W orkplace Labor Update APRIL 2003 From The Editors Desk The V - - PDF document

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• rkplace Labor Update

APRIL 2003

I N T H I S I S S U E

From the Editor’s Desk A New Whistle Stop for Whistleblowers Does Your “Retention” Bonus or Commission Plan Conflict with Maryland Wage Payment Law? Military Service Counts Toward FMLA Leave Eligibility

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A New Whistle Stop For Whistleblowers

t has probably not escaped the attention of long-time readers of this Update that countless words have been devoted to describing yet another lancing of the basic employment rule of law that employees are employed at-will. The rule has been pricked again in the wake of the concerns flowing from the revelations of corporate corruption and last year’s calamitous bankruptcies, which generated new legislation designed to protect the public from corporate mismanagement. While such reforms are welcomed by many, the Sarbanes-Oxley A ct also laid tracks for new restrictions on an employer’s ability to discipline at-will employees. Less well-publicized than its securities fraud and corporate responsibility provisions, the Sarbanes-Oxley A ct also contains new protections for so-called

• whistleblowers. Commencing on page 116 of a 130-page Bill, the Sarbanes-Oxley A

ct includes a new provision affording new whistleblower protection to employees of publicly traded companies. The law provides that publicly traded companies may not discriminate against an employee because the employee has lawfully provided information to or assisted an investigation regarding conduct which the employee reasonably believes constitutes a violation of securities laws or any federal law relating to shareholder fraud. To be protected conduct, the employee’s acts must be lawful and the information must be provided to a federal regulatory or law enforce- ment agency, a member of Congress, or, importantly, “a person with supervisory authority over the employee . . .”

From The Editor’s Desk

The V enable Workplace Labor Update has a new format for the new millen- nium! A s we continue to strive to keep clients abreast of the ever complex and shifting web of laws governing their workforces, V enable has been searching for a way to transmit important legal updates to clients in an even more up-to-the-minute

• fashion. The solution? More issues per year ( 6 annually instead of 4) transmitted

electronically right to your desktop. Beginning with this A pril 2003 issue, V enable will publish the WLU on a bi- monthly basis and transmit it to clients using email, rather than “snail mail,”

• distribution. What you are holding in your hand now is one of two hard copy versions
• f the WLU for 2003. Beginning with the June 2003 issue, we will only be distributing

the WLU electronically – with the exception of our “end of the year” wrap-up issue, which will continue to be distributed in print. To facilitate the process of transferring our mailing list to the new electronic format – and to ensure that you continue to get the updates on employment and labor laws and regulations, important case law developments and practice tips and pointers you have come to rely on– we ask you to take a moment to subscribe to the new WLU by sending an email to Ruth Kaufman at rgkaufman@ venable.com or by visiting V enable.com and registering online. A s always, we welcome your comments and suggestions throughout the transition process.

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The law creates a new enforcement scheme and substantive rights to employees. Thus, under the law , covered employees who believe they have been discharged or otherwise discriminated against because

• f their protected activities may file a complaint with the Secretary of Labor. Such complaints must be filed

within 90 days of the date on which the violation occurs. If the investigation is not completed within 180 days of the filing of the complaint ( unless that delay is due to the bad faith of the claimant) , the claimant may file suit in federal district court. Employees found to have been the victims of discrimination are entitled to all relief necessary to make them whole, including reinstatement, back pay with interest, and compensation for any special damages, including litigation costs, expert witness fees, and reasonable attorneys’ fees. The provision allowing for the recovery of civil damages is not the only protection afforded

• whistleblowers. The law also provides that anyone who knowingly retaliates against or takes any action

“harmful” to any person, including interfering with their employment, for providing truthful information to a law enforcement officer relating to the commission or possible commission of a federal offense can be subject to stiff criminal sanctions. Unlike the civil remedies provision, this section is not limited to employees of publicly traded companies.

How Does Sarbanes-Oxley Change the Law? What Should Employers Do?

