The National Law Forum

Handling Employee Attendance and Pay When the Weather Outside is Frightful

Handling Employee Attedance and Pay When the Weather Outside is Frightful Like it or not, winter has finally arrived. During times of snowy and icy road conditions, employers will undoubtedly be faced with tardiness, absenteeism, and the possibility of implementing office and/or plant closures. One question that often arises during inclement weather is how to handle pay issues under the Fair Labor Standards Act (FLSA). If you find yourself in that boat snowmobile, read on! While it’s been a while since anything new has been issued in this area, the U.S. Department of Labor has previously issued guidance to help employers administer the FLSA when bad weather affects employee attendance. The answers to many of your questions probably depends on two factors – first, whether the employee is exempt or non-exempt, and second, whether the employer’s business remains open or closes during the inclement weather.

Must Employees be Paid When the Employer Closes its Business Due to Bad Weather?

The DOL’s position is that employers who close their business because of weather conditions must still pay exempt employees their regular salaries for any shutdown that lasts less than one full workweek. However, the DOL notes that no provision of the FLSA prohibits employers from requiring exempt employees to use vacation time or other accrued leave to cover the missed work. So long as there is no state law restriction, written policy, or collective bargaining agreement which provides otherwise, employers may require employees to use their PTO to cover absences in the event of an office closure in bad weather. Due to the negative effect on employee morale, however, many employers opt not to require employees to do this. If you intend to require employees to use paid leave in this circumstance, you should make that clear in your written policy. The key, for an office closure lasting less than one workweek, is to ensure that an exempt employee’s salary is not affected.

If an exempt employee is required to use PTO for an office closure but doesn’t have any leave left in his leave bank, then what? The employee must still be paid his regular salary when the employee’s business is closed for inclement weather for less than a week, regardless of whether he has available PTO. In cases where a weather closing leaves an employee with a negative leave balance, employers can grant the leave and allow the employee carry a negative PTO balance until he accrues additional leave to make up for the deficit in the employee’s leave bank.

The rule for non-exempt employees is much simpler – they are paid only for time worked. Thus, if the employer’s business is closed due to bad weather, the employer is not required to pay a non-exempt employee for time that is not worked, even if the employee was scheduled to work on the day of the closure. However, if non-exempt employees are required to report to work and asked to stay until a decision can be made whether to shut down or remain open in inclement weather, they must be paid – even if the employee is simply waiting around for his supervisor to make a decision about closing and there is no work for the employee to do.

Must Employees be Paid When the Employer’s Business Remains Open during Bad Weather, but Employees are Either Late to Arrive, Leave Early, or Entirely Absent?

Since non-exempt employees are paid only for the time worked, any scheduled work time that is missed due to late arrival, early departure, or absence in the event of inclement weather may be unpaid.

For exempt employees, proper pay depends on whether the employee misses a full day or only a partial day of work. If the employer’s business remains open, but an exempt employee is unable to make it into work due to bad weather and misses an entire day, the DOL regards the absence as one for personal reasons. Thus, the employer may deduct a full day’s pay from the employee’s salary, or require the employee to use available vacation time (or accrued PTO) to cover the time off, according to the DOL.

Conversely, if the employer’s business remains open but an exempt employee shows up for only part of the day, she must be paid for a full day’s work, regardless of how long she is there. The employee can be required to use vacation time (or other accrued PTO) to cover the hours missed due to late arrival or early departure, but the exempt employee’s salary can’t be affected. Docking an exempt employee’s pay for partial-day absences is not permitted under the FLSA and may compromise the employee’s exempt status.

There’s no question that bad winter weather creates havoc, stress, and unpredictability for employers and employees alike. Having clearly-communicated and consistently-followed policies about how weather-related absenteeism and tardiness will be handled can help to alleviate some of that anxiety and uncertainty, and knowing what the DOL regulations permit you to do as an employer can’t hurt either.

Article By Julie A. Moore of Steptoe & Johnson PLLC

Appellate Division Upholds Decision in Walmart Workers’ Comp Case

walmart-sign A particularly noteworthy case was recently decided by the Appellate Division on November 20, 2015. This case, Colleen Fitzgerald v. Walmart, is so interesting because the Court found that the worker’s injured condition did not qualify as a work related injury simply because she felt a “pop” in her low back while walking at work.

