NEWSLETTER

Executive Summary: On November 14, 2011, the U.S. Supreme Court agreed to review the Eleventh Circuit Court of Appeals' determination that the individual mandate provision of the 2010 Patient Protection and Affordable Care Act (PPACA) is unconstitutional. See HHS v. Florida, (U.S. Nov. 14, 2011). The Court will consider several questions in addition to the constitutionality of the individual mandate and is unlikely to issue a ruling for several months. In the meantime, employers should continue to take steps necessary to ensure compliance with the Act's requirements.

The Eleventh Circuit's decision, discussed in our August 18, 2011, Legal Alert, Eleventh Circuit Finds Individual Mandate Provision of Health Care Reform Law Unconstitutional, available at http://www.fordharrison.com/shownews.aspx?show=7510, held that Congress exceeded its Commerce Clause power in enacting the individual mandate provision of the PPACA. The individual mandate requires that, beginning in 2014, everyone (with certain limited exceptions) must purchase federally-approved health insurance or pay a monetary penalty. Although the Eleventh Circuit held that the individual mandate provision is unconstitutional, it also found that this provision is severable from the remainder of the Act. Accordingly, the Eleventh Circuit did not strike down the entire PPACA.

Although several federal courts have considered the constitutionality of the PPACA, the Eleventh Circuit is the only federal appeals court to hold that the individual mandate is unconstitutional.

• Whether Congress had the power under Article I of the Constitution to enact the individual mandate provision.
• Whether the lawsuit brought to challenge the individual mandate provision is barred by the Anti-Injunction Act.
• Whether, if the individual mandate is unconstitutional, it can be severed from the rest of the Act.
• Whether Congress exceeded its powers and acted coercively by requiring states to expand Medicaid coverage or lose federal funding for Medicaid programs.

The Court has not set a date for oral argument; however, it likely will be sometime in March 2012. The Court has allocated over five hours for oral arguments instead of the usual one hour, illustrating the importance of the case. At this point, it is impossible to predict how the Court will rule; thus, it is important for employers to continue to comply with the PPACA and take steps to come into compliance with the provisions that have not yet taken effect.

Executive Summary: For the first time, the Second Circuit Court of Appeals has held that a "material adverse employment action" in the context of a Family Medical Leave Act (FMLA) retaliation claim need not be all that "material." See Millea v. Metro-North R.R. Co., (2nd Cir. August 8, 2011).

Millea suffered from severe post-traumatic stress disorder as a result of combat as a Marine during the First Gulf War, which caused unpredictable panic attacks and exhaustion that could require time off from work on short notice. Millea began working for Metro-North in 2001. In 2005, he applied for and was granted intermittent FMLA leave for 2006.

In the summer of 2006, Millea and his supervisor (with whom he had a contentious relationship) got into a heated telephone conversation that triggered one of Millea's panic attacks. Millea immediately left work and saw his doctor. Because the encounter with the supervisor led to the attack, Millea did not inform the supervisor of his unforeseen FMLA leave. Instead, Millea informed the lead clerk and asked him to inform the supervisor, which he did. The next day, Millea called the lead clerk again to report that he would be taking another FMLA day and this information was again relayed to the supervisor.

The employer's internal leave policy requires an employee to provide direct notice to his or her supervisor as soon as possible when the need for FMLA leave is unforeseeable. Because Millea did not notify his supervisor directly, his absences were logged as non-FMLA leave. The employer opened an investigation of Millea, which resulted in a formal Notice of Discipline being placed in his employment file for one year.

Millea subsequently sued the employer for FMLA interference, FMLA retaliation, and intentional infliction of emotional distress (IIED). A jury returned a verdict in favor of Millea on his FMLA interference claim, but against him on his FMLA retaliation and IIED claims.

Both parties appealed the jury verdict. The Second Circuit upheld the jury's verdict as to the FMLA interference and IIED claims, but vacated and remanded the case for retrial on the FMLA retaliation claim.

To prove a retaliation claim under the FMLA, an employee must show that an employer intentionally discriminated against him for exercising his FMLA rights. To prove a claim through circumstantial evidence, the employee may establish a prima facie case of retaliation by showing: (1) he engaged in statutorily protected activity, (2) he suffered a materially adverse employment action, and (3) the decision was causally related to the protected activity.

At issue in this case was the trial court's denial of Millea's requested jury instruction on "materially adverse employment action." Millea sought a charge using the definition articulated by the Supreme Court in the Title VII lawsuit, Burlington Northern & Santa Fe Ry. v. White, 548 U.S. 53, 60 (2006). Specifically, Millea proposed that an adverse employment action occurs when "a reasonable employee in the plaintiff's position would have found the alleged retaliatory action materially adverse," and that a retaliatory action is "materially adverse" when the action "would have been likely to dissuade or deter a reasonable worker in the plaintiff's position from exercising his legal rights."

