With seven hundred and fifty million people actively using Facebook, there is a significant chance that a post about working conditions, compensation or other issues related to their employment will spark a conversation with an employee’s colleagues, and such conversations may constitute concerted activity under the National Labor Relations Act.

The question remains, if your employees say something negative on Facebook about your company, their fellow employees or their supervisors, can you terminate without running afoul of the National Labor Relations Act?

The answer depends on the facts surrounding the post(s). The test is whether the employee is engaging in activity solely for himself or on behalf of other employees.

Individual social media griping activity that is the “logical outgrowth of concerns expressed by the employees collectively” are considered “concerted” and protected under Section 8(a)(1) of the the National Labor Relations Act (“Act”). “Concerted activity includes ‘circumstances where individual employees seek to initiate or to induce or to prepare for group action’ and where individual employees bring ‘truly group complaints’ to management’s attention.” Meyers Industries, 281 NLRB 882, 885 (1986)

The following factors should be considered:

1. Is the post concerted activity?
2. Is the post directed at other employees?
3. Does the post suggest that the employees take some action?
4. Is the employee posting a Spokesperson for Common Concerns?
5. Does the post arise out of a previous union or employee group?

What this means is that not all online posts are protected. Two Advice Memorandums issued this July by the National Labor Relations Board, Office of The General Counsel regarding non-union companies provide guidance. In JT’s Porch Saloon & Eatery, Ltd., the NLRB found no concerted activity when a bartender complained to his step-sister on Facebook that he had not received a raise in five years, he was performing waiter’s work without tips, the Company’s customers were “rednecks” and he hoped the customers choked on glass as they drove home drunk. The Board found that the termination was not in violation of the Act because the post was not discussed with any other employees, before or after he wrote it and there had been no employee meetings or attempt to initiate group action regarding the tipping policy.

Similarly, in Wal-Mart, the NLRB found no concerted activity when a customer service employee, after an interaction with the Assistant Manager, posted the following comment on his Facebook page: “Wuck Falmart! I swear if this tyranny doesn’t end in this store they are about to get a wakeup call because lots are about to quit.” The Facebook friend responses were mixed with some friends responding favorably and others not. The customer service employee responded further by making negative comments regarding his supervisor, using profanity and claiming false advertisement on behalf of Walmart. Of course, a co- worker “friend” gave a copy of the post to the supervisor at issue and the supervisor required him to take down the post, suspended him for a “decision day,” and prepared a discipline report.

In defense, Walmart claimed that the postings were not concerted activity for mutual aid or protection, and even assuming so, the Charging Party’s use of profanity was so “opprobrious” as to deprive him of the Act’s protection. The Advice Memorandum found the customer service employee’s comments were solely about him and were “mere griping.” The comments did not look toward group action.

In contrast, the National Labor Relations Board issued a complaint alleging that the Hispanics United of Buffalo unlawfully discharged five employees because they took to Facebook to criticize working conditions, including work load and staffing issues. In this case, an employee, in advance of a meeting with management regarding working conditions, posted an allegation that employees did not do enough to help the organization’s clients. Five employees responded and defended citing work loads and staffing issues. The organization terminated the five defending employees because their defense constituted harassment of the employee originally mentioned in the post. The National Labor Relations Board Complaint claims that the Facebook discussion was protected concerted activity. Outcome of this complaint is not known at time of this post.

Social Media has been likened to a “loaded gun.” For all its benefits, it can be quite dangerous to the employer as well as the employees if it is not used appropriately. It is in the employer’s best interest to establish legal social media policies and train employees on the ramifications of their social media use as it relates to their employment.

However, employers should not impair an employee’s ability to act in concert or to effect some change in the terms and conditions of the workplace.

Just as employees should think before posting on Facebook, employers should think carefully before disciplining employees to avoid running afoul of the National Labor Relations Act. As unwise as it may be to complain about one’s employer on Facebook, it may be unlawful for an employer to discipline an employee for voicing such a complaint.

For more information and guidance, please check out the National Labor Relations Board Acting General Counsel Report on Social Media Cases.

Posted by Attorney Ruth A. Binger. Binger serves both emerging and mature businesses concentrating in corporate law, intellectual property and technology law, and labor and employment law. Her commitment to the success of small to medium-sized businesses, and her understanding of multi-faceted issues inherent in operations, are what distinguish Binger’s practice.