The Petitioner, Colleen Fitzgerald, filed a claim for an accident that occurred on April 26, 2010, while she was working for Walmart. She stated that she was merely walking in the store and felt a “pop” in her low back. While at the time of the claim Ms. Fitzgerald said she felt the pop she was not doing anything other than walking, later testimony revealed that at some time prior to the incident she had been doing some lifting at work in her position as a zone merchandise supervisor.

She reported the accident to her manager, and after seeing her family doctor who diagnosed her with protruding lumbar discs, she took FMLA for 12 weeks and a leave of absence while she received treatment. She did return to work at Walmart for a period of time, however because she then had another non-work related slip and fall accident where she broke her elbow, she was ultimately terminated from her job at Walmart. There was never any authorized treatment provided by the Workers’ Compensation carrier for Walmart.

Petitioner filed two claim petitions, one for the specific incident that occurred on April 26^th and an occupational claim for work she did from December 2008 through April 2010. Since Walmart denied both claims, petitioner filed a Motion for Medical and Temporary Disability benefits with the Workers’ Compensation Court. The Motion was heard by Judge Gangloff, who found in favor of Walmart, as did the Appellate Division on appeal.

In the trial before Judge Gangloff, both sides called medical experts to testify. Petitioner’s expert, Dr. Gaffney, testified that in his opinion petitioner’s injury was caused by her work at Walmart, while Respondent’s expert, Dr. Meeteer felt that the injury was not related.

The Appellate Division upheld Judge Gangloff’s decision under Close v. Kordulak and held that they found no reason to disturb his well-reasoned findings. They stated that the Judge reviewed the applicable case law and applied the two step “positional risk test” for determining whether the injury arose out of the course of employment. The first part of this test requires the petitioner to prove that “but for” the fact of employment the injury would not have happened. The next part of the test is to analyze the “nature of the risk” that caused the injury.

In this case, the Court concluded that that the petitioner failed to satisfy the first part of the test because “the facts here do not establish that the petitioner would not have been exposed to the risk if she had not been at work.” In other words, as she was simply walking when she felt the “pop” in her back, the back injury could have just as easily occurred while she was not at work. According Judge Gangloff, “she could have been walking anywhere at the time of onset of pain.” He found that there was nothing about the workplace that contributed to petitioner’s injuries. The Judge did not find that petitioner had a compensable occupational claim either, because the medical records did not support Dr. Gaffney’s opinion that her condition was somehow related to a progressive occupational condition.

Visa Waiver Program Changes Now Being Implemented

visa VWP nationals who have visited Iran, Iraq, Sudan, or Syria since March 1, 2011, or who hold dual nationality with one of the countries are no longer eligible for the VWP.

The United States on January 21, 2016, began to implement changes to the Visa Waiver Program (VWP) that were mandated under the Visa Waiver Program Improvement and Terrorist Travel Prevention Act of 2015 (the Act). Under the Act, which was included as an amendment to the December 18, 2015, omnibus spending bill (H.R. 2029), certain individuals are no longer eligible to travel or be admitted into the United States under the VWP. The affected are

nationals of VWP countries who have traveled to or been present in Iran, Iraq, Sudan, or Syria on or after March 1, 2011 (with limited exceptions for travel for diplomatic or military purposes in the service of a VWP country) and
nationals of VWP countries who are also nationals of Iran, Iraq, Sudan, or Syria.

Individuals who are ineligible for the VWP are still eligible to apply for a B-1/B-2 visitor visa at a US embassy or consulate. Individuals who need a US visa for urgent business, medical, or humanitarian travel to the United States may be eligible for expedited visa processing at a US embassy or consulate.

A waiver of these restrictions may be granted on a case-by-case basis by the secretary of homeland security if he determines that such a waiver is in the interests of US law enforcement or national security. Procedures for seeking a waiver are not currently available, but will presumably be published in the future. Waivers may be available for

individuals who traveled to Iran, Iraq, Sudan, or Syria on behalf of international organizations, regional organizations, and subnational governments on official duty;
individuals who traveled to Iran, Iraq, Sudan, or Syria on behalf of a humanitarian nongovernmental organization on official duty;
individuals who traveled to Iran, Iraq, Sudan, or Syria as a journalist for reporting purposes;
individuals who traveled to Iran for legitimate business-related purposes following the conclusion of the Joint Comprehensive Plan of Action (July 14, 2015); and
individuals who have traveled to Iraq for legitimate business-related purposes.

