Untangling Employment Practices Liability insurance

Earlier this month, law.com had a very insightful article on the advantages and pitfalls of business insurance policies. See On the Horns of a Defense Counsel Dilemma. While the article did not specifically concern Employment Practices Liability policies, the issues are the same. Any insurance policy sets up a very curious relationship - the relationships between the policy holder and insurance company, the law firm and their insurance carrier referral source, and the attorney-client relationship.

When I used to do a lot of work for clients under EPL policies, the refrain I most often heard from my client was, "You're the insurance company's lawyer." Nothing could be further from the truth. Unless an insured has paid for the right to select counsel, the insurance company selects and retains counsel for the insured under the EPL policy, and, subject to the policy's deductible, pays the fees. The client, though, is always the insured, and not the insurance company. Ohio law supports the idea that although there exists this odd "tripartite relationship" between the insured, the lawyer, and the insurance company, the only attorney-client relationship that exists is between the lawyer and the insured; there exists no such relationship between the lawyer and the insurance company. A lawyer's ethical duties are always solely owed to the insured. See Swiss Reinsurance Am. Corp., Inc. v. Roetzel & Andress

Notwithstanding any EPL converage a company might have, there are certain key instances where a company may want to have its own employment or corporate counsel involved in litigation, working along side insurance counsel.

• EPL insurance will cover some, but not all, employment related claims in the state of Ohio. For example, it is illegal to insure against punitive damages in this state. Further, different policies may cover different types of claims. For example, discrimination claims may be covered, and wage and hour claims not covered. Therefore, it is important at the outset of any engagement in which there may be insurance coverage to have counsel review the claims, the policy, and any reservation of rights letters to make a determination as to what is and is not covered. Counsel may not agree with the insurance company on coverage. In that case, one is usually better served having an attorney fight that battle with the insurance company.
• Because not all claims may be insured, one might be left with uninsured exposure in a case. Punitive damages or damages that exceed policy limits are two examples of uninsured exposure. Because one might have certain aspects of a case for which there is no insurance coverage, it may be wise to have separate counsel monitoring the litigation, and if the stakes are high enough, taking an active role to hedge against the uninsured risk.
• Conflicts can also arise between the client's interest and that of the insurance company. How to defend a case, whether to settle, and for how much are all issues with which the insured and the insurer can have divergent issues. If such a conflict occurs, the insured may question the loyalty of the attorney hired by the insurance company. In such a circumstance it makes sense to get an outside law firm involved to manage the conflict, push back against the insurance company to triumph your interests, and even possibly take over the defense if the conflict cannot be resolved.

When these issues arise, they are rarely simple or easily resolved. Understanding the nature of this tripartite relationship is the first step in taking control of the process and ensuring that a defense is complete and proper.

Some words to ponder on MLK Day

Forty-five years ago, "the civil rights movement swirled into Birmingham, a city whose bitter resistance to change made it a battleground." Jack Bass, Unlikely Heroes 201 (1981). Dr. Martin Luther King Jr. remarked, "If we can crack Birmingham, I am convinced we can crack the South. Birmingham is a symbol of segregation for the entire South." Id. By blood, toil, and tears, segregation was, of course, cracked in Birmingham, and today the city is led by its fourth black mayor and a majority-black city council. Against this historical backdrop, this appeal from the Northern District of Alabama offers, amid a host of technical issues, an important reminder: despite considerable racial progress, racism persists as an evil to be remedied in our Nation.

Such are the words of the Hon. William H. Pryor Jr. of the 11th Circuit Court of Appeals in Goldsmith v. Bagby Elevator Co. Goldsmith involves appalling allegations of racial harassment, which resulted in a substantial jury verdict affirmed by the 11th Circuit. This Martin Luther King Day is as good a time as any for everyone to stop and reflect on Judge Pryor's words, and ask if you are doing all that you can to combat discrimination of all kinds in your workplace.

Supreme Court to hear retaliation (Crawford v. Nashville) and ADEA disparate impact (Meacham v. Knolls Atomic Power) cases

The U.S. Supreme Court has granted cert. in two more employment cases to be heard this term.

Crawford v. Metropolitan Government of Nashville, which is out of the 6th Circuit, asks if Title VII's anti-retaliation provision protects an employee from being fired because she cooperated with her employer's internal sexual harassment investigation.

