ADA / FMLA Newsletter — Volume 1

ADA / FMLA Newsletter

The Family & Medical Leave Act: Recent Cases Construing Coverage

The Family and Medical Leave Act (FMLA) is an important piece of federal legislation which appears deceptively simple. However, recent case law on the issue of who is covered under the FMLA has shown that this law is anything but simple to apply.

The basic coverage rule is that an individual must have been employed for at least 12 months and must have worked at least 1,250 hours for the employer during the 12-month period before the leave is to begin. See Appendix II, C.F.R. 825.800. A covered individual who meets the hours and length of service requirements and who has a serious health condition is eligible for up to 12 weeks of unpaid leave for a number of reasons including the employee’s own medical condition. During the period of leave, the employee is entitled to job protection and is entitled to job restoration at the end of the leave. The hours of service requirement are in turn based on the legal principles set out in the Fair Labor Standards Act. This article will survey some recent cases which have helped clarify confusing areas of coverage.

An employer should use the date that the leave commences to calculate the 12 months of work, not the date that the employee requests the leave. In Meyer v. Imperial Trading Co., 2001 U.S. Dist. LEXIS 3925, (E.D. La. March 28, 2001), the plaintiff had been working for the company since April 12, 1999. She developed respiratory problems from second-hand smoke at work, and her doctor recommended a leave to improve her respiratory condition. On April 4, 2000, plaintiff requested the leave. The next day she was fired for substandard performance. The leave plaintiff requested would have started after her one year anniversary on April 12, 2000. The federal court ruled in Meyer that the employer was not entitled to judgment dismissing plaintiff’s complaint, holding that the one year period should be counted from the date that the leave would have started, not from the date the request is made. Therefore, the employer may have violated the FMLA. What is the relationship between paid leave time and FMLA time? That issue was addressed in Strickland v. Water Works and Sewer Bd. of Birmingham, 239 F.3d 1139 (11 thCir. 2001). In this case, Mr. Strickland failed to resolve a customer’s com-plaint about the amount of a water bill. His manager had asked him to resolve this by March 3 rd. When plaintiff met with his manager, Strickland said his diabetes had been interfering with his vision, which prevented him from inspecting the customer’s premises. There was a dispute whether Strickland walked out of a meeting or said he had to go because his diabetes was bothering him. The company sent a letter of discipline to plaintiff and three days later Strickland was fired.

The employer argued in part that Strickland had no protection under the FMLA because he had not exhausted his paid leave time under the company sick leave policy. The FMLA states that “[a]n eligible employee may elect, or any employer may require the employee, to substitute any of the accrued paid vacation leave, personal leave, or medical or sick leave of the employee for . . . any part of the 12-week period” of FMLA leave. 29 U.S.C. 2612(d)(2)(B). The United States Court of Appeals for the 11th Circuit held that the federal district court misinterpreted this provision to allow employers with paid leave policies to choose whether an employee’s FMLA-qualifying absence will be either unpaid (and thus protected under the FMLA) or paid under company leave (and thus unprotected).

The Circuit Court explained that the correct reading of this language is that “an employer who is subject to the FMLA and also offers a paid sick leave policy has two options when an employee’s leave qualifies both under the FMLA and under the employer’s paid leave policy: the employer may either permit the employee to use his FMLA leave and paid sick leave sequentially, or the employer may require that the employee use his FMLA leave entitlement and his paid sick leave concurrently.” Id., at 1205. In other words, an employer can require that an employee must use paid leave while the employee is out on FMLA leave, but the employee has all the protection of the FMLA.

Probably the most difficult issues under the FMLA stem from notice obligations imposed on employers. In Chan v. Loyola University Med. Center, 6 Wage and Hour Cases 2d (BNA) 328 (N.D. Ill. 1999), the court reviewed the notice obligations. Once an employer knows that the leave is being taken for an FMLA qualifying reason, the employer must promptly (within two business days unless there are extenuating circumstances) notify the employee that the leave will be counted as FMLA leave. The employer can provide oral notice to the employee but must confirm that in writing no later than the following payday (unless the payday is less than one week after the oral notice, in which case the notice must be no later than the subsequent payday). 29 C.F.R. 825.208(a), (b)(1) and (b)(2). The regulations go on to state: “If an employee takes paid or unpaid leave and the employer does not designate the leave as FMLA leave, the leave taken does not count against an employee’s FMLA entitlement.” 29 C.F.R. 825.700(a). As noted in the prior case, the regulations also require an employer to advise the employee whether it will require substitution of paid leave for unpaid FMLA leave.