The VWP allows citizens of participating countries to travel to the United States without a visa for stays of 90 days or less. Travelers must be eligible to use the VWP and have a valid Electronic System for Travel Authorization (ESTA) approval prior to travel. ESTA approval is issued by US Customs and Border Protection through the ESTA portal. ESTA will usually inform a traveler within one to two days whether his or her application has been approved, after which the traveler may purchase a plane ticket and travel to the United States.

Beginning January 21, 2016, travelers who currently have valid ESTAs and who have previously indicated that they hold dual nationality with one of the four countries listed above on their ESTA applications will have their current ESTAs revoked. However, it is unclear how government agencies will implement revocations for individuals who have traveled to any of the four countries since March 1, 2011.

Individuals whose ESTAs are being revoked should receive notification that that they are no longer eligible to travel under the VWP; however, revocation can occur without notice. All individuals should confirm that their ESTAs remain valid prior to making final travel plans by checking the US Customs and Border Protection ESTA website.

A person whose ESTA is revoked remains eligible to travel to the United States but will first need to obtain a valid nonimmigrant visa issued by a US embassy or consulate. Travelers affected by these new rules should apply for a US nonimmigrant visa well in advance of desired travel to minimize the chance of delays. The visa application process requires every individual traveler to complete an online visa application. Such travelers will be required to appear for an interview and obtain a visa in their passports at a US embassy or consulate before traveling to the United States. Individuals who will require a visa should check the website of the US embassy in their country of residence for instructions on how to apply for the visa. Visa processing times range from as little as one week to several weeks for an appointment, depending on the specific embassy or consular office.

Canadian citizens are visa exempt and are not participants in the VWP; thus, the new restrictions do not apply to Canadian citizens who have dual nationality in one of the specified countries.

Article By Eleanor Pelta, Eric S. Bord, A. James Vázquez-Azpiri, Lisa Stephanian Burton &

Tracy Evlogidis of Morgan, Lewis & Bockius LLP

Does the DOL Consider You a Joint Employer under Its “Broad as Possible” Standard? You May Be Surprised at the Answer

DOL On January 20, 2016, the U.S. Department of Labor’s Wage and Hour Division (DOL) articulated a new standard that it will use to identify joint employment relationships. Specifically, the DOL published Administrator’s Interpretation No. 2016-1 (AI 2016-1), which is the first Administrator’s Interpretation this year, following the DOL’s similar pronouncement regarding independent contractor classifications in July 2015.

AI 2016-1 broadly interprets the Fair Labor Standards Act (FLSA) and Migrant Seasonal Agricultural Worker Protection Act (MSPA) and narrowly interprets case law regarding joint employment, resulting in its conclusion that “the expansive definition of ‘employ’ . . . reject[s] the common law control standard and ensures that the scope of employment relationships and joint employment under the FLSA and MSPA is as broad as possible.”

AI 2016-1 also sets forth two approaches for analyzing whether a joint employment situation exists: (1) horizontal, which looks at the relationship of the employers to each other, and (2) vertical, which examines “the economic realities” of the employee in relation to a “potential joint employer.” The structure and nature of the relationship(s) will dictate which analysis applies. In some cases both may be applicable, for example, when two businesses share an employee provided by a third-party intermediary, such as a staffing agency, that is the direct employer.

Horizontal Joint Employment

Citing the FLSA regulations, the DOL explained horizontal joint employment as follows:

Where an employee’s work simultaneously benefits two or more employers, or an employee works for two or more employers throughout the week, a joint employment relationship “generally will be considered to exist” in circumstances such as where:

the employers arrange to share or interchange the employee’s services;
one employer acts directly or indirectly in the interest of the other employer(s) in relation to the employee; or
“one employer controls, is controlled by, or is under common control with the other employer.”

