In Humana v. Farmers Texas County Mutual Insurance Company, et al, No. 13-CV-611-LY (W.D. Texas, September 24, 2014) the court denied the defendants’ motion to dismiss and allowed Humana, a Medicare Advantage Organization (“MAO”), to pursue a private cause of action for double damages under the Medicare Secondary Payer Act, 42 U.S.C. § 1395y(b).  In doing so, the court rejected the magistrate judge’s recommendation to grant the defendants’ motion to dismiss Humana’s claims.  The court noted that in In re Avandia Mktg., 685 F.3d 353 (3d Cir. 2012), the Third Circuit addressed the same issue and held that a Medicare Advantage Organization, such as Humana, may bring a private cause of action against a primary plan under the secondary provision of the Act. Acknowledging that the Fifth Circuit had not addressed the issue, the court aligned itself with the reasoning of the Avandia opinion and concluded that the plan text of the Medicare Secondary Payer’s private cause of action provision unambiguously affords Human with a private right of action.  While there continues to be uncertainty about the nature and extent of the recovery rights of MAOs, this decision brings us closer to resolution of the issue in Texas federal courts and ultimately in the Fifth Circuit. 

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Last week the Centers for Medicare & Medicaid Services (CMS) withdrew the Notice of Proposed Rulemaking (NPRM) it submitted to the Office of Management and Budget back on August 1, 2013 relating to CMS’ intent in addressing future medical costs in workers’ compensation, automobile, liability insurance (including self-insurance) and no-fault claims. 

The NPRM was expected to outline how Medicare’s interest should be protected (per the Medicare Secondary Payer Act [42 U.S.C. § 1395y(b)(2)]) in cases where future medical care is claimed or effectively released in the settlement, judgment, award, or other payment of damages. While CMS has guidelines in place for the handling of future medical expenses in workers’ compensation cases, until final rules are released in the liability context, there are no similar standards for claims involving self-insureds and automobile, liability, and no fault coverage. 

CMS began the process of issuing those regulations in June 2012, when it released an Advanced Notice of Proposed Rulemaking (ANPRM) for these claims. By originally submitting a NPRM for review by the Office of Management and Budget (OMB), CMS revealed that it intends to take the next step in the regulatory approval process. 

In July 2014, the Chair of DRI’s MSP Task Force, John V. Cattie, Jr., met with government officials, as part of the public commentary process. During that meeting, he stressed the importance that any future medicals rule proposed by CMS, which creates requirements for addressing future costs of care in liability settlements, judgments or other payments, must have clarity for all stakeholders; including which stakeholders are responsible to ensure Medicare remains a secondary payer for Medicare covered, injury-related future medical expenses arising from settlements, etc. Absent such clarity, he strongly recommended that the proposed rules be returned to CMS until such clarity could be obtained. 

The withdrawn may be attributed to one of two things happening: 1) CMS no longer believes that is has a statutory right to not pay certain future medicals expenses (i.e., no more MSAs); or 2) CMS heard the call that clarity was needed to the NPRM and is taking appropriate steps in accordance with the Administrative Procedures Act to provide that clarity.  We fully expect CMS to redesign the NPRM and resubmit to OMB at a later date. 

The upcoming guidelines are expected to pinpoint the circumstances in which and the actions settling parties should take to ensure that Medicare remains a secondary payer post-settlement. In the meantime, the withdrawal of the NPRM does not change the analysis in how best to deal with future cost of care questions arising in liability settlements. You should review each fact pattern to determine if an MSA is warranted based on the case specific facts in light of the current statutory, regulatory and administrative guidance from CMS as well as relevant case law. Part of that includes identifying whether a settlement pays dollars for injury-related future costs of care, which would otherwise be Medicare-covered. Documenting the file with those conclusions and their underlying rationale represents best practices for managing that risk in today’s environment.


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Corporate policyholders/insureds who have been sued share a common interest with their liability insurers—successfully defending those lawsuits.  Yet insureds and insurers often disagree on the choice of defense counsel and how much the insurer must pay toward legal bills.  These disputes are costly and, in most instances, can be avoided.

Many primary commercial liability policies purchased by corporate policyholders not only impose a “duty to defend,” but also afford insurers the “right to defend.” This express “right” allows the insurer, rather than the insured, to select defense counsel.  Upon seeking a defense under that policy, the insured has relinquished its right to select defense counsel.  