A Special Needs Trust (also known as Supplemental Support Trust) is a legal mechanism that allows families to provide funds to relatives with special needs without interfering with their government benefits. The Missouri Division of Family Services (DFS) and the Social Security Administration analyze the special needs person’s assets annually to determine if he or she qualifies for government benefits, such as Medicaid and Supplemental Security Income.

If that person has more than $1,000-2,000 (depending on the program) in assets, he or she will be disqualified and will not receive the benefits. Most families need to maintain government benefits for family members with special needs, but also want to provide additional support.

For many years, families’ options were limited and the options available were not always beneficial to the needs of their loved ones. Some families elected to leave an inheritance to the special needs person in a lump sum amount that would automatically disqualify the recipient from government programs. Some families elected to disinherit the special needs person and hope that other family members would provide for any of his or her supplemental needs. These options did not fulfill the wishes of the families or supply adequate supplemental support for their loved ones.

In 1985, the Division of Family Services found that Bruce Tidrow, a mentally disabled individual, was not able to benefit from government programs because his parents had left him assets in a discretionary trust that exceeded the maximum allowed by the government programs. Mike McKitrick and Barbara Blee Maille, principals at Danna McKitrick P.C. in St. Louis, were two of the attorneys who appealed this decision to the Appellate Court of the Eastern District of Missouri.

Mike and Barbara argued that Bruce’s interest in the trust was not an “available resource.” Therefore, it was not his money because it was in a discretionary trust which allowed, but did not require the trustee to distribute funds to provide for Bruce’s “reasonable comfort” during the remainder of his life. The Court of Appeals agreed and found that the trust was intended to supplement and not replace Bruce’s government benefits; and because the trustee had complete control over the interest and the principal of the trust, the funds were not “available” to Bruce as to disqualify him for benefits.

In Tidow, the court solidified the legality of the Third-Party Grantor Special Needs Trusts in the state of Missouri. This type of trust can come into being before or after the death of the Grantor, but it cannot contain any assets of the beneficiary with special needs.

Missouri enacted a new Uniform Trust Code in 2005[3] that has a variety of implications on the Special Needs Trust. The new code states that Special Needs Trusts cannot be terminated by agreement by either the Grantor who set it up or by the special needs family member who will benefit from the trust. Special Needs Trusts are irrevocable, which means that once the trust is established (or upon the death of the Grantor), the only way that the money can be spent is determined by the trustee.

After the beneficiary’s death, the funds are then allocated as specified in the estate plan. As with any estate planning mechanism, the best option depends on each family’s unique situation.

Rules of the Legal Road

There are a number of provisions that must be drafted into the trust document in order for it to be considered a true special needs trust that will protect your loved one from losing government benefits. A trustee must be appointed to manage the trust and, upon the trustee’s approval, funds may be distributed to vendors or other third parties for the benefit of the person with special needs. The person with special needs cannot receive any of the funds directly. If this happens, the government benefit programs will consider that money as an asset and may disqualify him or her from receiving benefits.

Additionally, the trust must be drafted as either presently irrevocable or irrevocable upon the death of the Grantor, which prohibits the family member with special needs from selling or cashing in his or her interest in the trust, which will disqualify the beneficiary from government benefits. This list of required provisions is not conclusive and other specific language may be important to secure your financial commitment to your loved one.

Conclusion

In order to protect your family and their financial security in the future, it is important to talk to an attorney with expertise in estate planning for families with special needs members. Setting up a Third-Party Grantor Special Needs Trust greatly increases the chance that the person with special needs will remain eligible for government programs, and that funds not used during the beneficiary’s lifetime will be distributed to surviving family members.

If you have any questions or would like to set up or review your trust, please consult a qualified estate planning attorney when deciding how to provide for your loved ones. The attorneys at Danna McKitrick P.C. are prepared to help you plan for your family’s future.

View PDF

Any sale of a security to a Missouri resident must either be registered with the U.S. Securities and Exchange Commission (“SEC”) and the Missouri Securities Commission, or have at least one specific provable exemption from each of those two requirements.

