IRS, Treasury Department Issue Proposed Rules Governing Minimum Value, Affordability, and Wellness Programs

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A key policy goal of the Patient Protection and Affordable Care Act (the “Act”) is the expansion of health insurance coverage to all Americans. The concepts of “minimum value” and its correlate “actuarial value” speak to the generosity of that coverage. What constitutes minimum value is important both for employers that sponsor group health plans and for low-income individuals seeking government subsidies to help pay for coverage through newly established public insurance exchanges. Recently issued proposed regulations provide important clarifications on how employers determine minimum value, and how those determinations impact their compliance with the Act. The proposed rule also clarifies the relationships among minimum value and affordability, on the one hand, and wellness programs, Health Reimbursement Accounts and Health Savings Accounts, on the other. This advisory explains these and other features of the proposed regulations.

Overview

Beginning in 2014, the Act requires most U.S. citizens and green card holders to maintain health insurance coverage, which the Act refers to as “minimum essential coverage.” The phrase minimum essential coverage refers not to the content but to the source of coverage, which can include Medicare, Medicaid, or an “eligible employer-sponsored plan,” among others. Low income individuals may qualify for premium tax credits and cost sharing reductions (collectively, “premium assistance”) to assist with the purchase of coverage through public insurance exchanges. Where an individual is eligible for coverage under an eligible employer-sponsored group health plan that is both affordable and provides minimum value, however, that individual is ineligible for premium assistance.

Beginning in 2014, the Act also imposes certain obligations on “applicable large employers” — i.e., employers with 50 or more full-time and full-time equivalent employees — under which these employers must either offer group health plan coverage or face the prospect of a penalty. These “employer shared responsibility” (or “pay-or-play”) rules include two options:

  • The “no-coverage” prong:
    The employer fails to offer to at least 95% of its full-time employees (and their dependents) the opportunity to enroll in a group health plan of the employer, and any full-time employee qualifies for premium assistance, or

  • The “coverage” prong
    The employer offers to at least 95% of its full-time employees (and their dependents) the opportunity to enroll in a group health plan of the employer that is either unaffordable or fails to provideminimum value, and one or more full-time employees qualifies for premium assistance.

These rules are set out in new Internal Revenue Code section 4980H. The no-coverage prong is referred to more formally in proposed regulations as the “4980H(a) penalty,” and the coverage prong, the “4908H(b) penalty.” Both penalties are determined monthly, but they are easiest to understand when expressed as an annual amount. The no-coverage penalty is determined by multiplying the number of the employer’s full-time employees (excluding the first 30) by $2,000. In contrast, the coverage penalty (i.e., the penalty for offering coverage that is either unaffordable or fails to provide minimum value) is determined by multiplying the number of the employer’s full-time employees who qualify for premium assistance by $3,000. This latter penalty can never exceed the 4980H(a) penalty. Where an employer makes an offer of coverage that is both affordable and provides minimum value, there is no penalty.

Coverage is affordable if the employee premium for self-only coverage does not exceed 9.5% of an employee’s household income. Recognizing the difficulty with obtaining household income data, proposed regulations under Code section 4980H provide three proxies or safe harbors for determining affordability: W-2 income, rate-of-pay, and (lowest) Federal Poverty Limit.

Minimum value

A plan fails to provide minimum value if the plan’s “share of the total allowed costs of benefits provided under the plan is less than 60 percent of the costs.” A plan with a minimum value of 100% would cover all benefit costs with no cost-sharing. Anything below 100% simply means that the covered employee or family member will pay a portion of the costs for covered services. The lower the value, the more the employee will need to pay by way of co-pays, deductibles, co-insurance and other cost sharing requirements.

The terms “minimum value” and “actuarial value” both describe the percentage of expected health care costs a health plan will cover for a “standard population.” In the case of minimum value, it’s a population that reflects typical self-insured group health plans. In the case of actuarial value, the standard population is a population that reflects the average health risk of the individual and/or small group health markets.

