2002-21

U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

A. Employer Violates ERISA By Sale of Assets Which Changes Rights of Persons on Disability and Medical Leave.

In Lessard v. Applied Risk Management (2002) Daily Journal D.A.R. 1569 (9^th Cir. October 10, 2002),⁽¹⁾ the District Court granted summary judgment in favor of the employer, concluding that plaintiff failed to provide evidence that the termination of her health benefits was motivated by specific intent to interfere with her exercise of rights under the employee plan. On appeal, the Ninth Circuit reversed and remanded the lower court's ruling.

Plaintiff Denise Lessard was a Worker's Compensation analyst for Applied Risk Management ("ARM") who, during the course of her employment, was enrolled in a self-funded employee welfare benefits plan administered by ARM. After a work-related injury, Lessard left active employment in October of 1996 on Worker's Compensation leave, while maintaining her coverage under the plan. By May of 1997 she had not returned to active employment and had not sought employment since her spinal fusion surgery in January of 1998.

On October 31, 1999, ARM entered into an agreement with Professional Risk Management ("PRM") for the sale of all its assets. Pursuant to the agreement, ARM continued funding the group benefit plan through February 28, 1999, when its plan terminated. The ARM employees were immediately transferred to active employment with PRM upon execution of the sale. The ARM employees who transferred to PRM were covered under its welfare benefits plan without an interruption in coverage.

However, the ARM and PRM agreement had one condition to the automatic transfer of employment with the latter company. In order to be eligible for transfer, the employee had to be actively employed by ARM on the day of the sale or on non-medical, non-extended leave from active employment. If an employee was on medical, disability, Worker's Compensation or other extended leave at the time of the sale, such employee would become eligible for transfer only "if and when he or she returns to active employment." At the time of the transfer, only six employees fell into this category: three, including plaintiff on Worker's Compensation leave; two on maternity leave; and one on leave of absence to prepare for a bar examination.

Plaintiff brought this action in the state court, bringing claims under state law and the Americans with Disabilities Act ("ADA"). PRM removed the action to District Court on the basis of federal question jurisdiction. The District Court then dismissed plaintiff's ADA claim on defendant's motion following plaintiff's concession that she had failed to exhaust her administrative remedies. The court ruled that plaintiff's state law claims were preempted by ERISA.

When asked to review the District Court's order granting summary judgment de novo, the Ninth Circuit ruled that under ERISA section 510, actions may be brought by plan participants for discrimination against any plan participant for exercising any right to which he is entitled under the employee benefit plan.

The court reasoned that there was no question of ARM's liability if, absent the sale of assets, it simply decided to retain a plan but terminate six of its employees absent for reasons of injury or illness, terminate their benefits and attach as a condition of reinstatement of their benefits that they need to return to full time active employment. The court ruled that plaintiff's proof of discrimination was direct and uncontroverted. The agreement specifically discriminates against employees who are on disability, Worker's Compensation leave or any other form of extended leave by excepting them from its conditional transfer. The court found that this conduct constitutes discrimination on its face.

The fact that plaintiff, by returning to work, could have reinstituted her coverage under the new PRM plan was inconsequential. The court stated that section 510 of ERISA is violated when an employer selects for presumptive termination and denial of benefits specifically those employees presently on medical or disability leave. The court did not find persuasive the employer's argument that the purchasing company in an asset sale had the right to set the level of benefits available to transferred employees at its discretion. The court stated that defendants would have been permitted to transfer all former ARM employees to PRM subject to a reduction in benefits for all employees, but they were not permitted to exclude a select group of employees from immediate transfer because they were not "at work" on the day of the transfer for health related reasons.

