Chicago and Cook County Paid Sick Leave Laws Go Into Effect July 1: Are You Ready?

As the holiday weekend approaches, many employers in Chicago and Cook County find themselves scrambling to prepare for the Chicago and Cook County Paid Sick Leave Ordinances that will take effect this Saturday, July 1, 2017. The Ordinances, though straightforward in their purpose of providing some limited sick paid time off to employees, raise a number of thorny, confusing questions and various administrative concerns for all employers. To add to this uncertainty, the City of Chicago only yesterday released its extensive final interpretative rules on the City’s Ordinance, which raise a number of interpretative questions and, in places, appear to diverge from the previously-issued final rules of the Cook County Commission on Human Rights on the County’s Ordinance. Not only that, the list of Cook County’s municipalities that are opting out from the County’s Ordinance has been changing, literally, by the hour. To help you get up to speed and make any final necessary changes, in this Alert we will review some key requirements and provide responses to some FAQs employers have been asking related to paid sick leave in Chicago and Cook County.

Paid Sick Leave Requirements

The Ordinances require employers in Chicago and certain municipalities in Cook County to provide all employees, regardless of full-time, part-time, seasonal, or temporary status, with one (1) hour of paid sick leave for every for 40 hours worked, up to a maximum accrual cap of 40 hours in any benefit year. Employees are entitled to begin using accrued paid sick leave following 180 days of employment, provided they have worked at least 80 hours in any 120 day period.

Employees must be allowed to use paid sick leave for any of the following reasons:

  • The employee is ill, injured, or requires medical care (including preventive care);

  • A member of the employee’s family is ill, injured, or requires medical care;

  • The employee or a member of his or her family, is the victim of domestic or sexual violence; or

  • The employee’s place of business, or the childcare facility or school of the employee’s child, has been closed by an order of a public official due to a public health emergency.

In addition to providing employees with paid sick leave, employers are required to inform employees about their rights to paid sick leave by posting the Chicago and Cook County notices in the workplace and distributing these notices to employees with their first paycheck following the Ordinances’ effective date, or with any new employee’s first paycheck.

Frequently Asked Questions

When updating their employment policies and/or practices, employers should be mindful of the following frequently asked questions:

Do the Ordinances apply to all employees working in Chicago and/or Cook County?

The Ordinances are broadly worded such that employers are required to provide paid sick leave to all employees working in the geographic boundaries of the City of Chicago and/or Cook County. However, the Cook County Ordinance permits municipalities in Cook County to opt out of the Ordinance prior to its effective date.

So far, more than half of the municipalities in Cook County have opted out of the Cook County Ordinance, meaning that employers are not required to provide paid sick leave to employees working in these locations. However, if an employee should change work locations, or travel for work, into a municipality that has not opted out of the Cook County Ordinance (such as the City of Chicago), the employee would be entitled to accrue paid sick leave for hours worked in that municipality.

Are employees able to carryover accrued paid sick leave?

The Ordinances permit employees to carryover half of their accrued unused paid sick leave, up to a cap of 20 hours, into the next benefit year. Employees working for employers covered by the Family Medical Leave Act (FMLA) may carryover up to an additional 40 hours of paid sick leave into the next benefit year, to be used exclusively for FMLA-specific purposes.

Nonetheless, in most instances, employers may cap the amount of paid sick leave that an employee can use in a benefit year at 40 hours. The exception to this rule being that employees who carryover and use all 40 hours of FMLA-specific paid sick leave may use an additional 20 hours of regular paid sick leave in any benefit year. Thus, in limited circumstances employees may be able to use as many as 60 hours of paid sick leave in a single benefit year.

Are employers permitted to front-load paid sick leave?

Both Ordinances permit employers to front-load paid sick leave at the start of the benefit year, or at the time of hire. Employers who front-load paid sick leave do not need to track paid sick leave accrual or permit the carryover of paid sick leave into the next benefit year, provided that the requisite amount of paid sick leave has been front-loaded. The precise amount of paid sick leave to be front-loaded may depend on whether the employer is subject to FMLA and/or based in Chicago or Cook County, as their respective rules address front-loading differently. Employers with questions regarding the precise amount of paid sick leave that must be provided to employees should contact counsel.

Are employers able to provide paid time off in lieu of paid sick leave?

Employers may provide employees with paid time off (PTO) instead of paid sick leave, provided that all their employees are provided at least as much PTO as the Ordinances require to be made available for paid sick leave use in a benefit year. Employers should note, however, that accrued unused PTO must be paid out upon termination of employment. There is no such requirement to pay out accrued unused paid sick leave.

Recommendations

In light of the impending effective date for Chicago’s and Cook County’s Paid Sick Leave Ordinances, it is important that employers take any remaining necessary steps to ensure that their paid sick leave policies and practices will comply with the Ordinances. Policies that do not provide the requisite benefits to employees, or those that are silent on key issues such as paid sick leave accrual and/or usage restrictions, will be construed against the employer and could lead to costly violations.

This post was written by Alexis M. Dominguez and Sonya Rosenberg  of Neal, Gerber & Eisenberg LLP.

Better Care Reconciliation Act – Key Takeaways for Employers and Plan Sponsors

On June 22, 2017, the Senate released its much anticipated health care reform legislation – the Better Care Reconciliation Act (“BCRA”) (linked to amended version released June 26, 2017). In many respects the BCRA is similar to the House of Representatives’ American Health Care Act (which was described in our March 9, 2017 and May 4, 2017 blog entries). However, the BCRA differs from the AHCA in several important respects.

As of the date of this blog entry, the BCRA does not have sufficient support to pass a vote in the Senate and House GOP members have indicated that they would reject the bill. Therefore, Senate leadership has delayed a vote on the BCRA until after the July 4th holiday recess.  Nevertheless, as we provided for the AHCA, below are key takeaways for employers and plan sponsors and a few comparisons between the AHCA and BCRA.  A more detailed comparison between key provisions of the Affordable Care Act (“ACA”), the AHCA, and the BCRA is provided at the end of this blog.

1. Individual and Employer Mandates. Like the AHCA, the BCRA would essentially repeal the ACA’s individual and employer mandates effective after December 31, 2015. Both bills do this by “zeroing-out” the penalties for not having minimum essential coverage (individual mandate) or for not offering adequate minimum essential coverage to full-time employees (employer mandate). Outside of the effective repeal of the employer mandate, the AHCA’s and BCRA’s impact on group health plans appears to be minimal. However, if either the AHCA’s 30% surcharge or the BCRA’s 6-month waiting period becomes law, it is likely that plan sponsors will be required to provide notices similar to the certificates of creditable coverage required in the pre-ACA era

In the absence of an individual mandate, the AHCA and BCRA have different methods of incentivizing individuals to maintain continuous health coverage. Under the AHCA method, insurance carriers would be required to charge a 30% premium surcharge to those who fail to have continuous coverage (i.e., a break in coverage of 63 days or more would trigger the surcharge). The BCRA would require insurance carriers to apply a 6-month blanket coverage waiting period to any individual with a 63-day or more break in continuous coverage during the prior 12 months.