When determining actuarial value for individual and small group coverage, the services that must be covered include “essential health benefits.”1 For minimum value determinations involving large and self-funded groups, the standards are less clear. Should minimum value be based on the plan’s share of the cost of coverage for all essential health benefits? Or should it be based on the plan’s share of the costs of only those benefits that the plan actually covers? Both prior guidance (i.e., IRS Notice 2012-31) and the proposed regulations concede that there is no support under the Act for the former approach, and both reject the latter. In Notice 2012-31, the Treasury Department and the IRS charted a middle path, noting that the Act directs that the statutory phrase “percentage of the total allowed costs of benefits provided under a group health plan” is determined under rules contained in the regulations to be promulgated by HHS relating to actuarial value, and that the determination of whether an employer-sponsored plan provides minimum value “will be based on the actuarial value rules with appropriate modifications.” Notice 2012-31 proposed that, for an employer-sponsored plan to provide minimum value, it would be required to cover four core categories of benefits: physician and mid-level practitioner care, hospital and emergency room services, pharmacy benefits, and laboratory and imaging services.

HHS has since published a final rule defining the “percentage of the total allowed costs of benefits provided under a group health plan” as

  1. The anticipated covered medical spending for essential health benefits (EHB) coverage … paid by a health plan for a standard population,

  2. Computed in accordance with the plan’s cost-sharing, and

  3. Divided by the total anticipated allowed charges for EHB coverage provided to a standard population.

HHS provided employers with three ways to determine actuarial and minimum value:

  • AV and MV calculators. Employer-sponsored plans may determine their actuarial or minimum value by entering information about the cost-sharing features of the plan for different categories of benefits into an online calculator made available by HHS.

  • Design-based safe harbor checklists. Employers will be able to use safe harbor checklists. If the employer-sponsored plan’s terms are consistent with or more generous than any one of the safe harbor checklists, the plan would be treated as providing minimum value.

  • Actuarial certification. For plans with nonstandard features that preclude the use of the AV calculator, or the MV calculator, actuarial value or minimum value is determined based on the AV or MV calculator with adjustments as certified to an actuary.

The proposed regulations include a fourth option: For small groups, plans that satisfy any of the metal tiers (platinum, gold, silver, and bronze) specified for coverage under a public insurance exchange are deemed to provide minimum value.

The minimum value proposed regulation coordinates with and builds on the HHS final regulation. The proposed regulations refer to the proportion of the total allowed costs of benefits provided to an employee that are paid by the plan as the plan’s “MV percentage.” According to the proposed regulation,

“The MV percentage is determined by dividing the cost of certain benefits the plan would pay for a standard population by the total cost of certain benefits for the standard population, including amounts the plan pays and amounts the employee pays through cost-sharing, and then converting the result to a percentage.” (Emphasis added).

A plan with an MV percentage of 60% or more is deemed to provide minimum value. Anything less, and a plan fails to provide minimum value.

The proposed regulations do not require an employer to provide coverage for all EHB categories. Instead, minimum value is measured with reference to “benefits covered by the employer that also are covered in any one of the EHB benchmark plans.” Or, put another way, a plan’s anticipated spending for benefits provided under any particular EHB-benchmark plan for any state “counts towards” that plan’s MV. Thus, while large groups are not required to offer EHBs, their minimum value percentage is tested against an EHB benchmark plan. The categories of EHB provided in the IRS/HHS calculator include:

  • Emergency Room Services

  • All Inpatient Hospital Services (including mental health and substance use disorder services)

  • Primary Care Visit to Treat an Injury or Illness (except Preventive Well Baby, Preventive, and X-rays) Specialist Visit

  • Mental/Behavioral Health and Substance Abuse Disorder Outpatient Services

  • Imaging (CT/PET Scans, MRIs)

  • Rehabilitative Speech Therapy

  • Rehabilitative Occupational and Rehabilitative Physical Therapy

  • Preventive Care/Screening/Immunization

  • Laboratory Outpatient and Professional Services

  • X-rays and Diagnostic Imaging

  • Skilled Nursing Facility

  • Outpatient Facility Fee (e.g., Ambulatory Surgery Center)

  • Outpatient Surgery Physician/Surgical Services

  • Drug Categories

    • Generics

    • Preferred Brand Drugs

    • Non-Preferred Brand Drugs

    • Specialty Drugs

Safe harbor minimum value plans

The proposed regulations establish the following safe harbor plan designs for plans that cover all of the benefits included in the minimum value calculator:

  • A plan with a $3,500 integrated medical and drug deductible, 80% plan cost sharing, and a $6,000 maximum out-of-pocket limit for employee cost-sharing;

  • A plan with a $4,500 integrated medical and drug deductible, 70% plan cost sharing, a $6,400 maximum out-of-pocket limit, and a $500 employer contribution to an HSA; and

  • A plan with a $3,500 medical deductible, $0 drug deductible, 60% plan medical expense cost-sharing, 75% plan drug cost-sharing, a $6,400 maximum out-of-pocket limit, and drug co-pays of $10/$20/$50 for the first, second and third prescription drug tiers, with 75% coinsurance for specialty drugs.

