Appellate Court Agrees Bureau of Workers' Compensation's Group-Rating Plan was Unlawful, But Remands to Lower Court to Review Damages

An appellate court has ruled that the Ohio Bureau of Workers’ Compensation (“BWC”) violated Ohio law by developing and maintaining an unlawful rating system under which excessive premium discounts were given to group-rated employers at the expense of nongroup-rated employers. In its opinion in San Allen, Inc., et al., vs. Stephen Buehrer, Administrator, Ohio Bureau of Workers' Compensation, issued on May 15, 2014, the Eighth District Court of Appeals affirmed the trial court’s decision ordering the BWC to refund the overcharges it unlawfully collected from nongroup-rated employers, but remanded the case for recalculation of the refund amount.

The litigation began in 2007 when a group of Ohio employers brought a class action lawsuit against the BWC alleging that its group-rating plan gave group-rated employers excessive discounts off their workers’ compensation premiums, which were subsidized by charging nongroup-rated employers inflated base premium rates. The plaintiffs alleged the group-rating plan exceeded the BWC’s rulemaking authority and unjustly enriched the BWC at the plaintiffs’ expense. The court granted class certification and an injunction restraining the BWC from using its prospective group-rating plan. Following a bench trial, the trial court held in favor of the class members and awarded approximately $860 million in restitution.

Both parties appealed. The Eighth District agreed the BWC violated its ratemaking authority when it knowingly maintained an inequitable rating system that resulted in excessive premium payments by nongroup-rated employees. The court noted that the BWC admitted, both publicly and privately, that rates paid by nongroup-rated employers were inflated and resulted in premium inequity. The court also agreed the BWC was unjustly enriched by the premium overcharges it received from class members who were nongroup-rated during the class period from 2001-2008 and that the class members were entitled to restitution.

However, the Eighth District held the trial court failed to account for class members who migrated between nongroup and group-ratings during the class period. Therefore, it remanded the case back to the trial court to recalculate the restitution for class members who were group-rated during part of the class period by including an offset for the subsidies those class members received during the years that they were group-rated.

Roetzel & Andress will continue to closely monitor this case as it heads back to the trial court. In keeping with its mandate, we expect the trial court to significantly reduce its original $860 million restitution award. Reimbursement of any premium overcharges will be paid from the state insurance fund. Previously the Bureau has indicated this will not impact the solvency of the fund. As the award is not yet final, the court has not approved a plan for class members to submit a claim and receive a portion of the award.

Contact: Nathan Pangrace


Sixth Circuit Revives Overtime Claims of Front Line Supervisors

In a decision issued May 1, 2014, the United States Court of Appeals for the Sixth Circuit in Bacon v. Eaton Corp., 6th Dist No. 13-1816, found that eight former industrial supervisors at a Michigan plant could proceed with their claims for unpaid overtime compensation and damages under the Fair Labor Standards Act (“FLSA”). The plaintiffs were former “front line” supervisors who supervised crews of 20 hourly employees. They claim that their employer misclassified them as “exempt executives,” thereby wrongfully exempting them from the overtime provisions under the FLSA.  

The Department of Labor (“DOL”) has established a four-part test to determine whether an employee is appropriately classified under the executive exemption. Under this test, an employee qualifies as an exempt executive if the employee: 
  1. is compensated on a salary basis at a rate of not less than $455 per week;
  2. whose primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof;
  3. customarily and regularly directs the work of two or more other employees; and 
  4. has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change in status of other employees are given particular weight.
There was no dispute that the employer could show that the first three prongs of the above test were satisfied with respect to these front line supervisors. However, the parties disagreed over whether the plaintiffs had sufficient influence over personnel decisions to qualify as exempt executives.  

Applying the DOL’s test, the Sixth Circuit held that a “change of status” for purposes of the fourth prong meant a tangible employment action that constitutes a significant change in employment status. To be a change of status, the action must be more disruptive than a mere inconvenience or alteration of job duties. Moreover, the Court held that an employee that merely carries out the orders of his or her supervisor to effectuate a change of status is not performing executive duties for purposes of the executive exemption under the FLSA.  

Noting that the DOL’s test is to be narrowly construed against the employer claiming the exemption, the Sixth Circuit held that there were sufficient issues of fact to warrant a trial over whether the plaintiffs had sufficient influence over personnel changes of status to qualify for the executive exemption. In so holding, the Court pointed to evidence that the plaintiffs’ evaluations of probationary employees were not given any weight in whether or not the probationary employee was hired, none of the plaintiffs were given training on conducting interviews and none participated in the interview process, and that the employer removed past disciplinary action forms completed by plaintiffs from employees’ files. Based upon such evidence, the Court concluded that a jury could determine that the plaintiffs lacked sufficient influence over other employees’ changes of status to be properly classified as exempt employees under the FLSA.  Accordingly, their claims for unpaid overtime were permitted to proceed. This decision serves as a reminder that title and a supervisory role alone are insufficient to satisfy the executive exemption prong under the FLSA. 

Contact: Emily Wilcheck
419. 254.5260