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Mandatory Skilled Nursing Hours Claims: Are You Covered?

As coverage counsel for policyholders, we see a variety of cases, claims, and complaints. In recent years we have observed a growing trend in health care litigation. Specifically, claims alleging violations of California Health and Safety Code Section 1276.5, which requires skilled nursing facilities (SNFs) to provide at least 3.2 nursing hours per day for each facility resident (3.2 Requirement). In the past, the 3.2 Requirement was mainly enforced by the California Department of Public Health, not private individuals. However, skilled nursing facility residents have the right to bring a private cause of action alleging violations of the 3.2 Requirement (3.2 Claims). The Lavender, et al. v. Skilled Healthcare Group, Inc., et al. matter,1 which resulted in a 2010 jury verdict of more than $670 million for plaintiff skilled nursing facility residents asserting, among other things, 3.2 Claims, demonstrates how disastrous such claims can be for skilled nursing facilities that litigate such claims through trial.

This private right of action was recently addressed by the California Court of Appeal in Shuts, et al. v. Covenant Holdco LLC, et al., where the plaintiff skilled nursing facility residents asserted 3.2 Claims under Health and Safety Code Section 1430(b).2 The Court in Shuts held that Section 1430(b) permits current or former skilled nursing facility residents to bring a lawsuit against the facility for violating any of their rights under the “Skilled Nursing and Intermediate Care Facility Patient's Bill of Rights.”3 The Patient's Bill of Rights includes the entitlement to live at a skilled nursing facility that employs an “adequate number of qualified personnel.”4 Thus, Section 1276.5's requirement that facilities maintain staffing ratios compliant with the 3.2 Requirement may be enforced by residents through Section 1430(b). Additionally, Section 1430(b) allows plaintiffs to recover monetary damages, up to a maximum of $500 per violation, as well as attorneys' fees and costs. By law, these damages may be multiplied by a factor of three if such violations caused a senior citizen or disabled person to suffer.5

Very recently, the California Court of Appeal held in Nevarrez v. San Marino Skilled Nursing and Wellness Centre that Section 1430(b) permits a maximum recovery of $500 total in a civil action for violation of the Patient's Bill of Rights.6 The Court opined that $500 is the maximum recovery available “regardless of how many rights are violated or whether such rights are violated repeatedly.”7 The trial court's award of $7,000 (based on a $500 award for each of the 14 violations alleged) was therefore reversed.8 This is an important ruling for skilled nursing facilities, and may significantly curtail litigation based on alleged violations of the Patient's Bill of Rights given the potential for very limited monetary recovery.

The Nevarrez decision is not yet final and may be reversed. Indeed, the Court of Appeal granted a petition for rehearing on the issue of the maximum recovery allowable under Section 1430(b). As a result, the decision in Nevarrez is now vacated pending rehearing.9 Thus, given the potentially significant exposure facilities still face opposing 3.2 Claims, insurance coverage is critical. Such coverage turns on the policy language at issue. Generally speaking, there are two types of liability policies: those that require physical harm and those that do not. The policies that do not require physical harm are more likely to result in coverage for 3.2 Claims, as patient-plaintiffs tend to disclaim any intent to “'seek damages for personal injuries, wrongful death or other resident-specific harm that may have been caused by inadequate staff.'”10 Such disclaimers are likely included to facilitate class certification in putative class actions; if there is any indication that individual claims of injury or death could predominate the lawsuit, the facility-defendants could possibly defeat class certification.