HSAs, HRAs, and wellness programs — Impact on minimum value

The proposed regulations provide that current year employer contributions to a health savings account (HSA) and amounts newly made available under a health reimbursement arrangement (HRA) that is integrated with an eligible employer-sponsored plan and that are limited to the payment or reimbursement of medical expenses count toward the plan’s share of costs included in calculating minimum value. But if the HRA can be applied toward both the reimbursement of medical expenses and the payment of premiums, employer HRA credits may not be used in the minimum value determination. An integrated HRA is an HRA that coordinates with an employer’s group health plan.

The proposed regulations also provide that a plan’s share of costs for minimum value purposes is generally determined without regard to reduced cost-sharing available under a nondiscriminatory wellness program. But in the case of nondiscriminatory wellness programs designed to prevent or reduce tobacco use, minimum value may be calculated assuming that every eligible individual satisfies the terms of the program. These rules apply to wellness program incentives that affect deductibles, co-payments, or other cost-sharing.

HSAs, HRAs, and wellness programs — Impact on affordability

Because HSAs cannot be used to pay premiums, they don’t affect affordability.

Amounts newly made available under an integrated HRA for the current plan year are taken into account in determining affordability if the employee may use the amounts only for premiums or if he or she may choose to use the amounts for either premiums or cost-sharing. According to the preamble to the proposed regulation, treating amounts that may be used either for premiums or cost-sharing towards affordability prevents double counting the HRA amounts when assessing minimum value.

Tracking the rules for determining minimum value, after 2014, wellness incentives may not be included as either additions to, or deletions from, an individual’s plan premium for purposes of calculating affordability unless the incentive is related to a tobacco cessation program. Thus, the affordability of a plan that charges a higher initial premium for tobacco users will be determined based on the premium that is charged to non-tobacco users, or tobacco users who complete the related wellness program, such as attending smoking cessation classes.

2014 Transition Rule

For purposes of applying the employer shared responsibility rules, for plan years beginning before January 1, 2015, an employer will not incur a penalty under the coverage prong where an employee qualifies for premium assistance if the offer of coverage would have been affordable or would have satisfied minimum value based on the required employee premium and cost-sharing determined as if the employee satisfied the requirements of any such wellness program (including a wellness program relating to tobacco use). This rule applies only to wellness plan terms and incentives in effect as of May 3, 2013, and only to employees who are in a category of employees eligible for the program as of that date.

The following table summarizes the rules governing wellness programs, HSAs and HRAs:

Health Savings Accounts, Health Reimbursement Accounts, and Non-discriminatory Wellness Programs: Summary of Impact on Affordability and Minimum Value

 

Affordability

Minimum Value

Current-year contributions to Heath Savings Accounts

Does not apply, since HSAs can’t be used to pay premiums

Amounts contributed by an employer for the current plan year to an HSA are taken into account in determining the plan’s share of costs for MV purposes.

Current-year contributions to integrated Heath Reimbursement Accounts—premiums and payment/reimbursement of medical expenses

Applies for purposes of the affordability determinations

Amounts newly made available under an integrated HRA for the current plan year are not taken into account for MV purposes.

Current-year contributions to integrated Heath Reimbursement Accounts—Limited to payment/reimbursement of medical expenses

Applies for purposes of the affordability determinations

Amounts newly made available under an integrated HRA for the current plan year are taken into account for MV purposes.

Non-discriminatory wellness programs for 2014

For purposes of applying the employer shared responsibility rules (i.e., Code § 4980H), affordability is determined by assuming that each employee satisfies the requirements of a wellness program (including a wellness program relating to tobacco use).

For purposes of applying the employer shared responsibility rules (i.e., Code § 4980H), MV is determined by assuming that each employee satisfies the requirements of a wellness program (including a wellness program relating to tobacco use).

Non-discriminatory wellness programs—other than tobacco cessation for 2015 and later years

Affordability is determined by assuming that each employee fails to satisfy the requirements of a wellness program.

A plan’s share of costs is determined without regard to reduced cost-sharing available under a nondiscriminatory wellness program.

Non-discriminatory wellness programs—tobacco cessation for 2015 and later

Affordability is based on the premium charged to non-tobacco users (or tobacco users who complete the alternative standard).

