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Archive for March, 2015

A Day Late and a Dollar Short

Posted on: March 13th, 2015

By: Jessica Samford

This week, a Pennsylvania man was charged with insurance fraud for buying car insurance after he had a car accident.  This news sounds somewhat similar to the amusing “State of Regret” commercials State Farm ran a few years ago: bad driver Jerry, after driving his car up a pole, calls his former agent Jessica, crying about how much he misses her after switching to a less-responsive company.  Except in this case, the man had no coverage at the time of his accident, bought coverage from SafeAuto after the fact, and reported that the accident occurred about an hour after obtaining the policy, according to news reports.

The basic concept behind insurance is that there is a risk of an unplanned, unintended, or unanticipated “fortuitous” event that, as far as the insurer and the insured are aware, is dependent on chance. This is known as the “fortuity” principle.  The fortuity principle is implied in nearly all insurance policies, even if not explicitly written into the terms.  It follows common sense that there is no risk that there will be a loss if the loss has already taken place.  Even if the man in Pennsylvania lacks such common sense, his actions could constitute fraud.  His potentially fraudulent claim for almost $4,000 in damages may be a drop in the bucket compared to recent estimates of fraudulent claims nationwide—$80 billion a year, according to estimates published by the Coalition Against Insurance Fraud.

Fraudulent claims both increase the cost of insurance and decrease the profitability of insurance companies, which can harm consumers and carriers alike.  Being able to detect and avoid paying fraudulent claims is a key component of insurance claims handling.  In this instance, the circumstances of the accident immediately raised suspicions for the carrier to safely avoid paying the fraudulent claim—if only fraudulent claims were all that easy to detect.

How Much Control Is Too Much Control? When On-Call Time Becomes “Hours Worked”

Posted on: March 12th, 2015

By: Allison L. Shrallow

Recently, the California Supreme Court provided guidance on an important question in employment law: How much employer control turns on-call time into “hours worked?”  In enacting its on-call policy, an employer must determine whether it is required to pay its employee for the entire time he is on-call or whether it is lawful to compensate him only for his time spent responding to calls.  Whether or not on-call time constitutes “hours worked” has significant economic implications for businesses because on-call shifts typically follow an employee’s regular eight hour shift, and, if deemed hours worked, requires the employer to pay the employee overtime wages at a rate of time and a half for each hour the employee remains on-call.

In Mendiola v. CPS Security Solutions, the Court held employers who require their employees to stay overnight at the employer’s premises during their on-call shift must compensate their employees for the entire time the employees remain on-call.  In this case, while on-call, the employees were required to reside on the worksite in an employer-provided trailer and were obligated to respond—immediately and in uniform—to suspicious activity.  Employees could leave the worksite only if another employee relieved them and had to return to the worksite within 30 minutes.  This case represents one end of the spectrum.

At the other end of the spectrum is Gomez v. Lincare, Inc., where the court found the employees’ ability to engage in personal activities was not unduly restricted when the employer required them to respond to 50 pages a week, telephonically within 30 minutes, or if the matter could not be resolved over the phone, in-person within two hours.

These cases demonstrate courts are not inclined to expand the definition of “hours worked” unless the employee is restrained from leaving the premises or is unduly restricted from engaging in personal activities while on-call.  The question is where does the line get drawn?  Below are some general guidelines for employers to follow in enacting their on-call policies to decrease the likelihood of the time being construed as “hours worked.”

Employers should provide employees with at least 30 minutes to respond to calls via cell phone, although, according to a Ninth Circuit case applying federal law, a 15 minute telephone response time may not be deemed unduly restrictive. If an in-person visit is necessary, employees should be given as much time as possible to respond, as the further employees can travel while on-call, the less the time looks like “hours worked.”  Finally, employers should try to have as many employees on-call during a particular shift as possible so no one employee is overburdened with a high frequency of calls and to allow employees to easily trade on-call shifts.

