Workers’ Compensation Retaliation Claim Filed More Than Six Months After Employee Was Terminated Is Barred by Contractual Limitation Provision

The plaintiff in this case applied for a position with the Federal Express Corporation in November 1993, completing and signing an employment application and employment agreement. One of the provisions of the employment agreement provided that “to the extent law allows an employee to bring legal action against Federal Express, I agree to bring that complaint within the time prescribed by law or 6 months from the date of the event forming the basis of my lawsuit, whichever expires first.” The limitation was the last provision of the agreement and was located directly above a statement indicating that the applicant had “read this entire agreement, which consists of 2 pages, and I thoroughly understand its content.”

FedEx sent the plaintiff a letter officially offering her a position on January 13, 1994. The letter stated that it incorporated the employment agreement that the plaintiff had signed. The plaintiff accepted the position on January 17, 1994, and returned a signed copy of the letter to FedEx. FedEx terminated the plaintiff on May 2, 2008. On August 13, 2009, approximately 15 months later, the plaintiff brought suit against FedEx, claiming that it had retaliated against her for receiving workers’ compensation benefits by terminating her.

FedEx argued that it was entitled to summary judgment dismissing the lawsuit because the plaintiff had failed to bring her action within the time limitations set forth in the parties’ employment agreement. The plaintiff did not claim that she had not agreed to the restriction, but rather contended that the provision was unenforceable because it contradicted a strong public policy in favor of protecting claims of workers’ compensation retaliation. The plaintiff further argued that even if limitations on the time available to bring claims were generally enforceable, the specific requirement that she bring her claim within six months should not be enforced because it was unreasonably short; absent the parties’ agreement, the plaintiff would have had to bring her action within two years of termination under applicable Kansas law.

The court noted that a number of jurisdictions across the country have upheld the application of contractual limitation provisions to employment discrimination claims. In addition, the court pointed out that numerous legislatures have placed limitations on the time that an employee can file employment discrimination claims, reflecting a strong preference for quick resolution of claims that an employer acted wrongly. In light of this, the court rejected the plaintiff’s argument that the contractual limitations provision violated public policy.

Next, the court considered the plaintiff’s argument that the six month limitation provided in the employment contract was too short and, therefore, unreasonable. The court declared that a limitation was reasonable so long as it provided the plaintiff a “fair opportunity” to investigate and file the case, the time was not so short that it was a practical abrogation of the right of action, and the action was not barred prior to the loss becoming ascertainable. In this case, the court found, the plaintiff was required to file her action for retaliatory discharge within six months of FedEx’s decision to terminate her; all of the information the plaintiff would have needed to file her action was available at the time of her discharge; and there was no indication in the record that she received any information after her termination that would have affected her decision to bring this action. Moreover, the court continued, the plaintiff had not provided any explanation for why the six month limitation was unreasonable or why she was unable to bring her claim within that period. Therefore, the court found that the six month limitation for bringing an action contained in the employment agreement was reasonable, and it granted FedEx’s summary judgment motion [Pfeifer v. Federal Express Corp., 2011 U.S. Dist. LEXIS 10205 (D. Kan. Feb. 2, 2011)].

Discovery of Immigration Status Is Relevant to the Question of Backpay Eligibility, Circuit Court Confirms

After the National Labor Relations Board decided to hold a hearing to determine how much backpay was owed to employees who had been discriminated against by Domsey Trading Corporation and a number of its affiliated companies, Domsey sought to ask the employees questions about their immigration status, arguing that undocumented immigrants were ineligible for backpay. The administrative law judge (ALJ) denied Domsey’s request, limiting Domsey to asking whether the discriminatees’ immigration status had affected their ability to find work during the backpay period, which the ALJ found relevant to mitigation of damages. The ALJ later limited this line of questioning to employees hired before the effective date of the Immigration Reform and Control Act of 1986 (IRCA), which made it illegal to knowingly hire undocumented immigrants and which required employers to verify the immigration status of newly-hired employees, and to post-IRCA hires whom Domsey had reason to believe did not have lawful immigration status. The ALJ reasoned that Domsey should know the discriminatees’ immigration status if they were hired post-IRCA because the company was required by law to verify the information.

