Director of Insurer’s Retirement Plans Business Unit Found Exempt from FLSA Overtime Rules

February 28, 2014 | Appeals | Employment & Labor | Insurance Coverage

The plaintiff in this case was hired by Standard Insurance as Director of Institutional Sales and Product Manager for The Standard’s 403(b) and 457 retirement products shortly after the company introduced a new product into those markets. The plaintiff’s responsibilities included training staff about 403(b) plans, explaining their differences from 401(k) plans, doing what was needed to make The Standard’s products competitive, and suggesting product enhancements. His main duty was to promote the sales of special markets retirement plans.

After about two years, the plaintiff’s title changed to Special Markets Director for the company’s retirement plans business unit. The plaintiff identified his major duties as working with the sales team to develop and implement successful sales strategies and partnering with the sales team to provide guidance to clients about special markets plans. Additionally, the plaintiff made recommendations to his supervisor about products that would be suitable for sale in the 403(b) marketplace and recommended certain business opportunities to The Standard. The plaintiff earned a base salary of $102,000, and could earn incentive-based compensation based on the total number of 403(b) and 457 plans sold by The Standard’s salespeople during the year. He worked from home and met with his supervisor only about once a year.

The plaintiff claimed that he was entitled to overtime compensation for the hours he worked in excess of 40 hours per week under the Fair Labor Standards Act (FLSA). The Standard, however, contended that the plaintiff qualified as a bona fide administrative employee who was exempt from the overtime requirements of the FLSA. After a federal district court granted summary judgment in favor of The Standard, the plaintiff appealed to the U.S. Court of Appeals for the Seventh Circuit.

The circuit court affirmed. In its decision, it explained that employees were entitled to overtime pay under the FLSA for any hours worked over 40 hours per week, unless they fell within a certain exemption set forth by the FLSA. One exemption was for employees who were employed in a bona fide “executive, administrative, or professional capacity.” 

The Seventh Circuit added that, under federal regulations, an employee employed in a bona fide administrative capacity meant any employee:

  1. compensated on a salary or fee basis at a rate of not less than $455 per week exclusive of board, lodging, or other facilities;
  2. whose primary duty was the performance of office or nonmanual work directly related to the management or general business operations of the employer or the employer’s customers; and
  3. whose primary duty included the exercise of discretion and independent judgment with respect to matters of significance.

The plaintiff in this case made more than $455 per week, the circuit court observed. It then examined whether the plaintiff’s work directly related to the management or general business operations of The Standard. The circuit court noted that the plaintiff’s primary duty was to work with salespeople to promote the sales of The Standard’s financial products, and that he “fielded calls from salespeople, recommended marketing materials and plans for certain customers, and educated The Standard’s salespeople on the different types of plans.” The plaintiff did not directly engage in the sales of any 403(b) or 457 plans, but assisted salespeople with those sales. The appellate court then ruled that because the plaintiff was involved in advising salespeople and promoting the sales of 403(b) and 457 plans generally, his duties and responsibilities satisfied the “directly related” prong of the administrative exemption.

The Seventh Circuit then considered whether the plaintiff’s work involved discretion and independent judgment with respect to significant matters, and concluded that it did. In the circuit court’s opinion, the plaintiff’s duties – promoting sales, advising sales staff, and fielding questions – required the exercise of discretion and independent judgment. The plaintiff “scripted talking points for consultants to further the sales of 403(b) and 457 plans” and he “used his knowledge and experience to develop presentation materials and to answer questions from pension consultants.” Moreover, the Seventh Circuit continued, when presenting or speaking at conferences, the plaintiff used materials he himself had prepared, which later were approved by The Standard’s legal and marketing departments. Although the circuit court said that the plaintiff lacked final decision-making authority, his work involved “a great deal of discretion and independent judgment.” Therefore, the appellate court ruled, the plaintiff’s work for The Standard satisfied the requirements of the administrative employee exemption, so he was not entitled to overtime compensation under the FLSA. [Blanchar v. Standard Ins. Co., 736 F.3d 753 (7th Cir. 2013).]

Finding that Retired NFL Player’s Second Marriage Was Void, Circuit Court Upholds Award of Retirement Benefits to First Wife

After Thomas Sullivan concluded his career as a professional football player with the Philadelphia Eagles and the Cleveland Browns, he married the plaintiff in this case. The parties later separated, but the marriage never ended in divorce.

