TADC Employment Law Newsletter — Spring 2002

TADC EMPLOYMENT LAW NEWSLETTER — Spring 2002

R. Edward Perkins, Editor

Sheehy, Serpe & Ware, P.C. — Houston, Texas

1. UNITED STATES SUPREME COURT OPINIONS

Court holds that penalty provision providing for an additional 12 weeks of FMLA leave is invalid.

In Ragsdale v. Wolverine World Wide, Inc., ____ U.S. ____, 122 S. Ct. 1155, 1159, ____ L. Ed. 2d ____ (2002), Tracy Ragsdale ("Ragsdale") began working at a Wolverine factory in 1995, but was diagnosed with Hodgkin's disease the next year. Id. Ragsdale was unable to work during her surgery and treatment and took advantage of Wolverine's seven months of unpaid sick leave provided by Wolverine's leave plan. Id. Ragsdale missed thirty weeks of work, and Wolverine held her position with the company throughout this period and maintained her health benefits and paid her premiums during the first six months of her absence. Id. Wolverine did not, however, notify Ragsdale that twelve weeks of her absence would count as her FMLA leave. Id. After her sixth months of leave expired, Ragsdale requested another thirty days of leave from Wolverine. Id. Wolverine refused to grant the extended leave, and after Ragsdale was unable to return to work, it terminated her employment. Id.

Ragsdale brought suit against Wolverine relying on the Secretary of Labor's regulation, which provides that if an employee takes medical leave "and the employer does not designate the leave as FMLA leave, the leave taken does not count against an employee's FMLA entitlement." Ragsdale, 122 S. Ct. at 1159 (quoting, 29 C.F.R. § 825.700(a) (2001)). Ragsdale argued that since Wolverine failed to notify her that her thirty weeks of leave would be counted against her FMLA entitled leave, the statute guaranteed her another twelve weeks of leave. Id. By her suit, Ragsdale sought reinstatement, back pay and other relief. Id. The district court granted Wolverine summary judgment on the grounds that the regulation at issue was in conflict with the FMLA and invalid, because it required Wolverine to give Ragsdale more than twelve weeks of FMLA-compliant leave. Id. The Court of Appeals for the Eight Circuit affirmed the district court's order granting summary judgment. Id.

In an opinion written by Justice Kennedy, a divided Supreme Court[1] affirmed the judgment of the Court of Appeals. Ragsdale, 122 S. Ct. at 1165. The Court held that the Secretary's categorical penalty was incompatible with the FMLA's "comprehensive remedial mechanism." Id. at 1161. The Court reasoned that an employer is liable for compensation and benefits lost or directly attributed to an employer's violation of the statute. Id. However, the Court found that the Secretary's regulation established an irrebuttable presumption that the employee's exercise of FMLA rights was impaired by requiring an employer to provide twelve additional weeks of leave without the employee being required to show that he or she was prejudiced by the employer's failure to timely designate the employee's leave as FMLA leave. Id. at 1162. In Ragsdale's case, the Court found that the regulation permitted Ragsdale to bring suit despite her ability to show how Wolverine's failure to comply with the notice provision at issue impaired her exercise of her FMLA rights. Id.

The Court also found that the regulation at issue was in tension with the FMLA's admonition that "[n]othing in this Act . . . shall be construed to discourage employers from adopting or retaining leave policies more generous than any policies that comply with the requirements under this Act." Ragsdale, 122 S. Ct. at 1164(quoting, 29 U.S.C. Section 2653). The Court reasoned that the penalty provision at issue may cause employers to discontinue voluntary programs that exceed the requirements of those under the FMLA. Id. at 1164-1165. Based on these findings, the Court held that section 825.700(a) was an impermissible alteration of the statutory framework of the FMLA and was not within the Secretary's power to issue regulations "necessary to carry out" the Act. Id. at 1165. Therefore, the Court affirmed the judgment of the Court of Appeals. Id.

2. FIFTH CIRCUIT OPINIONS

1. Court holds that employeeƒ­s statements of total disability to long-term disability insurer prevented employee from recovering under ADA, ADEA and ERISA.