In addition, the DOL set forth the following factors as potentially relevant in gauging the relationship between two or more employers and the degree of shared control over employees that might suggest a horizontal joint employment arrangement:

who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have any common owners);
do the potential joint employers have any overlapping officers, directors, executives, or managers;
do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs);
are the potential joint employers’ operations inter-mingled (for example, is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for);
does one potential joint employer supervise the work of the other;
do the potential joint employers share supervisory authority for the employee;
do the potential joint employers treat the employees as a pool of employees available to both of them;
do the potential joint employers share clients or customers; and
are there any agreements between the potential joint employers.

According to the DOL, not all (or even most) of these factors need to be present for a horizontal joint employment relationship to exist. The agency set forth an example of a server who works at two separate restaurants owned by the same entity. The managers at each restaurant share the employee and coordinate the employee’s schedule between the two locations. Both employers use the same payroll processor and share supervisory authority over the employee. The DOL would find this to be a horizontal joint employment relationship. The agency distinguished this from a scenario where an employee works at two restaurants, one in the mornings and the other in the afternoons, and while each restaurant’s owners and managers know of the employee’s other job, the restaurants are completely unrelated. However, these examples leave quite a bit of grey area where the DOL apparently envisions a fact-intensive analysis under “as broad a standard as possible.”

Vertical Joint Employment

When it comes to vertical joint employment, the DOL maintains that the proper analysis is an economic realities test, and not the traditional inquiry focused on control. AI 2016-1 focuses on an employee’s “economic dependence” on the “potential joint employer” as the critical inquiry. This view appears to conflate the principles underlying the DOL’s recent independent contractor analysis with the question of whether an additional employment relationship exists beyond the one already established between an employee and his/her direct employer. The resulting approach likely will result in the DOL (and many courts) finding more entities to be joint employers under the FLSA where they otherwise would not—and in situations where a joint employer determination has largely been unnecessary because the employees in question already receive FLSA protections in their employment relationships with their direct employers.

To explain what it views to be the proper analytical approach, the DOL heavily relies on an MSPA regulation listing seven factors to consider under that statute’s version of the economic realities test for farm laborers. While the DOL acknowledges that the MSPA regulation does not actually apply to the FLSA, the agency believes the MSPA’s factors are “useful guidance in a FLSA case” and that “an economic realities analysis of the type described in the MSPA joint employment regulation should be applied in [FLSA] cases” to determine whether a situation is one of vertical joint employment. The MSPA’s seven factors are as follows:

Directing, Controlling, or Supervising the Work Performed. “To the extent that the work performed by the employee is controlled or supervised by the potential joint employer [i.e., the end user] beyond a reasonable degree of contract performance oversight, such control suggests that the employee is economically dependent on the potential joint employer.” The DOL goes on to clarify, as did the National Labor Relations Board recently, that such control need not be direct, but can be exercised through the intermediary employer. Likewise, the end user need not exercise as much control as the direct employer for it “to indicate economic dependence by the employee.”
Controlling Employment Conditions. Along the same lines, if an end user “has the power to hire or fire the employee, modify employment conditions, or determine the rate or method of pay,” this indicates economic dependence on the end user, even if the control is indirect or not exclusive.
Permanency and Duration of Relationship. If a work assignment for the end user is “indefinite, permanent, full-time, or long-term,” this suggests economic dependence. The DOL further instructs that analysis of this factor should consider “the particular industry at issue” such as “if the work . . . is by its nature seasonal, intermittent, or part-time.”
Repetitive and Rote Nature of Work. If the employee’s work for the end user “is repetitive and rote, is relatively unskilled, and/or requires little or no training,” this indicates economic dependence on the end user.
Integral to Business. “If the employee’s work is an integral part of the potential joint employer’s business, that fact indicates that the employee is economically dependent on the potential joint employer. . . . .”
Work Performed on Premises. If the work is performed “on premises owned or controlled by” the end user, this indicates economic dependence on the end user.
Performing Administrative Functions Commonly Performed by Employers. Economic reliance also can be imputed if the end user performs “administrative functions for the employee, such as handling payroll, providing workers’ compensation insurance, providing necessary facilities and safety equipment, housing, or transportation, or providing tools and materials required for the work.”

The DOL acknowledges that there are other possible factors that courts consider, but states that “regardless, it is not a control test.” To the extent that some, if not many, courts still do apply a control test, the DOL responds that doing so “is not consistent with the breadth of employment under the FLSA.” The agency buttresses its stance with citations to case law from the Second Circuit (covering New York, Vermont and Connecticut), while noting elsewhere that other circuits have not followed suit.