Despite policy language indicating coverage, insurers attempt to avoid their coverage obligations by asserting various arguments, including that 3.2 Claims amount to uncovered fines and penalties (liability policies commonly contain provisions excluding coverage for “fines and penalties”). Such arguments are unpersuasive. For example, nowhere in the statute through which patient-plaintiffs assert 3.2 Claims — Section 1430(b) — are fines or penalties mentioned. To the contrary, Section 1430(b) is entitled “Actions for injunction or civil damages.”11 Additionally, in the Shuts matter, the California Court of Appeal explained that “Section 1430, subdivision (b) authorizes statutory damages, attorney fees, and injunctive relief.”12 Further, the California Supreme Court has drawn a distinction between penalties that may be assessed by the State Department of Health Services (now the Department of Public Health) for violations, and the damages that may be recovered by a private party under the Long-Term Care, Health, Safety, and Security Act of 1973 (which includes Section 1430).13 Thus, the relief available to private party plaintiffs under Section 1430(b) constitutes covered damages, not uncovered fines or penalties.

Notwithstanding the title of Section 1430(b) — “Actions for injunction or civil damages” — and the California Supreme Court's distinction between penalties and damages, the Court of Appeal in Nevarrez referred to the amount recoverable under Section 1430(b) as a “penalty.”14 Because the Nevarrez court's reference to Section 1430(b)'s imposition of supposed “penalties” (as opposed to damages) was not an issue pending before the Court, its characterization of the relief available under Section 1430(b) is non-binding dicta.

Further, it is well established in California that insurance coverage is interpreted broadly so as to afford the greatest possible protection to the insured.15 Courts will not read words into a statute to facilitate a declination of coverage.16 Additionally, an insurer bears the burden of bringing itself within a policy's exclusionary clauses and exclusions are narrowly construed against insurers.17 Policy exclusions are strictly construed and an insurer cannot escape its basic duty to insure by means of an exclusionary clause that is unclear.18

Because Section 1430(b) is properly construed to provide for damages, not fines or penalties, and insurers must meet a high burden to avoid coverage based upon exclusionary policy language, a standard “fines or penalties” coverage limitation should not preclude coverage for 3.2 Claims.

Understanding insurance coverage issues can be key for skilled nursing facilities facing 3.2 Claims. Not only can insurance funds provide a defense against such claims, they may also assist in resolving those claims so as to avoid potentially devastating results at trial.

Authors
Miles Holden collaborated with Samantha Wolff in writing this article. Ms. Wolff is an attorney at Hanson Bridgett LLP. She represents both public and private sector clients in a variety of matters, including insurance coverage disputes and putative and certified class actions, through all phases of litigation in federal and state court.

1Lavender, et al. v. Skilled Healthcare Group, Inc., et al.; California Superior Court, Humboldt County; Case No. DR060264.

2Shuts, et al. v. Covenant Holdco LLC, et al. (2012) 208 Cal.App.4th 609.

3Health & Saf. Code, § 1430, subd. (b); Shuts, 208 Cal.App.4th at p. 614.

4Health & Saf. Code, § 1599.1, subd. (a); Cal. Code Regs., tit. 22, § 72527, subd. (a)(25).

5Civ. Code, § 3345.

6Nevarrez v. San Marino Skilled Nursing and Wellness Centre (June 5, 2013, B235372) __ Cal.App.4th __ [2013 Cal.App. LEXIS 444].)

7Nevarrez, supra, __ Cal.App.4th __ [2013 Cal.App. LEXIS 444, at p. *46].

8Id. at p. *47.

9Cal. Rules of Court, rule 8.268(d).

10See, e.g., Shuts, 208 Cal.App.4th at p. 615.

11Health & Saf. Code, § 1430 (emphasis added).

12Shuts, 208 Cal.App.4th at p. 614 (emphasis added).

13Kizer v. County of San Mateo (1991) 53 Cal.3d 139, 142-43.

14Nevarrez, supra, __ Cal.App.4th __ [2013 Cal.App. LEXIS 444, at pp. *45-47].

15See, e.g., MacKinnon v. Truck Ins. Exch. (2003) 31 Cal.4th 635, 648; see also State of Cal. v. Allstate Ins. Co. (2009) 45 Cal.4th 1008, 1018 (where insurance policy terms are ambiguous, they must be interpreted to protect the objectively reasonable expectations of the insured).

