Employers are Bracing for Four Types of Employment Claims Arising Out of the COVID-19 Pandemic
The COVID-19 pandemic has directly or indirectly impacted the life of every person on earth. According to the U.S. Bureau of Labor Statistics report on April 3, 2020, the national unemployment rate has jumped exponentially from 1.35 million unemployed Americans in early 2020 to more than 20 million in mid-April. Various major financial institutions have indicated that the U.S. gross domestic product will shrink anywhere from 14-30 percent in the next quarter from April 2020 to June 2020 due to COVID-19 concerns. The federal government has recently formulated a three-phase “gating criteria” to ease social distancing restrictions and attempt to get America’s economy back on its feet as quickly as possible to mitigate the economic fallout of the pandemic while also balancing public health and safety needs.
Employers of all sizes are equally worried about their business as a going concern during this unprecedented time. As state and local officials currently re-evaluate stay-at-home orders, human resources professionals, risk managers, in-house counsel, and executives are having to assess how to maintain the employers’ workforce while balancing business continuity needs. Many are forced to figure out how to increase cashflow, which may involve cost containment measures with respect to labor, including furloughs, layoffs, reduction in hours and/or pay, or other strategies. Further, to the extent employers are continuing to operate under public health orders, workplace safety concerns remain a top priority, along with defeating technological hurdles to allow remote employees to work effectively from home. There may be some end in sight to the halt on our economy, however, as businesses like restaurants, movie theatres, sporting venues, places of worship, and gyms may reopen pursuant to federal guidelines under Phase I of its “Opening Up America Again” protocol, which remains subject to final approval by the individual states.
This “new normal” has created a perfect storm of potential COVID-19/employment-related claims, and the earliest of these lawsuits are already being filed throughout the country. From one metric, Lex Machina provided that 1,593 employment-related lawsuits were filed in federal courts nationwide from January to March 2020, compared with 1,491 cases filed in the same period in 2019. This 7 percent increase provides insight into the potential momentum of claims that employers may have to contend with as this health crisis continues to impact businesses. What are the types of employment claims that we can expect to see arising out of the coronavirus?
This paper will explore the potential employment-related claims that businesses may encounter arising from the COVID-19 pandemic. In sum, there are four types of potential employment claims: (1) leave- and discrimination-related charges; (2) breach of contract claims; (3) WARN Act violations; and (4) wage- and hour-related claims. We also provide a list of questions that employers should ask when they receive a COVID-19-related claim. Employers should remain vigilant, strategic, and forward-thinking as we continue to attend this “new normal” and look forward to the possibility of businesses reopening across the country.
I. Leave- and discrimination-related charges
In the pre-pandemic world, employees who requested time off to care for themselves or other family members had protected unpaid leave under relevant federal and state law, so long as they have a qualified medical condition. See generally, 29 U.S.C. § 2601, et. seq. (Family Medical Leave Act [FMLA]); Wash. Rev. Code. Ann. § 50A.05.005, et. seq. (Washington State); N.J. Stat. Ann. § 14:11B-1, et. seq. (New Jersey). These employees have the right of reinstatement, along with a right to bring a private action against the employer seeking damages in terms of lost wages and benefits, liquidated damages, interest, and injunctive relief, and be awarded attorney’s fees should the employee prevail.
In our post-pandemic world, leave laws have changed significantly. On March 18, 2019, President Donald Trump passed the Families First Coronavirus Response Act (FFCRA), which includes protected paid leave for covered employees. See 29 C.F.R. §§ 826.10, et. seq. These protections are found under the subsections of the FFCRA under the Emergency Family Medical Leave Expansion Act (E-FMLEA) and the Emergency Paid Sick Leave Act (E-PSLA). The E-FMLEA states that, except in limited circumstances, employers with fewer than 500 employees must provide protected leave to qualified employees to care for an employee’s minor child if the child’s school or daycare is closed due to the pandemic. Id. The E-PSLA provides paid sick leave for those with a qualifying need, which include: (1) employees or family members being subject to a federal, state, or local quarantine or isolation order related to COVID-19; (2) self-quarantining because the employee or family member is exhibiting symptoms or a healthcare provider advised to do so; or (3) to care for the employee’s minor child if the child’s school or daycare is closed due to the pandemic. Id. Qualified employees under the FFCRA are entitled to the same protections under the FMLA, but also have paid leave protections under the formula set forth in FFCRA. Id. The FFCRA also created a small business exception that exempts small businesses out of requiring to provide these employee protections if they have fewer than 50 employees and the business meets one of three criteria, all of which generally involve business continuity concerns. Id.