B. Reasonable Relationship to EEOC Charge Exhausts Administrative Remedies

In Lyons v. England, 2000 Daily Journal D.A.R. 1961 (9^th Cir. October 9, 2002),⁽²⁾ the District Court granted summary judgment over claims of disparate treatment by denying certain African-American male employees favorable work assignments and job promotions over a period of several consecutive years. The court ruled that the U.S. Navy could not be held liable for the discriminatory allocation of work assignments occurring outside of the 45-day limitations period in which federal employees must contact an equal employment opportunity counselor regarding their claims. The court affirmed the District Court's ruling that appellants' pre-limitation claims were time barred but reversed its ruling that appellants failed to exhaust their administrative remedies.

Appellants are all African-American males, each of whom has served for over 30 years at the Naval Aviation Depot North Island, San Diego, California ("NADNI"). Appellants alleged that from 1991 until the filing of their complaint in April of 1998, the U.S. Navy engaged in a pattern and practice of discrimination against African-American men with discriminatory work assignments and non-selection for promotion to positions at or above the GS 13 level. Appellants alleged that an NADNI reorganization resulted in their transfer from the engineering department to the production department, and that after the reorganization they were moved to "non-career enhancing jobs" and replaced in their former positions by White males. After the reorganization appellants were no longer considered to have managerial status. Subsequently, the program manager positions that those two individuals had previously held became GS 13 positions, but appellants were no longer eligible for them. The appellants now hold a GS 12 rating, while their replacements have since succeeded to a GS 14 rating in the intervening years.

The Ninth Circuit reviewed the District Court's order granting summary judgment de novo. The Ninth Circuit affirmed in part, reversed in part and remanded. The court held that when there are several discrimination claims based on discreet acts, here those being claims of prior discriminatory assignments stretching back to 1991, the limitation period begins to run when the act occurs. Although those pre-limitation period claims are time barred, they may be offered as background evidence and proof of intent. Because the claims regarding the 1997 promotions are reasonably related to the EEOC charges made in 1996, the court erred in finding that appellants failed to exhaust their administrative remedies.

OTHER UNITED STATES COURTS OF APPEAL

A. Eighth Circuit Rules Oral Notice Sufficient for COBRA.

In Chestnut v. Montgomery, 197 D.L.R. A-1 (8^th Cir. 10/8/02),⁽³⁾ the court ruled that an employer satisfied the requirements of COBRA by giving an employee oral notice of the right to continued health coverage following employment termination.

Plaintiff, a deli manager at Montgomery's grocery store left her job and declined continuation coverage under the store's group health plan. Instead she applied for an individual major medical policy. Plaintiff was denied coverage under the medical plan but failed to read the notice of this fact. Four months later she suffered a heart attack and incurred $25, 196.70 in uninsured medical expenses. She sued Montgomery contending since she had never been given written notice of her COBRA rights when she quit, the store was liable for her expenses.

Plaintiff testified that the day she gave notice, she asked her supervisor if she could keep her health policy and he responded, "they won't let you." The supervisor testified that after consulting with the company's insurance agent, he advised plaintiff she could continue her health insurance for eighteen months at her expense, but she could not continue indefinitely.

The company insurance agent testified he met with plaintiff at her farm, to discuss her insurance options. He informed plaintiff that she could continue her present coverage for eighteen months, or she could purchase an individual health policy offering similar coverage. He advised Plaintiff that the individual policy was considerably less expensive, but did explain that with pre-existing medical conditions, the new carrier could decline to insure her.

Plaintiff had sued the employer grocery store, contending that they violated COBRA by failing to give her notice of her right to continued health coverage. The Eighth Circuit found that plaintiff's conversations with her supervisor and the insurance agent constituted legally sufficient notice. The court held that COBRA requires written notice when a group plan commences, but only provides that the administrator of the health plan "shall notify" in the case of a qualifying event. When a qualifying event occurs, the covered employee has already received an initial written notice of the right to continuation coverage. The second notice is merely a reminder of the right. Congress could easily have required the second notice to also be in writing, but it did not.

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B. Sixth Circuit Finds Additional Work, Extra Scrutiny Constitute Adverse Employment Action.

