Employee Fired While Incarcerated Not Entitled To Unemployment Benefits

April 30, 2012 | Appeals | Employment & Labor | Insurance Coverage

Crystal Mandall started working as a dental assistant for a New Jersey dental center in November 2007. On April 20, 2010, she was arrested on criminal charges. She kept in touch with the dental center through a relative, promising to return to work as soon as she was released. She remained incarcerated until May 1.

On the day of her release, Mandall sent a text message to the dental center stating that she would return to work on the next business day. She was informed, however, that she had been replaced because of the length of her absence. Although the dentist for whom she had worked at the dental center sought to assist her in finding other employment, those efforts were not successful.

Mandall applied for unemployment benefits and received unemployment payments for two weeks. She then was notified that she was not eligible for benefits because she had left work voluntarily without good cause attributable to the work. Mandall appealed that determination, but the decision was affirmed. She appealed to the New Jersey Department of Labor, Board of Review, which affirmed. Mandall then went to court to appeal the Board’s decision.

The court observed that New Jersey law provides that an individual who left work “voluntarily without good cause attributable to such work” was disqualified from receiving unemployment benefits. The court pointed out that while Mandall’s incarceration was “not voluntary,” her inability to report to work was not related to her employment. Consequently, the court upheld the Board’s application of the statute to preclude Mandall’s application for benefits.

It also should be noted that the court pointed out that the law provides that a person who has received benefits when not entitled to do so is obliged to repay them, even if they were received in good faith. Thus, the court concluded that, in light of Mandall’s disqualification for benefits, she was statutorily required to reimburse the $844 in unemployment benefits that had been paid to her in error. [Mandall v. Board of Review, Department of Labor, No. A-3462-10T4 (N.J. App. Div. Feb. 10, 2012).]

Court Dismisses Action Filed Eleven Years After Denial Notice Was Mailed

In June 1997, the plaintiff in this case suffered a back injury while working for Lockheed Martin Corporation which forced him to stop working on January 31, 1998. The plaintiff submitted an application for a disability pension under Lockheed’s retirement plan on January 30, 1998.

On or about February 12, 1998, Lockheed mailed a notice of denial to the plaintiff’s address. The notice set a deadline for administrative appeal “within 60 days after the receipt of the notice of denial.”

The plaintiff never prosecuted an administrative appeal of the denial of his benefits, asserting that he had never received the notice of denial. Moreover, beginning in September 1999, the plaintiff was incarcerated for contempt during the divorce proceeding between the plaintiff and his wife. The plaintiff was released in August 2002.

More than seven years later, on November 24, 2009, the plaintiff sued Lockheed for disability benefits. Lockheed moved for summary judgment, which was granted by the district court, finding that the plaintiff had failed to file his lawsuit within the statute of limitations period, and the plaintiff appealed.

In affirming the district court decision, the U.S. Court of Appeals for the Fifth Circuit observed that the parties agreed that Lockheed had mailed the notice of denial to the plaintiff’s address. The circuit court also acknowledged that there was no indication that the denial notice was received at that address, or that it ever came into the plaintiff’s personal possession.

The circuit court then explained that Lockheed’s administration of the retirement plan was governed by ERISA and that because ERISA provided no specific limitations period for claims to enforce plan rights, it had to apply an analogous statute of limitations under applicable Mississippi law. The Fifth Circuit stated that the applicable statute of limitations was three years, with a “discovery rule” that could toll the statute of limitations until the plaintiff should have reasonably known of his cause of action. Plaintiffs, however, must exercise “reasonable diligence” in determining whether an injury suffered was actionable to benefit from the discovery rule, the appellate court added.

The Fifth Circuit then declared that a cause of action for wrongful denial of benefits owed under an ERISA plan accrued when a request for benefits was denied. In this case, that happened in February 1998. In the Fifth Circuit’s opinion, the “most generous possible application” of the discovery rule to the circumstances of this case would toll the start of the three year limitations period until August 2002, when the plaintiff was released from incarceration. Given that the plaintiff did not allege, much less supply evidence, that he made any effort to discover what became of his application for disability benefits during the seven years between his release and the filing of his suit in November 2009, the circuit court decided that the district court’s decision dismissing the plaintiff’s lawsuit should be affirmed. [Serton v. Lockheed Martin Corp., 2012 U.S. App. Lexis 2204 (5th Cir. Feb. 3, 2012).]

