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The People Business Blog

Practical Strategies for Managing Labor, Employment and Benefits Issues


SAFE! Mid-Year Changes to Safe Harbor Plans Permitted

Posted in Benefits

The Internal Revenue Service recently issued long-awaited relief to sponsors of safe harbor 401(k) plans. For years, many employers have relied on various safe harbor plans designs to avoid generally applicable nondiscrimination requirements. As a general matter, the terms of the safe harbor plan must remain in effect for the entire plan year and must be described in a notice to participants that is distributed prior to the plan year. So, when circumstances change during the plan year, many employers have found themselves in a quandary of not being able to change their plans – even where the change may have been advantageous to the participants or the change did not adversely affect the required provisions of the safe harbor plan design.

In Notice 2016-16, the IRS states that certain mid-year changes to either a safe harbor plan or a safe harbor plan’s notice will not violate the safe harbor rules if (1) an updated safe harbor notice that describes the mid-year change and its effective date is provided to each employee otherwise required to be provided a safe harbor notice within a reasonable period before the effective date of the change and (2) each employee required to be provided an updated safe harbor notice is given a reasonable opportunity before the effective date of the mid-year change to change the employee’s cash or deferred election (and/or any after- tax employee contribution election).

The Notice indicates that the timing requirement for the updated safe harbor notice is deemed to be satisfied if it is provided at least 30 days (and not more than 90 days) before the effective date of the change. However, if it is not practicable for the updated safe harbor notice to be provided before the effective date of the change, the notice is treated as provided timely if it is provided as soon as practicable, but not later than 30 days after the date the change is adopted. Note, however, if the required information about the mid-year change and its effective date was provided with the annual safe harbor notice, an updated safe harbor notice is not required.

Similarly, for purposes of the election opportunity in connection with the change, the IRS indicates that a 30-day election period is deemed to be a reasonable period. If it is not practicable for the plan to provide an advance election opportunity, an employee is treated as having a reasonable opportunity to make or change an election if the election opportunity begins as soon as practicable after the date the updated notice is provided to the employee, but not later than 30 days after the date the change is adopted.

This relief applies equally to safe harbor 401(k) plans and 403(b) plans, but will not apply to mid-year changes that are otherwise addressed in the regulations, such as short plan years, late adoptions of safe harbor plan status; the reduction or suspension of safe harbor contributions; or a change to non-safe harbor status during the year. Note, also that mid-year changes remain subject to other applicable laws affecting qualified plans, such as the anti-cutback rule, nondiscrimination rules and anti-abuse rules.

Notwithstanding the foregoing, certain mid-year changes specifically fall outside of the scope of this relief and, therefore, will remain prohibited under the safe harbor rules:

  1. A mid-year change to increase the number of years of service required for an employee to become 100% vested in safe harbor contributions under a qualified automatic contribution arrangement (QACA), and earnings thereon. The employer could, however, reduce the required vesting years of service without implicating this prohibition.
  2. A mid-year change to reduce the number or otherwise narrow the group of employees who are already eligible to receive safe harbor contributions.
  3. A mid-year change to the type of safe harbor plan (e.g., from a traditional § 401(k) safe harbor plan to a QACA).
  4. A mid-year change (i) to modify (or add) a formula used to determine matching contributions (or the definition of compensation used to determine matching contributions) if the change increases the amount of matching contributions, or (ii) to permit discretionary matching contributions. The employer could, however, adopt such a change at least 3 months prior to the end of the plan year if the change is made retroactively effective for the entire plan year (and with respect to compensation for the entire plan year).

While the Notice provides answers to many common questions relating to safe harbor plans, it does not address how to deal with changes that arise in the context of mergers and acquisitions. We expect, however, that the IRS will issue additional guidance on this point in the near future.


Labor & Employment

No Shoes, No Shirt, No Guns? Steps Businesses Must Take to Prevent Open Carry by Employees and Customers

Posted in Labor & Employment
Open Carry by Employees and Customers

Open Carry by Employees and Customers

Effective January 1, 2016, Concealed Handgun License (CHL) holders are now allowed to carry their guns in visible holsters on their hips or shoulders. Previously, CHL holders were required to conceal their weapon completely from the view of others. Although many employers are aware of the new Open Carry law, many have questions about what has changed and how they can continue to regulate firearms in their workplace.

