National Labor Relations Board (NLRB) Judge Gives a “Like” to Facebook-Related Termination

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National Labor Relations Board (NLRB) Administrative Law Judge Jay R. Pollack recommended the dismissal of a complaint involving the termination of two former employees of the Richmond District Neighborhood Center, a non-profit organization in the San Francisco Bay Area that runs community programs including after-school and summer programs for youth.

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The decision is all the more surprising because Judge Pollack agreed with the General Counsel that the employees at issue were engaged in protected concerted activity in complaining about their employer on Facebook; yet he found that some of the actions described by the employees (including having “crazy events [without] permission,” “do[ing] cool [expletive] and let[ting] [the employer] figure it out,” “playing loud music and get[ting] graffiti artists to place graffiti on the walls,” and hav[ing] clubs and tak[ing] the kids”) in their Facebook conversations were not protected. Accordingly, the Judge found that the employer could lawfully find that the employees conduct was not protected and that they were unfit for further service.

While this decision shows that not all social-media misconduct must be tolerated by employers, it is important for employers dealing with these types of issues to contact competent labor and employment counsel prior to making any termination decisions involving social media, as defending against an action of this nature before the NLRB can be costly.

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Varying Maternity Leave Policies Within the Same Company

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Is it permissible for a company to have separate maternity policies for a corporate office from that of a store location? The concern is of course that a claim of discrimination would be made if different policies were used, and it was right for the question to be asked.  However, what may be surprising is that there is no requirement that employees at different company locations all be offered the same benefits. In fact, it is common for employees in a corporate office to receive different employment packages than those at other locations, such as the company’s retail store or restaurant. In fact, an employer does not have to have the same policies for all employees in the same location in many instances. The key is that a policy not have an adverse impact on any protected groups or result in unintentional discrimination.

Maternity leave can involve a combination of sick leave, personal days, vacation days, short-term disability, and unpaid leave time. Thus, exactly how a maternity leave will be structured for any one employee will likely vary.  It is important to note that if your policy allows women to take paid leave beyond what’s considered medically necessary after childbirth (for instances, to arrange for childcare or bond with the child), then you should also allow male employees to take paternity leave for similar purposes. Not allowing a male to take leave under the same terms and conditions as females, if the leave is not related a pregnancy-related disability, can be considered sex discrimination.  So, realize that in some cases your maternity leave may also require a mirroring paternity leave.

The Family and Medical Leave Act (“FMLA”) should also always be considered. If FMLA eligible, a new parent (including foster and adoptive) may be eligible for 12 weeks of leave (unpaid or paid if the employee has earned or accrued it) that may be used for care of a new child.

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10 DOs and DON’Ts for Employer Social Media Policies

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In recent years, the National Labor Relations Board has actively applied the National Labor Relations Act to social media policies. The Act exists to protect employees’ right to act together to address their terms and conditions of employment. What many employers fail to realize is that the Act applies to union and non-unionized employers. With the Board’s increased scrutiny of social media policies, including review of non-unionized employers’ policies, the following list of dos and don’ts is meant to assist employers in drafting or reviewing their social media policies.

1. DON’T have a policy prohibiting an employee from releasing confidential information. The Board has found that such an overbroad provision would be construed by employees as prohibiting them from discussing information that could relate to their terms and conditions of employment, such as wages.

2. DO have a policy that advises employees to maintain the confidentiality of the employer’s trade secrets and private or confidential information. The Board advises employers to define and provide examples of trade secrets or confidential information. However, the Board cautions employers to consider whether their definition of trade secrets or confidential information would include information related to employees’ terms and conditions of employment.

3. DON’T have a policy prohibiting employees from commenting on any legal matters, including pending litigation. The Board found that such a policy would unlawfully prohibit discussion about potential legal claims against an employer.

4. DO have a policy prohibiting employees from posting attorney-client privileged information. The Board recognizes an employer’s interest in protecting privileged information.

5. DON’T have a policy prohibiting employees from making disparaging remarks about the employer. The Board held that such a policy would have a chilling effect on employees in the exercise of their rights to discuss their terms and conditions of employment.

6. DO have policy that prohibits employees from making defamatory statements on social media about the employer, customers, and vendors, and generally remind employees to be honest and accurate.

