Labor and Employment Bulletin

Labor and Employment Bulletin



Governor Weld Signs New Sexual Harassment Law

On August 8, 1996, Massachusetts Governor William Weld approved a bill amending the state's fair employment practices statute. The new law requires all employers with at least six employees to "promote a workplace free of sexual harassment." In furtherance of this objective, the law now requires employers to do the following:

  1. Adopt a policy against sexual harassment which includes: (a) a description and examples of sexual harassment; (b) statements that sexual harassment is unlawful, and that retaliation against an employee for filing a complaint of sexual harassment or cooperating in an investigation of sexual harassment is also unlawful; (c) a statement of the range of consequences for employees who are found to have committed sexual harassment; (d) a description of the process for filing internal complaints and the work addresses and telephone numbers of the person(s) to whom complaints should be directed; and (e) an identification of state and federal anti-discrimination enforcement agencies with directions for contacting them; and

  2. Distribute individual written copies of the sexual harassment policy to each employee annually, and to new employees at the time of their employment.
In addition, the law encourages employers to provide training to all employees concerning the subjects addressed by the sexual harassment policies, and to provide additional training to managers regarding their special responsibilities for addressing these issues and responding to complaints. While training is not technically required, as a practical matter all employers should provide training.

Employers with at least fifteen employees must adopt their policies by November 6, 1996, while employers with between six and fourteen employees have until January 1, 1997 to comply with the new law. Members of Hale and Dorr's Labor and Employment Department are available to answer questions about the new law, as well as to assist employers with drafting the required policies and to provide sexual harassment avoidance training.

Massachusetts Supreme Judicial Court Revisits Issue of When an Employee Handbook Creates Contractual Rights

Earlier this year, the Massachusetts Supreme Judicial Court revisited the issue of when and to what degree an employee handbook or personnel policy manual will create contractual rights for employees who are otherwise employed at-will. In O'Brien v. New England Telephone and Telegraph Co., 422 Mass. 686 (1996), the Court announced that it was taking the opportunity to correct "confusion" which had arisen on the issue. Previously, Massachusetts courts had rigidly applied a six-factor test set forth in the 1988 Supreme Judicial Court opinion Jackson v. Action for Boston Community Development . The six factors, dealing with negotiation of the terms of the handbook, the purpose of the document and whether it specified a term or revocation right, generally had to be satisfied before the Court would enforce an employee handbook as a contract limiting a company's right to discharge an employee at-will. In O'Brien, the Court determined that the six-factor Jackson test need not be rigidly adhered to by the courts and should be used as a guide as a court reviews the totality of circumstances between the parties.

The plaintiff in O'Brien was a 22-year employee of New England Telephone and Telegraph with a good service record who was discharged for misconduct after a series of conflicts with her supervisor. Among other claims, O'Brien argued that she had been wrongfully discharged from her employment because New England Telephone's personnel manual created an employee contract which prevented her termination without cause. In reviewing O'Brien's claims, the Supreme Judicial Court noted that the New England Telephone employee handbook failed to include any disclaimer of contract language or any provisions which provided for unilateral modification by New England Telephone of the handbook's terms and, accordingly, treated the handbook as a contract. The Court held that O'Brien's failure to use the terms of the grievance policy which appeared in the handbook precluded her from bringing a wrongful termination claim. However, the Court noted that O'Brien's separate claims for intentional interference with an advantageous business relationship brought against the former supervisor whom she alleged had started a campaign to drive her from the workplace were well founded and, accordingly, confirmed O'Brien's claims against the individual supervisor.

The O'Brien case is important because the Supreme Judicial Court has signaled its willingness to scrutinize the contents of employee handbooks in the future and to allow discharged employees to bring claims where the employer has failed to make clear that the handbook is not a contract or where the handbook contains language which would lead an employee to reasonably believe that his or her employment would be continued according to the terms stated in the handbook. The Supreme Judicial Court's opinion also demonstrates the importance of specific disclaimer language stating that the policy handbook is distributed for purposes of guidance only and does not create a contract; specific language reserving to the employer the right to change, modify or revoke its policies at any time with or without notice; and the absence of any language which could be construed as creating a contract.

