Lawsuits Against Overtime Rule, Voluntary Wellness Program, ADA: Employment Law This Week – October 3, 2016 [VIDEO]

Employment, DOL, Overtime RuleStates, Businesses File Lawsuits Against Overtime Rule

Our top story: The U.S. Department of Labor (DOL) is facing a fight over its new overtime rule. Effective December 1, the new overtime rule will raise the minimum salary threshold required for white-collar exemptions under the Fair Labor Standards Act to $913 per week, more than doubling the current threshold. But Texas and Nevada are leading 21 states in a lawsuit challenging the DOL’s updated rule, and more than 50 business groups, including the National Retail Federation and the U.S. Chamber of Commerce, have brought a separate challenge. At the same time, the U.S. House of Representatives voted to delay the effective date of the new regulation by six months. These challenges are based on concerns that the new salary threshold would mean a big increase in costs for employers and oversteps the DOL’s authority. Kristopher Reichardt, from Epstein Becker Green, has more.

“This was obviously a coordinated effort to attack the new overtime regulations on multiple fronts. Both suits take slightly different paths to achieve the same objective. . . . The Eastern District of Texas, a conservative jurisdiction, is somewhat known for moving its docket along quickly, which is important to any challenge, since the new rules take effect in just two months, despite some congressional attempts to delay the rule until June 1 of next year. . . . Employers should absolutely continue to prepare for the overtime rule going into effect on December 1. It’s unlikely that these lawsuits would delay or stop these rules. Employers should expect that they will go into effect.”

Court Finds That Voluntary Wellness Program Does Not Violate the ADA

An employer’s voluntary wellness program survives an Equal Employment Opportunity Commission (EEOC) challenge. A lighting manufacturer in Wisconsin requires an anonymous health risk assessment in order to participate in its health plan. The EEOC filed suit against the company, claiming that the program violated restrictions in the Americans with Disabilities Act (ADA). The district court found that the program did not violate the ADA. But perhaps more importantly, the court deferred to the EEOC’s regulation stating that wellness programs are not covered by the ADA’s “safe harbor” and can violate the ADA if the exams are not voluntary.

Truthful Statements Protected Under NLRA, Even if Disparaging

Technically truthful statements are protected under the National Labor Relations Act (NLRA), even if they’re disparaging. A group of DirecTV technicians were fired after appearing on a local news station discussing a new company pay incentive. The incentive was tied to convincing customers to let DirecTV use landlines to track viewing habits. A split D.C. Circuit affirmed a National Labor Relations Board ruling in favor of the employees, finding that the technicians’ comments were based in truth and thus fell under the protection of the NLRA. Therefore, the company must reinstate the technicians.

Tip of the Week

To celebrate Global Diversity Awareness Month, we’re bringing you a diversity-focused “Tip of the Week” each episode in October. With us this week is William A. Keyes, IV, President of the Institute for Responsible Citizenship, with some advice on growing a diverse culture by demanding excellence.

“One of the things I notice is that the brightest young African-American men are often ignored when it comes to great opportunities. Now, you probably find that surprising, but that’s been my observation. . . . So, my argument is that for a top-tier company that is saying that it’s committed to attracting top talent of color, if you’re going to do that, you should really commit to it, state that commitment, and settle for nothing less. Having done that, you really take care of your retention problems, because you bring in people who are really talented. You set a high bar for them, high standards for achievement that you expect for them to meet, they do so. Not only do you retain them, but you create a culture that is attractive to other people who also want to pursue excellence.

©2016 Epstein Becker & Green, P.C. All rights reserved.

IRS Tax Treatment of Wellness Program Benefits

Business people doing yoga on floor in office

The IRS Office of Chief Counsel recently released a memorandum providing guidance on the proper tax treatment of workplace wellness programs. Workplace wellness programs cover a range of plans and strategies adopted by employers to counter rising healthcare costs by promoting healthier lifestyles and providing employees with preventive care. These programs take many forms and can encompass everything from providing certain medical care regardless of enrollment in health coverage, to free gym passes for employees, to incentivized participation- based weight loss programs. Due to the wide variation in such plans the proper tax treatment can be complicated. However, the following points from the IRS memo can help business owners operating or considering a wellness program evaluate their tax treatment.

First, the memo confirmed that coverage in employer-provided wellness programs that provide medical care is generally not included in an employee’s gross income under section 106(a), which specifically excludes employer-provided coverage under an accident or health plan from employee gross income. 26 USC § 213(d)(1)(A) defines medical care as amounts paid for “the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body,” transportation for such care, qualified long term care services, and insurance (including amounts paid as premiums).

