As a general rule in New Jersey, private employers may not conduct random drug testing of current employees except employees in “safety-sensitive” positions. Notwithstanding scant authority on what constitutes a “safety-sensitive” position, it is clear that to qualify, there must be a direct and immediate nexus between the employee’s job duties and a fairly significant safety risk. Absent such a connection, an employer cannot require its employees to submit to random drug testing, though pre-employment testing and testing in light of a particularized suspicion are permissible.Continue Reading...
Countless people have been affected by the harsh economic times of the past several years. Many were unable to meet their financial obligations and stopped paying their bills which ultimately resulted in diminished credit ratings. In turn, job prospects also diminished. Pre-employment credit screenings are often standard practice and an unacceptable credit rating can be a bar to potential employment opportunities.
The New Jersey Legislature is currently reviewing this situation to determine whether reform is appropriate. There has been some recent movement towards banning and/or restricting an employer’s ability to use credit checks to screen potential applicants. The rational is that these checks often deprive people of the ability to get back on their feet. Some see the checks as patently unfair, especially if there is no correlation between the job functions to be performed and strength of the employee’s credit rating. Further, some studies have shown that credit checks are often unreliable and produce incorrect data, with 20% of credit reports containing errors.
A new bill to ban employment credit checks (S455) passed the New Jersey Senate last year and was approved by the Assembly Labor Committee in December. It has now made its way to the full Assembly. The bill bans credit checks unless required by law or in certain circumstances where an employer reasonably believes that an employee has engaged in financial activity that violates the law. The checks would also still be permissible if they constitute a bona fide occupational qualification for a particular position (i.e. a job in the financial industry, a position that gives the employee authority to issue payments, transfer money or have an expense account).
The exceptions appear to be an attempt to balance employers’ legitimate concerns for their business interests against the need for access to employment. Many employers may feel that the protections are still not adequate and that they are being deprived of the ability to obtain important information about potential candidates. At the current time, there is no clear answer as to how the balancing will play out in New Jersey.
However, even if the bill is not passed in New Jersey, there is similar federal legislation pending called the Equal Employment for All Act. It is prudent for employers to monitor both of these bills carefully, as they could impact the way they screen applicants. At the current time, employers are still permitted to rely upon credit checks, but human resource departments are advised to keep abreast of the potential changes. If either of these bills does ultimately pass, in addition to updating their screening procedures, employers should also not forget to update their employee handbooks to conform to the law. A qualified employment attorney can assist you in drafting a provision that keeps your business in compliance.
Generally, employers in New Jersey have an obligation to ensure that the workplace they are providing is harassment-free. However, like allegations of work-related discrimination, harassment is unlawful in New Jersey only if it is based on an employee being a member of a legally “protected class”.
The New Jersey Law Against Discrimination (N.J.S.A. 10:5-12) (“LAD”) makes it unlawful to subject people to differential treatment based on race, creed, color, national origin, nationality, ancestry, age, sex (including pregnancy), familial status, marital status, domestic partnership or civil union status, affectional or sexual orientation, gender identity or expression, atypical hereditary cellular or blood trait, genetic information, liability for military service, and mental or physical disability, perceived disability, and AIDS and HIV status. Be mindful that not all of the foregoing prohibited bases for discrimination are protected in all areas of activity.
Claims of harassment are actionable only if the claims rise to the level of being “severe” and “pervasive”. While severity generally deals with the offensiveness of the act or acts in question, perverseness deals with the frequency or lack thereof, of the alleged act or acts. Additionally, the alleged conduct must rise to the level that the terms and conditions of the employment are altered.
While considering the above criteria, the Courts in New Jersey employ a “reasonable person” standard. For example, to be legally actionable, harassment must create a hostile work environment which would cause a “reasonable person” of the same protected class, rather than a hypersensitive member, to feel as though the conditions of employment were altered.
