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Latest News - May 2014

May 28, 2014
Supreme Court cases show that now is a critical time for the workplace
Source: Inside Counsel
By: Gerald Golden

The United States Supreme Court recently decided several important labor and employment related cases on issues ranging from whistleblower protection to severance pay. With more high profile cases expected to be decided before the Court concludes its term this June, now is a critical time for employers to take notice of the far reaching implications these decisions will have on the American workplace.

When a plaintiff employee’s long-term disability benefits claim under the Employee Retirement Income Security Act (ERISA) was denied, she filed a lawsuit against her insurance company. Since her claim was brought after the insurance policy’s three year limitations period, the district court dismissed her lawsuit. She argued that the policy’s provision was unenforceable.

The Supreme Court ruled that the policy’s limitation period was enforceable and held that so long as no controlling statute exists and the limitation period is reasonable, the parties can agree to a limitation period.

Union employees at a U.S. Steel plant filed a Fair Labor Standards Act (FLSA) collective action against their employer, claiming that they were unlawfully denied pay for time spent changing into and out of (donning and doffing) protective gear, including flame retardant jackets and boots. While acknowledging that their collective bargaining agreement with their employer excluded compensation for time spent changing clothes, the union argued that protective gear was not “clothing.” Furthermore, since the gear was placed over street clothes, the union claimed that no actual “changing” occurred.

The Supreme Court rejected these arguments, finding that the protective gear constituted “clothing” under its ordinary definition, and that “changing” clothes is not limited to “substituting” but also includes placing clothing over existing clothing.

The Sarbanes-Oxley Act (SOX) of 2002 protects whistleblowers from adverse or discriminatory employment action by providing a right to sue when their employment status is threatened or is adversely affected because they have provided information regarding securities, mail or bank fraud or other federal law violations involving shareholder fraud.

In Lawson v. FMR LLC, et al., the Supreme Court clarified a long-standing open question by ruling that the whistleblower protections of SOX cover not just employees of publicly traded companies, but also the employees of their non-public contractors and subcontractors.

As a result, the employees of the private contractors, including accounting and law firms that provide services to public companies, may raise whistleblower and retaliation claims under SOX. This clarification by the Supreme Court will potentially result in a significant increase of whistleblower and retaliation claims brought under SOX.

In 2001, retailer Quality Stores closed nationwide and offered severance payments to thousands of employees that were involuntarily terminated as a result. The severance was based on the employee’s salary and seniority. Quality Stores paid the taxes under the Federal Insurance Contributions Act (FICA), but then, through bankruptcy, filed for a refund from the Internal Revenue Service (IRS). Quality Stores argued that these severance payments were actually Supplemental Unemployment Benefits (SUB), which should be exempt from FICA because they were payments made after termination as opposed to wages paid for work performed.

The Supreme Court disagreed, holding that because the severance was paid to involuntarily terminated employees, based on their seniority and salary, and not in connection with state unemployment benefits, the payments constituted taxable wages.

The Supreme Court will review a D.C. Circuit court’s decision, which held that the National Labor Relations Board (NLRB) lacked proper authority to hear an unfair labor practice case because three of its five members were invalidly appointed under the Constitution’s Recess Appointments Clause.

At issue for the Supreme Court is whether “recess” as it relates to the Recess Appointments Clause is limited to intersession recesses, or if it also includes intra-session congressional recesses. Though the distinction seems minor, if the Court rules that the President can only exercise his appointment power between congressional sessions, then the NLRB appointments made during breaks in continuing congressional sessions will be held invalid.

By extension, this could invalidate all NLRB decisions made under these recess appointments and, therefore could have significant impact on a substantial number of previously issued NLRB decisions.

Perhaps the most controversial case still to be decided this term, Sebilius v. Hobby Lobby Stores, Inc.,brings the Affordable Care Act’s provision providing for women’s access to contraception and the doctrine of religious freedom of expression to the forefront of the national scene.

The owners of Hobby Lobby, a for-profit company contend that the Act’s requirement that employers provide health care for employees, which may include contraceptives, violates their religious beliefs. They claim that because of these beliefs, they should be offered the same religious exception to the Act as non-profit religious organizations receive. At issue is whether a for-profit company can exercise religion, and if so, how that right measures up against any compelling government interests that support the Act.

These recent Supreme Court cases offer guidance on important issues for employers to consider. Employers can impose time limitations on an employer sponsored insurance plan to limit exposure against open-ended employee claims. They can collectively bargain with unions to exclude compensation for donning and doffing protective gear. Furthermore, employers must be mindful that even if they are not publically traded companies, their employees may, under certain circumstances, be covered by the whistleblower protections of the Sarbanes-Oxley Act. Employers should also be cognizant that severance payments are actually taxable wages. Finally, employers should pay close attention to how the two pending cases addressing the legitimacy of certain NLRB decisions and the scope of the Affordable Care Act are decided , as they, too, will undoubtedly have a significant impact on the American workplace



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