August 2014 - Issue 30

Memorandum of Liability Coverage: Chief Executive Separation Payment

California JPIA 19th Annual Risk Management Forum: Ride the Wave of Risk Management

Medical Provider Network

Volunteers and the Fair Employment and Housing Act

EEOC Lawsuit Challenges Orion Energy Wellness Program and Related Firing of Employee

Breadth and Scope of Sidewalk Inspections

News: Worthy

Memorandum of Liability Coverage: Chief Executive Separation Payment

by Paul Zeglovitch, Liability Program Manager

Background

In 1995, the Managers Committee, in response to a request from a member agency, formed a subcommittee to gauge interest in providing some form of income security for a limited period of time for chief executives who were involuntarily separated from employment by their governing bodies.

The subcommittee conducted a survey of all member agencies of the California JPIA and learned that approximately 11 chief executive positions of the 77 respondents were involuntarily separated from employment by the agency’s governing body. As a result, several of the terminated chief executives filed wrongful termination claims against member agencies that were defended by the pool. 

The subcommittee also found from the International City/County Management Association, that the job search of terminated chief executives was commonly taking nine to twelve months before securing new employment.

After considering the average length of severance agreements provided to the terminated executives, the length of time it was taking to secure new employment, the desire of the members to avoid wrongful termination and employment-related claims, and the overall needs of the terminated chief executives, the subcommittee recommended to the Managers Committee a proposal for a type of income protection for the terminated chief executives. Following approval by the Managers Committee, the protection was reviewed and adopted by the Executive Committee at its meeting in February 1996 and made part of the Memorandum of Liability Coverage effective on July 1, 1996.

While the coverage has not significantly changed since its inception in 1996, a number of modifications and clarifications were instituted in the 2014-15 Memorandum of Liability Coverage to ensure that members, chief executives, council/board members and agency attorneys would have a clear understanding of the protection.

The Process
In exchange for a signed waiver and release agreeing not to sue the member for wrongful termination, and following a waiting period of at least six months, the California JPIA will pay an involuntarily separated chief executive (city manager, chief administrative officer, general manager or other title designating the highest appointed official of the governmental entity) a monthly amount equal to the amount he or she was receiving as chief executive. 

It is paid monthly in arrears for up to six months with a certification from the chief executive as to any other income that he or she might have received from consulting or other employment. If the income exceeds the amount paid as chief executive, there is no payment from the California JPIA. If it is less, then the payment is the difference between the chief executive’s salary, and the income earned during the preceding month. If a chief executive begins receiving a retirement benefit earned in whole or in part from the agency from which he or she was separated, the retirement benefit will be counted as income to offset the separation payment made by the Authority. If the separation is recognized as a “forced” resignation, it will not jeopardize the coverage. 

The coverage does not apply if the chief executive is terminated for cause, as defined in the Memorandum of Liability Coverage. 

The coverage is not a form of “unemployment insurance,” and it is not available to an interim or acting chief executive.

This coverage is provided to all members of the Authority. If the governing body and chief executive agree that the coverage will not apply to that employment relationship, the coverage must be specifically waived within the employment agreement or the separation agreement negotiated between the parties.

For cost-sharing purposes, the benefit paid to the terminated executive is treated as an Employment Practices Liability (EPL) claim.

Benefits of the Coverage
As with most involuntary separations, emotions on both sides run high when a governing body terminates a chief executive’s employment. The risk of wrongful termination and employment-related claims and lawsuits exists, and the litigation strategy often determines that settling these types of claims, versus the uncertainty and cost of going to trial, is the more prudent business decision. 

Currently, the pool-wide average severity for an EPL claim is $218,705. In the past six years, the pool experienced two EPL claims as it related to the termination of a chief executive. One claim alleged constructive discharge, sexual harassment, and retaliation by the governing body; and the other alleged harassment by the governing body. The claims were settled with the total incurred for each claim in excess of $350,000.

While member agency councils and boards are sometimes dismayed or averse to the Authority providing the “salary continuation” to their terminated chief executive, the benefits of the coverage are considerable. The Chief Executive Separation Payment is beneficial to the member, the terminated chief executive, and to the pool:

  • Member Agency
    • It can be included in the executive’s employment contract and as part of the severance arrangement.
    • It avoids lawsuits upon termination by fair treatment of the chief executive.

  • Terminated Chief Executive
    • It provides additional coverage to the commonly negotiated six-month severance package.
    • It provides economic security during the nine-to-twelve months it may take to secure new employment.

  • Authority Pool
    • It reduces claims against the members for wrongful termination which, in many cases, would be covered occurrences.
    • It turns unknown exposures into known, limited exposures, and thereby reduces risk for the pool.

The addition of a new section (F) in the 2014-2015 Memorandum of Liability Coverage addresses the Chief Executive Separation Payment eligibility, approval, and process all within one section of the MOLC.

If you have questions about this coverage, please contact Paul Zeglovitch, Liability Program Manager, at pzeglovitch@cjpia.org.



News: Worthy

California JPIA 19th Annual Risk Management Forum: Ride the Wave of Risk Management

Over 180 decision makers representing the Authority’s membership and business partners have already registered to attend the California JPIA's 19th Annual Risk Management Educational Forum: Ride the Wave of Risk Management, to be held October 29-31, 2014 at The Fess Parker Resort in Santa Barbara. 

Critical Content Public Agencies Can Use
“Going from Ankle Slappers to Tubes – Building a Successful Risk Management Program” is the Forum’s Opening Session. Join City Managers Jim Lewis from Pismo Beach and Brad Vidro from Solvang; Human Resources Managers Debra Garcia from Pismo Beach; and Sean Robinson from Rancho Palos Verdes, and management consultant Jeff Bills as they explain how to apply the key elements of a successful risk management program in a public entity. A central focus of this session is the importance of the leadership characteristics and traits that have resulted in lasting positive risk management change within the speakers’ agencies. 

Lizz PellettThursday’s keynote speaker and talent management expert Lizz Pellett asks “Who Do You Let Ride Your Break? – The Cultural Fit Factor” as she guides Forum attendees through the process of attracting and retaining the right employees that will help strengthen each agency’s culture and preserve a winning attitude. Fifteen varied sessions round out Thursday’s agenda. Review the full agenda here.
The Forum closes Friday with the return of Lizz Pellett, joined by succession consultant Doris Sims, as they present “Finding the Big Wave Riders on Your Surf Team – Building a Successful Culture and Succession Planning.” Lizz and Doris will discuss how to create a successful organizational culture, maintain it and plan ahead by having your future leaders already on board.

To register for the Forum, click here.

Educational Forum Scholarship Opportunity Closes August 29
While there is no cost for member registration for the Risk Management Educational Forum, the California JPIA is awarding a limited number of scholarships for the Educational Forum toward accommodation costs at The Fess Parker Resort.

The purpose of the scholarship is to assist members who are unable to attend the Forum due to financial constraints at their agencies, with the Executive Committee authorizing them in the amount of $450 each. 

This is a competitive process, where those receiving scholarships will be deemed to be most deserving based on their stated desire to attend and their otherwise inability to attend. To be eligible to receive a scholarship, applicants must also:

  • Be an employee of a member agency of the California JPIA
  • Have supervisor or management approval to attend the Forum
  • Attend the Forum in its entirety
  • Be able to pay for any other travel related costs

Candidates are required to complete and submit the online Forum Scholarship Application. Completed online scholarship applications must be received by August 29, 2014. Chosen recipients will be notified by email on or before September18, 2014.

Hotel Accommodations
The block of rooms reserved at the Fess Parker Resort for the forum is sold out. Rooms may still be available at non-forum rates by calling 800-879-2929. Less than half of our additional room block at the nearby Hyatt Santa Barbara is still available. To reserve at the Hyatt, please click on this link: Hyatt Santa Barbara or call 805-882-1234. 



News: Worthy

Medical Provider Network

by Jeff Rush, Workers’ Compensation Program Manager

The Authority is in the process of establishing a Medical Provider Network for the workers’ compensation program. A medical provider network (MPN) is a health care provider or group of providers selected by a self-insured employer and approved by the Division of Workers’ Compensation to treat workers injured on the job. Each MPN must include a mix of doctors specializing in work-related injuries and doctors with expertise in general areas of medicine. MPNs are required to meet access to care standards for common occupational injuries and work-related illnesses. The regulations also require MPNs to follow all medical treatment guidelines established by the Division of Workers’ Compensation and allow employees a choice of providers within the network after their first visit. The MPN program became effective January 1, 2005 and employees can be covered by an MPN once a plan has been approved by the DWC administrative director. 

The Authority is partnering with Harbor Health Systems, a provider that establishes networks focused on positive medical outcomes. Authority staff is completing an outreach effort to confirm that our members’ preferred providers are included in the forthcoming network. We are also working to confirm if members in rural areas will be able to participate in the Network as employees need to be afforded access to a multiple physicians within different specialties.

There are many benefits the Authority expects to realize by establishing an MPN, including the following:

  • Ability to retain medical control for the life of an employee’s claim
  • Opportunity to incentivize providers to get priority access and response times
  • Opportunity to create a network of providers who provide high quality care
  • Ability to monitor the network to confirm Authority member employees are receiving the high level of care we expect from an MPN
  • Reduction in liens that arise from treatment disputes
  • Overall improved claim outcomes

The Network will be ready for implementation later this year. If you have questions or would like more information about the MPN, contact Jeff Rush, Workers’ Compensation Program Manager, at jrush@cjpia.org.



Legal Matters

Legal Matters

Volunteers and the Fair Employment and Housing Act

by Paul Zeglovitch, Liability Program Manager

Many public entities have found that using volunteers is a cost effective way of achieving their goal of providing great programs and services to their residents. Despite the importance of these volunteers to their respective agencies, they do not enjoy the same status and rights of that of an employee under the Fair Employment and Housing Act (FEHA). This is a very important distinction when considering the handling of your volunteers from a liability standpoint. This is not to infer that your volunteers may be discriminated against, harassed or retaliated against, merely that the legal threshold for liability against your agency differs from that of an employee. 

In order to benefit from the protections provided under the FEHA, the individual must be an employee of your agency. Unfortunately, FEHA does not define what an employee is, causing California courts to look beyond that statute to determine employment status. The language used by the court to define an employee has been someone who is “under the direction and control of an employee under any appointment or contract of hire or apprenticeship, express or implied, oral or written.” In order for a volunteer to be “appointed”, that must occur through the agency’s formal appointment procedure and not merely be categorized as an appointment by the individual. Relative to contract employees the analysis gets a bit more technical as the terms of public employment are typically governed by statute, not contract. Therefore, employees covered under the FEHA would need to show that their employment is in accordance with the applicable local statute or ordinance. An example would be a City Manager that is under contract in accordance with that City’s statute or ordinance to secure that employee in that fashion. 

Another key element in determining the status of your volunteers for purposes of the FEHA is whether or not there is remuneration provided in exchange for work. Both Federal and California courts have been unified in requiring a threshold of showing remuneration. The key question here is, what constitutes remuneration? The Courts have held that remuneration typically takes the form of direct payment of salary or wages. Typically, the payment of a small stipend to volunteers such as firefighters is not considered salary or wages. Further, the provision of workers compensation benefits to volunteers does not constitute remuneration. The analysis gets more complicated, the more benefits that are provided such as things like health insurance, vacation, disability benefits, life insurance, sick pay and the like. 

The California JPIA recommends a review of your ordinances to ensure that there is a clear definition of who is an employee. In addition, it should be clearly stated who is subject to the relevant ordinances, civil service or other personnel rules within your agency. Further, the rules should clearly state how employment is appointed and that employment provisions do not apply to volunteers. Finally, an analysis of what remuneration is being provided to your volunteers should be conducted in conjunction with your labor counsel. It may simply be to gain an understanding that your agency is exposed to this risk, rather than limiting the amount and type of remuneration being provided. 

As always, the California JPIA is ready to assist members in achieving the above goals. If you have questions about volunteers and the implications of FEHA, contact your Regional Risk Manager.



Legislative Update

The Court Report

EEOC Lawsuit Challenges Orion Energy Wellness Program and Related Firing of Employee

Steep Penalties for Not Participating Said to Make Program Involuntary and Violate Disabilities Act

Milwaukee based Orion Energy Systems violated federal law by requiring an employee to submit to medical exams and inquiries that were not job-related and consistent with business necessity as part of a so-called "wellness program," which was not voluntary, and then by firing the employee when she objected to the program, the U.S. Equal Employment Opportunity Commission (EEOC) charged in a lawsuit it filed today. 

In a lawsuit filed in Green Bay, Wis., today, the federal agency contends that Orion instituted a wellness program that required medical examinations and made disability-related inquiries. When employee Wendy Schobert declined to participate in the program, Orion shifted responsibility for payment of the entire premium for her employee health benefits from Orion to Schobert. Shortly thereafter, Orion fired Schobert. 

The EEOC maintains that Orion's wellness program violated the Americans with Disabilities Act (ADA) as it was applied to Schobert, and that Orion retaliated against Schobert because of her good-faith objections to the wellness program. The EEOC further asserts that Orion interfered with Schobert's exercise of her federally protected right to not be subjected to unlawful medical exams and disability-related inquiries. 

The EEOC brought the suit under Title I of the ADA, which prohibits disability discrimination in employment, after first attempting to reach a pre-litigation settlement through its conciliation process. The case, (EEOC v. Orion Energy Systems, Civil Action 1:14-cv-01019) was filed in U.S. District Court for the Eastern District of Wisconsin, Green Bay Division, and is assigned to U.S. District Judge Chief Judge William C. Griesbach.

The EEOC filed another disability discrimination suit against Orion in May 2014 (EEOC v. Orion Energy Systems, Civil Action No. 14-cv- 00619). In that lawsuit, the EEOC contended that Orion fired Scott Conant after he experienced a disabling condition that substantially limited his ability to walk and required that he use a wheelchair. The EEOC said that Conant's termination followed his request for accommodations, such as an automatic door opener, to allow him to enter and exit the Orion workplace. Orion never installed a door opener while Conant worked there.

This most recent lawsuit is the EEOC's first to directly challenge a wellness program under the ADA. Earlier hearings by the EEOC on wellness programs revealed that a majority of employers now offer some sort of wellness program -- 94 percent of employers with over 200 workers, and 63 percent of smaller ones, according to Karen Pollitz of the Kaiser Family Foundation, which researches issues relating to health care. 

"Employers certainly may have voluntary wellness programs -- there's no dispute about that -- and many see such programs as a positive development," said John Hendrickson, regional attorney for the EEOC Chicago district. "But they have to actually be voluntary. They can't compel participation by imposing enormous penalties such as shifting 100 percent of the premium cost for health benefits onto the back of the employee or by just firing the employee who chooses not to participate. Having to choose between responding to medical exams and inquiries -- which are not job-related -- in a wellness program, on the one hand, or being fired, on the other hand, is no choice at all." 

The EEOC's Chicago District Office is responsible for processing discrimination charges, administrative enforcement, and the conduct of agency litigation in Illinois, Wisconsin, Minnesota, Iowa and North and South Dakota, with Area Offices in Milwaukee and Minneapolis.

The EEOC is responsible for enforcing federal laws prohibiting employment discrimination. Further information about the EEOC is available on its website at http://www.eeoc.gov.



Risk Solutions

Breadth and Scope of Sidewalk Inspections

by Jim Gross, Senior Risk Manager

The Authority encourages its members to develop and follow a formal sidewalk inspection and maintenance program as a best risk management practice to mitigate trip and fall claims. All members should be aware of the Sidewalk Inspection and Maintenance Program template that was developed to assist members in the development of their own programs. The template is available in the Authority’s online Resource Center at https://cjpia.sabanow.net/Saba/Web/Main

Some years ago the Authority began requiring its defense attorneys to complete a Lessons Learned in Litigation report at the conclusion of each lawsuit. The Authority continually refines its many training and education programs, drawing from lessons learned in litigation. One such lesson is the value of inspecting conditions adjacent to sidewalks when inspecting the sidewalks. 

We recently learned that not all members’ sidewalk inspection programs take into account the condition of adjacent driveway aprons, or parkways. While most cities do not maintain residential parkways or driveway aprons, they need to understand that the condition of both can create a dangerous condition of public property, on adjacent sidewalks. With this understanding, many cities have adopted parkway ordinances to control how parkways can be improved and to address responsibility of the adjacent property owner to maintain their parkway. 

Whether or not your agency has adopted an ordinance to govern parkway improvements and maintenance responsibility, it is imperative that parkways and driveway aprons are inspected at the same interval as sidewalks and that maintenance needs be addressed. Most agencies feel it is appropriate for the adjacent property owner to bear the cost to maintain the parkways. The Authority discourages its members from performing maintenance activities on private property. Therefore, members need to have a mechanism for putting adjacent property owners on notice of the need to address maintenance and other issues in the parkway, and to give the property owner a reasonable time to correct the issue before the member intervenes. 

Residents and property owners can get very creative in how they improve the parkway in front of their property, both good and bad. It is common for a property owner to create an intended walkway to traverse from the sidewalk to the curb. These can be especially problematic when they are not constructed and/or maintained properly. That was the case one member agency and it was the basis for a very costly lawsuit. 

Lesson Learned: Be sure that your agency’s sidewalk inspection and maintenance program takes into account conditions adjacent to the sidewalks, and be diligent in mitigating potential dangerous conditions of public property. Consult your agency’s Regional Risk Manager if you have questions about sidewalk inspection and maintenance programs.