Claims of harassment and/or a hostile work environment can rise from an act or acts of both supervisors or managers and co-employees. Harassment need not be committed by management, as employers can be held liable for the actions of non-supervisory co-workers. If faced with harassment and/or hostile work environment claims from an employee, the employer should contact counsel immediately. The LAD provides numerous remedies for victims of harassment, including, but not limited to: back-pay; forward pay; counsel fees and costs; compensatory damages for emotional distress; and punitive damages.
The attorneys in Stark & Stark’s Employment Law Group have experience defending a wide-variety of employers against allegations of all types of workplace harassment. Additionally, our practice helps employers avoid legal exposure, by providing management training on compliance with both state and federal laws involving harassment.
Employee manuals are a very useful tool for both employers and employees. The manuals are meant to provide guidance to employees about how the company runs, what the employer’s expectations are and how certain situations should be handled. They can quickly and effectively provide employees with answers to many commonly asked questions. This creates a certain level of clarity for both parties and aids in the avoidance of misunderstandings regarding the company’s policies.
However, while employee manuals are essential for distributing information about company procedure, most employers do not want their manuals to be construed as contracts of employment. Therefore, it is common practice for employers to put a disclaimer in their employee manuals articulating that the manual is NOT a contract of employment and does not create any terms or conditions of employment. This language helps to insulate the employer. But what happens when an employer actually wants to enforce a provision outlined in the manual, to the exclusion of the others? The District Court of New Jersey recently answered this question in the case of Raymours Furniture Company, Inc. v. Rossi, Civ. No. 13-4440 (D.N.J. Jan. 2, 2014), which dealt with the enforceability of an arbitration provision in an employee manual.
Employers often want any employee disputes to be resolved via mandatory binding arbitration as opposed to full blown litigation. To that end, many employers seek to have their employees agree to arbitration as a condition of employment. However, the form and content of the agreement to arbitrate are important. Under New Jersey law an employee must “clearly and unambiguously” confirm their agreement to arbitrate. General rules of contract construction govern when investigating whether this, in fact, occurred and New Jersey courts usually look to the four corners of the document in question to ascertain the intent of the parties. In the case of an employee manual, avoiding conflicts among provisions or contradictory statements is key.
An employer cannot state that its employee manual is not a contract and then seek to invoke an arbitration provision within that manual without including language which expressly excludes the arbitration provision from the disclaimer. Otherwise, there is a conflict in the document which renders it ambiguous. However, the conflict can be resolved by adding the necessary exclusionary language throughout the manual wherever any statement is made pertaining to the manual’s status as non-binding. Additionally, the arbitration provision itself should include language to this effect. Finally, the acknowledgment page of the manual should contain a separate paragraph pertaining to arbitration whereby the employee expressly acknowledges that the manual contains an arbitration provision and that the employee agrees to arbitrate any employment related claims. A separate acknowledgment form relating to arbitration can also be executed in lieu of including arbitration language in the manual’s acknowledgement form.
In addition to this, an employer who wishes to enforce an arbitration provision in an employee manual cannot make a blanket statement indicating that it reserves the right to change the contents of the manual at any time and without any notice. This acts to make the arbitration provision illusory and unenforceable. To cure this, the employer should make clear that the arbitration provision is exempt from this and expressly state that any change pertaining to the arbitration provision will be put in writing, provided to all employees and that employees will be asked to sign an acknowledgement accepting the new provision as a condition of continued employment.
Any employer who wishes to include an arbitration provision in an employee manual should consult with an employment attorney to make sure that the provision and the terms of the manual do not conflict or create an ambiguity. Similarly, any employer who currently has an employee manual with an arbitration provision should have counsel review the manual to ensure that it complies with the terms and conditions outlined in the Raymours decision.
To be an employee, or not to be an employee: that is the question for student-athletes of revenue producing sports at private universities. To college sports administrators and enthusiasts aghast at and appalled by the idea, the sky may be falling. To labor and employment lawyers, the question presents a unique opportunity to revisit issues of worker reclassification and evaluate the potential ramifications of what could be a complete paradigm shift in intercollegiate athletics.
