Employers should take note that the U.S. Department of Labor has at long last issued proposed rules regarding “white collar” exemptions from federal overtime requirements.  Currently, the exemptions may apply if certain duties tests are met and the employee is paid on a salary basis of at least $455 per week, which comes out to $23,660 annually, assuming that some work is performed in each of the 52 weeks in the year.  The proposed regulations would raise the salary threshold to $679 per week, which comes out to $35,308 annually. 

The proposed rules would replace the Obama-era rule that set the threshold salary amount to over $57,000.  A federal court permanently enjoined enforcement of that rule.  The proposed rules mark the first effort by the Trump administration to address the white collar exemptions.

The proposed rules do not address the duties tests, but do address a few other issues.  First, the salary threshold for highly compensated employees would be raised from $100,000 to $147,414, higher than the $134,004 threshold that the Obama era regulations tried to set.

Second, employees would be able to credit non-discretionary bonuses and incentive payments (e.g., commissions) toward the minimum salary level.

Third, the salary threshold would be revisited every four years.

If adopted, the final rules would go into effect in January 2020 and would result in an estimated 1,000,000 employees losing exempt status and thus becoming entitled to overtime. The Department of Labor set a 60-day comment period to give interested parties a chance to be heard on the proposed rules.  The final rules will be issued at some point after that.  Employers should pay close attention to the progress of the proposed rules because, if adopted, they will need to determine whether to increase salaries to meet the threshold or reclassify employees as non-exempt.

Keep in mind that many states have different, sometimes more favorable, salary threshold requirements.  Where there is a difference between state and federal law on wage and hour issues, the provision most favorable to the employee must be applied.

The United States District Court for the Western District of Wisconsin recently held that an employer’s misleading statements to an employee regarding the federal Family and Medical Leave Act (FMLA) can lead to liability even if the employee is not eligible for FMLA leave.  Reif v. Assisted Living by Hillcrest LLC d/b/a Brillion West Haven.  In Reif, plaintiff Angel Reif notified her employer’s HR coordinator on January 9, 2018 that she would need surgery and that she wanted to schedule it after she became FMLA eligible.  The coordinator told Reif that Reif would be eligible for leave on January 25, 2018.  Accordingly, Reif scheduled surgery for January 31, 2018, six days after her eligibility date.  When Reif reported the date of the surgery to the coordinator, the coordinator told Reif that she should schedule surgery as soon as possible—before she was FMLA-eligible—and that the coordinator would “work” with Reif so that her FMLA leave would be approved.  The coordinator assured Reif that Reif’s job would be waiting for her when she was ready to return to work.  Based on the coordinator’s representations, Reif moved up the surgery date to a date that was eight days before her FMLA eligibility date and applied for FMLA leave. 

Despite the coordinator’s promises, the coordinator sent a letter to Reif, dated two days after the surgery, stating that the company was denying Reif’s FMLA leave request because Reif did not meet FMLA eligibility requirements.  Just eight days after her surgery, Reif informed her employer that she was able to return to work with some restrictions.  Two weeks later, the employer informed Reif that it had filled her position. 

Reif sued for interference with her FMLA rights.  Her employer asked the court to dismiss the case on the ground that Reif was not eligible for FMLA leave.  The court refused to do so, explaining that “it would be fundamentally unfair to allow an employer to force an employee to begin a non-emergency medical leave less than two weeks before she would become eligible under the FMLA, assure her that she would receive leave and her job would be waiting for her when she returned, and then fire her for taking an unauthorized leave.”  In essence, because Reif relied on her employer’s representations to her detriment, the employer would be precluded from arguing lack of eligibility. 

Reif is a reminder to employers that statements promising benefits can bind the employers even if circumstances exist where an employee would otherwise not be entitled to receipt of the benefit.  FMLA policies and procedures should be carefully constructed and scrupulously followed. 

Scabby the Rat is the nickname unions have given to the large, rat-shaped inflatables used by unions when demonstrating at worksites to let the public know that they have a labor dispute with the employer.  In the past, courts have held that the use of Scabby at worksites is a form of speech protected by the First Amendment.  Does that mean unions can locate Scabby wherever they want at a worksite?  A recent decision by the United States Court of Appeals for the Seventh Circuit tells us not necessarily.  Construction and General Laborer’s Union No. 330 v. Town of Grand Chute.

In the case, a union used Scabby to show its displeasure with a Toyota car dealership in Grand Chute, Wisconsin. The dealership had used a masonry contractor that the union alleged did not pay standard area wages and benefits to its employees.  The union anchored Scabby using tethers staked into the ground in a public right-of-way.  The Town, however, had a sign ordinance that prohibited all private signs on public right-of-ways, and so its code enforcement officer ordered the union to remove Scabby.  The union sued, claiming that the Town violated its First Amendment rights.

Generally speaking, most speech is protected from content-based government regulation under the First Amendment.  However, a government can restrict speech in a public forum without running afoul of the First Amendment if the restriction is content neutral, is narrowly tailored to serve a significant governmental interest and leaves open ample alternative ways to communicate a message.  In an earlier decision in the case, the court applied this standard and held that the sign ordinance did not violate the First Amendment because it banned all private signs on public right-of-ways, regardless of content, and was enacted to further public safety—a significant governmental interest—by protecting visibility. 

The issue in this second trip to the Seventh Circuit was whether the Town selectively enforced the ordinance by not uniformly policing all types of speech prohibited under its provisions.  Selective enforcement by the Town would have violated the First Amendment.  The court determined that the evidence showed uniform enforcement.  Therefore, it held that the order to remove Scabby from the public right-of-way did not violate the union’s First Amendment rights.

This case illustrates why municipalities should not only carefully craft, but also ensure uniform enforcement of, sign ordinances.  Given the potential First Amendment pitfalls in regulating signs through local ordinances, municipalities should consider consulting with legal counsel in drafting and implementing them. 

