Finding That Plaintiff Is No Longer Disabled Is Affirmed, Despite Social Security Administration Determination That…

May 6, 2005 | Employment & Labor

Finding That Plaintiff Is No Longer Disabled Is Affirmed, Despite Social Security Administration Determination That Plaintiff Was Disabled

Robert Muller appealed from a judgment of the United States District Court for the Northern District of New York that denied his claim that the termination of his employer-sponsored disability benefits by First Unum Life Insurance Company violated ERISA. In particular, Muller argued that the district court had improperly concluded that he was capable of returning to work as of May 23, 1995, and was no longer disabled.

The US Court of Appeals for the Second Circuit affirmed the district court’s decision and found that Muller’s claim had been properly denied. In the circuit court’s view, this conclusion was supported in the record: Muller’s medical providers had stated that Muller was no longer “impaired” and “[could] return to work” as of May 23, 1995, and Muller’s nursing license also was restored on this date. Because the policy provided that disability benefits would terminate on the date that the insured was no longer disabled, the district court did not err by affirming First Unum’s decision to discontinue Muller’s benefits as of May 23, 1995, the appellate court concluded. [Muller v. Trustees of the New York Hospital Ass’n of New York State Group Ins. Trust, 2005 U.S. App. Lexis 760 (2d Cir. Jan. 14, 2005).]

Comment: It should be noted that both the district court and the appellate court reached their decisions despite the fact that the Social Security Administration had determined in 1997 that Muller was disabled. Generally speaking, neither plan administrators nor courts must adopt an SSA disability decision as their own; indeed, they may not even be obligated to consider such a decision or any other evidence that is outside the administrative record when making their decisions.

Court Allows Constructive Trust To Recover Overpaid Benefits, But Finds That Judgment for Balance May Not Be Imposed On Beneficiary

After the plan administrator for the North American Coal Corporation’s Retirement Savings Plan mistakenly overpaid monies from a retirement savings account to Todd Roth, Roth endorsed the disbursement check over to Mitchell Schlaht. Schlaht and Roth refused to return the overpaid benefits, and the administrator brought suit. The district court entered judgment against Roth and Schlaht, and they appealed.

The US Court of Appeals for the Second Circuit first found that there were no material facts in dispute: the record showed that as of July 28, 2003, 65 percent of Roth’s 401(k) monies belonged to his former wife; that Roth knew he was not entitled to the monies at issue; that the overpayment arose from administrative error; and that Roth had endorsed the check to Schlaht, who had deposited the funds in a credit union.

According to the circuit court, it thus was proper for the district court to impose a constructive trust over the overpaid benefits, to permanently bar Roth and Schlaht from disposing of or transferring any of the funds still in their possession and control, and to require the return of such funds and a tracing of any portion of the funds no longer in their possession or control.

However, the Second Circuit ruled, the district court’s award of restitution of a sum certain, and its finding of personal liability as to Roth, constituted legal remedies that were not authorized by ERISA. Therefore, the appellate court vacated those portions of the district court order finding Roth personally liable and ordering him to make restitution of a sum certain. [North American Coal Corp. Retirement Savings Plan v. Roth, 395 F.3d 916 (8th Cir. 2005).]

Comment: The appellate court would not permit the beneficiary to be held liable for the balance that might be owed if the funds in his possession were insufficient to allow the plan administrator to recover the full amount of the overpayment. Although such overpayments are not common, this decision suggests that administrators should adopt accounting and auditing practices to catch errors soon after they are made or they may not be able to recover the overpayments.

Employer’s Request That Employee Turnover Results of HIV-Related Lab Tests Found Not To Violate ADA

The Americans with Disabilities Act (ADA) provides that an employer that is subject to the ADA “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 . . . inquiry is shown to be job-related and consistent with business necessity.” This law does not mean that employers may not require a medical exam or may not make inquiries of an employee as to the nature or severity of a disability; rather, an employer may do so if the inquiry is “job-related” and “consistent with business necessity.”

With respect to inquiries directed towards individual employees, courts have readily found a business necessity where an employer demonstrates that a medical examination or inquiry is necessary to determine whether the employee can perform job-related duties, as long as the employer can identify legitimate, non-discriminatory reasons to doubt the employee’s capacity to perform his or her duties. Moreover, the employer also must show that the examination or inquiry “genuinely serves the asserted business necessity” and that the request “is no broader or more intrusive than necessary.” Significantly, the employer need not show that the examination or inquiry is the only way of achieving a business necessity, but the examination or inquiry must be a “reasonably effective method of achieving the employer’s goal.”

