Labor & Employment Archives - Page 86 of 154

Update Company Policies for Transgendered Employees

Although no federal statute explicitly prohibits employment discrimination based on gender identity, the Equal Employment Opportunity Commission has actively sought out opportunities to ensure coverage for transgender individuals under Title VII’s sex discrimination provisions under its Strategic Plan for Fiscal Years 2012-2016. After the EEOC issued its groundbreaking administrative ruling in Macy v. Bureau of Alcohol, Tobacco, Firearms and Explosives, EEOC Appeal No. 012012081 (April 23, 2012), where it held that transgendered employees may state a claim for sex discrimination under Title VII, some courts have trended to support Title VII coverage for transgendered employees.

To address potential challenges and lawsuits that may arise, employers should consider updating codes of conduct as well as non-discrimination and harassment policies. While policies may differ based on an employer’s business, there are some key features to consider:

Include “gender identity” or “gender expression” in non-discrimination and anti-harassment policies. Gender identity refers to the gender a person identifies with internally whereas gender expression refers to how an employee expresses their gender—i.e. how an employee dresses. The way an employee expresses their gender may not line up with how they identify their gender.
Establish gender transition guidelines and plans. A document should be established and available to all members of human resources and/or managers to eliminate mismanaging an employee who is transitioning. The guidelines may identify a specific contact for employees, the general procedure for updating personnel records, as well as restroom and/or locker room use.
Announcements. After management is informed, and with the employee’s permission, management should disseminate the employee’s new name to coworkers and everyone should begin using the correct name and pronoun of the employee. Misuse of a name or pronouns may create an unwelcome environment which could lead to a lawsuit.
Training and compliance. Employers should review harassment and diversity training programs and modules to ensure coverage of LGBTQ issues. All employees should be trained regarding appropriate workplace behavior and consequences for failing to comply with an organization’s rules.

In addition to the potential liability under federal law, some state laws provide a right of action for transgendered employees who are discriminated against at work; therefore, employers should review the laws of the jurisdictions in which they operate to ensure compliance.

ARTICLE BY Latrice Nicole Lee of Polsinelli PC

EEOC Alleges Hospital’s Mandatory Flu Vaccine Policy Violates Title VII

As summer temperatures soar, one might think the last thing to worry about is the upcoming flu season. And while that may be true in most respects, the flu is on the minds of the Equal Employment Opportunity Commission (EEOC). A lawsuit filed by the EEOC sheds light on the issue for healthcare employers who impose mandatory flu vaccine requirements on employees as a condition of continued employment.

The EEOC alleges in EEOC v. Mission Hospital, Inc. – a lawsuit that includes class allegations – that Mission Hospital violated Title VII by failing to accommodate employees’ religious beliefs and by terminating employees in connection with the hospital’s mandatory flu vaccination program. In particular, the EEOC took issue with the hospital’s alleged strict enforcement of its deadlines, which required employees to request an exemption by Sept. 1 and, if the exemption request was denied, to obtain the vaccination by Dec. 1.

According to Lynette Barnes, regional attorney for the EEOC’s Charlotte District Office, “An arbitrary deadline does not protect an employer from its obligation to provide a religious accommodation. An employer must consider, at the time it receives a request for a religious accommodation, whether the request can be granted without undue burden.”

The key takeaway here is that, similar to what is required under the Americans with Disabilities Act (when, for example, an employer is analyzing the application of a policy to a particular employee with a disability), employers should consider analyzing their duty to accommodate under Title VII based on the facts and circumstances of the particular case, as opposed to applying an (allegedly) inflexible rule without regard to the circumstances of the particular case. The other take-away here is that employers should consider basing this kind of employment decision on more than one reason – for example, a missed deadline plus a determination that granting the exemption would (or would not) be an undue burden (and why).

A copy of the EEOC’s lawsuit is found here and a copy of Mission Hospital’s answer is found here.

ARTICLE BY Norma W. Zeitler of Barnes & Thornburg LLP
© 2016 BARNES & THORNBURG LLP

A Whole New World for Qualified Plans: Internal Revenue Procedure 2016-37

The Internal Revenue Service (IRS) announced changes to the determination letter program for individually designed qualified plans in IRS Announcement 2015-19 and IRS Notice 2016-03, which we have discussed in prior posts. In our June 2016 we described the report made to the IRS by the Advisory Committee on Tax Exempt and Government Entities, which provided recommendations to the IRS regarding changes to the determination letter program.