Introduction

You’ve created something original – a painting, a book, a manual, a graphic design, etc. – now what?  Whether you are an artist or a business owner, you have big plans for this original work, but you are not sure how best to protect the fruit of your hard work so that competitors do not use your work without permission or take credit for it.  This article will explain the basic copyright rights you currently have in your original work and how to best protect this asset.  

What is Copyright?

U.S. federal law provides copyright protection for original works of authorship from the moment the work is created in a fixed, tangible form. This means that if the work is independently created, has a minimal degree of creativity, and is written down, recorded or somehow preserved, it has immediate copyright protection.  As the old adage goes: as soon as your pen lifts from the paper, you have a copyright in the work you’ve created. 

What Works Are Protected?

A non-exhaustive list of works that can be protected include:

• Literary works (books, manuals, etc.)
• Musical works
• Dramatic works
• Choreography
• Visual art (paintings, sculptures, drawings, diagrams, graphics, etc.)
• Movies and other audiovisual works
• Sound recordings
• Architectural works

What Is Not Protected?

There are certain creations that are not protected by copyright law.  For instance, ideas are not copyrightable because they are not in a fixed, tangible form.  For example, if you have an idea for a new novel, the idea is not protected.  However, once you have expressed the idea in a fixed, tangible form and have written the new novel, it is protected by copyright law.  

Other items which are not protected include: titles, names, short phrases, and slogans.  These may be eligible for protection as trademarks.  For more information about trademarks, see this recent article here.

How Can I Protect My Original Work?

A copyright in an original work of authorship exists automatically once it is in a fixed, tangible form.  However, as the owner of this copyright, you can take steps to enhance its protection by registering the original work with the U.S. Copyright Office.

While registering your work is not mandatory, it is necessary if you wish to enforce your exclusive rights to the copyright through legal action.  Thus, we recommend registering any work in which the public will have access to the work.  Once the public has access to the work, it is more likely that an unauthorized user will infringe on your rights and you will need the full legal protections of registration.

Why Should I Consider Registration?

Here are some benefits to registering your original work with the U.S. Copyright Office:

• Validity: Registration establishes evidence of the validity of the copyright and the information stated in the certificate when the registration is made before or within five years of publication.
• Notice: Registration places the public on notice of your rights in your original work.  This can be very helpful in the event you must enforce your rights against someone who is using your copyrighted work without your permission.
• Legal Action: Registration is a requirement if you wish to pursue legal action against an unauthorized user who is infringing on your rights.  Additionally, registration means you may receive statutory damages and attorneys’ fees, if you are successful in court.  Statutory damages are damages awarded without the need to prove actual loss.  Even if you wish to avoid court, this can be powerful leverage when attempting to negotiate a settlement with an opponent.

How Do I Create a Copyright Notice?

A copyright notice is a statement placed on the work which notifies the public that a copyright owner is claiming ownership of the work.  A copyright notice is not mandatory, but it is recommended.

A copyright notice consists of the following:

• The copyright symbol “©”
• The year of first publication or, if the work is unpublished, the year it was created
• The name of the copyright owner

If William Shakespeare was alive and published Romeo and Juliet today, he would provide the following notice on the play: © 2019 William Shakespeare

This notice should be placed on the work to ensure that the public knows that the author is claiming copyright ownership.

Conclusion

Whether you are a business owner or an artist, you may have valuable copyrights which, in order to obtain effective legal protection, should be registered with the U.S. Copyright Office.  By registering your work, you may take legal action against unauthorized use of the work and are defending your right to ownership.  Without registering your work, you run the risk of someone claiming your work as theirs and losing valuable legal remedies.

If you wish to discuss your original works or any other intellectual property concerns, please contact David B. Billing or Laura Lamansky, the authors of this article, or any of the other attorneys in the Intellectual Property and Entertainment Law practice team of Stafford Rosenbaum LLP. 

Law clerk Joseph S. Beckmann assisted in researching and writing this article.

The Seventh Circuit’s recent decision in Reed v. Columbia St. Mary’s Hospital contains a noteworthy discussion of timeliness requirements for pleading affirmative defenses.

Reed, a troubled individual with several disabilities, went to Columbia St. Mary’s Hospital in Milwaukee, seeking help warding off suicidal thoughts. What happened during her four-day stay is disputed. But Reed later filed suit, alleging that the hospital discriminated against her in violation of the Americans with Disabilities Act, the Rehabilitation Act, and state law. The hospital denied Reed’s allegations and filed affirmative defenses to her complaints. However, the hospital did not claim a religious exemption from the ADA in its responsive pleadings. 

Title III of the ADA prohibits “public accommodations,” including hospitals, from discriminating against individuals with disabilities. However, Title III exempts “religious organizations” and “entities controlled by religious organizations, including places of worship.” 42 U.S.C. § 12187. This religious exemption is an affirmative defense, because it assumes that, even if the plaintiff can prove her claim, the exemption may still defeat liability. 

After the parties conducted discovery, the hospital moved for summary judgment. Only then, for the first time, did it assert that the religious exemption shielded it from liability on Reed’s ADA claim. The district court granted summary judgment for the hospital on the federal claims and declined to exercise supplemental jurisdiction over the state claim. In so doing, the district court accepted the hospital’s late assertion of the ADA religious exemption. The district court reasoned that (1) the exemption is not expressly listed in Federal Rule of Civil Procedure 8(c), so it was not clear that failure to assert the defense in the answer constituted waiver, and (2) Reed had adequate notice of the hospital’s possible reliance on the defense based on a specific exchange between the hospital’s counsel and a witness during a deposition.

The Seventh Circuit reversed the district court’s decision. It began by confirming that even an affirmative defense not listed in Rule 8(c) must still be pleaded if the defendant bears the burden of proof on an issue under state law or if (as here) “the defense does not controvert the plaintiff’s proof.” Reed, slip op. at 7. This requirement exists “to avoid surprise and undue prejudice to the plaintiff by providing her notice and the opportunity to demonstrate why the defense should not prevail.” Id. 

