Kentucky Employment Law Blog

Discovery & Trial In An ERISA Disability Benefits Case, Seventh Circuit Rules

Discovery and a jury trial are appropriate in an ERISA disability insurance benefits case indicates the United States Court of Appeals for the Seventh Circuit in Krolnik v. Prudential Insurance Company, 570 F.3d 841 (7th Cir. 2009)(slip opinion available here).  The procedures are applicable where the disability insurance policy does not endow the insurance company (or its administrator) with discretion and thus render applicable the "arbitrary and capricious" standard of review by the district court.   

The case represents a routine termination of disability benefits, followed by the claimant's, Krolnik, exhausting his administrative appeals.  The parties agreed that the policy contained no language granting interpretive discretion to the insurer.  Krolnik proposed to take discovery and present evidence regarding his "medical and mental conditions, and the extent (if any) to which his mental condition affects his ability to work."  The district court judge barred all discovery and struck from the record doctors' affidavits that Krolnik submitted. After the district court affirmed the termination of his benefits, Krolnik appealed and the Seventh Circuit reversed.

Judge Easterbrook writing for the court first criticized the standard of "de novo review" as misleading, explaining as follows:

Cases such as this show that
“de novo review” is a misleading phrase. The law Latin
could be replaced by an English word, such as “independent.”
And the word “review” simply has to go. For what
Firestone requires is not “review” of any kind; it is an
independent decision rather than “review” that Firestone contemplates.
The Court repeatedly wrote that litigation
under ERISA by plan participants seeking benefits
should be conducted just like contract litigation, for the
plan and any insurance policy are contracts.

Cases requiring such independent review under ERISA are no different than any other type of breach of contract litigation or insurance litigation, and

A judge would not dream of forbidding
the parties to take discovery, let alone of rejecting
affidavits that did not depend on discovery. Evidence
is essential if the court is to fulfill its fact-finding function.
Just so in ERISA litigation.

The court remanded the case for discovery and trial, if necessary, admonishing that

All in all, it would be best for judges and lawyers to
stop thinking about “de novo review”—with the implication
that the judge is “reviewing” someone else’s action—
and start thinking about independent decision,
which is what Firestone requires.

Robert L. Abell
www.RobertAbellLaw.com

Noncompete Agreement Enforceable Against Independent Contractor

A noncompete agreement is enforceable against an independent contractor by a sucessor business, the Kentucky Court of Appeals ruled recently in Kegel v. Tillotson, No. 2008-CA-001938 (October 30, 2009).  This case answered two questions previously not decided by Kentucky courts.

The Kegels bought a business, Unique Promotional Products, from a Michelle Chapman on January 16, 2007.  Previously, Roxanna Tillotson, as an independent contractor, had entered a noncompete agreement with Unique Promotional Products providing that upon termination of her relationship with Unique Promotional Products she would not engaged in a competing business for 5 years within 350 miles.  A week after Chapman sold Unique Promotional Products to the Kegels, Tillotson terminated her relationship with the company and began a competing business the next day.  The Kegels filed suit to enforce the noncompete agreement that Tillotson had initially entered into with Chapman.

The Kentucky Court of Appeals ruled that the noncompete agreement initially entered into by Tillotson with Chapman was enforceable by the Kegels, reasoning

While Tillotson may have been an independent contractor, her relationship was with the business, Unique Promotional Products, and not with Chapman, the individual.  Accordingly, her commitment was one not to compete with the business, not with Chapman herself.  Therefore, we find that the noncompete clause in the matter sub judice, having been freely entered into by Tillotson, was assignable to the Kegels.

The court did remand the case for further discovery on whether the terms of the noncompete -- 5 years and 350 miles -- could be enforced or should be reformed on grounds of unconscionability, noting that under the "blue pencil" rule "courts have no difficulty in restricting a [noncompete agreement] to its proper sphere and enforcing it only to that extent."

Robert L. Abell
www.RobertAbellLaw.com

Worker Safety In the United States

Sixteen workers are killed a day in the United States because of reckless negligence on the part of their employers. Learn more about worker safety by watching this video.