Outside of the effective repeal of the employer mandate, the AHCA’s and BCRA’s impact on group health plans appears to be minimal. However, if either the AHCA’s 30% surcharge or the BCRA’s 6-month waiting period becomes law, it is likely that plan sponsors will be required to provide notices similar to the certificates of creditable coverage required in the pre-ACA era.

2. BCRA Retains ACA’s Subsidy and Tax Credit Program. The Senate appears to have rejected AHCA’s elimination of cost-sharing subsidies and premium tax credits available only for coverage purchased on the Marketplace. The AHCA would have replaced the ACA’s program with an advance tax credit program available to individuals purchasing individual market insurance (not just Marketplace coverage) or enrolled in unsubsidized COBRA coverage. Under the AHCA, the amount of the tax credit would be based on age and would be available only to individuals with income less than $75,000 (individual) or $150,000 (jointly with a spouse).

The BCRA, however, maintains the ACA’s cost-sharing subsidies and premium tax credit program, albeit with some modifications. Under the BCRA, cost-sharing subsidies and premium assistance would be determined based on age, with younger individuals getting more assistance than older individuals, and income. Household income in excess of 350% of the federal poverty line would disqualify an individual from cost-sharing subsidies and premium assistance, in contrast to the ACA’s 400% threshold. Additionally, under the BCRA, the premium tax credit would be based on a benchmark plan that pays 58% of the cost of covered services (in contrast to the ACA’s use of the second-lowest cost silver (70%) plan). This lower value of coverage effectively reduces the amount of premium assistance an individual can get.

3. Employer Reporting Obligations to Continue. Although the individual and employer mandates would be repealed, it is likely that the ACA reporting obligations (Forms 1094-B/C and 1095-B/C) would remain in place, at least in some forms. As noted above, the BCRA retains the ACA’s cost-sharing subsidies and premium assistance, the availability of which is conditioned on an individual not being enrolled in employer-sponsored coverage. Therefore, the IRS would likely still need to obtain coverage information from employers.

4. Cadillac Tax Repealed Subject to Reinstatement. Like the AHCA, the BCRA effectively delays the so-called Cadillac Tax until 2025. The Cadillac Tax was originally slated to be effective in 2018, but it was delayed until 2020 in prior budget legislation.

5. Most ACA-Related Taxes Repealed. The BCRA would also repeal most of the tax reforms established under the ACA. Most relevant to employers and plan sponsors would be the elimination of the contribution limit on health flexible spending accounts (HFSAs), the ability reimburse over-the-counter costs under HFSAs and health savings accounts (HSAs), the increase in HSA contribution limits, and elimination of the Medicare surcharge applied to high-earners.

6. Popular ACA Reforms Remain. As was the case under the AHCA, the BCRA would keep many popular ACA market reforms and patient protections in place. These include:

• The requirement to cover dependent children until age 26;

• The prohibition on waiting periods in excess of 90 days;

• The requirement for individual and small group plans to cover essential health benefits;

• The prohibition against lifetime or annual dollar limits on essential health benefits;

• The annual cap on out-of-pocket expenditures on essential health benefits;

• Uniform coverage of emergency room services for in-network and out-of-network visits;

• Required first-dollar coverage of preventive health services;

• The prohibition of preexisting condition exclusions;

• Enhanced claims and appeals provisions; and

• Provider nondiscrimination.

7. ERISA Preemption for “Small Business Health Plans.” The BCRA would add a new Part 8 to ERISA for “small business health plans.” Currently, some states have enacted insurance laws that prohibit small employers from risk-pooling their employees in a single, large group insurance plan. New Part 8 of ERISA would preempt these state laws and allow the formation of “small business health plans,” which, generally, are plans sponsored by an association on behalf of its employer members. Small business health plans must meet certain organizational and financial control requirements and apply to the Department of Labor for certification.

8. Employee Tax Exclusion Remains Intact. Like the AHCA, the BCRA does not currently include a limitation on the employee tax exclusion that would result in imputed taxes to employees if the value of health coverage exceeds a certain amount. This absence, however, does not necessarily mean that such a limit will not eventually be imposed. It is possible that Congress will consider limiting tax incentives for both retirement and health and welfare plans when broader tax reform is considered.

9. HFSA/HSA Expansion. As mentioned above, the BCRA includes the same modifications to the HFSA and HSA rules as the AHCA. The BCRA would remove the annual contribution cap on HFSAs. Additionally, HFSAs and HSAs would now be able to reimburse on a non-taxable basis over-the-counter medication without a prescription. The annual contribution limit to HSAs would be equal to the out-of-pocket statutory maximum for high-deductible health plans. Spouses would both be able to make catch-up contributions to the same HSA.

It is still too early to tell whether the BCRA will fare better than the AHCA. In any event, we will continue to monitor legislative efforts and will provide updates as substantive developments occur.

Health Care Reform Legislation Comparison

Shared Responsibility ACA AHCA

BCRA

Employer Mandate Applicable large employers (those with 50 or more full-time employees and equivalents) face penalties if minimum essential coverage not offered to 95% of full-time employees (and dependents) or if coverage is not minimum value or affordable. No penalties for failing to provide adequate coverage. No penalties for failing to provide adequate coverage.
Individual Mandate Individuals subject to tax if not enrolled in minimum essential coverage unless exception applies. No tax for failing to enroll in minimum essential coverage. However, effective for plan years beginning in 2019, a 30% premium surcharge would be charged by insurance carriers to an individual who purchases insurance coverage following a lapse in coverage of 63 days or more. No tax for failing to enroll in minimum essential coverage. However, individuals who have a lapse in coverage of 63 or more days in the prior 12-month period will be subject to a 6-month coverage waiting period.
Reporting IRC §§ 6055 and 6056 require reporting from issuers of minimum essential coverage and applicable large employers. No change to ACA reporting requirements under IRC §§ 6055 and 6056. Additional Form W-2 reporting required. No change to ACA reporting requirements under IRC §§ 6055 and 6056.