In Ford v. General Motors Corp., (6^th Cir.9/27/02) 192 D.L.R. A-4,⁽⁴⁾ the trial court granted summary judgment for General Motors. The Sixth Circuit overruled the District Court's summary judgment as to plaintiff's Title VII claim, indicating that a jury could find an adverse employment action.

Plaintiff, a 17-year employee at GM's Corvette factory, worked as an inspector with two White employees whom he claimed took the "automatic" part of the job, while he did the more difficult "manual" component requiring him to attach instruments with a screwdriver. He complained to them and the two individuals responded, "You're Black and we're White, and we aren't supposed to work hard." Plaintiff also claimed that the two used racial epithets "more than once." After a fight with one of the White workers, plaintiff was suspended and then terminated in 1998. He filed a grievance that he was punished excessively and was put back to work, at which point he filed a charge with the EEOC. He was placed on the disciplinary level one step from termination and was put in a porter's position where he complained that his workload was too heavy. Plaintiff was then placed in a new job, a "drive off," inspecting Corvettes and entering information into the computer, with which he had considerable difficulty.

Plaintiff alleged that pressure from management caused him to have high blood pressure and to take sick leave. He contended that he was being set up to fail so that GM could fire him and jeopardize his pension. To protect his pension, plaintiff said he retired rather than risk termination. He then filed suit in U.S. District Court for the Western District of Kentucky.

On appeal from the lower court's grant of summary judgment, plaintiff argued that he experienced an adverse employment action and that he established a causal connection between his EEOC filing and his increased workload and supervision. The court ruled that plaintiff could establish an adverse employment action and show a causal connection between the EEOC filing and the adverse action, and on that basis, overruled the summary judgment granted to the employer. The court affirmed the District Court's summary judgment on Ford's claims of intentional infliction of emotional distress and outrageous conduct and on his wife's claimed loss of consortium.

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C. First Circuit Ruled No ADA Violation for Firing of Jailed Alcoholic.

In Bailey v. Georgia-Pacific Corp ( 1^st Cir. 10/9/02) 199 D.L.R. A-5,⁽⁵⁾ the First Circuit affirmed the District Court's granting of summary judgment to the employer, ruling that an alcoholic paper mill employee's firing while incarcerated for drunk driving was not a violation of the Americans With Disabilities Act. The Circuit Court, however, relied on different reasoning than that of the lower court, finding that plaintiff was not "disabled" under the ADA because he did not show he was substantially limited in the major life activity of working, or that he had a record of such an impairment, or that he was perceived as having such an impairment.

Plaintiff began working at Georgia-Pacific's paper mill in 1987. He began abusing alcohol in 1976, and intermittently sought counseling and treatment. Although his alcoholism continued, plaintiff was able to perform his duties, but outside of work he accumulated numerous convictions for drunk driving.

After a February 1999 Driving-Under-the-Influence arrest, plaintiff was sentenced in March to four months of incarceration. Plaintiff's lawyer requested that Georgia-Pacific allow plaintiff to return to work as part of a work-release program. Although the company had supervised three other employees on work-release programs, they refused to do so for plaintiff.

By the end of March, plaintiff had used all of his sick and vacation leave, and he was not due to be released until July. By letter dated April 1, 1999 the company fired him because he was unavailable for work.

Plaintiff sued and the District Court reasoned, even assuming plaintiff was a "qualified individual with a disability," he failed to show he was terminated because of his disability. While plaintiff showed he was terminated because of his alcohol-related misconduct, the ADA specifically allows employers to subject alcoholics to the same work rules as other employees. The lower court also held that Georgia-Pacific was not required to participate in the work-release program as a reasonable accommodation for plaintiff's alcoholism.

The Circuit Court held that although alcoholism is an impairment, plaintiff must make prove he is significantly restricted in the ability either a class of jobs or a broad range of jobs in various classes as compared to the average person with comparable job skills. Although plaintiff had occasionally declined overtime because of his drinking, the court found this was an isolated problem and could not be seen as substantially limiting his ability to work in his own job, much less a broad range of jobs.

