Employee Benefit Plan Review – From the Courts – January 2016

Plaintiff’s Failure to Show Employer Knew She Was Working Overtime Without Pay Dooms Her FLSA Claim

The plaintiff in this case was employed as a personal trainer and group fitness instructor at Equinox South Beach, a health and fitness club in Miami Beach, Florida. The plaintiff claimed that Equinox had violated the federal Fair Labor Standards Act of 1938 (the FLSA) because its timekeeping procedures did not accurately track all of the time she worked. Specifically, she contended that she had not been compensated for off-the-clock time she spent trying to generate personal training clients.

The U.S. District Court for the Southern District of Florida granted summary judgment to Equinox, concluding that the plaintiff had not shown that Equinox had failed to pay her for her compensable time and that she was not entitled to be paid for the off-the-clock time she chose to spend at the club.

The plaintiff appealed to the U.S. Court of Appeals for the Eleventh Circuit, which affirmed.

In its decision, the circuit court explained that an employee bringing a claim of unpaid overtime work under the FLSA must establish that he or she worked unpaid overtime and that the employer knew or should have known about the unpaid overtime.

Here, the circuit court observed, the plaintiff was “on the clock” and paid when she was giving personal training sessions, conducting group classes, or working a scheduled floor shift.

The circuit court pointed out that the plaintiff had testified that most days she arrived at the club when it opened and remained there between 11 and 18 hours each day, even when she was not “on the clock” during those hours, because she was trying to generate a base of personal training clients among the club’s members.

The Eleventh Circuit said that, even assuming that the plaintiff had presented sufficient evidence that her off-the-clock activity at the club was “work” within the meaning of the FLSA for which she had not been paid, she had not presented sufficient evidence that Equinox had known or should have known that whenever the plaintiff was at the club, she was working overtime without pay.

The circuit court observed that personal trainers were expected to use their scheduled floor shifts to market their skills to clients, as well as perform other work such as handing out towels, picking up equipment, mingling with club members, and assisting them with their exercises. To that end, it continued, new trainers typically were scheduled floor shifts several days per week. Trainers also were assigned to conduct complimentary 60-minute Equifit sessions for new club members.

The circuit court then noted that, for personal training sessions, trainers “set their own schedules with their clients” and supervisors “were not necessarily aware of when a trainer had scheduled a session.” In addition, the circuit court added, trainers – including the plaintiff – were given free gym memberships and encouraged to exercise at Equinox when they were not working, and Equinox’s trainers spent a lot of time working out.

The Eleventh Circuit pointed out that the plaintiff had not testified that she had been instructed to work “off the clock.” Rather, it continued, the plaintiff said that she believed she was expected to be at the club all day because a supervisor once told her that two top trainers at Equinox had “lived at the club when they first started.” The supervisor had admitted making this comment while trying to encourage the plaintiff, but added that he had explained that he was referring to the trainers’ “passion for fitness” and meant that “they spen[t] a lot of time working out.”

The circuit court also noted that the plaintiff had not testified that her supervisors had known that she was working “off the clock.” Instead, it explained, the plaintiff said that “any manager” who was at the club would have seen her there and that she “would hope” that her supervisors had known, given “how hard [she] was trying, and how much time” she was putting in. In other words, the Eleventh Circuit said, the plaintiff’s argument was that her managers “should have inferred that she was working off the clock because she was present at the club for such long periods of time.”

The circuit court found, however, that the plaintiff’s own testimony suggested that it would not have been readily apparent to Equinox’s supervisors that she continued to market herself to clients outside her scheduled floor shifts and Equifit sessions because:

• She taught two group classes each week in addition to her personal training sessions, Equifit sessions, and scheduled floor shifts;
• She had friends who worked in Equinox’s front desk, shop, and juice bar, and her supervisors often saw her socializing with them, rather than on the floor;
• She came and went from the club during the day to work other jobs (including teaching a one-hour boxing class at another gym and waiting tables), run on the beach, or walk her dog; and
• Although floor shifts were scheduled, they could be rearranged to accommodate trainers’ other work schedules, and she liked to pick up as many of the other trainers’ floor shifts as she could so she could get paid while she was at the club.

