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Feature Article

FIVE ESSENTIAL PROVISIONS TO INCLUDE IN YOUR COMPANY’S EMPLOYEE HANDBOOK
Employee handbooks are critical for mid-sized and larger employers because it is almost impossible to effectively communicate to each individual employee the terms and conditions of employment without one. Additionally, an employee handbook helps to ensure that the employer’s policies are applied in a consistent manner, which may be difficult when there are numerous managers within a company. Despite these benefits, a handbook can often create problems for an employer if it does contain certain provisions and if it does not maintain flexibility in the company’s policies and procedures. In addition to providing employees with an orientation to the company’s benefits (i.e., leave and holidays), a handbook should contain the following 5 essential provisions:

1. At-Will Employee Statement and General Disclaimer.
2. EEO/Sexual Harassment Policy.
3. Computer and Telephone Monitoring Policy.
4. COBRA Policy.
5. Prohibited Employee Conduct.

1. At-Will Employee Statement and General Disclaimer. An employee handbook should contain a conspicuous statement that employment with the company can be terminated at the will of either party. This is an informative statement to the employee that there are no guarantees of employment for any specific period of time, and that the handbook is to be used as a guide only and not to be interpreted as a form of employment contract. It is also prudent to include and require all employees to sign an acknowledgement of receipt of the manual, and the acknowledgement should reference the receipt of the employment contract disclaimer and at-will employee statement.

2. EEO/Sexual Harassment Policy. A written Equal Employment Opportunity (EEO) and sexual harassment policy is an effective prevention tool. An EEO policy notifies employees, including managers, that it will not consider a person’s race, color, age, sex, etc. when making employment decisions, such as placement, promotion, and training. It is also important for an employer to check the law in each jurisdiction where the company maintains an office, because some states require additional protections for employees. For instance, the District of Columbia Human Rights Act prohibits discrimination based on sexual orientation and personal appearance. The importance of an EEO policy should not be overlooked. It is usually the first item requested by the Equal Employment Opportunity Commission (EEOC) in an investigation into a discrimination complaint. Additionally, the maintenance and dissemination of a sexual harassment policy may prevent or at least put an early stop to sexual harassment in the workplace. Such a policy lets all employees know that sexual harassment in the workplace is not tolerated, and equally as important, provides a process and/or procedure by which employees can complain to a supervisor of such harassment so that the company can promptly investigate and remedy the situation.

3. Computer and Telephone Monitoring Policy. With the increase in the usage of computer systems by employees in the workplace, legal and effective monitoring of employees can thwart problematic employee behavior before a company’s business interests are harmed. For example, workplace monitoring can track unproductive employees and employee misconduct, and can prevent the divulgence of company trade secrets. However, unnecessarily eavesdropping and other monitoring of employees can have a negative impact of employee morale. Therefore, an effective monitoring policy recognizes employee privacy rights and restricts the monitoring for legitimate business reasons only.

4. COBRA Policy. Informing employees of their rights under the Consolidated Omnibus Budget Reconciliation Act of 1986 (“COBRA”) protects both the employee and the employer. This federal law entitles employees, albeit at their own expense, to the continuation of their health insurance coverage after the employee’s relationship with the company ends. A company’s policy should lay out who is entitled to the coverage, the length of continuation coverage, the payment responsibilities of the employee, and most importantly, the time period in which to apply for COBRA. An employer could be liable to up to $100 per day for any failure to provide certain continuation coverage notification to its employees.

5. Prohibited Employee Conduct. An employee handbook is a good place to inform employees that certain conduct, such as workplace violence, theft, and being under the influence of alcohol or illegal drugs at work, will immediately subject them to termination. One caveat – make sure to include a statement that the list of terminable employee conduct is not all inclusive, and that even in the absence of such conduct the employer always retains the right to terminate the employment relationship for no cause.

