Tag: Employment Law

Conduct Outside Business Hours: Guidelines for Minimizing Risk

Posted yesterday at the National Law Review by Wendy C. Hyland of Dinsmore & Shohl LLP – one of my personal favorite topics – after hour business social activities – who knew that one Harvey Wallbanger could make a person so wacky: 

Disciplining employees for conduct outside of work can be tricky territory and highly dependent on the specific nature of the incident. Consider both of the following scenarios. At an after hours dinner following a company annual meeting, several off color jokes are told about the shape of food on employees’ entrees after a few rounds of margaritas. Everyone is laughing at the jokes and no one reports being uncomfortable with the conversation. Since attendance is required, almost all employees are there, including human resources employees.

What should they do?

In the second scenario, employees playing on the company softball team go for happy hour after the game. An employee starts coming on to a co-worker and, after she rebuffs his advances, the co-worker follows her home and repeatedly knocks on her door asking to come in. At work the following Monday, she tells another co-worker about the incident but says it didn’t happen on work time and she doesn’t want to report it. The co-worker reports it to human resources, but doesn’t want anything to be done because she promised her co-worker she wouldn’t tell anyone. One event is a company-sponsored dinner following a company event, and the other is not. Is there a difference? What are the best practices to limit liability and, if necessary, discipline employees as the result of conduct outside of work hours?

Employers are in a tough position since, on one hand, parties and sports teams can be a great way to encourage employee morale and relationship building. On the other hand, they are fraught with potential legal issues, risks, and concerns. The first issue to consider is whether the event if company sponsored, because there is a difference between company-sponsored events and voluntary social opportunities. If an employee gets hurt while traveling to, or during the course of an event, the injury is likely to be considered work-related for workers’ compensation purposes. A company could be held responsible for any accidents or injuries resulting from employer-sponsored events. Ways to minimize this risk include:

 

  1. eliminating alcohol at company-sponsored events and informing employees that attendance is completely voluntary;
  2. require employees to pay for drinks, or provide drink tickets for a limited number of drinks;
  3. stop serving alcohol one hour before the event ends; and
  4. provide a taxi or other designated driver service or encourage employees to car pool and choose a designated driver.

What about employee behavior, whether at a company sponsored event or otherwise, and its impact on the workplace? In both of the above scenarios, there are potential issues implicating harassment/hostile work environment policies. What else can companies do to minimize risk in these situations? In the first scenario, potential measures prior to the event could include sending a company-wide e-mail explaining the parameters on alcohol, along with specific language about dress code and a reminder of the harassment/hostile work environment policy as a guide for appropriate behavior. After the event, the human resources employees could recirculate the company policy on harassment and have everyone sign an acknowledgement of receipt. In the second scenario, similar precautions regarding the parameters and rules of voluntary participation, alcohol use, and appropriate behavior could be circulated among employees before the softball season begins—handed out along with the team t-shirts. The company should immediately investigate the report on the potential harassment issue with the co-worker, even though neither party was at work when the event took place and there were requests not to do anything. Company response to issues is critical to defenses in the event of a harassment lawsuit. The co-worker’s report places the company on notice that potential issues exist, whether an employee wants its addressed or not. If warranted under company policy, disciplinary action could be appropriate, even for off duty conduct.

While legal issues and concerns are a reality, there are creative ways to minimize risk while pursuing the goal of workplace cohesion and relationship building.

© 2011 Dinsmore & Shohl LLP. All rights reserved.

Leasing Employees – Not a Risk Free Arrangement

Posted today at the National Law Review by  Melvin J. Muskovitz of Dykema Gossett PLLC – some of the key points to consider when considering entering into an employee leasing situation:  

While leasing employees from a staffing agency, either on a temporary or long term basis, is not a new phenomenon, the number of such workers is again increasing after reaching a low in July 2009, according to the Bureau of Labor Statistics. While there are a number of benefits to leasing employees, the arrangement is not risk free. This article discusses issues associated with the use of a contingent workforce.

Businesses may use temporary employment agencies to provide more flexibility with their workforce, maintaining a core workforce and utilizing temporary employees as the need exists. However, even though a staffing contract may state that the business is not the employer of thetemporary workers, it may be liable under various employment laws as a “joint employer” with the agency, despite the fact that the worker is paid by the agency and is not on the contracting business’ payroll.

Who is the legal employer?

Since the agency normally hires and pays the employee, provides workers’ compensation coverage, and if necessary, terminates the employee, it has an employer/employee relationship with the worker.However, during the job assignment, the entity to whom the worker is assigned may also be considered a joint employer depending upon the amount of control it exercises over the worker. A determination of joint employment is made by looking at the entire relationship

Factors to consider in determining if there is a joint employment relationship include:

  • the nature and degree of control over the worker;
  • the degree of supervision, direct or indirect, exercised over the work, including the scheduling of hours worked;
  • the furnishing of work space and/or equipment for the job;
  • the power each has to determine the pay rates or the methods of payment of the employee; and
  • the right each has to hire, fire or modify the worker’s employment conditions.

What is the liability for the joint employer?

If the agency and the client are held to be joint employers, both may be liable under federal or state employment laws.

Anti-Discrimination

If the entity to whom a worker is assigned treats that worker in a discriminatory manner, or subjects the employee to a hostile environment, it may be liable. Further, generally, the entity to which a worker is assigned is required to provide an accommodation if it has notice of the need for it and can do so without an undue hardship.

Family and Medical Leave Act (FMLA)

The FMLA generally covers private employers with 50 or more employees and all schools and public agencies. Employees jointly employed by two employers must be counted by both for FMLA purposes. If a temporary employee fills in for an absent one who is expected to return, both employees count toward the employer’s 50-employee minimum for FMLA coverage purposes. Part-time employees who work for a full workweek, including those hired through a temporary agency, count toward the 50 minimum for FMLA coverage.

