New Jersey Company’s Workers’ Compensation Carrier Is Not Responsible For Claim Stemming From Temporary New York Project

An individual who lived in New York claimed that he was injured while working in New York on a project lasting five or six days for his employer, a New Jersey corporation with its sole office in New Jersey. The individual filed a claim in New York for workers’ compensation benefits. Travelers Indemnity Company, the employer’s workers’ compensation carrier, denied the claim on the basis that the policy did not cover the employer for workers’ compensation injuries occurring outside New Jersey.

After a hearing, a Workers’ Compensation Law Judge decided that Travelers was the liable workers’ compensation carrier; the Workers’ Compensation Board affirmed that determination. Travelers appealed to a New York court, which reversed.

As the court explained, the issue was whether, as the employer claimed and the Workers’ Compensation Board had ruled, the employer’s workers’ compensation policy was ambiguous. The court noted that the policy included a “limited other states insurance endorsement.” That endorsement set forth three conditions, all of which had to be met for workers’ compensation benefits to be paid. Those conditions required that (i) the employee claiming benefits was employed under a contract of hire made in New Jersey and at the time of the injury was “principally employed” in New Jersey, (ii) the claim for benefits was not made in a state where the employer was required by that state’s law to have insurance coverage by virtue of the employer’s operation in that state, and (iii) the claimant’s work was temporary.

The Board had determined that the second condition of the endorsement, that the employer was not required by New York law to obtain separate workers’ compensation insurance, was ambiguous. The court disagreed, finding the Board’s determination to be “irrational.” As the court observed, under New York law, an employer must obtain workers’ compensation insurance for its employees working in New York. Moreover, the court noted, the policy endorsement in this case stated on its face, under the caption “IMPORTANT NOTICE,” that if the employer “begin[s] operations in any state other than New Jersey, [it] must obtain insurance coverage in that state and do whatever else may be required under that state’s law, as this . . . [e]ndorsement does not satisfy the requirements of that state’s workers’ compensation law.”

The court also rejected the employer’s reliance on the language of the certificate of insurance indicating that “[c]overage is extended to New York.” According to the court, the certificate was neither conclusive proof of the existence of a specific contract nor was it a contract in and of itself. Furthermore, the court added, the policy’s information page clearly stated that the policy only applied in New Jersey. In addition, the court noted that the policy indicated that it could not be changed or waived except by an endorsement issued by Travelers as part of the policy, which the certificate of insurance was not.

Accordingly, the court found that Travelers was not liable for the workers’ compensation claim. [Matter of Chmura v. T&j Painting Co., Inc., 2011 N.Y. Slip Op. 02780 (App. Div. 3rd Dep’t Apr. 7, 2011).]

 Employer Obligated To Keep Records Of Compensation Paid, Not Hours Worked

Under Section 209(a)(1) of ERISA, an employer has an obligation to maintain records sufficient to determine the benefits due or that may become due to each of its employees. The plaintiff in this case brought suit in federal court against the University of Pittsburgh Medical Center (UPMC) alleging that UPMC had violated Section 209(a)(i) of ERISA by failing to keep records of the hours she had worked.

The plaintiff alleged that while employed as a registered nurse for UPMC, she and other nurses were required to work during their 30 minute unpaid “meal breaks,” but were never compensated for this work. In addition, she asserted, UPMC began increasing the number of patients assigned to each nurse per shift. Nurses were allocated 30 minutes of paid time at the beginning of their shifts to review the status reports of the patients they would cover during the upcoming shift. The complaint alleged that as a result of the increased patient load, nurses such as the plaintiff had to begin arriving at work and reviewing the status reports 20 to 40 minutes prior to the official start of their shift. Even though the nurses clocked in when they arrived, UPMC would not start crediting the nurses with paid work time until the official start of the shift, according to the plaintiff. In addition to her federal court action, the plaintiff filed a lawsuit in state court alleging that UPMC violated state wage laws.

In her federal lawsuit, the plaintiff contended that she participated in three retirement plans administered and sponsored by UPMC. She contended that these plans and ERISA required that UPMC, as an employer, keep records of the uncompensated hours she worked and, as a fiduciary, to investigate and ensure that contributions allegedly corresponding to the hours worked were being provided so that the relevant fund could distribute the appropriate amount of benefits to the plaintiff when she retired.

