November 9, 2004

OSHA Case Updates: Safeway Inc. v. OSHRC and Chao v. Emery Air Freight Corp.

Holland & Knight Alert
Howard Sokol

Employment Discrimination (other than age)

Courts and EEOC Mandate Employment Law Training

Recent settlements between the U.S. Equal Employment Opportunity Commission (EEOC) and various employers underscore the importance of managerial training on employment law issues. In the first, a Wall Street investment company’s $54 million settlement of a sex discrimination lawsuit under Title VII of the 1964 Civil Rights Act, $2 million of the overall settlement will be devoted to diversity programs, including implementation of management training on the federal anti-discrimination laws. In the second, a $1,000,000 settlement of an employment discrimination lawsuit under Title VII, three female employees claimed they were subjected to sexual harassment in the form of sexually explicit slurs and comments by their supervisor and that repeated complaints to management officials were to no avail, as well as retaliation against several employees who participated in the EEOC’s investigation and/or filed charges of discrimination with the Commission; the company is also required to conduct annual training at all facilities in an effort to prevent future discrimination and to undergo monitoring by the EEOC to prevent recurrences of discriminatory conduct throughout the three-year duration of the Consent Decree. In a third settlement for $475,000, the EEOC’s Title VII suit alleged that the company failed to provide promotional opportunities for a class of 25 female sales employees because of their sex. As part of the comprehensive settlement, the company is required to oversee management training regarding discrimination.

As these settlements indicate, training employees on anti-discrimination laws is no longer being considered an option by the EEOC or the courts, but mandatory. By training employees, at a cost much less than either settling or defending a lawsuit, employers may avoid the problems that lead to litigation or be in the best possible defensible position when faced with a discrimination or harassment claim.

No Religious Accommodation for Overtime

A federal district court in Indiana ruled that while an employer’s duty to accommodate an employee’s religious beliefs applies to mandatory work assignments, it does not extend to voluntary overtime. In Fox v. Lear Corp., an employee whose religious beliefs prohibited him from working on Sunday requested that he be exempt from working mandatory weekends to the extent that the work assignment would require him breaching his Sabbath. The company accommodated him by adjusting his start and end times to fall outside of the Sabbath time frame. The employee then asked that the accommodation be extended to voluntary overtime, to allow him to earn additional money on weekends without violating the Sabbath. The employer refused and the employee sued, claiming religious discrimination in violation of Title VII of the Civil Rights Act. In dismissing the employee’s claim, the court held that the employee was not forced to choose between his religious convictions and the requirements of the job. As long as the employee was permitted to decline voluntary weekend work without penalty, no further accommodation was necessary.

Pensions and Benefits (ERISA)

Legislation Impacts Nonqualified Plans

Along with the many corporate tax provisions of the American Jobs Creation Act of 2004, Congress has included provisions to curb abuses in nonqualified deferred compensation plans. This legislation will have a significant impact on nonqualified plans such as supplemental executive retirement plans, certain employment agreements and severance arrangements that provide for deferred compensation, and certain nonqualified stock option arrangements. In brief, income deferred under such plans may be taxable in the current year unless new statutory requirements are met. The rights of a person to receive deferred compensation must be subject to “a substantial risk of forfeiture.” The main restrictions in the new legislation are aimed at limiting practices that unduly reduce the risk of forfeiture. They include, for example: requiring that the election to defer compensation be made in the prior tax year; restricting the timing of distributions until termination of employment, death or disability; requiring key employees of public companies to wait at least six months following separation from service before taking distributions; restricting acceleration of benefits; and limiting changes in the form and timing of distributions. The Act imposes significant penalties on employers who fail to comply, including income tax on all amounts deferred, interest, and a 20% penalty. The new rules are detailed and complex and there is a very short period for employers to make necessary adjustments, as the rules become effective January 1, 2005. Employers sponsoring nonqualified deferred compensation plans should contact their tax and benefit attorneys to assure compliance with the new requirements.