FLSA Claim Need Not Be Arbitrated Under Handbook’s “Illusory” Arbitration Provision

In January 2005, when the plaintiff in this case was working as a sales representative for 24 Hour Fitness, USA, Inc., the company issued an employee handbook that contained a section, entitled “Arbitration of Disputes,” that provided that all employment-related disputes, whether initiated by an employee or by 24 Hour Fitness, would be “resolved only by an arbitrator through final and binding arbitration.” It specified that disputes under the Fair Labor Standards Act (FLSA) were among those subject to the mandatory arbitration policy and provided that disputes could not be brought as class actions or in representative capacities. The policy also expressly invoked the Federal Arbitration Act (FAA) as its governing authority.

The plaintiff signed the Employee Handbook Receipt Acknowledgment (the Acknowledgment), indicating that he had received the handbook. The Acknowledgment reiterated the arbitration policy: “I agree that if there is a dispute arising out of my employment as described in the ‘Arbitration of Disputes’ policy, I will submit it exclusively to binding and final arbitration according to its terms.” The Acknowledgment also stated that the terms of the handbook were subject to change (the Change-in-Terms Clause):

I acknowledge that, except for the at-will employment, 24 Hour Fitness has the right to revise, delete, and add to the employee handbook. Any such revisions to the handbook will be communicated through official written notices approved by the President and CEO of 24 Hour Fitness or their specified designee. No oral statements can change the provisions of the employee handbook.

After the plaintiff’s employment ended, he filed a class action against 24 Hour Fitness, alleging that it had violated the FLSA by failing to adequately compensate him and other similarly-situated employees for overtime work. 24 Hour Fitness asked the district court to stay its proceedings and to compel arbitration of the plaintiff’s claim. In his response to that motion, the plaintiff argued that the arbitration agreement was illusory under Texas law because 24 Hour Fitness retained the right to unilaterally amend the agreement, and that therefore it should not be enforced.

The district court agreed with the plaintiff, holding that the arbitration agreement was illusory under Texas law and denying 24 Hour Fitness’ motion to stay and compel arbitration. 24 Hour Fitness appealed.

The plaintiff argued on appeal that the arbitration clause in the handbook was illusory because the Change-in-Terms Clause would allow 24 Hour Fitness to unilaterally avoid its promise to arbitrate by modifying the handbook. The Acknowledgment gave 24 Hour Fitness the “right to revise, delete, and add to the employee handbook” in which the arbitration provision was located. However, the circuit court found, there was no “savings clause” in the Acknowledgment that limited 24 Hour Fitness’ ability to make retroactive modifications to the arbitration provision. Thus, the circuit court declared, if a 24 Hour Fitness employee sought to invoke arbitration with the company pursuant to the agreement, nothing would prevent 24 Hour Fitness from changing the agreement and making those changes applicable to that pending dispute if it determined that arbitration was no longer in its interest. In effect, the circuit court decided, the agreement allowed 24 Hour Fitness “to hold its employees to the promise to arbitrate while reserving its own escape hatch.”

The circuit court rejected the 24 Hour Fitness argument that its Acknowledgment should not be read to allow retroactive changes in its arbitration policy when it did not expressly provide for retroactivity, explaining that it interpreted silence about the possible retroactive application of amendments to an arbitration policy as allowing amendments to apply retroactively.

In addition, the circuit court rejected the 24 Hour Fitness argument that an arbitration agreement was not illusory so long as the party reserving the right to change its terms had to provide notice of any changes, as in this case; it reasoned that that notice was “insufficient” when retroactive amendment was possible. The “fundamental concern,” the circuit court stated, was the “unfairness” of a situation where two parties entered into an agreement that ostensibly bound them both, but where one party could “escape its obligations under the agreement by modifying it.” Requiring notice alone did not fully address this concern, the circuit court found.