UPMC moved to dismiss the plaintiff’s lawsuit for failure to state a claim.  The district court granted the motion. It held that UPMC’s recording and fiduciary obligations were limited by the plans’ language, which only required that UPMC document the compensation the plaintiff was paid, not the hours she allegedly worked but was not paid. The plaintiff appealed to the U.S. Court of Appeals for the Third Circuit.

In its decision, the Third Circuit pointed out that ERISA Section 209(a) provides that “every employer shall . . . maintain records with respect to each of his employees sufficient to determine the benefits due or which may become due to such employees.” It then found that UPMC had a duty as an employer to keep records sufficient to accurately determine what benefits were due or might be due to plan participants and, as a fiduciary, a duty to ensure that contributions were being properly provided to the plan by the employer. However, the Third Circuit continued, the extent of those duties and the nature of the records required to be maintained could only be determined by looking to the language of the pension plans themselves, which outlined the contributions UPMC had to make and, correspondingly, the benefits the plaintiff and other participants were owed.

The Third Circuit then examined the terms of the three plans. Under the two savings plans, contributions from both the employee and the employer were linked to a percentage of the employee’s compensation. Compensation was defined as “the Employee’s compensation as reportable on Box 1 of Form W-2.” Similarly, the retirement plan provided that retirement credits should be applied “on the basis of the Employee’s Compensation earned while an Active Participant with a Cash Balance Employer during the Plan Year,” with “Compensation” defined as “an Active Participant’s compensation as reportable in Box 1 of Form W-2.” As the appellate court noted, compensation reportable in Box 1 of Form W-2 was “undeniably compensation paid.”

Based on this language, the Third Circuit concluded that contributions owed by UPMC were calculated based on compensation paid to the employees and not based on uncompensated hours worked. It added that the UPMC plans contained no language linking contributions to hours worked.

Accordingly, the Third Circuit concluded, the records “sufficient to determine the benefits due” under Section 209 were the records of the plaintiff’s compensation actually paid. Because the plaintiff did not allege that UPMC in any way had failed to keep track of the compensation it did, in fact, pay to the plaintiff, her claim had to fail. However, the Third Circuit was careful to note that its decision did not prevent the plaintiff from bringing a subsequent action under ERISA to recover benefits associated with any unjustly withheld compensation that she receives should she be successful in her state wage lawsuit. [Henderson v. University of Pittsburgh Medical Center, 2011 U.S. App. Lexis 6820 (3^rd Circuit Apr. 5, 2011).]

Comment:  Several other courts have similarly determined the scope of the Section 209 recordkeeping duty by evaluating how contributions are allocated under a pension plan. See, e.g., Trs. of the Chi. Painters & Decorators Pension v. Royal Int’l Drywall & Decorating, Inc., 493 F.3d 782 (7th Cir. 2007)  (evaluating scope of Section 209 recordkeeping duty by looking to plan language); Mich. Laborers’ Health Care Fund v. Grimaldi Concrete, Inc., 30 F.3d 692 (6th Cir. 1994) (same); Combs v. King, 764 F.2d 818 (11th Cir. 1985) (same); Zipp v. World Mortg. Co., 632 F. Supp. 2d 1117 (M.D. Fla. 2009) (same); see also Mathews v. ALC Partner, Inc., No. 08-cv-10636 (E.D. Mich. Nov. 16, 2009) (evaluating scope of fiduciary duty by looking to plan language); Steavens v. Elec. Data Sys. Corp., No. 07-14536 (E.D. Mich. Aug. 12, 2008) (same).

Although Biological Parent Permitted Her Children To Be Adopted, They Still May Be Entitled To Receive Benefits Following Her Death

In 2001, the biological mother of three minor children began working for the University of Pittsburgh Medical Center (UPMC). On June 6, 2003, at the biological mother’s urging, her lifelong family friend, the plaintiff in this case, adopted the children and became their legal guardian; new birth certificates were issued for the children. Notwithstanding the adoption, the children’s biological mother maintained a parental relationship with the children, who still referred to her as “Mom.”  She lived with the plaintiff and the children for three years after they were adopted by the plaintiff, and she spent all holidays and festivals with the plaintiff and the children.

