Medicare Secondary Payer: Insurance Fails to Protect Medicare

Medicare Set Aside MSP Secondary Payer Alabama Employment Law
The Eleventh Circuit removed one potential defense that insurance companies possessed to defending claims under Medicare’s Secondary Payer provisions.

The Eleventh Circuit just made it easier to sue insurance companies that fail to protect Medicare’s interest as a secondary payer.  See MSPA Claims 1, LLC v. Kingsway Amigo Ins. Co., No. 18-14980, 2020 WL 728625 (11th Cir. Feb. 13, 2020).  By law, Medicare is a secondary payer.  That means Medicare does not pay for medical bills if somebody else is responsible for the bill.  This is an important requirement for insurance companies.  For example:  Driver A runs a red light and strikes the car operated by Driver B.  Driver B is a Medicare beneficiary.  Driver B goes to the hospital and Medicare pays for the hospital bills.  But, Driver A (and his/her insurance company) are responsible for the injuries.  Because Medicare is a secondary payer, it is entitled to recover its payments from Driver A’s insurance.

Over the last decade or more, Medicare has become increasingly assertive in recovering its payments.  As a result, many insurance companies take active measures to protect Medicare’s interest.  In almost any type of case (including employment disputes), those companies will take active steps to ensure that Medicare has not paid medical bills and will not be required to pay medical bills related to the dispute in the future.  Or, if Medicare has paid bills, the insurance company ensures that Medicare is repaid.

Some insurance companies are not as diligent as others, however.  For example, in MSPA Claims, Kingsway Amigo Insurance settled a car-wreck claim with a Medicare beneficiary for $6,667, but failed to consider that Medicare had paid $21,965 in medical bills.  MSPA Claims sued Kingsway Amigo on behalf of Medicare.  But, Kingsway Amigo was able to convince a federal judge that the lawsuit should be dismissed because of the following provision of the Medicare Secondary Payer Act:

Notwithstanding any other time limits that may exist for filing a claim under an employer group health plan, the United States may seek to recover conditional payments in accordance with this subparagraph where the request for payment is submitted to the entity required or responsible under this subsection to pay with respect to the item or service (or any portion thereof) under a primary plan within the 3-year period beginning on the date on which the item or service was furnished.

42 U.S.C. 1395y(b)(2)(B)(vi).

According to Kingsway Amigo, that provision required Medicare to notify Kingsway Amigo of its payments within three years of making those payments.  Because Medicare failed to do so, Kingway Amigo argued that it could not be sued under the Medicare Secondary Payer Act.

On appeal, the Eleventh Circuit rejected that argument.  At this point, I will note that MSPA Claims contains a lot of legalese, and the author of the opinion, Judge Newsom, does a fantastic job of making the decision understandable.  In short, he found that the three-year requirement of the Act “doesn’t operate as any sort of prerequisite — for anyone.  Rather than imposing a strict requirement, the provision simply allows Medicare to overcome any time limits prescribed by an employer’s group health plan that might otherwise prevent it from requesting reimbursement.  Put simply, the claims-filing provision is a ‘get to’ not a ‘have to.'”  MSPA Claims, 2020 WL 728625 at * 6.  In other words, Medicare is not barred from suing an insurance company simply because it failed to notify that insurance company of claims within three years of making payments.

The MSPA Claims decision simply reinforces that insurance companies and their lawyers need to ensure that Medicare has not made any payments to a claimant/plaintiff before settling a claim.  If an insurance company fails to protect Medicare’s interest, at least one defense has now been rejected by the Eleventh Circuit.



Winning! Alabama Supreme Court Rules In Favor of My Client.

win winning at will at the pleasure Alabama Employment Law employment contract
The Alabama Supreme Court recently ruled in favor of the Cleburne County Commission in a dispute with its former County Engineer.

It feels good to win! And, if you operate an employment law blog and win, you should be able to talk about the case.  So, that’s what I’m doing here.  My client, the Cleburne County Commission, recently won a decision from the Alabama Supreme Court in a dispute with its former County Engineer.  See Robbins v. Cleburne County Commission, No. 1180106, 2020 WL 502541 (Ala. Jan. 31, 2020).

Shannon Robbins was the Cleburne County Engineer.  He signed an employment contract with the Cleburne County Commission for the five-year period of February 1, 2011 to January 31, 2016.  The contract also contained an option provision by which Mr. Robbins could extend the contract to a sixth-year if he provided at least 60 days notice of his desire to extend.  On October 13, 2015, Mr. Robbins attempted to exercise that sixth-year option.  But, the County Commission claimed that the option was not valid and terminated his employment effective January 31, 2016.

Mr. Robbins sued the Commission for breach of contract and I was retained to represent the Commission.  In the trial court, I moved to dismiss the complaint because Alabama’s general law for County Engineers provides that counties can only contract with engineers for five-year terms, and Mr. Robbins’ option created an invalid six-year contract.  See Ala. Code § 11-6-1.  Mr.  Robbins countered that the Alabama Legislature passed a special statute for the Cleburne County Engineer under which the engineer must be employed “at the pleasure” of the Commission.  See Ala. Code § 45-15-130.01.  He argued that the County’s “pleasure” was to employ him for six years.

I was able to convince the trial court that the phrase “at the pleasure” actually meant that Mr. Robbins must be an “at will” employee.  As a result, any written contract for a specific term violated the statutory mandate that Mr. Robbins be employed “at will.”  After the trial court granted my motion to dismiss, Mr. Robbins appealed to the Alabama Supreme Court.

The Alabama Supreme Court ordered the parties to appear for oral argument in Montgomery on December 4, 2019.  During that argument, some of the Justices appeared concerned that Cleburne County’s local statute might be an invalid, unconstitutional variance from Alabama’s general statute on County Engineers.  I argued that, regardless of the constitutionality of the local act, my client should win.  If the local act was unconstitutional, then Alabama’s general five-year limit on engineer contracts controlled and Mr. Robbins’ lawsuit for a sixth-year was impermissible.  If the local act was valid, then the phrase “at the pleasure” required “at will” employment — invalidating the contract and the breach of contract lawsuit.

In its decision, the Supreme Court effectively adopted that argument.  Instead of ruling on the constitutionality of the local act, the Court found that the Cleburne County Commission was entitled to prevail under either statute.

The Robbins case is also important for two reasons.  First, Alabama’s appellate courts had not previously ruled that an option-year for a contract would be considered an extra year for purposes of statutes limiting the length of government contracts.  There were several opinions from the Alabama Attorney General supporting that proposition.  But, Robbins clearly holds that an option year is an impermissible extension.  Second, the Court clearly found that the phrase “at the pleasure” mandates “at will” employment.  I relied upon an older case from the Alabama Court of Appeals and more-recent cases from other states to support that proposition.  The Robbins case is the first decision from the Alabama Supreme Court on the issue.

Now that I’ve celebrated, it’s time to get back to representing other clients.

OSHA: Contractors Liable for Conditions in Client’s Facility

OSHA Alabama Employment Law work conditions contractors
OSHA can hold contractors liable for defects in facilities that they do not own.

A recent decision from the Eleventh Circuit Court of Appeals demonstrates that independent contractors should actively communicate with their clients about dangerous work conditions.  See Packers Sanitation Services, Inc. v. Occupational Safety and Health Rev. Comm., No. 19-11537, 2020 WL 115472 (11th Cir. Jan. 10, 2020).  Packers Sanitation Services, Inc. (“Packers”) provides sanitation services to poultry processing facilities.  When a facility closes for the night, Packers employees enter the facility and clean the equipment.  A Packers employee was cleaning a piece of equipment at a Pilgrims Pride facility and suffered a partial amputation of a finger.

OSHA commenced an investigation and investigators met Packers representatives at the Pilgrims Pride facility.  Those representatives agreed that investigators could view the machine that caused the injury.  While walking to the machine, an investigator noticed a series of drains in the floor that lacked adequate covers.  A Packers manager told the investigator “that the drains had been in that condition for at least a year.”  OSHA added an additional citation against Packers for failure to maintain safe walking-working surfaces.

After losing its case before an Administrative Law Judge, Packers appealed to the Eleventh Circuit.  Among other things, it argued that it could not be liable for failure to repair the drains because the drains were owned by Pilgrims Pride.  The Eleventh Circuit rejected that argument, finding that “[t]he fact that Packers does not itself own the drains does not eliminate its responsibility to provide its employees with a safe working place.”

There are two primary lessons for Alabama employers to learn from the Packers decision.  First, take OSHA investigations extremely seriously and vigorously prepare for them.  OSHA investigators are not entitled to engage in a random tour of a workplace.  But, if an employer gives access to any part of a facility, investigators can issue citations for any violations that are in “plain view.”  Additionally, anything that an employees says to an OSHA investigator can be used against the employer.  Hindsight is 20/20.  But, in this case, Packers would have been well-advised to ensure (if possible) that all parts of the facility that an investigator might enter would be in good condition.  Moreover, employees accompanying the inspector should have been instructed to limit all communications.

The second lesson to be learned focuses on the need for communication between contractors and their clients.  Potentially, Packers may have been reluctant to point out safety violations to its client, Pilgrims Pride.  Nevertheless, the Eleventh Circuit’s decision makes clear that a contractor can be liable for unsafe work conditions — even if the contractor does not own the facility where the conditions occur.  Again, in hindsight, Packers should have communicated with Pilgrims Pride about rectifying the defective drains.

OFCCP is Updating Its Rules on Compliance Evaluations

OFCCP compliance PDN NOV Alabama Employment Law
OFCCP is proposing to clarify its standards for compliance evaluations.

The United States Department of Labor’s Office of Federal Contract Compliance Programs (“OFCCP”) is updating its rules for evaluating compliance by federal government contractors with equal employment opportunity laws.  On December 27, 2019, OFCCP issued a Notice of Proposed Rule Making (“NPRM”), which can be found here:  OFCCP NPRM.  According to a Press Release, the purpose of the NPRM is to “provide federal contractors with greater certainty and transparency about the procedures that OFCCP follows during compliance evaluations to resolve employment discrimination and other material violations.”

This is good news for federal contractors because the new rules will make some aspects of an OFCCP compliance evaluation mandatory.  Typically, evaluation procedures are guided by OFCCP’s Federal Contract Compliance Manual (“FCCM”).  Yet, the agency makes clear that the FCCM “does not establish substantive agency policy.”  In other words, OFCCP can depart from the FCCM without violating the law.  The FCCM can be found here.

The proposed rule making clarifies the circumstances in which OFCCP will issue  a Predetermination Notice (PDN) of discrimination to contractors.  If OFCCP finds an employment or compensation disparity during a compliance evaluation, it will determine:  (1) if that disparity is “both practically and statistically significant”; and, (2) where relevant, whether nonstatistical evidence demonstrates an intent to discriminate.  If OFCCP cannot corroborate statistical evidence with nonstatistical evidence, it will issue a PDN only where the statistical evidence is significant at a confidence level of 99% or higher, which equates to three or more standard deviations. Currently, OFCCP pursues compensation audits based solely on statistically-significant disparities below this threshold.

So, the NPRM is good for employers because it limits the circumstances in which OFCCP will rely solely upon statistical evidence to make a predetermination finding of potential discrimination.  But, the NPRM also clarifies the types of nonstatistical evidence OFCCP will rely upon to bolster statistics that, on their own, would not warrant a PDN.

Nonstatistical evidence may include testimony about biased statements, remarks, attitudes, or acts based upon membership in a protected class; differential treatment through review of comparators, cohorts, or summary data reflecting differential selections, compensation and/or qualifications; testimony about individuals denied or given misleading or contradictory information about employment or compensation practices; testimony about the extent of discretion or subjectivity involved in making employment decisions; or other anecdotal or supporting evidence.

This portion of the NPRM is not as favorable for contractors. It provides no standards on how OFCCP will weigh any particular type of nonstatistical evidence.  Moreover, by including “discretion or subjectivity” in its definition of nonstatistical evidence, OFCCP is implicating the vast majority of employment decisions.  Almost every hiring or promotion decision relies, in some part, on discretion or subjectivity by the decision maker.

If OFCCP issues a PDN to a contractor, the contractor must respond within 15 calendar days unless OFCCP grants an extension “for good cause.”  That is a short window to respond.  If the contractor does not respond or provide a “sufficient response,” OFCCP may issue a Notice of Violation (NOV).  If OFCCP issues a NOV, it may offer the contractor the opportunity to enter into a conciliation agreement. That agreement “shall provide for such remedial action as may be necessary to correct the violations and/or deficiencies noted, including, where appropriate (but not necessarily limited to), remedies such as back pay and retroactive seniority.”

Finally, OFCCP’s proposed rule includes an “expedited conciliation option.” Under that option, a contractor can enter into a conciliation agreement before OFCCP issues a PDN or NOV.  Compliance evaluations and responses to PDNs can be extremely costly in terms of time and money.   The expedited conciliation option will provide contractors a procedure to remedy compliance issues without as much time or expense.

OFCCP is accepting public comments on the NPRM through January 29, 2020.  Instructions for submitting a comment can be found at this link:  OFCCP Comments


Medical Marijuana in Alabama: What Employers Need to Know

cannabis medical marijuana alabama employment law
The Alabama Medical Cannabis Study Commission has drafted proposed legislation that would permit certain types of medical cannabis in Alabama.

The Alabama Medical Cannabis Study Commission is proposing legislation that could impact Alabama employers.  Here is a link to an article from discussing creation of the Commission and its work on medical marijuana: Commission Votes to Approve Medical Marijuana

Most notably, the Commission is opening the door to medical cannabis use, but its proposed legislation (which can be found here) takes great pains to educate the public that it does not condone “traditional” marijuana use.  For example, the synopsis of the proposed act (which is proposed for codification at Ala. Code §§ 20-2A-1 et seq.) says:  “this bill would prohibit the ingestion of any raw plant material, and would prohibit any smokeable or vaping product.”  To that end, the term “Medical Cannabis” in the legislation does not include:

  1.  Raw plant material.
  2. Any product administered by smoking, combustion, or vaping.
  3. A food product that has medical cannabis baked, mixed, or otherwise infused into the product such as cookies or candies.

Moreover, only a limited set of conditions will qualify for treatment by medical cannabis/marijuana, including: cancer; Crohn’s Disease; epilepsy; fibromyalgia; and, HIV/AIDs-related nausea or weight loss.

Section 20-2A-6 of the proposed legislation is designed to give businesses some comfort level with medical cannabis by stating that the proposed act does NOT :

 (1) Require an insurer, organization for managed care, health benefit plan, or any person who provides coverage for a medical or health care service to pay for or reimburse a person for costs associated with the use of medical cannabis.
(2) Require any employer to permit or accommodate an employee’s possession or use of a medical cannabis product, to allow the use of medical cannabis in the workplace, or to modify the job or working conditions of an employee who engages in the use of medical cannabis that are based upon the reasonable business purposes of the employer.
(3) Prohibit an employer from refusing to hire, discharging, disciplining, or otherwise taking an adverse employment action against an individual with respect to hire, tenure, terms, conditions, or privileges of employment because of that individual’s possession or use of medical cannabis.
(4) Prohibit an employer from establishing and enforcing a drug testing policy or from implementing a drug-free workforce program established in accordance with Article 13, commencing with Section 25-5-330, of Chapter 5 of Title 25.
(5) Interfere with any federal restrictions on employment, including, but not limited to, regulations adopted by the United States Department of Transportation in Title 49, Code of Federal Regulations.
(6) Permit an individual to commence a cause of action against an employer for refusing to hire, discharging, disciplining, or otherwise taking an adverse employment action against an individual with respect to hire, tenure, terms, conditions, or privileges of employment related to use of medical cannabis.
(7) Require a government medical assistance program, employer, property and casualty insurer, or private health insurer to reimburse a person for costs associated with the use of medical cannabis.

Section 6 above is good for Alabama employers, because its says that they cannot be sued for taking an adverse job action (like termination) against an employee because of their use of legal, medical marijuana.  Nevertheless, Section 2 raises some questions for me.  The first part of that section says that employers are not required to accommodate an employee’s use of medical cannabis.  In other words, employers don’t have to allow employees to use medical marijuana on-the-job.  But, the very final phrase of that section tacks-on the words: “that are based upon the reasonable business purposes of the employer.” I’m not sure what the purpose of that phrase was intended to be.  It’s possible, however, that somebody could argue that employer are required to allow medical cannabis on the job, unless they can demonstrate a “reasonable business purpose” for prohibiting its use.  Hopefully, this phrase will be cleaned-up in the legislative process.

Finally, the legislation would also alter Alabama’s Workers Compensation Act:

An employee who is injured or killed while using medical cannabis is ineligible to receive any compensation under Chapter 5 of Title 25, Code of Alabama 1975, if the injury or death was caused by an action or inaction of the employee, even if the employee was in full compliance with Chapter 2A of Title 20, Code of Alabama 1975, at the time of injury or death.

Potentially, that section makes it more difficult for users of legal, medical cannabis to recover workers’ compensation benefits than users of illegal drugs.  Alabama Code Section 25-5-51 currently provides: “no compensation shall be allowed for an injury or death caused by … an accident due to the injured employee being intoxicated from the use of alcohol or being impaired by illegal drugs.”  Under that law, an employer attempting to deny workers’ compensation benefits must show that an employee was intoxicated and that the intoxication caused the accident in question.  Under the Medical Cannabis Commission’s legislation, employers would not be required to prove intoxication.  Instead, if an employee is prescribed medical cannabis and suffers an injury caused by the employee’s “action or inaction,” benefits could be denied.

The Alabama Legislature returns to session on February 4, 2020.  This proposed legislation will unquestionably be one of the hot topics of that session.

Overtime Salary Exemption Set at $35,568

FLSA DOL overtime exempt exemption Alabama Employment Law
The DOL’s final overtime rule certainly deserves your attention.

Yesterday, the United States Department of Labor Wage and Hour Division issued its final rule with updates to the Fair Labor Standards Act’s overtime requirements.  The most-awaited update was the dollar amount for an employee to be considered exempt from overtime.  DOL set the exemption at $684 per week — which is equivalent to $35,568 per year.  Here is a link to DOL’s summary of the new rule:  DOL Overtime Rule.

Regular readers may recall that DOL, under the Obama administration, proposed raising the exemption from $23,660 to $47,476 in 2016.  Here is a link to a summary of that proposed rule: 2016 Overtime Post.  Implementation of that rule was halted in court and the DOL under the Trump administration later rescinded it.

The new rule is effective January 1, 2020.  Hopefully, Alabama employers have already reviewed their exempt employees to ensure that they comply with the imminent changes to the FLSA.  If you have not done so, you need to immediately review all of your exempt employees to ensure that they comply with the new rule.

The ADA Does Not Prohibit An Employer’s Fear of a Future Disability

ada future disability Alabama Employment Law
The ADA does not provide protection to a healthy employee who is terminated because an employer fears that the employee may develop a disability in the future.

The Americans with Disabilities Act protects “persons who experience discrimination because of a current, past, or perceived disability—not because of a potential future disability that a healthy person may experience later.” Equal Employment Opportunity Comm. v. STME, LLC, No. 18-12277, 2019 WL 4314998 (11th Cir. Sep. 12, 2019).

Kimberly Lowe was a massage therapist with Massage Envy in Tampa, Florida.  In September 2014, Lowe asked for time-off so that she could visit her sister in Ghana, a country in West Africa.  Three days before her trip, one of Massage Envry’s owners told her that she would be fired if she proceeded with her travel plans.  The owner “was concerned that Lowe would become infected with the Ebola virus if she traveled to Ghana and would ‘bring it home to Tampa and infect everyone.'”  When Lowe refused to change her plans, the owner terminated her employment.  Although there was an Ebola outbreak in West Africa, there were no occurrences in Ghana.  Lowe traveled to Ghana and did not contract Ebola.