A plan’s share of costs is determined assuming every eligible individual satisfies the terms of a nondiscriminatory wellness program.

Modified Rule for Retirees

The proposed regulations provide that a pre-Medicare retiree who declines to enroll in available retiree coverage may qualify for premium assistance. This is similar to the rule adopted in final regulations under Code section 36B, under which an individual who may enroll in continuation coverage required under federal law or a state law is eligible for minimum essential coverage only for months that the individual is enrolled in the coverage. Under this proposed rule, a low-income retiree who declines to enroll in an employer’s retiree health plan may still qualify for premium assistance despite that employer’s coverage is both affordable and provides minimum value.

Equal Employment Opportunity Commission (EEOC) Offers Updated Americans with Disabilities Act (ADA) Guidance Q&A’s Pertaining to Cancer, Diabetes, Epilepsy and Intellectual Disabilities

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In a measure to keep up with the changes made by the Americans with Disabilities Amendments Act (ADAAA) in relation to what employees and applicants must show to establish that they have a “disability,” the Equal Employment Opportunity Commission (EEOC) has revised its informal “Question and Answer” guidance forms pertaining to four categories of medical conditions – cancerdiabetesepilepsy, and intellectual disabilities– to provide clarification as to how employers should address such conditions and to confirm that individuals having each of the types of conditions discussed “should easily be found to have a disability” within the ADA’s initial prong of the definition of a disability. These revised forms can be found by clicking on the links above.

The revised guidance materials include not only a general discussion of each type of condition and discuss prohibitions against discrimination, harassment, and retaliation against individuals with such conditions, they further discuss the means by which employers can obtain, use and disclose medical information relating to such conditions and possible accommodation scenarios for such conditions. In addition, the EEOC explicitly states its position as to why individuals with each type of medical condition at issue should be found to have a disability under the ADA/ADAAA:

1.    “[P]eople who currently have cancer, or have cancer that is in remission, should easily be found to have a disability within the meaning of the first part of the ADA’s definition of disability because they are substantially limited in the major life activity of normal cell growth or would be so limited if cancer currently in remission was to recur . . . Similarly, individuals with a history of cancer will be covered under the second part of the definition of disability because they will have a record of an impairment that substantially limited a major life activity in the past . . .  Finally, an individual is covered under the third (“regarded as”) prong of the definition of disability if an employer takes a prohibited action (for example, refuses to hire or terminates the individual) because of cancer or because the employer believes the individual has cancer.”

2.    “[I]ndividuals who have diabetes should easily be found to have a disability within the meaning of the first part of the ADA’s definition of disability because they are substantially limited in the major life activity of endocrine function . . . Additionally, because the determination of whether an impairment is a disability is made without regard to the ameliorative effects of mitigating measures, diabetes is a disability even if insulin, medication, or diet controls a person’s blood glucose levels. An individual with a past history of diabetes (for example, gestational diabetes) also has a disability within the meaning of the ADA . . . Finally, an individual is covered under the third (“regarded as”) prong of the definition of disability if an employer takes a prohibited action (for example, refuses to hire or terminates the individual) because of diabetes or because the employer believes the individual has diabetes.”

3.    “[I]ndividuals who have epilepsy should easily be found to have a disability within the meaning of the first part of the ADA’s definition of disability because they are substantially limited in neurological functions and other major life activities (for example, speaking or interacting with others) when seizures occur . . . Additionally, because the determination of whether an impairment is a disability is made without regard to the ameliorative effects of mitigating measures, epilepsy is a disability even if medication or surgery limits the frequency or severity of seizures or eliminates them altogether . . . An individual with a past history of epilepsy (including a misdiagnosis) also has a disability within the meaning of the ADA . . . Finally, an individual is covered under the third (“regarded as”) prong of the definition of disability if an employer takes a prohibited action (for example, refuses to hire or terminates the individual) because of epilepsy or because the employer believes the individual has epilepsy.”

4.    “[I]ndividuals who have an intellectual disability should easily be found to have a disability within the meaning of the first part of the ADA’s definition of disability because they are substantially limited in brain function and other major life activities (for example, learning, reading, and thinking) . . . An individual who was misdiagnosed as having an intellectual disability in the past also has a disability within the meaning of the ADA . . . Finally, an individual is covered under the third (“regarded as”) prong of the definition of disability if an employer takes a prohibited action (for example, refuses to hire or terminates the individual) because of an intellectual disability or because the employer believes the individual has an intellectual disability.”