When organizations are considered joint employers under the FMLA, only the primary employer is responsible for giving notices concerning FMLA leave, providing the leave, and maintaining health benefits.In a joint employment situation, the primary employer is the one that has the authority to hire or fire, assign or place the employee, and provide pay and benefits. The secondary employer is responsible for accepting an employee returning from leave if the secondary employer continues its relationship with the agency and the agency elects to return the employee to that job.

Fair Labor Standards Act (FLSA)

The FLSA makes both employers liable for minimum wage and overtime requirements.

National Labor Relations Act (NLRA)

Joint employers may both be liable under the NLRA if they share matters governing essential terms and conditions of employment such as hiring, supervision, disciplining and discharging. Therefore both employers may be found liable in an unfair labor practice. In addition,the National Labor Relations Board has taken the position that temporary employees from an agency may be included in a bargaining unit or voting unit if the temporary employees share a “community of interests” with the regular employees.

Occupational Safety and Health Act (OSHA)

Generally with joint employers under OSHA, the employer at whose business location the temporary employee is assigned will be the liable employer for work-related injuries. The staffing agency will normally be cited only if it knew or should have known of the unsafe conditions or if the citation is necessary to correct a violation.

Benefits Statutes

Depending on the terms of a business entity’s benefit plans, in addition to other factors, leased employees may be entitled to benefits provided to an entity’s regular employees.

Best Practices

1. Employers should seek indemnity agreements in the contracts they sign with temporary staffing agencies so that the agency retains liability for employment related claims and agrees to indemnify the client for any losses they may incur attributable to the actions of the staffing agency.

2. Contracts with staffing agencies should include a provision that makes the staffing agency responsible for payment of all federal, state and local employment taxes, including income taxes, FICA and unemployment taxes.

3. Employers should verify that the employees are covered under the staffing agency’s workers’ compensation policy.

4. Employers should accommodate the needs of a worker with a disability, or be able to justify why it would be an undue hardship to do so.

5. Employers should ensure that temporary or leased employees are not subjected to discriminatory treatment or harassment.

6. Employers should review all policies and benefit plans, to ensure that leased employees are not eligible to receive company benefits.

© 2011 Dykema Gossett PLLC.

 

The Wrongful Distribution of Retirement Benefits to a Plan Fiduciary is Prohibited by ERISA Section 406(b)

This week’s featured bloggers at the National Law Review are from Cosgrove Law L.L.C.   In the ‘who knew’ category from Kurt J. Schafers:  the wrongful distribution of plan benefits to a Plan Fiduciary.  

Although the distribution of benefits to a plan participant is not a “transaction” as that term is used in Section 406(a), the wrongful distribution of benefits to a plan fiduciary is clearly prohibited conduct under Section 406(b). For example, inLockheed Corp. v. Spink, 517 U.S. 882 (1996), the plaintiff brought suit against his employer (administrator of his 401(k) plan) under Section 406(a)(1)(D) because the employer wrongfully allowed some of its employees to receive early retirement benefits that the plaintiff was unable to receive. Id. at 892-93. The respondent argued that the payment of benefits is not a “transaction” under Section 406(a). Id.at 892. In its holding, the Court agreed with the respondent, but made clear that its holding was strictly limited to the language of Section 406(a). Indeed, the Court clarified that “the payment of benefits is in fact not a ‘transaction’ in the sense that Congress used that term in § 406(a).” Id. at 892 (emphasis added).

The narrow scope of Lockheed becomes clear upon a review of subsequent federal caselaw. See Armstrong, 2004 WL 1745774, at *10 (holding “payments to participants in accordance with plan terms not to be transactions within the meaning of [Section 406(a)]”); Owen v. SoundView Financial Group, Inc., 54 F.Supp.2d 305, 323 (S.D. N.Y. 1999) (holding that “ERISA’s “Prohibited Transaction” rules, see 29 U.S.C. §§ 1106(a) [ERISA Section 406(a)]…are not applicable to the payment of Plan benefits to a Plan beneficiary, because the beneficiary is not a “party in interest”). The limited scope of Lockheed is confirmed by the equally limited scope of Section 406(a). For instance, Section 406(a), entitled, “Transactions between plan and party in interest,” is plainly intended to govern only those transactions in which fiduciaries cause a plan to engage. Indeed, Section 406(a)(1) begins with the following language: “A fiduciary with respect to a plan shall not cause the plan to engage in a transaction, if he knows or should know that such transaction constitutes a direct or indirect. . . .” (emphasis added). Section 406(a)(1) then lists five narrow types of transactions in which a fiduciary should not cause a plan to engage. Courts have determined that the purpose of Section 406(a) is limited to “prevent[ing] plan fiduciaries from engaging in certain transactions that benefit third parties at the expense of plan participants and beneficiaries.” Armstrong v. Amsted Industries, Inc., 2004 WL 1745774, at *10 (N.D. Ill. 2004); Marks v. Independence Blue Cross, 71 F.Supp.2d 432, 437 (E.D. Pa. 1999).

The limited holding of Lockheed (and the subsequent federal court decisions) does not, however, apply in many cases. Indeed, a plaintiff’s prohibited transactions claim against a defendant may be brought under a completely separate ERISA provision: Section 406(b). This Section, entitled “Transactions between plan and fiduciary,” may more clearly apply to a defendant’s conduct. Importantly, unlike Section 406(a), Section 406(b) does not specifically limit which types of transactions apply to the Section. As such, the “transactions” contemplated under Section 406(b) are much broader in scope than those specifically set forth in Section 406(a). Moreover, rather than aiming to prevent plan fiduciaries from engaging in transactions that benefit third parties at the expense of plan participants and beneficiaries, Section 406(b) aims to prevent—among other things—plan fiduciaries from engaging in prohibited transactions for their own account. A plan fiduciary wrongfully using his or her power to obtain a higher distribution than is warranted, for example, obviously falls under the broad conduct contemplated under Section 406(b).