The United States Equal Employment Opportunity sued for Lowe and claimed that she was “regarded as” disabled under the ADA because of the owner’s Ebola fears.  A Florida trial court granted a motion to dismiss filed by Massage Envy, finding that Massage Envy did not perceive Lowe as having Ebola when she was fired.  The Eleventh Circuit affirmed.

The Court found four reasons to conclude “that the disability definition in the ADA does not cover this case where an employer perceives a person to be presently healthy with only a potential to become ill and disabled in the future due to the voluntary conduct of overseas travel.”  First, the Court read the ADA’s “regarded as” language in conjunction with the ADA’s “actual disability” prong, which requires that a disability exist at the time of an adverse employment action.  Second, the Court noted that the ADA protects employees who are terminated “because of an actual or perceived physical or mental impairment.”  Thus, an employer “does not fire or otherwise discriminate against an employee ‘because of’ a perceived physical impairment unless the employer actually perceives that the employee has the impairment.”  As a result, the “regarded as” prong does not “extend to an employer’s belief that an employee might contract or develop an impairment in the future.”

Third, even though the Court was required to interpret the ADA broadly in favor of coverage, it could only “conclude that the terms of the ADA protect anyone who experiences discrimination because of a current, past, or perceived disability—not a potential future disability.”  Fourth, the Court noted that the EEOC’s own interpretive guidance for the ADA found that predisposition to developing an illness or disease is not a physical impairment.  “If a predisposition to developing a disease in the future is not a physical impairment, by analogy, we do not see how Lowe’s heightened risk of developing the disease Ebola in the future due to her visit to Ghana constitutes a physical impairment either.”

The Eleventh Circuit’s opinion is a clear victory for employers.  Nevertheless, the STME case should not be read as giving carte blanche authority to terminate employees based upon a fear of a future medical condition.  Indeed, the key word in the Eleventh Circuit’s holding might be “healthy.”  The ADA protects “persons who experience discrimination because of a current, past, or perceived disability—not because of a potential future disability that a healthy person may experience later.”

Some employers have “eggshell” employees who are prone to injury.  If an employer combines knowledge of past injuries with fear of future injuries to justify an employment action, STME might not provide a defense to an ADA claim.

Catch-22: Government Customer “Suggests” Terminating an Employee

COR Contracting Officer NLRB NLRA Alabama Employment Law
What should government contractors do when their customer “suggests” terminating an employee?

In many government contracts, a contractor provides personnel who work for the government.  In most government contracts, the federal government Contracting Officer or Contracting Officer’s Representative (“COR”) does not have the power to require removal of employees of a government contractor.   In short, the COR can’t order that an employee be terminated.  But, a COR, or another government employee, can express displeasure with an employee.  As a result, my government contractor clients frequently ask me what to do when a COR, or other government employee, “suggests,” but does not require, that an employee be terminated.

Those clients are placed in a Catch-22 situation with no easy answer.  They want to keep the government customer happy to help ensure that they win renewals of the contract.  But, without explicit instructions, those contractors do not have a completely solid basis for termination.

That’s the situation that one government contractor faced in Security Walls, Inc. v. National Labor Relations Board, No. 17-13154, 2019 WL 1771291 (11th Cir. Apr. 23, 2019).  Security Walls, Inc. provided security guards to the Internal Revenue Service for its facility in Austin, Texas.  Three security guards negligently allowed visitors to enter the facility undetected.  In response, the Contracting Officer Representative wrote to Security Walls and said:  “If individual guards do not have the character and self-discipline to work at a federal installation and comply with the responsibilities associated, they will need to be removed.”

That seems like a pretty clear mandate.  Yet, the COR never explicitly said that the three guards, in particular, needed to be fired.  In fact, he suggested that the guards’ conduct did not constitute “careless behavior.”  Nevertheless, Security Walls conducted an investigation and determined that the guards violated two standards from its Performance Work Statement with the IRS.  Based on those violations, Security Walls terminated the guards.

But, the guards were members of a union, and Security Walls had a progressive discipline policy, which only permitted, at most, a two-day suspension for the guards’ conduct.  As a result, the Union filed an unfair labor practices charge with the National Labor Relations Board.  An Administrative Law Judge and the NLRB both ruled against Security Walls.  Thus, Security Walls appealed to the Eleventh Circuit Court of Appeals.

At the Eleventh Circuit, Security Walls argued that its Performance Work Statement with the IRS superseded its collectively-bargained progressive discipline policy.  The Eleventh Circuit was not persuaded.  Judge Tjoflat was skeptical that Security Walls held “a get-out-of-jail-free care when it cannot simultaneously comport with both the PWS and the NLRA.”  In fact, he found that Security Walls “might have voluntarily put itself between a rock and hard place from which there is no painless resolution.”  Nevertheless, he found that nothing in the Performance Work Statement required the guards’ termination.  Arguably, they violated the Performance Work Statement, but there was nothing in that statement mandating termination for violations.  As a result, Security Walls could comply with both the PWS and the NLRA, and the Eleventh Circuit affirmed the decision of the NLRB.

The Security Walls decision is a classic example of the difficulties faced by government contractors when a government agency suggests, but does not require, termination of an employee.  Those difficulties were compounded by collective bargaining issues.  It’s easy to “Monday Morning Quarterback” Security Walls’ termination decision and conclude that they should have followed their progressive discipline policy rather than jumping straight to termination.  But, in the heat of the moment with the IRS expressing clear displeasure over the guards’ performance, I can’t say that Security Walls’ decision was “wrong” from a business perspective.

From a business (rather than legal) perspective, Security Walls demonstrated to the IRS that they took their security obligations seriously and implemented prompt, serious consequences for breakdowns in security.  In the long-run, that business decision may outweigh the legal risks and costs associated with terminating the guards.  That risk/reward analysis must be conducted on a case-by-case basis by other contractors faced with similar dilemmas in the future.  Naturally, I recommend that contractors include their attorneys in any such analysis.

Employment Contracts and “Cause” Provisions



cause contract termination Alabama Employment law
Employers can terminate employment contracts, even if those contracts do not have a termination “for cause” provision

An employer can terminate an employment contract — even if the contract does not have a termination “for cause” provision.  That’s the lesson to be learned from the Alabama Supreme Court’s recent decision in Shoals Extrusion, LLC v. Beal, No. 1170673, 2019 WL 1748138 (Ala. Apr. 19, 2019).

Shoals Extrusion, LLC entered into an employment contract with Lonnie Beal to serve as its plant manager.   The agreement provided that Beal would work “40 plus” hours per week on the “days and the time” set by Shoals Extrusion.  If Shoals Extrusion terminated Beal’s employment during that term, he was promised a severance package of one-year’s pay and benefits.  While most employment contracts have provisions that permit termination of an employee “for cause,” Shoals Extrusion’s agreement did not.

By July 2015, there were disputes regarding Beal’s work schedule.  Shoals Extrusion’s plant initially worked a schedule beginning at 7:00 a.m., but changed its start time to 6:00 a.m.  Nevertheless, Beal refused to change his schedule and continued to arrive for work at 7:00 a.m.  Additionally, Shoals Extrusion’s owners asked Beal to work more than 40 hours per week, but he refused unless they gave him an ownership interest.  The owners also discovered that Beal was telling individuals in the industry that Shoals Extrusion was having financial problems.

Shoals Extrusion decided to terminate Beal’s employment.  On November 23, 2015, the owners met with Beal and asked him to sign a “severance and general release agreement.”  Under that agreement, Beal would receive one-month of pay and release all further rights or claims related to Shoals Extrusion.  Beal declined to sign the agreement.  Shoals Extrusion terminated his employment and refused to make the severance payment promised in his employment contract.

Beal sued Shoals Extrusion for breach of contract — arguing that he was entitled to one year’s pay and benefits.   Soon after filing suit, Beal asked the trial court to grant summary judgment in his favor — essentially finding that Beal should win as a matter of law and without a trial.  The trial court granted that motion and Shoals Extrusion appealed.

