From the Courts

April 1, 2015 | Appeals | Employment & Labor | Insurance Coverage

U.S. Supreme Court Reverses Decision Finding that Collective Bargaining Agreements Created Right to Lifetime Contribution-Free Health Care Benefits

The plaintiffs in this case had worked at, and in 1996 and 1998 had retired from, the Point Pleasant Polyester Plant in Apple Grove, West Virginia. During their employment, the plaintiffs were represented in collective bargaining by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO-CLC, or its predecessor unions (the Union).

M&G Polymers USA, LLC, purchased the Apple Grove plant in 2000 and entered into a master collective bargaining agreement and a pension, insurance, and service award agreement (P & I agreement) with the Union, which generally was similar to agreements the Union had negotiated with M&G’s predecessor. The P & I agreement provided for retiree health care benefits as follows:

Employees who retire on or after January 1, 1996 and who are eligible for and receiving a monthly pension under the 1993 Pension Plan … whose full years of attained age and full years of attained continuous service … at the time of retirement equals 95 or more points will receive a full Company contribution towards the cost of [health care] benefits described in this Exhibit B-1…. Employees who have less than 95 points at the time of retirement will receive a reduced Company contribution. The Company contribution will be reduced by 2% for every point less than 95. Employees will be required to pay the balance of the health care contribution, as estimated by the Company annually in advance, for the [health care] benefits described in this Exhibit B-1. Failure to pay the required medical contribution will result in cancellation of coverage.

Exhibit B-1, which was referenced in the P & I agreement, opened with the following clause:

Effective January 1, 1998, and for the duration of this Agreement thereafter, the Employer will provide the following program of hospital benefits, hospital-medical benefits, surgical benefits and prescription drug benefits for eligible employees and their dependents….

(Emphasis deleted.).

The P & I agreement provided for renegotiation of its terms in three years. In accordance with this provision, M&G and the Union began bargaining anew in 2003, ultimately reaching a new agreement in 2005.

In December 2006, M&G announced that it would begin requiring retirees to contribute to the cost of their health care benefits. The plaintiffs, on behalf of themselves and others similarly situated, sued M&G, alleging that the decision to require these contributions breached both the collective bargaining agreement and the P & I agreement in violation of the federal Labor Management Relations Act (LMRA) and the Employee Retirement Income Security Act of 1974 (ERISA).  Specifically, the plaintiffs alleged that M&G had promised to provide lifetime contribution-free health care benefits for them, their surviving spouses, and their dependents. They pointed to the language in the 2000 P & I agreement providing that employees with a certain level of seniority “will receive a full Company contribution towards the cost of [health care] benefits described in … Exhibit B-1.” The plaintiffs alleged that, with this promise, M&G had created a vested right to such benefits that continued beyond the expiration of the 2000 P & I agreement.

The trial court ruled against the plaintiffs, finding that the language in the P & I agreement did not create a vested right to retiree benefits. The U.S. Court of Appeals for the Sixth Circuit reversed. In its decision, the Sixth Circuit decided that the retirees had stated a plausible claim. Based on its opinion in International Union, United Auto, Aerospace, & Agricultural Implement Workers of Am. v. Yard-Man, Inc., 716 F. 2d 1476 (6th Cir. 1983), the circuit court inferred that parties to collective bargaining would intend retiree benefits to vest for life because such benefits were “not mandatory” or required to be included in collective bargaining agreements, were “typically understood as a form of delayed compensation or reward for past services,” and were keyed to the acquisition of retirement status.

On remand, the district court conducted a bench trial. It ruled in favor of the plaintiffs and ordered M&G to reinstate contribution-free health care benefits for the plaintiffs and similarly situated retirees.

The Sixth Circuit affirmed, and the case reached the U.S. Supreme Court. The Supreme Court vacated the Sixth Circuit’s decision and remanded the case.