The biological mother was employed at UPMC from 2001 to 2008, and she continued to pay premiums for four insurance plans offered by UPMC for five years after her children were adopted. The premiums for these were deducted from her salary each pay period: 1) a $25,000 basic life insurance policy; 2) a $25,000 basic accidental death and dismemberment (AD&D) insurance policy; 3) a $100,000 supplemental group life insurance policy; and 4) a $200,000 supplemental AD&D insurance policy. The biological mother designated a beneficiary – the plaintiff – for the $25,000 basic life policy, but did not designate a beneficiary for the three remaining policies.

Each of the life policies contained the following language:

If there is no named beneficiary or surviving beneficiary, Death Benefits will be paid to the first surviving class of the following living relatives: spouse; child or children; mother or father; brothers or sisters; or to the executors or administrators of the Insured’s estate.

By the same token, the AD&D policies provided:

If there is no named beneficiary or surviving beneficiary, or if the Employee dies while benefits are payable to him, We may make direct payment to the first surviving class of the following classes of persons:

1) spouse;
2) child or children;
3) mother or father;
4) sisters or brothers;
5) Estate of the Covered Person.

On December 23, 2008, the biological mother died in an accident at the age of 34. Following her death, the plaintiff timely sought payment under each of the insurance policies in accordance with the applicable claims procedure. The insurer, Life Insurance Company of North America (LINA), paid $25,000 due to the plaintiff as the designated beneficiary of the basic life policy. However, LINA rejected the plaintiff’s claims on behalf of the children for the proceeds from the other three policies. LINA explained that as a result of the adoption, the children were no longer considered the biological mother’s “children” for the purposes of the policies’ default- beneficiary provisions.

The plaintiff, as guardian of the children, brought a lawsuit against UPMC and LINA. The district court dismissed the action, finding that the plaintiff did not have standing to bring the lawsuit because the children were not beneficiaries under ERISA, since the adoption had severed the legal link between the deceased biological parent and the children, who became the children of the plaintiff only. The plaintiff appealed.

In its decision holding that the plaintiff had standing to bring the lawsuit, the U.S. Court of Appeals for the Third Circuit explored whether the children who had been adopted by the plaintiff were within the “child or children” category of default beneficiaries under the plans. It found a potential ambiguity in the meaning of the word “children,” which was an undefined term in the policies, that was sufficient to allow them, and the plaintiff on their behalf, to claim that the children were or might be entitled to the benefits. Thus, the children, and the plaintiff, could bring the lawsuit against UPMC.

It should be noted that the appellate court did not decide that the children were entitled to receive the benefits, but only that they should be permitted to introduce evidence in support of alternative interpretations of “children” so that the trial court could address whether there was an ambiguity sufficient to find that they were entitled to receive the benefits under the policies. [Baldwin v. University of Pittsburgh Medical Center, 2011 U.S. App. Lexis 6305 (3^rd Cir. March 29, 2011).]

Did Testing For Legal And Illegal Drug Use Violate The ADA?

The seven plaintiffs in this case were former employees of Dura Automotive Systems, Inc., who worked at Dura’s manufacturing facility in Lawrenceburg, Tennessee. In early 2007, Dura became concerned that legal and illegal drug use at the facility was leading to a significantly higher rate of workplace accidents than at comparable plants. Therefore, in early 2007, Dura contacted an independent, third party drug testing organization known as Freedom From Self (FFS) to assist Dura in implementing a new, comprehensive drug testing program. Dura decided that its new drug testing program for the facility would test for 12 substances, including those found in legal prescription drugs.

In May 2007, drug testing of the facility’s more than 450 employees was conducted. Each employee registered with an FFS representative, who handed the employee a cup, and the employee went into a controlled environment to urinate in the cup. After so doing, the employee would deliver the cup back to the FFS representative. At this time, the FFS representative conducted an “initial panel test,” which made a preliminary finding as to whether the urine contained any of the 12 substances.

FFS sent each employee’s positive urine sample to Quest Diagnostics for confirmatory testing. Quest then sent the results of the confirmatory tests to a physician, who reviewed the confirmatory test results. If the physician saw that an employee tested positive for a substance found in legal prescription drugs, he would contact the employee to determine if there was a medical explanation for the positive result. If the employee provided a valid medical explanation, the physician changed the final, confirmed result of the drug test from “positive” to “negative.”