Second, it was made clear that any section 213(d) medical care provided by the program is excluded from the employee’s gross income under section 105(b), which permits an employee to exclude amounts received through employer-provided accident or health insurance if it is paid to reimburse expenses incurred by the employee for medical care for personal injuries and sickness. The memo emphasized that 105(b) only applies to money paid specifically to reimburse the employee for expenses incurred by him for the prescribed medical care. This means that the exclusion in 105(b) does not apply to money that the employee would receive through a wellness program irrespective of any expenses he incurred for medical care. 26 CFR 1.105-2.

Third, any rewards, incentives or other benefits provided by the wellness program that are not medical care as defined by section 213(d) must be included in an employee’s gross income. This means that cash prizes given to employees as incentives to participate in a wellness program are part of the employee’s gross income and may not be excluded by the employer. However, non-money awards or incentives might be excludable if they qualify as de minimis fringe benefits (ones that are so small and infrequent that accounting for them is unreasonable or impracticable). 26 USC § 132(a)(4). The memo gives the example of a t-shirt provided as part of a wellness program as such an excludable fringe benefit, and notes that money is never a de minimis fringe benefit.

Fourth, payment of gym memberships or reimbursement of gym fees is a cash benefit, even when received through the wellness program, and must be included in gross income. This is because cash rewards paid as part of the wellness program do not qualify as reimbursements of medical care and cannot be a fringe benefit.

Fifth, where an employee chooses a salary reduction to pay premiums for healthcare coverage and the employer reimburses the employee for some or all of the premium amount under a wellness program, the reimbursement is gross income.

These points laid out in the IRS memo provide a solid foundation for understanding the tax treatment of workplace wellness programs and should be kept in mind by business owners deciding how to structure new wellness plans for their employees, or ensuring the tax compliance of existing plans.

In Case You Missed It: The EEOC Sneaks in Its Final Wellness Program Rule Ahead of The DOL’s New OT Rule

eeoc wellness programThe employer community was sent into a frenzy with the Department of Labor’s release on May 18, 2016 of its final white-collar overtime regulations.  Just two days before however, the Equal Employment Opportunity Commission also released its own final regulations regarding employer wellness programs.

We had previously posted about the Commission’s proposed wellness program rule, and followed with a post discussing the future of wellness programs in light of two recent court decisions – EEOC v. Flambeau, Inc. and Seff v. Broward County.  In its recently issued regulations (which you can access here and here), the EEOC has set forth its final position on how the Americans with Disabilities Act (ADA) and Title II of the Genetic Information and Discrimination Act (GINA) apply to employer wellness programs that request the health information of employees and/or their spouses.  While most provisions of the final ADA rule and final GINA rule are identical to their respective proposed rules, there are some key differences, which we explain below in Q&A format below.

  1. Does the ADA’s safe harbor provision apply to employer wellness programs?

No.  The ADA’s safe harbor provision states that the ADA “shall not be construed to prohibit or restrict  . . . a person or organization covered by this chapter from establishing, sponsoring, observing or administering the terms of a bona fide benefit plan that are based on underwriting risks, classifying risks, or administering such risks that are based on or not inconsistent with State law.”  42 U.S.C. § 12201(c).

The Commission made no secret about its opinion that Seff and Flambeau were “wrongly decided” (including by appealing the Flambeau decision to the Seventh Circuit).  Despite case law to the contrary and pending appeals, the Commission reaffirmed its position in the final ADA rule that “the safe harbor provision does not apply to an employer’s decision to offer rewards or impose penalties in connection with wellness programs that include disability-related inquiries or medical examinations.”  Rather, the safe harbor provision only applies “to the practices of the insurance industry with respect to the use of sound actuarial data to make determinations about insurability and the establishment of rates.”  An employer’s use of wellness program to make employees healthier and reduce the costs of health care is not the type of underwriting or risk classification that is protected by the safe harbor provision. See 29 C.F.R. § 1630.14(d)(6).

  1. What wellness programs are subject to these final rules?

Any wellness program that includes disability-related inquiries and/or medical exams is subject to the rule.  This includes wellness programs: (a) offered only to employees enrolled in an employer-sponsored group health plan; (b) offered to all employees regardless of enrollment in the employer-sponsored group health plan; and (c) offered as a benefit of employment by employers that do not sponsor group health plans/insurance.