The circuit court then concluded that the arbitration agreement contained in the 24 Hour Fitness employee handbook was illusory, that the plaintiff was not bound by the provision, and that 24 Hour Fitness could not compel arbitration to go forward.  Accordingly, it affirmed the district court’s decision. [Carey v. 24 Hour Fitness, USA, Inc., 2012 U.S. App. Lexis 1339 (5th Cir. Jan. 25, 2012).]

Circuit Rules That $1,864.20 Attorney’s Fee Award Is Too Small In FLSA Case

The plaintiff in this case was a pizza maker at GDF, Inc.’s Domino’s Pizza franchise in Oak Park, Illinois. In May 2005, the plaintiff filed a class action complaint in Illinois state court seeking overtime wages for himself and similarly-situated employees under the Illinois Minimum Wage Law and the Fair Labor Standards Act. In July 2005, the plaintiff stopped working at Domino’s; he alleged that he was fired in retaliation for his overtime lawsuit, but GDF argued that he quit voluntarily or was terminated for violating Domino’s sexual harassment policy. In April 2006, GDF deposed the plaintiff and learned that he had been reemployed as of August 2005 by two cab companies and a bakery and, that he had criminal convictions that he had not disclosed when he had applied to work at Domino’s.

The state court denied class certification in the plaintiff’s state court lawsuit in July 2006. One year later, in July 2007, the plaintiff filed a lawsuit in federal court, alleging that he was fired in retaliation for his overtime claim in violation of the FLSA. As trial in the state suit approached, GDF offered to settle “everything” – the state and federal suits – for $25,000, but the plaintiff rejected the offer. The state suit was resolved by a consent judgment a month later and GDF paid the plaintiff $4,328.77 in overtime wages plus interest and attorney’s fees.

There was a three day trial in the plaintiff’s federal suit, and a jury returned a verdict in his favor, awarding him $1,000 in back pay and $4,000 in punitive damages.

As the prevailing party, the plaintiff was entitled to “a reasonable attorney’s fee” to be paid by GDF, and the costs of the action. The plaintiff’s attorney moved for $112,566.87 in fees and expenses, billing 182.66 hours at $600 per hour for himself and 8.33 hours at $275 per hour for his associates. In response, GDF argued that at most, plaintiff’s counsel should be compensated for 47.08 hours at no more than $375 per hour.

The fee dispute was referred to a magistrate judge, who concluded that a settlement should have been reached within a few hours, and that the only reason the case lasted as long as it did was because plaintiff’s counsel consistently overrepresented his client’s damages.  The magistrate judgment therefore recommended an award of only $1,864.20. The district court adopted the magistrate judge’s report and recommendation in full, and the case reached the U.S. Court of Appeals for the Seventh Circuit.

The circuit examined the number of hours expended by the plaintiff’s counsel and the district court’s conclusion that all but four of the 190 billed hours were unnecessary. The circuit court pointed out that GDF had “conceded nothing,” had denied that the plaintiff had been fired, and, even after losing at trial, had continued its fight with a post-verdict motion for judgment as a matter of law and an appeal. The circuit court conceded that GDF had offered to “settle everything” for $25,000 just before the state court trial was scheduled to begin, but noted that GDF had not made an offer of judgment and instead of a settlement in the federal case, there was a three-day trial and an appeal.

The circuit court found that GDF knew (approximately) what it was up against in terms of its potential liability for back pay and elected to proceed to trial, without making an offer of judgment or any concession of liability. “GDF tested its luck and lost,” the circuit court stated. Thus, the circuit court ruled, it had to pay for the attorney hours reasonably required to see the case through trial, for the appeal, and for the collection of fees. It therefore remanded the case to the district court to reexamine that issue. [Johnson v. GDF, Inc., 2012 U.S. App. Lexis 2810 (7th Cir. Feb. 13, 2012).]

Circuit Court Upholds Ex-Employee’s FMLA Interference Claim

In this case, the plaintiff worked for American Standard, Inc., in Tiffin, Ohio, as a molder from July 16, 1969, until he was discharged on June 17, 2005 – a period of approximately 36 years. Because of a non-work-related shoulder injury that required surgery, the plaintiff requested leave under the Family and Medical Leave Act (FMLA) from April 27, 2005, until June 27, 2005. American Standard officially granted the request for this time period in writing.