Finally, Section 408(c)(1) reads as follows:

Nothing in [ERISA Section 406] shall be construed to prohibit any fiduciary from—

(1) receiving any benefit to which he may be entitled as a participant or beneficiary in the plan, so long as the benefit is computed and paid on a basis which is consistent with the terms of the plan as applied to all other participants and beneficiaries.

A plain reading of this Section establishes that Section 406 should be construed to prohibit a fiduciary from receiving a benefit that is computed and paid on a basis which is inconsistent with the terms of the plan as applied to all other participants and beneficiaries.

Copyright © 2011 Cosgrove Law, LLC.

Ninth Circuit Holds that Repayment for Training is Not an Illegal 'Kick-Back'

Judd H. Lees of William Kaster recently posted at the National Law Review information about a  recent 9th Circuit case involving the repayment of training costs for employees: 

Many employers provide expensive training to new employees only to see the newly trained employees disappear after a short tenure.  In order to recoup the costs associated with upfront training, some employers require repayment of training costs on a graduated scale based on the tenure of employment.  In Gordon v. City of Oakland, the Ninth Circuit Court of Appeals determined that such a written agreement did not violate the Fair Labor Standards Act as an unlawful kick-back.

In Gordon the City of Oakland’s police department required officers to repay a portion of their training costs if they voluntarily left the City’s employment before completing five years of service.  If they left prior to one year of employment, the departing officer owed 100 percent of the training costs and the percentage dropped by 20 percent every year until no repayment was required for a separation after five years of employment.  The written training reimbursement agreement was signed by employee Gordon.  Gordon resigned after completing her second year of service and received her full paycheck.  However, the City withheld her accrued unused vacation and compensatory time off as partial payment for the training costs and also served her with a demand for the remaining training costs which were not covered by the withheld amounts.

Gordon filed a lawsuit alleging that the City’s action violated the federal Fair Labor Standards Act.  Specifically, Gordon alleged that there was no legal difference between deducting the entire sum from her paycheck and directly demanding payment of the sum after receiving her paycheck.  Both resulted in a negative sum for her last week of work and therefore violated the minimum wage requirement of the FLSA.

The district court disagreed and held that the issuance of a paycheck exceeding the minimum wage amount complied with the FLSA and that the subsequent demand was, indeed, a distinction with a difference.  On appeal to the Ninth Circuit, the Court agreed and held that the City was free to both deduct a portion of the training costs and seek repayment of the remaining training costs as “an ordinary creditor” and that the agreement to repay the training costs did not constitute a kick-back under the FLSA.

Employers who choose to rely on such a repayment plan should note the following.  First, the employee signed a written agreement which provided the basis for recoupment of the training costs.  Second, and most importantly, the employer made sure that the employee’s last paycheck met the minimum wage requirements and did not subtract the entire amount due.  The Court suggested that its holding may have been different had the paycheck fallen below the minimum wage requirements.  Employers are cautioned to ensure that any and all deduction from wages are expressly agreed to ahead of time by the employee since both state and federal law require this.  In addition, if an employer contemplates satisfying such “loans” from final paychecks, this also needs to be specifically set forth in the agreement.  The wiser alternative is to make sure that the final paycheck at least results in payment of minimum wages for the final week accompanied by a demand for payment of the remaining amounts.

© 2002-2011 by Williams Kastner ALL RIGHTS RESERVED

Section 409A Again? Employers Need to Re-examine Executive Employment Contracts and Other Agreements Conditioning Severence Payments Upon a Release of Claims

Recently posted at the National Law Review by Nancy C. Brower and David L. Woodard of Poyner Spruill LLP – information for employers about the tax Consequences of employment agreements, retention agreements, severance agreements and change in control agreements: 

Agreements that provide for payments upon termination of employment, such as employment agreements, retention agreements, severance agreements and change in control agreements, often condition payment upon the return of an executed release of claims. Since Section 409A allows agreements to provide for a payment window of up to 90 days from separation from service, it was widely believed that an agreement could provide for payments to begin upon the return of a release, provided the release was required to be returned within the 90-day window period and the company determined the time of payment. In Notice 2010-6, the IRS stated that this type of provision is not Section 409A compliant. Fortunately, at the end of last year, the IRS came out with relief that will allow companies to correct this problem without employees incurring Section 409A taxation.

Action Step

Companies should immediately identify all employment agreements, retention agreements, severance agreements and change in control agreements that condition severance payments upon the return of a release. All of these agreements should be reviewed for Section 409A compliance based on the new guidance from the IRS. Companies should not rely on the fact that the agreements were previously reviewed for Section 409A compliance, since the 2010 guidance from the IRS was not anticipated by most practitioners. Companies should pay careful attention to the timing of payments made under impacted agreements during 2011, as payments made after March 31, 2011 must comply with the corrective guidance contained in Notice 2010-80. Further, any impacted agreements that are outstanding or have any payments still due after December 31, 2012, must be amended to correct the agreement provisions in accordance with Notice 2010-80 no later than December 31, 2012.

 © 2011 Poyner Spruill LLP. All rights reserved.