Clarity in Employee Benefit Plan Documents Essential

Brockett v. Utica Boilers, Inc., et al., serves as an important reminder to employee benefit plan sponsors and administrators that plan document ambiguity can lead to confusion and potential litigation. The court held that a plan administrator’s decision not to change the rate of contribution for a management level employee was arbitrary and capricious and the employee was entitled to additional contributions for the affected years of participation in the retirement plan. The plan document, and provided employer contributions to the plan at three different rates, for “Executive Management Employees”, “Senior Management Employees”, and “All Other Employees.” However, these terms were not defined in the plan document, and a former manager who was classified in the “All Other Employees” category filed suit, claiming he was improperly classified and was entitled to an additional employer contribution for the affected years. On appeal, the Second Circuit (VT, NY, CT) held that the plan classifications were ambiguous, and the arbitrary and capricious standard applied to the determination of the employee’s classification. Examining the board meeting minutes and board resolution regarding the plan, which used different titles than the plan document, the court held that the record did not reveal “whether the intent of the settlers was to allocate membership within each category by title, by individual, by salary, or by some other method not now apparent.” Further, the court held that the record was insufficient to address whether certain plan language compelled classification of employees based on their status as an employee of a participating employer or with the plan sponsor. On remand, the District Court reviewed the additional documentation and deposition testimony provided and held that the employee’s significant management responsibilities for the affected years compelled reclassification in the “Senior Management Employees” classification where he was entitled to the difference between the employer contributions he actually received for the affected plan years and those he would have received had he been properly reclassified in those years.

Vesting of Retiree Medical Benefits Depends on Plan Language

A federal district court in New York has held that retirees are not entitled to lifetime medical benefits from their union plan under ERISA where the plan document does not explicitly provide for vesting of the benefits. In Bouboulis v. Transportation Workers Union of Greater N.Y., Local 100, the court rejected the retirees’ argument that oral promises and correspondence referring to benefits for life were sufficient to guarantee that benefits would never be reduced or eliminated. Rather, the court explained that under ERISA health benefits were not vested unless the written plan document explicitly provided for vesting of benefits. However, although the court rejected the ERISA claims, it permitted a few of the retirees to proceed with their claims under the alternate theory of promissory estoppel, where they produced evidence that the union explicitly promised them in writing that medical benefits would last for their and their spouses’ lives, that they relied on the promise by foregoing other job opportunities, and that they were harmed by relying on the union’s promises.

EEOC Proposal on Retiree Medical Benefits Put on Hold

In response to overwhelming opposition by the AARP, the EEOC has deferred action on a regulation that would permit employers to reduce or terminate medical benefits once a retiree becomes eligible for Medicare. Under current law, an employer’s reducing or ending medical benefits solely because the recipient reaches Medicare eligibility age may be deemed to be unlawful age discrimination. The proposed regulation grew out of the concern that this may have the unintended effect of discouraging employers from providing health insurance to its retirees. When first proposed, in July 2003, the regulation had the support of the business community and organized labor, in the hope that lifting the risk of litigation would encourage businesses to extend health coverage to retirees in the “gap” period following retirement but before the retirees were eligible for Medicare benefits. Following the EEOC’s formal approval of the regulation in April, 2004 however, the EEOC was besieged with thousands of calls, letters and faxes from members of the AARP threatening to sue if the regulation was finalized. As a result, the proposed regulation remains under review. Susan H. Joffe


Individual Activity Not Concerted

Frederick D. Braid

Although union organizing, collective bargaining, strikes, and picketing are the most obvious forms of concerted activity protected by the NLRA, employees acting on their own when such actions are on behalf of others or are in pursuit of issues concerning a collective bargaining agreement can also be protected concerted activity even though the employee may not identify or represent that s/he is acting for or on behalf of others. In a recent case, the NLRB has upheld an employer’s argument that an individual employee’s solicitation of a witness to support her sex harassment claim was not protected concerted activity because it was not for mutual aid or protection, but rather for the singularly personal objective of furthering her individual sex harassment claim.