Market Reforms

ACA AHCA

BCRA

Dependent Coverage If dependent children covered, coverage must continue until age 26. No change. No change.
Essential Health Benefits Small group and individual market plans must cover 10 essential health benefit categories, as defined by benchmark plan established by state. No change, but states can apply for waiver to establish separate definition of essential health benefit. No change, subject to relaxed waiver rights under ACA § 1332 (State Innovation Waivers).
Annual/Lifetime Dollar Limits No annual or lifetime dollar limits can be applied to essential health benefits. No change, but states can apply for waiver to establish separate definition of essential health benefit. No change, subject to relaxed waiver rights under ACA § 1332 (State Innovation Waivers).
Out-of-Pocket Maximums Out-of-pocket maximum applied to essential health benefits. No change, but states can apply for waiver to establish separate definition of essential health benefit. No change, subject to relaxed waiver rights under ACA § 1332 (State Innovation Waivers).
Preexisting Condition Exclusions Preexisting condition exclusions prohibited. No change, but insurance providers must apply a 30% premium surcharge if individual has a gap in coverage of 63 days or more. No change, but 6-month waiting period applied if individual has a gap in coverage of 63 days or more.
Preventive Care Preventive care covered without cost-sharing. No change. No change.
Emergency Coverage Emergency room visit at an out-of-network hospital must be covered at in-network rate. No change. No change.
Rescissions Coverage cannot be retroactively terminated except in cases of fraud or misrepresentation or for premium nonpayment. No change. No change.
Summaries of Benefits and Coverage Short (8-page) disclosure of plan terms and glossary distributed on an annual basis. No change. No change.
Enhanced Claims Procedures Claims procedures now require additional claims procedures and voluntary external review. No change. No change.
Provider Nondiscrimination Cannot discriminate against a health care provider acting pursuant to state license. No change. No change.
Section 105(h) Nondiscrimination Fully-insured employer-sponsored health plans cannot discriminate in favor of highly compensated individuals (not yet effective). No change. No change.
Medical Loss Ratio Individual and small group plans must spend 80% of premium income on claims and quality improvement. Large group insurance plans must spend 85% of premium income on claims and quality improvement. No change. Applicable ratio determined by the state (effective for plan years beginning on or after January 1, 2019).

Tax Reforms

ACA AHCA

BCRA

Cadillac Tax 40% excise tax applied to cost of group health coverage exceeding threshold (effective January 1, 2020). Delayed until January 1, 2025. Repealed effective December 31, 2019, but to be reinstated effective January 1, 2025,
Small Business Tax Credit Tax credit for premiums paid toward group health coverage available to small businesses. Not available for plans that cover abortion for plan years beginning on or after January 1, 2017; repealed for plan years beginning on or after January 1, 2020. Same as AHCA.
Health FSA Limit Maximum contribution to health FSA set at $2,500 (subject to annual increases for inflation). Repealed effective January 1, 2017. Repealed effective January 1, 2018.
HSA Distribution Penalty Penalty for HSA distributions used for non-qualifying medical expenses increased to 20%. Repealed effective January 1, 2017. Penalty would go back to 10% for HSAs and 15% for Archer MSAs. Same as AHCA.
HSA Contribution Limits No change. Increased to match statutory out-of-pocket maximum for high-deductible health plans (effective January 1, 2018). Same as AHCA.
FSA/HSA Over-the-Counter Health FSAs and HSAs cannot reimburse over-the-counter products without a prescription (excluding purchase of insulin). Repealed effective January 1, 2017. Same as AHCA.
Medical Expense Deduction Itemized deduction under IRC § 223 available for medical expenses in excess of 10% of adjusted gross income. Repealed effective January 1, 2017. Threshold would return to 7.5% adjusted gross income. Same as AHCA.
Medicare Surcharge Additional 0.9% hospital insurance (Medicare) tax applied to high-earners. Repealed effective January 1, 2023. Same as AHCA.
Medicare Investment Income Tax Medicare tax of 3.8% applied to unearned income. Repealed effective January 1, 2017. Same as AHCA.
Health Insurance Tax Tax applied to insurance carriers based on premiums collected. Repealed effective January 1, 2017. Repealed effective January 1, 2018.
Health Insurer Compensation Deduction No compensation deduction available to certain health insurance providers for compensation in excess of $500,000 paid to applicable individuals. Repealed effective January 1, 2017. Same as AHCA.
Medical Device Tax Excise tax of 2.3% imposed on manufacturer, producers and importers of medical devices. Repealed effective January 1, 2017. Repealed effective January 1, 2018.
Branded Prescription Drug Fee Manufacturers and importers of branded prescription drugs are subject to an annual fee. Repealed effective January 1, 2017. Repealed effective January 1, 2018.
Retiree Drug Subsidy Amount received under Retiree Drug Subsidy must be taken into consideration when determining prescription drug cost business deduction. Repealed effective January 1, 2017. Same as AHCA.

Marketplace

ACA AHCA

BCRA

Marketplace Structure

Individuals can purchase insurance coverage on risk-pooled Marketplace established by Federal or state government.   Individuals purchasing coverage on the Marketplace may be eligible for cost-sharing subsidies and premium assistance.  Plans available on Marketplace (“qualified health plans”) must meet certain cost-sharing and actuarial value levels (i.e., gold, silver, bronze plans).  Qualified health plans must cover essential health benefits.

Effective January 1, 2020, cost-sharing subsidies and premium assistance are repealed. Additionally, Marketplace plans are no longer required to meet cost-sharing and actuarial value requirements.  Limited-scope, or catastrophic plans would be available.

No structural changes from ACA.   Marketplaces, including cost-sharing subsidies and premium assistance, remain intact with modifications.

Cost-Sharing Subsidies and Premium Assistance Available to individuals with household income between 100% and 400% of federal poverty line. Age is not a factor in amount of subsidies or assistance available.

For plan years beginning in 2018 and 2019, basic structure remains the same except that age and income are factors in the amount of cost-sharing subsidies and premium assistance that is available.  No subsidies or assistance is available for qualified health plans that cover abortion.

Cost-sharing subsidies and premium assistance repealed for plan years beginning in 2020. Instead, advance tax credit available based solely on age.

Available to individuals with household income between 100% and 350% of federal poverty line. Age is a factor in amount of subsidies or assistance available.
Premium Rate Setting Small group and individual insurance markets may vary rates based only on certain factors, including individual or family coverage, community rating, age (3:1 ratio) and tobacco use.

Age ratio increases to 5:1 beginning January 1, 2018. States may apply to waive ACA requirements and base premiums on health factors.

Age ratio increases to 5:1 beginning January 1, 2018. State Innovation Waiver Program (ACA § 1332) requirements relaxed, giving states ability to waive many of the ACA’s market reforms.

This post was written by Damian A. Meyers and Steven D. Weinstein of Proskauer Rose LLP.

