Washington D.C. Employment Law Update

Solis Discusses Plans for Worker Misclassification, Enforcement Initiatives During Committee Hearing

Ilyse Schuman — Fri, 12 Mar 2010 10:58:09 -0500

Testifying before a House subcommittee hearing on Wednesday, Labor Secretary Hilda Solis explained (pdf) how the agency would use the $116.5 billion in proposed funds and 17,800 full-time equivalent employees outlined in the DOL’s fiscal year 2011 budget. These plans include a broad employee misclassification initiative to deter employers from wrongly categorizing employees as independent contractors, among other enforcement efforts. The hearing was conducted by the House Appropriations Committee’s Subcommittee on Labor, Health and Human Services, Education and Related Agencies, which is tasked with reviewing $17.1 billion of the DOL’s proposed budget.

Solis stated that $1.7 billion in discretionary funds and 10,957 full-time equivalent employees would be devoted to worker protection activities, including an employee misclassification initiative. This initiative would use $25 million to create a multi-agency program to strengthen and coordinate federal and state efforts to enforce statutory prohibitions on misclassification, and identify and deter instances of employee misclassification as independent contractors. The DOL’s Wage and Hour Division (WHD) would receive $12 million and 90 new investigators to expand these enforcement efforts. In addition, the misclassification initiative would support new, targeted efforts to recoup unpaid payroll taxes through state audits of problem industries supported by federal audits, and by means of a $10.9 million pilot program that would reward the states that are the most successful or improved at detecting and prosecuting employers that fail to pay the appropriate taxes due to worker misclassification. The budget would also allocate $1.6 million to the Office of the Solicitor to hire 10 full-time equivalent employees and enhance enforcement strategies; provide $150 thousand to the Occupational Safety and Health Administration (OSHA) to train inspectors on worker misclassification issues; and promote legislative changes that would require employers to properly classify their workers, impose penalties for noncompliance, and provide employee protections in the event employees are wrongly categorized as independent contractors.

In addition to the worker misclassification initiative, Solis explained that the budget request of $244.2 million for the WHD would support targeted investigations, compliance assistance, and the reduction of repeat violations of minimum wage, overtime, and workplace safety laws. The Office of Federal Contract Compliance Programs (OFCCP) would receive $113.4 million and 788 full-time equivalent employees, which would, according to Solis, “allow OFCCP to broaden its enforcement efforts and focus on identifying and resolving both individual and systemic discrimination.” Pursuant to the OFCCP’s enforcement of Executive Order 11246, Equal Employment Opportunity, the agency plans to renew its focus on conducting reviews of the construction industry.

With respect to workplace safety, Solis said her request of $573.1 million and 2,360 full-time equivalent employees for OSHA would redirect 35 such employees from compliance assistance to enforcement. In addition, the budget includes an additional request of $4 million to expand OSHA’s regulatory program, $1 million for consultation programs focused on small businesses, and $1.5 million for state plans.

The Secretary’s testimony reflects the shift in focus and resources towards enforcement activity by the DOL. With an enhanced emphasis on enforcement, employers can expect greater scrutiny of their practices by the Department.

Senate Approves Bill Extending COBRA, UI Benefits, Pension Relief Measures

Ilyse Schuman — Thu, 11 Mar 2010 14:45:36 -0500

On Wednesday, the Senate passed by a 62 to 36 margin the Tax Extender Act of 2009 (H.R. 4213), legislation that would extend until Dec. 31, 2010 the 65% premium COBRA subsidies and emergency unemployment insurance benefits, both programs that are set to expire in the coming weeks. The bill also extends several other tax credit initiatives, and includes pension funding relief measures. On Tuesday, the Senate voted 66-34 to limit debate on this bill, which was introduced by Sen. Max Baucus (D-MT) as an amendment (S. Amdt. 3336) in the nature of a substitute to the tax extender bill the House of Representatives passed in December.

In addition to extending the premium COBRA subsidy until the end of the year, the bill makes certain technical changes to the program itself. Specifically, the bill makes the following clarifications, among others:

Adds a new section clarifying special rules in the case of individuals losing COBRA coverage due to a reduction in hours;
Clarifies the period of assistance; and
Adds a provision stating that the government or the individual may bring a civil action to enforce applicable provisions of this law, and provides that the Secretary may assess a penalty of up to $110 per day against a plan sponsor or health insurance issuer for each violation.

The Senate also approved by voice vote an amendment (S. Amdt. 3430) to the bill that aims to encourage employers to continue their defined benefit pension programs by providing temporary relief from statutory pension funding obligations. According to a press release issued by Sen. Isakson (R-GA) – who introduced the amendment with Sen. Ben Cardin (D-MD) – the amendment would provide employers with two options “to spread out” their pension obligations:

Under the first option, employers would be able to repay their pension shortfall over seven years, but the seven-year amortization would start two years late. During the two-year delay period, the employer would only owe interest on the shortfall. Under the second option, employers would be able to pay back their pension shortfall over 15 years.

Employers electing to avail themselves of the “two and seven”, or 15-year relief plans would be required to abide by the “cash flow rule,” under which an employer must make an extra “matching” contribution equal to the amount by which any of its employees’ taxable compensation exceeds $1 million. An employer would also be required to contribute an amount equal to the “extraordinary dividends” paid during the year, and an amount equal to the aggregate fair market value of the “stock redeemed” during the year that exceeds the employer’s net income for accounting purposes.

