Texas Employment Law Update

Texas Employment Law Update

A Resource for Texas Employers

Court of Appeals Holds that Notes of Counsel’s Communications with EPL Carrier are Privileged

Posted in Case Summaries

In an important case for any employer that has Employment Practices Liability (EPL) coverage (and lawyers that represent clients with EPL insurance), the Dallas Court of Appeals recently held that the communications between an employer’s in-house counsel and its EPL insurance adjuster were privileged communications and exempted from discovery.  In In re Texas Health Resources, the dispute arose over a Texas Health Presbyterian Hospital (Presbyterian) nurse’s claim that she contracted Ebola when Presbyterian’s parent company, Texas Health Resources (THR), allegedly failed to properly prepare its affiliated hospitals to respond to Ebola and that, in an effort to mitigate the economic and reputational damage of the incident, invaded the nurse’s privacy while being treated as a patient at Presbyterian.  The nurse brought claims  against THR for negligence, gross negligence, premises liability, negligent undertaking, gross negligence, invasion of privacy and fraud.  No claims were brought against Presbyterian, presumably because it had workers’ compensation insurance coverage and such claims against Presbyterian were barred.  The nurse was receiving workers’ compensation benefits at all relevant times.

THR moved to abate the case arguing that the Texas Department of Insurance Workers’ Compensation Division had exclusive jurisdiction over the question of whether THR was also the nurses employer and thereby also obtained the benefit of the workers’ compensation bar against claims against THR.  At issue in this discovery dispute was a Hartford insurance adjuster’s Diary Note regarding conversations between THR’s associate general counsel, THR’s risk manager and the adjuster.  The notes were maintained in a file related to investigation and defense of claims under the employer’s liability portion of THR’s workers’ compensation and employers’ liability policy.  All notes were made after the nurse sent an initial demand letter to THR.  The nurse sought to compel production of the adjuster’s notes and the trial court signed an order compelling production of a portion of the notes.  THR sought mandamus relief from the court of appeals.

The Dallas Court of Appeals held that the note was a communication protected by the lawyer-client privilege.  It distinguished this case from other cases that holding that adjuster’s notes of communications with employers adjusting workers’ compensation claims because in this case, the insurance company was investigating and adjusting matters related to an Employment Practices Liability insurance policy.  Significant to the court’s analysis was the fact that in a workers’ compensation case, the insurer is defending against itself whereas in an EPL claim, the insurer is defending on behalf of the insured employer.  As the Court observed,

Insurance companies typically have the duty [under an EPL policy] to conduct the defense of the insured under the liability policy, including the authority to select, employ, and pay the attorney. Such liability policies “typically give the insurer ‘complete and exclusive’ control of the defense” including the ability to obtain professional legal services on behalf of the insured.

Because of the relationship between an EPL carrier, the employer and defense counsel, the Court held that “under proper circumstances, communications between an insurer and its insured may be shielded from discovery by the lawyer-client privilege.  In the case, the notes at issue were made in the course of investigating THR’s claim under its EPL policy.  The EPL claim file was opened after receiving the nurse’s demand letter. The notes at issue involved descriptions of conversations with representatives of THR, including a lawyer involved in the decision-making process about the defense of the claim and the adjuster who was working on the EPL claim.  The notes reflected that the discussions related to the defense of the claim.  Taken all together, the court held that the notes at issues were privileged communications protected by the lawyer claim privilege.

This is an important case for lawyer representing employers under EPL policies.  The privilege to provide an insurer who has the duty to defend, adjust and pay claims with candid advice, evaluations and recommendations about covered litigation is as important as the lawyer’s need to provide that information to the employer-client.  In my experience, most experienced opposing counsel representing employees do not seek to intrude upon the sanctity of these communications by attempting to obtain them, this is a case that should be in any attorney who represents EPL insured’s research files.

You can download a copy of In re Texas Health Resources case here.

Follow me on Twitter @RussellCawyer.

NFL’s “Deflategate”: A Caveat for Employers

Posted in Human Resources, News & Commentary

Today, I turn the keyboard over to my colleague Victor Jones for a special guest post.  Victor practices in Kelly Hart’s New Orleans’s office.  He has some thoughts on what employers might learn from the fallout over Tom Brady’s failure to preserve the cell phone he used during and immediately after last year’s AFC Championship game.