Changes to the Employee Parking Lot Law

Since 2011, employees who are CHL holders have had the right to store firearms in their vehicles while parked in their employer’s parking lot, as long as the weapon was concealed in a locked, privately-owned vehicle.  Under the Open Carry law, this right is expanded to permit those firearms to now be stored in plain sight.

Employer’s Right to Restrict Employees’ Right to Carry

Employers may continue to restrict an employee’s right to carry, whether concealed or open, on all other areas of the business premises. This includes banning guns in their entirety, allowing concealed weapons, or allowing employees to openly carry.  Further, for employers who have employees conducting business away from the business premises, such as operating company vehicles or traveling while on duty, employers may also restrict an employee’s right to carry while in the course and scope of employment. Regardless of what policy an employer wishes to proceed with, all employers should update their current gun policies to specifically address open carry or create a gun policy addressing both concealed and open carry. Subsequently, employers should give written notice of the updated or new policy to each of its employees. This will help alleviate any confusion employees may have about their rights under the new Open Carry Law.

Restricting Individual’s Right to Carry

Property owners who want to make a legally-enforceable ban against all firearms on their premises must display two separate signs: one banning concealed carry and the other banning openly-carried firearms.  For employers who do not own the property on which they operate, the statutes also allow someone “with apparent authority to act for the property owner” to prohibit individuals from carrying weapons onto their premises, provided that signs with the following specifications are displayed in both in English and Spanish:.

Concealed Handguns:

  • A sign posted on the property that states: “Pursuant to Section 30.06, Penal Code (trespass by license holder with a concealed handgun), a person licensed under Subchapter H, Chapter 411, Government Code (handgun licensing law), may not enter this property with a concealed handgun.”;
  • The sign appears in contrasting colors with block letters at least one inch in height; and
  • The sign must be displayed in a conspicuous manner clearly visible to the public.

Openly Carried Handguns:

  • A sign posted on the property that states “Pursuant to Section 30.07, Penal Code (trespass by license holder with an openly carried handgun), a person licensed under Subchapter H, Chapter 411, Government Code (handgun licensing law), may not enter this property with a handgun that is carried openly.”;
  • The sign appears in contrasting colors with block letters at least one inch in height; and
  • The sign is displayed in a conspicuous manner clearly visible to the public at each entrance to the property.


Disclaimer: Content contained within this news alert provides information on general legal issues and is not intended to provide advice on any specific legal matter or factual situation. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship.  Readers should not act upon this information without seeking professional counsel.

Labor & Employment

The DOL Proposes Rule Expanding Employees Covered by FLSA’s Overtime Protections

Posted in FLSA, Labor & Employment

On June 30, 2015, the U.S. Department of Labor (DOL) announced a proposed rule that would substantially reduce the number of executive, administrative, and professional employees (white collar employees) which are currently exempt from the Fair Labor Standards Act’s overtime protections by nearly doubling the threshold salary level at which workers become exempt.

Under the current rule, any salaried employee paid more than $455 per week (the equivalent of $23,660 per year) meets the threshold salary level for executive, administrative, and professional exemptions (“white collar exemptions”) to minimum wage and overtime requirements of the Fair Labor Standards Act.  If it becomes final, the proposed rule would increase the threshold salary level for exemptions to $970 per week (the equivalent of $50,440 per year) beginning in 2016.  The DOL estimates that nearly 5 million exempt workers will become subject to minimum wage and overtime requirements in the proposed rule’s first year.  For employers, this could mean a substantial increase in payroll costs and impose new time keeping requirements for employees who were previously exempt.

The DOL also proposes to establish a mechanism that will automatically update the salary and compensation levels required for an employee to be exempt.

The proposed rule will be open for 60 days for public comment and could take months to become final.  Comments may be submitted at http://www.dol.gov/whd/overtime/NPRM2015/. It will be important for employers to follow the progress of this proposed rule and take appropriate action to comply with the Fair Labor Standards Act should the proposed rule become final.


Supreme Court Decision Entitles Married Same-Sex Couples to Spousal Leave under the FMLA

Posted in Benefits, Labor & Employment

On June 26, 2015, the U.S. Supreme Court issued its ruling Obergefell v. Hodges, giving same-sex couples the right to marry in all 50 states. The Court held that the U.S. Constitution requires states to license a marriage for same-sex couples, and to recognize a marriage between same-sex couples when their marriage was lawfully licensed and performed out of state. The Court’s decision will have far-reaching implications, including expanding the application of a number of state and federal employment laws that grant certain rights to spouses.