Other pension funding relief measures are included in the bill, which, according to Sen. Baucus, are designed to provide temporary, targeted funding relief for single employer and multiemployer pension plans that suffered significant losses in asset value due to the 2008 market downturn.

The bill includes other tax credit measures, including an extension until Dec. 31, 2010 of an employer wage credit for employees who are active duty members of the uniformed services. This extension would provide eligible small business employers with a credit against income tax liability for a taxable year in an amount equal to 20 percent of the sum of differential wage payments to activated military reservists, up to $4,000, and be applicable to payments made after December 31, 2009. Other program extensions include one that provides a tax credit for employers of qualified employees that work or live on or near an Indian reservation, and an extension of the Work Opportunity Tax Credit (WOTC) for qualifying employers that hire employees in the areas hit hardest by Hurricane Katrina.

The measure will now need to be reconciled with the House bill and undergo a second round of approval before it can be signed into law.

Senate Votes to Advance Bill Further Extending COBRA Subsidy and Emergency Unemployment Insurance Programs

Ilyse Schuman — Tue, 09 Mar 2010 19:40:58 -0500

On Tuesday, the Senate voted to end debate on a $150 billion bill that would extend premium COBRA subsidies and emergency unemployment insurance benefits through December 31, 2010, as well as continue certain programs aimed at providing pension-funding relief. Sen. Max Baucus (D-MT) introduced the American Workers, State and Business Relief Act of 2010 (pdf) as an amendment (S. Amt. 3336) in the nature of a substitute to the Tax Extender Act of 2009 (H.R. 4213). The tax extender bill has been serving as the vehicle to provide extensions to these and other expiring tax credit programs. The premium COBRA subsidy and emergency unemployment benefits were recently given one-month extensions through the Temporary Extension Act of 2010, signed into law on March 2.

With respect to the premium COBRA subsidy, the measure – in addition to extending the program until the end of the year – makes some clarifications to certain provisions of this program.

The measure also contains a section devoted entirely to pension-funding relief. According to a press release, (pdf) these provisions provide temporary, targeted funding relief for single employer and multiemployer pension plans that suffered significant losses in asset value due to the financial crisis in 2008.

In addition, the measure would extend until December 31, 2010, an employer wage credit for employees who are active duty members of the uniformed services. Specifically, the bill would extend the provision that provides eligible small business employers with a credit against income tax liability for a taxable year in an amount equal to 20 percent of the sum of differential wage payments to activated military reservists, up to $4,000, and be applicable to payments made after December 31, 2009.

A final vote on this bill is expected late Tuesday or Wednesday.

Supreme Court to Decide Constitutionality of Certain Background Check Questions for Federal Contractors

Ilyse Schuman — Tue, 09 Mar 2010 14:11:27 -0500

The U.S. Supreme Court has agreed to decide whether the government violates a federal contract employee’s constitutional right to informational privacy when it (a) asks in the course of a background investigation whether the employee has received counseling or treatment for illegal drug use that has occurred within the past year, and (b) when it asks the employee’s designated references for any adverse information that may have a bearing on the employee’s suitability for employment at a federal facility, when the information obtained in both scenarios is to be used for employment purposes only and is protected under the Privacy Act, 5 U.S.C. 552a. In National Aeronautics and Space Administration v. Nelson (09-530) the U.S. Court of Appeals for the Ninth Circuit disagreed with a lower court, which had found no constitutional violations. The Ninth Circuit reversed (pdf) the district court’s decision, and ordered the entry of a preliminary injunction barring the use of the forms asking the above questions for the background checks on federal contract employees working at NASA’s Jet Propulsion Laboratory (JPL), a federal research and development facility owned by the agency. The California Institute of Technology (Caltech) operates JPL pursuant to a contract with NASA. All of the positions at JPL are filled by contract employees.

In 2005, NASA established a new agency-wide policy for the issuance of security credentials. This new policy required that all contract employees working at JPL undergo the standard background-check process called the National Agency Check with Inquiries (NACI) before receiving security credentials. The background check questions in dispute in this case are included in the NACI. In 2007, NASA modified its contract with Caltech to require that contract employees working at JPL undergo the NACI process.

Caltech and a class of contract employees brought a class action challenging the background check process on the grounds that it would violate the Fourth Amendment of the Constitution, the Privacy Act, and a constitutional right to informational privacy. The Privacy Act permits a federal agency to maintain in its records “only such information about an individual as is relevant and necessary to accomplish a purpose of the agency required to be accomplished by statute or by executive order of the President,” and, subject to certain limited exceptions, prohibits agencies from disclosing any record about an individual without the written consent of that individual.

The Ninth Circuit found that while most of the NACI questions were not problematic and were “narrowly tailored to achieve the government’s legitimate interest,” asking employees whether they have obtained treatment or counseling for prior drug use did not meet this standard. Moreover, the Ninth Circuit determined that asking the employee’s designated references whether they have any information bearing on the employee’s suitability was too broad and open-ended to be legitimate.

In response, the government takes the position that no constitutional questions or privacy issues are raised in this case, as federal contractors have reduced expectations of privacy in the employment context, especially given the long-standing and widespread use of thorough background checks, and the Privacy Act’s provisions regarding the protection and restriction on dissemination of an employee’s personal information. The government further argues that if the Supreme Court should agree with the Ninth Circuit, it would “cast a constitutional cloud over the background check process the government has used for federal civil service employees for over 50 years.”

