Voluntary Benefits Provided in a Discriminatory Manner May Constitute an Adverse Employment Action

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Published on Wednesday, 21 March 2012 01:04

A recent decision by the U.S. Court of Appeals, 4^th Circuit, emphasizes that if an employer provides benefits in a discriminatory manner that may constitute an adverse employment action even if the employer is not required to provide the benefits. Further, Title VII protects both current and former employees from discriminatory employment actions. The case involves Karla Gerner, who sued her former employer, Chesterfield County, Virginia ("County"), claiming that the County unlawfully discriminated against her by offering her a less favorable severance package than that offered male employees holding similar positions. Gerner worked for the County for more than twenty-five years and always received “positive performance evaluations.”  In 2009, County officials advised Gerner that due to reorganization, her position was being eliminated. They asked her to sign a severance agreement that included three months of pay and health benefits in exchange for a voluntary resignation and waiver of any cause of action against the County. Gerner refused to sign the agreement, and upon receipt of her right to sue letter from the Equal Employment Opportunity Commission (EEOC) she filed a lawsuit against the County alleging disparate treatment on the basis of sex in violation of Title VII. Specifically, Gerner alleged that the County did not offer her the same “sweetheart” severance package offered to her male counterparts, which included offers of transfers to other positions with less responsibility (and the same salary and benefits) or being kept on the payroll with benefits of up to 6 months to enhance their retirement benefits. The district court dismissed Gerner’s complaint, on the ground that she failed to allege a Title VII claim because the County’s allegedly discriminatory denial of severance benefits did not constitute an adverse employment action unless the benefits were a “contractual entitlement.”

On appeal, the court held that if a benefit is part of the employment relationship it may not be “doled out in a discriminatory fashion” even if the employer is not required to offer the benefit.  Thus, benefits that an employer is not required to provide, such as a severance package, may still qualify as a privilege of employment and as such provide the basis for a Title VII action if the benefits are provided in a discriminatory manner thereby constituting an adverse employment action. The court emphasized that if the “employee did not volunteer for a change in employment benefits or retain a job in lieu of a new benefit, courts have consistently recognized that the discriminatory denial of a non-contractual employment benefit constitutes an adverse employment action.” The court further highlighted that “Title VII protects both current and former employees from discriminatory adverse employment actions. Title VII makes it an unlawful employment practice for an employer "to discriminate against any individual" on the basis of membership in a protected class. Courts have consistently interpreted this intentionally broad language to apply to potential, current, and past employees.” Read More. 

Employers Must Continue Health Benefits For Employees On Pregnancy Disability Leave

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Published on Monday, 10 October 2011 03:30

California Governor Jerry Brown recently signed into law SB 299 (effective as of January 1, 2012), which requires California employers to continue group health insurance benefits for employees on pregnancy disability leave for up to four months. Under the law prior to SB 299, California employers with five or more full-time or part-employees were required to provide up to four months of leave pregnancy disability leave. However, employers were not required to provide health insurance benefits for an employee on pregnancy disability leave unless the employee was also eligible for leave pursuant to the Family and Medical Leave Act (FMLA) and the employer was covered by the FMLA, in which case the employer was required to provide continuation of health benefits for 12 weeks. Now that SB 299 is in effect, employers with five or more employees must provide continuation of group health benefits for employees disabled by pregnancy for four months, even if the employer is not covered by the FMLA. In pertinent part, the legislation provides that it shall be unlawful “For an employer to refuse to maintain and pay for coverage for an eligible female employee who takes leave pursuant to paragraph (1) under a group health plan, as defined in Section 5000(b)(1) of the Internal Revenue Code of 1986, for the duration of the leave, not to exceed four months over the course of a 12-month period, commencing on the date the leave taken under paragraph (1) begins, at the level and under the conditions that coverage would have been provided if the employee had continued in employment continuously for the duration of the leave. Nothing in this paragraph shall preclude an employer from maintaining and paying for coverage under a group health plan beyond four months.” As specified in the legislation, employers may require employees to continue paying their portion of the group health insurance premium. SB 299 also specifies that the “employee shall be entitled to utilize any accrued vacation leave during this period of time.” California employers should review their employee handbooks and any other policies to make sure they are compliant with the new law by January 1, 2012.  Read More.

IRS Provides Additional Guidance On Employer-Provided Cell Phones

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Published on Friday, 16 September 2011 02:28

The Internal Revenue Service (IRS) has issued additional guidance on employer-provided cell phones. The IRS recognizes that many employers provide employees with cell phones for noncompensatory business reasons. Therefore, according to the IRS Guidance “the value of the business use of an employer-provided cell phone is excludable from an employee’s income as a working condition fringe to the extent that, if the employee paid for the use of the cell phone themselves, such payment would be allowable as a deduction under section 162 for the employee. An employer will be considered to have provided an employee with a cell phone primarily for noncompensatory business purposes if there are substantial reasons relating to the employer’s business, other than providing compensation to the employee, for providing the employee with a cell phone. For example, the employer’s need to contact the employee at all times for work-related emergencies, the employer’s requirement that the employee be available to speak with clients at times when the employee is away from the office, and the employee’s need to speak with clients located in other time zones at times outside of the employee’s normal work day are possible substantial noncompensatory business reasons. A cell phone provided to promote the morale or good will of an employee, to attract a prospective employee or as a means of furnishing additional compensation to an employee is not provided primarily for noncompensatory business purposes. This notice provides that, when an employer provides an employee with a cell phone primarily for noncompensatory business reasons, the IRS will treat the employee’s use of the cell phone for reasons related to the employer’s trade or business as a working condition fringe benefit, the value of which is excludable from the employee’s income.”  Read More.

Employer Not Liable For Alleged Breach Of Fiduciary Duty Where Reasonable Mix Of Investment Options Offered In 401(k) Plan

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Published on Monday, 29 August 2011 16:44

Mark Renfro and Gerald Lustig (plaintiffs) alleged that their employer, Unisys Corporation, violated the fiduciary duties imposed upon them by the federal Employee Retirement Income Security Act ("ERISA") because their 401(k) plan caused plaintiffs to pay excessive fees for investments in the retirement savings plan. Under a 401(k) plan, employees contributing to the plan receive certain tax advantages and partial matching contributions from their employer. Plaintiffs alleged that their employer and the plan administrators were responsible for monitoring the selection, retention and removal of investment options to ensure compliance with their fiduciary obligations under ERISA. Plan participants had more than 70 investment options, including mutual funds, although the funds come with varying degrees of risk, reward opportunity, and fees. However, plaintiffs alleged that Unisys breached its fiduciary duties by causing plan participants to pay excessive administrative and investment management fees. In particular, plaintiffs complained that Unisys did not take advantage of the plan’s large size to negotiate lower fees or increased services for plan participates. The Third District Court found for Unisys, holding that the 401(k)  “‘offered a sufficient mix of investments for their participants’ and that no rational trier of fact could find, on the basis of the facts alleged in the operative complaint, that the Unisys Defendants breached an ERISA fiduciary duty by offering this particular array of investment vehicles.” The court also noted that “Plaintiffs' Second Amended Complaint lists the more than 70 funds offered by the Plan. The fees associated with these investment options were disclosed to plan participants via prospectuses and ranged from 0.1% for the Spartan Index Fund to 1.21% for the Southeast Asia Fund…a plan fiduciary need not select the cheapest fund available…Rather, a plan fiduciary need only act solely in the interest of plan participants and beneficiaries, and select funds ‘with the care, skill, prudence, and diligence’ of a prudent person acting in a similar role.” Read More.