Employees grappling with the effects of COVID-19 are requesting covered employers to take time off work to take care of children who are out of daycare, or their family members who have tested for the virus or who are untested but are self-quarantined on their own volition or at the advice of a healthcare professional because they are showing symptoms. A covered employer who denies the requested leave, requests improper documentation, or retaliates against an employee for taking such leave may be subjecting themselves to potential exposure to a claim of violation of the FMLA, FFCRA, or state-equivalent laws. Retaliation can take on different forms, including a reduction in hours, change in job duties or title, and even suspension or termination. To defend against these claims, employers may assert they have a legitimate business reason for taking such actions, wholly unrelated to the leave request, which will necessarily involve a comprehensive factual inquiry. Relatedly, smaller employers will rely on the small business exception to avoid liability under the FFCRA and to argue that it had a legitimate basis to take any adverse employment action. These defenses notwithstanding, employers are cautioned not to use COVID-19 for any illegitimate reasons to terminate — the pandemic is not an excuse to escape from an employer’s obligations under the law.
Employers could also see a surge in disability-related discrimination claims arising out of the pandemic as businesses take austerity measures or if they reopen for business in the future. Existing state and federal laws mandate that employers not discriminate or retaliate against an employee based on their own disability. See generally, 42 U.S.C. § 12101, et. seq. (Title I of the Americans with Disabilities Act of 1990 [ADA]); 29 U.S.C. § 701, et. seq. (Rehabilitation Act of 1973 prohibiting discrimination involving federal government [Rehabilitation Act]), N.Y. Exec. Law § 296, et. seq. (New York State), Cal. Gov. Code § 12940, et. seq (California). Employees who find themselves exhibiting symptoms of COVID-19 may ask their employer if they can go home to see a doctor, get tested for the virus, or self-quarantine. Employers would normally provide reasonable accommodations with respect to any known concerns and properly engage with the employee to find such an accommodation. However, too often miscommunications occur, especially during these frenetic times, regarding the nature, duration, or extent of a proposed accommodation to determine its reasonableness. For example, it is anticipated that employees perceived as “unhealthy” or “high risk” may be subject to disparate treatment or, conversely, may seek accommodations because they are fearful to return to work. As well, employees may seek leave for stress, claiming the pandemic has adversely affected the employee’s state of mind. Furthermore, an employer could also subject themselves to a whistleblowing claim if it demotes or terminates employees after employees complain that they are adhering to self-quarantine orders by public health officials, as further discussed in the next section of this article.
In addition to discrimination based on disability, employers could face claims of discrimination based on national origin, race, or age in connection with the etiology of COVID-19. In particular, employees of Asian descent or of Chinese national origin may be subject to disparate treatment from co-workers or supervisors given where the pandemic began. Other races and national origins are being subjected to unwarranted prejudice, including those from countries where there was or currently is outbreak of the coronavirus, such as Italy, Spain, Iran, and South Korea, among others. Furthermore, there have been reports of certain demographics of Americans being disproportionally infected with the disease compared with others based on age and race.
Employers must exercise diligence to attack discrimination or retaliation based on any protected classification head-on as they continue to wrestle with the effects of this public health crisis.
