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The People Business Blog

Practical Strategies for Managing Labor, Employment and Benefits Issues

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.

Benefits

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.

Benefits

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.

Benefits

Supreme Court Strikes Down Contraceptive Mandate for Closely-Held Companies

Posted in Benefits

On June 30, 2014, the United States Supreme Court held, in a 5-4 decision, that the contraceptive mandate included under the Patient Protection and Affordable Care Act (“PPACA”) violates federal law. The Court’s holding in Burwell v. Hobby Lobby Stores, Inc., et. al., provides limited relief to closely-held companies whose owners have religious objections to the requirement to provide contraceptives, without cost-sharing, to female participants in their health plans.

Under PPACA, group health plans and health insurers are required to provide preventive health services without cost-sharing, including but not limited to, coverage for contraceptive care.  A regulatory exception to the contraceptive mandate exists, however, for plans or policies maintained by certain religious employers and religious nonprofit organizations with religious objections to the mandate.  No exception was provided under the regulations to for-profit companies that had similar objections.

It was this lack of regulatory relief that sparked a number of lawsuits around the country by several companies, including Hobby Lobby.  In general, these companies claimed that the contraceptive mandate violated the Religious Freedom Restoration Act of ’93 (“RFRA”), which prohibits the government from substantially burdening a person’s exercise of religion even if the burden results from a rule of general applicability unless the government “demonstrates that application of the burden to that person is (a) in furtherance of a compelling governmental interest and (b) the least restrictive means of furthering that compelling governmental interest.”  At the crux of the case, was the issue of whether a for-profit company constituted a “person” under the RFRA.

The majority concluded that the RFRA applied to for-profit closely-held companies.  The Court warned, however, that the holding is limited to the contraceptive mandate and is not intended to be broadly applied to other provisions of PPACA that conflict with the religious beliefs of business owners.  Further, it is applicable only to companies owned by a single family, and does not provide relief to public companies or companies with unrelated shareholders.

It is important to remember that the exemption from the contraceptive mandate is not automatic.  A company that seeks to rely on this exemption is currently required to file a form with the government in order to claim the exemption.  For female participants in an “exempt plan”, such coverage will be indirectly available through the insurer.

Benefits

One, Two Punch for Moench – Supreme Court Eliminates Presumption for Employer Stock Investments

Posted in Benefits

The United States Supreme Court issued a unanimous opinion on June 25, 2014 in the case of Fifth Third Bancorp v. Dudenhoeffer. While the Supreme Court’s holding substantially affects the fiduciaries of all employee stock ownership plans (ESOPs), as well as fiduciaries of other individual account plans (such as 401(k) plans) that invest in employer stock, it does not signal the end of employer stock investments in qualified plans.  In fact, the Court provided a brief outline of defenses for fiduciaries of certain plans investing in employer stock.

Under the Employee Retirement Income Security Act of 1974 (ERISA), each fiduciary of a retirement plan is required to discharge his or her duties in a prudent manner and solely in the interests of the participants and beneficiaries.  Generally, plan fiduciaries are also required to diversify the plan’s asset to prevent large losses; however, a specific exception is provided from the diversification requirement for certain plans that are invested in employer stock.

Many courts of appeals, however, have given ESOP fiduciaries a “presumption of prudence” for their decisions to hold or buy employer stock.  This presumption, often referred to as the “Moench presumption” (named after the infamous Third Circuit case in which it was initially created) was deemed necessary to further the corporate financing and investment goals of ESOPs.

The Supreme Court agreed to hear this case as a result of a conflict between the circuit courts on whether the Moench presumption should be applied at the pleading stage (in support of a motion to dismiss) or as a defense in the substantive case. Noteably, the circuit courts were not in disagreement as to whether the Moench presumption existed, only as to which stage of litigation it applied.

In a surprising twist, the Supreme Court concluded that the Moench presumption did not exist at all because it was not supported by the statutory language under ERISA.  As a result, fiduciaries of plans that permit or require the investment in employer stock will have to defend their actions to invest or continue to invest in the stock of a company whose value has decreased.  The Supreme Court did provide some comfort, however, that the fiduciary’s responsibilities under ERISA do not require it to violate securities laws (such as insider trading laws).  Of course, this defense is of little assistance to fiduciaries of plans sponsored by privately held companies, as is the case for many ESOPs.  It remains to be to seen as to whether Congress will step in and provide explicit relief in these situations.  Until then, all plan fiduciaries should be diligent in periodicially reviewing plan investments in employer stock and adequately documenting their decisions to make or retain such investments – regardless of whether the plan document requires such investment.

