NO EVIDENCE OF AGE BIAS WHEN JOB WAS ELIMINATED AS PART OF REDUCTION IN FORCE

The Fifth Circuit, in Lay v. Singing River Health System, No. 16-60431, 2017 U.S. App. LEXIS 10758 (5th Cir. June 19, 2017), recently upheld the district court’s grant of summary judgment in favor of the defendant employer in an age-discrimination case because it agreed with the lower court that the plaintiff had failed to raise a material issue of fact that her termination, which was part of a reduction in force, was pretextual. This case is particularly instructive to companies facing a reduction in force when employees being considered for reduction are members of a protected class.

Virginia Lay began working as director of managed care at Singing River in 1999, a position in which she reported directly to the chief financial officer. In 2013, the managed care department was moved to the clinical-integration department and Lay began reporting to Chris Morgan, then age 50, the vice-president of clinical integration. In early 2014, the company discovered through an audit that it faced an $88 million shortfall caused by overstatements of its accounts receivables. This caused the company to renegotiate all its managed care contracts and reevaluate and restructure all its operations. Part of that restructuring included combining Morgan’s and Lay’s jobs into one position. Morgan decided to leave the company and Lay stated that she did not apply for the new position because it required a master’s degree, which she did not have. However, Lay was encouraged to retire but was permitted to stay on through June 2014 to maximize her retirement benefits. While there appears to have been some dispute about how the retirement option was presented to her and when she was told her position was going to be eliminated, it was undisputed that she retired from Singing River and eventually took a full-time job paying $3,000 per month, significantly less than the $160,000 salary she was making at Singing River.

Meanwhile, back at Singing River, a new CFO initially oversaw some of Lay’s former duties along with his own job responsibilities but in early 2015, Singing River hired Jason Rickley, then 32, to take over the newly-developed, combined position that replaced Morgan’s and Law’s positions. He was initially paid $110,000 and was enrolled in a master’s degree program in health administration at the time he was hired.

In April 2015, Lay filed an age discrimination suit under the Age Discrimination in Employment Act (“ADEA”), 29 U.S.C. § 632(a)(1), in the Southern District of Mississippi and the court eventually granted Singing River’s motion for summary judgment because it determined that Lay had not raised any genuine issues of material fact to rebut Singing River’s proffered legitimate, non-discriminatory reason for eliminating Lay’s position. Lay then appealed to the Fifth Circuit.

The appeals court began its analysis by stating that under the ADEA, Lay was required to demonstrate that but for the discriminatory act, she would not have been terminated and noted that its review required it to employ the “more than well-known burden-shifting analysis,” wherein the plaintiff must first state a prima facie case of discrimination, which then shifts the burden to the defendant to proffer a reasonable-non-discriminatory reason for the termination. Under the test, if such a reason is proffered, the burden then shifts back to the plaintiff who must then meet her ultimate burden of persuasion on the issue of intentional discrimination. As to Lay’s specific case, the court also noted that if a plaintiff is terminated during a reduction-in-force, as here, the elements of the prima facie case are “(1) that [s]he is within the protected age group; (2) that [s]he has been adversely affected by the employer’s decision; (3) that [s]he was qualified to assume another position at the time of the discharge; and (4) evidence, circumstantial or direct, from which a factfinder might reasonably conclude that the employer intended to discriminate in reaching the decision at issue.”

Both the district court and the appeals court presumed that Lay had met her initial burden. As such, the appeals court began its analysis by examining Singing River’s proffered reason for eliminating Lay’s position. The court noted that the record evidenced the multi-million dollar shortfall and then stated that it was not the court’s place to question how an entity handled a financial crisis and that the law does not require that a company’s decisions be proper, only that they are non-discriminatory. It then stated that because Lay’s job was not the only one eliminated and because the elimination was part of a restructuring in response to the financial hardship, Singing River had presented a legitimate, non-discriminatory reason for the negative employment action.

In response to Singing River’s proffer, Lay offered nothing more than conclusory statements and hearsay. She first claimed that she was replaced by someone “half her age” and that the new position “entailed 99.9% of her former job duties under a different title” but later admitted that she estimated that total from reading the job profile online and that she did not know the full responsibilities required for the new position. Further, the court noted that the person that filled the newly-created position was not, in fact, half her age. The court stated that because a reasonable fact-finder would not be “persuaded by pure conjecture,” she had not raised a genuine, material fact.

