on the equitable lien in the ERISA plan to recover funds already paid by the plan to the employee for his injuries.  However, because the ERISA plan was silent on the subject of attorney fees, the common law doctrine concerning a common fund would be applied to reduce the ERISA’s plan’s recovery by the 40% contingency fee that the plaintiff paid his personal injury attorney to recover the funds.

In the FLSA lawsuit, the plaintiff employee alleged that she and other similarly situated employees were not paid in accordance with the FLSA because her hospital employer automatically deducted 30 minutes each day from their paycheck for lunch whether they worked through lunch or not.   Genesis Healthcare Corp. v. Symczyk, No. 11-1059 (4-16-13).  No other employees joined her lawsuit.  Upon filing its answer to her complaint, her savvy employer made an offer of judgment under Civil Rule 68 – i.e., offered her the full requested relief of $7500 of unpaid wages plus any attorney fees, costs and expenses that the court might deem appropriate.  She was given 10 days to accept the offer, which she ignored.  The trial court, however, was impressed.  By offering her full relief, the employer mooted her individual claim (under the law of the Third Circuit – which is not universally accepted on this point), which was dismissed.  Because no one else had joined her lawsuit, and she had no personal interest in the pending lawsuit,  the case was dismissed.  The Third Circuit reversed, objecting to allowing employers to cherry pick cases by paying off the representative plaintiff.  However, the Supreme Court reversed.

While the FLSA authorizes an aggrieved employee to bring an action on behalf of himself and “other employees similarly situated,” 29 U. S. C. §216(b), the mere presence of collective-action allegations in the complaint cannot save the suit from mootness once the individual claim is satisfied.

                . . . . .

The Court of Appeals concluded that respondent’s indi­vidual claim became moot following petitioners’ Rule 68 offer of judgment. We have assumed, without deciding, that this is correct.

Reaching the question on which we granted certiorari, we conclude that respondent has no personal interest in representing putative, unnamed claimants, nor any other continuing interest that would preserve her suit from mootness. Respondent’s suit was, therefore, appropriately dismissed for lack of subject-matter jurisdiction.

The Court distinguished this case for damages from equitable cases where the fleeting nature of the underlying claim (such as the lawfulness of pre-trial detentions) would almost always render a case moot before it could be heard.  Notably, the Court did not address the larger issue of whether a rejected offer of judgment renders the case moot, which is an unsettled issue of law.  The lower courts held that it did and the plaintiff did not appeal that issue to the Supreme Court.

In the second case, an employee was injured in a car accident and his employer’s health plan paid $66,866 in medical costs.  US Airways, Inc. v. McCutchen, No. 11-1285 (4-16-13).   The employee then retained a lawyer to sue the driver of the car which injured him.  That driver had also killed and/or seriously injured 3 other people, had limited insurance coverage and settled for $10,000.  However, the employee’s own insurance carrier paid $100,000.  Of the $110,000  recovered by the employee, 40% of it went to his attorney’s contingency fee.  Although he was left with only $66,000, the employer’s health plan then sued him under §502(a) of ERISA to recover reimbursement of the $66,888 in medical expenses it paid on his behalf. The terms of the health plan provided:

“If [US Airways] pays benefits for any claim you incur as the result of negligence, willful misconduct, or other actions of a  third party, . . . [y]ou will be required to reimburse [US Airways] for amounts paid for claims out of any monies recovered from [the] third party, including, but not limited to, your own insurance company as the result of judgment, settlement, or otherwise.”

The health plan’s right to reimbursement is an equitable lien by agreement on the proceeds of the personal injury litigation.   Nonetheless, it is a contractual right and is not subject to common law rules concerning equitable liens.  Therefore, the plan’s contractual rights could not be defeated by the common law doctrines of unjust enrichment, double recovery, or common fund.  However, because the plan was silent on the allocation of attorney fees, the Court’s majority (and the point on which the minority dissented because the terms of the plan were plain and uncontested), concluded that the silence would be filled by the common law doctrine of the common fund.  The plan did not specify whether its right to recovery went to the first dollar or only to the dollars recovered (i.e., after deduction for attorney fees).  

The majority found that the plan’s contractual right to recovery was reduced by the 40% attorney contingency fee.   Otherwise, the plan would receive a full ride at the employee’s expense.  The employee here would be out of pocket for bringing the lawsuit that the plan failed to bring or contribute towards. To rule otherwise, would also create a disincentive for the employee to have brought the personal injury lawsuit in the first place.    Of course, employers could avoid having to share with personal injury attorneys in the future by revising the terms of their ERISA plans to explicitly avoid responsibility for those fees and/or specify how its recovery would be calculated.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

FLSA Issues Kick Off 2016

This week has brought two developments impacting FLSA compliance and claims.  First, the federal Department of Labor issued an Administrative Interpretation 2016-1 concerning joint employment.  Essentially, the AI describes when two businesses will become liable for wages and overtime worked by a shared employee even if that overtime was earned while working for the other employer.   It describes both horizontal (i.e., related) and vertical (i.e., staffing) relationships that can lead to joint employment.  Second, the U.S. Supreme Court issued a class action decision involving spam text messages, but the holding about offers of judgment and mootness of claims will be important to employers attempting to defend FLSA class actions by making offers of judgment (i.e., complete relief) to the class representatives.   Campbell-Ewald Co. v. Gomez, No. 14-857 (1-20-16).  The Court held that an offer of judgment rejected by the class representative does not moot the pending litigation claim, even if the offer was rejected before the certification of the class.  As discussed here a few years ago, if the rejected offer of judgment mooted the claim, then the FLSA case was left moot and was dismissed.   The Court left open for another day whether the result would be different if the defendant had actually deposited the amount of the offer into an account payable to the plaintiff and then the court entered judgement in that amount in the plaintiff’s favor.

