The National Law Forum

Supreme Court to Consider Case on Patent Eligibility of Computer-Implemented Inventions

On December 6, 2013, the Supreme Court agreed to consider Alice Corp. v. CLS Bank International, a case concerning the patent eligibility of computer-implemented inventions. The Court will review a split decision issued by the en banc Federal Circuit in May 2013. In that decision, seven of 10 judges concluded Alice Corporation’s claims to computer-based methods for minimizing settlement risk in financial transactions, as well as claims to computer-readable media containing program code for performing such methods, constituted patent-ineligible subject matter under § 101. The judges split evenly, however, regarding the patent eligibility of Alice’s remaining claims to computerized systems for performing such transactions. Given the stark differences of opinion expressed by members of the Federal Circuit, it was widely predicted that the Supreme Court would step in to settle the dispute. The Court’s decision could have significant implications for the computer hardware and software industries, as well as for patent eligibility standards in general.

The Supreme Court is expected to hear arguments in early 2014, and a decision is expected by the end of the term in June 2014. The case number is 13-298.

Article by:

Kevin P. Moran

Richard L. Kaiser

Of:

Michael Best & Friedrich LLP

Progress on the Western Front in the Solar Net Metering Battle?

The ongoing discussion between solar energy stakeholders and utilities concerning the merits of net metering and the best approach to ensure that ratepayers with installed solar power systems contribute appropriately to overall electric transmission and distribution costs spans the nation, with state utility commissions from Georgia to California considering this issue. However, nowhere is that discussion presently more heated and more closely watched than in Arizona and Colorado.

After a day of public comments and a full day of discussions with interveners, the Arizona Corporation Commission (A.C.C.) voted 3 – 2 on November 14, 2013 to modify APS’s Net Energy Metering (NEM) program. (A.C.C. Docket No. E-01345A-13-0248) In brief, the A.C.C. voted to adopt a 70 cent/kW installed monthly charge for ratepayers with rooftop solar. For the average-sized rooftop installation of 7 kW, this means a monthly charge of $4.90. The two commissioners who voted against the decision felt that this did not go far enough in addressing the cost shift from NEM.

While the decision is likely to be perceived as a win for the rooftop solar companies, APS and other utilities can take solace in the fact that the Commission recognized that NEM does produce a cost shift and that the grid has value for all customers. The details of the cost shift, including consideration of the value of the grid, will be the subject of A.C.C. workshops that will take place prior to the next APS rate case.

Prior to the open meeting, it appeared as though the A.C.C. would adopt a solution that would reduce the NEM subsidy based on a formula that took into consideration the lower cost of utility scale solar. The monthly charge calculated through this formula ranged from $7.00 to $56.00 per month for a 7 kW installation, depending on the individual Commissioner’s proposal.

However, on the morning of the second day of the open meeting, the rooftop solar interveners and the Arizona Residential Utility Consumers Office (RUCO) negotiated a settlement that was the subject of most of the discussion. This “settlement” proposed a monthly charge of 70 cents per kw installed or $4.90 for a 7 kW system. While Commissioner Pierce and others mentioned the lower cost of utility scale solar, the final outcome had less to do with addressing the rate-shift and more to do with the amount that the DV industry said that the average customers, who they contend only save $5-10/month, could absorb and still be willing to install a system. APS opposed the eventual outcome, as did Commissioners Pierce and Brenda Burns.

The following solution was adopted:

Monthly charge. New rooftop PV customers beginning after December 31, 2014 will be billed a monthly charge of 70 cents per kW installed to help address the rate-shift from solar to non-solar customers. For the average-sized system of 7 kW, that would mean a charge of $4.90/month. The charge can be adjusted by the Commission in the future – either up or down – based on the volume of installations. Reports of rooftop installation volumes will be provided quarterly. There is no automatic escalation of the charge based on installation volume. This charge will be added to the rooftop solar customer’s Lost Fixed Cost Recovery (LFCR) fund assessment currently paid by APS customers. An offsetting reduction will be made to the monthly LFCR assessment currently paid by customers without rooftop solar.