The Eleventh Circuit ruled that, given that personal trainers such as the plaintiff lacked fixed schedules outside of floor shifts and frequently were present for purposes other than floor shifts, the plaintiff had not shown that her “lengthy presence” at the club would have been conspicuous or would have suggested to her supervisors that she was trying to generate clients off the clock. Without more, it concluded, a reasonable jury could not find that Equinox knew or should have known that the plaintiff had been working off the clock, and it upheld summary judgment in favor of Equinox. [Alvino v. Equinox Holdings, Inc., 2015 U.S. App. Lexis 17811 (11th Cir. Oct. 14, 2015).]

Court Dismisses ESOP Committee’s Suit Against Fund’s Auditor

The Administrative Committee of the American Excelsior Company Employee Stock Ownership Trust (the AEC ESOP) sued KPMG LLP, one of the largest audit, tax, and advisory firms in the United States. The plaintiff alleged that on June 19, 2014, stock held in the AEC ESOP was sold for over $13 million and that plans were made for AEC ESOP participants to be able to transfer their accounts to their 401(k) savings plans or to withdraw some or all of their account balances. For that plan to work, the plaintiff asserted, all AEC ESOP trust funds needed to be put into cash. Nevertheless, according to the plaintiff, on September 17, 2014, GreatBanc Trust Company, which was the trustee of the AEC ESOP with discretionary authority to direct the investment of AEC ESOP’s trust fund, invested all of the cash proceeds of the AEC ESOP trust fund in the Salem Trust Short-Term Investment Fund (the Salem STIF), which was offered through Pennant Management, Inc. and Salem Trust Company.

The plaintiff contended that on September 30, 2014, GreatBanc was advised to liquidate the investment so that the planned transfer could take place. According to the plaintiff, however, fraud was discovered in the Salem STIF, rendering approximately 20 percent of it illiquid, and the invested funds were frozen.

The plaintiff alleged that KPMG had performed its work as auditor of the Salem STIF in a manner inconsistent with generally accepted auditing standards and generally accepted accounting principles. It sued KPMG for professional malpractice and negligent misrepresentation.

KPMG moved to dismiss, and the court granted its motion.

In its decision, the court explained that there must be “privity,” or a connection, between the plaintiff and the accounting firm for the plaintiff to be able to assert a malpractice claim against the firm. Here, the court ruled, there was no privity between the plaintiff and KPMG and the plaintiff had not alleged that KPMG knew or should have known that the plaintiff was or would be relying on its audit.

To the contrary, the court continued, such a claim “would not be plausible” inasmuch as the plaintiff admitted that it already had entered into an agreement with Salem dated August 1, 2012 to invest in the AEC ESOP long before KPMG’s retention on January 23, 2014. That same August 1, 2012 agreement provided that Salem would obtain an audit by “by an independent auditor responsible only to [Salem],” the court pointed out.

It then found that, with respect to the plaintiff’s negligent misrepresentation claim against KPMG, the plaintiff had not pleaded any facts as to its alleged reliance on KPMG’s audit – which was essential for it to succeed on a negligent misrepresentation claim. Rather, the court said, the only facts pleaded by the plaintiff showed that it had relied on GreatBanc to make the investment. The court noted that the plaintiff had admitted that the agreement regarding the Salem STIF investment had been entered into before KPMG had been retained and that, pursuant to the Salem STIF agreement, an annual financial statement would be provided to investors “[i]f required by applicable law.” Moreover, the court observed, the plaintiff had not alleged that it had received, much less had reviewed, the KPMG audit.

Finally, the court noted that an accountant or auditor may limit its liability by disclaimers or other provisions in its agreement for services. Here, it said, the audit agreement specifically provided that KPMG’s responsibility was to “those charged with governance” of the Salem STIF. The court added that the agreement did not call for the preparation of any additional reports to be issued for any other persons or purposes – and that the audit report was addressed to “The Participants and Salem Trust Company as Trustee of the Salem Trust Short Term Investment Fund” and not to potential participants or any other class into which the plaintiff might fall.