In the Administrative Interpretation, the DOL summarized its position on when two or more employers may be held jointly liable for the FLSA obligations regarding an employee who works for each of the employers.  It describes one situation as horizontal joint employment when the two or more technically separate businesses are associated or related (through common ownership, management, contracts to share employees, etc.)  The focus of the analysis is on the relationship of the businesses with each other (because it is already clear that the worker is an employee of each entity)   This can happen, for instance, with restaurants and home health care, property management, etc. When joint employment is identified, each employer becomes jointly and severally liable for the employee’s wages for each week worked, including overtime wages, regardless of how many hours the employee worked for that particular entity.  See 29 C.F.R. §791.2(a).

The following facts may be relevant when analyzing the degree of association between, and sharing of control by, potential horizontal joint employers:

·        who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have any common owners);

·        do the potential joint employers have any overlapping officers, directors, executives, or managers;

·        do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs);

·        are the potential joint employers’ operations inter-mingled (for example, is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for);

·        does one potential joint employer supervise the work of the other;

·        do the potential joint employers share supervisory authority for the employee;

·        do the potential joint employers treat the employees as a pool of employees available to both of them;

·        do the potential joint employers share clients or customers; and

·        are there any agreements between the potential joint employers.

Of course, merely because an employee holds more than one job does not make his or her employers joint employers. “Joint employment does not exist, however, if the employers “are acting entirely independently of each other and are completely disassociated” with respect to an employee who works for both of them. 29 C.F.R. 791.2(a).”

The AI describes a second situation  -- called vertical joint employment -- where there is an intermediary employer which supplies workers to a client and the economic realities show that the client exercises sufficient control over the worker to make that worker economically dependent on it and, thus, its employee for purposes of the FLSA.   Unlike horizontal relationships, the analysis in vertical relationships is on the economic realities of the relationship between the worker and the client to determine whether the employee is economically dependent on the client.   These situations arise for instance in construction (when a subcontractor supplies employees to the general contractor), in agriculture (when laborers are supplied to a grower) and in warehouses (when workers are supplied to the operator or owner of the warehouse) and medical (where nurses are placed by a staffing agency). 

The AI lists the following factors are relevant in determining the economic realities and economic dependence:

A.     Directing, Controlling, or Supervising the Work Performed. To the extent that the work performed by the employee is controlled or supervised by the potential joint employer beyond a reasonable degree of contract performance oversight, such control suggests that the employee is economically dependent on the potential joint employer. The potential joint employer’s control can be indirect (for example, exercised through the intermediary employer) and still be sufficient to indicate economic dependence by the employee. See Torres-Lopez, 111 F.3d at 643 (“indirect control as well as direct control can demonstrate a joint employment relationship”) (citing pre-1997 MSPA regulation); Antenor, 88 F.3d at 932, 934; 29 C.F.R. 500.20(h)(5)(iv). Additionally, the potential joint employer need not exercise more control than, or the same control as, the intermediary employer to exercise sufficient control to indicate economic dependence by the employee.¹⁷

B.     Controlling Employment Conditions. To the extent that the potential joint employer has the power to hire or fire the employee, modify employment conditions, or determine the rate or method of pay, such control indicates that the employee is economically dependent on the potential joint employer. Again, the potential joint employer may exercise such control indirectly and need not exclusively exercise such control for there to be an indication of joint employment.

C.     Permanency and Duration of Relationship. An indefinite, permanent, full-time, or long-term relationship by the employee with the potential joint employer suggests economic dependence. This factor should be considered in the context of the particular industry at issue. For example, if the work in the industry is by its nature seasonal, intermittent, or part-time, such industry condition should be considered when analyzing the permanency and duration of the employee’s relationship with the potential joint employer.

D.     Repetitive and Rote Nature of Work. To the extent that the employee’s work for the potential joint employer is repetitive and rote, is relatively unskilled, and/or requires little or no training, those facts indicate that the employee is economically dependent on the potential joint employer.

E.      Integral to Business. If the employee’s work is an integral part of the potential joint employer’s business, that fact indicates that the employee is economically dependent on the potential joint employer. Whether the work is integral to the employer’s business has long been a hallmark of determining whether an employment relationship exists as a matter of economic reality. See, e.g., Rutherford Food Corp. v. McComb, 331 U.S. 722, 729-30 (1947).

F.      Work Performed on Premises. The employee’s performance of the work on premises owned or controlled by the potential joint employer indicates that the employee is economically dependent on the potential joint employer. The potential joint employer’s leasing as opposed to owning the premises where the work is performed is immaterial because the potential joint employer, as the lessee, controls the premises.

G.     Performing Administrative Functions Commonly Performed by Employers. To the extent that the potential joint employer performs administrative functions for the employee, such as handling payroll, providing workers’ compensation insurance, providing necessary facilities and safety equipment, housing, or transportation, or providing tools and materials required for the work, those facts indicate economic dependence by the employee on the potential joint employer.

See 29 C.F.R. 500.20(h)(5)(iv).

 

In Gomez, the Court addressed the issue which is passed on in 2013 in Genesis HealthCare Corp., 569 U. S., at ___, and adopted Justice Kagan’s dissenting opinion from that case:

We hold today, in accord with Rule 68 of the Federal Rules of Civil Procedure, that an unaccepted settlement offer has no force. Like other unaccepted contract offers, it creates no lasting right or obligation. With the offer off the table, and the defendant’s continuing denial of liability, adversity between the parties persists.

However, the Court left open the possibility that a claim could be mooted by the offer of complete relief:

We need not, and do not, now decide whether the result would be different if a defendant deposits the full amount of the plaintiff ’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount. That question is appropriately reserved for a case in which it is not hypothetical.

 

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Franklin County Appeals Court: Incomplete Promises from Offer Letter Formed Binding Contract

Last week, the Franklin County Court of Appeals reversed a summary judgment previously entered on behalf of an employer on a breach of contract claim involving stock options promised in an offer letter. McGonagle v. Somerset Gas Transm. Co., L.L.C., 2011-Ohio-5768. The offer letter discussed the intent for the parties to enter into a later, more detailed employment agreement specifying the terms, but no such agreement was ever drafted, exchanged or signed. The trial court had found that the offer letter only constituted an agreement to later enter into a binding agreement, but the Court of Appeals disagreed.