The IRS issued Revenue Procedure 2016-37 on June 29, 2016, which clarifies, modifies and supersedes Revenue Procedure 2007-44 and is generally effective January 1, 2017. Revenue Procedure 2016-37 provides additional guidance on changes to the determination letter program and ongoing plan compliance, extends the remedial amendment period for individually designed qualified plans, revises the remedial amendment cycle system for pre-approved qualified plans in accordance with the changes made to the determination letter program and delays the beginning of the 12-month submission period for pre-approved qualified plans to request opinion and advisory letters. This Client Alert addresses the modifications to the determination letter program and ongoing compliance for individually designed qualified plans. A subsequent post will address the modifications in Revenue Procedure 2016-37 that apply to pre-approved qualified plans.

Key Points for Individually Designed Qualified Plans:

The current five-year determination letter program for individually designed qualified plans described in Revenue Procedure 2007-44 is eliminated effective January 1, 2017, consistent with prior recent IRS guidance.
Effective January 1, 2017, sponsors of individually designed qualified plans may submit determination letter applications only for initial plan qualification, qualification on plan termination and certain other circumstances to be determined annually by the IRS.
The IRS intends to publish annually a “Required Amendments List” of disqualifying provisions that arise as a result in a change in qualification requirements.
The remedial amendment period for a disqualifying provision related to a change in qualification requirements which is on the Required Amendments List generally will be the end of the second calendar year following the year the list is issued.
The remedial amendment period for a disqualifying provision related to an amendment to an existing plan which is not on the Required Amendments List generally will be the end of the second calendar year following the calendar year in which the amendment is adopted or effective, whichever is later.
To assist plan sponsors with operational plan compliance, the IRS intends to issue an Operational Compliance List annually to identify changes in qualification requirements that are effective during a calendar year.

Elimination of the Five-Year Remedial Amendment Cycle

Effective January 1, 2017, the staggered five-year remedial amendment cycle system for individually designed plans is eliminated. Cycle A plans (plan sponsors with employer identification numbers ending in 1 or 6) may submit determination letter applications during the period beginning on February 1, 2016, and ending on January 31, 2017. Controlled groups and affiliated service groups that maintain one or more plan may submit determination letter applications for such plans during Cycle A in accordance with prior valid Cycle A election(s). Also effective January 1, 2017, individually designed plan sponsors are no longer required to adopt interim plan amendments as described in Revenue Procedure 2007-44 with adoption deadlines on or after such date.

When May a Determination Letter Application Be Submitted?

Initial Plan Qualification. A plan sponsor may submit a plan for initial plan qualification on a Form 5500 if a favorable determination letter has never been issued for the plan.
Qualification Upon Plan Termination. A plan sponsor may submit a plan to obtain a favorable determination letter upon plan termination if the filing is made no later than the later of (i) one year from the effective date of the termination; or (ii) one year from the date on which the action terminating the plan is taken, but in any case not later than 12 months after the date that substantially all plan assets have been distributed in connection with the plan termination.
Other Circumstances. The IRS will consider annually whether determination letter applications will be accepted for individually designed plans under circumstances other than initial qualification or plan termination. Factors that may affect such consideration include:
- Significant law changes
- New approaches to plan design
- Inability of certain plans to convert to a pre-approved format
- IRS case load and resources available to process applications

Additional situations in which plan sponsors will be permitted to request determination letters will be announced in the Internal Revenue Bulletin. Comments will be requested on a periodic basis as to the additional situations in which a determination letter application may be appropriate. The only determination applications that will be accepted during the 2017 calendar year are for initial plan qualification, qualification upon plan termination and Cycle A submissions.

Extension of Remedial Amendment Period

Generally, a disqualifying provision is a provision or the absence of a provision in a new plan or a provision in an existing plan that causes a plan to fail to satisfy the requirements of the Internal Revenue Code (Code) as of the date the plan or amendment is first effective. Additionally, a disqualifying provision includes a plan provision that has been designated by the IRS as a disqualifying provision by reason of a change in those requirements. For disqualifying provisions that are first effective on or after January 1, 2016, the remedial amendment period for plans (other than governmental plans) is extended as follows:

New Plan. The remedial amendment period ends the later of (i) the 15th day of the 10th calendar month after the end of the plan’s initial plan year; or (ii) the “modified Code Section 401(b) expiration date.”
Amendment to Existing Plan. The remedial amendment period for a disqualifying provision (other than those in the Required Amendments List) is the end of the second calendar year after the amendment is adopted or effective, whichever is later.
- Plan Not Maintained by a Tax-Exempt Employer: The modified Code Section 401(b) expiration date is generally the due date for the employer’s income tax return, determined as if the extension applies.
- Plan Maintained by a Tax-Exempt Employer: The modified Code Section 401(b) expiration date is generally the due date for the Form 990 series, determined as if the extension applies or, if no Form 990 series filing is required, the 15th day of the 10th month after the end of the employer’s tax year (treating the calendar year as the tax year if the employer has no tax year).
Change in Qualification Requirements. The remedial amendment period for a disqualifying provision that relates to a change in qualification requirements is the end of the second calendar year that begins after the issuance of the Required Amendment List on which the change in qualification requirements appears.

Example: Remedial Amendment Period for Amendment to an Existing Plan.

Employer maintains an individually designed plan that received a favorable determination letter in 2014. Effective January 1, 2018, Employer amends the plan’s vesting schedule. The plan amendment, which is signed on January 1, 2018, results in a disqualifying provision. During its annual plan compliance review in March 2019, Employer realizes that the plan amendment resulted in an impermissible vesting schedule. To maintain the plan’s qualification, Employer must: (i) adopt a remedial amendment to correct the disqualifying plan provision no later than December 31, 2020 – the last day of the second calendar year after the plan amendment was adopted and effective; (ii) make the remedial amendment retroactively effective as of January 1, 2018; and (iii) correct the plan’s operation to the extent necessary to correct the disqualifying provision.

Example: Remedial Amendment Period for Change in Qualification Requirements.

Employer maintains an individually designed plan with a calendar year plan year. The IRS publishes guidance in the Internal Revenue Bulletin in July 2016 that changes a qualification requirement under the Code. The guidance, which is effective for the first plan year beginning on or after January 1, 2017, is included on the 2017 Required Amendments List (issued in December 2016). To maintain the plan’s qualification, Employer must: (i) adopt an amendment to the plan reflecting the guidance no later than December 31, 2019 – the last day of the second calendar year that begins after the issuance of the Required Amendments List on which the qualification change appear; and (ii) ensure that the plan is operationally compliant with the guidance as of January 1, 2017.

Note that the remedial amendment periods differ for new and existing plans of governmental entities.

Extended Remedial Amendment Period Transition Rule

The remedial amendment period for certain disqualifying provisions identified in Revenue Procedure 2007-44 was set to expire as of December 31, 2016, as a result of the elimination of the five-year remedial amendment cycle system. The remedial amendment period for such provisions is extended to December 31, 2017, except that with respect to any disqualifying provision that is on the 2016 Required Amendments List, the remedial amendment period will end on the last day of the second calendar year that begins after the issuance of the Required Amendments List.

Terminating Plans

Generally, the termination of a plan ends the plan’s remedial amendment period. Retroactive remedial plan amendments or other required plan amendments must be adopted in connection with the plan termination even if such amendments are not on the Required Amendments List.

Plan Amendment Deadline

For disqualifying provisions, the plan amendment deadline is generally the date on which the remedial amendment period expires, unless otherwise provided. For discretionary amendments (i.e., any amendment not related to a disqualifying provision) to any plan that is not a governmental plan, unless otherwise provided, the amendment deadline is the end of the plan year in which the amendment is operationally put into effect. An amendment is operationally put into effect when the plan is administered in a manner consistent with the intended plan amendment (rather than existing plan terms).

Required Amendments List

The Treasury and IRS intend to publish a Required Amendments List annually, beginning with changes in qualification requirements that become effective on or after January 1, 2016. The Required Amendments List will provide the date that the remedial amendment period expires for changes in qualification requirements. An item will appear on the Required Amendments List after guidance (including any model amendment) has been provided in regulations or in other guidance published in the Internal Revenue Bulletin, except as otherwise determined at the discretion of the IRS.

Operational Compliance List

The deadline for amending a plan retroactively to comply with a change in plan qualification requirements is the last day of the remedial amendment period. However, a plan must be operated in compliance with a change in qualification requirements as of the effective date of the change. The IRS intends to issue annually an Operational Compliance List to identify changes in qualification requirements that are effective during a calendar year. The Operational Compliance List is intended to assist plan sponsor in operational compliance, but plan sponsors are required to comply with all relevant qualification requirements, even if not on the list.