There are two schools of thought regarding whether the assigned defense counsel owes duties only to one client (insured) or to two clients (insured and insurer). Many courts have adopted the two-client or “tripartite relationship” theory, under which insurer-selected counsel (commonly “insurance defense counsel”) has an attorney-client relationship with both insured and insurer.  Where the insurer has agreed to provide a defense to the insured under a reservation of rights, and that reservation raises a conflict of interest such that defense counsel in theory could face divided loyalties, courts have held that the insured is entitled to a defense through counsel of its choice (“independent counsel”).  Most courts hold that not every reservation of rights creates a conflict of interest.  Rather, a conflict of interest has been found where coverage turns on facts or issues to be determined in the underlying action such that the insurer-assigned defense attorney would face a conflict in deciding how to conduct the defense given the duty of loyalty owed to both clients.  

Other courts follow the one-client theory, under which insurance defense counsel represents only the policyholder, not the insurer.  Therefore, the attorney owes no duties to the insurer. Accordingly, in the states following the one-client rule, a reservation of rights cannot give rise to the insured’s right to select its own counsel.

Policyholders often take the position they can select their own counsel, who normally charge higher hourly rates than insurance defense counsel.  The typical arguments include:  (1) the two-client/tripartite relationship model applies, and the insurer’s reservation of rights creates a conflict allowing the insured to select counsel; (2) the insurer’s litigation management guidelines constrain insurance defense counsel from exercising independent professional judgment in the insured’s best interests; and (3) the litigation is particularly important to the insured.  Even when the insurer might acquiesce in the insured’s choice of counsel, disputes arise as to the difference between the insured-selected firm’s proposed rates and the rates the insurer typically pays for that type of case.  Some states have addressed this issue by statute (e.g., California Civil Code Section 2860, limiting hourly rates to those the insurer ordinarily pays) or by case law.  Often, the dispute is left to negotiation and either a compromise (typically by which fees are shared between insurer and insured) or an agreement to disagree, coupled with litigation or arbitration.

There are several solutions to this recurring problem that can eliminate or substantially minimize disputes.  First, the issue can be addressed at the policy negotiation stage.  An insured may insist on controlling the right to select counsel, which often is achieved through a policy endorsement allowing the insured to select counsel or even identifying specific lawyers who will defend lawsuits.  An insurer may protect against a dispute over its future defense cost exposure by including policy language specifying the maximum rates it will pay to defend lawsuits or that it will pay no more than the hourly rates it ordinarily pays in the jurisdiction where a case pends.

Second, insureds should better appreciate that leading property and casualty insurers afford their insureds a full, high quality, and professionally independent defense (regardless of whether of a reservation of rights is asserted).  This is expected of all counsel engaged by insurers.  Significantly, the Defense Research Institute (DRI) Recommended Guidelines for Insurers and Law Firms, which are followed in whole or in substantial part by many insurers, provide: “Nothing contained herein is intended to nor shall restrict Counsel’s independent exercise of professional judgment in rendering legal services for the Insured or otherwise interfere with any ethical directive governing the conduct of counsel.”  Elsewhere the guidelines provide that “in the event of disagreement [over litigation strategy], the final decision will remain the independent professional judgment of defense counsel.”  Whether expressed in an insurer’s guidelines, an engagement letter, or as a matter of practice and expectation, all carriers expect assigned counsel to uphold the ethical obligations they owe their client, the insured.  Further, an insurer may consider emphasizing this reality by agreeing it has no attorney-client relationship with assigned counsel.  See  Michael M. Marick and Karen M. Dixon, “The Insurer’s Contract ‘Right’ To Defend–The ‘Tripartite’ Relationship Reconsidered,” 39 Tort Trial & Ins. Prac. L. J. 1119 (2004) (absence of an agreement in fact to an attorney-client relationship obviates the two-client model, and thus an insured’s ability to select counsel in reservation of rights situations).

Third, insureds and insurers should have an open-minded and transparent discussion on counsel selection immediately after a lawsuit has been filed.  Insurers may consider offering the insured several qualified firms from which to choose.  A “beauty contest” among potential law firms is often highly instructive.  Insurance defense firms often are selected by insureds, even in high exposure cases, both because of their capabilities and they will be paid fully by the insurer.  