Last week the NFL announced that its commissioner Roger Goodell rejected New England Patriots’ quarterback Tom Brady’s appeal of a four game suspension for his involvement in the now-termed “Deflategate Scandal.” Goodell’s 20-page decision, was reached in large part after Brady revealed to investigators that he had destroyed his cell phone, which may have contained text messages between himself and Patriots’ equipment personnel regarding the inflation of footballs that were to be used during games. Brady contended that he had routinely destroyed his cell phones prior to the investigation, and that he did not destroy his most recent cell phone to hide any evidence from the NFL Commission. However, according to an official statement released by the NFL Goodell concluded that “Brady was aware of, and took steps to support, the actions of other team employees to deflate game footballs below the levels called for by the NFL’s Official Playing Rules.” One justification for Goodell’s decision, as explained by the official statement, was Brady’s destruction of his cell phone containing text messages that had been requested by investigators:

On or shortly before March 6, the day that Tom Brady met with independent investigator Ted Wells and his colleagues, Brady directed that the cell phone he had used for the prior four months be destroyed. He did so even though he was aware that the investigators had requested access to text messages and other electronic information that had been stored on that phone. During the four months that the cell phone was in use, Brady had exchanged nearly 10,000 text messages, none of which can now be retrieved from that device. The destruction of the cell phone was not disclosed until June 18, almost four months after the investigators had first sought electronic information from Brady.

You might be thinking, “what does this have to do with employment matters?” Well, as legendary Cowboy’s Coach Tom Landry once said, “Football is to Texas what religion is to a priest.” There’s that, and there are three key takeaways from all of this:

  1. Employers should consider implementing company policies regarding the exchange of work-related information via personal devices of their employees, to prevent the destruction of information that may be useful in an investigation or proceeding.
  2. A failure to timely and properly cooperate with an agency investigation may alone, result in an adverse ruling against an employer and/or employee. In reaching his decision, Goodell noted that Brady did not disclose that he had destroyed his cell phone until almost four months after investigators initially requested it.
  3. An employee’s destruction of information that may be useful to an investigation or legal proceeding, regardless of the intent, may create a presumption that the employee intentionally desired to withhold evidence, and ultimately a presumption of liability against the employee and/or employer.

Note: One day after Goodell rendered his decision, Brady and the National Football League Players Association (the players “Union”), filed a 54-page petition to vacate the decision, which you can read here.

Texas Legislature Passes Stolen Valor Act

Posted in Legislation

During the 84th Legislative Session, the Texas Legislature passed an employment provision that allows employers to end the employment of employees that have misrepresented their military record.  While most Texas employees are at-will, this law will likely have little impact, however, it does provide the voiding of written contracts with employees where the employee has misrepresented his military record.  The state law provides that:

An employer may discharge an employee . . . if the employer determines, based on a reasonable factual basis, that the employee, in obtaining the employee’s employment . . .  falsified or . . .  misrepresented any information regarding the employee’s military record in a manner that would constitute an offense under Section 32.54, Penal Code.

An employment contract entered into by an employer with an employee discharged by the employer under this section is void and unenforceable as against public policy.

An employee who was employed by an employer under an employment contract on the date of the employee’s termination and who believes the employee was wrongfully terminated under [this law] may bring suit against the employer in a district court in the county in which the termination occurred for appropriate relief, including rehiring or reinstatement to the employee’s previous job, payment of back wages, and reestablishment of employee benefits to which the employee otherwise would have been eligible if the employee had not been terminated.

Whether the law can withstand constitutional scrutiny will have to be tested later.  You can download the complete bill here.