Vicki Crawford claimed that her termination after she participated in a sexual harassment investigation constituted retaliation. The 6th Circuit disagreed, holding that participation in a purely internal, in-house investigation, in the absence of any pending EEOC charge, is not a protected activity. The Court reasoned that a contrary result would chill employers' investigations because they would not interview witnesses for fear of potential retaliation liability. Crawford, not surprisingly, is arguing the converse, that such protection is needed so that employees' willing participation in such investigations is not chilled. The EEOC, along with the 3rd, 5th, 8th, and 11th Circuits, disagree with the 6th Circuit's holding.

On first blush, it seems that the employee has the better of the argument. Employees already perceive that they can be fired if the company doesn't like what they have to say. It's hard enough as is to get employees to voluntarily cooperate, and assurances of no retaliation are usually necessary to get them to open up at all. A ruling for the employer in this case would make internal investigations all that much harder to conduct. To quote from the cert. petition:

Workers of ordinary prudence would be likely to avoid cooperating with a sexual harassment internal investigation if they knew they could be fired for doing so, certain as most will be that such cooperation will anger the alleged harasser, who usually is a supervisor and who all too often is the witness's own supervisor. Employees would have a disincentive to cooperate, if their participation in internal investigations is not protected. Placing a voluntary witness into this kind of legal limbo would impede remedial mechanisms by denying interested parties' access to the unchilled testimony of witnesses. (internal quotations and citations omitted).

Meacham v. Knolls Atomic Power Laboratory asks whether an employee alleging disparate impact under the ADEA bears the burden of persuasion on the "reasonable factors other than age" defense. More on this case as we get closer to oral argument.

What else I'm reading this week #14

A few sports related articles to start off this week's round-up. Michael Moore at the Pennsylvania Employment Law Blog discusses the flak over Kelly Tilghman's comments about Tiger Woods, and how her employer diffused a potentially problematic situation. Meanwhile, John Phillips at The Word on Employment Law talks about Randy Moss's legal troubles and an employer's potential liability for hiring a known bad egg. Finally, The HR Capitalist looks at the flip side of the Randy Moss issue, and uses Terrell Owens crying jag to examine the issue of whether your "morale killer" has turned the corner. Being a Philadelphia native and an unapologetic Eagles fan, I'll spare everyone my rant on T.O.

The Manpower Employment Blawg looks at an issue that I've touched on once or twice in last several months - wage and hour class action lawsuits as a booming industry for the plaintiffs' bar. For my thoughts on this issue from back in September, see Use a wage and hour audit to proactively head off claims, and Wage and hour litigation hits the big time.

From the ABA Journal comes a fascinating story about new technology being developed by Microsoft that will enable employers remotely to monitor their workers' productivity, competence, and physical well-being. According to this article, wireless sensors will provide employers with workers' heart rates and stress level, and determine whether they are smiling or frowning, among other data.

The Labor and Employment Law Blog gives a good summary of some of the liability issues implicated by e-mail and voice mail.

Finally, the HR World Blog has an interesting piece on workplace race relations in light of what we saw unfold earlier this week in the Democratic Presidential campaign. You can read my thoughts from October on racial harassment claims in Racial harassment lawsuits on the rise.

FMLA does not protect employees who fail to certify absences

Treatment for substance abuse is a serious health condition covered by the FMLA. Unexcused absences from work are not. The distinction between these two categories made all the difference for Krzysztof Chalimoniuk, who was terminated by Interstate Brands Corporation for excessive absences. In Chalimoniuk v. Interstate Brands Corporation, decided last week, the 7th Circuit upheld the termination and affirmed the trial court's dismissal of Chalimoniuk's FMLA claim.