In its decision, the Supreme Court ruled that collective bargaining agreements, including those establishing ERISA plans, had to be interpreted according to ordinary principles of contract law, at least when those principles were not inconsistent with federal labor policy. Thus, the Supreme Court ruled, the Sixth Circuit had erred when it had applied Yard-Man because that decision violated “ordinary contract principles” by “placing a thumb on the scale in favor of vested retiree benefits” in all collective bargaining agreements. According to the Supreme Court, that rule had “no basis in ordinary principles of contract law” and it distorted the attempt “to ascertain the intention of the parties.” The Supreme Court stated that Yard-Man’s assessment of likely behavior in collective bargaining was “too speculative and too far removed from the context of any particular contract to be useful in discerning the parties’ intention.”

Moreover, the Supreme Court found, the circuit court had derived its assessment of likely behavior not from record evidence, but instead from its “own suppositions about the intentions of employees, unions, and employers negotiating retiree benefits.” The Supreme Court pointed out that the Sixth Circuit had asserted, “without any foundation,” that, when parties contracted for benefits that accrued upon achievement of retiree status, there was “an inference that the parties likely intended those benefits to continue as long as the beneficiary remain[ed] a retiree.” The Supreme Court added, however, that Yard-Man had relied on “no record evidence” indicating that employers and unions customarily vested retiree benefits.

The Supreme Court explained that, because the court of appeals had not grounded its Yard-Man inferences in any record evidence, it was “unsurprising” that the inferences rested on a shaky factual foundation. The Supreme Court noted that Yard-Man had relied in part on the premise that retiree health care benefits were not subjects of mandatory collective bargaining, but it added that parties “can and do voluntarily agree to make retiree benefits a subject of mandatory collective bargaining” – as had M&G and the Union in this case.

The Supreme Court concluded by rejecting the Yard-Man inferences as inconsistent with ordinary principles of contract law. It then vacated the judgment of the Sixth Circuit and remanded the case for that court to apply “ordinary principles” of contract law. [M&G Polymers USA, LLC v. Tackett, 2015 U.S. Lexis 759 (Jan. 26, 1015).]

Circuit Court Rejects District Court’s Decision Increasing FMLA Damages Awarded to Plaintiff by Jury, Finds Plaintiff Entitled to Attorneys’ Fees

The plaintiff in this case sued her former employer, Servisair, LLC, alleging that it had violated the Family and Medical Leave Act (FMLA). She asserted that, on May 9, 2011, she felt sick and went home from work; that she called her manager and left a message stating that she was ill and would not be returning that day; and that she stayed home the next two days, leaving a voicemail for her manager each day.

On May 12, the plaintiff’s supervisor called the plaintiff while she was waiting to see a doctor. The parties did not agree about the content of that conversation: the plaintiff asserted that she gave notice to her employer that she would be taking medical leave, while Servisair contended that the plaintiff provided no such notice.

The plaintiff’s doctor diagnosed her with an anxiety disorder and recommended that she take time off from work. On May 13, the plaintiff requested FMLA leave from the Reed Group, which was responsible for administering Servisair’s FMLA policy. The parties did not agree about whether the plaintiff’s supervisors were aware that she had requested FMLA leave. In any event, on that same day, the plaintiff stopped calling in daily to notify Servisair that she was sick and would be absent.

On May 18, the plaintiff’s supervisors terminated her for the stated reason that she had violated a company policy requiring employees to call in before missing work. The parties, however, disputed the policy and its applicability to employees waiting to be approved for FMLA leave. Servisair contended that the punishment for two consecutive no-call/no-show days was termination.

On June 6, the Reed Group notified the plaintiff that it had approved her for FMLA leave retroactive to May 10.

In her lawsuit against Servisair, the plaintiff claimed that Servisair had retaliated against her for exercising her rights under the FMLA and had interfered with her rights under the FMLA. A jury found Servisair not liable on the FMLA retaliation claim but found it liable for interfering with the plaintiff’s rights under the FMLA and awarded her one dollar in damages.