Scope of Plan Review

The IRS will review plans submitted with determination letter applications based on the Required Amendments List issued during the second calendar year preceding the submission of the application. The review will consider all previously issued Required Amendments Lists (and Cumulative Lists prior to 2016). Terminating plans will be reviewed for amendments required to be adopted in connection with plan termination. Plans submitted for initial qualification in 2017 will be reviewed based on the 2015 Cumulative List. With the exception of a terminating plan, individually designed plans must be restated to incorporate all previously adopted amendments when a determination letter application is submitted.

Reliance on Determination Letters

As provided in Revenue Procedure 2016-6, effective January 4, 2016, determination letters issued to individually designed plans no longer contain expiration dates, and expiration dates in determination letters issued prior to January 4, 2016, are no longer operative. A plan sponsor that maintains a qualified plan for which a favorable determination letter has been issued and that is otherwise entitled to rely on the determination letter may not continue to rely on the determination letter with respect to a plan provision that is subsequently amended or is subsequently affected by a change in law. However, the plan sponsor may continue to rely on such determination letter for plan provisions that are not amended or affected by a change in the law.

Action Steps for Sponsors of Individually Designed Qualified Plans

Conduct an annual compliance review to assess compliance with the current Operational Compliance List and correct any failures detected in accordance with the IRS guidance.
Periodically conduct a more in depth compliance review to assess compliance with all prior Operational Compliance Lists.
Review plan documents annually to assess compliance with the current Required Amendments List and determine whether plan amendments are required within the applicable remedial amendment period.
Review plan documents annually to determine whether all discretionary plan amendments have been timely adopted.
For any new individually designed qualified plan, determine the timing of the IRS submission request for an initial favorable determination letter.
For any terminating individually designed qualified plan, determine: (i) whether a favorable determination letter will be requested in connection with the plan termination; (ii) whether plan amendments are required in connection with the plan termination; and (iii) the timing of the submission to the IRS for a favorable letter on the qualification upon plan termination.
Annually, determine whether an IRS submission is permissible for an existing individually designed qualified plan, based on current IRS guidance.

ARTICLE BY Lori L. Shannon & Monica A. Novak of Drinker Biddle & Reath LLP

Huge Increase In OSHA And Certain MSHA Fines Announced

OSHA announced an increase to its penalties today of nearly 80 percent and some MSHA fines will increase by several thousand dollars as well. The new civil penalty amounts, courtesy of the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, are applicable only to civil penalties assessed after Aug. 1, 2016, whose associated violations occurred after Nov. 2, 2015.

OSHA’s maximum penalties, which have not been raised since 1990, will increase by 78 percent. The top penalty for serious violations will rise from $7,000 to $12,471. The maximum penalty for willful or repeated violations will increase from $70,000 to $124,709.

MSHA’s penalties will increase in some areas and decease in others. The new minimum penalty for a 104(d)(2) Order will be $4,553 rather than $4000 and the maximum penalty for a flagrant violation will rise to $250,433 from $242,000. However, the maximum penalty for most other MSHA violations will decrease to $68,300 from $70,000.

A Fact Sheet on the Labor Department’s interim rule is available here. A list of each agency’s individual penalty adjustments is available here.

ARTICLE BY Matthew Linton of Holland & Hart LLP

Three California Municipalities Enact New Minimum Wage and Paid Sick Leave Laws

The trend toward local regulation of employment laws continues in California with three new local wage and hour enactments.

San Diego

On June 7, 2016, San Diego voters passed a ballot initiative containing two provisions for hourly workers. First, San Diego’s new minimum wage will be $10.50 per hour once the ballot results are confirmed, which is expected to be in mid-July. Second, San Diego will have its own paid sick leave policy of five days (40 hours) – which is in excess of the state law that allows employers to limit use of accrued paid sick leave to three days (24 hours).

Like the state law, San Diego’s paid sick leave will accrue at one hour for every 30 hours worked and cannot be used until after 90 days of employment. Also like the state law, San Diego’s sick leave initiative allows accrued leave to be front loaded or accrued, and it must be carried over year to year.