Employees who engage in whistleblowing activities are safeguarded against retaliatory or other disparate treatment by employers. See e.g. generally 29 U.S.C. § 660(c) (safety-related issues under the Occupational Safety and Health Act of 1970 [OSHA]); 5 U.S.C. § 2302, et. seq. (Federal Whistleblower Act of 1989 involving federal employees); Cal. Lab. Code § 1102.5, et. seq. (California); Tex. Govt. Code § 554.001, et. seq. (Texas); CO Rev. Stat. § 24-114-102 (Colorado).
Driven by fear and uncertainty, there has already been a marked increase in complaints by employees about workplace safety, exposure to COVID-19, and adherence to local and state public health orders and/or OSHA directives regarding social distancing, disinfecting workstations, and/or other decrees. For example, a nurse in Chicago recently filed a whistleblower retaliation lawsuit in Cook County Circuit Court alleging that her hospital employer retaliated against her by terminating her after she complained of safety concerns surrounding the lack of N95 masks while caring for patients. In another recent case, a Los Angeles employer is confronted with a potential whistleblower claim after its employees filed a complaint with the Los Angeles County Department of Public Health after it became known that an employer failed to take any safety actions for days after it allegedly knew several employees contracted COVID-19. Other whistleblower claims could arise based on improper execution of the FFCRA, and other employment protections under state and federal law.
II. Breach of employment contract and force majeure issues
As companies scale down operations, many are faced with the inability to perform their obligations under employment contracts setting out specific terms, including dates of employment and compensation structure. Employers may find themselves in a litany of lawsuits filed by employees claiming breach of contract and other contract-related causes of action in connection with either (1) termination of employment agreements or (2) pay reductions that are contrary to the terms of the agreements. They may seek specific performance or damages resulting from the alleged breach.
In response, employers may consider relying on force majeure (“superior force”) arguments to the extent such a provision is included in the employment contract. The well-established doctrine generally excuses both parties from contractual liability or obligation when an extraordinary event or circumstance beyond the control of the parties prevents one or both of the parties from fulfilling their obligations under the contract. Whether an employer succeeds on any such claims will depend generally on how specific or general the force majeure clause is in the contract, how the pandemic has affected the parties from a causation and duration perspective, and how the parties have attempted to mitigate the effects of the pandemic. Businesses embroiled in such claims where the agreement in question does not have a force majeure provision may seek to rely on the common law defense of impossibility or impracticability, which provide similar excuses from liability.
III. Warn Act violations
Under the federal WARN Act, a covered employer must provide advanced written notice to employees who may be subject to a plant closure or mass layoff, as defined under the law. See generally, 29 U.S.C. 2101-2109. These covered employers who violate the WARN provisions without the proper notice are liable generally for back pay and benefits for the period of violation, up to 60 days, for each aggrieved employee. The employer is also subject to an additional civil penalty up to $500 per day for each day of the violation for failing to provide notice to the local government. Id.; see also 20 C.F.R § 639. States have different variations of who is a covered employer, the types of plant closures and layoffs that trigger the notice, and the penalties employers may face if in violation of the notice requirement. See Conn. Gen. Stat. §§ 31-51n and 31-51o (Connecticut); Cal. Lab. Code §§ 1402, 1403 (California); Tenn. Code Ann. § 50-1-601 et. seq. (Tennessee); N.Y. Lab. Law § 860, et. seq. (New York).
Given the sudden and immediate impact of COVID-19 on businesses, employers are arguing that it is virtually impossible to provide the required 60-day notice under the federal mandate. Employers may attempt to lean on two exceptions under the federal WARN Act: the Natural Disaster Exception (NDE) and the Unforeseeable Business Circumstance Exception (UBCE). The NDE states that “[f]loods, earthquakes droughts, storms, tidal waves, or tsunamis and similar effects of nature are natural disasters….” 20 C.F.R § 639.9(c). The UBCE states that the exception applies if the layoff or plant closing is caused by a “sudden, dramatic, and unexpected” business circumstance not reasonably foreseeable and outside the control of the employer. While the UBCE may exempt an employer from providing notice at least 60 days prior to the layoff or closure, the exception maintains that a notice still be provided to affected employees as soon as practicable. 29 U.S.C. § 2102.