On a motion by the plaintiff, the district court increased the award to $37,004, the amount of wages the plaintiff claimed she had lost during her period of unemployment. Because the jury found that Servisair had acted in bad faith, the district court doubled the damages to $74,008 under the FMLA’s liquidated damages provision. The district court also awarded the plaintiff $91,728.75 in attorneys’ fees.

Servisair appealed to the U.S. Court of Appeals for the Fifth Circuit, contending that the district court had engaged in unconstitutional “additur” when it increased the jury award. Servisair also claimed that the plaintiff was not entitled to attorneys’ fees because she was not the prevailing party in the litigation. The Fifth Circuit agreed with Servisair that the district court’s decision to increase the damages payable to the plaintiff was unconstitutional, but disagreed with Servisair that the plaintiff was not the prevailing party.

In its decision, the circuit court explained that although the rule against additur prohibited a court from increasing the amount of damages awarded by a jury, there was an exception: If the jury has determined liability and there was no valid dispute as to the amount of damages, a trial court could increase the award to the undisputed amount without violating the prohibition on additur. Here, as the law requires a causal link between the employer’s interference and the claimed damages, the circuit court found the amount of damages was in dispute because the jury could have found that Servisair’s interference had not caused the plaintiff’s damages.

The FMLA’s damages provision made Servisair liable only for those “wages, salary, employment benefits, or other compensation denied or lost to such employee by reason of the violation,” the Fifth Circuit explained. It then stated that because the jury was presented with evidence that could lead it reasonably to conclude that the plaintiff’s lost wages were the result of her violating a no-call/no-show policy and not the result of any FMLA interference, the amount of damages was subject to a valid dispute and was not eligible to be increased by the identified additur exception.

The Fifth Circuit next addressed the FMLA provision that allowed attorneys’ fees “in addition to any judgment awarded to the plaintiff.”  It rejected Servisair’s contention that damages of one dollar were insufficient to make the plaintiff the prevailing party, ruling that even an award of nominal damages was sufficient to render the plaintiff the prevailing party.

The FMLA attorneys’ fee provision, however, allows only a “reasonable” attorneys’ fee, determined, in part, by the degree of the plaintiff’s success. Because the district court had made its fee calculation only after increasing the amount of damages from one dollar, on remand, the circuit court concluded, the district court should recalculate attorneys’ fees in light of the reinstated award and the fees incurred by the plaintiff in defending that award on appeal. [Alexander v. Servisair, LLC, 2014 U.S. App. Lexis 23194 (5th Cir. Dec. 10, 2014).]

Company’s Nurses Were Employees for FLSA Purposes, Not Independent Contractors, Circuit Court Rules

After a federal district court in New York ruled in favor of a plaintiff class of nurses on their unpaid overtime claims under the Fair Labor Standards Act (FLSA), the defendant, Harry’s Nurses Registry, Inc., appealed to the U.S. Court of Appeals for the Second Circuit. Harry’s Nurses contended that the district court had erred in determining that the nurses listed and placed by Harry’s Nurses were employees rather than independent contractors. The Second Circuit affirmed the district court.

In its decision, the Second Circuit explained that whether a worker was treated as an employee or an independent contractor under the FLSA was determined not by “contractual formalism” but by “economic realities.” It said that the economic-reality test weighed the:

  1. degree of control exercised by the employer over the workers;
  2. workers’ opportunity for profit or loss and their investment in the business;
  3. degree of skill and independent initiative required to perform the work;
  4. permanence or duration of the working relationship; and
  5. extent to which the work was an integral part of the employer’s business.

The circuit court then agreed with the district court that these factors favored the conclusion that the nurses were Harry’s Nurses employees.

First, the circuit court observed, Harry’s Nurses exercised “significant control over the nurses, both economically and professionally.” The circuit court found that indications of economic control included Harry’s Nurses’ policies that prohibited a nurse from:

  1. contracting independently with placements (although its nurses could be listed with other agencies);
  2. subcontracting a shift to another nurse;
  3. taking a partial shift (although a nurse could decline a whole shift); and
  4. collecting contract damages, expectation damages, or liquidated damages if the nurse were unilaterally terminated, permitting only unpaid wages as damages.