One area impacted will be the application of leave benefits under the Family Medical Leave Act (FMLA). The FMLA requires covered employers to provide 12 weeks of leave per year for employees dealing with a serious health condition of a spouse. Under the FMLA, employees are also entitled to leave for a spouse’s covered military service and for military caregiver leave.

Prior to Obergefell, Texas courts used a “place of residence” test to determine eligibility for spousal leave under the FMLA. Therefore, because same-sex marriage was not valid in Texas, Texas employers could deny same-sex couples spousal leave under the FMLA even if they entered into marriage in a state allowing same-sex marriage. Now, as a result of the Supreme Court’s decision, same-sex marriages are valid in Texas. Texas employers must recognize same-sex marriage and provide FMLA spousal leave regardless of where they were married or where they live.

Obergefell will also impact employers with employees in various states by creating one uniform definition of “spouse.” Previously, states used different tests to determine eligibility for spousal leave under the FMLA. However, employers with offices in multiple states no longer need to consider state law in determining the validity of an employee’s same-sex marriage. Same-sex marriage is now valid in all states, making all married couples covered. Employers with offices in multiple states may see that this decision lightens their administrative burden because they can now provide a consistent FMLA policy across the states.

All covered employers need to evaluate how their FMLA policies will be affected by this change, including the policies set forth in their employee handbooks. Employers should also look at how their handbooks define “spouse” in all policies, and adjust the definition to include same-sex marriages.

Labor & Employment

The SEC Joins the NLRB and EEOC in the Assault on Employee Confidentiality Agreements and Policies in Workplace Investigations

Posted in Labor & Employment, NLRB

On April 1, 2015, the United States Securities and Exchange Commission (SEC) announced its first settlement of a whistleblower enforcement action against a company for using confidentiality agreements to stifle the whistleblower process.  The SEC charged Houston-based global technology and engineering firm, KBR Inc., with violating Rule 21F-17, which prohibits any person from taking “any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement…with respect to such communications.”

The subject of the SEC’s enforcement order was a confidentiality agreement that KBR used in its internal investigations.  Even though the SEC could not identify any instance in which a KBR employee was in fact prevented from communicating with the SEC’s staff or where KBR enforced its confidentiality agreement to impede any such communications, the SEC fined KBR $130,000, and KBR has now amended its confidentiality statement for internal investigations to make clear that nothing prohibits its employees “from reporting possible violations of federal law or regulation to any governmental agency or entity…or making other disclosures that are protected under the whistleblower provisions of federal law or regulation.”

The SEC’s position on confidentiality in workplace investigations is the latest in a line of governmental agencies actively pursuing employers for maintaining overly restrictive confidentiality agreements and policies.  For example, in Banner Health System d/b/a Banner Estrella Medical Center, 358 NLRB No. 93 (July 30, 2012), the National Labor Relations Board (NLRB) declared that a blanket statement to employees that the contents of an internal complaint or investigation should not be discussed with co-workers violated the employees’ rights under Section 7 of the National Labor Relations Act.  Likewise, in a pre-determination letter issued in August 2012, the Equal Employment Opportunity Commission (EEOC) cautioned an employer that its policy of warning employees not to discuss harassment investigations with co-workers could be a violation of Title VII’s anti-retaliation policies, which clearly ran afoul of the EEOC’s longstanding enforcement guidance directing employers to “protect the confidentiality of harassment complaints to the extent possible.”

Employers have a clear incentive to encourage employee confidentiality under certain circumstances (e.g., to prevent a harasser from intimidating or tampering with a witness or protect confidential and proprietary information); however, they should consider revising their internal policies and employment-related agreements to make sure that any confidentiality provisions do not impede potential whistleblowers from reporting misconduct to a governmental agency.  Employers might find safe harbor with respect to what the SEC would approve by mirroring the language KBR used in its amended confidentiality statement.


Limited Transition Relief Provided for Employer Payment Plans

Posted in Benefits

The Internal Revenue Service (IRS) recently issued additional guidance (Notice 2015-17) addressing the treatment of arrangements whereby an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy or directly pays a premium for an individual health insurance policy covering the employee (i.e. an employer payment plan). The IRS previously held (Notice 2013-54) that these arrangements constitute group health plans that will fail to satisfy the market reforms prescribed under the Affordable Care Act (ACA) and would result in the imposition of an excise tax to the employer. The IRS has not changed its conclusion with respect to the treatment of employer payment plans; however, in light of the slow progress of the SHOP Marketplace, the IRS felt it necessary to provide limited transition relief from the excise taxes for smaller employers that sponsor such arrangements.