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The Court Report

VIRGINIA EMPLOYEE WHO THREATENED THE SAFETY OF FELLOW EMPLOYEES WAS NOT REGARDED AS DISABLED
An employee who brought suit claiming that his employer terminated him in violation of the American’s with Disabilities Act (“ADA”), where the employee was required to undergo a psychological evaluation after threatening fellow employees, failed to prove that his employer regarded him as disabled from a broad range of jobs, the Western District of Virginia held in Pence v. Tenneco Automotive Operating Company. The Court emphasized that Tenneco’s focus was on the safety of its employees and the violation of a workplace rule against threats. There was no evidence that a perceived disability was a determining factor in his termination. The ADA permits employers to terminate employees for misconduct or perceived misconduct, even if the misconduct is related to a disability. In this case, the Court found that the only reasonable conclusion was that Tenneco believed the threats and took them seriously.

The Plaintiff, who worked at Tenneco Automotive Operating Company (“Tenneco”), told a nurse at the plant that “‘when he [left] here he [would] be taking a bunch of people with him,’ and that ‘he [had] AK’s and more ammo than Rockingham County.’” The nurse believed this was a threat and reported it to the company’s security consultant and the police. The Plaintiff was then placed on paid leave and was referred to the company’s employee assistance program (EAP) for mandatory counseling and evaluation. A clinical psychologist did not find symptoms of an emotional or mental condition and found no “diagnosable medical condition.” Representatives of the EAP did report their belief that the Plaintiff was a threat to fellow employees. As a result, the Plaintiff was terminated.

The Plaintiff filed suit arguing his termination violated the ADA because Tenneco regarded him as disabled, he was required to undergo a psychological exam that was not job related and consistent with business necessity, and he was terminated in retaliation for engaging in a protected activity.

The Court found that Plaintiff failed to offer evidence that he was “perceived as disabled from a broad variety of jobs,” the appropriate standard under the ADA. The Plaintiff’s reliance on the fact that he was required to undergo a psychological evaluation did not establish that Tenneco regarded him as disabled, especially because the psychologist found no mental impairment that would disqualify him from a range of jobs.

The Plaintiff’s retaliation claim also failed because the temporal connection between his termination and his assertion that Tenneco violated the ADA and FMLA and his intention to pursue legal action was meaningless because there was an equally close temporal relationship with the threat made by the Plaintiff, which was the reason for his termination. The Court also found that the mandatory psychological violation did not violate the ADA because an employer may inquire into an employee’s mental or physical state when actions give rise to legitimate security or safety concerns. Finally, the Plaintiff’s claim that Tenneco violated the FMLA by failing to reinstate him failed because the Plaintiff offered no evidence that he was even eligible for leave or even requested FMLA leave.
This case supports the concept that it is okay under the ADA to require a psychological evaluation of an employee when there are legitimate safety or security concerns. Furthermore, it is okay to take adverse employment action against an employee who threatens the safety of other employees. Note that in this case, the psychological evaluation did not result in the employee being diagnosed with a mental impairment. Thus, employers should take caution if the employee has been diagnosed with a mental impairment and consider this carefully before taking any adverse action.

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MARYLAND COURT FINDS EMPLOYMENT ARBITRATION AGREEMENT ENFORCEABLE DESPITE EMPLOYER’S ABILITY TO CHANGE TERMS
As a general rule, courts do not enforce arbitration agreements that allow one of the parties to unilaterally alter the agreement. The rationale behind it is that if one party can reserve the right to change an agreement at any time, then the party is in fact agreeing to do nothing and thus, no contract has been formed. Such contracts are called “illusory” and are not enforceable. However, the Maryland Court of Special Appeals recently held in the case of La’Tia v. Circuit City Stores that an arbitration agreement in an employment contract was still enforceable, even though the employer retained the right to unilaterally change the agreement. The key was that the terms of the agreement required the employer to provide 30 days written notice before any change was made.

The plaintiff/employee in this case had signed an agreement to arbitrate any employment disputes when she began working for her employer, Circuit City. After beginning to work at Circuit City, the employee claimed that her supervisor sexually harassed and assaulted her. She subsequently quit her job and filed a lawsuit in court against Circuit City. Circuit City argued that the suit was improper because the employee had agreed to arbitration instead of litigation.