According to the Court’s opinion, following negotiations, the plaintiff’s offer letter specified his salary, paid vacation, severance pay, eligibility for various bonuses and stock options, a portion of which would vest every six months within the next two years at a certain price and would immediately vest if he were fired without cause or if there were a change in control of the company. The offer letter provided that a more detailed employment agreement would later be provided specifying what could constitute termination “without cause,” or “with cause.” Both the employer and the plaintiff employee signed the offer letter. However, no detailed employment agreement was ever signed by the parties. The plaintiff was later provided with a management grant agreement concerning stock options in 2006, but he never signed it. He later resigned in 2007 and filed suit in 2008 for the stock options which he had been promised in 2002.

The employer argued that the offer letter was too vague to constitute an enforceable contract and left open a number of significant conditions, including the excise period and whether the plaintiff had ever vested in the options. The trial court concluded that the offer letter only constituted an offer to negotiate and later make a contract and, in the alternative, was too vague to be enforceable. The Court of Appeals reversed.

The Court found that the letter covered the essential terms of the parties’ agreement and could be enforced. "[I]f a term cannot be determined from the four corners of a contract, factual
determination of intent or reasonableness may be necessary to supply the missing term." The parties may rely on extrinsic evidence – such as the negotiations and later discussions -- to explain their intent. The introduction of such extrinsic evidence is permitted by the parol evidence rule, which only prohibits the admission of extrinsic evidence to explain the terms of an integrated (or complete) agreement after it has been reduced to writing. Where the parties have an incomplete agreement – or partially integrated agreement, extrinsic evidence is admissible to explain the missing terms.

A contract is partially integrated if the parties adopt it as a final expression of only one portion of a larger agreement, making the contract incomplete. Id. at ¶37. A party may introduce extrinsic evidence to supplement, but not vary or contradict, the written terms of a partially integrated contract. Id. at ¶38; Williams at ¶28, 30.

The fact that not all of the details (such as the affect of a resignation or duration of the options) had been explained in the offer letter does not mean that a contract was not formed.

The parties may have agreed that appellant's voluntary resignation would have no effect on his vested option to acquire stock or perhaps the parties did not reach an agreement on this issue because it was not contemplated by the parties. Similarly, the parties may have intended an option of unlimited duration or failed to contemplate a specified duration for the option. Regardless, we cannot conclude the letter lacks such enforceable clarity such that a factual determination of reasonableness or intent cannot be utilized to supply the relevant terms that are allegedly omitted from the letter.

In addition, it was not clear when the right to the options was triggered. “Thus, there is a genuine issue of material fact remaining as to whether or not the triggering event, equity financing, has occurred so as to entitle appellant to the stock option.” Therefore summary judgment was not appropriate for either party and the case was remanded “to the trial court for factual determinations of the relevant missing terms and, also, whether equity financing has occurred.”

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Franklin County Appeals Court: Nothing is Reasonably Reliable In a RIF or Public Litigation.

Last month, the Franklin County Court of Appeals affirmed the dismissal of a defamation and wrongful discharge suit brought by the former head of security for Capital University whose job was eliminated in 2006 during a budget crisis. Woods v. Capital Univ., No. 2009-Ohio-5672. Although the 54-year old plaintiff had been told in writing during his exit interview that his performance played no role in the elimination of his position (and he had received nothing but promotions prior to his termination), the university’s attorney was quoted in two local newspapers as attributing part of the termination decision to “job performance issues.” His responsibilities were divided and his public safety management responsibilities were given to a 28-year old safety officer. Nonetheless, the Court affirmed dismissal because the allegedly defamatory statements related to a matter of public concern, which required proof of actual damages or actual malice, and the redistribution of duties to existing employees cannot support an inference of age discrimination. Finally, his promissory estoppel claims were dismissed because the three verbal promises of continued employment were contracted by the terms of his written contract with the university.

According to the Court’s opinion, the plaintiff was eight years away from retiring from another college when he was hired by Capital to reorganize its public safety department. When he expressed reluctance to leave a secure position so close to his retirement age – particularly with friction that was likely to develop during the planned reorganization, he was assured by the VP/Treasurer that he would be employed at least eight years to retire at Capital. However, his offer letter only promised one year of employment. He was promoted the following year and given two more one-year appointments. When rumors surfaced about a possible budget deficit, he again sought reassurance about his job security and was again assured by the VP/Treasurer that his job was safe. When the VP/Treasurer was then fired, he sought and obtained similar assurance from the President, who then shortly thereafter left.

When an impending $12.5M deficit was revealed, a committee examined all positions and recommended the elimination of 72 positions, including that of the plaintiff. His termination letter informed him that his job was eliminated because of the budget difficulties and not because of his job performance. His public safety duties were reassigned to a 28-year old officer and his auxiliary duties to other employees. He then filed a lawsuit for $4.6M against Capital for age discrimination and promissory estoppel. The lawsuit received publicity in the local media and Capital’s attorney was quoted in two newspapers as stating that the plaintiff had been let go because of the budget difficulties and “job performance issues.” The plaintiff amended his claims to include the allegedly defamatory statements by the attorney. The trial court granted summary judgment to the defendants and the plaintiff appealed.

Defamation Claim

The Court of Appeals addressed the defamation claim first and found the attorney’s statement about the plaintiff being fired in part because of his job performance to be defamatory on its face (or defamation per se) since it had the tendency to hurt plaintiff’s career and ability to find another job. The Court rejected the defense attempt to

characterize this statement as vague and contend that if it is defamatory at all, it is only defamatory per quod. We disagree. No employer fires an employee for good job performance. The only reasonable reading of [the attorney’s] statement is that Capital terminated [the plaintiff’s] employment for two reasons, and one of those reasons was [the plaintiff’s] poor job performance. Thus, the statement in and of itself tends to injure [the plaintiff] in his occupation as any employer would hesitate before hiring a potential employee who underperformed in his previous job. Such a statement is defamatory per se.