Grandfathering. Rooftop installations under the current NEM structure will be grandfathered. There was a long discussion about grandfathering with a general consensus being reached that while any Commission can change any previous decision made, future Commissions were likely to honor grandfathering decisions made by previous Commissions. Customers who sign up for systems under the new 70 cent charge will be grandfathered if the charge is increased to 80 cents or $1.00, but only until the next rate case in 2015. Customers who then sign up under any increased charges (e.g., 80 cents or $1.00) will also be grandfathered until the next rate case. However, all new rooftop customers (post December 2013) will be subject to any changes agreed to in the next rate case.

The NEM issue will be taken up again in the next APS rate case.

While the net metering discussion in Arizona has reached a conclusion – for now, the debate continues in Colorado.

On July 24, 2013, Public Service Company of Colorado (PSCo), Xcel Energy’s Colorado subsidiary, filed with the Colorado Public Utilities Commission (CPUC) its 2014 Renewable Energy Standard Compliance Plan detailing its updated proposal to meet Colorado’s requirement that 30% of PSCo’s retail electric sales come from eligible energy resources by 2020. (CPUC Docket No. 13A-0836E) Long recognized for its substantial commitment to wind energy, PSCo’s renewable energy portfolio also includes utility scale solar facilities and various programs designed to facilitate expansion of distributed solar energy installations, including the popular Solar*Rewards® program which has over 15,000 participants and represents more than 160 MW of installed solar capacity.

In its 2014 RES Compliance Plan PSCo proposed adding 42.5 MW of new distributed solar generation, including 36 MW of retail distributed solar generation through the Solar*Rewards® program and 6.5 MW of community solar gardens through the Solar*Rewards® Community program. At the same time, the company proposed reducing the per kilowatt-hour incentives paid to customers with distributed solar installations.

The more controversial aspect of the utility’s filing related to PSCo’s call for more transparency in the NEM credit paid to customers with installed solar systems and the costs and benefits associated with distributed solar facilities. PSCo explains that customers with installed solar arrays receive a 10.5 cent credit per kilowatt-hour of electricity they deliver to the grid, however, that electricity only provides 5 cents in benefits to PSCo systems and customers. While PSCo acknowledges that distributed solar generation allows for some savings associated with fuel costs, energy losses, and the deferral of new generation resources, the utility argues that the NEM incentive paid to solar-owning customers does not adequately consider other costs related to generation, transmission, and distribution, costs that are presently being borne by non-solar customers. As did APS in the NEM debate in Arizona, PSCo takes the position that the need for and nature of NEM incentives must be reevaluated as the solar industry moves toward becoming self-sustaining. If the CPUC does not agree with PSCo’s NEM proposals, the utility indicated that it intends to acquire only enough distributed solar generation needed for minimum RES compliance – a total of 12.5 MW.

Solar businesses and trade groups, renewable energy advocates, and environmental groups have strongly opposed PSCo’s analyses and have characterized the utility’s proposal as declaring war on the solar industry. These stakeholders argue that PSCo’s analyses fail to properly consider distributed solar’s grid, environmental, and job creation benefits. To that end, the Vote Solar Initiative (VSI) filed a motion requesting that the CPUC sever the NEM issue from PSCo’s RES Compliance docket and conduct a separate, comprehensive NEM cost-benefit analysis. While VSI’s motion was supported by various other stakeholders, it was opposed by PSCo and CPUC Staff, and was ultimately denied.

An evidentiary hearing on PSCo’s 2014 RES Compliance Plan, including consideration of PSCo’s proposed NEM changes, is scheduled for February 3-7, 2014. Until then, it is likely that the NEM battle in Colorado will continue both in the CPUC docket and in the public debate concerning the costs and benefits associated with distributed solar generation, how those costs and benefits should be accounted for and allocated, and the continued need for incentives related to this distributed energy resource.

Article by:

Thomas H. Campbell

Thomas J. Dougherty

Of:

Lewis Roca Rothgerber LLP

Dark Sites Re: Secret Websites

In our modern media age, it sometimes feels as though everyone in the entire world has noticed the same thing at the same time. So it is with the Deep Web and the darknes that lurk in the shadows – it was an obscure topic until few months ago, and now your grandparents have probably heard of them. Once the type of thing that only geeks (like me!) would think and/or talk about, the topic has now made the front cover of Time Magazine (in a piece by legendary fantasy author and critic Lev Grossman). It has also made national news (with the takedown of the infamous SIlk Road marketplace) and inserted itself into a far more noticeable place of prominence in our culture.