Fourth, at the same time counsel is selected, insured and insurer should agree upon litigation management guidelines (including anticipated staffing and budgeting).  It is in the interest of all parties—insured, insurer, and attorneys—to reach a meeting of the minds at the outset of a lawsuit, which facilitates a cooperative and focused defense. Insureds approaching the discussion by taking the position that guidelines are not “binding” on their counsel miss the point.  Both by their language and implementation, leading insurers do not apply guidelines to constrain a lawyer’s ability to fully defend the insured.  Ongoing three-way communication throughout the life of a litigated matter will solve most billing and case management issues.

In sum, insureds and insurers can and should find common ground on how to properly defend high exposure lawsuits. There is no legitimate reason for insureds to be skeptical of an insurer’s counsel selection and litigation management protocols. An honest and open-minded dialogue from the beginning of a lawsuit, and throughout the litigation, should resolve most issues.  


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I have the good fortune these days to be wearing multiple hats. I am managing partner of my firm; chair of the DRI Law Practice Committee; and, President Elect of the Indianapolis Bar Association. In those roles I have traveled the country speaking to DRI and state defense bar groups, attending ABA and the National Association of Bar President meetings, and attending law practice seminars. I have learned that the sands are shifting under the feet of lawyers and law firms, yet most lawyers are completely oblivious. 

You have heard the term "the future is now?" Well, its true, the future is now. Changes are happening so rapidly in law practice that the changes will pass many lawyers by, and when they wake up to the change, it will be too late for many of them.

So, what are some of the changes? Law is rapidly going paperless, and technology (for those who embrace it) is making it far easier (and cheaper for clients) than ever before. The business and insurance world are moving jobs in house. They are using paraprofessionals and outsourcing to do tasks that lawyers have traditionally done.

Across the country more and more individuals and companies are trying to represent themselves because the internet and e-filing has made law look less confusing to them. As law schools have seen declining enrollment, law grads have seen fewer jobs, recent grads are increasingly hanging out a shingle rather than await a traditional firm or corporate job.

Many of these changes are here to stay. Certain kinds of work, commonly known as "commodity work" will never again command fee increases. The work will go in house, and for the outside lawyers who do it, the profits will be derived from doing the work as efficiently as possible, using technology and paralegal assistance.

My pitch to you, my reader: Do everything you can to stay current on trends; view these changes as an opportunity, not a detriment. Get ahead of the trend line. How do you do it? You attend meetings and seminars and you read everything you can find.

We hope, of course, that you will get involved in the DRI Law Practice Management Committee and help us with our programming and materials. But, that is not enough. I also belong to the ABA Law Practice Committee and find their publications to be fabulous. Every day I read a posting from two free sites, Attorneys at Work and Solo Practice University. While I am not a solo practitioner, I have found that it pays to think like one. Both of these sites have valuable information on a daily basis that I often share with my entire firm. I am also a subscriber to the Remsen Group newsletter where I get cutting edge information on law firm trends.

The bottom line is that it is easy to stay current and it is a MUST if you want to survive and thrive in these changing times. It is not enough for just firm managers to be current. We all need our partners and rising associates to be keeping current so that they are hearing about these changes from someone other than us. Thanks for your time! 

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Watch Out

Posted on October 3, 2014 08:43 by Steve Crislip

With Regard to People:

Changes in behavior from the individual’s previously observed norm, which persist, worsen, or recur in a law setting such as:

1.       Physical signs of alcohol or drug abuse (i.e., slurred speech, shaky movements, smell).

2.       Delayed responses to e-mails or phone calls; missed appointments or deadlines.

3.       Lack of preparation for meetings, conference calls, court appearances, etc.

4.       Inattention to routine administrative activities, such as late or missing time, billing, or expense reports.

5.       Unexplained absences or other changes in work habits, such as arriving early or working late.

6.       Forgetfulness; misplaces files or other objects; disorganized.

7.       Sudden weight gain or loss; deterioration in personal grooming or physical appearance.

8.       Irritable, impatient, or angry behavior or unpredictable mood swings; nervous or agitated.

9.       Social disengagement; lack of interest in previously enjoyable activities.

10.     Displays poor judgment; defers to others in discussions and decision-making.

11.     Suffers from fatigue, decreased energy, or lack of motivation; has difficulty concentrating.

12.     Asks others (secretaries, paralegals, lawyers) to cover for the lawyer.

13.     Evidence of financial problems, such as unusual requests for advances.          

 

With Regard to Clients:

1.       Clients switching lawyers.

2.       Sudden unexplained changes with clients, or “noisy withdrawals” by their counsel or accountants.

3.       Smelly clients doing questionable things.

4.       Clients raising funds with other people’s money.

5.       Pie in the sky deals.

6.       Unknown prospective clients not willing to pay reasonable retainers.

7.       Keeping information from you.

8.       Untruthful statements or documents.

 

Be careful out there.  Watch out.

