Kentucky Employment Law Blog

Tip Sharing: Starbucks Baristas Receive $14 Million Judgment

Starbucks operated in Massachusetts a tip sharing program that distributed weekly accumulated tips to baristas and shift supervisors in proportion to their hours worked that week.  The Massachusetts Tips Act allows tip sharing only among employees with, among other things, "no managerial responsibility." But does "no" really mean "no"? Yes it does answered the First Circuit Court of Appeals in Matamoros v. Starbucks Corporation, No 12-1189 (November 9, 2012), in affirming a $14 million judgment in a class action brought by baristas.

The Massachusetts Tips Act permits tip pooling and sharing among wait staff employees that serve food or beverages and have "no managerial responsibility." Starbucks argued that its shift supervisors could participate in tip sharing because 90% of the time they performed the same work tasks as baristas and that there was a difference between a supervisor and a manager.  The First Circuit had none of this argument:

 The Tips Act states unequivocally that only employees who possess "no managerial responsibility" may qualify as "wait staff." "No" means "no," and we interpret that easily understood word in its ordinary sense: "not any."

 Baristas like bartenders, waiters and waitresses are subject to rules regarding both the tip credit, which allows them to be paid far less than the minimum wage with the assumption that tips make up the difference, and tip sharing and pooling. Unlawful application of the tip credit by Applebee's Restaurants was discussed in an earlier post: Tip Credit Not Applicable to Bartenders and Servers Where More Than 20% of Work Is Performing Related But Nontipped Duties.

Robert L. Abell
www.RobertAbellLaw.com

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Sedgwick Claims Management Can Be Liable Under RICO For Fraudulent Deprivation of Workers Compensation Benefits, Sixth Circuit Rules

Sedgwick Claims Management, one of the country’s largest workers compensation claims adjustment companies, can be liable under RICO for fraudulent deprivation of workers compensation benefits the Sixth Circuit has ruled in Jackson v. Sedgwick Claims Management Services, No 10-1453 (November 2, 2012).  This case is the latest in a series of cases originating in Michigan in which the Sixth Circuit has ruled that injured workers may sue under RICO employers, claims adjusters and doctors that fraudulently deprive them of workers compensation benefits.  Earlier posts have discussed these decisions: Damages Recoverable under RICO for Fraudulent Deprivation of Workers Compensation Benefits; A Claim for Workers Compensation Benefits Is Property Under RICO, Sixth Circuit Rules; and Injured Workers May Sue Under Racketeering Law Based On Scheme To Deny Them Workers Compensation Benefits.

Clifton Jackson was employed by Coca-Cola when he injured his back while at work.  His treating doctor concluded that he was disabled. Sedgwick then requested that Jackson be examined by a Dr. Terry Weingarten, who Sedgwick paid and who also concluded that Jackson was disabled. Sedgwick wasn’t satisfied so it had Jackson examined again by Dr. Weingarten, who again concluded that Jackson was disabled.  After these three examinations and conclusions that Jackson was disabled, Sedgwick again had Jackson examined this time by Dr. Paul Drouillard, who reported that Jackson was not disabled. Dr. Drouillard mailed a report alleged to contain three statements by Jackson regarding his pain that Jackson claims never to have made and conclusions regarding Jackson’s injury “wholly unsupported by the medical evidence.”  And so Sedgwick terminated Jackson’s workers compensation benefits.

Here are the racketeering acts identified by the Sixth Circuit:

• Dr. Drouillard’s evaluations were not objective medical reports and were allegedly fraudulently slanted to beat Jackson and others out of workers compensation benefits
  
  
• Personnel in Coca-Cola’s workers compensation department worked with Sedgwick falsely to administer the claims by Coca-Cola employees
   
• Coca-Cola routinely used and relied on the false medical reports of doctors such as Dr. Drouillard fraudulently to terminate benefits and regularly communicated with Sedgwick concerning the desires of both to obtain a false medical report so that workers compensation benefits could be cut off

• Coca-Cola and others then misrepresented to injured workers through use of the mails that the doctors were independent
  
  

These cases do not strike a new theme. Read this report in the New York Times: "That's the game, baby" Explains Workers' Compensation Insurance Company Expert Witness.

Robert L. Abell
www.RobertAbellLaw.com

 

ERISA: The Anti-Cutback Rule for Accrued Benefits

Where an employee accrues benefits under a pension plan based on his or her years of service, ERISA's anti-kickback rule prohibits the reduction of an employee's benefits through or because of an amendment of the plan.  The Sixth Circuit's recent decision in Fallin v. Commonwealth Industries, Inc. Cash Balance Plan, N0 09-5139 (August 23, 2012).