Recent Decision Limits Scope of Settlement Agreements

The U.S. Court of Appeals for the First Circuit recently upheld part of an injunction issued by a federal district court prohibiting enforcement of portions of settlement agreements signed by present and former employees of Astra, USA. The agreements prevented employees from assisting the Equal Employment Opportunity Commission ("EEOC") in its ongoing investigation of alleged discriminatory employee practices at Astra. The First Circuit agreed with the lower court that such agreements were void as against public policy, and the public interest in enforcing federal antidiscrimination law outweighed any impact the lack of enforcement of the waivers would have on private dispute resolution.

The EEOC brought suit against Astra in June 1996 alleging that the settlement agreements had interfered with and were continuing to impede its investigation into charges of company-wide sexual harassment and retaliation. The district court found that six or more such settlement agreements had been signed between January 1, 1993 and January 5, 1996. In each case, claimants were represented by counsel. While minor variations existed between agreements, each contained language which prohibited the settling employee from filing his or her own claim of discrimination or assisting anyone else who filed a claim or charge against Astra. A breach of the settlement agreement by the employee gave Astra the right to seek to enjoin the conduct and to be reimbursed for all disbursed settlement amounts. The EEOC presented the district court with evidence that discriminatory conduct continued at Astra, and argued that the agreements impaired its investigation. The district court issued an injunction enjoining enforcement of the portions of the agreements limiting the employee's ability to assist the agency's investigation of charges filed by others as well as parts of the agreements prohibiting the employees from filing charges on their own behalf.

The First Circuit partially affirmed and partially reversed the district court's decision. The First Circuit found that the provisions of the agreements, which forbade the employees from cooperating with the EEOC in its investigation of claims, were against public policy because the EEOC's stated statutory purpose was to investigate and eliminate harassment in the workplace. The non-assistance provisions of the agreements directly interfered with that purpose. However, the First Circuit reversed the district court on the issue of enforcement of the portions of the agreements which forbade the employees from filing claims on their own behalf. The First Circuit's decision rested on procedural grounds and did not reach the merits of the underlying legal arguments. As a consequence, whether non-filing provisions in settlement agreements are enforceable is still an open issue.

The First Circuit's ruling in the Astra case makes clear that employers must take care when they enter into settlement agreements that the agreement does not prevent a settling employee from assisting an agency such as the EEOC or the Massachusetts Commission Against Discrimination with regard to an ongoing investigation.

Supreme Judicial Court Ruling on Religious Holidays May Not Change Employer Obligations

In a widely reported decision, the Massachusetts Supreme Judicial Court ruled that portions of a Massachusetts law providing legal protection for employees who refuse to work on religious holidays were unconstitutional under the First Amendment of the United States Constitution. While the case received a great deal of news coverage which suggested that employees would no longer be permitted to miss work for religious holidays, the ultimate impact of the Court's decision may be negligible.

In Pielech v. Massasoit Greyhound Inc., the Supreme Judicial Court held that two Roman Catholic plaintiffs formerly employed as cashiers at a southeastern Massachusetts dog track who were fired for refusing to work on the Christmas holiday could not recover damages against their former employer. The court struck down portions of the Massachusetts Fair Employment Practices Law which prohibited an employer from imposing job requirements on an employee which would require the employee to violate or forego the practice of his or her religion. In a 4-3 ruling, the Court said that the law wrongly forced judges to delve into theology and the doctrines of particular faiths. The Court also found that the law distinguished between organized religions and lesser known faiths by granting greater protection to organized religions.

While this case may appear to provide employers with greater control over the issue of scheduling work hours, federal laws dealing with employment discrimination prohibit discrimination on the basis of religion and courts interpreting these federal laws have required employers to make modifications to an employee's schedule to allow that person to observe religious holidays and days of worship. It has also been reported in the news media that the next session of the Massachusetts Legislature will revise the Fair Employment Practices Law to address the constitutional issues raised by the Supreme Judicial Court while providing many of the same protections which appeared in the version of the law struck down by the Court.