The dearth of California case law on this subject leaves a lot of questions unanswered in determining how much employer control turns on-call time into hours worked. Of course, a trier of fact would likely find a policy requiring employees to respond in-person within 30 minutes to be unduly restrictive, as it would preclude employees from engaging in most personal activities, including dining at a restaurant.  However, it’s more difficult to predict whether, for example, a 45 to 90 minute in-person response time would be considered unduly restrictive.  Therefore, in instances where the employer does not require its employees to reside on-premises but, because of the nature of its business, requires its employees to respond immediately by phone to a high frequency of calls and/or in-person in less than two hours, the employer should consider erring on the side of caution and compensating its employees for on-call time.

Uncle Sam Still Wants Your Money – Supreme Court Rules that Severance Payments are Wages for Tax Purposes

Posted on: March 12th, 2015

By: Amanda K. Hall

In order to fund the benefits provided by the Social Security Act and Medicare, the Federal Insurance Contributions Act (“FICA”), 26 U.S.C. § 3101 et seq., taxes “wages” paid by an employer or received by an employee “with respect to employment.”  The United States Supreme Court recently held that, as a general rule, severance payments that are not tied to state unemployment benefits, are “wages” for purposes of FICA.  Accordingly, employers offering employees severance packages in connection with their termination must be sure to report any severance payments as wages, pay the employer’s portion of FICA taxes, and withhold the employee’s share.

          In United States v. Quality Stores, Inc., 134 S.Ct. 1395 (2014), Quality Stores, an agricultural specialty retailer, terminated thousands of employees in connection with it filing for Chapter 11 bankruptcy in 2001.  Quality Stores paid its employees severance pay as a result of the layoffs, and reported the payments as wages under FICA.  Later, Quality Stores applied for a refund of over $1 million in FICA taxes, claiming that they were not owed under FICA.  When the IRS did not return the money, Quality Stores initiated an action in the Bankruptcy court seeking the refund.  The Bankruptcy Court, District Court, and Sixth Circuit Court of Appeals all agreed with Quality Stores that the severance payments were not “wages” for purposes of FICA.  The Supreme Court, however, disagreed.

          The Supreme Court, looking first at the language of FICA, noted that FICA defines “wages” broadly to include “all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash.”  Because severance is only paid to employees, the Supreme Court concluded that it must be considered “remuneration for employment.”  The Supreme Court further noted that severance was not included in the extensive list of exemptions from the definition of “wages” in the FICA – which includes an exemption for severance payments made due to disability — but that the legislative history demonstrated that Congress had initially included an express exception for it.

         Based upon the Supreme Court’s ruling in this case, most severance payments will be treated as “wages” for purposes of FICA taxes.  Accordingly, employers should generally pay the employer’s portion of FICA taxes and withhold the employee’s share.


OSC for Immigration Tells Employers Appropriate Response to Authorization Fraud

Posted on: March 4th, 2015

By: Nina Maja Bergmar

As you may know, all employers are required to complete Form I-9 for every new employee at the time of hire. Doing so allows employers to verify that new hires are authorized to work in the United States, as required by the Immigration and Nationality Act (INA).

When completing Form I-9, employers must be cognizant of actions that may run afoul of INA’s anti-discrimination provision.  See 8 U.S.C. § 1324b. While the rules for complying with the I-9 process may seem straightforward, a recent guidance issued by the Office of Special Counsel for Immigration-Related Unfair Employment Practices (OSC) highlights some murky territory that warrants attention.  See January 8, 2015 TAL.

The OSC letter addresses what to do when an employee submits new work authorization documents to his employer for I-9 purposes and readily admits that the previously submitted documents were fraudulent—specifically, whether “this situation opens [the employer] up to any discrimination issues in any way if [it] choose[s] to keep or terminate the employee.”

In short, the OSC states that an employer will likely not be held liable under § 1324b for allowing an employee to continue his employment after admitting to having submitted fraudulent documents in the past, so long as the employer completed the initial I-9 verification steps in good faith.  In other words, an employer is not required to terminate a presently work-authorized employee who admits to having submitted fraudulent I-9 documents in the past.