Simply put, the court found, the plaintiff had not pleaded any facts to show that it was a person “charged with governance” or that KPMG otherwise had known that the plaintiff would receive or rely on its report. [Administrative Committee of American Excelsior Co. Employee Stock Ownership Trust v. GreatBanc Trust Co., 2015 U.S. Dist. Lexis 133160 (N.D. Tex. Sep. 30, 2015).]

Employee’s Disability May Excuse Her Missing the Deadline for Filing for Disability Benefits, Sixth Circuit Rules

The plaintiff in this case worked for Ford Motor Company as a product design engineer from 1990 until her employment was terminated effective October 26, 2010 for her failure to notify Ford of the reason for her absence for five consecutive work days. She did not file a claim for long-term disability benefits under the Ford Motor Company Salaried Disability Plan (the Plan) until December 1, 2010. The plaintiff asserted that she suffered from type-1 diabetes, major depression, and gender identity disorder and that on October 25, 2010, her last day at Ford, she had suffered “a debilitating emotional breakdown.”

UniCare Life and Health Insurance Company, the claims processor for the Plan, denied the plaintiff’s claim for disability benefits on the ground that when she applied for disability benefits she was no longer employed as a regular salaried employee. UniCare sent the plaintiff a letter dated December 22, 2010 that stated:

UniCare has received information from Ford Motor Company indicating that effective October 25, 2010, you are no longer employed as a regular salaried employee. According to the Salary Plan dated January 1, 2010, persons who are not employed as a regular salaried employee are not covered under the plan, and are not eligible for disability benefits.

A Ford human resources employee explained that:

On November 18, 2010, I sent to Plaintiff by certified mail a letter informing her that her employment with Ford had been terminated effective as of October 26, 2010, because of her failure to report to work or to provide satisfactory medical or other documentation to justify her absence. Under Ford personnel practices and procedures, the termination was effective as of 12:01 a.m. on October 26. The United States Postal Service provided confirmation that Plaintiff signed for the letter on November 23, 2010.

The plaintiff sued UniCare, which moved for summary judgment. The district court granted UniCare’s motion, and the plaintiff appealed to the U.S. Court of Appeals for the Sixth Circuit.

The circuit court reversed.

In its decision, the circuit court reasoned that, at the onset of her disability on October 25, 2010, the plaintiff was a “Covered Employee” as defined by the Plan and, therefore, was entitled to benefits. The circuit court acknowledged that the plaintiff had not complied with the notification deadlines outlined in the Plan, but said that that failure was “not surprising given that she was suffering from severe mental illness and was unable to comply due to the very disability for which she sought coverage.”

The Sixth Circuit also said that Ford’s “retroactive termination” of the plaintiff, which deprived her of disability benefits, was inconsistent with the “spirit of employer-provided health care benefits generally and with this Plan specifically.” It observed that the Plan contained the following provision:

If the Participant leaves the Company for any reason, other than the Disability, or if the Participant is no longer a member of the eligible Employee class or is discharged or is released in the best interest of the Company, coverage will end on the date of termination, unless the Participant is Disabled on that date. . . .

(Emphasis added.) The circuit court said that although this section of the Plan governed the reduction or termination of on-going benefits and did not apply directly to the plaintiff’s situation, it indicated that the Plan contemplated awarding benefits to employees who became disabled as long as they were working for Ford at the time of onset, which had occurred here.

The Sixth Circuit concluded that, on remand, the plaintiff had to be given the opportunity to show that her alleged failure to comply with certain of the requirements found in the Plan was due to the very disability for which she sought benefits. [Waskiewicz v. UniCare Life and Health Ins. Co., 2015 U.S. App. LEXIS 17309 (6th Cir. Oct. 2, 2015).]

Employee Benefit Plan Could Not Recover from Its Insurers “Losses” that It Had Never Owned, Court Decides

In 1999, 3M Company began investing its employee-benefit plan assets in WG Trading Company LP. 3M’s investment was structured as a limited partnership in WG Trading. Stephen Walsh and Paul Greenwood were the founders and general managing partners of WG Trading as well as of two related entities: Westridge Capital Management, Inc., and WG Trading Investors, LP.

