Indiana Business Lawyer Blog

Indiana Business Law Indiana Courts May Pierce the Corporate Veil or Find Successor Liability When Two Corporations are Too Similar By: Jeremy L. Fetty

2012-05-03T14:16:33Z

In Ziese & Sons Excavating, Inc. v. Boyer Const. Corp. and Boyer Construction Group Corp., 2012 WL 1066026 (Ind. Ct. App. 2012), the court stated that summary judgment was inappropriate after finding genuine issues of material fact as to both the questions of piercing the corporate veil and successor liability, addressing issues when a corporation is similar in name, operation, shareholders, owners, employees, and project ownership. In this case, Ziese had performed work for Boyer Construction Corporation (“Corporation”) on the Knode Creek Retail Development project (“Project”). After completing the Project, Corporation never paid Ziese. Two years later, Boyer Construction Group Corporation (“Group”) was formed, which performed the same business as Corporation. Further, Group purchased assets from Corporation, including two contracts and personal assets, and had the same individuals who owned, ran, or where employed by Corporation. Finally, Group used Corporation’s website, trademark and logo, and issued a check to Ziese for partial payment for its work on the Project. Pursuant to nonpayment and Group’s creation, Ziese sued both Corporation and Group for payment for services rendered.

]]> The court first examined Ziese’s claim to pierce the corporate veil, asserting that Group was the “alter ego” of Corporation. When a court pierces the corporate veil, the court believes a corporation should not be absolved from liability for the acts of another corporation, as one corporation is so organized and controlled and its affairs are so conducted that it is a mere instrumentality or adjunct of another corporation. A subset of piercing the corporate veil is the corporate alter ego doctrine, which is a device by which a plaintiff tries to show that two corporations are so closely connected that the plaintiff should be able to sue one for the actions of the other. After evaluating the factors involved in both piercing the corporate veil and the alter ego doctrine, the court found the striking similarities between Group and Corporation created a genuine issue of material fact that precluded summary judgment. Specifically, the court based its conclusion on the following facts: that Group was created to conduct the same business as corporation, the name of the two corporations were nearly identical, Group assumed use of corporation’s website, trademark, and logo, despite not acquiring them in a purchase agreement, and that Group publically claimed ownership of Corporation’s building history and projects.

Next, the court examined Ziese’s claim that Group was liable for Corporation’s debt under the successor liability rule, namely fraudulent sale of assets and mere continuation. In general, when one corporation purchases the assets of another, the buyer does not assume the debts and liabilities of the seller. However, when fraudulent sale of assets or mere continuation are found, successor liability will be applied. As to the fraudulent sale of assets, the court found a genuine issue of material fact existed as to whether Ziese could recover for the same reasons enumerated under the alter ego doctrine, plus the fact that Group issued a check to Ziese for payment of a debt despite evidence that Group owed such debt to Ziese. As to the mere-continuation exception, where the court considered whether a predecessor corporation should be deemed simply to have re-incarnated itself, largely aside of the business operations, the court also found a genuine issue of material fact. The court reasoned the fact that the same individuals owned, ran, or were employed by both Corporation and Group, albeit in different combinations, was enough to create the genuine issue of material fact as to whether mere continuation existed.

Therefore, given the genuine issues of material fact as to both piercing the corporate veil and successor liability, the Indiana Court of Appeals remanded the case for further consideration, surmising that such similarities between corporations may not prevent a court from either piercing the corporate veil, finding successor liability, or both.

Jeremy Fetty is a partner in the law firm of Parr Richey Obremskey Frandsen & Patterson with offices in Lebanon and Indianapolis. He often advises businesses and utilities (for profit, non-profit and cooperative) on organizational, human resources, and transactional matters and drafts and reviews commercial contracts.

The statements contained herein are matters of opinion and general information only and are not to be considered legal advice and should not be construed to form an attorney-client relationship. If you have any questions regarding this article, please contact an attorney.