If, however, the employer terminates the employee for having submitting fraudulent work documentation in the past, the employer may face liability. While the employee lacked work authorization during the initial I-9 process, the employee’s current work authorization entitles him or her to all the protections provided by INA, including the right to be free from differential treatment on account of one’s citizenship status or national origin in the hiring, termination, and I-9 verification process.

Thus, in determining whether the termination of a presently authorized employee for having previously submitted false work authorization constitutes discrimination, the OSC says it will look to whether the employee was treated differently from other employees.

In this regard, the OSC focuses particularly on the presence and implementation of so-called “dishonesty policies.” If an employer has a consistently followed policy of terminating any individual who submits false information—regardless of subject matter—during the hiring process, the OSC may say the termination was legitimate and nondiscriminatory. Where such a policy is lacking, however, the OSC warns that an employee could sue the employer for treating his or her dishonesty differently than other forms of dishonesty unrelated to citizenship status. In this case, the employer would likely be found to have violated § 1324b.

The above analysis is consistent with previously issued guidance from the OSC.  See November 1, 2012 TAL (“If an employer rejects a presently work-authorized individual from employment based on the individual’s prior undocumented status . . .  OSC’s investigation . . . would focus on whether an employer’s ‘dishonesty policy’ is consistently applied to employees who make false representations on their application for employment or other forms without regard to citizenship status or perceived national origin.”); June 10, 2010 TAL (“Employers risk violating the anti-discrimination provision of the INA when terminating an employee [who was not previously authorized to work but is now authorized to work] unless they can demonstrate that they have a previously established honesty policy that is consistently applied to employees who make false representations on their application or other forms without regard to citizenship status or national origin.”).

To avoid liability under Section 1324b, employers should make sure to enforce any dishonesty policy consistently, without regard to the subject matter about which the employee is being dishonest.  Employers could also preempt the above scenario by enrolling in E-Verify, which allows employers to electronically confirm the accuracy of any I-9 information provided by employees at the time of hire.


Municipal Liability: No Action for Damages Against a Municipality in Georgia for its Failure to Provide Medical Care to an Inmate

Posted on: March 2nd, 2015

By: A. Ali Sabzevari

Earlier this month, the Georgia Supreme Court rendered its decision in City of Atlanta v. Mitcham, No. S14G0619, 2015 WL 659597 (Ga. Feb. 16, 2015), reversing the Georgia Court of Appeals’ flawed analysis in determining whether a municipality is entitled to sovereign immunity.  Last year, I noted that the Court of Appeals was erroneously blurring the distinction between the meaning of ministerial functions as pertinent to a City’s sovereign immunity and ministerial duties as pertinent to official immunity.  The Supreme Court, in reversing the Court of Appeals, agreed.

In Mitcham, an inmate was taken to a hospital because of “low blood sugar associated with diabetes.” When he was discharged, the hospital notified the City of the need to monitor his blood sugar and provide him with insulin.  When the City failed to monitor and regulate his insulin levels, the inmate suffered serious and permanent injuries.

Under Georgia law, cities are protected by sovereign immunity for acts taken in performance of a governmental function, but this immunity is waived for negligent performance of a ministerial function.

Governmental functions traditionally have been defined as those of a purely public nature, intended for the benefit of the public at large, without pretense of private gain to the municipality.  Ministerial functions, in comparison, are recognized as those involving the exercise of some private franchise, in which the general public has no interest.  The Supreme Court has acknowledged the difficulty in determining to which of the two classes a function belongs.

The Court of Appeals erroneously held that sovereign immunity in this case had been waived, stating that a government unit’s function of providing adequate medical care for inmates under its custody is ministerial in nature.  The Supreme Court reversed, finding that the care of inmates in the custody of a municipality is indeed a governmental function for which sovereign immunity has not been waived.

The operation of a jail and the care and treatment of individuals in police custody are purely governmental functions related to the governmental duty to ensure public safety and maintain order for the benefit of all citizens.  What this means, practically, is that in Georgia there can be no action for damages against a municipality for its failure to provide medical care to an inmate regardless of the presence of negligence.

For more information, contact A. Ali Sabzevari at 770.303.8633 or [email protected]