So you're an employer and you have an employee who qualifies for leave under the Family and Medical Leave Act ("FMLA" or "the Act"). The employee requests leave under the Act and you grant the request in writing. You have complied with your obligations, correct? Not necessarily.
In the recent case of Thom v. American Standard, Inc., No. 09-3507 (6th Cir. Jan. 20, 2012), the Sixth Circuit Court of Appeals, the Circuit that covers Tennessee, addressed an employee's claim that his employer had unlawfully interfered with his rights under the FMLA. The employee, who had suffered a non-work-related injury to his shoulder, qualified for leave under the FMLA's "serious health condition" provision. Upon requesting leave from April 27, 2005 through June 27, 2005 for surgery and recovery, the employee received written approval from his employer for leave under the Act for this period of time.
After the employee's surgery, his doctor wrote a note indicating that the employee was recovering more quickly than expected, and that he would be cleared to return to work on "light duty" on May 31, 2005, and could return to work without restrictions on June 13, 2005. When the employee attempted to return on May 31 for light duty, however, the company's HR director advised that light duty work was only available for those suffering work-related injuries.
Thereafter, the employee experienced increased pain in his shoulder and failed to return to work on June 13, the date his doctor had stated he could return to work with no restrictions. The next day, he advised the company's HR director that he would be returning on June 27, 2005, the date originally agreed to by his employer as his return to work date. However, after an appointment with his doctor on June 17, the employee went to his place of employment with a doctor's note and a request to extend his leave until July 18.
Upon arriving at work on June 17, however, he learned he had been terminated. His employer had counted every day from June 13 through June 17 as an unexcused absence, and terminated him for excessive absenteeism under company policy. The employee sued, claiming the company's actions had interfered with his leave rights under the FMLA. The court agreed, awarding him nearly $100,000.00 in attorneys' fees, $104,000 in back pay (plus a doubling of the back pay award under the FMLA's liquidated damages provision), along with an order that the company pay the employee the pension benefits he would have received had he not been unlawfully terminated.
The court noted that while the FMLA provides an employer with 4 options for calculating available leave under the Act, the employer failed to communicate to the employee in any way which method it intended to use with respect to his leave. It was only after the employee had filed suit, the court observed, that the company attempted to assert a method of calculating leave that would have resulted in the employee's FMLA leave being exhausted on June 13, 2005, the date the employer began counting the employee as absent without excuse. The court therefore found that the "calendar method" of calculating leave (which grants employees 12 weeks of leave each calendar year) applied, making the employee eligible for leave through July 14. The earlier termination of the employee, the court held, constituted an unlawful "interference" with the employee's FMLA leave entitlement. The double damages for the violation were imposed because the court concluded that the employer did not act in "good faith" when it asserted for the first time after suit was filed that a different method of calculating leave under the Act justified the employee's termination.
Lessons for Employers. Communicate, communicate, communicate.
The employer in American Standard, Inc. could have avoided liability altogether if it had (1) clearly communicated to its employees which method of calculating FMLA leave it intended to use, something it did only after the lawsuit by Thom had been filed, and (2) actually calculated leave in a manner consistent with that articulated method. In the case under review, the company not only failed to communicate the method of leave calculation it intended to use, but it actually agreed to an FMLA leave period that was consistent with the "calendar method" of calculating leave that the plaintiff employee urged the court to apply. In other words, the company's silence regarding the applicable method, and its actions in agreeing to leave that went beyond the leave that would have been available if it had been using the method it claimed it was after the suit was filed, left the court with no choice but to find liability and, worse yet, a lack of good faith on the part of the company.
If you have any questions regarding the FMLA or the appropriate manner in which to communicate your company's leave policies to your employees, please contact the Author or any member of our Labor & Employment Group.
This blog is not intended to create an attorney/client relationship or provide legal advice. Please contact the author if you have any questions or comments regarding the subject matter.
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On January 9, 2012, the United States Citizenship and Immigration Services ("CIS") announced a proposed rule, Provisional Waivers of Inadmissibility for Certain Immediate Relatives of U.S. Citizens. The proposed rule would streamline the adjudication process of waivers of inadmissibility for immediate relatives of U.S. citizens by allowing aliens to file waiver applications and wait for adjudication in the U.S. This could be beneficial to tens of thousands of families with an immediate relative that entered the U.S. illegally; whereas the alien previously would have had to leave the U.S. for an extended period in order to get a green card, the alien can now wait in the U.S. for preliminary approval and have a much shortened wait abroad.
· Background on USCIS, Illegal Entry and Removal, and Consular Processing: The United States Citizenship and Immigration Services ("CIS") processes applications, petitions and waivers by and for aliens pursuant to the Immigration and Nationality Act ("INA"). Many of the applications are for immediate relatives of U.S. Citizens. The INA provides a penalty for entry without inspection ("EWI") into the U.S. - aliens are barred from most forms of relief without leaving the U.S., and must go through Consular Processing. Generally, aliens who have entered without inspection have to travel to a U.S. Embassy abroad and get a visa to re-enter from the "consular" section of the Embassy. Even if an alien marries a U.S. citizen, to get a green card he or she typically must leave the country in order to re-enter with an immigrant visa. Unfortunately, however, once an alien leaves the U.S. after EWI, he or she is subject to either a three- or ten-year bar to re-entry. Waivers of this bar to re-entry are available, but not guaranteed.
· Waivers: Previously, waivers could only be filed upon leaving the U.S. (and triggering the three- or ten-year bar) and arriving at a U.S. Embassy, where it would take many months to adjudicate. The alien and his or her family would have to spend those months apart, with no guarantee that the waiver application would be approved. The alien must show that his U.S. citizen relative(s) would suffer extreme hardship if the alien was required to remain outside the U.S. during the bar period. CIS has announced a proposed rule, Provisional Waivers of Inadmissibility for Certain Immediate Relatives of U.S. Citizens, which would streamline the waiver adjudication process for immediate relatives of U.S. citizens by allowing the aliens to file waiver applications and wait for adjudication while remaining in the U.S. This could save months of time that families would typically spend apart. Further, this allows many aliens who were too afraid of a waiver denial to leave the U.S. to now "test the waters" with a waiver application without leaving the U.S. The requirement of showing extreme hardship has not changed.
· Current Status: The provisional waiver is still a proposed rule, and CIS is awaiting comment from the public. CIS should issue a final rule later this year. Hopefully, CIS will also issue the new provisional waiver application form this year as well. The provisional waiver application is not eligible for those who have already received an appointment notice for consular processing. It also is not applicable for alien relatives of U.S. permanent residents.
· Bottom Line: This is great news for aliens who entered without inspection and are immediate relatives (spouses, children over 21, or parents) of U.S. citizens. Many families have been afraid to file petitions, only to become subject to the requirement of the alien leaving the U.S. for a long waiver process, possible denial of the application, and possibly a bar to re-entry. Now is a great time to file an immigrant petition for eligible aliens to try to get at the front of what will likely be a wave of new filings. Please contact David Elliott for more information or to determine eligibility.