These hidden sites can be found through a collection of anonymous servers that enable a vivid underground of dissidents, hackers, criminals, law enforcement, drug runners and folks who seem like refugees from a James Bond movie. All you need is a specialized tool like TOR, and (if you believe the stories) you can live a secret life online. But should you care? As a character says in one of my novels, “you may not be interested in the deep web, but the deep web is very interested in you.”

In the past when we talked with clients about the dark sites of the deep web, people really thought that it sounded like something out of a William Gibson story, like Chiba City in Neuromancer, or the Night Market in Nick Harkaway’s Angelmaker. But now companies are suddenly finding themselves confronting deep web issues as never before, whether because someone has “doxed” their employees or executives (by releasing personally identifiable information on persistent sites that cannot be taken down), because their products are being counterfeited and distributed by online networks, because they are being defamed on chat boards that cannot be reached let alone turned off, because someone has used TOR to anonymously hack their passwords — the possibilities are endless, troubling, and happening now. If you want to steal someone’s trade secrets and want to ensure that the transaction is untraceable, suddenly there are tools to accomplish exactly that. If you’ve learned how to copy a product using a 3-D printer, you can distribute the plans. If you want to cause trouble, you can hire someone directly to do that, pay them in bitcoins, and watch the damage from afar.

As a lawyer, it is impossible not to see how this is going to have a dramatic impact on IP, privacy, and nearly every other thing we do. The Internet of Things is coming shortly (the FTC just held a workshop on the topic this week), and the facial recognition technologies and environmental advertising predicted in Minority Report are no longer futuristic fictions. 3-D and electronic printing promises to give ever smaller groups the ability to make things based on electronic schematics without access to heavy industry. More and more information will be available about more people, and will be available to more people – and the fact that there are genuinely secure ways where those who are so inclined can use that data for criminal purposes should give everyone pause.

To be sure, all of this seems rather abstract, and it can sound like a tabloid scare tactic. But there are some things that everyone can do to deal with the risks in their own lives. First, engage in some data security hygiene: change your passwords regularly, don’t pass them out, don’t allow them to be easily engineered by people who know a few random facts about you. Second, think about whether you are in a business where people will want to copy your products, will want to pretend to be you, will want to steal your information. If you are that type of business, it is worth checking from time to time to see if you have been targeted. And finally, as always, if is critical that everyone in this day and age try to stay abreast of what is happening in the world of tech – it is easy to assume that because you make donuts, or own a small clothing store, or manage a bank, or run a hedge fund, that you don’t need to know about the cutting edge developments coming down the pipe. But you do. The time when you could just stick to your knitting and ignore the tech world is past, and you need to assume that the tech world is very interested in you, indeed.

Article by:

Darren S. Cahr

Of:

Drinker Biddle & Reath LLP

The “Relocation Costs” Reimbursement Arrangement: A Section 409A Trap for the Unwary

When an employer requires an employee to move his or her primary residence to work, or continue working, for the employer, oftentimes the employer, as an inducement for the employee to accept the offer employment or continue employment, will agree to pay for some or all of the employee’s “relocation costs.” Employers must be aware of the critical tax implications that can flow from such an arrangement.

Agreements to reimburse the employee for the costs of relocating vary. For example, an employer and employee may agree that the employer will reimburse the employee for moving his or her personal belongings to the new location and perhaps one round-trip airfare for the employee and his or her family; or, the employer may agree to reimburse the employee for all associated relocation costs and related expenses up to a maximum amount. Regardless, if the reimbursement constitutes taxable income for the employee and is subject to Section 409A of the Internal Revenue Code (the “Code”), but the terms of the arrangement do not comply with the Code’s requirements , the employee may have to pay a whopping 20% excise tax on the reimbursement.

Not all moving or relocation expenses are treated alike for federal income and payroll tax purposes. Generally speaking, for moves within the United States an employee may deduct from his or her gross income the reasonable expenses associated with (1) moving his or her household goods and personal effects, and (2) travelling to his or her new home. However, these categories of expenses are deductible only if all of the following requirements are met: (1) the move is closely related to the start of employment, (2) the new job location is at least 50 miles farther from the prior home than the employee’s prior job location is from the former home, and (3) the employee works full time for at least 39 weeks during the first 12 months of employment at the new location.

