Northwest Business Litigation

Local Government vs. ERISA, Round 3

Previously, we discussed Maryland's unsuccessful attempt to force large employers either to provide certain levels of health benefits or to pay taxes to the state.   In the latest effort to provide health coverage to more people -- this time by a local government -- San Francisco has passed a universal health care coverage ordinance. 

San Francisco funds the program by requiring employers of 20 or more employees to provide health benefits costing from $1.17 to $1.76 per hour per employee, or to pay the City that amount and let the City provide the coverage.  A group of San Francisco restaurants filed suit to block the ordinance, arguing, as in the Maryland case, that ERISA preempts compelled levels of benefits.  The City filed a motion to dismiss the suit, and the restaurants filed a motion seeking summary judgment on ERISA preemption.  A federal district court judge will hear argument on the motions in August. 

Debate about the role that ERISA plays (or should play) in our nation's health care system will continue.  Access to health care and how to pay for it is a major issue among the candidates running for President.  Expect dozens of local and federal proposals to continue appearing as our elected leaders struggle to find a solution.

Defective notice blocks securities class action settlement

The Ninth Circuit today tossed out a $35 million securities class action settlement involving Veritas Software Corporation over a defective notice to class members.  In Petrone v. Malone, the court addressed a novel issue under the Private Securities Litigation Reform Act:  how must the notice of settlement describe the damages each member of the class will receive? 
Under the PSLRA, the notice must state the amount of settlement funds to be distributed on a per-share basis.  The notice at issue in Petrone calculated the per-share recovery with the unstated assumption that only 43% of the class members would file a claim for damages.  By failing to calculate the recovery based on all of the shares held by the class, the notice overstated the potential per-share recovery and violated the PSLRA. 

See our other coverage of securities fraud and the PSLRA here and here.

Reminder - Federal minimum wage increases to $5.85 on July 24

We previously reported on the increase in the federal minimum wage, which begins with an incremental hike to $5.85 on July 24, 2007.  Effective that same date, employers must post the updated federal minimum wage poster.  A free copy of the poster is available here.

To see our earlier report on the federal wage and hour increase, go here.

Employer health insurance costs continue to skyrocket

The California Health Care Foundation just released a study of U.S. employer health insurance costs.  The first finding is no surprise to employers: health insurance premium costs per employee for employers offering health benefits increased more than $1,700, or 85%, from 1996 to 2005.  Salaries and wages increased just 39% over the same period.  In 2005, health insurance premiums constituted almost 11% of total payroll costs, an increase from 8% as recently as 2000.

The study is full of charts that all point to the same conclusion: health insurance costs are increasing rapidly, will likely continue to do so, and employers who get smart about ways to control health care costs have a competitive advantage over those who do not.  Health Savings Accounts, health reimbursement arrangements, wellness plans, and other techniques offer tools to manage these costs proactively.   Adopting these practices can reduce absenteeism, cut costs, and actually enhance the quality of benefits provided to your employees.

Do the math and split the circuit

Adding to the long-running debate about reorganizing the Ninth Circuit Court of Appeals, a Vanderbilt Law School professor argues that a circuit split would result in fewer reversals by the US Supreme Court.  In a piece published this week in the Los Angeles Times, Brian Fitzpatrick bases his claim not on ideology or administrative efficiency, but on mathematics and probability.

In the recently-completed term, the Supreme Court reviewed 22 cases from the Ninth Circuit, and reversed or vacated 19 of them.

See our earlier coverage of proposals to split the circuit here.

Washington Supreme Court: Arbitration awards do not collect pre-judgment interest from the date of the award

Today Washington's Supreme Court ruled that arbitration awards are not 'liquidated' until reduced to judgment and are therefore not subject to pre-judgment interest from the date of award.  In Washington Dep't of Corrections v. Fluor Daniel Inc., Fluor Daniels argued that it was entitled to pre-judgment interest from the date an arbiration award was entered in its favor to the date the award was reduced to judgment.  The Court disagreed, analogizing arbitration awards to jury awards that can be modified prior to being reduced to judgment.  The Court was careful to point out that it did not address whether the underlying damages had been liquidated and subject to pre-judgment interest.