Indiana Utility LawAdjudicatory Proceedings Will Not Always Be a Second-Chance for Utilities in Condemnation Valuation ProceedingsBy: Jeremy L. Fetty

2012-04-02T15:56:22Z

In a recent case, the Indiana Court of Appeals held that a utility will not be granted a full de novo review when the utility fails to actively participate in the administrative proceeding. In Utility Center, Inc. v. City of Fort Wayne, 960 N.E.2d 824, 827 (Ind. Ct. App. 2012), a utility company challenged the city’s board of public works’ (“Board”) compensation award and asserted it should be accorded the right to a jury trial for compensation determination. Both the trial court and Indiana Court of Appeals disagreed, affirming the compensation award and denying the request for jury trial. Specifically, in a condemnation proceeding, where the Board was determining the compensation owed to a property owner, the property owner had great incentive to actively participate in the Board’s determination, as a trial court’s “de novo” review of an administrative decision, as provided for under Ind. Code § 32-24-2-11(a) did not always mean a complete retrial of the issues involved. In that case, the utility failed to present any compensation value of its own, claiming “trial strategy.”

]]> The Indiana Court of appeals found that the trial court was correct in affirming the Board’s compensation award, as the utility could not seek a do-over in the trial court after silently boycotting the Board proceedings by failing to put forth its own proposed valuation or building a record of its specific exceptions to the assessment by submitting thorough remonstrances. Also, the court stated that without specific valuation put forth by the utility or detailed criticism of the appraisal, the Board had almost no choice but to confirm its resolution to pay the company in accordance with the assessment by the Board. Further, in responding to the utility’s challenge that the Board was not an impartial tribunal, the court stated that where a municipality actively seeks to avoid the appearance of impropriety and there is no evidence of actual impropriety, due process rights are not violated when a municipality’s employees serve as advocates and different employees of the same municipality serve as decision-makers in administrative proceedings.

Therefore, the utility was denied a chance to adjudicate its condemnation compensation award when the utility failed to submit its own proposed valuation during the administrative proceeding.

Indiana Contractor Duty of Care for the Safety of Employees and Subcontract Employees and Liability Resulting from Employee and Subcontract Employee NegligenceBy: Jeremy L. Fetty

2012-03-22T18:23:19Z

A recent Indiana Court of Appeals decision held that both a contract between a landowner and a general contractor evinced an intent on the part of the general contractor to assume a duty of care for the safety of its employees and subcontractors on the work site and that such duty was non-delegable. In Capitol Const. Services, Inc., after a subcontract employee fell approximately fifteen feet from a ladder while on the jobsite and died, the general contractor (Capitol) appealed the trial court’s grant of summary judgment to Gray, arguing that it did not assume a duty of care for the safety of subcontract employees and that such a duty was delegable. Capitol Const. Services, Inc. v. Gray, 959 N.E.2d 294, 296-97 (Ind. Ct. App. 2011). Relying on Stumpf v. Hagerman Constr. Corp., 863 N.E.2d 871 (Ind. Ct. App. 2007) and Harris v. Kettelhut Constr., 468 N.E. 2d. 1069 (Ind. Ct. App. 1984), the court found that a contract which provides and requires the contractor to have specific safety precautions at the jobsite, including personal fall arrest systems, safety net systems, or guardrail systems, for employees or subcontractors performing construction work in excess of six feet above a lower level accords the contractor a duty of care for the safety of subcontract employees.

]]> Further, the court reiterated that the duties associated with Indiana’s five exceptions to the general rule that an employer does not have a duty to assure a safe workplace and will not be held liable for the negligence of an independent contractor were non-delegable, and a general contractor will be held liable for the negligence of a subcontractor, because the responsibilities are deemed so important to the community that the general contractor should not be permitted to transfer the duties to another. In rejecting Capitol’s reliance on Vaughn v. Daniels Co., where the Vaughn court found there was no contractual duty on the general contractor for the negligence of its subcontractors, the court stated this case did not apply, as Vaughn did not involve a contractual relationship between the parties. Id. at 307-08. Moreover, the court asserted that the Vaughn Court did not mean to abrogate the duties pursuant to the five exceptions because that case did not involve a contract.