In Holtzclaw v. DSC Communications Corp., 255 F.3d 254, 256 (5th Cir. 2001), Holzclaw worked for DSC Communications ("DSC") until he was forced to take long-term disability ("LTD") leave for chronic idiopathic pancreatitis. Holtzclaw informed DSC's LTD carrier that he was "unable to work at all," that he would never be able to return to work, and that his condition could not reasonably be accommodated by an employer. Id. After making similar statements to the Social Security Administration, Holtzclaw secured social security disability benefits. Id. Holtzclaw later reapplied for a job with DSC. Id. DSC declined to rehire Holtzclaw because of low ratings on several performance reviews. Id. Holtzclaw subsequently verified to DSC's LTD carrier that he had been completely and continuously unable to work for the previous twenty-four months, which included the time period during which Holtzclaw reapplied with DSC. Id.

Holtzclaw later filed suit against DSC claiming that DSC had discriminated against him under the ADA, had interfered with his receipt of benefits under ERISA and had retaliated against him under the ADEA. Holtzclaw, 255 F.3d at 257. The district court granted DSC's motion for summary judgment on all of Holtzclaw's claims. Id. During the pendency of Holtzclaw's appeal to the Fifth Circuit, the Supreme Court decided Cleveland v. Policy Mgmt. Sys. Corp., 526 U.S. 795, 119 S. Ct. 1597, 143 L. Ed. 2d 966 (1999), in which the Court rejected the Fifth Circuit's application of judicial estoppel to an ADA accommodation case in which a plaintiff had previously claimed full disability. Id. The Court remanded Holtzclaw's case to the district court with instructions to reconsider his claims in light of Cleveland. Id. On remand, the district court again granted summary judgment for DSC. Id.

On appeal, the Court reaffirmed the district court's order granting DSC summary judgment. Holtzclaw, 255 F.3d at 259. The Court relied upon the Supreme Court's holding in Cleveland, in which the Court held that an ADA plaintiff who, in an application for disability benefits, asserts that he is unable to work, must produce "an explanation of this apparent inconsistency" that is "sufficient" to defeat summary judgment on the issue of whether that plaintiff is qualified under the ADA. Id. at 258. The only summary judgment evidence presented by Holtzclaw were his own statements that he felt he could perform the essential functions of his job and a medical release signed by his doctor that merely stated that Holtzclaw was able to return to work. Id. at 259. The Court held that Holtzclaw's own statements could not create a fact issue. Id. The Court further held that Holtzclaw's medical release did not constitute probative evidence as Holtzclaw's doctor did not examine Holtzclaw prior to issuing the release. Id. Therefore, the Court found that Holtzclaw had failed to carry his burden of providing a sufficient explanation for his inconsistent positions and upheld the district court's order granting DSC summary judgment. Id.

With regards to Holtzclaw's ADEA and ERISA claims, the Court held that to establish a prima facie case of discrimination, Holtzclaw had to show that he was qualified to perform the essential functions of the job at issue. Holtzclaw, 255 F.3d at 259. Although the Court had never expressly made qualification an element of an ADEA claim, the Court found that to allow a plaintiff who is not qualified for the position at issue to maintain an ADEA claim would defeat the purposes of the statute. Id. at 260. Further, the Court adopted several district court cases within the Fifth Circuit which have required a plaintiff to show he was qualified for the position at issue to maintain an ERISA claim. Id. at 261. Based on these holdings, the Court affirmed the district courtƒ­s order granting DSC summary judgment on Holtzclaw's ADEA and ERISA claims. Id.

2. Court holds that mailing COBRA continuation notification by certified mail meets employerƒ­s ƒ±good faithƒ° duty under ERISA.