Despite the lack of consensus among jurisdictions to apply an economic realities test to determine joint employment, the DOL encourages application of the test in a way that would drastically expand the scope of joint-employment liability. In a footnote, for example, the agency notes that in general, an employee need not even economically depend more on the end user than on his/her direct employer for a finding of vertical joint employment. “The focus . . . is not a comparison [of the two relationships].”

In summary, businesses must carefully monitor their relationships with affiliated companies or business partners. If affiliated entities employ the same person and do not take measures to maintain the separateness of their operations and management, the DOL likely would find horizontal joint employment, requiring the aggregation of work hours for purposes of overtime pay. Likewise, under the DOL’s interpretation of vertical joint employment, if a worker tends to economically depend on the end user business, which could be imputed from a wide variety of factors, the DOL likely would deem that end user business a joint employer for purposes of wage and hour liability—regardless of the employee’s primary economic reliance on his/her direct employer. These expansive interpretations could be especially problematic for staffing agencies and other types of tiered business models.

AI 2016-1 signifies the latest effort by the DOL to expand the FLSA’s reach to nontraditional work arrangements. Like its other recent effort, this may result in more DOL investigations and litigation. The AI 2016-1 almost certainly will be challenged in court. Additionally, legislation has been proposed (but not passed) to curtail similar attempts by federal agencies to expand joint employment liability. Nonetheless, based on the DOL’s new guidance, companies should reassess their business and staffing arrangements to manage the risks associated with costly governmental investigations.

Article By Elizabeth Gotham of Honigman Miller Schwartz and Cohn LLP

U.S. Supreme Court Agrees to Review Obama Immigration Action Case

The U.S. Supreme Court agreed today to hear a case challenging President Barack Obama’s executive action on immigration. The Supreme Court will decide whether President Obama can proceed with plans to defer deportation and provide work authorization to millions of individuals currently in the United States without lawful status.

The Supreme Court granted certiorari in Texas et al. v. U.S. et al. today and indicated that it will take up an additional issue on whether the Obama administration’s action violates a constitutional clause that requires the president to faithfully execute the law (i.e., the Take Care Clause in Article II of the Constitution). The Court will hear arguments this April and a decision is likely to be issued this June, before the end of the Court’s current session.

In November 2014, the Obama Administration issued new policies allowing certain undocumented immigrants to apply for deferred action and work authorization allowing them to remain and work legally in the United States. These programs were to apply to certain individuals brought to the U.S. when they were under the age of sixteen (Deferred Action for Childhood Arrivals), and also to undocumented individuals who are parents of U.S. citizens or lawful permanent resident children (Deferred Action for Parents of Americans and Lawful Permanent Residents). Twenty six states filed suit to stop these policies from being implemented in December 2014. The United States District Court for the Southern District of Texas issued a preliminary injunction in February 2015, and, on November 9, 2015, the U.S. Court of Appeals for the Fifth Circuit affirmed the injunction. The Obama administration petitioned the Supreme Court on November 20, 2015 seeking immediate review of the Fifth Circuit’s decision

Article By Cynthia Liao of Jackson Lewis P.C.

Supreme Court Rules TCPA Class Action Not Mooted by Unaccepted Settlement Offer to Named Plaintiff

Today the U.S. Supreme Court ruled 6-3 that a company’s unaccepted offer of complete relief to a named plaintiff in a putative class action does not moot the plaintiff’s case. Before the ruling, authored by Justice Ruth Bader Ginsburg, there was disagreement among the Courts of Appeals over whether an unaccepted offer can moot a plaintiff’s claim, thereby depriving federal courts of Article III jurisdiction. While not specific to the Telephone Consumer Protection Act (“TCPA”), this issue is common to cases involving statutes like the TCPA because damages are statutorily set and thus easily calculated. Under this ruling, a company facing a TCPA class action lawsuit cannot moot the case by offering complete relief to the named plaintiff before class certification.