In 1986, in South Carolina, Sullivan purported to marry another woman, with whom he lived as husband and wife until his death in October 2002. Following Sullivan’s death, this woman filed for benefits under the National Football League’s retirement plan, which provides benefits to a player’s surviving spouse, defined according to “applicable state law.” The plan began to pay this woman benefits.

The plaintiff subsequently contacted the plan to request benefits and ultimately sued the plan. The federal district court found that Sullivan’s South Carolina marriage was void under South Carolina law and that the plaintiff was entitled to the benefits. The dispute reached the U.S. Court of Appeals for the Third Circuit.

The circuit court affirmed. It agreed with the district court that the South Carolina marriage was void, finding no exception to South Carolina’s prohibition on bigamy applicable to that marriage. 

The circuit court certified to the South Carolina Supreme Court the question whether South Carolina would adopt the “putative spouse” doctrine.  The South Carolina Supreme Court answered the question by concluding: “we decline to adopt the putative spouse doctrine in South Carolina.” Therefore, the circuit court upheld the district court’s decision to reject the “putative spouse” doctrine even though it recognized that Sullivan and this woman had lived as husband and wife for the last 16 years of his life. [Hill v. Bert Bell/Pete Rozelle NFL Player Retirement Plan, 2013 U.S. App. Lexis 23788 (3d Cir. Nov. 26, 2013).]

Circuit Court Rejects Plaintiff’s Constructive Discharge Claim

The plaintiff in this case, who said that she suffered from bipolar disorder and narcolepsy, worked as a sales lead at a store owned by Ann Taylor Retail. She alleged that, after she had been working at the store for about one month, her manager called her into her office and proceeded to dress her down for 45 minutes in a one-on-one meeting. During that meeting, the plaintiff’s manager allegedly made several discriminatory remarks about the plaintiff based on her bipolar disorder and gave her the option between accepting a demotion or continuing in her current position with a 95 percent chance that she eventually would be fired. Five days after this meeting, the plaintiff quit.

The plaintiff later sued Ann Taylor, asserting a claim of disability discrimination under the Americans with Disabilities Act (ADA) and a claim of handicap discrimination under the Florida Civil Rights Act of 1992 (FCRA). After discovery, Ann Taylor moved for summary judgment on all claims, and the district court granted its motion. The plaintiff appealed to the U.S. Court of Appeals for the Eleventh Circuit.

The Eleventh Circuit affirmed. In its decision, the circuit court explained that a plaintiff asserting a disability discrimination claim under the ADA and the FCRA must establish that he or she had a disability; was qualified for the job, with or without reasonable accommodations; and suffered an adverse employment action because of the disability. Ann Taylor did not dispute that the plaintiff had a disability or was qualified for her position. Therefore, the sole issue before the Eleventh Circuit was whether the plaintiff had suffered an adverse employment action because of her disability.

The circuit court rejected the plaintiff’s argument that she had been constructively discharged from her position with Ann Taylor. It noted that a constructive discharge qualified as an adverse employment action, but that to establish a constructive discharge, a plaintiff must show that “working conditions were so intolerable that a reasonable person in her position would have been compelled to resign.”

The Eleventh Circuit decided that the plaintiff had not submitted evidence of pervasive conduct that would be sufficient to establish a constructive discharge. The plaintiff pointed to a “single incident” in which her manager allegedly criticized her work performance and disability during a 45 minute one-on-one meeting. The circuit court stated that, although it did not condone the statements the manager allegedly had made, this single incident was “insufficient to establish the pervasive conduct necessary to show a constructive discharge.” A reasonable person in the plaintiff’s situation would not have felt compelled to resign under such circumstances, the circuit court ruled. Accordingly, it concluded, the district court had not erred in granting summary judgment to Ann Taylor on the plaintiff’s ADA and FCRA claims. [Menzie v. Ann Taylor Retain Inc., 2013 U.S. App. Lexis 24605 (11th Cir. Dec. 11, 2013).]