Having set forth a clear “rule,” the court explains it should not be rigidly applied. Instead, courts should enforce forfeiture for failure to assert an affirmative defense in an answer “only if the plaintiff is harmed by the defendant’s delay in asserting [the defense].” Id. at 8. Thus, courts have discretion to allow amendments that add affirmative defenses not initially pleaded. For example, a defendant may uncover a possible defense to liability during discovery. In such a case, if the defendant promptly alerts the parties and the court of his intent to pursue the defense, it would be reasonable for the court to permit it. However, courts should also consider whether the belated assertion would cause unreasonable delay or make the litigation more costly.

Applying these principles, the Seventh Circuit deemed the district court’s decision to let the hospital assert the religious exemption for the first time at the summary judgment stage was not only unreasonable but also an abuse of discretion. First, the hospital knew, from the outset of litigation, all of the facts relevant to the exemption; therefore, the affirmative defense needed to be pleaded in the initial answer. Second, the Seventh Circuit dismissed the district court’s conclusion that Reed had notice of the defense based on an exchange at a deposition; according to the appellate court, this truncated exchange with a witness did not compare to “a lawyer’s statement that the party intends to assert a defense.” Id. at 13. Finally, the Seventh Circuit determined that the delay was prejudicial. Because the defense was first asserted after discovery had closed, both parties (particularly Reed) had spent time and money investigating what they reasonably expected the issues to be; allowing the religious exemption to be invoked as a “last-minute defense” would raise new factual and legal issues, increasing the cost of litigation and prejudicing Reed, who had no reasonable notice that the defense would be raised. Id. at 16.

The Seventh Circuit suggested that the outcome may have been different had the hospital offered some explanation for the delay in asserting the defense and/or the prejudice to Reed been minimal. However, this decision demonstrates that the belt-and-suspenders approach is best: defendants should plead all possible affirmative defenses in their answers, promptly seek to amend those answers when any additional defenses reveal themselves in the course of litigation, and be prepared to explain any delay in asserting those defenses.

Last month, the Wisconsin Supreme Court confronted several insurance coverage issues that can arise when allegations against an insured trigger the defense obligations of multiple liability insurers.  See Steadfast Ins. Co. v. Greenwich Ins. Co., 2019 WI 6.

At issue was defense coverage for lawsuits filed against the Milwaukee Metropolitan Sewerage District (“MMSD”) following the historic June 2008 rainfall that resulted in raw sewage backing up into thousands of Milwaukee-area residences.  The main theory of liability against MMSD was that the sewerage system had been negligently repaired, maintained, and/or operated prior to and during the rainfall.  MMSD had outsourced those responsibilities to United Water Services Milwaukee, LLC (“United Water”) from 1998 through February 2008 and subsequently to Veolia Water Milwaukee, LLC (“Veolia”) from March 2008 leading up to the June 2008 heavy rainfalls.

MMSD’s operating agreements with United Water and Veolia required each entity to maintain liability insurance that named MMSD as an additional insured.  United Water had a $20 million policy from Greenwich Insurance Company (“Greenwich”) and Veolia had a $30 million policy from Steadfast Insurance Company (“Steadfast”).

MMSD faced a myriad of lawsuits seeking to recover for property damages related to the rainfall. The lawsuits alleged MMSD negligence during the respective time periods when United Water and Veolia operated the sewerage system. MMSD tendered defense of the lawsuits to both insurers and also opted to retain its own counsel.  While Steadfast agreed to pay for MMSD’s defense, Greenwich denied its defense obligations on the grounds that an “other insurance” provision rendered the Greenwich policy excess to the Steadfast policy.

MMSD ultimately resolved the lawsuits without agreeing to any liability payments to the underlying claimants.  In the process of settling for no liability, however, it incurred $1.55 million in defense fees.  Steadfast reimbursed MMSD the full $1.55 million and then exercised its contractual subrogation rights, which allowed it to “stand in the shoes” of MMSD and sue Greenwich for breaching the insurer’s defense obligations under its policy with MMSD.

The circuit court found that Greenwich had breached its defense obligations to MMSD and consequently granted Steadfast judgment against Greenwich for recovery of the full $1.55 million paid in defense fees and an additional $325,000 in attorney’s fees incurred bringing the lawsuit. The court of appeals affirmed.  The Supreme Court granted Greenwich’s petition for review and issued a decision addressing the following interesting coverage issues.

Interpretation of “Other Insurance” Policy Provisions

Greenwich ultimamely denied its obligation to defend MMSD by invoking what is commonly referred to as an “other insurance” provision in its policy.  Such provisions exist to resolve disputes among insurance companies regarding which insurer must pay first when multiple policies are triggered.  In a nutshell, Greenwich believed that its “other insurance” provision rendered its coverage excess over the Steadfast policy; on that basis, Greenwich argued it was obligated to provide MMSD a defense only after MMSD exhausted the full limits of its coverage from Steadfast.

In rejecting this position, the Supreme Court held that “other insurance” provisions apply only when multiple policies are concurrent—that is, they insure the same risk, and the same interest, for the benefit of the same insured, during the same period.  Slip Op. at ¶ 26 (citing Plastics Eng’g Co. v. Liberty Mut. Ins. Co., 2009 WI 13).  The Court concluded that the Steadfast and Greenwich policies were successive, not concurrent.  Id. ¶ 27.  Because the policies insured different risks at different points in time, both insurers’ defense obligations were triggered by the lawsuits against MMSD notwithstanding any particular “other insurance” policy language.  The Court therefore affirmed the lower courts’ decision that Greenwich had breached its defense obligations to MMSD.

Justice Rebecca Grassl Bradley was the only dissenter on this point, noting that the majority erred by issuing a blanket conclusion regarding “other insurance” provisions rather than examining the particular policy language at issue in the Steadfast and Greenwich policies.  Slip Op. at ¶ 89 (R.G. Bradley, J., concurring in part, dissenting in part).  Upon examining the respective provisions, Justice Bradley concluded that they operated to designate the Greenwich policy as excess of the Steadfast policy, thus relieving Greenwich of its defense obligations.  Id. at ¶¶ 90-105.