In Degruise v. Sprint Corp., 279 F.3d 333, 335 (5th Cir. 2001), Sprint terminated Monty Degruise's employment on February 4, 1998. Sprint mailed Degruise the notice concerning his right to elect continuing health care coverage as required by the Consolidated Omnibus Budget Reconciliation Act ("COBRA") by certified mail with return receipt requested on February 11, 1998. Id. The U.S. Postal Service attempted to deliver the notice to Degruise on two separate occasions, but Degruise was not home as he had taken a three-week honeymoon after being terminated by Sprint. Id. The Postal Service left a notice in Degruise's mailbox informing him that he had a certified letter waiting for him at the post office. Id. When Degruise returned home, he went to the post office to pick up his letter, but the post office was unable to locate it. Id. The Postal Service finally located the letter and returned it to Sprint on March 1, 1998, with an indication that the letter had never been claimed by Degruise. Id. Soon after leaving Sprint, Degruise began a new job with an employer who provided medical coverage to him. Id. Before this coverage began, Degruise began receiving treatment for a medical condition. Id. When Degruise filed coverage claims with his new employer's insurer, his claims were denied as a pre-existing condition. Id.

Degruise filed suit against his new employer and Sprint under ERISA, alleging that Sprint had failed to send him notice of his right to elect continuing medical coverage under COBRA. Degruise, 279 F.3d at 335. Sprint filed a motion for summary judgment arguing that it had met its duties under COBRA by sending Degruise notice by certified mail. Id. The district court granted Sprint's motion finding that COBRA required only a "good faith" effort to comply with its notification provisions and that Sprint had met that requirement by sending Degruise notice by certified mail. Id. Degruise appealed the district court's order granting summary judgment. Id.

The Court of Appeals for the Fifth Circuit upheld the district court's order granting summary judgment to Sprint. Degruise, 279 F.3d at 337. The Court held that since the Secretary of Labor had failed to issue regulations defining what constitutes adequate notice under COBRA, "'employers are required to operate in good faith compliance with a reasonable interpretation' of what adequate notice entails." Id. at 336 (citing, Kidder v. H & B Marine, Inc., 734 F. Supp. 724, 730 n. 6 (E.D. La. 1990)(quoting, H.R. Rep. No. 99-453, at 653 (1985), aff'd in part and rev'd in part, 932 F.2d 347 (5th Cir. 1991)). However, the Court found that employers were not required to ensure that plan participants actually receive notice, rather that employers are merely obligated to use means "reasonably calculated" to reach plan participants. Id. The Court ruled that by sending Degruise notice by certified mail, a form of first class mail, that Sprint had made a "good faith" effort to notify Degruise of his rights under COBRA. Id. As such, the Court affirmed the district court's summary judgment order in favor of Sprint. Id.

3. Court holds employeeƒ­s state law claims arising out of

employment dispute preempted by ERISA.

In Bullock v. The Equitable Life Assurance Society of the United States, 259 F.3d 395, 397 (5th Cir. 2001), Bullock worked as an agent for The Equitable Life Assurance Society ("Equitable") until early 1994, when he became its Agency Manager responsible for overall administration of Equitable's sales operations in Mississippi. Bullock's employment agreement with Equitable was terminable at will by either party. Id. at 398. Bullock alleged that after his contract was signed, Equitable promised him that he would be retained as Agency Manager until age 65, as long as he met reasonable production and sales performance criteria. Id. He also alleged that Equitable promised him that he would be treated as a franchise owner and business owner. Id. He also contended that Equitable induced him to spend time and money in developing his agency practice, in lieu of personal sales activity. Id. Finally, Bullock contended that he met or exceeded all reasonable sales and production criteria, which Equitable did not dispute. Id. On July 14, 1998, Equitable informed Bullock that it was restructuring and several Agency Managers, including Bullock, were to lose their positions. Id. All managers were offered other management or sales positions, but Bullock declined the company's offer, which included a benefits package and required a release of claims. Id.