Moreover, the circuit court added, the nurses’ hourly rate was not negotiated but was fixed by Harry’s Nurses.

The circuit court also found indications of professional control, including:

  1. the work of Harry’s Nurses’ nursing director and nursing supervisors, who monitored the nurses’ daily phone calls reporting to shifts, collected documents, and conducted on-site training four to five hours each month, communicated with doctors to ensure that their prescribed care was being carried out, and handled emergencies;
  2. the ability of a nursing supervisor to require nurses to attend continuing education to maintain their licenses;
  3. an inservice manual that nurses had to certify having read and understood;
  4. training by Harry’s Nurses covering HIV confidentiality, ventilators, oxygen, and other medical subjects; and
  5. a requirement that each shift include a comprehensive assessment of the patient in the form of “progress notes,” which nurses had to submit to get paid.

The Second Circuit also said that another “critical factor” was that the nurses had no opportunity for profit or loss whatsoever, earned only an hourly wage for their labor, and had no downside exposure. The nurses also had no business cards, advertisements, or incorporated vehicle for contracting with Harry’s Nurses, and they were paid promptly regardless of whether the insurance carrier paid Harry’s Nurses promptly.

This factor, the Second Circuit declared, weighed “heavily in favor of the nurses’ status as employees.”

Finally, the Second Circuit rejected Harry’s Nurses’ contention that the nurses were not integral to Harry’s Nurses’ business, notwithstanding that “Nurses” was – literally – Harry’s “middle name.” Placing nurses accounted for Harry’s Nurses only income, the circuit court pointed out, adding that nurses were “are not just an integral part but the sine qua non” of Harry’s Nurses’ business.

Considering all these circumstances, the Second Circuit concluded that the district court correctly had determined that the nurses were, as a matter of economic reality, employees and not independent contractors of Harry’s Nurses. [Gayle v. Harry’s Nurses Registry, Inc., 2014 U.S. App. Lexis 23029 (2d Dep’t Dec. 8, 2014).]

Because Plaintiff Failed to State a Plausible Claim, Circuit Court Upholds Dismissal of His FLSA Complaint

In this case, the plaintiff was employed by Quality Communications, Inc., as a cable services installer. He sued Quality, individually and on behalf of other similarly situated persons, alleging that Quality had failed to pay him, and other similarly situated individuals, minimum wages and overtime wages in violation of the federal Fair Labor Standards Act (FLSA).

In his complaint, the plaintiff alleged that:

  1. he was employed by Quality in its cable television, phone, and internet service installation business;
  2. his employment was subject to the FLSA’s minimum wage and overtime pay requirements;
  3. he was not paid at the minimum wage; and
  4. he was subjected to a “piecework no overtime” wage system, whereby he worked in excess of 40 hours per week without being compensated for his overtime.

In the alternative, the plaintiff alleged that even if he had been paid some measure of overtime, the overtime payment had been less than that required by the FLSA. According to the plaintiff, Quality had failed to compensate him for all of the overtime hours he had worked and/or the overtime rate at which he had been paid was calculated using an incorrect rate, resulting in an overtime payment that had been less than that required by the FLSA.

Quality moved to dismiss the complaint. The district court granted its motion, concluding that the plaintiff had failed to state a plausible claim for unpaid minimum wages and overtime wages.

The plaintiff appealed to the U.S. Court of Appeals for the Ninth Circuit. The Ninth Circuit affirmed.

In its decision, the circuit court found that the allegations in the plaintiff’s complaint had not plausibly stated a claim that Quality had failed to pay minimum wages and overtime wages. The circuit court said that although detailed factual allegations regarding the number of overtime hours worked were not required to state a plausible claim, “conclusory allegations” that merely recited the statutory language were not adequate.