Therefore, when a contract contains language pertaining to the safety of employees and subcontractors, OSHA requirements, and jobsite safety, the general contractor has a duty of care for the safety of its employees and subcontractors and will not be permitted to delegate such safety duties to a subcontractor.

Indiana Municipal Law Cities Permitted to Require Permits for Removal of Water Beneath Property Owner’s Land By: Jeremy L. Fetty

2012-03-15T16:50:59Z

The Indiana Supreme Court recently handed down a decision regarding an ordinance requiring property owners to obtain city issued permits prior to the removal and sale of underground water from aquifers (an underground bed or layer of permeable rock, sediment, or soil that yields water) by third-parties. In Town of Avon, both Washington Township (Township) and the West Central Conservancy District (WCCD) owned real property within the Town of Avon (Avon). Town of Avon v. W. Cent. Conservancy Dist., 957 N.E.2d 598, 601 (Ind. 2011). Both properties overlay an underground water supply, White Lick Creek Aquifer (Aquifer), to which Township and WCCD began investigating the possibility of withdrawal and sale of the water to third parties. While Township and WCCD were contemplating the withdrawal, Avon passed an Ordinance which prohibited the taking of water from a watercourse for retail, wholesale, or other mass distribution unless done by or on behalf of Avon. As a result, the Ordinance required Township and WCCD to obtain permits prior to water withdrawal.

]]> In determining that it was within Avon’s authority to require permits prior to water removal, the court held that the phrase “any other body of water” defining watercourse in Indiana’s Transportation and Public Works statute, Ind. Code § 36-9-1-10, satisfied the common-law definition of watercourse. Based on this definition, the court held that the Aquifer was a watercourse, as the aquifer had definable boundaries and depth and was a regular and dependable source of water containing flowing water ordinarily and permanently for substantial periods throughout the year. While not all aquifers will be deemed watercourses, given the Aquifer’s qualities, the Aquifer was considered a watercourse. In answering Township and WCCD assertions that the Ordinance violated the Home Rule Act (Act), the court further held that the Act permitted a town to regulate withdrawal of water by a township or conservancy, as the Act granted the town authority to conduct its affairs, even if such conduct was not expressly granted by statute. Stating that the Act was not a grant of unlimited authority to local governments, the court found that requiring the permit in question was within the town’s authority. Finally, the court held that the Ordinance was not preempted by the Indiana Department of Natural Resources (DNR), as nothing in the DNR statutes indicated that the DNR has exclusive jurisdiction over the withdrawal of groundwater or that such an authority has been expressly granted to the DNR.

Therefore, towns may be permitted to regulate the withdrawal of water beneath real property owned by a township or conservancy, so long as the aquifer or water source is defined as a watercourse.

Indiana Insurance Law: IDOI Places Moratorium on Policy Cancellations to Help Tornado Victims

2012-03-08T15:04:20Z

Tornadoes and severe storms recently devastated large areas of southern Indiana on March 2, 2012. As a direct response to those events and in an apparent effort to protect policyholders affected by the weather disaster, the Indiana Department of Insurance (“IDOI”) has issued a moratorium on the cancellation of insurance policies. Specifically, the Commissioner of the IDOI is requiring all insurance companies to implement an extension and/or grace period of sixty (60) days in the administration of insurance policies, including both personal lines and commercial lines.

]]> According to the policy cancellation moratorium memo, issued as “Bulletin 191” on March 6, 2012, the moratorium applies only to “cancellations/non-renewals attributed to a failure to pay premiums directly as a result of the Disaster Event during the 60-day period. If a policy is to be cancelled or non-renewed for any other allowable reason, the cancellation or non-renewal may be made pursuant to the statutory notice requirements”.

