Handbook’s Disclaimer Insufficient to Bar State Wage Claim

March 31, 2013 | Appeals | Employment & Labor | Insurance Coverage

The plaintiffs in this case brought a class action in federal court against Comcast Corporation and Comcast Cable Communications Management, LLC, alleging among other things that the defendants had violated the Illinois Wage Payment and Collection Act (IWPCA) which requires every employer “at least semi-monthly, to pay every employee all wages earned during the semi-monthly pay period.” Wages are defined in the IWPCA as “any compensation owed an employee by an employer pursuant to an employment contract or agreement….” In particular, the plaintiffs alleged that the defendants had breached the employment agreement they had with them by failing to pay them an hourly wage and to pay them overtime pay at a rate of 1.5 times the hourly rate when they worked more than 40 hours per week.

The plaintiffs alleged that their employment agreement was documented by:

  1. Statements in the defendants’ employee handbooks describing the overtime policy;
  2. The defendants’ statements in other litigation relying on the handbook for the proposition that they required employees to be paid for all time worked;
  3. The defendants’ “Timekeeping Pay Process,” a document describing the overtime policy;
  4. A timekeeping system announcement that stated that “[o]vertime will now be calculated based on a normal 40-hour work week”;
  5. Employee training programs that told employees that the defendants would pay for all time worked, and that “[i]f you work overtime, you will usually be paid one and a half times your normal rate”; and
  6. other unspecified “statements” by the defendants’ managers and supervisors during meetings with employees.

The defendants moved to dismiss the plaintiffs’ IWPCA claim. In support of the motion, the defendants challenged the sufficiency of the plaintiffs’ allegations first by noting that their most recent handbooks all contained a disclaimer stating: “The contents of the Comcast Employee Handbook are not intended to create an express or implied contract of employment and you may not rely on it as such,” and that older handbooks contained similar language while also stating that the handbooks did not create any “other legally enforceable promise between you and the Company.” Additionally, the defendants pointed out that all of their handbooks further provided that:

The individual provisions of the Employee Handbook are simply guidelines, and Comcast reserves sole discretion to interpret them and resolve any conflict between or among policies. Comcast also reserves the right to change, delete, suspend, discontinue, or otherwise revise the Employee Handbook, or any individual policy contained in it, at any time for any reason, with or without notice.

In its decision denying the defendants’ motion to dismiss, the court explained that the IWPCA did not provide an independent right to payment of wages and benefits but only enforced the terms of an existing contract or agreement. Accordingly, it declared, for a person to state a claim under the IWPCA, he or she must plead that wages or final compensation was due to him or her as an employee from an employer under an employment contract or agreement.

The court then found that the IWPCA and Illinois law distinguished between an “agreement” and a “contract,” holding that an employment agreement need not be a formally negotiated contract, and that parties could enter into an “agreement” without the formalities and accompanying legal protections of a “contract.” Thus, it continued, the employment handbooks still could create an agreement (which, the court stated, required only “mutual assent to terms”) even if they did not create a contract (which, the court stated, required an “exchange of promises”).

Here, the court decided, there was “mutual assent” to the terms in the handbooks. Moreover, the court found, it was irrelevant that disclaimers in the earlier handbooks prevented the creation of a “promise” and that all of the handbooks purported to be “guidelines” and retained the defendants’ right to change the terms in the handbooks at any time. According to the court, reserving the right to change the terms prevented the creation of a promise, but did not vitiate the companies’ assent to the terms in the handbooks, at least so long as the handbooks were in effect.

Interestingly, the court also was not persuaded by the defendants’ argument that if an employer’s statements about its compensation policy in an employee handbook or elsewhere were sufficient by themselves to create an employment agreement under the IWPCA, then employers would have an incentive to avoid issuing any statements about compensation that could be used against them in IWPCA lawsuits.  In the court’s view, employers did not have to choose between violating provisions in handbooks and incurring IWPCA liability because they could disclose their compensation policies and then comply with the policies they disclosed – which, the court said, was precisely the outcome that the IWPCA sought to ensure.

Accordingly, the court refused to dismiss the plaintiffs’ IWPCA claim. [Wharton v. Comcast Corp., 2012 U.S. Dist. Lexis 173036 (N.D. Ill. Dec. 6, 2012).]