A company that sponsored an employer payment plan in 2014 will not be subject to an excise tax with respect to such arrangement for such calendar year, provided the company was not an “applicable large employer” for the 2014 calendar year. Similarly, a company that sponsors an employer payment plan any time between January 1, 2015 and June 30, 2015 will not be subject to an excise tax with respect to such arrangement for such period if the company is not an “applicable large employer” for the 2015 calendar year. Recall, an “applicable large employer” under ACA generally is, with respect to a calendar year, an employer that employed an average of at least 50 full-time employees (including full-time equivalent employees) on business days during the preceding calendar year. For determining whether an entity was an applicable large employer for 2014 and for 2015, an employer may determine its status as an applicable large employer by reference to a period of at least six consecutive calendar months, as chosen by the employer, during the 2013 calendar year for determining such status for 2014, and during the 2014 calendar year for determining such status for 2015, as applicable (rather than by reference to the entire 2013 calendar year and the entire 2014 calendar year, as applicable).

Employers eligible for the relief are not required to file IRS Form 8928 (regarding failures to satisfy requirements for group health plans under chapter 100 of the Code, including the market reforms) solely as a result of having such arrangements for the period for which the employer is eligible for the relief. It is important to note that this relief does not extend to stand-alone health care reimbursement arrangements or other arrangements to reimburse employees for medical expenses other than insurance premiums.

Beginning July 1, 2015, this transition relief will expire. One alternative is for the employer to increase the taxable compensation paid to its employees to cover the cost of the premiums. So long as such additional compensation is not conditioned on the purchase of health insurance or the endorsement of a particular policy, form or issuer, this arrangement will not implicate the ACA mandates. Note, however, that the IRS clarified in this latest ruling that an employer cannot avoid the ACA mandates merely by treating reimbursements under an employer payment plan as taxable compensation to the employee. Such arrangement constitutes a group health plan subject to the ACA mandates without regard to whether the employer treats the money as pre-tax or post-tax to the employee.  Since these employer health care arrangements cannot be integrated with individual market policies to satisfy the market reforms, they will fail to satisfy the ACA mandates regarding the prohibition on annual limits and the requirement to provide cost-free preventive service, among other provisions.

Change in Rules Related to Employee Communications and Use of Employer’s E-mail

Posted in NLRB

Since its 2007 Register Guard decision, the National Labor Relations Board (“NLRB”) has taken the position that employees have no statutory right to use company email for Section 7 purposes (e.g., email communications regarding union organizing or other protected concerted activity). In Purple Communications, Inc., the NLRB reversed its prior decision, holding that “employee use of email for statutorily protected communications on non-working time must presumptively be permitted by employers who have chosen to give employees access to their email system.” The implications of this decision and the scope of what it permits and how it will impact employer’s policies and procedure is yet to be determined and requires the consultation of a labor attorney.

However, this does raise various issues for HR departments to keep in mind as they interact with employees. For example, this may raise issues for employers who monitor email communications as part of the employer’s health plan’s HIPAA Privacy and Security compliance efforts because the interaction of HIPAA Privacy and Security with the NLRA’s prohibition on certain activities which may constitute unfair labor practices, interference or retaliation has not been addressed to date. If this decision is not overturned by the courts, it may also require employers to amend their handbooks and policies regarding use of the company’s electronic communications where use of its email and other electronic systems is strictly limited to business purposes. We anticipate this decision will be appealed to the courts that may have a different view than the current pro-labor majority composition of Board members.


National Labor Relations Board Issues Final Rules for Ambush Elections

Posted in NLRB

The National Labor Relations Board (NLRB) has adopted a final rule for what has become known as the “ambush election” rules, which will effectively shorten the time to 10-14 days in which a union election can be held. The proposed rules radically alter well established union representation election procedures that have worked in a highly efficient fashion for decades. While these rules contemplate many technical changes, the core result is that employers will have virtually no time to prepare a considered response to a representation petition or to help employees gather the information they need to make an informed decision.