Federal government contractors should be mindful of this issue as the Court’s decision could implicate government contracts and employment practices with respect to the permissible scope background checks of contractors’ employees.

House Advances Jobs Bill

Ilyse Schuman — Thu, 04 Mar 2010 19:27:49 -0500

On Thursday, the House of Representatives voted 217 to 201 in favor of the Hiring Incentives to Restore Employment (HIRE) Act, the $15 billion jobs bill introduced by Sen. Majority Leader Harry Reid (D-NV) as an amendment (S. Amt. 3310) (pdf) to H.R. 2847, the more expansive jobs bill the House previously passed in December. The Senate cleared this scaled-down jobs bill last Wednesday by a 70-28 margin. Because the House intends to change the effective date of a tax provision in order to offset its cost, the Senate will once again need to approve the amended bill before it can be signed by the President.

The HIRE Act, among other things, exempts any employer that hires a worker who has been without full-time work for at least 60 days from paying the employer’s share of Social Security taxes on that worker for 2010, up to a maximum value of $6,621, or 6.2 percent of wages paid in 2010 up to the FICA wage cap of $106,800. As a result, the longer the previously unemployed worker is kept on the employer’s payroll, the greater the tax benefit. In addition, the Act provides a $1,000 income tax credit for every new employee retained for 52 weeks.

The bill also extends a provision in the American Recovery and Reinvestment Act (“ARRA” or “Stimulus Bill”) that permits small businesses to deduct up to $250,000 of the cost of qualifying capital investments in the year purchased, instead of expensing the property over time.

The measure contains other provisions, such as those extending certain National Highway Traffic Safety Administration, Federal Motor Carrier Safety Administration, and other public transportation programs.

The measure does not extend the 65 percent premium COBRA subsidy or the enhanced unemployment insurance benefits. Instead, the Senate is currently considering separate legislation – the $150 billion American Workers, State and Business Relief Act of 2010 (pdf) – that would extend the COBRA subsidy and unemployment insurance benefits through December 31, 2010, among other benefits. This bill was introduced as an amendment (S. Amt. 3336) in the nature of a substitute to the Tax Extender Act (H.R. 4213). A temporary extension of these measures was recently granted through the Temporary Extension Act of 2010, which was signed into law on Tuesday.

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Obama Makes Final Push for Health Care Reform; Endorses Reconciliation

Ilyse Schuman — Wed, 03 Mar 2010 18:28:47 -0500

Telling Congress to “finish its work,” President Obama on Wednesday urged both chambers to schedule a vote on final health care overhaul legislation in the coming weeks. While Obama did not outline a specific roadmap for reform, it is widely believed that the plan for going forward involves first having the House of Representatives vote on the Patient Protection and Affordable Care Act (H.R. 3590), the bill the Senate approved in December, and then passing via budget reconciliation a package of changes to that bill reflected in the estimated $950 billion proposal Obama unveiled on February 22. While Obama did not specifically mention reconciliation, he seemed to sanction this approach, stating that a health care reform bill: “deserves the same kind of up-or-down vote that was cast on welfare reform, the Children's Health Insurance Program, COBRA health coverage for the unemployed and both Bush tax cuts – all of which had to pass Congress with nothing more than a simple majority.” The controversial budget reconciliation process requires a simple majority vote, but is subject to strict limitations about what matters can be included in a reconciliation bill.

Obama further remarked that his proposal “incorporates the best ideas from Democrats and Republicans.” Specifically, the President’s legislative blueprint borrows a number of elements from the Senate-approved bill, including the requirement that most Americans obtain health insurance coverage, the creation of a health insurance exchange, penalties on large employers that fail to provide affordable health insurance, the imposition of an excise tax on high-cost “Cadillac” insurance plans, and the lack of a public insurance option included in the more expansive House-passed Affordable Health Care for America Act (H.R. 3962). Obama’s plan also includes popular elements contained in both bills, such as the ban on preexisting condition exclusions and certain lifetime and annual coverage limits in health insurance plans.

In a letter to Congress, Obama signaled his willingness to consider certain GOP proposals, including allocating $50 million to fund state initiatives designed to reduce medical malpractice costs; allowing certain high-deductible insurance plans to be offered in the health insurance exchange; increasing Medicaid reimbursements to doctors in certain states; and permitting medical professionals to conduct random undercover investigations of health care providers that receive reimbursements from Medicare, Medicaid, and other federal programs.

At this point, it is unclear whether the House has enough votes to pass the Senate bill, and whether the Senate can garner 50 votes to proceed with reconciliation, with Vice-President Biden supplying the tie-breaking vote. Republicans are expected to be united in their opposition, leaving Democratic leaders with little margin for opposition within their own caucus.

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Solis Alludes to Recess Appointment for Craig Becker

Jay Sumner — Wed, 03 Mar 2010 17:17:41 -0500

According to a report by the Associated Press, Labor Secretary Hilda Solis hinted during the AFL-CIO annual meeting that President Obama would institute controversial nominee Craig Becker as a member of the National Labor Relations Board (NLRB) by means of a recess appointment, possibly during the Easter recess. On February 9, the Senate failed to pass a cloture motion on his nomination, fueling speculation that Obama would appoint Becker – who currently serves as Associate General Counsel to both the Service Employees International Union (SEIU) and the AFL-CIO – during the President’s Day recess. According to the AP story, Solis told AFL-CIO members that they would be “very pleased” with how the stalled nomination issue would be resolved. The Senate is set to adjourn for the Easter recess from March 29 through April 9.

