Month: June 2017

Recent Changes to Virginia’s SWaM Regulations

(“SWaM”) program, operated by the Department of Small Business and Supplier Diversity (“SBSD”), went into effect. The following changes to the SWaM regulations expand the rights of individuals seeking to qualify for and maintain SWaM status. Those changes include:

1.       Subsidiary Ownership of SWaM Entities: SWaM eligibility requires that qualifying individuals directly own and control at least 51% the business. So a firm that is 51% owned by another firm is not eligible for SWaM certification. The April 2017 changes to 7VAC13-20-100 create a limited exception permitting parent company ownership of a SWaM business if:

a.       The parent company was “established for tax, capitalization, or other legitimate business purposes”; and

b.       “Qualifying individuals” cumulatively own and control at least 51% of the subsidiary, by virtue of their ownership share of the parent company and the parent company’s ownership share of the subsidiary.

2.       Revocation Process: Revocation occurs when SBSD reevaluates a current SWaM’s eligibility for the program and finds that the business no longer qualifies for SWaM status. The April 2017 changes modified the revocation procedure by: a) giving the affected business the right to demand an informal fact-finding proceeding; b) creating a 10-day appeal notice period; and c) keeping the business’s SWaM certification effective until SBSD issues a letter of revocation. 7VAC13-20-210(C).

3.       Reapplication Following SWaM Denial:  Prior to the recent changes, unsuccessful SWaM applicants were required to wait twelve (12) months from the later of the date they received a notice of denial or the date their appeal was concluded to reapply in the same category of certification. An unsuccessful applicant’s decision to appeal his denial, therefore, extended the amount of time he had to wait to reapply, thereby discouraging appeals.

In April, 7VAC13-20-220 was amended, including to provide that appeals no longer extend commencement of the 12-month waiting period for reapplication. Additionally, 7VAC13-20-220 was amended to clarify that an unsuccessful applicant is immediately eligible to reapply “for certification in any other category.” So, for example, a business that is denied woman-owned SWaM status need not wait to re-apply for minority-owned SWaM status, but can do so immediately.

These changes, which give SWaM applicants and participants expanded rights, are timely since SWaM requirements and preferences are becoming increasingly prevalent in Virginia public contracts at all levels.

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Two Significant Policy Changes by the Trump Administration’s Department of Labor

As we all expected, President Trump has made his mark on numerous federal policies. On June 7, 2017, the U.S. Department of Labor (“DOL”), now under the leadership of Secretary Alexander Acosta, announced that it had withdrawn two of the past administration’s interpretive bulletins, 2015-1 and 2016-1. Both bulletins had been issued by President Obama’s DOL as guidance, rather than as federal rules, but set the tone in the DOL’s approach to its investigations and enforcement actions.

In the first bulletin, Interpretive Bulletin 2015-1, President Obama’s DOL took a strong stance against businesses misclassifying employees as independent contractors. For employees, unlike independent contractors, businesses are obligated to pay payroll taxes and, except for exempt employees, overtime pay. Employees, unlike independent contractors, may be eligible to unionize. If the worker is economically dependent on the business, the law requires that he or she should be classified as an employee. While acknowledging that there may be circumstances where a worker is legitimately treated as an independent contractor, the past DOL opined in Interpretive Bulletin 2015-1 that such circumstances were rare and set a high bar for businesses to show that a worker is not economically dependent on the business.

In Interpretative Bulletin 2016-1, the Obama administration’s DOL gave a broad interpretation of the Fair Labor Standards Act’s (“FLSA”) joint employer doctrine. Under the FLSA, two or more businesses can be considered joint employers of an employee and jointly and severally liable for the employees’ unpaid overtime wages, even though the employee is on only one employer’s payroll. In Interpretive Bulletin 2016-1, President Obama’s DOL expanded upon the concept of joint employment, looking to broaden the universe of businesses that could be held liable as joint employers under the FLSA. This approach echoed the National Labor Relations Board’s decision in Browning-Ferris, which found that a business can be liable as a joint employer for its contractor, even if the business did not exert control over the contractor’s employees. (The Browning-Ferris decision is on appeal to the D.C. Circuit Court.) The DOL’s approach in Interpretive Bulletin 2016-1 also posed a risk that joint employers could be targets of unionization campaigns.