It is expected that numerous issues regarding coverage and the payment of claims are likely to arise in the aftermath of the weather disaster affecting our state. Policyholders may need to be aware of this moratorium and its potential impact on their policies or coverages. Any questions regarding such issues should be directed to attorneys who typically handle these matters.

Mike Schultz is a partner in the law firm of Parr Richey Obremskey Frandsen & Patterson with offices in Lebanon and Indianapolis. The statements contained herein are matters of opinion and general information only and are not to be considered legal advice and should not be construed to form an attorney-client relationship. If you have any questions regarding this article, please contact an attorney.

Indiana Creditor’s Rights Law Personal Jurisdiction Requires more than Service at Adult Defendant’s Parents’ Residence and Knowledge of Complaint By: Jeremy L. Fetty

2012-02-28T18:36:49Z

A recent Indiana Court of Appeals decisions held that both a borrower’s knowledge of a lender’s claim against him and service at the borrower’s parents’ house, when borrower did not reside at the residence, were insufficient to confer personal jurisdiction over the borrower. In Norris v. Personal Finance, 957 N.E. 2d, 1002 (Ind. Ct. App. 2011) the financial institution attempted to assert personal jurisdiction over the borrower by serving the borrower’s parents’ address, where such address was included in borrower’s application as his references’ address and was never listed as the borrower’s home address.

]]> In overturning the trial court’s decision, the court held that the borrower’s parents had no obligation to notify the court that the borrower did not live with them, as parents of a competent adult were not included in the list of persons having authority to accept service under Indiana Trial Rule 4.16 and that it was never asserted that the borrower’s parents were acting as his agents. The court, relying on Hill v. Ramey, 744 N.E. 2d, 509 (Ind. Ct. App. 2001) also held that the borrower’s knowledge of the claim was not enough to assert personal jurisdiction over him. Therefore, Personal Finance failed to assert personal jurisdiction over the borrower and the borrower’s denial of motion for relief was reversed.

Indiana Employment Law and Indiana Corporate LawCorporation Mergers and Acquisitions May Subject Companies to I-9 Sanctions By: Jeremy L. Fetty

2012-02-06T15:36:42Z

During a corporate merger or acquisition, companies should inspect the I-9 Employment Eligibility Verification Form policies of the soon-to-be merged or acquired company, as failure to do so may expose the company to fines and penalties from Immigration and Customs Enforcement (ICE). Since November 6, 1986, employers have been required to use the I-9 form in order to verify that each employee hired is authorized to work in the United States.

]]> The complicating process of a merger or acquisition is increased when I-9 compliance is at issue, as an entity that desires to merge with or acquire another company inherits the other company’s I-9 violations. Such violations include both technical and substantive violations. Technical violations are less severe and usually involve the employee’s failure to enter a birth date or the employer’s failure to provide its business address. This violation could result in fines from $110 to $1100 per violation. On the other hand, substantive violations are more severe and include the employee’s failure to sign the I-9 form or failure to indicate immigration status. This violation may result in criminal prosecution and/or fines of $375 to $14,000 per hire.

To ensure that merging or acquiring another entity does not result in fines or criminal prosecution, due diligence should include examining the other company’s workforce and current systems and practices for I-9 verification compliance.

City Negligence for Property Damage from Sewer Defects UnlikelyBy: Jeremy L. Fetty

2012-01-31T15:27:58Z

The Indiana Court of Appeals recently handed down two decisions regarding the liability of a city or municipality for damage caused to real and personal property as the result of a sewer defect. The cases examine when a city or municipality may be held liable for sewer malfunctions that cause property damage.