7. DON’T have a policy advising employees to check with the company to see if the post is acceptable, if the employee has any doubt about whether it is prohibited. The Board held that any rule that requires permission from the employer as a precondition is an unlawful restriction of the employee’s rights under the Act.

8. DO have a policy that prohibits employees from representing any opinion or statement as the policy or view of the employer without prior authorization. Advise employees to include a disclaimer such as “The postings on this site are my own and do not necessarily reflect the views of the [Employer].”

9. DON’T have a policy prohibiting negative conversations about co-workers or supervisors. The Board held that without further clarification or examples, such a policy would have a chilling effect on employees.

10. DO advise employees to avoid posts that reasonably could be viewed as malicious, obscene, threatening or intimidating, or might constitute harassment or bullying. Provide examples of such conduct such as offensive posts intentionally mean to harm someone’s reputation or posts that could contribute to a hostile work environment on the basis of a race, sex, disability, religion or any other status protected by applicable state or federal law.

Read more: http://ecommercelaw.typepad.com/ecommerce_law/2013/10/ten-dos-and-donts-of-employer-social-media-policies.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+E-commerceLaw+%28E-Commerce+Law%29#ixzz2ir3v2KvK

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A Quick Reminder Regarding Complaints in the Workplace

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Last year we reported on a landmark EEOC decision where the Agency concluded that discrimination against transgender individuals is actionable under Title VII. In that case, the EEOC held that Title VII prohibits an employer from taking adverse action based on the fact an employee/applicant fails to “adhere” to gender-based expectations or norms. It remains to be seen whether courts will agree with the EEOC’s position, but the decision appears to suggest that the argument may be viable in some jurisdictions.

There’s another angle to this issue, though: Can an employer be held liable for Title VII retaliation stemming from a complaint alleging transgender harassment? The biggest hurdle a Plaintiff will face in this context is whether the complaint amounts to “protected activity” under Title VII. Generally speaking, an employee can establish that she engaged in “protected activity” for purposes of a Title VII retaliation claim by demonstrating a “reasonable belief” that a violation of the statute occurred. This is true regardless of whether the underlying conduct amounts to actionable discrimination and/or harassment. A clever Plaintiffs’ attorney could conceivably point to the EEOC’s decision and argue that his or her client held a “reasonable belief” that a complaint regarding transgender-based harassment was protected activity under Title VII (and the adverse employment action was somehow linked to that complaint).

Bottom line: Even a “routine” complaint of unfair treatment can form the basis of a retaliation claim down the line. That being said, employers must be certain to thoroughly investigate all workplace complaints, regardless of how petty they may seem.

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To Track or Not to Track Re: Digital Advertising

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Digital advertising based on tracking users’ interests and related privacy concerns have been the subject of many recent news articles.  What does this mean for businesses?  Evolving industry practices and new legislation relating to online privacy and user tracking likely require changes to online privacy practices and policies.

Online privacy and user tracking are in the news almost daily.  Consider these highlights from the past few weeks about online tracking of California minors, big data brokers, California legislation addressing “do not track,” new mobile and online interest-based advertising technology, and a warning to all website operators from the Better Business Bureau:

New Privacy Rights for California Minors

On September 23, 2013, Governor Brown signed into law new Sections 22580 through 22582 of the California Business and Professions Code titled “Privacy Rights for California Minors in the Digital World.”  The new law, which goes into effect January 1, 2015, requires an operator of a website (including online services and applications, such as a social media site) or mobile application that is “directed to minors” to allow minors (defined as anyone younger than 18 years old residing in California) who are registered users the opportunity to un-post or remove (or request removal of) their posted online content.  The operator also must provide minors with notice and “clear instructions” about how to remove their posted content.  The operator is not, however, required to remove posted content in certain specific circumstances, such as when the content was posted by a third party.

This new law also prohibits website and mobile app operators from advertising to California minors certain products and services that minors cannot legally purchase, such as alcoholic beverages, firearms, ammunition, spray paint, tobacco products, fireworks, tanning services, lottery tickets, tattoos, drug paraphernalia, electronic cigarettes, “obscene matter” and lethal weapons.  Operators also are prohibited from using, disclosing or compiling certain personal information about the minor for the purpose of marketing these products or services.

