Cuyahoga County Judge Strikes Down Workers' Comp Statute as Unconstitutional, Hinders Employers Challenging Claims in Court

The Cuyahoga County Court of Common Pleas recently made it more difficult for Ohio employers to challenge workers’ compensation claims in court. In Shannon Ferguson v. State of Ohio, the court ruled the Ohio statute prohibiting a claimant from voluntarily dismissing his or her complaint without the employer’s consent when the employer filed the appeal was unconstitutional.

Generally, Revised Code 4123.512 permits an employer or claimant to appeal the allowance or disallowance of a workers’ compensation claim to a court of common pleas. Either party may initiate the appeal by filing a notice within 60 days of an order of the Industrial Commission. The claimant must then file his or her complaint within 30 days of the notice, and the court will conduct a trial under the Ohio Rules of Civil Procedure.

Following the enactment of R.C. 4123.512 and in keeping with the Civil Rules, courts held that a claimant had the right to voluntarily dismiss his or her complaint under Rule 41(A) and refile the complaint within Ohio’s one-year savings statute. Employers subsequently challenged the right of a claimant to dismiss the complaint when the employer filed the appeal, arguing they suffered prejudice because they were required to pay benefits while the appeal was pending. As a result, in 2006, R.C. 4123.512 was amended to provide that a claimant may only dismiss his or her complaint in an employer-initiated appeal with the employer’s consent. The purpose of the amendment was to prevent the ability of claimants to continue receiving benefits during the one-year hiatus from litigation available through the savings statute.

In Shannon Ferguson v. State of Ohio, the plaintiff brought a declaratory judgment action asking the court to declare this portion of R.C. 4123.512 unconstitutional. Judge McClelland agreed with the plaintiff and held that Rule 41(A) takes precedence over the language contained in R.C. 4123.512. Because the Civil Rules apply to workers’ compensation court appeals, a claimant may voluntarily dismiss his or her complaint under Rule 41(A), regardless of which party appealed the claim to court.

The court further held that R.C. 4123.512 violates a claimant’s due process rights because it restricts the rights of only one party to the litigation. It noted that the employer could challenge benefits during the pendency of the appeal through the Industrial Commission or by filing a writ of mandamus in Franklin County. And in the event the employer is ultimately successful in having the claim denied at trial, recovery of the benefits paid is available. Finally, the court also struck down R.C. 4123.512 on the grounds of equal protection and separation of powers. It held that the statute arbitrarily treats the employer and claimant as two different classes and usurps judicial powers in violation of the authority and jurisdiction of the court regarding civil matters.

The court’s decision will place a significant burden on employers challenging workers’ compensation claims in court. If an employer appeals to court, there can be up to one year before a trial is held. If the claimant dismisses the complaint before trial, there can be another year before the case is re-filed and yet another year before the trial arrives. A claimant can thus extend benefits for up three years before being forced to litigate a case that could result in a complete disallowance of the claim. Even if the employer is ultimately successful, in reality it may be difficult to recover the payment of all those benefits. The net result is either a significant direct cost to self-insured employers or increased premiums to state-funded employers.

In the case of a state funded employer, while they can receive “credit” from the Bureau for the impact to their previous experience, and ultimately a credit/refund of increased premiums, there is no credit paid if the employer was removed from a Group Rating program other than a credit to their experience modifier.

With self-insured employers, they too can recoup what was paid out from the claimant pursuant to the Revised Code as well as deducting payments from their SI 40 annual reports. Pursuant to the Sysco decision, they can also receive reimbursement from the Surplus Fund if they have not opted out of the Sysco Fund for which they must pay assessments.

So, while the Court has stated that reimbursement options exist for employers it is, technically, correct, however, it is doubtful an employer will receive dollar for dollar reimbursement and/or reimbursement for premiums paid when a state fund employer is removed from a group program.

The State of Ohio has already appealed the court’s decision in Ferguson to the Eighth District Court of Appeals. We will continue to monitor this important case and provide updates as developments occur. For questions or additional information, please contact one of the listed attorneys.

Nathan Pangrace


Supreme Court Upholds DOL’s Right to Change FLSA Interpretation without Formal Notice-and-Comment Rulemaking

The United States Supreme Court recently unanimously held that the Administrative Procedure Act (APA) expressly exempts federal agencies, like the Department of Labor (DOL), from formal notice-and-comment rulemaking requirements when they make changes to interpretative rules.