Chalimoniuk had been battling alcohol addiction for 15 years. On Friday, July 28, he stopped on his way home from work, bought a large amount of alcohol, and over the next three days drank so much he lost his memory of that weekend. He was scheduled to work at IBC the following Monday (July 31), Wednesday (August 2), and Thursday (August 3). On Saturday, July 29, in the midst of his binge, his wife realized he had relapsed and called Fairbanks Hospital to see if she could bring her husband in for treatment. On Tuesday, August 1, Chalimoniuk called his physician's office but it was closed that day. On Wednesday, August 2, he called his doctor's office again, this time speaking to a nurse or receptionist who spoke to the doctor and referred Chalimoniuk to Fairbanks Hospital. On that same day, Chalimoniuk called Fairbanks Hospital and his insurance company to arrange his admission to the hospital. Because of a delay in obtaining insurance approval, Chalimoniuk was not admitted until August 4. He remained in the hospital until August 10. The FMLA certification completed by his doctor stated that he was in treatment from "7/29 - 8/11. Return 8/14."

Chalimoniuk's absences on July 31, August 2, and August 3 put him over the limit under IBC's attendance policy, unless they were covered by the FMLA. Because he did not start his inpatient treatment until August 4, IBC did not grant Chalimoniuk FMLA leave for his three missed work days, and terminated his employment under its attendance policy.

The regulations to the FMLA provide that substance abuse is a serious health condition only if the employee is receiving treatment, and not merely because of the employee's use of the substance:

Substance abuse may be a serious health condition if the conditions of this section are met. However, FMLA leave may only be taken for treatment for substance abuse by a health care provider or by a provider of health care services on referral by a health care provider. On the other hand, absence because of the employee’s use of the substance, rather than for treatment, does not qualify for FMLA leave. 29 C.F.R. 825.114(d).

Thus, under this regulation, Chalimoniuk was entitled to FMLA leave only for treatment for substance abuse. Because he was not in treatment until August 4, his three prior absences were not covered by the FMLA.

Chalimoniuk claimed that his medical certification was incomplete or invalid, creating a duty for IBC to alert him to the deficiency and allow him an opportunity to cure it. The FMLA regulations do impose such a duty on employers. "The employer shall advise an employee whenever the employer finds a certification incomplete, and provide the employee a reasonable opportunity to cure any such deficiency." 29 C.F.R. 825.305(d). IBC did not deny the FMLA leave not because the Certification was incomplete but because they believed it inaccurately overstated the time period that Chalimoniuk was in treatment. Moreover, even if the Certification was incomplete, it would have been impossible for Chalimoniuk to cure the deficiencies, because even he admitted that his treatment did not begin until August 4.

It would be an understatement to say that Chalimoniuk presented an at-risk termination, and it may strike some as unfair that IBC was allowed to terminate him purely because of an administrative delay in his being admitted for treatment. Chalimoniuk and his wife appear to have done everything right -- she called the hospital as soon as she found him drunk, they promptly tried to reach his doctor but could not, and got him admitted to hospital as quickly as their insurer would allow. Nevertheless, the FMLA does not protect him because his treatment did not begin until his actual admission for treatment. I suppose one could rationalize a result in which his treatment would be deemed to have started on the 29th when Chalimoniuk's wife made the call to the hospital, but that would strain the reality of his actual treatment. After all, even Chalimoniuk freely admitted that despite the dates on the Certification, he did not start treatment until he was admitted on August 4.

Most often, FMLA cases teach employers the importance of making sure that all their i's are dotted and t's are crossed. This case illustrates that the same is equally as important for employees, and that employers should consistently apply the FMLA's requirements to employees have failed to properly certify their absences.

Some lessons in handling departing employees and their files

ESPN is reporting that football program files have gone missing from the University of West Virginia office of former coach Rich Rodriguez, who left West Virginia for Michigan. From espn.com:

West Virginia University said Tuesday it will investigate the disappearance of player and football program files found to be missing from the former office of ex-Mountaineers coach Rich Rodriguez.

West Virginia University said Tuesday it will investigate the disappearance of player and football program files found to be missing from the former office of ex-Mountaineers coach Rich Rodriguez.

Paperwork detailing every player on West Virginia's roster, as well as the program's activities over the past seven years, went missing between Rodriguez's resignation as coach to take over at Michigan and the team's return from the Fiesta Bowl, the Charleston (W.Va.) Gazette reported....

After returning to work about a week ago, the staff at WVU's Puskar Center found that most of the files that had been stored in Rodriguez's office, as well as the players' strength and conditioning files in the weight room, were gone, the Gazette reported.

"It's unbelievable. Everything is gone, like it never existed," a source within the athletic department, who spoke on the condition of anonymity, told the Gazette. "Good, bad or indifferent, we don't have a record of anything that has happened." ...