 

This entry was originally posted to Lawyering for Lawyers. Click here to read the original entry. 


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While it is unlikely that the 113th Congress will take any action on climate change (especially not in advance of the November 2014 elections),  many major public companies aren’t waiting for Congressional action and are instead proactively beginning to factor internal carbon pricing into their business decisions.  According to a new report issued by the CDP, 29 major companies in the United States already incorporate a carbon price into their business planning and risk management strategies. Of the 2,100 companies surveyed throughout the world, 638 companies have disclosed that regulations related to carbon pricing (cap-and-trade & carbon taxes) present opportunities for their businesses (although companies in heavy emitting countries and industries continue to report that they feel competitively disadvantaged by carbon pricing). Moreover, 500 of these surveyed companies reported that they are already regulated and price carbon through global carbon markets.  Nearly a fifth of these are U.S.-based companies.    

Another interesting observation that can be gleaned from the CDP report is the significant variability in the price that companies are setting per ton of carbon.  For example, in North America, the price per ton ranges from $8-$80; in Europe, the price per ton ranges between $15-$324. The variability can be explained, at least in part, on the regulatory regime where those companies are operating.  For example, companies operating in California are estimating carbon prices on the basis of California’s cap and trade program which prices carbon at between $14-$15 per metric ton. Companies that primarily operate in Europe rely more upon Europe’s Emissions Trading Scheme, although the current price per metric ton under the EU ETS (£6 per metric ton) is significantly lower than the above-referenced range so these companies are obviously projecting a higher price per ton in the future.  

During last week’s United Nations Climate Summit, many governments and  companies also expressed support for establishing a price for carbon emissions. The World Bank identified many countries, states, provinces and cities, as well as over 1,000 businesses and investors that were in favor of carbon pricing.  The CDP report  noted that “[c]ompanies in the US and worldwide are already advanced in their use of carbon pricing.  They are ahead of their governments in planning for climate change risks, costs and opportunities. These companies want, and are calling for, clear pricing and regulatory certainty to help them plan their climate-related investments, and they want to see more certain, internationally linked carbon markets.”  

Regardless of what side of the climate change debate one embraces, what is clear is that the business community has already made a decision to incorporate climate change related risks into its business strategy decision making.  For those of us that represent the business community, it probably would be a good idea to get on the train or be left at the station.    

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The often uncertain nature of environmental stigma claims has resulted in diverse and often confusing jurisprudence. Stigma damage claims seek recovery of damages to the reputation of the realty.  Stigma damages represent the market’s perception of the decrease in property value caused by an injury to the property.

In the typical diminution of property value claim, the general rule is that a property owner may seek recovery of diminution of property value or the cost of remediation, but not both.  However, in certain circumstances, claimants contend, there is an “additional” diminution of value due to a public health concern about the subject property or contamination on adjacent property for which recovery is sought.  This is the subset of diminution of property value claims where claimants argue that damages should be awarded on account of stigma.

Stigma claims raise conundrums for the courts.  On the one hand, courts desire to make a distressed plaintiff whole.  On the other hand, courts want to award only those damages that are proven with reasonable certainty.  Industry groups argue that stigma damages should not be permitted because they subject industry to the whim of any landowner able to obtain speculative testimony about the future economic impact of a temporary condition – even a condition that  a regulatory agency considers satisfactorily addressed.  These arguments take on even greater poignancy where the claimant’s property has not been physically impacted and the purported stigma is claimed to derive from mere proximity to a contaminated parcel.

On August 22, 2014, the Texas Supreme Court issued a thoughtful decision examining a number of these issues in Houston Unlimited, Inc.Metal Processing v. Mel Acres Ranch (No. 13-0084). The court performed a painstaking analysis of the opinions of the claimant’s diminution of property value expert, and rejected her methodology and conclusions across the board. As a result of finding the evidence supporting the property diminution claim insufficient, the court declined to take up the stigma issue.  Nevertheless, its discussion of stigma claim jurisprudence is noteworthy.

The Texas Supreme Court observed that American courts and commentators struggle with the issue of whether and when to allow recovery for stigma damages.  Most jurisdictions agree that plaintiffs must experience some physical injury to their property before they may recover stigma damages.  Although courts are divided on whether the injury must be shown to be permanent, defendants have expressed concern that a landowner should not be compensated when the loss is based primarily on public perceptions, which can change over time.

Equally problematic are cases in which the plaintiff’s property has not been contaminated or even threatened with contamination.  Some courts have awarded stigma damages to property owners who could demonstrate that their proximity to a landfill where hazardous wastes were dumped, for example, resulted in a loss of their home’s property value.  There is concern among commercial landowners that the possibility of property owners collecting damages in the absence of any direct physical impact to their homes could increase the number of claimants in mass tort property damage suits.

In reversing the Court of Appeals, the Texas Supreme Court observed that the struggle over whether to even allow recovery of stigma damages arises primarily from the conflicting goals of fully compensating the plaintiff for an injury while only awarding those damages that can be proven with a reasonable certainty.  The court observed that even when it is legally possible to recover stigma damages, it is often legally impossible to prove them.  This is because evidence based on conjecture, guess, or speculation is inadequate to prove stigma damages, not only as to the amount of the loss of value, but also as to the portion of the loss caused by the defendant’s conduct.

Based upon the rigor to which the high court subjected the claimant’s diminution of property value claims, Texas trial courts now are on notice that any diminution of property value, whether or not stigma is alleged, must be supported by strong evidentiary proof and reliable expert testimony.

This blog was originally posted on the Environmental & Toxic Tort Defense Insight blog on September 23, 2014. Click here to read the original article. 

 

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At the same time NFL Commissioner Roger Goodell faces tough questions about Ray Rice, a new domestic violence law went into effect in Massachusetts.  Employers with 50 or more employees must now provide employees who are victims of domestic violence up to 15 days of leave in any 12-month period.  Governor Deval Patrick signed the law on August 8, 2014 and it became effective immediately so employers should not delay in taking steps to come into compliance.

Leave is also allowed to employees if a family member is a victim of abusive behavior, including spouses, parents, step-parents, children, step-children, siblings, grandparents, and grandchildren.  The definition of family member also includes those in a “substantive” dating or engagement relationship and who live together, persons having a child in common regardless of whether they have ever married or lived together, or a guardian.

The law applies to all employees regardless of how long they have been at the company or how many hours they work.  Leave may be taken for any of the following reasons:

To seek or obtain medical attention, counseling, victim services, or legal assistance;

To obtain a protective order from a court;

To appear in court or before a grand jury;

To meet with a district attorney or other law enforcement official;

To attend child custody proceedings;

To secure housing; OR

To address other issues directly related to the abusive behavior against the employee or his or her family member.

Employers may require employees to provide advance notice for leave unless there is a threat of imminent danger to the health or safety of the employee or a covered family member. If advance notice is not possible, employees must notify the employer within three workdays that the leave was taken under the law.  Employees must exhaust accrued paid leave before taking any unpaid leave unless the employer waives this requirement.

The law allows employers to require employees to provide documentation supporting the leave within a reasonable time of the request.  An employee satisfies this documentation requirement by providing any one of the following:

A protective order, order of equitable relief or other documentation issued by a court;

A document under the letterhead of the court, provider or public agency which the employee attended for the purposes of acquiring assistance as it relates to the abusive behavior;

A police report or statement of a victim or witness provided to police;

Documentation that the perpetrator of the abusive behavior against the employee or family member of the employee has:  admitted to sufficient facts to support a finding of guilt of abusive behavior; or has been convicted of, or has been adjudicated a juvenile delinquent by reason of, any offense constituting abusive behavior and which is related to the abusive behavior that necessitated the leave under this section;

Medical documentation of treatment as a result of the abusive behavior;

A sworn statement, signed under the penalties of perjury, provided by a counselor, social worker, health care worker, member of the clergy, shelter worker, legal advocate or other professional who has assisted the employee or the employee’s family member in addressing the effects of the abusive behavior;

A sworn statement, signed under the penalties of perjury, from the employee attesting that the employee has been the victim of abusive behavior or is the family member of a victim of abusive behavior.

Employers may not retaliate or interfere with an employee’s use of such leave, and the Massachusetts Attorney General will enforce the law.  It should be noted that this new law adds to the Victim/Witness of Crime law which provides leave to employees who have been a victim of a crime or have been subpoenaed to attend court as a witness.