In 1953, the U.S. Supreme Court ruled that the “private offering” exemption of §4(2) of the Securities Act of 1933 (the “1933 Act”) required that the issuer prove that all “offerees” (not only purchasers) had sufficient investment sophistication and financial well-being (hereinafter “investment suitability”) to establish that they did not “need the protection of registration” under the 1933 Act. SEC v. Ralston Purina, 346 U.S. 119 (1953) But because of the illusory definition of “offerees” as including possibly every person who learned of an offering (not just those receiving an “offer” in the contract sense), the availability and thus the usefulness of the private offering exemption of Section 4(2), was thereafter seriously curtailed.

More Recent History: Viable Exemptions Federal Regulation D

In 1982, the SEC adopted Regulation D, under which, for federal exemption purposes, the federal restriction to investment-sophisticated persons and to only a small number of such persons were intended to apply only to purchasers. 17 C.F.R. §230.501, et seq. This switch of the applicability of these restrictions from “offerees” to “purchasers” caused a sea-change increase in the availability of §4(2)’s federal “private offering” exemption.

Missouri’s First Apparently Viable Exemptions

In 1956, Missouri adopted the Uniform Securities Act and replaced it in 2003 with the Revised Uniform Securities Act. Both include an exemption for a specific limited number of purchasers per year. (Mo.Rev.Stats. §409.402(b)(10)(1966)(fifteen per year) and §409.202-2(14) (2003)(25 per year), respectively.) These allowed issuers selling to Missouri residents to focus on purchasers rather than “offerees” under Missouri law as well as under federal law. This exemption is commonly called the state “limited offering” (and below sometimes called the “25 per year” exemption.

Federal and State Cooperation: The Regulation D Coordinating and Accredited Investor Exemptions

And more recently, the SEC and the North American Securities Administrators Association (“NASAA”) have developed a joint federal and state exemption for use by adopting states to grant exemptions from state registration requirements to issuers who comply with Rules 505 and 506 of Regulation D (hereinafter called the “Reg D Coordinating Exemption”). Missouri’s version is set forth in 15 CSR §30-54.210. Also, the SEC, NASAA and most states have cooperated in the adoption of an “Accredited Investor Exemption.” The Accredited Investor Exemption defines “accredited investors” as certain institutions and as persons with net worths of at least one million dollars or incomes singly of $200,000 or jointly with spouse of $300,000 in the prior two years and the present year. The Missouri Commission adopted the NASAA Accredited Investor Exemption in 2003, replacing a similar exemption it had adopted in 1989. The terms of all of Missouri’s 25 per year exemption, its Reg D Coordinating Exemption and its Accredited Investor Exemption require investment suitability of purchasers only. Also, under the terms of the Accredited Investor Exemption, there is no limit on the number of purchasers. All but the Accredited Investor Exemption prohibit use of “general solicitation” in selling efforts, discussed below.

The Method of Use of These Viable Exemptions

With the adoption of these “purchaser focused” exemptions, securities attorneys around the country developed a fairly consistent method of structuring offerings to meet these requirements. They generally advise their issuer clients to prepare a private placement memorandum, subscription agreement and suitability questionnaire (the latter of which seeks information about the financial status and investment sophistication of persons to be contacted). They then forward these documents to 30-50 (or so) persons (and more when using the Accredited Investors Exemption), together with a letter asking such persons, if they are interested, to review the private placement memorandum, and complete and return the subscription agreement and suitability questionnaire. The issuer may also have small meetings of issuer personnel with 10-12 persons contacted to discuss the investment and to give them the memorandum, subscription agreement and suitability questionnaire.

Then, only after a review of the completed suitability questionnaires, and upon determining that they established that the interested persons held the necessary net worth, income and possibly investment sophistication to be “suitable,” the issuer would accept the subscription of those persons who met the qualifications, and reject those who did not.

The Apparent Destruction of Viable Exemptions in Missouri

But a recent civil prosecution and order by the then-Missouri Securities Commissioner, Douglas Ommen, upheld on appeal by the Court of Appeals for the Western District of Missouri, appears to invalidate this method, and again requires that issuers have reasonable grounds to believe that, prior to contacting any persons, all persons contacted meet the requirements for investment sophistication, net worth and/or accreditation. (This writer was counsel for the unsuccessful respondent/appellant in this case.)