Background on the Case

In Campbell-Ewald Co. v. Gomez, the U.S. Navy hired a nationwide advertising and marketing communications agency to execute a multimedia recruiting campaign that involved text messages. The marketing agency then hired a vendor to generate a list of cellular telephone numbers geared towards the Navy’s target audience who had consented to receive solicitations by text message. Under this campaign, the vendor sent text messages to over 100,000 recipients. One of those recipients was the named plaintiff, who alleged that he had not consented to receive the text message, and that the advertising agency violated the TCPA by sending the message (and perhaps others like it).

Before the deadline to file class certification, the advertising agency filed an offer of judgment under Federal Rule of Civil Procedure 68. The agency offered the named plaintiff complete relief – including his costs and $1,503 per text message that he could show he received. Note that the maximum the plaintiff could recover under the TCPA is $1,500 per text message plus the costs of filing suit. The plaintiff did not accept the settlement offer and allowed the Rule 68 submission to lapse after the time, 14 days, specified in the Rule.

The take-away from this important Supreme Court decision is that an unaccepted settlement offer has no force. Like other unaccepted contract offers, it creates no lasting right or obligation. Because plaintiff’s individual claim was not made moot by the expired settlement offer, the claim retained its vitality during the time to determine whether the case could proceed on behalf of the class.

Article By Robert V. Spake, Jr. of Polsinelli PC

Ramping Up For H1B Cap Season

USCIS Each year, USCIS issues 65,000 H-1B visas and 20,000 “master’s cap” visas. April 1, 2016 is he first date on which an H-1B petition may be filed for FY 2017, in anticipation of an October 1, 2016 start date. Last year, USCIS accepted 233,000 petitions in the first week. A lottery was conducted and over 60% of all petitions were rejected.

What does this mean?

Employers need to be prepared to file H-1B petitions on April 1. Now is the time to review your employees’ immigration status and start talking to your managers and HR teams to identify employees who may need H1B sponsorship in 2017. Many possible candidates may be working pursuant to an Optional Practical Training (OPT) work authorization card that may not expire until sometime in 2017. We nevertheless strongly suggest filing petitions for these employees for this fiscal year as well to maximize their chance for selection in the H-1B lottery.

Article By Jessica Feinstein of Jackson Lewis P.C.

Is Inconsistent Application Of Social Media Policy Evidence Of Discrimination?

A District Court in Louisiana concluded recently that a television station’s inconsistent application of its social media policy entitled a terminated employee to defeat summary judgment regarding his discrimination claim.

The television station in question, KTBS, had implemented a social media policy that included a prohibition on employees responding to viewer complaints. The station also held a mandatory meeting at which the policy was discussed. Shortly thereafter, Chris Redford, a male on-air reporter, wrote a negative post on his Facebook page about a viewer who had commented on one of his stories. Upon being notified of Redford’s post, KTBS fired Redford for violation the station’s social media policy.

Redford sued KTBS, alleging, among other things, gender discrimination because the station had not terminated a female on-air personality (Sarah Machi), who also had written a negative post on her Facebook page in response to a viewer’s comment.

KTBS moved for summary judgment, including as to Redford’s gender discrimination claim. In support of its motion, the station admitted that it did not consider an employee’s negative comments on his or her “private Facebook page” regarding a viewer to violate its social media policy. Although both Redford and Machi had posted negative comments on their personal Facebook pages, the station argued that Machi’s situation was different because her Facebook page was protected by privacy settings that only permitted it to be viewed by people she had “friended” whereas Redford’s Facebook page was public and he used it to promoted his work at KTBS. The court was not persuaded by the station’s attempted distinction. Rather, the court determined that the station’s inconsistent application of its social media policy to Redford’s and Machi’s same conduct—i.e., Redford was fired whereas Machi was not disciplined at all—created a triable issue of fact. Therefore, it denied the station’s motion as to Redford’s gender discrimination claim.

The important takeaway for employers, as we previously have discussed in various posts, is the critical importance of consistently applying its social media policies. It is not sufficient merely to have a social media policy. It is just as important to apply it in a consistent manner to avoid potential discrimination claims.