Typically, damages in such situations are presumed without proof or pleading. However, in this case, the Court found the statement to also have limited protection from the First Amendment. Because the plaintiff worked for a private college, he was not a general public figure. Moreover, the fact that he filed a lawsuit – by itself – did not render him a limited purpose public figure. However, the fact that he sought $4.6M in damages from a significant private institution which was having very public budget difficulties rendered the issue of the reduction in force and his lawsuit a matter of public concern – as evidenced by the significant media coverage. Therefore, the claim was governed by the United States Supreme Court’s decision in Gertz v. Robert Welch, Inc. (1974), 418 U.S. 323, 345-46, which concluded that:

in such cases, the states could define for themselves an appropriate standard of liability, so long as they did not impose liability without fault. Gertz, 418 U.S. at 347. Subsequently, Ohio adopted the ordinary negligence standard as the standard of liability for actions involving a private individual defamed in a statement about a matter of public concern. Landsdowne v. Beacon Journal Publishing Co. (1987), 32 Ohio.St.3d 176, 180. In addition to requiring an element of fault, the Gertz court also limited the type of damages recoverable in defamation cases involving private individuals and statements regarding a matter of public concern. Given the constitutional command of the First Amendment, . . . the states could no longer permit recovery of presumed or punitive damages, at least when liability was not based upon a showing of actual malice. Gertz, 418 U.S. at 349, . . . Thus, in Ohio, a plaintiff must prove either: (1) ordinary negligence and actual injury, in which case he can receive damages for the actual harm inflicted; or (2) actual malice, in which case he is entitled to presumed damages.

Thus, the plaintiff was required to show actual malice or actual injury (i.e., “out-of-pocket loss, impairment of reputation and standing in the community, personal humiliation, and mental anguish and suffering”). However, the plaintiff’s testimony that he felt that his job hunt was impaired by “google searches” of the attorney’s statement was too speculative to support proof of actual injury. Moreover, he failed to introduce any evidence that the attorney knew that his statement was false at the time it was made. Therefore, summary judgment on his defamation claim was upheld.

Retaliation

The plaintiff also claimed that the attorney’s defamatory statement was made in retaliation for the plaintiff’s consultation with an attorney following his termination. However, the Court refused to infer causation (i.e., the defamatory statement from the consultation with counsel) based on the passage of two months between the demand letter from the plaintiff’s attorney and the newspaper accounts repeating the defamatory statement. Because there was no other evidence of causation or proving a link between the two events, the Court affirmed summary judgment.

Age Discrimination

Typically, a discrimination claim requires that the plaintiff show that he was replaced by someone outside the protected class. The Court noted that this is extremely difficult, if not impossible, to show when the plaintiff was fired in a reduction in force:

When a discharge results from a work force reduction, an employee is not replaced, instead his position is eliminated. Barnes v. GenCorp Inc. (C.A.6, 1990), 896 F.2d 1457, 1465. Logically, then, a plaintiff discharged as part of a work force reduction cannot offer evidence that he was replaced by a substantially younger person to satisfy the fourth element of the prima facie case. Moreover, even if such a plaintiff demonstrates that his discharge permitted the retention of substantially younger persons, no inference of discriminatory intent can be drawn. Id. In the context of a work force reduction, the discharge of the plaintiff and retention of a substantially younger employee is not "inherently suspicious" because a work force reduction invariably entails the discharge of some older employees and the retention of some younger employees. Brocklehurst v. PPG Industries, Inc. (C.A.6, 1997), 123 F.3d 890, 896. Permitting an inference of intentional discrimination to arise from the retention of younger employees "would allow every person age 40-and-over to establish a prima facie case of age discrimination if he or she was discharged as part of a work force reduction." Barnes at 1465.

{¶57} Consequently, when a plaintiff's position is eliminated as part of a work force reduction, courts modify the fourth element of the prima facie case to require the plaintiff to " 'com[e] forward with additional evidence, be it direct, circumstantial, or statistical, to establish that age was a factor in the termination.' " Kundtz v. AT & T Solutions, Inc., 10th Dist. No. 05AP-1045, 2007-Ohio-1462, ¶21 . . . The purpose of this modified requirement is to ensure that, in work force reduction cases, the plaintiff has presented evidence to show that there is a chance that the work force reduction is not the reason for the termination. Asmo v. Keane, Inc. (C.A.6, 2006), 471 F.3d 588, 593 . . .

Nonetheless, the plaintiff can also show discrimination if he was in fact replaced instead his duties being eliminated, consolidated or distributed among a number of different people:

An employee is not eliminated as part of a work force reduction when he or she is replaced after his or her discharge. However, a person is not replaced when another employee is assigned to perform the plaintiff's duties in addition to other duties, or when the work is redistributed among other existing employees already performing related work. A person is replaced only when another employee is hired or reassigned to perform the plaintiff's duties.

In this case, the plaintiff’s 2004 promotion involved him assuming certain duties outside the public safety department. When his position was eliminated in 2006, those duties were reassigned and only his public safety duties were given to the 28-year old officer. The reassignment of his auxiliary duties were more than cosmetic or superficial duties. Thus, there was sufficient evidence to show that his position was eliminated and his duties distributed in a genuine reduction in force. Therefore, without additional evidence or direct evidence of age discrimination, summary judgment on this claim was affirmed.

Promissory Estoppel.

Plaintiff brought this claim based on the three separate promises of job security which he received both before and after he was hired by Capital. As explained by the Court:

Promissory estoppel provides an equitable remedy for a breach of an oral promise, absent a signed agreement. Olympic Holding Co. v. ACE Ltd., 122 Ohio.St.3d 89, 2009-Ohio-2057, ¶40. In order to succeed on a claim for promissory estoppel: "The party claiming the estoppel must have relied on conduct of an adversary in such a manner as to change his position for the worse and that reliance must have been reasonable in that the party claiming estoppel did not know and could not have known that its adversary's conduct was misleading." . . . The elements necessary to prove a claim for promissory estoppel are: (1) a clear, unambiguous promise, (2) the person to whom the promise is made relies on the promise, (3) reliance on the promise is reasonable and foreseeable, and (4) the person claiming reliance is injured as a result of reliance on the promise.

