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As kids, the holiday season was limited to a late Christmas Eve and an early Christmas morning. As adults, it goes from Thanksgiving through the first week of January (except in New Orleans, which somehow manages to stretch it through Valentine’s Day and Mardi Gras). Usually that means it’s a relativity quiet time for “Work Matters.” But, not this time around. As all of us nibbled turkey, drank eggnog and sipped champagne, Congress, the bureaucracy and the courts pumped out new laws, new regulations and new cases — all with a more than seasonal impact. Let’s look at Congress first. Imagine the director of engineering at Company XYZ accuses the chief executive officer of sexual harassment. The general counsel’s office does the right thing: It hires a third-party investigative service to look into the allegations, and the company fires the CEO after reviewing the investigator’s report confirming the misconduct took place. Before Jan. 1, Company XYZ’s conduct arguably violated the Fair Credit Reporting Act (FCRA) because the CEO never consented to the investigation nor was he given the report. This perverse result springs from the infamous named-after-its-author “Vail Letter” from the Federal Trade Commission, which concluded that the FCRA covered investigations of misconduct by third-party investigators and thus FCRA due-process rights attached to the accuser. Now, thanks to the hard work of Texas’ own lawmakers, U.S. Rep. Pete Sessions and U.S. Rep. Sheila Jackson Lee, the Vail Letter is (for the most part) packed off to the Museum of Legal Oddities by the Fair and Accurate Credit Transactions Act (FACT Act), which President George W. Bush signed into law on Dec. 4, 2003, and went into effect on Jan. 1. Employers now are free to investigate employee misconduct without notifying the target of the investigation, obtaining his or her consent, or revealing the content of the investigator’s report before taking adverse employment action against the employee. There’s one catch, however. The company must now, after taking any adverse employment action based on the investigation, provide to the target of the investigation a “summary of the nature and substance of the communication upon which the adverse action was based.” Don’t worry. The employer isn’t required to disclose the sources of the information; confidentiality is preserved. On Dec. 22, 2003, as Santa was about to lift off, the bureaucracy in Washington, D.C., slipped a big present for corporate America into St. Nick’s bag. In the Dec. 12, 2003, Federal Register, the U.S. Department of Labor (DOL) announced that it plans to issue a final rule changing the Fair Labor Standards Act’s overtime regulations by March 31, 2004. A little history lesson: Last year after the DOL announced the changes, some members of Congress went apoplectic; the changes were derailed — temporarily. Now — think “Poltergeist II” — “they’re back.” The changes will make overtime the exception, not the rule. By way of example, the administrative exemption to overtime will greatly expand, with employees becoming exempt if they hold “a position of responsibility,” which means performing work of substantial importance, or if they are employees with a high degree of skill or training. The disjunctive always lets the company maximize its running room. Gone will be the current regulations mandating that the employee must exercise discretion in performing these duties to be classified as exempt. And the regulations’ definition of “substantial importance” and “high level of skill or training” are likewise expansive and pro-employer. Come April, absent some congressional intervention, a GC’s office will need to decide how its company wants to utilize the new regulations, including some of the more Draconian measures, including no overtime for an employee making $65,000 per year or more if the employee possesses just one function that is identifiable as an executive one under the regulations or performs only one duty as an administrative one under the regulations. Stay tuned for developments, but here’s some advice in the interim. A famous rock star, renowned for dating models and actresses, was asked why he did so. Without missing a beat he declared, “Because I can.” Not good advice for a relationship, and perhaps even worse advice when deciding whether to treat employees as exempt. But the DOL regulations look like they’re going to give corporate America a lot more options on paying for a lot less overtime. On New Year’s Eve 2003, the Texas Supreme Court snatched confusion from the jaws of clarity, and in a 6-3 decision made arbitration agreements in the workplace harder to enforce. According to the opinion, Chelsey Webster goes to work for the J.W. Davidson Co. and, in a one-page document they “mutually agree and contract” to submit disputes between one another to binding arbitration. But, at the end of the document is a kicker: “The company reserves the right to unilaterally abolish or modify any personnel policy without prior notice.” The high court’s decision in J.W. Davidson Inc. v. Webster was binary: If an arbitration agreement is a personnel policy, then the mutual agreement is illusory and Webster doesn’t have to arbitrate his workers’ compensation retaliation claim; if it’s not, then he must. So far, so good. But, inexplicably, the court couldn’t figure out if an arbitration agreement was a personnel policy, and so the justices sent the whole thing back to the trial court to conduct an evidentiary hearing on what the parties intended. Our question: What else would or could an arbitration agreement be but a personnel policy? If a GC’s office is thinking about rolling out an arbitration agreement or the company has one in place now, err on the side of caution and provide that the arbitration agreement can be amended by the company upon giving adequate notice and that any amendment is inapplicable to a claim arising before the notice. That way, the company will dodge the problems generated by the court’s confusion. SMART MOVE But when one door closes another opens. On Dec. 19, 2003, the Texas Supreme Court issued a pro-employer (and wise) interpretation of the phrase “possession, custody, or control” found in the Texas Rules of Civil Procedure. According to the opinion, Hal Kuntz was going through a divorce. His spouse wanted — and the trial court ordered him to produce — documents belonging to his employer. The documents, to which Kuntz had full access, reflected deals Kuntz’s employer entered into but in which he also had a financial interest. Kuntz’s lawyer wrote the employer and requested the documents; the employer said “you can’t have them,” claiming they contained confidential information and trade secrets. The Supreme Court rode to the rescue, and said in In Re: Kuntz that the soon-to-be ex-husband/employee didn’t have “possession, control, or custody” of the documents within the meaning of the rules and let him off the hook. Here’s the court’s bottom line: While possession may be nine-tenths of the law, it’s the other one-tenth that counts. Kuntz is going to come in handy in a general counsel’s office when an employee’s private life gets tangled up with a demand for company documents. Simple rules are the best rules. The 5th U.S. Circuit Court of Appeals likewise has been busy. Here’s a corporate counsel’s nightmare: Temporary employees (those hired by the temporary agency to work for the company but on the temporary agency’s payroll) work side-by-side with regular employees (hired directly by the company and on the company’s payroll). They do the same work, under the same conditions — except one: The temporary employees don’t receive the same fringe benefits that the regular employees do. They bring a class-action suit, saying they should. Well, that nightmare became real for Irving-based ExxonMobil Corp. when a class of temporary employees did just that. But ExxonMobil won on summary judgment in MacLachlan, et al. v. ExxonMobil. Here’s why, according to the opinion: First, the term “regular employee” in the benefits’ plan documents referred to employees on the payroll of the company, and not individuals hired from a temporary service. Second, the agreement between the temporary employee and the temporary service made it clear that the individual was employed by the temporary service — not ExxonMobil. Third, while an earlier version of the benefits’ plan documents did not explicitly exclude temporary employees, it didn’t explicitly include them; the court said that “the remedy for such an ambiguity . . . is not the compelled inclusion of all employees who arguably fit within its scope, but rather, the exercise of interpretative discretion by [the plan administrator]. . . .” And, here’s some more good news in a footnote. (It’s a mystery to us why the good stuff is always in the court’s footnotes. We suppose it will always be an unsolved mystery — something along the lines of what Elizabeth Taylor ever saw in Eddie Fisher or in a more contemporary vein what Julia Roberts saw in Lyle Lovett.) Here’s the good news: The plaintiffs in MacLachlan argued that interpretation of the benefits’ plan documents by the ExxonMobil plan administrator should not be given any judicial deference because the administrator who decided not to fork over benefits was an ExxonMobil employee. Thus, according to the plaintiffs, there was a conflict of interest (less money to individuals, more money to the company) and judicial deference to his decision is inappropriate. The court was not persuaded. Following that reasoning would mean that there would be a near-presumption of a conflict in every case in which an employer offers a benefits plan and pays someone to administer it, making a full application of the abuse-of-discretion standard the exception, not the rule. On Dec. 17, 2003, the 5th Circuit gave some additional good news to the bottom line when it decided Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot and Wansbrough. Bombardier has a self-funded employee welfare benefit plan, governed by the Employee Retirement Income Security Act. One of its employees was injured in an automobile accident, and the plan paid $13,643 to cover his medical expenses. However, according to the opinion, the plan documents made it clear that the plan had a right to recover 100 percent of the benefits paid by the plan to the extent that the employee recovered monies because of an accident. Well, sure enough, the employee sued the tortfeasor responsible for the accident and received a $65,000 negotiated settlement. The Bombardier plan said the employee must cough up the $13,643 it paid to him; the employee said “no,” and the plan sued under ERISA. In a case of first impression for the 5th Circuit, the court said that the plan could sue under ERISA and seek equitable relief — that is, disgorgement of the monies owed to it. That’s welcome news for Texas employers. Finally, the 5th Circuit started off the New Year by settling an unsettled area — namely, whether an employer has an insurable interest in the life of an employee. Here, according to the Jan. 5 opinion in Scott Mayo, et al. v. Hartford Life Insurance Co., et al., Wal-Mart took out life insurance policies on its employees. When they died, the monies reverted to Wal-Mart as a beneficiary. Although the issue has not been resolved by the Texas Supreme Court, the 5th Circuit said that it knew what the Supreme Court would do, and found that such agreements — as they relate to rank-and-file employees — are invalid. This ruling leaves unaffected provisions in the Texas Insurance Code allowing a business to be named as beneficiary in a policy insuring the lives of officers, stockholders and partners. Also, it doesn’t affect an employer’s ability to obtain insurance on the lives of its employees to provide funds to offset fringe benefit-related liabilities. What it does do is finally give clear guidance to general counsel on when this practice is OK and when it’s not. Employment law is no longer a backwater. It’s now a 24/7, month in month out preoccupation for all companies — from the hot dog vendor on the street corner to the glass-wrapped monolithic skyscrapers in the central business district. Always keep an eye peeled for developments. They come — holidays or not. Michael P. Maslanka is chairman of the labor and employment section at Godwin Gruber in Dallas and writes the “Texas Employment Law Letter,” which can be accessed at Raymond D. Martinez is an associate with the firm.

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