Comment: At least two other decisions have held that similar disclaimers, although preventing the creation of a contract, did not preclude an IWPCA agreement. See Hall v. Sterling Park Dist., No. 08 C 50116 (N.D. Ill. May 4, 2011); Dkt. No. 37, Bollie v. Bd. of Trs., No. 07 C 1382 (N.D. Ill. July 31, 2007) (oral ruling). Judges in other Illinois cases, however, have reached a different conclusion and have ruled that disclaimers similar to the disclaimers in the Comcast case precluded the creation of an IWPCA agreement. See, e.g., Brand v. Comcast Corp., No. 12 CV 1122 (N.D. Ill. Nov. 19, 2012); Camilotes v. Resurrection Health Care Corp., No. 10-cv-366 (N.D. Ill. July 16, 2012); Harris v. Seyfarth Shaw LLP, No. 09 C 3795 (N.D. Ill. Sept. 9, 2010); Martino v. MCI Comm’cns Servs., Inc., No. 08 C 4811 (N.D. Ill. Nov. 20, 2008); Skelton v. Am. Intercontinental Univ. Online, 382 F. Supp. 2d 1068 (N.D. Ill. 2005); Pautlitz v. City of Naperville, No. 89 C 8855 (N.D. Ill. Mar. 8, 1991).

Court Affirms Worker’s Comp Award for Employee Fired for Allegedly ‘Surfing the Web’

This case arose after Andrea Bunis Management, Inc. discharged an employee who was working at the company as a property manager for allegedly using his work computer to “surf the Web,” in contravention of the company’s written prohibition against the personal use of the internet during work hours. The discharged employee sought unemployment insurance benefits and the Unemployment Insurance Appeal Board determined that the discharged employee’s actions had not risen to the level of disqualifying misconduct because his Internet use was unintentional. The Board awarded the discharged employee unemployment insurance benefits, and the company challenged the award in court.

The court affirmed the Board’s decision. It explained that the former employee had testified that he had never intentionally engaged in personal Internet use on his work computer. Rather, the court continued, he had stated that much of the usage was actually for work purposes, and that the remainder resulted from pop-ups beyond his control or from the use of his computer by others. The court also pointed out that the former employee admitted to using his smartphone for personal internet access when away from the office, but stated that he was unaware that that use was prohibited.

The court then concluded that the board was free to credit this testimony, which, it found, provided substantial evidence for the Board’s determination that the former employee had not committed misconduct disqualifying him from an award of unemployment insurance benefits. [Matter of the Claim of Osborne, 2013 N.Y. App. Div. Lexis 395 (App. Div. 3rd Dep’t Jan. 24, 2013).]

Exclusion Bars Accidental Death Benefits for Spouse’s Death after Gastric Bypass Surgery

The plaintiff in this case sued the Metropolitan Life Insurance Company to recover accidental death benefits for the death of his wife, who passed away after undergoing gastric bypass surgery. The district court ruled, among other things, that Met Life had not abused its discretion in denying accidental death coverage benefits based on an exclusion in the policy for deaths caused by “infection, other than [an] infection occurring in an external accidental wound,” and it dismissed the plaintiff’s action. The plaintiff appealed to the U.S. Court of Appeals for the Ninth Circuit.

In its decision affirming the district court’s ruling, the appellate court explained that pursuant to the exclusion, an infection occurring in either an internal wound or a non-accidental external wound was excluded from coverage. In this case, a suture had come loose following the plaintiff’s wife’s gastric bypass surgery, which resulted in a peritoneal leak from the staple line on the gastric remnant that caused sepsis and her death. In light of these circumstances, the Ninth Circuit decided that Met Life had reasonably determined that the plaintiff’s wife’s death was caused or contributed to by an infection that did not result from an accidental external wound and, therefore, her husband was not entitled to recover accidental death benefits under the terms of the policy. [Faamai v. Metropolitan Life Ins. Co., 2013 U.S. App. Lexis 259 (9th Cir. Jan. 4, 2013).]

Claims Administrator without Discretion Is Not a Fiduciary and Therefore Is Not Subject to ERISA Suit

After obtaining medical services from an outpatient ambulatory surgery center, a participant in the self-funded health insurance plan maintained by Public Service Electric and Gas Company (“PSE&G”) for its employees and their participating family members assigned the surgery center his rights under the plan. The surgery center submitted claims for payment to Horizon Blue Cross Blue Shield of New Jersey, the claims administrator of the PSE&G plan. Horizon denied the claims, and the surgery center sued Horizon and PSE&G.  Horizon moved to dismiss the suit against it, arguing that, under ERISA, the surgery center could only sue a third party administrator of a self-funded plan to recover benefits if the third party administrator were a fiduciary of that plan, and that it was not a fiduciary of the PSE&G plan.