US Supreme Court Upholds ERISA Plan’s Contractual Limitations Period that Began to Run Before Plaintiff Could Bring Suit

In 2005, the plaintiff in this case began to report chronic pain and fatigue that interfered with her duties as a senior public relations manager for Wal-Mart Stores, Inc. Her physician later diagnosed her with lupus and fibromyalgia, and she stopped working on June 8, 2005.

On August 22, 2005, the plaintiff filed a claim for long term disability benefits with Hartford Life & Accident Insurance Co., the administrator of Wal-Mart’s group long term disability plan. Her claim form, supported by a statement from her rheumatologist, listed her symptoms as “extreme fatigue, significant pain, and difficulty in concentration.”

In November 2005, Hartford notified the plaintiff that it could not determine whether she was disabled because her rheumatologist had never responded to Hartford’s request for additional information. Hartford denied the claim the following month for failure to provide satisfactory proof of loss. Hartford instructed the plaintiff that it would consider an appeal filed within 180 days, but later informed her that it would reopen her claim, without the need for an appeal, if her rheumatologist provided the requested information.

In July 2006, another physician evaluated the plaintiff and concluded that she was disabled. She submitted that evaluation and additional medical evidence in October 2006. Hartford then retained a physician to review the plaintiff’s records and speak with her rheumatologist. That physician issued a report in November 2006 concluding that the plaintiff was able to perform the activities required by her sedentary occupation. Hartford denied the plaintiff’s claim later that November.

In May 2007, the plaintiff requested an extension of the plan’s appeal deadline until September 30, 2007, to provide additional evidence. Hartford granted the extension. On September 26, 2007, the plaintiff submitted her appeal along with additional cardiopulmonary and neuropsychological evaluations. After two additional physicians retained by Hartford reviewed the claim, Hartford issued its final denial on November 26, 2007. Because the plaintiff’s cause of action did not accrue until the plan issued a final denial, the plaintiff could not file her lawsuit until November 27, 2007.

On November 18, 2010, almost three years later (but more than three years after proof of loss was due), the plaintiff filed suit in a federal district court seeking review of her denied claim pursuant to ERISA § 502(a)(1)(B). Hartford and Wal-Mart moved to dismiss on the ground that the plaintiff’s complaint was barred by the plan’s proof of loss provision, which stated:

“Written proof of loss must be sent to The Hartford within 90 days after the start of the period for which The Hartford owes payment,”

and by the plan’s limitation provision, which stated:

“Legal action cannot be taken against The Hartford . . . [more than] 3 years after the time written proof of loss is required to be furnished according to the terms of the policy.”

The district court granted the motion to dismiss. Recognizing that ERISA does not provide a statute of limitations for actions under §502(a)(1)(B), the district court explained that the limitations period provided by the most nearly analogous state statute applied. Under applicable Connecticut law, the plan was permitted to specify a limitations period expiring “[not] less than one year from the time when the loss insured against occurs.”  The district court then held that a three-year limitations period set to begin when proof of loss was due was enforceable, and the plaintiff’s claim therefore was untimely because she did not file suit until November 18, 2010 and proof of loss was due, at the latest, by September 30, 2007. 

The U.S. Court of Appeals for the Second Circuit affirmed, reasoning that it did not offend ERISA for the limitations period to commence before the plaintiff could file suit under Section 502(a)(1)(B). Because the policy language unambiguously provided that the three-year limitations period ran from the time that proof of loss was due under the plan, and because the plaintiff had filed her claim more than three years after that date, her action was time barred, the circuit court ruled.

The U.S. Supreme Court granted certiorari to resolve a split among the courts of appeals on the enforceability of this type of contractual limitations provision. In addition to the Second Circuit, the U.S. Court of Appeals for the Sixth Circuit has upheld the enforceability of such a contractual limitations provision, while the Fourth and Ninth Circuits have found it to be unenforceable.

The Supreme Court affirmed the Second Circuit, and ruled that the provision was enforceable. “Absent a controlling statute to the contrary, a participant and a plan may agree by contract to a particular limitations period,” the Court ruled, even one that started to run before the cause of action accrued, as long as the period was reasonable.

It then decided that the plan’s three-year limitations period was not unreasonably short, and it found that ERISA was not a “controlling statute to the contrary.” 