As 3M later discovered, Walsh and Greenwood were operating a huge Ponzi scheme and over many years they fraudulently diverted hundreds of millions of dollars from WG Trading and WG Investors for their personal use and to conceal their fraud. Ultimately, they pleaded guilty to federal criminal charges. The U.S. District Court for the Southern District of New York froze the defendants’ assets and placed them into receivership.

In the receivership, 3M was able to recover all of the capital contributions that it had invested in WG Trading (and that it had not previously withdrawn). 3M argued, however, that it had suffered a loss because at least some of its capital had been invested by WG Trading in legitimate investments and had produced legitimate earnings, but 3M never had been paid those legitimate earnings. 3M sued its insurance companies, seeking coverage for the loss of the returns that 3M said it had earned on certain of its investments but had lost through the fraud of its investment advisors.

The insurers argued that 3M was not entitled to coverage because, among other things, even if 3M had suffered a “direct loss” as a result of legitimate earnings on investments being stolen, 3M had not “owned” those earnings at the time that they were stolen, which was a condition of coverage under the insurance policies.

The insurers moved for summary judgment.

The court rejected 3M’s contention that it had “owned” the lost earnings. Instead, the court agreed with the insurers that what 3M had owned was a limited-partnership interest in WG Trading. The court noted that WG Trading’s partnership agreements were governed by Delaware law, which was “crystal clear” that a limited partner such as 3M had “no interest in specific limited partnership property.”

Thus, the court ruled, up until the point at which earnings were distributed to the partners, “the earnings of WG Trading were owned by WG Trading, and not by 3M or any of the other limited partners.”

The court concluded that, because any lost earnings were not “owned” by 3M within the meaning of the insurance policies, the insurers were not obligated to indemnify 3M. Accordingly, it granted summary judgment in favor of the insurers. [3M Co. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 2015 U.S. Dist. LEXIS 131197 (D. Minn. Sep. 28, 2015).]

Citing Company’s Emails, Seventh Circuit Rules that Former Employee’s USERRA and ADA Claims May Proceed

The plaintiff in this case – an Army Reservist and veteran suffering from post-traumatic stress disorder (PTSD) – worked for Volvo Group North America, LLC, as a material handler in a parts distribution center in Joliet, Illinois, from June 2005 until she was fired in November 2011.

After she was fired, she sued the company in federal district court for discrimination, retaliation, and failure to provide reasonable accommodations in violation of the Uniformed Services Employment and Reemployment Rights Act (the USERRA) and the Americans with Disabilities Act (the ADA).

During her employment, she deployed twice to Iraq and Kuwait: from April 2006 to May 2007 and from April 2009 to August 2010. Additionally, she took regular leave for weekend drills, training, and other military activities. In all, she received more than 900 days of military leave during her six-and-a-half years at Volvo. The company allowed her to modify her work schedule to take leave, and she was never directly disciplined for doing so.

The plaintiff, however, pointed to evidence, including numerous internal emails she obtained in discovery, suggesting that her supervisors were frustrated from the beginning about her schedule and absences. In the fall of 2005, the plaintiff traveled several times to Fort Benning, Georgia, where her unit was based, for military drills. In addition to the days of actual training, the plaintiff also took off time beforehand and afterward to drive to and from Georgia. That apparently frustrated her supervisor, who asked her why she needed the additional time. The supervisor later emailed the director of distribution to ask, “[A]re we required to give her the day before and day after for travel?” The distribution director forwarded the inquiry to the company’s director of labor relations, adding:

I find myself with a dilemma if I were to discipline a person for taking too much time off for military reserve duty…. I certainly give her credit for serving our country but of course I am also responsible for our business needs.

The plaintiff said that she was later told in a meeting that her military duties were becoming an undue hardship for Volvo and that she needed to transfer to a local unit. Corroborating this account, an email several weeks later from the company’s human resources manager to the director of distribution referred to “the undue hardship it [i.e., the plaintiff’s absences] is causing to our operation.”

