Topics included in this issue:
EMPLOYERS MUST BE AWARE OF THE DANGERS OF RETALIATION CLAIMS
By Dean F. Pacific
Most employers are familiar with how to deal with employee complaints of discrimination or harassment. Lurking in the shadows of these complaints, however, is a rapidly growing type of claim: retaliation. While the Equal Employment Opportunity Commission reports that the total number of claims filed with the Agency from 1992 to 2003 increased only 12 percent, claims of retaliation increased more than 104 percent during the same time period.
Every major state and federal antidiscrimination statute prohibits not only discrimination but also retaliation. An employer cannot take adverse employment action against an employee because he (1) files a complaint with a court or an agency, (2) cooperates in the investigation or prosecution of someone else's complaint, or (3) reasonably opposed an alleged violation of the civil rights laws by his employer. What makes retaliation claims so dangerous is that the plaintiff's theory is straightforward and easy for a jury to understand: I complained, and then I got discharged or disciplined by my employer. Even though the employer may have legitimate reasons for the employment action taken, the appearance of retaliation created by discipline or discharge that comes shortly thereafter can be hard to overcome.
It is important to understand that employees are entitled to the protections of these anti-retaliation laws even if the underlying complaint is meritless. An employer cannot discharge or discipline an employee for making a harassment or discrimination complaint that the employer believes is unfounded, even if a court or agency ultimately agrees with the employer's position. An employer that is not careful can make the costly mistake of turning an employee with a baseless claim of discrimination or harassment into a plaintiff with a successful retaliation claim.
The two recent, high profile cases against the Grand Rapids Police Department illustrate the danger for an employer. The initial harassment and discrimination complaint brought by several female officers resulted in a complete victory for the Police Department. Many of the claims were dismissed before trial, and the jury found in the Department's favor on the rest of them. The plaintiffs' attorneys were even sanctioned by the Court for frivolous filings at one point. But when two of the officers who sued were sent by the Department for psychological evaluations that led to their suspension from duty, they filed a second lawsuit alleging retaliation. Although the Police Department offered a variety of what appeared to be legitimate reasons for its actions, a jury still returned a verdict of $5 million in favor of the plaintiffs. Such an award is not by any means unprecedented. One recent study found that the average award in retaliation lawsuits is larger than that in any other type of employment claim, and almost twice as large as the average harassment or discrimination award.
What can an employer do to avoid retaliation claims? Antiharassment and antidiscrimination policies are the first step. Those policies must make clear that retaliation against anyone complaining of harassment or discrimination, as well as others who participate in the investigation, is prohibited. Managers and supervisors must be properly trained to handle complaints promptly and appropriately, and to avoid taking any action later that could be deemed retaliatory.
An employee who complains of harassment or discrimination is not immune from discipline or discharge, however. Accurately documenting and assessing the reason for the discipline or discharge is critical. Involving a neutral third party—such as the human resources department—can also be a useful safeguard. If the employee is a poor or marginal performer, his or her file should support that assessment. Unfortunately, it is all too common to find that the personnel file of an employee that managers agree is a poor performer contains no documentation to support that conclusion. In such circumstances, time and care must be taken to document performance problems and address them with the employee before taking action. If you cannot back up your claim with appropriate documentation that the complaining employee was discharged or disciplined for legitimate reasons, it is much easier for a plaintiff to convince a jury that retaliation is the real reason for the discharge or discipline.
In summary, retaliation claims are real, and they are potentially expensive. Developing appropriate harassment and discrimination policies that include anti-retaliation provisions, training managers and supervisors in those policies and how to review and document employee performance, and promptly and properly investigating and resolving employee complaints can all help to prevent a costly retaliation claim. Qualified legal counsel can help you with all of these things, and can help you address a retaliation claim if one comes up.
STATE PASSES SOCIAL SECURITY NMBER PRIVACY LAW
By Robert A. Dubault
ensure the confidentiality of the social security numbers;
prohibit the unlawful disclosure of social security numbers;
limit access to documents containing social security numbers;
establish procedures for disposal of documents containing social security numbers; and
Although the law takes effect March 1, 2005, employers and others have until January 1, 2006, to develop and publish their privacy policies.
QDROs AND OTHER EMPLOYEE BENEFIT ISSUES
YOU SHOULD KNOW WHEN AN
By Sue O. Conway and Paula S. Cosgrove
As an employer, you know that the divorce of an employee almost always requires changes in company-sponsored benefits. This article discusses those changes and provides guidance on how to smooth out the process.
A QDRO Is . . .