The guidance provided by the EEOC also contains multiple examples and fact patterns for employers to consider in making decisions in their workplaces when faced with situations involving employees and applicants having the identified conditions.

Shippers Rolling the Dice to Gain Oil Pipeline Capacity

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With the growing capacity constraints on oil pipelines, the Federal Energy Regulatory Commission (“Commission”) has recently extended the bounds of what it considers acceptable methods of apportioning limited capacity. In Seaway Crude Pipeline Company LLC, 143 FERC ¶ 61,036 (2013), the Commission approved a new lottery system that will select, at random, new shippers who will be permitted to tender the minimum monthly volume requirement. The catch, however, is that there are approximately 275 new shippers on the system, meaning a given shipper has roughly only a 5 percent chance of winning the lottery each month. And to achieve regular shipper status and thus gain access to the 90 percent of system capacity reserved for regular shippers, it must win that lottery twelve consecutive times.

After reversing flow on its Longhaul System and commencing north-to-south transportation service, Seaway saw the number of new shippers dramatic multiply from 5 (when to service commenced) to 275 by April, 2013. Seaway alleged that some of the proliferation was due to shippers attempting to game the system and broker capacity in the secondary market. Like other oil pipelines, Seaway dedicates 90 percent of the system capacity to regular shippers and 10 percent to new shippers, and to achieve regular shipper status, Seaway’s customers must tender the minimum volume (60,000 barrels per month) for 12 consecutive months. Before the lottery, Seaway allocated the 10 percent of capacity to new shippers on a pro rata basis, but with so many new shippers, none was able to meet the requirements to achieve regular shipper status because of the relatively high minimum tender requirement. As a result the number of new shippers multiplied with those shippers informally aggregating batches to meet Seaway’s minimum monthly tender requirement.

Seaway concluded that such a system was unworkable and proposed a lottery system to replace its existing pro rata system. The lottery system will use a software-generated random process to determine which new shippers will be allowed to tender the 60,000 barrel minimum each month, meaning about 13 new shippers will get capacity for a given month.

Despite several protests, the Commission approved Seaway’s lottery system for two main reasons. First, the Commission reasoned that the lottery system will deter manipulation during the nomination process and thus make capacity more readily available to legitimate new shippers; and second, the lottery would not be unduly discriminatory because the system would apply to all new shippers.

Although this is not the first time that the Commission has approved the use of a lottery system to award new shipper capacity when a pipeline faces apportionment problems, Seaway’s proposed lottery system, coupled with the requirement that new shippers must tender the minimum monthly volumes for 12 consecutive months, means that it will be highly improbable for new shippers to ever achieve regular shipper status, unless the number of new shippers dramatically decreases. Thus, the decision treads slightly new ground on what the Commission is willing to consider as a “reasonable” remedy to address the multiplication of new shippers and the vast over-nomination issues some crude pipelines are facing in the current environment.

Finally, the Seaway decision underscores the importance of open seasons as being the principle method of obtaining reliable transportation service on oil pipelines. For example, gaining access to the Longhaul System as a new shipper is difficult enough because a prospective new shipper will now have to win the lottery simply to tender the minimum amount requirement in one month. However, to gain access to the remaining 90 percent of system capacity, that prospective customer must win the new shipper lottery 12 consecutive times. By contrast, Seaway held two opens seasons for capacity on its Longhaul System and committed shippers were able to access the 90 percent of the system capacity reserved for regular shippers. Thus, shippers seeking access to reliable capacity might consider a commitment during an open season rather than gambling on a future—and perhaps unforeseen—lottery.

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Growing Client Accounts With Tablet Apps (TBC)

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“We Need An App!” This has been a consistent cry from partners in law firms around the world over the past few years. Unfortunately those who were tasked with this jumped a little too quickly without understanding their audience and the purpose of an app. In most cases, apps were built that essentially reflected content that could be found on the corporate website and were launched in haste – without being updated regularly or adding any value. These apps were not ‘sticky’ and gave the target audience little reason to return. The results of these experiments were costly apps that failed to truly connect with the targeted audience. As business development tools these were a fail, but at least these initiatives were a start in exploring how firms can adopt mobile as tool and channel. But how can law firms harness the power of the tablet?

