May 3, 2004

OSHA: Parent Not Criminally Liable for Subsidiary’s Fatalities

Holland & Knight Alert
Howard Sokol

Occupational Safety and Health (OSHA)

Parent Not Criminally Liable for Subsidiary’s Fatalities

Howard Sokol

In United States v. MYR Group, Inc., the U.S. Court of Appeals for the Seventh Circuit (IL, IN, WI) upheld the lower court’s dismissal of a criminal indictment against MYR Group arising out of the fatal electrocutions of two workers of L. E. Myers, Co., a subsidiary of MYR Group. The unanimous decision criticized the federal government’s criminal indictment against MYR Group simply because it oversaw the training and safety programs at L.E. Myers, in addition to those at its other subsidiaries, and provided L.E. Myers with safety manuals and instruction relating to electrical safety issues. Judge Posner’s decision held that MYR Group could not be held criminally liable under the OSH Act merely because of its relationship and interaction with its subsidiary, and that to hold otherwise would effectively extend the reach of the Act to “anyone’s employees, not merely employees of the employer accused of having violated the regulations.” The court’s decision was limited only to the charges brought against MYR Group. L.E. Myers is still awaiting trial in the lower court on the charges brought against it by the U.S. Attorney’s Office. The Seventh Circuit, the first U.S. Court of Appeals to squarely address this issue, distinguished the facts of the case from other cases where the multiemployer worksite doctrine is applied to hold one employer liable for the safety of another’s employees, noting that MYR Group neither controlled the hazard nor had any of its own employees working on the sites where the L.E. Myers’ employees were electrocuted.

Pensions and Benefits (ERISA)

Supreme Court Considers Preemption of Claims Against HMOs

On March 23, the United States Supreme Court heard oral arguments on whether state tort law claims against health maintenance organizations (HMOs) were preempted by ERISA. In the two related claims, Aetna Health Inc. v. Davila and Cigna Healthcare, Inc. v. Calad, the plaintiffs were individual HMO subscribers who claimed they suffered medical complications as a result of their HMO’s refusal to cover certain treatments. In one case, the HMO refused to pay for a second day of hospitalization following surgery, and in the other case the HMO refused to pay for a recommended medication when a comparable, less expensive drug was available. The U.S. Court of Appeals for the Fifth Circuit permitted the individuals to proceed with their claims against the HMOs under the Texas Health Care Liability Act, a state tort law that allows HMO subscribers to collect monetary damages for HMO negligence.

The HMOs appealed that decision, arguing that the state claims are preempted by ERISA, because they relate to the administration of benefit plans, and such decisions are governed solely by federal law. The difference between state and federal remedies is significant, because ERISA excludes punitive damages and other monetary remedies available under state law and generally limits remedies to providing the benefits in the benefit plan. The key questions at oral argument focused on whether the HMOs’ decisions were medical decisions subject to state malpractice law or benefits decisions governed by federal law. The tenor of the justices’ questions and comments seemed to favor the HMOs’ perspective that the decisions at issue were not medical treatment decisions, but rather decisions about whether the plan would pay for certain treatments. The Court should issue its decision before the end of the current term in June.

Illusory Stock Option Voids Noncompete

In Olander v. Compass Bank, the non-compete clause in a bank’s stock option agreement with its executive was found unenforceable by the U.S. Court of Appeals for the Fifth Circuit (TX, LA, MS) because the continued existence of the stock option, although it would remain in effect for 10 years, depended entirely upon the executive continuing his at-will employment, which the bank had the discretion to terminate at any time for any or no reason. The enforceability of the noncompete was a precondition for the stock options to remain in effect, and the agreement gave the bank the right to the stock or the profit from its sale if the noncompete were declared invalid in whole or in part. The executive resigned from his position after exercising his rights to the stock options and also filed suit to have the noncompetes declared unenforceable. The bank filed claims against the former executive for breach of the noncompetes, reimbursement and equitable recovery. Finding the noncompete unenforceable, the court determined that the executive owed the bank the profits arising from his sale of stock.

Traditional Labor - National Labor Relations Act (NLRA)

Bargaining Over Good Deeds

Frederick D. Braid

The D.C. Circuit recently upheld the NLRB’s finding of an unfair labor practice when an employer unilaterally changed a voluntary blood drive policy. The decision is a reminder that the rights attaching to terms and conditions of employment are broader than contract rights arising out of collective bargaining agreements. Although there was no provision for a blood drive in its collective bargaining agreement, the employer had for a number of years allowed employees to be paid for up to four hours of work time that they could spend participating in an organized blood drive that both the employer and the union supported. The employer discontinued the policy without negotiating with the union, and such action constituted a refusal to bargain in good faith over the change from eight hours pay for four hours work during the blood drive to the elimination of any pay for time not worked. In the absence of an explicit waiver, all changes in terms and conditions of employment must be negotiated with the employees’ collective bargaining representative, whether or not they are incorporated in the collective bargaining agreement. Special care must be taken, therefore, not to inadvertently create such bargaining obligations and to discontinue them once created in order to avoid such violations.

Family and Medical Leave (FMLA)

Firing for Unexcused Absences Does Not Violate FMLA

A federal district court in Indiana dismissed a claim by a delivery truck driver that his firing violated the FMLA because he underwent surgery a few months after his termination. In Merritt v. E.F. Transit Inc., the court held that an employee is not entitled to the protection of the FMLA unless he is undergoing medical treatment for a serious health condition at the time of termination. In this case, the employee had been cited numerous times for excessive absence. He was terminated for ignoring the company’s attendance policy following repeated absences after a final warning. Although he complained of shoulder pain, and had consulted with his doctor, the driver was not undergoing medical treatment at the time he was fired. The court held that his subsequent surgery did not demonstrate that he had a serious health condition at the time he was fired.

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