Benefits accrued under your qualified retirement plan are often divided as part of an employee's property settlement in a divorce. Plan administrators are required to divide qualified retirement plan benefits in accordance with a Qualified Domestic Relations Order (QDRO). A QDRO is a court-issued judgment, decree, or order under state domestic relations law relating to retirement benefits that is "qualified" under the requirements of ERISA and the Internal Revenue Code. Most often a QDRO awards a former spouse a portion of the employee's plan benefits earned during the marriage. However, a QDRO may also provide for plan payments of child support or alimony to a former spouse, child, or other dependent of a participant. The person to whom the QDRO awards the benefit is the "alternate payee."
For an order to be "qualified" and, therefore, considered a QDRO, it must include: (i) the name of the plan; (ii) the names and addresses of the plan participant and alternate payee; (iii) the amount or percentage of the participant's benefit to be paid to the alternate payee; (iv) the time when payments will begin; and (v) the form of payment to be made. It should also address what will happen in the event of the death of either party before all benefits under the order are paid.
A QDRO must not require the plan to provide: (i) any type or form of benefit not otherwise provided under the plan; (ii) benefits greater than would be payable to the participant in the absence of the QDRO; or (iii) payment of any benefits already assigned to another alternate payee under a previously accepted QDRO.
When You Receive a Proposed QDRO . . .
The law requires you to establish reasonable procedures to determine whether or not a proposed QDRO is, in fact, "qualified" and to administer distributions under the QDRO. These procedures must be in writing.
Among other things, QDRO procedures must require you to notify all parties when you receive a court-entered proposed QDRO and to provide them a written copy of your QDRO procedures. During the determination process, you must protect the rights of the alternate payee by separately accounting for amounts that would be payable to the alternate payee under the QDRO during the determination period if the order is eventually determined to be qualified. Generally, this segregated amount may not be distributed to any other person until the status of the proposed QDRO is determined. This means that you should consider procedures to put a "hold" on the participant's plan benefits, barring distributions, hardship withdrawals and loans, until a determination is made. The law gives you a reasonable period of time to determine whether an order is a QDRO. At the request of the alternate payee or his/her representative, you are also required to provide plan and benefit information relevant to the preparation of a QDRO. While the law offers no specific privacy guidelines, many plan administrators require participant approval, a copy of the final court-entered judgment of divorce, or a subpoena before they release information about the participant's benefit under the plan.
Establishing Your Forms and Procedures . . .
We welcome the opportunity to help you establish appropriate QDRO procedures for your retirement plans. If you already have procedures in place, we can review them for compliance with the law. We can also provide you with model QDROs to smooth out and speed up the QDRO approval process. While you cannot require that an alternate payee use your model QDRO, encouraging its use generally results in a more efficient and affordable determination process.
Other Divorce-Related Benefit Issues . . .
A divorce normally makes your employee's former spouse ineligible for coverage under your health plan. If you have at least 20 employees, this is a "qualifying event" under COBRA that triggers the requirement for an employer to send a COBRA notice and election form. Also, divorce is generally a change in status under the company's Section 125 cafeteria plan that can permit election changes that are "consistent with" the status change (such as decreasing the health FSA election to account for the fact that the spouse can no longer use the account). Finally, employees should consider whether they need to change their beneficiary designations under the retirement plan and group term life insurance coverage.
MAKING SENSE OF EMPLOYEE MEDICAL RECORDS
By Robert A. Dubault,
Geri M. Drozdowski
Employers make and keep employee medical records for a variety of reasons, including preemployment medical examinations, dealing with on-the-job injuries or illnesses, and administering leave and disability benefit plans. Aside from common law privacy concerns, there are a host of federal and state laws that regulate the collection, use, disclosure, storage and retention of these employee medical records. This article is intended to help employers navigate these legal requirements by: (1) identifying the major laws that apply; (2) defining what medical records are covered; and (3) explaining the rules on the use, disclosure and retention of covered medical records.
Disability Discrimination Laws.
The Americans with Disabilities Act ("ADA") applies only to employers who have 15 or more employees. Michigan's Persons with Disabilities Civil Rights Act covers all employers, regardless of size, but does not regulate medical records. As a practical matter, however, all employers should consider complying with the ADA's standards as a "best practice."
Under the ADA, employers are allowed to subject employees to medical examinations and inquiries under certain circumstances, such as: (a) preemployment inquiries into the ability of an applicant to perform job-related functions; (b) entrance medical examinations after making a conditional job offer; (c) job-related examinations of current employees; and (d) voluntary medical examinations and activities that are part of an employee health program. Any information obtained concerning the "medical condition or history" of an applicant or employee must be collected and maintained on separate forms and in separate medical files and treated as confidential medical records. The result of medical examinations may not be used for purposes inconsistent with the ADA's purpose and rationale. For example, an employer may not discriminate against a person infected with HIV based on results of a medical examination.