The ALJ awarded $1,075,614.30 in backpay to 202 discriminatees. After slight modifications, the NLRB adopted the ALJ’s decision. Domsey’s objection to the ALJ’s immigration-related evidentiary rulings reached the U.S. Court of Appeals for the Second Circuit.

Agreeing with Domsey’s objections, the circuit court explained that the law is clear that undocumented immigrants are ineligible for backpay under the NLRA and, therefore, that immigration status is relevant to the question of backpay eligibility. The circuit court then ruled that employers may cross-examine backpay applicants with regard to their immigration status. The ALJ therefore had erred in not permitting Domsey to ask discriminatees direct questions about their immigration status during the backpay period, according to the Second Circuit. In addition, it found, the ALJ should have permitted Domsey to introduce the testimony of its immigration expert to meet its burden of proof. Accordingly, the Second Circuit remanded the case to the NLRB so that it could correct these errors [National Labor Relations Board v. Domsey Trading Corp., 2011 U.S. App. LEXIS 3412 (2d Cir. Feb. 18, 2011)].

Restaurant Cook May Not Bring FLSA Suit for Unpaid Overtime and Minimum Wages

The plaintiff in this case worked as a cook for Jade Palace, a restaurant serving primarily American-Chinese food to customers in the areas of Shelby and Jefferson Counties, Alabama, from July 2006 to May 2007 and again from July 2008 to January 2009.

The plaintiff worked every day the restaurant was open. One of the owner/operators of Jade Palace estimated that the plaintiff worked between five and seven days a week for seven to 10 hours each day. Initially, Jade Palace paid the plaintiff $1,200 each month, but later his pay was increased to $1,500 based on his experience. Jade Palace also provided the plaintiff with meals.

Jade Palace employed between one and two waiters and approximately three kitchen staff, including the plaintiff. The plaintiff’s duties included food preparation and kitchen services. The plaintiff did not purchase goods, products or supplies for the restaurant and did not pay the restaurant’s bills or take orders for food. The plaintiff did not use the telephone, mail, or Internet to correspond with Jade Palace’s vendors, suppliers, or customers.

The plaintiff filed suit against Jade Palace under the Fair Labor Standards Act (FLSA) alleging that it owed him unpaid minimum wages and overtime compensation. The district court granted Jade Palace’s motion for summary judgment dismissing the action, concluding that the plaintiff was not entitled to individual coverage under the FLSA because he was not “engaged in commerce” while working as Jade Palace’s cook. The plaintiff appealed.

In affirming the district court’s decision, the U.S. Court of Appeals for the Eleventh Circuit explained that to establish a claim for unpaid overtime and minimum wages under the FLSA, a plaintiff employee must prove one of two types of coverage, either: (1) “individual coverage,” in which the employee was “engaged in commerce or in the production of goods for commerce,” or (2) “enterprise coverage,” in which the employee was “employed in an enterprise engaged in commerce or in the production of goods for commerce.” The plaintiff in this case relied on the first form of coverage, “individual coverage,” and, more specifically, on the “engaged in commerce” element.

The Eleventh Circuit noted that, to be an employee “engaged in commerce” within the meaning of the FLSA, the employee must be directly participating in the actual movement of persons or things in interstate commerce by (1) working for an instrumentality of interstate commerce, such as transportation or communication industry employees, or (2) by regularly using the instrumentalities of interstate commerce in his or her work, such as regular and recurrent use of interstate telephone, telegraph, mails, or travel.

The plaintiff here presented “no evidence” that he was “engaged in commerce,” the Eleventh Circuit found. The plaintiff did not work for an instrumentality of interstate commerce, but rather for a small, locally-owned Chinese restaurant. The circuit court noted that the plaintiff had admitted that he did not use the telephone, Internet or mail as part of his duties, and there was no evidence that he was required to travel across state lines or to transport materials that were moving in interstate commerce.