Follow me on Twitter @RussellCawyer

DOL Issues Administrator Interpretation on Misclassification of Independent Contrators

Posted in Wage & Hour

I’ve written several times on the topic of employee v. independent contractor misclassification (here, here, here, here, here, here).  Yesterday, the DOL issued an Administrator’s Interpretation attempting to provide additional guidance, and the Department’s opinion, on the application of the standards for determining whether a worker is an employee or an independent contractor.  The Interpretation implies that a presumption of “employee status” exists (i.e., that most workers will be employees, not contractors).  The Interpretation goes to great lengths to emphasize the breadth, broad scope and expansive definition of definition of “employ” under the FSLA.  The purpose, like the recently issued proposed changes to the white collar exemption salary test, is to bring more workers under the coverage of the FLSA.  Moreover, the Interpretation also suggests that this test should be used even with workers who are owners, partners or members of a limited liability company (presumably only in those situations where such titles are used as shams to avoid employee status under the FLSA).  The test, articulated in the Interpretation, identifies the following six elements:

  • Is the work an integral part of the employer’s business?
  • Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
  • How does the worker’s relative investment compare to the employer’s investment?
  • Does the work performed require special skill and initiative?
  • Is the relationship between the worker and the employer permanent or indefinite?
  • What is the nature and degree of the employer’s control?

These elements differ slightly from the economic realities test used in the Fifth Circuit to determine employee/independent contractor status.  Essentially, the Interpretation adds the additional element of whether the work is integral part of the employer’s business.  The Interpretation notes that the Fifth Circuit uses only five elements but goes on to add that the Fifth Circuit’s five factors were non-exhaustive.  It remains to be seen whether the Fifth Circuit will incorporate this additional element in future cases; although given the non-precedential effect of Administrator’s Interpretation and the doctrine that one appellate panel cannot reverse an earlier panel’s law of the case; the stronger argument would likely be that the DOL’s “integral part” element is not used in the Fifth Circuit.

You can download the full Administrator Interpretation here.

Follow me on Twitter @RussellCawyer

12 Signs You May Have a Wage and Hour Problem (and Should Call an Employment Lawyer Now)

Posted in Human Resources, Wage & Hour

There has been an explosion of wage and hour collective actions failed against Texas employers in the last five years.  This has been particularly prevalent in the oil field services sector.  If you are a Texas employer, and using any of 12 pay practices below, you should consult with an employment lawyer to ensure you are properly paying your employees and do not have an undiscovered wage and hour issue that could come to light:

  • Paying all employees a weekly or monthly salary (compounded by not keeping track of daily and weekly hours worked)
  • Not including commissions, nondiscretionary bonuses or other types of payments in calculating overtime pay.
  • Deducting from employee wages for cash shortages and breakage.
  • Treating meal periods of less than 30 minutes as unpaid.
  • Treating short rest breaks as unpaid.
  • Automatically deducting an hour (or other increment of time) from employee work time without confirming that the employee took lunch (most often occurring when employees work away from the employer’s work site).
  • Only paying overtime if it is “approved” in advance.
  • Employees are provided comp time off instead of paying overtime.
  • Employees are paid straight time for all hours worked.
  • Paying employees a day rate regardless of how many hours they work (compounded by not keeping track of those daily hours).
  • Treating travel time to the work site as unpaid but requiring employees to first report to another location before traveling to the job site. 
  • Large-scale, wide-spread use of independent contractors rather than treating workers as employees.

As an employer, you are using any of these pay practices, you should consult an employment lawyer that represents employers to determine whether your practices comply with federal law.

Follow me on Twitter @RussellCawyer.

Texas Legislature Adds Sexual Harassment Protection for Unpaid Interns

Posted in Harassment, Legislation, Uncategorized

Another legislative session ended with few changes affecting Texas employers on the labor and employment law front.  One bill that did become law is one that prohibits the sexual harassment of unpaid interns.  The law creates an offense if the employer’s agents or supervisors know or should have knowledge of conduct constituting sexual harassment was occurring with respect to an unpaid intern and fail to take immediate and appropriate corrective action.

Sexual harassment is defined as an unwelcome sexual advance, a request for a sexual favor, or any other verbal or physical conduct of a sexual nature if submission to the advance, request, or conduct is made a term or condition of an individual’s internship, either explicitly or implicitly; submission to or rejection of the advance, request, or conduct by an individual is used as the basis for a decision affecting the individual’s internship; the advance, request, or conduct has the purpose or effect of unreasonably interfering with an individual’s work performance at the individual’s internship; or the advance, request, or conduct has the purpose or effect of creating an intimidating, hostile, or offensive working environment.

