Supreme Court 2002: Wrap-Up and Outlook

As the U.S. Supreme Court begins its 2002-2003 term on the Ocotber 7, employers will be watching as the Justices add to the already ample list of cases on the docket. Of the 38 cases that already have been granted review, those involving workplace issues in the private sector number fewer than five. However, commentators expect that cases on the docket involving litigation issues generally, such as the scope of punitive damage awards and the rules for class actions, will impact the defense of employment lawsuits. In the meantime, the closing rulings of the 2001-2002 term marked the end of a session in which 15 cases involving employment, labor, benefits and immigration issues were decided. As noted below, those last decisions ranged from employer actions fighting a union corporate campaign to workplace hazards for disabled employees.

Labor Board Wrongly Imposed Liability On Contractor for Attempting Legal Action Against Unions Engaging In Delay Tactics

The U.S. Supreme Court ruled a construction company and a steel mill owner may not have committed an unfair labor practice by suing several unions, which were engaging in activities to obstruct progress on a nonunion construction project.

Contrary to the findings of the National Labor Relations Board and a federal appeals court, the Supreme Court found the NLRB's standard for determining unlawful retaliation was invalid since it interfered with the employer's constitutional right to petition for redress of grievances under the First Amendment.

While not typical, it is also not unheard of that a labor dispute escalates through the parties' use of judicial and administrative processes when unions are engaged in "corporate campaign" style tactics. In this case, BE&K Construction Co. v. NLRB, 536 U.S. ____ (2002), several unions had attempted to delay construction on a project using nonunion labor to refurbish a steel mill. As the dispute continued, the employers, a construction company and a steel mill owner, sued the unions in federal court alleging violations of labor and antitrust laws.

Specifically, the employers charged the unions had lobbied for irrelevant environmental controls; engaged in nonspecific handbilling, picketing, and strike activity among employees of the subcontractors; filed state court actions for safety and health code violations; and initiated unauthorized grievance proceedings against a joint venture partner.

This was not the first time the Supreme Court had considered whether the NLRB could find an employer had committed an unfair labor practice by filing a lawsuit against individuals engaged in a labor dispute. Nearly 20 years ago, in Bill Johnson's Restaurants, Inc. v. NLRB, 461 U.S. 731 (1983), an employer was found liable for filing a lawsuit in state court against individuals who had picketed the employer's restaurant after a waitress was fired. But, BE&K Construction presented a different question for the Court. In the Bill Johnson's Restaurants case, the Court considered whether the NLRB could impose liability for an unfair labor practice based on ongoing litigation, for which the remedy is an injunction. In the BE&K Construction case, the Court confronted what is the proper standard for finding already completed litigation to be an unfair labor practice and a violation of federal law.

In reaching a conclusion, the Court had to struggle with a "difficult constitutional question" posed by the situation the parties found themselves in after pursuing the labor dispute to the highest level: does a retaliatory lawsuit that is reasonably based but unsuccessful have the protection of the First Amendment's right to petition for a redress of grievances?

The Court found no reason to prohibit "all reasonably based but unsuccessful suits filed with a retaliatory purpose," but specifically said it was not making a determination about the lawfulness of an unsuccessful lawsuit brought for the sole purpose of imposing litigation costs on a party who engaged in protected activity. Further, the Court said it was not refining the definition of "retaliation" nor questioning the validity of commonly imposed court sanctions or attorneys' fees.

State Mandated HMO Review Law Saved from ERISA Preemption

Group insurance policies purchased by employers from insurance carriers (including HMOs) to provide "fully insured" medical benefits for their employees have long been regulated under state insurance laws.

This type of state insurance law regulation has always been permitted under an exception to the broad preemption provisions of the Employee Retirement Income Security Act (ERISA). In a recent 5-4 decision, the U.S. Supreme Court considered the boundaries of this exception when it decided that ERISA does not preempt a provision of the Illinois Health Maintenance Organization Act requiring HMOs to submit certain disputed medical determinations for an independent medical review Rush Prudential HMO, Inc. v. Moran, 536 U.S. ___ (2002).

The Illinois statute grants participants the right to require regulated HMOs to submit coverage claims denied for lack of "medical necessity" for an independent external review when the primary care physician disputes the HMO's determination. If an independent physician determines the procedure to be medically necessary the HMO is required to provide the coverage.

Concluding that the Illinois statute was a law "regulating insurance," the Court ruled the law was not preempted by ERISA. The Court found the binding nature of the independent physician's determination did not amount to a new enforcement scheme or create any remedies not available under ERISA. The only relief provided by the statute was payment of the medical claim, the same relief available under ERISA.

The overall impact of this decision on employers may be minimal because the decision is limited to fully insured group medical plans. Employers maintaining fully insured medical plans rely on the insurer or HMO to adjudicate benefit claims and generally have no decision making authority in that administrative process. For those types of plans, insurers will lose the ability to establish their own uniform independent review procedures, which may increase costs for their employer customers.

Additionally, recent regulations issued by the United States Department of Labor on benefit claim determinations also will minimize the impact of the Supreme Court's decision. These regulations substantially revise the minimum requirements for benefit claims procedures for all ERISA covered insured and self-insured group health plans. The final regulations are phased in for all plans by January 1, 2003. (See discussion of the new DOL regulations in January/February 2001 Preventive Strategies).

The Rush Prudential decision and the final DOL Benefit Claim Regulations represent the latest judicial and regulatory efforts to fill ERISA's "interpretive gaps", which remain a controversial issue in the current debate over health care legislative proposals.

Employers Can Defend Decisions Not to Hire Disabled Individuals at Risk of Workplace Health Hazards

In the third major decision of the 2001-2002 term involving the Americans With Disabilities Act, and favorable to employers, the U. S. Supreme Court unanimously upheld the "direct threat" regulation issued by the Equal Employment Opportunity Commission. That regulation authorizes an employer's refusal to employ an individual with a disability in a job which could endanger his or her own health or safety. With this ruling, the Court continued its approach to the ADA of focusing on the importance of individualized assessment and the use of objective and reliable medical opinion when making employment decisions with a minimum risk of liability. Chevron U.S.A., Inc. v. Echazabal, 536 U.S. ___ (2002).

The Chevron decision overturns a ruling by the U. S. Court of Appeals for the Ninth Circuit in favor of Mario Echazabal, who had a liver condition which medical opinion had shown would be exacerbated by exposure to toxins in the workplace. The Ninth Circuit had said the ADA's "direct threat" provision permitting an employer to make an employment decision adverse to an individual with a disability only applied when the potential for harm was to others in the workplace and not to the disabled individual.

Consistent with the Supreme Court's prior ADA decisions of the past several years, the Chevron case underscores the basic premise that the law does not bar employers from making employment decisions that may impact negatively on individuals with disabilities. Instead, these cases have focused on the importance of case-by-case determinations of who is disabled, what is a reasonable accommodation, and what is a lawful defense to an adverse employment decision.

The Jackson Lewis Disability Management Practice Group is available to assist employers in sorting through the complex legal and compliance issues involving the Americans with Disabilities Act, the Family and Medical Leave Act, and other workplace disability issues.