To Succeed, Plaintiffs Need Comparative Evidence and Not Just Subjective Opinions

Earlier this month, the Sixth Circuit affirmed an employer’s summary judgment on an employee’s claims for FMLA retaliation, disability discrimination, sexual harassment and unequal pay.   Santiago v. Meyer Tool, Inc. No. 22-3800 (6^th Cir. 6/8/23).   The Court ultimately found that the plaintiff failed to identify any employees who were both similarly situated and treated differently because she had significant attendance and performance issues, unlike employees who only had one or the other.  It also found that she could not show FMLA retaliation when she was given her requested FMLA leave, failed to mention FMLA leave when calling off during the attendance infractions and never claimed when given the pre-litigation opportunity that her absences were covered by the FMLA.  She also did not provide sufficient comparative evidence – about skills, responsibility, effort, etc.,  to show that she was paid less on account of her gender merely because other men were paid more.  Finally, the Court found her sexual harassment EEOC Charge was filed 58 days too late and could not relate back to her original timely ADA Charge when she never indicated any continuing violations and had focused only on the date of her termination.

According to the Court’s opinion, the plaintiff was fired in 2017 as a machinist after 19 years of employment.  She had informed the Company of her HIV diagnosis in 2015 and was given intermitted FMLA leave to seek medical treatment, etc. in 2016 and 2017.  Nonetheless, both before and after her HIV diagnosis, she was frequently disciplined for excessive absenteeism, including a suspension a month before her termination.  Prior to the litigation, she never claimed that her attendance infractions were covered by her FMLA entitlement, even when given the opportunity on the disciplinary action form to protest the disciplinary action.  She also was occasionally disciplined for poor performance for creating deviated parts (that did not meet the customer’s specifications).  Her last such incident was on May 17, when she created 4 deviated parts that were ultimately rejected by the customer after her termination.   In contract, she had similarly created deviated parts in February 2017 without disciplinary action.  She was fired in July 2017 after her suspension for poor attendance and creating the deviated parts on May 17.

She filed an EEOC Charge in October 2017 alleging that non-disabled employees had also created deviated parts and not been fired.   In July 2018 – 358 days after her termination – she filed a second EEOC Charge alleging that her supervisor sexually harassed her for years and that she was paid less than other male machinists.  After filing suit, the trial court granted summary judgment to the employer, which was affirmed on appeal.

The Court found that the employer articulated a legitimate and non-discriminatory reason for her termination on account of her poor work performance and chronically poor attendance.  She failed to produce evidence disputing that she created four deviated parts on May 17, even if her performance at other times had been satisfactory.  She also failed to produce evidence that her attendance had been satisfactory or that she had complied with the employer’s call-off policies.   She could not simply rely on her own opinion to satisfy her burden of proof.

The Court also rejected her evidence of pretext based on statistics showing that all machinists who took FMLA leave between 2014 and 2017 were eventually terminated.  While that might be sufficient evidence to satisfy a prima facie case, it was insufficient without additional circumstantial evidence to show pretext or that discrimination/retaliation more likely than not motivated the decision in her case when it was rebutted by evidence showing the basis for the termination decision in this case – i.e., that she created four deviated parts and had repeatedly violated the attendance policy.  “Her statistical evidence, standing alone, is not so significant to indicate that her termination was more likely than not retaliation for her FMLA leave, particularly in light of her documented disciplinary history.”

The plaintiff also could not “show by a preponderance of the evidence that ‘other employees, particularly employees not in the protected class, were not fired even though they were engaged in substantially identical conduct to that which the employer contends motivated its discharge.’”  None of the other employees to whom she vaguely referred had both performance and attendance issues.  “First, she points to no employee with a disciplinary record that demonstrates the employee engaged in “substantially identical conduct” to her own.” One employee had been suspended for three days because of deviated parts, but had no attendance or other misconduct issues.  While the plaintiff asserted that there were nine other employees with more egregious performance issues, she failed to identify them or explain how their situations were comparable to hers.   Finally, while she was not personally aware of any other employees being terminated for poor performance, the employer had produced records showing that it had previously fired employees for creating too many deviated parts.

The Court also rejected her wage discrimination claim.  She produced evidence that male employees were paid more on average than female machinists.  She also showed that male employees with similar tenure to her – and some that she trained --  were given larger raises than her year after year.  However, she failed to produce any evidence of their respective skills, experience, responsibility, effort or job titles so that an effective comparison could be made to her.

The Court also rejected her sexual harassment claim as being filed too late with the EEOC and too unrelated to her timely ADA charge regarding her termination.  Charges must be filed within 300 days.  She did not indicate any continuing violations in her original, timely charge, but rather focused only on her termination date.

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.

FCA Retaliation Claim Filed Five Days Too Late When Decision Was Made Prior to Written Notice

On Monday, the Sixth Circuit Court of Appeals affirmed the judgment on a False Claim Act retaliation claim on the grounds that the lawsuit had been filed five days too late.  El-Khalil v. Oakwood Healthcare, Inc., No. 21-2669 (6^th Cir. 1/10/22).   The physician alleged that his employment agreement with the defendant hospital was not renewed because he had reported to the federal government false Medicare claims being filed by the hospital’s staff.  He had appealed the denial of his staff privileges under the medical bylaws.  The final step was made to a joint conference committee, which heard oral argument and, after he had left for the evening, voted to affirm the denial on September 22 and notified him in writing on September 27.  He filed suit against the hospital three years later on September 27.  The Hospital moved to dismiss on the grounds that his lawsuit was untimely.  The courts agreed, finding that the decision had been made and verbally announced on September 22 – more than three years before he filed suit.  According to the statute, 31 U.S.C. § 3730(h)(3): “Such an action ‘may not be brought more than 3 years after the date when the retaliation occurred.”  Unlike other employment statutes, Congress did not create a discovery rule under the FCA retaliation provision based on when notice is provided.  “The statute simply adopts “the standard rule” that the limitations period begins when the plaintiff “can file suit and obtain relief.”