The growth in tablet technology for the enterprise is truly explosive. Research by digital ad agency Vertic, predicts enterprise tablet adoption will grow by almost 50% per year and by 2015 mobile app development projects will outnumber native PC projects by a ratio of 4-to-1! These are facts that can’t be ignored by professional services firms and mobile is now well and truly on the agenda. However, most firms’ initial mobile strategies have been focused on client adoption, when the focus should be business adoption. Your most captive and receptive audience is your own workforce, let’s equip them with mobile tools that empower them to engage effectively with clients and generate new revenue opportunities.

Law firms produce substantial amounts of marketing and business development collateral but much of it is inaccessible, out of date or not in easily consumed formats. Tablet technology is rapidly changing how proprietary marketing and business development content is shared and leveraged to internal and external audiences.

Forward thinking firms have recognized this and are placing mobile high on the agenda and revising their strategies, or formulating one if they haven’t before. One part of the puzzle is the device strategy – how to secure, deploy and manage smartphones and tablets (both personal and firm-owned devices). The other piece is the application strategy – deciding on the enterprise apps that are most relevant for achieving the firm’s objectives and what mobile platforms these need to cater for (iOS, Blackberry, Android etc.). IT teams will push for firms to adopt enterprise apps that mobilize internal processes and improving efficiencies. However, there should be a higher priority whilst the competitive window is open, which is using enterprise tablet apps as tools for growing client accounts and acquiring new clients. We are calling this ‘business development enablement’.

In the age of the internet, most firm-wide marketing collateral is stored as electronic files in difficult to access and immobilized intranets or file storage systems. These are hardly encouraging for an attorney who is trying to prepare and rally their team for a big business development meeting with a key client. If they are out of the office it is even more difficult to access and share the right information. Many still use their own personal decks or carry with them the printed materials that the firm has produced –  which is often out of date the day. Even though many partners prefer print, they are high cost and low usage, or ‘low viewage’ to be more accurate. Your target audiences are now much more likely to consume content on a mobile device than print. Your firm’s business development and marketing content – brochures, case studies, client briefings, press releases and deal memorandums– must be mobilized. Fee earners need to be able to access collateral quickly and easily on the devices where they are both consuming and sharing marketing content.

So why should your firm deploy an enterprise tablet apps for marketing and business development enablement?

Fee earners can access knowledge outside their area of expertise

Most fee earners are experts in a particular area of the law and may not be able to confidently convey the firm’s experience or track record in other areas, where potential opportunities may arise within an existing client. A tablet app empowers a fee earner to quickly access relevant collateral with a couple of swipes, so opportunities are captured at the time they arise.

Have everyone singing from the same hymn sheet

Using a centrally managed and distributed app ensures the whole client facing organization is using consistent and up-to-date collateral that has been made available by marketing, business development and knowledge teams.

A Branded Experience

Your firm-branded app will produce a positive and focused brand experience for both user and client. An app is a concentrated place with no distractions and also brings stagnant collateral to life by giving it an extra dimension that cannot be achieved using printed or static web pages.

Access marketing or business development collateral, anywhere, any time

An enterprise app for business development can store and present any digital asset that the firm has produced. Documents, presentations, video and audio can all be consumed, shared and even presented over a coffee or on a screen, in a client-facing meeting. A tablet enterprise app with a well design user experiences also requires little or no training for fee earners and business development teams, meaning user adoption is rapid.

Collaboration around clients, matters and opportunities

Apps can be rolled out to multiple devices across the firm, allowing fee earners and business development teams to all share and collaborate around client meetings and opportunities.

Gain a competitive advantage through innovation

Impression is everything. Using the latest mobile technology and software can enhance the face-to-face engagement with a client or prospect and subsequently improves the perception of, not just the individual expert, but the firm itself. Even though a firm’s reputation may rely on history, using a tablet and enterprise app to market, demonstrates that a firm is progressive, innovative and employing technology to deliver results.

Are you behind or ahead?

There is a vast contrast between where law firm are with their mobile strategy. One major  AMLAW 100 firm purchased iPads for its entire 1,000 strong workforce back in 2011. This was bold move back then but this was real foresight, as the firm now understands the usage of these devices for the enterprise, and not to just be more efficient, but to consume and share information and knowledge both internally and externally. For those of you who are reading this and are a little concerned that your firm is behind in its pursuit of mobile, consider this – I met with a senior marketing executive of a Global AMLaw20 firm in the latter half of 2012. When I asked if they were considering their mobile strategy, I was told in no uncertain terms “that we are at least three years away from looking into mobile”.