The company’s director of labor relations subsequently responded to the director of distribution’s email, explaining:

First, we do not have to grant time off for [the plaintiff’s] travel time. Her legal obligation is 2 weeks per year, which we do give off, and 1 weekend per month. The drills she attended were most likely extra training, which we do not have to grant the time. We do not have to give extra time for her travel to and from her weekend duty. She does have the option to transfer to a closer unit, we cannot make her transfer.

Following that advice, the plaintiff said she was told that she was “not entitled to a travel day…. [A]ny day that she takes for travel … will fall under our attendance policy.”

As it turned out, the director of labor relations’ advice was wrong. After doing some research, the company’s human resources manager clarified that the law “now treats voluntary orders and involuntary orders [what the director of distribution had called ‘extra training’] the same.” The Employer Support for the Guard and Reserve, which got involved at the plaintiff’s request, explained that she was entitled to “travel time plus an eight hour rest period following her drill before having to report to work.”

The plaintiff deployed to Baghdad from April 2006 to May 2007. In April 2007, her supervisor complained to the director of labor relations that the plaintiff had contacted him only once since she had deployed. “For our planning/scheduling purposes,” he explained, “it would be beneficial for us to know her status.” He asked whether he could contact her unit, but the director of labor relations responded, “Unfortunately, there isn’t a lot we can do…. Per the law we have to wait for her. Sorry it isn’t what you wanted to hear.”

The plaintiff said that when she returned to work, her supervisor again suggested that she seriously consider transferring to a local unit, and the director of distribution called her into his office and made it “very clear” that her job depended on her doing so. Therefore, in March 2008, she changed her duty station (reluctantly, she said) to Darien, Illinois.

The plaintiff received orders to go on active-duty training with her new unit from April to October 2008. When she returned, the plaintiff said, her supervisor and the director of distribution expressed dissatisfaction with the fact that she had been away for so long. The next month, she was away again for training from November 3 to 10. She had the next day off for travel, but then did not show up for three more days of work.

In an internal email, the plaintiff’s supervisor discussed disciplining, suspending, or possibly firing her for her absences. But when the director of distribution called the plaintiff, he received a copy of new orders extending her training from November 12 to 26. Although he had “issues with her lack of communications,” as he explained in an email, “we likely have no recourse due to her military service.”

From mid-April 2009 to mid-August 2010, the plaintiff deployed overseas again in support of Operation Iraqi Freedom. Although the USERRA gave her 90 days post-deployment to notify Volvo of her plans, the director of distribution opined in an email that she “should have returned to work on August 15, 2010.” Volvo management decided to offer her a voluntary severance package and expressed hope that she would accept it. They presented it to her on the first day after she returned to work, September 28, 2010; she declined the package.

After returning from her second deployment, the plaintiff received treatment for symptoms of PTSD and was formally diagnosed in January 2011. She checked herself into the emergency room on December 23, 2010; the next day she emailed the director of distribution to tell him what was happening and that the doctor had ordered her not to work through December 30. In an internal email, the director of distribution considered disciplining her, but the plaintiff later provided a doctor’s note and discharge paperwork excusing the absences.

Around the same time, the plaintiff provided documentation about her rights to one of her supervisors. That supervisor then wrote to the director of distribution on December 2, 2010 that the plaintiff “is really becoming a pain with all this.” Later that month, after the plaintiff checked into the emergency room, that supervisor reported in an email to the director of distribution (possibly in jest) “several rumors for [the plaintiff’s] not being here,” including that “[s]he’s on vacation in Hawaii.”

The plaintiff took Family and Medical Leave Act and disability leave from December 23, 2010 through March 22, 2011. When she returned, she began therapy for her PTSD. Volvo allowed her to leave her shift early or arrive late once a week to attend therapy sessions from April through October 2011. The plaintiff also requested a number of other accommodations. Volvo granted many of them, including a quiet place to meditate before work and during breaks; a mentor; time off for counseling; and breaks and support during panic or anxiety attacks. Other requested accommodations – a more flexible schedule, use of earplugs or headphones in both ears, day-to-day guidance and feedback, putting all communications in writing, and disability awareness training – were under review.

From the fall of 2010 to the fall of 2011, the plaintiff was cited four times for being one minute late, once for being two minutes late, twice for being five minutes late, and once for being 10 minutes late. On August 31, 2011, she was issued a written warning for the period preceding August 19 and a suspension for the period up to August 20.