Senator Rockefeller Expands Investigation of Data Brokers

On September 25, 2013, Governor Rockefeller (W.VA) announced that he sent letters to 12 operators of popular family-, health- and personal-finance-related consumer websites requesting details about whether and what information collected from consumers is shared with data brokers.  In his letter to the operator of self.com, for example, Rockefeller noted that “[w]hile some consumers may not object to having their information categorized and used for marketing purposes, before they share personal information it is important that they know it may be used for purposes beyond those for which they originally provided it.”

California Adds Do-Not-Track Disclosure Requirements Effective January 1, 2014

On September 27, 2013, California Governor Brown signed into law amendments to the California Online Privacy Protection Act (CalOPPA), a 2004 law requiring all commercial websites and online service providers collecting personally identifiable information about California residents to “conspicuously” post a “privacy policy.”  The amendments to CalOPPA, which take effect on January 1, 2014, add two new disclosure requirements for privacy policies required by CalOPPA:

  • The privacy policy must explain how the website “responds to ‘Do Not Track’ signals from web browsers or other mechanisms that provide California residents the ability to exercise choice” about collection of their personally identifiable information (Cal Bus and Prof Code §22575(b)(5)).
  • The privacy policy must disclose whether third parties use or may use the website to track (i.e., collect personally identifiable information about) individual California residents “over time and across third-party websites” (Cal Bus and Prof Code §22575(b)(6)).

The “Bill Analysis” history indicates that CalOPPA amendments are not intended to “prohibit third-party or any other form of online tracking” but rather to “implement a uniform protocol for informing Internet users about tracking . . . and any options they may have to exercise choice . . .” (6/17/13 – Senate Judiciary).

A website operator may meet the “do not track” disclosure requirement by including a link in the privacy policy to “an online location containing a description, including the effects, of any program or protocol the operator follows that offers the consumer that choice” (Cal Bus and Prof Code §22575(b)(7)).

The reference in §22575(b)(7) to “an online location” suggests that businesses already complying with the “enhanced notice link” requirements of the Self-Regulatory Program for Online Behavioral Advertising of the Digital Advertising Alliance (DAA) will comply with amended CalOPPA.  Among other requirements, the DAA’s self-regulatory program requires website owners/operators (called “First Parties”) to provide “clear, meaningful and prominent” disclosure about data collection and use for advertising purposes, and to offer consumers a way to opt out of tracking, such as through the DAA’s consumer choice page.  As noted in the Bill Analyses, while the DAA’s consumer choice mechanism enables consumers to opt out of receiving advertising based on online tracking data, it only works for companies that participate in the DAA’s program and “does not allow consumers not to be tracked.”

User Credentials Subject to California Breach Laws Effective January 1, 2014

Governor Brown also signed into law amendments to California’s breach notification laws on September 27, 2013.  As amended, the definition of “personal information” that triggers breach notification requirements includes consumers’ online credentials: “user name or email address, in combination with a password or security question and answer that would permit access to an online account.”

Mobile Advertising: Mobile Telephone as Tracking Device

In the October 6, 2013, edition of the New York Times, an article titled “Selling Secrets of Phone Users to Advertisers” describes sophisticated profiling techniques for mobile phone users that feed on data collected through partnerships with other various online service providers.  These companies are developing alternatives for cookies, which do not work on mobile devices and, as the new California law illustrates, are increasingly irrelevant as an online tracking technique because users can block or delete them.

New Tracking Technology from Microsoft and Google

On October 9, 2013, AdAge reported that Microsoft is developing a new kind of tracking technology to replace cookies.  The new technology would function as a “device identifier,” allowing user tracking across devices that use Microsoft Windows, Xbox, Internet Explorer, Bing and other Microsoft services.  Similarly, USA Today reported that Google is developing its own digital tracking mechanism known as “AdID.”  While both of these new trackers will be used to collect and aggregate date for advertising and marketing purposes, they purportedly will offer users more control over how and what online activity is tracked and who has access to their personal data.

Better Business Bureau Issues Compliance Warning to Website Operators

On October 14, 2013, the Better Business Bureau issued a Compliance Warning noting that a “significant minority of website operators” are omitting the “enhanced notice link” (as required by the DAA’s Self-Regulatory Program for Online Behavioral Advertising) when ad networks and other third parties collect data for interest-based advertising purposes but cannot provide their own notice on the website on which the data collection occurs.  The Better Business Bureau operates the Online Interest-Based Advertising Accountability Program, through which it monitors businesses’ advertising practices and enforces the DAA’s self-regulatory program, even for companies that are not participating in it.