According to the source, the missing files include all of the players' personal files, which encompass contact information, scholarship money awarded, class attendance records and personal conduct records, the Gazette reported....

According to the report, multiple sources said several people in the Puskar Center reported seeing Rodriguez and at least one of his assistants, video coordinator Dusty Rutledge, in Rodriguez's private office shredding paperwork on Dec. 18 -- the day he returned from Ann Arbor after being named Michigan's new head coach. Those who say they witnessed the action said they either paid it no mind or did not know what was being destroyed, according to the report....

West Virginia and Rodriguez are in the midst of a messy legal battle over his departure from Morgantown. The university is trying to recover $4 million from Rodriguez for leaving with six years remaining on his contract. Rodriguez, in turn, said West Virginia breached the contract by not fulfilling all of its terms of the deal.

If Coach Rodriguez took the files, I certainly hope that his attorney is advising him to return them. I couldn't imagine that Coach would try to leverage these valuable documents into a settlement of his other legal issues with the university.

Intrigue aside, Rich Rodriguez's plight is a good learning exercise for employers and employees. Unless there is an agreement that states otherwise, what an employee creates during his or her employment is the property of the employer. The employee is working for the benefit of the employer, and is being paid for it. Accordingly, the employer, and not the employee, owns the files and documents. Because it is the employer's property, the employee has no right to take the property with him or her at the end of employment. These issues are the same whether we are talking about paper or electronic files.

Some take away points for everyone:

• Make sure expectations are clear on the way in the door - handbooks, policy manuals, and employment agreements should clearly state that everything that is created during employment belongs to the company, and that it is expected to be left with the company at the end of employment.
• Supervisors and managers need to be trained so that they do not make any statements contradictory to the policy upon which an employee could claim reliance.
• As best as possible, monitor what employees take out of the company during their employment. Few jobs today are 9 - 5. More and more employees take work home, and some even telecommute. It becomes very difficult to keep tabs on where stuff is, and the more stuff taken out of the office or downloaded, the harder it will be to have it returned if an employee leaves. The good thing about e-mail and portable media is that at least they generally leave a trace that something was taken.
• Reinforce the policy during an exit interview by reminding the employee of the expectation that nothing will leave the company with him or her, and that everything must be returned immediately.
• When all else fails, a letter from a lawyer to a former employee and the new employer goes a long way to getting the documents returned.

6th Circuit affirms maternal profiling verdict

I've been writing lately about maternal profiling, which is employment discrimination against a woman who has, or will have, children. Last week, the 6th Circuit, in Lulaj v. The Wackenhut Corporation, provides us a good example of this type of stereotyping in action.

Lisa Lulaj worked at Chrysler as a fire security officer, first as a Chrysler employee and then as an employee of Wackenhut Corporation after Chrysler outsourced its security operations. Lulaj accepted the transition to Wackenhut solely because she was promised a promotion to a supervisor position. Shortly after the transition, Lulaj filled out forms notifying Wackenhut that she was pregnant and would need a larger uniform. Within a month, her immediate supervisor offered her a lesser promotion than she was originally promised, looking at her stomach and telling her, "You should consider this position considering your position." Within a month, Lulaj went out on maternity leave. When Wackenhut refused to promote her to the originally promised supervisor position at the end of her leave, she decided not to return to work. She sued to pregnancy discrimination under Michigan law, and the jury awarded her a total of $200,000, to which the judge added $49,500 in attorney's fees. The trial judge also took away $142,168 in lost wages because the jury found that Lulaj had voluntarily quit and had not been constructively discharged.

The 6th Circuit rejected Wackenhut's argument that there was no nexus between Lulaj's pregnancy and the promotion decision. The the contrary, the court considered three pieces of evidence critical to its decision that Lulaj was discriminated against:

1. Company managers were aware of her pregnancy long before she officially informed them.
2. The timing of the events suggests discrimination.
3. The way her superior glanced at her stomach suggested that pregnancy was a factor in denying the promotion.

This case is a good example of how maternal profiling can cause a bad result for an employer. At the same time, however, it sets a potentially dangerous precedent by allowing a discrimination claim to stand based in large part on subjective interpretations of glances and stares.