EEOC Issues Guidance Memorandum on Interplay Between Workers' Compensation and the Americans With Disabilities Act

The Equal Employment Opportunity Commission ("EEOC") recently issued a guidance memorandum ("Guidance Memorandum") on the interplay between The Americans With Disabilities Act ("ADA") and state workers' compensation laws. Of special interest to employers are the portions of the Guidance Memorandum dealing with the obligations an employer may have to return an employee to work after a workers' compensation injury. The Guidance Memorandum suggests that modifications to job functions may be necessary when an employee seeks to return to work following a workers' compensation injury when he or she is capable of doing the essential functions but not all of the functions of the job. For example, if an employee is responsible for assembling electronic components and occasionally has to help load boxes onto trucks, and that employee has missed work because of a workers' compensation covered back injury, the employee may be entitled to return to work to the assembly portion of his or her job and the employer may be required to have another employee handle the aspects of the job involving loading boxes onto trucks if that arrangement would not create an undue hardship for the employer.

The Guidance Memorandum suggests that "time off" from a job may be a reasonable accommodation to a disability under the ADA. Thus, the EEOC has suggested that an employer may not discharge an employee who is temporarily unable to work because of a disability-related occupational injury if it would not impose an undue hardship on the employer to provide a leave of absence as a reasonable accommodation. The burden is on the employer to demonstrate that holding open the position for the employee would impose an undue hardship. Not only must an employer make an analysis of whether holding open the employee's position would create an undue hardship, but it would also require an employer to look to see if vacant equivalent positions or vacant positions at lower levels in the organization were open for the employee before discharging the employee.

The Guidance Memorandum also states that an employer does not satisfy its ADA obligation to provide reasonable accommodation for an employee with a disability-related occupational injury by placing him or her in a workers` compensation vocational rehabilitation program. Thus, if an employee wants to return to work with modification to his or her job instead of participating in a vocational rehabilitation program, the employer has an obligation to consider the job modifications to determine whether they would constitute an undue hardship on the employer.

The Guidance Memorandum also provides that if an employer reserves "light duty" positions for employees who suffer workers' compensation injuries, then it may be in violation of the ADA if it doesn't offer a vacant reserved light duty position to an employee with a non-workers' compensation related injury.

Finally, the Guidance Memorandum also establishes that an employer which has only temporary light duty positions need not provide a permanent light duty position for an employee with a disability-related occupational injury.

The EEOC Guidance Memorandum demonstrates that it is imperative that employers approach the issue of an employee with a disability, be it workers' compensation related or not, with extreme caution. While an employer may believe that it has fully and completely complied with its obligations under the state workers compensation statutes, it may also have separate and independent obligations under the ADA or the Family and Medical Leave Act to provide the employee with additional leave or make short-term modifications to the employee's job.

New Law Makes Emotional Distress Damages in Employment Discrimination Cases Taxable

On August 20, 1996, President Clinton signed into law the Small Business Protection Act (the "Act"). The Act includes a provision which taxes compensatory damages in employment discrimination suits and other non-physical injury cases as well as virtually all punitive damages. Section 104(a)(2) of the tax code previously allowed an exclusion for settlements and court awards stemming from personal injuries or sickness. Emotional distress damages fell within this exclusion under the prior law as personal injuries whether resulting from a physical injury, employment discrimination or some other form of non-physical injury.

The new law came in response to ongoing confusion and litigation as to the tax treatment of damages received in cases such as employment discrimination which did not involve physical injury or physical sickness. The new law specifies that "emotional distress damages shall not be treated as a physical injury or sickness." As a result, settlements and court awards for emotional distress damages in employment discrimination suits and non-physical injury cases are now includable in gross income and subject to federal taxation. The Conference Committee Report explicitly sets forth Congressional intent to tax compensatory damage awards for physical symptoms resulting from emotional distress (e.g., insomnia, headaches, stomach disorders). Only the portion of an emotional distress award in an employment discrimination suit or non-physical injury case that is attributable to medical costs will still be excludable. However, damages for emotional distress in cases involving physical injury or sickness remain excludable from income.

The tax changes in the treatment of emotional distress damages and punitive damages in Section 1605 of the Act, took effect after enactment on August 20, 1996 and to any and all amounts received for such damages as of that date. The Act contains a small exception for amounts received pursuant to a written binding settlement agreement, court decree or mediation award already in effect on September 13, 1995.

Congress Adopts Legislation Affecting Employee Benefits

Late this past summer, Congress passed several bills containing significant tax changes. Among these bills, the Small Business Job Protection Act introduced a new type of retirement plan for small employers ("SIMPLE" plans) and the Health Insurance Portability and Accountability Act implemented a number of provisions designed to improve the portability of group health care plans, and clarify certain provisions under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"). Set forth below is a summary of some of the most significant provisions in these bills as they relate to employee benefits.