The court granted Horizon’s motion. It explained that the “linchpin” of fiduciary status under ERISA was discretion and, therefore, Horizon was a fiduciary only if it exercised more discretion and control than that of a mere claims processor. Moreover, it continued, making initial claims decisions and processing claims was insufficient to demonstrate that an entity was a fiduciary.

In this case, the court found, the surgery center claimed that Horizon had made an improper determination that the participant’s treatments were medically unnecessary and had improperly denied payment for those treatments. According to the court, aside from those assertions, the surgery center failed to plead facts that suggested that Horizon had exercised any discretion or control when it processed the surgery center’s claims. The court also observed that, under the terms of the PSE&G plan, only the PSE&G Employee Benefits Committee had the exclusive right to interpret and administer the plan, and there were no allegations in the complaint that suggested that Horizon was a part of that committee. In short, the court ruled, the surgery center had not sufficiently alleged that Horizon had assumed any discretionary authority or had acted outside the express limitations of the plan documents, which gave all final decision-making to the plan. Accordingly, the court concluded that Horizon was not a fiduciary and therefore not a proper defendant in this case. [Montvale Surgical Center v. Horizon Blue Cross Blue Shield of New Jersey, 2012 U.S. Dist. Lexis 173337 (D.N.J. Dec. 6, 2012).]

Circuit Court Rejects ‘Arbitrary’ Denial of Long Term Disability Benefits

The plaintiff in this case, a manager employed by Countrywide Home Loans, went on medical leave in February 2005 and applied to Standard Life Insurance Company for disability benefits. She submitted an Attending Physician’s Statement that listed a diagnosis of “Major Depressive Illness” and related mental health symptoms and she submitted an Employee Statement in which she described her illness as “severe depression.” Countrywide later filed an Employer Statement to complete the plaintiff’s application, and Standard authorized short term disability benefits retroactive to the date the plaintiff’s medical leave had begun.

Standard subsequently also authorized long term disability benefits for the plaintiff. The policy limited benefits for mental health disorders to two years, and Standard notified the plaintiff before the two year period was over, encouraging her to submit documentation of other conditions that were not subject to the time limitation.

The plaintiff asked that Standard consider a claim for long term disability based on ankylosing spondylitis (“AS”), an inflammatory disease that causes back pain, progressive stiffness of the spine, arthritis, and fusing of certain joints. The plaintiff had been diagnosed with AS in 1992 and had vision problems in 2004 which were linked to AS. Standard ultimately decided, however, that since the plaintiff had not seen a rheumatologist for her AS, she was not under the ongoing care of a physician in the appropriate specialty for her condition, as required by the disability policy.  Standard therefore denied her claim for long term disability benefits based on AS. After exhausting her administrative remedies, the plaintiff sued Standard. The district court granted judgment in favor of Standard, and the plaintiff appealed.

The U.S. Court of Appeals for the Sixth Circuit reversed the district court’s decision, concluding that Standard’s decision to reject the plaintiff’s claim was arbitrary and capricious “particularly considering that it did not exercise its authority” under the policy to have a rheumatologist conduct an independent medical evaluation of the plaintiff.

The circuit court explained that there was no question that the plaintiff had AS and that she had experienced symptoms before she went on medical leave. Moreover, the circuit court added, neither of Standard’s independent reviewers had disputed that the plaintiff experienced pain due to her AS, with one conceding that “[t]he main issue has always been the level of pain” and the resulting limitations on her functionality and the other finding that the plaintiff suffered debilitating pain due to her AS.

Accordingly, the circuit court concluded, given the nature of the diagnosis and the general lack of evidence showing that the plaintiff did not suffer debilitating pain, the issue was one of credibility. Where an administrator exercised its discretion to conduct a file review, credibility determinations made without the benefit of a physical examination, supported a conclusion that the decision was arbitrary, the circuit court ruled.

It therefore remanded the case to the district court with instructions to remand to the plan administrator for a review of the plaintiff’s claim, which it said should include a physical examination of the plaintiff by a rheumatologist. [McCandless v. Standard Life Ins. Co., 2012 U.S. App. Lexis 26235 (6th Cir. Dec. 20, 2012).]

