The Supreme Court's Workplace Docket

The court will consider such issues as reverse age discrimination, ERISA's primacy over state-court lawsuits and the limits of existing sexual-harassment case law.

January 5, 2004

If Juan Davila were to tell his story to a jury, he would be the most sympathetic of plaintiffs. A polio survivor, the Fort Worth man received Aetna HMO coverage through his employer. He had gone to the doctor with arthritis pain. The physician prescribed Vioxx, which is less likely to cause stomach ulcers than other similar drugs Aetna covered. But the HMO insisted that its regulations stipulated that he must first try a cheaper pain reliever. He did, but after a few weeks of taking that drug, Davila was rushed to the hospital with bleeding ulcers that caused a near heart attack. Now he can no longer take any pain medication that is absorbed through the stomach.

    Because of federal preemption law, Davila may never get his day in court. Under the Employee Retirement Income Security Act, Aetna claims that he cannot sue the company for medical negligence. While an appellate court sided with Davila and found that he should be able to pursue damages against the HMO under state law, the U.S. Supreme Court has agreed to review the case.

    Aetna Health Inc. v. Davila is one of the employment-law cases pending before the high court in the current term, which began in October 2003. All involve employees who are trying to push legal boundaries and employers that are trying to maintain the status quo. In a so-called reverse-age-discrimination case, General Dynamics v. Cline, the court’s decision could change how employers handle benefit plans. In the case of a police dispatcher, Pennsylvania State Police v. Suders, the outcome could deprive employers of a defense against sexual-harassment claims. And if Juan Davila and another Texas plaintiff in a companion case prevail, employers say, they will face higher health-plan costs and increased liability.

    "Davila leaves employers and labor unions that sponsor plans, and the insurers and third-party administrators that act on their behalf, exposed to suits for compensatory and punitive damages under varying state laws for routine health-plan-claims decisions," warned employer groups, including the U.S. Chamber of Commerce, in an amicus brief. "Employers would end up with a lot of extra liability," adds Martina Stewart, an attorney at the law firm Heller, Ehrman, White & McAuliffe in Washington, D.C.

General Dynamics v. Cline
    The General Dynamics case appears to be tilting toward the employer. In the first reverse-age-bias case to reach the Supreme Court, employees in their 40s claim that General Dynamics violated the Age Discrimination in Employment Act by promising lifelong health benefits only to employees over 50. The ADEA, enacted in 1967, applies to employees "who are at least 40 years of age." Even employer attorneys have some sympathy for the General Dynamics plaintiffs. "If everyone over 40 is protected, how can you give different benefits to a 40-year-old than to someone over 50?" asks Patricia K. Gillette of Heller Ehrman’s San Francisco office. But during oral arguments in the case in November, the Supreme Court justices, who all are old enough to qualify for GD’s benefits, were dismissive toward the younger employees’ arguments.

"That seems to be a fanciful interpretation of what Congress intended," Justice Antonin Scalia said after one attorney argued that the ADEA bans all age discrimination.

Jeffrey K. Winikow, a Los Angeles employee-rights attorney, says that he doesn’t "expect the General Dynamics case to come out in favor of the [younger] employees."

Aetna Health Inc. v. Davila
    Legal experts predict a closer result in Davila and the companion case of Ruby Calad, a hysterectomy patient who suffered complications after her Cigna health plan refused to allow her an extra day to recover from the surgery in the hospital. "It’s going to be a split decision, no doubt about it," says Ronald G. Dean, a plaintiffs’ attorney in Pacific Palisades, California. Both Davila and Calad sued their plans for negligence damages under the Texas Health Care Liability Act. If ERISA preemption applies, they can sue only for the plans to give them the benefits they were denied (which would be like shutting the gate after the horse has bolted). "ERISA’s remedies are very restrictive," Dean notes.

