Sixth Circuit: No COBRA Notice Required Without Loss of Coverage Caused by Qualifying Event

On Friday, the Sixth Circuit Court of Appeals reversed an employee’s summary judgment finding that  COBRA had been violated because the employer failed to send a COBRA continuation notice when the employee began a medical/workers’ compensation leave of absence or when it stopped paying her premiums even though her medical insurance premiums began to be paid from her workers’ compensation payments upon the commencement of the leave.  Morehouse v. Steak N Shake, No. 18-4186 (6^th Cir. 2019). In reversing, the Court concluded that the change in payment method and continuation of her medical insurance rendered her reduction in hours (i.e., medical leave) irrelevant and that the later loss of coverage was caused by the employee’s failure to pay her insurance premiums when she was notified that the employer stopped paying them a few months later.  “[A]ltering the contribution method alone, as [the employer] did here when it began deducting premiums from [the employee’s] workers’ compensation checks, does not inherently change the ‘terms and conditions’ of coverage and therefore does not produce a ‘loss in coverage.’”  Accordingly, “no qualifying event occurred that would have triggered a mandatory COBRA notification” even though the employee ceased reporting to work because she did not “’cease to be covered under the same terms and conditions’ when [her] contribution method was altered” by deducting the premium from her workers compensation benefits instead of her paycheck.


According to the Court’s opinion, the employee injured her knee at work on May 25, submitted a workers compensation claim and requested a leave of absence.  The employer began paying workers compensation, began deducting her share of the insurance premiums from the workers compensation (instead of her paycheck) and also sent her an FMLA eligibility notice and request for medical certification, which was timely returned.  The employer failed, however, to ever designate her leave as covered by the FMLA.  Instead, the employer notified her on September 20 that she had exhausted her FMLA a month earlier, when it also stopped paying workers compensation and ceased paying her medical insurance.  She was notified on September 9 that if she failed to pay the entire premium, her medical insurance would be terminated.  She was also notified on September 20 that she should seek a reasonable accommodation and that if her employment was terminated, she could then seek COBRA continuation coverage.  When she failed to pay her insurance premium, her coverage was terminated on October 3, retroactive to August 14 for non-payment. She obtained replacement coverage in January.   Her employment was terminated on February 11 the following year.  


The employee challenged the termination of workers compensation in state court and filed a federal lawsuit for failure to send her notice of her rights of COBRA continuation.  There is no indication that she ever challenged the denial of FMLA leave due to the employer’s failure to ever properly designate FMLA leave. The trial court denied the employer’s motion for summary judgment and granted the employee’s motion, awarding her $2500 in dental bills, plus $50/day statutory damages (from when it stopped paying her premiums and when she obtained replacement coverage) and attorney’s fees.


On appeal, the Court noted that employers are required to send a COBRA notice upon a qualifying event, which includes termination of employment and reduction in working hours, if, but for the continuation coverage required under this part, the qualifying event would result in the loss of coverage.


COBRA provides that taking FMLA leave does not by itself constitute a qualifying event.  The parties argued whether the employee was properly placed on FMLA leave because that could impact whether there had been a qualifying event.  However, the Court decided that this argument was irrelevant because “the terms and conditions of [her] insurance have not changed and therefore there was no “loss of coverage” under the statute . . .”  Without loss of coverage, whether there has been an event is irrelevant.  In particular, the Court stated that “[a] ‘reduction in hours’ alone is not necessarily a qualifying event; it must also lead to a loss in insurance coverage.”  

Under 26 C.F.R. § 54.4980B-4, A-4(c), a loss of coverage “means to cease to be covered under the same terms and conditions as in effect immediately before the qualifying event.”  The regulation further clarifies that the “loss of coverage need not occur immediately after the [qualifying] event, so long as the loss of coverage occurs before the end of the maximum coverage period.”