Allocation of Defense Costs

Having concluded that Steadfast’s claim against Greenwich was pursuant to the subrogation rights it acquired from MMSD under its policy rather than a traditional contribution claim (see Slip. Op. at ¶¶ 32-38), the Court then addressed whether Greenwich was entitled to an allocation of defense costs between itself and Steadfast.  The Court found that allowing Steadfast to recover from Greenwich 100% of the defense costs incurred would amount to an unjustified windfall because Steadfast indisputably was also an insurer with a contractual duty to defend MMSD.  Id. at ¶¶ 39-41.  Rather, in the Court’s eyes, an allocation was necessary to prevent Steadfast, as the subrogee, from being placed in a better position than MMSD would have been as the subrogor.  Id.

Noting that allocation of defense costs among multiple insurers was an open question under Wisconsin law, the Court examined various methodologies used in other jurisdictions and concluded that a pro rata allocation based on the insurers’ respective policy limits was the most equitable method.  Id. at ¶¶ 42-45.  The Court therefore held that Steadfast was entitled to reimbursement of 40% of the defense costs from Greenwich (amounting to $620,000), as the Greenwich policy had insured 40% of the $50 million worth of coverage in place (with Steadfast insuring the remaining 60%).  Id.

In a concurring separate opinion, Justices Ann Walsh Bradley and Rebecca Frank Dallet issued a strong argument against granting Greenwich any allocation under the circumstances.  The two Justices noted that, under settled Wisconsin law, insurers that breach their defense obligations face severe financial consequences (often times greater than what they would have paid had they defended).  Slip. Op. at ¶¶ 66-67 (A.W. Bradley, J., concurring in part, dissenting in part).  The two Justices further reasoned that allowing breaching insurers to offset these consequences at the expense of non-breaching insurers contravenes those principles, incentivizing a “proliferation of a game of chicken between insurers” in which the loser faces minimal adverse financial consequences.  Id. at ¶¶ 68-71.  The two Justices argued that the only logical way to deter insurers from breaching their defense obligations under these circumstances would be to allow the non-breaching insurer to recover 100% of the costs incurred in defending the insured.  Id. at ¶¶ 73-75.

Recovery of Attorney’s Fees

The final issue addressed by the Court was whether Steadfast was entitled to recover its legal costs in pursuing its subrogated breach of contract claim against Greenwich.  Interestingly, after allocating MMSD’s defense costs to prevent Steadfast from receiving a windfall, the Court held that Steadfast was entitled to recover its attorney’s fees from Greenwich.  The Court noted that MMSD undoubtedly would have been entitled to recover its legal fees from Greenwich as a breaching insurer under settled Wisconsin law, and that Steadfast had acquired all of MMSD’s “rights of recovery” through the Steadfast policy’s subrogation provision.  Slip. Op. at ¶¶ 51-52.  The Court ultimately “decline[d] to create an exception to this longstanding rule by excluding attorney fees from the bundle of contractual subrogation rights.”  Id. at ¶ 51.

Justices Ann Walsh Bradley, Rebecca Frank Dallet, and Rebecca Grassl Bradley all dissented from the majority’s holding as inconsistent with previous Wisconsin decisions holding that exceptions to the “American Rule” (under which each party pays its own attorney) should be limited and narrow.  The justices asserted that Elliott, the precedent entitling an insured to its attorney’s fees when an insurer breaches its defense coverage obligations, has appropriately been limited to its particular factual circumstances by subsequent cases refusing to allow one insurer to recover legal fees from another.  Slip Op. at ¶¶ 77-85 (A.W. Bradley, J., concurring in part, dissenting in part).  According to the dissenters, there was no legitimate reason to deviate from the American Rule under these circumstances.

Conclusions

Taken in full, both the majority and the partial concurrences likely leave most readers puzzled by their inconsistencies.  Steadfast brought a contractual subrogation claim against Greenwich, asserting the rights of MMSD as Greenwich’s insured. The most logical approach would seem to be treating the dispute no differently than if MMSD itself had brought the breach of coverage claim against Greenwich.

Instead, both the majority and concurrence pick and choose when to view Steadfast as “standing in the shoes” of MMSD and when to ignore that context.  The majority recognizes this principle with respect to the recovery of attorney’s fees, but finds that a different result is warranted on how much of MMSD’s defense costs are recoverable.  The concurrence is similarly inconsistent in the opposite way; it argues that the insurer should be allowed to stand in the insured’s shoes to recover 100% of the defense costs but cannot recover any of its own attorney’s fees from the coverage suit because of its status as a subrogated insurer.  This leaves insurers with little guidance as to what precise “rights to recovery” they acquire from an insured via contractual subrogation.

The most settled takeaway appears to be that Wisconsin law limits the circumstances under which “other insurance” provisions may be invoked by insurers.  Six of the seven justices agree that such provisions apply only when policies are truly “concurrent,” insuring the same risk and interest, for the benefit of the same entity, during the same coverage period.  Going forward, insurers should be especially cautious when seeking to rely on such provisions to avoid any coverage responsibilities, regardless of how straightforward and unambiguous they deem the particular policy language.

A potentially more complicated issue in the wake of this decision is an insured’s ability to recover its defense costs where allegations of liability trigger coverage under multiple successive policies issued by more than one insurer.  The Supreme Court previously had decided that Wisconsin was an “all sums” jurisdiction, meaning that an insurer must provide a full defense and indemnify its insured for all sums up to the policy limits, even if the time periods implicated by the relevant allegations exceed the coverage period.  See Plenco, 2009 WI 13, ¶¶ 60-61.  Applying this standard to the multiple insurer context, an insured would be entitled to choose which insurer to provide it a full defense and that insurer would be obligated to do so regardless of the presence of other potentially applicable coverage.

In Plenco, however, there were not multiple insurers.  Because the Court here adopted a pro rata allocation of defense costs in the context of contractual subrogation claim (where the insurer stood in the shoes of the insured rather than in a traditional insurer v. insurer contribution claim), one could envision insurers interpreting this decision to abrogate the “all sums” Plenco decision under circumstances involving policies issued by multiple insurers.  That interpretation would oblige insureds to pursue each and every liability insurer to receive a fully funded defense under such circumstances.  Given that none of the justices cited Plenco with regard to the allocation issue, they likely intended to limit application of the pro rata defense cost allocation only to disputes between insurers (either through subrogation or contribution) after an insured has received a complete defense. Nonetheless, insurers and insureds will want to follow how this issue plays out in the lower courts.

Finally, it is worth noting that only four of the seven current justices concluded that an insurer should be able to recover its attorney’s fees when bringing a contractual subrogation claim against a fellow insurer for reimbursement of defense costs.  This holding certainly seems vulnerable to be narrowed or even overturned as the composition of the Supreme Court changes.

On January 25, 2019, the National Labor Relations Board (the Board) issued a decision revising the standard for determining whether a worker is an independent contractor for the purposes of the National Labor Relations Act (NLRA).  SuperShuttle DFW, Inc. and Amalgamated Transit Union Local 1338, Case 16-RC-010963 [link].  The determination is important because only those workers who are employees—and not independent contractors—have rights under the NLRA. 

In SuperShuttle, the Board overruled a 2014 decision and returned to the use of the common law test to determine independent contractor status.  That test includes consideration of: 

• The extent of control the employer may exercise over the details of the work;
• Whether the worker is engaged in a distinct occupation or business;
• The kind of occupation and whether the work is usually done under the direction of the employer or by a specialist without supervision;
• The skill required in the occupation;
• Whether the employer or the worker supplies the instrumentalities, tools and the place of work for the work to be done;
• The length of time for which the worker is employed;
• The method of payment—whether by the time or by the job;
• Whether the work is a regular part of the business of the employer;
• Whether the parties believe they are creating an independent contractor relationship;
• Whether the employer is or is not in business.

The Board also made it clear that entrepreneurial opportunity—the worker’s opportunity for profit and loss—will be used as an overarching interpretive device in considering whether a worker is an independent contractor under the common law test.  As the majority of the Board explained, “[w]here a qualitative evaluation of common-law factors shows significant opportunity for economic gain (and, concomitantly, significant risk of loss), the Board is likely to find an independent contractor relationship.”

The Board then applied this revised test to the facts before it.  In SuperShuttle, a union filed a petition seeking to represent the SuperShuttle van drivers who transported passengers to and from area airports.  Each of the drivers had signed a franchise agreement with SuperShuttle that required the driver to pay a flat, one-time initial fee and then a flat weekly fee thereafter to maintain the franchise.  On these facts, the Board determined that the van drivers were in fact independent contractors.  The most significant factors were:

• The drivers were required to provide their own vehicles and cover all costs of vehicle operation and maintenance;
• The drivers were able to accept or decline trips booked by passengers;
• The drivers paid a weekly franchise fee unconnected to the amount of the fares they collected and;
• The drivers’ earnings were determined by how much they chose to work, how well the managed their expenses and how well they managed the process through which they selected fares.

The standard, of course, is fact-intensive and is applied on a case-by-case basis.  Nonetheless, the decision in SuperShuttle gives some guidance as to how the standard may be applied in the future. 

Employers should keep in mind that SuperShuttle articulates the standard applied by the Board with respect to independent contractor status under the NLRA.  Different laws, for example, unemployment and workers’ compensation laws, may have different standards that must be used to determine whether a worker is an independent contractor or an employee subject to that particular law.

Last month, in a decision with far-ranging consequences, the Wisconsin Supreme Court rejected a call to abrogate the existing “discretionary” immunity standard applied to tort claims made against municipal actors.  Representing the League of Wisconsin Municipalities, the Wisconsin Towns Association, and the Wisconsin Counties Association as amici curiae (friends of the court), we filed a brief and participated in oral argument.

In Engelhardt v. City of New Berlin, 2019 WI 2, 385 Wis. 2d 86, 921 N.W.2d 714, the Court held that the City of New Berlin was not protected by governmental immunity because the known-and-present-danger exception applied.  However, as urged by Stafford, the Court preserved the discretionary immunity standard for tort claims against municipal actors.  As explained below, because only a narrow, 4-3 majority of the Wisconsin Supreme Court favored preserving the “discretionary” immunity standard, further challenges to that long-established standard are foreseeable.

Background on Governmental Immunity

Stafford Rosenbaum frequently defends municipal parties against tort claims. Immunity is often a key issue in such cases. Wis. Stat. § 893.80 provides immunity to a municipal actor “for acts done in the exercise of its legislative, quasi-legislative, judicial or quasi-judicial functions.”  Recognizing the separation of powers pitfalls implicated by permitting individual parties to use the courts to intrude and review the policy decisions of elected bodies (e.g., Town and Village boards, City councils, etc.), the Court has long interpreted Wis. Stat. § 893.80 to provide immunity for the “discretionary” decisions of municipal actors. 

However, there are two main exceptions to immunity – one for ministerial duties and another for known and present dangers.  Duties are ministerial for the purposes of governmental immunity when a duty is “absolute, certain and imperative, involving merely the performance of a specific task” imposed by law.  This exception to immunity applies when statutes, ordinances, or policies obligate the municipality to take a specific action.  Where there is no discretion, there is no immunity.  For example, the Court held that where regulations require railings on a stadium’s camera stand, there is no discretion to place the railings, and therefore no immunity from claims to recover damages caused by the failure to install such railings.

The second exception, the known-and-present-danger exception, applies only “where the danger is so severe and so immediate” that a response is demanded.  Once again, because there is no discretion, there is no immunity.  However, application of this judicially created exception is narrow and very fact-specific.  For example, the seminal case involves a fall, arguably caused by a park ranger’s failure to give warning that a path passed within inches of a partially concealed 90-foot drop. 

Case Background for the Engelhardt decision

The Engelhardt case arose when Lily Engelhardt, age eight, drowned during a summer camp field trip to a swimming pool.  Lily’s mother had informed the camp supervisor that Lily could not swim; however, no other camp staff were informed of this fact.  Lily’s mother granted permission for Lily to attend the field trip after assurances that Lily would be given a swim test upon arrival at the pool.  If Lily did not pass the swim test, the camp supervisor promised to keep her in the shallow, splash pad area. 

However, when the nearly 80 campers arrived at the pool, Lily was not tested before she entered the water.  Although campers like Lily were instructed to see a camp staff member for a swim test, no one was directly supervising Lily. As camp staff completed ushering campers through the locker rooms, Lily was discovered drowned in the pool by lifeguards who were unable to revive her.

Lily’s parents brought suit against the City (which ran the summer camp program) for wrongful death.  The City moved for summary judgment, arguing that the suit was barred by governmental immunity.  After the circuit court denied the City’s motion, the Court of Appeals reversed. The appellate court held that the City had not breached any alleged “ministerial duty” and that the facts of the case did not constitute a known and present danger. 

Majority Opinion

The Wisconsin Supreme Court reversed. It denied the City’s invocation of immunity because the “obvious dangers” under the circumstances met the standard for the “narrow” known-and-present danger exception. 

The portion of the decision with broader impact is the majority’s rejection of the plaintiffs’ request that the Court eliminate the “discretionary” immunity standard.  The majority, written by Justice Shirley Abrahamson, highlighted the seminal 1976 decision in Lister v. Board of Regents. There, the Court applied the discretionary standard based on the “public policy considerations” of protecting the public purse and a preference for “political rather than judicial redress for the actions of public officers.” 

The Engelhardt majority also highlighted the fact that the Legislature has acquiesced for decades in the discretionary-immunity standard; this acquiescence includes, but is not limited to, the 1977 repeal and recreation of the immunity statute.  Because this revision was after the Lister decision applying the discretionary standard, the Engelhardt majority found that the Legislature’s inaction expressed implicit approval of that standard.  In other words, the majority reasoned that if the Legislature thought the Court was wrong to interpret the statute as applying to “discretionary” decisions in 1976, then the Legislature would have addressed that issue when it repealed and recreated the immunity statute in 1977. 

Finally, the majority noted that just two years ago, in Melchert v. Pro Elec. Contractors, the Court rejected the interpretation proposed by the Engelhardts (which was reflected in the dissent written by Justice Rebecca Bradley and joined by Justice Daniel Kelly). 

Concurrence

The three Justices (Rebecca Dallet, Rebecca Bradley, and Daniel Kelly) who did not join the majority filed a separate opinion. That opinion, while technically a concurrence, agreed with nothing in the majority except the end-result that the City was not entitled to immunity.  In her first opinion on the Court, Justice Dallet argued that the majority “expanded” the “narrow” exception for known and present dangers to accommodate the facts of this case. She explained that the exception typically applied only where the potential danger was high and imminent and the act required to prevent the danger was clear. By comparison, Justice Dallet reasoned that, if camp staff had seen Lily walking along the edge of the deep end of the pool, then the exception may have applied.  Because Lily’s presence at the pool facility did not on its own create a compelling danger, she concluded that the exception should not apply.

Instead of invoking the known-and-present-danger exception, the concurrence would have rejected immunity outright. To reach that outcome, the concurring Justices recommended eliminating the existing “discretionary” immunity standard.  In proposing abrogation of this standard, Justice Dallet referred to the “plain language” of statute and harkened back to the Court’s 1962 seminal decision in Holytz v. City of Milwaukee, which abrogated common-law immunity.  One year later in 1963, the Legislature enacted the predecessor to today’s Wis. Stat. § 893.80 which re-instated immunity based upon language in the Holytz decision.  In light of the relationship between Holytz and the re-instated statutory immunity, the concurrence emphasized Holytz’s assertion that, “so far as governmental responsibility for torts is concerned, the rule is liability – the exception is immunity.”

Justice Dallet went on to catalogue what she called the judicial chaos created by the discretionary standard, which, she asserted, seemed “almost random at times.”  The three-justice concurrence declared there was “no time like the present” to eliminate the existing “discretionary” immunity standard.  In its place, Justice Dallet proposed an interpretation that provides immunity “only for agents or employees of a governmental entity who are engaged in an act that, in some sense or degree, resembles making laws or exercising judgments related to government business.” 

Applying this proposed standard, the concurrence reasons that the “promulgation” of the City’s camp guidelines would receive immunity for the content of the guidelines, but the City would not be immune “from suit for its camp staff negligently failing to supervise Lily in accordance with the guidelines.”  Justice Dallet’s opinion highlighted that the camp guidelines provided clear instructions to “know where the kids in your care are at all times” and “under no circumstances should kids be left alone.”  Because the City allegedly failed to meet these guidelines, she concluded that no immunity should apply.

Analysis

The weakness of the majority’s opinion is that (as charged by the concurrence) it arguably expands the “narrow” known-and-present-danger exception.  In other words, Lily’s mere presence at the pool cannot create a known and compelling danger, at least as that exception had been applied previously.  Nonetheless, the facts of Lily’s drowning are tragic.  Perhaps, as footnoted by the concurrence, a modest expansion of the “known danger” exception would serve former Justice Crooks’ wish to strike a better “balance between too much immunity . . . and too much liability.”  Such a re-balancing could help to address the constant refrain to Holytz declaring that “liability is the rule, immunity the exception” and the repeated calls to eliminate the existing “discretionary” immunity standard.    

By comparison, the concurrence fails to mention any of the legislature’s acquiescence to the “discretionary” standard or its acting in reliance upon it – an argument emphasized by the majority.  After all, the governmental immunity applicable today is statutory, while the immunity abrogated by Holytz was judicially created.  Even in Holytz, which abrogated immunity and is relied upon by the concurrence, the court painstakingly distinguished its ability to abrogate immunity in 1962 because the doctrine was judicially created – which is entirely different from the present-day review of statutory immunity enacted by the Legislature.  The concurrence offers no explanation on how to rectify this distinction in order to alter now the longstanding application of statutory immunity.  Instead, the concurrence would simply overrule the Court’s precedent on the “discretionary” immunity standard.

It is also hard to see how the proposed alternative standard offers any more clarity than the standard the concurrence wants to abandon.  The proposed standard applies only where the municipal actor is “engaged in an act that, in some sense or degree, resembles making laws or exercising judgment related to government business.”  How this standard differs from the existing discretionary standard is entirely unclear.  To be fair, the proposed standard would apply to the promulgation of policies, but, if it did not extend to “acts done in the exercise of” such policies, it would directly contradict the statutory language (which the concurrence claims to be reliant upon).  Even more to the point, it would create a legal fiction to grant immunity to the decision to enact a policy yet deny immunity from the results of those policies being acted upon. 

Applying this newly proposed standard, Justice Dallet concludes that, because the camp staff negligently failed to supervise Lily according to camp guidelines, there would be no immunity.  There is a view of the facts that support such a conclusion in this case.  However, how this conclusion differs from the existing ministerial-duty standard is once again unclear.  If the three-justice concurrence concluded that the camp staff failed to comply with guidelines imposed upon them, then this constitutes a breach of a ‘ministerial duty’ and there is no “discretion” under the existing immunity standard.  In other words, the concurrence need not create a whole new standard just to reach the same result.  The concurrence could have simply applied the “ministerial-duty” exception under the existing discretionary immunity standard.  The concurrence does not explain why it did not.

Conclusion

For municipal clients, setting aside the fact-specific application of the known-and-present-danger exception in Engelhardt, the main takeaway from the decision is that Justice Dallet joined Justices Rebecca Bradley and Daniel Kelly in seeking to eliminate the existing discretionary-immunity standard.  Justice Abrahamson wrote the majority opinion preserving the standard; however, with an April judicial election to replace her on the bench (and Justice Kelly’s seat being up for election in April 2020), her following words appear likely prescient:

It is unwise for a court to frequently call into question existing and long-standing law.  Doing so gives the impression that the decision to overturn prior cases is ‘undertaken merely because the composition of the court has changed.’

            In light of the sharp disagreements on the court regarding the interpretation and application of Wis. Stat. § 893.80, the existing discretionary immunity standard for municipal actors is likely to remain a flashpoint for the Wisconsin Supreme Court in the coming years.

Stafford Rosenbaum attorneys (left to right) Ted Waskowski and Kyle Engelke in front of the Wisconsin Supreme Court Hearing Room in the East Wing of the State Capitol building in Madison, WI.

An employer’s use of third-parties to conduct employment background checks on prospective and existing employees triggers numerous obligations under the federal Fair Credit Reporting Act (FCRA).  The following is a brief overview of the primary employer obligations before, during, and after conducting a background check through third-party investigators.

Covered Entities and Reports

The FCRA applies to “consumer reporting agencies,” which covers nearly all third-party investigators and most employment background reports, called “consumer reports,” the investigators produce.  Consumer reports include, but are not limited to, credit reports, criminal history reports and driving records obtained from a consumer reporting agency. 

Pre-Background Check Obligations

Employers that want to obtain a consumer report for any employment purpose must first provide applicants and employees with a written disclosure stating their intent to obtain a consumer report and must receive written authorization from the applicant or employee before obtaining the consumer report.  The disclosure and authorization of rights must be all be stand-alone documents and may not be part of the employment application or any other document.  Neither of these documents should include notification or authorization required by any applicable state law—those should be placed in a separate document, consistent with the applicable law. 

Post-Background Check/Pre-Adverse Action Obligations

After receiving a consumer report from a consumer reporting agency, if an employer is considering adverse action based on information in a consumer report, the employer must provide the applicant or employee with a copy of the consumer report, a “pre-adverse action” letter explaining that the employer is considering taking adverse employment action based on information in the report and a written “summary of rights” under the FCRA prior to taking any adverse employment action.  The U.S. Bureau of Consumer Financial Protection regulates the content that must be included in the summary of rights and can be found here.  Employers should always ensure their written summary of rights is up-to-date by checking online for any updates.  

Although the FCRA does not specify the amount of time an employer must give an applicant or employee to correct information in the consumer report, five business days or more is considered appropriate. 

Adverse Action Obligations

If an employer does take adverse employment action, it must then provide notice to the applicant or employee and provide him or her with certain information required by statute, including another copy of the summary of rights.  The notice need not be provided in writing, but best practice is to do so for documentation purposes in the event of litigation. 

Violation of the FCRA

In the event of a willful violation of the FCRA, an applicant or employee is entitled to seek damages of $100 to $1,000 per violation, punitive damages, and attorneys’ fees.  If the violation occurred as a result of negligence, the applicant or employee is entitled to sue for any actual damages, plus attorneys’ fees.

State Laws

Some states have requirements in addition to those set forth in the FCRA.

The Bottom Line

This overview generally describes some of the key employer obligations under the FCRA, and is not intended as a detailed guide.  Employers should consult with legal counsel before implementing a background check program that calls for the background check to be performed by a third party. 

UPDATE: On January 29, 2019, the Wisconsin Supreme Court affirmed in a 5-2 decision the dismissal of a Wisconsin Uniform Fiduciaries Act (“UFA”) claim against the Park Bank located in Milwaukee, Wisconsin.  See Koss Corp. v. Park Bank, Case No. 2016AP636, 2019 WI 7.  The Justices did not agree, however, on the applicable standard for proving bad faith under the UFA statute as enacted in Wisconsin.  Chief Justice Roggensack and Justice Ziegler citing in general to N.J. Title Ins. Co. v. Caputo, 748 A.2d 507, 514 (N.J. 2000), concluded that bad faith requires proof of “some evidence of bank dishonesty such as a bank willfully failing to further investigate compelling and obvious known facts that suggest fiduciary misconduct because of a deliberate desire to evade knowledge of fiduciary misconduct.”  Id. ¶ 55.

Justices Ann Walsh Bradley, Abrahamson, and Dallet held they would expressly adopt the Caputo standard that: “bad faith denotes a reckless disregard or purposeful obliviousness of the known facts suggesting impropriety by the fiduciary.  It is not established by negligent or careless conduct or by vague suspicion.  Likewise, actual knowledge of and complicity in the fiduciary’s misdeeds is not required.  However, where facts suggesting fiduciary misconduct are compelling and obvious, it is bad faith to remain passive and not inquire further because such inaction amounts to a deliberate desire to evade knowledge.”  Id. ¶ 86.

The Court ultimately found the facts at issue in this dispute did not meet either bad faith standard.  So, while the precise bad faith standard applicable to a UFA claim in Wisconsin remains unsettled, the clear takeaway from this holding is businesses must continue to vigilantly monitor their financial activities internally, as they will not be able to recover from financial institutions for losses stemming from fraudulent transactions except where there has been egregious conduct by the financial institution.

On December 12, 2017, the Wisconsin Court of Appeals addressed a civil dispute arising from the high-profile criminal embezzlement scheme committed by Koss Corporation Vice President of Finance, Sujata (“Sue”) Sachdeva.  At issue were allegations Koss made against its bank seeking recovery on the theory that the bank committed bad faith in not detecting the embezzlement scheme. See Koss Corp. v. Park Bank, No. 2016AP636 (Wis. Ct. App. Dec. 12, 2017).

Koss’s complaint alleged that Park Bank of Milwaukee, Wisconsin, violated Wisconsin’s Uniform Fiduciaries Act (“UFA”) by allowing Ms. Sachdeva to embezzle about $34 million from Koss accounts for personal use. Ms. Sachdeva used a variety of ways to embezzle the $34 million, including requesting cashier’s checks and cashing checks made out to “petty cash,” as well executing wire transfers to pay personal credit card bills.  Koss alleged the bank’s failure to discern Ms. Sachdeva’s embezzlement scheme amounted to a violation of Wis. Stat. § 112.01(9), which exposes a bank to liability if it permits transactions “with knowledge of such facts that [the Bank’s] action in paying the check amounts to bad faith.”

The bank moved for summary judgment, asserting that no material facts established it had intentionally or deliberately allowed the transactions to occur in bad faith.  At the circuit court, the court held that Koss had failed to cite any evidence that the bank “intentionally ignored Sachdeva’s embezzlement,” without which there was no way to show the bank acted in bad faith.  The court further noted that the circumstances established only the bank may have been negligent in failing to uncover the fraudulent conduct, but that one of the purposes in adopting the UFA was to eliminate negligence claims against banks arising from transactions where employees or other persons acting as an agent of a depositor commit an act causing a loss to the depositor. 

On appeal, Koss took the position that, although the bank lacked actual knowledge of Ms. Sachdeva’s embezzlement scheme, the circumstances raised enough red flags that a factfinder could conclude that the bank’s failure to detect the fraudulent transactions amounted to bad faith under the UFA.  In support of its position, Koss cited to (1) the large volume of improper checks—adding up to millions of dollars—Sachdeva requested, (2) the bank allowing unauthorized Koss representatives to request, endorse, and pick up checks, (3) the bank’s acceptance of checks payable to companies with cryptic initials (e.g., “N.M., Inc.” for Neiman Marcus and “S.F.A., Inc.” for Saks Fifth Avenue), (4) after-the-fact deposition testimony from a bank employee that the large number of cashier’s checks requested were “strange,” (5) Ms. Sachdeva’s testimony that she chose the bank at issue because of the ease in which she could conduct her fraudulent transactions, and (6) the bank’s failure to implement and/or enforce proper fraud-detection policies and procedures.

Despite this evidence, the Court of Appeals affirmed the circuit court by dismissing Koss’ claim of bad-faith.  Consistent with cases from other jurisdictions interpreting the UFA, our Court of Appeals concluded that to effectively bring a claim of bad faith under the UFA a depositor needs “proof of two elements: (1) circumstances that are suspicious enough to place a bank on notice of improper conduct by the [employee embezzling the depositor’s money on deposit]; and (2) a deliberate failure [by the bank] to investigate the suspicious circumstances because of a belief or fear that such inquiry would disclose a defect in the transaction at issue.”  Id., ¶ 27.

While the Appeals Court acknowledged that Koss cited ample evidence to establish the bank’s negligent failure to investigate and discover Ms. Sachdeva’s embezzlement scheme, it concluded that Koss failed to adduce facts sufficient to allow a factfinder to determine that the elements of proof for bad faith under the UFA were satisfied:

Although the transactions Sachdeva engaged in may appear suspicious or odd in hindsight, Koss has not cited any evidence to indicate that, in the larger context of Koss’s banking practices and the banking practices of Park Bank’s other corporate clients, the transactions were suspicious enough to put Park Bank on notice of Sachdeva’s misconduct.  Koss also fails to cite any evidence indicating that Park Bank deliberately declined to investigate Sachdeva’s transactions due to a fear that further inquiry would disclose defects in them.

Id., ¶ 51.  The Appeals Court then concluded that allowing Koss’ claim to proceed would be contrary to the UFA’s purpose of insulating banks from the misconduct of a depositor’s employees.  Id., ¶ 52.

This decision highlights how important it is for businesses to adopt and enforce internal monitoring protocols for financial activities by their employees and agents.  By adopting the UFA, Wisconsin has allocated the risk of loss stemming from fraudulent financial transactions to businesses rather than banks in all but the most egregious circumstances.  Businesses failing to take notice of suspicious financial activities (1) not only expose themselves to the risk of severe financial losses, but also (2) if the business has publicly traded securities then they may expose themselves to possible violations of federal securities law for failing to properly ensure the accuracy of their financial reporting.  See id., ¶ 12 n.4 (noting an adverse judgment entered against Koss pursuant to SEC lawsuit).

Please feel free to contact Greg Jacobs or Rich Latta if you would like to discuss any of the matters discussed above.

While a law firm with which Mr. Latta was previously affiliated may have provided legal representation of a party mentioned in Koss Corporation v. Park Bank, Mr. Latta did not represent any party involved and the thoughts expressed herein are strictly his own.