The fatal flaw in his argument, however, is that he signed written contracts which promised him only employment for a year at a time. Therefore, his reliance on the oral promises was not reasonable under the circumstances:

[C]ourts cannot enforce an oral promise in preference to a signed writing that pertains to exactly the same subject matter, but has different terms. Ed Schory & Sons at 440. Thus, "[p]romissory estoppel does not apply to oral statements made prior to the written contract, where the contract covers the same subject matter.

The Court rejected the plaintiff’s argument that his employment letters were not binding contracts, but only acknowledgment of certain terms. The Court also rejected the argument that the plaintiff’s reliance on promises made during the budget crises were reasonable under the circumstances. In any event, the plaintiff did not provide any evidence that he relied on the promises to his detriment since there was not evidence that he rejected a job offer in reliance on the promises. On the contrary, despite the promises being made to him during the budget crises, he promptly began searching for another job and submitting his resume to other employers.

Insomniacs can read the full opinion at http://www.sconet.state.oh.us/rod/docs/pdf/10/2009/2009-ohio-5672.pdf.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Affirms Employee’s ERISA Summary Judgment for Promissory Estoppel, Breach of Fiduciary Duty and Anti-Cutback Violation

[Editor's Note: The Sixth Circuit in October subsequently upgraded its Deschamps opinion  to Recommended for Full-Text publication].

This morning, the Sixth Circuit Court of Appeals affirmed summary judgment for an employee on three ERISA claims after the defendant pension plan reduced his pension credits for the 10 years that he worked for the defendant employer in Canada.  Deschamps v. Bridgestone of Americas, Inc. Salaried Employees Pension Plan, No. 15-6112 (6^th Cir. 9-12-16).  The plaintiff had refused to accept the transfer to the U.S. in 1993 unless he was given pension credit for his prior 10 years in Canada.   The HR and plant managers confirmed with corporate HQ that he would receive that pension credit, which was also included on all of his pension written and online pension summaries until 2010, when the employer reinterpreted the terms of the plan and reduced the pension credits previously awarded to him and other expatriate transfers.  He appealed internally with the Plan, but his appeals were denied and the lawsuit followed.  The Court of Appeals agreed that the undisputed issues of fact in the record confirmed that the employer had been grossly negligent, breached its fiduciary duty and violated the anti-cutback rules in leading him to believe that he would receive the pension credit and then revoking those credits more than 17 years after his transfer and after he rejected two job offers from a competitor (which subsequently went bankrupt).   The employer’s convoluted interpretation of the definition of “supervisor” (which was not otherwise defined in the plan) to exclude the plaintiff (who was an hourly maintenance manager) contributed to the Court’s decision.

According to the Court’s opinion, the plaintiff sought and received assurances from the U.S. plant and human resources managers that they had checked with their corporate office and he would receive pension credit for his 10 years working in Canada if he were to transfer to the U.S. facility in 1993 as the plant maintenance manager. (The retired corporate actuary, however, denied ever approving this information).  For his first 16 years of employment, his online and written pension summaries also listed his 1983 seniority date.  Granted, most (if not all) of these documents stated that they were only estimates and that the actual Plan document governed his eligibility for benefits.  In 2010, the company sought to correct the misapplication of the seniority dates for employees who transferred from outside the U.S. and deducted those 10 years from the plaintiff’s pension accrual.  He appealed internally, but the Plan denied his appeal on the grounds that he was not eligible because he had not been salaried or a “supervisor.”  “Supervisor” was not defined in the Plan or SPD, but the Plan defined it to exclude non-exempt managers like him.  The plaintiff brought suit against the Plan, his employer and its parent company alleging promissory estoppel under 29 U.S.C. § 1132(a)(3), breach of fiduciary duty pursuant to 29 U.S.C. § 1104, and an anti-cutback violation pursuant to 29 U.S.C. §1054(g). The trial court granted him summary judgment on all three claims.  The employer, parent and Plan appealed.

Plaintiffs have a long burden of proof when it comes to promissory estopped claims.  They must show:

(1) conduct or language amounting to a representation of material fact; (2) awareness of the true facts by the party to be estopped; (3) an intention on the part of the party to be estopped that the representation be acted on, or conduct toward the party asserting the estoppel such that the latter has a right to believe that the former’s conduct is so intended; (4) unawareness of the true facts by the party asserting the estoppel; and (5) detrimental and justifiable reliance by the party asserting estoppel on the representation. . . . In the case  of an unambiguous pension plan, the plaintiff must also prove three additional elements: “[(6)] a  written representation; [(7)] plan provisions which, although unambiguous, did not allow for  individual calculation of benefits; and [(8)] extraordinary circumstances in which the balance of equities strongly favors the application of estoppel.”

The Court found that the terms of the Plan were ambiguous because of how it interpreted “foremen” and “supervisors” to exclude non-salaried managers like the Plaintiff when those terms were not defined within the Plan itself.   Further, the defendants conceded that the plaintiff could prove elements (1), (3) and (4).

The defendants attempted to dispute that the Plaintiff could prove that the defendants were aware of the “true facts” because he did not inquire of the corporate HQ pension officials himself, but instead, relied on the plant managers to contact corporate HQ for him.  The Court described this element to require the plaintiff to show “either intended deception or such gross negligence as to amount to constructive fraud.”  The Court construed prior precedent and found that the employer was grossly negligent in assuring the plaintiff for 16 years that he would receive the pension credit and not attempting to correct that mistake (if it was a mistake) shortly after making it in response to his specific inquiries.  Further, the plaintiff could not be held responsible for earlier realizing the mistake in light of the convoluted interpretation of “supervisor” which the Plan adopted (to exclude managers).  Thus, the Court found that the employer could be found liable for “constructive fraud.”