Relying on an unreported 2007 opinion in Jordan v.  Tyson Foods¸ the Court found that it was the plaintiff’s failure to pay her health insurance premium in September which resulted in her loss of coverage, not her reduction in working hours following her injury or the change in payment method of the premiums.  In Jordan, that plaintiff had taken FMLA leave and then failed to pay his premium contribution as required by the employer’s policy and his coverage was terminated.  By the time he failed to return to work following his FMLA leave, his coverage had been terminated and he was not then provided with a COBRA notice.  The Court rejected that a qualifying event had occurred with his FMLA leave (because only the payment method had changed) or his termination (by which time his coverage had been terminated due to his non-payment of premium contributions).  Similarly, in this case, only the payment method changed upon the commencement of her leave of absence and her coverage was terminated on October 3 due to non-payment of premiums.

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.

Court Rejects Disability Discrimination Claim and Plaintiff’s Unsupported Allegations

The Summit County Court of Appeals last month affirmed summary judgment for a school district on a disability discrimination claim brought by a former food services manager. Pilato v. Nordonia Hills City Schools Bd. of Edn., 2019-Ohio-3085.  The manager contended that she had been required to work during her medical leave, but the Court ruled that this did not create a jury question because emails that she sent before and during her medical leave reflected that she had voluntarily continued to work without being directed to do so.  Further, the Court concluded that she failed to create a jury question about the reason for her termination when the evidence was so clear and “one-sided” as to her fault despite her self-serving denial that there was nothing for the jury to decide.  In other words, the court refused to let the plaintiff’s self-serving and unsupported allegations contradict otherwise overwhelming evidence in order to avoid summary judgment.  


According to the Court’s opinion, the plaintiff had worked for many years without any disciplinary history.  Because she required knee surgery, she requested and was approved for 10 days off work at the end of the school year.  Before she left, she and her manager began planning for the next school year and indicated that they would touch base again after her surgery.  During her absence, a food order that she had placed was cancelled using her secret username and password from a non-school computer.  Further, employee payroll records were changed from her home computer.  Moreover, employees complained about her bullying them.  When confronted, she denied the allegations opted to resign her employment rather than accept a demotion and transfer or being fired, but then brought sue alleging disability discrimination.  


The Court found that she had not been denied a reasonable accommodation when she continued to work during her medical leave.  She had applied and been approved for medical leave.  Although she complained on appeal that she had been directed to address the food order cancellation issue while on leave, she had waived by issue by not raising it before the trial court.   While she argued in general that she had been expected to work from home while on leave, her supervisor denied this and her own emails indicated that she had not been asked to work.  The Court ultimately would not let her contradict her own emails with her deposition testimony in order to create a disputed issue of fact.  It found that the evidence was “so one-sided” that the employer was entitled to judgment as a matter of law.


The Court rejected her argument that the school fired her because it had required her to work during her medical leave. Instead, GFS had provided records showing that the food order had been cancelled using her secret username and password from a non-school computer and she admitted to having logged onto the GFS website that same evening.  Aside from her self-serving denial, the evidence was so overwhelming and “one-sided” that she was guilty of the offense that there was nothing for the jury to decide.  Indeed, it was undisputed that the school had already been working with her to plan for the next school year before she went on leave and the only intervening event was the misconduct alleged following her surgery.


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.

Employer Ordered to Pay $572K for Retaliation Claim

Last week, the federal Sixth Circuit Court of Appeals affirmed a $414,600 jury verdict for compensatory and punitive damages, back pay and front pay as well as $157,734 in attorney’s fees for retaliation claim brought by a former supervisor who claimed that she had been demoted on account of her gender and retaliated against when she complained internally and to the EEOC.   Hubbell v. FedEx Smart Post, Inc., No. 18-1373 (6^th Cir. 2019).   The plaintiff produced sufficient evidence to show that the employer had engaged in conduct towards her that would deter a reasonable person from exercising their protected rights through discriminatory disciplinary actions, surveillance and payroll policies.  Further, some of the actions occurred close in time to her protected conduct.  Finally, “the law in this circuit, however, is that a written anti-discrimination policy does not by itself shield an employer from punitive damages,” especially when there is evidence that the employer did not necessarily follow its own policies or investigate the plaintiff’s internal complaints of discrimination.