On March 26, 2014, Peter Sung Ohr, Regional Director of Region 13 of the National Labor Relations Board (“NLRB” or the “Board”), issued a ruling in which he declared Northwestern University students receiving scholarships to play football to be “employees” under Section 2(3) of the National Labor Relations Act (“NLRA” or the “Act”). He also declared the College Athletics Players Association (the actual petitioner in the action) to be a “labor organization” within the purview of Section 2(5) of the Act, found Northwestern University, the “Employer,” to be engaged in commerce within the meaning of the Act, and granted Northwestern football players the right to unionize, which would give them the right to collectively bargain against Northwestern University for better health care coverage, larger scholarship funds and other benefits.
Though experts and pundits alike assume there will be further legal challenges to the NLRB ruling, and while it remains to be seen (as of this blog post) whether the football players covered by the ruling will vote in favor of unionization, the decision nevertheless is groundbreaking.
Summarizing the 24-page ruling, which can be found here, the NLRB determined that football and academics are separate and distinct, at least with respect to scholarship athletes of revenue producing sports at private institutions like Northwestern, thus stripping any meaning from the term “student-athlete,” a term coined by the NCAA precisely to avoid paying workers compensation and other employment-related benefits.
The Board held that the scholarship-receiving football players at Northwestern University have all the dressings of typical employees. First, the Board commented that the University, the “Employer,” is a private, non-profit, non-sectarian, coeducational teaching university, and that its football team generates substantial revenue (millions of dollars annually) in various ways including: (1) ticket sales; (2) television broadcast contracts with various networks; and (3) the sale of football team merchandise. Then, turning to the football players, the Board held as follows:
- The grant-in-aid scholarships provided to football players that pay for their tuition, fees, room, board, and books, as well as the additional funds provided from the “Student Assistance Fund,” is compensation, not financial aid;
- The scholarship offered to a recruit, or “tender,” which must be signed by the football player, is not a scholarship but an employment agreement. It contains all terms and conditions of the offer, including termination “for cause” provisions (i.e., eligibility, criminal charges, misconduct, abuse of team rules), a voluntary resignation provision, and a provision discussing the football players rights of administrative appeal if their scholarships will not be renewed;
- The football players are subject to special rules set forth in a Team Handbook (think, employee handbook), which includes prohibitions against accepting other employment, engaging in social media, speaking to the media, gambling, and profiting off their likeness, and requires the football players to abide by strict drug and alcohol policies;
- The football players are full-time employees, often devoting more than 40-50 hours per week to football-related activities during the regular season; and
- The football players enjoy nine discretionary weeks off, which is properly viewed as vacation time.
In finding that the grant-in-aid scholarship players are identified and recruited because of their football prowess and not because of their academic achievement in high school, the Board held that the scholarship players are compensated not for their performance in the classroom (and hence not as students), but for their services on the field of play (as “employees”).
Based on these factors, among others, the Board concluded that the scholarship-receiving football players at Northwestern are “employees” under the common law definition of the term as “a person who performs services for another under a contract of hire, subject to the other’s control or right of control, and in return for payment.” Brown University, 342 NLRB 483, 490, fn. 27 (2004) (citing NLRB v. Town & Country Electric, 516 U.S. 85, 94 (1995)). The Board found that the scholarship football players performed services for the benefit of their employer for which they receive compensation, and that the employer exercises substantial control over its “employees” in their performance of their duties as football players. Scholarship-receiving football players meet all four prongs of the common-law definition of an employee: (1) they perform work for another, (2) under a contract of hire, (3) under that entity’s control, (4) in return for payment or other compensation. The Board dismissed the notion that the players’ compensation is “financial aid,” expressing that the “employer” never would have offered a scholarship to a prospective student unless they intend to provide an athletic service to the University.
The Board’s ruling that the scholarship football players are “employees” within the meaning of the NLRA does not require grueling mental gymnastics. By severing the athlete from the student, or vice versa (as the NCAA would have it), and by effectively downplaying the GPA and other NCAA, Conference and University eligibility requirements imposed upon the football players, the Board’s ruling is not surprising. Still, the ruling is historic, in that it could mean transformative change in intercollegiate athletics – at least with respect to the revenue producing sports of football and men’s basketball.