If the expenses are of a type that may be deducted and meet the foregoing requirements, then an employer’s reimbursement of those expenses will also not be subject to withholding for income taxes, social security and Medicare taxes, provided that the reimbursement arrangement meets the following additional requirements: (1) the expenses have a business connection, i.e., the expenses were incurred in connection with performing services for that employer, (2) the employer requires that the employee adequately account for the expenses within a reasonable period of time, and (3) any excess reimbursements are returned to the employer within a reasonable period of time.

If the relocation cost reimbursement arrangement does not meet the foregoing requirements, or if the employer reimburses the employee for expenses that do not qualify as deductible moving expenses of the type outlined above, the amount of the reimbursement is subject to income taxes, social security and Medicare taxes. For example, employers may agree to pay for return trips to the former residence, pre-move house hunting expenses, temporary housing, storage costs for personal belongings (excluding those incurred in transit), or costs associated with entering into a new rental lease or canceling a prior lease. Reimbursement for any of these costs will be includable in income and subject to social security and Medicare taxes because they do not qualify as the type of expense that may be deductible, even though they may otherwise meet the requirements to be excluded from compensation. Since the reimbursements are taxable, careful consideration must be given in the event that the reimbursement constitutes non-qualified deferred compensation subject to Section 409A.

By way of background, subject to certain exceptions, and generally speaking, Section 409A requires that any compensation promised in one year that could by its terms be paid in a later tax year must be paid only upon certain permissible payment “events,” such as, for example, a fixed date or schedule, or upon termination of employment.

An agreement to reimburse an employee for relocation expenses may or may not cross tax years, but if under the terms of the agreement the reimbursement could be made in a later tax year, then it constitutes deferred compensation subject to Section 409A, and there are important documentary and operational requirements that must be met under Section 409A. If the agreement does not comply with these documentary and operational requirements, the reimbursement amount that the employee receives could be subject to the 20% excise tax.

First, the relocation reimbursement agreement should be written and the written document must provide (1) an objectively determinable non-discretionary definition of the expenses eligible for reimbursement, (2) the reimbursement will be for expenses incurred during an objectively and specifically prescribed period, and (3) that the amount of expenses eligible for reimbursement in one year will not affect the expenses eligible for reimbursement in any other year. (The reason for the rule outlined in number (3) is because the IRS does not want the employee to be able to, indirectly or directly, pick a more favorable tax year by, for example, holding on to the reimbursement request or delaying the incursion of the cost.)

Second, the reimbursement must be made on or before the last day of the employee’s tax year following the year in which the expense was incurred, and the right to the reimbursement cannot be exchanged for another benefit.

For the most part, an employer’s expense reimbursement policy will satisfy the rules regarding the timing of the reimbursement. Unfortunately, employers all too often either provide for a very vague definition of the “relocation costs” that may be reimbursed, or agree to a cap without taking into consideration that the expenses incurred in one year could impact the expenses eligible for reimbursement in the following year. Employers should draft their relocation agreements carefully to provide the desired benefit to the employee while staying within the confines of the limitations of Section 409A. Accordingly, we recommend that whenever an employer or employee agree to a relocation cost reimbursement arrangement, that counsel review the arrangements to ensure that it is either exempt from or otherwise in compliance with Section 409A.

Article by:

Jessica W. Catlow

Of:

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Consumer Financial Protection Bureau Issues New Rule Regarding Consumer Mortgage Transaction Forms

On November 20, 2013 the Consumer Financial Protection Bureau (CFPB) issued a rule that will simplify and improve disclosure forms for consumer mortgage transactions. This rule implements the Dodd-Frank Act’s directive to integrate mortgage loan disclosures required by the Truth In Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). The two new disclosures are the Loan Estimate, which must be given three business days after application, and the Closing Disclosure, which must be given three business days before closing.

The Loan Estimate form replaces two current federal forms, the Good Faith Estimate designed by the U.S. Department of Housing (HUD) under RESPA and the “early” Truth in Lending disclosure required by TILA. The Closing Disclosure form replaces the current form used to close a loan, the HUD-1, which was designed by HUD under RESPA. It also replaces the revised Truth in Lending disclosure designed by the Federal Reserve Board under TILA.