The trial court rejected Millea's proposed instruction; however, on appeal the Second Circuit held that the trial court's instruction on "materially adverse" was impermissibly narrow. The Second Circuit found that the Supreme Court's expansion of the definition of "materially adverse employment action" for purpose of Title VII retaliation claims applies to FMLA retaliation claims as well.

In reaching this decision, the Second Circuit followed the reasoning of several other federal appeals courts, including the Third, Fourth, Fifth, Seventh and Tenth Circuits. The court held that "[f]or purposes of the FMLA's anti-retaliation provision, a materially adverse action is any action by the employer that is likely to dissuade a reasonable worker in the plaintiff's position from exercising his legal rights." In remanding the case for a new trial on this claim, the court noted that a reasonable jury could determine that a letter of reprimand would deter a reasonable employee from exercising his FMLA rights.

Although the Second Circuit upheld the jury's verdict on the FMLA interference claim, it held that the employer's internal policy requiring direct notice is inconsistent with the FMLA.

The FMLA generally requires employees to "comply with the employer's usual and customary notice and procedural requirements for requesting leave." 29 C.F.R. § 825.303(c). This requirement, however, is relaxed in "unusual circumstances" or when the company policy conflicts with the law. When the need for FMLA is unforeseeable (as Millea's was), the FMLA allows notice to be given by "the employee's spokesperson (e.g., spouse, adult family member, or other responsible party) if the employee is unable to do so personally." 29 C.F.R. §§ 825.303(a) and (c).

The Second Circuit held that since this regulation specifically condones indirect notification when an employee is unable to notify directly, the employer's policy conflicts with the FMLA and is invalid to the extent it requires direct notification even when the FMLA leave is unforeseen and direct notification is not an option. The Second Circuit held that the question of whether a situation constitutes an "unusual situation" in which an employee is "unable" to provide direct notification is a question of fact for the jury to decide.

The Second Circuit's decision is significant because it is the first time this court has recognized the broader definition of "materially adverse employment action." If other federal appeals courts continue to adopt this broader definition, more employers may find themselves involved in litigation over whether an action taken against an employee was "materially adverse." This decision is also significant because it holds that an employer's rigid policy of requiring employees to directly notify their supervisor of a need for FMLA leave, even if the leave is unforeseeable, is invalid as inconsistent with the FMLA.

If you have any questions regarding the issues addressed in this article, please contact the author, Michelle Tatum, an attorney in our Jacksonville office, at mtatum@fordharrison.com or the Ford & Harrison attorney with whom you usually work.

Executive Summary: This calendar year has produced an alarming trend in employment litigation to which employers should pay particular attention – a boom in the number of class action lawsuits filed under the Fair Credit Reporting Act (FCRA) based on allegations of improperly conducted applicant/employee background checks. These lawsuits have resulted in several multi-million dollar settlements, not to mention the dramatic legal fees and costs associated with defending any class action. Thus, all employers should develop a familiarity with FCRA requirements and implement FCRA-compliant background screening policies and procedures in order to prevent costly litigation and provide a defense in the event of litigation.

Many employers utilize some form of background and credit checks as part of their screening and hiring process. This process can be as simple as in-house internet searches or applicant questionnaires, but about half of American employers use more in-depth information from a third-party Credit or Consumer Reporting Agency ("CRA"). CRAs such as Equifax, TransUnion, and Experian can create comprehensive consumer reports about everything from creditworthiness to criminal records.

When an employer utilizes a CRA to obtain information about an employee or applicant, the employer must ensure compliance with the FCRA (or run the risk of statutory penalties for each violation). In order to comply with the FCRA, an employer must (1) properly disclose its intent to procure the consumer report; (2) obtain express authorization from the applicant/employee to procure the consumer report; (3) provide the applicant/employee with a pre-adverse action notice if the employer plans to take an adverse action based in whole or in part on information contained in the consumer report; and (4) provide the applicant/employee with an adverse action notice after taking the adverse action on these grounds. Each of these four requirements contains sub-requirements, thereby creating the need for employers to generate and implement detailed policies and procedures for their background screening processes to ensure compliance with the FCRA.