More significant, perhaps, is what the Board’s decision could mean in the context of workers compensation, payroll, insurance, wage and hour laws, minimum wage, and other employee benefits, such as health care. What are the potential income and other tax implications? What, indeed, would the ramifications be if the players with scholarships vote to unionize and engage in collective bargaining with Northwestern University? Of course, one twist lies with the NCAA and its regulations, as any additional benefits could render the football players ineligible to participate.
At other private schools, scholarship players could attempt to unionize, citing the Northwestern decision as precedent. Of course, Directors in other regions are not bound by the Northwestern decision. This could lead to inconsistent results nationwide. Meanwhile, the Northwestern decision has no direct impact on state schools, which are not governed by the NLRB.
Only time will tell whether this movement will gain momentum, whether the Northwestern players will vote to unionize and what the consequences could be. In the meantime, the case presents a compelling case-study in worker classification and what is required for a person to constitute an “employee” under the ever-broadening definition of the NLRA.
Social Media use is prevalent and will undoubtedly continue to remain a staple in our society for years to come. Improvements in technology have made access easier which has helped to create a culture where people are engaging in the use of social media anytime and from almost anywhere. But what does this mean for employers? Is an employer permitted to access employee social media accounts? Can the content of employee social media conversations be restricted? Can the use of social media be banned or limited in the workplace?
This is a developing area of law and the proper balance between employer rights and employee privacy is still being defined. The landscape is vast and employers wishing to create policies with respect to social media (which is highly recommended) need to look to both federal and state laws to ensure that they are in compliance.
On December 1, 2013 New Jersey joined a growing number of states that have enacted a social media password protection law. Under the new law, employers are not permitted to request usernames or passwords for personal employee or prospective employee social media accounts. Retaliation against an individual who refuses to provide this information or who discloses that a violation of the law has occurred is strictly prohibited. Violators are subject to fines. However, that is only one piece of the puzzle. Penalties for similar conduct may be much greater under other laws such as the Conscientious Employee Protection Act (“CEPA”), N.J.S.A. 34:19-1, et seq. Employers should seek to avoid engaging in this type of conduct at all costs.
It should be noted that employers do not always need passwords to access employee social media accounts. If an employee’s privacy protections are set to allow for public viewing of his or her account, an employer is not prohibited from viewing the content (but the employer should be mindful of potential claims that it used information it obtained in this manner to violate anti-discrimination laws). Using alternate means to gain access to an otherwise private account is not permissible. However, this does not prevent an employer from seeing the content of a private account that is offered to it by an “intended viewer” of the account with lawful access (i.e. another employee who is an online “friend” of the employee in question). The District Court of New Jersey recently held that viewing private employee social media postings that are provided to an employer by someone with authorized access to the information does not violate the Stored Communications Act (“SCA”) 18 U.S.C. § 2701, et seq., which bars the unauthorized disclosure of electronic communications. Ehling v. Monmouth-Ocean Hospital Service Corp.WL 4436539 (D.N.J. Aug. 20. 2013). However, an employer should not solicit this information from the “intended viewer” or have a policy which requires or encourages such behavior.
Also of concern is how much input an employer has over the content of employee social media postings. The National Labor Relations Board (the “NLRB”) has taken a very broad interpretation of Section 7 of the National Labor Relations Act (the “Act”), 29 U.S.C. § 151, et seq., when it comes to social media restrictions. Section 7 prohibits any policy that restricts employees from discussing the “terms and conditions” of their employment. The NLRB has taken the position that policies that prohibit employees from posting anything “offensive” or from posting “confidential information,” without further clarification, are too broad and ambiguous. To avoid being found in violation of the Act, employers are advised to ensure that any social media policy is crafted utilizing very descriptive terminology that makes clear that the conduct being prohibited does not include any of the conduct protected under Section 7. It is also prudent for an employer to include a very specific “savings clause” in any social media policy which makes clear that the policy is not intended to violate any protections granted under Section 7. The savings clause should make specific reference to the protected conduct and should provide definitions of ambiguous terminology.