In the Chan case, failure to give prompt notice came back to haunt the employer. Plaintiff fractured her leg skiing on December 13, 1995 and underwent surgery. She advised her employer right away of the surgery. Her supervisor called her in the hospital and told her that he would give her the forms for the FMLA but he never sent her any letter at that time. Plaintiff did receive a letter on February 21, 1996 indicating that her leave would expire on March 6, 1996. From this it was obvious to plaintiff that her employer was counting her leave from the date of December 13, 1995, when she fractured her leg. Up to that point, plaintiff had been paid full salary by using her sick days and vacation days. The court rejected the employer’s attempt to retroactively count the December 13th date as the beginning of leave and held that plaintiff’s leave under the FMLA could not begin to run until February 21, 1996 since that was when she received written notice that her absence was being counted toward her FMLA entitlement.

In a similar case of Plant v. Morton International Inc., 212 F.3d 929 (6th Cir. 2000), plaintiff, who had been out of work on leave in the past, aggravated his back and leg conditions carrying paint supplies up a flight of stairs at work. He had received six months’ paid leave, returning to work in September 1995 with substantial restrictions. As he had done in the past, plaintiff did not fill out any forms or follow any special procedures to request an absence, but merely produced a doctor’s note excusing him from work. He received full salary under the company leave plan. On June 7, 1996, while plaintiff was still on a leave of absence for his back and leg conditions, plaintiff was terminated for work performance issues. While it is true that an employee cannot receive more than 12 months of FMLA leave in a one year period, the company never notified the plaintiff that it was counting his absences toward the FMLA.

Plaintiff conceded that he would not have been able to return to work within 12 weeks, but he argued that he could have returned by the time he used FMLA leave and employer-sponsored leave. The Court in Plant held that plaintiff’s FMLA leave had not begun to run because the employer failed to provide notice to him and the employer violated the FMLA by terminating plaintiff during the period of FMLA leave.

Several courts have invalidated Department of Labor regulations dealing with the employer’s obligation to give notice. It is clear that if a worker has not worked 1250 hours prior to the leave commencement, the employer’s failure to give timely notice of FMLA leave does not get the employee around the 1,250 hour rule. In Brungart v. BellSouth, 231 F.3d 791 (11th Cir. 2000), cert. denied, 121 S.Ct. 1998 (2001), plaintiff took an unpaid leave of absence beginning December 1994 through September 1996. On December 2, 1996, plaintiff submitted an FMLA leave application, requesting leave to care for her mother, who had undergone heart surgery. BellSouth declined the request in a letter dated January 16, 1997, clearly not within two days of the leave request. The reason for the denial was that plaintiff had not worked 1,250 hours for the company in the 12 months immediately preceding the leave start date. In the spring of 1997, Brungart again sought leave for her own knee surgery. The FMLA plan administrator approved three weeks’ leave beginning July 10, 1997. However, because of work performance problems her supervisor fired her on July 9, 1997, one day before the leave was to start. Plaintiff argued that the company violated her FMLA rights both in December and in July.

The court ruled against plaintiff on both claims and noted first that regardless of the delayed letter from BellSouth on January 11, 1997, one must have 1,250 hours in the previous 12 months to be covered under the FMLA. That coverage cannot be expanded by courts. As to the July firing, the court noted that the supervisor who fired plaintiff did not know that plaintiff had requested FMLA leave for her knee when he fired her. Thus, there was no violation of the FMLA.

These cases illustrate that FMLA issues can be complicated and employers need to make sure that their policies and procedures dealing with the FMLA are clear and have been reviewed by counsel.

Key Decision in ADA Litigation

By John H. Geaney, Esq.

Recent decisions by the United States Supreme Court and two federal Courts of Appeal have reshaped the landscape of litigation under the Americans with Disabilities Act (ADA). While state employers can now take comfort in immunity from certain claims under the ADA, the recent recognition of disability-based claims for hostile work environments is a major development in ADA litigation.

The case of Fox v. General Motors Corporation, 247 F.3d 169 (4 thCir. 2001), involved a worker who had injuries to his back which led to several leaves of absence in the early 1990s. After returning from one leave of absence, he started working in the unitizing department in October 1994 and remained there until August 1995 when he went out again on disability leave. During this time he claimed that his supervisors and coworkers harassed him and ordered him to perform jobs that were beyond his physical capacity.