The Moses Case in a Nutshell

In his August 2004 Order, In the Matter of John Robert Moses, et al, Case No. CD-03-16, at page 21, Securities Commissioner Ommen ruled that, prior to preliminarily discussing a possible investment with six persons, the issuer must first determine that all such persons are accredited or otherwise qualified. The Commissioner considered all contacts to be “offers” and stated that “before an entrepreneur makes an offer under this [Missouri Accredited Investor] exemption, the law requires that he know the qualifications of the person . . . “ contacted, and that discussing the investment with six persons whose qualifications were not previously known constituted unregistered offers, causing the issuer to lose all of the above Missouri exemptions for those offers. (No sales had been made.)

On appeal of Commissioner Ommen’s Order, without addressing the wording of Regulation D or its purposes, or the wording or purposes of the Missouri Accredited Investor Exemption, the Reg D Coordinating Exemption or the “25 per year” exemption, the Court of Appeals simply quoted the Commissioner with approval. Moses, et al v. Carnahan, et al, 186 SW3d 889, 908 (Mo.Ct.App. W.D. 2006). And, without citing to the Moses case, the new Commissioner in a more recent Order (In the Matter of Caobo Company, et al, Case No. AP-06-32 (August 29, 2006) paragraph 12), appeared to require that in similar circumstances, the issuer, prior to solicitation, must have a prior contact or business relationship with the 157 Missouri residents who were solicited and a “reasonable basis. . . for believing that the individuals solicited met the accredited investor definition.”

The effect of the Commissioner’s and the Court’s holdings is to nullify the intended effect of all of these three most useful Missouri exemptions to avoid requiring that all “offerees” be known and believed before initial contact to be suitable as investors.

A main rationale for Commissioner Ommen’s holding was his concern that requiring “vetting” only of purchasers “would permit unlimited offers to any number of persons, so long as the promoter intends to rely on the accredited investor exemption at the time of sale.” (Order, p.20, Conclusion of Law 50). This, of course, is true. But that is how the exemption is intended to work. And arguably inappropriate persons are prevented from investing because only accredited or otherwise suitable persons are allowed to invest. But the Commissioner argued that he needs to be able to enjoin mass solicitations (“offers” in Commissioner Ommen’s view) into Missouri well before any sales are made. This writer, upon exhaustive research, has not found similar reasoning in any other case or authority.

A Deeper Analysis of Moses

The Commissioner’s opinion mixes the two concepts of “offer” and “general solicitation” to arrive at this result. Regulation D, and thus Missouri’s exemption coordinating with it, both explicitly prohibit general solicitation. (Regulation D, Rule 502(c).) And Missouri’s “25/year” limited offering exemption also prohibits general solicitation. (Mo.Rev.Stats. §409.2-202(14)(B) (2003).) Regulation D defines “general solicitation” as “including, but not limited to . . . any advertisement . . . in any . . . media.” Virtually all authorities discussing it assume general solicitation requires solicitation in mass numbers using media such as radio, newspaper, mass mailing lists, telemarketing, etc. But in his opinion in In re Moses, et al, Commissioner Ommen held that a meeting of six persons, ho were invited by one-on-one telephone and face-to-face communications, constituted “general solicitation” and an “offer” because the issuer’s president, by

. . . distributing the Note and advising interested persons to come to the [issuer’s] office to invest was in public (i.e., “general”) solicitation. Moses was not acquainted with any of those people who were in attendance. The Commissioner finds that Moses’ comments were made in a presentation format, not in the one-on-one informal manner described by Moses in his testimony . . . . While the number of participants [six] may be relevant as to whether the solicitation is public, it is not dispositive.

(Order at p. 18, Conclusion of Law 43. Emphasis added.)

This analysis, or mis-analysis, thankfully did not appear in the Court of Appeals opinion. However, such language may be used again by the Commission (e.g., see In the Matter of Caobo Co., et al, above) or by private plaintiff litigants to establish the presence of “general solicitation” in similar private circumstances.

None of these three Missouri exemptions, by their terms, requires the issuer to have any pre-existing knowledge of persons solicited for interest in investing. Of course, they do require the issuer to fully determine the status and suitability of every purchaser. But Commissioner Ommen’s opinion requires the issuer to determine the financial and investment sophistication status of every “offeree,” and by mixing the “offer” and “general solicitation” concepts, defines an “offeree” to include every person who is contacted by the issuer, directly or indirectly, concerning the sale of securities. If this interpretation is correct, it virtually precludes Missouri (and only Missouri) entrepreneurs from the single greatest advance in tended by the SEC and the Commissioners on Uniform State Laws in adopting Regulation D, the “25 per year” exemption and the Reg D Coordinating Exemption, respectively.