Rule the Rules of Workplace Wellness Programs

Being Healthy in the workplace is a great goal, but there are considerable factors to keep in mind.  The book covers health and workplace wellness, but the focus is on the legal and logistic aspects and helping guide the professionals developing legally healthy wellness programs in the workplace.

ABA WellnessClick here to purchase the guide.

The approach of this book is to inform the reader of the “what,” “why” and “how” of workplace wellness program laws:

 1) What laws are important for workplace wellness program compliance;

 2) Why do those laws exist and why are they important for workplace wellness program design and implementation; and

3) How can workplace wellness professionals and organizations apply workplace wellness laws effectively?

Company Awarded Damages After Former Employee Hacks Its Systems and Hijacks Its Website

A company can recover damages from its former employee in connection with his hacking into its payroll system to inflate his pay, accessing its proprietary files without authorization and hijacking its website, a federal court ruled. Tyan, Inc. v. Yovan Garcia, Case No. CV 15-05443- MWF (JPRx) (C.D. Cali. May 2, 2017).

data security privacy FCC cybersecurityThe Defendant worked as a patrol officer for a security company. The company noticed that its payroll system indicated that the Defendant was working substantial overtime hours that were inconsistent with his scheduled hours. Upon further investigation, the company learned that that the Defendant accessed the payroll system without authorization from the laptop in his patrol car. When the company confronted him, the Defendant claimed a competitor hacked the payroll system as a means to pay him to keep quiet about his discovery that the competitor had taken confidential information from the company. A few months later, shortly after the Defendant left the company, the company’s computer system was hacked and its website was hijacked. The company later filed suit against the Defendant alleging he was responsible for the hack and the hijacking.

Following a bench trial, the court concluded the Defendant had used an administrative password the company had not given him to inflate his hours in its payroll system. The court also found the Defendant hijacked the company’s website and posted an unflattering image of the company’s owner on the website. In addition, the court found the Defendant engaged in a conspiracy to steal confidential files from the company’s computer system by accessing it remotely without authorization and destroyed some of the company’s computer files and servers.

The court concluded that the aim of the conspiracy in which the Defendant was engaged was twofold: first, to damage his former employer in an effort to reduce its competitive advantage; and second, to obtain access to those files that gave his former employer its business advantage, and use them to solicit its clients on behalf of a company he started. The court also found that by accessing the company’s protected network to artificially inflate his hours and by participating in the conspiracy to hack the company’s systems, the Defendant was liable for violations of the Computer Fraud Abuse Act, the Stored Communications Act, the California Computer Data Access and Fraud Act, and the California Uniform Trade Secrets Act.

As a result of Defendant’s misconduct, the court awarded the company $318,661.70 in actual damages, including damages for the inflated wages the company paid the Defendant, the cost of consultant services to repair the damage from the hack, increased payroll costs for time spent by employees rebuilding records and databases destroyed in the hack, the resale value of the company’s proprietary files, and lost profits caused by the hack. The court declined to award punitive damages under the California Uniform Trade Secrets Act, but left open the possibility that the Plaintiff may recover its attorneys’ fees at a later date.

Take Away

Companies are reminded that malicious insiders, in particular disgruntled former employees, with access to areas of the system external hackers generally can’t easily access, often result in the most costly data breaches.

Steps should be taken to mitigate insider threats including:

  • Limiting remote access to company systems
  • Increased monitoring of company systems following a negative workplace event such as the departure of a disgruntled employee
  • Changing passwords and deactivating accounts during the termination process

Trade Secret Misappropriation: What To Do When You Hire A Thief

trade secret misappropriationEmployers victimized by trade secret misappropriation appropriately express righteous outrage, both at the offending ex-employee and sometimes at the new employer. However, on another day the roles can reverse: That same employer may unwittingly — or worse, intentionally — have hired someone who has stolen trade secrets or confidential information. Failure to take appropriate precautions or implement sufficient remedial measures can expose the hiring employer to a variety of civil, and even potentially criminal, claims. Burying your head in the sand is not a winning strategy, especially given how easy technology has made it to copy and take confidential information.

The following tips can eliminate or minimize this risk and/or mitigate the consequences of having hired an individual who has misappropriated trade secrets. Prospective prevention steps include:

  • asking all potential hires if they are subject to a non-compete or restrictive covenant that could impact their duties in the proposed position, and potentially restructuring their job duties or whom they interact with, depending upon the circumstances;

  • reminding new hires, preferably in writing, that they are not to take, disclose, or use another company’s confidential and proprietary information — this should occur before they leave their current employer and before they start with you; and

  • educating employees, and especially hiring managers, on the company’s policy to respect the trade secrets rights of others.

What if despite these preventative measures, you discover that a new hire, who is now on your payroll, has taken the confidential information of a prior employer? The following steps can help mitigate the consequences to your company in such a circumstance.

  • Act immediately to preclude the use or disclosure of the information, including the quarantining of such information. Work with your information technology department or outside consultants to ensure that the steps you take are thorough and effective.

  • Investigate and assess what happened, the sensitivity of the information taken, and the culpability of the employee and others, especially when the matter involves a high-level employee, and consider retaining an attorney to conduct the investigation, to foster independence and obtain the benefits of attorney-client privilege.

  • Discipline or terminate the offending employee, depending on the circumstances.

  • Generally cooperate with the previous employer when confronted. Such cooperation could include anything from information sharing to a computer forensic review and agreed-upon deletion; this cooperation must be carefully managed to protect your trade secrets and bring closure to the situation.

All of this can be tremendously complex, nuanced, and important. Therefore, carefully consider each action and involve a multidisciplinary team, including Management, Human Resources, Information Technology and, Legal.

© 2017 Foley & Lardner LLP

IRS Delays Notice Requirements for Qualified Small Employer Health Reimbursement Accounts

Small Employer Health Reimbursement AccountsThe 21st Century Cures Act (“Cures Act”), signed into law by President Obama on December 13, 2016, included a provision that exempts qualified small employer health reimbursement arrangements (“QSEHRAs”) from the Affordable Care Act’s (“ACA’s”) group health plan rules. On February 27, 2017, the IRS extended the time for plan sponsors to provide the required QSEHRA notice to employees. This Update describes the general rules for QSEHRAs under the Cures Act, as well as the extension recently granted by the IRS.

Background – Health Reimbursement Accounts Under the ACA

A health reimbursement arrangement (“HRA”) typically consists of an arrangement under which an employer reimburses medical expenses (whether in the form of direct payments or reimbursements for premiums or other medical costs) up to a certain amount. Under the ACA, employers are generally prohibited from establishing an HRA unless it is “integrated” with (that is, considered part of) the employer’s ACA-compliant group health plan. This is because an HRA, standing alone, is a group health plan that will not satisfy several ACA requirements, such as the prohibition on annual or lifetime benefit limits. The IRS has also stated that a non-integrated HRA violates the ACA regardless of whether reimbursements or direct payments are treated as pre-tax or after-tax. An employer that offers a non-compliant HRA is subject to an excise tax under Section 4980D of the Internal Revenue Code (“Code”) of $100 for each day that it offered the non-compliant HRA.