According to the Court’s opinion, the plaintiff had been working as a supervisor without any disciplinary record when the new hub manager suggested that women were better suited for administrative roles and she should seek a demotion.  When she refused, she claimed that he assigned her and other female supervisors the worse employees.  She was also given poor performance reviews and disciplinary actions.  When she objected and claimed to HR that he was discriminating against her, no formal or documented investigation was conducted.   After she was demoted, she was told that she – and she alone – could not clock into work more than three minutes early when all other employees were allowed to clock in and be paid 15 minutes early.    She subsequently filed an EEOC Charge.  She was then subjected to closer scrutiny, and was issued multiple disciplinary actions.  She was also restricted from working more than 8 hours/day.   When she filed another EEOC Charge, the guards were told to monitor her restroom breaks and other employees were interrogated about their conversations with her.   She was issued a disciplinary action for attendance even though she had doctor’s notes and was on medical leave.   Finally, she was not even assigned to work overtime during peak periods.  She was fired shortly after she initiated her lawsuit and then amended her complaint to include retaliatory discharge.  


While the trial court dismissed her hostile work environment claim on summary judgment, at trial several former co-workers testified in support that she was treated more harshly and more closely scrutinized than any other employee.  The jury found that she had suffered retaliation, and awarded her damages, but also initially found that the employer had acted in good faith, which would relieve it of punitive damages.  The judge told the jury to re-deliberate the issues with conflicting verdicts (i.e., punitive damages and employer’s good faith) and the jury returned by finding that the employer had not acted in good faith.   The trial court denied the employer’s post-trial motions, but reduced the punitive damage award in accordance with the damage caps in the 1991 Civil Rights Act.


On appeal, the Sixth Circuit affirmed the decision and verdict in all respects
.   

Supervisory knowledge.  There was no dispute that the decisionmakers were aware that she had filed EEOC Charges.  However, the court agreed that she did not carry her burden of proving that the decisionmakers were aware of her lawsuit until after she was fired.  One denied knowing about the lawsuit and another testified that he could not recall when he learned about it.  “Although [the plaintiff] argues that the question of whether to believe Jensen’s testimony should be left to the jury, Jensen’s statement that he did not remember when he learned that [she] filed suit is simply not enough to carry her burden of showing knowledge.”


Retaliation.  The trial court had found that the only materially adverse job action which the plaintiff had suffered was the employer’s refusal to let her clock in more than 3 minutes early when her co-workers had no such restriction.   However, regardless of how the trial court ruled on summary judgment, the jury and appellate court were not limited in considering such evidence that was introduced at trial.  Because this pre-dated her first EEOC Charge, the employer argued that she could not prove that she suffered any actionable retaliation from the negative feedback in her disciplinary actions and scrutiny.  The Sixth Circuit disagreed.

“a plaintiff seeking Title VII’s protection against retaliation need show only “that a reasonable employee would have found the challenged action materially adverse, which in this context means it well might have dissuaded a reasonable worker from making or supporting a charge of discrimination.”   . . . .reiterating that the showing required for a Title VII retaliation claim “is less burdensome than what a plaintiff must demonstrate for a Title VII discrimination claim.” 

Accordingly, the closer scrutiny, the unwarranted disciplinary actions over trial matters, and interrogating her co-workers about their conversations with her, etc.  could support a finding of retaliation.

A reasonable factfinder could also find that some or all these acts were taken in retaliation for Hubbell’s EEOC complaint(s).  Trial evidence revealed that Hubbell was repeatedly disciplined within a year of filing her EEOC complaints, starting with three disciplinary writeups within approximately two months of filing her first EEOC complaint—the first one coming a mere four days after she filed her complaint.  Such close temporal proximity, standing alone, may be enough to prove causation.

Punitive Damages.   While a plaintiff is required to show, among other things, that the employer acted with malice or reckless indifference with respect to the plaintiff’s civil rights,  the plaintiff is not required to show that the employer’s behavior was “egregious.” While egregious behavior is sufficient to show malice or reckless indifference, less egregious behavior can satisfy the standard.   Moreover, even if the employer took steps to avoid discriminating by distributing and training on anti-discrimination policies, it can still be held liable for the actions of a manager acting within the scope of his employment who is also acting with malice or reckless indifference.  “The law in this circuit, however, is that a written anti-discrimination policy does not by itself shield an employer from punitive damages.  Tisdale v. Fed. Express Corp., 415 F.3d 516, 532–33 (6th Cir. 2005).”  Moreover, in this case, there was evidence that the employer failed to formally investigate the plaintiff’s allegations.  