In Perez v. Mortg. Bankers Ass’n, U.S. No. 13-1041, Mar. 9, 2015, the Court examined whether the DOL properly altered its interpretation of the administrative exemption to overtime pay under the Fair Labor Standards Act (FLSA) as applied to mortgage-loan officers. In 1999 and 2001, the DOL’s Wage and Hour Division issued letters opining that mortgage-loan officers did not qualify for the administrative exemption. After issuing new regulations regarding the exemption, the DOL issued an opinion letter in 2006 finding that the officers did fall within the exemption under the new regulations. However, in 2010, the Department altered its interpretation of the administrative exemption and once again concluded that mortgage-loan officers do not qualify for the administrative exemption. The DOL consequently withdrew the 2006 opinion letter without notice or an opportunity for comment.

Without discussing the merits of the underlying interpretation, the U.S. Supreme Court held that the DOL’s process of revising its 2006 interpretation without applying notice-and-comment procedures was proper. The Court explained that the APA specifically exempts interpretative rules from notice-and-comment requirements. As a result, an agency is not required to use notice-and-comment procedures to issue an interpretative rule, and is likewise not required to use those procedures to amend or repeal that rule.

The Court held that such a “straightforward reading” of the APA harmonizes with longstanding principles of administrative law jurisprudence that recognizes that a court lacks authority to impose upon an agency its own notion of which procedures are “best” or most likely to further public good. Rather, the responsibility to impose a notice-and-comment obligation on a federal agency when its changes its interpretation of one of the regulations it enforces, rests with Congress or the administrative agencies. Here, Congress adopted standards that permit agencies to promulgate freely such interpretative rules without such rulemaking requirements.

The Supreme Court further rejected any suggestion of procedural “unfairness” that could arise from an agency opting to issue an interpretative rule, rather than a legislative rule, in order to skirt notice-and-comment provisions. It noted that the APA contains constraints on agency decision-making. Moreover, the Court pointed out that, unlike legislative rules that are subject to the rulemaking procedures, interpretative rules do not have the force and effect of law.

As a result of this decision, we may see the DOL issue more interpretations of its own regulations through administrative interpretations. 

Emily Wilcheck


NLRB Issues New Complaints against McDonald’s as Potential Change in Joint-Employer Status Looms

The National Labor Relations Board has continued to bear down on McDonald’s, issuing 23 more charges and 6 complaints against the fast food giant. This comes on the heels of a similar December crackdown whereby the NLRB brought some 78 charges against both McDonald’s USA and individual McDonald’s franchises as joint-employers.

In regard to these charges, the NLRB stated, “Our investigation found that McDonald’s, USA, LLC, through its franchise relationship and its use of tools, resources and technology, engages in sufficient control over its franchisees' operations, beyond protection of the brand, to make it a putative joint employer with its franchisees.” Charges brought against McDonald’s include allegations of retaliatory conduct aimed at employees involved in union activity.

As a result of the NLRB’s actions, McDonald’s USA could see itself liable for any illegal practices by any of its 14,000-plus franchises. This approach is a departure from standard NLRB practices, and foreshadows a likely change in the definition of joint-employment. Such a change would likely trigger a wave of nationwide litigation. 

Marcus Pringle


Recent Tide of Class-Action Lawsuits Should Worry Employers Using Background Checks

A new wave of class-action lawsuits should concern any employer that regularly uses background checks in making employment decisions. These lawsuits allege violations of the Fair Credit Reporting Act (FCRA), the federal law that regulates the collection and use of consumer credit information. Many employers are unaware that FCRA also imposes obligations on employers that order background reports, including criminal and motor vehicle record checks, from a consumer reporting agency.

Before the employer may obtain a background report on an employee or job applicant, FCRA requires that the employer provide the individual with a written disclosure in a stand-alone document and obtain the individual’s written permission. Additional steps are required if the employer decides to take an adverse action (such as denial of employment) based on the report’s contents. Before taking the adverse action, the employer must provide the individual with a “pre-adverse action notice” and a summary of the individual’s rights under FCRA. The employer must then provide the individual with a reasonable period of time, generally five business days, to dispute the information in the background report. If the employer still decides to take the adverse action, FCRA requires the employer to send yet another notice.

Common claims by plaintiffs are that employers included extraneous information in their written disclosures, failed to provide a pre-adverse action notice, or failed to wait a reasonable time before taking an adverse action. FCRA allows plaintiffs to recover actual damages, including attorneys’ fees and costs. For willful violations, statuary damages (between $100 and $1,000) and punitive damages are also available. As a result, many of the class-action lawsuits have resulted in multi-million dollar settlements for the plaintiffs.

To mitigate the risk of a lawsuit, employers should review their policies and procedures for conducting background checks of employees and job applicants. We also advise a careful review of the notices and disclosures provided to employees to ensure these documents contain the specific information required by FCRA.