In withdrawing both interpretive bulletins, the DOL stressed that it was not changing the law. Employers still need to be careful in deciding whether a worker is properly classified as an independent contractor and to avoid liability as a joint employer for other business’s obligations to employees. The DOL’s move, however, signals a more business-friendly approach to the application of existing law. Whereas the Obama administration was inclined to expand workers’ rights to overtime pay and to unionize, the Trump administration has staked the opposite position.

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Claims for Additional Costs and Delays Under the New AIA A201 General Conditions of the Contract for Construction

The American Institute of Architects (AIA) publishes one of the most widely-used sets of form contracts for use on construction projects.  AIA, which historically has revised the forms every ten years, currently is publishing a new set.  The focus of this article is the new version of A201 “General Conditions of the Contract for Construction.”  The A201 is incorporated into many of the AIA contracts and sets forth the requirements for owner and contractor claims for delays or additional costs.

Among other changes, the 2017 revisions to A201 make the following changes which may significantly impact claims:

–          Notice of Claims:  Revised Section 15.1.3 appears to delete the requirement that notice of claims be made in writing.  However, the revisions add a new Section 1.6.2 that requires notice of claims be made in writing.  Written notice of claims must be delivered in person, sent by registered or certified mail or by courier service providing proof of delivery.  Failure to provide proper notice could invalidate a claim.

–          Demands for Mediation and Arbitration/Litigation:  After the “Initial Decision Maker” provides its decision on a claim, Sections 15.2.6.1 and 15.3.3 allow either party to demand in writing that the other party file for mediation or binding dispute resolution (arbitration or litigation as agreed by the parties).  If the other party fails to file for mediation or binding dispute resolution within the required time, “then both parties waive their rights to mediate or pursue binding dispute resolution proceedings with respect to the initial decision” on the claim.  This allows either party to force resolution of a claim if not resolved by other means.

–          Construction Schedule:  Section 3.10.1 adds specific requirements for the contractor’s construction schedule, including that the schedule provide interim schedule milestone dates, an apportionment of work by construction activity and the required time for completion of each portion of the work.  The schedule also must be “revised at appropriate intervals as required by the conditions of the Work and Project.”  Arguably, failure to comply with these requirements could impact a contractor’s claims for delays.

The 2017 revisions make many other changes to A201.  Any contractor considering using the revised form agreements is encouraged to review the forms with an experienced construction attorney to determine how the revised forms may impact their rights and obligations for its construction projects.

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Valuing Rights Taken

The applicable measure of damages in a condemnation proceeding for the court and jury is the DIFFERENCE between the fair market value of the ENTIRE TRACT immediately prior to the taking and the fair market value of the REMAINDER immediately after the taking.  The only situation in which the fair market value of the property taken can exceed the difference between the fair market value of the property before and after the taking under N.C. Gen. Stat. § 40A-64 is where there is a special benefit offset.

All factors pertinent to a determination of what a buyer – willing to buy but not under compulsion to do so – would pay and what a seller – willing to sell but not under compulsion to do so – would take for the ENTIRE PROPERTY must be considered in arriving at the compensation to which a landowner is entitled.  The compensation for the taking must be full and complete. Such compensation includes everything which affects the value of the ENTIRE PROPERTY before the taking and the REMAINDER after the taking.   The adverse impacts of the Project must be considered in assessing damages.

A condemnor must pay for the rights taken, not what it actually does on the propertyCarolina Central Gas Co. v. Hyder, 241 N.C. 639, 642, 86 S.E.2d 458, 460 (1955) (“[I]n assessing damages for easement rights, it is not what the condemner or grantee actually does, but what it acquires the right to do that determines the quantum of damages.”) (citations omitted).