The San Diego law differs from state law in that employees may accrue an unlimited amount, but employers may limit the amount an employee can use to 40 hours per year. Note that even if a business is not within San Diego city limits, if an employee performs at least two hours of work per week within San Diego, they accrue paid sick leave for the hours they work within the city. This will dramatically affect delivery drivers, caterers, construction workers, or any company with a mobile workforce. (Note that in-home supportive services, workers employed under a publicly subsidized summer or short-term youth employment program, or any student employee, camp, or program counselor of an organized camp under State law are exempted.) The new law adds the administrative burden of tracking not only how much each employee works, but also where they work.

Los Angeles

Beginning July 1, 2016, Los Angeles employers with at least 26 employees – and, on January 1, 2017, employers with fewer than 26 employees – must comply with two new laws.

First, Los Angeles employers must provide six days (48 hours) of paid sick leave per year. Like the San Diego law, even if a business is not within city limits, if an employee performs at least two hours of work per week within the city, they accrue paid sick leave for the hours they work within the city limits. Like the state law and the San Diego law, the new Los Angeles law requires that all employees receive this sick leave (or participate in an equally generous PTO plan), including part-time and temporary employees, who must accrue this benefit at the rate of one hour for every 30 hours worked, and they must be able to access it after 90 days of employment. Also like the state law, the benefit may be front loaded or accrued and carried over to the next year.

Second, the new minimum wage will be $10.50 an hour starting July 1, 2016.

Santa Monica

Starting January 1, 2017, Santa Monica employers with more than 50 employees must provide nine days (72 hours) of paid sick leave. The application, accrual, and carryover procedures are the same as the San Diego and Los Angeles laws.

What to Do

The increasing trend toward localized employment regulation makes for a challenging compliance environment. Now more than ever, employers should consult counsel to stay abreast of these new and rapidly-changing laws.

ARTICLE BY Jennifer B. Rubin & Brent Douglas of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

EEOC Model Wellness Program Notice

On June 16th, the EEOC issued its model notice to be used in conjunction with wellness programs that ask disability related inquiries or require medical examinations. The notice requirement applies prospectively to employer wellness programs as of the first day of the plan year that begins on or after January 1, 2017, for the health plan used to determine the level of incentive permitted under the regulations. An employer’s HIPAA notice of privacy practices may suffice to satisfy the ADA notice requirements if it contains the ADA-required information. However, given the timing requirements for distribution of the HIPAA notice and the fact that the EEOC rules apply to wellness programs outside of the group health plan, a separate ADA notice may be required.

Questions and Answers: Sample Notice for Employees Regarding Employer Wellness Programs

Sample Notice for Employer-Sponsored Wellness Programs

ARTICLE BY Susan M. Nash of McDermott Will & Emery

OFCCP Reduces Veteran Hiring Benchmark

On June 16th, Office of Federal Contract Compliance Programs, OFCCP, announced that, effective March 4, 2016, the annual hiring benchmark for veterans pursuant to Vietnam Era Veterans’ Readjustment Assistance Act, VEVRAA,regulation is 6.9%. This is a slight decrease from last year’s 7.0% benchmark.

As part of the release OFCCP clarified that

“Contractors who adopted the previous year’s national benchmark of 7 percent after March 4, 2016, but prior to this announcement may keep their benchmark at 7 percent.”

The agency noted that going forward the effective date for the annual benchmark will match the date the Bureau of Labor Statistics publishes the data from which OFCCP calculates the benchmark. This usually takes place in March every year.

ARTICLE BY Laura A. Mitchell of Jackson Lewis P.C.

Los Angeles Employers Must Pay Higher Minimum Wages And Provide Expanded Paid Sick Leave

On July 1, 2016, employers who have more than 25 employees performing some work in the City of Los Angeles (the “City”) will need to provide higher minimum wages and six paid sick days per year. Employers with fewer workers in the City will need to expand sick leave benefits by July 1, 2016, but they will not be subject to minimum wage hikes until the same day next year.

Earlier this month, the City Council passed the Los Angeles Minimum Wage Ordinance (Ordinance No. 184320) (the “City Ordinance”) requiring employers to pay a higher minimum wage and provide more sick leave benefits than state law. A summary of the City Ordinance is below, but employers with questions regarding compliance should contact their employment counsel.