Medical information obtained by virtue of the ADA may be disclosed only under the following circumstances:
Supervisors and managers may be informed regarding necessary restrictions on the work or duties of the employee and necessary accommodations;
First aid and safety personnel may be informed, when appropriate, if the disability might require emergency treatment; and
Government officials investigating compliance with the ADA must be provided relevant information on request.
The EEOC has not adopted any formal retention requirements under the ADA. However, the EEOC's general rule is that any personnel records made or kept by an employer must be retained for at least one year from the date of making the record or the personnel action involved, whichever is longer. Also, when a charge of discrimination has been filed, the employer must preserve all records relevant to the charge until final disposition of the charge. Notwithstanding the EEOC's general guidelines, we recommend keeping medical records for at least three years after the end of an employee's employment or after a decision not to hire, to discipline, or not to promote is made. This is because an employee has three years to file suit under the Michigan Persons with Disabilities Civil Rights Act.
Family and Medical Leave Act (FMLA).
The FMLA applies to employers with 50 or more employees. Although there is no Michigan law governing family and medical leaves, many other states do have such laws and they may apply to smaller employers.
Under the FMLA, employers are authorized to receive and keep a variety of records. These include employee requests for leave, medical certifications and recertifications from health care providers supporting the leaves, and return-to-work authorizations. Employers are also required to maintain records containing the following information: (1) basic payroll and identifying employee data; (2) dates FMLA leave is taken by FMLA-eligible employees; (3) the hours of the leave, if the leave is taken in increments of less than one full day; (4) copies of employee notices of leave and copies of all written notices given to employees; (5) documents describing employee benefits or employer policies and practices regarding the taking of paid and unpaid leaves; (6) premium payments of employee benefits; and (7) records of any dispute regarding designation of leave as FMLA leave.
Medical records created for FMLA purposes must be maintained as confidential medical records and kept in files that are separate from the usual personnel files. Medical information under the FMLA may be disclosed only as follows:
Supervisors and managers may be informed regarding necessary restrictions on the work or duties of the employee and necessary accommodations;
First aid and safety personnel may be informed, when appropriate, if the condition might require emergency treatment; and
Government officials investigating compliance with the FMLA must be provided relevant information on request.
The FMLA requires employers to keep records for at least three years. While employers are generally not required to keep medical records in a specific form, the FMLA provides that records may, at the employer's option, be maintained and preserved on microfilm or other basic source document of an automated data processing memory, provided that (1) adequate projection or viewing equipment is available; (2) the reproductions are clear and identifiable by date or pay period; (3) extensions or transcriptions of the information required herein can be and are made available upon request; and (4) in case of records kept in computer form, the information be made available for transcription or copying.
Workers' Disability Compensation Act.
Virtually all private employers in Michigan are subject to the Workers' Disability Compensation Act (WDCA). A workers' compensation claimant is entitled to reasonable and necessary medical treatment for any work-related injury or illness. The injured individual may also qualify for wage replacement benefits and vocational retraining.
Employers must keep a record of all employment-related injuries, illnesses, and conditions. The WDCA also requires covered employers to keep records of the following: payments made under the WDCA and time and manner of those payments; the name, address, age, and wages of the deceased or disabled employee; the time and cause of accident; and the nature and extent of the injury or disability.
The WDCA does not specify any particular privacy rules, nor does the Health Insurance Portability and Accountability Act ("HIPAA") generally apply to workers' compensation claims. Under the WDCA, a self-insured employer or a workers' compensation carrier may receive information regarding a work-related injury for the purpose of processing and paying a workers' compensation claim. Michigan's workers' compensation provisions require health care providers to disclose information as a condition of receiving payment. A self-insured employer or workers' compensation carrier has no obligation to pay a health care provider until properly coded statements are submitted along with written reports describing the claimant's condition, care, and treatment.
Employers are not required to restrict access to workers' compensation records. As a practical matter, however, an employer should preserve the confidentiality of medical records. Medical documentation should be shared only with employees who have a legitimate, business-related reason to know (e.g., employees who deal with workers' compensation and safety issues).
Michigan's WDCA does not prescribe a specific time frame for employers to keep and maintain pertinent medical records. A claimant's entitlement to workers' compensation benefits is potentially lifelong. Additionally, the statute of limitations for filing a workers' compensation claim is, at best, nebulous. The WDCA provides that a claim must be made within two years after:
The date of injury, or
The date the disability manifests itself, or
The last day of employment with the employer against whom the claim is being made.