Recently, the employer of a New York City bus driver asked the driver to disclose the results of his HIV-related laboratory tests. The driver objected, but a federal district court in New York rejected his position. The driver appealed, but the US Court of Appeals for the Second Circuit affirmed the district court’s ruling.

As the Second Circuit explained, the driver had stated, in an application for intermittent leave under the Family and Medical Leave Act that was signed by his doctor, that the driver’s “own serious health condition renders me unable to perform the functions of my position,” that the condition had left the driver “unable to perform work of any kind,” and that the driver “will need intermittent leave at undetermined times for lifetime.” In the appellate court’s view, these representations demonstrated that the driver’s employer had “legitimate, non-discriminatory reasons to doubt the employee’s capacity to perform his . . . duties.” Furthermore, the circuit court concluded, requesting existing laboratory data was surely “a reasonably effective method of achieving the employer’s goal” of determining whether the driver could safely perform those duties. It then rejected the driver’s claim that the inquiry violated the ADA. [Gajda v. Manhattan and Bronx Surface Transit Operating Authority, 396 F.3d 187 (2d Cir. 2005).]

Comment: Whether a particular request by an employer for information about an employee’s disability is permitted under federal law requires a careful analysis of the facts. Employers seeking such information should make every effort to ensure that their request is necessary and as narrow as possible to meet their goals.

Employer That Granted FMLA Leave May Be Barred From Later Arguing That Employee Was Not Entitled To It

Charles Sorrell, who worked in an outside sales position for Rinker Materials Corporation, informed Randy Yoakum, a Rinker supervisor, that he had decided to retire. Within a few days after announcing his retirement, Sorrell was informed that his replacement would be another Rinker employee named Steve Jeffries. Sorrell assisted in training Jeffries to be his replacement. Rinker officials filled out a personnel form indicating that Sorrell would be retiring and Yoakum signed the form, indicating his approval of the personnel change.

Sorrell’s retirement decision apparently was prompted, at least in part, by his desire to care for his wife, who had recently developed an eye disorder. At the time Sorrell announced his retirement decision, he erroneously believed that the Family and Medical Leave Act provided leave only for new parents. After learning that he might be entitled to leave pursuant to the Act to care for his wife, Sorrell decided that he would prefer to take such leave instead of retiring. At some point after announcing his retirement, Sorrell orally notified Rinker that he wished to take leave under the Act rather than retire.

Sorrell filled out the appropriate forms, provided a letter from his wife’s physician that indicated that “a 3 month leave would help,” left for a trip to Florida with his wife, and was granted FMLA leave. When he returned, he was told that Rinker was in a “hiring freeze” and that there were no positions available. After being offered a different territory, he said he wanted his old territory back. After Rinker rejected this proposition, Sorrell brought suit against Rinker alleging a violation of his rights under the Family and Medical Leave Act. In particular, Sorrell claims that Rinker had violated his rights by failing to restore him to his prior position, or an equivalent one, upon his return from leave.

The district court granted Rinker’s motion for summary judgment on the ground that Sorrell had relinquished his outside sales position prior to requesting FMLA leave and, therefore, was not entitled to that position, or an equivalent one, upon his return from leave. Sorrell appealed.

The US Court of Appeals for the Sixth Circuit returned the case to the district court, stating that the district court should analyze the effect of Rinker’s unconditional approval of Sorrell’s request for leave on its subsequent ability to contest his entitlement to leave and whether that approval barred Rinker from thereafter challenging Sorrell’s right to receive FMLA leave. [Sorrell v. Rinker Materials Corp. 395 F.3d 332 (6th Cir. 2005).]

Comment: Employers should carefully heed the Sixth Circuit’s statement that, under the right circumstances, an employer may be barred (or “estopped”) from challenging an employee’s entitlement to FMLA leave based on its prior actions or statements. Indeed, other courts have reached this conclusion as well. For example, the court in Duty v. Norton-Alcoa Proppants, 293 F.3d 481 (8th Cir. 2002), held that an employer was estopped from asserting an affirmative defense that an employee’s leave was confined to the 12 weeks provided by the FMLA where the employer explicitly had guaranteed a longer leave. In Kosakow v. New Rochelle Radiology Assocs., P.C., 274 F.3d 706 (2d Cir. 2001), the court held that the district court could conclude on remand that an employer was equitably estopped from challenging an employee’s eligibility for leave where the employer allegedly had failed to “inform its employees of the protections of the [Act] and what was required of its employees in order that they qualify for those protections.” See, also, Dormeyer v. Comerica Bank-Illinois, 223 F.3d 579 (7th Cir. 2000) (holding that “an employer who by his silence misled an employee concerning the employee’s entitlement to family leave might, if the employee reasonably relied and was harmed as a result, be estopped to plead the defense of ineligibility to the employee’s claim of entitlement to family leave”).