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U.S. Customs and Border Patrol Expands Reconciliation Opportunities

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In the May 13, 2013 Federal Register, United States Customs and Border Protection (CBP) announced the expansion of its Reconciliation Prototype program to include post-importation duty preference claims under the U.S.-Oman Free Trade Agreement, the U.S.-Peru Trade Promotion Agreement, the U.S.-Korea Free Trade Agreement, the U.S.-Colombia Trade Promotion Agreement, and the U.S.-Panama Trade Promotion Agreement.  CBP announced this expansion will take effect for post-importation duty preference claims filed on or after August 12, 2013.

The expansion will enable importers to file post-entry duty preference claims under the above-referenced free trade agreements (FTAs) where they are unable to confirm qualification at the time of entry.  Using the Reconciliation program, importers will electronically flag as-yet-unqualified imports at the time of entry.  Presuming the requisite supporting information becomes available within 12 months of the date of entry, importers can then file a Reconciliation entry to make their duty preference claim and receive corresponding duty refunds.  Importers who are not yet part of the Reconciliation program, but would like to take advantage of these expanded opportunities, must apply to participate by submitting the requisite application to CBP Headquarters.

CBP has been utilizing the Reconciliation Prototype program since 1998 as part of its National Customs Automation Program Reconciliation provides importers an automated mechanism to identify at the time of entry certain undeterminable information (that does not affect admissibility), and provide that information at a later date through an entry-by-entry or aggregate filing. Importers identify this provisional information by placing an electronic “flag” at the time the entry summary is filed.  Prior to expansion to allow for various post-entry FTA claims, importers could only flag information relating to: 1) value issues other than claims based on manufacturing defects; 2) classification issues, on a limited basis; 3) issues concerning value aspects of entries filed under heading 9802, Harmonized Tariff Schedule of the United States (HTSUS); and 4) issues concerning merchandise entered under the North American Free Trade Agreement (NAFTA).

The expansion of the Reconciliation program to these additional FTAs is consistent with the original opportunities to file post-entry NAFTA claims, as well as previous expansion of the Reconciliation program to include the U.S.-Chile Free Trade Agreement and the Dominican Republic-Central America-U.S. Free Trade Agreement. As importers have experienced with Reconciliation for NAFTA, allowing for post-importation duty claims under these new trade agreements allows for a streamlined mechanism for filing post-entry refund claims, and allows importers to file potentially thousands of post-entry claims under a single Reconciliation entry and receive a single duty refund check from CBP in response.

Importers may elect not to file their post-entry duty preference claims via the Reconciliation prototype, and expansion of the program does not prohibit importers from continuing to file post-entry claims using traditional processes in accordance with 19 U.S.C § 1520(d).However, once an importer flags an entry summary indicating that it may pursue post-importation duty preference claims via the Reconciliation process, the importer locks itself into the process and waives its rights to file a traditional paper filing pursuant to 19 U.S.C.§ 1520(d). If, after having flagged the entry, an importer fails to file a post-entry Reconciliation claim under one of the approved FTAs, the importer will not be assessed liquidated damages for a late file or no file Reconciliation (which can happen for post-entry valuation adjustments that are flagged but not reconciled). Rather, the flagged FTA entry will simply liquidate at the end of the 12-month period as entered, i.e., with the payment of duties and fees.

Reconciliation can be an effective trade compliance and risk management tool. Among other things, it allows importers to streamline multiple post-entry FTA claims, and can also serve as a compliance vehicle to flag undetermined or provisional values at the time of entry – providing an automated method to make entry corrections or adjustments once the relevant information has been finally determined. The extension of the Reconciliation Prototype to these additional FTAs provides importers with additional tools to manage their duty preference programs.

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Employee Shareholders: It’s Happening, but What Does it Mean?

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New Growth and Infrastructure Act introduces employee shareholder provisions that are expected to come into force later this year.

On 25 April, the Growth and Infrastructure Act 2013[1] came into effect and, among other things, introduced employee shareholder or “rights for shares” provisions that are expected to take effect this autumn in the UK. Broadly speaking, these provisions amend the Employment Rights Act 1996 (the ERA) to allow employees to give up some of their employment rights in exchange for shares in their employer company. However, in the absence of any additional guidance, the practical scope and impact of these changes remains unclear.

What We Do Know

Any company with share capital can enter into an agreement with an employee to allow them to become an “employee shareholder”. An employee shareholder will receive fully paid-up company shares that have a value of no less than £2,000 on the day of issue.