]]> In Ka v. City of Indianapolis, 952 N.E. 2d, 885 (Ind. Ct. App. 2011) the Kas sued Indianapolis (“City”) for negligence, among other torts, after the sewer line near their home became clogged, causing sewage to backup into the Kas’ basement. At trial, two experts asserted that the sewer line in question had been blocked due to structural damage that existed either since the sewer line was installed or damage that had developed over time. The court stated that the City would be liable for the subsequent property damage caused by the defect if the city knew or had reason to know of the defect. A City is only liable for defects in the City’s infrastructure if it had actual or constructive knowledge of such defects, meaning that the City could have discovered the defect by the exercise of ordinary care and diligence. In cases where the defect is hidden and not readily observable, liability will not rest with the City. In Ka, the court found that the City lacked actual or constructive notice of the damaged part of the sewer line, as the plaintiffs never had a problem with the sewer before, the City received assurances from engineers of the sewer’s structural soundness, and that the City contracted with a maintenance company to ensure the sewer’s proper use and function. As such, the court found that the City established that no genuine issue of material fact existed as to its constructive knowledge and affirmed summary judgment on behalf of the City.

Ka also involved a nuisance claim, which the court quickly dismissed. The court stated that because actions in nuisance are either to abate or enjoin an activity, summary judgment was appropriate in that case, as Kas’ claim had only premised an isolated instance and not one of continuing use of the property. Therefore, Kas were not seeking the abate or enjoin the City’s activity.

Next, in Farley v. Hammond Sanitary District, 956 N.E.2d 76 (Ind. Ct. App. 2011), residents complained of backed-up sewage in their basements after a severe storm. Hammond Sanitary District (HSD) asserted governmental immunity in its summary judgment, to which the lower court granted. The appellate court reversed summary judgment in favor of HSD, as the court found a genuine issue of material fact regarding the government’s immunity on the plaintiffs’ negligence claims. Specifically, issues of fact remained whether the flood was caused by a planning decision on how to run the sewer system, a planning function, or whether negligent maintenance was performed on the system, an operational function. Governmental immunity will exist when governmental acts are discretionary and such acts are determined to be discretionary using the “planning-operational” standard, where planning functions accord governmental actions immunity and operational functions do not. Because questions of fact existed surrounding the cause of the flood, as the facts allowed for multiple reasonable conclusions as to the element triggering governmental immunity, summary judgment was inappropriate.

As a result, cities or municipalities will not be held liable for unknown, either actually or constructively, defects or for malfunctions that are caused by a planning decision on how to run the sewer system.

Indiana Creditor’s Laws New Indiana Case Clarifying Notices of Sheriff’s Sale By: Jeremy L. Fetty

2012-01-26T15:19:45Z

In Surrisi v. Bremner, a 2011 Indiana Court of Appeals decision, the court held the Bill of Sale issued to the buyer (Bremner) invalid, as the Bill of Sale named business personal property which was not included in the Notice of Sheriff’s Sale.

Bremner, a creditor of the sellers (Surrisis), was the highest bidder at the Sheriff’s Sale and the sheriff issued a Bill of Sale that included business personal property that was not included in the Notice of Sale. The court noted that although the Agreed Judgment between the two parties stated the Sheriff’s Sale would include both real and personal property, the Notice of Sheriff’s Sale, praecipe of sale, and tax documentation, only listed the real property as being sold at the sale. Relying on a 2000 Colorado Court of Appeals decision, the court found that no notice of sale was given with respect to the business personal property, so such property could not have been sold at the sheriff’s sale. The court also stated that nothing in the settlement agreement prevented the business personal property from being sold at another sheriff’s sale, leading the court to further presume that only real property was to be sold at the Sheriff’s Sale in question.

Attention: Parr Richey Obremskey Frandsen & Patterson LLP Business Law Clients

2012-01-09T19:56:01Z

The National Labor Relations Board (NLRB) announced in a final rule in August a new poster requirement for both union and non-union employers that communicates employees’ rights to organize. Although originally effective November 14, 2011, the NLRB has delayed the implementation of this requirement until January 31, 2012 due to outcry from employer organizations.

Only “covered employers” must display the posters. Certain employers are exempt, such as agricultural, railroad, or airline employers and certain very small employers and retailers. If you are unsure of your requirement to post, please consult legal counsel. Noncompliance can be treated as an unfair labor charge.