The next month, the plaintiff filed an internal complaint requesting an investigation of the director of distribution for disability-based harassment. Volvo assigned an investigator to the case, but the plaintiff refused to answer any of her questions. One of Volvo’s upper managers emailed the director to reassure him, “[P]lease do not be concerned about the investigation.” The plaintiff also filed a discrimination charge with the Equal Employment Opportunity Commission on September 13, 2011.

On October 10, 2011, the plaintiff punched in one minute after her shift started. After another incident on October 31, the director of distribution met with her to explain that her use of the meditation/relaxation room before work did not excuse her arriving late to her work station.

The plaintiff started work late again on November 2 and 4, so she was issued both a verbal and a written warning. Volvo audited her attendance record and discovered that she had incurred five occurrences within six months. Volvo then fired her.

After the plaintiff sued, Volvo contended that it had fired her for violations of its attendance policy. The plaintiff claimed that the real reason was discrimination on the basis of her military service and her disability.

The district court granted Volvo’s motion for summary judgment on all counts and the plaintiff appealed to the U.S. Court of Appeals for the Seventh Circuit.

The circuit court reversed.

With respect to the plaintiff’s USERRA discrimination claim, the circuit court explained that the issue was whether the plaintiff’s military service was a motivating factor in Volvo’s decision to fire her. The circuit court disagreed with the district court’s decision that the emails merely demonstrated that Volvo was simply trying to comply with the law. Relying on the “strength of the emails,” the Seventh Circuit found that a reasonable jury could infer that Volvo was motivated, at least in part, by anti-military animus toward the plaintiff. It noted that there was evidence that from the beginning of her employment, her supervisors disliked the burden her frequent military leave placed on the company and that they “repeatedly discussed disciplining her and denied her rights, such as travel time, to which she was entitled.”

The circuit court added that some of the emails came close to a direct admission of management’s frustration, including the email discussing the “dilemma” of “disciplin[ing] a person for taking too much time off for military reserve duty.”

The Seventh Circuit pointed out that, to support a discrimination claim, animus or frustration had to be linked, as a motivating factor, to an adverse employment action. It then found that a jury could “reasonably conclude that there was such a link here” in that a jury could infer from the evidence that the plaintiff’s firing actually was motivated by her supervisors’ longstanding frustration about her frequent absences.

The circuit court conceded that Volvo had granted the plaintiff a considerable amount of military leave during her tenure at the company and had not directly disciplined her for those particular absences. It said, however, that that did not negate an inference of discriminatory motive on summary judgment and that a jury could reasonably conclude that Volvo “was looking for a reason to discharge [the plaintiff] because of the large number of absences from work due to [her] reserve status.”

The Seventh Circuit reached the same result with respect to the plaintiff’s discrimination claim under the ADA. It found that the evidence was sufficient to convince a reasonable jury that the plaintiff was the victim of disability discrimination. The circuit court noted that:

• Internal emails indicated that Volvo management considered disciplining the plaintiff for her absences while she was in the hospital in December 2010, even though she had sent an email to the director of distribution to tell him about her condition;
• One of her supervisors joked about the plaintiff’s absence, writing that she heard rumors that the plaintiff actually was vacationing in Hawaii; and
• A few weeks earlier, an email had complained that the plaintiff was “really becoming a pain with all this.”

According to the circuit court, this was “enough for a jury to find discriminatory motive.”

Finally, the circuit court said that there was enough evidence to support a finding of “but for” causation, noting that management’s expressions of frustration about the plaintiff’s military absences went back to the beginning of her employment in 2005 but that it was not until she returned from her second deployment in the fall of 2010 that Volvo began implementing the series of disciplinary steps that led to her termination. The circuit court pointed out that that coincided with the onset and diagnosis of the plaintiff’s PTSD. This kind of “suspicious timing” could support an inference of discrimination, it concluded. [Arroyo v. Volvo Group North America, LLC, 2015 U.S. App. Lexis 17527 (7th Cir. Oct. 6, 2015).]

Reprinted with permission from the January 2016 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.