This blog is not intended to create an attorney/client relationship or provide legal advice. Please contact the author if you have any questions or comments regarding the subject matter.
]]>By David M. Elliott
LinkedIn: DavidElliottAttorney
Twitter
In KOVACS-WHALEY v. WELLNESS SOLUTIONS, INC. ET AL., No. M2011-00089-COA-R3-CV decided March 16, 2012, the Tennessee Court of Appeals held that Defendants were not entitled to summary judgment on a breach of contract claim because a jury could ultimately decide that Plaintiff's objection to the stock appraiser chosen by Defendants was reasonable. This case highlights the perils of including provisions of mutuality and reasonableness in Shareholders' Agreements, or as we like to say, "no good deed goes unpunished."
Plaintiff, a former employee, shareholder and director of Defendant Company, filed an action against the Defendant and its shareholders following the termination of Plaintiff's employment. Thereafter, the Company exercised a call option contained within the Shareholders' Agreement and purchased Plaintiff's stock. Plaintiff then amended her complaint to include a claim for breach of contract based upon the call option exercise and valuation of Plaintiff's stock over her objection to the appraiser.
The Shareholders' Agreement provided that the stock value would be determined in an appraisal obtained by the Company "performed by an appraiser reasonably acceptable to the Company and such Shareholder" (Emphasis added). The dispositive issue was whether the appraiser was reasonably acceptable to Plaintiff. At issue was not that Plaintiff complained about the competency of the appraiser; rather, that the Company had obtained an informal valuation from the appraiser before he performed a full valuation. The Court took umbrage with the Company's "show me your cards first" approach, and held that Plaintiff's objection to such appraiser under the circumstances was an issue of fact for the jury.
The lesson to learn is that extreme care should be taken in drafting Shareholders' Agreements. This valuation provision was fairly typical, and may have been negotiated by the parties, but it suffered from a double whammy of allowing a veto to a disgruntled former employee, and based such veto on a standard of reasonableness. As reasonableness is an issue of fact, this language unnecessarily opened the door to summary judgment. One could argue that the drafter attempted to avoid conflict by requiring reasonableness as a safeguard, as opposed to giving the Plaintiff an outright veto. And clearly what bothered the Court was the Company's obtaining a sneak peak at the value of the stock before hiring the appraiser. But the Agreement apparently failed to contain a methodology for appraisal in the absence of agreement of the parties. Thus, it appears that different or additional language in this situation may have prevented further litigation.
This blog is not intended to create an attorney/client relationship or provide legal advice. Please contact the author if you have any questions or comments regarding the subject matter.
]]>Most employers know that the federal Family and Medical Leave Act ("FMLA" or "the Act") provides eligible employees up to 12 weeks of unpaid leave per year for the birth, placement or adoption of a child, for the employee's own "serious health condition, to care for an eligible family member with a "serious health condition," or for certain situations caused by the military service of a covered family member of the employee. An employer may not interfere or attempt to interfere with an employee's rights under the FMLA.
So what, exactly, is interference? Traditionally, it has meant that the employer did one or more of the following: (1) terminated an employee for taking FMLA leave, (2) refused to reinstate an employee at the end of leave, (3) ordered an employee not to take leave, or (4) attempted to discourage an employee from taking leave.1 Recently, however, employees on FMLA leave have claimed that their employer required them to perform work on behalf of the employer while on leave and that this requirement itself amounted to unlawful "interference." For example, employees on leave have claimed that having to answer work emails and field job-related calls have "interfered" with their FMLA leave.
Not so fast, say the courts. A Revlon employee, for example, who was given a laptop, cell phone and internet connection in her home to use while on protected FMLA leave claimed she was forced to work and that this "interfered" with her leave. The court, however, found that the employee simply answered some routine questions by phone, but did not complete any projects or do anything that prompted a finding of "interference."2 The court explained: "Fielding occasional calls about one's job while on leave is a professional courtesy that does not abrogate or interfere with the exercise of an employee's FMLA rights. When limited to the scope of passing on institutional knowledge to new staff, or providing closure on completed assignments, employers do not violate the FMLA by making such calls."3
Similarly, an employee who claimed that calls from her employer during her FMLA leave interfered with that leave failed to show unlawful "interference."4 The court found that the calls were limited to "instances in which defendant contacted plaintiff . . . asking details regarding documents plaintiff had worked on as well as where those documents were located."5
Finally, an employee on FMLA leave who performed work from home and later claimed that doing so "interfered" with his leave failed to make an interference claim when he admitted that his supervisor never required him to do the work (and may not have even known he was doing it). Instead, the employee took it upon himself to keep up with his department's performance and the like. Under those circumstances, the court held that no unlawful interference had been shown.6
Lessons for Employers. The good news for employers is that employees who perform limited work of the type described above while on FMLA leave will not likely succeed on an interference claim. Similarly, employees who take it upon themselves to stay involved in projects at work or in their departments without being required to do so, or without management's knowledge, will also be unlikely to successfully pursue such a claim.
On the other hand, it is clear from the examples given above that if an employer requires an employee to perform a significant amount of work while on FMLA leave, there is a risk of a successful interference claim being made. Employers should therefore make clear to employees on FMLA leave, in writing, that they will not be expected to perform work, other than simple ministerial tasks, such as advising co-workers or management regarding the location of files or other materials, or the status of the employee's ongoing work assignments. If an employee expresses an interest in performing more than a minimal amount of work during leave, it is probably a good idea for the employer to require the employee to express her willingness to do so in writing, with a specific statement that such work is not required by the employer, and that the employee will not later claim that performing such work interfered with her leave under the Act.
If you have questions regarding the FMLA, or any other employment-related matter, please contact the Author or any member of our Labor & Employment Section.
1 The legal standard for interference requires an employee to show that: (1) she is an eligible employee; (2) the defendant is an employer; (3) she was entitled to leave under the FMLA; (4) she gave the employer notice of her intention to take leave; and (5) the employer denied her FMLA benefits to which she was entitled. Novak v. Metro Health Med. Ctr., 503 F.3d 572, 577-78 (6th Cir. 2007).
2 Reilly v. Revlon, Inc., 620 F.Supp.2d 524 (S.D. N.Y., 2009).
3 Id.
4 Kesler v. Barris, Sott, Denn & Driker, PLLC, 482 F.Supp.2d 886, 910-11 (E.D. Mich. 2007).
5 Id. at 910.
6 Soehner v. Time Warner Cable, Inc., 2009 WL 3855176, at *5 (S.D.Ohio, Nov. 16, 2009).
]]>A majority of American small businesses use the s-corporation form of doing business (i.e. dentists, opticians, and even retailers). The main reason is that an s-corporation is a pass-through entity, meaning the net earnings of the s-corporation are passed through to the shareholders of the company and reported on their individual income tax returns. This may seem simple enough for accounting principles but the tax ramifications can be substantial.