The Eleventh Circuit also rejected the plaintiff’s contention that its conclusion that he did not meet the “individual coverage” standard meant that all restaurant cooks would be exempt from the FLSA’s overtime and minimum wage provisions. It said that it concluded only that, given the plaintiff’s particular duties as a cook at Jade Palace and the record in this case, he was not “engaged in commerce” for purposes of individual coverage under the FLSA.

For these reasons, the circuit court found that the district court had properly granted summary judgment to Jade Palace on the plaintiff’s FLSA claims [Martinez v. Jade Palace, 2011 U.S. App. LEXIS 2785 (11th Cir. Feb. 11, 2011)].

Ex-Employee Entitled to Stock Options Valued at $58 per Share, Rather Than $31 per Share, Circuit Court Rules

In 2002, when the plaintiff in this case was hired to be chief financial officer of Coty Inc., Coty provided him with an employment letter addressing his compensation package, including his eligibility to participate in the company’s long term incentive plan (LTIP). In November 2002, Coty awarded the plaintiff a nonqualified stock option to purchase up to 50,000 shares of Coty stock at a purchase price of $14 per share. Approximately one year later, the plaintiff was awarded another 50,000 nonqualified stock options at a purchase price of $17 per share. In September 2004, he received 50,000 additional options with a purchase price of $23.25. Finally, in September 2005, the plaintiff received 50,000 options with a purchase price of $25.50 per share. Each of these awards was governed by the terms of Coty’s LTIP.

In September 2008, the company determined that the fair market value of Coty’s stock was $58 per share. Approximately two months later, the plaintiff decided to exercise all of his 200,000 options, and he provided the company with notice of the transaction. Because the date he exercised his options (November 30, 2008) fell on a Sunday, he tendered his notice in person on the next succeeding business day, Monday, December 1, 2008, as he was entitled to do by applicable New York statute. The next day, Coty confirmed that the plaintiff’s notice was effective for the month of November and it provided him with notice of the cash value for his redemption, which totaled $7,612,500.

Three days later, Coty’s board of directors convened an official meeting to alter the established terms of the LTIP. First, the board voided all options exercise notices that had been tendered in December, including the plaintiff’s, on the ground that the notices were late because they were not provided on or before Sunday, November 30, 2008. Second, the board decided there would be four valuation dates each year instead of two. Third, the board redefined “Exercise Date” such that an optionee could only exercise options four times a year, on the fifteenth business day after each valuation. Fourth, the board decided that January 31, 2009, would be the next valuation date, and if anyone wanted to exercise options, he or she would have to wait until February 2009.

On December 9, 2008, Coty informed the plaintiff that his options exercise had been voided, because it was not “submitted prior to the last day of the month.” Two days later, Coty notified the plaintiff that his employment was being terminated.

In February 2009, the board told the plaintiff that he would receive $31 per share for a total cash payment of approximately $2.2 million, or $5.4 million less than he would have gotten had he been treated the same as all of the other optionees who exercised options in November. The plaintiff brought suit against Coty.

Coty stipulated that every other LTIP participant who had delivered a timely November 2008 exercise had received payment based upon the $58 per share price. The district court decided that the plaintiff had timely exercised his options for November 2008, even though he had not filed his notice of intent to exercise until Monday, December 1, 2008, given that the day before was a Sunday. The district court then issued an order awarding the plaintiff the difference between Coty’s February 2009 $31 per share rate and the $58 per share rate, which amounted to $5.4 million, plus pre-judgment interest on that sum. Coty appealed.

The Second Circuit Court of Appeals affirmed. It first upheld the district court’s decision that the plaintiff’s December 1, 2008 delivery of his notice of intent to exercise his options was an exercise of that right as of November 30. The circuit court then decided that Coty’s decision to cut its share price by almost 50 percent, which applied only to the plaintiff and which occurred only after he exercised his options, was a “clear violation of the duty of good faith and fair dealing” and denied the plaintiff of “the fruits of the contract.”

