Employment Agreement’s Requirement that Employee Bring Legal Actions Within Six Months Is Ruled Invalid with Respect to FLSA and Equal Pay Act Claims

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

The plaintiff in this case worked for FedEx Customer Information Services, Inc., under an employment agreement that provided, in part, that “[t]o the extent the law allows an employee to bring legal action against Federal Express Corporation, 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.”

In April 2009, the plaintiff sued FedEx, asserting claims under the federal Fair Labor Standards Act (FLSA) and the federal Equal Pay Act. The plaintiff alleged that, from January 2004 through June 2008, FedEx had violated the Equal Pay Act by paying her less than it had paid a male employee for performing the same duties. She also alleged that FedEx had failed to pay overtime compensation to her as required by the FLSA.  The plaintiff’s claims were timely filed under the limitations periods in those laws.

FedEx moved for summary judgment, arguing that the plaintiff’s claims were untimely under her employment agreement because the last alleged illegal activity – the issuance of the plaintiff’s June 30, 2008 paycheck – had occurred more than six months before she had filed her lawsuit. The district court agreed with FedEx and granted its motion. The plaintiff appealed to the U.S. Court of Appeals for the Sixth Circuit.

The Sixth Circuit reversed the district court’s decision.  In its opinion, the circuit court explained that, nearly 60 years ago, the U.S. Supreme Court held that employees may not, either prospectively or retrospectively, waive their FLSA rights to minimum wages, overtime, or liquidated damages. The circuit court then found that the plaintiff’s employment agreement operated as a waiver of her rights under the FLSA, and it decided that, as applied to the plaintiff’s claim under the FLSA, the six-month limitations period in her employment agreement was invalid.

The circuit court next ruled that the six-month limitations period in the plaintiff’s employment agreement also was invalid as applied to the plaintiff’s claim under the Equal Pay Act. The Sixth Circuit noted that Congress had enacted the Equal Pay Act as an amendment to the FLSA in 1963. It decided that, by folding the Equal Pay Act into the FLSA, Congress meant for claims under the Equal Pay Act to be unwaivable just as claims under the FLSA were unwaivable. Accordingly, the Sixth Circuit concluded, the limitations provision in the plaintiff’s employment agreement operated as a waiver of her claim under the Equal Pay Act and, as applied to that claim, it also was invalid. [Boaz v. FedEx Customer Information Services, Inc., 2013 U.S. App. Lexis 16198 (6th Cir. Aug. 6, 2013).]

Circuit Court Upholds Company’s Decision to Fire Employee Who Left Drug Treatment Facility before Completing the Program

In this case, the plaintiff worked for Wyman-Gordon Forgings, L.P. (W-G) as an operator of the largest extrusion press in the world. Although he had taken Vicodin as prescribed by his doctor for a long time to manage the pain from various work-related injuries, the plaintiff began visiting physicians at other pain clinics to collect additional prescriptions for the same drug.

Under W-G’s drug-free workplace policy, any employee who developed a problem with drugs or alcohol could confidentially inform the company’s human resources (HR) manager to pursue treatment. The policy provided, however, that an employee “who rejects treatment or who leaves a treatment program prior to being properly discharged will be terminated.”

Following a near overdose, the plaintiff requested medical leave from W-G. Its HR representative granted the requested leave so that the plaintiff could be treated for his addiction, and he checked into a treatment center in Houston. After successfully detoxifying but before completing the second portion of the program, which was intended to address his addiction by helping him curb his need for the drug, the plaintiff requested that he be discharged. The treatment center discharged the plaintiff, albeit against the recommendation of the physician at the center who was treating him.

After the plaintiff returned to W-G, he was informed that, under the company’s drug-free workplace policy, his early departure from the treatment center was grounds for termination. However, W-G permitted the plaintiff to reenter the treatment center to complete his treatment and advised him that he would be welcomed back to work if he successfully completed his course of treatment there.

The plaintiff was readmitted to the treatment center but again checked himself out before he had completed the full program. W-G fired the plaintiff for twice failing to complete the treatment program, and the plaintiff sued W-G, alleging that it had violated the Americans with Disabilities Act (ADA) and the Family Medical Leave Act (FMLA).

The district court granted W-G’s motion for summary judgment, ruling that (1) the ADA’s exclusion of current drug users applied to the plaintiff, and he was not otherwise protected by the ADA, and (2) the FMLA did not protect the plaintiff from termination following his violation of W-G’s drug-free workplace policy. The plaintiff appealed to the U.S. Court of Appeals for the Fifth Circuit.

The Fifth Circuit affirmed the district court’s decision. In its opinion, the Fifth Circuit first explained that the plaintiff, as an employee who was “currently engaging in the illegal use of drugs,” was excluded from ADA coverage. Moreover, the circuit court rejected the plaintiff’s argument that he was subject to ADA protection because the reason he was fired was his failure to complete the treatment program, which was distinct from his use of illegal drugs. The appellate court pointed out that, under the ADA, a plaintiff had to show, among other things, that he or she was subject to an adverse employment decision because of a disability. The Fifth Circuit then reasoned that if the plaintiff was not fired “on the basis” of his drug use, then he was not fired “because of” his addiction (i.e., his disability), and his ADA claim had to fail for that reason.