    The question now before the Supreme Court is whether ERISA completely trumps state lawsuits alleging that an HMO was negligent in failing to provide necessary medical care. The case "is going to set the borderline of where ERISA begins and state malpractice law begins," Dean says. "It’s very significant." Under prior case law, ERISA applies to any claims relating to a plan’s administrative decision on benefits eligibility. But in ruling in favor of the Texas plaintiffs, the 5th U.S. Circuit Court of Appeals found that cases involving "mixed eligibility and treatment decisions" are not preempted. "It seems beyond dispute that Calad’s and Davila’s claims involve such mixed decisions," the court said.

    Another appellate circuit, however, has found that such claims are preempted because they allege that "the manner of administering the benefits caused the participants or beneficiaries some injury." Yet another appeals court said that only ERISA provides a remedy, even in cases of "allegedly ‘mixed’ decisions that rely on medical judgments as predicates for a coverage decision."

    "It’s a true circuit split," Stewart says. The problem is that the scope of ERISA, as interpreted in an earlier Supreme Court case, is so broad that individuals who really are injured are left without a remedy, she notes. "Lower courts have been wrestling with this question."

   How the Supreme Court resolves the question may be crucial to the future of the ERISA system. "The 5th Circuit’s Davila decision threatens the foundation on which ERISA was built," the employer groups claim in their amicus brief. Attorney Garry Mathiason of Littler Mendelson in San Francisco, who represents employers, says ERISA provides a "national structure" for companies doing business in several states.

    If companies had to litigate malpractice claims under varying state laws, "the cost and complexity of doing business" would increase. "It’s essential to avoid local litigation," Mathiason says.

    Dean, however, believes that employers "hide behind a charade of national uniformity." For him, basic patient rights are at stake. And if a health-care plan’s decisions about which drug someone like Juan Davila should take for arthritis are not medical decisions, he suggests, "we might as well have chimpanzees making them."

Pennsylvania State Police v. Suders
    Another long-standing defense for employers is under threat in the case of Nancy Drew Suders, who alleges that, while working as a state police dispatcher, she endured sexual harassment and other misconduct so severe that she ultimately felt compelled to resign. She says that the harassment included supervisors talking about "people having sex with animals" and leering at her and making obscene gestures. She sued the individual supervisors and her former employer.

    In a pair of 1998 decisions, Burlington Industries v. Ellerth and Faragher v. City of Boca Raton, the Supreme Court held that an employer can be held "vicariously" liable for the sexual misconduct of supervisors if the harassment resulted in a "significant change in employment status" such as a hiring or firing. If there was no "tangible employment action," the employer has an absolute defense, known as the Ellerth defense.

    The key issue in Suders is whether a "constructive discharge," that is, the voluntary resignation of an employee who felt she had no alternative, amounts to a tangible employment action. "This is really big," Gillette says. "The [Ellerth] defense allows employers to get out of liability if they did everything they could and the employee didn’t take advantage."

    Ruling in favor of Suders, the 3rd U.S. Circuit Court of Appeals found that she had met the legal requirements of a constructive-discharge claim. Among other things, it noted, officers had attempted to set her up on a false charge of theft, "a most effective way of suggesting that an employee will be fired or should leave voluntarily."

    The court went on to conclude that, although Ellerth does not mention constructive discharge, "tangible employment action" was a flexible concept that should not be limited to "a formal discharge or demotion."

    If it was so limited, employers "would undoubtedly catch on" to the defense and "might even tacitly approve of increased harassment" to force the victimized employee into resigning.

   But in an amicus brief filed in support of Supreme Court review, the U.S. Chamber of Commerce said that Faragher and Ellerth had crafted an effective set of guidelines for dealing with sexual harassment. Employers, knowing they could be vicariously liable for not doing anything, have "made great strides in training managers and coworkers in what constitutes appropriate conduct in the workplace."

    This framework would be undermined if the 3rd Circuit is upheld, the Chamber argues. When an employee resigns, he in effect deprives the employer of an opportunity to do something. The appellate court’s precedent, moreover, would have the "perverse" result of encouraging an employee to resign so as to improve his legal chances, rather than work with the employer to fix the harassment problem.

Workforce Management, January 2004, pp. 63-65 -- Subscribe Now!