She also claimed that she was “forced” to retire based on her age and pension status but the appeals court quickly disposed of this argument by stating that the record evidenced that the discussion regarding her retirement took place after she had been told that her position was going to be eliminated and that at most, the discussion was made in “a helpful spirit.” As such, the court determined that she had not demonstrated that she had been “forced” to retire and therefore had not raised a genuine fact for trial on that claim.

Finally, the court determined that other claims made by Lay regarding alleged age-derogatory statements allegedly made by members of Singing River’s management were inadmissible hearsay that could not create a genuine issue of material fact. Based on its analysis then, the appeals court affirmed the district court’s grant of summary judgment to Singing River.

FOURTH CIRCUIT HOLDS NO TITLE VII RETALIATION CLAIM WHEN EMPLOYER FIRES AN EMPLOYEE ON MISTAKEN BELIEF THE EMPLOYEE LIED ABOUT POTENTIAL TITLE VII CLAIM

Employers investigating Title VII discrimination claims should take some comfort, based on a recent Fourth Circuit case, that if they terminate an employee for making a false claim after a good-faith investigation, they will likely not be held liable for a Title VII retaliation claim if the claim later proves to be valid. In Villa v. Cavamezze Grill, LLC, No. 15-2543, 2017 U.S. App. LEXIS 10112 (4th Cir. June 7, 2017), the Fourth Circuit determined that the plaintiff had no Title VII retaliation claim because her employer reasonably believed she had made a false harassment report when it terminated her, even though that report later proved to be somewhat true. In doing so, the court was required to examine the differences in Title VII’s “participation” and “opposition” clauses and determined under the applicable opposition clause that false reports are not protected so her termination could not, as a matter of law, have been caused by her “opposing” prohibited conduct.

Patricia Villa began working for CavaMezze Grill Mosiac, LLC (“Mosaic”) a wholly-owned subsidiary of Cavamezze Grill, LLC (“CMG”), in the spring of 2012 and by October 2013, she was a low-level manager reporting directly to Mosaic’s general manager, Marcelo Butron. In October 2013, she related to Rob Gresham, CMG’s director of operations, that she had been told by one employee, Judy Bonilla, that Bonilla had been offered a raise by Butron in exchange for sex and that she suspected that another, now former employee, Jessica Arias, had left because Butron had made her a similar offer. As part of an investigation into the allegations, Gresham spoke with both the alleged harassment victims, who each denied that any such offers were made. Gresham determined, based on his investigation, that Villa had fabricated the stories and made a false report regarding Butron. Based on the fabricated report, Gresham fired Villa.

Villa later filed a retaliation complaint with the Virginia Office of Human Rights, cross-filed with the EEOC, but the Office of Human Rights never reached the merits of the case and issued Villa a right-to-sue letter. She filed suit in the federal district court of Virginia against several of the CavaMezze related entities (collectively, “Cava”), alleging retaliation under Title VII. Bonilla’s deposition was taken in that case and in it, Bonilla changed her story and stated that she had, in fact, told Villa that Butron had offered her a raise in exchange for sex, even though she also testified that he had not actually ever made such an offer. At the end of discovery, Cava moved for summary judgment, contending that even if it had incorrectly determined that Villa made up her story, her termination did not constitute Title VII retaliation because the true reason for her firing was that Cava believed that she had made a false report.

Villa did not dispute that that was the true reason for her firing but argued that because she acted in good faith when she reported the story to Gresham, her termination constituted illegal retaliation, regardless of what Cava honestly believed. The district court rejected that argument, along with her alternative argument that Cava’s investigation was not thorough enough, because it determined that there was no factual dispute concerning whether Cava’s desire to retaliate against her was the but-for cause of her termination and granted Cava’s summary judgment motion, a ruling which Villa appealed to the Fourth Circuit.

The appeals court began its analysis by noting that Title VII makes it illegal for an employer to discriminate against an employee either because the employee “opposes any practice made an unlawful practice by” Title VII (the “Opposition Clause”) or “because he has made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing under” Title VII (the “Participation Clause”). It then noted: “[u]nder either clause, since the statute only prohibits an employer from discriminating ‘because’ the employee has engaged in a certain type of conduct, ‘Title VII retaliation claims require proof that the desire to retaliate was the but-for cause of the challenged employment action’” (emphasis in original) and went on to state “[i]f an employer, due to a genuine factual error, never realized that its employee engaged in protected conduct, it stands to reason that the employer did not act out of a desire to retaliate for conduct of which the employer was not aware.” It also noted that when an employer has acted for a reason not prohibited by the statute, the court will not judge the “correctness, fairness, or wisdom of the employer’s decision.”