The key issue in the case was whether the arbitration agreement was enforceable. The employee, while citing substantial case law, argued that the agreement could not be valid because the very fact that Circuit City retained the power to alter the agreement made the agreement “illusory.” Circuit City countered that the agreement was valid, because unlike previous invalid agreements, this agreement forced Circuit City to give 30 days written notice before any changes could be made.

The Court agreed with Circuit City, pointing out that the 30 day notice provision required Circuit City to at least promise not to alter the agreement for that span of time. The Court concluded that both parties had provided adequate consideration and as such the agreement was enforceable.

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LAWYER DISQUALIFIED IN DISCRIMINATION CASE FOR SECRETLY USING EMPLOYEE AS AN “OFFICE MOLE”
In a scathing opinion addressing the conduct of a lawyer in a discrimination case, a federal judge in Pennsylvania recently disqualified a former employee’s lawyer for communicating with a disgruntled administrative assistant without the company’s knowledge. Attorneys are generally not allowed to contact management employees in a company without the consent of the company’s counsel, especially when their statement could bind or impute liability to the company. In the case of EEOC V. Hora Inc. (d/b/a Days Inn), even though the assistant was not a manager, the Court noted that she was the sole and direct personal assistant to senior Hotel managers, and had access to confidential and privileged communications which she freely shared with the opposing lawyer unbeknownst to the Hotel. The Court found that the lawyer in fact encouraged the assistant to be a mole and to gather information from the inside for use in the case against the Hotel, and that these actions over-stepped the lawyer’s ethical boundaries.

In this case, a former employee of the Hotel alleged that the company engaged in unlawful employment practices by subjecting the employee and other female staff to a sexually hostile work environment and that the company wrongfully fired her in retaliation for the complaints. Before the Equal Employment Opportunity Commission began an investigation into these allegations, the lawyer for the employee began communicating with the assistant who was still working for the Hotel. The assistant gathered information about other Hotel employees, about the alleged sexual harasser and the company’s knowledge of the sexual harasser’s background, and relayed this information to the fired employee’s lawyer. The Court noted that the assistant had a negative attitude about the Hotel management and was secretly and vehemently disgruntled, and therefore was willing to assist in any way.

The lawyer encouraged the employee to get information clandestinely and outside of the normal discovery rules. The assistant provided the lawyer with the company’s employment handbook; data from the fired employee’s time sheets; the contents of the alleged sexual harasser’s personnel file; and the details of an attorney-client privileged conversation that her co-worker heard while eavesdropping. The Court found the lawyer even endeavored to further manipulate the assistant with her own views of a Hotel owner’s inaction to discrimination complaints, instead of preserving the integrity of this potential witness’ memory, and engaged in gossipy type communications relating to the sexual harasser’s reputation. The lawyer used the information and represented it as factually true during the representation of her client, despite the potential credibility issues with the way the information was obtained.

In response to the motion to disqualify, the lawyer argued that most of the information was produced later through discovery methods anyway. However, the Court noted that the lawyer’s conduct evidenced her exploitation of the assistant’s position, which obstructed the company’s legal rights. Moreover, the lawyer’s conduct thwarted policies underlying several ethical rules, which led to her disqualification in the case.

This case underscores the legal restrictions on methods of obtaining evidence. The Court found here that disqualification of the attorney was warranted because the company was not only unaware of the communications with its employee, but her conduct prevented the orderly flow of information through the normal process of discovery.

