Employment & Labor Law Department Update
Fall 2001
Including Employment & Labor, Benefits and Immigration Law
What Washington Employers
Should Know About the Activation of Reservists
By Lynn Edelstein Du Bey and Kathryn Sheehan
In response to the events of September
11, President Bush signed an order on
September 14, 2001, authorizing the
call-up to active duty of up to 50,000
reservists. Employers should be mindful
of the rights of employees who leave their
employment to perform military service.
The Uniformed Services Employment
and Reemployment Rights Act
(“USERRA”), 38 U.S.C. § 4301 et seq.,
governs the employment and
reemployment rights of all members of
the uniformed services in the United
States. Many states have additional
statutes, but the federal statute governs
unless the state statute provides
additional benefits. Washington’s law
covers some additional people, but is
largely similar to the federal statute.
Eligibility requirements
Federal and Washington statutes include the following
eligibility requirements:
• The employee must leave a non-temporary, civilian
job.
• The employee must give reasonable notice to the
employer, unless such notice is unreasonable,
impossible or precluded by military necessity.
Washington’s statute also requires the employee to
give notice to the employer as soon as he or she
becomes a member of the uniformed service. This
requirement cannot be used to deny a reservist’s
rights under federal law, but is a prerequisite to rights
under the state law.
• The cumulative period of military service while
employed by the current employer must not exceed
five years, with some exceptions, including the
exception for time served in the event of a war or
national emergency.
• Release from service must not be dishonorable or
under other punitive circumstances.
• The employee must return to, or reapply for, work
Inside This Issue:
IMMIGRATION REPORT:
within a specific period of
Recent Developments . . . . . . . . . . . . . . . . . .2
time, depending upon
length of military service.
Washington Courts Continue
to Expand Liability Under Wage and
The statutes provide
Hour Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
eligible employees with
California Courts Narrowly Construe
reemployment rights,
Overtime Exemptions . . . . . . . . . . . . . . . . . . . . . . .3
unless the employer’s
Non-Competition Agreements in Oregon:
economic condition has
New Challenges for Employers . . . . . . . . . . . .4
changed so as to make
reemployment “impossible
IN THE NEWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
or unreasonable” or if, in
the case of a disabled veteran, reemployment would create
an undue hardship. The exact position to which an
employee is entitled to return is dependent upon a number
of factors, including length of military service.
What this means for employers
Employers frequently grapple with the meaning of the
words “impossible or unreasonable” as they apply to
reemployment rights, especially when employers undergo
reductions in force while employees are on military leave.
Courts have made it clear that employers have a high
burden of showing the impossibility or unreasonableness of
reemploying a returning employee. For example, one court
required a school district to reemploy a returning teacher
even though the teacher returned in the middle of the
school year, a replacement teacher with tenure had been
hired, and budget cuts had required the district to lay off
dozens of teachers, who remained out of work when the
plaintiff reservist had returned. Employers who have
conducted reductions in force or even eliminated portions
of their operations should not assume that reemployment is
either impossible or unreasonable. Employers should confer
with their legal counsel before making a determination not
to reemploy a returning veteran.
Returning veterans also have the right to continued
employment for up to one year, except for termination for
cause. Additional rights include the right to retain seniority
as if the employee had remained continuously employed,
and the right to pension plan benefits that have accrued
during military service. Covered employees also have the
right to elect to continue health plan coverage for up to 18
Continued on Page 2
Employment & Labor Law Department Update
Page 2
IMMIGRATION REPORT: Recent Developments
By James K. Doane
H-1B work authorization
available
A slowing economy,
coupled with a larger
H-1B cap, means that
U.S. employers probably
will not exhaust the cap
of 195,000 H-1B
workers for the fiscal
year ending September 30, 2001. The
Immigration and Naturalization Service
(INS) reports that as of July 25, 2001,
H-1B petitions for approximately
138,000 workers had been approved.