Attorney’s Fees.  The court found no abuse of discretion in reducing the amount of fees, even if the employer had not objected to the amount.

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 Court Rejects Plaintiff’s Reliance on Error in Emailed Negotiations

Earlier this month, the Franklin County Court of Appeals affirmed an employer’s summary judgment on an employee’s breach of contract and promissory estoppel claims based on emailed negotiations over her severance pay when the emails contemplated a final, signed agreement which was never executed by the parties.  Watson v. Franklin University, 2019-Ohio-2929.  The plaintiff requested 18 months instead of the offered 6 months of severance pay and the employer initially appeared to agree in an email, which was corrected later that same afternoon to change the date from 2014 from 2015.  Because the plaintiff sought 18 months of severance pay, this implicated the statute of frauds because performance would last more than one year and the requirement for a signed agreement could not be satisfied through promissory estoppel.  Further, the plaintiff could not show justifiable reliance on an email which agreed to the 18 months of severance when the email was corrected later that same afternoon to change the date from 2015 to 2014 and the parties never signed a formal severance agreement.  There was no evidence that she relied on the morning email to her detriment by rejecting job offers in reliance on the morning email before it was corrected.  Accordingly, she could not prove a valid claim for promissory estoppel.


According to the Court’s opinion, the plaintiff was hired in 2011 and was notified that her job was being eliminated and her employment terminated on November 13, 2013.  She was offered 6 months of severance, contingent on signing an agreement and release of claims and on a reduction in the severance pay if and when she obtained other employment. She had previously negotiated a severance agreement in connection with a prior job and had retained an attorney to advise her.   She countered a couple of weeks later requesting 18 months of severance that would not be reduced if and when she obtained another job.  After speaking with the employer on December 3, the employer emailed her that same morning confirming their conversation about severance pay through May 2015 without being reduced by other employment. A formal agreement was to follow with the new terms.   Later that same afternoon, the employer emailed her to explain that it had misread the dates and that it was only willing to pay severance through May 2014 – i.e., six months.   It sent her the formal agreement to sign, but she refused to sign it because it only promised six months of severance pay. 

She brought suit for claims of breach of contract, breach of the covenant of good faith and fair dealing and promissory estoppel.  The trial court granted summary judgment on the first two claims prior to discovery and on the promissory estoppel claim after discovery.   She appealed.


The Court agreed that the statute of frauds applied to an agreement to make installment payments for more than a year and would have applied to the parties’ severance pay agreement.   The plaintiff attempted to argue that the emails exchanged discussing the terms of the severance agreement satisfied the statute of frauds and indicated the employer’s initial agreement with her demand.  However, “that e-mails purporting to reference an agreement or some aspect of an agreement are not sufficient to satisfy the statutory requirement for a signed agreement as provided for in R.C. 1335.05.”  Further, the emails reflected that both parties anticipated the signing of a formal agreement and were not relying on the emails as the contract. “Where the evidence establishes that it was the expectation of all parties that no meeting of the minds would occur absent a final written agreement signed by all the parties, no party can base a legal claim on communications or correspondence that comprise the interim negotiations.”   This is particularly true when the negotiating parties are sophisticated in terms of education, experience and advice of counsel.  Finally, the Court refused to use promissory estoppel to satisfy the statute of frauds.


The Court also affirmed dismissal of the promissory estoppel claim on the basis that she could not show that she  reasonably relied or detrimentally relied on the employer’s morning email appearing to agree to the 18 months of severance.  In order to prove a promissory estoppel claim, the plaintiff must show, among other things, that she relied to her detriment on the false promise and that her reliance was reasonable.  In this case, however, “'[i]f a written agreement is contemplated, reliance upon statements made before an agreement is signed will be unreasonable as a matter of law, particularly when sophisticated business parties are involved in the negotiations.”  In light of her experience, she was considered to be a sophisticated party.  Further, the evidence showed that the plaintiff never changed her position, let alone relied to her detriment, on the morning email appearing to agree to the 18 months of severance before that misunderstanding was clarified in writing in the afternoon.