So what can employers prohibit? At the current time, an employer social media policy can prohibit the use of social media in the workplace during work hours and can prohibit the use of employer supplied equipment to access social media. An employer can also prohibit an employee from posting anything on social media in the name of, or on behalf of, the employer. Content that constitutes discrimination or harassment of a co-worker can also be restricted. The NLRB has published guidelines on the permissible scope of social media policies. These guidelines should be reviewed and incorporated into any employer’s policy.
Having a social media policy is becoming more and more important for all employers as a means of protecting themselves. However, given the complexity of the laws surrounding social media it is strongly advised that you have an employment attorney assist you with the drafting of a social media policy. With all of the recent changes in the law, it is also strongly recommended that existing policies be reviewed by counsel and that a periodic review is scheduled to ensure continued compliance.
New Jersey Senator Peter J. Barnes has introduced a bill that would protect workers in the state from adverse actions by their employer if they are unable to make it to work during a declared state of emergency. The legislation would prevent employers from requiring employees to use any leave, paid or unpaid, as well as any sick, vacation or personal days during a state of emergency. According to the bill, a state of emergency is a natural or man-made disaster or emergency in which a state of emergency is declared by the Governor or by a municipal emergency management coordinator.
The proposed bill contains an exemption for public safety agencies and carries fines to an employer who violates the provisions of up to $5,000 for the first offense and $10,000 for each offense thereafter.
The bill has been referenced to the Senate Labor Committee. Employers, please check back with Stark & Stark’s Employment Law Group for updates on this proposed bill.
The national movement towards “Banning the Box” has made its way to New Jersey and it could mean additional red tape for employers who want to perform criminal background checks on prospective employees. The New Jersey Assembly Labor Committee recently voted to send the “Opportunity to Compete Act” to the full assembly for approval. The Act essentially bars employers with fifteen or more employees from inquiring whether a prospective employee has been convicted of a crime. Employers who still wish to obtain information about an applicant’s criminal history can do so, but only after a conditional offer of employment is made and the applicant consents to the background check.
The bill, as proposed, provides that an employer can withdraw an offer of employment in the event that a consensual background check is conducted and reveals criminal activities which the employer deems unsatisfactory. However, the applicant then has ten days to explain the relevant circumstances. If the employer still wishes to withdraw the offer of employment it would have forty-five days to provide an explanation to the candidate and would be required to provide a Criminal Record Consideration Form indicating how it arrived at its decision.
The Criminal Record Consideration Form would be required of any employer wishing to undertake a background check that results in it rescinding an offer of employment. Employers would have to document that certain factors were weighed in arriving at the decision, including the relevance of the conviction to the type of employment being sought. Additionally, different types of convictions would be handled differently in the consideration process. A conviction for murder, attempted murder, arson, sex offenses that result in jail time, robbery, kidnapping, human trafficking, possession of weapons, burglary, aggravated assault and terrorism could be considered regardless of how long ago they occurred. However, convictions for other crimes in the 1st-4th degree could only be considered if they happened within the past 10 years. Disorderly persons convictions could only be considered if they happened within the past 5 years. Arrests that did not lead to convictions and any expunged or sealed records would likely be prohibited from consideration altogether.
Although the bill would produce additional work for employers, there are several employer-friendly provisions which soften the blow. One such provision would ban any private cause of action against an employer for violating the Act. The only recourse for aggrieved individuals would be to file a complaint with the New Jersey Division of Civil Rights. The Division could then levy a fine against the employer but only if it finds an employer’s conduct met the high standard of “gross negligence.”