Article By Alexander Nestor of Allen Matkins Leck Gamble Mallory & Natsis LLP

USCIS Issues New Rule for Highly Skilled Workers: U.S. Citizenship and Immigration Services

U.S. Citizenship and Immigration Services (“USCIS”) issued its long-awaited final rule regarding highly skilled workers from Australia, Chile, Singapore, and the Commonwealth of the Northern Mariana Islands (“CNMI”), along with amendments favoring employment-based immigration. In summary, this rule:

facilitates more favorable processing of H-1B1 and E-3 treaty-based extension of status petitions;
adds E-3 Australian, H-1B1 Chilean/Singaporean, and CW-1 CNMI nationals to the list of those work-authorized nonimmigrants who can secure up to 240 days of continued employment authorization beyond their current expiration date simply by filing their timely extensions with USCIS before their current status expires;
clarifies that principal E-3 and H-1B1 nonimmigrants are authorized to work incident to their status and thus do not have to obtain independent employment authorization (applied in practice but not officially adopted as a formal regulation); and
expands the type of evidence that foreign nationals being sponsored under EB-1 outstanding professor and researcher permanent residency petitions can submit to include “comparable evidence” of their outstanding professor or research work.

This rule is expected to take effect on February 16, 2016.

Article By Robert S. Groban, Jr., Pierre Georges Bonnefil, Patrick G. Brady & Jang Hyuk Im of Epstein Becker & Green, P.C.

Tax Talk: When Reporting Gifts at Discounted Values, a Qualified Appraisal is Crucial

A common method for transferring wealth from one generation to the next involves contributing assets to a partnership or limited liability company, then transferring minority interests in the partnership or LLC to descendants or other family members. Done correctly, the technique allows donors to reduce their taxable estates by making gifts at reduced values, because of discounts for lack of control and lack of marketability. In so doing, the donor also effectively shifts the tax on any appreciation of the underlying assets to the younger generation.

In order to benefit from this estate planning technique, however, it is crucial that the gift is adequately disclosed on a gift tax return and its value backed by a qualified appraisal or a detailed description of the method used to determine the fair market value of the transferred partnership or LLC interest. Unfortunately, we have encountered situations recently in which a gift was not supported by a qualified appraisal, leading the Internal Revenue Service to challenge the value claimed by the donor and to propose additional gift tax, penalties and interest. Such challenges can lead to significant uncertainty, stress and legal expense—even if the donor’s valuation ultimately is sustained.

This article describes what constitutes a qualified appraisal and the information that is necessary if no appraisal is provided, and offers some practical advice for donors based on our recent experiences dealing with the IRS in audits and administrative appeals involving disputed gift tax valuations.

IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, requires donors to disclose whether the value of any gift reflects a valuation discount and, if so, to attach an explanation. If the discount is for “lack of marketability, a minority interest, a fractional interest in real estate, blockage, market absorption, or for any other reason,” the explanation must show the amount of, and the basis for, the claimed discounts. Moreover, in order for the statute of limitations to begin running with respect to a gift, the gift must be adequately disclosed on a return or statement for the year of the gift that includes all of the following:

A complete Form 709;
A description of the transferred property and the consideration, if any, received by the donor;
The identify of, and relationship between, the donor and each donee;
If the property is transferred in trust, the employer identification number of the trust and a brief description of its terms (or a copy of the trust);
A statement describing any position taken on the gift tax return that is contrary to any proposed, temporary or final Treasury regulations or IRS revenue rulings; and
Either a qualified appraisal or a detailed description of the method used to determine the fair market value of the gift.

While most of these requirements are straightforward, the last generally requires the donor to provide a more complete explanation. Fortunately, the IRS has published regulations that describe what constitutes a qualified appraisal and what information must be provided in lieu of an appraisal.

With respect to the latter, the description of the method used to determine fair market value must include the financial data used to determine the value of the interest, any restrictions on the transferred property that were considered in determining its value, and a description of any discounts claimed in valuing the property. If the transfer involves an interest in a non-publicly traded partnership (including an LLC), a description must be provided of any discount claimed in valuing the entity or any assets owned by the entity. Further, if the value of the entity is based on the net value of its assets, a statement must be provided regarding the fair market value of 100% of the entity (determined without regard to any discounts in valuing the entity or any assets owned by the entity), the portion of the entity subject to the transfer, and the fair market value of the transferred interest as reported on the return.^[1]

Donors and their counsel will rarely have the expertise needed to provide such a description. While it may be relatively simple to provide some of the factual information, determining the appropriate actuarial factors and discount rates is a highly complex and specialized field. Moreover, even if a donor or his or her counsel happened to have the relevant expertise, a description that is not prepared by an independent expert may be viewed suspiciously by the IRS because of a lack of impartiality. Moreover, if the description (or the appraisal, for that matter) is prepared by the donor’s counsel, it may negate the attorney-client privilege, at least with respect to any work papers prepared by the attorney in connection with the description or appraisal.