Premium processing
This summer, the INS commenced a
program called “premium processing”
that, for an extra $1,000 filing fee,
guarantees INS action on the employer’s
work authorization petition within 15
days. Cases still must be approvable on
their merits, and if the INS sends back a
request for evidence or notice of intent to
deny within 15 days of filing, it has
fulfilled its guarantee of 15 day
processing, even if approval comes later
or never comes at all. The premium
processing applies only to INS processing
of the employer’s work authorization
petition; the Department of Labor does
not expedite processing of labor condition
applications (a prerequisite for INS
approval of H-1B work authorization
petitions) nor does the Department of
State expedite processing of visa
applications at U.S. consulates abroad to
enable alien workers to travel to the
United States. To learn more about this
program, visit the Articles &
Publications section of our Web site
(www.prestongates.com) and review
“Premium Processing of INS Work
Authorization—What Can Employers
Expect for $1,000 More?”
SSA “no-match” letters
There are significant penalties for an
employer who knowingly employs an
individual who is not authorized to work
in this country. Some INS representatives
have asserted that notice from the Social
Security Administration (SSA) to an
employer of a discrepancy in an
employee’s records would prove that the
employer knew that it was employing an
unauthorized person. However, INS
recently publicized a 1999 INS General
Counsel letter that repudiates this view,
but suggests that such a notice from
SSA, when taken with other
circumstances and information, could be
a factor in concluding that an employer
had notice of unlawful status.
H-1B site visits
This past Spring, each of the four INS
Regional Service Centers randomly
selected 138 employers for inspection to
determine whether H-1B visas were being
properly used. Armed INS agents visited
employers and asked to see their files.
The purpose of the audit was to confirm
the existence of the company, the
employer-employee relationship, and
the employee’s actual job functions.
The INS was supposed to have reported
the results of the site visits in June, but
at the time of this writing had not
done so. Employers should keep in mind
that regardless of the conclusions the
INS may draw from these random site
visits, employers are always at risk of a
visit from the INS. Would your record
keeping and hiring practices survive an
INS audit?
Diversity visa lottery
Up to 55,000 permanent resident visas
are available annually by random selection
to aliens born in countries the Department
of State considers underrepresented in the
immigrant pool. The application period
for the next Diversity Visa Lottery (DV2003) will be between noon October 1,
2001, and noon October 31, 2001. The
complete rules may be found in the “Visa
Bulletin” at the Bureau of Consular Affairs
Web site (http://travel.state.gov).
Employers often lose valuable employees
who have expiring temporary work
authorization and who do not otherwise
qualify for legal permanent residence
or continued work authorization. The
Diversity Visa Lottery may help some of
those employers continue to legally employ
those workers.■
Business Department
Seattle
jamesd@prestongates.com
What Washington Employers Should Know about Activation of Reservists (Cont. from Page 1)
months, with limits on the amount of
premium payments the employee must
pay.
Employers who fail to comply with
these laws may be required to pay
compensation for lost wages or benefits
suffered as a result of the employer’s
failure to comply, and liquidated
damages for willful violations. An
employer may also be required to pay
attorneys’ fees, and may be ordered to
comply with the statutory provisions.
Apart from these laws, employers
should also review the terms of any
applicable contracts, including collective
bargaining agreements, to see if such
agreements create any additional rights
or obligations with regard to military
leave. Similarly, they should review
company policies and benefit plans and
arrangements to see if those documents
create any obligations supplemental to
those imposed by the state and federal
laws.
In filling vacancies that arise as a
result of an employee’s military service,
employers should keep reemployment
rights in mind. Therefore, in hiring
replacements, an employer should be
careful to avoid entering into contracts
for long-term relationships that may not
be terminated on short notice, unless the
employer has another position available
of like seniority, status and pay.
Conclusion
Most employers are grateful to their
employees who spend time in the military
and would not wish to take any action
inconsistent with the rights of those
employees. Employers with questions in
this area are encouraged to speak to their
legal counsel to make sure they comply
with military leave laws. The U.S.