Specifically, if, as is the case in most situations, the shareholder of the s-corporation is also an employee, there are two categories of payments to the shareholder/employee (not including loans, repayment of loans and return on capital investment): (1) wages and (2) shareholder distributions, i.e. dividends. Working with these two categories, it is important that the shareholder/employee understand the options available to minimize taxable income.
With regard to wages paid to the shareholder/employee, the wages are treated like wages paid to any other non-shareholder employee. The IRS requires that the s-corporation withhold employee payroll taxes (social security and medicare) from the paycheck, which breaks down as follows:
2012 Social Security Tax and 2012 Medicare Tax Rates
For 2012, the employee tax rate for social security is 4.2%.
The employer tax rate for social security remains unchanged at 6.2%.
The 2012 social security wage base limit is $110,100.00.
In 2012, the Medicare tax rate is 1.45% each for employers and employees, unchanged from 2010. There is no wage base limit for Medicare tax.
With regard to shareholder dividends, the IRS treats them differently because they are considered to be a return on the employee/shareholder's investment in the s-corporation and, thus, not wages for services performed on behalf of the s-corporation. While the employee/shareholder must include the dividend on his or her income tax return (Schedule F), the dividend is not subject to FICA tax and is not considered self-employment income subject to self-employment tax.
An example will best illustrate the difference in tax treatments between wages and dividends:
Scenario 1:
Joe Widget creates Widget , Inc. and selects to be treated as an s-corporation. He is the sole shareholder and is also an employee that builds the widgets for the corporation. In 2012, Widget, Inc. pays Joe $100,000.00 in wages and does not issue a dividend. The FICA calculation for the wages paid to Joe is as follows:
· FICA withholding from Joe's paycheck: $5,650.00 (5.65% x $100,000.00)
· Employer (Widgets, Inc.) pays from s-corp. funds: $7,650.00 (7.65% x $100,000.00)
· Total amount of FICA tax paid to IRS: $13,300.00
Widgets, Inc. will issue a W-2 to Joe showing wages paid in the amount of $100,000.00 that he must report as income on his 1040 tax return for 2011.
Scenario 2:
In contrast to Scenario 1, Widgets, Inc. elects to pay Joe $50,000.00 as wages for his services and the remaining $50,000.00 is issued to Joe as a dividend. The FICA calculation for wages paid to Joe is as follows:
· FICA withholding from Joe's paycheck: $2,825.00 ($50,000 x 5.65%)
· Employer (Widgets, Inc.) pays from S-Corp. funds: $3,825.00 ($50,000 x 7.65%)
· Total amount of FICA tax paid to IRS: $6,650.00
Joe will receive a W-2 for $50,0000.00 for wages paid for his services to Widgets, Inc. The $50,000.00 issued as a dividend to Joe will be reported on his Schedule F of his tax return and it will not be subject to self-employment tax.
Which Scenario Is Best?
The answer to this question depends on many factors ( e.g. does employee need monthly paychecks, does corporation want to show higher dividends for purposes of securing capital investors, etc.) As is evidenced above, by withholding regular payments to Joe that would have been in the form of wages or salary, there is an overall tax savings of $6,650.00. Irrespective of the best scenario, the employee/shareholder must always first consider the possibility of being selected for a tax audit because the IRS has promised to target s-corporation returns based on the above described issue. In my next article, I will discuss the IRS position on this issue and how to best comply with the IRS requirements.
This blog is not intended to create an attorney/client relationship or provide legal advice. Please contact the author if you have any questions or comments regarding the subject matter.
]]>By: Chuck Fisher
On January 26, 2012, the Court of Appeals of Tennessee, Eastern Section, filed its opinion in the case of Marsh v. Storie, No. E2001-00101-COA-R3-CV. The facts of Marsh are best stated in a timeline:
August, 1964 -- Homeowner acquires property
August, 2001 -- Homeowner mortgages property; mortgagee records deed of trust against property
Sometime between August, 2001 and February, 2004 -- the property taxes become deliquent
March 17, 2004 -- Property sold at tax sale to Storie
April 7, 2004 -- Chancery Court enters order confirming sale to Storie
October, 2004 -- Mortgagee forecloses on deed of trust
January, 2005 -- Property conveyed to Marshes by Trustee's Deed for $26,000
March 15, 2005 -- Trustee's Deed recorded by Marshes
April 8, 2005 -- Statutory redemption period ends
July 11, 2005 -- Clerk & Master's Deed recorded by Storie
Sometime thereafter -- The Marshes find out that Storie is claiming ownership of the property
July, 2007 -- The Marshes sue Storie and the mortgagee
The Marshes' claims against the mortgagee were based on the theory that, because the property had been sold at a tax sale prior to the mortgagee's foreclosure, the mortgagee had no interest in the property that could have been sold; thus, the Marshes were "flim-flammed" when they paid the mortagee $26,000 for the property. In January, 2011, the Chancery Court granted summary judgment in favor of the mortgagee, dismissed all claims against the mortgagee and certified the judgment in favor of the mortgagee as final pursuant to Rule 54.02. The Marshes appealed the dismissal of the mortgagee; the Marses' claims against Storie are still pending in the Chancery Court.
The Court of Appeals affirmed, holding that the mortgagee conveyed its right of redemption to the Marshes; thus, the Marshes were not "flim-flammed" and actually received value for their $26,000. The Court of Appeals noted that the Trustee's Deed clearly stated that the sale was subject to, among other things, current or delinquent property taxes and tax liens. The Court of Appeals further noted that the Marshes had notice that certain 2002 and 2003 property taxes were delinquent.
The Marsh opinion is full of great stuff for those who care about tax sales, mortgages and foreclosures.
First, the Court of Appeals determined that the tax sale and confirmation left the mortgagee with only the right of redemption to convey. The lesson to be learned - a tax sale and confirmation cuts off all rights of the prior mortgagee other than the right of redemption.
Second, the Court of Appeals relied heavily on the language in the Trustee's Deed that it was subject to current or delinquent property taxes and tax liens. The lesson to be learned - put similar language in your Trustee's Deeds.
Third, the Court of Appeals held that the mortgagee did not have to exercise its right of redemption and was free to sell it to another. The lesson to be learned - it's good to be a bank.
Fourth, the Court of Appeals implied that the Marshes had a duty to investigate after they received a title commitment noting the delinquent property taxes and were subsequently informed that the taxes had been paid. The lesson to be learned - the sudden payment of long-delinquent property taxes on a foreclosed property is a good indication that a tax sale has occurred and that the purchaser is buying a right of redemption rather than title to the property.
Fifth, the Court of Appeals upheld a prior decision that a right of redemption may be conveyed subsequent to a tax sale. That's good news for folks who purchase rights of redemption.
Finally, the most interesting thing about the case is that it has been pending for almost 5 years, and has gone through one appeal, all over $26,000.
This blog is not intended to create an attorney/client relationship or provide legal advice. Please contact the author if you have any questions or comments regarding the subject matter.