In applying the facts of this case to the applicable Title VII rule, the court first stated that while the participation clause – not applicable here since Villa did not “participate” as defined in the statute – protects a person who testifies, even falsely, from being fired, the opposition clause does not protect the making of a knowingly false statement because an employee complaining of conduct she knows did not occur is not “opposing” an unlawful employment practice and that firing someone for making such a false statement does not run afoul of the opposition clause. In fact, in opposition clause cases, the court must employ a balancing test, weighing the purpose of the act to protect people engaging in reasonable acts opposing discrimination against Congress’s desire not to tie an employer’s hands “in the objective selection and control of personnel.” In other words, “[e]ngaging in knowing fabrications certainly does not amount to ‘engaging reasonably in activities opposing . . . discrimination’; and precluding employers from taking any action against employees who have engaged in such deceit obviously would create enormous problems for employers who would be forced to retain dishonest or disloyal employees.”

To prove her case, the court said, Villa had to show that she was fired because of Cava’s desire to retaliate against her for engaging in conduct protected by the opposition clause. It determined that when Cava terminated Villa, it did not know that she had engaged in protected conduct because it was under the good-faith belief, based on its investigation, that she had made up the story. As such, its reason for terminating her was not retaliatory. It noted that if Villa was fired for misconduct that did not actually occur, it was unfortunate “but a good-faith factual mistake is not the stuff of which Title VII violations are made.”

As such, the Fourth Circuit affirmed the trial court’s grant of summary judgment in Cava’s favor.

EMPLOYEE BENEFIT PLANS FOR PRINCIPAL-PURPOSE ORGANIZATIONS NEED NOT BE ESTABLISHED BY A CHURCH TO BE EXEMPT FROM ERISA

In a ruling that could have cost nonprofit religious-affiliated employers millions of dollars in compliance and other costs had it gone the other way, on June 5, 2017, the U.S. Supreme Court held, in a unanimous opinion authored by Justice Kagan in Advocate Health Care Network v. Stapleton, Nos. 16-74, 16-86, 16-258, 2017 U.S. LEXIS 3554, (June 5, 2017), that employee benefit plans established or maintained by church-affiliated entities are exempt from regulation under the Employee Retirement Income Security Act of 1974 (“ERISA”), even when they are not originally established by a church and in so doing, reversed the judgments of the Third, Seventh and Ninth Circuits.

The cases arose out of three class action lawsuits filed by employees of church-affiliated nonprofits that run hospitals and other healthcare facilities and the dispute hinged on the combined meaning of two separate ERISA provisions under 29 U.S.C. § 1002(33), which Justice Kagan boiled down to:

“Under paragraph (A), a “‘church plan’ means a plan established and maintained . . . by a church” and [u]nder subparagraph (C)(i), “[a] plan established and maintained . . . by a church . . . includes a plan maintained by [a principal-purpose] organization.'”

The employees claimed that their employers’ pension plans did not fall within ERISA’s church-plan exemption because, although subparagraph (C)(i), a 1980 amendment to ERISA, allowed so-called “principal-purpose organizations,” such as the defendant nonprofits, to “maintain” exempt benefit plans, ERISA still required that such plans must have been originally “established” by a church. In contrast, the hospitals claimed that subparagraph (C)(i) was added “to bring within the church-plan definition all pension plans maintained by a principal-purpose organization, regardless of who first established them,” a position long taken by the IRS, the Labor Department and the Pension Benefit Guaranty Corporation. The Third, Seventh and Ninth Circuits all agreed with the employees and determined that the plain language of the statute required that to be exempted, the plan must have originally been “established” by a church.

The Supreme Court granted certiorari based on its determination that the issues in the cases raised important matters and began its analysis by examining the statutory language. In determining that Congress was really creating a new exemption when it added subparagraph (C)(i), the Court phrased the issue as a simple logic problem with paragraphs (A) and (C)(i) as its first two steps, stating:

“Premise 1: A plan established and maintained by a church is an exempt church plan and Premise 2: A plan established and maintained by a church includes a plan maintained by a principal-purpose organization. Deduction: A plan maintained by a principal-purpose organization is an exempt church plan.”

As such, it stated that since Congress deemed that the category of plans “established and maintained” by a church “to include” plans maintained by principal-purpose organizations, then all those plans are exempted from ERISA. The Court further noted that had Congress wanted to accomplish what the employees claimed it intended by adding (C)(i), it could have simply omitted the words “established and” and allowed principal-purpose organizations to maintain previously established plans while still requiring that they be established by a church. The Court also restated its long-standing practice “to give effect, if possible, to every clause and word of a statute” and noted that following the employees’ claims would require it to treat “established and” as “stray marks on a page – notations that Congress regrettably made but did not really intend.”