All of this news has created consumer confusion.  While consumers are increasingly aware of being tracked, they don’t know what exactly it means or which websites are doing it—and they are not happy about it.  A study from data privacy company TRUSTe found that 80 percent of consumers are aware of being tracked and 52 percent don’t like it.

What to Do?

A check-up for the privacy policy (or “privacy statement,” which is the increasingly popular industry term) posted on your company’s website is a good way to start evaluating your company’s digital advertising and privacy practices.  The online privacy statement is the primary means by which website operators (also known as “publishers”) communicate their privacy practices to users.

These Four steps can help you successfully evaluate your company’s privacy statement:

First, find out if your company’s marketing strategy includes advertising based on consumer information collected through cookies or other tracking technology.  Even if this type of advertising is not part of current plans, your company’s website still may have third-party tracking activities occurring on it, and these activities must be disclosed in the privacy statement as of January 1, 2014.

Second, review the privacy statement displayed on your company’s website(s) and/or mobile application(s) and make sure it accurately, clearly and completely discloses the information collected from users, how it is collected (e.g., by your company or by third parties), how your company uses the information, and whether and how the information is disclosed to third parties.  If you use information that you collected from consumers for targeted advertising, make sure the privacy statement says so.  A federal judge in the Northern District of California recently reviewed a company’s online privacy policy to evaluate whether users reading the privacy policy would understand that they were agreeing to allow user profiles and targeted advertising based on the contents of their e-mails.  The court found that the lack of specificity in the company’s privacy policy about e-mail interception meant that users could not and did not consent to the practices described in the online privacy policy.

Third, find out when and how the privacy statement is or was presented to users who provide personal information through the company website(s) and/or mobile application(s).  Is the privacy statement presented as a persistent link in the footer of each webpage?  Are users required to agree to the privacy statement?  If not, consider implementing a mechanism that requires users to do so before providing their personal information.

Finally, if your privacy statement needs to be updated, make sure you notify all consumers in advance and ensure that the changes you propose are reasonable.  Unreasonable and overbroad changes made after the fact can cause reputational harm.  Instagram learned this at the end of 2012 when it tried to change its terms of service so that users’ photos could be used “in connection with paid or sponsored content or promotions, without any compensation to [the user].”  After a hail of consumer complaints, Instagram withdrew the revised terms and publicized new, more reasonable ones.

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A Tip For Dealing with Automatic Gratuities in 2014

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A new Internal Revenue Service (“IRS“) rule, set to take effect in January 1, 2014, may eliminate a common practice in the restaurant industry. Often, an automatic gratuity, normally 18%, is added to the bill of large parties. Automatic gratuities were adopted by restaurant employers as a means for ensuring that servers do not get stiffed on expensive bills. Servers heavily rely on tips to supplement a salary that is often times lower than the federal minimum wage.

Traditionally, automatically-added gratuities have been classified as employee tips. As such, it is up to the employees to report the money as income. Starting in January, automatic gratuities will be categorized as “service charges” – making them regular wages and subject to payroll tax withholdings. Employers will have to track and report any automatic tips and will be required to include the “service charge” payments in employees’ W-2 wages. Further, employers will no longer be able to count these tips as a credit to reduce their minimum wage obligation. It is a lose-lose situation because servers will not see their automatic gratuity money until payday; making it more difficult to survive on a small salary.

Many major chains, like Olive Garden and Red Lobster, have eliminated automatic gratuities in response to the approaching deadline. For restaurants that opt to keep the automatic gratuity system, payroll accounting will become much more complicated. Tips from automatic gratuities will have to be factored into hourly pay rates, which means hourly rates could vary based on how many large parties are served in any given hour.

It would be wise for smaller restaurants to follow the chain restaurants’ lead by eliminating automatic gratuities altogether. Doing so will not only to lessen compliance requirements and tax burdens, but will also keep employees happy by ensuring that the tips they earn can immediately be pocketed.