The plaintiff had surgery on his shoulder on April 27, and his shoulder healed more quickly than anticipated. After a follow-up appointment, his surgeon wrote a note that cleared the plaintiff for light duty work beginning on May 31 and set June 13 as the probable date on which he could return for unrestricted work. When the plaintiff attempted to resume light work on May 31, American Standard sent him home, on the ground that the company did not permit employees with non-work-related injuries to perform light duty work temporarily after FMLA leave.

On June 14, the company contacted the plaintiff by phone because he failed to come to work on June 13. The plaintiff responded that he was experiencing increased pain in his shoulder and would return to work on June 27, the end date of his approved leave. Although the plaintiff promised to get a doctor’s note extending his time table for recovery, he was unable to secure a timely appointment with his surgeon. He scheduled an appointment with his primary care physician for the morning of June 17 and left a message with the company notifying it of his progress. After the appointment, the plaintiff went directly to work with a doctor’s note requesting an extension of his leave until July 18. By the time he reached work, however, American Standard already had terminated his employment. Notwithstanding its written approval of the plaintiff’s leave request to June 27, American Standard had counted every day from June 13 to 17 as an unexcused absence and, as a result, the plaintiff had exceeded the absences allowed by the company.

The plaintiff brought suit, claiming that American Standard had interfered with his FMLA rights. The district court found in favor of the plaintiff on his FMLA interference claim, and the dispute reached the U.S. Court of Appeals for the Sixth Circuit.

The circuit court explained that the FMLA stipulates that, “an eligible employee shall be entitled to a total of 12 work weeks of leave during any 12-month period . . . because of a serious health condition that makes the employee unable to perform the functions of the position of such employee.” The “rolling” method and the “calendar” method are among the methods that employers are permitted to choose for determining the “12-month period” in which the 12 weeks of leave entitlement occurs, the circuit court continued. It explained that the “rolling” method calculates an employee’s leave year backward from the date an employee uses any FMLA leave. Using this method, the plaintiff’s leave would have expired on June 13.

By contrast, under the “calendar” method, which renders an employee eligible for 12 weeks of FMLA leave each calendar year, the circuit court found that the plaintiff’s allowed leave would have extended theoretically through July 14 – which was after American Standard terminated the plaintiff for unexcused absences on June 17.

The Sixth Circuit pointed out that at no time throughout the FMLA process did American Standard mention to the plaintiff that his leave time would be governed by a “rolling” 12 month period. Indeed, the only written document he received from the company stated that his leave would expire on June 27. The circuit court then stated that the plaintiff only was notified that American Standard had accelerated his return-to-work date on June 14, after it had already elapsed the day before. Moreover, the circuit court found that the first time that the plaintiff was given actual notice that American Standard was using a “rolling” method requiring him to return to work on an earlier date was after he filed his lawsuit in this case when defense lawyers raised the rolling method as a defense.

American Standard claimed that it had always used the “rolling” method for calculating FMLA leave and the plaintiff should have known this fact. The circuit court, however, decided that employers should inform their employees in writing of which method they use to calculate the FMLA leave year. This was consistent with “the principles of fairness and general clarity,” the circuit court stated, and, it found, American Standard’s notice to the plaintiff fell “decidedly short.”

The circuit court acknowledged that American Standard had internally amended its FMLA leave policy in March 2005 to indicate that it would calculate employee leave according to the “rolling” method, but it added that American Standard had not given the plaintiff actual notice of this changed policy or in any way told him that his official leave date would expire earlier than June 27, the date the company had approved. Consequently, the Sixth Circuit ruled, the plaintiff was entitled to rely on the calendar method and the date of June 27 that the company had given in writing.

Accordingly, the Sixth Circuit affirmed the judgment of the district court on the interference claim. [Thom v. American Standard, Inc., 666 F.3d 968 (6th Cir. 2012).]

Comment:  The circuit court also ruled that the plaintiff was entitled to liquidated damages, which doubled the plaintiff’s actual damages, because of “the company’s obdurate refusal to correct an obvious mistake that constituted a wrongful discharge of this 36-year employee….”

Reprinted with permission from the May 2012 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.

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