Department of Labor Web site
(http://www.dol.gov) also contains useful
information for both employers and
employees who have questions about the
federal statute. ■
Employment & Labor Law Department
Seattle - ldubey@prestongates.com
Litigation Department
Orange County - kathys@prestongates.com
Page 3
Washington Courts Continue to Expand Liability
Under Wage and Hour Statutes
By Patrick Madden
If Washington
employers feel like
their pay practices
have been subject to
greater scrutiny in the
past year or two, they
are right. In fact, on
Sunday, September 2,
2001, the Seattle
Times ran a front page story entitled
“The Working Stiffed” that asserted
that many hourly and exempt
employees are cheated out of pay. The
article reviewed various wage claims
employees can pursue against their
employers and even provided Web site
addresses of law firms that specialize in
wage and hour class actions. This
scrutiny is also consistent with the
Washington Supreme Court’s
announcement last year that it intends
to be a pioneer in interpreting and
enforcing wage and hour laws.
Indeed, over the past few years,
Washington courts have repeatedly
emphasized that rights under
Washington’s wage statutes (RCW
Chapters 49.46, 49.48, and 49.52)
may not be negotiated away by an
individual employee or the employee’s
union. For instance, in December 2000
in Wingert v. Yellow Freight Systems,
Inc., the Court of Appeals found that an
employer violated the State’s rest break
regulations even though the employer
followed a collective bargaining
agreement that provided for longer rest
breaks. According to the court, the
employer violated the law because the
employer’s rest breaks did not match up
with the timing required under the
regulation. Similarly, in April 2001 in
Ferrelgas, L.P. v. Young, the court held
that wage claims are not subject to
arbitration even if an employee signs an
individual employment contract that
contains a mandatory arbitration
provision.
At the same time that they are
curtailing the ability to negotiate over
wage issues, the courts are expanding
the scope of the wage statutes. For
instance, the June 2001 Update
discussed Ellerman v. Centerpoint
Prepress, Inc., where the Washington
Supreme Court held that individuals
who make payroll or wage decisions
may be held individually liable for
unpaid wages, double damages, and
attorney fees under RCW 49.52.070.
The same statute is also the focal
point of a recent decision of the Court
of Appeals. In Questar Microsystems,
Inc. v. Chelius, two employees of a
small, struggling company (at least
initially) agreed to defer their pay
and were not paid their regular
compensation. They nevertheless
continued to work because they hoped
to profit from their substantial stock
options. When the company ultimately
failed, the employees sued the founding
partners individually. The partners
defended against these claims by
relying on a defense contained in RCW
49.52.070: that there is no liability if
an employee “knowingly submitted” to
the non-payment of wages. The court
rejected this defense and found that,
although the two employees agreed
temporarily to work without pay, they
did not “deliberately and intentionally”
defer to the company the question
whether they would ever be paid. In
essence, the court found that an
agreement to defer pay this month does
not protect an employer from a claim
for that same pay next month.
The lesson from Questar is that any
agreement with an employee to forego
compensation needs to be in writing
and needs to specify when and under
what circumstances the compensation
will be paid in the future. However,
even if an employee seemingly agrees
to defer compensation, the employee
may still challenge such an agreement
as involuntary, coercive, and
overreaching. The employee should thus
be given time to consider the
agreement and advised (in writing) to
confer with counsel. Finally, even if
such agreements to defer pay are
enforceable, they may create potential
minimum wage, overtime, or exempt
status violations and should be
discussed with counsel.
Another troubling aspect of the
Questar decision is that, without any
analysis or discussion, the court
apparently classified “unpaid Social
Security and Medicare taxes,” preemployment “consulting fees,” and
“unreimbursed business expenses” as
wages for purposes of the statute. In
light of the Ellerman and Questar
decisions, employers should anticipate
that officers, directors, and managers
may be subject to a lawsuit and held
personally liable for any amounts (of
whatever nature) that are not paid to an
employee. Any decisions to withhold
payments to an employee should only
be made after review of these decisions
and consultation with counsel. ■
California Courts Narrowly
Construe Overtime Exemptions
In July 2001, a jury returned a verdict for
$90 million in favor of 2,400 claims
adjusters who were improperly classified by
Farmers Insurance as exempt administrative
employees. After interest and attorney fees
are added, the total judgment may reach
$125 million. The court found that the
claims adjusters did not qualify for the
administrative exemption to overtime under
the more stringent requirements of California
law because they spent most of their time on
“routine and unimportant” matters.