Bullock filed suit in the Circuit Court of Madison County, Mississippi, and alleged breach of contract, breach of implied-in-fact contract, unjust enrichment, and promissory estoppel claims. Bullock, 259 F.3d at 398. Bullock alleged that his termination constituted a "breach of the implied covenant of good faith and fair dealing embodied in every agreement." Id. Bullock also alleged that Equitable terminated him to avoid heightened pension obligations that the company would bear once he reached 65. Id. Equitable removed the case to the United States District Court for the Southern District of Mississippi on diversity grounds. Id. Equitable also sought a declaration that ERISA preempted Bullock's claims. Id. The district court found that ERISA did not preempt Bullock's claims, but certified the question of preemption for interlocutory appeal. Id. On appeal, Equitable asserted that the district court erred in finding that ERISA did not preempt Bullock's state law claims arguing that Bullock's complaint alleged acts of economic retaliation prohibited by section 510 of ERISA. Id.

The Court of Appeals for the Fifth Circuit reversed the district court finding on preemption. Bullock, 259 F.3d at 401. The Court found that Bullock's complaint alleged that Equitable terminated his employment contract to prevent him from becoming eligible for pension benefits at age 65, which allegation fell squarely within the prohibition contained in section 510 against terminating a participant in benefit plan "for the purpose of interfering with [his] attainment of such rights." Id. at 400(quoting, 29 U.S.C. Section 1140 (2001)). The Court found that because section 502(a) of ERISA provided the exclusive enforcement mechanism for section 510, ERISA preempted any state cause of action seeking such relief, "no matter how artfully pled." Id. Based on this holding, the Court vacated the district court's opinion finding no ERISA preemption. Id. at 401.

3. TEXAS SUPREME COURT OPINIONS

Court finds that ıTermination of Employmentġ occurred under management incentive plans when parent company sold all stock in subsidiary.


In Monsanto Co. v. Boustany, _____ S.W.3d _____ (Tex. 2001), Fisher Controls International, Inc. ("Fisher") was a wholly owned subsidiary of Monsanto Company ("Monsanto"). Monsanto granted Fisher employees options to purchase Monsanto stock under three Management Incentive Plans, one instituted in 1984 and the other two in 1988. Id. The stock options were governed by both the Management Plans (the "Plain") and the terms and conditions printed on the back of the option certificates. Id. The option certificates expired ten years from the date they were granted or upon "termination of employment," whichever occurred first. Id. "Termination of employment" was defined by the Plan as "the discontinuance of employment of a Participant for any reason other than a transfer." Id. The options at issue were granted in February of the years 1989, 1990, 1991 and 1992. Id. In October of 1992, Monsanto sold all its stock in Fisher to Emerson Electric Company. Id. The Fisher employees retained their positions with Fisher. Id. Monsanto's Executive Compensation and Development Committee (the "compensation committee"), whom the Plan vested with the authority to administer and interpret the Plan, determined that the sale of Fisher's stock constituted a "termination of employment" under the Plan. Id. The compensation committee also determined that the option certificates required Fisher's employees to exercise their option rights within three months after termination of employment and that the 1992 stock options expired by their terms because they could not be exercised until at least one year had passed after the date they were granted in February 1992. Id.

However, the market price for Monsanto's stock was lower than the 1990 and 1991 option certificates could be exercised, which meant that Fisher's employees could not profitably exercise these options. Id. The compensation committee decided to extend those options for an additional nine months in which Fisher's employees could exercise these options. Id. Monsanto's stock price rose above these options exercise prices during this time period and several Monsanto employees chose to exercise these options. Id. Four years after the sale of Fisher, Monsanto's stock price reached a high of $159.25 per share, well in excess of the option certificates exercise price. Id. Several Fisher employees attempted to exercise their stock options at this time, but Monsanto refused to honor the options and maintained that the option certificates had expired. Id. In response, 110 Fisher employees brought suit against Monsanto for breach of contract, conversion and fraud, alleging that the sale of Fisher's stock did not constitute a "termination of employment" under the Plan. Id. Monsanto moved for summary judgment arguing that the Plan's terms were unambiguous. Id. The trial court granted Monsanto's motion, but the court of appeals reversed, holding that no termination of employment had occurred and that Monsanto could have included a "change-of-control-of-subsidiary" provision if it had intended for the sale of a subsidiary to constitute termination of employment. Id.