Minimum Wage Increases

The City Ordinance raises the minimum wage as follows:

	26 Employees Or More	25 Employees Or Less
July 1, 2016	$10.50	$10.00
July 1, 2017	$12.00	$10.50
July 1, 2018	$13.25	$12.00
July 1, 2019	$14.25	$13.25
July 1, 2020	$15.00	$14.25
July 1, 2021	$15.00	$15.00

On July 1, 2022, and every following year, the minimum wage will increase based on the Consumer Price Index for Urban Wage Earners and Clerical Workers for the City’s metropolitan area. Beginning in 2022, the City’s Office of Wage Standards of the Bureau of Contract Administration will publish additional minimum wage increases on February 1 of each year, with the increases taking effect on July 1 of each year.

Notably, this new law defines “Employee” as a person who: (1) “in a particular week performs at least two hours of work within the geographic boundaries of the City for an Employer”; and (2) qualifies as an employee entitled to receive the state-mandated minimum wage. The average number of Employees, as defined above, for the previous calendar year will be used to determine the size of an employer. Any new employer must count the total number of Employees, as defined above, during its first pay period.

The City Ordinance requires increases to the minimum wage sooner than the anticipated raises in California’s state-wide minimum wage, which will be set for employers with more than 25 employees to $10.50 on January 1, 2017, with gradual increases to ultimately $15.00 per hour on January 1, 2022. For smaller employers (25 employees or less) the gradual increases in state-wide minimum wage (much like the City Ordinance) will be delayed one year. Employers with exempt employees, however, should note that local minimum wage hikes (such as the City Ordinance) do not affect the minimum salary requirements to qualify for various wage and hour exemptions under state law. For example, the executive, administrative and professional exemptions—which permit employers to pay certain qualifying employees a salary instead of hourly wages with overtime—require a minimum monthly salary equivalent of at least twice the state-wide minimum wage.

The law also contains special provisions for nonprofit and transitional employers as well as for employers with employees who are 14 to 17 years old.

Expansion of Paid Sick Leave

The ordinance also provides six paid sick days (instead of the state-mandated three days) to Employees who, on or after July 1, 2016, work in the City for the same employer for 30 days or more within a year from his or her employment start date. The main requirements include:

Paid sick leave must accrue on the first day of employment, or July 1, 2016, whichever is later;
An Employee may use paid sick leave beginning on the 90th day of employment, or July 1, 2016, whichever is later;
An Employee may take up to 48 hours (i.e., six work days) of sick leave for themselves, a family member, or “any individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship” in each year of employment, calendar year, or 12 month period;
Employers must provide paid sick leave either by: (1) granting the entire 48 hours to an Employee at the beginning of each year of employment, calendar year, or 12-month period; or (2) using an accrual rate of one hour of paid sick leave for every 30 hours worked;
If an employer has a paid leave or paid time off policy (or provides payment for compensated time off) that is at least 48 hours, no additional time is required;
Accrued unused paid sick leave must carry over to the next year, but employers may implement a cap of at least 72 hours;
An employer may require an Employee to provide reasonable documentation of the reason for sick leave (though employers still must be cautious of state medical privacy laws);
Like state law, accrued unused paid sick leave is not payable upon termination of employment; and
If the Employee separates from employment and then is rehired within one year, then the employer must reinstate the Employee’s previously accrued and unused paid sick leave.

A separate but related ordinance (the Los Angeles Office of Wage Standards Ordinance, Ordinance No. 184319) passed by the City provides for restitution and additional penalties for failure to comply with the above standards, and it also requires every Employer to post the notice published each year by the Office of Wage Standards. The notice must be in English, Spanish, Chinese (Cantonese and Mandarin), Hindi, Vietnamese, Tagalog, Korean, Japanese, Thai, Armenian, Russian and Farsi, and any other language spoken by at least five percent of the Employees at the workplace. This notice can be found online at: http://wagesla.lacity.org/.

ARTICLE BY Benjamin J. Kim of Allen Matkins Leck Gamble Mallory & Natsis LLP

Lehman Brothers Wins Stock Drop Lawsuit

A New York federal appeals court once again rejected a breach of fiduciary duty claim against the now bankrupt Lehman Brothers brought by its employee stock ownership plan (ESOP) participants. In In Re: Lehman Bros. Sec. and ERISA Litig., No. 15-2229 (2d Cir. 2016), the US Court of Appeals for the Second Circuit on March 18 ruled that participants “failed to allege sufficiently” that plan fiduciaries violated their duties under the Employee Retirement Income Security Act (ERISA). The appeals court upheld an earlier July 15, 2015 decision by a US district court in New York to dismiss the complaint.