Near the conclusion of its opinion, the Court stated that if an administrator’s conduct caused a participant to miss the deadline for judicial review, “waiver or estoppel may prevent the administrator from invoking the limitations provision as a defense.” The Court also declared that, to the extent a participant had “diligently pursued both internal review and judicial review but was prevented from filing suit by extraordinary circumstances, equitable tolling may apply.” Finally, the Court said, in addition to those remedies, plans that voluntarily offer appeals or dispute resolution beyond what is required in federal regulations must agree to toll the limitations provision during that specific portion of internal review. [Heimeshoff v. Hartford Life & Accident Ins. Co., 134 S. Ct. 604 (2013).]

Court Upholds Application of “Successive Insurer Rule” in Dispute Between Insurers Over Coverage of Workers’ Compensation Claim

An employee suffered a back injury in November 2002 that resulted in a prolonged absence from work and a claim for compensation. His employer’s workers’ compensation insurer at that time, Liberty Mutual Insurance Company, paid the claim. The employee returned to work for the same employer. On or about May 27, 2008, the employee injured his back at work once again. He stopped working on June 5, 2008. Travelers Insurance Company was the insurer on the risk at the time of the 2008 injury.

The employer notified Liberty Mutual of the May 27, 2008 injury, but did not notify Travelers at that time. Treating the claim as a recurrence of the 2002 injury, Liberty Mutual resumed payment of benefits retroactive to June 6, 2008, and continued to pay benefits through the filing and resolution of the employee’s claim for an increased average weekly compensation rate.

On October 17, 2008, the employee filed another claim for the same injury against Liberty Mutual, seeking surgical benefits, as well as an initial claim against Travelers for medical and weekly payments.

An administrative judge ordered Liberty Mutual to continue paying benefits, and denied the claim as to Travelers. Liberty Mutual appealed, and the administrative judge set the matter for a de novo hearing among all three parties.

After the hearing, the administrative judge found that the 2008 injury was a new injury, not a recurrence of the 2002 injury, and that the employee therefore was entitled to compensation. Liberty Mutual maintained that the successive insurer rule rendered Travelers responsible, as Travelers was on the risk in 2008, but the administrative judge determined that Liberty Mutual had “accepted liability for the case as a recurrence … attributable to the November 2002 injury” because of its history of payment.

The board of review of the Massachusetts Department of Industrial Accidents, reversed, concluding as a matter of law that the Massachusetts “successive insurer” rule governed. The board ordered Travelers to assume payments going forward and to reimburse Liberty Mutual.

The dispute reached a Massachusetts court, which upheld the board’s decision.

The court explained that the issue was whether the successive insurer rule governed, rendering Travelers responsible for the payment of benefits. The court said that the successive insurer rule provided that the insurer covering the risk at the time of the most recent injury that had a causal relation to the disability claimed must pay the entire compensation so long as the most recent injury contributed to the incapacity to the “slightest extent.”

An insurer, the court continued, took an employee in the condition in which it found him or her, and became bound to compensate the employee for incapacity resulting from any compensable personal injury received during the period covered by the policy. By placing the responsibility for compensation on the policy of the carrier at the time of a new injury, the successive insurer rule streamlined and expedited the provision of benefits to the injured employee and avoided the complexity of assessing causation among multiple injuries and apportioning liability across multiple carriers, the court explained.

The court rejected Travelers’ argument that the successive insurer rule did not apply because Liberty Mutual had accepted the claim by voluntarily paying the employee from June 2008 until December 2008, and because Liberty Mutual and the employee had agreed that Liberty Mutual was responsible by virtue of its payment of the claim before conference.

The court ruled that the fact that Liberty Mutual initially had evaluated the claim as a recurrence claim and had paid benefits did “not alter the liability of Travelers for the claim,” once the employee’s injury was adjudicated a new injury. “Liberty Mutual’s assumption of payment did not purport to constitute a waiver of its right to contest coverage with respect to another insurer,” the court said.

The court also decided that an employee and an insurer could not agree to vary the terms of the workers’ compensation law, finding no authority for the proposition that the statutory scheme could be altered by the conduct of the parties in the absence of factors (that it said were not present here) such as laches, estoppel, fraud, unclean hands, or some other claim or defense grounded in prejudice. [Gary Bolduc’s Case, 2013 Mass. App. Lexis 176 (Mass.Ct.App. Dec. 4, 2013).]

Reprinted with permission from the March 2014 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.

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