The employer also disputed whether the plaintiff could prove that he detrimentally relied upon the employer’s assurances.  In particular, the plaintiff had rejected attractive job offers from a competitor which subsequently went bankrupt and laid off thousands of employees.   The Court rejected the employer’s argument because there was no evidence that the plaintiff would definitely have been laid off by the competitor.   In addition, there was no legal requirement that the competing job offer be economically better, as long as it was an opportunity which the plaintiff rejected in reliance on his employer’s representations about his pension status.   Further, the plaintiff’s reliance for 16 years on the employer’s written and oral (mis)representation were reasonable when he rejected the competitor’s offer of a higher salary.

As for the breach of fiduciary duty claims, the plaintiff was required to show

(1) Bridgestone acted in a fiduciary capacity in making misrepresentations to Deschamps, (2) those misrepresentations were material, and (3) Deschamps detrimentally relied on the misrepresentations. . . . The second element [was] not disputed. 

The disputed issue was whether the employer was a fiduciary:

A fiduciary is defined by ERISA to include a corporation10 who “exercises any discretionary authority or discretionary control respecting management of [a] plan” or “has any discretionary authority or discretionary responsibility in the administration of such plan.” 29 U.S.C. § 1002(21)(A).  In determining whether a corporation is a fiduciary, rather than looking to the formal title, we use a functional approach, looking to whether it acts in a fiduciary capacity with respect to the conduct at issue.

 While making business decisions which have a collateral effect on employee benefits (such as terminating a plan), processing claims, applying eligibility rules or calculating benefits are not fiduciary  functions, explaining the terms of the plan, and conveying information about likely future plan benefits are fiduciary functions.  Accordingly, in this case, conveying information to the Plaintiff about receiving pension credits and the likely benefits he would receive in the future were fiduciary functions.  The Court also found that the plant and HR managers had apparent authority to bind the employer: “Bridgestone acted as a fiduciary when it, through its agents with apparent authority, misrepresented to Deschamps the status of his pension benefits.”

The employer disputed that it had ever construed the Plan to cover the plaintiff, and, therefore, could not have violated the anti-cutback provisions when in 2010 it retracted his credit for the 10 years he worked in Canada between 1983 and 1993.  It construed the contrary assurances to the plaintiff as a “clerical error.”

ERISA prohibits plan amendments that decrease a participant’s accrued benefits, with two exceptions that do not apply here.  29 U.S.C. § 1054(g).  At issue is whether we look to the text of the Plan or the administrator’s interpretation of the Plan in determining if Deschamps accrued a benefit prior to 1993.  

In essence, an employer can illegally cut-back benefits if it changes or reinterprets the terms of the plan to reduce benefits that a plaintiff reasonably believed provided higher benefits based on a different and plausible interpretation of the plan.

As discussed above, the text of the Plan is at worst ambiguous, but at best, favors Deschamps’s argument that he was a covered employee in 1983 under the classification of  “supervisor.”  It is not untenable that Deschamps, in his capacity as a maintenance manager, was a supervisor under the language of the Plan.  Further, it is undisputed that as a result of the [2010] change in the interpretation of this provision that excluded foreign employees from being classified as covered employees, Deschamps’s benefits were decreased. Therefore, Deschamps has established an anti-cutback violation . . .

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit: Possible ADA Liability When Employer Revoked Job Offer to Deaf Lifeguard For Relying on Experts and Failing to Engage in Interactive Process on Possible Reasonable Accommodation

Earlier this month, the Sixth Circuit Court of Appeals reversed summary judgment in favor of an employer who had revoked a job offer to a deaf lifeguard because of his inability to “effectively communicate with other lifeguards, patrons, emergency personnel, and injured persons.”  Keith v. County of Oakland, No. 11-2276 (6^th Cir. 1-10-13).  While the Court agreed that communicating was an essential job function, it found that the plaintiff produced enough evidence for a jury to find that he could safely perform the job duties with a reasonable accommodation and that the employer’s subjective, “valid concerns” did not constitute an undue hardship.  Of note to employers, however, were two other conclusions of the Court.  First, the Court found that the employer could be liable for revoking the plaintiff’s job offer even though it conducted an individualized assessment of the plaintiff’s ability to perform the job because in revoking the job offer it relied on the opinions of a physician and aquatic safety consulting firm which had not conducted an individualized assessment.  Second, the Court implied that it could be an independent violation of the ADA for the employer to have failed to engage in the interactive process with the plaintiff before revoking his job offer.  Finally, like other decisions before it, the Court reiterated that the employer may not hold a disabled individual to an impossibly higher – 100% certainty – performance standard than it holds nondisabled individuals.

According to the Court’s opinion, the plaintiff had been deaf since birth. Although he could hear many sounds – including his name – with a cochlear implant, he could speak and communicated through American Sign Language.   During his lifeguard training courses, he required an interpreter to be present to relay verbal instructions, but performed his own lifesaving tasks and successfully completed the course.   He then applied for a lifeguard position, which required only that he pass the course, be above a certain age and pass a medical examination.   The only accommodation he requested to perform the job was that an interpreter be present for staff meetings and continuing education.   He was offered a lifeguard position, contingent on him passing the medical examination.

The evidence showed that the doctor hired to evaluate the plaintiff refused to unconditionally pass him solely because he was deaf and because the doctor might be sued if someone was harmed by the plaintiff’s hearing impairment.  The medical report indicated that the plaintiff could only safely perform the lifeguard duty if he was constantly accommodated (and not just at staff meetings).  The defendant employer then contacted the aquatic safety and risk management consulting firm it utilized to suggest accommodations.  The consulting firm – which had an extensive background in aquatic safety, but no experience or education in hearing impairments – suggested that a task analysis be performed, that research be conducted about the implant and that the implant be assessed for utility in actual conditions (i.e., with  lots of noisy and screaming kids in the background).  It explained that it could not provide a definitive answer without better familiarity with the plaintiff or the particular swimming facility.  The employer created a list of possible accommodations (which noted that hearing distressed swimmers was not an essential function because they typically do not make noise and which permitted the plaintiff to communicate with swimmers with his whistle, nods and laminated note cards).   Nonetheless, the consulting firm did not think that the accommodations could guarantee with 100% certainty that the plaintiff would always be effective as a lifeguard.  Thereafter, the defendant employer revoked the job offer.