For more information about HRAs under the ACA, including types of HRA arrangements that do not violate the ACA, see our June 11, 2015 Compensation & Benefits Legal Update.

HRAs for Qualified Small Employers Under the Cures Act

Under the Cures Act, a QSEHRA established by an eligible employer is not considered a group health plan for purposes of the ACA. As a result, the QSEHRA does not need to comply with the ACA’s market reforms, and an eligible employer that establishes a QSEHRA is not subject to the Code Section 4980D excise tax. To be an eligible employer, a company must have fewer than the equivalent of 50 full-time employees and must not offer a group health plan to any of its employees.

A QSEHRA may pay and/or reimburse for medical care expenses, as defined in Code Section 213(d), including premium payments for individual health insurance policies covering the employee or enrolled family members, regardless of whether the policies are purchased through a broker or through a health insurance exchange. In addition, a QSEHRA must meet the following requirements:

  1. It must be provided on the same terms to all eligible employees of the eligible employer;

  2. It must be funded solely by the employer (i.e., no salary reduction contributions);

  3. It must require employees to provide proof of coverage before the payment or reimbursement of benefits; and

  4. It must limit the amount of payments and reimbursements for any year to no more than $4,950 for single coverage or $10,000 for family coverage (prorated for partial-year coverage).

If an eligible employee enrolls in a health plan that qualifies as minimum essential coverage for the year, the QSEHRA benefit will not count as taxable income. Otherwise, the amount will count as taxable income. The employer must report the total amount of the QSEHRA benefit on each employee’s Form W-2, regardless of whether the amount is taxable.

QSEHRA Notice Requirement

An employer that offers a QSEHRA must issue a specific written notice to all eligible employees. The notice must describe the benefits including the maximum annual benefit, state that the employee should disclose the amount of the QSEHRA benefit when purchasing coverage through a health insurance exchange and that the QSEHRA benefit will offset the amount of any premium tax credit, and state that if the employee is not enrolled in minimum essential coverage he or she may be subject to the individual mandate penalty under the ACA and that any reimbursements from the QSEHRA may be taxable income.

The QSEHRA notice must be provided no later than 90 days before the beginning of the QSEHRA plan year (or, if the employee becomes eligible during the QSEHRA plan year, by the date the employee becomes eligible to participate). However, an eligible employer that provides a QSEHRA for a year beginning in 2017 will not be treated as failing to timely furnish the initial written notice if the notice is furnished to its eligible employees no later than 90 days after the enactment of the Cures Act, which was March 13, 2017. An employer that fails to provide the required notice will be subject to penalties of $50 per employee for each failure, capped at $2,500 for all such failures during a calendar year.

Extension of QSEHRA Notice Requirement

On February 27, 2017, the IRS issued Notice 2017-20, in which it recognized that some eligible employers may find it difficult to comply with the QSEHRA notice requirement absent additional guidance concerning the contents of the notice. Therefore, the IRS provided that an eligible employer that provides a QSEHRA to its eligible employees for a year beginning in 2017 is not required to furnish the initial written notice to those employees until after further guidance has been issued by the IRS. That further guidance will specify a deadline for providing the initial written notice that is no earlier than 90 days following the issuance of that guidance. Employers may provide QSEHRA notice to their eligible employees before such further guidance, and may rely upon a reasonable good faith interpretation of the Cures Act to determine the contents of the notice.

©2017 von Briesen & Roper, s.c

Paying Bonuses to Non-Exempt Employees: Avoiding Class-Wide Overtime Violations

overtimeEmployers generally recognize that their non-exempt employees must receive overtime premiums on their base pay – in most cases, their hourly wage – when they work overtime. However, not all employers are as well attuned to the requirement that overtime premiums may also be required on other, “supplemental” components of compensation to nonexempt employees. Bonuses are a common example.

By law, employers are required to pay overtime premiums on non-discretionary bonuses to non-exempt employees when those employees have worked overtime during the timeframe for which the bonus is paid (i.e., whether it is paid on a monthly, quarterly, annual, or other basis). The legal risks involved in violating overtime laws when it comes to non-discretionary bonuses is exacerbated by the fact that this violation is typically repeated as to other non-exempt employees who receive bonuses from the employer. As such, this is a type of violation that plaintiffs’ attorneys often look to bring on a class, collective, and/or representative basis.

However, as suggested by the reference above to “non-discretionary” bonuses, employers are not required to pay an overtime premium on all bonuses. Certain types of bonuses (and other “supplemental” forms of compensation) are excluded from the overtime premium requirement. Federal regulations, which California and other states follow in making these determinations, provide that discretionary bonuses may be excluded. However, this exclusion is very limited. Moreover, like many things in the law, the line between a “discretionary” and a “non-discretionary” bonus is not always clear. Accordingly, employers face risks when they do not pay overtime premiums on bonuses on the premise that the bonus falls under the definition of a “discretionary” bonus. Amongst the guidance provided by federal regulations is that “the employer must retain discretion both as to the fact of payment and as to the amount until a time quite close to the end of the period for which the bonus is paid. The sum, if any, to be paid as a bonus is determined by the employer without prior promise or agreement . . . If the employer promises in advance to pay a bonus, he has abandoned his discretion with regard to it.” Conversely, “[a]ttendance bonuses, individual or group production bonuses, bonuses for quality and accuracy of work, bonuses contingent upon the employee’s continuing in employment until the time payment is to be made and the like” fall in the “non-discretionary” category.

Employers who pay “holiday” or “end of the year” bonuses should also be cognizant of the potential requirement to pay overtime premiums on these payments. Federal regulations provide that “gifts made at Christmas time or on other special occasions, as a reward for service, the amount of which are not measured by or dependent on hours worked, production or efficiency” are excluded from overtime premium requirements. However, in a similar vein, if the amount of the gift, holiday or special occasion award is determined by hours worked, production, or efficiency, this exclusion is lost.

Ultimately, employers who pay bonuses and other forms of “supplemental” compensation to non-exempt employees should be cognizant of the potential requirement to pay overtime premiums on these payments and should consider seeking legal guidance in connection with their bonus programs. The need for proper guidance is especially important due to the class, collective, and/or representative action risks presented by violating this aspect of the law.

Jackson Lewis P.C. © 2017

NY State Prepared to Increase Salary Level for Certain Overtime Exceptions

New York OvertimeProposed amendments to the New York State Wage Orders significantly increase the salary levels needed for employers to qualify for the executive and administrative exceptions under the New York Labor Law.

