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Labor & Employment

Fifth Circuit: Mental anguish damages award not supported by medical evidence is vacated

By Adam T. Dougherty on May 29th, 2013 Posted in Labor & Employment

The Fifth Circuit recently vacated a jury award for mental anguish damages based on the absence of any medical evidence. A Northern District of Texas jury found for the plaintiff, who asserted age discrimination claims under the ADEA and TCHRA, and awarded him mental anguish damages totaling $1,000,000, which the district court remitted to $100,000.

The Fifth Circuit subsequently vacated the mental anguish award. See Miller v. Raytheon Company, No. 11-10586 (5th Cir. 5-14-2013). The Fifth Circuit based its decision on the plaintiff’s failure to present any expert medical or psychological testimony regarding the extent of his mental anguish. Instead, the plaintiff solely relied on his own testimony as well as the testimony of his wife. The plaintiff testified that he suffered chest pain, back pain and sleep disturbances. However, he also admitted that he did not take any over-the-counter or sleep medications, and that he never sought the assistance of any health care professional or counselor. The Fifth Circuit summarily concluded that the plaintiff’s and his wife’s “self-serving testimony [was] legally insufficient,” and vacated the mental anguish award.

This decision addresses a familiar fact pattern that we see often in employment discrimination cases, and provides employers with a significant basis for attacking unsupported mental anguish claims. Although this decision was reached on appeal after a jury verdict, its reasoning should prove to be helpful much earlier in the life of a case. For instance, savvy employers faced with similarly unfounded mental anguish claims after engaging in the discovery process should consider attacking them at the summary judgment stage based on the rationale in Miller. The opinion can be found at the following link http://www.ca5.uscourts.gov/opinions%5Cpub%5C11/11-10586-CV0.wpd.pdf

Benefits

Group Health Plan Can Enforce Reimbursement Rights Against Trustee

By Lori T. Oliphant on May 23rd, 2013 Posted in Benefits

On the heels of the United States Supreme Court’s recent holding in U.S. Airways v. McCutchen, where the Court held that a group health plan’s reimbursement rights are not automatically subject to equitable defenses, it appears that employers have been delivered yet another victory with respect to the enforcement of plan reimbursement rights.

On May 7, 2013, the Fifth Circuit Court of Appeals concluded in ACS Recovery Services, Inc. v. Griffin that a group health plan could enforce its reimbursement rights against the proceeds to be received by a trustee of a special needs trust established for the benefit of an injured participant. Although the attorney for the participant attempted to circumvent the plan’s reimbursement rights through an elaborate scheme of annuity purchases and ownership transfers, the court upheld the plan’s equitable lien against the annuity payments to be made to the trustee of the special needs trust. While this is not the first case in which a special needs trust was established to receive the settlement proceeds for the benefit of an injured participant, it is the first decision to confirm that the trustee of such trust is a proper defendant in a claim to enforce the plan’s reimbursement rights and, further, verifies that amounts deposited (or to be deposited) into such trust are not beyond the reach of the plan.

The holding in the Griffin case is welcome news for employers, but it will not likely protect employers from defective plan language (as the McCrutchen Court reminded us). Plan sponsors of self-insured group health plans should take this opportunity to review their reimbursement provisions to ensure that they are broad enough to allow enforcement against the participant as well as any other person who is in possession of, or has the right to receive, the settlement proceeds (or any annuity or similar contract purchased with the settlement proceeds).

Benefits

Checklist for Timely Compliance with HIPAA Omnibus Rule

By Lori T. Oliphant on May 6th, 2013 Posted in Benefits

The deadline for compliance with the new HIPAA Omnibus Rule is looming for group health plans. As explained in a prior blog, stiff penalties may be imposed on employers whose plans fail to comply. Accordingly, employers should begin now to ensure timely compliance and avoid costly mistakes.