The testimony plaintiff offered at trial recounted profane and abusive language directed toward him. When Fox, who was on light duty, refused to do a certain task because it exceeded his physical capacity, one supervisor asked, “Why the F can’t you do it?” Fox explained his medical restrictions. The supervisor responded, “I don’t need any of you handicapped M– F–’s. As far as I am concerned you can go the H home.” Similarly, a foreman resented the petitioner’s medical restrictions and commented, “How in the F do you take a shit with these restrictions?” Other officials in the meeting then started making remarks about disabled workers.

Fox’s neurologist next issued new medical restrictions which limited him to a light-duty table. Because he was six feet seven inches tall, he had trouble working at the low table and re-aggravated his back. He then applied for a truck driver position within his medical restrictions. His foreman, however, refused to permit him to take the physical which was necessary for him to obtain this position.

Fox began having increasing psychiatric problems over the humiliation he was receiving at work. He went on disability leave from August 1995 to May 1998. In 1997 he sued GM alleging that GM subjected him to a hostile work environment during the period of October 1994 to August 1995.

GM argued that a claim for hostile work environment cannot be brought under the ADA. The Court of Appeals for the 4th Circuit disagreed and found that a plaintiff can make out a case for disability-based hostile work environment if the plaintiff can prove the following:

1) that he is a qualified individual with a disability;

2) that he was subjected to unwelcome harassment;

3) that the harassment was based on disability;

4) that it was sufficiently severe or pervasive to alter a term, condition, or privilege of employment; and

5) that some factual basis exists to impute liability for the harassment to the employer.

One important point which this case underscores is that it is not enough for the employee to prove that he or she perceived the work environment as hostile. The requirement is that the plaintiff demonstrate that a reasonable person would perceive the work environment as hostile. This is akin to proof of the environment being “objectively” hostile. In the Fox case, the federal court would not disturb the jury finding on this point in favor of plaintiff.

In the other disability-based hostile work environment case, Flowers v. Southern Regional Physician Services, Inc., 247 F.3d 229 (5th Cir. 2001), the plaintiff prevailed in her claim that once her employer found out about her HIV status, she was subjected to harassment at work intended to drive her out of the employment. She began to be shunned by her supervisor, who had been a friend, and began to get poor evaluations. At one meeting, she was written up and put on 90 day probation. In another meeting, the company president called her a “bitch” and scolded that he was “tired of her crap.” The harassment was so severe that she began carrying a tape recorder with her. At her discharge meeting, the company president physically removed the tape recorder from her pocket.

The Court of Appeals for the 5 thCircuit commented that the evidence was sufficient that a jury could have properly reached the conclusion that the company’s conduct was sufficiently severe or pervasive to create a hostile work environment and unreasonably interfere with plaintiff’s work performance.

On February 21, 2001, state employers received good news when the United States Supreme Court decided in Board of Trustees of the University of Alabama et al. v. Garrett et al., 531 U.S. 356, 121 S.Ct. 955 (2001) that the Eleventh Amendment of the United States Constitution bars suits by state employees against their employers to recover money damages under Title I of the Americans with Disabilities Act (ADA).

The 5-4 ruling took many by surprise because Title I of the ADA specifically prohibits employers, including the States, from “discriminat[ing] against a qualified individual with a disability because of the disability of such individual in regard to job application procedures, the hiring, advancement, or discharge of employees, employee compensation, job training, and other terms, conditions, and privileges of employment.” 42 U.S.C., Sections 12112(a), 12111(2),(5) and (7).

It is important to understand the facts of the case and the limitations on the ruling, which involved two separate cases which had been consolidated for review. Patricia Garrett, an R.N., worked for the University of Alabama. She developed breast cancer in 1994 and underwent treatment, resulting in substantial leaves of absence. When she returned to work, her supervisor advised her in July 1995 that she would have to give up her Director position. This in turn led to a transfer to a lower paying position.

In the other case, Milton Ash was a security officer for the Alabama Department of Youth Services. He had a condition of chronic asthma and requested modifications to his job to avoid exposure to carbon monoxide and cigarette smoke. After being diagnosed with sleep apnea, he made a second request to be assigned to daytime shifts. Both requests were denied. Ash then noticed that his performance evaluations were lower than those had received in the past.

Both Garrett and Ash sued for money damages. The 11th U.S. Circuit Court of Appeals ruled that Garrett and Ash could sue Alabama under Title I of the ADA, but the Supreme Court reversed. The outcome in this case came down to a conflict between two principles of constitutional law: first, state sovereignty as embodied in the Eleventh Amendment and second, the right of Congress to subject states to federal claims for damages. The Eleventh Amendment provides that non-consenting States may not be sued by private individuals in federal court. This immunity, however, can be nullified by Congress if Congress does so under a valid grant of constitutional authority. The question was whether Congress acted validly when it made states subject to ADA claims by individuals seeking money damages.