Under current law , an employee asserting wrongful discharge must demonstrate that his/ her discharge contravened a clear mandate of public policy . Typically, such mandates are found in constitu- tional rights or in statutes. Consistent with this requirement, several courts, including the Maryland Court

• f A

ppeals, have held that internal complaints of wrongdoing cannot form the basis of a wrongful discharge claim. A t least for publicly traded companies, the Sarbanes Oxley A ct creates a clear mandate of public policy protecting internal complaints, as well as complaints to public officials. This is not, however, necessarily bad news for employers. Wrongful discharge law provides that if the statute establishing the clear mandate of public policy also contains a procedure for relief, the employee must rely on that procedure, including its provisions for damages, in lieu of a tort claim for wrongful discharge. The Sarbanes-Oxley A ct contains exactly this sort of provision. Moreover, the Sarbanes-Oxley A ct may preclude claims for punitive damages, since the A ct expressly states that the remedies available are limited to the relief required to make whole the employee. Because punitive damages are not make whole relief, but are designed to punish and deter, it would appear that such damages are not available. The situation is less clear, however, for companies that are not publicly traded. Thus, employees of privately owned companies should not have a claim for wrongful discharge as a result of internal complaints, although such a claim may exist if the complaint were made to public officials. Paradoxically, employees of privately owned companies who are discharged for complaining of illegal activity to public

• fficials might be entitled to the panoply of damages available in a wrongful discharge suit, including

punitive damages in appropriate cases. Given this new prescription for potential liability , all employers, but especially publicly traded employers, should takes steps to protect employees who speak out about illegal corporate conduct. Employers may wish to consider establishing a reporting procedure for complaints about corporate fraud and other misdeeds. Such a policy should, like the policy relating to harassment on the basis of sex or

• ther protected characteristics, provide multiple opportunities for employees to complain and provide

reassurances of non-retaliation. In addition, supervisors should be trained in connection with the policy. Employers should promptly investigate allegations of wrongdoing — publicly traded employers must do

• so. Because investigations into misconduct at publicly traded companies must be conducted by someone

without a financial stake on the outcome, corporate counsel should be involved early on. The investiga- tion and the procedure must be beyond reproach. A lthough not legally mandated, privately owned employers would be wise to consider similar measures. A lthough it is too early to tell whether these new whistleblower provisions will result in increased claims, employers would be well advised to take simple steps now to assure that their place of employment does not become a whistle stop for whistleblowers.

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Workplace Labor Update is published by the Labor and Employment Law Section of the law firm of Venable LLP, Two Hopkins Plaza, Suite 1800, Baltimore, MD 21201; 1201 New York Avenue, N.W., Suite 1000, Washington, DC 20005; One Church Street, Fifth Floor, Rockville, MD 20850; 210 Allegheny Avenue, P.O. Box 5517, Towson, MD 21204; and 8010 Towers Crescent Drive, Suite 300, Vienna, VA 22182. Internet address: http://www.venable.com. It is not intended to provide legal advice or opinion. Such advice may only be given when related to specific fact situations. Chairmen, Labor Department: Robert G. Ames and Ronald W . Taylor Editor: Patrick L. Clancy Associate Editor: Karen L. Vossler Contributing Attorneys: Robert G. Ames, George W . Johnston, Jana Howard Carey, Jeffrey P . Ayres, Maurice Baskin, Ronald W . Taylor, Todd J. Horn, Patrick L. Clancy, John Bredehoft, Connie N. Bertram, Scharon L. Ball, Thomas H. Strong, Robin Bruckmann Bowerfind, David R. Warner, Patricia A. Exposito, Rosemary E. Dailey, Christine D’Elicio, Brian M. Hudson, Darryl Franklin, Jennifer G. Prozinski, and Martha Jo Wagner. Questions and Comments concerning materials in the newsletter should be directed to Patrick L. Clancy, One Church Street, Fifth Floor, Rockville, Maryland 20850. Telephone (301) 217-5600 or e-mail plclancy@venable.com. Address changes should be directed to Ruth G. Kaufman, Venable LLP, 1201 New York Avenue, N.W., Washington, DC 20005. Telephone (202) 216-8096 or e-mail rgkaufman@venable.com.