To properly evaluate an easement acquisition, the appraiser must know precisely how the easement will be used, what rights are to be acquired, and how responsibilities as to the easement will be divided by the parties.  The full impact of an easement acquisition cannot be estimated until the appraiser determines: (1) the loss of present utility, (2) loss of future utility, (3) accessory rights to be acquired, and (4) the obligations of the parties. Accessory rights (secondary easements) may include the right to maintain the easement area including the right to enter onto the property for inspection, repair and/or replacement.

Damages to land due to the imposition of an easement can range from 0% to 100% of the easement area’s fee value.  J.D. Eaton, MAI, SRA, Real Estate Valuation in Litigation (1995).

Under N.C. Gen. Stat. §40A-66(a), “[i]f there is a taking of less than the entire tract, the value of the remainder on the valuation date shall reflect increases or decreases in value caused by the proposed project including any work to be performed under an agreement between the parties.”

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Valuation of Temporary Easements

Typically, the principles and techniques applied in appraising the land taken in an easement acquisition are the same as those applied in other condemnation appraisals.  J.D. Eaton, MAI, SRA, Real Estate Valuation in Litigation (1995).  Under the before and after rule, the appraiser simply values the property before and after the easement acquisition.  The measure of damages is the loss of salable utility to both the area encumbered by the easement and the unencumbered portion of the larger parcel.  Id.

However, the condemned property’s loss of fair market value is not the proper measure in temporary easement acquisitions.  When a taking is temporary, the measure of compensation is the value of the property for the period that it is to be held by the condemnor, or the diminution in the value of the property by reason of the owner’s loss of its use and occupancy during the possession by the condemnor.  The most common measure of damages is the rental value of the easement area for the period of occupancy by the condemnor.  Id. at 357-58.

Damages that result from temporary easements are usually based on economic rent of the affected area for the term of the temporary easement.  Id.  If rental information is not available, the appraiser must estimate an appropriate rate of return on the land for the term of the easement.  Id. at 359.  In no case may the appraiser determine that the landowner is not owed just compensation simply because there is not a market for the easement area.  Id. at 357.

One such example is a temporary construction easement.  In most condemnations where a temporary construction easement has been taken, there is not a robust market for the easement area.  And, yet, the condemnor must still pay the landowner just compensation for the easement taken. Therefore, these types of easements are typically valued at a percentage of the overall rental value of the area affected.

As the example above illustrates, appraisers must sometimes value temporary takings where there is no rental market for the taking area.  This is especially common in condemnations where easements may be taken only to accommodate a temporary project, resulting in easement takes of unusual size and shape and of limited utility.  Appraisers may not, however, abandon the valuation process and assign no value to the temporary easement take area just because there is not an actual rental market for it.  Where there is not a market for an easement area the appraiser must “estimate” a rate of return on the temporary easement area.  Many appraisers use 10% as a rate of a return on a temporary construction easement.

If the temporary easement will affect the value of the remaining unencumbered land, this fact must also be considered in estimating the value of the property after the taking.  The location of an easement in relation to improvements on the affected parcel is also an important consideration.

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Valuation of Temporary Easements

Typically, the principles and techniques applied in appraising the land taken in an easement acquisition are the same as those applied in other condemnation appraisals.  J.D. Eaton, MAI, SRA, Real Estate Valuation in Litigation (1995).  Under the before and after rule, the appraiser simply values the property before and after the easement acquisition.  The measure of damages is the loss of salable utility to both the area encumbered by the easement and the unencumbered portion of the larger parcel.  Id.

However, the condemned property’s loss of fair market value is not the proper measure in temporary easement acquisitions.  When a taking is temporary, the measure of compensation is the value of the property for the period that it is to be held by the condemnor, or the diminution in the value of the property by reason of the owner’s loss of its use and occupancy during the possession by the condemnor.  The most common measure of damages is the rental value of the easement area for the period of occupancy by the condemnor.  Id. at 357-58.