The Texas Supreme Court reversed the court of appeals decision holding that the sale of Fisher constituted a "termination of employment" within the meaning of the Plan and option certificates. Id. First, the Court determined that Delaware law governed its construction of the Plan and the option certificates, which was not disputed by the parties. Id. The Court found Delaware law to be similar to that of Texas in regards to the interpretation of contract language. Id. The Court found that "Termination of employment" under the Plan was defined as "the discontinuance of employment of a Participant for any reason other than a Transfer." Id. "Eligible Participants" were defined by the Plan as ıany employee of the Company, a Subsidiary or an Associated Company." Id. Therefore, the Court reasoned that whether there was a termination of employment depended on whether Fisher employees continued to be employees of a "Subsidiary" within the meaning of the Plan. Id. The Court found that "Subsidiary" was defined under the Plan as a company in which Monsanto owned fifty percent or more of the shares of stock entitled to vote. Id. Therefore, the Court held that Fisher was no longer a Subsidiary of Monsanto under the Plan. Id. The Fisher employees also argued that the sale of Fisher's stock was a "Transfer" under the Plan, rather than a "termination of employment." Id. The Court rejected this argument as the Plan defined a transfer as "a change of employment of a Participant within the group consisting of the Company and its Subsidiaries." Id. The Court reasoned that the Fisher employees continued to be employed by Fisher, therefore, there was no "Transfer" as defined by the Plan. Id. Based on these holdings, the Court reversed the decision of the Court of appeals and rendered judgment for Monsanto. Id.

4. TEXAS COURT OF APPEALS DECISIONS

1. Court finds that employee who was instructed by his employer to pick up paycheck at work and involved in auto accident on the way to work was not acting in the course and scope of employment.

In Wilie v. Signature Geophysical Srvs., Inc., No. 14-00-00830-CV, 2001 WL 1574805 *1 (Tex. App.–Houston [14th Dist.] December 6, 2001, n. pet. h.), Jack Sonnier ("Sonnier") worked for Signature Geophysical Services, Inc. ("Signature"). On August 4, 1985, Sonnier arrived at work at approximately 7:00 a.m. and left work at approximately 3:00 that afternoon. Id. Prior to leaving work, Sonnier and a co-employee were told their paychecks were not ready and to come back at 6:00 p.m. Id. To pass time, Sonnier, the co-employee and others decided to purchase beer and go fishing. Id. After approximately two hours of fishing and drinking, Sonnier and the co-employee decided to go back to the office to get their paychecks. Id. On the way back, they stopped to purchase more beer. Id. After leaving the store, Sonnier, who was driving his own vehicle, made an illegal pass on the right shoulder. Id. Sonnier swerved back onto the roadway, drove across the center median and into oncoming traffic. Id. Sonnier's vehicle hit the plaintiffs' car head on. Id. The plaintiffs filed suit against Signature on the basis of respondeat superior, alleging Sonnier was in the course and scope of his employment when the accident occurred. Id. Signature moved for summary judgment arguing that as a matter of law, Sonnier was not in the course and scope of his employment at the time of the accident. Id. The trial court granted Signature's motion, and the plaintiffs appealed. Id.

The Houston Court of Appeals for the Fourteenth District upheld the trial court's order granting summary judgment to Signature. Id. at *5. The Court found that the test for determining whether an employee was acting in the course and scope of employment is whether the master had the right to direct and control the servant's performance of the alleged negligent act. Id. at *2(citing, American Nat'l Ins., Co. v. Denke, 128 Tex. 229, 95 S.W.2d 370, 373 (Tex. 1936)). To meet this test, the employee's act must be within the employee's general authority, be in the furtherance of the master's business and be for the accomplishment of the object for which the employee was hired. Id. The Court noted that an employee is generally not in the course and scope of employment while driving his own vehicle to or from his place of work. Id. However, the Court recognized the exception to this rule where an employee has undertaken a special mission, which the Court defined as a specific errand that an employee undertakes at the specific request of his employer. Id. Because the plaintiffs did not allege that Sonnier was engaged in a special mission for Signature (to go fishing and drink beer) when the accident occurred, the Court found that under the general rule, Sonnier was traveling to work and, as a matter of law, was not in the course and scope of his employment. Id. at *3. The Court reasoned that it did not matter that Sonnier was instructed or required to come back to work to pick up his paycheck, because the incident made the basis of the lawsuit occurred while Sonnier was traveling to work, not while he was at work. Id. To hold otherwise, the Court found that every employee who is required to be at work at a specific time would be in the course and scope of employment while traveling to work. Id. Therefore, the Court upheld the trial court's order granting summary judgment. Id. at *5.