The deciding factor in this split decision was that the majority of the court found no proof that there was a pattern of unconstitutional discrimination by states against persons with disabilities. Several Senate and House Committees had issued reports denouncing discrimination on the basis of disability in the private sector, but nowhere did these reports mention the States. The Supreme Court therefore concluded that the legislative record of the ADA did not show a pattern of state discrimination in employment against the disabled. Thus, even though the ADA specifically reads that it applies to states, the court ruled that Congress did not act under a valid grant of constitutional authority.

What this case means is that individuals cannot sue for money damages against states. It is unclear whether individuals can sue states for injunctive relief such as to compel an employer to make a reasonable accommodation. The ruling does not mean that individuals cannot sue counties or local governmental entities because the Eleventh Amendment does not protect local and county governments.

There is likely to be litigation to come on the question of whether certain public authorities or agencies are arms of the state and therefore immune from such ADA suits. The outcome of these cases will depend on questions such as how much funding the public agency gets from the state and whether the agency provides local or statewide services.

Appellate Court Finds Transsexualism Protected By State Law

By Armando V. Riccio, Esq.

Imagine one day one of your top professional employees, Carlos, removes all vestiges of facial hair, begins to sculpt and wax his eyebrows, pierces his ears and starts wearing emerald stone earrings. Suppose further Carlos begins to manicure and polish his nails, starts wearing a ponytail and grows breasts. You later learn that Carlos is diagnosed with gender dysphoria. After you terminate him, Carlos changes his name to Carla and undergoes sex reassignment surgery.

While you may believe this scenario is extreme, it is the fact pattern the New Jersey Appellate Division addressed in Carla V. Enriquez, M.D., v. West Jersey Health Systems, et al., where the Court concluded that the New Jersey Law Against Discrimination (“LAD”) protects transsexualism based upon the law’s prohibitions against sex and handicap discrimination. The Court’s decision serves as a reminder of a continuous theme throughout decisions under the LAD: management must avoid assumptions or knee jerk reactions and proceed cautiously even in instances believed to be extreme.1 The case provides both a lesson and an opportunity to review a few key distinctions under federal and state law.

According to the Appellate Court, the rationale underlying federal court decisions and the majority of decisions by other State courts, which conclude that transsexualism is not protected under the rubric of sex discrimination, is too constricted. Notably, the LAD includes many individuals within the scope of its protection who are not protected under comparable federal laws. Further, the resounding battle cry of the LAD is evisceration of invidious discrimination. The Court relied upon both points as key components in its decision. The Appellate Court found it incomprehensible that the New Jersey legislature would ban discrimination against heterosexuals, homosexuals, bisexuals, and those perceived, presumed or identified by others as not conforming with stereotypical notions of how men and women behave, but not protect Carla against gender-based sex discrimination due to gender stereotyping and transforming himself from male to female.

Reaching its decision, the Appellate Division relied upon the trial court’s decision in Zalewski v. Overlook Hospital which, in turn, strengthens the conclusion reached in the Zalewski case: the LAD prohibits harassment by male coworkers directed at another male who they believed was a virgin. The Appellate Division went on to quote the Zalewski court’s admonition of “severe sexual harassment of a person because he is perceived or presumed to be less than someone’s definition of masculine.” Agreeing with the Zalewski court, the Appellate Division concluded that under the LAD “’sex’ embraces an ‘individual’s gender,’ and is broader than anatomical sex,” which in turn includes matters where the individual’s sexual orientation is not an issue. In other words, gender discrimination is a form of sex discrimination under the LAD which prohibits discrimination based upon gender identity or gender stereotypes such as masculinity.

The Appellate Court, relying upon the historically broad definition of handicap under the LAD and the criteria contained in the DSM-IV, also concluded that gender dysphoria (e.g., transsexualism) is entitled to statutory protection as a disability. While the Court recognized that classification as a disorder within the DSM-IV does not automatically translate into a covered disability under the LAD, it nonetheless strongly relied upon the DSM-IV in reaching its decision. Further, the Court recognized that the LAD’s definition of handicap is significantly broader than its federal counterpart, the Americans with Disabilities Act (“ADA”). Unlike the ADA, the LAD does not exclude transvestism, transsexualism, pedophilia, exhibitionism, voyeurism, or gender identity disorders not resulting from physical impairments or other sexual behavior disorders. Nor does the LAD require that a disability substantially limit a major life activity. The Court’s analysis is a reminder that disabilities covered under the ADA are only a floor for determining whether a disability is covered under the LAD. This led the Court to adopt a means to identify those disorders which also constitute a disability under the LAD.