Obama Signs Bill Temporarily Extending COBRA, Unemployment Benefits

Ilyse Schuman — Wed, 03 Mar 2010 12:40:37 -0500

On Tuesday, President Obama signed the Temporary Extension Act of 2010 (H.R. 4691), a bill that will extend the 65 percent premium COBRA subsidy through March 31, 2010, and unemployment assistance benefits through April 5, 2010. The Senate passed this bill by a vote of 78-19 after Sen. Jim Bunning (R-KY) – who objected to how the measure would be funded – abandoned his efforts to block it. The House of Representatives approved this emergency spending measure by voice vote last Thursday. Both benefits had expired on February 28.

Meanwhile, the Senate is set to consider longer COBRA and unemployment insurance extensions. On Monday, Sen. Max Baucus (D-MT) introduced a $150 billion bill that would extend these benefits through December 31, 2010, as well as continue certain programs aimed at providing pension-funding relief, among other benefits. The American Workers, State and Business Relief Act of 2010 (pdf) was introduced as an amendment (S. Amt. 3336) in the nature of a substitute to the Tax Extenders Act (H.R. 4213). The tax extenders bill will now serve as the Senate vehicle to provide longer extensions to these and other expiring tax programs.

For more information on the Temporary Extension Act of 2010, see Littler's ASAP: COBRA Subsidy Extended and Expanded by Steven J. Friedman.

DOL's EBSA to Publish Final and Proposed Rules Affecting Employee Investment and Retirement Plans

Ilyse Schuman — Mon, 01 Mar 2010 14:00:13 -0500

On Tuesday, the Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) will publish in the Federal Register a final (pdf) and a proposed rule (pdf) providing for greater worker investment and retirement account protections. Both final and proposed rules were drafted in response to the Pension Protection Act of 2006 (PPA), which amended portions of the Employee Retirement Income Security Act (ERISA) dealing with investment advice and retirement plan transparency. The announcement of these rules was made at a White House forum hosted by Vice President Joe Biden on Friday. According to the DOL, these two new rules are “designed to enhance retirement security and transparency for the millions of workers covered by 401(k), pension and other retirement arrangements.”

The final rule implements the multiemployer retirement plan transparency provisions of section 101(k) of ERISA, which was added by the PPA. This section requires that, upon written request, the multiemployer plan administrator provide copies of certain actuarial and financial documents about the plan to participants, beneficiaries, employee representatives and contributing employers no later than 30 days after the request is made, with certain limited exceptions. Those who fail to do so face a penalty of up to $1,000 per day for each violation. The final rule takes effect April 1, 2010.

The required documents include copies of periodic actuarial reports—defined as reports prepared by an actuary of the plan and received by the plan at regularly scheduled, recurring intervals—or studies, tests (including sensitivity tests), documents, analyses, or other information received by the plan from an actuary of the plan that shows alternative funding scenarios based on a range of alternative actuarial assumptions, whether or not such information is received by the plan at regularly scheduled, recurring intervals. Other documents covered by this rule include quarterly, semi-annual, or annual financial reports prepared for the plan by any plan investment manager or advisor, and applications for funding relief filed with the Secretary of the Treasury requesting an extension of minimum funding requirements. The plan administrator is not required to provide a report that has not been in the plan’s possession for at least 30 days, but must inform the requester about the earliest date on which the report can be furnished. The final rule also imposes a 6-year limit on the provision of “aged” documents. Exceptions to the disclosure requirements also exist for individually identifiable and proprietary information as well as for underlying information and data.

The final rule allows a plan administrator to impose reasonable charges to cover the cost of furnishing the requested documents. According to the rule, a reasonable charge may not exceed the lesser of the actual cost to the plan for the least expensive means of acceptable reproduction of the document, or 25 cents per page, plus the cost of mailing or otherwise delivering the requested document. A plan administrator is not required to furnish to any requester more than one copy of a document during any 12-month period.

Plan participants and beneficiaries can be informed of the rights conferred by this final rule via the plan summary.

The EBSA’s proposed rule addresses the provision of investment advice to participants and beneficiaries in individual account plans, such as 401(k) plans, and beneficiaries of individual retirement accounts (and certain similar plans). This proposed rule would implement provisions of a statutory prohibited transaction exemption in ERISA and the Internal Revenue Code (IRC). The proposal follows the withdrawal of a final rule issued on January 21, 2009 after concerns were raised about the potential for advisor self-dealing. As a result, the proposed rule lacks the earlier rule’s administrative class exemption, which was the target of some commentators’ concerns. The proposed regulations also contain clarifying language regarding the interpretation of the statutory exemption’s fee-leveling requirement.

The proposed rule, among other things, would require investment advisors to disclose their fees, and obtain a certification that their computer models used to provide the investment advice are objective and unbiased.

Comments to the proposed rule must be submitted on or before May 5, 2010, and contain the identification number: RIN 1210-AB35. The EBSA is encouraging the submission of comments electronically via the federal eRulemaking portal at http://www.regulations.gov, or by e-mail to e-ORI@dol.gov (enter into subject line: 2010 Investment Advice Proposed Rule). Written comments can be sent to Office of Regulations and Interpretations, Employee Benefits Security Administration, Attn: 2010 Investment Advice Proposed Rule, Room N-5655, U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 20210.