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 Rejects Shortened Limitations Periods Under Title VII, the ADA and the ADEA, but Affirms that Employee Could Not Show She Was Singled Out

 

Last month, the Sixth Circuit expanded its earlier prohibition against the contractual shortening of limitations periods from Title VII claims to cover the ADA and the ADEA as well, but agreed that the contract would still apply to shorten the limitations periods applying to ERISA, §1981 and Ohio Civil Rights Act claims.    Thompson v. Fresh Products LLC, No. 20-3060 (6^th Cir. Jan. 15, 2021).    In addition, the Court affirmed the employer’s summary judgment on the employee’s discrimination and failure to accommodate claims on the grounds that she failed to show that she was singled out for the RIF on account of her race, age or disability and because being able to work a full shift on the assembly line was an essential function of her job.  Among other things, her sample sizes were too small to provide a meaningful statistical analysis. 

According to the Court’s decision the Plaintiff was hired in July 2016, worked the third shift and was one of the company’s most productive employees on the assembly line.  Upon being hired, she signed an Employee Handbook Acknowledgment which shortened the time period for suing the employer to six months, or such reasonable time if a court later found six months to be too short.     In October, she requested to work part-time on account of arthritis in her back.  While her supervisor agreed to look into it, no one responded to her request.  Later, the company realized that it needed to reduce its workforce and requested which staff would agree to work 10-hour shifts instead of 8-hour shifts.  Plaintiff was the only employee who did not agree to work a 10-hour shift (due to child care responsibilities) and was ultimately laid off at the end of January along with three other employees (and two others who had either had indicated that they could or would no longer work). 

The Plaintiff promptly filed OCRC and EEOC Charges under Title VII, the ADA and the ADEA.  She filed suit within 90 days after her Charge was dismissed.  The trial court granted summary judgment to the employer and the Sixth Circuit affirmed that she failed to satisfy her prima facie burden of proof.  

The first issue involved whether her lawsuit was timely when it was filed more than six months after she was laid off.   The Court agreed that the Employee Handbook Acknowledgement barred her OCRA claims under Ohio law.  However, it found that the limitations periods for claims under Title VII, the ADA and the ADEA were substantive statutory rights which could not be limited by contract, especially considering the national policy in favor of a uniform limitations period.  (Of course, never mind that the limitations period to file a Charge is not uniform).  Accordingly, it found her federal claims to be timely.

The Court rejected her failure to accommodate claim because her request to work part-time was unreasonable and because the Sixth Circuit does not recognize an independent cause of action for an employer’s failure to engage in the interactive process.    While the duty to engage in the interactive process is mandatory, “failure to engage in the interactive process does not give rise to an independent claim.”  She failed to carry her burden of proving that her requested accommodation was objectively reasonable.  No other employee was permitted to work part-time on that production line and the Court refused to consider the fact that the employer permitted one employee to work part-time in a different department under different working conditions.  It also did not discuss the employer’s obligation to discuss potential transfers to a different position.

Although the handbook does not state that employees must work full time, it states that production workers must be able to work 10–12 hours at a time—at least the length of a full shift. Shaferly testified that Fresh Products does not have part-time production workers because it is too difficult to manage with the amount of turnover at the company, and Hartman testified that it would be very difficult to have someone leave in the middle of a shift because it would require “figur[ing] out how to move someone else to take their spot” or “cover [their] machine.”

The Court also rejected her discrimination claim because she could not show that she was singled out for the RIF on account of her disability in light of her admission that she had never indicated a willingness or ability to work the 10-hour shifts.  Indeed, she “was the only employee who stated she could not work either shift, never selected a preference for one of the shifts when Shaferly followed up after the survey, and did not voluntarily quit.” 

The Court rejected the argument that she could not prove that she had a disability because she did not have any lifting restrictions imposed by her physician after she had been hired and had continued to work full-time until she was laid off because she had such medical restrictions imposed while working at a prior employer.  The Court also rejected the argument that she was unqualified for her position because she was unwilling to work 10-hour shifts because of the ambiguity in the employer’s request in seeking “preferences” instead of willingness or ability. 

The Court also found that she could not prove that she was singled out for the RIF on account of her age.  Only five employees were laid off and all of them were over the age of 40.  However, two of them were not comparable because one volunteered for the RIF and the other announced that she had to leave on February 1 (to go to jail).    The other two employees had admittedly poor production records.  When the Plaintiff pointed to the retention of a younger female, the Court pointed out that there was no evidence that that the comparator was less qualified than Plaintiff.  When the Plaintiff pointed to one young employee who was retained even though he had poor production and attendance compared to her, the Court pointed out that:

The probative value of this evidence in the age-discrimination context is undermined by the fact that, according to the final list of those considered for layoff (excluding those who quit or were terminated for cause before the layoff), half of the other employees who had lower production numbers or higher absenteeism than Thompson and were retained were members of the protected class (i.e., forty or older), and two were older than Thompson at the time of the RIF. This evidence does not tend to show that Thompson was singled out because of her age.

The Court also rejected her statistical “evidence” that she was singled out for the RIF on account of her race.

[W]ith the exception of [the employee] who informed Fresh Products that she would be incarcerated, the five employees terminated as part of the RIF were all black, Hispanic, or biracial; and 2) of the 18 people considered for layoff, 78% were black. These statistics suffer from the same shortcomings as those provided in support of Thompson’s ADEA claim: the sample sizes are too small to be reliable, and Thompson has failed to provide any analysis of the statistics’ significance. They also do not address a comparison to the relevant pool: roughly 70% of Fresh Products’ employees are black, Hispanic, or biracial.

When the Plaintiff identified a white employee who was retained with poorer production and attendance that her, the Court pointed out that:

[O]f the ten employees with lower productivity or higher absenteeism than Thompson who were considered for layoff but retained, only [that employee] and one other employee . . . are white.  Six are black, and one is biracial. In light of this context, Fresh Products’ retention of [that employee] does not tend to indicate that Thompson was laid off because of her race.

The dissenting judge would have found a factual dispute as to pretext when a non-disabled employee who had requested to work part-time to accommodate her class scheduled was retained even though that employee had also – unlike the Plaintiff – initially agreed to work a 10-hour shift before resigning.

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.