A disorder constitutes a recognized disability under the LAD when such is: (1) demonstrable, medically or psychologically, by accepted clinical or laboratory diagnostic techniques; (2) an ailment generally understood by the medical profession as a disease; and (3) a condition for which the employee sought legitimate treatment. The Court concluded that the first element was met based upon statistical data and the DSM-IV. Statistical information from a medical journal established that 1 in 50,000 individuals suffer from the mental disorder. Further, the DSM-IV recognizes gender dysphoria as a disorder and established criteria for diagnosing the disorder which, in turn, confirms that it can be diagnosed by accepted clinical techniques. The DSM-IV also identified it as a condition which causes significant distress or impairment. Notably, the Court recognized that gender dysphoria does not cause a violation of law, preserving the exception that disorders such as exhibitionism are not protected under the LAD. The second element was met by mere reference to a medical journal which stated that “treatment for the disorder can now ‘be regarded as accepted medical practice.’” The final element was established by the employee’s medical history.

The problem with the Court’s reliance upon the DSM-IV is inherent within the decision: each disorder listed within the DSM-IV is associated with present distress (e.g., a painful symptom) or disability (i.e., impairment in one or more important areas of functioning) or with significantly increased risk of suffering death, pain, disability or an important loss of freedom. Arguably, this allows a potentially endless array of disorders to fall under the definition of disability under the LAD provided there exists statistical data that at least 1 in 50,000 people suffer from the condition; there is some proof the medical profession “understands” it to be a “disease;” the employee seeks treatment for it and the disorder does not cause a violation of law or a substantial risk of harm to the employee or others. For example, this could include the following disorders listed in the DSM-IV: eating disorders such as binge eating, trichotillomania (the pulling out of one’s own hair), or obsessive compulsive or panic disorders which do not prevent performance of the essential job functions. Fortunately, the LAD does not protect employees who steal from their employer (kleptomania), attempt to burn down their place of employment (pyromania) or use illegal drugs.

While the Court concluded that gender dysphoria was a handicap under the LAD, it could not conclude that the employee was in fact handicapped. In fact, the Court remanded the case because there was no proof the employee had been diagnosed with gender dysphoria. Absent actual proof that the employee suffered a recognized disability, e.g. a professional diagnosis, the employee could not establish a claim under the LAD based upon disability discrimination. Although management should not assume whether a disorder or condition is (not) a disability under the LAD, this case also demonstrates that we should not assume that the disability claimed is actually suffered by the employee.

1The Enriquez case is not unique: recently a 36 year old transsexual corrections officer filed a lawsuit claiming a hostile work environment in Memmer v. New Jersey State Department of Corrections, et al.

2 Diagnostic and Statistical Manual of Mental Disorders, fourth edition, 1994 (“DSM-IV”) is a treatise and recognized authority published by the American Psychiatric Association which, among other things, lists disorders and the criteria for diagnosis.

Restrictions On Counsel Fees To Plaintiff’s Counsel

By John H. Geaney, Esq.

On May 29, 2001, the United States Supreme Court ruled in Buckhannon Board and Care Home v. W.Va. Dep’t of Health and Human Resources, 121 S.Ct. 1835, 149 L.Ed. 2d 855 (2001) that plaintiffs’ lawyers cannot receive counsel fees under the ADA and other federal laws unless there is a judgment or a court approved settlement.

The case centered on the “catalyst theory,” which stands for the proposition that a plaintiff is a “prevailing party” if it obtains the desired result because the lawsuit caused a voluntary change in the conduct of the defendant. In a 5-4 decision, the Supreme Court held that the “catalyst theory” is too broad. The Court criticized this theory because it permits an award of counsel fees even “where there is no judicially sanctioned change in the legal relationship of the parties.”

This decision has important implications for businesses which are defending Title III claims under the ADA in which a plaintiff requests structural changes or alterations to a public accommodation. Where the defendant unilaterally makes those changes following suit, an award of counsel fees will not be enforceable. On the other hand, where the settlement is judicially approved, counsel fees to the plaintiff will still be appropriate because there would then be a judicially sanctioned change.