To obtain a copy of the new poster, you may visit: https://www.nlrb.gov/poster

The poster should be placed in a conspicuous location where other notifications regarding workplace rights and employer rules are posted. In addition, a company that posts personnel policies, workplace notices, or similar information on an internal or external website should also include this poster in its online postings.

This article was written by Angela L. Gidley an associate in the law firm of Parr Richey Obremskey Frandsen & Patterson.

Pole Inspection Contracts -- Beware!

2012-01-05T15:05:28Z

Many co-ops use outside companies for pole testing and inspection. These companies often propose a form agreement with “standard” terms. Pricing is sometimes addressed in a separate letter with the base agreement remaining in effect for years.

Beware of standard terms proposed by some companies. For example, the contract utilized by one prominent company requires the utility to give it written notice within thirty days of any incident resulting in the breakage of a pole. Also the utility is required to retain the pole in storage for inspection by the company. Should the notice not be given or the pole not be preserved and the inspection company would later be sued on some theory, the contract requires the utility to bear the company’s defense costs and any liability that might result.

]]> Out-of-control vehicles occasionally strike roadside utility poles. The pole may or may not break, but serious injury or property damage often results. Sometimes the utility has no reason to expect that anything will come of it. But up to two years later a suit might be filed against the utility. The claim might be that the pole was decayed or brittle or that it was “oversized” and posed a dangerous obstacle to the motoring public. Sometimes it was placed “too close” to the roadway. The inspection company may also be joined in the suit, either by the claimant or the utility. If it has not given the required notice and taken steps to preserve the pole, the utility may face additional exposure for the company’s own costs and potential liability.

Over the past decade Indiana courts have allowed juries to consider injury claims against utilities arising from vehicle/pole collisions. Because utilities normally exercise prudence in placing, inspecting, and maintaining their poles, they often prevail in these cases. But if independent companies are being used for inspection and testing, remember that contractual terms are both important and negotiable. If the company wants the business, it may be willing to soften some of the harsh notice requirements. Once in effect, the agreed upon terms should be reviewed occasionally to ensure the utility performs as required.

This article was written by Kent Frandsen a partner in the law firm of Parr Richey Obremskey Frandsen & Patterson who often defends Indiana coops in liability suits.

Indiana Municipal Law - Clarification on the Requirements of a Public Lawsuit By: Jeremy L. Fetty

2011-12-06T18:11:37Z

The Indiana Court of Appeals clarified the requirements necessary for a lawsuit to be considered a public lawsuit in Buse v. Trustees of the Luce Township Regional Sewer District, 953 N.E.2d 519 (Ind. Ct. App. 2011). In this case, a group of property owners filed suit against the Spencer County Sewer District to block it from laying a sewer line adjacent to the plaintiffs’ properties, which already had functioning septic tanks. The Sewer District argued that this lawsuit should be considered a public lawsuit under Indiana Code § 34-6-2-124. This statute was designed to end costly serial litigation against municipalities that could threaten to block nearly every proposed action of a municipality. The trial court found the plaintiffs’ lawsuit to be a public lawsuit since the allegations in the complaint directly or indirectly questioned the validity and construction of public improvements. This finding would have required the plaintiffs to post a surety bond in the amount of $9,000,000 (the amount of a grant the county received to defray construction costs) within ten days or the trial court’s order or the case would be dismissed.