Interns attempting to bring a claim under the law will still have to file a complaint with the Texas Workforce Commission Civil Rights Division and otherwise exhaust all administrative remedies.   While not mentioned in the statute, since interns are not paid, remedies are likely limited to compensatory and punitive damages, attorney’s fees, court costs, interest and injunctive relief.

The bill becomes effective September 1, 2015.  You can download the full version of HB1151 here.

H/T to Fort Worth lawyer Jason C.N. Smith for mentioning the new law to me.

Follow me on Twitter @RussellCawyer.

Texas Statutory Damages Caps Need Not Be Pled As Affirmative Defense

Posted in Case Summaries, Discrimination, Harassment, Retaliation

In a non-employment case that is nonetheless important for labor and employment lawyers, the Texas Supreme Court has held that statutory damage caps under the Texas Civil Practice and Remedies Code need not be plead as an affirmative defense by the defendant.  While the case applies to the damage caps of Chapter 41 of the TCPRC, there is no reason that the rationale from the Court’s opinion doesn’t equally apply to the statutory damage caps found in the Texas Labor Code that apply to most state law discrimination, harassment and retaliation claims.

You can download the full copy of Zorrilla v. Aypco Construc. II, LLC here.

Follow me on Twitter @RussellCawyer.

U.S. Supreme Court Wrap-up of Employment Law Cases 2014-15 Term

Posted in Discrimination, Judicial Updates, Reasonable Accommodation, Religion

This past term saw the Supreme Court issue four opinions in labor and employment cases.  In case you missed them, the following is a brief summary of the holdings from those cases.

EEOC v. Abercrombie & Fitch Holding that Title VII’s prohibition against refusing to hire an applicant to avoid accommodating a religious practice that could be accommodated without undue hardship does not require the applicant to have informed the employer of her need for an accommodation where the hiring manager assumed the applicant had a religious practice that would need religious accommodation by the employer.

Mach Mining, LLC v. EEOC Holding that narrow judicial review of the sufficiency of EEOC’s statutory conciliation obligation is available.  A court’s scope of review is limited to confirming that the EEOC communicated in some way with the employer (through conference, conciliation or persuasion) about the alleged unlawful employment practices and endeavored to achieve the employer’s voluntary compliance.  This will, at a minimum, include notice to the employer about the specific allegations describing what the employer has done and which employees have suffered as a result.  The Commission must also engage in some form of discussion so as to allow the employer an opportunity to remedy the alleged discriminatory practice.  The Court further noted that the EEOC can typically satisfy its burden of proving sufficient conciliation efforts via affidavit; but those allegations can be controverted by the employer.  The appropriate remedy for a failure of conciliation is an order to the EEOC to understate its statutory conciliation obligation to obtain voluntary compliance.

UPS v. Young Holding that a plaintiff in a Pregnancy Discrimination Act case can reach trial in an intentional discrimination case over a failure to accommodate by providing sufficient evidence that the employer’s policies impose a significant burden on pregnant workers, and that the employer’s legitimate, nondiscriminatory reasons are not sufficiently strong to justify the burden give rise to an inference of discrimination.  A significant burden can be shown by the pregnant employee by providing admissible evidence that the employer accommodates a large percentage of nonpregnant workers while failing to accommodate a large percentage of pregnant workers.

Integrity Staffing Solutions, Inc. v. Busk Holding that employee time spent waiting to undergo and undergoing security screenings prior to entering and before leaving the workplace (roughly 25 minutes per day) as part of the workplace’s antitheft security protocols was noncompensable postliminary activities under the Fair Labor Standards Act because the activity was not integral and indispensable to the principal activities for which the employees were hired (i.e., picking merchandise in the warehouse).

Follow me on Twitter @RussellCawyer.