Robert L. Abell
www.RobertAbellLaw.com

The Administrative Exemption: Loan Underwriters Are Not Exempt from Overtime Requirements

Loan underwriters are not exempt from overtime compensation requirements established by the Fair Labor Standards Act the Second Circuit has ruled in Davis v. JP Morgan Chase & Co., No. 08-4892-CV (November 20, 2009). The court framed the question as follows: "whether underwriters tasked with approving loans, in accordance with detailed guidelines provided by their employer, are administrative employees exempt from overtime requirements of the Fair Labor Standards Act."  In answering this question in the affirmative the court identified the following primary factors:

• Chase expected an underwriter to evaluate each loan application under its credit guide and approve the loan if it met the guide's standards
• exemptions from overtime requirements are to be narrowly construed against the employers seeking to assert them and their application limited to those establishments plainly and unmistakably within their terms and spirit
• the administrative exemption applies to an employee performing work directly related to management policies or general business operations and customarily and regularly exercises discretion and independent judgment
• production and sales work does not fall within the administrative exemption
• nonexempt production work does not require production of tangible goods
• the loan underwriters did not advise customers; they determined, based on criteria established by the bank, whether the customers financially qualified for their loans
• the payment of production incentives supported the conclusion that the underwriters job function was production rather than management related

Robert L. Abell
www.RobertAbellLaw.com

Insurance Company's Failure to Consider Treating Doctor's Opinions Is Arbitrary

A disability insurance company is required by ERISA to provide a reasonable explanation for its decision on a claim and must address any reliable, contrary evidence the claimant presents.  The failure to explain why it is discounting or disregarding a claimant's evidence is arbitrary and capricious.  The Seventh Circuit made this ruling recently in Love v. National City Benefits Plan, No. 08-1722 (July 23, 2009).

The claimant, Love, a 20 year employee, developed multiple sclerosis and proved unable to continue working in August 2001.  She received disability benefits for more than four years before they were terminated in December 2005.  The benefits were terminated because the claims administrator, Liberty Mutual, had a medical consultant, a Dr. Jonathan Sands, do a file review; he concluded, despite the payment of benefits for over 4 years, that there were "no objective limitations in functional ability or capacity" noted in Love's medical files.  The court was clearly troubled by Dr. Sands' cursory dismissal of the substantial evidence generated by the doctors that had personally examined Love, observing:

In fact, every doctor that personally examined Love concluded that she was unable to work more than a few hours a day and that she could no stand, sit or walk for more than an hour at a time. Dr. Sands did not address any of these reports in his cursory report, which dedicated less than half a page to its analysis and recommendation. 

Love appealed the termination of her long-term disability benefits.  She submitted further evidence supporting her claim including a physical therapy evaluation, a functional-capacity evaluation and a vocational evaluation.  The court noted that "these reports showed that Love had significant impairments."  This evidence too was disregarded by Liberty Mutual, which hired another medical consultant, a Dr. Winkler, who "did not address the opinions of these other physicians." 

The court ruled that Liberty Mutual's claims process was arbitrary and capricious and violated ERISA.  First, the court noted that ERISA required an insurance company to provide "a reasonable explanation for its determination and must address any reliable, contrary evidence presented by the claimant."  Liberty Mutual failed to do so because it "did not explain why it chose to discount the near-unanimous opinions of Love's treating physicians."  Therefore, the court concluded that Liberty Mutual "acted arbitrarily by terminating Love's benefits without sufficiently explaining its basis for doing so." 

Robert L. Abell
www.RobertAbellLaw.com

"Aren't You Being Discriminatory?": Protected Activity in Retaliation Cases

"Aren't you being discriminatory?" asked Mary Casna in response to her supervisor's questions about her hearing disability, "How can you work if you cannot hear?"  Casna's supervisor immediately reported Casna's statement to her supervisor, wrote up a job evaluation for Casna and Casna was filed three days later. Casna sued claiming that her statement to her supervisor ("Aren't you being discriminatory?") was protected activity and she claimed that her firing was unlawful retaliation in violation of the Americans With Disabilities Act.

This informal complaint, the Seventh Circuit ruled in Casna v. Loves Park, No. 07-1044 (7th Cir., July 24, 2009), was "protected activity for purposes of retaliation claims."  The court ordered that Casna's retaliation claim under the Americans With Disabilities Act must be decided by a jury at trial.