]]>IN EMPLOYMENT ARBITRATION AGREEMENTS
On January 3, 2012, the National Labor Relations Board ("NLRB" or "the Board") announced that employers could no longer require employees to sign arbitration agreements in which they waived their right to participate in any form of class action. At issue in D.R. Horton Inc. and Michael Cuda, Case 12-CA-25764 (January 3, 2012) was an arbitration agreement that provided that:
(1) all disputes and claims relating to the employee's employment would be determined exclusively by final and binding arbitration;
(2) an arbitrator could hear only an employee's individual claims, while being precluded from consolidating the claims of other employees or fashioning a proceeding as a class or collective action; and
(3) the employee waived the right to file a lawsuit or other civil proceeding relating to Employee's employment with the employer.
The NLRB observed that such a "class action waiver" precluded an employee from taking joint or collective action in either an arbitral or judicial forum. The Board thus held the provision violated the federal National Labor Relations Act ("NLRA") which guarantees workers the right to engage in "concerted action" to protest wages or other terms and conditions of employment. The Board's ruling applies to white-collar employees of private companies, as well as to unionized workers, but not to management employees or government workers.
Opponents of the decision declare that the Board's ruling flies in the face of recent U.S. Supreme Court cases holding that class waivers must be permitted under the Federal Arbitration Act ("FAA"),1 and that the ruling elevates the "procedural" right to a class action over the "substantive" right under the FAA to have an arbitration agreement enforced as written. The NLRB, however, takes the position that it is not refusing to permit class action waivers, generally, but simply holding that an employer may not require employees to surrender their ability to act collectively in both arbitration and litigation.
The Board's decision will almost certainly be challenged in federal court. For now, however, employers should allow their Labor and Employment counsel to review any arbitration agreement they plan to present to their employees to be sure it does not run afoul of the NLRB's latest pronouncement.
If you would like more information or would like your arbitration agreements reviewed, please contact the author or any member of our Labor and Employment Group.
1 See, e.g., AT&T Mobility v. Concepcion, 131 S.Ct. 1740, 1751-1753 (2011) (claim that class-action waiver in consumer arbitration agreement was unconscionable under state law was preempted by FAA).
About the author: Mr. Lawson received his B.S. from the University of Tennessee at Chattanooga, magna cum laude, in 1994, and his J.D. from Vanderbilt University in 1997 where he was elected to the Order of the Coif. He is a member of GKH's Labor and Employment group and specializes in all phases of the employer-employee relationship, including wage and hour, FMLA, ADA, unemployment compensation, and discrimination/harassment law. He provides regular employer counseling on issues ranging from workplace policy development and labor law compliance to non-competition and confidentiality issues. He also defends employment claims filed with administrative bodies such as the EEOC and the Tennessee Human Rights Commission, as well as claims filed in state and federal court. Mr. Lawson's work with employers is designed to educate them about particular areas of the law governing the employment relationship, with a focus on minimizing exposure to employment-related claims and providing cost-effective litigation strategies should litigation arise.
This blog is not intended to create an attorney/client relationship or provide legal advice. Please contact the author if you have any questions or comments regarding the subject matter.
]]>Obtaining a judgment against a defendant is not the same thing as collecting that judgment and often collecting a final judgment is the real battle in a case. You will often hear attorneys tell their clients that winning a lawsuit can be the easy part and collecting the judgment can be what takes time and considerable effort. When a judgment is obtained at the conclusion of a lawsuit, very rarely will a defendant write a check for the amount owed. Collection of the judgment may also be delayed if a defendant chooses to appeal to a higher court. If the defendant does not voluntarily pay a judgment, there are, however, ways to attempt to collect a judgment after it becomes final.
Many methods used to collect a judgment require substantial information about a defendant. Consequently, after the conclusion of litigation and obtaining a judgment, it may be necessary to engage in post-judgment discovery to learn what assets a defendant owns, where a defendant is employed, or where a defendant banks. Post-judgment discovery is similar to the regular discovery process in that the some process and procedure may be followed, including the use of depositions and written discovery requests. Tenn. R. Civ. P. 69.03. But once an individual has the necessary information, there are various ways to attempt to collect a judgment after it is final, including:
Garnishment of wages or bank accounts. A defendant's wages or bank accounts may be garnished to satisfy a judgment. Again, it is necessary to determine where a defendant has bank accounts in order to garnish those accounts. In addition, state courts in the various counties throughout the state have different and varying procedures for bank garnishments. In garnishing a defendant's wages, the maximum part of an individual's total weekly earnings which is subject to garnishment cannot exceed twenty-five percent (25%) or the amount by which a defendant's earnings for that week exceed thirty (30) times the federal minimum hourly wage at the time the earnings for any pay period become due and payable, whichever is less. Tenn. Code Ann. § 26-2-106(a). In addition, if the defendant has dependent children under the age of 16 who reside in the State of Tennessee, that defendant may also be allowed $2.50 per child as an exemption from garnishment. Tenn. Code Ann. § 26-2-107(a).
Foreign judgment. Tennessee adopts the Uniform Enforcement of Foreign Judgments Act. Tenn. Code Ann. § 26-6-101, et seq. Any judgment, decree, or order of a court of the United States or of any other court is entitled to full faith and credit in Tennessee. Tenn. Code Ann. § 26-6-103. A person seeking to enforce and collect upon a foreign judgment must follow a specific procedure to domesticate that judgment in Tennessee including filing an authenticated copy of the judgment and filing an affidavit containing the defendant's last known contact information. After the proper filings have been made, the court clerk will issue a summons to be delivered and served upon the defendant. Once the foreign judgment has been properly domesticated in Tennessee it is subject to the same procedures as a Tennessee judgment and may be enforced or satisfied in the same manner. Tenn. Code Ann. § 26-6-104. No execution or any other collection process, however, may be initiated until 30 days after the summons is served on the defendant. Tenn. Code Ann. § 26-6-105(c).
Rather than discouraging a potential litigant from beginning court proceedings, litigants should be aware of and factor in the possible time and cost necessary to enforce a judgment when deciding on whether or not to begin litigation and/or an overall litigation strategy. In many cases, post-judgment legal procedures are often required prior to any collection. Similarly, if an individual already has a final judgment, whether it was obtained in Tennessee or a court of another state, but is having difficulty in collecting that final judgment, the help of a knowledgeable and licensed attorney is invaluable.
This blog is not intended to create an attorney/client relationship or provide legal advice. Please contact the author if you have any questions or comments regarding the subject matter.
]]>When forming a corporation, too many people simply visit the Secretary of State's website, or a form provider's website, download an inexpensive or free sample charter, and file it with the Secretary of State. Using such forms without careful consideration of the many variables that go into forming and operating a corporate entity, however, does a great disservice to you and your corporation.
A charter is the document that you file with the Secretary of State that creates your corporation. It, along with the corporation's bylaws and shareholders' agreement, are the documents that govern how your corporation must be run, with the provisions of the charter having priority over contrary provisions of the bylaws and shareholders' agreement.