And the damage done by the Commissioner’s opinion in Moses does not stop with those exemptions. An even greater advance in raising entrepreneurial capital was the collaboration between the North American Securities Administrators Association (NASAA) and the SEC in creating the Accredited Investor Exemption (adopted by the vast majority of states, and finally adopted in the NASAA format by Missouri in 2003). By its language, this exemption deletes the prohibition on general solicitation if sales are made only to accredited purchasers. The reasoning of then-Commissioner Ommen is tortuous, but it appears to say: “well . . . the language of the exemption just can’t mean what it says.” And the Court of Appeals deferred to and accepted this conclusion. (186 SW3d 889,908)

The Severe Harm to Missouri Entrepreneurs

The three exemptions most available (at least, prior to Moses) to, and the most relied on by, Missouri attorneys for their entrepreneur clients in raising funds from non-institutional investors (i.e., “angels”) are the Missouri Accredited Investor exemption, the Regulation D Coordinating Exemption and the 25 per year limited offering exemption. The Accredited Investor Exemption is undoubtedly the most used. The availability of all these exemptions for sales to Missouri residents by Missouri companies, particularly in comparison to the availability of the virtually identical exemptions in the vast majority of other states, appears to be greatly reduced by Moses.

If the Commissioner and the courts in civil cases continue to accept Commissioner Ommen’s reasoning, Missouri entrepreneurs will be placed at a significant competitive disadvantage with those of the vast majority of other states.

View PDF

Following the victory in the Missouri Supreme Court, in March, 2007, the Firemen’s Retirement System of St. Louis (“FRS”) and its Board of Trustees recently received $49.4 Million from the City of St. Louis (“City”). This payment related to the underfunding of FRS by the City of St. Louis for Fiscal Years 2004, 2005, 2006 and 2007.

The History of the Case

Prior to the disputed fiscal years, the City of St. Louis had fully paid the amount certified by the Trustees, based upon the calculations of the Pension Plan’s actuary. Relying upon various legal authorities and reacting to an alleged budget crisis, the City underfunded the Pension Plans, and provided funding based upon a percentage of payroll unrelated to the actuary’s calculations (i.e., 401(k)-like contributions were made for this defined benefit plan).

The City advanced a number of arguments in the course of this litigation. One was an argument concerning the structure of the State of Missouri’s enabling legislation and the corresponding St. Louis City Ordinances and whether the contribution amounts were mandatory or discretionary. Though there were interesting twists on the arguments advanced by the City, eventually the trial court, the Missouri Court of Appeals and the Supreme Court of Missouri rejected all of those arguments and essentially ruled that “shall” means “shall” and the contribution is mandatory. The Courts also held that the Trustees’ interpretation of the Plan language harmonized the numerous City ordinances pertaining to FRS, whereas the City was trying to argue that part of one section of one City ordinance trumped remaining ordinance provisions. The trial court also noted that the City’s proposed construction contravened actuarial soundness, an issue which became important in the Supreme Court’s ultimate analysis of the case. That issue, and its implications, will be discussed more thoroughly in the second part of this article. The City also attempted to invoke several state constitutional arguments. The trial court, in addressing those alleged constitutional issues, questioned whether the City had exhausted all administrative remedies, because the City had not challenged the amount certified by the Trustees as being incorrect or improperly calculated by the actuaries. Since the City did not argue in the litigation that the actuary’s calculations were incorrect, the trial court found that no waiver had occurred, and went on to considered the constitutional issues presented.

The City advanced a constitutional argument, based upon an alleged invalid delegation of a legislative authority. The City argued that the actuaries calculated amounts that varied from year to year and that these amounts, which had been increasing in recent years, seriously impacted the City’s budget and the City’s ability to fund other activities or important City functions. All Courts rejected this argument and, in the process, distinguished an important 1932 Missouri Supreme Court case entitled Field v. Smith, 49 S.W.2d 74 (Mo. banc 1932), which had involved the creation of the Kansas City Police Department, and in which the Supreme Court had held that unlimited delegation of discretionary spending to a non-legislative body violated the Missouri Constitution. The City also alleged a violation of Article VI, Section 26(a) of the Missouri Constitution, which mandates balanced budgets. The City argued that if the City now had to pay the amounts certified by the Trustees, as calculated by the actuary after funds had already been committed, their budgets would be exceeded. In this regard, the City relied heavily upon the Missouri Supreme Court’s decision in Tomlinson v. Kansas City, 391 S.W.2d 850 (Mo. 1965). In Tomlinson, pension plan beneficiaries attempted to argue that the ordinance which established the Firemen’s Pension Fund in Kansas City “created a contractual relationship between the cities and the beneficiaries of the fund”, so that they could challenge underfunding issues. This position was rejected by the Missouri Supreme Court in Tomlinson. Moreover, the Court indicated, probably in dicta, that the Supreme Court viewed pension benefits as “mere gratuities”, rather than a form of deferred compensation, where contractual rights existed. The Tomlinson case had never been overruled in Missouri, so the question of “contractual rights” with respect to public pensions was an open issue. As recently as 1999, the Court of Appeals, Western District, based a decision, in part, on the concept that public pensions were mere gratuities, not contractual rights. See, Fraternal Order of Police Lodge 2, et al. v. City of St. Joseph, et al., 8 S.W.2d 257 (Mo. App. 1999). The trial court in the FRS case, however, rejected Tomlinson’s logic and application to this case. As will be discussed in the next section of this article, concepts of actuarial soundness presuppose contractual rights, so the Supreme Court’s decision in Neske, et al. v. City of St. Louis, 218 S.W.3d 417 (Mo. 2007) may overrule Tomlinson by implication on this point. FRS relied upon Article VI, Section 25, of the Missouri Constitution. This constitutional provision allowed pension plans to be created as an exception to the general rule that counties or other political subdivisions could not issue a grant of public monies to private individuals under most circumstances. As cost of living adjustments (COLA) became more common in pension plans, Article VI, Section 25, was amended, so that political subdivisions “may provide for the payment of period cost of living increases in pension and retirement benefits paid under this section to its retired officers and employees and spouses of deceased officers and employees, provided such pension and retirement systems will remain actuarially sound”. The City also advocated the position that the claims asserted by the FRS were unconstitutional because they violated the Hancock Amendment. The Hancock Amendment contains many provisions which relate to limits on taxation and government spending. The portion of the Hancock Amendment invoked by the City basically provides that the State could not mandate “increased activity” resulting in increased payments by a governmental subdivision without the State providingthe revenue to fund those increased expenses or activities. With respect to the FRS, the Hancock Amendment was not applicable because FRS is ultimately a creation of The City advanced a constitutional argument, based upon an alleged invalid delegation of a legislative authority. The City argued that the actuaries calculated amounts that varied from year to year and that these amounts, which had been increasing in recent years, seriously impacted the City’s budget and the City’s ability to fund other activities or important City functions. All Courts rejected this argument and, in the process, distinguished an important 1932 Missouri Supreme Court case entitled Field v. Smith, 49 S.W.2d 74 (Mo. banc 1932), which had involved the creation of the Kansas City Police Department, and in which the Supreme Court had held that unlimited delegation of discretionary spending to a non-legislative body violated the Missouri Constitution. The City also alleged a violation of Article VI, Section 26(a) of the Missouri Constitution, which mandates balanced budgets. The City argued that if the City now had to pay the amounts certified by the Trustees, as calculated by the actuary after funds had already been committed, their budgets would be exceeded. In this regard, the City relied heavily upon the Missouri Supreme Court’s decision in Tomlinson v. Kansas City, 391 S.W.2d 850 (Mo. 1965). In Tomlinson, pension plan beneficiaries attempted to argue that the ordinance which established the Firemen’s Pension Fund in Kansas City “created a contractual relationship between the cities and the beneficiaries of the fund”, so that they could challenge underfunding issues. This position was rejected by the Missouri Supreme Court in Tomlinson. Moreover, the Court indicated, probably in dicta, that the Supreme Court viewed pension benefits as “mere gratuities”, rather than a form of deferred compensation, where contractual rights existed. The Tomlinson case had never been overruled in Missouri, so the question of “contractual rights” with respect to public pensions was an open issue. As recently as 1999, the Court of Appeals, Western District, based a decision, in part, on the concept that public pensions were mere gratuities, not contractual rights. See, Fraternal Order of Police Lodge 2, et al. v. City of St. Joseph, et al., 8 S.W.2d 257 (Mo. App. 1999). The trial court in the FRS case, however, rejected Tomlinson’s logic and application to this case. As will be discussed in the next section of this article, concepts of actuarial soundness presuppose contractual rights, so the Supreme Court’s decision in Neske, et al. v. City of St. Louis, 218 S.W.3d 417 (Mo. 2007) may overrule Tomlinson by implication on this point. FRS relied upon Article VI, Section 25, of the Missouri Constitution. This constitutional provision allowed pension plans to be created as an exception to the general rule that counties or other political subdivisions could not issue a grant of public monies to private individuals under most circumstances. As cost of living adjustments (COLA) became more common in pension plans, Article VI, Section 25, was amended, so that political subdivisions “may provide for the payment of period cost of living increases in pension and retirement benefits paid under this section to its retired officers and employees and spouses of deceased officers and employees, provided such pension and retirement systems will remain actuarially sound”. The City also advocated the position that the claims asserted by the FRS were unconstitutional because they violated the Hancock Amendment. The Hancock Amendment contains many provisions which relate to limits on taxation and government spending. The portion of the Hancock Amendment invoked by the City basically provides that the State could not mandate “increased activity” resulting in increased payments by a governmental subdivision without the State providing the revenue to fund those increased expenses or activities. With respect to the FRS, the Hancock Amendment was not applicable because FRS is ultimately a creation ofmay be in the Supreme Court’s adoption of a standard of actuarial soundness as a basis for its decision. “The statutes and ordinances relating to the PRS and the FRS, when taken as a whole, support the view that actuarial soundness is the principle at the heart of the PRS and the FRS funding provisions. Actuarial soundness requires the City to make its annual contribution of the actuarially-determined amounts certified by the PRS and the FRS boards of trustees.” Neske, at 426.