Fifth Circuit Orders Award of Attorney’s Fees to Texas Employer Against DOL in Overtime Case

Posted in Case Summaries, Wage & Hour

It’s a rare day with the U.S. Department of Labor is assessed attorney’s fees against it for bringing a suit against an employer in bad faith.  However, in Gate Guard v. Secretary of Labor, the Fifth Circuit Court of Appeals ordered that a trial court award attorney’s fees to a Texas employer in a claim brought against it by the DOL.  In Gate Guard, the DOL brought suit against an employer following a DOL investigation that demanded the employer make fundamental changes to the manner in which it compensated its workers and to pay back wages and overtime of $6 million (virtually its entire net worth).

Gate Guard supplies on-site gate attendants for remote oil and gas drilling sites.  The attendants typically live on-site and record the license plates of vehicles entering and leaving the drilling site twenty-four hours a day.  Gate Guard treats the attendants as independent contractors and paid them $100-175 per day.  In July 2010, a DOL investigator received a tip from a former Gate Guard worker (who was also the investigator’s drinking buddy) that he thought his pay was miscalculated.  After the investigator spoke with his buddy and two other Gate Guard workers, he formed the conclusion that the attendants were misclassified as independent contractors and not properly paid overtime.

Despite having little training or experience with independent contractor misclassification cases, the investigator opened a formal investigation into Gate Guard’s practices.  He notified the employer of the investigation and scheduled an opening conference.  A week before the opening conference, and despite knowing that Gate Guard was represented by counsel, the investigator showed up unannounced and demanded payroll information from a low-level employee.  The investigator appeared later for the opening conference and thereafter, without any additional investigation, began calculating a potential back pay penalty.  He calculated Gate Guard owed $6 million in back wages.

The investigator continued his investigation by conducting additional interviews to support this conclusion.  He conducted handwritten notes of his interviews but destroyed those notes after composing formal witness interview statements.  The Court determined that the investigator did not conduct an impartial investigation.  He discounted witness responses that contradicted his early conclusions.  Only a few months later, and after interviewing only seventeen workers, the investigator presented his conclusions to the employer; demanded the $6 million penalty in back wages and unpaid overtime; and demanded that the employer treat the workers as employees going forward (including the requirement that it pay overtime)

Prior to the DOL filing an enforcement proceeding against the employer, the investigator’s supervisor reviewed the file.  The supervisor noted several violations of internal DOL policies including that the investigator: started making back-wage computations before determining the employer violated the FLSA; failed to follow protocol when presenting the findings to the employer by demanding back pay and unpaid overtime before securing voluntary prospective compliance; and inflated the amount of the employer’s penalty by $4 million, because he miscalculated the number of hours on which the workers should have been paid if they were nonexmpet employees.

The DOL then filed an enforcement action against Gate Guard.  The Department’s litigation tactics only continued the Department’s investigatory problems.  In the Court’s opinion, the DOL attorney opposed nearly ever motion, including routine case administration motions; made improper objections during depositions; withheld witness statements underlying the prosecution as privileged even though the Department filed some of the same statements in court to support its position.  The Department ultimately lost the case on the merits and Gate Guard moved for an award of its attorney’s fees incurred in defending against the government’s claim.

The Court held that the DOL’s conduct was oppressive and the case legally frivolous.  The court concluded that “the government’s extraordinary uncivil and costly litigation tactics strongly suggest that it hoped to prevail by oppressively pursuing a very weak case.”  Because of all of the Government’s misconduct (not all detailed here), the Court ordered that the trial court calculate and award attorney’s fees to Gate Guard.

You can read the full facts of the opinion here.

Follow me on Twitter @RussellCawyer.

New Overtime Rules to be Proposed as Early as This Week

Posted in News & Commentary, Wage & Hour

President Obama has announced that a soon to be released proposed rule from the U.S. Department of Labor will include an increase in the minimum salary necessary for an employee to qualify as an exempt employee. Under the proposal announced by @POTUS today, by 2016, employers will have to pay exempt employees a minimum or $921 per week ($47,892 annually) and the salary will be linked the 40th percentile of income thereby increasing automatically over time. The change is expected to increase the number of employees eligible for overtime by 5 million workers.

The DOL’s proposed rule, to be released as early as this week, will likely include additional proposed revisions making fewer employees qualify as exempt and requiring overtime for more employees. Stay tuned for more updates.

Follow me on Twitter @RussellCawyer.