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DISCRIMINATION VERDICT IN FAVOR OF EMPLOYEE REVERSED BECAUSE COMPANY DID NOT HAVE 15 OR MORE EMPLOYEES
A waitress recently sued her former employer for sex discrimination and was awarded $40,000 by the jury. It seemed the case was over and the restaurant had lost. However, four months after the original judgment, the judge reversed the jury verdict and dismissed the case. How did this happen? Employers with fewer than fifteen employees are exempt from the nondiscrimination requirements of Title VII of the Civil Rights Act of 1964. But, who gets to decide whether the employer fits in this exemption and when is this decision made? The federal courts are not in agreement. Some say that the fifteen employee rule limits the ability of the court to hear the case in the first place, known as “subject matter jurisdiction.” The effect of this is that the judge gets to decide whether the employer has fifteen employees and this determination can be made at any time, even after the trial is over and the jury has rendered a verdict. The Fifth Circuit where this case was heard (like the Fourth Circuit that covers Virginia and Maryland) follows this approach, so the restaurant was able to get the judge to dismiss the case for lack of subject matter jurisdiction even after the jury had rendered its verdict in favor of the employee. Other courts say that the fifteen employee rule is part of the case to be argued to the jury, known as “the merits.” The effect of this approach is that the jury gets to decide in the course of rendering a verdict on the employee’s lawsuit. The Supreme Court recently agreed to settle this split in reasoning among the federal courts. The case, Arbaugh v. Y & H Corporation, will be heard by the Supreme Court November 7th, with a decision likely by next summer.

In Arbaugh, a waitress claimed that her former employer, a New Orleans restaurant, had violated Title VII by allowing one of its owners to sexually harass her. A jury heard the case and awarded the waitress $40,000. Two weeks after the final judgment was entered, the restaurant filed a motion to dismiss the case, claiming that it lacked the requisite fifteen employees during the time the waitress was employed. Hence, it was exempt from Title VII and the court lacked the ability to hear the suit. The judge heard evidence from both sides concerning the actual number of employees the restaurant had. In April 2003, four months after the original verdict, the judge ruled that the court lacked subject matter jurisdiction because the fifteen employee rule was not met, and he reversed the jury verdict. The United States Court of Appeals for the Fifth Circuit affirmed the judge’s decision, agreeing that the 15 employee rule is an issue of subject matter jurisdiction that can be raised at any time to dismiss a case, even after a verdict has been rendered as in this case.

There are three main advantages of classifying the fifteen employee rule as a question of subject matter jurisdiction rather than part of the merits of the claim. First, issues of subject matter jurisdiction are not waivable. The employer cannot lose the opportunity to bring up the issue. Second, there is less risk that the jury will “overlook” the issue in a desire to help a sympathetic plaintiff. Finally, issues of subject matter jurisdiction can be raised at any time and by anyone (even the court). The employer can save money if it can win on the fifteen employer issue at the start of the case without going through lengthy litigation. Or, if the employer fails to notice the issue until after the verdict is in, it can still raise it. It can even be raised by an appellate court reviewing a lower court’s decision. Next year, the Supreme Court intends to answer whether the fifteen employee rule is an issue of subject matter jurisdiction or part of the merits of a case.

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D.C. COURT “BLUE PENCILS” EMPLOYMENT ARBITRATION CLAUSE THAT PROHIBITED RECOVERY OF PUNITIVE DAMAGES
The United States Court of Appeals for the District of Columbia recently compelled an employee who signed an employment agreement mandating arbitration to arbitrate his dispute with his employer, but only after the Court struck the last sentence of the arbitration provision, which prohibited an award of punitive damages that otherwise would have been an available remedy in court. This approach of removing an offensive provision from a clause rather than rendering the whole arbitration agreement invalid is commonly referred to as “blue-penciling,” and many jurisdictions including Virginia have not openly endorsed it. So it is likely that if the same arbitration agreement containing the prohibition on punitive damages was presented to a Virginia court, the entire agreement would be struck down and the case could proceed to litigation.

Despite a mandatory arbitration provision in his employment agreement, an employee of Robert Half International, Inc. (“RHI”) filed a lawsuit alleging racial discrimination under the District of Columbia Human Rights Act (“DCHRA”). The provision stated that the commercial arbitration rules of the American Arbitration Association (“AAA”) will be followed and that punitive damages, which were otherwise allowable under DCHRA, may not be awarded. RHI moved the Court to compel the Plaintiff to arbitrate. The district court granted RHI’s motion and ordered the matter to arbitration and the Plaintiff appealed.