Employee Terminated For Violating Employer’s No-Show Policy May Not Bring FMLA Claim

The plaintiff in this case alleged that in mid-April 2001 she asked her former employer, Thomas & Betts Corp. (T&B), for leave under the Family Medical Leave Act. T&B apparently informed the plaintiff that the necessary paperwork for her FMLA request would have to be submitted no later than April 30, 2001. The plaintiff, however, did not submit the proper forms until May 8, 2001. On May 2, 2001, T&B terminated the plaintiff for failing to report or call-in to work for three consecutive work days under its employment policy. The plaintiff brought suit against T&B for, among other things, violating the FMLA. The district court granted T&B summary judgment on the FMLA claim, and the plaintiff appealed.

The court of appeals ruled that the district court had not erred in granting T&B summary judgment on the plaintiff’s FMLA claim. It pointed out that T&B claimed that it had terminated the plaintiff for a nondiscriminatory reason; namely, because she violated its no-show policy. The policy provided that employees may be terminated if they fail to call or are absent without notice for three or more consecutive workdays. According to T&B, it informed the plaintiff that she needed to submit her FMLA forms no later then April 30, 2001 but that she did not contact T&B until May 7, 2001, and failed to submit her FMLA forms until May 8, 2001. Thus, the circuit court found, the plaintiff was absent for three or more consecutive work days and was terminated accordingly.

The appellate court added that the plaintiff failed to show that T&B’s proffered reason for her termination was “pretext” for discrimination. As the appellate court noted, the plaintiff testified at her deposition that she was fully aware of T&B’s policy stating employees who fail to report to work or call-in for three days may be terminated. Moreover, it continued, the plaintiff admitted that T&B told her to turn in her FMLA paperwork by April 30, 2001, but that she did not contact T&B for roughly six days. In the end, the appellate court ruled, the plaintiff failed to show that a reasonable factfinder would find T&B’s proffered reason for termination “unworthy of credence.” [Chavez v. Thomas & Betts Corp., 396 F.3d 1088 (10th Cir. 2005).]

Comment: As this case demonstrates, merely requesting FMLA leave is insufficient to entitle the employee to the leave. When other events intervene – such as an employee’s violation of an employer’s no-show policy – the employer may be able to take appropriate disciplinary action against the employee notwithstanding the FMLA leave request.

Prisoners Not Entitled To Fair Labor Standards Act’s Minimum Wage Protections

This case resolved an issue of some novelty: the plaintiffs, inmates of Whiteville Correctional Facility, a private prison owned by Corrections Corporation of America under contract to the Wisconsin Department of Corrections, claimed entitlement to the minimum wage provision of the Fair Labor Standards Act.

The US Court of Appeals for the Seventh Circuit rejected the claim, finding that the statute was intended for the protection of employees, and prisoners are not employees of their prison, whether it is a public or a private one.

As the appellate court explained, people “are not imprisoned for the purpose of enabling them to earn a living. The prison pays for their keep.” If a prison puts them to work, the appellate court observed, it is to offset some of the cost of keeping them, to keep them “out of mischief,” to ease their transition to the world outside, or to equip them with skills and habits that will make them less likely to return to crime outside. In the Seventh Circuit’s view, none of these goals is compatible with federal regulation of their wages and hours.

The circuit court also stated that it did not matter if the prison is private – prisoners, it concluded, simply “are not employees.” [Bennett v. Frank, 395 F.3d 409 (7th Cir. 2005).]

Comment: One might think that the type of claims asserted in this case are rather unique. It should be noted, however, that at least two courts – Watson v. Graves, 909 F.2d 1549 (5th Cir. 1990) and Carter v. Dutchess Community College, 735 F.2d 8 (2d Cir. 1984) – have held that the FLSA applies to prisoners working for private companies under work-release programs. Unlike the facts before the Seventh Circuit in Bennett, those prisoners were not working as prison labor, but as free laborers in transition to their expected discharge from the prison.

Reprinted with permission from the May 2005 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.

  • Brian S. Conneely





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