Savings Incentive Match Plan for Employees ("SIMPLE" plan).

Effective for plan years beginning after December 31, 1996, small employers (those with 100 or fewer employees earning $5,000 or more a year) will be allowed to establish simplified 401(k)-type plans which will not be subject to the ordinary nondiscrimination tests and top-heavy rules under the Employee Retirement Income Security Act of 1974, as amended ("ERISA").

Participants in a SIMPLE plan will be permitted to contribute up to $6,000 each year (indexed for inflation) on a pre-tax basis. The employer is then required to either match (dollar for dollar) each participant's contribution of up to 3% of the participant's compensation or make a non-elective contribution to all eligible participants (regardless of whether they made contributions) equal to 2% of their compensation. The participants must be fully vested in any employer contributions made on their behalf.

Employers may establish SIMPLE plans either in the form of a 401(k) plan or individual retirement accounts ("IRAs") for the participants. An employer sponsoring a SIMPLE plan may not maintain another qualified retirement plan for the employees covered by a SIMPLE plan.

Increased Portability of Group Medical Benefits.

To increase the portability of medical benefits provided under group medical plans, the recently enacted Health Insurance Portability and Accountability Act (i) establishes limits on pre-existing condition exclusions, (ii) prohibits the exclusion of certain individuals from coverage based on their health status, and (iii) guarantees the renewability of certain health insurance coverage (in the case of multi-employer plans and multiple employer welfare arrangements). If a group medical plan fails to comply with these new requirements, the employer sponsoring the plan will be subject to a penalty tax. These new requirements, summarized below, are effective for plan years beginning after June 30, 1997.

A group health plan may impose an exclusion on an individual's pre-existing condition only if the exclusion relates to a condition for which medical advice, diagnosis, care, or treatment was recommended or received within six months of the individual's enrollment date in the plan. The exclusion may not extend for more than 12 months after the individual's enrollment date (18 months in the case of a "late enrollee"). Pre-existing conditions exclusions also will not be permitted with respect to newborns and children who are adopted (or placed for adoption), provided they are enrolled in the group health plan within 30 days of birth/adoption. Nor will pre-existing conditions be permitted for issues relating to pregnancy.

The permissible period for excluding a pre-existing condition will be reduced by the length of an individual's previous "creditable coverage" (e.g. coverage under another group medical plan). Employers will be required to certify the period of coverage provided to former employees and, upon request, will be required to disclose to a requesting plan information concerning coverage of classes and categories of health benefits available under the employer's plan.

Group medical plans may not condition eligibility on the basis of certain factors, including health status, medical condition (mental or physical), claims experience, medical history, genetic information or evidence of insurability. Nor may group medical plans base a covered individual's premium contribution on any of the factors described in the preceding sentence.

Group medical plans which are multi-employer plans or multiple employer welfare arrangements may not deny an employer continued access to the same or different coverage except in the case of certain, specified events (e.g. nonpayment of contributions, fraud or intentional misrepresentation of material fact, or failure to renew a collective bargaining agreement).

Revisions to Plan Obligations Covered by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA").

The following changes (and clarifications) with respect to continuation of group medical benefits under COBRA will be effective as of January 1, 1997 (regardless of when the "qualifying event" occurred). Employers are required to notify each qualified beneficiary who has elected COBRA coverage of the changes no later than November 1, 1996.

In addition, the law encourages employers to provide training to all employees concerning the subjects addressed by the sexual harassment policies, and to provide additional training to managers regarding their special responsibilities for addressing these issues and responding to complaints. While training is not technically required, as a practical matter all employers should provide training.

In addition, the law encourages employers to provide training to all employees concerning the subjects addressed by the sexual harassment policies, and to provide additional training to managers regarding their special responsibilities for addressing these issues and responding to complaints. While training is not technically required, as a practical matter all employers should provide training.

In addition, the law encourages employers to provide training to all employees concerning the subjects addressed by the sexual harassment policies, and to provide additional training to managers regarding their special responsibilities for addressing these issues and responding to complaints. While training is not technically required, as a practical matter all employers should provide training.