Temporary Nature of Employee’s Position Not Relevant When Considering Worker’s Compensation Statutory Multiplier, Tennessee Supreme Court Decides

The plaintiff in this case was hired by Dyer’s Employment Agency, a temporary staffing agency in Lexington, Tennessee, that provided temporary employees to manufacturing facilities. Dyer’s assigned the plaintiff to work at Mark IV, a manufacturer of automobile hoses. After several weeks, the plaintiff claimed that he had begun experiencing numbness and pain in his right hand. He told Dyer’s and, around the same time, Mark IV advised Dyer’s that the plaintiff’s assignment had ended. Consistent with its business practices, Dyer’s terminated the plaintiff’s employment.

The plaintiff was treated by an orthopaedic surgeon, who recommended carpal tunnel release surgery. The plaintiff consented, the surgery took place, and the orthopaedic surgeon subsequently released the plaintiff to work with no restrictions. The orthopaedic surgeon assigned a four percent permanent medical impairment rating to the plaintiff’s right arm based on the severity of his carpal tunnel syndrome and the residual symptoms of the corrective surgery. Although the plaintiff did not return to work for Dyer’s after his injury, he did work for other employers.

The plaintiff sought worker’s compensation benefits and the trial court found that he had sustained a compensable injury to his right arm and adopted the four percent medical impairment rating assigned by the orthopaedic surgeon. The trial court then applied the statutory multiplier that limited the plaintiff’s award of benefits to one and one-half times the medical impairment rating rather than applying the statutory multiplier that permitted an award of benefits of up to six times the medical impairment rating. The trial court recognized that the lower multiplier ordinarily applied only if an employer had returned an injured employee to work at a wage equal to or greater than the wage the employee was earning at the time of the injury. However, in its oral ruling from the bench, the trial court found that Dyer’s could not “be faulted” for Mark IV having “ended” the plaintiff’s “assignment.” The trial court also considered the inherently temporary nature of the plaintiff’s employment with Dyer’s and the fact that the plaintiff had been advised of the temporary nature of his employment before he accepted the Mark IV assignment. In light of these circumstances, the trial court applied the lesser statutory multiplier and awarded the plaintiff a total of six percent permanent partial disability benefits to his right arm. The plaintiff filed a motion to amend the judgment, asserting that the trial court should have applied the greater multiplier because he did not have a meaningful return to work. The dispute reached the Tennessee Supreme Court.

The Tennessee Supreme Court granted review to determine which statutory multiplier applied when a temporary staffing agency did not return a temporary employee to work after the employee sustained a compensable injury. In its decision, the Tennessee Supreme Court explained that the state’s worker’s compensation laws encouraged the retention of injured employees by reducing the liability of employers who returned injured employees to work at the same or a greater wage. In turn, it noted, encouraging the retention of injured workers advanced the general purpose of the worker’s compensation statutes “to relieve society of the burden of providing compensation to injured workers and to put that burden” on the industry that was employing the worker.

According to the court, in deciding which multiplier applied, the issue was whether the pre-injury employer did or did not return the injured employee to employment at a wage equal to or greater than the wage the employee was receiving at the time of the injury. In this case, the court continued, Dyer’s did not return the plaintiff to work at all. The court acknowledged that Dyer’s could not be “faulted” for Mark IV’s decision to end the plaintiff’s temporary assignment, but ruled that this was “not a relevant consideration under the plain language of the multiplier statutes.” Rather, it declared, the relevant inquiry was whether the pre-injury employer returned the injured employee to work at a wage equal to or greater than the pre-injury wage.

The court also decided that the “inherently temporary nature” of the plaintiff’s employment with Dyer’s and the plaintiff’s knowledge of the temporary nature of his employment with Mark IV were “not relevant” to the determination of which multiplier applied because the state’s worker’s compensation statute did not draw a distinction between permanent and temporary employees and did not permit or require consideration of the employer’s business practices.

Accordingly, the court held, because Dyer’s failed to return the plaintiff to work after his injury at a wage equal to or greater than the pre-injury wage, the trial court had erred by concluding that the plaintiff’s award of benefits was capped at one and one-half times the medical impairment rating. Rather, the court concluded, the greater statutory multiplier cap applied, meaning that the plaintiff’s award of benefits could not exceed six times the medical impairment rating. It then remanded the case to the trial court to determine an appropriate award of permanent partial disability benefits within the parameters of the applicable statutory multiplier cap. [Britt v. Dyer’s Employment Agency, Inc., 2013 Tenn. Lexis 82 (Jan. 22, 2013).]

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

Related Publications

Legal updates and news delivered to your inbox