Thus, the WDCA allows a former employee claiming asbestosis or silicosis, for example, to file a claim many years after his or her last date of employment, because the disability may not manifest itself until then.
With an "open" workers' compensation claim (i.e., where benefits are being paid voluntarily or pursuant to an order), records should be maintained until the case concludes. The closing of the file may be the result of settlement, death, or a subsequent hearing. In other situations, while there is no legal requirement to do so, we recommend archiving workers' compensation records for a period of up to 20 years or two years after the individual's date of death.
Health Insurance Portability and Accountability Act (HIPAA).
HIPAA has a wide variety of privacy rules that apply to most employers that offer some form of a health plan. "Health plan" is broadly defined by HIPAA to include all employer-sponsored medical, dental, vision, and prescription drug plans, health flexible spending accounts, and certain employee assistance plans. Two types of plans are specifically excepted from the definition of health plans:
any health plan that is self-administered and has fewer than 50 participants; and
any plan that provides workers' compensation, life insurance, disability (STD and LTD), or accident-only coverage such as AD&D and travel-accident insurance.
HIPAA protects all individually identifiable health information related to these health plans, whether the information is written, electronic, or verbal. This information is called "protected health information" or "PHI." Health plan enrollment information, reimbursement requests, claims appeals, and explanation of benefit statements (EOBs) are all PHI that employers must safeguard. Health information employers obtain related to workers' compensation, STD and LTD, FMLA and ADA administration, drug testing, preemployment physicals and the like generally is not PHI.
The HIPAA privacy rules require that employers keep PHI from the health plan separate and apart from personnel files and other employment records. Moreover, the rules require that PHI be used for only plan-administration functions, not for employment-related decisions. Thus, information obtained through the medical or flexible spending plan should not be used to make decisions about an employee's disability claim, request for FMLA leave, or continued employment.
In this same vein, HIPAA restricts disclosure of PHI. PHI generally may not be disclosed without an individual's authorization, except to carry out treatment, payment and health care operations. Moreover, even when disclosure is permitted, HIPAA requires employers to make reasonable efforts to use, disclose and request only the minimum amount of PHI necessary.
The same disclosure and use restrictions also apply to the business associates of an employer's health plan. Business associates are persons who assist in the performance of functions involving the use or disclosure of PHI, such as third-party administrators, COBRA vendors, attorneys, benefits consultants, and insurance agencies. The HIPAA privacy rules provide that employers must contractually obligate business associates to limit the use and disclosure of PHI.
The HIPAA privacy rules require employers to keep all HIPAA-related documentation for six years from the date of its creation or the date it was in effect, whichever is later.
As you can see, there is a variety of legal requirements governing an employer's use and disclosure of employee medical information. And as noted above, these requirements are all in addition to common-law "privacy" considerations. Prudent employers are well-advised to develop and implement policies and procedures for how employee medical information is gathered, stored, disseminated, and ultimately destroyed. Doing so may well help your organization avoid significant liability down the road. Please contact anyone in our Human Resources Practice Group if you have questions or need additional information about this or any other issue.
NEW AUTOMATIC ROLLOVER RULES REQUIRE
IMMEDIATE ACTION BY RETIREMENT
If you sponsor a qualified retirement plan (401(k) plan, pension plan, etc.), 403(b) plan, governmental plan, or church plan, you may need to take immediate action. Retirement plans can authorize the automatic cash-out of a participant's benefit without the participant's consent after termination of employment if the benefit is $5,000 or less. A federal law ("EGTRRA") now requires cash-outs exceeding $1,000 to be automatically rolled over to an IRA established by the plan sponsor on behalf of the participant, unless the participant elects otherwise. Both the Department of Labor and the Internal Revenue Service have recently issued guidance on how employers must comply with these new rules.
The rules apply to distributions made on or after March 28, 2005, which is just around the corner. Employers have several options for how to comply, but most plans will need to be amended on or before the last day of the first plan year ending after March 28, 2005. If Warner Norcross & Judd currently works with you regarding your retirement plan, we will contact you to determine how you'd like to handle this matter. If you use another service provider, you should contact it immediately. Please call your WN&J attorney if you have any questions regarding the new rollover requirement.
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Human Resources Alert is published by Warner Norcross & Judd to inform clients and friends of new developments. It is not intended as legal advice. If you need additional information on the topics in this issue, please contact your Warner Norcross attorney or any member of the Firm's Human Resources Law Group.