Ohio Modifies Ohio Civil Rights Act and Shortens Limitations Periods

 

What a long strange trip it has been.  Yesterday, Governor DeWine signed H.B. 352 into law.  While it is a scaled down version of what passed the Senate before Christmas, it addresses long-standing concerns with Ohio employment discrimination legal procedures and makes them more consistent and often still more generous than exist under federal law. Among other things, it generally shortens the limitations period for 4112 claims and some federal statutory claims to two years, requires exhaustion of remedies, incorporates specific federal defenses, and makes damages subject to tort cap limits, etc.  It still retains the right of employees to bring certain age discrimination and injunctive relief claims directly in court.

First, it shortens the limitations period for claims under O.R.C. § 4112, and federal claims under §§1981a, 1983 and 1985 to two years (from the existing six years), which is still twice as long as the federal limitations period under Title VII, the ADEA and the ADA, etc.  (The limitations periods for those federal statutes vary from state to state because they “borrow” the analogous state limitations period).  The limitations period begins to run from the date when “the alleged unlawful discriminatory practice was committed.”  This period will be tolled for Chapter 4112 claims as long as a Charge is pending at the OCRC, except that if the Charge was not filed until less than 60 days before the limitations period was about to lapse (i.e., on day 670), then the tolling will last another 60 days after the Charge is no longer pending at the OCRC.

Second, similar to federal law and with a few exceptions, it requires employees to first file a Charge with the Ohio Civil Rights Commission, before filing a lawsuit.   The time period for filing a Charge is the same as for filing a lawsuit: two years.   Employees may still request a right to sue letter from the OCRC prior to the conclusion of any OCRC investigation, but the OCRC may not issue the right to sue unless the Charge has been pending at least 60 days.

Third, with certain exceptions, employees cannot file suit unless they have a Right to Sue letter, have waited at least 45 days after requesting a RTS letter and 60 days since filing a Charge, or have received a letter where the OCRC found probable cause of discrimination to have occurred.   These conditions do not apply if the employee is only seeking injunctive relief or if the employee filed a timely charge with both the OCRC and EEOC and the EEOC has issued a right to sue letter (or if filing a lawsuit for age discrimination under §4112.14).   But, if the employee initially sought only injunctive relief from a court and later amends his or her complaint to include a claim for damages, the employee must have filed a timely OCRC Charge and comply with the right-to-sue letter requirements.   

Fourth, as with federal law, it eliminates individual liability of managers and supervisors under the statute.  The legislation notes that it intends to overrule the Ohio Supreme Court’s Genaro decision and to instead follow long-standing federal law on this issue.  

Fourth, it explicitly adopts the federal standard and affirmative defense from Faragher, for sexual harassment claims. 

Sixth, it makes verdicts for Chapter 4112 claims subject to the tort caps for non-economic damages.  

Seventh, it makes Chapter 4112 the sole and exclusive remedy for employment discrimination, which is similar to federal law.  In other words, there cannot be a common law wrongful discharge claims for violation of public policy against employment discrimination.

Finally, while it retains under §4112.14 the existing right of employees not subject to an arbitration agreement to file suit for age discrimination claims seeking only reinstatement, back pay, costs and attorney’s fees and the existing election of remedies, it added a few wrinkles.   The employee must still elect remedies (i.e., bring this direct action without being able to sue for compensatory or punitive damages or being required to file an OCRC Charge).   These direct actions are still subject to the new two year statute of limitations as described above.   Like other 4112 claims, that limitations period may be tolled if the employee filed a Charge with the OCRC making the same allegations. 

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. 

Ohio Supreme Court: Negligent Hiring and Supervision Claims Are Not Dependent on Underlying Civil or Criminal Judgment and Are Subject to Two Year Limitations Period.

This morning, the Ohio Supreme Court unanimously addressed the evidence necessary to prove a claim that the defendant employer negligently hired and supervised an employee who the plaintiff had never sued, had never been held civilly liable for the alleged wrongdoing and had never been found guilty of any crime. Evans v. Akron Gen. Med. Ctr., Slip Opinion No. 2020-Ohio-5535.   While refusing to address all of the necessary elements of a negligent supervision or hiring claim, the Court held that “a plaintiff need not show that an employee has been adjudicated civilly liable or has been found guilty of a crime by a court in order for the plaintiff to maintain a negligent hiring, retention, or supervision claim against an employer.”  In other words, “a plaintiff must establish that an employee committed a wrong recognized as a tort or crime in the state of Ohio, and not that the wrong has been proven to be tortious or criminal in a court proceeding.” Furthermore, the plaintiff also need not file the negligent hiring/supervision claim within the limitations period for the underlying wrongful action.   The two-year limitations period for negligent hiring and supervision does not shift based on the underlying wrongful act.

According to the Court’s opinion, the plaintiff brought suit against the defendant employer alleging that one of its physicians had sexually assaulted her after she had been administered a narcotic.  She had never sued the physician and the criminal investigation did not result in any charges being brought.    She did not file suit until the one-year intentional tort limitations had run against the physician.  The trial court granted the employer summary judgment based on the plaintiff’s failure to establish criminal or civil liability against the employee physician.   While the appellate court disagreed that a civil or criminal judgment on the underlying misconduct was necessary, it still held that the plaintiff must file the action within the limitations period for the underlying wrongful act.

The Court found that its prior precedent had focused on whether the underlying alleged misconduct was even unlawful and whether the employer owed an independent duty.  “A negligent hiring, retention, or supervision action is a direct claim against an employer, based on an employee’s conduct that the law regards as wrongful that would not have occurred but for the employer’s failure to properly hire, supervise, or retain the employee.”  Because there were disputed questions of fact as to whether the employee physician in this case had engaged in the alleged misconduct and the plaintiff was not required to first prove that the physician employee had been found either civilly or criminally liable, summary judgment was inappropriate on that basis. 

The Court also rejected the alternative appellate holding: that the plaintiff’s lawsuit was untimely because she filed suit within the two-years required for negligence, but not within the one-year limitations period for the underlying intentional tort of sexual assault.  “The employee must be shown to have committed an act that is legally wrongful, irrespective of whether he or she has been or can be held legally accountable. We see no reason to conclude that the statute of limitations for a negligent hiring, supervision, or retention claim is affected by the statute of limitations governing the underlying legally wrongful conduct of the employee.” 