In exchange, the employee shareholder will give up the right to

•    request to undertake study or training;

•    request flexible working;

•    not be unfairly dismissed; and

•    a redundancy payment.

Further, the notice that employee shareholders will need to give before returning to work after maternity, parental, paternity, or adoption leave will be increased to 16 weeks.

Employee shareholders cannot waive their right to claim unfair dismissal where their dismissal breaches the Equality Act 2010 or health and safety legislation or is automatically unfair under the ERA. However, employers can make a job offer contingent on an applicant agreeing to become an employee shareholder. If an applicant refuses to do so, the employer can simply withdraw the job offer.

Before becoming an employee shareholder, each employee (or applicant to whom a job has been offered) must receive independent legal advice paid for by the employer (up to a “reasonable” level). The employer must pay these legal costs whether or not an employee elects to become an employee shareholder. Employees and applicants will then be given a seven-day cooling-off period in which they can withdraw their agreement.

For any acceptance to be valid, the employer must have provided the employee with a statement of particulars that sets out, among other things, the following:

•    The rights the employee shareholder gives up

•    The rights attached to the shares, e.g., voting, dividend, and ability to participate in the distribution of any surplus assets on winding up

•    Whether there are any restrictions on the transferability of the shares

•    Whether the employee shares are subject to drag-along rights or tag-along rights

Finally, an employee must not suffer a detriment for refusing to accept an offer to become an employee shareholder. Moreover, the dismissal of an employee for refusing to become an employee shareholder will be regarded as unfair.

What We Do Not Know

Transfer of Undertakings (Protection of Employment) Regulations (TUPE) Transfers.

If employee shareholders transfer across to an employer who does not operate an employee shareholder scheme or does not have any share capital, there is no guidance as to whether that employee shareholder automatically regains their rights or if they must surrender their shares first.

Share Schemes.

It is not clear whether companies that operate share schemes can make it a precondition of future participation in any company share scheme that an employee becomes an employee shareholder.

Termination.

On termination of the employment contract, a company can buy back shares from an employee shareholder. However, the conditions that must be satisfied before an employer buys back an employee’s shares are still unknown.

Potential Impact on UK Employers

•    £2,000 seems a relatively small amount when weighed against the potential value of rights that would be forfeited by employee shareholders. Employers can give shares worth more than £2,000, and it is therefore possible that, once the provisions are in force, along with salary, the sticking point in contractual negotiations will be the value of the shares given. That said, any deviation from the £2,000 figure may give rise to significant tax complications.

•    The provisions could create a two-tier workforce of employee shareholders and non-employee shareholders, with the former potentially subject to enforced contractual changes and other less favourable treatment that would normally result in potential constructive unfair dismissal claims.

•    In theory, an employer undertaking a redundancy exercise could simply select employee shareholders as redundant to avoid any unfair dismissal risk and/or any need to make redundancy payments.

By making both job offers and participation in employee share schemes conditional upon an employee’s accepting employee shareholder status, it is possible that some employers could significantly reduce and ultimately eradicate the risk of “pure” (i.e., non-discriminatory or non-whistleblowing related) unfair dismissal claims and the flexible working rights of their workforce.


[1]. View the Growth and Infrastructure Bill here.

Travel Alert: Students and H-1B Visa Cap

GT Law

Now that the stress and anxiety of H-1B cap is over, F-1 students whose H-1B petitions have been selected and are pending (or even approved) are likely wondering if they can travel this summer. It appears that the answer to that question is ‘no’ for F-1 students who are relying on the cap-gap provision. The cap-gap provision automatically extends F-1 status and employment authorization until October 1, 2013 for those F-1 students whose H-1B cap petition was filed before their F-1 status expired.

Current USCIS guidance indicates that F-1 students will lose cap-gap benefits if they travel internationally during the cap-gap period. This means that if an F-1 student travels outside the United States during the cap-gap extension period, he or she will not be able to return to the United States in valid F-1 status and will need to wait until September 2013 to re-enter the United States in H-1B status.

Because an H-1B beneficiary may enter the United States up to 10 days prior to the start date of their approved H-1B visa period, F-1 visa holders who wish to travel may take a trip in September so that they can apply for the H-1B visa at a U.S. consular post abroad and return to the United States on or after September 20. However, it should also be noted that the earliest that the foreign national can start employment in H-1B status is October 1, 2013.

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