]]> In reversing the trial court’s order, the Indiana Court of Appeals determined this action to be a private lawsuit. The court looked to a similar Indiana Supreme Court case, Dible v. City of Lafayette, which stated, “the [landowners] have not brought suit in their capacity as taxpayers (requirement for public lawsuit).” 713 N.E.2d 269, 247-75 (Ind. 1999). The Indiana Supreme Court also stated that “an action by an individual landowner seeking to protect his or her private interest in property does not constitute the basis for a public lawsuit.” The court of appeals thought the critical factor between a public and private lawsuit is whether the property owners seek to protect public or private interests. In finding this lawsuit to be private, it found the trial court did not conclude the plaintiffs filed their suit under their capacity as citizens or taxpayers. In addition to the plaintiffs not suing in their capacity as taxpayers, the plaintiffs’ allegations sought to invalidate the Sewer District’s plans as applied specifically to them, not as applied to the public in general. The court felt the convergence of private and public interests was not enough, by itself, to convert an otherwise private action to a public lawsuit. Implications of public importance in a lawsuit are not enough to satisfy the statutory requirement.

Indiana Municipal Law - Update on the Specificity Required in Zoning DecisionsBy: Jeremy L. Fetty

2011-11-29T16:37:45Z

The specificity requirements of Indiana zoning decisions were discussed in The Kroger Co. v. Plan Commission of Plainfield, 953 N.E.2d 536 (Ind. Ct. App. 2011). In that case, Kroger wanted to construct a gas station next to its retail store. Kroger submitted a zoning petition seeking approval to begin construction, but the Plan Commission denied Kroger’s petition. Kroger sought judicial review. Both parties filed motions for summary judgment, with the trial court granting the Plan Commission’s motion for summary judgment. Kroger appealed, arguing that the denial did not satisfy the specificity requirement of the Zoning Enabling Act and also arguing that the Commission’s findings were not sufficient to support the denial of Kroger’s petition to construct a gas station.

]]> The court looked at the language of the Plainfield Zoning Ordinance and concluded that it did contain the needed specificity “to provide landowners with fair warning as to what the governing body will consider when formulating its decision.” The court did determine, however, that the Planning Commission, in this instance, did not provide sufficient findings to inform Kroger why its proposed plan did not satisfy the zoning requirements. The Commission stated the proposed development was not appropriate to the site, was not consistent with the intent and purpose of the ordinance, and would create a safety hazard. The Commission failed to “clearly explain,” though, why the plan was not appropriate, why it was against the intent and purpose of the ordinance, and why it was a safety hazard. Without this needed information, Kroger would not have the opportunity to amend its proposed plan in a way that could potentially comply with the ordinance. The court also took time to remind the Commission that approval of such a petition meeting the zoning requirements constitutes “a ministerial as opposed to a discretionary act.”

Clarification of the Administrative Employee Exemption of the FLSA

2011-11-04T15:42:25Z

Recently in a Seventh Circuit Court of Appeals case, Verkuilen v. Mediabank, LLC, the court analyzed the administrative employee exemption to the Fair Labor Standards Act (“FLSA”). 646 F.3d 979 (7th Cir. 2011). Penny Verkuilen was an account manager for Mediabank, which “provides computer software to advertising agencies.” An account manager’s job is to “go out, understand [the customer’s requirement], build specifications, [and] understand the competency level of [the] customers.” Penny spent much of her time on the customers’ premises, training their staff on the software and answering any questions that came up.

]]> The Seventh Circuit stated that to be considered to work in an administrative capacity, the employee needed to be paid more than $455 a week (Penny satisfied this requirement) and her “‘primary duty’ must require both ‘the exercise of discretion and independent judgment with respect to matters of significance’ and ‘the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.’” Judge Richard Posner indicated that the “primary duty” requirements were vague, but he saw what the provisions were getting at: paying someone overtime wages does not coincide with an employee that works significantly “off the employer’s premises, where he can’t be supervised and so if entitled to overtime would be tempted to inflate his hours.” Id. at 981. Put another way, Judge Posner felt that the purpose behind this provision, prohibiting overtime wages for employees who (1) spend much of their time off work premises and (2) who receive little employer supervision, was to prevent employees from being tempted to inflate the amount of hours worked (hours which the employer likely could not verify one way or the other). This capacity as an administrative employee also may involve an employee’s need for independent judgment relating to the business.

