Warmest Wishes for the Holidays from Hyatt & Weber!

PROJECT USO ELF

In lieu of internal holiday gifts, Hyatt & Weber attorneys and staff chose to contribute funds to our local USO Project Elf. Each holiday season, USO-Metro has the privilege of delivering warmth and festivity to our troops and their families on behalf of the American people. With a matching gift from the firm, we were able to support 20 children in our area by purchasing gifts on their wish lists and delivering them to Ft. Meade.

PDG REHAB HOLIDAY FOOD DRIVE
For over 15 years The Partnership Development Group, Inc. and PDG Rehabilitation Services, Inc. have been providing behavioral health and vocational services to individuals with serious mental illness, co-occurring substance use disorders, and other disabilities at offices located in Millersville and Baltimore. Championed by attorney Jonathan Wall , vice chair of PDG’s board of directors, the firm has been collecting non-perishable food items throughout the holiday season for local families in need. For more information on how you can help, visit www.pdgrehab.com .
Warmest Wishes for a Prosperous 2018!

Court Finds Board of Directors Not Entitled to Benefit of Business Judgment Rule

In Brining v. Donavan , Civil Action No. 16-3422-BLS1, 2017 WL 4542947 (Sup. Ct. Mass. Sept. 14, 2017), a court denied a motion to dismiss filed by a corporation and, thus, denied its board of directors the benefit of the business judgment rule because the board’s decision not to pursue litigation or a derivative action against a former director who also was managing the company “raise[d] serious questions . . . concerning the independence of the [b]oard and the good faith of its decision to seek no redress for the serious financial improprieties” reported by an independent accounting firm.

Jennifer Brining was a shareholder in Sendletter, Inc. (“Sendletter”), an internet-based company. Although Brining was a minority shareholder owning approximately 11% of the company, her investment made her the largest shareholder in the company. Brining alleged that nearly all the money invested in Sendletter was taken by John Donovan, who was a director and effectively the manager of Sendletter, for personal use, not for the benefit of the company. Brining at one point sent a letter to Sendletter’s Board of Directors (“Board”), seeking redress of Donovan’s alleged misconduct. The Board removed Donavan as a Board member and assured Brining that Donovan no longer had control over Sendletter funds. The Board also retained AlixPartners, LLP, a forensic accounting firm, to investigate the transactions involving Donovan. At the time that AlixPartners issued its report on April 18, 2017, the Board composition had changed, as the Board members at that time were John Rose, Nadir-Yohan Zohar (who became President of Sendletter as of February 1, 2017), and Bhaskar Panigrahi.

The AlixPartners report found that Sendletter had essentially no internal controls as of December 2016. Donovan and his wife did not invest any cash in Sendletter, but they loaned “Sendletter Entities” $202,074, which was documented in a note signed by Zohar on March 30, 2017. The report did not explain why Zohar signed loan documents on loans made before he became President or what Zohar did to confirm the amounts, sources, and use of the funds received. The report found there were lease obligations to Donovan related entities for $363,970, but the estimated value of the lease obligations was only $192,206. There were a number of other odd findings and conclusions in the report, including the fact that of $2,846,276 disbursed by Donovan on behalf of Sendletter, $1,274,506 “appear[ed] . . . related to the business activities of Sendletter[,]” “$800,018 [was] not related to Sendletter business activity[,]” and $771,552 of disbursements “cannot be determined based on the scope of work performed.” The report also concluded that “[d]ocuments regularly included handwritten modifications of dates, interest rates, and loan amounts; [m]etadata indicated that documents were created or modified days, months and years after the date on the face of the document; . . . [m]ultiple versions of documents contained materially different terms and varying dates; . . . and [d]ating and amounts on the documents are inconsistent within the document.”

The Board, however, chose not to pursue action against Donovan because any judgment against Donovan “would not be of substantial value.” The Board also determined that litigation would be expensive, distract employees and management, negatively affect partnership and investment opportunities, and adversely affect the company’s public image and share price (to which the court noted that there does not appear to be a market for the company’s shares). The Board further concluded Brining had “demonstrated that her values and motivation are not aligned with this Board and are not compatible with the success of the company.” As a result of the Board’s decisions, Brining pursued legal action on her own.

After addressing choice of law issues, the court examined the independence of the Board. The court noted that, under Delaware law, a director generally is deemed independent “only when the director’s decision is based entirely on the corporate merits of the transaction and is not influenced by personal or extraneous considerations.” The court further noted that there is no bright line rule for determining when a director breaches the duty of independence through self-interest to rebut the presumption of the business judgment rule. Despite this high burden, the court found there were “certain confounding factors presented in this case.” First, the court noted that the Board composition had changed from when the issue was first presented to the Board and when the report was issued for the Board to decide whether to pursue action against Donovan. In this regard, the court questioned the appropriateness of Donovan selecting individuals with whom he had a prior relationship to serve on the Board when those individuals were being asked to make a determination about pursuing claims against him. Second, the court noted when Board independence is questioned, a special litigation committee often is formed to consider the potential claim, but no such committee was formed here. Third, the court questioned the independence of the Board as a result of Zohan signing loan documents for loans that pre-dated his appointment as President, particularly while AlixPartners was investigating the proprietary of those transactions.

The court then proceeded to analyze the business judgment rule, stating that, if one assumes the Board is functionally independent of Donovan as it relates to the decision not to pursue litigation against him, the Board’s decision should receive the benefit of the business judgment rule. Under the business judgment rule, the decision not to pursue a claim or permit a derivative action against Donovan would be binding unless sufficient facts raise a reasonable doubt that the Board adequately investigated the claims or acted in good faith, consistent with its duty of loyalty. Stated differently, the business judgment rule would apply and protect the decision of the Board unless the decision “is so far beyond the bounds of reasonable judgment that it seems essentially inexplicable on any ground other than bad faith.” The court found that a reasonable investigation was conducted, as evidenced by the Board retaining AlixPartners, but there was reasonable doubt as to whether the Board acted in good faith based on the Board’s conclusions.

The court questioned the Board’s decision in a number of respects. For example, the court found that there was no evidence in the Board minutes to support its conclusion that any judgment against Donovan would not be of substantial value. In fact, the court found that the AlixPartners report indicated there was a “strong likelihood of obtaining a substantial judgment against Donovan” (and the court proceeded to dissect many aspects of the report to support this conclusion). While the court acknowledged that a judgment may not be of substantial value if the judgment debtor did not have sufficient assets to satisfy a judgment, the court noted that the Board minutes do not suggest the Board gave any consideration to this issue. The court also examined the potential harm the lawsuit against Donovan would cause to Sendletter achieving its business objectives, but the court once again noted that Board minutes did not specify any transactions that would be jeopardized, whether they be partnering arrangements, investments, or other transactions. Additionally, in light of new management, the court could not find any reason based on the information presented why a potential individual or entity would not want to do business with Sendletter as a result of such a lawsuit against Donovan. Moreover, the court questioned the Board’s decision not even to attempt to negotiate a settlement with Donovan and recoup some of the funds without the cost of litigation. Based on these and other factors the court discussed, the court found that there were “serious questions . . . concerning the independence of the Board and the good faith of its decision to seek no redress for the serious financial improprieties” the Board discovered.

The court’s decision in Brining is significant for companies and their boards of directors. While the business judgment rule is applied broadly and often protects many decisions of boards, even questionable decisions, the protections afforded by the rule are not unlimited. As illustrated in Brining , although a board may reach certain conclusions, the basis for those conclusions should be sufficiently investigated and significant factual developments cannot simply be ignored. When a board fails to exercise reasonable care in evaluating courses of action and analyzing data presented to it, the board faces potential legal action and it will not necessarily be protected by the business judgment rule. Each board decision should be evaluated on its own merits, but, when it comes to decisions about taking legal action against a current or former officer or director, boards at a minimum should evaluate such decisions with the assistance of counsel.

If you have any questions regarding this post, please contact Stephen B. Stern at sstern@hwlaw.com or (410) 260-6585 or Amitis Darabnia at adarabnia@hwlaw.com or (410) 260-6592.

DISCLAIMER: This Blog/Website is for educational purposes and to provide readers with general information about developments in the law. This Blog/Website is not intended and should not be relied on for legal advice. This Blog/Website does not constitute an advertisement for legal services and it does not endorse, promote, or recommend the products, services, or websites of any third party. Reading, reviewing, or any other use of this Blog/Website does not create an attorney-client relationship between the reader and the firm or any attorney at the firm.

Court Holds Insurance Policy Applies to Merged Company

In BCB Bancorp, Inc. v. Progressive Casualty Insurance Co. , Civil Action No. 13-1261, 2017 WL 4155235 (D.N.J. Sept. 18, 2017), a federal district court analyzed the interplay of a directors and officers liability insurance policy with a New Jersey statute to determine that insurance coverage for a shareholder class action lawsuit was available to the merged entity under the insurance policy issued to the company that no longer existed after the merger.

Two banks, BCB Bancorp, Inc. (“BCB”), and Pamrapo Bancorp, Inc. (“Pamrapo”), entered into a merger agreement and became named defendants in a shareholder class action related to the merger transaction. Prior to the merger, Progressive Casualty Insurance Company (“Progressive”) issued a claims-made directors and officers liability insurance policy to Pamrapo for the policy period June 15, 2009 through June 1, 2010. The insured “Company” under the policy constituted four Pamrapo entities and each of the individual officers and directors were insured persons under the policy. Under the “Other Insurance or Indemnification” provision of the policy, the coverage provided by Progressive was to be excess coverage if there was any other non-excess insurance available or if an insured was entitled to indemnification from “any entity other than the Company[,]” “unless such other insurance is written only as specific excess insurance over the Limits of Liability providing by this Policy.” The policy did not expressly exclude coverage for the surviving entity of a merger that occurred outside the policy period.

On June 30, 2009, BCB and Pamrapo announced they had entered into a merger agreement, pursuant to which Pamrapo would merge into BCB, meaning BCB was the surviving entity. The merger was consummated on July 6, 2010. According to the merger agreement, the merger was conducted “in accordance with the New Jersey Business Corporation Act (“NJBCA”).” The merger agreement also provided that BCB “shall indemnify and hold harmless” and defend Pamrapo’s employees, including its officers and directors, to the extent that Pamrapo’s employees would be entitled such benefits under Pamrapo’s Certificate of Incorporation, bylaws, or certain disclosed agreements. The Certificate of Incorporation provided that Pamrapo would indemnify its officers and directors to the extent authorized by the NJBCA.

Shortly after the merger was announced, Pamrapo shareholders filed derivative class action lawsuits against Pamrapo, its directors and officers, and BCB, alleging claims for breach of fiduciary duty, among other claims. Those lawsuits were later consolidated into a single action. The lawsuit eventually was settled.

Pamrapo tendered the claim for coverage to Progressive on August 21, 2009. Progressive acknowledged coverage and reserved its rights under the policy. Progressive agreed to advance defense costs incurred by Pamparo and its officers and directors, subject to its reservation of rights, including the requirement that the $125,000 retention be exhausted. Among the reservations noted by Progressive was the fact that the directors and officers may be subject to indemnification from another source which would trigger the “Other Insurance or Indemnification” provision.

Pamrapo indemnified its officers and directors, paying their legal fees in the shareholder litigation until July 6, 2010 when the merger closed. Indemnifying the directors and officers for their legal fees satisfied the $125,000 retention. On July 30, 2009, less than one month after the merger closed, Progressive advised BCB that it was disclaiming coverage pursuant to the “Other Insurance or Indemnification” provision because it believed its policy was now excess of BCB’s indemnification obligation based on the merger agreement. This coverage dispute ensued.

The court relied heavily on the NJBCA in finding there was coverage under the Progressive policy. In this regard, the court noted that the NJBCA provides the surviving company in a merger “possess[es] all the rights, privileges, powers [and] immunities . . . of each of the merging or consolidating companies.” The court further noted that the NJBCA also provides that the surviving corporation “shall be liable for all the obligations and liabilities of each of the corporations so merged.” In other words, all of Pamrapo’s rights became BCB’s rights and liabilities after the merger closed, including Pamrapo’s rights under the Progressive insurance policy. Indeed, the court specifically noted that the NJBCA does not exclude insurance policies of the entity that merged with the surviving entity. Based on these statutory provisions, the court rejected Progressive’s argument that it no longer had an obligation to provide coverage under its policy after the merger closed because the surviving company (BCB) was not the “Company” identified in the policy. Thus, the court held that Progressive had to insure BCB after the merger closed just as Progressive had to insure Pamrapo before the merger closed – BCB stepped into the shoes of Pamrapo. The court further held that, to disclaim coverage after a merger, “an insurance contract must contain specific exclusionary language to prevent a transfer of rights to the surviving entity under the NJBCA.” No such exclusionary language was included in Progressive’s policy. As for Progressive’s argument that the court’s interpretation would deprive it of the benefit of the bargain and require it to incur unforeseen risks, the court rejected that argument as well, explaining that the transfer or assignment occurred after the insured event in this case, meaning Pamrapo made a valid claim for the shareholder litigation during the policy period and the merger occurred after the policy period expired, which precluded any prejudice to the insurer regarding coverage for an unforeseen risk.

With shareholder class action lawsuits often filed after a merger is announced, the court’s decision in BCB Bancorp provides important guidance for insurers and insureds when evaluating potential coverage obligations in the merger and acquisition context, particularly when an “other insurance” clause is at issue. While the decision in BCB Bancorp is driven largely by a New Jersey statute, insurers and insureds should determine whether similar provisions exist in other jurisdictions when the law of other jurisdictions is at issue.

If you have any questions regarding this post, please contact Stephen B. Stern at sstern@hwlaw.com or (410) 260-6585 or Amitis Darabnia at adarabnia@hwlaw.com or (410) 260-6592.

DISCLAIMER: This Blog/Website is for educational purposes and to provide readers with general information about developments in the law. This Blog/Website is not intended and should not be relied on for legal advice. This Blog/Website does not constitute an advertisement for legal services and it does not endorse, promote, or recommend the products, services, or websites of any third party. Reading, reviewing, or any other use of this Blog/Website does not create an attorney-client relationship between the reader and the firm or any attorney at the firm.

Court Finds Non-Compete Provision Unenforceable Based on Wage/Hour Violations

In SpaceAge Consulting Corp. v. Vizconde , No. L-1196-14, 2017 WL 4183281 (Sup. Ct. App. Div. N.J. Sept. 22, 2017), a New Jersey appellate court concluded that the non-compete provision of the contract the company sought to enforce was void and unenforceable because the company violated wage/hour regulations with respect to the employee against whom enforcement was sought.

SpaceAge Consulting Corp. (“SpaceAge”) is a software services company that trains employees and assigns them to clients to provide software development, application integration, and technology training services. In 2003, the United States Department of Labor (“DOL”) commenced an investigation of SpaceAge for alleged violations of regulations covering employees with H-1B visas. To this end, SpaceAge did not compensate H-1B employees at the commencement of the employment relationship when those employees were in training. In March 2006, DOL issued a letter finding that SpaceAge willfully violated applicable regulations by failing to pay its H-1B employees prevailing wages during periods in which employees were training.

During the DOL investigation, in January 2004, Maria Vizconde, who resided in the Philippines at the time, applied for a job with SpaceAge as an information technology professional. SpaceAge ultimately offered Vizconde a job in June 2004 and entered into a “train-to-hire” employment agreement with Vizconde that provided she would be hired for a three-year term under an H-1B visa and that her employment would begin “when I begin work at a project on [a] SpaceAge site or at one of its client sites and it does not include any training period.” The employment agreement also included a non-compete provision that prohibited Vizconde “from working for a client for whom she rendered services during the contract term and for one year after employment terminated.” The contract further provided that, if Vizconde ended her employment before the end of the term or she otherwise breached the agreement, she would pay SpaceAge all training and recruitment fees as well as other damages and litigation costs.

In June 2006, Vizconde entered into a new “train-to-hire” employment agreement with SpaceAge’s “sister company,” SpaceLabs Software Services, Inc. (“SpaceLabs”). The new agreement had a five-year term, with a similar non-compete provision and the repayment of training costs and other losses in the event of a breach. The agreement also stated it “superseded all proposals, oral or written, [and] all other communications between them related [to the agreement].”

In June 2007, SpaceAge entered into a contract with Computer Generated Solutions, Inc. (“CGS”) to provide information technology services to CGS. Vizconde was assigned to CGS and CGS in turn assigned Vizconde to work as a computer programmer at Home Box Office, Inc. (“HBO”). The contract between CGS and HBO provided that HBO would not hire Vizconde without CGS’s consent within the first year, but HBO could hire Vizconde after the one-year period expired. In November, HBO inquired into the possibility of hiring Vizconde, but, in light of the contract provision prohibiting such a hire, it did not pursue the matter further.

At the end of April 2008, Surender Malhan, owner of SpaceAge and SpaceLabs, learned that CGS’s contract for Vizconde to work at HBO would end on May 5, 2008. He then told Vizconde that her employment would be “transferred from SpaceLabs to SpaceAge.” Malhan later confirmed this transfer in an email, but Vizconde declined the offer of employment with SpaceAge.

HBO sought to verify that Vizconde’s employment with SpaceLabs ended and Vizconde’s attorney confirmed that fact. Vizconde’s attorney also gave his/her opinion that Vizconde’s employment contract did not preclude her from pursuing employment with HBO at that time. HBO then hired Vizconde and SpaceAge later sued Vizconde for breach of contract, including the non-compete provision, and unjust enrichment. The lawsuit also included HBO as a defendant allegedly for tortious interference. The trial court granted Vizconde’s and HBO’s motion to dismiss. SpaceAge filed a second amended complaint, which Vizconde had dismissed in response to a motion for summary judgment. SpaceAge filed a motion for reconsideration, which was denied. SpaceAge then filed an appeal.

The appellate court affirmed the decision of the trial court. The appellate court noted that federal law requires an employer to pay a non-immigrant worker with an H-1B visa starting when the worker commences employment, which includes time in training. The court cited 20 C.F.R. § 655.731(c)(6)(i), which provides in relevant part that an H-1B worker commences employment “when he/she first makes him/herself available for work or otherwise comes under the control of the employer, such as by waiting for an assignment, reporting for orientation or training, going to an interview or meeting with a customer, or studying for a licensing examination, and includes all activities thereafter.” The court then found that Vizconde was employed as of February 1, 2006, but was unpaid through June 18, 2006 during her period of training. The court also noted that Vizconde was not paid wages at the commencement of her contract with SpaceLabs either. Under New Jersey law, courts “refuse to enforce contracts that are unconscionable or violate public policy.” The court ultimately held that, “[b]ecause both agreements violated federal law, they were void and unenforceable ab initio” and, thus, “summary judgment dismissing all claims against Vizconde was properly granted.”

The court’s decision in SpaceAge Consulting is significant because it is an important reminder for companies seeking to enforce non-compete or non-solicitation agreements that such agreements are susceptible to non-enforcement if the company is not in compliance with laws applicable to other aspects of the employment relationship. Indeed, it is noteworthy that the court in SpaceAge Consulting did not even examine the specific language in the non-compete provision or whether SpaceAge or SpaceLabs even sought to protect a legitimate, protectable, business interest. Rather, it solely considered violations of applicable law that governed other aspects of the employment relationship. Thus, before seeking to enforce a non-compete or non-solicitation agreement, companies should evaluate whether the employee against whom enforcement is sought may be able to defend an action based on other violations of applicable law.

If you have any questions regarding this post, please contact Stephen B. Stern at sstern@hwlaw.com or (410) 260-6585 or Amitis Darabnia at adarabnia@hwlaw.com or (410) 260-6592.

DISCLAIMER: This Blog/Website is for educational purposes and to provide readers with general information about developments in the law. This Blog/Website is not intended and should not be relied on for legal advice. This Blog/Website does not constitute an advertisement for legal services and it does not endorse, promote, or recommend the products, services, or websites of any third party. Reading, reviewing, or any other use of this Blog/Website does not create an attorney-client relationship between the reader and the firm or any attorney at the firm.

Hyatt & Weber Holiday Party 2017

Hyatt & Weber was pleased to welcome over 200 guests to the lobby of the Severn Bank Building on Westgate Circle in Annapolis for our annual holiday celebration. Our attorneys and staff mingled with clients, local judges, attorneys, elected officials, and many other invited guests while dining on a delicious menu provided by local Annapolis caterer O’Leary Catering.

To view party photos, please visit our Facebook page: https://www.facebook.com/hyattweberpaannapolis/

Stephen Stern Presents Harnessing the Perils and Promise of Social Media for Business Growth

On December 12, impactHR welcomed Hyatt & Weber employment attorney Stephen Stern to their offices in Columbia, MD to present, “Harnessing the Perils and Promise of Social Media for Business Growth.”

Most of us are using social media in our lives today – whether at home or in the workplace. In fact, the percentage of the U.S. population with a social media profile has soared to 81% in 2017 – up from 24% in 2008, according to Statista. Stephen frequently presents and writes on the topic of how executives and employers can use the power of social media to aid – and not hinder nor imperil – their strategic business growth goals.

Without a doubt, there are benefits to employer and employee use of social media. Used smartly and strategically, social media can improve a company’s brand position and help launch new products and services. On the flip side, its use can present dangers to employers such as harassment, negative PR, data loss, fraud and release of sensitive company information.

For more information on having Stephen present to your group or executive team, email Stephen at sstern@hwlaw.com or contact us .

Extended Leave of Absence Found Not a Reasonable Accommodation Under the ADA

Many employers have offered some form of extended leave to an employee as a reasonable accommodation under the Americans with Disabilities Act (“ADA”) when that employee’s leave under the Family and Medical Leave Act (“FMLA”) has been exhausted. But how much extended leave is reasonable under the ADA? In Severson v. Heartland Woodcraft, Inc. , No. 14-CV-1141, 2017 WL 4160849 (7th Cir. Sept. 20, 2017), the United States Court of Appeals for the Seventh Circuit held that a three month leave of absence following the expiration of FMLA leave was not a reasonable accommodation under the ADA.

Raymond Severson worked for Heartland Woodcraft, Inc. (“Heartland”), for a number of years. He received several promotions, but he did not perform well in his last positon as operations manager, leading Heartland to move him to a second-shift “lead” position, which required Severson to perform manual labor in the production area of the plant, operate and troubleshoot production machinery, and frequently lift materials and product weighing 50 pounds or more, among other physically demanding tasks. On the day that Heartland notified Severson of the move, he injured his back, aggravating a preexisting condition and left work early. Severson was out for several weeks on FMLA leave and regularly communicated with the company about his progress and condition. Ultimately, Severson’s doctor recommended surgery, which he scheduled for August 27, 2013, the same day that Severson’s FMLA leave expired. The typical recovery time for Severson’s surgery was two months. Severson asked for an extension of his medical leave so he could recover. Heartland declined his request and terminated Severson’s employment on August 27, but invited Severson to reapply for employment when he received medical clearance to work. On October 17, Severson’s doctor cleared him to resume work with a 20 pound lifting restriction and, on December 5, Severson was cleared to resume work with no limitations. Instead of reapplying for employment with Heartland, Severson sued Heartland for failing to accommodate his disability under the ADA. Severson argued he could have been given at least three reasonable accommodations: (1) a two or three month leave of absence; (2) transfer to a vacant position; and (3) a temporary light duty position with no heavy lifting. The district court granted summary judgment to Heartland. Severson appealed.

The parties and Seventh Circuit focused almost entirely on the issue of whether an extended leave of absence constituted a reasonable accommodation under the ADA. The court’s analysis started with the provision of the ADA that includes the definition of a reasonable accommodation. That provision states a reasonable accommodation “may” include: “(A) making existing facilities used by employees readily accessible to and usable by individuals with disabilities; and (B) job restructuring, part-time or modified work schedules, reassignment to a vacant position, acquisition or modification of equipment or devices, appropriate adjustment or modifications of examinations, training materials or policies, the provision of qualified readers or interpreters, and other similar accommodations for individuals with disabilities.” The court noted the phrase “may include” was significant because it meant the concept of a reasonable accommodation was a “flexible” one and the statute merely listed examples. The concept of a “qualified individual” on the other hand is “concrete” according to the court because a “reasonable accommodation” is supposed to allow a “qualified individual” to “perform the essential functions of the employment position.” The court further explained that “[i]f the proposed accommodation does not make it possible for the employee to perform his job, then the employee is not a ‘qualified individual’ as that term is defined in the ADA.” To this end, the court noted that the illustrative examples in the statute “are all measures that facilitate work.”

Based on these underlying principles, the Seventh Circuit held that “a long term leave of absence cannot be a reasonable accommodation” because “[n]ot working is not a means to perform the job’s essential functions.” In other words, “an extended leave of absence does not give a disabled individual the means to work; it excuses his not working.” As such, the “[i]nability to work for a multi-month period removes a person from the class protected by the ADA.” The court deferred any need for extended medical leave to the realm of the FMLA.

The court, however, acknowledged that “a brief period of leave to deal with a medical condition could be a reasonable accommodation in some circumstances.” One example the court provided was intermittent leave or a short leave of absence of a few days or even a couple weeks, depending on the facts and circumstances. The court analogized such short periods of leave to a part-time or modified work schedule, which was one of the illustrative examples of a reasonable accommodation in the statute.

As for Severson’s request to transfer to a vacant position, the court determined that Severson did not satisfy his burden of proving that there were in fact vacant positions available at the time his employment terminated. He simply showed that vacant positions existed after his employment terminated.

Lastly, with respect to the request for a light-duty position, the court noted that an employer ordinarily is not obligated to create such a position to accommodate an individual with a disability. The court explained, however, that if the employer has a policy of creating light-duty positions for employees who are occupationally injured, then the company must extend that benefit to disabled employees who are not occupationally injured, unless the company can demonstrate that creating such a position would constitute an undue hardship. Although Heartland had a discretionary policy to give occupationally injured employees temporary light-duty assignments, these assignments were given infrequently and generally lasted no longer than two days. As a result, the court found that Heartland did not have a policy of creating light duty positions for occupationally injured employees and, thus, Severson’s request for an accommodation in this regard was not reasonable.

The court’s decision in Severson is significant, as several courts have endorsed the concept of extended leave constituting a reasonable accommodation under the ADA, provided that certain other conditions are satisfied. While the Seventh Circuit’s decision in Severson still endorses the concept of extended leave constituting a reasonable accommodation, the court’s decision seems to limit an extension of leave to intermittent leaves/breaks or perhaps a few days or weeks, not months. It will be interesting to see whether courts in other jurisdictions follow the Seventh Circuit’s analysis or whether this ruling will be limited to those jurisdictions subject to the Seventh Circuit. In either case, companies should continue to consult with counsel when evaluating ADA issues and what constitutes a reasonable accommodation under the ADA.

If you have any questions regarding this post, please contact Stephen B. Stern at sstern@hwlaw.com or (410) 260-6585 or Amitis Darabnia at adarabnia@hwlaw.com or (410) 260-6592.

DISCLAIMER: This Blog/Website is for educational purposes and to provide readers with general information about developments in the law. This Blog/Website is not intended and should not be relied on for legal advice. This Blog/Website does not constitute an advertisement for legal services and it does not endorse, promote, or recommend the products, services, or websites of any third party. Reading, reviewing, or any other use of this Blog/Website does not create an attorney-client relationship between the reader and the firm or any attorney at the firm.