Suits In The WorkPlace

One of the hottest issues arising in ERISA practice is that of retiree health insurance and the ability of a company to modify the terms of that insurance long after an employee has retired and left active service. Because health insurance plans ( unlike pension plans) do not automatically vest and provide benefits, companies frequently try to reserve the right to modify health insurance coverage. This is especially true recently, because health insurance premiums have soared for all insurers.

The question of whether a company can unilaterally modify the terms and benefits of its health and welfare plans seems destined for a Supreme Court review, because the federal appellate courts have split directly on how an employer keeps its options open in the face of rising medical costs. A recent example involving the Caterpillar company lays out the analysis clearly, (Winnett et al. v. Caterpillar, Inc., 06-cv-00235, 5/16/07).

Caterpillar signed a series of collective bargaining agreements with its unionized workforce that included by reference descriptions of various health insurance plans. The terms of the plans, along with their summary plan descriptions, generally alluded to free or fixed premium lifetime health insurance coverage for both employees and their spouses, and in some cases promised such benefits specifically. However, summary plan descriptions for the retiree plans also contained specific clauses granting Caterpillar the right to unilaterally alter the benefits at the time and place of its choosing, and notifying the retirees that the benefits to which they might believe they were entitled would be altered accordingly. When Caterpillar told its retirees that they would have to start contributing to their health insurance expenses, the retirees sued in a class-action, claiming breach of contract.

Caterpillar's use of contractual language allowing unilateral modification or termination of health insurance benefits (so-called "reservation of rights" language) is generally considered dispositive by most federal appellate courts, including Caterpillar's home circuit, the Seventh, in Illinois. Even where there are explicit promises to pay lifetime benefits, the Seventh Circuit applies the rule that all clauses in a contract are to be given effect, if possible. Accordingly, the Seventh Circuit's interpretation of such reservation of rights clauses in a contract promising fixed or free lifetime insurance benefits is "the retirees are entitled to lifetime health insurance coverage, unless they aren't." In other words, the reservation of rights clause precludes a vesting of permanent health insurance benefits.

The Sixth Circuit in the Caterpillar opinion also gave lip service to the "all clauses must be given effect" rule, but then promptly ignored the reservation of rights language in the summary plan descriptions. For some reason, the Court found the reservation clauses to be "qualified by reference" to the collective bargaining agreements, and therefore ineffective in preventing vesting of the lifetime benefits. This is an interesting distinction, because the court held as black letter law that the collective bargaining agreements to which the reservation clauses referred had no effect on the retirees' claims, and, in fact, could not, because it was undisputed that the retirees were not part of the collective bargaining unit at the time the health benefits were modified.

In an ironic holding that must have the Caterpillar management kicking themselves, the court also found that Caterpillar's conduct in cutting its retirees a break and not enforcing its decision to make them pay a portion of their health insurance was further evidence that Caterpillar intended for the benefits to be fixed and unalterable for the life of the retirees.

Truly, no good deed goes unpunished. Had Caterpillar taken a hard line, and unilaterally imposed the additional costs, it would have actually strengthened its case. So much for rewarding good corporate citizenship.

This issue will obviously become more important as the retiree population swells. Medical costs are going nowhere but up, and the cost of these health and welfare plans looms larger and larger on the corporate bottom line. Given the wide disparity between two neighboring circuits, this is an area that is ripe for high court resolution.

In The Right Stuff , Tom Wolfe described the early NASA culture, which was centered heavily around military fighter pilots, as one of "drinking and flying, flying and drinking". As NASA, and its astronauts aged, and as the organization began using astronauts from a wider variety of corporate and military cultures, that image began to fade. It was hard to imagine some of the more recent NASA shuttle commanders, who are in their 50s and in some cases 60s, out carousing around when they weren't practicing zero-g activities.

But the more things change, the more they stay the same. An internal review of the astronaut corps following the Lisa Novak attempted murder/attempted kidnapping/attempted "I just want to talk" episode alleges that on at least two occasions astronauts were allowed to fly when they were impaired by recent alcohol consumption and that there was heavy use of alcohol among the astronaut group before launches. "Heavy use" involves imbibing within 12 hours of lift off.

Yikes! I thought these people were completely sequestered for longer than that prior to a shuttle mission. Now I have this image of our nation's finest swinging by the Beverage Depot and picking up a few bottles on their drive out to the launch pad. And who in the pre-launch inspection team thought it was a good idea to have someone with any alcohol in their system on the crew?

Most of my employer clients would terminate any of their managers under the influence on the job. That goes double (triple? quadruple?) for people managing more than $1 billion worth of technology in a highly public, highly dangerous type of activity. All of a sudden the Nowak love triangle situation starts to get a little more contextualized.

These types of problems almost always go back to a failure of professionalism within the ranks. I'm sure that the NASA leadership assumed that the high quality type of person they were drafting in their application and selection process would not have to be told that it was not only improper, but a termination offense to break up each other's marriages, get drunk before flying a mission, and generally act like frat and sorority members on the government's nickel. I'm sure NASA leadership assumed that it was unnecessary to track and check for this type of behavior, and that any actual incidents were simply an aberration.

They were wrong.

Because of its requirement to evaluate each employment situation on an individual basis, the Americans with Disabilities Act frequently provides its own unusual subset of employment discrimination decions. The Seventh Circuit recently delved into the issue of whether an inability to stand on one leg qualified as a disability within the law.

The plaintiff broke his back in several places falling out of a tree stand while hunting. Following a lengthy recovery, he was limited to lifting no more than 50 pounds and could not stand for long periods or balance himself on one leg (in seeking to demonstrate his balancing problems as a substantial impairment of a major life activity, the plaintiff apparently reported to the court that he had to hold on to something to put his pants on). His employer assigned him to light duty work as an accommodation. He was ultimately terminated for starting an unfounded and problematic rumor about the employer's personnel policies. He sued claiming that he was fired because of his disabled condition.

The Seventh Circuit quickly refined the claim down to whether plaintiff was "substantially limited" in his ability to stand as a result of his injuries. Recognizing that conditions like excess weight and back pain restrict the ability to stand for many people, the court noted "persons impaired by virtue of common afflictions cannot be disabled." The court stated that plaintiff was able to stand for 30 to 40 minutes at a time, which was not a substantial limitation. Nor was the inability to balance on one leg a disabling condition. "It is simply far from obvious that the average person needs to balance on one leg on a routine basis so as to stand."

In other words, the court took a very common sense approach to the analysis of these alleged disabilities. People function relatively well with a variety of back, joint and other physical ailments. The Seventh Circuit is saying here that the ADA reserves its protections for more atypical situations.

And you can thank me later for not making one of several dozen puns possible on this storyline.

There was a recent flurry in the mainstream media several weeks ago about so-called "love contracts" and their usefulness to employers. For the uninitiated, a love contract is a formal legal document that is signed by two employees indicating, at a minimum, that they are engaged in a voluntary and consensual romantic relationship and that they are aware of the employer's sexual harassment policy and its requirements for reporting a charge of sexual harassment or retaliation.

Some employers require these documents, sometimes known as "consensual relationship agreements" as a condition of continued employment for employees engaged in romantic relationships with other employees. The theory is that by disclosing the voluntary nature of the relationship, and the awareness of a means to remedy sexual harassment claims, the employer is somehow more protected from a later discrimination claim when the relationship goes bad.

On a theoretical level, I guess the love contract isn't necessarily a bad idea. But as a practical matter, I don't think it helps very much. For one thing, my experience is that the people who really need love contracts, usually people engaged in relationships that the employer would ban immediately if it was aware of them (think president of the company and a direct reporting subordinate), aren't willing to sign these documents because of the disclosure requirement. For another, given the nature of juries to believe even the most outlandish claims of intimidation, the limited protections that a love contract provides are easily vitiated by a claim that the victim was coerced into signing the document, or coerced into not reporting horrible conduct, or some combination of the two. And finally, although some employment lawyers believe that love contracts can help defuse problems arising in deteriorated superior--subordinate romantic relationships, I think the protection is illusory. Superior--subordinate dating relationships are fraught with problems that arise as much from the perception of other employees as from the participants in the relationship. Claims of favoritism, misconduct, and other juicy activities frequently run rampant through the workforce when there is an open superior--subordinate relationship at work. These claims frequently are cited as evidence of a hostile work environment, and in my experience are inevitable whether there is a document in place or not.

So before plunking down hard-earned human resource dollars to have someone draft a love contract for two moon-struck managers, think about what you're trying to protect, and whether it might be more effective to move one of them, or otherwise alter the employment relationship.

It's not uncommon to see a federal agency such as the Department of Labor getting its wrists slapped by a federal circuit court over some aspect of the agency's own regulations. What makes a recent Fourth Circuit opinion interesting reading is the ultimate holding, which has to be of interest to anyone dealing with a Family and Medical Leave Act claim.

Concisely put, the Fourth Circuit determined that a Department of Labor regulation-- 29 CFR section 825.220(d) means exactly what it says, namely that employees cannot waive, nor can they be induced to waive, their rights under the FMLA. As I've mentioned before, no self-respecting employer wants to settle a case unless the settlement forecloses all other potential causes of action, in a so-called "general release". The Fourth Circuit's opinion provides a well reasoned analysis as to why the Department of Labor regulation makes it impossible for an employer to sleep well at night in a potential FMLA situation, even when the employer has a signed waiver of FMLA rights in its files. The only way an employee's waiver of perspective or pending FMLA claims can be effective is if the waiver has been approved in the same manner as a Fair Labor Standards Act waiver, that is by a court, or the Department of Labor itself.

What this means is that it is impossible, at least in the Fourth Circuit, to settle an FMLA claim without going to the Department of Labor (or a federal judge, if a case is actually been filed) and getting it to sign off on the agreement. More importantly, broad general releases of employment claims now have at least two serious holes in their viability in the form of FLSA and FMLA claims. Employers must note that these so-called general releases are not so general anymore with regard to payroll, attendance and leave of absence problems.