The Plaintiff argued that the entire arbitration provision should be annulled for a number of reasons. First, the Plaintiff argued that the provision did not provide for adequate discovery and that the AAA commercial arbitration rules were not as favorable as the AAA employment arbitration rules. Citing two Supreme Court cases, Green Tree Financial Corp. – Alabama v. Randolph, 531 U.S. 79 (2000) and Pacificare Health Systems, Inc., 538 U.S. 401 (2003), the Court explained that Plaintiff did not meet his burden of showing the likelihood that the arbitration provision would “interfere with the effective vindication of statutory rights” and he simply set forth scenarios of “‘mere speculation’ about how an arbitrator ‘might’ interpret or apply the agreement.”

The Plaintiff also argued that the agreement’s separate provision requiring his consent to any change or waiver of a provision prohibited the Court from severing the illegal punitive damages prohibition and enforcing the remaining provisions without his consent. The Court disagreed, explaining that the severability and waiver provisions are not incompatible and the inclusion of the severability provision at time of the contract’s formation indicates the parties’ intent that a single contractual provision may be severed without invalidating the whole agreement.

Finally, the Plaintiff argued that by severing only the punitive damages prohibition and not the entire arbitration provision, the Court ignored public policy in favor of affording him the opportunity to defend his statutory rights, and such a ruling would encourage employers to “overreach” when drafting arbitration agreements. The Court found that the offending language in the arbitration provision of the Plaintiff’s employment agreement was easily severed and did not disturb the intent of the parties, which is critical to any analysis of whether it is appropriate to sever a contractual provision. Therefore, the Appeals Court agreed with the district court; the prohibition on punitive damages was struck from the arbitration provision and the Plaintiff was compelled to arbitrate.

Although the Court did not expressly state that it was adopting a blue pencil rule, by striking one sentence as opposed to the entire arbitration provision suggests that the Court will apply the blue pencil rule in certain cases rather than sever the entire provision. Other courts have refused to apply a blue pencil rule and instead have ruled that the entire provision that contains some offending language must be struck from the agreement.

This case emphasizes the critical power that a severability provision may have in a contract, particularly in an employer’s arbitration agreement. However, employers should be careful not to go too far by having an overly broad agreement with a number of provisions that are potentially questionable under the law, since a severability provision will not likely save the entire agreement if striking discreet provisions is not possible without altering the intent of the agreement, or if striking offending provisions in the agreement would result in a fragmented agreement that no longer fulfilled the intent of the parties.

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BURDEN IS ON EMPLOYEE TO IDENTIFY OTHER POSITIONS THAT MEET HIS DISABILITY, APPEALS COURT RULES
The Sixth Circuit Court of Appeals recently held that an employer did not violate the Americans with Disabilities Act (“ADA”) when it terminated two employees who had physical limitations on their ability to perform certain jobs. The Court concluded that the employees could not prevail in their failure to provide a reasonable accommodation claims, even though the employees alleged that their employer failed to assist them in finding vacant positions that may have accommodated them. This decision is notable in that a number of court decisions from other appellate courts, including the Fourth Circuit covering Virginia and Maryland, as well as the EEOC’s guidelines on the ADA, have emphasized that the process of determining a reasonable accommodation for a disabled employee should be an interactive process between the employer and the disabled employee.

Two employees of The Procter & Gamble Company (“P&G”) worked at P&G’s Ivorydale facility and were placed on a leave of absence after their department’s operations ceased. After unsuccessful attempts to find other jobs at P&G, they were both eventually terminated. The employees filed suit against P&G arguing that it violated the ADA for failing to accommodate their disabilities through a transfer or reassignment or by making modifications to job duties.

The plaintiffs’ evidence consisted of general descriptions of various jobs at P&G without indicating that any of these positions were vacant at the time the plaintiffs were looking for a job transfer. Another list of positions offered by the plaintiffs did suggest that some positions may have been open prior to their termination, however, the plaintiffs failed to provide any evidence that they would be qualified for these positions or that the positions would have accommodated their disabilities. The specific positions for which plaintiffs claimed they should have been considered were also not comparable to their prior positions because they were classified as non-union only positions, whereas the plaintiffs’ prior positions were classified as union-represented positions. The Court noted that an employer’s duty under the ADA to transfer an employee as a reasonable accommodation does not apply when the position is not comparable to the prior position.