Verification Two-Step: One step forward, one step back—A review of the GAO report on the progress made to improve E-Verify

Recently posted at the National Law Review – Kevin Lashus and Maggie Murphy of Greenberg Traurig provide some great insight(s) on the recently filed GAO Report on E-Verify and why employers should be concerned: 

Washington, D.C. (January 19, 2011) —  On January 18, 2011, the US Government Accountability Office (GAO) released its December 17, 2010 report entitled, “Employment Verification: Federal Agencies Have Taken Steps to Improve E-Verify, but Significant Challenges Remain.”  Provided is a summary of the GAO’s findings, and where we believe USCIS’ Verification Division may move to implement modifications to the existing system based upon the GAO’s recommendations.

The report is a summary of the review GAO conducted to assess how USCIS and SSA have been able to ensure accuracy of the verification process in E-Verify and whether either (or both) have taken measures to combat fraud.  Specifically, GAO examined efforts taken by both agencies to (1) reduce tentative nonconfirmations (TNCs), (2) safeguard private personal information submitted, and (3) prepare for the increased use of the program that may result from either increased state and local legislation (executive action) or a federal mandate.

Two of the conclusions of the report should be of great concern to employers:

(1) Because TNCs are more likely to affect foreign-born employees, the issuance of false TNCs (TNCs issued commonly because names are recorded differently on various ID and work authorization documents) will likely lead to increased allegations of discrimination; and

(2) E-Verify remains exceedingly vulnerable to identity theft and employer fraud.

Some of the other significant findings:

  • Employees are limited in their ability to identify the source of and how to correct information in the DHS and SSA databases (including the significant delay in the correction process—commonly taking an average of 104 days).
     
  • Long-term cost associated with the administration of the E-Verify program and complementary national systems and SSA databases do not reliably depict current budgetary allocations for the costs of administration.
     
  • Securing sufficient resources to effectively execute the program plans for the future has not been anticipated and may not be properly anticipated in budgetary projections.
  • Recommended fixes to the program will result in increased transactions costs, including the resolution of false TNCs, administrative leave for employees to allow them to resolve erroneous mismatches, and additional training costs to educate the employees about reducing the likelihood of name-related, erroneous TNCs.
  • USCIS should consider providing an employee-accessible portal that would allow employees to correct inaccuracies or inconsistencies within DHS databases.
     
  • USCIS and SSA should finalize the terms of the service-level agreement that defines the requirements of SSA to establish and maintain the capacity and availability of its system components.
  • USCIS should consider a budget for the life-cycle cost of the program that reflects the four characteristics of a reliable estimate consistent with best practices—essentially, that long-term there is enough resources to ensure the program is comprehensive, well-documented, accurate, and credible.

Notwithstanding the findings, there is a clear message contained in the report:  Comprehensive reform is required to root-out the incidence of document fraud. The use of biometrics in identification/authorization documentation is the only likely cure of the ills currently inherent in the system. 

Until that time, USCIS must reallocate resources to address fraud issues—doubling the number of monitoring and compliance staff to oversee employers’ use of E-Verify AND allocating resources to recognize and correct mismatched information in the various DHS databases. 

In other words, instead of addressing the defects of the verification paradigm, the Government is allocating additional resources to address problems with the process that cannot be cured with the current system.  Notably,

  • Senior E-Verify program officials reported that the Monitoring and Compliance Branch is limited in its ability to fully identify patterns and trends in the data that could signal employers’ noncompliance, but E-Verify will be committing $6M in implementing advanced data systems to gain the capacity to conduct complex analyses of E-Verify data.
  • Senior E-Verify program officials will also be reaching out to employers who fail to master the training tutorial—either with a compliance letter (a compliance failure notification) or a phone call—to further assist employers with the E-Verify process. They  will then follow up with the “targeted” employers to assess whether the prior non-compliant behavior has been adjusted.
  • Senior E-Verify and ICE worksite enforcement agents reported that they are currently coordinating to help USCIS better target its monitoring efforts because (1) login profiles to the E-Verify program are not monitored, (2) USCIS cannot currently monitor the extent to which employers follow the MOU provisions, and (3) employers who do not respond and remedy noncompliant behavior are not adequately sanctioned under the current program.

Ultimately, a great deal of the burden to address the deficiencies of the current verification system will fall to employers.  The current patchwork system cannot address the underlying reality that as long as 11 or so million unauthorized employees require employment to survive, a robust market of sophisticated, fraudulent documents will flourish.  Until the problems are adequately addressed, increased oversight and monitoring of the program will result in increased scrutiny of the employer by both ICE and USCIS, with the risk that compliance policy modification may result in increased allegations of discrimination.

Sure seems like one step forward, one step back.

This Alert is issued for informational purposes only and is not intended to be construed or used as general legal advice. 

 Media Contact: Lourdes Brezo-Martinez, Greenberg Traurig, PA 212-801-2131.

©2011 Greenberg Traurig, LLP. All rights reserved.

Reprieve For Fully Insured, Non-Grandfathered Group Health Plans From Complying With PPACA Nondiscrimination Rules

From featured guest bloggers Amy M. Christen and Gabriel S. Marinaro of Dykema Gossett PLLC – updates on the implementation of the Public Health Service Act: 

Notice 2011-1 states that the Treasury Department and the IRS, as well as the Departments of Labor and Health and Human Services (collectively referred to as the “Departments”), have determined that compliance with new nondiscrimination rules under Section 2716 of the Public Health Service Act (“PHS Act”) will not be required until plan years beginning after regulations or other administrative guidance has been issued. The Departments issued Notice 2011-1 in response to concerns raised regarding a plan sponsor’s ability to implement the new nondiscrimination rules without such guidance, and specifically held that a plan sponsor of a non-grandfathered fully insured group health plan would not be subject to the excise taxes for failure to comply with such new nondiscrimination rules, nor be required to file IRS Form 8928 until plan years beginning after the guidance has been issued.