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Bill Would Strengthen Worker Benefits, Limit Executive Pay in the Event of Bankruptcy

Ilyse Schuman — Fri, 26 Feb 2010 15:59:00 -0500

Senator Dick Durbin (D-IL) and Representative John Conyers (D-MI) have introduced legislation that would strengthen the ability of employees to recover wages and benefits and restrict the awarding of bonuses in the event of their employer’s bankruptcy. According to a press release, the Protecting Employees and Retirees in Business Bankruptcies Act (S. 3033, H.R. 4677) would, among other things, “ensure that back pay awarded through [the Worker Adjustment and Retraining Notification (WARN) Act] damages would be given priority in the bankruptcy claims process.” Specifically, as stated in the release, the bill would do the following:

Double the maximum value of wage claims entitled to priority payment for each worker to $20,000;
Allow a second claim of up to $20,000 for contributions to employee benefit plans;
Eliminate the restriction that wage and benefit claims must be earned within 180 days of the bankruptcy filing in order to be entitled to priority payment;
Allow workers to assert claims for losses in certain defined contribution plans when such losses result from employer fraud or breach of fiduciary duty;
Establish a new priority administrative expense for workers’ severance pay;
Clarify that back pay awarded via WARN Act damages are entitled to the same priority as back pay for other legal violations;
Restrict the situations in which collective bargaining agreements can be rejected, tighten the criteria by which collective bargaining agreements can be amended, and encourage negotiated settlements;
Toughen the procedures through which retiree benefits can be reduced or eliminated, including preventing companies seeking retiree health benefit reductions from singling out nonmanagement retirees for concessions;
Require courts to consider the impact of a bidder’s offer to purchase a company’s assets would have on maintaining existing jobs and preserving retiree pension and health benefits;
Clarify that the principal purpose of Chapter 11 bankruptcy is the preservation of jobs to the maximum extent possible;
Require disclosure and court approval of executive compensation for firms in bankruptcy;
Prohibit the payment of bonuses and other forms of incentive compensation to senior officers and others; and
Ensure that insiders cannot receive retiree benefits if workers have lost their retirement or health benefits.

This Senate bill has been referred to Senate Committee on the Judiciary, and the House version has been referred to House Committee on the Judiciary, which Rep. Conyers chairs.

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White House Health Care Summit Fails to Resolve Differences

Ilyse Schuman — Fri, 26 Feb 2010 13:46:33 -0500

On February 25, 2010, the White House hosted the much-anticipated bipartisan health care summit. As expected, no final legislation or agreement about how to proceed with health care reform emerged from the 7 ½ hour meeting. Democrats took the position that they would not start from scratch, and Republicans claimed they would not support the proposals that have already been put forth. The disagreements, however, may have given Democrats the public justification they need to proceed with reconciliation as a means to push forward with reform. President Obama stated:

. . . the question that I'm going to ask myself and I ask of all of you is, is there enough serious effort that in a month's time or a few weeks' time or six weeks' time we could actually resolve something? And if we can't, then I think we've got to go ahead and make some decisions, and then that's what elections are for.

Obama concluded the summit by acknowledging that it may be impossible to resolve the differences between the parties, and alluded to the fact that Democrats could proceed with reconciliation: “I don't know, frankly, whether we can close that gap. And if we can't close that gap, then I suspect Mitch McConnell and Harry Reid, Nancy Pelosi and John Boehner are going to have a lot of arguments about procedures in Congress about moving forward.”

Meanwhile, according to a Wall Street Journal article, President Obama might be amenable to advancing a scaled-back version of health care legislation should a more comprehensive overhaul bill fail to garner requisite support. According to the article, this more modest approach would provide coverage to an additional 15 million Americans, which is half the amount a larger bill would have covered. More details about this alternate approach have not been released.

Republicans, by and large, seem to favor a more incremental approach to health care reform. On Wednesday, for example, the House of Representatives overwhelmingly approved by a 406-19 margin legislation that would repeal the anti-trust exemption in place for health insurance companies. The Health Insurance Industry Fair Competition Act (H.R. 4626), would amend the McCarran-Ferguson Act of 1945, which reaffirmed that states are the primary regulators of insurance, and expressly exempted the “business of insurance” from antitrust laws.

At the conclusion of the health summit, however, President Obama indicated that a piecemeal approach to reform was untenable: “. . . a step-by-step approach sounds good in theory, but the problem is, for example, we can't solve the preexisting problem if we don't do something about coverage.”

Transcripts from the summit can be found at The Washington Post’s political blog 44.

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House Passes Bill Temporarily Extending COBRA, Unemployment Benefits

Ilyse Schuman — Fri, 26 Feb 2010 13:03:51 -0500

On Thursday evening, the House of Representatives approved by voice vote the Temporary Extension Act of 2010 (H.R. 4691), legislation that provides brief extensions of unemployment insurance benefits and premium health insurance subsidies under the Consolidated Omnibus Budget Reconciliation Act (COBRA), among other programs. This stopgap measure would extend the 65 percent premium COBRA subsidy through March 31, 2010, and unemployment assistance benefits through April 5, 2010. Both measures are set to expire on February 28.