The Sixth Circuit determined that no reasonable jury could find a violation of the ADA, despite the plaintiffs’ allegations that P&G failed to provide them with any assistance in locating vacant positions at other facilities for which they would be qualified. The Court explained that even though P&G failed to provide such assistance in determining a reasonable accommodation, it was the employees’ burden to show that there were positions available at other P&G facilities, that they were qualified for these positions and that these positions would have accommodated their disabilities.

This is a difficult burden for an employee to carry when the employer has failed to provide any assistance in finding vacant positions, especially when the employer is usually in a better position to know what positions are open and the required qualifications for those positions.

Although the employer was not found to have violated the ADA in this case, the primary reason offered by the Court was that the plaintiffs did not have sufficient evidence. By refusing to put any weight in the plaintiffs’ argument that their employer failed to assist them in finding a reasonable accommodation, the Sixth Circuit has shown that the employee’s burden in a reasonable accommodation case is difficult to meet. In at least a few cases in other jurisdictions, an employer’s disregard for the required interactive process has led to a decision against the employer. Because the Sixth Circuit’s opinion did not go into great detail about the interactive process, it is unclear if under a different set of facts the employer would still prevail if it failed to assist employees in determining a reasonable accommodation.

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STATE, NOT FEDERAL, STATUTES OF LIMITATION APPLY TO RETALIATION CLAIMS UNDER THE FEDERAL FALSE CLAIMS ACT
In deciding a conflict among federal appellate courts across the country regarding whether the six year limitations period as set forth in the federal False Claims Act (“Act”) applies to civil claims for retaliation against whistleblowers, the United States Supreme Court recently rejected the use of the federal statute of limitations and determined that the most closely analogous state statute of limitations, which is typically a shorter limitations period, should be used in these types of cases. This significant procedural ruling was made in the case of Graham County Soil & Water Conservation District v. United States, which was before the Supreme Court on appeal from the Fourth Circuit.

The False Claims Act prohibits any person or entity from submitting a false or fraudulent claim for payment to the United States government. Damages from a false claim are extensive, including the repayment of three times the amount falsely billed and a mandatory civil penalty of at least $5,500 for each separate claim. Importantly, under a 1986 amendment to the Act, a whistleblower who reports the fraudulent conduct may bring a private cause of action for any resulting retaliation for assisting in an investigation or proceeding involving the false claim.

Karen Wilson worked for Graham County Soil and Water Conservation District (“Graham County District”) as a secretary, and alleged that several of her co-workers submitted numerous false claims for reimbursement from the Federal Government in connection with a federal disaster relief program, the Emergency Watershed Protection Program. Wilson’s Complaint further alleged that once she reported these false claims to the officials and cooperated with the investigation, she was harassed and constructively discharged from her employment with Graham County District. The issue in this case was which limitations period applied to Wilson’s retaliation claim under the Act.

The trial court dismissed the lawsuit as untimely under North Carolina’s three-year limitations period. The Fourth Circuit Court of Appeals reversed, concluding that the six-year period in the Act applied to her wrongful discharge claim rather than the shorter state limit. The Supreme Court analyzed the statutory construction of the Act and determined that it did not expressly provide a statute of limitations for the retaliation private cause of action, notwithstanding the provision laying out a six year limitations period. The Court stated that the six-year provision is ambiguous regarding what causes of action are to be included. The Court determined that based on statutory construction, the retaliation claim should be governed by the applicable state time limit.

Since the limitations period is an absolute bar to recovery under the Act and a state’s time limit will usually be less than six years, this decision provides an employer in a private retaliation case under the Act a greater opportunity for dismissal on untimeliness grounds. However, it should be noted that while the Supreme Court’s decision affects the time periods for which an employee may bring a private claim for retaliation under the Act, the federal six year limitation period still applies to claims brought by the individual in the Federal Government’s name, commonly referred to as qui tam actions.

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David Oblon, Managing Partner, Albo & Oblon
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