The purpose behind the Act is to eliminate barriers to employment by removing the initial stigma attached to applicants having a criminal record. Studies have shown that many such applicants are never even considered once that information is provided. A 2011 National Employment Law Project study found that 65 million Americans have been convicted of a crime that could show up on a background check. Therefore, it is easy to see why there is so much support for this legislation. Two New Jersey cities, Atlantic City and Newark have already passed ordinances “banning the box” in certain situations. Additionally, some of NJ largest employers have chosen to voluntarily remove criminal history inquiries on their employment applications. It certainly appears that the tides are turning in favor of a ban.
However, it is important to note that the Opportunity to Compete Act is not yet law in New Jersey so employers are not yet required to abide by its terms. It is very possible that the procedures and restrictions outlined above could be changed if and when the bill actually becomes law. However, it is always good for employers to be aware of potential legal changes that could eventually impact them so that they can prepare accordingly. Should the bill become law, employers are urged to contact a qualified employment attorney for advice on how to properly navigate the changing legal climate. Further, employers who wish to voluntarily change their procedures in advance should do so with the assistance of counsel to ensure that their new policy is crafted in accordance with all state, local and federal laws and regulations.
In recent news, the National Football League has proposed a new rule that would establish a yardage penalty for any on-field use of the “N-word.” The proposed rule has stirred up much debate: some legal, some cultural, some editorial, all polemical. It is not the purpose of this blog to step foot onto that gridiron of controversy, though a simple threshold question might be whether the use of the “N-word” on the playing field constitutes protected speech. Nor is it the purpose of this blog to evaluate whether Roger Goodell can impose such a rule in his “workplace.” Rather, the NFL’s proposal provides an opportunity to examine a private sector employer’s right to regulate speech in the workplace.
The right to freedom of speech is fundamental and is one of our most cherished rights, yet it is not absolute. Federal free speech protections apply only to the government. The First Amendment to the U.S. Constitution, for example, does not apply to private employers. Generally speaking, private sector employees are not entitled to First Amendment free speech protection, even when speaking about job-related matters in the course of their employment duties results in adverse employment action. For example, employers can prohibit employees from engaging in speech during work time that is not work-related. Similarly, employers must take action against employees who engage in speech that would violate an anti-harassment policy or create a hostile work environment, and private employers have every right to regulate or prohibit any category of “unprotected” speech such as “fighting words,” offensive speech or obscenity.
Of course, there must be some balance between what an employee can and cannot say in the workplace and the legitimate interests of the employer in regulating speech to promote harmony and the effective operation of its workplace. If an employee’s speech disrupts the workplace, affects job performance or obstructs productivity and the employer disciplines or terminates the employee, the employer should not face liability for violation of First Amendment free speech rights. Still, an employer must exercise caution in regulating speech in the workplace. Unwieldy or overly burdensome policies could yield unhappy and unmotivated employees.
While there is not much jurisprudence evaluating a private employee’s First Amendment rights in the workplace, at a minimum, a private sector employer should have the same degree of control over its employees’ speech in the workplace as a public sector employer. In Pickering v. Board of Education, 391 U.S. 563, 568, 88 S. Ct. 1731, 20 L. Ed. 2d 811 (1968), the United States Supreme Court recognized that a public employer has an interest in regulating the speech of its employees that differs significantly from the regulation of speech by the citizenry in general. The Court then established a general principle governing the constitutionality of government restrictions on the speech of its employees (in the public sector): in evaluating the constitutionality of government restrictions on an employee’s speech, “a court must arrive at a balance between the interests of the [employee], as a citizen, in commenting upon matters of public concern and the interest of the [s]tate, as an employer, in promoting the efficiency of the public services it performs.” Id. at 568. Notably, if an employee’s speech cannot be fairly characterized as constituting speech on a matter of public concern, the public employer’s interest in managing its office outweighs any First Amendment rights of the employee. In other words, if an employee’s speech can be fairly described as relating to any matter of political, social, or other concern to the community, it may be protected. Otherwise, it may not.
In Garcetti v. Ceballos, 547 U.S. 410, 413, 126 S. Ct. 1951, 164 L. Ed. 2d 689 (2006), the Supreme Court considered “whether the First Amendment protects a government employee from discipline based on speech made pursuant to the employee’s official duties." In reaching its decision, the Supreme Court emphasized that “[g]overnment employers, like private employers, need a significant degree of control over their employees’ words and actions.”
