Circuit Court Rejects FMLA Interference Claim Against Secondary Employer

November 30, 2013 | Appeals | Insurance Coverage

Keppel Amfels L.L.C., which builds and repairs offshore drilling platforms and marine vessels at the Port of Brownsville, Texas, relies on lease-labor and temporary staffing agencies, including Perma-Temp Personnel Services, Inc., to staff about half of its local work assignments. Although these agencies fill “temporary” positions, some placements last for several years.

Keppel Amfels and Perma-Temp started working together in about 1996. According to the plaintiff in this case, the entities developed a course-of-dealing over the years: “When an opening at Keppel Amfels arose, Perma-Temp would select three to four candidates from its pool of available workers and send their resumes to Keppel Amfels. Keppel Amfels would use those resumes to decide which candidates it would interview and which candidate would fill the opening.” The plaintiff asserted that Perma-Temp never offered to send a worker to fill a new or replacement position unless and until it received a request from Keppel Amfels.

When a material information clerk assignment opened in June 2007, Perma-Temp recommended, and Keppel Amfels hired, the plaintiff. She became pregnant during her employment and notified both Perma-Temp and Keppel Amfels that she would require medical leave following the birth of her child.

The plaintiff was admitted into the hospital for pre-term labor and gave birth a few days later. She alleged that, on the same day that she informed Keppel Amfels that she had been admitted to the hospital for pre-term labor, her supervisor requested a replacement employee. The plaintiff further alleged that, three days into her maternity leave, Keppel Amfels informed Perma-Temp that it had terminated her assignment.

When the plaintiff wanted to return to work, she alleged that she was told that Keppel Amfels was “doing fine without her” and that the company would call her if another spot opened in her department. She then alleged that she called Perma-Temp, which encouraged her to seek unemployment benefits, which she did.

The plaintiff sued Keppel Amfels, asserting that Keppel Amfels had interfered with her Family Medical Leave Act (FMLA) rights by “convincing” Perma-Temp not to seek her reinstatement. The trial court granted Keppel Amfels’ motion for summary judgment, and the plaintiff appealed.

The U.S. Court of Appeals for the Fifth Circuit affirmed. In its decision, it explained that where two businesses exercise some control over the work or working conditions of an employee, the businesses may be joint employers under the FMLA. Under the regulations, the circuit court continued, a joint employer’s obligations under the FMLA depend on whether it is the “primary” or “secondary” employer.  Where an employee obtains employment through a temporary placement agency, the placement agency most commonly would be the primary employer, the Fifth Circuit said. It then ruled that Perma-Temp was the plaintiff’s primary employer, and Keppel Amfels was her secondary employer.

The circuit court said that only the primary employer is responsible for providing FMLA leave, and that, in addition, job restoration is the primary responsibility of the primary employer. A secondary employer, the circuit court said, is responsible for accepting an employee returning from FMLA leave if it continues to utilize an employee from the temporary placement agency, and if the agency chooses to place the employee with the secondary employer. In addition to its conditional job-restoration duty, a secondary employer also may not interfere with, restrain, or deny the exercise of or the attempt to exercise any rights provided under the FMLA. Federal regulations provide that it is an unlawful practice if a secondary employer interferes with or attempts to restrain efforts by the primary employer to restore an employee who was returning from FMLA leave to his or her previous position of employment with the secondary employer where the primary employer still is furnishing the same services to the secondary employer.

In other words, the circuit court said, although a primary employer bears the main responsibility for job restoration that does not enable secondary employers to avoid responsibility for reinstating temporary employees after FMLA leave.

The circuit court noted that the plaintiff alleged that Keppel Amfels, her secondary employer, had discouraged Perma-Temp from seeking her reinstatement after her maternity leave. To succeed on that claim, the circuit court said, the plaintiff had to show that Keppel Amfels had interfered with, restrained, or denied her exercise or attempt to exercise FMLA rights, and that the violation had prejudiced her. 

The circuit court found, however, that the plaintiff had not met her burden. According to the circuit court, Keppel Amfels acted within its rights to replace the plaintiff temporarily, and had no obligation to reinstate her absent a request from Perma-Temp. “Interference” required “something more” to create liability against a secondary employer than what the plaintiff had alleged, the circuit court concluded. [Cuellar v. Keppel Amfels, L.L.C., 2013 U.S. App. Lexis 18735 (5th Cir. Sept. 9, 2013).]

Voluntary Dismissal of FLSA Claims Dooms Plaintiffs’ Appeal

Four named plaintiffs sued the University of Pittsburgh Medical Center and multiple related entities (collectively, “UPMC”) in the U.S. District Court for the Western District of Pennsylvania on behalf of themselves and “similarly situated” individuals, alleging that their employer, UPMC, had violated the Fair Labor Standards Act (FLSA) by failing to ensure that they were paid for time worked during meal breaks.

Upon filing their complaint, the court granted the named plaintiffs’ motion for “expedited conditional certification,” notice was directed to potential collective-action members, and 3,115 individuals opted into the lawsuit.

After preliminary discovery, UPMC filed a motion to decertify the collective action and the named plaintiffs moved for final certification. In what is known as an “interlocutory” or “interim” order, the district court granted UPMC’s motion, denied the named plaintiffs’ motion, and dismissed the claims of the opt-in plaintiffs without prejudice. The named plaintiffs then moved for “voluntary dismissal of their claims with prejudice in order to secure a final judgment for purposes of appeal.” The district court granted the unopposed motion.

Thereafter, the named plaintiffs appealed to the U.S. Court of Appeals for the Third Circuit on behalf of others who had opted into the lawsuit, but the appellate court dismissed their appeal. It found that the named plaintiffs were inappropriately seeking to have the district court’s decision reviewed on appeal.

The circuit court explained that the named plaintiffs could have obtained appellate review of the decertification order by proceeding to final judgment on the merits of their individual claims, or that the plaintiffs could have asked the district court to certify its “interim” order for immediate appeal to the circuit court. The named plaintiffs, however, instead sought to convert the order into a final appealable order by having the district court dismiss their claims. According to the Third Circuit, if it were to allow such a procedural “sleight-of-hand,” there would be “nothing to prevent litigants from employing such a tactic to obtain review of discovery orders, evidentiary rulings, or any of the myriad decisions a district court makes before it reaches the merits of an action.”

Therefore, the Third Circuit concluded, the plaintiffs could not appeal the order dismissing their claims and it had to dismiss their appeal for lack of appellate jurisdiction.  [Camesi v. University of Pittsburgh Medical Center, 2013 U.S. App. Lexis 18345 (3d Cir. Sept. 4, 2013).]

Lawsuit Brought 17 Years after Employer Terminated Its Pension Plan Was Filed Too Late, Circuit Court Affirms

The plaintiff in this case began working for Jefco Laboratories in 1966, and participated in its pension plan. She worked for Jefco until 1974 and, by then, had accumulated a fully vested retirement account balance of $5,976.09. In 1988, the plaintiff received a statement indicating that her account balance was $12,602.86.  Jefco terminated the plan in 1991. In 2008, the plaintiff contacted Jefco to discuss her retirement account and learned that the pension plan had been dissolved and that all funds had been disbursed.  In June 2009, the plaintiff sued Jefco and the pension plan for breach of fiduciary duty under ERISA alleging that her rights had been violated when the plan was terminated without distributing benefits to her.

The district court granted summary judgment against the plaintiff, finding that all of her claims were time barred. The plaintiff appealed.

The U.S. Court of Appeals for the Seventh Circuit affirmed. It explained that ERISA barred an action for breach of fiduciary duty that was filed after the earlier of (1) six years after (A) the date of the last action that constituted a part of the breach or violation, or (B) in the case of an omission, the latest date on which the fiduciary could have cured the breach or violation, or (2) three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation; however, in the case of fraud or concealment, an action for breach of fiduciary duty may be commenced not later than six years after the date of discovery of such breach or violation.

The Seventh Circuit explained that the last act or omission in this case occurred in 1991, when the pension plan was terminated, and that six years after that was 1997. It also noted that the plaintiff learned that she would not be receiving a payout under her plan in September 2008, and that three years after that was September 2011. Therefore, the Seventh Circuit found, using the earlier of those two dates (September 2011 and 1997) as provided by ERISA, the limitations period had expired in 1997.

The Seventh Circuit then found that the plaintiff had not met her burden to show that Jefco had engaged in fraud or concealment so that the limitations period should be extended, and it concluded that the plaintiff’s claims against Jefco and the other defendants were time barred. [Laskin v. Siegel, 2013 U.S. App. Lexis 18187 (7th Cir. Aug. 29, 2013).]

Circuit Court Clarifies Standard for Awarding Attorney’s Fees to “Prevailing Party” in ERISA Case

In this case, the plaintiff was provided insurance under an employee benefits plan as an employee of Village Fuel. The plan provided family coverage, which applied to the plaintiff’s wife. After she incurred substantial medical expenses, Group Health Insurance, Inc. (GHI) initiated an investigation into whether the plaintiff was an eligible employee under the plan and determined that he was not. As a result, GHI purported to retroactively rescind the entire insurance policy issued to Village Fuel and denied reimbursement for medical expenses claimed by the plaintiff’s wife.

The plaintiff sued GHI and Village Fuel. In response, GHI asserted three counterclaims seeking rescission and/or reformation of the plan so as to exclude the plaintiff and his dependents from coverage in addition to restitution of previously conferred benefits. GHI also cross-claimed against Village Fuel for rescission or reformation of its policy to exclude the plaintiff from the plan as well as for restitution for previously conferred benefits. Village Fuel cross-claimed against GHI for restitution in the event that Village Fuel was required to pay any damages to the plaintiff. 

The district court dismissed both GHI’s and Village Fuel’s claims for restitution, noted concern with some of GHI’s remaining claims to the extent that they sought money damages, and noted, with respect to GHI’s rescission claim, that courts rarely permit equitable rescission where the court cannot easily restore the pre-agreement status quo.

GHI and the plaintiff reached a settlement and voluntarily dismissed with prejudice their remaining claims against each other, and the plaintiff dismissed his outstanding claims against Village Fuel. GHI also dismissed its remaining claims against Village Fuel, and the district court entered an order dismissing the action with prejudice.

Subsequently, Village Fuel moved for attorney’s fees against GHI, contending that it was entitled to fees as a “prevailing party.” The trial court found that Village Fuel was statutorily ineligible for an award of attorney’s fees and denied its application. Village Fuel appealed.

The U.S. Court of Appeals for the Second Circuit found that the trial court had not relied on the correct legal standard in evaluating Village Fuel’s eligibility for attorney’s fees, vacated the trial court’s decision, and remanded the case to the trial court. In its decision, it ruled that Village Fuel not only had obtained some degree of success on the merits in defeating GHI’s restitution claim, but that it could also show that GHI’s dismissal of its claims against it potentially amounted to success on the merits for the purposes of ERISA’s fee-shifting provisions.  Accordingly, the appellate court ruled that the district court had erred in finding that Village Fuel was ineligible for a fee award.

The circuit court thus decided that, under ERISA, a favorable court judgment was not required to satisfy the threshold for awarding attorney’s fees and that the trial court had erred by refusing to consider GHI’s voluntary dismissal of its two remaining claims against Village Fuel. [Scarangella v. Group Health, Inc., 2013 U.S. App. Lexis 18761 (2d Cir. Sept. 10, 2013).]

Employer with Only One Employee Was Not Subject to Fair Labor Standards Act, Court Rules

Before he resigned, Myung Seob Lee worked as the superintendent of a four-story residential building with 39 apartment units, including a basement apartment, in New York City. After Lee resigned, the owner of the complex hired Pyung Il Suh to be superintendent, who subsequently was fired.

Lee and Suh sued the owner of the complex and her husband, contending that they were entitled to unpaid overtime and minimum wage payments under the “enterprise coverage” provisions of the Fair Labor Standards Act (FLSA). After a trial, the defendants moved for a judgment in their favor.

The court granted the defendants’ motion, explaining that an employer is subject to the overtime and minimum wage provisions under the FLSA’s “enterprise coverage” rules if the employer is an “enterprise engaged in commerce.” An enterprise is “engaged in commerce or in the production of goods for commerce” if it “has employees engaged in commerce or in the production of goods for commerce,” or if it “has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person,” and its “annual gross volume of sales made or business done is not less than $500,000 (exclusive of excise taxes at the retail level that are separately stated).”   The relevant federal regulations provide that to be an enterprise under the FLSA, the business must have had at least two or more employees regularly and recurrently engaged in its activities.

Focusing on the “employees” requirement, the court found that the plaintiffs had failed to establish that the defendants “regularly and recurrently” had more than one employee engaged in interstate commerce. For one thing, the court noted that Suh had testified that he was the defendants’ only employee. The court also rejected the plaintiffs’ attempt to recast the husband of the owner of the complex as an employee. It acknowledged that the plaintiffs had established that he had participated in their hiring, had supervised their work, and had identified himself as the complex’s managing agent in two documents, but ruled that, based on this proof, the plaintiffs, at best, had established that he was an “employer” under the FLSA. 

Therefore, the court concluded, the defendants had only one employee during the plaintiffs’ consecutive terms as superintendent of the complex, and it entered judgment in favor of the defendants on the plaintiffs’ FLSA claim because the plaintiffs had failed to prove that the defendants were an enterprise engaged in interstate commerce. [Lee v. Kim, 2013 U.S. Dist. Lexis 121952 (E.D.N.Y. Aug. 27, 2013).]

Circuit Court Rejects Claim that Clerical Error Led to Wrong Pension Plan Option Being Chosen

The plaintiff in this case retired from the Goodyear Tire & Rubber Company and began receiving a disability pension under the company’s pension plan. Around the time that he retired, the plaintiff and his then-wife met with an employee in Goodyear’s human resources department so he could select how he wanted to receive his pension. He reviewed the different options and told the HR employee the option he wanted, and she checked the corresponding box on the election form. On the plaintiff’s form, the box for “Option A”—which provided a reduced monthly payment after the first five years but continued benefits to his wife if he predeceased her—was checked. In addition, the name and birthday of his then-wife were written directly underneath the description of “Option A” and the signatures of both the plaintiff and his then-wife appeared on the second page of the form, as did the HR employee’s signature as a witness.

Sometime during the first five years of his retirement, while he still was receiving the full monthly payment, the plaintiff and his wife divorced. When he received notice that his monthly payment was going to be reduced pursuant to his election of “Option A,” the plaintiff wrote a letter to Goodyear asserting that he had elected “No Option”—which provided full monthly payments to him for life and no benefits to a surviving spouse—and that “Option A” was checked only because of a clerical error on the part of a Goodyear employee. With that letter, he included a letter from his ex-wife that said the same thing.

Goodyear’s manager of pension and insurance operations responded in a letter informing the plaintiff that his “claim for a change to [his] pension option election . . . has not been approved” and notifying him that he could submit his claim for further consideration to the Benefits Review Committee. The plaintiff did that, but his claim was denied.

The plaintiff, through his attorney, wrote a letter to Goodyear asking “that the decision of ‘no option’ be implemented immediately and no more money be withheld from his retirement and he be fully repaid all money that has been withheld after 60 months with interest.” Attached to the letter were two affidavits: one from the plaintiff and one from his ex-wife. Both said that the plaintiff had chosen “No Option,” not “Option A.”

The ERISA Appeals Committee denied the appeal, finding that the plaintiff had “validly elected with the signed consent of . . . his wife at the time of retirement . . . Option A” and that his claim that he had selected “No Option” was not credible.

The plaintiff sued Goodyear seeking to overturn the ERISA Appeals Committee’s decision. The district court ruled in favor of Goodyear, and the plaintiff appealed.

The U.S. Court of Appeals for the Eleventh Circuit affirmed, concluding that the ERISA Appeals Committee had correctly denied the plaintiff’s appeal because his assertion that he had chosen “No Option” was “not credible.”

In the circuit court’s opinion, the plaintiff’s allegation that a Goodyear employee made a clerical error by checking the wrong box was “implausible.” It noted that the plaintiff’s election form “clearly indicate[d] an intent to select ‘Option A,'” finding that there was “little or no chance of confusion between ‘Option A’ and ‘No Option.'”

Moreover, the circuit court continued, the checkbox for “Option A” was located near the top of the first page, while the checkbox for “No Option” was near the bottom of the second. It also observed that “Option A” asked for the spouse’s name and birthdate, and that information was provided on the plaintiff’s form, while the “No Option” asked for the name of a beneficiary and that beneficiary’s relationship to the employee, and neither of those lines was completed on the plaintiff’s form.

The Eleventh Circuit found that the evidence demonstrated that the HR employee actually had filled out the form, but added that it also showed that she had filled it out the way she did with the knowledge and consent of the plaintiff and his then-wife. First, the circuit court said, there was no contention that the name or birthdate of the plaintiff’s ex-wife were incorrect, which suggested that either he or his ex-wife provided that information to the HR employee when she was filling out the election form. Second, it continued, although the plaintiff claimed before the ERISA Appeals Committee that the signatures on the election form did not belong to him or his ex-wife, that allegation was contradicted by his ex-wife’s affidavit, in which she admitted that she had signed the form. The appellate court also said that the fact that the form was signed by a witness also tended to corroborate the authenticity of the signatures of the plaintiff and his ex-wife.

Accordingly, it agreed with the ERISA Appeals Committee’s finding that the plaintiff’s factual allegations were not credible and it affirmed the district court’s judgment upholding it. [Huffstutler v. Goodyear Tire & Rubber Company, 2013 U.S. App. Lexis 17946 (11th Cir. Aug. 28, 2013).]

Reprinted with permission from the December 2013 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.

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