The court rejected plaintiff's argument that he had a record of a disability because there was no record that his alcoholism significantly interfered with a major life activity, such as working. The court also rejected plaintiff's argument that he was regarded as having a disability, because although he was unable to do his job while incarcerated, there was no evidence that the employer thought he was unfit for a class or broad range of jobs.

OTHER UNITED STATES DISTRICT COURTS

A. Time Limitation Provision in Job Application Bars Untimely Sexual Harassment Suit.

In Wright v. Daimler Chrysler Corp. (E.D. Mich. 9/30/02) 197 D.L.R. A-1,⁽⁶⁾ the court held that a former hourly worker at Daimler Chrysler was bound by the six-month time limitation for bringing any employment related claims against the company in the job application she had completed upon commencement of her employment.

In 1996, when plaintiff applied for an hourly position with the company, she signed an employment application which provided that she agreed "that any claim or lawsuit arising out of my employment with, or my application for employment with Chrysler Corporation or any of its subsidiaries must be filed no more than six months after the date of the employment action that is the subject of the claim or lawsuit." Plaintiff alleged that during her employment she was harassed by a supervisor who, after she rejected his advances, reassigned her to a less desirable job and later fired her. The company reinstated Wright after she filed a grievance, but she alleged that the supervisor continued to retaliate, transferring her to another facility. She alleged that the supervisor at the new facility also harassed her. Finally, plaintiff left her job because of a disability described by her psychiatrist as "chronic and debilitating episodes of anxiety and depression."

Daimler Chrysler rejected plaintiff's requests for Worker's Compensation benefits and instead, enrolled her in the company's sickness and accident benefits plan which provided significantly lower benefits. Failing to meet the plan requirement to meet with a company physician, plaintiff was discharged in May of 2000. She again filed a grievance and was reinstated a second time. In 2001, her sickness and accident benefits were reduced and she formally applied for Worker's Compensation, which was denied by the company. In April of 2002, plaintiff sued in federal court, alleging sexual harassment from the events involving the two supervisors.

Daimler Chrysler cited the employment application signed by plaintiff and moved for summary judgment. Plaintiff replied that the six-month limitation was unenforceable because it was unreasonable and was contrary to public policy, but the court disagreed. The court stated that:

"A shortened limitations period encourages immediate access to the court. The policy supporting any limitation is to encourage the prompt bringing of claims to prevent unfairness to the defendant, loss of evidence and the fading of witnesses' memories. Therefore, a shorter period of limitations furthers the goal of promptness in bringing the actions before the court."

Although the Michigan Supreme Court has cautioned that limitations in employment contracts deserve close scrutiny, because of the unequal bargaining power over the parties, in this case the court held that the six-month limitation was reasonable because it met three standards set out by the State Supreme Court. Plaintiff had enough time to investigate and file her action. The time limit was not so short that it worked as a "practical abrogation" to plaintiff and the action was not barred before the damages from the claim could be determined.

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B. Firing of Cross-Dressing Trucker Does Not Violate Title VII.

In Oiler v. Winn Dixie Stores, Inc.(E.D.La. 9/16/02) 198 D.A.R. A-6, the court ruled that a male truck driver who was fired after disclosing to his supervisor that he sometimes dressed and acted like a woman had no claim under Title VII.

Plaintiff argued his case is similar to Price Waterhouse v. Hopkins 490 U.S.228 (1989) in which the Supreme Court held that employment decisions based on "sexual stereotyping" are prohibited under Title VII as sex discrimination. In that case, a female manager who was denied a partnership because her male colleagues considered her too aggressive and blunt, i.e., too masculine and not ladylike, could present direct evidence of sex discrimination.

Plaintiff argued that his firing for cross-dressing was because he did not conform to Winn Dixie's stereotype for appropriate conduct by male employees. The court differentiated this case from Price Waterhouse noting that plaintiff was not fired because he did not exhibit sufficiently masculine traits in the workplace. Rather the plaintiff was fired because of his off duty cross-dressing. As his supervisor informed him in the termination meeting, Winn Dixie was concerned its customers might discover plaintiff's off duty activities and as a result, the company would lose business.