In this article, which is part of a series of articles regarding entity formation, we are going to apply Tennessee law; however, many of these same benefits are provided in other states. Let's start with the general rule that your corporation's charter cannot be inconsistent with applicable law. T.C.A. §48-12-102. In other words, if Tennessee law requires the shareholders to vote to take a particular action, the charter cannot choose to have the directors vote to take that action. Building upon the general rule, Tennessee law accords certain powers or rights to a corporation that can only be taken advantage of by exercising those powers in the charter.
A charter can limit a corporation's purpose, which is by default "any lawful business". When would a corporation want to limit the business it can engage in? Perhaps when it is required by law to have a limited purpose. For example, there are prohibitions, or at least certain complications, in financial advisor businesses engaging in actions other than providing financial advice. If a director or officer attempts to take such actions on behalf of the corporation that would cause hardship for the shareholders, those shareholders could have the corporation, or the director/officer, stopped from taking such an action and have the action "set aside" under T.C.A. § 48-13-104.
A charter can further limit the power of the board of directors and even, if it has 50 or fewer shareholders, bestow upon another position some or all of the duties of a board of directors. T.C.A. § 48-18-101. This can greatly simplify the operations of small corporations.
In the second article of this series, I will complete the discussion of how a charter can be used to your benefit and therefore requires careful consideration in drafting.
It should be clear that it is not in your best interest to just print a form charter and file it. Instead, please consult with counsel before forming your next company. Further, if you used a form or simple charter when you formed your company, please consider contacting an attorney to have it revised to take advantage of all of the opportunities provided by law so that the charter can be carefully tailored to your unique circumstances.
This blog is not intended to create an attorney/client relationship or provide legal advice. Please contact the author if you have any questions or comments regarding the subject matter.
]]> ]]>MAY VIOLATE FEDERAL LAW SAYS EEOC
In a recent letter to another federal agency, the Equal Employment Opportunity Commission (EEOC) declared that employers who require applicants to have a high school diploma when seeking particular positions may violate the Americans With Disabilities Act (ADA).1 The letter, posted on the EEOC's website on December 2, 2011, is not an "official" opinion of the agency, but should serve as a signal to employers that the EEOC will be scrutinizing all criteria used by employers to screen applicants for employment.
In the case before it, the EEOC declared that employers may not use a high school diploma requirement to screen out applicants who were unable to obtain a diploma because of a condition qualifying as a learning "disability" under the ADA, unless the employer demonstrates that the requirement is "job related for the position in question and consistent with business necessity." The diploma requirement would not meet this standard if the job in question were easily performed by a person without a diploma. Moreover, even if the requirement met the EEOC's standard in general, an employer must still assess whether a particular "disabled" applicant could perform the essential functions of the position sought, with or without accommodation. If so, the diploma requirement could not be used to screen out that applicant.
Though not an "official" pronouncement of the EEOC, and despite the EEOC's caveat that an employer need not "prefer" a disabled candidate over better qualified candidates without a disability, employers must still be alert to the message the agency charged with enforcing many of the nation's major anti-discrimination laws is sending: any criteria, however neutral on its face and however reasonable in appearance, may not be used to screen out applicants for employment without a showing that the criteria is actually related to the performance of the job in question.
If you would like further information please feel free to contact the author or any member of our Labor and Employment group.
1 http://1.usa.gov/vwXcls
About the author: Mr. Lawson received his B.S. from the University of Tennessee at Chattanooga, magna cum laude, in 1994, and his J.D. from Vanderbilt University in 1997 where he was elected to the Order of the Coif. He is a member of GKH's Labor and Employment group and specializes in all phases of the employer-employee relationship, including wage and hour, FMLA, ADA, unemployment compensation, and discrimination/harassment law. He provides regular employer counseling on issues ranging from workplace policy development and labor law compliance to non-competition and confidentiality issues. He also defends employment claims filed with administrative bodies such as the EEOC and the Tennessee Human Rights Commission, as well as claims filed in state and federal court. Mr. Lawson's work with employers is designed to educate them about particular areas of the law governing the employment relationship, with a focus on minimizing exposure to employment-related claims and providing cost-effective litigation strategies should litigation arise.
This blog is not intended to create an attorney/client relationship or provide legal advice. Please contact the author if you have any questions or comments regarding the subject matter.
]]>David M. Elliott & Richard G. Pearce
IC-DISCs are one of the few tax benefits provided by the tax code specifically for exporters. IC-DISC's can be used by any company that 1) directly exports the goods that it manufacturers; 2) provides services that are conducted outside of the U.S.; or 3) manufactures goods that are part of a final product that is exported.
To qualify as an IC-DISC, a domestic corporation must pass the following two tests:
There are other tests, but these provide a good idea of whether further consideration is warranted.
An IC-DISC is a domestic corporation that makes the election to be a IC-DISC with the IRS. For state purposes, it is simply a domestic corporation. It is neither a s-corp or a c-corp. Note that s-corporations are ineligible to be IC-DISCs.
The basic process for using an IC-DISC is as follows:
Here is an example of how the use of an IC-DISC could impact the bottom line.
The following example show the benefit of paying tax at a 15% rate instead of a 35% rate:
|
Export Gross Receipts |
$40,000,000 |
|
|
Less: Cost of Goods Sold |
$32,000,000 |
|
|
Gross Margin |
$8,000,000 |
|
|
Less: Selling, General and Admin. Exp. |
$6,000,000 |
|
|
Export Sales Income |
$2,000,000 | |
|
50% Export Sales Income |
$1,000,000 |
|
|
4% Export Gross Receipts |
$1,600,000 |
|
|
Maximum IC-DISC Commission (greater of the two) |
$1,600,000 |
|
|
Tax Savings on Commission at 35% rate |
$560,000 |
|
|
Less: Tax Paid on IC-DISC Commission Distributed as Dividend at 15% rate |
$240,000 |
|
|
Net Tax Savings |
$320,000 |
As you can see, the bottom line tax benefit is $320,000 in this example.
The IC-DISC rules are set to expire on December 31, 2012, and there is no assurance that these tax benefits will continue at all, much less to the same extent. In addition, there are a significant number of rules and regulations pertaining to IC-DISC's, so please consult a business or tax attorney if you want to learn more.
This blog is not intended to create an attorney/client relationship or provide legal advice. Please contact the author if you have any questions or comments regarding the subject matter.
]]>On May 11, 2011, Georgia Governor Nathan Deal signed HB 30 into law, clearing the air regarding the constitutionality of a new Georgia law governing restrictive covenants. The law was originally passed in the 2009 legislative session and a constitutional amendment approving its statutory language was ratified by voters in November, 2010. However, because of issues regarding the effective date of the new law, questions arose regarding the constitutionality of the restrictive covenant law itself. To remove all such questions, the Georgia General Assembly passed HB 30--substantially reenacting the substantive provisions of the original law--and sent it to the Governor for signature.