Occupational Safety and Health (OSHA)

Citation for Injuries Sustained at Company-Sponsored Barbecue

Howard Sokol

The United States Court of Appeals for the Tenth Circuit (CO, KS, NM, OK, UT, WO) held a company to have violated the OSH Act’s general duty clause in Safeway Inc. v. OSHRC, where two of its employees suffered burn injuries setting up a gas grill during a company-sponsored barbecue. In affirming the decision of the Review Commission, the Tenth Circuit held that Safeway, Inc. violated the general duty clause, noting that the barbecue, although a gesture by the company to thank its employees at a non-mandatory employee event, was held during normal working hours and at the company’s loading dock. The court also noted that the engineer who suffered severe burns to his hand was told by the plant’s superintendent to set up the grill, and was therefore “working” at the time of the incident. Additionally, the court noted that given the totality of the circumstances – including a warning label on the 40-pound gas tank that it was being used with a gas grill designed for a tank of only half that capacity – the company did not provide its employees with a place free from recognized hazards and, therefore, Safeway violated the Act’s general duty clause. 

OSHA has Jurisdiction at Airport Over Company Failing to Provide Fall Protection to Cargo-Handlers

Howard Sokol

In Chao v. Emery Air Freight Corp., The Review Commission found an air freight company to have violated the Act’s general duty clause for failing to install fall protection on the elevator platforms on which its cargo handlers work. Emery argued unsuccessfully that it was not OSHA but only the Federal Aviation Administration that had the authority to exercise jurisdiction and cite companies for violations of any loading procedures. The Act’s exemption from OSHA’s jurisdiction working conditions at worksites at which other federal agencies have “exercise[d] authority to prescribe or enforce standards or regulations affecting occupational safety and health,” was found not to apply here where the conduct for which Emery was cited had taken place four months prior to the final approval by the FAA of the aircraft loading manual by which Emery was allegedly guided. The Commission underscored the fact that “the critical time for determining jurisdiction” is frozen at the time the violations occurred irrespective of whether the FAA later exercised authority over the particular working condition.

State Issues

Oregon Non-compete Signed Near the End of Month Long Advancement Process Satisfied Requirement That It Be Obtained “Upon” Advancement

Louis A. Santiago

A non-compete agreement is void in Oregon unless it is obtained at the commencement of the employment relationship or “upon” the subsequent bona fide advancement of the employee. In Nike, Inc. v. McCarthy, the U.S. Court of Appeals for the Ninth Circuit affirmed an Oregon District Court’s preliminary injunction enforcing a one-year non-compete signed by a former Nike regional footwear sales manager who, a month after tendering his resignation, began working as vice president of U.S. footwear sales for Reebok, a Nike competitor. During a month long advancement process for the regional manager position, and prior to the date he signed the agreement, McCarthy assumed some of the duties of his new position, obtained confidential information he had not seen before, was introduced to a group of employees as the new regional manager, and took several business trips which were expensed to the cost center for the new position. An offer letter attached to the non-compete agreement indicated that the “start date” for the new position, and the commencement of McCarthy’s increased salary, would occur several days after he signed the non-compete agreement. The Ninth Circuit concluded that an Oregon non-compete agreement “need not be entered into at the first instance that the employee assumes any elements of the new job, including new duties.” But the Court also concluded that the “window of opportunity to ask for a noncompete agreement [does not] remain open until the employer sees fit formally to finalize the advancement process.” Since McCarthy’s agreement was signed in conjunction with the parties reaching a final agreement on the terms and conditions of the new job, and the advancement evolved over a reasonably short period of time with no unreasonable delays by Nike in finalizing the process, the agreement was entered into “upon” McCarthy’s advancement.

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