The court found Penny to be the “picture perfect example” of someone not intended to receive overtime pay. She spends much of her time away from Mediabank’s office overseeing the software that clients receive. In finding that Penny’s job should be considered that of an administrative employee, in which FLSA’s overtime wage requirement would not apply, the Seventh Circuit found that her “primary duty was directly related to the general business operations both of her employer (in a consulting role) of the employer’s customers.” Id. at 982-83.

For employers, this has several implications. When an employee exercises independent judgment and discretion, has fluctuating hours, is paid above the required wage of $455 a week, and spends a significant amount of time away from the employer’s office performing non-manual work, that employee may be performing as an administrative employee in the eyes of FLSA, for which overtime pay is not required. Before making a decision whether or not a work is entitled to overtime as an administrative employee, employers need to examine the FLSA’s requirements carefully to avoid employee lawsuits for unpaid wages.

We’re Watching: Employees May Be Lawfully Terminated for Facebook Comments

2011-10-27T20:46:50Z

This past summer, the National Labor Relations Board (“NLRB”) issued a series of decisions regarding whether employees were unlawfully discharged for making comments about their employment on Facebook. In all of the cases, the NLRB determined that the employees’ comments were not protected under the National Labor Relations Act. In each case, the NLRB found that the employee’s comments were not considered “concerted activity,” a protected activity where employees may sustain an allegation of unlawful discharge if they are fired for talking with other employees seeking to induce some action regarding their employer.

In Martin House, an employee of a residential facility for homeless and mentally ill patients was fired after making comments on Facebook regarding patients. (Case 34-CA-12950) 2011 WL 3223853 (N.L.R.B.G.C. 2011) . While on duty, the employee had a short online “conversation” on Facebook with a friend. In it, the employee said of a patient, “I don’t know if shes laughing at me, with me or at her voices . . . I don’t need to restrain anyone, we have a great rapport . . . .” The employee was fired shortly after the employer was made aware of the comments, with the employer citing reasons of protecting patients from stigma and protecting their privacy. The NLRB said these comments were not “concerted activity” because the employee did not discuss her comments with co-workers. Co-workers also did not respond to her posts. She was “merely communicating . . . about what was happening on her shift.” For these reasons, NLRB determined she was not unlawfully discharged.

]]> In JT’s Porch Saloon & Eatery, Ltd., an employee alleged he was unlawfully discharged for making comments on Facebook complaining about the restaurant and bar’s tipping policy for bartenders. (Case 13-CA-46689) 2011 WL 2960964 (N.L.R.B.G.C. 2011). He had a Facebook conversation with his step-sister, calling customers “rednecks”, stating “he hoped they choked on glass as they drove home drunk,” and complaining that he did “waitresses’ work without tips.” The employee was fired about a week later because of the Facebook posting. The NLRB concluded that these comments were not protected “concerted activity” He did not discuss his comments with other employees and there was no attempt to “initiate group action” about the company’s tipping policy. He was “merely” answering a question from his step-sister.

Finally in Wal-Mart, a customer service employee was fired after posting comments on Facebook about her manager. (Case 17-CA-25030) 2011 WL 3223852 (N.L.R.B.G.C. 2011). He stated, “Wuck Falmart! I swear if this tyranny doesn’t end in this store they are about to get a wakeup call . . . .” Two employees commented, one asking what happened and another offering encouragement. The employee later went on to complain about the behavior of an assistant manager. The NLRB determined that the employee was not unlawfully discharged; that despite the comments by co-workers, the employee did not engage in protected “concerted activity.” The NLRB characterized the comments as nothing more than an “individual gripe,” and not an attempt to induce action by other employees.

While these cases indicate that employers can fire employees for comments they make on Facebook, these cases also serve as a warning for employers. Although none of these cases found the comments to be “concerted activity,” a finding of such activity could likely lead to a determination that there was an unlawful discharge. If an employee is talking with co-workers about their employer on Facebook, that employer, if it comes upon the comments, needs to be extra careful in analyzing the nature of the comments before making any employment decisions based on those comments.