When considering the issue of employee free speech rights in the private sector, courts have consistently held that private employers can significantly curtail employee free speech rights. For example, in the recent case of Schumann v. Dianon Sys., 304 Conn. 585 (2012), the Supreme Court of Connecticut ruled that a private sector employee was not entitled to free-speech protection, even though his speech concerned job-related matters, where the speech was disruptive to his employment, interfered with his job performance, strained his relationship with his supervisor, created division, and was insubordinate. A good counterpoint to this decision is the Third Circuit’s ruling in Novosel v. Nationwide Ins. Co., 721 F.2d 894 (3d Cir. 1983), in which the court found a violation of public policy where an employer terminated an employee for refusing to participate in the employer’s political activities (lobbying efforts). The critical distinction here, obviously, is that speech relating to matters of public concern may be subject to protection, while speech concerning exclusively private matters, even matters relating to employment, may not.
These principles are fairly simple and straightforward but, again, because most speech protections concerning the private sector are based on state statutes and case law, employers should seek counsel to determine what speech they may regulate, versus what speech is entitled to protection. Furthermore, employers should ensure they have anti-retaliation policies to protect employees from negative or adverse employment action based on protected speech. An employer looking to establish policies and procedures governing speech in the workplace should consult with a qualified employment attorney, who can best assist the employer in understanding the “playing field” of free speech rights in the private sector.
Section 510 of the Employment Retirement Income Security Act (ERISA) prohibits employers from intentionally interfering with employee benefits, such as by discharging an employee to prevent his or her pension benefits from vesting. Specifically, Section 510 provides in part:
It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan . . . , or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan[.]”
29 U.S.C. § 1140. (Although beyond the scope of this post, employers should be aware that Section 510 also protects plan participants from retaliation for giving information or testifying in any inquiry or proceeding relating to ERISA). Congress enacted Section 510 “primarily to prevent unscrupulous employers from discharging or harassing their employees in order to keep them from obtaining vested pension benefits.” Dewitt v. Penn-Del Directory Corp., 106 F.3d 514, 522 (3d Cir. 1997). An employer violates Section 510 when it “acts with the specific intent to interfere with an employee’s [present or future] right to benefits.” Eichorn v. AT&T Corp., 248 F.3d 131, 149 (3d Cir. 2001). Where such a violation is established, although the employee is not entitled to compensatory or punitive damages, he or she may obtain “appropriate equitable relief” to redress the violation or to enforce the terms of the plan, such as reinstatement and restitution.
As is often true in other employment discrimination contexts, typically there is no “smoking gun” evidence that an employer made a conscious decision and specifically intended to interfere with an employee’s attainment of pension eligibility or additional benefits; in the vast majority of cases, an employee must rely on circumstantial evidence to satisfy his or her evidentiary burden. In the absence of direct evidence, Section 510 claims are evaluated under the same burden-shifting framework (the “McDonnell-Douglas” analysis) applied in other employment discrimination contexts, such as claims of discrimination on the basis of race under Title VII and claims of discrimination on the basis of age under the Age Discrimination in Employment Act.