Nathan Pangrace


California Court Addresses Employee Status of Uber, Lyft Drivers

Two suits filed in a California federal court (Cotter v. Lyft, Case No. 13-4065, and O’Connor v. Uber, Case No. 13-3826, U.S. District Court, Northern District of California) will address whether drivers of the popular taxi-alternatives Uber and Lyft qualify as “employees.” If so, they would be entitled to compensation for expenses, which would include gas, maintenance, and cleaning of the vehicles. Currently, drivers for both companies must cover all incidental expenses out-of-pocket, which leaves Uber and Lyft drivers footing the bill for everything from oil changes to car washes.

On January 29, 2014, the federal court judge in the Lyft case stated that “people who do the kinds of things that Lyft drivers do here are employees,” strongly implying that the popular taxi alternative will be liable for added compensation to its drivers.

Drivers for the companies are subject to hiring and firing by their respective organizations, and are required to pass background checks and accept a certain number of rides, all factors that would be indicative of an employer-employee relationship. However, neither company appears to require control over where the drivers operate or what time they do so, factors that would tend to show independent contractor status.

The suit could have a wide-ranging impact nationally as both Uber and Lyft have exploded in popularity, with Uber alone valued at nearly $40 billion dollars. Look for similar lawsuits nationwide to erupt if an employment relationship is found to exist between drivers and their respective companies.

Marcus Pringle



House Passes Bill Redefining a Full-Time Employee Under the Affordable Care Act

On January 8, 2015, the U.S. House of Representatives passed a bill changing the definition of a full-time employee under the Affordable Care Act (ACA) from a person who works 30 hours per week to one who work 40 hours per week. This change is significant because the ACA requires businesses with 50 or more employees to offer health insurance to their full-time employees or pay a penalty. The 40-hour per week definition would bring the ACA in alignment with other state and federal laws, such as the Fair Labor Standards Act.

Proponents of the bill, called the Save American Workers Act, argue that the current 30-hour threshold pressures businesses to save money by either reducing employees’ hours to avoid mandatory insurance coverage or laying off employees altogether. The Obama administration strongly opposes the legislation on the grounds that it would reduce the number of Americans with health insurance coverage. Additionally, a recent report by the Congressional Budget Office concluded that the bill would add to the federal deficit by decreasing employer penalties for noncompliance with the ACA and increasing the number of persons receiving government-subsidized health insurance instead of employer-provided coverage.

The bill easily passed the House by a vote of 252-172, but it will face increased opposition in the Senate, where Republicans will need 60 votes to overcome a filibuster by Senate Democrats. Further, President Obama has threated to veto the bill if it passes.

The Save American Workers Act is the latest attempt by House Republicans to chip away at the Affordable Care Act. Since taking office earlier this year, the House has also passed legislation exempting emergency service volunteers and employees that receive insurance from the Veterans Administration from being counted towards the ACA’s 50-employee threshold.

Nathan Pangrace


White House Makes Big Push for Paid Family Leave

On Thursday, January 15, 2015, President Obama called on Congress to pass the Healthy Families Act.  If passed, the Healthy Families Act, as currently proposed, would require companies to give workers up to seven days of paid sick leave a year.  The proposed Act would apply to companies that have at least 15 employees.  Employees at those companies would earn one hour of paid sick leave for every 30 hours worked, up to 56 hours of paid sick time per year. 

Obama also announced that he will take executive action to give at least six weeks of paid leave to federal employees after the birth or adoption of a child.  Obama will grant the paid sick leave to federal employees of the executive branch through a presidential memorandum, a tool similar to an executive order used to direct federal agencies to implement a White House policy.  The program will work by advancing unearned sick time to employees, and will cost $250 million a year to implement.  The move is intended to encourage states and cities to implement similar paid sick leave policies. 

Obama’s actions capitalize on the recent trend of state and local governments to pass workplace regulations on matters like minimum wage and paid leave even as such measures languish in Congress.

In the November elections, ballot measures on sick leave passed in Massachusetts; Trenton and Montclair in New Jersey; and Oakland, California. There are now three states – Massachusetts, California and Connecticut – and 16 cities that offer some form of paid sick leave.  There are currently 43 million private-sector workers in the U.S. who do not have paid leave.

Obama believes that paid leave policies have an economic benefit for employers – that is, businesses with paid leave policies have greater productivity and higher corporate profits.  Critics argue that legislatively mandated leave policies will result in employers off-setting the cost through decreased wages and/or increased prices passed on to the consumer.