It is unclear how the Senate will act upon the expiring benefit programs. The Senate has thus far been unable to pass a short-term extension by unanimous consent, and Sen. Majority Leader Harry Reid (D-NV) is expected to introduce legislation that would extend these measures even longer.

House Bill Would Impose Criminal Penalties for Employing Unauthorized Aliens

Immigration/Global Migration Group — Fri, 26 Feb 2010 11:02:07 -0500

This week, Rep. Frank Kratovil (D-MD) introduced the “Criminal Penalties for Unauthorized Employment Act of 2010” (H.R. 4627). The bill amends section 274A of the Immigration and Nationality Act (8 U.S.C. § 1324a(e)(4)(A)) by establishing criminal penalties—and increasing the existing civil penalties—that can be levied against individuals with “hiring authority” who employ unauthorized aliens. Continue reading at Littler's Global Immigration Counsel blog.

EBSA to Issue Final Rule Regarding Civil Penalties Against Multiemployer Plan Sponsors for Certain ERISA Violations

Ilyse Schuman — Thu, 25 Feb 2010 15:09:45 -0500

In tomorrow’s edition of the Federal Register, the Employee Benefits Security Administration (EBSA) will publish a final rule (pdf) that outlines procedures relating to the assessment of civil penalties against sponsors of multiemployer pension plans for certain violations of section 305 of the Employee Retirement Income Security Act (ERISA). The Pension Protection Act of 2006 (PPA) added section 305 to ERISA, which sets forth additional rules for multiemployer defined benefit pension plans that are in endangered or critical status. The PPA gave the Secretary of Labor authority to assess civil penalties not exceeding $1,100 per day against any plan sponsor of a multiemployer plan that fails to follow these additional rules and procedures. According to the EBSA, the final rule sets forth how the maximum penalty amounts are computed, identifies the circumstances under which a penalty may be assessed, outlines certain procedural rules for the Department of Labor (DOL) and filing by a plan sponsor, and provides a plan sponsor with a means to contest an assessment by the DOL.

The rule takes effect on March 29, 2010.

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Senate Passes Jobs Bill

Ilyse Schuman — Wed, 24 Feb 2010 15:01:51 -0500

On Wednesday, the Senate voted 70-28 in favor of the Hiring Incentives to Restore Employment (HIRE) Act, the $15 billion jobs bill introduced by Sen. Majority Leader Harry Reid (D-NV) as an amendment (S. Amt. 3310) (pdf) to H.R. 2847, the more expansive jobs bill that cleared the House of Representatives three months ago. On Monday, the Senate voted 62-30 on a cloture motion to allow the slimmed-down bill to proceed. The HIRE Act, among other things, would exempt any employer that hires a worker who has been without full-time work for at least 60 days from paying the employer’s share of Social Security taxes on that worker for 2010, and extend a business tax deduction for certain capital investments.

The HIRE Act will now be sent back to the House for its approval of the replacement language before President Obama can sign it. It is anticipated that Sen. Reid will introduce a separate jobs-related bill this week to extend COBRA and unemployment benefits that are set to expire on February 28, 2010.

Meanwhile, other job creation bills continue to be introduced. On Monday, the American Job Creation and Investment Act (S. 3014) was introduced by Senators Debbie Stabenow (D-MI), Orrin Hatch (R-UT), Charles Schumer (D-NY), Olympia Snowe (R-ME), and Sherrod Brown (D-OH). This bill would allow companies to use existing alternative minimum tax (AMT) credits for investment in new manufacturing facilities and job creation in 2010 and 2011. According to a press release, “companies must use the credits to make investments in manufacturing facilities/equipment or create new jobs. The total amount of credits that can be utilized will be based on a percentage of qualifying wages or a percentage of new investments.” This bill has been referred to the Senate Finance Committee.

Supreme Court Applies "Nerve Center" Approach to Diversity Jurisdiction

Ilyse Schuman — Tue, 23 Feb 2010 19:22:36 -0500

In what could be hailed as a victory for employers, the U.S. Supreme Court has made it less likely that a company can be sued in state court just because it conducts business in that state. Under federal statute, a corporation is to be considered a citizen of any state in which it has been incorporated and the state where it has its principal place of business. If sued in state court, a corporation can seek to have the case moved to federal court – a move often deemed advantageous for employers – if the parties are from different states.

In Hertz Corporation v. Friend (08-1107), (pdf) the Court unanimously held that a corporation’s “principal place of business” for the purpose of establishing the business’s citizenship is the place where its high-level officers direct, control, and coordinate its activities – often referred to as the company’s “nerve center” – that will typically be its corporate headquarters. The Court rejected the Ninth Circuit Court of Appeal’s test for determining corporate citizenship, which involved first determining the amount of the company’s business activity state by state. If the amount of activity was considered “significantly larger” or “substantially predominant” in one state, then that state was to be the corporation’s principal place of business. The Court explained that the Ninth Circuit and many other courts have focused on where a corporation’s actual business activities are located, and thus have adopted “divergent and increasingly complex tests” to determine citizenship. The Supreme Court reasoned that while imperfect, using the “nerve center” test is the best approach for establishing corporate citizenship. The practical effect of this decision for employers is that it will be harder to be sued in state courts where the company is neither incorporated nor maintains its corporate headquarters.