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.

CEO Without Remedy Under ERISA When Deferred Comp Plan Fails to Comply with 409A

Last week, the Sixth Circuit Court of Appeals affirmed the dismissal of state law claims brought by a retired CEO who had been assessed tax penalties on account of deferring large amounts of his compensation under an executive deferred compensation plan without complying with IRC 409A on the grounds that the plan was covered by ERISA which, therefore, pre-empted the state law claims. Wilson v. Safelite Group, Inc. No. 18-3408 (6^th Cir. 7-10-19).  The Court found that deferred compensation plans which permitted distributions during periods of active employment as well as during retirement could still qualify as a pension plan under ERISA.  Further, because the plan permitted the deferral of both bonuses and annual salary, it was not exempt from ERISA under DOL regulations as a bonus plan.


According to the Court’s opinion, the employer created a bonus/incentive plan for five executives if they secured a buyer for the company.  When a likely buyer emerged, the company created a non-qualified deferred compensation plan to help most of those executives avoid adverse tax consequences from the incentive plan bonuses.   Under the deferred compensation plan, the executives could defer their regular annual salary and annual bonuses as well as the incentive bonuses.   The CEO make elections to deter his incentive bonus and large portions of his salary each year under the deferred compensation plan.  The plan’s default deferral provided for the payout to begin shortly after employment ended, but it could also be drawn out over as long as ten years and even permitted withdrawals before employment ended.  The CEO was audited by the IRS in 2014 and it determined that some of the deferrals did not comply with IRC 409A and he was assessed with taxes and penalties.  Two years later, the CEO sued his former employer for breach of contract and negligent misrepresentation.  The employer moved for partial summary judgment on the grounds that the deferred compensation plan was a pension plan governed by ERISA, which pre-empted the state law claims.  The trial court agreed, but permitted the CEO to amend his complaint to bring claims under ERISA.  The CEO declined and instead appealed the ERISA ruling.   The Sixth Circuit affirmed.


The parties disputed whether the deferred comp plan satisfied the ERISA requirements because it permitted withdrawals before retirement. “In essence, the question is whether a plan that allows for distributions both before and after termination can be an ERISA employee pension benefit plan.” The Court construed the statute to not require withdrawals to begin only after employment had ended:

Subsection (ii) does not specify deferral of income “until termination” or “to termination”; rather, it says “for periods extending to the termination.”  Thus, deferrals may occur for various “periods,” and those periods may last up to and/or beyond termination.  Subsection (ii) covers a wide array of plans and does not exclude plans that give participants the option to receive in-service distributions.

The employer’s deferred compensation plan presumed that distributions would not begin until after termination of employment, but permitted participants to elect earlier distributions.   It also stated that it was governed by ERISA.  As long as the plan provided for distributions after termination of employment, the requirements of ERISA were satisfied.


That being said, the DOL had published a regulation exempting certain deferred compensation plans which did not “systematically” defer the payment of “bonuses.” “By regulation, employee pension benefit plans do not include “payments made by an employer to some or all of its employees as bonuses for work performed, unless such payments are systematically deferred to the termination of covered employment or beyond, or so as to provide retirement income to employees.”  29 C.F.R. § 2510.3-2(c).”  In other words, the payment of a bonus is typically not a retirement program and would not be treated as a pension plan unless the payment of those bonuses were systematically deferred to termination of employment.  “A bonus plan may defer payment of bonuses and remain exempt, “unless such payments are systematically deferred to the termination of covered employment or beyond, or so as to provide retirement income to employees.”  29 C.F.R. § 2510.3-2(c) (emphasis added).”  Thus, deferred bonus compensation plans which do not systematically defer the payment of bonuses to post-employment periods are exempt from ERISA.


The court rejected the application of this exemption because the deferred comp plan did not relate exclusively to the incentive bonuses and also permitted the deferral of annual salary and regular annual bonuses.


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.