Robert L. Abell
www.RobertAbellLaw.com

When Does A Racial Hostile Work Environment Become Unlawful?

In a racial harassment case an unlawful the hostile work environment exists where the harassment is severe or pervasive.  Recently, the Fourth Circuit Court of Appeals in EEOC v. Central Wholesalers, No. 08-1181 (July 23, 2009), described the type of facts that could establish an unlawful hostile work environment:

"We also conclude that a reasonable jury could find that the race-based harassment was objectively severe or pervasive.  Three of Medley's co-workers in Inside Sales used the word n****r, and at least one of them used it 'pretty much everyday.'  Moreover, during the November 10 incident, DaBay called Medley a black stupid n****r, a black n****r, and a black stupid b***h, among other derogatory terms.  In addition, two of her co-worker's kept blue-colored mop-head dolls in their offices which they had hanging by nooses tied around the dolls' necks.  As in past cases, 'we cannot ignore the habitual use of epithets here or view the conduct without an eye for its cumulative effect.'" 

Robert L. Abell
www.RobertAbellLaw.com

When Does Sexual Harassment Become Unlawful?

To rise to the level of an unlawful hostile work environment based on sex the gender-based harassment must be severe or pervasive.  The Fourth Circuit Court of Appeals in EEOC v. Central Wholesalers, No 08-1181 (July 24, 2009), recently described a hostile work environment where it could be found that the sexual harassment was severe or pervasive:

"We conclude that a reasonable jury could find that the gender-based harassment was objectively severe or pervasive.  The evidence shows that Mike, Tony, and Green all regularly referred to women as b***hes.  Moreover, DaBay called Medley a b***h a number of times during the November 10 incident.  In addition, Mike -- whose cubicle was right next to Medley's -- had a Playboy calendar on his desk, kept Playboy magazines in his cubicle, hung a Playboy poster on his wall, watched pornography on his computer in Medley's presence, used a pornographic screensaver depicting partially naked women, and placed the screwdriver in the Halloween decoration in a sexual manner more than once.  This evidence is certainly sufficient to create a triable issue on whether the gender-based harassment was objectively severe or pervasive."

Robert L. Abell
www.RobertAbellLaw.com

How Can You Prove Harassment Is Based On Sex?

For workplace harassment to be illegal or unlawful under Kentucky and federal employment laws it must be proven to be motivated by some discriminatory criteria such as sex or gender. Recently, the Fourth Circuit Court of Appeals in EEOC v. Central Wholesalers, No 08-1181 (July 21, 2009), described workplace where the harassment could be found to be motivated by sex or gender discrimination:

"The evidence shows that oneor more of Medley's co-workers used the word b***h on a daily basis when referring to women, had Playboy items around the office, watched pornography right next to Medley such that she could hear the sounds of people having sex, and used a pornographic screen-saver depicting partially naked women.  Moreover, DaBay called Medley a b***h a number of times during the November 10 incident.  In light of this evidence, a reasonable jury could conclude that the harassment was based on Medley's gender." 

Robert L. Abell
www.RobertAbellLaw.com

How Can You Prove Harassment Is Based On Race?

For harassment in the workplace to be unlawful it must be shown to be based on some sort of discriminatory criteria such as race.  Recently, the Fourth Circuit Court of Appeals decided a case, EEOC v. Central Wholesalers, No. 1181 (July 21, 2009), where the court found the following to be sufficient evidence that race motivated the harassment:

"The evidence also shows that a number of Medley's co-workers (Medley was the employee harassed) used the work n****r in her presence on a regular basis, and at least one co-worker used the word 'pretty much everyday.'  Moreover, [a co-worker] called Medley a black stupid n****r and other racially derogatory terms during the November 10 incident.  In addition, both Tony [another co-worker] and DaBay kept blue-colored mop-head dolls in their offices and had the dolls hanging from noose which were tied around the dolls' necks.  Given this evidence, a reasonable jury could conclude that the harassment was also based on Medley's race."

Robert L. Abell
www.RobertAbellLaw.com