Class Action Lawsuits and Arbitration Clauses In Consumer Financing Agreements


Class Action Lawsuits and Arbitration Clauses
In Consumer Financing Agreements

by Peter S. Bejsiuk

Reprinted with the permission of the New Jersey Lawyer © 2002

Class action lawsuits, both in the state and federal courts, have been the bane of lenders in consumer financing arrangements. Over the years, there has been a proliferation in the number of lenders making consumer loans, in the variety of such financing arrangements, and in the laws and regulations that are enacted in regard to these loans.

Violations of such regulations occur, and often the damages to any particular borrower are not material. However, multiplying such damages by the number of consumers that are similarly situated, combined with the discovery expenses and attorneys’ fees of both the lender and the class action plaintiffs, can create a major contingent liability that lurks in the background for such lenders.

It is no wonder that lenders are seeking ways to reduce their across-the-board liability, preferring to deal with consumers on a case-by-case basis. Two sources of legal authority have brought some optimism to lenders. The first is the power to enter into contracts with consumers upon terms that are enforced by the courts. The second is the wide latitude given by courts to the arbitration forum as a procedure to resolve disputes between parties. The corollary to both of these factors is the reduced significance given to the difference in bargaining power between contracting parties.

All of these factors are evident in the most recent pronouncement of the Appellate Division of the New Jersey Superior Court on this issue. Gras v. Assocs. First Capital Corp., 346 N.J. Super. 42, 786 A.2d 886 (App. Div. 2001), decided on December 20, 2001, in an opinion written by the Honorable Philip S. Carchman, joined on the panel by Judges Skillman and Wallace. The case involves typical lending transactions involving consumers, and the types of loan documents that borrowers are increasingly being asked to execute, which include provisions for arbitration as the forum for adjudicating disputes and claims.

Mr. and Mrs. Gras obtained five loans from Associates lender entities over a period of four years. These were a series of refinancings and borrowings, starting at $27,000 and increasing to $68,000. Each time, the borrowers purchased credit life insurance from a third party entity, contained in an offer made in the loan documents from Associates. Also included in the loan documents was a separate arbitration agreement.

These arbitration agreements contained express language which alerted the borrowers to a limitation of certain of their rights, including their right to maintain a Court action. In even more specific language, the arbitration agreement contained terms that: (a) explained the arbitration process, including its costs, (b) brought all claims and disputes within its purview, including claims arising out of previous loans, (c) tied together all of the loan documents, including those specifically relating to any insurance purchased, (d) included claims and disputes based on state and federal statutes, and (e) prohibited borrowers from bringing a class action in the arbitration forum.

These arbitration agreements were signed by the borrowers. They did not negotiate or even discuss these agreements with the lenders, which agreements were included in a package with the various other loan documents. However, borrowers did sign such arbitration agreements in each of the five occasions when they borrowed and refinanced these loans. Although this fact is mentioned in the case, its impact upon the decision is not emphasized. Also not mentioned in the opinion was whether borrowers had other options to borrow from competitors to Associates, and whether such other lenders mandated arbitration as an exclusive forum for seeking redress.

In their lawsuit, the borrowers maintained that the signed arbitration agreements contravened public policy as they were contained in unconscionable contracts of adhesion. The court agreed that the borrowers had entered into contracts of adhesion, meaning that they had little ability to negotiate any of the terms. However, using precedents established in previous state court decisions, the court also held that such contracts are only unenforceable if they violate “the public’s interests affected by the contract”. Id. at p. 48.

At issue were two of the terms in the arbitration agreements signed by the borrowers: the arbitration remedy itself and the preclusion of a class action lawsuit. The first was quickly disposed by the court applying prior precedent in favor of arbitration provisions. In New Jersey, arbitration was previously deemed acceptable in wide-ranging contracts of adhesion. These included NASD form employment agreements of securities brokers, even as applied to discrimination claims, as well as underinsured motorist’s claims in car insurance policies. Further, the court noted that arbitration provisions in contracts involving interstate commerce were subject to the Federal Arbitration Act, 9 U.S.C. § 1, which supports such provisions except as to grounds that exist for the revocation of any contract.

The arbitration agreement provisions precluding class action claims were more problematic. However, there has been a discernable national trend in recent cases favoring contractual provisions requiring resolution of claims between parties on an individual rather than collective basis. Judge Carchman referenced several notable examples of that shift decided locally. The Third Circuit weighed in on this issue, reversing a District Court decision, in Johnson v. West Suburban Bank, 225 F.3d 366 (3d Cir. 2000), cert. denied, Johnson v. Tele-Cash, 531 U.S. 1145 (2001). The District Court had held that claims under federal Truth in Lending and the federal Electronic Fund Transfer Act were preferably litigated in class action filings, since the threat of these cases would foster voluntary compliance with these statutes. The Third Circuit reversed, citing U.S. Supreme Court decisions, noting that class actions were procedural remedies under the Federal Rules of Civil Procedure, and without explicit Congressional enactments of exclusivity, the ability to litigate claims in class action lawsuits was waivable, and that the arbitration forum provided an alternative method for resolving disputes under both cited statutes.