Last month, a US district court in Texas enjoined the US Department of Labor’s proposed revisions to regulations regarding exemption status under the Fair Labor Standards Act, which were scheduled to go into effect on December 1, 2016. In light of this injunction, there is no federal legal requirement at this time to increase the weekly salary for individuals to be exempt from overtime to the $913 per week that the new Regulations would have required under federal law. This injunction is being appealed, and employers should be prepared to act quickly in case the district court’s decision is overturned and the injunction lifted.

However, for New York employers, that is only half of the issue.

Employers in New York must also simultaneously comply with the state’s salary basis floor for the executive and administrative exceptions under the New York Labor Law (NYLL). That minimum is presently $675 per week or $35,100 per year. If that amount is not paid, employers cannot claim executive and administrative exception status under the NYLL regardless of the duties the individual performs, and such individuals will be eligible for additional compensation for hours worked over 40 per workweek even if they are exempt under federal law. The New York salary minimum is a mandatory pre-condition to be completely excepted from the state overtime requirements.

Moreover, proposed amendments will very likely increase these salary basis minimums for the executive and administrative exceptions effective December 31, 2016, with scheduled increases in subsequent years. Specifically, the New York State Department of Labor (NYSDOL) has amended the state’s Wage Orders to increase the salary threshold for the executive and administrative exceptions to $825 per week for large employers in New York City. If adopted, these regulations would amend the salary basis threshold in the NYSDOL’s Wage Orders covering the building services industry (12 N.Y.C.R.R. 141), miscellaneous industries and occupations (12 N.Y.C.R.R. 142), nonprofitmaking institutions (12 N.Y.C.R.R. 143), and hospitality industry (12 N.Y.C.R.R. 146). The inclusion of the miscellaneous industries Wage Order will extend these amendments to nearly all employers.

The public comment period on these proposed changes closed on December 3, 2016. If the proposed amendments are finalized by the NYSDOL, they would become effective on December 31, 2016.

Proposed Amendments to Salary Threshold for Executive and Administrative Exceptions

The proposed salary basis amendments contain different salary requirements based on an employer’s size and geographic location within New York State. Specifically, there are different salary requirements for “large employers” in New York City (employers with 11 or more employees), for “small employers” in New York City (employers with 10 or fewer employees), “downstate” employers (employers in Nassau, Suffolk, and Westchester counties), and employers in the “remainder of state” (employers outside of New York City, Nassau, Suffolk, and Westchester counties).

The below chart provides an overview of the proposed changes:

NYC

Large Employers (11 or more employees)

NYC

Small Employers (10 or fewer employees)

Employers in Nassau, Suffolk, and Westchester Counties Remainder of NY State Employers
Current (as of December 31, 2015) $675.00 per week $675.00 per week $675.00 per week $675.00 per week
On and after December 31, 2016 $825.00 per week $787.50 per week $750.00 per week $727.50 per week
On and after December 31, 2017 $975.00 per week $900.00 per week $825.00 per week $780.00 per week
On and after December 31, 2018 $1,125.00 per week $1,012.50 per week $900.00 per week $832.00 per week
On and after December 31, 2019 $1,125.00 per week $975.00 per week $885.00 per week
On and after December 31, 2020 $1,050.00 per week $937.50 per week
On and after December 31, 2021 $1,125.00 per week

Effective Date

The effective date of the proposed amendments is December 31, 2016. While it is possible that the NYSDOL will withdraw or change the amendments before this date, it is more likely that they will be adopted without alterations and become effective on December 31, 2016.

Recommended Next Steps

In light of the increase in the salary threshold for the executive and administrative exceptions, employers should quickly identify and evaluate positions compensated below the new threshold and decide whether to reclassify employees as eligible for overtime under state and/or federal law, or raise their salaries. Employers should consider the hours worked for these employees to estimate the potential cost of paying overtime.

For those employees who will be reclassified as overtime eligible, employers should prepare talking points for managers and employees about the change, the reason for the change, and how the change will impact their compensation, benefits, and opportunities for advancement, if at all. Employers should also develop training and robust time reporting policies for reclassified workers who will not be accustomed to recording hours worked.

To the extent that reclassified employees previously were receiving bonuses, commissions, or other incentive compensation, employers will need to reevaluate those forms of compensation or carefully consider how to factor them into the regular rate of now-hourly workers. Employers should also be prepared to follow up and audit timekeeping practices for newly reclassified employees to ensure that they are following proper processes and procedures.

Copyright © 2016 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

Same Sex and LGBT Protection Rights Flourish – Except in Workplaces?

In the last 20 years, the legal landscape has shifted dramatically for lesbians, gays, bisexuals, and transgender (LGBT) individuals. In 1996, the Supreme Court used the Equal Protection Clause to invalidate an amendment to Colorado’s Constitution that would have prevented any branch or political subdivision of the state from protecting individuals against sexual orientation discrimination.1 Several years later, the Court determined that individuals’ rights to liberty under the Due Process Clause gave them the full right to engage in private consensual sexual conduct without the government’s intervention.2 Then, in 2013, the Supreme Court struck down the Defense of Marriage Act, finding that it violated the equal protection guarantee of the Fifth Amendment.3 And finally, just last year, the Supreme Court ruled that under both the Due Process and Equal Protection Clauses of the Fourteenth Amendment, same-sex couples had the right to marry in every state.4

While each of these decisions had a profound impact on the lives of many Americans, none increased the workplace protections of LGBT employees under federal anti-discrimination laws. As a panel of the Seventh Circuit recently pointed out, “[m]any citizens would be surprised to learn that under federal law any private employer can summon an employee into his office and state, ‘You are a hard-working employee and have added much value to my company, but I am firing you because you are gay.’”5

In fact, every circuit court that has been asked whether Title VII – the federal law that prohibits discrimination against an employee because of his race, color, religion, sex or national origin – covers discrimination based on sexual orientation has answered the question “no.”6 However, in reaching this conclusion, every court has unequivocally condemned the practice of sexual orientation discrimination as unwise, unfair and immoral. So why the disconnect?

As most courts see it, the issue is that Title VII does not explicitly prohibit sexual orientation discrimination, and Congress has attempted for decades to pass legislation that would expand Title VII to cover sexual orientation discrimination but has come up short.7 Also, most states have not passed legislation that covers such discrimination.

But all of this is not to say that LGBT employees are without recourse. Since the Supreme Court’s decision in Price Waterhouse v. Hopkins, Title VII has covered claims by employees who were discriminated against because they did not conform to traditional gender stereotypes.8 In Price Waterhouse, Ann Hopkins failed to make partner at her accounting firm and was told she could improve her chances next time if she would walk, talk and dress more femininely, get her hair styled, and wear jewelry. The Supreme Court said this sort of gender stereotyping constitutes discrimination because of sex under Title VII.9

What arose from Price Waterhouse is a line of cases that protect LGBT employees from gender stereotyping discrimination but not from discrimination based on sexual orientation. The courts following this approach are forced to distinguish between behavior that would fall into the gender stereotyping category and be protected from those which would fall into the sexual orientation discrimination category and not be. At best, this is a difficult task. At worst, it’s an exercise in futility.

Some courts, unwilling or unable to differentiate between the two categories, have discarded this approach all together. For these courts, if it appears that the employee is trying to recast a sexual orientation discrimination case as one for gender stereotyping, they will deny all relief. In other words, these courts reject employees’ claims of gender stereotyping, as meritorious as they may be, when it appears the claims are intertwined with a sexual orientation discrimination claim.10

This could be primed for a change, though. While courts seem confused as to Title VII’s scope, the EEOC has no doubt: sexual orientation discrimination is, the EEOC says, discrimination because of sex. In Baldwin v. Foxx,11 the EEOC came to this conclusion for three main reasons. First, it concluded that “sexual orientation discrimination is sex discrimination because it necessarily entails treating an employee less favorably because of the employee’s sex.”12 To make its point, the EEOC gave the example of a woman who is suspended for placing a photo of her female spouse on her desk, and a man who faces no consequences for the same act. Second, it explained that “sexual orientation discrimination is also sex discrimination because it is associational discrimination on the basis of sex,” in which an employer discriminates against lesbian, gay, or bisexual employees based on who they date or marry.13 Finally, the EEOC described sexual orientation discrimination as a form of discrimination based on gender stereotypes in which employees are harassed or punished for failing to live up to societal norms about appropriate masculine and feminine behaviors, mannerisms and appearances.14 In emphasizing this last point, the EEOC rejected the numerous court decisions that have tried to distinguish between gender non-conformity claims and those for sexual orientation discrimination.

In its guidance on the subject, the EEOC has tracked the Baldwin decision and said that discrimination on the basis of sexual orientation is illegal under Title VII. In litigation involving the EEOC, it has pushed this tripartite approach with varying success. While no circuit court has followed Baldwin or the EEOC’s guidance, a number of district courts have taken notice. Courts in Alabama, the District of Columbia, California, Oregon and Pennsylvania have all sided with the EEOC’s position and found that Title VII does prohibit sexual orientation discrimination.15 So, at least in these courts, an employer may be held liable for discrimination based on sexual orientation, just like any other protected category under Title VII.

Unfortunately, the Supreme Court has not weighed in on this important topic to resolve the tension between the circuit courts and the EEOC (and certain district courts). It’s hard to say whether the Supreme Court will decide this issue soon, but the Court’s interest in cases addressing LGBT rights, such as the Gloucester County School Board v. G.G. case (involving issues of a school district’s obligations to a transgender student) that will be addressed this term, makes it likely that this issue will come before the Court eventually.

So until the Court decides whether Title VII prohibits sexual orientation discrimination, what’s an employer to do? After all, a mistake here –- even one made in good faith — could cost an employer Here are three things employers can do right now to minimize their liability:

  • Update your anti-harassment policy to include sexual orientation. While the weight of legal authority says that LGBT employees do not have claims for sexual orientation discrimination under Title VII, that trend is shifting. The EEOC’s position is clearly at odds with most of the case law, but as the agency enforcing federal discrimination laws, it has the authority to file lawsuits against employers who thumb their noses at it. A number of lower courts have listened, holding that Title VII does prohibit sexual orientation discrimination. Even if you disagree with the EEOC’s position, do you want to be the long and expensive test case that goes to the Supreme Court?

  • Train your employees on your policies. A written policy isn’t any good unless your employees –– particularly your managers –– know about it. It’s smart to periodically train your employees on sexual and other types of harassment. Make training on sexual orientation discrimination part of it. Ensure your employees know that your company prohibits discrimination on the basis of sexual orientation just as it does discrimination on other protected bases.

  • Make sure to follow through. It’s easy to talk the talk, but make sure you walk the walk. Just as you should not tolerate racial slurs and derogatory comments about women in the workplace, employees need to know that offensive comments about gay, lesbian and transgender individuals are also out of bounds. If someone makes a complaint of sexual orientation discrimination, management should investigate and take prompt remedial action, just as it would with any other type of complaint.

When it comes to LGBT rights and protections, the legal world is in a state of flux. For employers, that means a lot of uncertainty, but you don’t have to be held captive by uncertain times. Be proactive now and help limit the potential of future liability.


1. Romer v. Evans, 517 U.S. 620 (1996). 

2. Lawrence v. Texas, 539 U.S. 558, 578 (2003). 

3. United States v. Windsor, 133 S. Ct. 2675 (2013). 

4. Obergefell v. Hodges, 135 S. Ct. 2584, 2696 (2015). 

5. Kimberly Hively v. Ivy Tech Community College, No. 15-1720, slip op. at 33 (7th Cir. Aug. 1, 2016). 5.  

6. Id. at 6. 

7. See, e.g., Employment Non-Discrimination Act of 2013, H.R. 1755, 113th Cong. (2013). 

8. 490 U.S. 228, 251 (1989).

9. Id. at 251. 

10. See, e.g., Vickers v. Fairfield Med. Ctr., 453 F.3d 757 (6th Cir. 2006). 

11. EEOC Appeal No. 0120133080, 2015 WL 4397641 (July 16, 2015). 

12. Id. at 5. 

13. Id. at 6. 

14. Id. 

15. Isaacs v. Felder Services, LLC, 143 F. Supp. 3d 1190 (M.D. Ala. Oct. 29, 2015) (holding claims of sexual orientation-based discrimination cognizable under Title VII); Terveer v. Billington, 34 F. Supp. 3d 100 (D.D.C. 2014) (same); Heller v. Columbia Edgewater Country Club, 195 F. Supp. 2d 1212, 1222 (D. Or. 2002) (“Nothing in Title VII suggests that Congress intended to confine the benefits of that statute to heterosexual employees alone.”); Videckis v. Pepperdine Univ., 150 F. Supp. 3d 1151 (C.D. Cal. Dec. 15, 2015) (finding sex discrimination necessarily includes sexual orientation discrimination under Title IX); Equal Employment Opportunity Commission v. Scott Medical Health Center, No. 16-225 (W.D. Pa. Nov. 4, 2016) (denying defendant’s motion to dismiss and finding that allegations of sexual orientation discrimination are covered by Title VII). 