Damages that result from temporary easements are usually based on economic rent of the affected area for the term of the temporary easement.  Id.  If rental information is not available, the appraiser must estimate an appropriate rate of return on the land for the term of the easement.  Id. at 359.  In no case may the appraiser determine that the landowner is not owed just compensation simply because there is not a market for the easement area.  Id. at 357.

One such example is a temporary construction easement.  In most condemnations where a temporary construction easement has been taken, there is not a robust market for the easement area.  And, yet, the condemnor must still pay the landowner just compensation for the easement taken. Therefore, these types of easements are typically valued at a percentage of the overall rental value of the area affected.

As the example above illustrates, appraisers must sometimes value temporary takings where there is no rental market for the taking area.  This is especially common in condemnations where easements may be taken only to accommodate a temporary project, resulting in easement takes of unusual size and shape and of limited utility.  Appraisers may not, however, abandon the valuation process and assign no value to the temporary easement take area just because there is not an actual rental market for it.  Where there is not a market for an easement area the appraiser must “estimate” a rate of return on the temporary easement area.  Many appraisers use 10% as a rate of a return on a temporary construction easement.

If the temporary easement will affect the value of the remaining unencumbered land, this fact must also be considered in estimating the value of the property after the taking.  The location of an easement in relation to improvements on the affected parcel is also an important consideration.

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Good Collection Practices Protect Lifeblood of Community Associations

Assessments are the lifeblood of every community association.  For most associations, it is the sole source of income to pay for common expenses.  Therefore, having tools and good practices to maximize collection of assessments is vital not just to survive and thrive, but to avoid unwanted special assessments and/or debt.

It is the obligation of owners to pay assessments.  It is one of the characteristics that define an association.  Owners have no right to opt out of paying or offset assessment and there are few defenses available to not paying. Not having the proper tools to collect assessments or good collection practices can hinder an Association’s ability to get results.

The governing documents will set forth the basis for assessment and, in many cases, the time frame and other rights in the event of default.   It is important to act swiftly when an owner defaults for practical and legal reasons.  When an owner does not pay, the remaining owners may ultimately have to pay the defaulting owner’s share.  A budget is based upon collection of all assessments with no profit.

The Association should develop a protocol for monitoring payments, notifying owners when a payment is missed, and referring delinquent accounts to an attorney for collection action.  A notice may help identify mistakes (such as with an automatic payment) or problems (such as a job loss or illness) at an early stage before a debt become larger and more difficult to surmount.  Under the governing documents, Boards generally have an obligation to act quickly in the event of default.   Failure to do so could be a breach of fiduciary duty.  Certain rights of the association are also time sensitive and have statutes of limitation, so acting promptly is important to preserving those rights.

When assessments are delinquent, an association has two legal avenues to pursue.  The first is the filing of a statutory lien in the land records that encumbers title to the unit, and is ultimately enforceable by foreclosure (judicial or non-judicial).  It has priority over all other liens except a first deed of trust and real estate taxes, and affects only that unit or lot.   The second is the filing of a suit to obtain a judgment against the owner that is enforceable by garnishment, levy on personal property or debtor’s interrogatories.  It affects an owner’s credit and, once recorded in a jurisdiction, creates a lien on all real property currently owned or after acquired by that owner for a period of time.

A lien can be filed more quickly than a judgment can be obtained.  It is an unauthorized practice of law in Virginia for a lien to be prepared by a non-lawyer.  The time frame to file a valid lien is relatively tight, making swift action essential to preserving maximum lien rights.  For a condominium, a lien must be filed within 90 days of the date the assessment became due, whereas for a property owners association, a lien must be filed within one year of the date the assessment became due.

If your association does not have a collection policy setting forth when assessments are due, it would be worthwhile to discuss this with association counsel.   It would also be worthwhile for association counsel to review the governing documents to determine whether as association’s collections toolbox has the various tools that can maximize return and remedies.  Such “tools” include provisions for acceleration of installments, late fees, interest, attorney’s fees, and cost recovery, whether or not suit is filed or the matter settles short of entry of judgment.

If the recorded documents or rules and regulations adopted pursuant thereto expressly so permit, Virginia law condominium and property owners associations may suspend services and facilities provided directly through the Association for non-payment of assessments that exceeds 60 days, so long as such suspension does not endanger life, health or safety or deny access to the unit or lot and only after due notice, a hearing and hearing result notice.   Revoking parking, turning off water, denying pool access, etc. can be very effective tools to collect delinquent assessments, particularly when owners have exempt income.  This kind of remedy is only available, however, if the requisite authority exists in the documents.

A financially stable community is one with good collections practices based upon the authority contained in the governing documents and sound collection practices.  It is important that collection issues are addressed early and diligently to protect the Association’s interests and before the problem becomes more difficult for the delinquent owner to resolve.  Sound practices include policies and procedures to ensure delinquencies are being addressed regularly and consistently.  Board members have a fiduciary duty to the Association and its members to do so.  If you have questions about whether your association’s collections tools and practices are sharp and useful, consult your association attorney.

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Bankruptcy Basics for Community Association Boards of Directors

Over the last decade, community associations (like other businesses) have been forced to navigate the “Great Recession” and continued recovery.  The “Great Recession” brought with it a significant increase in the number of personal bankruptcy filings across the country.  Even now, personal bankruptcy filings continue to impact communities and their ability to collect assessments.

It is a common thought that the filing of a bankruptcy petition eliminates a community association’s ability to collect past due assessments.  This is not always true.  But, a number of factors will impact a community association’s ability to claim and collect, debts in bankruptcy.

This brief overview is intended to provide community association boards of directors with a basic understanding of the impact a bankruptcy filing may have on the association’s ability to collect past-due assessments, along with important factors for a board to consider as they consider the appropriate course of action.

As always, the following is provided as general information.  Because of the complexity of bankruptcy law (and the law in general), association rights and responsibilities should be promptly reviewed by counsel for the association on a case-by-case basis.  The following cannot be substituted for legal advice.

Common Types of Bankruptcies in Community Associations

The two most common types of bankruptcy filings faced by community associations are those filed under Chapter 7 and Chapter 13 of the Bankruptcy Code.

A Chapter 7 bankruptcy is a “liquidation” of assets in exchange for a discharge of debts and is the most common type of bankruptcy filing in the United States.

When a Chapter 7 bankruptcy is filed, a Trustee (the “Chapter 7 Trustee”) is appointed.  This Chapter 7 Trustee is empowered to take control of all legal or equitable interests of the debtor in personal and real property held by the debtor at the time of the bankruptcy filing, liquidate or sell those interests and distribute the proceeds to secured creditors (with excess proceeds distributed to unsecured creditors on a pro-rata basis).  These interests are referred to the as the bankruptcy estate.

A Chapter 13 bankruptcy provides for an adjustment (really, a “reorganization”) of debts of an individual with regular income.  A Chapter 13 bankruptcy allows a debtor to keep property and pay debts over time, usually three to five years, through an approved plan.

An Owner has filed for Bankruptcy Protection, What Happens Now?

Bankruptcy cases are opened upon the filing of a bankruptcy petition by the debtor (or, in some cases, by creditors) in a bankruptcy court.

The filing of a bankruptcy petition immediately initiates the automatic stay.  The automatic stay is an injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed, and remains in place until the bankruptcy case is either dismissed or the debtor is discharged.

Certain potential violations of the automatic stay by community associations are obvious – sending a letter to the debtor demanding repayment of a pre-petition debt, filing suit or continuing to pursue a judgment after a bankruptcy petition is filed (a bankruptcy search using the debtor’s name should be done before any suit is filed), or initiating a garnishment to collect a pre-petition debt.