Simply put, the circuit court decided, once the plaintiff’s exercise was found to be a valid November exercise, he was entitled to be compensated at the $58 per share rate that all other November exercisers received [Fishoff v. Coty Inc., 2011 U.S. App. LEXIS 4068 (2d Cir. March 4, 2011)].

Adult Son Whom Father Enrolled Online Was Not Eligible for Coverage, Court Rules

The plaintiff in this case, an employee of Lockheed Martin Corporation, was a participant in the Lockheed Group Benefits Plan. As a participant in the plan, the plaintiff had the option of purchasing term life and accidental death and dismemberment insurance for his children, so long as they qualified as dependents. A dependent child was generally eligible for coverage up to age 25. This insurance was provided by the Prudential Insurance Company of America.

Via an online automated computer program, the plaintiff attempted to enroll his son for dependent term life and accidental death insurance benefits, to be effective January 1, 2006. The online enrollment did not require that the plaintiff enter his son’s birthday or provide any proof of insurability. Rather, the online enrollment program presented the following statement to the plaintiff and other employees each time the system was activated: “Claims will only be paid for dependents you have enrolled who meet the eligibility requirements for those plans. You are responsible for maintaining accurate information on the eligible dependents you want to cover.” Notwithstanding the fact that the plaintiff’s son turned 25 on September 25, 2003, and thus was ineligible for coverage, the plaintiff listed him as a dependent for purposes of obtaining $25,000 in term life insurance coverage and $50,000 in accidental death insurance coverage.

The plaintiff’s son died in a car accident on August 3, 2006. Following his son’s death, the plaintiff requested payment under the dependent term life and accidental death plans. Prudential denied the claim because, as a result of his age, the plaintiff’s son was ineligible for coverage under the plan. The plaintiff brought suit.

The district court granted summary judgment against the plaintiff, upholding the denial of his claim. The district court found that the plain language of the plan documents and summary plan descriptions (SPDs) rendered the plaintiff’s son ineligible for coverage under the plan. The plaintiff appealed to the U.S. Court of Appeals for the Third Circuit.

The circuit court affirmed. It explained that the plan documents and SPDs that were provided to the plaintiff “unambiguously advised him that dependent coverage ended when his son was no longer eligible” and that his son was no longer eligible as of his 25th birthday in 2003, at the latest. Moreover, the Third Circuit noted, the online program that the plaintiff used for enrollment warned him each time he activated the system that it was his responsibility to ensure the eligibility of dependents before enrolling for benefits on their behalf.

The Third Circuit also rejected the plaintiff’s argument that the plan and Prudential should be estopped from asserting that his son was ineligible for coverage because Lockheed employees had assured him that if he could enroll a dependent online, the dependent was eligible for coverage. The circuit court stated that, even assuming that Lockheed employees had made such statements, the written terms of the plan documents controlled and they could not be modified or superseded by an employer’s oral statements. Additionally, the circuit court noted, ERISA plan participants such as the plaintiff “have a duty to inform themselves of the details provided in their plans”-and in any event it was unreasonable for a plan participant to rely upon an employer’s representation as to the contents of a plan where the participant was in possession of a plan document containing express terms regarding the subject of the representation [Bicknell v. Lockheed Martin Group Benefits Plan, 2011 U.S. App. LEXIS 2715 (3d Cir. Feb. 10, 2011)].

Circuit Court Upholds Plan Provision Providing That Copayments Exceeding Out-of-Network Rate for Nonparticipating Providers Do Not Apply to Out-of-Pocket Maximum

When the plaintiff in this case was informed that she had ovarian cancer, she was advised to have the cancer removed and, to that end, she was referred to the Mayo Clinic in Rochester, Minnesota. At that time, the plaintiff was participating in a health insurance benefit plan administered by Coventry Health Care of Iowa, Inc. Prior to scheduling her procedure at the Mayo Clinic, the plaintiff contacted a customer service representative at Coventry to discuss the plan’s coverage. The representative told her that the Mayo Clinic was an “out-of-network” or “nonparticipating” provider and that coverage thus would be limited to out-of-network benefits, as set forth in the plan’s three page schedule of benefits. A chart on page two of that schedule indicated that the annual “Out-of-Pocket Maximum” for an individual was $8,000 for nonparticipating providers but only $4,000 for participating providers. The representative also advised the plaintiff that the University of Iowa Hospitals and Clinics were in-network providers of the same services she sought from the Mayo Clinic.