Senate Votes to Advance Jobs Bill

Ilyse Schuman — Tue, 23 Feb 2010 14:11:58 -0500

On Monday, the Senate voted 62-30 on a cloture motion to advance the scaled-back jobs bill introduced by Sen. Majority Leader Harry Reid (D-NV). Reid’s bill, the Hiring Incentives to Restore Employment (HIRE) Act, has been introduced as an amendment (S. Amt. 3310) in the nature of a substitute to H.R. 2847, known as the Jobs for Main Street Act, which cleared the House of Representatives in December. In a move that surprised even some Senate Democrats, Reid decided that the Senate would consider smaller, separate jobs bills instead of the $85 billion bipartisan bill (pdf) unveiled by Sens. Max Baucus (D-MT) and Charles Grassley (R-IA) on February 11. This decision was allegedly instigated after Senate Democrats complained to Reid that too many concessions had been made in order to garner Republican support of the bill. Reid has stated that introducing smaller bills will force the Senate to focus on job creation.

The Reid Amendment includes the provision in the Baucus-Grassley bill that would exempt any employer that hires a worker who has been without full-time work for at least 60 days from paying the employer’s share of Social Security taxes on that worker for 2010. The measure would also extend a tax credit for employers for capital investments. The bill does not include the three-month COBRA and unemployment extensions contained in the Baucus-Grassley bill. Instead, these provisions – which will likely include longer extensions – will be part of a separate bill that is expected to be introduced later this week. The COBRA and unemployment extensions are set to expire on February 28, 2010.

Obama Unveils Health Care Reform Proposal

Ilyse Schuman — Mon, 22 Feb 2010 17:14:57 -0500

In advance of Thursday’s much-publicized White House bi-partisan health care summit, President Obama today released his version of health reform. The estimated $950 billion plan contains many elements from the Senate-approved Patient Protection and Affordable Care Act (H.R. 3590), including the requirement that most Americans obtain health insurance coverage, the creation of a health insurance exchange, penalties on large employers that fail to provide affordable health insurance, the imposition of an excise tax on high-cost “Cadillac” insurance plans, and the lack of a public insurance option included in the more expansive Affordable Health Care for America Act (H.R. 3962), health care legislation that the House cleared in November. Obama’s plan also includes popular elements contained in both bills, such as the ban on preexisting condition exclusions and certain lifetime and annual coverage limits in health insurance plans. The President’s proposal attempts to bridge the gap between the stalled Senate and House bills, which contain significant changes from employer-sponsored health care.

With respect to employer responsibility under the President’s plan, small businesses would receive $40 billion in tax credits to support coverage for their workers beginning in 2010. As under the Senate bill, employers with fewer than 50 workers would be exempt from any employer responsibility policies. In addition, as articulated in the Senate bill, the proposal does not require employers to offer or provide health insurance, but does require them to contribute to the cost if their workers receive government subsidies to purchase their own policies. Under the Senate plan, if any employee of a large firm obtains tax credits to purchase insurance through a health insurance exchange because the employer’s plan is considered unaffordable, the employer would pay $3,000 per full-time worker. If the large employer doesn’t offer insurance in the first place, it would need to pay $750 per full-time worker under the Senate bill if any employee obtains tax credits for the purchase of health care. Under Obama’s plan, the first 30 workers would be subtracted from the employer responsibility payment calculation. For example, a firm with 51 workers that does not offer coverage would pay an amount equal to 51 minus 30, or 21 times the applicable per employee payment amount. Obama’s plan would raise the applicable payment amount for firms with more than 50 employees that do not offer coverage from $750 to $2,000. In addition, the plan would eliminate the assessment for workers in a waiting period for enrollment, while maintaining the 90-day limit on the length of any waiting period beginning in 2014.

With respect to the tax on Cadillac plans, the threshold for the excise tax would be raised from $8,500 for single plans to $10,200 and from $23,000 for family plans to $27,500. These amounts would be indexed for subsequent years at general inflation plus 1 percent. The tax on such high-premium policies would begin in 2018, up from 2013 set forth in the Senate bill.

One feature of Obama’s bill not included in either the House or Senate package is greater regulation of the insurance industry’s ability to increase costs. Sen. Dianne Feinstein (D-CA) last week announced her intent to introduce legislation that would prevent insurance companies from enacting unfair health premium rate increases. Obama’s proposal includes elements of Feinstein’s proposal, and calls for the creation a new Health Insurance Rate Authority “to review and rein in unreasonable rate increases and other unfair practices of insurance plans.” Under the terms of this plan, if a rate increase is deemed unreasonable and unjustified, health insurers would be required to lower premiums, provide rebates, or take other actions to make premiums affordable.

Obama’s proposal is intended to be the focus of Thursday’s health care summit. Meanwhile, according to an article in The Hill’s Blog Briefing Room, Sen. Majority Leader Harry Reid (D-NV) said that Democrats will likely use the budget reconciliation process to pass changes to the already-passed Senate bill to gain House approval. Reid claimed that this procedural maneuver – which requires a simple majority to pass instead of the 60 votes needed to end a filibuster – would take place within the next two months.

Photo credit: MBPHOTO, INC.

Check Your Mail - Is an IRS Audit Next?