16Code Civ. Proc., § 1858; see also Silicon Valley Taxpayers' Assoc., Inc. v. Santa Clara County Open Space Authority (2008) 44 Cal.4th 431, 444-45 (statutes are to be given their plain meaning and courts are not permitted to read into the meaning of a statute if the language is clear and unambiguous); People v. Guzman (2005) 35 Cal.4th 577, 587-88 (courts may not add provisions to a statute by inserting words).

17N. Am. Bldg. Maint., Inc. v. Fireman's Fund Ins. Co. (2006) 137 Cal.App.4th 627, 642; Charles E. Thomas Co. v. Transamerica Ins. Grp. (1998) 62 Cal.App.4th 379, 382.

18E.M.M.I. Inc. v. Zurich Am. Ins. Co. (2004) 32 Cal.4th 465, 471.

Boston Furs Sued For $1M For Violations of Fair Labor Standards Act

Citing “knowing, deliberate and intentional” violations of federal wage and hour law, the Labor Department is suing Boston Hides and Furs Ltd. and company officials seeking at least $500,000 in back wages and an equal amount in liquidated damages for allegedly underpaying employees of the Chelsea wholesale animal hide business. See Solis v. Boston Hides & Furs Ltd., Anthony Andreottola, Angelo Andreottola and Antoinetta Andreottola Parisi, CV-1:12-CV-11997-MLW. The suit illustrates the significant liability that companies or their owners or management risk by failing to properly pay workers covered by the Fair Labor Standards Act and meet other Fair Labor Standards Act requirements.

Fair Labor Standards Act Wage & Hour Laws Big Business Responsibility
The Fair Labor Standards Act generally requires that an employer pay each covered employee at least the federal minimum wage of $7.25 per hour as well as time and one-half their regular rates for every hour they work beyond 40 per week. When the state minimum wage is higher than the federally mandated wage, and employees work more than 40 hours in a week calculated in accordance with applicable state laws, employees paid at the minimum permissible level are entitled to overtime compensation based on the higher state minimum wage. Time credited may be determined differently under state law versus the Fair Labor Standards Act. Employers must ensure proper crediting, recordkeeping and payment in time to meet both applicable requirements.

The Fair Labor Standards Act also requires employers to maintain accurate records of covered employees’ wages, hours and other conditions of employment and prohibits employers from retaliating against employees who exercise their rights under the law. Special rules also may apply to the employment of children or other special populations.

The rules generally establish a legal presumption that a worker performing services is working as a covered employee of the recipient. Unfortunately, many businesses that receive services often unintentionally incur liability because they ill-advisedly misclassify workers as performing services as independent contractors, salaried employees or otherwise exempt by failing to recognize the implications of this presumption. The presumption that a worker is a covered employee generally means that an employer that treats a worker as exempt bears the burden of proving that a worker is not a covered employee and of keeping accurate records to show that it has properly tracked the hours of and paid each covered employee.

The Fair Labor Standards Act provides that employers who violate the law are, as a general rule, liable to employees for back wages and an equal amount in liquidated damages. State wage and hour laws also typically provide for back pay and liquidated damage awards. Attorneys’ fees and other costs often also are recoverable. In certain instances where the violations are knowing, deliberate and intentional, violators often may risk criminal as well as civil liability.

Labor Department Sues Boston Hides and Furs Ltd For Knowing, Deliberate & Willful Fair Labor Standards Act Violations
The Labor Department lawsuit seeks to recover more than $1 million from Boston Hides and Furs Ltd and various company officials for allegedly engaging in knowing and deliberate violations of the Fair Labor Standards Act minimum wage, overtime and retaliation rules.

The Labor Department filed the lawsuit in federal court in the U.S. District Court for the District of Massachusetts after a Labor Department Wage & Hour Division investigation found the employer committed willful and repeated violations of the minimum wage, overtime and record-keeping provisions of the Fair Labor Standards Act including offering for shipment or sale “hot goods” produced in violation of the law during a period spanning at least three years. The suit also asserts that the company unlawfully retaliated against several workers by firing them after they cooperated with the federal investigation.

In its complaint, the Labor Department claims the investigation found that 14 Boston Hides & Furs employees worked approximately 10 hours per day, six days per week processing hides and furs for shipping to tanneries. These workers were paid a daily cash wage of $50 to $70, which amounted to an hourly pay rate far below the federal minimum wage of $7.25 per hour. The employees also were not paid time and one-half the required state minimum wage of $8 applicable for those hours worked above 40 in a week. Additionally, the defendants failed to keep adequate records of the workers’ employment, work hours and pay rates, and a representative of the defendants falsely told investigators that the company’s payroll records included all employees.

The lawsuit also charges that the defendants ordered employees to hide in a nearby house when Labor Department Wage and Hour Division investigators first arrived at Boston Hides & Furs so they could not be interviewed. Two days after investigators subsequently interviewed the workers, the defendants fired the workers. During their employment, Labor Department claims the workers were threatened and subjected to verbally abusive treatment on an ongoing basis, particularly when they asked about their pay rates.

In addition to back wages and liquidated damages, the Labor Department lawsuit seeks to permanently prohibit the defendants from future Fair Labor Standards Act violations — including a prohibition against shipping any goods handled by workers who were paid in violation of the law — and compensatory and punitive damages for the workers on account of their unlawful firing. The Wage and Hour Division also has assessed $100,000 in civil money penalties against Boston Hides & Furs Ltd. for willful violations of the Fair Labor Standards Act.

Overtime & Other Wage & Hour Enforcement Risks Rising
Employers increasingly risk triggering significant liability by failing to properly characterize, track and pay workers for compensable time in violation of the Fair Labor Standards Act or other laws. Unfortunately, many employers often are overly optimistic or otherwise fail to properly understand and apply Fair Labor Standards Act rules for characterizing on-call or other time, classifying workers as exempt versus non-exempt or making other key determinations.

Employers wearing rose tinted glasses when making wage and hour worker classification or compensable time determinations tend to overlook the significance of the burden of proof they can expect to bear should their classification be challenged. These mistakes can be very costly. Employers that fail to properly pay employees under Federal and state wage and hour regulations face substantial risk. In addition to liability for back pay awards, violation of wage and hour mandates carries substantial civil — and in the case of willful violations, even criminal — liability exposure. Civil awards commonly include back pay, punitive damages and attorneys’ fees.

The potential that noncompliant employers will incur these liabilities has risen significantly in recent years.

Under the Obama Administration, Labor Department officials have made it a priority to enforce overtime, recordkeeping, worker classification and other wage and hour law requirements. While all employers face heightened prosecution risks, federal officials specifically are targeting government contractors, health care, technology and certain other industry employers for special scrutiny. The Labor Department is also using smart phone applications, social media and a host of other new tools to educate and recruit workers in its effort to find and prosecute violators. See, e.g. New Employee Smart Phone App New Tool In Labor Department’s Aggressive Wage & Hour Law Enforcement Campaign Against Restaurant & Other Employers.

Meanwhile, private enforcement of these requirements has also soared following the highly-publicized implementation of updated Fair Labor Standards Act regulations regarding the classification of workers during the last Bush Administration. See Texas Landscaper’s $106,000 In Minimum Wage & Overtime Settlement Reminds Employers To Prepare For FLSA Enforcement, Minimum Wage, Overtime Risks Highlighted By Labor Department Strike Force Targeting Residential Care & Group Homes, Review & Strengthen Defensibility of Existing Worker Classification Practices In Light of Rising Congressional & Regulatory Scrutiny, 250 New Investigators, Renewed DOL Enforcement Emphasis Signal Rising Wage & Hour Risks For Employers, and Quest Diagnostics, Inc. To Pay $688,000 In Overtime Backpay.

