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Employer and Employee Rights and Responsibilities

State and federal courts have recently examined some important issues for employers and employees.

Sick leave policies must comply with Indiana’s wage payment laws.  Indiana’s wage payment laws provide harsh penalties for employers who fail to fully compensate their employees on a timely basis.  These penalties include treble damages and the recovery of attorney’s fees for an employee who proves that the employer failed to pay the employee’s wages.  A recent Indiana Court of Appeals decision clarified the law regarding sick leave policies established by employers.

In Schwartz v. Gary Community School Corporation, 762 N.E.2d 192 (Ind. Ct. App. 2002), an employee sued his former employer for failing to compensate him upon his termination for sick leave that he had accrued but not used.  The school corporation’s sick leave policy provided that employees received thirteen sick days per year, to which they could add another ten days of unused vacation time, and that departing employees were entitled to be paid $50.00 for each day of unused sick leave that they had accumulated at the time of their departure.  Although at the time of his departure the employee had accumulated 110 days of unused sick leave, the school corporation failed to compensate him for the unused leave time.

In Indiana, wages are defined as something that is paid on a regular periodic basis for regular work done by the employee.  Deferred payment of compensation that accrued during an employee’s tenure is a wage under this definition.  The Court of Appeals found that Mr. Schwartz’s sick leave was earned over time and the payment for accrued sick leave accrued over time, and therefore, it should be treated as wages.  Payment for sick leave that is earned each week but deferred until a later time is a wage.  Because the compensation for sick leave constituted wages, Mr. Schwartz could recover from the school corporation the penalties under the wage payment laws, which included treble damages and reimbursement of his attorney’s fees.

It is important to note, however, that the conclusion reached in the Schwartz case is limited by the particular sick leave policy at issue.  The determination of whether sick leave benefits are wages is determined on a case-by-case basis.  Because the school corporation in Schwartz had provided compensation for unused sick leave and had put no limitation on its employees’ use of sick leave, the Court found that it was akin to wages.  However, where an employer explicitly limits employees’ use of sick leave, such as by stating that sick leave may only be used for illness or injury, and does not provide compensation for unused sick leave, the sick leave will not be considered wages and the employer will not be subject to penalties under the wage payment laws.

Employers should review their sick leave policies to ensure that their practices are in compliance with the state’s wage payment laws.

Non-unionized employees gain new rights.  The rules governing the disciplinary processes by employers just got more complicated thanks to a recent ruling by the United States Court of Appeals for the District of Columbia Circuit.  In Epilepsy Foundation of Northeast Ohio v. N.L.R.B., 268 F.3d 1095 (D.C. Cir. 2001), the District of Columbia Circuit ruled that when an employer conducts an investigatory interview that may result in disciplinary action against a non-unionized employee, the employee has a right to request the presence of a coworker.

Employees in unionized workplaces have long enjoyed the right to coworker representation at investigatory interviews.  Such representation was viewed as an inherent part of the National Labor Relations Act’s guarantee that employees shall have the right to engage in concerted activity.  Those arguing against extending this rule to the non-unionized workplace contended that where the workers are not represented by a union, the presence of a coworker at investigatory interviews falls outside the National Labor Relations Act’s definition of “concerted activity.”  The District of Columbia Circuit, however, found that the logic supporting coworker representation for unionized employees also applied to non-unionized workers.  The Court determined that “the presence of a coworker gives an employee a potential witness, advisor, and advocate in an adversarial situation, and ideally, militates against the imposition of unjust discipline by the employer.”

Although the District of Columbia Circuit’s ruling is not binding law in Indiana, its interpretation of the National Labor Relations Act will likely be followed by local federal and Indiana state courts.  Indiana businesses would be wise to implement any necessary changes in their disciplinary processes in accordance with this case.  For those businesses that do not have a unionized workforce, this ruling provides a significant new entitlement to employees, i.e., the right to request a coworker’s presence at meetings that may result in disciplinary action.

Family and Medical Leave Act regulation struck down by U.S. Supreme Court.  The Supreme Court in a divided opinion struck down a Family and Medical Leave Act (FMLA) regulation in Ragsdale v. Wolverine World Wide, Inc.  The Department of Labor Regulation at issue in this case stated that if an employee takes a paid or unpaid leave of absence and if the employer fails to designate the leave as “FMLA leave,” the leave does not count against the employee’s annual FMLA leave entitlement of twelve weeks.  Under this Regulation, after the employee returned from the undesignated leave, the employee would still be entitled to his or her annual twelve week FMLA leave entitlement.

After a careful analysis of the wording of the FMLA, the Supreme Court held that the Department of Labor had exceeded the scope of its authority in this particular Regulation.  The Court held that the punishment for failing to designate the time off was incompatible with the remedial nature of the Act.  Thus, the Court ultimately held that the employer did not have to grant the employee an additional twelve weeks of leave.

What does this mean for employers?  While employers still must give the requisite notice to employees (the Court did not go so far as to declare that employers did not have to give notice to the employee who requests time off that qualifies under the FMLA), the Court will not automatically require an employer to give an employee an additional twelve weeks of leave if the employer fails to designate the leave as “FMLA leave.”  Rather, if the employer fails to designate the time as FMLA time, the employee will have to prove that he or she was actually prejudiced by the failure to designate the time off in order to receive additional time off under the Act.

In order to avoid employee complaints and challenges under the FMLA, employers should continue to give notice to employees regarding the employees’ rights under FMLA and employers should continue to designate the leave time as “FMLA leave.”  However, if an employer inadvertently fails to designate the time off, it does not automatically mean that the employee is entitled to additional leave time.  Each individual situation will be evaluated on its own facts.