Justice Sanders issued a dissenting opinion.

Ninth Circuit shields credit card companies from secondary copyright liability

On Tuesday, the Ninth Circuit Court of Appeals refused to extend liability for copyright infringement to credit card companies that process payments made to web sites selling infringing photographs.  Perfect 10, Inc., a subscription service that features copyrighted photographs of models, contended that Visa International and other major financial institutions could be held liable under a theory of contributory copyright infringement for processing payments to websites that infringe on Perfect 10's copyrights.  The Ninth Circuit held that Perfect 10 failed to state a claim against the credit card companies, even if the companies knew of the infringing conduct, because the mere act of processing payments neither materially contributed to nor induced the infringement. 

Unlike the recent case against Napster, the infringing images did not pass through the servers of the credit card companies, and unlike Perfect 10's earlier case against Amazon in which Perfect 10 prevailed, the credit card companies did not substantially assist websites to distribute the infringing material.  Moreover, the credit card companies did not induce the infringement, unlike the Grokster case that involved distribution of a file sharing program to enable infringement, because they took no affirmative steps to foster infringement.  Accordingly, while Amazon may be held liable for assisting sales of infringing material on the Internet, credit card companies remain immune, at least in the Ninth Circuit. 

Court allows COBRA claim against employer with fewer than 20 employees

COBRA requires an employer with more than 19 employees to provide health insurance to its former employees.  So if a plaintiff asserting a COBRA claim admits her employer has fewer than 20 employees, the court should dismiss the claim, right?  A case issued last week by the Sixth Circuit shows that life (or at least employee benefits law) is never that simple.

In Thomas v. Miller, a former employee admitted that her employer had fewer than 20 employees, but nonetheless sued for COBRA benefits.  The Sixth Circuit allowed the lawsuit to proceed because the employee claimed the employer used “conduct or language amounting to a representation” that employees were entitled to COBRA benefits.  A legal doctrine called estoppel prevents a party from asserting a defense at the expense of another person who was entitled to rely on the party's conduct.  The Sixth Circuit held that if the employee could prove the employer made such a representation, estoppel prevented the employer from asserting the statutory threshold defense.

The message to employers is that if provide employee handbooks or communications that refer to COBRA, you  may be liable for COBRA benefits. Small employers should carefully review the material provided by their insurers and all other employee benefit communications to ensure that they do not include COBRA references.  Otherwise, the employer could be stuck with an employee's medical bills without an insurance company to turn to for reimbursement.

Oregon legislature curtails employee non-competition and arbitration agreements

At the end of its 2007 session, the Oregon legislature passed a bill that imposes significant new restrictions on employee arbitration and non-competition agreements.  If the governor signs Senate Bill 248 into law, both arbitration and non-competition agreements between employers and employees will be unenforceable unless (1) the employer informs the employee of the agreement by a written offer received at least two weeks before the first day of employment, or (2) the agreement is entered into upon subsequent bona fide advancement of the employee. 

In addition, aside from some restrictions specific to the broadcast industry, non-competition agreements will not be enforceable at all unless

• the employee is exempt from overtime pay under ORS 653.020(3),
• the employee has access to trade secrets or other competitively sensitive business information, and
• the employee's annual gross compensation at termination exceeds the median family income for a four-person family under Census Bureau guidelines. 

The bill provides that non-competition agreements will not be enforceable for a period longer than two years.

The new law says that the foregoing restrictions do not apply to employee or customer nonsolicitation agreements.  But it is unlikely that courts would uphold such nonsolicitation agreements where the employer is unable to show a protectable interest or that the restrictions as to time and/or scope are reasonable.

The new law will apply to arbitration and non-competition agreements entered into on or after January 1, 2008.