The Patient Protection and Affordable Care Act (the “Affordable Care Act”) added Section 2716 of the PHS Act, which prohibits a fully insured, non-grandfathered group health plan from discriminating in favor of highly compensated individuals as to eligibility to participate in such plan, as well as to benefits offered to participants under the plan in accordance with the rules similar to the ones set forth under Code Section 105(h). Under Code Section 105(h), highly compensated individuals generally include the five highest-paid officers, employees at any time during the plan year with more than a 10 percent ownership, and all other employees who are among the highest-paid 25 percent of all employees. If a fully insured, non-grandfathered group health plan discriminates in favor of highly compensated employees as to eligibility to participate or as to providing benefits to participants, the employer will be the party to suffer the consequences. Specifically, the Affordable Care Act imposes an excise tax on employers that do not satisfy the market reform and consumer protection provisions of the Affordable Care Act equal to $100 per day for each affected participant, up to a maximum fine for unintentional failures of $500,000 per taxable year. The IRS (or HHS) has discretion to waive the tax in whole or in part to the extent the failure was due to reasonable cause and not to willful neglect, and small employers with no more than 50 employees may be exempt from such tax with certain exceptions. An employer also may be subject to a civil lawsuit filed by non-highly compensated employees. Until guidance is issued stating otherwise, it does not appear that highly compensated individuals will be subject to any adverse income tax consequences on the value of health benefits provided under a discriminatory fully insured, non-grandfathered group health plan. 

If a fully insured group health plan maintains its grandfathered status (within the meaning of Section 1251 of the Affordable Care Act and the Departments’ grandfathered regulations), then it is exempt from these new nondiscrimination requirements. A group health plan has grandfathered status only if it existed as of March 23, 2010, and it does not make plan design changes above certain threshold amounts set forth in the grandfathered plan regulations. Additionally, certain HIPAA-excepted benefits are not subject to the new nondiscrimination requirements, including a limited-scope dental or vision plan that is offered through a different insurance carrier than the medical plan or is offered separately to employees for an additional premium cost. Unless future guidance provides otherwise, HIPAA-excepted benefits that are not subject to the new nondiscrimination rules also may include a stand-alone retiree-medical plan that covers only former employees of an employer (and does not cover active employees).

Before the enactment of the Affordable Care Act, the nondiscrimination requirements under Code Section 105(h) only applied to self-insured group health plans. A self-insured plan is one in which the employer pays for the benefits out of its general assets as opposed to paying through a fully insured policy. IRC Section 105(h) prohibits a self-insured plan from discriminating in favor of highly compensated employees as to eligibility to participate or in favor of highly compensated participants as to benefits provided under such self-insured plan. A discriminatory self-insured plan produces adverse tax consequences to the highly compensated employees / participants (e.g., all benefit reimbursements made under a discriminatory plan will be taxable to such highly compensated individuals rather than any excise taxes on the employer).

The Departments have requested additional comments on PHS Act Section 2716 by March 11, 2011, and Notice 2011-1provides specific issues on which the Departments would like additional comments as a follow-up to the public comments received in response to IRS Notice 2010-63.

© 2011 Dykema Gossett PLLC.

Employment Law – What’s in Store for 2011?

Melvin J. Muskovitz of Dykema Gossett, PLLC is a featured guest blogger this week at the National Law Review. Three pending Supreme Court decisions are discussed along with their potential impact for employers:  

Many employers faced challenges in 2010 related to the economy.  These challenges often involved personnel issues, including workforce reductions.  With unemployment still a serious problem heading into 2011, terminated employees are less likely to  find new employment opportunities and may be more inclined to claim they were terminated for illegal reasons.  This  article looks at three decisions the Supreme Court will be addressing this year that involve wrongful discharge claims.  Regardless of the outcome, these cases underscore the importance of  carefully considering all adverse employment decisions.

Additionally, this article will briefly address the new regulations and a step employers can take to protect themselves against violations of the Genetic Information Nondiscrimination Act  (GINA).

Supreme Court Decisions on the Horizon

Oral complaints – are they protected under the FLSA’s anti-retaliation provision?

The Fair Labor Standards Act (FLSA), which provides minimum wage and overtime protections to employees, also provides protection from retaliation against employees who file a complaint  alleging FLSA violations.  In Kasten v. Saint-Gobain Performance Plastics Corp, the Supreme Court will decide if an oral complaint satisfies the FLSA provision that protects employees  against retaliation because the employee “has filed any complaint.”   Kevin Kasten worked for Saint-Goban Performance Plastics and was required to use a time card to swipe in and out of an on-site time clock.  Kasten was disciplined on four separate occasions for violations of the time card policy.  Discipline for the infractions was progressive and eventually resulted in  his termination.  Kasten alleges that before the third infraction and thereafter, he verbally complained to his supervisor and Human Resource personnel that the location of the time clock was illegal.  He claims that he was terminated in retaliation for his verbal complaints that the location of the time clock violated the FLSA.

The lower courts are split on the issue of whether an oral complaint satisfies the “has filed any complaint” threshold.  The Supreme Court will resolve this discrepancy between the various federal circuits.

Retaliation against a third party – is it protected?

Title VII, which prohibits discrimination based upon protectedcharacteristics (sex, race, etc.), also prohibits retaliation against an employee who “has made a charge,  testified, assisted, or participated in any manner in an investigation, proceeding, or hearing.”  In Thompson v North American Stainless, the Supreme Court will decide if a third party to the charge is also protected from retaliation. Eric Thompson worked for North American Stainless as a metallurgical engineer.  He was engaged to a co-worker.  The co-worker/fiancée filed a complaint with the EEOC alleging that she was discriminated against because of her  gender.  Three weeks after the EEOC notified North American of the complaint, Thompson was terminated.  He alleges that he was terminated in retaliation for his fiancée’s EEOC charge.