Donald Curley had worked for Commonwealth Industries for more than five years but was not yet 55 when Commonwealth converted in 1998 its pension plan from from a defined-benefit pension plan to a cash-balance plan.  Under Commonwealth's defined-benefit plan employees that retired early having completed five years of service and reached 55 would receive subsidized benefits, nearly the same as if they were 65.  After the plan's conversion, Corley retired and received a lump-sum payout of benefits. Curley claimed he was not paid the full amount of benefits due him, but the district court disagreed and granted judgment for Commonwealth Industries.

The Sixth Circuit ruled that any reduction in Corley's benefits would violate ERISA's anti-kickback rule at 29 U.S.C. 1054(g).  While Corley was not yet 55 when the plan was changed, he had met the five years of service requirement. The anti-kickback rule barred reduction of Corley's benefits even if he reached the minimum age (55) requirement after the plan was converted.  Accordingly, the Sixth Circuit reversed and remanded the case for a determination of how much benefits was owed Corley.

Robert L. Abell
www.RobertAbellLaw.com 

Kentucky Unemployment Insurance Benefits: Employee Is Disqualified From Benefits Because of Repeated Tardiness

An employee that has had a number of warnings but continues to be tardy in reporting to work and is ultimately fired is properly disqualified from receiving Kentucky unemployment insurance benefits the Kentucky Supreme Court ruled recently in Kentucky Unemployment Insurance Commission v. Cecil, No. 2010-SC-00349 (October 25, 2012).  

The Court also ruled that it was not necessary to prove that the employee's misconduct was "wanton and willful" to be disqualified from benefits.

Justice Wil Schroder wrote the opinion for a unanimous Court.

Robert L. Abell
www.RobertAbellLaw.com 

Kentucky Workers Compensation: Employer Failed To Show Injured Employee Unreasonably Failed To Follow Medical Advice

To disqualify an injured employee from continued receipt of Kentucky workers compensation benefits an employer must show the following: (1) failure to follow medical advice; (2) the failure must be unreasonable; and, (3) the unreasonable failure must cause a disability.  Luttrell v. Cardinal Aluminum Co., 909 S.W.2d 334, 336 (Ky.App. 1994).  "Refusal to submit to treatment is unreasonable if it "is free from danger to life and health and extraordinary suffering, and, according to the best medical or surgical opinion, offers a reasonable prospect of restoration or relief from disability.'"  The Kentucky Court of Appeals reiterated these points recently in Hometown Convenience v. McCoy, No. 2012-CA-000555-WC (November 9, 2012), where it rejected the employer's effort to disqualify the injured employee.

The Court of Appeals opinion was written by Judge Christopher S. Nickell joined by Judges Sara Combs and Michael Caperton.

Robert L. Abell
www.RobertAbellLaw.com 

Hearsay and Statements by Employer's Agents

When is a statement by an employer's agent an admission rather than hearsay? The Sixth Circuit again addressed this question recently in Back v. Nestle USA, Inc., No 10-6028 (September 13, 2012).

Back was a long-term employee for Nestlé and worked as a maintenance superintendent. He was terminated and filed suit claiming age discrimination. As evidence in support of this claim, Back offered an affidavit from a Hagerman which stated that "Tim Shelburne told me that he had been told by higher management that they were planning to get rid of the three oldest employees and highest paid team leaders." As an initial matter, the Sixth Circuit had to determine if this affidavit offered admissible evidence; this required a two-part analysis.

First, the court ruled that Shelburne's statement was not hearsay. Shelburne was the company's acting human resources director whose job duties included, among other things, "employee-performance issues generally and termination specifically." Since the statement regarded the termination of employees – clearly a matter within the scope of Shelburne's job duties – it would not constitute hearsay. The court stated: "A statement is not hearsay under Rule 801 (d)(2)(D) when it concerns a matter within the scope of the declarant's employment – there is no requirement that a declarant be directly involved in the adverse employment action."

But second Shelburne statement presented a double-hearsay issue. The first level was Hagerman swearing that Shelburne told him about a plan to fire the three oldest employees. The second level was an unidentified higher management person telling Shelburne of the plan. Although the identity of the upper management person was unknown, the statement could still be admissible if "there is evidence that the unidentified declarant(s) were speaking on a matter within the scope of their employment." See Ryder v. Westinghouse Electric Corporation, 128 F.3d 128, 134 (3d Cir. 1997) (holding a similar double-hearsay situation that statements from unidentified executives were admissible because evidence established that though the precise identity was unknown, they were all "Westinghouse executives who have authority to make personnel decisions [and thus were] acting within the scope of their employment in stating their views on the state of the workforce"). Back was not able to offer any evidence supporting the conclusion that the plan was within the scope of any of the unidentified declarants. Accordingly, the Sixth Circuit ruled that Hagerman's affidavit constituted inadmissible hearsay and affirmed the summary judgment granted by the district court.

The opinion for the Sixth Circuit was written by Circuit Judge Jane Stranch.

Robert L. Abell
www.RobertAbellLaw.com