Does Your “Retention” Bonus or Commission Plan Conflict with Maryland Wage Payment Law?

he highest court in Maryland recently examined the interplay between bonus or commission plans and statutory wage payment law and came to a conclusion that could catch unwary employers by surprise. In

Medex v. McCa b e, 372 Md. 28, 811 A

.2d 297 ( 2002) , the Maryland Court of A ppeals held that commission and bonus plans that condition payment on continued employment conflict with an employee’s statutory right to payment of wages under Maryland’s Wage Payment Collection A ct. The plaintiff McCabe was employed as a sales representative of Medex, a medical supplies manufac-

• turer. Like many sales employees, a portion of McCabe’s compensation was tied to incentive pay based

upon his meeting certain annual sales goals. Both McCabe’s employment contract and Medex’s incentive plan included express provisions conditioning payment of such incentive fees upon McCabe’s continued employment at the time of payment. On February 4, 2000, McCabe resigned from his employment with Medex and requested payment of $32,850 of incentive fees he had generated in the preceding fiscal year. Relying upon the continued employment provision of his contract and its incentive plan, and the fact that incentive fees were not to be paid until March 31st, Medex refused to release the requested fees, and litigation ensued. Following litigation in the trial court and appeal to the Court of Special A ppeals, the Court of A ppeals held that the fees were “compensation for work performed” and, therefore, “wages” within the broad ambit of the Wage Payment Collection A

• ct. Turning to the more difficult question of whether the

fees were “wages due” (i.e., wages to which McCabe could claim a statutory right to payment) the Court agreed that the contractual provisions regarding continued employment would have been sufficient to deny payment of the fees at common law . However, the Court found that the A ct required that employees receive all remuneration for work performed, regardless of any ensuing termination of employment. Because McCabe had concluded the sales upon which his incentive fees were determined, Medex was statutorily required to pay him those fees, notwithstanding his intervening termination. Following Medex v. McCa b e, conditioning performance-related incentive pay on continued employment plainly violates Maryland law . The case also makes clear that employers utilizing incentive plans conditioning payment on non-performance-related factors should scrutinize such plans to ensure compliance with the developing authority surrounding the Wage Payment Collection A ct.

WORKPLACE LABOR UPDATE / APRIL 2003

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4 Military Serv ice Counts Toward FMLA Leav e Eligibility

s the current military action in Iraq progresses, employers should consider how this military action might impact both their workforces and their obligations under various employment statutes. One situation which might arise is whether employees returning from military tours of duty may count their active military service as “time worked” for purposes of determining an employee’s eligibility for leave under the Family and Medical Leave A ct ( FMLA ) . A ccording to the Department of Labor ( DOL) , the answer is yes – time spent in active military service must count as “time worked” for purposes of FMLA . Under the FMLA , qualifying employees are entitled to up to 12 weeks of unpaid leave per year for the birth or placement through adoption

• r foster care of a child, for qualifying medical conditions, or to care for family members with qualifying medical conditions. Employees are

eligible for FMLA leave if they: (1) are employed at a facility that has 50 or more employees within a 75 mile radius; (2) have been employed by the employer for at least 12 months; and (3) have worked at least 1,250 hours during the 12 month period immediately preceding the request for

• leave. The FMLA

regulations provide that, in determining whether an employee has worked the requisite number of hours, only “compensable hours” (i.e., those hours for which the employer is required to pay an employee under the Fair Labor Standards A ct) are counted. Consequently , hours during which an employee is on leave are not counted in determining whether he or she has satisfied the 1,250-hour threshold. It now appears, however, that the DOL has carved out an exception to this rule for military leave. The basis of the DOL’s opinions is its interpretation of the Uniformed Services Employment and Reemployment Rights A ct ( USERRA ) . A s most employers know , the USERRA requires the reemployment of veterans and members of the National Guard and Reserve following qualifying military service. The USERRA also provides that, with limited exceptions, employees returning from a military leave of absence are entitled to all of the benefits that they would have received if they had been continuously employed during the period of military service. The DOL has interpreted this provision to mean that an individual reemployed under the USERRA should be given credit for FMLA purposes for any months that he would have been employed and any hours-of-service that he would have performed b ut for the military service. To illustrate its opinion, the DOL provides the following two examples: ( 1) Someone who has been employed by an employer for 9 months is ordered to active military service for 9 months after which he or she is reemployed. Upon reemployment, the person must be considered to have been employed by the employer for more than the required 12 months ( 9 months actually employed plus 9 months while serving in the military service) for purposes of FMLA eligibility . ( 2) A n employee who works 40 hours per week for the employer returns to employment following 20 weeks of military service and requests leave under the FMLA . To determine the person’s eligibility , the hours he or she would have worked during the period of military service ( 20 x 40 = 800) must be added to the hours actually worked during the 12-month period prior to the start of the leave to determine if the 1250-hour requirement is met. Employers should keep these principles in mind in considering requests for FMLA leave from reemployed veterans.

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