All covered employers must notify employees of their rights and responsibilities under the law.  With an immediate effective date, employers should review all handbooks and policies and amend them accordingly.  Supervisors and managers should also be trained on how to handle such leave requests.

This blog was posted on September 17 on Employment Law Business Guide. Click here to read the original entry. 


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On June 24, 2011, then-Governor Beverly Purdue signed H 709——"Protecting and Putting North Carolina Back to Work Act" into law. As part of this Legislative Reform, North Carolina Employers now have an additional defense (misrepresentation) available to workers’’ compensation claims arising on or after June 24, 2011. However, in order to use this defense Employers must do their homework BEFORE an alleged work accident happens.

An Employer may plead an affirmative “" Misrepresentation Defense”" when an employee intentionally misrepresents his/her physical condition to the Employer at the time the employee is entering into the employment relationship, and the employee alleges a work injury with a causal tie to the misrepresentation.

An Employer bears the burden of proving each and every element of the “Misrepresentation Defense” by a preponderance of the evidence.

Pursuant to NCGS §§ 97-12.1, an Employer must prove ALL of the following elements to succeed on the defense:

(1) The employee knowingly and willfully made a false representation as to the employees physical condition;

(2) The employer relied upon one or more false representations by the employee and that reliance was a substantial factor in the Employers decision to hire the employee;

and

(3) There was a causal connection between the false representation and the employees injury or occupational disease.

To satisfy the first and second elements of the Misrepresentation Defense, an employer may gather information on a perspective employees physical condition to determine whether he/she can safely perform the job BEFORE finalizing the employment relationship.

Timing is vital.

To preserve the Misrepresentation Defense AND to ensure compliance with employment laws/regulations such as the Americans with Disabilities Act, an employer should ask about the employees physical condition to determine whether he/she can safely perform the job:

(1) At the time of hire;

(2) At the time of receiving notice of the removal of conditions from a conditional offer of employment;

or

(3) During the course of a post-offer medical examination.

The key to successful implementation of the Misrepresentation Defense is a top-notch hiring program. Specifically, an Employer may find it useful to:

(1) Prepare accurate Job Descriptions detailing with specificity the essential functions and physical demands of their positions.

**Have the perspective employee sign off on the Job Description, thus confirming both his/her understanding of the requirements and functions of the position, as well as his/her affirmative representation that he/she is physically capable of performing the essential functions of the job, with or without reasonable accommodation;

(2) Utilize a Post-Offer, Pre-Hire Questionnaire to ask for information such as prior work injuries, medication usage, work restrictions, surgeries, and permanent partial disability ratings.

**The time to utilize this tool is once a conditional offer of employment has been extended. Successful completion of the Post-Offer, Pre-Hire Questionnaire is a condition precedent to the employment offer being finalized.

(3) Utilize a Post-offer, Pre-Hire Physical to determine the perspective employees fitness for duty.

**Much like with the Post-Offer, Pre-Hire Questionnaire, the time to utilize this tool is once a conditional offer of employment has been extended. Successful completion of the Post-Offer, Pre-Hire Physical is a condition precedent to employment being finalized.

By utilizing these practices, an Employer is clarifying the nature of the position and the importance of securing an employee who is able to perform the essential functions and responsibilities of the job. These practices give a perspective employee the opportunity to reveal that he/she is physically capable of performing the job, and the Employer’’ s reliance on these disclosures is inferred and expected.

As for the third and final element of the “Misrepresentation Defense," an Employer must prove there is a causal connection between the alleged work injury and the physical conditions falsely represented to the Employer by the employee at the time of his/her hire. Specifically, the question is whether the employees undisclosed physical condition increased his/her risk for injury.

By developing a comprehensive hiring program, not only will an Employer ensure perspective employees are physically capable of performing the job, but an Employer also protects itself against potential future workers’’ compensation claims should a perspective employee misrepresent his/her physical abilities.

This blog was originally posted in the DRI communities on September 9. If you are a committee member of any of our thirty substantive law committees, please click here to log in and gain access. If not, we encourage you to join a committee that best suits your practice. 

 

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“When I see a bird that walks like a duck and swims like a duck and quacks like a duck, I call that bird a duck.”  -- Indiana poet James Whitcomb Riley (1849–1916)

1. Background

The United States Court of Appeals for the Ninth Circuit issued two important decisions in California and Oregon cases, on August 27, 2014.  Both decisions were issued by Judge William A. Fletcher.  