If an employee failed the initial panel test, Dura ordered the employee to meet with FFS and present to FFS a list of all of the prescription medications that the employee was taking. After meeting with the employee, FFS sent Dura the employee’s list of prescription medications and the warnings associated with them. Dura representatives then determined, for each employee, which of the medications listed had warnings about the operation of equipment or machinery or impaired mental alertness while using the medication (“adverse warnings”). Identifying these medications as prohibited, Dura then sent the employee a letter advising that Dura was placing the employee on a 30 day unpaid leave of absence to allow the employee an opportunity to transition to other drugs that Dura perceived as less risky or to stop using the drugs altogether.

Several employees (the plaintiffs in this case) obtained letters from their physicians stating that the employee’s medications would not affect work performance and were necessary for the employee’s health and functioning. However, Dura’s policy was that any employee, regardless of age or health status, taking drugs for any reason that carried warnings about the operation of equipment or machinery or impaired mental alertness was not allowed to work at Dura until he or she discontinued use of the prohibited drug. An employee’s compliance with prescription drug rules was confirmed by subsequent initial panel tests; an employee was usually terminated following a second, failed initial panel test.

Each of the seven plaintiffs in this case were former Dura employees who, at one time or another, failed an initial panel test because he or she was taking a legally prescribed prescription drug that contained one of the 12 banned substances. Each of the plaintiffs’ “positive” initial panel tests was later reversed to a “confirmed negative,” due to the plaintiffs’ documented medical need for the prescription drugs.

The plaintiffs sued Dura, but the court dismissed the vast majority of their claims. It found that (with the exception of one plaintiff) the plaintiffs were not disabled as a matter of law and could not pursue claims under the Americans with Disabilities Act. It then examined whether the plaintiffs, despite not having a disability, could maintain a claim against Dura based upon the drug testing and evaluations that they were subjected to in the workplace.

The court decided that the plaintiffs all could proceed with claims against Dura under Section 12112(d)(4)(A) of the ADA, which stated that “a covered entity shall not require a medical examination and shall not make inquiries of an employee as to whether such employee is an individual with a disability or as to the nature or severity of the disability, unless such examination or inquiry is shown to be job-related and consistent with business necessity.” Dura then moved for summary judgment, and the court considered whether the plaintiffs had been subjected to a “medical examination” or a “disability-related inquiry.”

Dura asserted that its protocol could not constitute a “medical examination” or a “disability related inquiry” because the EEOC approved and endorsed “precisely the same drug testing methodology and procedure.” Specifically, Dura pointed to 1995 “enforcement guidance” from the EEOC Office of Legal Counsel, which stated that an employer could ask its employees about “lawful drug use if the employer is administering a test for illegal use of drugs.” Indeed, it stated, an “employer may validate the test results by asking about lawful drug use or possible explanations for the positive result other than the illegal use of drugs.” Dura argued that, because its protocol called for a test of illegal drugs combined with follow up questioning to explain positive results, its protocol could not run afoul of the ADA.

The court found Dura’s reliance on the EEOC compliance materials to be “misplaced.” First, it ruled, the EEOC’s broad definition of “medical examination” (which included a urine test for legal substances, such as alcohol) suggested that, at least as far as the EEOC was concerned, the plaintiffs in this case all were subject to a “medical examination.” Moreover, it continued, the EEOC guidance on which Dura relied stated that an employer could not “ask applicants about their lawful drug use,” because this was a “disability-related” inquiry. Under the EEOC guidance, a question regarding lawful drug use only was appropriate if the “applicant tests positive for illegal drug use.” If that occurred, the employer could ask additional questions to “validate the test results” or to seek out other “possible explanations . . . other than the illegal use of drugs.”

The court found that Dura’s questioning following positive test results was not to “validate the test results” or seek out other “possible explanations.” Rather, the court decided, the additional questioning was designed to determine the full list of legal prescription drugs that the plaintiff was taking – and questioning about lawful drug use was not permitted under the ADA. It then denied Dura’s motion for summary judgment, ruling that the question of whether any or all of the plaintiffs had been subjected to a “medical examination” or a “disability related” inquiry was for a jury to decide. [Bates v. Dura Automotive Systems, Inc., 2011 U.S. Dist. Lexis 33996 (M.D. Tenn. March 30, 2011).]

Reprinted with permission from the July 2011 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.