Benefits

Fifth Circuit Denies Deferential Review for Fiduciary Actions

Posted in Benefits

Many employee benefit professionals are aware of the deferential standard of review provided to plan fiduciaries in accordance with the 1989 United States Supreme Court ruling in Firestone Tire & Rubber Co. v. Bruch.  That is, a court will not question the decisions of a fiduciary of an ERISA plan to whom discretionary authority to interpret the plan’s terms has been delegated, unless there is evidence of an abuse of discretion by the plan fiduciary.  Hence, where a plan confers on plan fiduciaries such discretionary authority, the court will not review the underlying facts of the claim unless the claimant submits sufficient evidence to support a finding that the fiduciary abused his or her discretion.

Questions remain, however, on the scope of the Firestone standard.  Is the standard limited to benefit denials under an ERISA plan? Does it extend to a fiduciary’s actions in accordance with the plan’s terms?  In Futral v. Chastant, the Fifth Circuit joined the Second Circuit in concluding that that Firestone standard does not apply to breach of fiduciary duty claims.  On the contrary, the Third, Sixth, Seventh, Eighth and Ninth Circuits have concluded that deferential review should be applied to both benefit denial and breach of fiduciary duty claims.  Interestingly, this issue was raised in the Tibble v. Edison Int’l case that is currently in front of the United States Supreme Court and could be settled in the next couple months.  Limiting the Firestone standard to benefit denial claims could result in increased liability to fiduciaries, as well as increased litigation costs for plan sponsors.

Benefits

IRS Announces Deadline to Amend Retirement Plans for Same-Sex Benefits

Posted in Benefits

On April 4, 2014, the Internal Revenue Service (the “Service”) published Notice 2014-19, in which it describes amendments required to be made to retirement plans qualified under Section 401(a) of the Internal Revenue Code of 1986 (the “Code”) to reflect the application of the decision in United States v. Windsor and the subsequent holdings of Revenue Ruling 2013-17. Recall, prior to the Windsor decision, the term “spouse” (or similar terms) for Federal tax purposes referred only to a person of the opposite sex.  As a result, same-sex spouses were not recognized for purposes of the Code – including, for purposes of qualified retirement plans.  Following the Windsor decision and subsequent IRS guidance, however, the term “spouse” (or similar terms) includes same-sex individuals who have validly entered into a marriage in a state that recognizes such marriage even if the married couple is domiciled in a state that does not recognize such marriage (e.g. such as Texas).

In Notice 2014-19, the IRS reiterated the requirement explained in Revenue Ruling 2013-17 that qualified retirement plans recognize same-sex marriage as of June 26, 2013; however, the sponsor is permitted to limit this application until September 16, 2013 to married same-sex couples who reside in a state that recognizes the marriage.  As of September 16, 2013, all qualified retirement plans must recognize same-sex spouses, even if the couple resides in a state that does not recognize the marriage.  The Service indicated that sponsors are permitted to recognize same-sex marriage for any or all purposes prior to June 26, 2013, but cautions that such an amendment to a single employer defined benefit plan could affect the sponsor’s funding obligations under the plan.

Notwithstanding the required application of the Windsor decision in 2013, the Service has provided an extended deadline to amend plan documents to reflect this operation.  Specifically, sponsors have until the later of the otherwise applicable deadline for required amendments (i.e. tax return filing deadline for the sponsor) or December 31, 2014.  For governmental plans, this deadline is further extended to the close of the first regular legislative session of the legislative body with the authority to amend the plan that ends after December 31, 2014.

Note, however, an amendment may not be required in all cases.  For example, if the plan document refers generally to the term “spouse” as defined under the Code, no amendment would be necessary.  On the other hand, if the plan document defined “spouse” as an individual of the opposite sex (or with respect to similar restrictions) or if the sponsor has recognized same-sex marriages for any period prior to June 26, 2013, a plan amendment is required to be adopted by the applicable deadline.  This is a good time to review your plan documents to determine if an amendment is, in fact, required to be adopted this year.