2. Court finds that right-to-sue letter is not a prerequisite to filing discrimination action in state court for violations of the Texas Commission of Human Rights Act.

In City of Houston v. Fletcher, No. 14-01-00159-CV, 2002 WL 27406 *1 (Tex. App.–Houston [14th Dist.] Jan. 10, 2002, no pet. h.), the Fourteen District Court of Appeals confronted the issue of whether a complainant, who has filed a timely complaint with the Texas Commission on Human Rights and has let 180 days elapse since the alleged unlawful employment practice, must additionally request a right-to-sue letter before she can file suit against her employer. The Court held that a complainant is not required to take the extra step of requesting a right-to-sue-letter before she can file suit against her employer. Id.

Under the Texas Commission on Human Rights Act ("TCHRA"), a person claiming employment discrimination must exhaust all administrative remedies prior to bringing suit in state court. Id.(citing, Tex. Lab. Code Ann. Sections 21.201-2.62 (Vernon 1996 & Supp. 2001)). To comply with the exhaustion of remedies provision under the Act, a complainant must file with the Texas Commission on Human Rights a sworn, written complaint within 180 days of the alleged discriminatory act, allow the Commission 180 days to dismiss or resolve the complaint before filing suit and file suit in district court no later than two years after the complaint is filed with the Commission. Id. (citing, Tex. Lab. Code Ann.Sections 21.201-.202, .208, .256 (Vernon 1996)). The City of Houston contended on appeal that, in addition to the above requirements, a complainant must also request a right-to-sue letter pursuant to Texas Labor Code Section 21.252[2] before filing a civil suit. Id. The City of Houston argued that requesting a right-to-sue letter was an additional jurisdictional requirement and filed a plea to the state court's jurisdiction over Fletcher's suit. Id.

The Houston Court of Appeals for the Fourteenth District rejected the City of Houston's argument. Id. The Court held that nothing in section 21.252 supported the City of Houstonƒ­s jurisdictional argument finding that the statute contained no jurisdictional language. Id. at *2. On the contrary, the Court found that the tenor of the entire section is permissive and non-jurisdictional. Id. The Court further found that the statute expressly stated that the failure of the commission to issue a right-to-sue letter will not impact the complainantƒ­s right to sue. Id. The Court concluded that it is the complainant's entitlement to the right-to-sue letter that exhausts the complainant's administrative remedies. Id. at *3. Therefore, the Court held that the right-to-sue letter was notice of complainant's exhaustion of remedies, not an element of exhaustion. Id. As such, the Court affirmed the ruling of the trial court denying the City of Houston's plea to the jurisdiction. Id. at *1.



[1]Justice Kennedy delivered the opinion of the Court, in which Justices Rehnquist,

Stevens, Scalia and Thomas joined. Justice Oƒ­Conner filed a dissenting opinion,

in which Justices Souter, Ginsburg and Breyer joined.

[2]Section 21.252 provides:

Notice of Complainant's Right to File Civil Action

(a) A complainant who receives notice under Section 21.208 that the complaint is not dismissed or resolved is entitled to request from the commission a written notice of the complainantƒ­s right to file a civil action.

(b) The complainant must request the notice in writing.

(c) The executive director may issue the notice.

(d) Failure to issue the notice of a complainantƒ­s right to file a civil action does not affect the complainantƒ­s right under this subchapter to bring a civil action against the respondent.

Author: Ed Perkins
Phone: (713) 951-1004
Fax: (713) 951-1199
Website: www.sswpc.com