  1. Do the final rules provide additional clarification as to what makes a wellness program “voluntary”?

Yes.  The Commission has held steadfast in its decision to apply the “30 percent rule” for incentives set under HIPAA and the Affordable Care Act to participatory wellness programs that inquire as to employee disabilities or require employees to undergo medical examinations.  In doing so, the final rule limits the size of the incentives offered by these programs to 30% of the employee’s total cost of coverage.  Many commenters wanted the Commission to adopt an “affordability standard” to protect low-income workers from incentives that prove to be large enough to render health insurance coverage unaffordable.  The Commission declined to adopt this standard however, because in its view, “this rule promotes the ADA’s interest in ensuring that incentive limits are not so high as to make participation in a wellness program involuntary.”

Additionally, in the rule’s preamble specific to 29 C.F.R. § 1630.14(d)(2)(ii), the Commission clarifies that it is of the opinion that the ADA prohibits “the outright denial of access to a benefit available by virtue of employment”, but does not prohibit “an employer from denying an incentive that is within the [30% limit] . . . nor does it prohibit requiring an employee to pay more for insurance that is more comprehensive.”  The Commission likely included this comment to further emphasize its disagreement with the Flambeau and Seff decisions – the Commission has concluded that an employer discriminates against an employee in violation of the ADA, 42 U.S.C. § 12112(d)(4), when it “denies access to a health plan because the employee does not answer disability-related inquiries or undergo medical examinations.”

The final rule explaining the notice requirement, 29 C.F.R. § 1630.14(d)(2)(iv), also clarifies that it applies to “all wellness programs that ask employees to respond to disability-related inquiries and/o undergo medical examinations.”

  1. What types of incentives may be offered to employees and how can employers calculate incentive limits?

In addition to financial incentives, employers are permitted to offer in-kind incentives (e.g., employee recognition, parking spot use, relaxed dress code) and de minimis incentives to employees, despite any difficulties in valuing these incentives.

The final ADA rule, 29 C.F.R. § 1630.14(d)(3), also explains how employers can calculate incentive limits in four situations: (a) where participation in a wellness program depends on enrollment in a particular health plan; (b) where wellness program participation does not depend on employee’s enrollment in an employer-offered single group health plan; (c) where wellness program participation does not depend on employee’s enrollment in any of employee’s group health plans; and (d) where an employer does not offer a group health plan or insurance.

  1. How do these rules relate to other federal discrimination laws?

Employers should pay special attention the interpretative guidance following the final ADA rule.  In it, the Commission states:

“[E]ven though an employer’s wellness program might comply with the incentive limits set out in [29 C.F.R. § 1630.14(d)(3)], the employer would violate federal nondiscrimination statutes if that program discriminates on the basis of race, sex (including pregnancy, gender identity, transgender status, and sexual orientation), color, religion, national origin, or age.  Additionally, if a wellness program requirement (such as a particular blood pressure or glucose level or body mass index) disproportionately affects individuals on the basis of some protected characteristic, an employer may be able to avoid a disparate impact claim by offering and providing a reasonable alternative standard.”

This appears to place the additional burden on the employer to examine all wellness program incentives and requirements for potential disparate impact.  The extent to which an employer must understand specific medical characteristics of every protected class on its employee roster is unknown.

  1. What changes did the Commission make in the final GINA rule?

There are four changes of note, all of which were added to the final GINA rules to clarify and/or enhance the proposed rules.

  • The final GINA rule extends the prohibition on offering inducements for information from the children of employees to all children (minor children and those 18 years of age or older).

  • Every provision of the final GINA rule now applies to all employer-sponsored wellness programs requesting genetic information.

  • There is no longer a different inducement limit threshold for employee spouses. The final GINA rule uses the “30 percent rule” when an employee and the employee’s spouse are given the opportunity to enroll in the employer-sponsored wellness program.  The final rule provides examples of how to calculate incentive limits where this is the case.  See 29 C.F.R. 1635.8(b)(2)(iii)(A)-(D).

  • Employers may not condition an employee’s or an employee’s spouse’s participation in an wellness program or their eligibility for offered incentives on the employee, the employee’s spouse, or a covered dependent agreeing to the sale, exchange, sharing, transfer, or other disclosure of genetic information or waiving GINA’s confidentiality protections.

What’s Next?

The final rules apply proactively – thus, are only applicable to wellness programs as of the first date of the plan beginning January 1, 2017 or thereafter.  In the meantime, we await the Seventh Circuit’s decision in the EEOC’s appeal of Flambeau regarding whether the ADA safe harbor provision applies to employer wellness programs.  Given the EEOC’s position that the provision does not apply and the growing number of courts that think otherwise, it is looking like the ultimate decision will be made by the U.S. Supreme Court (think: Young v. UPS – a Supreme Court decision that prompted the EEOC to revise its pregnancy discrimination guidance).