Next, the circuit court rejected the plaintiff’s contention that he was protected by the ADA because he was “participating in a supervised rehabilitation program and [was] no longer engaging in [illegal drug] use” at the time he was fired. It found that his refusal to complete the inpatient treatment program and his continued use of Vicodin following detox “support[ed] a reasonable belief that continued drug use was still an on-going problem at the time [W-G] terminated his employment.”

The Fifth Circuit also was not persuaded by the plaintiff’s contention that his firing violated his rights under the FMLA. It upheld W-G’s conclusion that the term “treatment program” in its drug-free workplace policy referred to the entire treatment program – both the detox step and the post-detox treatment step – and that the plaintiff had violated W-G’s policy when he began but did not complete the program at the treatment center. The circuit court found that “no reasonable jury” could find that the plaintiff had been denied reinstatement for any reason other than his refusal to continue his FMLA leave period for the express purpose for which it was taken: completing his drug dependency treatment at the Houston facility. Accordingly, it affirmed the district court’s decision in favor of W-G. [Shirley v. Precision Castparts Corp., 2013 U.S. App. Lexis 16661 (5th Cir. Aug. 12, 2013).]

Court Affirms that Plaintiff Who Sued under ERISA Is Not Entitled to a Jury Trial

The plaintiff in this case sued State Farm Group Long Term Disability Plan for U.S. Employees and Life Insurance Company of North America (LINA), alleging that LINA had wrongfully terminated his long term disability benefits under the State Farm plan. The plaintiff argued that recent case law had expanded the scope of jury trials and demanded a jury trial on his claim. The defendants moved to strike the plaintiff’s jury demand.

The court granted the defendants’ motion. It explained that the Seventh Amendment to the U.S. Constitution guarantees the right to a jury “[i]n Suits at common law, where the value in controversy shall exceed twenty dollars.”  As the court explained, the phrase “Suits at common law” refers to lawsuits in which legal rights are to be ascertained and determined, as opposed to lawsuits where “equitable” rights alone are recognized and equitable remedies administered.

The court then examined whether the plaintiff’s claim involved legal or equitable rights. It observed that his claim was governed by the Employee Retirement Income Security Act of 1974, and that the U.S. Supreme Court had recently reaffirmed that “a suit by a beneficiary against a plan fiduciary (whom ERISA typically treats as a trustee) about the terms of a plan (which ERISA typically treats as a trust)” was an equitable claim.

Accordingly, the court concluded, because a suit by a beneficiary seeking to enforce the terms of a plan was equitable in nature, the plaintiff was not entitled to a jury trial on his ERISA claim against the State Farm plan and against LINA. [Smith v. State Farm Group Long Term Disability Plan for U.S. Employees, 2013 U.S. Dist. Lexis 121572 (E.D.Ill. Aug. 27, 2013).]

Antenuptial Agreement Did Not Adequately Waive Spouse’s Claim to 401(k) Plan Benefits, Circuit Court Decides

Michael G. Cox, II, and Kathy L. Cox twice married and divorced between 1997 and 2004. On September 23, 2004, while unmarried, Cox designated his parents as beneficiaries of his MidAmerican Energy Corporation (MEC) 401(k) plan, in which he participated while employed at MEC. Thereafter, the couple decided to marry a third time. They executed an antenuptial agreement on February 19, 2010, before marrying on March 6, 2010, and they re-executed the same antenuptial agreement after their marriage on March 26, 2010.

In May 2011, Cox sought a divorce, asking for a “division of assets and debts pursuant to the Antenuptial Agreement.” He died before the divorce could be finalized.

After Cox’s death, his parents and his widow disputed who was to receive the funds in his MEC 401(k) plan. MEC sent Cox’s widow a letter stating that, among other things, it believed that the parents were entitled to the funds in the MEC 401(k) plan and asking her to sign a waiver to any rights to the funds.

After she refused to sign a waiver, MEC filed an interpleader action against her and Cox’s parents, seeking a determination of the proper recipient of the funds in the MEC 401(k) plan. The district court determined that the antenuptial agreement was not effective to waive Cox’s widow’s survivor rights to the MEC 401(k) plan because of a lack of acknowledgment and that, as a result, she was entitled to the funds. Cox’s parents appealed to the U.S. Court of Appeals for the Eighth Circuit.

The circuit court affirmed the district court’s decision. In its opinion, it explained that, under ERISA, a qualified preretirement survivor annuity had to be provided to the surviving spouse of a vested plan participant who died before the annuity starting date. The Eighth Circuit continued by noting that a plan participant could elect at any time during the applicable election period to waive the qualified preretirement survivor annuity form of benefit. However, it pointed out, that kind of election was effective only if:

  1. the spouse of the participant consented in writing to the election;
  2. the election designated a beneficiary (or a form of benefits) that could not be changed without spousal consent (or the consent of the spouse expressly permitted designations by the participant without any requirement of further consent by the spouse); and
  3. the spouse’s consent acknowledged the effect of the election and was witnessed by a plan representative or by a notary public.

The appellate court then agreed with the district court that Cox’s widow’s consent to the antenuptial agreement did not satisfy the third requirement of an effective election: the acknowledgment requirement.

The Eighth Circuit conceded that the antenuptial agreement contained several broad waiver provisions regarding retirement accounts, both generally and the MEC 401(k) plan in particular. As a whole, however, the circuit court found that the antenuptial agreement was equivocal whether Cox’s widow had waived her rights at all. It explained that the agreement contemplated the future execution of a waiver or consent to change in beneficiary, and it reasoned that the inclusion of these sections suggested that Cox’s widow had not waived her spousal rights in the antenuptial agreement because, were the antenuptial agreement itself a sufficient waiver, these provisions “should not have been included in the agreement.” Simply put, the circuit court declared,

In light of this promise to execute a waiver and in the absence of the fulfillment of this promise, [Cox’s widow] could not have meaningfully acknowledged the effect of any waiver of her spousal rights in the antenuptial agreement.

The appellate court also found that the antenuptial agreement had failed to inform Cox’s widow, in “clear and express terms,” that she both had a spousal right to receive the funds in the MEC 401(k) plan and that she was waiving this right. The Eighth Circuit pointed out that one section of the agreement was “couched by the equivocal language” that stated, “[t]o the extent that either party is entitled to benefits receivable under a retirement plan[,]” and failed to make clear that, by executing the waiver, Cox’s widow would not receive the funds to which she otherwise would be entitled in the MEC 401(k) plan.

According to the Eighth Circuit, any waiver of retirement benefits by a spouse must “strictly comply with the consent requirements set forth in ERISA” and the formalities were intended to protect against the risks of a spouse’s unwitting waiver of spousal rights. Given ERISA’s strict compliance requirements, the circuit court concluded, the antenuptial agreement did not contain an acknowledgment by Cox’s widow sufficient to satisfy ERISA’s requirements. Accordingly, Cox’s designation of his parents as beneficiaries of the MEC 401(k) plan had to yield to her rights as surviving spouse. [MidAmerican Pension and Employee Benefits Plans Administrative Committee v. Cox, 720 F.3d 715 (8th Cir. 2013).]

Circuit Upholds “No-Fault” Attendance Policy and Rejects Claim that Employer Interfered with Employee’s FMLA Rights

During his employment with Dana Light Axle Manufacturing, LLC, the plaintiff in this case apparently had problems with his attendance and with obtaining proper medical certifications for various absences that he claimed were protected under the Family Medical Leave Act (FMLA). Eventually, the plaintiff developed a hernia that required surgery. Thereafter, Dana terminated the plaintiff’s employment for his failure to follow the call-in requirements of Dana’s attendance policy.

The plaintiff sued Dana, alleging interference with his rights under the FMLA. The district court granted judgment in favor of Dana, and the plaintiff appealed to the Sixth Circuit.

The circuit court affirmed. In its decision, it explained that Dana had an attendance policy that was a “no-fault” plan, under which Dana expected perfect attendance. Under the policy, each employee was responsible to personally call in his or her own absences. Moreover, the Sixth Circuit noted, the policy expressly provided: “All absences must be phoned into [the number provided] on a daily basis. Calls to other numbers will not be acceptable.” Employees were instructed to call in each and every day of an absence “before the start of your shift.” Importantly, the circuit court pointed out, the policy explicitly stated, “If an individual fails to report to work for two days and has not called in, that person is considered to have voluntarily quit.”

The Sixth Circuit noted that, according to FMLA regulations and Dana’s FMLA policy, Dana could deny or delay an employee’s taking of leave if the policy’s requirements were not met. It then observed that the plaintiff had failed to “call in” pursuant to the policy. The Sixth Circuit ruled that an employer may enforce its usual and customary notice and procedural requirements against an employee claiming FMLA-protected leave, unless unusual circumstances justified the employee’s failure to comply with the employer’s requirements. In this case, the Sixth Circuit found, the plaintiff had produced no evidence demonstrating the type of “unusual circumstances” that would have justified his failure to follow the call-in requirements of Dana’s attendance policy. Furthermore, it stated, despite the plaintiff’s “personal impression,” there was no evidence that Dana had waived its call-in requirements.

Therefore, the Sixth Circuit held, regardless of whether the plaintiff had otherwise provided sufficient FMLA notice to Dana, Dana nevertheless was justified in terminating the plaintiff’s employment for his failure to follow the call-in requirements of Dana’s attendance policy. [Srouder v. Dana Light Axle Manufacturing, LLC, 2013 U.S. App. Lexis 16279 (6th Cir. Aug. 7, 2013).]

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

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