If a court determines that an employer has negligently violated the FCRA, the employer is subject to damages equaling: (1) any actual damages the applicant/employee sustains as a result of the violation; and (2) the costs of the action together with reasonable attorneys' fees (if the applicant/employee prevails in litigation to enforce his or her FCRA rights). The finding of a willful violation subjects an employer to damages equaling: (1) any actual damages the applicant/employee sustains as a result of the violation OR statutory damages between $100 and $1000 (in which case the applicant/employee is not required to prove actual damages); (2) punitive damages; and (3) the costs of the action together with reasonable attorneys' fees (if the applicant/employee prevails in litigation to enforce his or her FCRA rights).

In 2007, the United States Supreme Court defined "willfulness" under the FCRA in accordance with traditional common law principles, thereby subjecting both "knowing" and "reckless" violations of the FCRA to the more severe penalty provisions. See Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 57–58 (2007). In order to constitute "recklessness," the Court noted that the conduct in question must violate "an objective standard: action entailing ‘an unjustifiably high risk of harm that is either known or so obvious that it should be known.'" Accordingly, the Court held that an employer willfully violates the FCRA when it violates the Act in a manner that runs the "risk of violating the law substantially greater than the risk associated with a reading that [is] merely careless." The Court made clear that an employer's subjective knowledge that its conduct violated the FCRA is insignificant in determining whether the conduct is willful – that determination is based solely on an objective assessment.

Calendar year 2011 has seen a number of class actions claiming that employers have violated the FCRA in their background screening procedures. While one can only guess as to the subjective decisions that led to the filing of these actions, the driving force behind these claims appears obvious – money. The FCRA's statutory scheme and the nature of the facts underlying these claims may be suitable for class action litigation, and plaintiffs' attorneys are clearly honing in on this fact.

First, the FCRA contains a clear-cut remedy available to all individuals who can prove they have suffered from a willful violation of the Act. Second, there are likely a large number of potential class members in the event of a violation by any decent-sized employer – the FCRA's statute of limitations is two years, and an employer that performs background checks subject to the FCRA likely utilizes the same process for each applicant/employee it screens. Third, the FCRA allows a prevailing applicant/employee (or class thereof) to collect court costs and reasonable attorneys' fees. Fourth, and perhaps most significant, the FCRA contains no cap on total liability to which an employer can be subjected in the event of multiple violations. Thus, while single-plaintiff actions are not cost-effective for the individual or the attorney, a class action can be extremely fruitful for both – the individual's exposure in the event of an unsuccessful claim is essentially non-existent, and the attorney's ability to recover is amplified tremendously. Additionally, the potential exposure for the employer is often so great that the employer simply negotiates an out-of-court settlement to avoid costly legal fees and the chance that the plaintiffs will recover a dramatic verdict at the conclusion of trial.

A review of several recent FCRA class actions demonstrates the need for employers to remedy any FCRA compliance issues they may have sooner rather than later. In March 2011, an industry leading transport operator settled two FCRA class actions for the collective sum of $5.9 million in the face of allegations that its subsidiaries had conducted unlawful criminal background checks on prospective employees. In April 2011, a $2.6 million settlement resulted from a class action against a freight service and distribution provider in which the plaintiffs alleged that the employer did not provide FCRA-compliant disclosures, did not obtain FCRA-compliant authorizations, and did not provide pre-adverse action notices. Also in April 2011, a class action was filed against a global security company based solely on the company's failure to provide proper pre-adverse action notices. Finally, a class action against a national retail corporation was filed in October 2011 alleging that the employer utilized electronic disclosure and authorization forms and thereby failed to provide applicants with "written" copies of these forms in accordance with the Act's requirements.

The recent uptick in FCRA class actions suggests that this is an issue that will not simply fade away in the near future. Plaintiffs' attorneys have identified a money-maker in these claims, and it is now incumbent on employers to take necessary preventative steps to stop such claims before they come knocking on the employers' doors. While the possible exposure associated with an FCRA class action is tremendous, employers can easily prevent (or, at the very least, create winning defenses against) FCRA claims through the implementation and utilization of FCRA-compliant background screening procedures.

If your organization utilizes background checks on applicants, we suggest that you consult with an experienced labor and employment attorney who has knowledge of FCRA requirements and strategies in complying therewith. Additionally, Ford & Harrison attorneys have developed a Fair Credit Reporting Act Kit, which includes an overview of the FCRA as well as the necessary forms and checklists and can be purchased from Ford & Harrison.

If you have any questions regarding the issues addressed in this article, please contact the author, Lucas Asper, an attorney in our Spartanburg office at lasper@fordharrison.com or the Ford & Harrison attorney with whom you usually work. For information regarding purchasing the Fair Credit Reporting Act Kit, please contact Nicole Montgomery at nmontgomery@fordharrison.com.