The full text of HB 30 may be reviewed here, http://1.usa.gov/lD3KSZ, with highlights set forth below.
Restrictive covenants are expressly permitted in contracts between the following:
(1) Employers and employees;
(2) Distributors and manufacturers;
(3) Lessors and lessees;
(4) Partnerships and partners;
(5) Franchisors and franchisees;
(6) Sellers and purchasers of a business or commercial enterprise; and
(7) Two or more employers.
LEGITIMATE BUSINESS INTEREST REQUIREMENT
Before any restrictive covenant will be enforced, the party seeking enforcement must prove the existence of one or more legitimate business interests justifying such enforcement, including without limitation one or more of the following:
(1) Trade secrets (as defined by Georgia law);
(2) Confidential information that does not qualify as a trade secret;
(3) "Substantial relationships" with specific prospective or existing customers;
(4) Customer good will associated with an ongoing business, a specific geographic location, or a specific marketing or trade area; and
(5) Extraordinary or specialized training.
LIMITATIONS ON RESTRICTIVE COVENANTS
AFTER A TERM OF EMPLOYMENT
Contracts restricting competition after the term of employment will not permitted against employees who do not, in the course of their employment:
(1) Customarily and regularly solicit customers or prospective customers for the employer;
(2) Customarily and regularly engage in making sales or obtaining orders for products or services
(3) Perform the following duties:
(a) Have a primary duty of managing the enterprise in which the employee is employed or a customarily recognized department or subdivision thereof;
(b) Customarily and regularly direct the work of two or more employees; and
(c) Have the authority to hire and fire other employees or have particular weight given to recommendations as to hiring, firing or change in employment status of other employees; or
(4) Perform the duties of a key employee or of a professional.
A "key employee" is an employee who has gained a high level of fame or reputation as the employer's representative, or has gained a high level of influence or credibility with the employer's customers, vendors, or other business relationships, or is intimately involved in the planning and direction of the business of the employer or a defined unit thereof.
A "professional" is an employee who has as a primary duty the performance of work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction or talent in a recognized field of artistic or creative endeavor.
RESTRICTIONS ON COMPETITION THAT ARE PRESUMED REASONABLE
During the term of employment.
Time: Restrictions during the term of employment that are measured by the duration of the parties' commercial or business relationship are presumed reasonable.
Geographic scope: Restrictions in a geographic area in which the employer does business at any time during the parties' relationship, even if not known at the time of entry into the restrictive covenant, are presumed reasonable so long as the total distance encompassed by the restriction is also reasonable and/or the agreement contains a list of particular competitors as prohibited employers for a limited period of time after the term of employment.
After the term of employment.
Former employee not associated with the sale or ownership of all or a material part of the assets of a commercial enterprise, or the equity interest or profit participation of any commercial enterprise: A restriction of two years or less in duration will be presumed reasonable, with any restriction greater than two years presumed unreasonable.
Current or former distributor, dealer, franchisee, lessee of real or personal property, or licensee of a trademark, trade dress or service mark not associated with the sale or ownership of all or a material part of the assets of a commercial enterprise, or the equity interest or profit participation of any commercial enterprise: A restriction of three years or less in duration will be presumed reasonable, with any restriction greater than three years presumed unreasonable.
Owner or seller of all or a material part of the assets of a commercial enterprise, or the equity interest or profit participation of any commercial enterprise: A restriction of the longer of five years or less in duration, or the period of time during which payments are being made to the seller as a result of the sale, will be presumed reasonable, with any longer period of time deemed unreasonable.
NON-SOLICITATION AGREEMENT REQUIREMENTS
Restrictions on the ability of former employees to solicit, directly or by assisting others, any business from a former employer's customers for competitive products or services are permitted, but will only be enforced with respect to such customers with whom the former employee had "material contact during his or her employment." "Material contact" is defined as contact between an employee and each customer or potential customer of the employer: (1) with whom the employee dealt on behalf of the employer, (2) whose dealings with the employer were coordinated or supervised by the employee, (3) about whom the employee obtained confidential information as a result of the employee's association with the employer; or (4) who received products or services from the employer for which the employee received commissions or other earnings during the two years prior to the date of the employee's termination.
No reference to a specific geographical area or type of service is required, but any such restriction will be "narrowly construed" to apply only to such customers of the former employer, including actively sought prospective customers, with whom the employee had material contact, and regarding products or services that are competitive with those provided by the former employer.
"BLUE PENCIL" OF RESTRICTIONS PERMITTED
Courts are expressly permitted to "modify a covenant that is otherwise void and unenforceable, but they may not make any modification that would render the covenant "more restrictive with regard to the employee" than as originally drafted by the parties.
NO TIME OR GEOGRAPHICAL LIMITS ON CONFIDENTIAL INFORMATION AND TRADE SECRETS
The new law makes clear that there is no limit on the period of time or geographical area within which a party may require another to maintain information as confidential or as a trade secret, so long as said information actually remains confidential or a trade secret, as applicable.
REMEDIES
Courts will enforce restrictive covenants complying with Georgia's new law by any appropriate and effective remedy available at law or equity, including without limitation temporary and permanent injunctions.
_____
If you have any questions regarding Georgia's new law governing non-compete agreements, please contact the Author or any member of our Labor and Employment Group.
About the author: Mr. Lawson received his B.S. from the University of Tennessee at Chattanooga, magna cum laude, in 1994, and his J.D. from Vanderbilt University in 1997 where he was elected to the Order of the Coif. He is a member of GKH's Labor and Employment group and specializes in all phases of the employer-employee relationship, including wage and hour, FMLA, ADA, unemployment compensation, and discrimination/harassment law. He provides regular employer counseling on issues ranging from workplace policy development and labor law compliance to non-competition and confidentiality issues. He also defends employment claims filed with administrative bodies such as the EEOC and the Tennessee Human Rights Commission, as well as claims filed in state and federal court. Mr. Lawson's work with employers is designed to educate them about particular areas of the law governing the employment relationship, with a focus on minimizing exposure to employment-related claims and providing cost-effective litigation strategies should litigation arise.
]]>The Equal Employment Opportunity Commission has filed suit against Starbucks for violating the Americans With Disabilities Act (ADA) when it terminated an employee with dwarfism.1
Although the barista job description for which Elsa Sallard applied stated that no experience was necessary, she was only provided three days' training before she was fired. The termination followed soon after Sallard had asked for a stool or stepladder to assist her in serving customers at the counter. Starbucks said it made the decision to end her employment because the company believed she posed a danger to customers and to other employees.
Joel Clark, the EEOC trial attorney handling the matter, stated that "Starbucks flatly refused to discuss Ms. Sallard's reasonable request [for accommodation]. Instead, they assumed the worst and fired her. The ADA was enacted to prevent that kind of misguided, fear-driven reaction."
Requirements of the ADA.
Employees with disabilities, as defined under the ADA, are entitled to "reasonable accommodations" that permit them to perform the essential functions of their positions. Under the newly amended ADA, with its broadened definition of "disability," individuals suffering from conditions affecting "one or more body systems" are entitled to the Act's protections. Because most dwarfism-related conditions are the result of genetic disorders, an individual suffering from such a condition must be offered reasonable accommodation.
In this case, it appears that Starbucks will be relying upon the "direct threat" defense to a claim under the ADA. Such a defense is available when an employee poses "a significant risk of substantial harm to the health or safety of the individual or others that cannot be eliminated or reduced by reasonable accommodation." 29 CFR § 1630.2(r).
The regulations implementing the ADA set forth the process an employer must follow in assessing whether a particular employee poses a "direct threat" to herself or others:
The determination that an individual poses a "direct threat" shall be based on an individualized assessment of the individual's present ability to safely perform the essential functions of the job. This assessment shall be based on a reasonable medical judgment that relies on the most current medical knowledge and/or on the best available objective evidence. In determining whether an individual would pose a direct threat, the factors to be considered include:
(1) The duration of the risk;
(2) The nature and severity of the potential harm;
(3) The likelihood that the potential harm will occur; and
(4) The imminence of the potential harm.2
In this case, the EEOC appears to believe that Starbucks failed to engage in the required "individualized assessment" regarding Sallard, but instead simply acted upon stereotypical beliefs regarding her ability to safely perform her job. Factually unsupported assumptions of this kind are forbidden by the ADA.
Lessons for Employers.
Under the broadened definition of "disability" in the amended ADA, employers must carefully analyze whether an employee falls within the protection of the Act. In borderline cases, it may be safer to assume that the employee is entitled to the Act's protections, since the EEOC has taken the position that the amended Act was intended to remove the focus from whether a person has a disability, to whether reasonable accommodations are available and/or have been provided by the employer.
In every case, decisions regarding an employee with a disability must not be based upon assumptions or stereotypes, but upon cold, hard, objective facts and evidence. Similarly, any assessment regarding whether a person poses a "direct threat" to the safety of herself or others must be based upon "the most current medical knowledge and/or on the best available objective evidence."
Consult the Author or a member of our Labor and Employment Group in advance of any significant action regarding such an employee, for help in formulating appropriate accommodations, or for assistance in assessing the availability of the "direct threat" defense to any particular employment action.
About the author: Mr. Lawson received his B.S. from the University of Tennessee at Chattanooga, magna cum laude, in 1994, and his J.D. from Vanderbilt University in 1997 where he was elected to the Order of the Coif. He is a member of GKH's Labor and Employment group and specializes in all phases of the employer-employee relationship, including wage and hour, FMLA, ADA, unemployment compensation, and discrimination/harassment law. He provides regular employer counseling on issues ranging from workplace policy development and labor law compliance to non-competition and confidentiality issues. He also defends employment claims filed with administrative bodies such as the EEOC and the Tennessee Human Rights Commission, as well as claims filed in state and federal court. Mr. Lawson's work with employers is designed to educate them about particular areas of the law governing the employment relationship, with a focus on minimizing exposure to employment-related claims and providing cost-effective litigation strategies should litigation arise.
1 Case No. 3:11-CV00195-FM; U.S. District Court for the Western District of Texas.
2 29 CFR § 1630.2(r)(1)-(4).
]]>Unemployment in the U.S. has reached historically high levels and the Tennessee unemployment rate continues to be higher than the national average.1 That's bad news not only for those looking for work, but also for Tennessee employers who bear increasing costs related to frequent unemployment claims.
In this environment, Tennessee employers who fail to take the proper steps in their hiring, disciplinary and firing processes face an increased risk of paying unemployment claims to former employees who would not otherwise be entitled to benefits. Following a few simple steps can help employers avoid paying unnecessary amounts in unemployment benefits.
1. Recognize the two most common things that disqualify an employee from benefits under Tennessee law.
A. Employees who voluntarily resign without good cause connected to their work are disqualified.
B. Employees who are terminated for intentional work-related misconduct are disqualified.
2. Implement workplace policies that are clear and easy to understand, distribute them to all employees, and keep careful records showing employee awareness of all workplace policies.
When challenging a claim for unemployment by an employee terminated for workplace misconduct, an employer must be able to prove three main things*:
(1) The employer adopted a workplace rule prohibiting the conduct in question;
(2) The terminated employee was aware of the rule; and
(3) The employee violated the workplace rule.
Step 1 requires employers to think carefully about their workplace and the proper rules that should be implemented to create and maintain a safe, efficient, and productive working environment. Rules regarding attendance, conduct, and safety, just to name a few, must be crafted in a clear and easy to understand manner.
Step 2 requires an employer to keep records showing that employees were made aware of all workplace rules. Such records can include a signed form acknowledging receipt of an Employee Handbook containing workplace policies, signed "acknowledgment forms" showing receipt of policies that are particularly important or tend to come into play more frequently than others (attendance policies, for example), or "training attendance sheets" signed by employees who attend training sessions held by the employer in which particular policies are discussed in detail. The more exposure to workplace rules the employer can prove its employees have had the better.
Step 3 requires an employer to demonstrate a violation of the rule in question. An admission by an employee that he or she violated a rule, or the identification of witnesses to the violation, and other evidence may be used to prove the violation.
[*It has been the author's experience that, in addition to the above three things, it is important for the employer to advise the employee at the time of termination exactly what violation(s) led to the discharge decision. (As one example only, the State-required "Separation Notice" should clearly state the precise rule violated leading to discharge.) This prevents the employee from arguing before the unemployment office that he or she "had no idea" why the termination decision was made, something Department of Labor officials may rely on as evidence that the employer did not terminate for the suggested offense.]
3. Document all disciplinary decisions, including warnings, suspensions, and terminations.
When defending a claim for unemployment benefits, employers need to have kept careful documentation of all disciplinary decisions. This will make it far easier to convince the Department of Labor that an employee was terminated for the reason claimed by the employer. When appropriate, all disciplinary documents should specifically cite the workplace rule that was violated by the employee receiving the discipline. A record of prior discipline for the same rule violation that led to discharge can be particularly helpful when defending a claim.
BOTTOM LINE
Unemployment claims appear likely to remain high for the foreseeable future. Employers should therefore adopt a thoughtful strategy for defending claims by those employees who are arguably ineligible for benefits. Following the steps outlined herein will help.
Should you need assistance in assessing a particular workers' eligibility for benefits (the two disqualifying situations discussed herein are not the only things that can affect eligibility), help defending a claim before the Department of Labor, or if you simply wish to discuss the best approach to defending a claim, please contact the Author or any member of our Labor and Employment Group.
About the author: Mr. Lawson received his B.S. from the University of Tennessee at Chattanooga, magna cum laude, in 1994, and his J.D. from Vanderbilt University in 1997 where he was elected to the Order of the Coif. He is a member of GKH's Labor and Employment group and specializes in all phases of the employer-employee relationship, including wage and hour, FMLA, ADA, unemployment compensation, and discrimination/harassment law. He provides regular employer counseling on issues ranging from workplace policy development and labor law compliance to non-competition and confidentiality issues. He also defends employment claims filed with administrative bodies such as the EEOC and the Tennessee Human Rights Commission, as well as claims filed in state and federal court. Mr. Lawson's work with employers is designed to educate them about particular areas of the law governing the employment relationship, with a focus on minimizing exposure to employment-related claims and providing cost-effective litigation strategies should litigation arise.
Summary: This year, in Staub v. Proctor Hospital,1 the United States Supreme Court made clear that an employer may be liable for discrimination even if the ultimate decisionmaker with respect to a particular employment decision did not possess discriminatory motivation, so long as the decisionmaker relied, in part, on the recommendation of another management official who was motivated by discrimination. This is the so-called "cat's paw" theory of liability in which an employee seeks to hold an employer liable, not for the discrimination of the individual ultimately responsible for the challenged job action, but for the discrimination of an earlier agent of the employer that influenced the decision of the ultimate decisionmaker.2 In reaching its decision, the Court rejected the Seventh Circuit's "singular influence" rule that only permits liability in "cat's paw" cases upon a showing that the discriminating supervisor exercised such singular influence on the decisionmaker that the ultimate decision was essentially made in "blind reliance" on the discriminating supervisor's recommendation. Instead, the Court held that the discriminatory animus of a biased supervisor will suffice to hold the employer liable, even in the absence of bias on the part of the decisionmaker, unless the employer investigates the misconduct alleged by the discriminating supervisor and concludes that adverse action is justified "for reasons unrelated to the supervisor's original biased action."3
Discussion: The Staub plaintiff was a member of the United States Army Reserve, which required him to attend drill one weekend per month and to train full time for two to three weeks a year. Staub offered evidence that his direct supervisor, and her direct supervisor, were hostile to his military obligations and falsely claimed that he violated company policy, prompting his employer's VP of Human Resources to terminate him. Staub claimed his termination violated the Uniformed Services Employment and Reemployment Rights Act ("USERRA"), an act prohibiting employers from taking adverse action against "[a] person who is a member of . . . or has an obligation to perform service in a uniformed service . . ." if such "membership is a "motivating factor in the employer's action." 38 U. S. C. §4311(a), (c).
The Court analogized USERRA's prohibition on discrimination4 to that contained in Title VII,5 but noted that
"[t]he central difficulty in this case is construing the phrase 'motivating factor in the employer's action.' When the company official who makes the decision to take an adverse employment action is personally acting out of hostility to the employee's membership in or obligation to a uniformed service, a motivating factor obviously exists. The problem we confront arises when that official has no discriminatory animus but is influenced by previous company action that is the product of a like animus in someone else."6
The employer in Staub claimed it could not be liable because the person making the ultimate decision to terminate, the VP of H.R., possessed no discriminatory animus against Staub, and there had been no showing of "singular influence" over the decisionmaker by Staub's biased supervisors, as required by the Seventh Circuit. Moreover, the employer pointed to the fact that, before terminating Staub, the VP of H.R. had conducted what it called an "independent investigation" of Staub and decided termination was appropriate.
After rejecting the Seventh Circuit's "singular influence" approach to cat's paw cases, the Court also declined to adopt a rule urged by the Staub employer that would insulate an employer when a non-biased decisionmaker undertook some investigation into the recommendations of an employee's biased supervisors and decided adverse action was appropriate.7 Instead, the Court offered the following guidance regarding employer liability in cat's paw cases: If an employer investigates the recommendations of a biased supervisor regarding an employee and concludes, for reasons unrelated to the supervisor's original biased action, that adverse action is proper, then the employer will not be liable; however, if an employer relies, in part, on a supervisor's biased report regarding an employee "without determining that the adverse action was, apart from the supervisor's recommendation, entirely justified,"8 employer liability may be found.9
Lessons for Employers: Because the High Court has made clear that employers may be found liable for discrimination--even if the ultimate decisionmaker regarding a particular employment decision is completely unbiased--employers must be establish mechanisms for evaluating the legitimacy of adverse employment decisions before they are implemented. Such evaluation must take into account all of the circumstances leading up to the decision, including recommendations by non-decisionmakers, with a careful eye toward the potential bias of all individuals involved in the decision-making process, not just the employee who makes the final call regarding the particular employment action. A good way to ensure legitimacy, and consistency, in employment-related actions, is to have one person (or, at most, a small number of people) review all adverse employment actions before they are taken. This person (or group of people) should be well-versed in company policies and prior disciplinary actions, and trained in evaluating all of the relevant facts, including the potential bias of everyone involved in the disciplinary process.
If you have any questions about the issues discussed herein or any other employment-related matter, please contact the author or any member of our Labor and Employment Group.
About the author: Mr. Lawson received his B.S. from the University of Tennessee at Chattanooga, magna cum laude, in 1994, and his J.D. from Vanderbilt University in 1997 where he was elected to the Order of the Coif. He is a member of GKH's Labor and Employment group and specializes in all phases of the employer-employee relationship, including wage and hour, FMLA, ADA, unemployment compensation, and discrimination/harassment law. He provides regular employer counseling on issues ranging from workplace policy development and labor law compliance to non-competition and confidentiality issues. He also defends employment claims filed with administrative bodies such as the EEOC and the Tennessee Human Rights Commission, as well as claims filed in state and federal court. Mr. Lawson's work with employers is designed to educate them about particular areas of the law governing the employment relationship, with a focus on minimizing exposure to employment-related claims and providing cost-effective litigation strategies should litigation arise.
1 562 U. S. __ (2011), 2011 WL 691244.
2 As noted by the Supreme Court in Staub, the term "cat's paw" derives from an Aesop fable, put into verse by La Fontaine in 1679, and made a part of the fabric of employment discrimination law by Judge Posner in 1990. See Shager v. Upjohn Co., 913 F. 2d 398, 405 (7th Cir). In Aesop's fable, a monkey induces a cat by flattery to extract roasting chestnuts from a fire. Once the cat has done so, burning its paws in the process, the monkey absconds with the chestnuts, leaving the cat with nothing. 2011 WL 691244, n.1.
3 Staub, 2011 WL 691244 at * 6.
4 Under USERRA, discrimination occurs "if the person's membership . . . is a motivating factor in the employer's action, unless the employer can prove that the action would have been taken in the absence of such membership." 38 U.S.C. §4311(c).
5 Title VII prohibits employment discrimination "because of . . . race, color, religion, sex, or national origin" when one of those factors "was a motivating factor for any employment practice, even though other factors also motivated the practice." 42 U. S. C. §§2000e-2(a), (m).
6 2011 WL 691244 at * 4.
7 2011 WL 691244 at * 6.
8 2011 WL 691244 at * 6.
9 In the case before it, the Court noted the decisionmaker had merely reviewed Staub's personnel file, but did not independently evaluate the validity of the charges made against Staub by his biased supervisors, charges later proved to be false.
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