Unfortunately, this decision is just one of
an onslaught of recent class action lawsuits
challenging exempt status of executives and
administrative employees under the federal
Fair Labor Standards Act or under state law
(which often has different or more stringent
requirements). Prudent employers are
minimizing risks by reevaluating the status of
all employees classified as exempt. If
problems become apparent, employers either
can modify job duties to assure exempt
status or reclassify employees as nonexempt. Employers should obtain the advice
of counsel in this process. ■
Employment & Labor Law Department
Seattle
pmadden@prestongates.com
Non-Competition Agreements in Oregon:
New Challenges For Employers
By James R. Herald
Two recent significant
decisions provide
guidance to Oregon
employers considering
non-competition
agreements with
employees.
New employee claim for wrongful discharge
Under established Oregon law, a noncompete agreement with an employee is
valid only if entered into at the start of
employment or upon a bona fide
promotion. The Oregon Court of Appeals
now has held that employers can be sued
for wrongful discharge if they fire
employees for refusing to sign a noncompete at any other time. In Dymock v.
Norwest Safety Protective Equipment for
Oregon Industry, Inc., an employee was
asked to sign a non-competition
agreement even though he had not
recently been hired or promoted. When
he refused, the employer fired him.
The court held that employees who
are fired for refusing to sign void noncompete contracts have a claim for
wrongful termination. Such a claim is
similar to the one available to employees
discharged for performing public duties
or fulfilling societal obligations (such as
serving on a jury or refusing to commit
acts of defamation) or for pursuing
private statutory rights directly related to
employment (such as resisting sexual
harassment by a supervisor or filing a
workers compensation claim).
This decision provides another
disincentive for signing non-competition
agreements with current employees.
Seeking such agreements only with new
hires or recent promotees has its own set
of problems, including that the employer
may have inconsistent rules for different
employees. However, taking adverse
action against employees who refuse to
sign the non-competition agreements
could lead to a lawsuit and an
unenforceable non-compete. The Oregon
Supreme Court will review this case.
Well-drafted non-compete helps avoid employer
liability for attorney fees
The second decision is more favorable to
employers. In Care Medical Equipment
Inc. v. Baldwin, the Oregon Supreme
Court held that an employer is not liable
for a prevailing employee’s attorney fees
under an employment contract where the
attorney fee provision was tied to an
unenforceable non-compete obligation.
Although he was not a new hire and had
not recently been promoted, Baldwin
signed a contract that included a
covenant against later competition. After
Baldwin resigned, he immediately started
competing against his former employer.
The former employer sued. Following
established Oregon law, the trial court
held that the non-competition part of
the contract was unenforceable because
it was not entered at the beginning of
the employment or in conjunction with a
bona fide promotion, and dismissed the
case. The trial court also awarded
Baldwin $25,000 in attorney fees as
the prevailing party under the agreement.
The Court of Appeals affirmed the
dismissal of the case but reversed the
award of attorney fees, reasoning that
if the non-competition agreement was
void and unenforceable, there was no
valid contract upon which to award
attorney fees.
The Baldwin decision provides an
important drafting tip for employers.
Like Baldwin and Dymock, employees in
Oregon non-competition agreement
enforcement actions may prevail on the
argument that the agreement was void
because it was not signed at the start of
employment or upon promotion. By tying
the attorney fee provision solely to the
non-compete provision, the agreement
could allow the employer to recover
attorney fees if the employee wrongfully
competes, but escape liability for the
employee’s attorney fees if the employee
prevails on the argument that the noncompete is void.
These Oregon decisions also
underscore that the law of noncompetition agreements differ in different
states. Therefore, prudent employers will
not arbitrarily use the same non-compete
agreement in Oregon and other states.