Between 2003 and 2009, cases were filed against FedEx in approximately 40 states.  The Judicial Panel on Multidistrict Litigation consolidated these cases for multidistrict litigation (“MDL”) proceedings in the District Court for the Northern District of Indiana (“the MDL Court”).  Plaintiffs in these cases moved for summary judgment and sought to establish their status as employees.  The MDL Court denied all of Plaintiffs’ Motions for Summary Judgment and held that Plaintiffs were independent contractors as a matter of law. 

2. Alexander decision

The California case, Alexander v. FedEx Ground Package System, Inc. dba FedEx Home Delivery (Case No. 12-17509), was brought by 2300 full-time delivery truck drivers who worked for FedEx Ground and FedEx Home Delivery between 2000 and 2007.  

Upon review of the “right to control” test previously articulated by the court in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 769 P.2d 399 (Cal.1989), the appellate court found that California FedEx drivers were employees, not independent contractors, despite the OA with FedEx, which seemed to indicate the contrary.

Specifically, the court found that the California FedEx drivers were employees under the California “right to control” test because FedEx control of: (1) the appearance (i.e., clothing and grooming) of its employees as well as their vehicles (i.e., paint color, signage, shelving to certain specifications); (2) the times in which its drivers work (i.e.,  structuring of workloads to ensure that each driver works approximately 9.5 to 11 hours a day; and (3) delivery of packages via negotiating delivery windows with FedEx customers, on behalf of drivers.  

The appellate court also considered “secondary factors” in reaching this determination: (1) the full integration of the drivers work into FedEx’s operation; (2) the supervision of FedEx managers; (3) the fact that no skill is required in connection with the occupation of driving for FedEx; (4) the length of time – one to three years – of the employment agreement with FedEx; and (5) the importance of drivers’ work to FedEx’s business.  

Conversely, the appellate court was not convinced by FedEx’s argument, which was based on the D.C. Circuit’s decision in FedEx Home Delivery v. National Labor Relations Board, 563 F.3d 492 (D.C. Cir. 2009), that drivers have “entrepreneurial opportunities” that most employees do not have (i.e., the right to hire a third-party to assist with delivery).  It downplayed the importance of the OA between drivers and FedEx and held that the belief of the parties as to their relationship is not controlling if facts indicate another type of relationship exists.  

3. Slayman decision

The Oregon case, Slayman v. FedEx Ground Package System, Inc. dba FedEx Home Delivery, Inc. (Case No. 12-35559), involves 363 full-time delivery truck drivers who worked for FedEx Ground and FedEx Home Delivery from 1999 through 2009.  Slayman involved an appeal of two consolidated class actions.  

The panel also found that Oregon drivers in the Slayman matter were employees under Oregon’s  “right to control” test, as articulated in Stamp v. Dep’t of Consumer & Business Services, 9 P.3d 729, 731 (Or. Ct. App. 2000), for essentially the same reasons as articulated above.  

It additionally applied considerations specific to Oregon’s “economic realities” test, articulated by the court in Cejas Commercial Interiors, Inc. v. Torres-Lizama, 316 P.3d 389, 394 (Or. Ct. App. 2013).  It held that drivers were employees, rather than independent contractors, for the following reasons: (1) FedEx controls the terms and conditions of Plaintiffs’ employment; (2) FedEx drivers are a permanent and important part of FedEx’s business; (3) drivers work every day that FedEx delivers packages, for 9.5 to 11 hours a day; and (4) managers oversee and evaluate performance of drivers, and may refuse to let them work.  

4. Conclusion 

These decisions will likely expose FedEx to millions of wage claims based on newfound employee status of drivers.  Drivers may seek millions of dollars in damages for overtime pay, back pay for missed meal and rest periods, and may seek to recoup expenses incurred for worker-provided equipment. 

FedEx is largely credited with having originated the "independent contractor" work model in the logistics industry.  As such, these decisions significantly impact many similarly-situated businesses, such as many trucking and courier companies, many of whose drivers work long hours for low pay and little job security, who have adopted FedEx model.  Ride sharing service companies such as Lyft and Uber Technologies are also at risk for litigation resulting form these decisions, as their drivers have similarly contended that they should be afforded employee status.  

The Alexander and Slayman decisions are especially important for corporations to take note, especially those sharing economy" companies that have followed the FedEx work model, both in terms of responding to anticipated litigation as well as reworking policies and procedures regarding independent contractors. 


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