Employee Benefits Practice Group — Fri, 19 Feb 2010 13:56:49 -0500

The Internal Revenue Service (IRS) will begin mailing questionnaires to 401(k) plan sponsors to gather information about compliance with applicable tax rules. The questionnaire will focus on 401(k) plan operations, including eligibility, employee deferral rates, compensation definitions and nondiscrimination testing. The IRS is expected to mail several thousand questionnaires to 401(k) plan sponsors around the country to help make certain it reaches a representative sample.

The questionnaire is in response to past IRS audits that have shown significant 401(k) plan noncompliance from a lack of internal controls at the plan sponsor level. In addition, the questionnaire is based on various tools the IRS provides on its website, including the 401(k) fix-it guide, the 401(k) checklist, and the check-up for 401(k) plans. Please note that while accounting firms prepare a financial audit for 401(k) plans with 100 or more participants, the financial audit is significantly different than what the IRS examines on its 401(k) plan compliance audits.

After collection of the responses or nonresponses, the IRS will issue a report on its findings to be published on its website. The report will assist the IRS to develop further website tools, perform audits and compile strategies to deal with any noncompliance trends reflected in the data received.

Littler’s employee benefits attorneys are available to assist plan sponsors with their answers to the questionnaire and are also available to assist plan sponsors in self-audits of their 401(k) plans as well as assisting with the IRS tools.

This entry was written by Melissa Kurtzman.

EEOC Addresses Scope of Reasonable Factors Other than Age Defense Under the ADEA

Ilyse Schuman — Wed, 17 Feb 2010 15:28:13 -0500

The Equal Employment Opportunity Commission (EEOC) will issue in tomorrow’s edition of the Federal Register a notice of proposed rulemaking (NPRM) (pdf) to define the meaning of the “reasonable factors other than age” (RFOA) defense under the Age Discrimination in Employment Act (ADEA). The need to clarify the scope of this defense was brought about by two recent U.S. Supreme Court cases that address the RFOA defense when plaintiffs claim an employer’s facially neutral policy or practice has a disparate impact on older employees.

In Smith v. City of Jackson, 544 U.S. 228 (2005), the Supreme Court, in permitting recovery for disparate impact claims of age discrimination under the ADEA, stated that the appropriate standard for determining the legality of a practice that disproportionately affects older workers is the RFOA test, not the more stringent “business necessity” test used for other types of discrimination claims. Three years later in Meacham v. Knolls Atomic Power Laboratories, 128 S. Ct. 2395 (2008), the Supreme Court held that the employer bears the burden of production and persuasion in making a RFOA defense in an ADEA disparate impact claim. The EEOC proposes to revise current ADEA regulations under 29 CFR section 1625.7(b) to explain that whether a particular employment practice is based on RFOA “turns on the facts and circumstances of each particular situation and whether the employer acted prudently in light of those facts.” According to the EEOC, this standard is lower than the business necessity test used for Title VII discrimination claims, but higher than the Equal Pay Act’s “any other factor” test.

The EEOC explains that a “reasonable factor” is one that an employer exercising reasonable care to avoid limiting the employment opportunities of older persons would use. This analysis will require evidence that the challenged practice was both reasonably designed to further or achieve a legitimate business purpose and was administered in a way that reasonably achieves that purpose. Another factor to be taken into consideration when determining the reasonableness of an employment policy or practice is what the employer knew or should have known about the policy or practice’s impact when it took the challenged action. The proposed regulations provide a non-exhaustive list of other factors that could be relevant to the RFOA defense, including:

Whether the employment practice and the manner of its implementation are common business practices;
The extent to which the factor is related to the employer’s stated business goals;
The extent to which the employer took steps to define the factor accurately and to apply the factor fairly and accurately (e.g., training, guidance, instruction of managers);
The extent to which the employer took steps to assess the adverse impact of its employment practice on older workers;
The severity of the harm to individuals within the protected age group, in terms of both the degree of injury and the numbers of persons adversely affected, and the extent to which the employer took preventive or corrective steps to minimize the severity of the harm, in light of the burden of undertaking such steps; and
Whether other options were available and the reasons the employer selected the option it did.

The EEOC notes that although an employer is not required to use the least discriminatory alternative to the challenged practice, an employer’s knowledge of and failure to use an equally effective alternative that is less discriminatory will factor into the “reasonableness” assessment.

With respect to “factors other than age,” the EEOC emphasizes that the challenged practice or policy must be based on a non-age factor for the RFOA defense to apply. Certain factors that correlate with age, such as salary and seniority, are non-age factors. However, the “unchecked use of subjective criteria” that rely on age stereotypes could be deemed age-based. The proposed regulations set forth a non-exhaustive list of factors to help employers determine whether an employment practice is based on a non-age factor, including:

The extent to which the employer gave supervisors unchecked discretion to assess employees subjectively;
The extent to which supervisors were asked to evaluate employees based on factors known to be subject to age-based stereotypes; and
The extent to which supervisors were given guidance or training about how to apply the factors and avoid discrimination.

The EEOC will consider comments to the above changes before issuing final regulations. Comments must be received by April 19, 2010, and contain the identification number: 3046-AA87. Written comments may be sent to Stephen Llewellyn, Executive Officer, Executive Secretariat, Equal Employment Opportunity Commission, U.S. Equal Employment Opportunity Commission, 131 M Street, N.E., Washington, DC 20507. Comments of six or fewer pages may be sent via facsimile to (202) 663-4114. Alternatively, comments may be made electronically through the federal eRulemaking Portal: http://www.regulations.gov.