Moreover, in the trial court, neither AGMC nor Evans disputed the term of the statute of limitations for a negligent hiring, supervision, or retention claim. The court of appeals relied on R.C. 2305.10 in determining that the applicable statute of limitations is two years. 2018-Ohio-3031 at ¶ 9. Because Evans’s claim is directly against AGMC for its negligent hiring, supervision, or retention, it makes little sense for us to establish a statute of limitations that shifts depending on the facts of the employee’s underlying tort or crime instead of deferring to R.C. 2305.10(A).

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.

Ohio Appeals Court Permits Limitations Periods for R.C. 4112 Claims to Be Shortened in Job Application

 Last week, the Ohio Court of Appeals enforced a shortened limitations period of six months contained in a job application to bar state law claims for hostile work environment, sex discrimination and invasion of privacy brought against the plaintiff’s former employer and co-workers.  Fayak v. Univ. Hosps., 2020-Ohio-5512. The Court found that parties may shorten the limitations periods of state law claims, including those under R.C. 4112.  While the Sixth Circuit last year in Logan v. MGM Grand Detroit Casino, 939 F.3d 824 (6^th Cir. 2019) had found such contractually shortened limitations periods outside arbitration agreements to be barred by Title VII and federal law is typically applied to similar R.C. 4112 claims, the  Logan Court also noted that the limitations periods for other federal claims, like Section 1981 and ERISA, could be shortened by contract because those claims borrow from state law.  Accordingly, because the plaintiff had not filed suit for more than six months after the last allegedly discriminatory or harassing act, all of her claims were barred by the contractual limitations period. 

According to the Court’s opinion, the plaintiff began working in December 2013 and began an extended medical leave of absence in April 2015.  She claimed to have suffered from sex discrimination and harassment from her hire until she began the extended medical leave and this caused her great anxiety and panic attacks, etc.   Her physician’s statement only covered her absence until July 2015, but she never returned to work or provided medical support for a continued medical leave.  She did not allege any discriminatory or harassing conduct after April 2015.  In June 2016, she was finally terminated based on an unapproved absence after failing to satisfy requests for updated medical information supporting her continued need to be off work.  She initially filed suit against just her employer in September 2016, but voluntarily dismissed it and refiled again in February 2017, this time adding several co-workers as defendants.   Her job application contained the following waiver:

“I agree that any claim or lawsuits relating to my service with University Hospitals or any of its subsidiaries or affiliates must be filed no more than six (6) months after the date of the employment action that is the subject of the claim or lawsuit. I waive any statute of limitations to the contrary.” The employment application was submitted with her typewritten name, which represented her electronic signature according to the application.

The Court rejected the plaintiff’s argument that the shortened limitation was unenforceable under the Logan decision because Ohio courts generally follow federal precedent interpreting Title VII.

Under Ohio law, it has been held that “[g]enerally, in the absence of a controlling statute to the contrary, a provision in a contract may validly limit, as between the parties, the time for bringing an action on such contract to a period less than that prescribed in a general statute of limitations provided that the shorter period shall be a reasonable one.” . . . Further, a shortened limitations period contained in an application for employment can bar claims that are untimely filed. . . . As the defendants argue, courts have held that a six month contractual limitations period is enforceable for employment-related claims and is not inherently unreasonable.

The Court found that the Logan court only rejected the shortened limitations period for Title VII claims based on a nationwide policy favoring uniform federal limitations periods that are self-contained within the Title VII statute and this issue did not apply to state law claims or to federal claims which borrow state-law limitations periods, such as with claims brought under Section 1981, or ERISA.  “As stated in Logan, i[i]n situations where only a general limitation period applied, such as ERISA and § 1981, we have allowed the limitation period to be contractually altered.’”  The Logan court also was influenced by the fact that the limitations period for Title VII claims was contained within the statute and was essentially a substantive right that could not be prospectively waived.  This made it more similar to the FLSA and less like other federal rights which borrowed from state law.  Finally, the Logan Court limited to arbitration clauses the Morrison v. Circuit City Stores, Inc., 317 F.3d 646 (6th Cir. 2003) (en banc) case which had tacitly approved a one-year shortened limitations period.

The Court also refused to consider whether the plaintiff in fact accepted the shortened limitations period in her job application because she did not raise that argument before the trial court.  In any event, the Court found that other courts had found 6- months to be reasonable and to have enforced similar provisions in other job applications.

The plaintiff failed to allege any unlawful conduct occurred after she began her extended medical leave of absence in April 2015.  She produced no evidence disputing the lawful reason for her termination for being on an unapproved leave of absence.  Accordingly, the Court found that the limitations period began to run no later than her April 2015 medical leave even though she never filed suit for 14 months.

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.

Supreme Court Requires SERB ULPs to be Filed Within 90 Days of Earliest Notice

At the end of last month, the Ohio Supreme Court affirmed SERB’s dismissal of unfair labor practice charges filed against the City of Columbus on the grounds that they were untimely.   State ex rel. Murray v. State Emp. Relations Bd., Slip Opinion No. 2018-Ohio-5131.  A unanimous court concluded that the plaintiff should have realized by the time of filing his federal lawsuit that he had grounds to file an unfair labor practice charge over the more than two-year delay in scheduling an arbitration hearing on his termination and rejected his argument that he had filed his lawsuit only to preserve the federal two-year limitations period and had been lead to believe that his union and the city were still discussing scheduling his arbitration.  Accordingly, SERB did not abuse its discretion in dismissing as untimely the ULPs filed more than 120 days after the lawsuit had been initiated.  A divided Court affirmed the dismissal of two later ULPs filed within 90 days of when a settlement agreement between the city and union was signed and provided to the plaintiff claiming to have resolved his grievance 14 months earlier.  The city and union had told the federal court in June 2011 that the grievance had been resolved in July 2010, but did not sign or provide the agreement until September 2011.  The majority found that SERB did not abuse its discretion in finding that the plaintiff should have filed within 90 days of June 23 when he learned about the secret resolution.