The court granted the employer summary judgment stating there was nothing in the language or legislative history of Title VII indicating Congress intended "sex" to mean anything other than "biological sex" when passing the statute. The courts have uniformly held that Title VII does not prohibit discrimination based on sexual orientation, transvestism, transsexualism or gender identity issues.

CALIFORNIA COURTS OF APPEAL

A. Student Athlete on Scholarship Is Not an Employee for FEHA Purposes.

In Shepard v. Loyola Marymount University, 2002 Daily Journal D.A.R. 11545 (Cal.App.2nd District),⁽⁷⁾ the court ruled that a student athlete on scholarship is not an employee of the university for the purposes of the California Fair Employment and Housing Act ("FEHA"). The trial court granted summary judgment in favor of defendant on plaintiff's complaint for race discrimination and breach of oral contract. Defendant's summary judgment motion was brought on the grounds that plaintiff's cause of action for race discrimination in violation of the FEHA was barred as a matter of law because she was a student athlete and not a school employee.

A woman's basketball coach, named as a defendant, was not liable for damages because there is no individual liability under the FEHA; plaintiff's contract claim was barred by the statute of frauds and plaintiff failed to exhaust her administrative remedies.

Plaintiff, an African-American, was an All-American basketball star at Crenshaw High School in Los Angeles. Plaintiff decided to attend Loyola Marymount based on promises that she would receive a four-year scholarship.

Plaintiff alleged that while attending the school, the head women's basketball coach, Wilhoyt, frequently made racial remarks to plaintiff. These racial remarks included statements that plaintiff had a "ghetto mentality" and that she should "run away" when police officers entered the gym during a practice. In May of 1999, an unsigned letter from an anonymous concerned alumni sent to the school described some of the racial discrimination by Ms. Wilhoyt directed at plaintiff and other players. Within days of the receipt of the letter, Ms. Wilhoyt removed plaintiff from the team. It was alleged that Ms. Wilhoyt ordered the school to revoke plaintiff's scholarship. Plaintiff alleged that this discriminatory action violated the FEHA. Plaintiff also alleged that in 1997, she and the school entered into an oral contract for her scholarship to be automatically renewed for four years.

The Court of Appeal held that decisional authority has not addressed the specific issue of whether a student athlete, who receives an academic scholarship, is a school employee under the FEHA. The court referred to the decisional authority on a Worker's Compensation and public entity liability context to provide guidance as to the meaning of the term "employee." Labor Code § 3352, subdivision (k) excludes a student athlete receiving an athletic scholarship from the term employee.

The court noted that in the case of Van Horn v. Industrial Accident Committee (1963) 219 Cal.App.2d 457, a Worker's Compensation case, a student athlete who received assistance from CalPoly San Luis Obispo in exchange for playing football, who was killed in an airplane crash while returning from an out of state football game, was permitted to recover Worker's Compensation benefits. The Court of Appeal ruled that the student had an employment contract with the college and that his heirs were entitled to the benefits.

In 1965, in response to this case, the Legislature amended Labor Code § 3352 to add former subdivision (j) to exclude athletic participants as employees. Furthermore, the National Collegiate Athletic Association ("NCAA") Constitution and By-Laws were explicitly incorporated by reference into the financial aid agreements executed by plaintiff. Those rules clearly provide that plaintiff was not a school employee.

1. Opinion by Judge B. Fletcher; concurrence by Judge Kozinski.

2. Opinion by Judge Betty B. Fletcher.

3. The Honorable H. Franklin Waters, U.S. District Judge for the Western District of Arkansas.

4. Judge Algernon L. Marbley

5. Judge Juan R. Toruella.

6. Judge Nancy Edmonds.

7. Justice Paul A. Turner.

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