It then reasoned that to survive a motion to dismiss, a plaintiff asserting a claim to overtime payments under the FLSA must allege that he or she had worked more than 40 hours in a given workweek without being compensated for the overtime hours worked during that workweek. The circuit court also stated that a plaintiff could establish a plausible claim by estimating the length of the plaintiff’s average workweek during the applicable period and the average rate at which the plaintiff had been paid, the amount of overtime wages the plaintiff believed was owed, or any other facts that would permit the court to find plausibility.

Although the Ninth Circuit declined to make the approximation of overtime hours worked by a plaintiff the sine qua non of plausibility for claims brought under the FLSA, it ruled that, at a minimum, a plaintiff asserting a violation of the FLSA overtime provisions must allege that he or she worked more than 40 hours in a given workweek without being compensated for the hours worked in excess of 40 during that week.

Applying this standard, the circuit court ruled that the plaintiff had failed to state a claim for unpaid minimum wages and overtime wages. “The complaint did not allege facts showing that there was a specific week” in which the plaintiff had been entitled to but had been denied minimum wages or overtime wages, the circuit court found. Instead, it concluded, the plaintiff only had presented “generalized allegations asserting violations of the minimum wage and overtime provisions of the FLSA” by Quality. Accordingly, the district court properly had dismissed the plaintiff’s complaint for failure to state a plausible claim. [Landers v. Quality Communications, Inc., 771 F.3d 638 (9th Cir. 2014).]

Third Circuit Rules that Spouse’s Claim that She Had Not Signed Plan Waiver was Time-Barred

The plaintiff’s husband worked for Honeywell, participated in the Honeywell Retirement Plan, and began receiving plan benefits upon his retirement in January 1987. The plan distributed his retirement benefits in the form of a single life annuity, in reliance on a “Waiver of Joint and Surviving Spouse Annuity.” The waiver resulted in the plaintiff’s husband receiving a larger benefit than he would have received had the joint and survivor spouse annuity been chosen; it also meant that there would be no survivor benefits payable to the plaintiff in the event she survived her husband.

The plaintiff’s husband continued to receive a monthly pension benefit from the plan until his death in 2004. After his death, the waiver led to the end of the plaintiff’s husband’s retirement benefits.

Around June 2012, the plaintiff located a file containing a copy of the waiver that purportedly had been signed by her on December 1, 1986. The plaintiff, claiming that she had not signed the waiver, contacted the plan to contest the validity of the waiver and submitted a formal claim for benefits pursuant to the plan’s claim procedures. The plan denied her claim and her appeal, and the plaintiff sued.

The trial court ruled that the plaintiff’s action was time-barred, and she appealed to the U.S. Court of Appeals for the Third Circuit.

The circuit court affirmed.

In its decision, the Third Circuit observed that the parties agreed that Pennsylvania’s four-year statute of limitations applied to the plaintiff’s lawsuit. The circuit court then agreed with the district court that the plaintiff’s claim for benefits had accrued in July 2004 when the plan benefits had been discontinued.

The circuit court rejected the plaintiff’s argument that, because she had been unaware of her legal entitlement to receive survivor benefits until she found the waiver, her claim had accrued in June 2012 and her lawsuit was timely. According to the Third Circuit, when the plaintiff became aware of the cessation of plan benefits in 2004, she “should [have] exercise[d] reasonable diligence” to find out if she had a claim for survivor annuity benefits. Given the “outright repudiation” of the right to benefits at the time of the plaintiff’s husband’s death, it was reasonable to expect that the statute of limitations would begin to run at that point, the circuit court concluded. Accordingly, her claim was time-barred when she filed her complaint. [Christian v. Honeywell Retirement Benefit Plan, 2014 U.S. App. Lexis 21410 (3d Cir. Nov. 12, 2014).]

Reprinted with permission from the April 2015 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.

Related Publications


Legal updates and news delivered to your inbox