Employers should consult counsel to
ensure that such agreements meet their
specific needs. ■
Litigation Department
Portland
jherald@prestongates.com
IN OUR NEXT ISSUE:
Cellular phones create potential liability to employers
The popular media have been focusing on hazards allegedly posed by
drivers using cellular phones in traffic. Some assert that drivers on
cellular phones have a larger risk of accident, while others point to other
sources of distraction to drivers. In our next UPDATE, we will address the
issue from the employer’s perspective. How should employers balance
the enhanced convenience and productivity of employee cell phone use
against the legal risks that it may impose on the employer? See our next
issue for details.
Page 5
Employment & Labor Law Department Update
IN
THE
NEWS
Items Of Interest To Employers
By Steve Peltin
Patriotism, yes; discrimination, no
In the wake of the September 11 terrorist
attacks, many Americans have felt a surge
of patriotism. Even in these turbulent
times, however, employees still should be
free to work without harassment or
discrimination. Employers should continue
to ensure that no employees are mistreated
because they have (or are perceived to
have) the same religion, ethnicity or country of origin as
those thought to be responsible for the attacks.
Health plan must offer contraceptive coverage
The U.S. District Court in Seattle ruled that Bartell Drug Co.
must cover prescription contraceptives in its employee health
insurance plan. The Court found that the Bartell plan violated
the Pregnancy Discrimination Act because it covered almost
all drugs and devices used by men, but excluded female
contraceptive prescriptions. The Equal Employment
Opportunity Commission previously had asserted that
employers violate the law if their health plans cover other
preventive treatments, but not prescription contraceptives.
Washington employers with insured plans must comply with
the Bartell ruling for a second reason: the Insurance
Commissioner promptly issued new regulations (WAC 28443-821, 823) prohibiting insurers who offer prescription
drug benefits under individual and group plans from
excluding approved contraceptive drugs and devices. Selfinsured Washington employers and employers in other states
should consider the legal and political risks before excluding
female contraceptives from health plans.
Washington, California minimum wage to increase
Effective Jan. 1, 2002, workers earning minimum wage in
Washington State will be paid $6.90 per hour, eighteen cents
more than the current rate. At the same time, minimum wage
workers in California will receive a fifty-cent increase, to
$6.75 per hour. To determine the minimum wage in any
other state, visit the U.S. Department of Labor Web site at
www.dol.gov/DOL/ESA/public/minwage/america.htm.
Employers face personal injury claims from prenatal injuries
Under the Washington workers compensation law, employees
cannot recover in court for workplace injury or illness, but are
relegated to a statutory remedy. The Washington Supreme
Court recently ruled that a child who was injured in utero
while the mother was at work could sue in court and was not
limited to this statutory remedy. While 35 weeks pregnant,
the mother fell at work. Her baby later was born with severe
injuries. In the lawsuit the Court ruled that the mother’s
injuries would be treated as a workers compensation matter,
but the child’s injuries were independent and properly the
subject of a claim for negligence in court. ■
Employment & Labor
Law Seminar: Nov. 14
The Employment and Labor Law Department will
hold a complimentary breakfast seminar on:
“Terminating Individual Employees:
Minimizing the Risk of Liability”
Wednesday, November 14, 2001
7:30 a.m. to 9:30 a.m.
Seattle’s W Hotel in the Great Room
For more information or to register, please contact
Erika Snyder at erikas@prestongates.com or
(206) 623-7580, ext. 2529. You can also register
online at www.prestongates.com.
Employment and Labor Practice Group Expands
We are pleased to welcome...
Christopher L. Hirst, a partner in our Seattle office. Chris
represents a variety of public school districts and a major
school district risk retention pool.
chirst@prestongates.com
Mark Filipini, an associate in our Seattle office. Mark has a
background in traditional labor law and employment-based
litigation.
markf@prestongates.com
Stephen D. Leanos, an associate in our San Francisco office.
Stephen has a background in employment law and
commercial litigation.
sleanos@prestongates.com
To receive the Employment & Labor Law Department
Update regularly by e-mail, send an e-mail to
bmcdaniels@prestongates.com. In the subject line,
please type “Subscribe: Labor Newsletters.”
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have a suggestion for a future article, please contact the authors, or contact Update
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Department chair Lynn DuBey at ldubey@prestongates.com or (206) 623-7580.
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