 The final rule goes into effect on April 14, 2015, and includes the following:

  • Requires additional contact information (personal telephone numbers and email addresses) be included in voter lists that the employer gives to the NLRB, which in turn is then given to the union. These voter lists will now be given to the Board prior to any pre-election proceedings.
  • Permits parties to file election petitions and other documents, like the voter lists electronically.
  • Eliminates an employer’s right to challenge voter eligibility and other issues prior to the election being held.
  • Requires the employer to identify all objections regarding the election in its “Statement of Position” filed prior to the election and does not allow any new objections to be raised after the election is held.
  • Eliminates the Board’s requirement to review every aspect of any post-election dispute. The Board now will only review disputes when one party has raised an objection prior to the election.
  • Forces parties to consolidate all election-related appeals to the Board into a single appeals process.

The main vehicle for most of this change is the pre-election hearing, which has historically been used to resolve legal disputes related to the union’s petition. Under the new rules, pre-election hearings would only be conducted to determine the narrow issue of whether a question concerning representation exists. NLRB hearing officers will have authority to enforce that mandate by limiting the evidence employers can submit at the hearing. Accordingly, many issues of individual voter eligibility will be deferred to post-election procedures rather than determined prior to the vote.

We anticipate lawsuits will be filed in the coming weeks challenging the rule from a number of different aspects. However, if the new rules remain intact, employers are well advised to implement a plan of action in advance of a petition being filed.


IRS Expands Permissible Mid-Year Cafeteria Plan Elections

Posted in Benefits

On September 18, 2014, the IRS issued Notice 2014-55, which expands permissible mid-year election changes under “cafeteria plans” to address two specific situations that have arisen in connection with the implementation of healthcare reform.   Specifically, the notice states that a participant may revoke an election for employer-provided health coverage in two situations, provided certain conditions are satisfied:

(1)        Where the participant’s regular working hours are reduced during the plan year, but for whom the reduction does not affect his eligibility for employer-provided health coverage, and

(2)        Where the participant has a special or annual enrollment opportunity in the Health Insurance Marketplace (formerly, the Exchange) and desires to replace employer-provided health coverage with qualified plan coverage in the Marketplace.

With respect to the first scenario, a participant who has experienced a reduction of hours to less than an average of 30 hours of service per week may be permitted to prospectively revoke an election for employer-provided health coverage, but only if the participant enrolls in another plan (including qualified plan coverage in the Marketplace) that provides minimum essential coverage.  The replacement coverage must be effective no later than the first day of the second month following the month that includes the date on which the coverage is revoked.  It is irrelevant, for these purposes, whether the participant continues to be eligible for employer-provided health coverage following the reduction of hours.  Note, however, this does not mean that employees who forfeit an employer subsidy as a result of a change in employment status (i.e. the cost of participating increases) can revoke an election for such employer-provided health coverage without replacing it.

With respect to the second scenario, a participant who has become eligible for a special enrollment opportunity in the Marketplace or who is currently enrolled in a non-calendar plan year plan but wants to participate in the annual enrollment period in the Marketplace may be permitted to prospectively revoke an election for employer-provided health coverage if the participant enrolls in qualified health plan coverage in the Marketplace.  The replacement coverage must be effective no later than the day immediately following the last day of the coverage that is revoked.

These elections may only be made with respect to health plans that provide minimum essential coverage.  The replacement coverage must also provide minimum essential coverage and cover the participant and all dependents whose prior coverage ceases as a result of the revocation.  For these purposes, the cafeteria plan may rely on the reasonable representation of the participant that he (i) has timely enrolled or intends to timely enroll in such coverage and, (ii) if applicable, is eligible for a special enrollment period on the Marketplace.  It’s not clear, however, what is the effect on the cafeteria plan of a participant’s untimely enrollment in such replacement coverage.

Employers should consider permitting mid-year election changes in accordance with Notice 2014-55.  These changes will provide employees more flexibility in selecting coverage on the Marketplace, without increasing the employer’s exposure for the “play or pay” penalty to the employer.  (Recall, the penalty does not apply if a full-time employee voluntarily elects to forego employer-provided coverage that satisfies the minimum value and affordability requirements of healthcare reform.)

To allow the new permitted election changes under this notice, however, a cafeteria plan must be amended and the employer must notify the participants of the amendment. Generally, the amendment must be adopted on or before the last day of the plan year in which the elections are allowed and may be effective retroactively to the first day of that plan year, provided the cafeteria plan is operated in accordance with this guidance.  However, an amendment relating to the 2014 plan year may be adopted at any time on or before the last day of the plan year that begins in 2015.  Although the amendment may be adopted retroactively to the first day of the plan year, the cafeteria plan may not allow a participant to make a retroactive election to revoke coverage.