According to the Court’s opinion, the plaintiff had been fired from the police department on September 4, 2008 and filed a timely grievance.  The union sought arbitration on September 10 and then the matter sat, as they often do, for almost two years. A year and 360 days after his termination (presumably to beat the limitations period), the plaintiff filed suit on September 4 alleging that he had been denied due process by his termination and delayed arbitration.  An arbitration hearing was then scheduled, according to the plaintiff, and cancelled.   More than 120 days after he filed his federal lawsuit, on January 18, 2011, the plaintiff filed two unfair labor practice charges with SERB against the city and the union, alleging that they collaborated to deny him an arbitration hearing.  However, in June 2011, the city and the union told the federal court that they had settled the plaintiff’s grievance almost a year earlier in July 2010 and sent him a copy of the settlement in September 2011 that was not even signed until September 29, 2011.  The plaintiff filed two more ULPs against the city and the union accusing them of falsifying evidence to deprive him of an arbitration hearing.  SERB dismissed all of the plaintiff’s ULPs on the grounds that they were filed more after the 90 day limitations period had run.

SERB may not hold hearings on ULPs that are filed more than 90 days after the challenge practice occurred. “The ninety-day time period does not commence until the charging party knew or should have known of the conduct which constituted the improper conduct and actual damage ensued.”  Timeliness determinations are not reviewable on direct appeal, but a mandamus will issue if SERB abused its discretion.  In this case, while the plaintiff contended that negotiations over the scheduling of his arbitration hearing continued until December 2010, the Court concluded that he should have realized that he had grounds to file an ULP by the time he filed his federal lawsuit – challenging his termination and the delay in scheduling the arbitration – on September 3.  Because he did not file his initial ULPs until more than 90 days after he initiated his federal lawsuit, his ULPs were untimely.   His ULPs alleging falsification of evidence filed in December 2011 were found to be untimely because they were filed more than 90 days after his attorney had been notified in federal court in June 2011 that the union and city had resolved his grievance among themselves in July 2010, even though they did not ultimately provide him with a copy of the settlement until September 29, 2011.

Dissenting, Justice O’Connor disagreed that the limitations period could have run on the falsification ULPs when the falsified evidence was not even created or provided to the plaintiff until less than 90 days before he filed those ULPs.   He likely would have been unable to prove his case until he received a copy of the supposed agreement.  She believed that SERB abused its discretion by speculating when the ULP actually 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 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.

Supreme Court Freezes State Statutes of Limitations During Pendency of Federal Lawsuits and Thaws Them on Dismissal

It seems fitting during this January thaw that the Supreme Court focuses on the freezing and thawing of statutes of limitations.  This morning, and despite the government shut-down,  a divided Supreme Court significantly extended the limitations periods for state law claims first brought in federal court and wrecked havoc on document retention policies and witness memories worldwide. Artis v. District of Columbia, No. 16-460 (1/22/18).     In doing so, it adopted the position taken by the Sixth Circuit in 2013:  when state law claims (such as whistleblower claims) are brought in a federal question lawsuit (alleging, for instance, a violation of Title VII), the state statute of limitations stops running and the clock is frozen until the federal lawsuit is resolved or dismissed.  Then, the clock thaws and starts running so that the plaintiff can re-file in state court based on how many days were remaining on the state statute of limitations when she filed in federal court, or 30 days after dismissal if that period is longer.   Accordingly, because Artis still had two years remaining on her state law claims’ statutes of limitations when she filed her federal lawsuit, she had two years to re-file those claims in state court after her federal lawsuit was dismissed.  The Court was apparently not concerned with those situations when the lawsuits remain pending for ten or more years as they work through discovery and appeals.   Rather, it focused on the plain meaning of “tolled” to mean “frozen,” compared it to situations where a federal limitations period is tolled while the agency exhausts its administrative process,  and contrasted it with savings statutes in other contexts that simply give the plaintiff a certain grace period to re-file a claim after it has been dismissed without prejudice.

For my non-lawyer readers, in order to bring a lawsuit in federal court, the underlying claim must be based on a federal statute (i.e., raise a federal question) or implicate diversity (i.e., citizens of different states with an expensive dispute).  Once the federal court has jurisdiction, it may also adjudicate state law claims arising out of the same underlying event or facts, or, as the busy judges often do, dismiss the state claims to be re-filed in state court.   However, by the time the federal court dismisses the lawsuit, the state statute of limitations has typically expired, so a federal statute – 28 U.S.C. § 1367(d) --provides for the tolling of the limitations period while the lawsuit is pending in federal court and for 30 additional days after the lawsuit has been dismissed (presumably to give the plaintiff time to consider whether he, she or it wants to try again in state court).    Often, the lawsuit was filed the day, week or month before the limitations period was about to expire, but in Artis, the plaintiff filed her federal Title VII employment discrimination lawsuit two years before her state law claims (for false claims and whistleblowing) were about to expire.  It took the federal court 2.5 years to rule on her lawsuit and dismiss her state law claims.   She then re-filed her state law claims in state court 59 days later, causing that court to dismiss her claims because she waited more than 30 days (and creating a malpractice nightmare for the plaintiff’s attorney).    Her dismissal was affirmed on appeal, but a 5-4 Supreme Court reversed and revived her claim.

The Court focused on the language of the statute:

“The period of limitations for any [state] claim [joined with a claim within federal-court competence] shall be tolled while the claim is pending [in federal court] and for a period of 30 days after it is dismissed unless State law provides for a longer tolling period.”

Justice Ginsburg posed the question presented by this situation as:

Does the word “tolled,” as used in §1367(d), mean the state limitations period is suspended during the pendency of the federal suit; or does “tolled” mean that, although the state limitations period continues to run, a plaintiff is accorded a grace period of 30 days to refile in state court post dismissal of the federal case?

Because “tolling” implies “freezing”, the Court’s majority concluded that the two years left on her state law claim stopped the “clock” from running once she filed her lawsuit in federal court, so she had two years after her case was dismissed to re-file – even if her federal court case had been pending for ten years or more before it was finally dismissed.  (That could easily happen if there were appeals, etc.). 

When the Sixth Circuit addressed this situation in connection with a case consolidating multi-district class actions in 2013, the Court addressed the three options before it as follows and adopted the final/suspension approach:

There are three possible interpretations of this statute. See, Turner v. Kight, 406 Md. 167, 957 A.2d 984 (2008); Goodman v. Best Buy, 755 N.W.2d 354 (Minn. Ct. App. 2008). As set forth in Turner and Goodman, the statute could arguably be interpreted as "annulling" the state statute of limitations. In this manner, the state statute of limitations period is completely replaced " by a fixed period: the thirty-day period after federal dismissal." This interpretation is known as the "substitution approach." The second, and related interpretation, is that Section 1367(d) only tolls the expiration of the statute of limitations,

This interpretation treats that period in the statute— the federal claim period plus thirty days— as a single span of time. If the state limitations period runs out during that span, the thirtieth day after dismissal becomes the new filing deadline. Under these circumstances, the outcome is the same as under the ‘annul and replace’ interpretations. If, however, the state limitations period does not run out during that span of time, the state limitations period is unaffected and terminates without regard to any federal court filings.