The Alabama Supreme Court reversed and found that summary judgment was improper.  In doing so, the Court was forced to distinguish an earlier case, Southern Medical Health Sys., Inc. v. Vaughn, 669 So.2d 98 (Ala. 1995).  In Vaughn, the Supreme Court ruled that an employer could not terminate a contract “for cause” if there was no provision of the agreement permitting “for cause” terminations.  Logically, Beal argued that he could not be fired for a “cause” (refusing to work at 6:00 or work more hours) if his employment contract did not have a “for cause” provision as required by Vaughn.

Nevertheless, the Court rejected that argument and adopted Shoals Extrusion’s argument.  Shoals Extrusion argued that it did not terminate Beal “for cause.”  Instead, it claimed that Beal breached his employment agreement first, and his breach excused Shoals Extrusion from any further performance — including payment of severance.  The Supreme Court found that “[w]hether Beal breached the employment agreement and whether that breach was material to the contract are ultimately questions for the fact-finder that cannot be resolved at the summary judgment stage.”  In short, the Court found that Beal’s case had to be decided at trial.

Shoals Extrusion is a good case for Alabama employers, because it gives them an argument for terminating an employment agreement — even in the absence of a “for cause” termination provision.


Mission Impossible: 11th Circuit “Clarifies” Comparator Standard

Comparators substantially similar Title VII ADA ADEA Alabama Employment Law
The Eleventh Circuit recently tried to “clarify” when a comparator is “similarly situated” to other employees.

What does it mean for something or someone to be “similar”? That was the existential question recently confronted by the Eleventh Circuit Court of Appeals in a race discrimination case: Lewis v. City of Union City, No. 15-11362, 2019 WL 1285058 (11th Cir. Mar. 21, 2019.) In particular, the Court was concerned with comparators in discrimination cases.

In a typical discrimination case, an employee in a protected class (race, gender, disability, age) will claim that another employee, outside the protected class, was treated better. For example, a female employee who was terminated for tardiness will claim that a male employee was tardy but not fired. In legal jargon, the male employee is considered a “comparator.”

But, comparators need to be similar. A business can have legitimate reasons for excusing the tardiness of a high-level, salaried manager, but not a lower-level, hourly employee. I have discussed the importance of comparators in other discrimination cases Here and Here.  Courts can’t compare “apples and oranges.”  So, Lewis is an effort by the Eleventh Circuit to provide lower courts with a better analysis for reaching an “apples to apples” comparison.

The United States Supreme Court has previously held that comparators must be “similarly situated.”  But, the Eleventh Circuit, and other courts, have struggled with question of just how “similarly situated” a plaintiff and her comparators must be.  Different groups of Judges in the Eleventh Circuit have announced different standards to the point that the Lewis court concluded:  “It’s a mess.”

Therefore, the Court announced a new standard to be used in all cases going forward:  a plaintiff and her proffered comparators must be “similarly situated in all material respects.”  Great!  But, what does that mean?

At one point in the opinion, the Court suggests that “essential sameness” is a requirement.  Yet, the Court also states that the standard “must be worked out on a case-by-case basis.”  The Court also identifies four “sorts of similarities” that will underlie a valid comparison:

  1.  The compartor will have engaged in the same basic conduct (or misconduct) as the plaintiff.
  2. The comparator will have been subject to the same employment policy, guideline or rule as the plaintiff.
  3. The comparator will ordinarily (although not invariably) have been under the jurisdiction of the same supervisor as the plaintiff.
  4. The comparator will share the plaintiff’s employment or disciplinary status.

The Lewis Court concludes by stating that “a valid comparison will turn not on formal labels, but rather on substantive likenesses.”  Moreover, “comparators must be sufficiently similar, in an objective sense, that they ‘cannot be reasonably distinguished.'”

So, what does this mean for Alabama employers?  Generally, I think this standard is good for employers.  By using phrases like “substantial sameness” and “substantive likenesses,” the Court appears to be signalling that the standard for similarity is high.  Nevertheless, the new standard is not effective in helping employers in determining “how high” the bar is.  I feel that, in many ways, we are left with Justice Potter Stewart’s famous saying:  “I know it when I see it.”  As a result, employers in Alabama and the rest of the Eleventh Circuit must simply do their best while the Eleventh Circuit continues to flesh-out the standard on a “case-by-case” basis.