For these reasons and others, we strongly recommend that donors obtain an appraisal from an independent, reputable valuation firm before claiming discounts with respect to a gift of a partnership or LLC interest. The applicable Treasury regulations provide that the requirement described above will be satisfied if, in lieu of submitting a detailed description of the method used to determine the fair market value of the transferred interest, the donor submits an appraisal of the transferred property prepared by an appraiser who meets all of the following requirements:

The appraiser holds himself or herself out to the public as an appraiser or performs appraisals on a regular basis;
Because of the appraiser’s qualifications, as described in the appraisal that details the appraiser’s background, experience, education, and membership, if any, in professional appraisal associations, the appraiser is qualified to make appraisals of the type of property being valued; and
The appraiser is not the donor or the donee of the property or a member of the family of the donor or donee or any person employed by the donor, the donee or a member of the family of either.

Further, the appraisal itself must contain all of the following:

The date of the transfer, the date on which the transferred property was appraised, and the purpose of the appraisal;
A description of the property;
A description of the appraisal process employed;
A description of the assumptions, hypothetical conditions, and any limiting conditions and restrictions on the transferred property that affect the analyses, opinions and conclusions;
The information considered in determining the appraised value, including, in the case of an ownership interest in a business, all financial data used in determining the value of the interest that is sufficiently detailed to allow another person to replicate the process and arrive at the appraised value;
The appraisal procedures followed, and the reasoning that supports the analyses, opinions, and conclusions;
The valuation method used, the rationale for the valuation method and the procedure used in determining the fair market value of the asset transferred; and
The specific basis for the valuation, such as specific comparable sales or transactions, sales of similar interests, asset-based approaches, merger-acquisition transactions and the like.^[2]

While there is no firm rule on when or how often appraisals must be obtained, appraisals that are more than a year old may be less reliable—particularly if there is good reason to believe that the value of the underlying assets has changed—and thus more vulnerable to challenge.

An appraisal that meets all of the requirements described above is not unassailable, of course, but if the IRS does choose to challenge a gift tax valuation that is supported by such an appraisal, the donor will be in a significantly stronger position in the resulting examination or proceeding than a donor who failed to obtain a qualified appraisal or opted to rely on a stale appraisal.

In sum, obtaining a qualified appraisal is a crucial step in any estate planning or gifting strategy that involves making gifts of assets valued at a discount. Although donors may occasionally balk at the time and expense of preparing a reliable appraisal, it is almost certainly less time-consuming and costly than battling the IRS in an examination, administrative appeal or in litigation and should give donors confidence that their gifts are unlikely to be successfully challenged by the IRS.

Article By Ivan H. Gold of Schiff Hardin LLP

_{[1] Treas. Reg. § 301.6501(c)-1(f)(2)(iv).}

_{[2] Treas. Reg. § 301.6501(c)-1(f)(3).}

The National Law Forum

Handling Employee Attendance and Pay When the Weather Outside is Frightful

Like this:

Visa Waiver Program Changes Now Being Implemented

Like this:

Does the DOL Consider You a Joint Employer under Its “Broad as Possible” Standard? You May Be Surprised at the Answer

Like this:

U.S. Supreme Court Agrees to Review Obama Immigration Action Case

Like this:

Supreme Court Rules TCPA Class Action Not Mooted by Unaccepted Settlement Offer to Named Plaintiff

Like this:

Ramping Up For H1B Cap Season

Like this:

USCIS Issues New Rule for Highly Skilled Workers: U.S. Citizenship and Immigration Services

Like this:

Tax Talk: When Reporting Gifts at Discounted Values, a Qualified Appraisal is Crucial

Like this:

Share this:

Like this:

Share this:

Like this:

Share this:

Like this:

Share this:

Like this:

Share this:

Like this:

Share this:

Like this:

Share this:

Like this:

Share this:

Like this:

Share this:

Like this:

Share this:

Like this: