Labor and Employment Law Weekly Update (Week of October 31, 2011)

Lessons on Documenting Reasons for a Termination
Written by: Ryan N. Parsons

In Weaver v. Netflix, Inc. [an enhanced version of this opinion is available to lexis.com subscribers], a federal trial court rejected an Oregon employer's argument that it terminated an employee for performance reasons and determined a trial was necessary to weigh the employee's claims that she was terminated for requesting leave under the FMLA and its state law counterpart, the Oregon Family Leave Act. Though the employee had performance and absenteeism issues prior to the requested leave, the court determined that the timing of the termination, less than two weeks after the leave was requested, was sufficiently suspicious that a jury needed to resolve the case.

The employer introduced evidence that the employee's performance ratings "were consistently the lowest among her peers" and that she had shown poor judgment in the past by taking a vacation during the busiest time of the year for the company. The employer also introduced evidence that, based on these faults, the employee's supervisor planned to terminate her prior to becoming aware of the need for leave, but was holding off until the conclusion of the employer's busy holiday season. The supervisor never documented this plan and, just weeks later, the employee informed the employer that she needed neck-fusion surgery that would cause her to miss between two and six weeks of work. Less than two weeks later, at the end of the employer's first quarter (and busy season), the employee was terminated.

The court determined that the employee was "skating on the thinnest of ice," yet still ruled that there was enough evidence to proceed to trial. Because of the brief period between the request for FMLA leave and the termination, the court found the employee could raise an inference that the employer terminated her in retaliation for exercising her rights under the FMLA. Additionally, the employer's termination documentation included a statement that the employee failed to use "good judgment when asking for time off." The court concluded that this could have referred to the FMLA leave, despite the employer's contention that it referred to the previous vacation she took.

The key takeaway here is not only to document your decisions and plans, but to do so in a thoughtful and timely manner. Had the supervisor indicated her intent to terminate the employee in writing prior to becoming aware of the FMLA leave, the employer almost certainly would have won the case. Likewise, had the employer been more careful when preparing its termination documents, specifically mentioning the employee's ill-advised vacation, rather than referring more generally to "time off," the court probably would have ruled in the employer's favor. What you write, when you write, and how you write it can be the difference between getting a case dismissed quickly and having to litigate it in front of a jury.

Is the IRS Voluntary Classification Settlement Program Right for Your Business?
Written by: Tamar N. Dolcourt

The IRS, U.S. Department of Labor (DOL), and various states have joined together in an effort to crack down on misclassification of employees as independent contractors, as reported in the October 10, 2011 edition of Legal News: Employment Law Update. In combination with the increased investigation and enforcement of laws pertaining to employee classification, the IRS has also introduced the Voluntary Classification Settlement Program (VCSP), which allows companies to prospectively reclassify certain individuals as employees without significant penalties. However, there are certain restrictions and pitfalls to be aware of before your company enters the VCSP.

Under the VCSP, employers may reclassify independent contractors as employees if the workers have been consistently treated as non-employees, and the employer has filed the appropriate 1099 forms for the previous three years. Additionally, the employer may not be currently undergoing a classification audit by the IRS, DOL, or any state agency; if the employer had previously been the target of such an audit, it must have complied with the results to be eligible for the VCSP.

Eligible employers will reclassify these workers as employees for future tax periods and pay 10 percent of the employment tax liability due for the most recent tax year as a result of the reclassification, with no penalties or interest on that liability. The IRS also will agree not to audit the employer as to classification of these workers for prior years. However, the employer must agree to extend the limitations period for assessment of employment taxes for an additional three years for each of the first, second, and third years after it reclassifies its employees. The IRS also has no obligation to accept an employer's participation in the VCSP.

Not only is the employer required to agree to extend the assessment period for an additional three years, but there are other factors to consider before deciding to enter the VCSP. Though the IRS will limit an employer's federal tax liability under the program as described above, the DOL and various state agencies are not involved with the program at this time, and it is possible that any reclassification with the IRS may lead to back penalties and assessments by these agencies. Therefore, any consideration of whether to participate in the VCSP should include a determination of potential liability to agencies other than the IRS.

The VCSP may be an effective tool for employers who realize they have misclassified workers and wish to proactively address the issue before they become the target of an IRS investigation. However, there are significant considerations beyond federal tax liability that must be considered when assessing whether the program is right for your company.

Labor and Employment Trivia

Last week's question: Who was the first female ever appointed to the president's cabinet, and what agency of the federal government did she run?

Answer: Frances Perkins was appointed Secretary of Labor in 1933 by President Franklin Roosevelt. She was the first woman Industrial Commissioner under New York Governor Franklin Roosevelt and held other important labor-related jobs in the New York state government under Governors Roosevelt and Al Smith. Secretary Perkins served 12 years, 3 months, longer than any other secretary. In 1980, the Department of Labor headquarters building in Washington, D.C. was named for her.

This week's question: Which federal labor law was passed over a presidential veto? Who was the president and how did he seek to use the law he originally opposed?

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