Under this burden-shifting analysis, the plaintiff-employee must initially establish a prima facie case under Section 510 by producing evidence that shows: (1) prohibited employer conduct (e.g., discharge or discrimination), (2) taken for the purpose of interfering, (3) with the attainment of any right to which the employee may become entitled. Dewitt v. Penn-Del Directory Corp., 106 F.3d 514, 522 (3d Cir. 1997). While the employee’s initial burden is not a particularly onerous one, conclusory, unsupported allegations made upon information and belief will not suffice. If the employee makes a prima facie showing, a rebuttable presumption is created that the statute has been violated, and the burden of production shifts to the employer to articulate a legitimate, nondiscriminatory reason for the challenged conduct. Jakimas v. Hoffmann-La Roche, Inc., 485 F.3d 770, 785 (3d Cir. 2007). An employer’s failure to rebut the presumption will entitle the employee to judgment in his or her favor, but cases in which the employer is unable to articulate any legitimate, nondiscriminatory reason are few and far between. Gavalik v. Continental Can Co., 812 F.2d 834, 853 (3d Cir. 1987). So long as the employer has carried its burden of production, the presumption drops and the burden shifts back to the employee to prove by a preponderance of the evidence that the rationale articulated by the employer is merely pretextual and interfering with the employee’s entitlement to benefits was the “determinative influence” driving the employer’s actions. Jakimas, 485 F.3d at 785. The employee may demonstrate pretext “either directly by persuading the court that a discriminatory reason more likely motivated the employer or indirectly by showing that the employer's proffered explanation is unworthy of credence.” Gavalik v. Continental Can Co., 812 F.2d 834, 853 (3d Cir. 1987). He or she may rely upon the same evidence constituting his or her prima facie case or introduce new evidence in order to satisfy this ultimate burden of proof.
Although an employee need not prove that interference with his or her entitlement to benefits was the sole basis for the adverse employment action, he or she must demonstrate that the employer had the specific intent to violate ERISA; proof of incidental loss of benefits as a result of an adverse employment action will not constitute a violation of Section 510. Dewitt, 106 F.3d at 522. The Third Circuit has explained:
Where the only evidence that an employer specifically intends to violate ERISA is the employee’s lost opportunity to accrue additional benefits, the employee has not put forth evidence sufficient to separate that intent from the myriad of other possible reasons for which an employer might have discharged him. This kind of deprivation occurs every time an ERISA employer discharges an employee and is not alone probative of an intent to interfere with pension rights. Accordingly, a prima facie case requires additional evidence suggesting that pension interference was a motivating factor.
Id. at 523 (internal quotation marks and citations omitted).
As in other employment discrimination matters, the circumstantial evidence that might tend to suggest that the purpose of an employer’s action was interference with employee benefits must be evaluated on a case-by-case basis. Nonetheless, the courts have identified certain factors the presence of which is often particularly informative. For example, the Third Circuit has stated that “[e]conomic benefits enjoyed by defendants when pension benefits are cancelled can be circumstantial evidence of specific intent, particularly when other circumstances make that cancellation suspicious.” Makenta v. Univ. of Penn., 88 Fed. App’x 501, 505 (3d Cir. 2004); see also Dewitt, 106 F.3d at 523 (observing that “evidence that the savings to the employer resulting from [the plaintiffs’] termination were of sufficient size that they may be realistically viewed as a motivating factor”). On the other hand, however, the mere fact that the employer enjoyed certain economic benefits as a result of the interference with employee benefits does not, in and of itself, constitute sufficient evidence of intent to establish a prima facie case. Balmat v. CertainTeed Corp., 338 Fed. App’x 256, 260 n.1 (3d Cir. 2009). Similarly, termination of a long-time employee shortly prior to the vesting of that employee’s benefits may be revealing, but is not per se proof of specific intent to interfere. Thus, in Dewitt, 106 F.3d at 523, the mere fact that the plaintiff was terminated near the end of the year, two weeks prior to the “Valuation Date”—the date as of which a plan participant must be employed as a condition to receipt of the benefits thereunder—standing alone, was insufficient to support a Section 510 claim.
Employers, fiduciaries, and plan administrators are best advised to not to interfere with employees’ attainment of benefits without good cause. Employers who discharge or otherwise take adverse employment actions against an employee resulting in such interference run the risk of having to defend costly and time-consuming litigation, even where the challenged action in fact derives solely from a legitimate, nondiscriminatory business decision. Certain preemptive measures may, however, bolster the employer’s rationale for challenged conduct should litigation ensue, and, where truly seamless, may avert a lawsuit.
Employers, fiduciaries, and plan administrators are urged to contact qualified counsel when handling employment matters implicating ERISA, particularly those in which an employee’s attainment of benefits may be compromised.