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Apocalypse Averted Again: Preliminary Thoughts on Welcoming Workers Back From the Government Shutdown

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As discussed a few weeks ago, the government shutdown had a broad impact on a number of workers in the public and private sectors. Now that the federal government has reopened, employers welcoming back furloughed employees should stand ready to answer worker questions and assuage employee concerns. Below we offer some preliminary thoughts for private employers managing this delicate process.

  • Back Pay and Unemployment. Employers should be prepared to answer employee questions about their eligibility for back pay and unemployment benefits for their time out of work. If employers provide back pay and employees have already received unemployment benefits, employers should notify employees that they may be required to pay back any unemployment benefits received.  Generally, employees can either collect unemployment from the respective state unemployment agencies for the time missed or they can accept the backpay if offered by the employer, but they cannot double collect.  At least three state unemployment agencies (PA, VA, MD) have explicitly stated that they will expect reimbursement if employers provide back pay.
  • Guard Against Liability. Efforts by employers to return workplaces to pre-shut down normalcy, including by providing back pay and other benefits to workers for the furloughed time, should be implemented in an even-handed, non-discriminatory manner to guard against liability. For example, if employers decide to bring employees back from a furlough on a rolling basis, they must be sure to have neutral business-justified criteria for who is brought back to the workplace and when they are brought back to the workplace.
  • Manage the Message. Hundreds of thousands of workers have been temporarily out of work for up to three weeks because of the government shutdown. Employers should emphasize that these temporary furloughs were the outgrowth of the Congressional stalemate. Accordingly the message to employees should be clear: extraordinary circumstances and not poor job performance, forced employers’ hands and required them to temporarily furlough employees.
  • Ease Their Pain. Employers need to be sensitive to the plight of their returning workers, many of whom have been suffering severe economic hardship during this time period. Economic esprit-de corps measures like jeans days or pizza lunches represent cost-effective ways to remind returning employees that they are highly-valued and welcomed back into the corporate fold.

When in doubt about prospective measures in the wake of the government shutdown, employers should contact employment counsel.

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IRS Guidance on Employment and Income Tax Refunds on Same-Sex Spouse Benefits

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Employers extending benefit coverage to employees’ same-sex spouses and partners should review their payroll procedures to ensure that such coverages are properly taxed for federal income and FICA tax purposes.  Employers also should review the options in Notice 2013-61 and consider filing claims for refunds or adjustments of FICA overpayments.

Employers that provided health and other welfare plan benefits to employees’ same-sex spouses prior to the Supreme Court of the United States’ June 2013 ruling in U.S. v. Windsor may be interested in filing claims for refunds or adjustments of overpayments in federal employment taxes on such benefits.  To reduce some of the administrative complexity of filing such claims, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) recently issued Notice 2013-61, which outlines several optional procedures that employers can use for overpayments in 2013 and prior years.

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In Windsor, the Supreme Court ruled Section 3 of the Defense of Marriage Act (DOMA) unconstitutional.  Section 3 of DOMA had provided that, for purposes of all federal laws, the word “marriage” means “only a legal union between one man and one woman as husband and wife,” and the word “spouse” refers “only to a person of the opposite-sex who is a husband or wife.”

Federal Taxation of Same-Sex Spouse Benefits

The Windsor ruling thus extends favorable federal tax treatment of spousal benefit coverage to same-sex spouses.  The IRS issued guidance in July clarifying that this tax treatment would extend to all same-sex couples legally married in any jurisdiction with laws authorizing same-sex marriage, regardless of whether the couple resides in a state where same-sex marriage is recognized.  This IRS approach recognizing same-sex marriages based on the “state of celebration” took effect September 16, 2013.

Prior to the ruling, an employer that provided coverage such as medical, dental or vision to an employee’s same-sex spouse was required to impute the fair market value of the coverage as income to the employee that was subject to federal income tax (unless the same-sex spouse qualified as the employee’s “dependent” as defined by the Internal Revenue Code).  The employer was required to withhold federal payroll taxes from the imputed amount, including federal income and the employee’s Social Security and Medicare (collectively FICA) taxes.  In addition, employers paid their own share of FICA taxes on the imputed amount, as well as unemployment (FUTA).