By ruling this way, the Court essentially maintained the status quo, as the three previously mentioned federal agencies had been consistently interpreting the statute this way for more than 30 years. However, it will probably end, or at least severely curtail, the recent trend of class action lawsuits stemming from so-called “church-plan conversions” filed by employees of principal-purpose organizations.

FIFTH CIRCUIT HOLDS THAT SPD WAS AN ENFORCEABLE PLAN DOCUMENT THROUGH WHICH THE ADMINISTRATOR COULD PROPERLY SEEK REIMBURSEMENT

In another victory for plan administrators seeking reimbursement under the terms of ERISA plans, in Rhea v. Alan Ritchey, Inc. Welfare Benefit Plan, No. 16-41032, 2017 U.S. App. LEXIS 9482 (5th Cir. May 30, 2017), the Fifth Circuit held that what the plaintiff termed a “disclaimer” in an ERISA plan document did not invalidate the summary plan description or the requirement set out in that SPD that the plaintiff was required to reimburse the plan for medical expenses it had paid on her behalf when she settled a malpractice case related to those expenses.

Donna Rhea was the beneficiary of an employee benefit plan organized under ERISA, who suffered injuries caused by her physician’s medical malpractice. The plan used a single document as both its summary plan description and its written instrument and that document contained a reimbursement provision, which stated “if a third party causes a Sickness or Injury for which you receive a settlement, judgment, or other recovery, you must use those proceeds to fully return to the Plan 100% of any Benefits you received for that Sickness or Injury.” It further stated, “[i]f the Plan incurs attorneys’ fees and costs in order to collect third party settlement funds held by you or your representative, the Plan has the right to recover those fees and costs from you.” The ERISA plan covered $71,644.77 of her medical expenses and after she settled the malpractice claim, the plan sought reimbursement, which she refused to pay, claiming that the plan did not have an enforceable written instrument.

The basis of her claim was that the SPD alluded to a separate “official Plan Document” and stated that if there was any discrepancy between the SPD and the official plan document, the plan document governed. Despite this “disclaimer,” at the time the plan sought reimbursement, there was no other plan document and the plan produced an affidavit to her lawyer stating that the SPD was “the Plan document that has been accepted, ratified, and maintained by the Plan Sponsor, that contains all of the ERISA-required plan provisions, and operates as the Plan’s official plan document.” In response, Rhea claimed, among other things, that the plan did not have an ERISA-compliant written instrument in place at the time it paid her medical expenses and therefore, had no right to reimbursement. Rhea filed a declaratory judgment action in the Eastern District of Texas seeking a declaration that she was not required to reimburse the plan. The plan filed a counterclaim in which it requested both equitable relief and damages under ERISA and the trial court, based on the recommendation of the magistrate judge, granted summary judgment to the plan and awarded over $31,000 in attorney fees and costs to the plan, a decision from which Rhea appealed.

The appeals court began its analysis by noting that while ERISA required plan administrators to provide SPDs to beneficiaries and that plans are required to be established and maintained pursuant to “written instruments,” there is nothing peculiar about an SPD functioning as both the SPD and the written instrument. In doing so, it specifically rejected Rhea’s argument that CIGNA Corp. v. Amara, 563 U.S. 421 (2011) required two separate documents, stating that because the Amara court was grappling with a conflict between the SPD and written instrument, it was factually distinguishable from this case, in which the court was simply determining whether the SPD could function as a written instrument in the absence of a separate written instrument.

It then rejected Rhea’s claim that the SPD did not comply with ERISA’s requirements “because it does not go into enough depth about how the Plan is funded or how it can be amended” because it determined that even though the SPD did not “lay out complex amendment or funding procedures,” something the court said was not required, it had sufficiently complied with ERISA’s information requirements. It further rejected her arguments that 1) the plan had never adopted the SPD as the plan’s written instrument because there was no evidence the plan adopted any other written instrument and 2) the plan had “lied” to her when the SPD appeared to refer to a non-existent separate written instrument because it held that an SPD, in the absence of a separate written instrument, still qualifies as the plan document.

Based on this analysis, the appeals court upheld the trial court’s decision that the plan contained a valid reimbursement provision that created an equitable lien by agreement in the plan’s favor when she settled the malpractice claim. It also upheld the lower court’s decision to award attorney fees, because it determined that the trial court had weighed all the factors required when awarding such fees, “including, most significantly, that Rhea was at least arguably acting in bad faith when she moved to deny the Plan a recovery to which it is contractually entitled.”