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Labor and Employment Law Newsletter
February 1999

Articles:

Legal Compliance - Necessary but Not Sufficient

As government regulation of the employment relationship continues to expand, competition for talent in the workplace grows more acute, legal obligations become more complex, and the cost of jury trials and verdicts rises, the importance of compliance with legal requirements is greater than ever.  After two decades of relentless cost cutting, employers may be swinging the pendulum back toward emphasis on preventive labor and employment relations.

Government will continue to seek social change through regulation of the employment relationship.  Regulation encounters less resistance than taxation because the people ultimately paying for regulation are several layers removed from the direct impact of its costs.  So we can expect more new laws and agencies to affect the employer's ability to manage through selection, compensation and termination of employees.  The regulation comes in two primary forms.  The first and now most common is the creation of individual "rights" to be asserted in litigation with fee shifting statutes expressly designed to encourage more litigation.  The second, which may be making a comeback, is direct government agency involvement in the workplace.  Both forms tend to create new and often conflicting requirements for human resource management.

At the same time, the competition to attract and retain needed talent grows more intense.  This is especially true at the top end of the skill continuum, but the labor pool for entry level positions at prevailing wages seems to grow smaller each year.  As the need for employees at all levels is greater than the supply, employers hire and retain employees on the margin of acceptable skill levels and work ethic.  When the increasing availability of individual "rights" combines with the entitlement mentality often encouraged by legislative action and marginal employees, the employer who is less than vigilant will encounter litigation and governmental oversight.  Everyone says they agree proactive is better than reactive, but many companies have cut costs to the point where proactive steps have been eliminated.  This is not good.

Wage and hour matters, governed by a law from 1938, are now commonly class actions, highly profitable for the plaintiffs' attorneys.  Employee benefits, both insurance and retirement, are a focus of employees' insecurity and a constant way for the government to mandate new benefits.  The Americans with Disabilities Act, the Family Medical Leave Act and state workers' compensation laws form a maze of regulations for the employer to penetrate.  Employee claims for mental conditions as disabilities and work-related injuries grow at a geometric rate.  Race and sex harassment claims persist and the Supreme Court has just changed the law significantly.  OSHA's interest in ergonomics and in expanding the reach of the "general duty" clause has not abated despite some recent setbacks.  Ask any federal judge - employment litigation is a growth industry.

We have emphasized proactive labor relations for years.  We believe the cost cutting of the 1980s and 1990s to deal with the intense global competition emerging during these decades has greatly reduced and in some cases eliminated proactive labor relations programs.   This may mean the pendulum is starting to swing back  toward a greater focus on compliance and audit efforts designed to identify problems before they grow into lawsuits, complaints to agencies or union organization drives.  The lawsuits usually are a symptom, not the problem.  Compliance with legal requirements is a necessary first step for proactive employee relations.  From there the employer can focus on the more sophisticated aspects of finding and keeping the kind of employees needed to successfully compete in the free enterprise system.


Reason Prevails

The Federal Appeals Court in Philadelphia ruled a store manager who discussed use of heroin at work, purchased heroin through and used heroin with a subordinate employee, worked under the influence of heroin and whose employees knew he was using heroin could not prevail in an action under the Americans with Disabilities Act.


OSHA's Draft Safety and Health Program Rule: Common Sense or "Trojan Horse"?

On November 9, 1998, OSHA released its proposed rule requiring almost all employers to develop and implement comprehensive health and safety programs.  Such comprehensive programs would have to  contain five "core elements:" (1) management leadership and employee participation, (2) hazard identification and assessment, (3) hazard prevention and control, (4) information and training, and (5) evaluation of program effectiveness.  The rule would require programs to include: biennial workplace audits; documented investigation of each serious injury, illness, or "near-miss" incident; prioritized plans to abate "as promptly as possible" any hazard covered by an OSHA standard or the General Duty Clause; employee training in both the program and the hazards to which the employees are exposed; and biennial evaluation of program effectiveness.

OSHA says this is simply a "common sense" attempt to extend to all employers the documented benefits of comprehensive programs.  Critics argue the draft rule is excessively broad because it would allow OSHA to cite and penalize employers for hazards not regulated by a particular OSHA standard (including ergonomics hazards, workplace violence, poor indoor air quality, and any number of other alleged serious hazards) are not addressed in the precise manner required by the rule.  Some of the more vocal critics suspect OSHA's motive all along has been to create standards, particularly an ergonomics standard, through the "back door" by avoiding formal rule-making. Therefore, the argument goes, the draft safety and health program rule really amounts to a "disguised" regulation of every recognized hazard not covered by a particular OSHA standard - i.e., a "Trojan horse" for employers.

A safety and health program rule could result in a significant burden for some employers.  But OSHA most likely could not use the broadly-worded draft as an effective substitute for particular, hazard-specific standards.  For instance, it appears employers could comply with the letter of the draft rule without having the kind of detailed ergonomics program (e.g., systematic identification and analysis of problem jobs, medical management, etc.) OSHA and NIOSH have suggested in the context of a particular standard on ergonomics.  The draft safety and health program rule would but "scratch the surface" of the complicated issue of ergonomics.

According to a recent report by representatives from small businesse's, there are many substantial costs associated with specific elements of the draft. The panel  pointed to costs associated with recordkeeping requirements, time spent developing a safety and health program, costs for hazard control, training costs, and time required of managers to implement the program.  Because of the potential costs involved, large and small employers alike would be wise to follow this controversial rule-making closely and take advantage of upcoming opportunities to participate in the rule-making process by, for example, attending public meetings or filing written comments.


OSHA Issues Final Rule on Forklift Operator Training

On December 1, 1998, OSHA  issued  new training requirements for forklift drivers and operators of other powered industrial trucks.  The new Powered Industrial Truck Operator Training Standard requires that a knowledgeable and experienced person evaluate the performance of all powered industrial truck operators and provide training on each topic listed in the Standard.  For employees hired after December 1, 1999, employers must conduct similar evaluation and training prior to assigning the employee to operate a powered industrial truck.

The training must consist of "formal instruction" (e.g., lecture, discussion, interactive computer learning, videotape, written material) and "practical training" (demonstrations performed by the trainer and practical exercises performed by the trainee).  Topics to be covered in the initial training are listed in the Standard, and include both "truck-related topics" and "workplace-related topics."   In addition to the initial evaluation and  training, the new Standard requires the performance of each operator be re-evaluated at least every three years and refresher training be provided whenever: (1) the operator has been observed to operate the vehicle in an unsafe manner; (2) the operator has been involved in an accident or near-miss incident; (3) the evaluation reveals the operator is not operating the truck safely; (4) the operator is assigned to drive a different type of truck; or (5) a condition in the workplace changes in a manner that could affect the safe operation of the truck.  Employers must certify all evaluations and training.

OSHA estimates the new training Standard, which takes effect March 1, 1999,  will prevent approximately 11 deaths and 9,500 injuries annually.  Currently, according to OSHA, approximately 100 employees are killed and nearly 95,000 are injured in powered industrial truck accidents each year.


Benefit Plan Cost Management

Many employers pay the total cost of administering their employee benefit plans.  Most do not know ERISA permits portions of these administrative expenses to be paid by the plan rather than by the employer.  ERISA permits certain types of expenses to be paid by employee benefit plans.

As an initial matter, it must be determined if the expense relates to an administrative function or a "settlor" function.  An expense relating action in the capacity of employer is considered to be a settlor expense and cannot be paid by the plan.  Examples of settlor functions include the establishment, amendment or termination of a plan.

Expenses not related to an employer's settlor functions may generally be paid with plan assets if the plan document permits the plan to pay its administrative expenses and if the necessary conditions are satisfied. 

First, the service being paid for must be necessary for the operation of the plan.  The test for determining whether a service is "necessary" is whether or not it is appropriate and helpful in carrying out the purpose of the plan.  Generally, this will include the services of third-party administrators, actuaries and lawyers.

Second, the contract or arrangement between the plan and service provider must be "reasonable."  A reasonable agreement is one that allows the plan to cancel the agreement with short notice and without a penalty.

Last, the compensation paid to the service provider must also be "reasonable."  Generally, "reasonable compensation" is the market rate for the services being provided.  However, if a fiduciary is being paid for its services, reasonable compensation is limited to reimbursement of direct expenses.

In addition to paying reasonable compensation to outside service providers, the salaries and fringe benefits of employees of the plan sponsor who administer its various plans may also be charged to the plan.  This will require establishing procedures to determine exactly which plan should be charged what expenses and whether those expenses are necessary and reasonable.


Trial by Videotape

You have seen them often.  Perhaps tens of times, if not hundreds.  Those video clips of famous people saying things they now regret.  President Clinton saying, "That depends on what the meaning of the word 'is' is."  Microsoft Chairman Bill Gates saying, "Depends on what you mean by 'compete'."  They swagger, they hesitate, they stall, they evade.  Their credibility hangs in the balance.  Fortunes and personal reputations ride on every grimace.  Each scowl could mean the difference between victory or embarrassing defeat.
Welcome to the world of high-tech trial tactics.  Now, trial attorneys with laptops need only enter the page and line of a deposition transcript and there for the world to see (and the news media to insure that the world sees it) is that lapse of attention which leads to an inference by the viewer that the witness should not be believed.  Even though grand jury testimony is never televised, transcripts of testimony may be later released.  Even though federal court proceedings are never televised, videotaped deposition transcript evidence is a matter of public record and may be released to the public like any other trial document.
There was a time when deposition testimony was useful primarily for preparation for trial.  Now it has become the trial itself.  Depositions taken by videotape technology offer astute plaintiff's counsel an opportunity to shape the outcome of trial with no judge, no jury and only a videotape technician present.  Camera angles can make a witness look sinister.  Lighting can make a witness look diabolical.  An interrogator's pacing off camera can make the witness look shifty and untrustworthy.  Camera cuts to counsel for the witness can reveal concern, anguish, even defeat as a witness "spills the beans" on a crucial issue in the case.  With the help of computer technology, a trial attorney can "cut and paste" unflattering answers, facial features and admissions into an argument far more persuasive than the attorney could offer in her finest moment.

Now more than ever before, the deposition stage of discovery may be the most critical portion of any trial.  Especially with the advent of digital video technology, depositions can be taken for the purpose of evidence and argument by opposing counsel which can be offered in the opening statement, in cross-examination and in closing argument as well as numerous other key points in the trial.  A single lapse of memory, judgment or preparation can be repeatedly shown to the jury and the court (as well as the public) with disastrous effect.
For these reasons, deposition preparation is critical to successfully navigate the perils of pre-trial preparation.


New Respiratory Protection Standard Penalties

On January 5, 1999, OSHA's self-imposed moratorium on penalties for violation of the Agency's new Respiratory Protection Standard expired.  OSHA implemented the 90-day penalties moratorium on October 7, 1998, in response to pressure from an industry coalition upset by OSHA's delay in publishing its long-promised small business compliance guide which finally appeared just a few days before the compliance deadline.  Employers found in violation of the new Standard's requirements are now subject to citations carrying the full measure of OSHA penalties.  Those requirements include: a new written respiratory protection program that is worksite specific and addresses each of the program elements required by the new Standard; new medical evaluation procedures; more extensive and specific respiratory protection training and respirator fit testing; and extensive new requirements for those employers who have established fire brigades.  It is therefore imperative that employers, if they have not already done so, update their respiratory protection program as soon as possible to meet the new OSHA requirements. 


Recent OFCCP Developments

The Office of Federal Contract Compliance Programs ("OFCCP") has proposed revisions to the regulations implementing Executive Order 11246 which would require all federal contractors with 50 or more employees and contracts of $50,000 or more to file annual reports that include the name, age, sex, race and salary of every person employed at every facility within the company.  Currently, under Title VII of the 1964 Civil Rights, such federal contractors are required to file EEO-1 reports outlining the demographic make-up of their workforce.  However, under the proposed rules, the information submitted on an annual basis would be more detailed requiring the release of highly sensitive and confidential information on compensation within the company.  In addition to the compensation information, employers would also be required to provide some information on their hiring and promotion activities on an annual basis.
 
Following submission, the OFCCP would then use the reports to identify employers with potential pay disparities who could then be selected for more detailed reviews.  The agency is interested in this approach due to their recent success in 1998 for settlements with employers based solely on pay disparities.  The two largest settlements to date received by the OFCCP include Core States Bank's $1.5 million Settlement Agreement and Texaco $3.1 million both based on the inconsistent application of compensation policies for male and female employees.  The Labor Department said fears that such data could fall into the wrong hands are unfounded because compensation data are exempt from the Freedom of Information Act ("FOIA").  However, employers are routinely required to fight FOIA requests for release of affirmative action plans and related information.  Adding this kind of sensitive data to routine filings will raise the stakes and make such fights more common and expensive. The proposed rule was submitted to the Office of Management and Budget ("OMB") for review on December 22, 1998.  Following review, the OMB will then establish a public comment period. 

The OFCCP also has submitted a proposal increasing the amount of data employers would be required to provide during the "desk audit." Currently, employers selected for a compliance review are required to submit only their written affirmative action plan.  Under the proposal, employers would be required to submit sensitive compensation information along with their written affirmative action plan for the "desk audit."  This would allow the OFCCP to review such information prior to the on-site phase of the compliance review.  The agency then can target certain jobs as potential compensation disparities.  This request indicates OFCCP officials will begin seeking more information at an earlier stage in the compliance review process, increasing the burden on employers.  The Office of Management and Budget is currently seeking comments on the proposal with an established deadline of January 21, 1999, for submission.


The "Honest Belief" Rule Under Attack

It is a well-established rule in employment discrimination cases that so long as an employer honestly believed in the nondiscriminatory reason given for its employment action, an alleged victim of discrimination cannot establish pretext even if the employer's reason is ultimately discovered to be mistaken or baseless.  This makes perfect sense - unlike other lawsuits, employment cases focus on why someone made a decision instead of figuring out what did happen. That is part of what makes employment litigation unique.  If the employer honestly, although erroneously, believes in the nondiscriminatory reason for the challenged employment decision, then the employer lacks  discriminatory intent.  This seems self-evident.

The Sixth Circuit Court of Appeals recently held, however,  an employer must do more than simply articulate its "honest belief."   The court held the employer must show it reached a reasonably informed decision based on particularized facts.  The employee then has the opportunity to prove pretext by producing evidence contrary to the employer's decision.  In other words, the employee may prove that the employer's "honest belief" was so obviously erroneous the employer must have had an unlawful motive.  This is a decision of great practical importance - it means the employee can ask the court to second guess what happened- and if the employer was "wrong" the employer will be found guilty of unlawful discrimination.

Other courts have not adopted this decision and the Sixth Circuit may not follow it.  Regardless,  the case reinforces the practical steps an employer should take before making an employment decision.  As the Court suggested, an employer should thoroughly investigate the employment situation to reach a well-reasoned conclusion, rather than making decisions merely based on unsupported beliefs.  Employers should also keep detailed, accurate documentation of their investigations.  Finally, in defending a discrimination case, an employer should proffer every reason it had for reaching the employment decision, supported by investigation documentation and testimony from those who conducted the investigation.  This is basic stuff, but employers routinely leave some steps out.