Goodman, 755 N.W.2d at 357. The second interpretation is known as the "extension approach." The third possible interpretation is that Section 1367(d) suspends the running of the statute of limitations, i.e., "the clock is stopped and the time is not counted— while the federal court is considering the claim and for thirty days after the claim is dismissed." Id. This is referred to as the "suspension approach."

The Court also rejected the argument that Congress exceeded its authority by tolling state statutes of limitations while cases are pending in federal court.

Like me, the dissent preferred the extension - grace period approach, but no one asked my opinion and they were unable to sway Justice Roberts.

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.

Supreme Court: Fiduciary Duty to Continually Monitor Investments Makes Limitations Period a Moving Target

This morning, a unanimous Supreme Court reversed an employer fiduciary’s judgment on a breach of fiduciary duty claim that had been found untimely.  Tibble v. Edison Int’l, No. 13-550 (5-18-15).  The plaintiffs alleged that the fiduciaries violated their duty by paying higher administrative fees for retail funds instead of selecting lower-fee investor class funds while administering the defined contribution ERISA plan (i.e., a 401(k) plan). Based on ERISA’s 6-year statute of limitations, the lower courts found the claim to be untimely as to funds purchased in 1999.  However, the Supreme Court concluded that “a fiduciary normally has a continuing duty of some kind to monitor investments and remove imprudent ones. A plaintiff may allege that a fiduciary breached the duty of prudence by failing to properly monitor investments and remove imprudent ones. In such a case, so long as the alleged breach of the continuing duty occurred within six years of suit, the claim is timely.”

Section 1113 [of ERISA] reads, in relevant part, that “[n]o action may be commenced with respect to a fiduciary’s breach of any responsibility, duty, or obligation” after the earlier of “six years after (A) the date of the last action which consti­tuted a part of the breach or violation, or (B) in the case of an omission the latest date on which the fiduciary could have cured the breach or violation.” Both clauses of that provision require only a “breach or violation” to start the 6-year period.

While the “Ninth Circuit correctly asked whether the ‘last action which constituted a part of the breach or violation’ of respondents’ duty of prudence occurred within the rele­vant 6-year period,” that court erred in finding the act of selecting the higher-cost funds to be the last relevant action for statute of limitation purposes.

Under trust law, a trustee has a continuing duty to monitor trust investments and remove imprudent ones. This continuing duty exists separate and apart from the trustee’s duty to exercise prudence in selecting invest­ments at the outset. . . ., the trustee must “systematic[ally] conside[r] all the investments of the trust at regular intervals” to ensure that they are appro­priate.

The Uniform Prudent Investor Act confirms that “[m]anaging embraces monitoring” and that a trustee has “continuing responsibility for oversight of the suitability of the investments already made.”

This being said, the Court “express[ed] no view on the scope of respondents’ fiduciary duty.”  It remanded the case to consider whether the fiduciaries failed to review and monitor within the six year limitations period.

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 ERISA Decisions from August

The Sixth Circuit issued three interesting ERISA decisions last month. In the first case, the Court affirmed dismissal of the LTD claim as untimely where the plan provided a limitations period of three years from when the initial proof of claim was required and the plaintiff filed suit within 8 months after the conclusion of her internal appeal following a contractual change in the eligibility standard.  In the second decision, the Court affirmed denial of LTD benefits on the basis of physical disability, but reversed on the mental disability LTD claim.  In the third case, the decision of the claims administrator (aka insurance company) on medical coverage was repeatedly reversed in three court appeals for refusing to consider and/or explain why it was not accepting the medical recommendations of the treating physicians for inpatient alcohol rehabilitation after several failed attempts at outpatient rehabilitation as provided in the insurance company’s internal guidelines. Ultimately, the court decided that the decision was arbitrary and capricious and ruled in favor of the claimant.

In Russell v. Catholic Partners Employee LTD Plan, No. 13-4804 (6^th Cir. 8-14-14), the nurse claimant submitted a claim for LTD benefits based on a knee and mental impairment which prevented her on May 12, 2007 from continuing the RN job she had held for 30 years.   Her LTD benefits were granted on November 15, 2007 since she was unable to continue her regular occupation.  However, she was also informed at that time that the standard of eligibility changed after two years and she would then be required to show that she was unable to work in any gainful occupation in order to continue receiving LTD benefits.   After the two years passed, her claim for LTD was denied since the insurance carrier determined that she could perform work as a case manager or triage nurse despite her physical and mental impairments.  The claimant appealed internally and the final denial was issued on July 20, 2010.  When the claimant initiated a federal court lawsuit on March 20, 2011, the carrier moved to dismiss on the grounds that the statute of limitations had run. 

The LTD Plan required written proof of a claim to be submitted within 90 days of the 180-day elimination period.   It also provided that a federal lawsuit could be initiated 60 days after proof of the claim had been submitted and within 3 years after the proof of claim was required.   The Court determined that the proof of claim was required to be submitted by February 8, 2008 and, therefore, the limitations period expired on February 8, 2011 – fifty days before the claimant initiated the lawsuit.   The Court rejected the claimant’s argument that the limitations period was re-set by the application of a different eligibility standard on November 12, 2009. “The Supreme Court recently held “a participant and a plan may agree by contract to a particular limitations period, even one that starts to run before the cause of action accrues, as long as the period is reasonable.”  In this case, the claimant had six months after the final denial of her LTD claim on July 20, 2010 to file suit before the three-year limitations period expired. “The plan’s use of the “any gainful occupation” standard did not reset the contractual limitations period.”  The Court also refused to re-set the limitations period each time the carrier requested new evidence supporting proof of continuing disability. 