The 6th  Circuit Court of Appeals (which includes Michigan) ruled for the employer, stating that the anti-retaliation provision is  “limited to persons who have personally engaged in protected activity.”  The Supreme Court will decide whether to uphold that decision or whether to extend anti-retaliation protections to third parties who did not personally engage in protected activities.

Influence over decision maker – when does it become illegal?

The Uniformed Services Employment and Reemployment Rights Act (USERRA) protects employees from discrimination based upon their military service.  In Staub v Proctor Hospital,  the Supreme Court will decide under what circumstances an employer may be held liable based upon the discriminatory bias of someone who influenced the ultimate decision maker, but who did not make the employment decision at issue.

Vincent Staub worked for Proctor Hospital as an angiopraphy technologist.  He was also an army reservist and therefore was unavailable for work one weekend a month and for two weeks during the summer.  One of his supervisors, the second in command in Staub’s department and the person responsible for preparing the work schedules, frequently expressed anti-military bias and  was openly displeased about having to accommodate Staub’s schedule.  Staub was disciplined by  the supervisor for reasons unrelated to his military service and he was ultimately terminated  based upon that discipline.  While the decision to terminate Staub was made by Human  Resources, Staub alleged that the decision was actually the result of the supervisor’s anti-military  bias.

A jury found in favor of Staub, a decision that was overturned by the 7th  Circuit Court of  Appeals.  The Supreme Court has agreed to decide under what conditions an employer can be held liable for the bias of a person who influenced or caused an adverse employment action – but  who did not actually make the decision.  A ruling in favor of the employee could have far  reaching implications for employers as the rationale would likely apply to other statutes that  prohibit discrimination.

Genetic Information Nondiscrimination Act (GINA) Regulations

On November 9, 2010, the Department of Labor issued the final regulations that interpret and  implement GINA.  The regulations take effect on January 10, 2011.  GINA, which went into  effect on November 21, 2009 and applies to employers with 15 or more employees,  prohibits the  use of genetic information in making employment decisions, restricts acquisition of genetic information by employers, and strictly limits the disclosure of genetic information.  Genetic nformation includes (1) an individual’s genetic tests,  (2) genetic tests of family members, (3)  family medical history, (4) genetic services and/or (5) genetic information of a fetus carried by  an individual or a family member.  While the use and disclosure of genetic information is under  the control of the employer, situations may  arise where an employer inadvertently acquires genetic information about an employee.  For example, an FMLA health certification from a  healthcare provider may inadvertently provide the employer with genetic information about the  employee.  The final regulations acknowledge this dilemma and provide a “safe harbor” for employers who inadvertently acquire such information.    In order for the acquisition of genetic information to be considered inadvertent, the employer must direct the individual or healthcare provider from whom it is requesting medical information not to provide genetic information.  The final  regulations provide a sample notice that an employer can use to satisfy the requirement. The final regulations can be found at  http://www.gpo.gov/fdsys/pkg/FR-2010-11-09/pdf/2010-28011.pdf and the sample notice can be found at section 1635.8(b)(1)(i)(B).

Bottom Line

Employees suffering adverse employment consequences are finding creative ways of expanding  their protections.  Employers should exercise due diligence in all employment decisions

© 2011 Dykema Gossett PLLC.

Sunshine (State) Surprise – Florida's New E-Verify Requirement

From recent featured guest blogger at the National Law Review, Dawn M. Lurie and Kevin Lashus of Greenberg Traurig provide some needed details on Florida’s new E-Verify Requirement: 

Governor Rick Scott wasted no time in making the state of Florida the 14th the nation to have a mandatory E-Verify requirement. Only minutes after being sworn in, the governor signed his second executive order of the day—the first created the Office of Fiscal Accountability and Regulatory Reform to review regulations in the Sunshine State. Scott had touted ideas about mandating E-Verify during his heated primary fight with former Attorney General Bill McCollum but the magnitude of the actual order caught many by surprise.

Executive Order No. 11-02 requires:

1) All agencies under the direction of the governor to verify the employment eligibility of ALL current and prospective agency employees through the U.S. Department of Homeland Security’s E-Verify system;

2) All agencies under the direction of the governor to include, as a condition of all state contracts, an express requirement that contractors utilize the U.S. Department of Homeland Security’s E-Verify system to verify the employment eligibility of:

a) all persons employed during the contract term by the contractor to perform employment duties within Florida; and b) all persons (including subcontractors) assigned by the contractor to perform work pursuant to the contract with the state agency.

b) all persons (including subcontractors) assigned by the contractor to perform work pursuant to the contract with the state agency.

3) Agencies not under the direction of the governor are encouraged to verify the employment eligibility of their current and prospective employees utilizing the E-Verify system, and to require contractors to utilize the E-Verify system to verify the employment eligibility of their employees and subcontractors.

E-Verify is web-based, voluntary program that compares an employee’s Form I-9 information with the Social Security Administration and Department of Homeland Security databases. E-Verify is considered a best practice by the government in terms of immigration compliance, has recently been upgraded to include a photo-matching component for U.S. passports, and will soon debut a driver’s license pilot program. In September of 2009, Congress required that all federal contractors and their subs use E-Verify for new employees (new hires) and all existing employees assigned to a federal contract. This was the only instance where E-Verify was authorized to use to verify a current workforce—until now. Scott’s Executive Order requiring re-verification of current and prospective employees transcends what is legally allowed under current federal law, and is therefore likely to face an immediate court challenge. Prospective employees? Lawyers over at the Office of Special Counsel for Immigration-Related Unfair Employment Practices (the part of the Department of Justice that enforces the antidiscrimination provisions of the Immigration and Nationality Act) are likely reeling from the breadth of the Order. And, the Verification Division at USCIS—the agency responsible for running the E-Verify program—may also be scramblingto determine whether to help Floridian employers implement compliance practices under these terms. As proposed, this represents a third typeof E-Verify for them to administer: normal, FAR-impacted and Florida. It is unclear who will be responsible to pay for development of the application on these terms. How might it work? Does this harken back to the Arizona question again—can the state trump the federal government on immigration requirements?

Ironically, Rhode Island Governor Lincoln Chafee rescinded Rhode Island Executive Order 08-01 that required the state, as well as contractors and vendors doing business with Rhode Island, to register and use E-Verify for all new hires. Chafee called the use of E-Verify a “divisive issue.”

Regardless of the future, Florida’s state agencies now need to be aware of the E-Verify process and should—like all other employers participating in E-Verify—undergo a comprehensive I-9 training, conducted by competent counsel, so that each of the designated E-Verify specialists may become experienced in the intricacies of employment eligibility verification. The verification process has become increasingly complex. Florida’s governor just complicated E-Verify even more. Any missteps by employees charged with verification compliance could be deadly. Employers must recognize that even the most well-intentioned individuals could attract both civil and criminal liability, not only upon themselves, but also upon their employers for failing to follow the verification process accurately and completely.

©2011 Greenberg Traurig, LLP. All rights reserved.

The Crackdown on Employment of Illegal Immigrants Spreads to California

Featured Guest Bloggers this week at the National Law Review are from Greenberg Traurig LLP.  Mahsa Aliaskari and Matthew B. Hayes have written one of the most  comprehensive articles we’ve  come accross reagrding E-Verify – especially as it applies in California.  

Murrieta and Temecula Join Growing List of Southern California Cities Requiring Employers to Use E-Verify

In 2007, Arizona became the first state to pass legislation requiring employers to use the voluntary E-Verify1 program to confirm the employment eligibility of new hires. Since then, Arizona has been the focal point for publicity and legal challenges on attempts by states and localities to crack down on the employment of illegal immigrants. However, Arizona is not the only place where we are seeing state and local action.

Behind the scenes, several Southern California cities have quietly followed Arizona’s lead enacting similar laws mandating use of E-Verify. On July 13, 2010, Temecula joined the growing list of Southern California cities requiring employers to use E-Verify as a condition for maintaining a business license, and on December 20, 2010, Murrieta’s city council moved forward with its plans to institute a similar ordinance. While the State of California has not jumped on the bandwagon, many of its localities are taking action and increasing the burden on companies doing business not only across state lines but across city and county lines.

Given the expansion of immigration laws at the state and local level, it is imperative that employers keep abreast of developments in this area and ensure that their hiring practices are legally compliant in each of the locations they employ workers.

The Trend Toward Making Use of E-Verify Mandatory

The growing trend of states and localities enacting their own legislation to police immigration related-activity has its roots in frustration over the federal government’s inability to effectively address illegal immigration and enact comprehensive immigration reform. While the frustration may be justified, the federal government did not make use of E-Verify mandatory for many reasons. A January of 2010 report2 conducted by Westat researchers found that E-Verify is not immune from identity theft. According to the report 4.1% of those passing E-Verify are not truly authorized workers. More specifically, 54% of unauthorized workers who were run through E-Verify were inaccurately identified as workauthorized. The findings appear to support claims of various groups that have criticized EVerify as being particularly vulnerable to identity theft and fraud. In addition, while improving, there continues to be false positives — while the rate is low there are still U.S. citizens and workauthorized foreign nationals who are denied employment through E-Verify.

What is more alarming though is the opportunity for intentional or unintentional abuse and misuse of E-Verify by employers who violate program rules. There have been reports of employers restricting work assignments, delaying job training, reducing pay or simply not hiring non-U.S. citizens based on database errors. In March of 2010, USCIS posted a fact sheet outlining its agreement and plans to share information with the Office of Special Council3 (OSC) at the Department of Justice. The fact sheet notes that the purpose of the Memorandum of Agreement (MOA) “is to establish a streamlined process for referring E-Verify matters falling within the other’s jurisdiction. OSC will receive referrals of potential discrimination that come to USCIS; in turn, USCIS will receive from OSC referrals of potential employer misuse of E-Verify that does not fall within DOJ’s enforcement arena.” Potential misuse of the program is cause for concern for all employers and a discrimination suit waiting in the shadows for employers who are not well versed in the proper use of the program. These problems and pitfalls should serve as a warning to states and localities considering and instituting E-Verify mandates.

Regardless of the federal government’s reasons for not mandating the use of the program, many states and localities continue to march forward with their own E-Verify requirements. Employers failing to comply with these E-Verify laws can face substantial penalties, including monetary fines, preclusion from contracting with federal, state and local governments, and suspension or revocation of their business licenses.

While Arizona has been at the forefront of this trend since enacting the Legal Arizona Workers Act, which went into effect on January 1, 2008,4 Arizona simply paved the way for others. Several other states have since passed or adopted similar legislation. For instance, in 2008 Mississippi passed legislation requiring that all private employers participate in E-Verify, with a phase-in period beginning in 2008 and full participation by 2011. On March 31, 2010, Utah adopted the Private Employer Verification Act that requires employers with 15 or more employees to use E-Verify or another verification system approved by the Department of Homeland Security to confirm the employment eligibility of hew hires. The South Carolina Illegal Immigration Reform Act, passed in 2008, requires all employers to use E-Verify to confirm the eligibility of new hires, or in the alternative, hire only workers who possess or qualify to obtain a South Carolina driver’s license or identification card. The South Carolina law goes even further by authorizing the state to scrutinize a businesses’ hiring records and cite or fine employers found to have unauthorized workers on their payrolls.

California Localities Join in With Their Own E-Verify Mandates

Currently, California does not have any statewide laws mandating the use of E-Verify. However, in the last few years, several cities in Southern California passed local ordinances requiring the use of E-Verify for some or all businesses. These cities and their respective E-Verify requirements include:

  • Mission Viejo: Effective July 1, 2007, the city and employers with city contracts must verify the eligibility of new employees through E-Verify.
  • Palmdale: Effective July 1, 2008, to be eligible for contracts with the city exceeding $50,000, a contractor must be enrolled in E-Verify.
  • Lancaster: Effective December 31, 2009, all employers in the city must use E-Verify to confirm eligibility of new hires. Failure to comply with this requirement can result in business license suspension.
  • Temecula: Effective January 1, 2011, all employers in the city must use E-Verify to confirm the eligibility of new hires as a condition of receiving or maintaining a business license.
  • Murrieta: The City Council is expected to approve an ordinance mandating that all locally operated enterprises use E-Verify. Code enforcement officers would have authority to confirm compliance with EVerify. Enforcement tools will include fines and license revocation.

Constitutional Challenge to State and Local Laws Requiring Use of E-Verify

The constitutionality of state and local governments requiring employers to use E-Verify to confirm employment eligibility is presently unresolved. On December 8, 2010, the United States Supreme Court heard arguments on Chamber of Commerce v. Candelaria, No. 09-115. The Supreme Court’s decision is expected in Spring 2011 and will likely determine the fate of similar laws recently enacted throughout several Southern California cities. The lawsuit challenges the constitutionality of the Legal Arizona Workers Act (LAWA).

Arizona’s law increased the level of state action by taking advantage of an exception to the preemption clause of the Immigration Reform & Control Act of 1986 (IRCA) relating to licensing laws. The law’s bold move in authorizing Arizona state courts to suspend or revoke business licenses provides the state with an enforcement mechanism not used previously. One of the primary issues in that case is whether the preemption clause applies and if state and local governments — as opposed to only the federal government — can require participation in the E-Verify program. Those challenging Arizona’s E-Verify requirement argue that immigration related legislation falls within the purview of the federal government, consequently laws like that enacted in Arizona conflict with, and are therefore preempted by, federal laws. In this instance referring to federal laws which contemplate that, except in limited circumstances, the use of E-Verify by employers would be voluntary. Prior to the Supreme Court granting review of the case, the Ninth Circuit upheld Arizona’s legislation, finding that it was not preempted by federal law. In light of the decision and arguments upholding the LAWA, it will be interesting to see the outcome of the pending Supreme Court case.

What These Developments Mean for California Employers

Pending the Supreme Court’s decision on the Arizona law, the number of state and local governments enacting laws mandating use of E-Verify is expected to continue and increase. In light of the evolving nature of immigration compliance and the intricacies of E-Verify and the Memorandum of Understanding that employers must agree to and sign when enrolling in E-Verify, it is critical that employers remain apprised of relevant developments, understand the E-Verify laws applicable in each state and city where they employ workers, and ensure their hiring practices are legally compliant. If your company has not yet enrolled in E-Verify and it is being considered either because of legal mandate or as a best practice, it is critical that an internal review of the existing workforce and Form I-9s be conducted first and with experienced counsel. The “culture of compliance” is the theme of the Obama administration and it is spreading to cities and states across the nation. A few proactive steps will go a long way in limiting liabilities and exposure.

Resources

Promoting a Culture of Compliance — Best Practices for your Business

  • Establish a comprehensive immigration compliance policy
  • Conduct in-house audits of Form I-9 documents and company policies, as well as E-Verify if applicable
  • Establish policies, protocols and training for employment verification
  • Diligently verify the identity of job applicants to ensure that they “are who they say they are”
  • Consider use of E-Verify after consultation with experienced immigration compliance counsel
  • Establish protocols for addressing Social Security No-Match letters
  • Establish and maintain safeguards against the use of the I-9 process for unlawful discrimination
  • Create a protocol for immigration compliance related to contractors and subcontractors

ICE utilizes various tools to target employers, particularly those involved with vital infrastructure and national security, as well as the usual suspects – unofficially “targeted” industries – food service, textile, meat/poultry plants and constructions. Employers must take steps now to ensure full compliance or face serious consequences. Actions taken before a government-initiated audit or investigation generally help mitigate damages, reduce exposure and save the company both time and money in the long-run.

1 E-Verify is an Internet-based system operated by the Department of Homeland Security in partnership with the Social Security Administration. Its purpose is to enable participating employers to electronically verify the employment eligibility of their workforce. Under the system, employers fill out an online form with the information provided by new hires on the Employment Eligibility Verification Form (commonly referred to as the I-9 Form). That information is then cross-referenced with an assortment of government databases to confirm the worker’s employment eligibility.

2 The evaluation was conducted by Westat, a Rockville, Maryland-based social science research firm under contract to U.S. Citizenship and Immigration Services (USCIS). The evaluation was managed by the USCIS Office of Policy and Strategy, independent of the E-Verify program office, which is run by the USCIS Verification Division.

3 OSC is responsible for enforcing the anti-discrimination provisions of the INA. The antidiscrimination provisions include violations involving: (1) citizenship status discrimination, (2) national origin discrimination, (3) unfair documentary practices during the employment eligibility verification process (document abuse) and (4) retaliation.

4 That legislation requires all employers in Arizona to use E-Verify to confirm the employment eligibility of new hires. It penalizes employers who knowingly or intentionally hire illegal immigrants by suspending or revoking their business licenses.

©2011 Greenberg Traurig, LLP. All rights reserved.