As a result of the ruling, an employee enrolling a same-sex spouse for benefit coverage under an employer-sponsored health plan no longer has imputed income for federal income tax purposes; may pay for the spouse’s coverage using pre-tax contributions under cafeteria plans; and may take tax-free reimbursements from flexible spending accounts (FSAs), health reimbursement accounts (HRAs) and health savings accounts (HSAs) to pay for the same-sex spouse’s qualifying medical expenses.  This same favorable federal tax treatment does not extend to employer-provided benefits for an unmarried same-sex partner, unless the same-sex partner qualifies as the employee’s dependent.

Overpayments of Employment Taxes in 2013

Employers that overpaid both federal income and FICA tax in 2013 as a result of income imputed to employees for benefit coverage for a same-sex spouse may use the following optional administrative procedures for the year:

  • Employers may use the fourth quarter 2013 Form 941 (Employer’s Quarterly Federal Tax Return) to correct overpayments of employment taxes for the first three quarters of 2013.  This option is available only if employees have been repaid or reimbursed for over-collection of FICA and federal income taxes by December 31, 2013.

Alternatively, employers may follow regular IRS procedures to correct an overpayment in FICA taxes by filing a separate Form 941-X for each quarter in 2013.  Notice 2013-61 provides detailed instructions for each of the alternative options, including how to complete the Form 941, as well as Form 941-X, which requires “WINDSOR” in dark, bold letters across the top margin of page one.

Overpayments of FICA Taxes in Prior Years

Employers that overpaid FICA taxes in prior years as a result of imputed income for same-sex spousal benefit coverage may make a claim or adjustment for all four calendar quarters of a calendar year on one Form 941-X filed for the fourth quarter of such year if the period of limitations on such refunds has not expired and, in the case of adjustments, the period of limitations will not expire within 90 days of filing the adjusted return.  Alternatively, employers may use regular procedures to make such claims or adjustments.  The regular procedures require filing a Form 941-X for each calendar quarter for which a refund claim or adjustment is made.  Note that under the alternative procedure provided by Notice 2013-61 or under the regular procedure, filing of a Form 941-X requires either employee consents, or repayment or reimbursements, as well as amended Form W-2s to reflect the correct amount of taxable wages.

Employee Overpayments of Federal Income Taxes

Employers who provided benefits to employees’ same-sex spouses in 2013 may adjust the amount of reported federally taxable income on each employee’s Form W-2 (Wage and Tax Statement) to exclude any income imputed on the fair market value of the coverage and to permit the employee to pay for the coverage on a pre-tax basis.

Employees who overpaid federal income taxes in prior years as a result of same-sex spouse benefit coverage may claim a refund by filing an amended federal tax return for any open tax year.  Refunds are available for overpayments resulting from income imputed on the fair market value of the coverage and from premiums paid on an after-tax basis for the coverage.  An amended tax return generally may be filed from the later of three years from the date the return was filed or two years from the date the tax was paid.

Employers that file Form 941-X are required to file Form W-2c (Corrected Wage and Tax Statement) to show the correct—in this case reduced—wages.  Employers that do not file Form 941-X may want to begin preparing for employee requests for a Form W-2c for each open tax year in which benefit coverage was offered to employees’ same-sex spouses.

Next Steps

Employers extending benefit coverage to employees’ same-sex spouses and partners should carefully review their payroll processes and procedures to ensure that such coverages are now properly taxed for federal income and FICA tax purposes.  In addition, employers should review the options in Notice 2013-61, and consider filing claims for refunds or adjustments of overpayments of FICA taxes for any prior open tax years and issuing Form W-2c to allow employees to claim refunds of federal income tax.  Most importantly, by acting promptly, employers can correct the 2013 over-withholdings for both FICA and federal income tax and overpayment of the employer portion of FICA tax, without the necessity and burden of filing a Form 941-X.

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New Employee Wellness Program Rules for 2014

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Employers continue to look for ways to manage the cost of employee health care coverage as they navigate the turbulent waters of healthcare reform, and wellness programs continue to be a popular strategy.  However, adoption and expansion of these programs have been hampered somewhat by questions about their effectiveness, cost, and the risk of noncompliance with the uncoordinated web of laws and regulations governing these programs.  While evidence seems to be emerging that at least some wellness program designs can be an effective means for cost control and long-term savings due to improved health, recently issued final regulations under the Health Insurance Portability and Accountability Act (HIPAA) effective beginning in 2014 only add additional burdens to employers’ compliance efforts.