The plaintiff filed suit under the ADA and Rehabilitation Act on the grounds that he was not hired because of unfounded fear and speculation.  He also objected to the defendant’s failure to conduct an individualized assessment of his ability to safely perform the job or to engage in the interactive process to determine the best reasonable accommodation.   The employer asserted that he was not hired because “he could not effectively communicate with other lifeguards, patrons, emergency personnel, and injured persons” and that “hiring an additional lifeguard as an interpreter is an unreasonable accommodation.”

The case boiled down to the type of experts which each party utilized.  The plaintiff submitted a deaf lifeguard certified by the American Red Cross.  He also used experts with hearing disabilities and aquatic safety.  For instance:

Anita Marchitelli has worked with deaf people in the area of lifeguarding and aquatics for more than thirty years. She is a certified lifeguard training instructor with the American Red Cross in the areas of lifeguarding, water safety, and CPR. She is also an associate professor in the physical education and recreation department at Gallaudet University, the only liberal arts university in the world dedicated to serving the needs of deaf individuals. She has certified more than 1,000 deaf lifeguards through the American Red Cross programs. According to Marchitelli, there have been no reported incidents of drowning or near drowning of any individuals over whom a deaf lifeguard was responsible. It is her professional opinion that the ability to hear is unnecessary to enable a person to perform the essential functions of a   lifeguard. In her affidavit, Marchitelli notes that the world record for most lives saved is held by a deaf man, Leroy Colombo, who saved over 900 lives in his lifeguarding career.

The district court excused the employer’s failure to engage in the interactive process because such a failure does not constitute an independent violation of the ADA and because the plaintiff failed to show that he could safety perform the essential job functions with or without a reasonable accommodation.  While the district court concluded that the physician failed to conduct an individualized assessment of the plaintiff’s abilities, the court concluded that the employer had made its own individualized assessment.  

On appeal, the Sixth Circuit first addressed the issue of whether the employer conducted the mandatory individualized assessment.  While it ultimately agreed with the district court that the employer had done so, it remanded the case back to the trial court to consider whether the employer’s individualized assessment was sufficient when it revoked the job offer in reliance on the opinions of a physician and aquatic safety experts who had not conducted the required individualized assessment.

As a threshold matter, “[t]he ADA mandates an individualized inquiry in determining whether an [applicant’s] disability or other condition disqualifies him from a particular position.” Holiday, 206 F.3d at 643. A proper evaluation involves consideration of the applicant’s personal characteristics, his actual medical condition, and the effect, if any, the condition may have on his ability to perform the job in question.  . . .  The ADA requires employers to act, not based on stereotypes and generalizations about a disability, but based on the actual disability and the effect that disability has on the particular individual’s ability to perform the job.

The Court agreed that the physician failed to conduct an individualized assessment. He made no attempt to evaluate whether the plaintiff could perform the job duties with his disability.  He also had no training or experience in assessing the ability of deaf individuals to work as lifeguards.  His “cursory medical examination is precisely the type that the ADA was designed to prohibit.”

The Sixth Circuit also expressed concern with the assessment of the consulting firm.  While it had acknowledged that it could not provide an opinion without an individualized assessment, its “suggestions” that the employer needed 100% certainty about the plaintiff’s ability to safely perform the job was “an impossible standard to expect of any lifeguard. Individuals with disabilities cannot be held to a higher standard of performance than non-disabled individuals.”

 Nonetheless, the Sixth Circuit agreed that the employer had made an appropriate individualized assessment of the plaintiff’s abilities.  The employer had observed the plaintiff’s abilities “during lifeguard training, accommodations were proposed to integrate [the plaintiff] into the lifeguard team, and both staff and management were on board with the plan to hire” the plaintiff.  The problem was, however, that the employer disregarded its own individualized assessment and deferred instead to the two outside “experts” which had failed to conduct an individualized assessment.

 The Court then turned to whether hearing was an essential job requirement of a lifeguard.   After reviewing evidence, including job descriptions, testimony and postings, the Court agreed that communicating was an essential function (for enforcing rules and teaching lessons).  Nonetheless, the Court found there to be sufficient evidence to present to a jury as to whether the plaintiff could adequately perform the essential job duties with a reasonable accommodation.   The duty to detect distressed swimmers is almost entirely visual.  Although the plaintiff admitted could not hear another lifeguard blow a whistle before saving a swimmer, “as a modest modification, he could briefly look at the other lifeguards when scanning his zone.”  Although the plaintiff could not speak (let alone yell) at swimmers, the Court found his ability to communicate was sufficient:  

Verbal enforcement is usually impractical in a noisy water park, and most lifeguards rely on their whistle and various physical gestures, including shaking their head “no” for patrons to stop engaging in horseplay, motioning their hand backward for a patron to get behind the red line, and signaling the number one with their finger for “one person per tube.” [The plaintiff] can use these same methods of enforcement.

             . . .

Further, [the plaintiff] has presented evidence that he can respond to patrons who approach him, at least at a level that may be considered essential for a lifeguard. He would carry a few laminated note cards in the pocket of his swim trunks with basic phrases such as, “I am deaf. I will get someone to assist you. Wait here.” He can also provide first aid in situations in which he can see the ailment requiring attention. Although there may be situations in which verbal communication is necessary, attendants are posted throughout the water park to assist patrons with basic needs and inquiries, suggesting that this is not an essential function of lifeguards, or at least reasonable minds could differ on this point.

The Court concluded that these could be reasonable accommodations because they were effective and cost proportionally little.  In evaluating whether an accommodation is (objectively) reasonable or poses a (subjective) undue hardship, courts conduct the following analysis:

When accommodation is necessary to enable a plaintiff to perform the essential functions of the position in question, it is the plaintiff’s burden to propose an accommodation that is “objectively reasonable.”  . . . . In defining what is reasonable, this court “has described the employee’s initial burden on this issue as showing ‘that the accommodation is reasonable in the sense both of efficacious and of proportional to costs.’”  . . .  The employer can then “escape liability if he can carry the burden of proving that a disability accommodation reasonable for a normal employer would break him.”  . . .  As stated by other circuits, the reasonable accommodation inquiry asks whether an accommodation “is reasonable in the run of cases, whereas the undue hardship inquiry focuses on the hardships imposed by the plaintiff’s preferred accommodation in the context of the particular [employer’s] operations.” (citations omitted).

While the Court acknowledged the employer’s “valid concern” with the reallocation of responsibilities to other lifeguards, this alone could not justify granting summary judgment on an undue hardship defense because the ADA requires job restructuring as a reasonable accommodation.  While the ADA does not require the reallocation of essential job duties, marginal job duties must be restructured when necessary.  In this case, the potential shifting of some duties was possibly minimal enough that a jury could determine that they were not essential job functions.  In addition, the plaintiff’s need for an interpreter during staff meetings and continuing education is a typical reasonable accommodation which the employer failed to show posed an undue hardship.

[T]he ADA provides that “reasonable accommodation” may include “the provision of qualified readers or interpreters.” 42 U.S.C. § 12111(9). The inclusion of interpreters among the list of enumerated reasonable accommodations suggests to us that the provision of an interpreter will often be reasonable, particularly when the interpreter is needed only on occasion, in this instance, just for staff meetings and training. In fact, there are numerous cases in which courts have found that the provision of an interpreter during staff meetings and training sessions presented a question of fact for the jury on the issue of reasonableness.

Finally, the Sixth Circuit remanded the case back to the trial court to consider the employer’s failure to engage in the interactive process with the plaintiff before revoking his job offer.   Had the employer engaged in the interactive process, it might had learned information about the plaintiff’s disability and implant (as summarized above) which would have alleviated the concerns of its “experts” (who had failed to conduct an individualized assessment and lacked education or training in hearing impairments).   In so remanding the case, the Sixth Circuit implicitly rejected the trial court’s conclusion that an employer cannot be held liable for failing to engage in the interactive process. 

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Court Rejects Claims for Unpaid Commissions When Details Were Never Agreed

Last month, the Montgomery County Court of Appeals affirmed an employer’s summary judgment on a claim for unpaid sales commissions.  Brown v. Fukuvi USA Inc., 2022-Ohio-1608.  The plaintiff alleged that he had been verbally promised sales commissions before accepting the job in 2006.  His offer letter – which he signed -- said that a commission structure would be discussed later,  and it was.  However, they could never come to an agreement on a salary and commission structure.  Instead, the employer kept his salary in place and eventually raised it several times before he finally sued in 2019.  The courts found that there was never a meeting of the minds or agreement on the details of a commission structure and, therefore, the employer was not obligated to pay any commissions. 

To be enforceable, contracts must be definite and certain.  An agreement to agree is only enforceable if it is sufficiently definite to be enforced. “When the terms of a contract are not sufficiently definite, the contract is unenforceable.  . . . ‘The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.’ ””  The plaintiff’s offer letter offered a salary until 2007 and then a reduced salary with a commission – the details of which were to be discussed.  The details were never mutually agreed to and his salary remained unchanged.   “[N]o specific amount of commission or bonus was outlined. Furthermore, details were to be discussed at some future date, with no indication of what those details would be.”

The plaintiff

contends that he was told when he signed the Offer Letter that “his commission structure would operate in the same manner as the prior sale representative, which was a percentage on sales over an initial threshold or goal.”  . . . However, taking this statement at face value, it was made by a [HR] person who lacked authority to authorize payment of commissions; it was also inconsistent with the letter, which said that details would be discussed later. When “later” came, [the company president] elected not to pay commissions due to the severe financial position of the company, and this was communicated to [him]. At that point, if [he] were dissatisfied with the situation, he could have left the company. Instead, he chose to stay. Notably, his salary was not decreased to the considerably lower level mentioned in the Offer Letter.

“Here, the parties may have envisioned a commission and bonus structure, but the details were left to future discussion. Consequently, there was no enforceable promise.”

The court refused to find enforceable details from a commission policy document which the plaintiff had found in his predecessor’s files and which he claims had been referenced during his employment discussions.  The court refused to incorporate them into the offer letter without more evidence.  There was no evidence that the company had provided the policy to the plaintiff during their negotiations or were part of or intended to be part of his offer letter.  The document did not even indicate who prepared it.

The Court also rejected his claims for promissory estoppel, negligent and fraudulent misrepresentations and unjust enrichment on the grounds that they were time barred by the then six-year (and now four-year) statute of limitations.  It rejected his argument that the failure to pay commissions constituted a continuing violation because (1) the Supreme Court of Ohio had taken the position that courts are reluctant to apply this doctrine outside the civil rights context; (2) “continuing violations are distinguished from ‘continuing effects of prior violations’; in this context, ‘ “ ‘ “[a] continuing violation is occasioned by continual unlawful acts, not continual ill effects from an original violation” ’ ” ’ ”; and (3) the lack of authority in Ohio extending this doctrine to breach of contract cases.

The  Court also rejected his equitable estoppel claim because none of his allegations were sufficient to show that the company prevented him from filing suit earlier.   Indeed, a person of reasonable intelligence would have been on notice years earlier of his need to file suit. 

Finally, the plaintiff could not show that he had not been paid his wages under Ohio’s prompt payment act because there was no underlying obligation to pay him commissions.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.