OSHA Clarifies Discipline, Retaliation and Drug Testing Commentary

When the Occupational Safety and Health Administration (OSHA) released its 2016 final rule requiring the electronic reporting of workplace injury and illness reports, it included controversial provisions on discriminatory discipline, retaliation, and even post-incident drug testing by employers. The uproar was instantaneous, with industry groups quickly filing lawsuits challenging OSHA’s authority to enforce the rule. Originally scheduled to go into effect on August 10th, the effective date for the new anti-retaliation rule was pushed back by OSHA until November 1st, and more recently, until December 1st.

In the interim, Dorothy Dougherty, OSHA’s Deputy Assistant Secretary, issued an interpretation memorandum designed to explain the anti-retaliation and injury reporting procedures in more detail. The interpretation may help clarify what your organization must do in order to comply with the final rule – even if it doesn’t make the rule more palatable.

Reasonable Procedures For Employees To Report Workplace Injuries/Illnesses labor law elections

An employer violates OSHA’s new final rule if it either fails to have a procedure for employees to report work-related injuries or illnesses, or its reporting procedure is unreasonable. OSHA states that this requirement is not new, as it was implicit in the previous version of the rule. But now, it is an explicit employer requirement.

OSHA considers a reporting procedure to be reasonable if it is not unduly burdensome and would not deter a reasonable employee from reporting an injury or illness. Examples of what it considers reasonable and unreasonable are as follows:

Reasonable

  • Requiring employees to report a work-related injury or illness as soon as practicable after realizing they have a reportable incident, such as the same or next business day, when possible

  • Requiring employees to report work-related injuries or illnesses to a supervisor through reasonable means, such as by phone, email or in person.

Unreasonable

  • Requiring ill or injured employees to report in person if they are unable to do so

  • Disciplining employees for failing to report “immediately” if they are incapacitated because of the injury or illness

  • Disciplining employees for failing to report before they realize they have a work-related injury that they are required to report

  • Unnecessarily cumbersome or an excessive number of steps to report a work-related injury or illness

In short, if your procedure allows employees to report workplace injuries and illnesses within a reasonable amount of time after they realize they have experienced a reportable event, and the procedure does not make employees jump through too many hoops, it will be reasonable and comply with the final rule.

Anti-Retaliation Provision Explained

Retaliating against employees for reporting work-related injuries or illnesses has long been unlawful. To issue a citation under section 1904.35(b)(1)(iv), OSHA must have reasonable cause to believe that an employer retaliated against an employee by showing:

  1. The employee reported a work-related injury or illness;

  2. The employer took adverse action against the employee (i.e., action that would deter a reasonable employee from accurately reporting a work-related injury or illness); and

  3. The employer took the adverse action because the employee reported a work-related injury or illness.

As in most employment retaliation cases, the third element on causation is often the toughest to prove. The determination is made on a case-by-case basis, depending on the specifics facts in any particular case.

OSHA has focused its commentary primarily on three types of potentially retaliatory actions—discipline policies, incentive programs, and post-accident drug testing. OSHA’s recent interpretation helps shed light on how employers should address these three issues to avoid a citation for a violation of the anti-retaliation rule.

Disciplining Employees For Violating Work Safety Rules

Employers violate the anti-retaliation provision by disciplining or terminating employees for reporting a work-related injury or illness. But, if an employer has a legitimate business reason for imposing discipline, such as the employee’s violation of a workplace safety rule, then there is no retaliation and no violation.

OSHA states that the primary inquiry is whether the employer has treated other employees who similarly violated a safety rule the same way – in other words, did the employer impose the same adverse action regardless of whether the other employees reported a work-related injury or illness. If the rule is consistently applied, then no retaliation exists. However, if the employer disproportionately disciplined employees for violating a rule when they reported workplace injuries, or the employer ignored violations of the safety rule when there was no injury or illness, OSHA may find that the actual reason for the discipline was the reported injury or illness rather than the rule violation.

Incentive Programs

OSHA does not prohibit employers from having safety-related incentive programs. But, it does prohibit employers from withholding a benefit or otherwise penalizing an employee because of a reported injury or illness. OSHA provides this example: if an employer raffles off a $500 gift card at the end of each month in which there are no workplace injuries, such an incentive program would violate the anti-retaliation provision as it withholds the incentive (i.e., the $500 gift card) when an employee reports a work-related injury. On the other hand, an acceptable alternative would be for the employer to raffle off a gift card each month in which employees universally comply with legitimate safety rules, such as using required fall protection and following lockout-tagout rules. The key is whether the employer is withholding a benefit because of a reported work-related injury. Incentive programs that penalize the reporting of injuries and illnesses are likely to result in an OSHA citation.

Post-Accident Drug Testing

One of OSHA’s more troubling and confusing anti-retaliation position is its stance that drug testing employees who report a work-related injury or illness can be considered retaliation. Many employers impose drug testing following any workplace accident or incident that results in injuries. OSHA states that while it does not prohibit employers from drug testing employees who report work-related injuries, employers must have an objectively reasonable basis for such testing.

So what is an objectively reasonable basis for testing? OSHA states that it will consider factors including whether the employer has a reasonable basis for concluding that drug use could have contributed to the injury or illness, whether other employees involved in the incident that caused the injury were also tested (or whether only the employee who reported an injury was tested), and whether the employer has a heightened interest in determining if drug use could have contributed to the injury due to the hazardousness of the work being performed.

In addition, OSHA will consider whether the drug test is capable of measuring impairment at the time the injury occurred, where such test is available. In its interpretive memo, though, OSHA states that at this time, the agency will consider this factor for tests that measure alcohol use, but not for tests that measure the use of any other drugs.

The bottom line is that OSHA is looking whether an employer is using drug and/or alcohol testing as a form of discipline against employees who report a workplace injury, which would be retaliation. Consequently, post-accident drug testing is permitted if all workers involved in the accident are tested in order to gain insight into the cause of the accident. But drug testing an employee whose injury could not possibly be related to drug use, such as a repetitive strain injury, would be seen as retaliation. 

Key Takeaways

Assuming that the anti-retaliation rules survive their legal challenges, employers should prepare to implement a reasonable procedure for employees to report work-related injuries and illnesses. Organizations should review any safety-related incentive programs and remove any punitive effects or withholding of benefits/incentives if an employee reports a workplace injury. When adopting and enforcing drug testing policies, be certain to test all workers involved in a workplace incident, not just those who were injured or reported an injury. And last but not least, be very mindful when deciding to discipline or terminate an employee who has reported a workplace injury or illness. Without a legitimate, well-document business reason for the discipline that is unrelated to the injury report, you may find your business cited for retaliation.

Copyright Holland & Hart LLP 1995-2016.