The plaintiff asked the Coventry representative whether she might be required to pay more than $8,000 should she choose to schedule her procedure at the Mayo Clinic. In response, the representative merely referred her back to the schedule of benefits. The plaintiff-who had read the first two pages of the schedule of benefits, but not the third-determined that her liability for the procedure at the Mayo Clinic was capped at $8,000, and she had it done there at a total cost of $44,458.99. Only later did she learn that a more nuanced definition of “Out-of-Pocket Maximum” could be found on page three of the schedule of benefits. That definition read:

Out-of-Pocket-The individual Out-of-Pocket Maximum is a limit on the amount You must pay out of Your pocket for specified Covered Services in a calendar year, as specified in this Schedule of Benefits. . . Coinsurance and Deductible amounts apply to your Out-of-Pocket Maximum. Copayments and Charges that exceed our Out-of-Network Rate for Nonparticipating Providers do not apply to your Out-of-Pocket Maximum. (emphasis in original)

“Out-of-Network Rate” was defined on that same page as:

The Out-of-Network Rate is the maximum amount covered by Us for approved out-of-network services. This rate will be derived from either a Medicare based fee schedule or a percent of billed charges as determined by Us. You are responsible for Charges that exceed our Out-of-Network Rate for Nonparticipating Providers. This could result in you having to pay a significant portion of your claim. Balances above the Out-of-Network Rate do NOT apply to your Out-of-Pocket Maximum. (emphasis in original).

Coventry paid $20,670.83 toward the procedure (its out-of-network rate) but declined to pay more. That left the plaintiff responsible for $23,788.16, nearly $16,000 more than the $8,000 she was expecting to pay, and she brought suit against Coventry. The plaintiff argued that Coventry should be bound by the chart found on the first two pages of the schedule of benefits, which appeared to cap her liability at $8,000. The district court decided that a reasonable plan participant would take the term “Out-of-Pocket Maximum” at face value as a term of “common and ordinary meaning” and would expect to pay no more than that maximum. The district court further concluded that the plan language purporting to exclude out-of-network charges above the out-of-network rate from the out-of-pocket maximum was ambiguous and therefore a reasonable plan participant would not have understood that it might increase the out-of-pocket expense above the out-of-pocket maximum. Accordingly, it ordered that Coventry pay “all charges in excess of $8,000.” Coventry appealed.

The U.S. Court of Appeals for the Eighth Circuit disagreed with the district court and reversed its decision. In the circuit court’s view, when read in context with accompanying statements in the plan documents warning that the participant was “responsible for Charges that exceed [Coventry’s] Out-of-Network Rate for nonparticipating providers,” which “could result in [the participant] having to pay a significant portion of [the] claim,” a reasonable participant could reach only one conclusion: Out-of-network charges above the out-of-network rate might result in out-of-pocket expenditures above the “Out-of-Pocket Maximum.”

The circuit court acknowledged that the plaintiff had never read the limitations with respect to her “Out-of-Pocket Maximum” found on page three of the schedule of benefits. The circuit court continued, however, by noting that when interpreting the terms of the plan, it could not ignore provisions or rewrite the plan documents to conform with what the plaintiff actually read, but had to consider the documents as an “integrated whole,” and give effect to “all parts of the contract.” Moreover, the circuit court added, the language in the plan documents was “clear” and in “bold type” when it stated that “Charges that exceed [the] Out-of-Network Rate for Nonparticipating Providers do not apply to [the] Out-of-Pocket Maximum” [Kitterman v. Coventry Health Care of Iowa, Inc., 632 F.3d 445 (8th Cir. 2011)].

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