Soon after Lehman Brothers declared bankruptcy in September 2008, the ESOP participants sued, claiming that ESOP fiduciaries breached their fiduciary duties under ERISA “by continuing to permit investment in Lehman stock in the face of circumstances arguably foreshadowing its eventual demise,” the Second Circuit said. The New York district court dismissed the complaint for the first time in 2011, and the Second Circuit court upheld the dismissal in 2013. Both courts cited a long-held legal principle applicable to ESOPs—the presumption of prudence—to support the defendants’ request for dismissal.

However, in June 2014, the US Supreme Court nullified this long-standing presumption of prudence principle in a unanimous decision inFifth Third Bancorp, et. al. v Dudenhoeffer, et. al. According to the Supreme Court in the Dudenhoeffer decision, fiduciaries that evaluate an investment in employer stock may rely on its market price unless there are “special circumstances.” Specifically, the court held that “where a stock is publicly traded, allegations that a fiduciary should have recognized, from publicly available information alone, that the market was over or undervaluing the stock are implausible as a general rule, at least in the absence of special circumstances.” This means that the stock market price is the best estimate of employee stock value. But the Supreme Court did not address what it means by “special circumstances,” so, as a result, lower courts will need to determine when a plan fiduciary should have considered the market price as questionable.

Following Dudenhoeffer, the Lehman employees tried to establish special circumstances by pointing to orders issued by the US Securities and Exchange Commission (SEC) in summer 2008 that prohibited the short-selling of Lehman securities. They argued both that the orders described market conditions that constituted special circumstances and that the orders themselves qualified as special circumstances. The Second Circuit rejected this argument, explaining that the SEC orders “speak only conditionally” about the market effects of short sales.

This Second Circuit ruling marks the first time that a circuit court has applied the Supreme Court’s recent decision reaffirming the high hurdle facing employees who challenge company stock losses under ERISA (SeeAmgen Inc. v. Harris 136 S. Ct. 758 (US 2016)). This special circumstances requirement has derailed several lawsuits in the last two years, with courts dismissing claims involving the company stock plans of various major companies.

ARTICLE BY Brian D. Hector & Jason C. Ray of Morgan, Lewis & Bockius LLP

Washington, D.C. Prepares to Increase Minimum Wage to $15

— and Tipped Minimum Wage to $5.00 — by July 1, 2020

Washington, D.C. is poised to join California and New York by raising its minimum wage to $15.00 per hour.

On June 7, 2016, the D.C. Council, with support of Mayor Muriel Bowser, unanimously passed on first reading the Fair Shot Minimum Wage Amendment Act of 2016 . The bill will continue to raise the District of Columbia minimum wage – currently $10.50, but previously set to increase to $11.50 on July 1, 2016 – in additional annual increments until it reaches $15.00 by July 1, 2020. Beginning on July 1, 2021, the minimum wage will increase further based on the increase in the Consumer Price Index for All Urban Consumers for the Washington Metropolitan Statistical Area.

Notably, the bill will also increase the tipped minimum wage from the existing $2.77 per hour, where it has been since 2005, in annual increments of 56 cents (55 cents in 2020) to $5.00 on July 1, 2020, again with annual indexing in successive years. This increase in the tipped minimum wage represents a compromise between advocates who sought to eliminate any lower minimum wage for tipped employees, or to at least set a higher rate of half the minimum wage as Mayor Bowser originally proposed, and significant portions of the restaurant industry that resisted any increase at all.

The law also contains special provisions for government contractors that currently are covered by D.C.’s Living Wage Act, which generally require them to pay the minimum wage if it becomes higher that the living wage (currently $13.85, but also subject to annual adjustment). In addition, for the first time, District employees are covered by the D.C. minimum wage law.

The bill still faces a second vote, likely either on June 21 or 28, 2016, at which time it is possible there may be some amendments. After Mayor Bowser signs the bill, it is subject to a Congressional review period, but is expected to take full effect well in advance of the 2017 increases.

ARTICLE BY Brian W. Steinbach of Epstein Becker & Green, P.C.

Category: Labor & Employment

Update Company Policies for Transgendered Employees

Like this:

EEOC Alleges Hospital’s Mandatory Flu Vaccine Policy Violates Title VII

Like this:

A Whole New World for Qualified Plans: Internal Revenue Procedure 2016-37

Key Points for Individually Designed Qualified Plans: