Category: Legal

The U.S. Securities and Exchange Commission has charged five men with defrauding shareholders of $30 million from a now-defunct employee leasing company that provided workers’ compensation insurance and other services to employers in 32 states.

The SEC civil fraud complaint, filed in U.S. District Court in Miami, stems from the 2006 collapse of Certified Services Inc., a publicly traded Fort Lauderdale, Florida-based company that provided workers’ comp, payroll and tax withholding services to 1,900 small and midsize companies with a combined 53,000 workers. Certified was consolidated in May 2006 into the existing Chapter 11 reorganization of a subsidiary, Certified HR Services Co.

Named in the lawsuit are W. Anthony Huff, a convicted felon who allegedly controlled Certified, though he was not an officer of the company; Danny L. Pixler, the company’s former president; Anthony R. Russo, a former CEO and CFO; Otha Ray McCartha, Certified’s former chief risk officer; and Charles J. Spinelli, a Certified consultant.

The SEC charges that the defendants falsified Certified’s financial statements by reporting as assets 16 bogus letters of credit purportedly worth $47 million, and by failing to report liabilities for workers’ comp claims that at their peak reached $65 million.

At the same time, Huff and Pixler siphoned about $30 million from Certified through a sham “risk allocation agreement” under which an affiliate company, Midwest Merger Management of Louisville, Kentucky, was to assume Certified workers’ comp exposure, the SEC charges. Midwest was created by Huff and Pixler, according to the complaint.

McCartha and Spinelli were convicted last year on criminal fraud charges related to the bogus letters of credit and were sentenced to 24 months and 21 months in prison, respectively. Both have settled the SEC charges, agreeing to permanent injunctions barring them from violating securities laws.

The suit seeks similar injunctions against the other three defendants, along with disgorgement of allegedly stolen funds.

Russo called the SEC charges “completely baseless” and said that “this suit will be vigorously defended.”

Donald L. Cox, a Louisville lawyer representing Huff, denied the SEC’s charges, saying that Huff did not know the letters of credit were fraudulent, had no part in Certified’s accounting decisions and did not divert Certified funds through Midwest.

Huff and Cox also noted that Certified’s court-appointed bankruptcy trustee agreed to sell some assets of Certified’s business to O2HR, a Fort Lauderdale-based professional employer organization for which Huff said he raised capital.

According to bankruptcy court filings, Certified made a deal to sell virtually all of its business to O2HR in September 2005, after its subsidiary, Certified HR Services, had already filed for Chapter 11 protection. The bankruptcy trustee then sued O2HR, charging that the deal represented a fraudulent transfer of estate property and seeking to consolidate O2HR into the reorganization, court records show.

After months of negotiations among the trustee, O2HR, Huff and others, the court approved a settlement in May 2006 under which Certified itself was consolidated into its subsidiary’s bankruptcy proceeding; O2HR agreed to pay the estate $10.3 million in installments; and O2HR acquired portions of Certified’s business, the filings show.

In 2004, Huff was convicted on federal mail fraud charges in an unrelated scheme and sentenced to 12 months’ probation. The Kentucky Insurance Department had previously revoked his insurance agent’s license as a result of an alleged $113,000 premium theft, according to the SEC’s complaint.

Filed by Douglas McLeod of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

 Almost one year ago, the Equal Employment Opportunity Commission launched an initiative to target systemic discrimination by pursuing pattern and practice cases and class actions.

In February, the agency indicated that racial discrimination is likely to be a primary focus of that effort by introducing a campaign called “Eradicating Racism and Colorism from Employment.”

On March 7, the two elements were highlighted when the EEOC filed a class-action employment discrimination lawsuit against Walgreen Co., accusing the drug retailer of racial discrimination.

The EEOC alleges that Walgreen uses race as a factor to place managers and pharmacists in low-performing stores and in locations in African-American communities. The company denies the charges.

Although the racism initiative, which emphasizes public education and outreach, is not directly tied to the Walgreen action, the EEOC is making an example of the company.

“Certainly it reflects our commitment to looking at race and color discrimination on a nationwide basis,” said Elizabeth Bille, EEOC special assistant and counsel, after addressing a Society for Human Resource Management conference in Washington on March 12.

The EEOC has been intensifying its campaign against racial discrimination for a while, says Lynn Lieber, an employment lawyer and CEO of Workplace Answers, a consulting firm.

In April 2006, the EEOC issued guidelines for employers that warned against subtle forms of bias, such as a boss not inviting minority workers to an office lunch or a happy hour. This kind of exclusion undermines networking opportunities. It also urges companies to expand their recruiting efforts to include nontraditional sources of talent and not to rely solely on word-of-mouth referrals.

“They were very, very broad,” Lieber says of the EEOC guidelines. “The EEOC is very serious about race and color.”

It also is intent on promoting class-action cases. Lieber says courts have become more inclined to certify class actions, a trend that could cost employers. A national chain, for instance, would want a case to focus on bias at individual stores rather than having it include every African-American employee nationwide.

The damage awards in a class action can total billions of dollars.

“It could really force a company to go under,” Lieber says.

Mark Schoeff Jr.

A federal appellate court said Tuesday, September 8, that a female pilot who alleged sexual discrimination in connection with her termination can proceed with her case.

Tiffany Anne Nicholson, who acknowledged having had an affair with a fellow pilot, said she was allegedly dismissed for her poor communication skills but was not given the same opportunity for retraining given to male pilots who had the same issues, according to the decision by the 9th U.S. Circuit Court of Appeals in Nicholson v. Hyannis Air Service Inc.

According to the decision, Hyannis, Massachusetts-based Hyannis Air Service, a small regional airline, selected Nicholson as one of eight pilots to launch its new service providing flights between Guam and neighboring Micronesian islands. The group included a captain with whom Nicholson had had a yearlong sexual relationship, court papers say.

According to the decision, Nicholson’s supervisors and other pilots reported she “exhibited problems with her communication and cooperation skills,” and she was subsequently terminated. She sued, claiming sex discrimination in violation of Title VII of the Civil Rights Act of 1964.

Nicholson claimed the airline’s “actual purpose in disciplining her was to remove an object of sexual competition from its Guam service,” and that she was not “provided the same retraining opportunity provided to the male pilots who failed portions of their training.”

In overturning a lower court ruling granting summary judgment dismissing the case, the three-judge appellate panel ruled the evidence “taken in the light most favorable to Nicholson, is sufficient to raise a genuine issue of material fact as to whether she was qualified and whether similarly situated male pilots were treated favorably.”

Nicholson also “introduced the minimal evidence required to raise a factual issue regarding whether [the airline’s] actions were taken because of her sex,” said the court, which remanded the case for further proceedings.

Filed by Judy Greenwald of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Accenture has agreed to pay $63.7 million to resolve a whistle-blower lawsuit over the issue of false claims to federal agencies, the Justice Department said.

The lawsuit, which was filed in federal court in Little Rock, Arkansas, alleged that Accenture submitted, or caused to be submitted, false claims for payment under numerous contracts with federal agencies for information technology services.

“Accenture has agreed to resolve allegations that it received kickbacks for its recommendations of hardware and software to the government, fraudulently inflated prices and rigged bids in connection with federal information technology contracts,” the Justice Department said Sept. 12 in a written statement.

The agency said the lawsuit was filed initially by Norman Rille and Neal Roberts under whistle-blower provisions of the False Claims Act, which permits private individuals to bring a lawsuit on behalf of the United States and receive a portion of the proceeds of a settlement or judgment awarded against a defendant. The lawsuit was filed in 2006 and the Justice Department intervened in the case in 2009.

The portion of the proceeds to be paid to the whistle-blowers in this case has not yet been resolved, according to the Justice Department.

A spokesman could not be immediately reached for comment on Rille’s and Robert’s relationships to Accenture.

Accenture issued a written statement that said it and the Justice Department had agreed to settle the case “to avoid additional time, inconvenience and expense that would come with protracted litigation.” It said the agreement is not an admission of liability, and that it “continues to vigorously deny that there was any wrongdoing.”  

Filed by Judy Greenwald of Business Insurance, a sister publication of Workforce Management. To comment, email editors@workforce.com.

 

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Issue: You are an employer who permits your employees to take a series of short smoking breaks that do not exceed 15 minutes. Are you required to compensate your employees for the time spent smoking?

Answer: Yes. A U.S. Department of Labor (DOL) Wage & Hour Administrator determined that the employer was required to compensate the employees for that time since such short breaks are “hours worked” under the Fair Labor Standards Act (FLSA). The FLSA does not require an employer to provide its employees with rest periods. However, if the employer decides to permit short breaks, then the time is compensable hours worked.

Smoking breaks are like other “short breaks.”
The Administrator observed that employees have always taken short work breaks, with pay, for a myriad of non-work purposes—a visit to the bathroom, a drink of coffee, a call to check on children, attending to a medical necessity, a cigarette break, etc. Thus, the DOL has consistently held for over 46 years that such breaks are “hours worked” under the FLSA, without evaluating the relative merits of an employee’s activities. This position is based on the proposition that short breaks are common in industry, promote the efficiency of employees and are customarily treated as work time by employers.

What you should do:
Attempts to curtail costs by withholding employee compensation for smoking breaks should be carefully scrutinized before implementation. The FLSA is a comprehensive law and includes a myriad of regulations that require close examination. The employer in this instance thought wisely and, in advance, contacted a Wage & Hour Administrator for advice before taking any action. Thus, the possibility of litigation, and its accompanying cost, was avoided.

Cite: Wage & Hour Opinion Letter No 2007, 99-02 CCH WH 32,841.

Source: CCH Incorporated is a leading provider of information and software for human resources, legal, accounting, health-care and small-business professionals. CCH offers human resource management, payroll, employment, benefits, and worker-safety products and publications in print, CD, online and via the Internet. For more information and other updates on the latest HR news, check our Web site at http://hr.cch.com.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion.

An employer sued by an undocumented worker for disability discrimination and workers’ compensation retaliation is entitled to summary judgment, a California appeals court ruled Aug. 9.

The case of Vicente Salas v. Sierra Chemical Co. involves a seasonal production-line worker who used a counterfeit Social Security card with another person’s Social Security number to obtain work from Sierra intermittently over three years.

In March 2006, Salas injured his back while stacking crates and faced several medical restrictions, court records state. Sierra accommodated him with restricted duty, but he injured his back a second time after he was released for full duty. He then filed a workers’ compensation claim, but was laid off in December 2006 as part of Sierra’s annual production-line staff reduction.

Salas testified that Sierra recalled its workforce in 2007, but he was told he could return only if he were “100 percent recovered.”

He sued for violation of California’s Fair Employment and Housing Act, or FEHA, alleging Sierra failed to reasonably accommodate his disability and failed to engage in an interactive process. He also alleged the employer denied him work to punish him for filing a workers’ compensation claim and to intimidate others from doing so.

He then filed a motion advising the trial court he would assert his Fifth Amendment right against self-incrimination in response to any questions concerning his immigration status, and Sierra discovered that the Social Security number used by Salas to secure employment with the company belonged to a North Carolina resident.

The employer then moved for summary judgment, claiming the doctrine of “after-acquired evidence” related to the use of the counterfeit Social Security card barred Salas’ lawsuit.

The company also argued that it would not have hired Salas had it known he was using a counterfeit Social Security card. And it argued that the “doctrine of unclean hands” barred his claim because he misrepresented his eligibility to work in the United States.

Salas argued, among other things, that whether he misrepresented his Social Security number is irrelevant because the company could be liable for disability discrimination under FEHA regardless of his immigration status.

The trial court eventually ruled in favor of Sierra’s request for summary judgment, and Salas appealed.

On Aug. 9, California’s 3rd District Court of Appeals found that the case was not about “pervasive discriminatory conduct” but about refusal to hire, and that Salas “misrepresented a job qualification imposed by the federal government, i.e., possessing a valid Social Security number that does not belong to someone else.”

The appeals court ruled Salas’ claims are barred by the doctrine of after-acquired evidence, which provides employers a defense “where, after an allegedly discriminatory termination or refusal to hire, the employer discovers employee or applicant wrongdoing that would have resulted in the challenged termination or refusal to hire.”

The appeals court also found the doctrine of unclean hands barred Salas’ claim because he exposed Sierra to penalties for submitting false statements required by several federal agencies to establish a worker’s legal work status. The appeals court ordered Salas to reimburse Sierra for its costs on appeal.    

Filed by Roberto Ceniceros of Business Insurance, a sister publication of Workforce Management. To comment, email editors@workforce.com.

 

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Aon eSolutions Inc. has filed a lawsuit against risk management technology provider Riskonnect Inc. and three former Aon employees for alleged misappropriation of confidential information and unfair competition.

The lawsuit filed by Aon Corp.’s risk management technology unit alleges that before three former Aon employees resigned and accepted positions with competitor Riskonnect in May, they “copied and removed, without authorization, Aon computer files containing trade secrets and/or confidential business information for the apparent purpose of using information to solicit business for Riskonnect,” according to the Aug. 5 complaint.

Aon also alleges Riskonnect encouraged or condoned the unauthorized activity and will therefore benefit from unfair competition.

“We see it as the David vs. Goliath story. It’s a little surprising that this large competitor is trying to take us on,” said Kelly Barton, vice president of marketing at Riskonnect, who also noted that the company has yet to see the complaint.

“We have still yet to be served. We have not seen the lawsuit. All we know is that there are some allegations of misappropriation of confidential information, and we know that three people and Riskonnect have been named,” she said.

Barton noted that Riskonnect has confidentiality and noncompete agreements with its own employees and expects employees joining from other companies to honor their own agreements.

“Of course, we don’t know all the facts that they’re alleging yet, but from what we have seen and understand, we can’t imagine that there’s any basis for it, and we will absolutely defend Riskonnect and these three employees for their right to work at a market-leading company,” Barton said.

Chicago-based Aon declined to comment.

Aon seeks injunctive relief and damages against the three employees and Riskonnect for wrongful activities, according to the lawsuit, which was filed in the United States District Court for the Eastern District of Pennsylvania in Philadelphia.  

Filed by Mike Tsikoudakis of Business Insurance-Europe, a sister publication of Workforce Management. To comment, email editors@workforce.com.

 

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Verizon Communications Inc. has agreed to pay $20 million to resolve a nationwide class disability discrimination lawsuit involving the company’s “no fault” attendance plans, the Equal Employment Opportunity Commission said July 7.

The case is the largest disability discrimination settlement in a single lawsuit in EEOC history, according to the federal agency.

The EEOC charged that New York City-based Verizon violated the Americans with Disabilities Act when 24 Verizon subsidiaries unlawfully denied reasonable accommodations to hundreds of unionized employees and disciplined and/or fired them under its “no fault” attendance plans.
 

If an employee accumulated a designated number of “chargeable absences” under Verizon’s attendance plans, the worker was put on a disciplinary step that could result in more serious consequences, the EEOC said.
 

The EEOC charged that instead of providing reasonable accommodations for employees with disabilities, it disciplined or terminated them.
 

“An inflexible leave policy may deny workers with disabilities a reasonable accommodation to which they’re entitled by law—with devastating effects,” EEOC chair Jacqueline Berrien said in a written statement.
 

Also in a statement, Verizon said it agreed to settle the complaint “solely because it is in the best interest of our company, our employees and our customers to avoid the disruption, delay and expense of protracted litigation.
 

“In addition, this settlement, which applies only to union-represented wireline employees, provides Verizon with clearer guidance from the EEOC regarding when it may be appropriate to provide additional leave as a reasonable accommodation under the Americans with Disabilities Act. This was previously lacking and was a significant factor in Verizon agreeing to settle the matter.” According to a Verizon spokesperson, wireline employees install, maintain and repair landline phone services.
 

Verizon said it complies with all employment laws, “and in fact has not in this case conceded any violation of those laws. In addition, no court has ever found that Verizon violated the ADA or any other law in the manner alleged by the EEOC. Verizon believes it has accommodated employees with fairness to all, consistent with a company that has a long-standing public record recognized by many third parties—for commitment to and support of people with disabilities. In fact, Verizon’s leave-of-absence and accommodation policies continue to far exceed what is required by law.”
 

Settlement of the litigation, which was filed in federal court in Baltimore the same day as the lawsuit, is subject to judicial approval.
 

In March, the EEOC released regulations on what qualifies as a disability and what constitutes adequate protection of individuals under the Americans with Disabilities Act Amendments Act of 2008.

Filed by Judy Greenwald of Business Insurance, a sister publication of Workforce Management. To comment, email editors@workforce.com.

 

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