In another case, the Third Circuit affirmed without opinion a District Court case last year in which a consumer sought to invalidate a mandatory arbitration provision that had the effect of precluding a class action suit on a claim based upon the federal Truth In Lending Act. That District Court found that Congress did not expressly favor class action litigation over arbitration as a method of resolving Truth in Lending claims. Sagal v. First USA Bank, N.A., 69 F. Supp. 2d 627 (D. Del. 1999), aff’d, 254 F. 3d 1078 (3d Cir. 2001).

Judge Carchman proceeded on the narrow issue raised in the case – whether the provisions of the NJ Consumer Fraud Act, N.J.S.A. 56:8-1, involving the facts of the case at bar, could be adequately resolved and remedied in an arbitration proceeding. Several prior Appellate Division decisions had previously upheld the use of the arbitration forum for resolution of claims under the Act. Furthermore, the New Jersey Legislature had not expressed any preference for the use of class action lawsuits as a procedure for resolving Consumer Fraud Act claims. Additionally, the Court reviewed the Rules of the American Arbitration Association, as the forum designated in the loan documents, and found that the arbitrator had the authority and power to award any statutory remedy to a litigant that was specified in the Consumer Fraud Act, including money damages, treble damages, and reimbursement of attorneys’ fees and costs.

The limited decision was to enforce the “liberal construction of contracts in favor of arbitration” over the policy of the Consumer Fraud Act to uncover and remedy fraud against consumers. It is a significant decision, since the Court assumed for purposes of the decision that the parties were in “distinctly different bargaining positions” when the loan documents and arbitration agreements were executed and delivered. The Court stated that in the absence of legislative mandates or overriding public policies, arbitration was an appropriate forum.

Also of significance was the absence of cohesive precedent in federal or state cases across the country that supported class actions as an exclusive or even preferred remedy. Instead, the overwhelming number of recent cases have supported arbitration as an appropriate, if not actually favored, forum in which to resolve disputes between parties to almost any contract.

The case is presently before the New Jersey Supreme Court on a Petition for Certification.

This Article was written by Peter S. Bejsiuk, Esq., a member of Capehart Scatchard’s Commercial Group and President, Board of Trustees of the Banking Law Section of the NJ State Bar Association. Should you have any questions or like more information, please contact Mr. Bejsiuk at 856.914.2057, by fax at 856.235.2786, or by e-mail at pbejsiuk@capehart.com .


Clarification of Attorneys Fees and Damages Under Consumer Fraud Act


Clarification of Attorneys Fees and Damages Under Consumer Fraud Act

by Betsy G. Ramos , Esq.

In several recent Consumer Fraud Act cases, New Jersey courts have clarified the law concerning the award of attorneys fees, expert fees, and treble damages. Although two of the cases dealt with claims involving homeowner improvement construction contracts, the court’s rulings extend beyond these types of contracts.

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A Review of Recent Developments Under CEPA

by Armando V. Riccio , Esq.

This article provides a brief synopsis of important developments under the New Jersey Conscientious Employee Protection Act of 1986 (“CEPA”), also known as New Jersey’s whistleblower law. Over the summer our State Supreme Court rendered three important decisions under CEPA. The Court’s decisions in Estate of Roach v. TRW, Inc. and DeLisa v. County of Bergen provide interpretive guidance regarding the basis for employer liability under the statute. Additionally, in Fleming v. Correctional Healthcare, the Court concluded that an employer violates CEPA by firing an employee for not following the chain of command when reporting illegal conduct.

CEPA prohibits employer retaliation because an employee does any of the following:

  • Discloses, or threatens to disclose to a supervisor or to a public body an activity, policy or practice of the employer or another employer, with whom there is a business relationship, that the employee reasonably believes is in violation of a law, or a rule or regulation promulgated pursuant to law, or, in the case of an employee who is a licensed or certified health care professional, reasonably believes constitutes improper quality of patient care;
  • Provides information to, or testifies before, any public body conducting an investigation, hearing or inquiry into any violation of law, or a rule or regulation promulgated pursuant to law by the employer or another employer, with whom there is a business relationship, or, in the case of an employee who is a licensed or certified health care professional, provides information to, or testifies before, any public body conducting an investigation, hearing or inquiry into the quality of patient care; or
  • Objects to, or refuses to participate in any activity, policy or practice which the employee reasonably believes: (1) is in violation of a law, or a rule or regulation promulgated pursuant to law or, if the employee is a licensed or certified health care professional, constitutes improper quality of patient care; (2) is fraudulent or criminal; or (3) is incompatible with a clear mandate of public policy concerning the public health, safety or welfare or protection of the environment.

Remedies for violation of the statute include: injunctive relief, reinstatement, compensatory damages, (e.g., lost wages, benefits and other remuneration), punitive damages costs of suit and attorney’s fees.

Several prior interpretations of the statute focused upon subsection (c)(3) which requires a plaintiff establish a “public harm:” a detriment to the public health, safety or welfare. In other words, a harm suffered solely by the employer did not meet this criteria and hence, subsection (c)(3) did not protect the employee-whistleblower.

The New Jersey Supreme Court expounded upon subsections (a) and (c) of the statute in the Estate of Roach v. TRW, Inc. In contrast to subsection (c)(3), CEPA’s overall application is not limited to employee complaints which implicate a public interest or “harm” and consequently, a broader public policy violation does not need to be established by a whistleblower under the other subsections. The breadth of subsections (a) and (c) is counter-balanced by a “reasonable belief” requirement. This limits whistleblower protection to complaints regarding matters beyond minor infractions or trivial issues. Employers must exercise caution in reaching conclusions about the severity of an infraction or issue because failure to take corrective action may be deemed a ratification and adoption of the complained of conduct as its own, which in turn, exposes the employer to liability.

In DeLisa v. County of Bergen, the Court clarified that sub-section (b) of the Act applies to information or testimony provided by an employee about co-worker misconduct even though the misconduct did not involve a “violation . . . by the employer or another employer.” The Court’s analysis began by repeating its sweeping view of CEPA’s statutory purpose: to provide the broadest protection to employees retaliated against for engaging in conduct protected under the statute. The Court also reiterated that the statute protects a complaining employee who has a reasonable basis for objecting to misconduct of an employer or a co-worker. Accordingly, the Court reasoned that it would be anomalous to protect an employee that objects to such conduct, yet not afford protection to that same employee if s/he testified before a public body investigating the conduct.

When confronted with a whistleblower complaint employers must not require rigid compliance with chain of command directives. The State Supreme Court made clear in Fleming v. Correctional Healthcare, that an employer can not terminate an employee for insubordination because she failed to follow the chain of command in reporting complaints about perceived unethical or illegal conduct. CEPA’s purpose includes protecting employees who report such conduct to any individual defined by the statute as a supervisor: any individual who has the authority to direct and control the work performance of the affected employee, to take corrective action or who is designated by the employer on the notice required by CEPA. Thus, an employer can not limit the definition of supervisor under CEPA by requiring employees submit such complaints to their immediate supervisors. In contrast, an employer can “fire an employee, even a whistleblower, who is unreasonable in expressing his or her complaints. For example, a state employee who repeatedly called the Governor at the Governor’s residence late at night to report violations of law at a state agency could justly be said to be insubordinate if requested not to do so. But to discipline an employee for going over the head of a supervisor allegedly involved in illegal or unethical workplace activity undermines the [statute].” Employers must remain cognizant that the chain of command defense, if applicable, would most likely be resolved by a jury.

Generally, employers do not provide management or supervisory personnel with training regarding the recognition, investigation or resolution of whistleblower complaints. Additionally, many organizations have not implemented a complaint process which addresses whistleblower issues or measures to prevent retaliation. All employees with supervisory responsibilities must learn to treat any such complaints seriously and to investigate same promptly. Management must be informed that in many instances the employee only needs to possess a “reasonable belief” to be protected, even if his or her belief is wrong. Whistleblowers should be provided with a means to raise retaliation complaints that assures expeditious notice to upper management and prompt effective remedial action.

This newsletter article was prepared by Armando V. Riccio, Esq., who was a member of Capehart Scatchard’s Labor and Employment Group. For further information regarding this publication or other matters, please contact Capehart & Scatchard, PA.


Employer Was Correct In Reading FMLA Request Narrowly to Exclude Foot Condition Since the Only Condition Mentioned in the Certification Was the Hand

Many employees seek FMLA leave for more than one medical condition within the same year. This can create difficulties for both employee and employer. It is important to read medical certifications carefully, as is noted in Greer v. Cleveland Clinic Health System – East Region, 2012 U.S. App. LEXIS 22594 (6th Cir. 2012).

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