As a general matter, group health plans must comply with the final regulations no later than September 23, 2013. Below is a checklist of action items to assist employers in this effort:

Review and revise HIPAA policies and procedures to comply with all changes prescribed under the Omnibus Rule, including risk assessment procedures, timely notification for breaches, and prohibitions related to the use or disclosure of genetic information.
Review and revise the Notice of Privacy Practices to incorporate the new disclosure requirements and redistribute to participants in accordance with prescribed guidelines.
Revise authorization and other forms utilized by participants to exercise privacy rights to incorporate changes prescribed under the Omnibus Rule.
Determine whether the group health plan engages in any marketing practices that are subject to authorization requirements and, if applicable, adopt procedures for obtaining authorizations.
Review and revise business associate agreements to comply with all changes prescribed under the Omnibus Rule, including breach notification requirements.
Review mitigation and indemnification provisions of business associate agreements to ensure protection for actions of agents.
Schedule training session with plan administrative staff and communicate changes and protocol to all relevant personnel.
Determine effect of state law on HIPAA policies and procedures.

While the Omnibus Rule contains a transition period through September 23, 2014 to revise many business associate agreements, I recommend that employers amend existing business associate agreements now to ensure that the parties are aware of their responsibilities. Specifically, it is imperative that the business associate agreement describe which party will be responsible for ensuring compliance with the breach notification requirements (which are greatly expanded under the Omnibus Rule and will be effective as of September 23, 2013, regardless of the terms of your business associate agreement). Under these circumstances, delay may be the most costly form of denial!

Labor & Employment

Big Developments in Class Actions Part 2: A Quick and Complete Offer of Judgment May Foreclose FLSA Collective Actions

By Adam T. Dougherty and Zachary B. Allie on April 22nd, 2013 Posted in Class actions, FLSA, Labor & Employment

In Genesis Healthcare Corp. v. Symczyk, a 5-4 decision authored by Justice Thomas and delivered on April 16, 2013, the U.S. Supreme Court held that if the lone lead plaintiff’s individual claim under the Fair Labor Standards Act (“FLSA”) becomes moot then the collective action must be dismissed because the lead plaintiff lacks a personal interest in representing putative, unnamed claimants.

In her collective action, Symczyk claimed that Genesis violated the FLSA by automatically deducting thirty (30) minutes from its employees’ shifts for meal breaks regardless of whether those employees performed compensable work while on their breaks. Prior to the plaintiff’s move for conditional certification of the putative FLSA class, Genesis answered and contemporaneously made an offer of judgment to plaintiff that included all of her allegedly unpaid wages plus reasonable attorneys’ fees, costs, and expenses determined by the court. If accepted, the offer would have fully satisfied all of Symczyk’s individual FLSA claims. Although the plaintiff did not accept the offer, she conceded in the courts below that the offer satisfied her FLSA claims in their entirety. While the district court dismissed both Symczyk’s individual claim and the collective action for mootness, the Third Circuit Court of Appeals reversed and ruled that permitting employers to “pick off” a lead plaintiff would generally frustrate the purpose of collective actions.

The Supreme Court assumed, without deciding, that Genesis’ offer of judgment mooted the plaintiff’s individual FLSA claims because she conceded as much and failed to properly raise any challenge to it. The Supreme Court then reversed the Third Circuit and held that, because Symczyk’s individual claim was moot, the case, including the collective action allegations in it, had to be dismissed since there were no other plaintiffs in the lawsuit. Further, the Court held that, unlike certifications under Federal Rule of Civil Procedure 23 where the putative class acquires its own legal status, the only consequence of conditional certification under the FLSA is that court-approved written notices are sent to potential plaintiffs who may later join the action. The majority, however, declined to answer the question that most practitioners were hoping the decision would provide—whether an employer can entirely foreclose an FLSA collective action lawsuit by making a full offer of judgment to the lead plaintiff(s).

Even though the issue of whether a complete, but unaccepted, offer of judgment moots a collective action remains unresolved, the Supreme Court’s opinion opens the door for employers to attempt quick resolutions with the lead plaintiff(s) for the purpose of disposing of the underlying collective action. Therefore, employers should proactively audit their wage and hour practices and consider a quick resolution under Federal Rule of Civil Procedure 68 at the start of a collective-action case. The Court’s decision may also cause FLSA plaintiffs to seek conditional certification much earlier in the life of the FLSA collective action in order to avoid their claims being rendered moot by an offer of judgment. Similarly, it may motivate FLSA plaintiffs to make additional FLSA claims and allegations in an attempt to inflate the amount of the offer of judgment that it would take to potentially moot them.

Benefits

Supreme Court “Dooms” Equitable Defenses to Plan’s Reimbursement Provisions

By Lori T. Oliphant on April 19th, 2013 Posted in Benefits

In a prior blog, I discussed the importance of including unambiguous reimbursement rights in health plan documents in order to manage healthcare costs. The enforceability of such rights was confirmed by the United States Supreme Court in the recent U.S. Airways v. McCutchen decision. Although this is not the first time the Court has upheld a health plan’s reimbursement rights, this particular decision marks a significant victory for employers because it eliminates equitable defenses against a plan’s reimbursement rights if such rights are clearly defined in the applicable plan documents.

Unfortunately for U.S. Airways, the summary plan description failed to specify that the plan’s recovery would not be reduced by its share of the attorney fees and other litigation costs incurred in obtaining the recovery from the third party tortfeasor. As a result, the Court determined that the common fund doctrine could be applied in determining the amount of the plan’s recovery from the participant.

Although the common fund doctrine may ultimately be applied in this case, other employers could avoid the same fate by ensuring that their applicable plan provisions clearly describe the plan’s reimbursement rights and specifically state that the common fund doctrine (and other equitable defenses) would not apply. Interestingly, the justices in the McCutchen case disagreed as to whether the rights were clearly defined by the plan and further questioned whether it was appropriate to rely on the summary plan description to determine the plan’s rights.

Despite the Court’s recent landmark decision in Cigna Corp. v. Amara, in which it held that statements in a summary plan description could not modify the terms of the plan, employers are best advised to include similar provisions in BOTH the summary plan description and the underlying plan document. As explained in my prior blog, however, these documents may be one in the same with respect to self-insured health plans. It may also be advisable to specifically communicate the plan’s reimbursement rights to participants, especially if any changes are made to the plan’s provisions.

Benefits

Controlling the “Play or Pay Penalty” under Healthcare Reform

By Lori T. Oliphant on April 10th, 2013 Posted in Benefits

Proposed rules issued under the Affordable Care Act clarify the determination of “large employer” status and the calculation of the penalty for controlled groups of employers. This guidance confirms that the penalty is assessed with respect to each entity, rather than the controlled group as a whole.

For calendar years beginning on and afterJanuary 1, 2014, a “large employer” (i.e. an entity that employs at least 50 full-time employees and full-time equivalents in the preceding calendar year) that fails to offer minimum essential coverage to its full-time employees or that offers minimum essential coverage to its full-time employees that is either unaffordable or does not provide minimum value will be subject to a “shared responsibility payment” (i.e. the penalty), provided at least one full-time employee is certified to the employer as having received a premium tax credit or cost-sharing reduction to purchase coverage on an insurance exchange. The penalty for failing to offer minimum essential coverage is based on the employer’s number of full-time employees, reduced by 30 (i.e. the “30-employee reduction”), while the penalty for failing to offer minimum essential coverage that is valuable and affordable is based on the number of full-time employees who receive a credit or other subsidy from an insurance exchange.

For purposes of determining whether a company is a large employer, individuals employed at all members of the company’s controlled group must be included. Accordingly, the division of employees among different subsidiaries or affiliates will not allow the company to avoid “large employer” status. Furthermore, there is no exclusion of individuals employed in a separate line of business.

That being said, the calculation of the penalty (which, frankly, is the real issue) is determined separately with respect to each entity within the controlled group of entities. This means that the penalty will be calculated based solely on that entity’s full-time employee population. For example, if a single entity employed 100 full-time employees and failed to offer minimum essential coverage, then the entity would be subject to a penalty equal to $2,000 for all of its full-time employees, reduced by 30. So, the penalty in this situation would be calculated as follows:

$2,000 x 70, or $140,000

On the other hand, assume a controlled group consists of five companies, each with 20 full-time employees. If one subsidiary did not offer minimum essential coverage to its full-time employees, then the penalty would be assessed against that subsidiary and would be calculated as follows:

$2,000 x 14 (20 – 6), or $28,000

The calculation of the penalty in this latter scenario takes into account only full-time employees of the entity failing to provide minimum essential coverage. Note, however, that the 30-employee reduction is ratably allocated among the controlled group members based on the number of full-time employees at each entity. Accordingly, this subsidiary does not get the benefit of the entire 30-employee reduction even though it is the only “offender” in this scenario.

