Alcoholism and a Last Chance Warning, Quirky Question # 142

Quirky Question # 142:

I work as an HR representative in a medium-sized California business – we employ about 50 people.  Recently, a situation with one of our employees was brought to my attention, and I’ve been asked how to handle it.  We have an administrative assistant with an alcohol problem.  We have reason to believe that her alcoholism was the true reason behind her excessive absenteeism in the middle of last year.  Then, a couple of months ago, she came into work drunk – stumbling around the office and slurring her words.  We immediately sent her home, but we didn’t want to fire her at that point.  Aside from her alcoholism, she fits in very well with our culture and has a great relationship with her co-workers.  We also wanted to be careful to comply with California law regarding “reasonable accommodation” of employees with alcohol problems.  So the next day I met with her and offered her unpaid leave to enter an alcohol rehabilitation program.  She completed the program, and has since returned to work.  However, last week we again started to see signs that her alcoholism may be returning.  She was absent Monday through Wednesday, and when I finally called her on Thursday, I could tell by the way she answered the phone that she was drunk.  On Friday she came in, and I met with her.  She apologized up and down and asked if she could enter rehab a second time.  What should we do?

Gabrielle’s Analysis:

[Readers:  Set forth below is an analysis of our last West Coast Quirky Question.  This analysis was prepared by Gabrielle Wirth.  If you have any questions, please do not hesitate to contact Gabrielle at 949.932.3690. Additional information about Gabrielle is available at: http://www.dorsey.com/wirth_gabrielle/.  Regards, Roy]

This is an excellent question that arises with disappointing regularity. Before turning to the specific recommendation we would make, let’s review a few of the basics.

As your inquiry illustrates, employers have many reasons to educate themselves regarding their rights and obligations with respect to employees who use drugs or alcohol. For instance, firing an employee for being an alcoholic can subject the employer to discrimination liability under the federal Americans with Disabilities Act (ADA), or California’s Fair Employment and Housing Act (FEHA). This is because alcoholism may be classified as a disability under the ADA if it substantially limits participation in a major life activity, or under FEHA if it merely limits such participation. (In California, the standard has become more generous over time. Prior to 2003, courts had used the same “substantially limits” standard employed under the ADA, but in Colmenares v. Braemar Country Club, Inc., 29 Cal. 4th 1019 (2003), the California Supreme Court found that a condition need only “limit”, and not “substantially limit,” participation in a major life activity in order to be classified as a disability.)

Thus, an employer may not make adverse employment decisions solely on the basis of alcoholism, and must reasonably accommodate employees who have that condition. While many healthcare practitioners believe that both forms of chemical dependency (drug and alcohol) are similar in their effect on the mind and physiology, the law does not always treat drug addiction and alcohol addiction identically. Under state law, physical disability “does not include psychoactive substance abuse disorders resulting from the current unlawful use of controlled substances or other drugs.” However, alcoholism is not excluded from this definition.

Further, the employer’s right to conduct drug and alcohol testing on employees is limited by, and must be balanced against, the employee’s right to privacy. For instance, in Luck v. Southern Pacific Transportation Co., 218 Cal. App. 3d 1 (Cal. Ct. App. 1990), the court held that the right to avoid giving a urine sample is a privacy interest protected by the State Constitution, and that random urine testing is an unconstitutionally impermissible intrusion on that privacy right where there is no compelling interest to justify it. Therefore, drug testing policies must be carefully written to avoid impermissibly broad requirements.

Finally, in California, there is still another reason to pause before terminating an employee for issues related to substance abuse. California Labor Code Section 1025 requires private employers who employ 25 or more employees to “reasonably accommodate” any employee who wishes to voluntarily enter and participate in an alcohol or drug rehabilitation program. (Employers are not prohibited from taking action against an employee “who, because of the employee’s current use of alcohol or drugs, is unable to perform his or her duties, or cannot perform the duties in a manner which would not endanger his or her health or safety or the health or safety of others.”)

While the statute does provide that the reasonable accommodation must not impose an undue hardship on the employer, it does not specify what constitutes an undue hardship nor how many times the request to enter rehabilitation must be accommodated. The statistics indicate that rehabilitation is successful only 25-35% of the time. Section 1025 is silent as to whether “once is enough,” potentially implying that an employee could stave off termination indefinitely by repeated requests to enter rehab, which the employer would then be obligated to accommodate.

Introducing the Last Chance Agreement:

One tool that you may wish to consider to limit the potentially indefinite obligation of repeated visits to the rehab center is the Last Chance Agreement (LCA). An LCA is a formal, written agreement between an employer and an employee that allows the employee to remain employed despite misconduct, provided that he meets certain conditions. For instance, the LCA might specify that the employee is being given leave to participate in rehab, but if he doesn’t complete the program, or if he engages in any subsequent misconduct, then he will be fired. Thus, the LCA is literally the employee’s “last chance” to remain employed.

Because of the requirements of Section 1025, there has been some risk that LCAs might turn out to be in violation of the employer’s duty to reasonably accommodate. However, there is also some basis to believe that LCAs are a legitimate aspect of reasonable accommodation.