Unfortunately, as of the date of this article, the federal government has not yet provided any guidance on the application of either the NDE or the UBCE to COVID-19. Some states, like California, have expressly stated in an executive order that the current pandemic is an unforeseeable business circumstance under federal law. While the general belief is that the UBCE may apply with COVID-19, it still remains unknown how courts will weigh any state executive order, particularly if the federal government provides guidance that is inapposite or inconsistent with the executive order. Furthermore, there is no case law to interpret how the UBCE and NDE apply to pandemics. Therefore, given the continued lack of clarity on the applicability of these exceptions, along with the notice requirement under the UBCE, we can expect to see litigation arise from violations of the federal WARN Act.
IV. Wage- and hour-related claims
Employers also may have to contend with employee claims that employers failed to provide and/or pay for all required meal periods, rest breaks, and overtime for remote and on-site employees. While federal law does not mandate that meal periods and rest breaks be provided, to the extent they are, protections exist under the Fair Labor Standards Act (FLSA) regarding the duration, extent, and pay for these breaks. 29 C.F.R. §§ 785.18, 19. The FLSA also requires covered employers to pay overtime for employees who work more than 40 hours a week. See generally 29 C.F.R. § 778.0, et. seq. States have enacted their own laws with respect to the treatment of meal periods, rest breaks, and overtime. See e.g. Cal. Lab. Code §§ 226.7, 510, 512, I.W.C. Order 4-2001 §§ 12, 14 (California); WAC 296-128-500, et. seq. 296-126-092, et. seq., (Washington State); 28 R.I. Gen. Laws Ann. §§ 28-12-4.1 (Rhode Island); Mass. Gen. Laws Ann. ch. 149, § 100, et. seq. (Massachusetts).
Whether for employees performing in traditional workplaces, working remotely, or returning to transformed offices and job sites, employers are doing their best to provide the required breaks and proper amount of pay for overtime work performed under applicable law. One obvious issue employers continue to find challenging is that managers believe they are unable to supervise employees as effectively and efficiently in the remote environment as they did in the pre-pandemic work environment in the office. Employers are well advised to encourage managers to continue executing best supervisory practices in this new remote work environment, including setting clear expectations with employees, conducting regular check-ins, video-conferencing when issues arise, and other inclusive efforts to maintain good communication and morale while instilling confidence in employees that the employer is supporting them during these uncertain times.
The federal FLSA cannot require employees to pay or reimburse the employer for business-related expenses that cause the employee’s wage to drop below the minimum wage or overtime threshold. 29 C.F.R § 778.217. States including Illinois, California, Montana, Pennsylvania, Iowa, New Hampshire, and Massachusetts, as well as the District of Columbia, require employers to reimburse necessary expenditures incurred by the employee within their scope and course of employment. See e.g. 829 Ill. Comp. Stat. Ann. 115/9.5 (Illinois); Cal. Lab. Code § 2802 (California).
As employees continue to work remotely while stay-at-home orders remain in place, employers may receive questions from employees as to whether the employer can reimburse for expenses incurred involving the use of their personal cellphone, electricity, internet usage, or other home office costs. Employers are advised to review company policies with respect to reimbursement along with the relevant law in the employer’s jurisdiction and develop a strategic plan of action accordingly. Failure to do so will result in claims for failure to reimburse expenses, which may, in certain jurisdictions, entitle the employee to attorney’s fees if the employee prevails on the cause of action.
V. Questions for claims professionals, risk managers, human resources professionals, and in-house attorneys to ask after receiving a COVID-19-related claim
When a COVID-19-related claim arises, what kind of questions should be asked to help streamline the defense and adjudication of the claim?
- Are there any joint employer issues?
- Can the employer seek indemnification from a third party?
- Leave-related complaints
- Do the plaintiff and defendant fall within the definitions of “employee” and “employer” within the statute?
- Have employers provided the required notices to employees?
- Does the employee have a qualifying need?
- What communications exist between the employer and employee regarding the need?