All in all, this guidance is welcome news for healthcare companies, restaurant groups and other employers with affiliated entities.

Labor & Employment

Big Developments in Class Actions Part 1: a “rigorous analysis” of Comcast Corp. v. Behrend

By Adam T. Dougherty on April 8th, 2013 Posted in Labor & Employment, Uncategorized

In a very pro-employer/business opinion crafted by Justice Scalia, the U.S. Supreme Court rejected class certification for 2 million Comcast subscribers in an antitrust class action in Comcast Corp. v. Behrend, 516 U.S. ___ (2013). To certify a class action, a plaintiff must make two showings. First, the plaintiff must establish the numerosity, commonality, typicality, and adequacy-of-representation requirements of Federal Rule of Civil Procedure Rule 23(a). Second, the plaintiff must establish at least one of the additional class-action requirements of Rule 23(b). In Comcast, the Supreme Court reviewed whether an antitrust class was properly certified under Rule 23(b)(3). Rule 23(b)(3) permits certification only if “the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members.”

Comcast is an extremely important and noteworthy decision because – for the first time – the Court unequivocally concluded that the “rigorous analysis” standard applied to the four class-action requirements in Rule 23(a) must also be applied to Rule 23(b)(3). Relying heavily on its seminal Wal-Mart Stores, Inc. v Dukes class action decision, the Supreme Court determined that its precedents require a demanding and rigorous analysis of the evidentiary proof to determine whether the perquisites of Rule 23(b)(3) are met. Applying this rigorous analysis, the Supreme court concluded that the lower courts had run afoul of these precedents because “under the proper standard for evaluating certification, respondents’ [damages] model falls far short of establishing that damages are capable of measurement on a classwide basis.” Thus, the failure of the class-representative plaintiffs to offer a damages model that was “susceptible of measurement across the entire class for purposes of Rule 23(b)(3)” precluded class certification.

The principles in Comcast, while an antitrust case, will be undoubtedly applied to other Rule 23 class actions outside of the antitrust context. What remains to be seen is whether they will be applied to FLSA collective actions, which are not governed by Rule 23, but instead focus on whether employees are similarly situated and affected by a single decision, policy or plan. In fact, the Supreme Court already appears to have provided some insight into the extension of these principles to wage-and-hour claims. Just last week, mere days after its Comcast ruling, the Supreme Court vacated and remanded two class action decisions “for further consideration in light of Comcast Corp. v. Behrend.” One of those decisions is RBS Citizens, N.A. v. Ross (No. 12-165), which the Supreme Court remanded to the Seventh Circuit. The Seventh Circuit had previously affirmed the certification of a state law wage-and-hour class action involving over 1,100 former and current RBS employees claiming they were improperly misclassified as exempt from overtime and/or not paid for the hours they worked. The Supreme Court’s remand of the Ross decision certainly suggests that Comcast has at least some effect on the Seventh Circuit’s class certification decision in that wage-and-hour case. We will provide a blog update when the Seventh Circuit issues its ruling on the effect of Comcast on the Ross class.

At a minimum, the Comcast “vigorous analysis” requirement represents another arrow in the quiver for employers faced with the prospects of an FLSA collective action. This will be especially true in those FLSA collective actions involving highly individualized factual determinations, more than one geographic location and/or more than one offending supervisor, i.e., where overtime damages are not sufficiently capable of being measured on a classwide basis.

Benefits

Healthcare Reform Compliance: Checklist of Next Steps

By Lori T. Oliphant on March 22nd, 2013 Posted in Benefits

It is impossible to ignore. Healthcare reform under the Affordable Care Act is on the minds, agendas and budgets of all employers, and now is the time for employers to review their health programs to address compliance with additional requirements that will become effective in 2014. Below is a list of questions for employers to consider as we prepare for 2014 and beyond.

1. Are you a large employer? The so-called “play or pay” penalty applies only to large employers, which is defined as an employer who, on average, employed at least 50 full-time employees and “full-time equivalents” during the preceding calendar year. If the workforce is comprised of seasonal employees, special rules apply.