EEOC Seeks to Clarify Application of GINA to Wellness Programs

Earlier this year, the Equal Employment Opportunity Commission (“EEOC”) published a proposed rule that would amend the agency’s regulations and interpretive guidance implementing Title I of the Americans with Disabilities Act (“ADA”) as they relate to employer wellness programs. Now, the EEOC has turned its attention to Title II of the Genetic Information Nondiscrimination Act of 2008 (“GINA”) as it relates to employer wellness programs that are part of group health plans.

On October 20, 2015, the EEOC issued a proposed rule, or Notice of Proposed Rulemaking (“NPRM”), to amend the regulations implementing Title II of GINA, together with a fact sheet and a series of questions and answers. The proposed rule, which is available in its entirety online, would allow employers that offer wellness programs as part of group health plans to provide limited financial and other incentives or “inducements” in exchange for an employee’s spouse providing information about his or her current or past health status.

Title II of GINA protects job applicants and current and former employees from employment discrimination based on their genetic information. As stated in the NPRM, Congress enacted GINA to address concerns prevalent at the time that individuals would not take advantage of the increasing number of genetic tests that could inform them as to whether they were at risk of developing specific diseases or disorders due to fear that genetic information would be used to deny health coverage or employment. Consequently, GINA expressly prohibits employers with 15 or more employees from using genetic information in making decisions about employment in all circumstances, without exceptions. It also restricts employers from requesting, requiring or purchasing genetic information. In addition, it strictly limits employers from disclosing genetic information. Genetic information includes, among other things, information about the manifestation of a disease or disorder in the family members of an individual. The term “family members” includes spouses.

There are only six very limited circumstances under GINA in which an employermay request, require, or purchase genetic information about an applicant or employee. One of the six exceptions applies when an employee voluntarily accepts health or genetic services offered by an employer, including such services offered as part of a wellness program. The proposed regulations are in response to the numerous inquiries received by the EEOC questioning whether an employer violates GINA by offering an employee an inducement if the employee’s spouse who is covered under the employer’s group health plancompletes a health risk assessment that seeks information about the spouse’s current or past health status, in connection with the spouse’s receipt of health or genetic services as part of an employer-sponsored wellness program.

The proposed regulations would clarify that GINA does not prohibit employers from offering limited inducements (whether in the form of rewards or penalties avoided) for the provision by spouses covered by the employer’s group health plan of information about their current or past health status as part of a health reimbursement account, which may include a medical questionnaire, a medical examination (e.g., to detect high blood pressure or high cholesterol), or both, as long as the provision of the information is voluntary and the individual from whom the information is being obtained provides prior, knowing, voluntary, and written authorization, which may include authorization in electronic format. The proposed regulations do not allow inducements in return for the spouse’s providing his or her own genetic information (including results of his or her genetic tests), for the current or past health status information of an employee’s children, or for the genetic information of an employee’s child.

The proposed regulations would include a requirement that any health or genetic services provided in connection with the requests for genetic information be reasonably designed to promote health or prevent disease, thereby aligning GINA’s regulations with those promulgated under the ADA as they relate to wellness programs. (The ADA permits employers to collect medical information as part of a wellness program only if the program and the disability-related inquiries and medical examinations that are part of the program are reasonably designed to promote health or prevent disease.) As discussed in the NPRM, collecting information on a health questionnaire without providing follow-up information or advice would not be reasonably designed to promote health or prevent disease. Additionally, a program would not be deemed reasonably designed to promote health or prevent disease if it imposes, as a condition of obtaining a reward, an overly burdensome amount of time for participation, requires unreasonably intrusive procedures, or places significant costs related to medical examinations on employees. A program is also not reasonably designed if it exists merely to shift costs from the employer to targeted employees based on their health.

The proposed regulations would limit the total inducements (both financial and in-kind inducements, such as time-off awards, prizes, or other items of value, in the form of either rewards or penalties) to the employee and spouse to participate in a wellness program that is part of a group health plan and collects information about current and past health status to not more than 30 percent of the total cost of the plan in which the employee and any dependants are enrolled. The maximum portion of an incentive that may be offered to an employee alone may not exceed 30 percent of the total cost of self-only coverage.

Finally, it is important to note that this proposal would not alter GINA’s absolute prohibition against the use of genetic information in making employment decisions.

The EEOC’s approach to wellness programs is still developing, and interested members of the public have until Tuesday, December 29, 2015, to submit comments on the NPRM to the EEOC in order to seek clarity or request changes and/or additions to the proposed rules.

Gonzalez Saggio & Harlan LLP | Copyright (c) 2015