- Does the employer have a legitimate basis to deny leave under the law or use any exceptions promulgated by statute?
- Discrimination claims
- What policies have employers put in place to minimize the risk of COVID-19-related discrimination?
- What kind of education has the employer provided to its human resources departments with respect to handling these types of complaints?
- What kind of evidence demonstrates the decision-making processes regarding any complaints received?
- Has the employee sought workers compensation benefits related to the claim?
- Whistleblower retaliation
- What safety protocols have been put in place since the pandemic started?
- Has the employer used any of the recommendations by federal health and safety officials such as OSHA or the CDC?
- Were there any legitimate business reasons for taking any action against the employee?
- Breach of contract
- Are there any written or oral modifications of the original agreement?
- Is there a force majeure clause? Does it specifically reference pandemics?
- Did the pandemic have an immediate adverse effect on the employer’s business?
- How has the employer attempted to mitigate any impossibility or impracticability of performance of the contract?
- In light of businesses reopening, is the duration of the reduction of pay commensurate with the financial concerns of the employer?
- WARN Act violations
- Does the layoff or plant closure fall within the scope of the federal or state WARN Acts?
- If notice is required, was it adequate under the law?
- Can the employer rely on any of the exceptions under statute?
- Timekeeping wage and hour issues
- Has the employer enacted any supplemental policies and break practices for employees who are remote?
- How has the employer attempted to communicate and enforce these policies to remote employees? On-site employees?
- Have employees signed arbitration agreements?
- Reimbursement demands
- What kind of policy does the employer have regarding reimbursement of expenses?
- What is the procedure to seek reimbursement?
- Has the employer considered alternative methods to reimburse employees (e.g., flat monthly stipend)?
The COVID-19 pandemic and related public safety measures will continue to impact business for the foreseeable future. As the nation comes to grips with the effects of COVID-19 and businesses consider reopening on-site operations, employers, in-house counsel, risk managers, and underwriters are well advised to do the same and review all new regulations, anticipate potential claims, and revise company policies to mitigate the risk of potential exposure.
About Goldberg Segalla
Employment Practices Liability (EPL) Defense and Risk-Management
Goldberg Segalla frequently counsels and defends clients facing the full gamut of Employment Practices Liability (EPL) matters, including emerging employment-related concerns and issues involving new statutes, regulations, agency guidance, and case law, as well as executive orders and other developments related to the novel coronavirus pandemic. We represent employers in state and federal court through various avenues of ADR, and before federal agencies such as the U.S. Equal Employment Opportunity Commission, the Department of Labor, the National Labor Relations Board, and the Occupational Safety and Health Administration, as well as local and state agencies.
Our ability to assist employers with training and risk management sets us apart. Attorneys across our national Employment and Labor practice—over 50 experienced counselors and litigators based in more than 20 offices across 11 states from coast to coast—monitor breaking developments in case law and state and federal statutes, as well as emerging and evolving trends in EPL claims and judicial decision-making, and we provide our clients with valuable news and analysis through email alerts, webinars, white papers, and other communications on a rolling basis. We routinely perform risk management assessments and develop comprehensive claims and litigation avoidance strategies for our clients, and we offer on-site training—both to the executives and human resources departments of insured employers, as well as claims executives, underwriters, and third-party-administrators—on the full spectrum of employment issues. Long-term clients count on these value-added services to lower legal spending and reduce the incidence of distracting and potentially damaging EPL claims.
Neither Ironshore nor any other Liberty Mutual company (the “Insurer”) are engaged in the practice of law. The foregoing information is for informational purposes only. It is not a substitute for legal advice from a licensed attorney, nor does it create an attorney-client relationship. Local, state, and federal laws continue to change during the pandemic. The Insurer disclaims all liability arising out of this resource.
Senior Vice President, Chief Claims Officer, Management and Employment Practices Liability
Vice President, Management and Employment Practices Liability
Peter J. Woo
Vice Chair, Employment and Labor
Goldberg Segalla LLP