These new rules apply to most closed-end consumer mortgages. They do not apply to home equity lines of credit, reverse mortgages or mortgages secured by mobile homes or by dwellings not attached to real property. To assist lenders, the final rule and official interpretations contain detailed instructions as to how these forms should be completed.

To permit time for lenders to come into compliance, the final rule will be effective on August 1, 2015.

Article by:

Jon G. Furlow

Of:

Michael Best & Friedrich LLP

Senior U.S. Officials Discuss Foreign Corrupt Practices Act (FCPA) Enforcement Trends and Activity

On November 18–21, U.S. regulators attended the 30th International Conference on the Foreign Corrupt Practices Act (FCPA), where they discussed the near-record amount of FCPA penalties in 2013 and disclosed that there are more than 150 ongoing FCPA investigations. Regulators from the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) also explained new developments in cross-border cooperation as well as their efforts to prosecute individual FCPA defendants.

Combined FCPA Penalties

According to Charles E. Duross, Head of the DOJ’s FCPA Unit and Deputy Chief of the Fraud Section, the FCPA Unit is “busier today than [it] ever has been” investigating and prosecuting FCPA misconduct. Although the DOJ may not have initiated as many enforcement actions to date in 2013 as in years past, Duross characterized 2013 as “the fifth biggest year in [the FCPA’s] history in terms of overall penalties” and predicted “that the ranking will move up before the end of the year.” As explained by Duross, “We have a pretty substantial pipeline of matters, and I actually have every reason to expect that, in the coming weeks and months, you will see even more activity, [including] more standard cases as well as . . . ‘grand corruption’ cases.”

Ongoing Investigations

Duross estimated that the DOJ is currently investigating “more than 150 cases” of potential FCPA violations and expects the DOJ to bring “very significant cases, top 10 quality type cases” in 2014. Duross stated that, while the number of investigations fluctuated due to the issuance of declinations, the DOJ has received a “constant inflow” of violations information, ranging from voluntary disclosures to whistleblower complaints. On November 15, the SEC’s Office of the Whistleblower reported that it logged 3,238 whistleblower tips and complaints in 2013, resulting in a combined total of 6,573 tips and complaints since the initiation of the whistleblower program in August 2011.^[1] Approximately 150 of those 3,238 tips and complaints have involved FCPA issues, including “some very, very good whistleblower complaints,” according to according to Kara N. Brockmeyer, Chief of the SEC’s FCPA Unit. While the SEC has yet to announce any whistleblower awards for FCPA cases, the agency announced its largest award to date—more than $14 million—to an anonymous whistleblower last month.^[2]

Enhanced International Cooperation and Cross-Border Enforcement

Nearly all of the U.S. regulators speaking at the conference trumpeted the increase in global cooperation and cross-border enforcement. In his November 19 speech, Andrew J. Ceresney, co-director of the SEC’s Division of Enforcement, stated that the SEC and DOJ have “capable and committed law enforcement partners worldwide, and their numbers are steadily growing.”^[3] The rise in cross-border cooperation and enforcement appears to be attributable, in part, to the enactment of new anticorruption legislation in countries ranging from Brazil to Latvia. As explained by Ceresney:

Over the past five years, we have experienced a transformation in our ability to get meaningful and timely assistance from our international partners. And through our collaborative efforts, the world is becoming a smaller place for corrupt actors. In particular, many of our foreign counterparts have taken important steps this year to strengthen their own anticorruption laws and step up their enforcement efforts. For example, Brazil passed the Clean Company Law, an anticorruption law that, for the first time, imposes criminal liability on companies that pay bribes to foreign government officials. More expansive in its reach than the FCPA, this new law forbids all companies that operate in Brazil from paying bribes to any government official, whether domestic or foreign. In the U.K., the Serious Fraud Office announced its first prosecution case under the Bribery Act. In Canada, the government enacted amendments strengthening the Corruption of Foreign Public Officials Act and prevailed in its first litigated case against an individual for violating this law. And recently, Latvia became the newest country to join the [Organisation for Economic Co-operation and Development] Working Group on Bribery.

As other countries begin to step up their efforts to combat corruption, it makes our job easier. Countries with strong anti-corruption laws are often great partners to us in combating corruption. Scrutiny from the local government, in addition to us, will often be a strong deterrent to bribery. More and more, our investigations are conducted in parallel with a foreign government.

In remarks made on November 19 at the FCPA conference, Brockmeyer advised attendees that the SEC would start working with more of its foreign counterparts—including those that it has not “necessarily worked with before”—in the future. Ceresney made a similar observation, noting “I am encouraged by the close collaboration [with foreign agencies] and fully expect the pace and extent of our cooperation with foreign agencies to grow in the coming years. Indeed, only recently I have been involved in a case in which we are receiving cooperation from a country that has never before provided any meaningful assistance.”

Continued Focus on Individual Prosecutions

Individuals from both the DOJ and SEC also emphasized their enduring interest in bringing individual FCPA violators to justice. As explained by Ceresney, “A core principle of any strong enforcement program is to pursue culpable individuals wherever possible. . . . Cases against individuals have great deterrent value as they drive home to individuals the real consequences to them personally that their acts can have. In every case against a company, we ask ourselves whether an action against an individual is appropriate.”

Ceresney acknowledged that FCPA enforcement actions against individuals pose unique challenges. For instance, regulators may be unable to reach individuals in foreign jurisdictions, and remedies are often limited or unenforceable. Regulators must also confront difficulties in obtaining foreign documents, collecting evidence, and gaining access to overseas witnesses. According to Ceresney, the SEC is overcoming these challenges by “expanding the availability and use of Memoranda of Understanding with international financial regulators to obtain bank records, other documents, and testimony; using border watches and other methods of obtaining information from foreign nationals; subpoenaing U.S.-based affiliates of foreign companies; and more aggressively seeking videotaped depositions that [the SEC] can use at trial if [it] cannot secure live testimony.”

The SEC currently has pending FCPA actions against executives of three companies, Magyar Telekom, Siemens, and Noble. In April 2013, the SEC obtained its sec
ond-highest penalty ever assessed against an individual in an FCPA case when one of the Siemens executives agreed to pay a $275,000 fine.^[4]According to Ceresney, “these cases have sent an unambiguous message that [the SEC] will vigorously pursue cases to hold individuals accountable for FCPA violations—including executives at the highest rungs of the corporate ladder.”

The DOJ similarly has pending FCPA actions against individuals and, according to Duross, is firmly committed to holding individuals accountable for FCPA misconduct. In support of this commitment, Duross cited recent actions against executives from BizJet, Maxwell Technology, and Direct Access Partners. It is worth noting, however, that the DOJ also brought actions against individuals associated with BSG Resources Ltd. and Willbros in 2013. Duross warned that resolutions for corporations—which occasionally precede actions initiated against individuals—do not immunize individual bad actors from subsequent criminal prosecution.

Increased Personnel Resources

According to Duross, the DOJ’s FCPA Unit “has more resources today than at any time before” and is working with “every major U.S. Attorneys’ Office in the United States” on FCPA matters. Duross explained that U.S. Attorneys’ Offices “serve as a force multiplier” for the FCPA Unit and provide a “deep bench of talent” and knowledge about the local jurisdictions. The addition of human resources—including trial attorneys, paralegal assistance, and translators—has improved the DOJ’s ability to investigate and prosecute FCPA misconduct.

_{[1]. U.S. Sec. & Exch. Comm’n, 2013 Annual Report to Congress on the Dodd-Frank Whistleblower Program at 1, 20 (Nov. 15, 2013), availablehere.}

_{[2]. Press Release, U.S. Sec. & Exch. Comm’n, SEC Awards More Than $14 Million to Whistleblower (Oct. 1, 2013), available here.}

_{[3]. Andrew Ceresney, Co-Dir., Div. of Enforcement, U.S. Sec. & Exch. Comm’n, Keynote Address at the International Conference on the Foreign Corrupt Practices Act (Nov. 19, 2013), available here.}

_{[4]. U.S. Sec. & Exch. Comm’n, Litigation Release No. 22676, Former Siemens Executive Uriel Sharef Settles Bribery Charges (Apr. 16, 2013),available here.}

Article by:

George J. Terwilliger III

Eric Kraeutler

Benjamin D. Klein

Of:

Morgan, Lewis & Bockius LLP

The Christmas Conundrum Re: Employee Time Off

The holidays are a joyous time of year, but many employers face the season with a certain sense of trepidation as their employees inevitably request time off work. As the holiday season kicks into full gear, now is a good time for employers to refresh themselves on basic guidelines for granting and denying employees’ vacation requests.

As a starting point, the availability of time off is typically dependent on a number of factors, including the employer’s formal policies, employment contracts, or a collective bargaining agreement. While there are no express state or federal laws requiring private employers to provide time off to celebrate holidays like Christmas, Hanukkah or Kwanzaa, Title VII of the Civil Rights Act of 1964 does require employers to ”reasonably accommodate” an employee’s religious practices, so long as it does not impose an “undue hardship” on the employer. Allowing an employee time off to observe a recognized religious holiday is normally a reasonable accommodation that should be made, if requested, without an undue burden.

Although some employers voluntarily reward employees with at least some time off during the holidays, employers must be careful to recognize that some employees may observe holidays that are not reflected in the employer’s office calendar. For example, if employees are given time off for Christmas day but not for Ramadan, employees observing the Muslim holiday may claim discrimination. Such situations can typically be avoided by utilizing “floating holidays” which allow time off for religious days that do not appear on a company’s official schedule. In addition, employers can include in the company policy that any holiday not appearing on the calendar can be requested and granted subject to review.

Article by:

W. Chapman Hopkins

Of:

McBrayer, McGinnis, Leslie and Kirkland, PLLC

Treasury and IRS Provide Thanksgiving Surprise: Proposed 501(c)(4) Political Activity Rules

As most of America travelled over the river and through the woods to Grandma’s house before the Thanksgiving holiday, the Treasury Department and the IRS delivered their own holiday gift. On Tuesday, November 26, they released proposed guidance aimed at clarifying which conduct by tax-exempt social welfare organizations – 501(c)(4) entities – qualifies as political campaign activity.

Under existing IRS regulations, the promotion of social welfare does not include direct or indirect participation in political campaigns on behalf of or in opposition to any candidate. Over the years, the IRS has used a wide-ranging facts and circumstances test to determine whether an organization is engaged in an impermissible level of political campaign activity. In the aftermath of the recent IRS scandal regarding the review of 501(c)(4) applications, Treasury and the IRS believe that more definitive political activity rules would reduce the need to conduct fact-intensive inquiries when applying the rules for qualification as a social welfare organization.

To accomplish this objective, Treasury and the IRS have coined a new term, “candidate-related political activity.” This term encompasses existing definitions of political campaign activity from federal tax and campaign finance laws, and includes the following:

Express advocacy communications;
Public communications made within 60 days before a general election or 30 days before a primary election that clearly identify a candidate for public office, as well as any other communications that have to be reported to the FEC (including independent expenditures and electioneering communications);
Monetary and in-kind contributions to or the solicitation of contributions on behalf of campaign, party and other political committees, and other tax-exempt organizations that engage in political activity; and
Other election related activities such as voter registration and get-out-the-vote drives, distribution of candidate or political committee materials, and the preparation and distribution of voter guides.

The proposed rules raise many serious concerns. For example, candidate-related political activity could include conducting nonpartisan voter registration drives and distributing nonpartisan voter guides. Moreover, the proposed rules attribute to 501(c)(4) organizations, among other things, political activities conducted by their officers, directors or employees acting in that capacity.

Unfortunately, the draft rules do not elaborate on the possible differences between conduct taken in an official capacity and personal political conduct by an officer, director or employee. Finally, many contributions from a 501(c)(4) to another tax-exempt organization would appear to qualify as candidate-related activity unless the contributor receives a written confirmation that the recipient does not engage in such activity and the contributor restricts the use of the contribution.

The proposed political activity rules also leave many important issues unaddressed. Under existing rules, 501(c)(4) entities must be “primarily” engaged in activities that promote the common good or social welfare. The proposed rules provide no guidance on what proportion of an organization’s activities must be dedicated to this purpose to qualify under section 501(c)(4). The proposed regulations also do not apply to entities that qualify under Section 501(c)(3) (charitable organizations), Section 501(c)(5) (labor unions), Section 501(c)(6) (trade associations), or Section 527 (political organizations). Treasury and the IRS are, however, accepting comments on the advisability of making changes in each of these areas. Interested persons may submit comments to the IRS by February 27, 2014.