When an actuary calculates the amount due, the actuary makes certain assumptions which must be reasonable, based upon available information and which must be made in accordance the standards of the actuarial profession. In Missouri, a unit of government could challenge the actuarial assumptions as being unreasonable or without basis in an administrative hearing setting, but would bear a high burden in making such challenges. The actuaries’ calculations are presumed reasonable and correct and the governmental unit must show that the calculations are unreasonable or an abuse of the actuaries professional discretion. Just proving that another actuary’s calculations are different, or arguably use a superior methodology, is insufficient. In the PRS and FRS cases, the City conceded that the actuarial calculations were properly made by not challenging them. When an actuary performs these calculations, the actuary looks to the plan provisions, including retirement benefits, disability benefits and other forms of payments to retirees and their beneficiaries in order to calculate the annual funding obligation (“normal contribution”) and the annual amount needed to correct underfunding problems (the “unfunded accrued actuarial liability” or “UAAL”). This actuarial approach, approved by the Supreme Court in Neske, would not make sense unless an underlying assumption exists that the plan provisions confer a guaranteed, contractual right. If benefits are deemed to be gratuities (as in Tomlinson) or rights which are subject to divestiture and forfeiture, the Supreme Court could hardly base its decision to require funding upon grounds of actuarial soundness. Thus, the Tomlinson case, which labeled public pension retirement benefits to be a mere gratuity, should be interpreted as having been overruled by implication by Neske. Missouri seems to have joined the majority of states that, by constitutional provisions, statutes or case law decisions, have concluded that public pension benefits are vested, contractual rights which must be paid. Protestations of budgetary or financial difficulties are not, and should not be, a basis for failing to fund these pensions properly, since public pensions are legal obligations of the governmental entity.

These issues are important throughout the United States because of the underfunding problems that exist in many states, counties and municipalities. San Diego has perhaps become the poster child for such problems, but they affect many jurisdictions. In Missouri, the Joint Committee of the Missouri Senate and House of Representatives has been investigating these issues and has concluded that numerous local pension plans are significantly underfunded. In our sister state of Illinois, significant underfunding of public pensions exists at both the state and local levels. The New York Times has reported extensively concerning the problems facing New Jersey and the tremendous unfunded liabilities that are present in pension plans in that state. Perhaps because of economic difficulties relating to manufacturing, especially the auto industry, Michigan, which is typically viewed as a pro-union, pro-labor state, is also faced with significant problems in terms of the funding of its pensions.