In Hayden v. Martin Marietta Materials Inc. Flexible Benefits Program, No. 13-6319 (6^th Cir. 8-18-14), the claimant left work in January 2010 because of a variety of physical ailments and mental impairments (depression and anxiety).  She sought and was awarded SSI benefits.   However, she was denied LTD by her employer’s claims administrator on the grounds that her physical ailments were objectively insufficient to render her unable to work in her profession (as an office manager) and her mental impairments were not sufficiently severe to prevent her from working.  The Court agreed that the claimant failed to show that she was physically unable to work during the entire 180-day elimination period. For instance, her physician’s notes did not mention her arthritic hands until eleven months after she stopped working and similarly did not discover other conditions until after the elimination period. Her “minor” heart condition from 2008 similarly did not prevent her from working.   Therefore, the plan’s decision to deny benefits on this basis was not arbitrary or capricious.

The Court reversed the claims administrator, however, on the mental disability claim because the reviewer imposed a higher standard than the criteria outlined in the plan documents.  The reviewer denied benefits on the grounds that the claimant could perform some work, instead of evaluating whether she was mentally capable of continuing to perform her own profession.  Indeed, the reviewer’s decision “suggests that Hayden would have had to be suffering from “severe psychiatric symptoms, suicidal ideation, homicidal ideation, hallucinations” to be considered disabled.” This decision would effectively preclude any claimant from showing that depression or anxiety as a “disability— [and] is inconsistent with the terms of the Plan, which focus on whether a claimant can perform the material and substantial duties of her own occupation.”  The reviewer also denied benefits in part because he was influenced by the fact that the claimant’s employer was going through bankruptcy.  The treating physicians and psychiatrist had explained that her anxiety was related to her own health problems and those of her husband.  

It is true, as a general matter, that when a plan administrator relies on the opinion of one doctor over that of another, “the plan administrator’s decision cannot be said to have been arbitrary and capricious because it would be possible to offer a reasoned explanation, based upon the evidence, for the plan administrator’s decision.”  . . . . But ERISA does not grant to a plan administrator carte blanche to adopt the opinions of its reviewing physicians. When a reviewing physician’s report is “inadequate,” a plan administrator cannot be said to engage in a deliberate, principled reasoning process when it adopts the position of that report.  . . .  In particular, where a reviewing physician’s opinion applies standards that conflict with the terms of the plan, that opinion is not evidence supporting a conclusion that the claimant is not disabled within the meaning of the plan.

Instead of remanding the case for another review, the Court awarded benefits to the Claimant based on her mental disability in light of the uncontroverted evidence.

In Butler v. United Healthcare of Tennessee, Inc,  No. 14-6446 (6^th Cir. 8-22-14), the claimant was a long-time alcoholic, who attempted a variety of outpatient treatment programs before finally admitting herself into an inpatient facility in 2005.  Her husband’s insurance company denied coverage, although she seemed to meet the insurance carrier’s internal criteria (as they belatedly discovered only after initiating the litigation), of having a “[h]istory of continued and severe substance abuse despite appropriate motivation and recent treatment in an intensive outpatient or partial hospitalization program.”  Her husband paid for her inpatient treatment and pursued two internal appeals of the denial of coverage.   The external reviewer hired for the third internal appeal was given an incorrect standard by the insurance company and failed to explain why he disagreed with the recommendations of the claimant’s two treating physicians or mention the claimant’s history of failed outpatient rehabilitation.   After litigation commenced in 2008, the carrier realized it had given the wrong standard to the external reviewer and attempted to correct that mistake, but the reviewer affirmed his prior decision and still failed to explain why he disagreed with the recommendations of the claimant’s two treating physicians or mention the claimant’s history of failed outpatient rehabilitation.   

The Court agreed that the insurance carrier had not completed a complete or fair review of the case and remanded it for the carrier to explain why it disagreed with the recommendations of the claimant’s two treating physicians and why the claimant’s history of failed outpatient rehabilitation was irrelevant.  Instead, the carrier obtained another letter from the same external physician claiming that he believed he had previously reviewed the letters from the treating physicians and, in any event, after reviewing the file again he still believed coverage should be denied, but still did not explain why he disagreed with the treating physicians.  The Court remanded the case again for the insurance carrier to retain a different external reviewer, explain why it disagreed with the treating physicians and permit the submission of new medical information.  The claimant submitted new medical information that specifically addressed the carrier’s internal criteria for inpatient treatment (which was not disclosed until after litigation commenced).  While the carrier retained a new external reviewer, it suggested that the reviewer should not give much weight to the new medical information.  The reviewer, in turn, made the same mistakes as the first reviewer:  He denied coverage without explaining why he disagreed with the treating physicians or why the claimant’s unsuccessful outpatient treatment did not qualify under the carrier’s own criteria.  Accordingly, the Court granted judgment for the claimant and the Sixth Circuit affirmed.  

United’s refusal to give Janie’s benefits claim a fair review not once, not twice, but three times—in spite of clear instructions from the district court—casts a pall over United’s handling of the claim from the start. Through it all, through three chances to get it right (indeed through three chances just to engage in a nonarbitrary decision-making process), United failed the Butlers in multiple ways. United never explained its disagreement with the opinions of Janie’s treating physicians, which all contained detailed accounts of her prior attempts to get sober using increasingly intensive outpatient programs and which unequivocally deemed residential treatment necessary.  . . .United ignored key pieces of evidence and the key guideline applicable to Janie’s claim, making factually incorrect assertions (e.g., Janie had no history of trying unsuccessfully to treat her addiction with outpatient treatment),  . . ., or remaining silent about the matter,  . . . or (worst of all) mentioning the prior failures but nonetheless concluding without explanation that she did not meet the guideline requirements,  . . .. And United stacked the deck against the claim, instructing reviewers to “disregard” the evidence that John submitted in favor of the “contemporaneous physician-authored documents” that it had entered in the record.

                . . .

United adds that the decision to deny benefits cannot be arbitrary and capricious because five reviewing physicians agreed with it. That reviewing physicians paid by or contracted with the insurer agree with its decision, though, does not prove that the insurer reached a reasoned decision supported by substantial evidence. The physicians’ opinions carry weight only to the extent they provide a fair opinion applying the standard for granting benefits to the facts of the case. Elliott, 473 F.3d at 619. The reviewing physicians did not do that. They misstated or omitted the key fact of Janie’s prior failed outpatient treatment and ignored United’s guideline that allowed residential rehabilitation where outpatient treatment had not worked in the past. This argument, too, proves too much. If a decision to deny benefits could never be arbitrary and capricious when backed by the insurer’s reviewing physicians, court review would be for naught. The insurer would invariably prevail so long as the insurer had physicians on its staff willing to confirm its coverage rulings. That also does not make sense.