Employers Should Strengthen Practices For Defensibility
To minimize exposure under the Fair Labor Standards Act, employers should review and document the defensibility of their existing practices for classifying and compensating workers under existing Federal and state wage and hour laws and take appropriate steps to minimize their potential liability under applicable wages and hour laws. Steps advisable as part of this process include, but are not necessarily limited to:

  • Audit of each position currently classified as exempt to assess its continued sustainability and to develop documentation justifying that characterization;
  • Audit characterization of workers obtained from staffing, employee leasing, independent contractor and other arrangements and implement contractual and other oversight arrangements to minimize risks that these relationships could create if workers are recharacterized as employed by the employer receiving these services;
  • Review the characterization of on-call and other time demands placed on employees to confirm that all compensable time is properly identified, tracked, documented, compensated and reported;
  • Review of existing practices for tracking compensable hours and paying non-exempt employees for compliance with applicable regulations and to identify opportunities to minimize costs and liabilities arising out of the regulatory mandates;
  • If the audit raises questions about the appropriateness of the classification of an employee as exempt, self-initiation of appropriate corrective action after consultation with qualified legal counsel;
  • Review of existing documentation and recordkeeping practices for hourly employees;
  • Exploration of available options and alternatives for calculating required wage payments to non-exempt employees; and
  • Reengineering of work rules and other practices to minimize costs and liabilities as appropriate in light of the regulations.

Because of the potentially significant liability exposure, employers generally will want to consult with qualified legal counsel prior to the commencement of their assessment and to conduct the assessment within the scope of attorney-client privilege to minimize risks that might arise out of communications made in the course of conducting this sensitive investigation.

Unauthorized Overtime: A Significant Problem

By now most employers have heard about the tremendous growth of lawsuits in California involving the rules which govern hours of work and the payment of wages. You may not, however, be aware that a significant number of these lawsuits involve the basic allegation that overtime hours were worked by an employee and never paid. The easiest of these claims to assert for a disgruntled employee relate to “working off the clock” or “unauthorized overtime.” It is a significant problem because the liability for attorneys’ fees and penalties can often greatly exceed the unpaid wages.

Liability can arise in multiple ways. It can be your best employee who is trying her hardest for the company and works unauthorized time after hours to get a shipment out. She may even tell her supervisor that she doesn’t expect or want to be paid for the extra effort. It can be a task-master supervisor trying to achieve maximum performance in her department with little knowledge of or little regard for overtime payment and record keeping rules. It can be a manipulative employee or former employee who takes advantage of a weak or nonexistent policy and monitoring that falsely claims to have worked hours that were not recorded.

The liability arises because employers have a duty to pay employees for all “hours worked.” “Hours worked” is defined very broadly in California, and means “the time during which an employee is subject to the control of an employer, and included all the time the employee is suffered or permitted to work, whether or not required to do so.” Work not requested but suffered or permitted is work time.

For example, an employee may voluntarily continue to work after the end of the shift. He may be a pieceworker, he may desire to finish an assigned task or he may wish to correct errors, paste work tickets or prepare time reports or other records. The reason is immaterial; the time is working time (aka “hours worked”).

The employer may attempt to disclaim liability by showing a policy prohibiting unauthorized overtime and stating that it did not know the employee was working. In most cases, the attempt will not work.

You have to do more than have the policy. The law imposes a duty on the employer to exercise its control and make reasonable efforts to see that the work is not performed if the employer does not want it to be performed. You cannot sit back and accept the benefits of an employee’s work without compensating for it. On the other hand, employees cannot deceptively hide the fact that they are working in order to create an overtime claim.

Employers who wish to avoid paying for unauthorized overtime must be proactive in establishing good overtime policies and practices. Employers must have a specific policy instructing employees not to work overtime without permission, and must vigorously enforce the policy with written warnings and firm sanctions including suspension and termination. Vigorous enforcement requires diligent monitoring of the employee’s hours of work and record keeping.

It is perfectly legal to require employees to obtain authorization before working overtime hours, and to counsel or discipline employees who fail to follow this policy. But denying pay for “unauthorized” overtime may well cost you far more in the long run than you will save in the short term. If the unauthorized time was worked, you must pay for the time, and use disciplinary measures to enforce overtime policies.

What should you do when an employee informs you that he/she has worked “unauthorized” overtime?

First, make sure that the employee has recorded all of his or her time and is properly paid for the time. Second, remind the employee of your policies. If overtime requires advance approval, make sure the employee understands this and is put on notice that working overtime in the future without such approval may result in discipline.

If this is a first offense, it’s okay to be diplomatic and understanding. Acknowledge the employee’s dedication, but explain that the company is committed to ensuring that everyone is paid for all of their hours, and that it’s management’s responsibility to decide whether or not overtime hours will be worked. If this continues to be a problem, you will have to follow up with a written warning or other appropriate disciplinary action to ensure that the problem does not persist.

Of course, for any of these steps to happen, someone in management has to be aware of the problem. If a supervisor is not familiar with the overtime policies or is not monitoring the hours of work, you have a problem. You cannot rely on HR or payroll to be on top of this issue. They won’t know that an employee is working overtime unless the employee’s time is properly recorded.

It is absolutely vital to train your supervisors on wage and hour law and your organization’s policies. Make sure that they understand that employees must be compensated for all hours worked. If overtime is not going to be authorized, make sure that they set realistic expectations and do not pressure employees to “just get it done” by working off the clock. Make sure that supervisors regularly check employees’ time records to ensure that all employees are properly reporting their time. Also make sure that tracking overtime and labor costs is done in a way that does not encourage supervisors to cut corners and tolerate “off the clock” work.

Tenured Teacher Prevails On Claim that District Cannot Unilaterally Dismiss Charges

On June 25, 2012, in Boliou v. Stockton Unified School District, an appeals court ruled that once a school district schedules a termination hearing against a tenured teacher, it cannot unilaterally rescind the dismissal charges and thereby avoid paying the teacher’s attorneys’ fees and costs. The district is required to conclude the proceedings only as provided by statute, with the Commission on Professional Competence rendering a decision.

Stockton Unified filed an accusation against tenured teacher Mr. Boliou, specifying conduct it claimed merited his dismissal. He denied the conduct and demanded a hearing, which the district scheduled. After 18 months of vigorous litigation and some unfavorable rulings, the district moved to dismiss the charges. Boliou objected and demanded a ruling from the Commission that he should not be dismissed from his employment. This would entitle him to reasonable attorney fees and costs under Education Code §44944(e)(2). The Commission granted the district’s motion to dismiss the charges.

Boliou then went to court, and a judge granted his Petition for Writ of Administrative Mandamus, ordering the Commission to modify its dismissal order to include an express determination that Boliou should not be dismissed. The court also ordered the district to pay Boliou’s reasonable attorneys’ fees and costs.

The district appealed, and the appellate court upheld the writ. Even though no evidence was taken, the Commission was bound to conduct the hearing, once scheduled. Given the district’s dismissal of all charges against Boliou, the court found the only appropriate disposition was a finding that Boliou “should not be dismissed or suspended.” Once the Commission entered that finding, Boliou was also entitled to his reasonable attorney fees and costs.

California Education Code §44941, §44943, and §44944(a) provide that if a teacher demands a hearing on disciplinary charges and the governing board of the school district exercises its option to schedule a hearing instead of rescinding the charges, “the hearing shall be commenced …” Further, pursuant to §44944(b) and (c)(1), the hearing must be conducted, and “the commission shall prepare a written decision containing … a disposition that shall be, solely, one of the following: (A) That the employee should be dismissed; (B) That the employee should be suspended for a specific period of time without pay; (C) That the employee should not be dismissed or suspended.”

Accordingly, a district’s sole opportunity to rescind the charges is when it notifies the teacher of the charges and s/he demands a hearing. The Education Code’s comprehensive statutory scheme does not permit the district to stop the proceeding simply by dismissing the charges. The court concluded: “Regardless of whether the hearing proceeds with or without taking evidence on the merits of the charges, the statutory scheme makes clear what the commission is required to do.”