Conclusion

The Missouri Supreme Court’s decision in Neske, binding in the State of Missouri, should also be seen, in a broader context, as an affirmation of the contractual rights of public employees to their pension benefits. Such contractual rights have little meaning if the plans are not reasonably and properly funded. Though it does not overtly address the issue of a contractual right to funding of benefits, the Missouri Supreme Court has found that there is a requirement of actuarial soundness present, and has found actuarial soundness to be at the heart of the funding obligation. It is the author’s belief that this actuarial requirement is based on the Missouri Constitution, Article VI, § 25, and not merely on the language of the FRS and PRS plans. As noted previously, Tomlinson seems to have been overruled by implication. Missouri appears to have joined the majority of states which hold public pension benefits are enforceable contractual rights. This article has not addressed what would occur, or should occur, in the event that a governmental entity is in such great financial distress that it declares bankruptcy. As noted by the Missouri Supreme Court, however, the fact that a governmental unit may have to make different budgeting choices, perhaps choices that are difficult because of alleged financial constraints, is not a valid reason for the governmental unit to allocate money to other budget preferences, at the expense of its legal obligation to fund public pensions.

View PDF

The case alleged that plaintiff was a patient at a particular medical group. Blood samples and/or records were sent to a hospital and examined by a phlebotomist. The phlebotomist revealed the results of those records at a public tavern to the plaintiff’s twin sister. The hospital admitted the phlebotomist had revealed one fact about the plaintiff, discovered from her medical records, to the plaintiff’s sister at a tavern, but also alleged that when the phlebotomist revealed the information, she was not acting within the scope of her employment with hospital. Although HIPAA does not provide a private cause of action, in Illinois a common-law right-of privacy cause of action existed for the doctor’s violation of plaintiff’s right to privacy.

The court held that the question whether the phlebotomist was acting in the scope of her employment with the hospital was a question for the jury. The court went on to note, however, that the defendant hospital and employee had a duty not to disclose confidential information, without limitation as to time or place.

The court reasoned that the “hospital’s training of its employees did not limit the duty of the employee to maintain confidentiality of patients’ medical information only during working hours. Rather, that duty, imposed by the hospital in its execution of its duties, was, according to its own training, to extend to all times and to all places. In effect, for purposes of patient confidentiality, [the phlebotomist] was on duty 24 hours a day, 7 days a week.” Thus, the defendant had a continuing off-shift duty to maintain the confidentiality of patient records. This duty derived not only from the hospital’s rules of employment, but also from the patient’s right to privacy.

The court further included employees of lawyers, therapists, and other employers who maintain confidential information, as examples of other workers who have a constant duty to keep confidentiality.

View PDF

Fred Switzer (now retired) was lead counsel for plaintiffs in a successful class action suit against the State of Missouri. The suit alleged the State of Missouri violated the Americans with Disabilities Act (ADA), by charging an annual fee for the use of removable windshield placards that allow disabled persons to park in reserved spaces.

That suit, filed in 1996, was vigorously opposed by Missouri. In 1998, the U.S. District Court for the Western District of Missouri granted the plaintiffs’ request for declaratory and injunctive relief, prohibiting Missouri from charging a fee for the placard.

The State appealed, and what followed was a lengthy battle involving three appeals to the U.S. Court of Appeals for the Eighth Circuit and one to the U.S. Supreme Court. Final judgment for the plaintiffs was entered on September 28, 2006, and Missouri now is permanently enjoined from charging a fee for the placard.

Lead counsel, Dan Tobben, assisted by colleague David R. Bohm, represent the Firemen’s Retirement System of St. Louis (FRS) in several lawsuits against the city of St. Louis and the Board of Estimate and Apportionment concerning the city’s failure to fully fund FRS.

On June 17, 2005, the Honorable David L. Dowd entered judgment in favor of FRS in the amount of $6,834,947 for fiscal year 2004. A declaratory judgment was entered, as part of the same judgment, mandating the city pay an additional $11,710,276 for fiscal year 2005.

The city appealed these judgments. The Court of Appeals stated that it would affirm the judgment but, because the case involved questions of general interest and statewide concern, the case was transferred to the Missouri Supreme Court, which unanimously affirmed the judgment. In September 2007, FRS received $49.4 million from the city to pay the judgment, interest, and money for the next two fiscal years.

Dan Tobben previously won two cases in the Missouri Supreme Court on behalf of FRS against the city of St. Louis. Dan, a member of the National Association of Public Pension Attorneys (NAPPA), represents the trustees and beneficiaries of other public pension funds on underfunding issues, and regarding more general pension related matters.