The District Court had also penalized the carrier for failing to earlier provide a copy of its internal criteria.  However, the statute only imposes liability on the Plan Administrator (the employer), not the claims administrator (i.e., the insurance company).

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.

Supreme Court Endorses Reasonable Contractual Limitations Periods In ERISA Plans That Commence Prior to Any Exhaustion of Remedies

Yesterday, a unanimous Supreme Court issued an opinion endorsing the use of reasonable contractual statutes of limitations in ERISA plans even when the limitations periods begin to run prior to the exhaustion of administrative remedies.  Heimeshoff v. Hartford Life & Accident Ins. Co., No. 12-729 (U.S. 12-16-13).   Although ERISA plaintiffs are generally required to exhaust their administrative remedies before filing an ERISA lawsuit for denial of benefits under §502(a)(1)(B), there is no federal statutory limitations period for such actions.  In the Heimeshoff  lawsuit, the Wal-Mart LTD plan required participants to file a lawsuit for ERISA benefits within three years after proof of loss was due – which means that the three years begins to run before the plaintiff has commenced or exhausted administrative remedies under the LTD plan.  This is significant because, “[a]s a gen­eral matter, a statute of limitations begins to run when the cause of action “‘accrues’”—that is, when “the plaintiff can file suit and obtain relief.”  In Heimeshoff, the plaintiff’s proof of loss was due in the summer of 2005, when she became unable to work due to her physical disability.  After appealing several denials of LTD benefits under the plan, the plaintiff received her final denial of benefits in November 2007.  However, she did not file her lawsuit until November 2010 – more than 3 years after her proof of loss was due.  The Court rejected her argument that the three year period should not begin to run until after she had exhausted her administrative remedies. “Absent a controlling statute to the contrary, a participant and a plan may agree by contract to a particular limita­tions period, even one that starts to run before the cause of action accrues, as long as the period is reasonable.”

As noted by the Court,  its prior precedent permits this result:

“[I]n the absence of a controlling statute to the con­trary, a provision in a contract may validly limit, be­tween the parties, the time for bringing an action on such contract to a period less than that prescribed in the general statute of limitations, provided that the shorter period itself shall be a reasonable period.” Order of United Commercial Travelers of America v. Wolfe, 331 U. S. 586, 608 (1947).

 . . .

If parties are permitted to contract around a default statute of limitations, it follows that the same rule applies where the statute creating the cause of action is silent regarding a limitations period.

The Wolfe rule necessarily allows parties to agree not only to the length of a limitations period but also to its commencement. The duration of a limitations period can be measured only by reference to its start date. Each is therefore an integral part of the limitations provision, and there is no basis for categorically preventing parties from agreeing on one aspect but not the other.

                . . .

ERISA §502(a)(1)(B) authorizes a plan participant to bring suit “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” 29 U. S. C. §1132(a)(1)(B) (emphasis added). That “statutory language speaks of ‘enforc[ing]’ the ‘terms of the plan,’ not of changing them.”

                . . .

Neither Heimeshoff nor the United States claims that the Plan’s 3-year limitations provision is unreasonably short on its face. And with good reason: the United States acknowledges that the regulations governing internal review mean for “mainstream” claims to be resolved in about one year, Tr. of Oral Arg. 22, leaving the participant with two years to file suit. Even in this case, where the administrative review process required more time than usual, Heimeshoff was left with approximately one year in which to file suit. Heimeshoff does not dispute that a hypothetical 1-year limitations period commencing at the conclusion of internal review would be reasonable. Id., at 4. We cannot fault a limitations provision that would leave the same amount of time in a case with an unusually long internal review process while providing for a signifi­cantly longer period in most cases.

  . . . .

 

The first tier of ERISA’s remedial scheme is the internal review process required for all ERISA disability-benefit plans. 29 CFR §2560.503–1. After the participant files a claim for disability benefits, the plan has 45 days to make an “adverse benefit determination.” §2560.503–1(f)(3).Two 30-day extensions are available for “matters beyond the control of the plan,” giving the plan a total of up to 105 days to make that determination. Ibid. The plan’s time for making a benefit determination may be tolled “due to a claimant’s failure to submit information necessary to decide a claim.” §2560.503–1(f)(4).

Following denial, the plan must provide the participant with “at least 180 days . . . within which to appeal the determination.” §§2560.503–1(h)(3)(i), (h)(4). The plan has 45 days to resolve that appeal, with one 45-day exten­sion available for “special circumstances (such as the need to hold a hearing).” §§2560.503–1(i)(1)(i), (i)(3)(i). The plan’s time for resolving an appeal can be tolled again if the participant fails to submit necessary information.§2560.503–1(i)(4). In the ordinary course, the regulations contemplate an internal review process lasting about one year. Tr. of Oral Arg. 22. If the plan fails to meet its own deadlines under these procedures, the participant “shall be deemed to have exhausted the administrative reme­dies.” §2560.503–1(l). Upon exhaustion of the internal review process, the participant is entitled to proceed im­mediately to judicial review, the second tier of ERISA’s remedial scheme.

The Court rejected the suggestion that plan administrators would “attempt to prevent judicial review by delaying the resolution of claims in bad faith.”  The Court found this to be speculative in light of the short deadlines given in the statute (as just discussed) and because “the penalty for failure to meet those deadlines is immediate access to judicial re­view for the participant. 29 CFR §2560.503–1(l). In addi­tion, that sort of dilatory behavior may implicate one of the traditional defenses to a statute of limitations.”  In addition,

even in the rare cases where internal review prevents participants from bringing §502(a)(1)(B) actions within the contractual period, courts are well equipped to apply traditional doctrines that may nevertheless allow participants to proceed. If the administrator’s conduct causes a participant to miss the deadline for judicial re­view, waiver or estoppel may prevent the administrator from invoking the limitations provision as a defense.

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.