Case-Law Support for the Enforceability and Reasonableness of Last Chance Agreements:

Although the California case law on LCAs is not plentiful, courts have enforced last chance agreements. For example, in Gosvener v. Coastal Corp., 51 Cal. App. 4th 805 (Cal. Ct. App. 1996), a plaintiff sued his employer alleging that it had failed to reasonably accommodate his alcoholism and had illegally discharged him because of it. The plaintiff had signed an LCA with his employer, and then had violated it. Id. at 809. The California appeals court found that the employer had “properly exercised its contractual rights to terminate [Gosvener’s] employment” since Gosvener had “breached the express terms” of the LCA he had signed. Id. at 814. (Note that the Colmenares decision overturned Gosvener to the extent that it suggested that “substantially limit,” rather than “limit,” was the proper test for identifying a disability. However, the other holdings of Gosvener are not affected by Colmenares.)

The court reasoned that “the employer’s duty to accommodate such a disabling condition [i.e. alcoholism] is not unlimited, and an employer cannot be an insurer of recovery.” Id. at 813. Specifically, an employee “cannot gain yet another last chance despite prior warnings, and cannot stave off discharge indefinitely by attempting to enter into yet another course of treatment after each relapse.” Id. at 811 (emphasis added). Otherwise, the “last chance agreement would. . . become meaningless.” Id. at 812.

Equally helpful to employers was this court’s finding that Gosvener’s breach of contract and covenant claims were without merit, since the LCA constituted an express contract under which the employer was entitled to terminate. The court found that such an express contract supplanted any implied contract between the parties. Id. at 814-15.

There is also federal case law that supports the enforceability of last chance agreements. While such case law is not directly binding with respect to the California Labor Code, it does give some indication of the general attitude towards LCAs, and is persuasive to California courts, particularly given the lack of any contrary California authority. For instance, in Fuller v. Frank, 916 F.2d 558 (9th Cir. 1990), the Ninth Circuit upheld a termination in accordance with the terms of an LCA, noting that reasonable accommodation of alcoholism “must be limited in scope” since “continued ‘accommodation’ would simply enable an alcoholic to continue his or her drinking.” Id. at 561. Fuller pertained to the federal Rehabilitation Act of 1973; yet the Gosvener court had no trouble applying Fuller to California law. It noted: “we may follow Rehabilitation Act cases in the absence of California authority.” Gosvener, 51 Cal. App. 4th at 812 n.1.

The Eighth Circuit has held that LCAs do not violate the ADA, see Longen v. Waterous Co., 347 F.3d 685, 689 (8th Cir. 2003), and a recent district court case, Basso v. Potter, 596 F. Supp. 2d 324 (D. Conn. 2009), found that the express terms of an LCA governed, permitting an employer to terminate an employee for having more unscheduled absences than the LCA permitted.

The Last Chance Agreement as the Final Step in a Process of Reasonable Accommodation:

Despite the fact that there is some case law giving employers a basis to use and rely on LCAs, it remains prudent for your company to err on the side of caution in dealing with alcoholism and other forms of substance abuse in your employees. In each of the cases discussed above, the employer went far beyond simply providing a single last chance agreement to the employee. It is therefore likely that reasonable accommodation with respect to a request to enter rehabilitation goes beyond a single last chance agreement.

For instance, in Gosvener, the employer signed two separate LCAs with the plaintiff, who attended substance abuse treatment programs two separate times before the employer finally terminated him. When the employer initially found out that the plaintiff had both alcohol and methamphetamine abuse problems, it referred him to a private clinic, provided money for treatment by a private physician, reassigned him to a less stressful job position while continuing his higher rate of pay, and cleared him to return to work while undergoing therapy. Even after he violated the terms of the first agreement, the employer still executed a second LCA with him and gave him a second chance to attend another treatment program. Only after the employee violated the second LCA did the employer make the decision to terminate.

In Fuller, the employee was referred to the employer’s in-house counseling program three different times and given leave to participate in both alcohol and cocaine abuse treatment programs on three separate occasions until finally he signed an LCA and was subsequently terminated for drinking on the job.

Finally, in Basso, the employee was given numerous formal letters of warning, and was twice given the opportunity to rehabilitate himself before he finally came back to work under the express terms of an LCA, violated it by numerous absences, and was fired.

As you can see, the facts of these cases suggest that a single Last Chance Agreement, with nothing further in the way of accommodation, may not be sufficient to constitute reasonable accommodation of a substance abuse problem. To the contrary, the employers in these cases were accommodating in many different ways, and allowed problem employees numerous chances at rehabilitation before executing the final LCAs that ultimately gave rise to termination.

Thus, one lesson to take from these cases may be that a Last Chance Agreement is an enforceable component of reasonable accommodation, provided that it really does represent the employee’s last chance at employment given a history of attempts to work with that employee. In other words, the LCA should be one step in a series of attempts to accommodate the employee’s substance abuse disability.

Elements of a Last Chance Agreement:

As explained above, the basic purpose of an LCA is to: (1) provide the employee with one last chance at employment, and on the other hand, (2) strictly define the terms of continued employment and make it clear that any further misconduct will result in termination.

In structuring an LCA, employers should be specific about the types of misconduct that will result in termination. The following are some examples of potential LCA provisions:

(1) that the problem employee successfully complete a substance abuse program;
(2) that the employee will be subject to unannounced drug and alcohol testing for a certain period of time (e.g., two years);
(3) that the employee will be terminated either for failure to participate in unannounced testing, or for a positive test result;
(4) that the employee must maintain an exemplary attendance record without any unverified absences.

The LCA can also be further tailored to encompass the employee’s particular history of misconduct. In general, use of a LCA should provide you an opportunity to clarify your expectations of your employee once and for all, and put your employee unequivocally on notice of the ultimate consequences of his failure to fully correct a history of bad behavior. Repeated rehabilitation efforts do not have to be accepted by your company.