HIPAA amended ERISA to generally prohibit discrimination against individual participants and beneficiaries in eligibility, benefits or premiums based on “health status-related factors,” including physical and mental illnesses, claims experience, receipt of health care, medical history, genetic information, evidence of insurability, and disability.  However, under the wellness program exception to HIPAA group health plans may offer premium discounts, rebates, reduced co-payments and/or lower deductibles (generally referred to as ‘rewards’) to participants and beneficiaries who take part in “programs of health promotion and disease prevention.”

The final HIPAA nondiscrimination regulations, effective for plan years beginning after 2013, create two categories of programs under the wellness program exception: ‘participatory wellness programs’ and ‘health-contingent wellness programs.’

Participatory wellness programs either provide no reward  or do not condition a reward on the achievement of a health standard.  Examples of participatory wellness programs include:

  • Reimbursing all or part of the cost of a fitness center membership;
  • Reimbursing costs of participation or rewarding participation in a smoking cessation program regardless of whether the individual quits smoking; and
  • Rewarding participation in a no-cost health education seminar, a health risk assessment, or a diagnostic testing program, regardless of outcomes and without requirement for further actions.

A participatory wellness program must be available to all similarly situated individuals regardless of health status, but otherwise is not required to comply with the more strenuous requirements applicable to health-contingent wellness programs.

Health-contingent wellness programs require an individual to satisfy a standard related to a health factor to obtain a reward or require an individual to undertake more than a similarly situated individual based on a health factor in order to receive the same reward.  Health-contingent wellness programs are divided into two subcategories: ‘activity-only wellness programs’ and ‘outcome-based wellness programs.’

Activity-only wellness programs require an individual to perform or complete an activity related to a health factor in order to obtain a reward, but do not require the individual to attain or maintain a specific health outcome.  Examples of activity-only wellness programs include walking, diet, or exercise programs.  If an individual cannot participate in the activity due to a health factor, then a reasonable alternative (or waiver of the otherwise applicable standard) must be provided in order to qualify for the reward.

Outcome-based wellness programs require an individual either to attain a specific health standard or complete an activity or other requirement related to the health factor in order to obtain a reward.  These programs usually have two tiers: a measurement, test or screening, followed by a program that targets individuals who do not meet a pre-specified standard.  Examples of outcome-based wellness programs include:

  • Reward for non-tobacco use, or participate in a tobacco use cessation program; and
  • Reward for cholesterol, blood pressure or body mass index below a specified level, or take additional steps, such as complying with a prescribed plan of care or participating in a exercise program.

An individual who does not meet the specified health standard must be provided a reasonable alternative (or waiver of the otherwise applicable standard) in order to qualify for the reward.

Both activity-only wellness programs and outcome-based wellness programs must satisfy the following five additional requirements:

  • Individuals eligible for the program must be given the opportunity to qualify for the reward at least once per year.
  • The size of the reward(s) under all health-contingent wellness programs is limited to a maximum of 30% (50% for tobacco nonuse/cessation programs) of the total cost of elected coverage.
  • The program has a reasonable chance of improving the health of, or preventing disease in, participating individuals, is not overly burdensome, is not a subterfuge for discrimination based on a health factor, and is not highly suspect in the method chosen to promote health or prevent disease.
  • The full reward must be available to all similarly situated individuals and, as previously discussed, a reasonable alternative must be provided for obtaining a reward.   The plan is permitted to seek verification from the individual’s physician only that a health factor makes it unreasonably difficult or medically inadvisable for the individual to participate in an activity, and not whether the individual can satisfy a specified health standard.  Alternatives do not have to be determined in advance but must be provided upon request within a reasonable time.
  • Notice of the availability of a reasonable alternative must be provided in all plan materials that describe the terms of the health-contingent wellness program, and include contact information for obtaining the alternative and a statement that recommendations of an individual’s personal physician will be accommodated.

Add to these new rules the alphabet soup of other rules that impact wellness programs, including HIPAA privacy and security, GINA, ADA, ADEA, Title VII, FLSA, and COBRA, and it becomes clear that plan sponsors would be well-served to have even the most seemingly simple program reviewed by legal counsel for compliance.

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Cyber Security Summit – October 22-23, 2013

The National Law Review is pleased to bring you information about the upcoming Cyber Security Summit.

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