Other violations are less obvious – initiating foreclosure actions, suspending the right to vote, suspending the right of the debtor to use facilities or services (e.g., pool, gate or elevator access) for non-payment of assessments, or taking actions against co-debtors (including spouses and other co-owners in a Chapter 13 bankruptcy).

In a Chapter 13 bankruptcy, if a unit or lot is owned by multiple owners and is a delinquent in the payment of assessments, the automatic stay protects all co-debtors, even if only one files for bankruptcy protection.  These actions threaten portions of the bankruptcy estate, which are protected by the automatic stay.

Despite the automatic stay, assessments that accrue after the date the bankruptcy petition are filed (post-petition assessments) remain the legal obligation of the debtor and are not discharged in bankruptcy.

Within the first few weeks after the filing of a Chapter 7 bankruptcy, a notice of the commencement of case is sent to all creditors listed in the bankruptcy petition and schedules.  The recordation of a lien and commencement of a timely civil suit can both ensure inclusion in the list of creditors.

Within forty or fifty days (depending on the type of protection sought) of the filing of a bankruptcy petition, a creditor’s meeting (also called a 341 meeting) is held.  A 341 meeting is an out-of-court meeting that allows the debtor to be questioned under oath by creditors, a trustee, examiner, or the U.S. trustee about his/her financial affairs.

A community association board of directors should consider engaging association legal counsel to file a proof of claim (a form-based written statement and verifying documentation filed by a creditor that describes the reason the debtor owes the creditor money) any time an owner delinquent in the payment of assessments files for bankruptcy protection, unless the amount of assessments owed is very small.

If a community association fails to file a proof of claim, the association will be precluded from sharing in any distribution made to creditors as part of the bankruptcy case.  The proof of claim filed by an association will include all amounts owed to the association prior to (and including) the date the bankruptcy petition was filed, and should include all unpaid assessments, late fees, and interest, plus any court-awarded costs of collection, and court-awarded attorneys’ fees (unless the governing documents provide otherwise).

Even in a Chapter 7 bankruptcy, a portion of a community association claim may be secured (backed by a lien) and will have be paid before unsecured portions.  In a Chapter 13 bankruptcy, the proof of claim will be used to determine disbursements made by the Chapter 13 trustee.

Chapter 7 bankruptcies are addressed relatively quickly, with many debtors granted a discharge within six months of filing.  An experienced bankruptcy attorney can assist in determining whether the association should participate in a Chapter 7 bankruptcy beyond the filing of a proof of claim.

If a debtor, for example, indicates an intention to retain the unit or lot and the association previously recorded enforceable liens, the association can enforce its liens even after the bankruptcy case ends.  The association assessment lien, therefore, is a powerful tool in protecting the association from dischargeable personal debt in bankruptcy.

Chapter 13 bankruptcies are not addressed as quickly as those filed under Chapter 7 and may take several years (many last five years) to reach final resolution.  After a Chapter 13 bankruptcy is filed, the debtor files a plan – a detailed description of how the debtor proposes to pay creditors’ claims over a fixed period of time.  The plan is also mailed to creditors (and is sometimes the first notice a creditor has a Chapter 13 filing).

In a Chapter 13 bankruptcy, the prior recordation of a lien is even more critical than in a Chapter 7 bankruptcy.  If unpaid assessments are secured by lien, those assessments will oftentimes be paid (over time).  There are instances, however, when the value of secured claims exceed the value of the collateral.  In those instances, the portion of secured claims that exceed the collateral will be considered unsecured.  This process of converting a secured claim to an unsecured claim is called lien stripping or cramming down.  Association bankruptcy counsel can assist in ensuring that assessment liens are treated as secured debts.

After a plan is approved, plan payments are made from the debtor to the Chapter 13 trustee.  Payments are then made from the Chapter 13 trustee to the creditors as provided in the approved plan.  Post-petition assessments (i.e., those that came due after the bankruptcy petition was filed) in a Chapter 13 plan must also be paid on time.

Associations must be able to track pre-petition and post-petition payments and ensure that payments are applied correctly.  Separate accounts should be established for pre-petition and post-petition debts to ensure proper tracking.

Conclusion

With these basics, community association boards of directors should have a basic understanding of the impact a bankruptcy filing may have on the association’s ability to collect past-due assessments, along with factors for a board to consider as they consider the appropriate course of action.

Because of the complexity of bankruptcy law (and the law in general), association rights and responsibilities should be promptly reviewed by counsel for the association on a case-by-case basis.

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EEOC Releases Guidance for Employees with Mental Health Conditions

In March 2017, the Equal Employment Opportunity Commission (“EEOC”) issued a Guidance concerning the legal rights of workers diagnosed with mental health conditions.  The Guidance came in the form of a question and answer sheet aimed at informing employers and workers of their rights under the Americans with Disabilities Act (“ADA”).  The Guidance provides significant lessons for employers faced with the task of complying with the law and meeting the needs of employees with mental health conditions.

The ADA does not include an express definition of the term “mental health condition.” However, the EEOC did provide that major depression, post-traumatic stress disorder (“PTSD”), bipolar disorder, schizophrenia, and obsessive-compulsive disorder (“OCD”) should easily qualify as “disabilities” covered under the ADA.  This is significant because if an employee has an ADA-covered medical condition, then the employer may be legally required to provide some reasonable accommodation to assist the employee in carrying out his or her job duties.

These reasonable accommodations can include altered work and break schedules, special shift assignments, changes in supervisory methods, or an option to work from home.  If an employee desires a reasonable accommodation, he or she must simply ask for one.  The law does not require that the request be made in writing or that it be made to any specific member of management.  Still, to limit possible exposure, employers should have a policy of requiring reasonable accommodation requests to be made to a specific member of human resources or an appropriate manager.  Employers also are allowed to ask for medical documentation of an employee’s mental health condition if the employee seeks time off work or some other reasonable accommodation, or if the employee exhibits difficulty performing his or her essential job duties.

Employees are not required to have any suggested accommodation in mind when they request a reasonable accommodation for their condition.  Employers are required to engage in “an interactive process” with employees who request accommodation of their mental disabilities in the same way that they approach requests to accommodate physical disabilities.  Each situation should be handled on a case-by-case basis.  Employers may consider staffing or budgetary constraints when considering which accommodations are reasonable and which accommodations create an undue burden on the employers’ businesses.   However, employers must document their consideration of various options and their interactions with employees requesting accommodations.

The new EEOC Guidance also addressed the legal mandate that employers keep the mental health conditions of employees confidential.  This is nothing new, as the ADA has always mandated that employers respect employee confidentiality.  There are only four circumstances under which an employer may inquire as to an employee’s mental health or other disability status:

  1. If the employee requests a reasonable accommodation;
  2. Prior to employment but after a conditional job offer has been made.  In this case, any questions regarding mental health status that are asked of one applicant must be asked of everyone entering the same job category;
  3. Affirmative action questionnaires may include questions about an employee’s medical history or disability status, but only if answering the question is voluntary and optional;
  4. If the employer has objective evidence that the employee may be unable to do his/her job or poses a safety risk to the organization.

Unless one of these four limited circumstances apply, employers are barred from directly asking employees about whether they have any mental or physical health condition.  In short, whether an employee has a disability is usually a private personal matter.

The ADA also forbids employers from engaging in discrimination or harassment of applicants and employees because of their mental or physical disabilities.  This includes taking any unfavorable action against the applicants or employees because of their mental health conditions, such as firing them, refusing to promote them, or changing their pay or benefits.

Employers must tread carefully in this area.  As societal understandings of mental health conditions progress, organizations will be expected to be more conscious of how these conditions impact employees.  It is best to obtain counsel from a labor and employment lawyer to ensure compliance with this federal, anti-discrimination law.

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