2. If you are a large employer, will you offer your full-time employees medical coverage that constitutes “minimum essential coverage” that is both “affordable” and provides “minimum value”? Note, effective for plan years beginning in 2015, the employer must also offer minimum essential coverage to the dependent children of its full-time employees (although that coverage need not be affordable nor provide minimum value).

3. How do you currently classify your part-time employees and how will you determine who is a full-time employee for purposes of the coverage mandate? For purposes of healthcare reform, a full-time employee is an individual who works 30 hours per week, regardless of how the employer classifies its employees for other purposes. Employers that are unable to determine whether an employee will satisfy this threshold can determine the employee’s status based on a lookback period, provided certain conditions are satisfied.

4. Would any of your full-time employees be eligible to receive a premium credit or cost-sharing reduction if they purchased coverage on a public insurance exchange? Even if you are a large employer and you fail to offer minimum essential coverage that satisfies the requirements of the law, no penalty is assessed unless you have a full-time employee that purchases insurance on a public exchange and receives a premium tax credit or other cost-sharing reduction.

5. Have you updated your medical coverage to ensure compliance with the following mandates:

• For grandfathered group health plans, the plan may no longer impose an annual limit on essential health benefits;

• For small insured health plans (insured plans covering less than 100 employees), the plan may not have a deductible that exceeds $2,000 for self-only coverage or $4,000 for family coverage. Note, for high deductible health plans paired with a health savings account, this requirement is different from, and applies in addition to, the minimum deductible requirement for such plans; and

• For all group health plans, the plan may not:

o Impose a waiting period that is longer than 90 days,

o Apply a pre-existing condition exclusion provision against any enrollee, regardless of age, or

o Impose an out-of-pocket limit on essential health benefits that exceeds the limit that is in effect for 2014 for high-deductible health plans paired with a health savings account.

Failure to implement these mandates can result in a $100/per day excise tax with respect to each participant affected. Note, also, that these mandates will need to be reflected in the summary plan description for the applicable medical plan.

6. Do you have a team assigned, processes in place and technology to support your compliance needs? In addition to ongoing determinations of eligibility and timely enrollment under the medical plan, new reporting requirements will be in effect commencing with the 2014 plan year, which will increase the disclosures employers are required to make to employees and government agencies.

7. Have you calculated the cost of the reinsurance contributions that will be assessed with respect to your major medical coverage? The contribution rate for 2014 is $63 per person receiving major medical coverage and will be assessed in late 2014.

8. If you offer a wellness program in connection with your medical coverage, have you considered increasing the applicable “reward” provided to your employees? Employers may now apply a discount or impose a surcharge of up to 30% (or 50% with respect to tobacco cessation programs) on the cost of medical coverage if certain conditions are met.

Each employer will need to make a thorough assessment of its healthcare programs in light of these pending changes. The process is very detailed and should be addressed by the employer with the advice of legal counsel and with the involvement of the plan’s service providers, such as insurers, brokers and third party administrators.

Benefits

HIPAA Omnibus Rule Provides Ominous Forecast for Employers

By Lori T. Oliphant on March 14th, 2013 Posted in Benefits

Employers who sponsor health plans must prepare for compliance with revised rules under the Health Insurance Portability and Accountability Act of 1996 (HIPAA). On January 25, 2013, the Office of Civil Rights of the U.S. Department of Health and Human Services (HHS) published the final rule, also referred to as the “Omnibus Rule,” amending various provisions of the HIPAA privacy and security rules. Generally, the changes made under the Omnibus Rule are based on statutory changes under the previously enacted Health Information Technology for Economics and Clinical Health Act (HITECH), as well as the Genetic Information Nondiscrimination Act of 2008 (GINA).

Specifically, the Omnibus Rule incorporates the penalty tier structure promulgated under HITECH, as reflected in the table below:

Violation Category	Per Violation Penalty	Annual Cap
Did Not Know	$100-$50,000	$1,500,000
Reasonable Cause	$1,000-$50,000	$1,500,000
Willful Neglect-Timely Corrected	$10,000-$50,000	$1,500,000
Willful Neglect-Not Timely Corrected	$50,000	$1,500,000

This penalty structure is applicable for violations occurring after February 18, 2009, but additional changes to HHS’ enforcement authority has been incorporated under the Omnibus Rule and will become effective March 23, 2013. Continue Reading