Article by:

James A. Kahl

Ranlet S. Bell

Megan R. Wilson

Of:

Womble Carlyle Sandridge & Rice, PLLC

It's Official—The Supreme Court Announces That It Will Review The Contraceptive Mandate

On Nov. 26, 2013, U.S. Supreme Court announced that it will review two cases in which for-profit employers challenged the application of the contraceptive mandate under the Patient Protection and Affordable Care Act. The cases are Sebelius v. Hobby Lobby Stores and Conestoga Wood Specialites Corp. v. Sebelius.

Both employers say that their religious beliefs bar them from providing employees with drugs or other items that they consider abortifacients. These employers argue that the Free Exercise Clause of the First Amendment and the Religious Freedom Restoration Act protects their religious beliefs and therefore bars the application of the contraceptive mandate. In contrast, the government argues that for-profit corporations cannot exercise religion and therefore have no protection from the mandate.

Supreme Court

At present, the federal courts of appeal are deeply divided on this issue. Three circuits—the Seventh, Tenth, and D.C. Circuits—have upheld challenges to the mandate, while two circuits—the Third and the Sixth—have rejected these challenges. The most recent decision came from the Seventh Circuit in Korte v. Sebelius, Case No. 12-3841, and Grote v. Sebelius, Case No. 13-1077. The court’s ruling, issued Nov. 8, 2013, held that the Religious Freedom Restoration Act barred the application of the mandate to closely held, for-profit corporations when the mandate substantially burdened the religious-exercise rights of the business owners and their companies.

The Supreme Court will likely hear oral argument in the consolidated Hobby Lobby andConestoga case in March 2014. The decision is expected to decide whether—and to what extent—for-profit corporations have a right to exercise religion. Many commentators see parallels between this case and the Citizens United case in which the Court held that corporations had a First Amendment right to make certain political expenditures. If the Court finds that corporations also have religious rights, it could have significant impact on the application of other laws—including the Title VII, the ADA, the FMLA, etc. For example, could a religious employer object to providing FMLA leave for an employee to care for a same-sex spouse, even in a state that recognizes same-sex unions? Keep an eye on this case—it could have far-reaching consequences.

Article by:

Mark D. Scudder

Of:

Barnes & Thornburg LLP

Google Glass In the Workplace

WSJ reported on November 22, 2013, Google’s push to move Google Glass, a computerized device with an “optical head-mounted display,” into the mainstream by tapping the prescription eyewear market through VSP Global—a nationwide vision benefits provider and maker of frames and lenses. If the speed and immersion of technology over the past few years had shown us anything, it is that it will not be too long before employees are donning Google Glass on the job, putting yet another twist on technology’s impact on the workplace.

Employers continue to adjust to the influx of personal smartphones in the workplace, many adopting “Bring Your Own Device” (BYOD) strategies and policies. These technologies have no doubt been beneficial to businesses and workplace around the globe. The introduction of Google Glass into the workplace may have similar benefits, but the technology also could amplify many of the same challenges as other personal devices, and create new ones.

For example, employers may experience productivity losses as employees focus on their Glass eye piece and not their managers, co-workers, customers. Likewise, some businesses will need to consider whether Google Glass may contribute to a lack of attention to tasks that can create significant safety risks for workers and customers, such as for employees who drive or use machinery as a regular part of their jobs.

A popular feature of Google Glass is the ability to record audio and video. Smartphones and other devices do this already, but recording with Glass seems so much easier and become potentially less obvious overtime as we get used to seeing folks with the Glass. Of course, recording of activities and conversations in the workplace raise a number of issues. In healthcare, for instance, employees might capture protected health information with their devices, but potentially without the proper protections under HIPAA. Conversations recorded without the consent of the appropriate parties can violate the law in a number of states. Employees with regular access to sensitive financial information could easily capture a wealth of personal data, raising yet another data privacy and security risk.

The capturing of data on the Glass, even if not collected, used or safeguarded improperly, will add to the challenges businesses have to avoid spoliation of data stored in these additional repositories of potentially relevant evidence.

Only time and experience will tell what the impact of Google Glass will be in the workplace. However, as companies continue to adapt to present technologies, they should be keeping an eye on the inevitable presence of such new technologies, and avoid being caught without a strategy for reducing risks and avoidable litigation.

Article by:

Joseph J. Lazzarotti

Of:

Jackson Lewis LLP

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