Tag: Labor Law

Tips to Avoid a HR Nightmare: The Top 4 Mistakes Employers Make – Part II

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More than ever, employers are facing serious claims from disgruntled workers.  This two-part series discusses the top four tips for employers to avoid claims from unhappy workers:

1.         Failure to document unsatisfactory job performance. 

2.         Failure to terminate bad workers before it is too late.

3.         Failure to enforce the company’s harassment policy. 

4.         Failure to give a reason for employment termination.

Part I covered why it is important to document bad performance and why it is not a good idea to keep poor performers on your payroll.  In this installment, learn why it is imperative to deal with harassment claims properly and quickly and why employers should provide a reason for termination.

Mistake #3:    Failure to enforce the company’s harassment policy. 

It is important to follow the company’s harassment policy and procedures for dealing with harassment claims.  Respond quickly and effectively to any complaints of harassment or discrimination, whether by co-workers, customers, or other third parties.  For example, even employers with the best policies and training programs on investigating workplace conduct and harassment can be held liable if they fail to investigate a harassment complaint.  If the employer does not take corrective action when discovering the failure, these types of actions can appear to a jury as “utter indifference” on the part of the employer and consequently lead to an award of punitive damages. It is therefore important to take prompt and effective action.

Mistake #4:    Failure to give a reason for employment termination.

Make sure you follow the company’s rules and be consistent – discipline and treat all employees the same for all infractions.  Be honest and upfront with the employee about the reason(s) you are letting him/her go.  If the employer does not give an explanation when it terminates employment, employees will try to figure out why they were fired and likely will presume the reason was discriminatory.  At the time of termination, have a witness present, such as another supervisor or manager.  If appropriate, you can give the employee a chance to explain his/her side of the story, but you do not need to change your termination decision.

See Part I of this article here.

 

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Social Media & Emerging Employer Issues: Are You Protected?

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On June 13, 2013, Business First of Louisville and McBrayer hosted the second annual Social Media Seminar. The seminar’s precedent, Social Media: Strategy and Implementation, was offered in 2012 and was hugely successful. This year’s proved to be no different. Presented by Amy D. Cubbage and Cynthia L. Effinger, the seminar focused on emerging social media issues for employers. If you missed it, you missed out! But don’t worry, a seminar recap is below and for a copy of the PowerPoint slides click here.

McBrayer: If a business has been designated an entity that must comply with HIPAA, what is the risk of employees using social media?

Cubbage: Employers are generally liable for the acts of their employees which are inconsistent with HIPAA data privacy and security rules. As employees’ use of social networking sites increase, so does the possibility of a privacy or security breach. An employee may be violating HIPAA laws simply by posting something about their workday that is seemingly innocent. For instance, a nurse’s Facebook status that says, “Long day, been dealing with a cranky old man just admitted into the ER” could be considered a HIPAA violation and expose an employer to sanctions and fines.

 

McBrayer: Should businesses avoid using social media so that they will not become the target of social media defamation?

Effinger: In this day and age it is hard, if not impossible, for a business to be successful without some use of social media. There is always the risk that someone will make negative comments about an individual or a business online, especially when anonymity is an option. Employers need to know the difference between negativity and true defamation. Negative comments or reviews are allowed, perhaps even encouraged, on some websites. If a statement is truly defamatory, however, then a business should make efforts to have the commentary reported and removed. The first step should always be to ask the internet service provider for a retraction of the comment, but legal action may sometimes be required.

 

McBrayer: When does a negative statement cross the line and become defamation?

Effinger: It is not always easy to tell. First, a statement must be false. If it is true, no matter how damaging, it is not defamation. The same goes for personal opinions. Second, the statement must cause some kind of injury to an individual or business, such as by negatively impacting a business’s sales, to be defamation.

 

McBrayer: Can employers ever prevent employees from “speaking” on social media?

Effinger: Employers should always have social media policies in place that employees read, sign, and abide by. While it is never really possible to prevent employees from saying what they wish on social media sites, some of their speech may not be protected by the First Amendment’s freedom of speech clause.

 

McBrayer: What constitutes “speech” on the internet? Is “liking” a group on Facebook speech? How about posting a YouTube video?

Effinger: This is a problem that courts and governmental employment agencies, like the National Labor Relations Board, are just starting to encounter. There is no bright-line rule for what constitutes “speech,” but it is safe to say that anything an employee does online that is somehow communicated to others (even “liking” a group or posting a video) qualifies.

 

McBrayer: Since a private employer is not bound by the First Amendment, can they terminate employees for social media actions with no repercussions?

Effinger: No! In fact, it could be argued that private employees are afforded more protection for what they say online than public employees. While a private employer has no constitutional duty to allow free speech, the employer is subject to state and federal laws that may prevent them from disciplining an employee’s conduct. As a general rule, private employees have the right to communicate in a “concerted manner” with respect to “terms and conditions” of their employment. Such communication is protected regardless of whether it occurs around the water cooler or, let’s say, on Twitter.

 

McBrayer: It seems like the best policy would be for employers to prohibit employees from discussing the company in any negative manner. Is this acceptable?

Effinger: It is crucial for companies to have social media policies and procedures, but crafting them appropriately can be tricky. There have been several instances where the National Labor Relations Board has reviewed a company’s policy and found its overly broad restrictions or blanket prohibitions illegal. Even giant corporations like General Motors and Target have come under scrutiny for their social media policies and been urged to rewrite them so employees are given more leeway.

 

McBrayer: Is social media a company asset?

Cubbage: Yes! Take a moment to consider all of the “followers”, “fans”, or “connections” that your business may have through its social media accounts. These accounts provide a way to constantly interact with and engage clients and customers. Courts have recently dealt with cases where a company has filed suit after a rogue employee stole a business account in some manner, for instance by refusing to turn over an account password. Accounts are “assets,” even if not tangible property.

 

McBrayer: What is the best way for an employer to protect their social media accounts?

Cubbage: Social media accounts should first be addressed in a company’s operating agreement. Who gets the accounts in the event the company splits? There are additional steps every employer should take, such as including a provision in social media policies that all accounts are property of the business. Also, there should always be more than one person with account information, but never more than a few. Treat social media passwords like any other confidential business information – they should only be distributed on a “need to know” basis.

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Supreme Court Ruling on Defense of Marriage Act (DOMA) Could Lead to Refunds of Federal Taxes

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Employers providing benefits for employees’ same-sex spouses may want to consider the availability of federal payroll tax refunds if the Supreme Court of the United States finds Section 3 of the Defense of Marriage Act (DOMA) unconstitutional.  Employers currently must impute income to an employee for the fair market value of benefit coverage for a non-dependent same-sex spouse.  Such imputed income is subject to federal income and payroll taxes, as well as state income taxes in the majority of states.

The Supreme Court of the United States is expected to rule in late June on the constitutionality of Section 3 of the Defense of Marriage Act (DOMA).  A ruling that DOMA is unconstitutional will favorably reverse the federal tax treatment of employer-provided benefits for non-dependent same-sex spouses.  Such a reversal may lead to refunds of federal payroll taxes paid by employers and federal income taxes paid by employees on income imputed to employees for same-sex spouse benefit coverage.

Current Law

The Supreme Court is considering the constitutionality of Section 3 of DOMA in United States v. Windsor.  Windsor is a surviving spouse who was required to pay $350,000 in federal estate taxes after her same-sex spouse died—taxes she would not have had to pay if her same-sex marriage that was legally recognized in her home state of New York was also recognized under federal law.  Section 3 of DOMA provides that for all purposes of federal law, 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.”

Employees who enroll a non-dependent same-sex spouse or partner under an employer-sponsored benefit plan currently must pay federal income taxes on the fair market value of such coverage.  While federal law excludes amounts that an employer pays toward medical, dental or vision benefits for an employee and the employee’s opposite-sex spouse and dependents from the employee’s taxable income, employers that provide these same benefits to employees’ same-sex spouses or partners are required to impute the fair market value of the benefits as income to the employee that is subject to federal income tax, unless the same-sex spouse or partner otherwise qualifies as the employee’s “dependent” as defined for federal income tax purposes.  Employers are required to withhold federal payroll taxes from the imputed amount, including income, Social Security and Medicare taxes.  In addition, employers must pay their share of Social Security and Medicare taxes on the imputed amount, as well as Federal Unemployment Tax Act taxes.  The majority of states follow the federal income tax rules approach and also require employers to impute income on the value of such benefits for state income tax purposes.

Consider Filing a Protective Claim Now

Employers that have imputed income on the fair market value of benefits for employees’ same-sex spouses should consider filing protective FICA tax refund claims and should be poised to change their systems to allow for the future exclusion of benefits provided to same-sex spouses.  Although filing a complete refund claim can be burdensome from an administrative perspective, it is relatively easy for an employer to file a protective claim to preserve the statute of limitations on employment tax refund claims for open years and later file a supplementary claim with necessary employee consents and exact calculations. 

In general, the statute of limitations for tax refund claims is three years.  The due date for the protective claim is three years from April 15 of the calendar year following the year in which the income was imputed to the employee.  For example, for employment taxes paid on income imputed in 2010, a protective claim should be filed by April 15, 2014.  If not filed already, a refund claim cannot be filed with respect to employment taxes paid on income imputed before 2010 as the statute has run for that year.

If an employment tax refund had already been filed and the Internal Revenue Service (IRS) issued a notice of claim disallowance, the taxpayer must either bring suit to contest the disallowance within two years after the issuance of the notice or obtain an extension of the time to file such a suit with the IRS—this process can be initiated by filing IRS Form 907, Agreement to Extend the Time to Bring Suit.

Next Steps

Until the Supreme Court rules on Windsor, employers are advised to continue imputing income on the value of benefit coverage for employees’ non-dependent same-sex spouses and partners and to continue withholding and paying federal payroll taxes on the imputed amount.

View “Supreme Court Oral Arguments on DOMA, Proposition 8: Potential Employee Benefit Plan Implications” for more information on the employee benefit plan implications of the Supreme Court’s possible rulings on the constitutionality of DOMA in Windsor and California’s Proposition 8 in Hollingsworth v. Perry.

Health Care Obligations of Employers Under the Affordable Care Act

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For most employers, the most important part of the Patient Protection and Affordable Care Act (commonly referred to as the “ACA” or “Obamacare”) will be the section known as the employer shared responsibility provision.  Many media outlets continue to incorrectly suggest that this provision requires employers to provide health insurance to all of their employees.  This is not actually the case.  Instead, this provision subjects employers to taxes or penalties if they fail to offer “adequate” and “affordable” health insurance to their employees.   Another fact commonly misunderstood is that for now, the only employers who need to be concerned about this issue are those who employ 50 or more “full time” employees (the ACA uses a very specific formula to determine who is considered full time) or those who employ under 25 employees and are looking to take advantage of the small business tax credit.

The employer shared responsibility provision goes into effect on Jan 1, 2014.   In most cases, in order to determine who is a full time employee, the employer reviews each employee’s full time status by “looking back” at a past employment period of between three (3) and twelve (12) months.   As a result, it is critically important that employers start thinking about their obligations under the ACA right now so they can be prepared for January 1, 2014.

Determining who is considered a full time employee under the ACA can be complex.  Under the ACA, a full time employee is someone who works 30 or more hours per week, on average.  Also taken into consideration are full time equivalent employees (“FTE”).  The number FTE employees are determined by adding up the total number of hours worked in a given month by part time employees and dividing than number by 120.  So for example, 10 part time employees working 60 hours per month would be counted as 5 FTE employees (10×60 = 600; 600/120=5).  Special rules also apply for seasonal employees, temporary employees, etc.

For those employers who have 50 or more full time employees under the ACA, the employer shared responsibility provision leaves the employer with several options:

Option 1– Provide health care coverage that is both “adequate” and “affordable” under the ACA.  Determining if coverage meets these requirements requires analysis of the costs of the plan to full time employees and the number of full time employees eligible under the plan.  The employer must also determine if providing coverage is more costly than the fines it would be subject to if it chose not to provide coverage.

Option 2 – Do nothing and provide no coverage to the employees, potentially subjecting the employer to a $2000 fine per employee.  Rather than simply rejecting this option of out of hand, the employer needs to determine the potential fine it faces and whether or not certain exemptions are applicable that could greatly reduce, if not eliminate the fine entirely.

Option 3 – Provide coverage that is not considered “affordable” under the ACA, subjecting the employer to a $3000 fine for each employee who chooses not to partake in the employer offered health plan and who instead purchases coverage through an insurance exchange and receives a tax credit or subsidy.  Before taking this route, an employer must carefully consider whether it believes its employees will seek coverage through an exchange and whether the savings it will gain from not paying its portion of the employee’s health care coverage will offset any potential penalty.

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Big Box Retailers and Major Fast Food Chains Targeted by Unions and National Labor Relations Board (NLRB)

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The NLRB Rules Against Target

There are more than 1,750 Target stores nationwide, and none have been organized by a union. This fact was not lost on the National Labor Relations Board (the Board) when, on April 26, 2013, it affirmed the decision of an Administrative Law Judge that Target Corporation (Target)’s no-solicitation/no-distribution policy violated the National Labor Relations Act (the Act) and ordered Target to amend its policies nationwide. The consolidated cases, known as Target Corporation and United Food & Commercial Workers (UFCW) Local 1500, 359 NLRB No. 103 (2013), originated when the UFCW filed charges with the Board following an unsuccessful organizing campaign at a Target store in Valley Stream, New York.

The key issue addressed by the Board was whether Target maintained a no-solicitation/no-distribution policy that violated employees’ Section 7 rights under the Act. Target’s policy prohibited solicitation on the store’s premises at all times if it was for “personal profit,” “commercial purposes,” or “a charitable organization that isn’t part of the Target Community Relations program and isn’t designed to enhance the company’s goodwill and business.” The Board focused on the ban on solicitation “for commercial purposes,” finding that Target failed to define the phrase or provide illustrative examples to clarify what it meant. Because the phrase was undefined, the Board found that Target employees could have interpreted the phrase to ban solicitation and distribution on behalf of unions, which would violate the Act.[1]  

Ultimately, the Board ordered Target to rescind nationwide its no-solicitation/no-distribution rule and to:

[f]urnish all current employees nationwide with inserts for their current employee handbooks that (1) advise that the unlawful rules listed above have been rescinded, or (2) provide lawfully-worded rules on adhesive backing that will cover the unlawful rules; or publish and distribute to all current employees nationwide revised employee handbooks that (1) do not contain the unlawful rules, or (2) provide lawfully-worded rules.

The Board also set aside the union’s unsuccessful election attempt and ordered a new election to take place under the direction and supervision of the Regional Director.

Is Walmart The Next Target?

Walmart has more than 4,500 retail locations in the United States, and like Target, none are unionized. In recent months, the UFCW-backed group OUR Walmart has been advocating for strikes in several locations. On May 28, 2013, several media outlets reported a new round of strikes coordinated by OUR Walmart in advance of Walmart’s June 7, 2013 annual shareholder meeting.

In addition to the strike efforts, the UFCW, OUR Walmart, and Walmart have filed dozens of NLRB charges against each other in 2013. In May, the labor-backed group filed a new round of charges with the NLRB. Meanwhile, Walmart has filed lawsuits against the UFCW and OUR Walmart in Florida and California state courts in recent months alleging trespass and unlawful organizing activity on Walmart property.

Though the Board is currently under scrutiny based on recent court decisions invalidating the President’s recess appointments, the charges against Walmart provide it with another opportunity to make a nationwide statement against a non-union employer. Given the Board’s recent penchant for union activism, do not be surprised if it takes a close look at Walmart’s policies and practices in the coming months.

The Fast Food Industry

On May 15, 2013 hundreds of Milwaukee fast food workers walked off their jobs and launched a one-day strike demanding a raise to $15 per hour and the right to unionize without intimidation or retaliation. This was the fifth such strike in six weeks, following strikes in St. Louis and Detroit the week before, and in New York and Chicago in April. In each of those strikes, local groups organized fast food workers with support from the Service Employees International Union (SEIU), one of the nation’s largest unions. All of these strikes were preceded or followed by the filing of a slew of NLRB charges against the employers, alleging myriad unfair labor practices.

These strikes share several common characteristics. Each was a one-day strike by fast food workers, backed by ad hoc coalitions of unions and community groups. In the case of the Milwaukee strike, the organizing group was called “Wisconsin Citizen Action,” and the campaign was called “Raise Up, MKE.” The St. Louis campaign was called “STL Can’t Survive on $7.35,” and Detroit’s was called “D15.” These strikes have all been part of “minority unionism” campaigns, where the focus is on staging actions by a minority of the workforce designed to inspire their co-workers, rather than waiting until they have gained support from a majority of the workers. The short duration of the strike is calculated to minimize the risk that striking workers will be replaced by their employers after walking off.

The spread of these fast food strikes, as well as strikes by non-union workers in retailers like Walmart, comes amid a long-term decline in strikes in the U.S. Both the fast food and retail industries are overwhelmingly not unionized. The strategy pursued by the groups organizing these strikes is thus one of spectacle or demonstration, calling attention to the wages and working conditions of the employees in these industries.

[1] Oddly, the Board overruled a second finding by the Administrative Law Judge that a policy instructing employees to report unknown persons seen loitering the parking lot also violated Section 7 of the Act. The Board noted it would not conclude that a reasonable employee would read a rule to violate Section 7 simply because the rule could be interpreted that way.

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Fourth Circuit Reverses District Court and Trend, Finding Death from Driving While Intoxicated to be An “Accident”

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In Johnson v. Am. United Life Ins. Co., 2013 U.S. App. LEXIS 10528 (4th Cir. May 24, 2013), the Fourth Circuit reversed the District Court’s holding, 2012 U.S. Dist. Lexis 32718 (M.D.N.C. 2012), a decision we reported in March of last year.  In the District Court, Magistrate Judge Patrick Auld concluded that a death resulting from driving while intoxicated, under the circumstances of the case, was not an “accident” for purposes of an Accidental Death & Disability (AD&D) benefit under an ERISA-qualified employee benefit plan.  The Fourth Circuit Court’s reversal illustrates again the struggle to define the word “accident” in a situation when a driver intentionally becomes highly intoxicated and intentionally drives, knowing the inherent dangers, yet probably not intending to crash, sustain injury or die.

In Johnson, a participant of an employee benefit plan insured by AUL died after his truck left the road at high speed, hit a sign, and overturned several times. The post-mortem toxicology report showed a blood-alcohol concentration (BAC) of .289, more than three times the legal limit.

As did Judge Auld in the District Court below, the Fourth Circuit Court of Appeals explored a spectrum of interpretations of the word “accident.”  AUL argued for the definition adopted in Eckleberry v. ReliaStar Life Ins. Co. 469 F. 3d 340 (4th Circ. 2006), in which the Court interpreted the policy’s definition of “accident” to exclude losses from death or injury that were “reasonably foreseeable.”  Under the Eckleberry test, AUL argued, Mr. Johnson’s death was not the result of an accident because injury or death from driving while intoxicated was reasonably foreseeable.  The Fourth Circuit rejected AUL’s argument, distinguishing Eckleberry in two pivotal ways.  First, unlike the policy in the Eckleberry case, AUL’s policy did not empower it with discretionary authority sufficient to trigger the “abuse of discretion” standard of review.  Secondly, the plan in Eckleberry defined “accident” to suggest a “reasonable foreseeability” test, while, by contrast the term “accident” was not defined in AUL’s policy.  (This is not uncommon. As the Court recognized in the seminal case, Wickman v. Northwestern Nat’l Ins. Co., 908 F. 2d 1077, 1087 (1st Cir. 1990),  the word “accident” eludes articulation.)

Reviewing AUL’s denial de novo, the Johnson Court characterized the term “accident” as ambiguous because it was undefined, and applied the contra proferentum doctrine, (cf.  Carden v. Aetna Life Ins. Co., 559 F.3d 256, 260 (4th Cir. S.C. 2009) in which the Court held that the doctrine did not to apply in a review for abuse of discretion.).

Moving on from Eckleberry, the Court considered two other interpretations that were  skewed “against the drafter” more than the “reasonable foreseeability test.  The first was the test espoused by Wickman, supra:  When there was no evidence of the deceased’s actual (subjective) intentions and expectations (as is often the case), the Court asks the question of whether a reasonable person would have viewed the injury as “highly likely to occur” as a result of the deceased’s intentional conduct.  If so, then the loss was not the result of an accident.

Secondly, the Court considered the definition of “accident” under N.C.G.S. § 58-3-30(b), the test adopted by Judge Auld in the District Court.  Under this statute, which uses an “accidental result” test, a loss resulting from an intentional, voluntary act is still accidental if the injury (or result) is unanticipated and unexpected, unless the result was “substantially certain” to occur from the actions.

When Judge Auld applied this test, he found that “a crash by a speeding driver in Mr. Johnson’s [intoxicated] condition [is] as much an anticipated and expected result as a bullet hitting the head of someone who chooses to play Russian Roulette,” (giving a nod to the Wickman Court’s illustration of an unreasonable expectation of survival, even if death were not actually intended.)  However, the Court of Appeals came to the opposite conclusion: While Eckleberry’s “reasonable foreseeable” test would most likely exclude coverage here, evidence of driving while intoxicated, even at a BAC level of .289, by itself, did not establish that the insured’s death was “substantially certain,” under the statute’s definition, or even “highly likely,” under the Wickman test.  The Court’s conclusion was based upon statistics published by the CDC that an intoxicated driver’s chances of a fatal crash are 1 in 9,128.  (The other 9,127 apparently survive.)

Query:  How many drunk drivers with a BAC of .289 make it home safely?

Don’t Overlook The Gems In Equal Employment Opportunity Commission (EEOC) Files

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A recent decision out of a Louisiana federal court demonstrates that all employers who are sued in cases where the Equal Employment Opportunity Commission (EEOC) handled an administrative charge should promptly send out a FOIA request to obtain the EEOC’s file.

In Williams v. Cardinal Health Systems 200, LLC, a female employee reported to her employer that her husband had gotten into a fistfight with one of her co-workers, allegedly because the co-worker was sending her inappropriate text messages. The employee was fired shortly thereafter on Sept. 26, 2011.

Nine months later in June of 2012, a lawyer wrote to the employer on behalf of the former employee, suggesting that his client had suffered sexual harassment. The lawyer also suggested that the employer had retaliated against the employee for complaining of the sexual harassment when it fired her. A few weeks later, the lawyer helped the employee fill out and submit an EEOC intake questionnaire form.

After receiving the questionnaire, the EEOC advised the former employee that her questionnaire was incomplete, and that, among other things, she needed to sign and verify her allegations. Her lawyer eventually provided the necessary information, and the EEOC sent out a notice of charge of discrimination to the employer in October 2012, followed by a notice of right to sue. The employee then filed a lawsuit against the company in December 2012.

The employer filed a motion to dismiss the lawsuit, arguing that the employee had waited too long to bring her claim. The court noted that the employee had 300 days from the date of the alleged retaliation—or until July 22, 2012, to raise her claims with the EEOC. She had contacted the EEOC before then, but her questionnaire was incomplete. The charging party and her lawyer did not complete it before July 22. Thus, her claims were time-barred and her case dismissed.

The case provides a good example of an important litigation tool. The dismissal hinged on the EEOC’s file, which proved when the employee submitted her questionnaire, what the questionnaire contained, how the EEOC responded, and when and how her lawyer supplied the additional information. Employers typically are not privy to these communications and would not even know about them unless they obtain a copy of the agency’s file. And there is the lesson: all employers who are sued should make sure to request the EEOC or charging agency file as soon as possible. You never know what gems might be hiding in there just waiting for you to find them.

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What Are the EB-5 Permanent Residence Requirements?

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For investors seeking lawful permanent residence through the EB-5 program, the first step in the process is to file Form I-526, Immigration Petition for Alien Entrepreneur, together with accompanying evidence in support of the program’s requirements with USCIS.  USCIS evaluates and adjudicates I‑526 petitions by reviewing these criteria:

1. A New Commercial Enterprise Has Been Established.  An EB-5 investor must evidence that their investment was into an “enterprise” that is “new.”  So what is a “new commercial enterprise?”  It is any for-profit activity established after November 29, 1990 formed for the ongoing conduct of lawful business including, but not limited to, a sole proprietorship, partnership (whether limited or general), holding company, joint venture, corporation, business trust, or other entity which may be publicly or privately owned.  This definition includes a commercial enterprise consisting of a holding company and its wholly-owned subsidiaries, provided that each such subsidiary is engaged in a for-profit activity formed for the ongoing conduct of a lawful business, but it does not include a noncommercial activity such as owning and operating a personal residence.

In the regional center context, the new commercial enterprise is the fund where the alien invests.  Usually the fund takes the form of a Limited Partnership or Limited Liability Company.  In the direct, non-regional center context, the new commercial enterprise is the business where the alien invests and the business that creates the jobs for U.S. workers.

2. Investment of the Requisite Amount of Capital.  An EB-5 petition must be supported by evidence that the petitioner has invested the minimum required capital.  In the regional center context, if the project creating the jobs is located in a “targeted employment area” then the minimum amount of investment is $500,000.  In the direct investment context, if the new commercial enterprise is located in a “targeted employment area” then the minimum amount of investment is $500,000.  A “targeted employment area” is either: (1) an area of high unemployment that has at least 150% of the national unemployment rate; or (2) a rural area outside of a Metropolitan Statistical Area with a population of less than 20,000.  If the new commercial enterprise (in the direct context) or project (in the regional center context) is located outside of a targeted employment area, then the minimum amount of investment is $1,000,000.

USCIS expects the investor’s funds to be irrevocably committed to the enterprise.  The funds must be “at risk” and used by the new commercial enterprise to create employment.

3. Lawful Source of Capital.  Funds used for the EB-5 investment must be earned lawfully.  The investor must show the full source of the $500,000 or $1,000,000 investment and then trace those funds from the investor abroad into the new commercial enterprise.  Common sources of funds are salary earnings, distributions from businesses or investments, sale of property, mortgage of personal assets owned by the investor, or gifts from third parties.  If the investor receives a gift as the source of funds, the giftor must fully trace his or her funds that ultimately became the investment.  Funds earned or obtained in the United States while the investor was out of status are not deemed to be lawfully acquired.

4. Active Involvement in the New Commercial Enterprise.  The investor is expected to participate in the management of the new commercial enterprise either through day-to-day management or by assisting in the formulation of the enterprise’s business policy.  The investor cannot have a purely passive role in regard to the investment.

In the regional center context, investors in an EB-5 enterprise organized as a limited partnership usually have the rights and duties accorded to limited partners under the state’s Limited Partnership Act.  The same is true for a limited liability company.  This level of involvement is sufficient for EB-5 purposes.  In the direct investment context, the investor can manage the enterprise or formulate policy for the business by acting as a member of the Board of Directors or exercising voting control over the business.

5. Employment Creation.  The new commercial enterprise must create not fewer than ten (10) full-time positions for qualifying employees for each EB-5 investor.  In the direct investment context with no regional center affiliation, the 10 jobs created must be full time (35+ hours per week), permanent, and for W-2 employees of the new commercial enterprise.  Independent contractors do not count.  Additionally, the positions must be filled by qualifying employees, meaning a United States citizen, a lawfully admitted permanent resident, or other immigrant lawfully authorized to be employed in the United States including, but not limited to, a conditional resident, a temporary resident, an asylee, a refugee, or an alien remaining in the United States under suspension of deportation. This definition does not include the alien entrepreneur, the alien entrepreneur’s spouse, sons, or daughters, or any nonimmigrant alien.  At the time of the I-526 petition, if the positions are not yet created, the comprehensive business plan must contain a full description of the hiring plan to show the positions that will be created and when those positions will be filled.

In the regional center context, to show that the new commercial enterprise meets the statutory employment creation requirement, the petition must be accompanied by evidence that the investment will create full-time positions for not fewer than 10 persons either directly or indirectly through revenues generated from increased exports resulting from the Pilot Program.  According to USCIS, indirect jobs are those jobs shown to have been created collaterally by the project as a result of capital invested in a commercial enterprise affiliated with a regional center. The number of indirect jobs created through an EB-5 investor’s capital investment is based upon a business plan and a detailed economic analysis.  The EB-5 petition must contain evidence, in the form of an economic report, to show that 10 indirect jobs will be created for each investor in the project.

If these requirements are met, the I-526 petition should be approved.  If the investor and his family are abroad, they will apply for immigrant visas at a U.S. Consulate abroad.  When they enter the U.S. on the visas, they will become conditional permanent residents of the United States.  If the investor and his family are in the U.S., they may be eligible to adjust their status to conditional permanent residents.  Conditional permanent residence is granted for two years, and at the end of two years, the investor and his family must file Form I-829 to remove those conditions.  At that time, the investor must show the new commercial enterprise was sustained during the period of conditional permanent residence, their investment was sustained during the period of conditional permanent residence, and the 10 jobs were created.

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Canadians, the American Dream, and the EB-5 Investor Visa

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It’s that time of year when Canadians wintering south of the border begin to realize that fairly soon they will be packing their things and making the long trip north again. Some of them will do so willingly, eager to get back to friends and family, others will consider extending their stay by another couple of weeks or months, and still others will wonder if there is not some way to make a permanent move south.

The cliché of the Canadian “Snow Bird” exists, because it is a reality. Every winter thousands of Canadians travel south to places like Florida, Arizona, California and Hawaii. The majority retired, they may effectively spend half of their retirement Stateside.

Agreements between the US and Canada make this yearly passage possible. Under US immigration laws, Canadians are generally allowed entry as a visitor in the US for up to 6 months (180 days) at a time when they cross the US border by land, air or sea.

When it comes to taxes, the US Internal Revenue Service (“IRS”) has its own set of rules completely distinct from US immigration law. The US IRS allows Canadians to spend up to 182 days in the US under its “substantial presence” test over the course of 3 years before requiring Canadians to file a non-resident US tax return. Even then, the Canada-US tax treaty provides protections to facilitate this reporting and to keep Canadians on side with both the Canada Revenue Agency (“CRA”) and the IRS (see IRS Form 8833 Treaty Based Return Position Disclosure).

It is important for every Canadian spending time south of the border to make note of these separate, and sometimes conflicting, rules.

For those Canadians wishing to extend their stay in the US, they should look at both of these aforementioned rules to determine if this possibility exists for them. With the US and Canada announcing new initiatives to share information on the entry and exit of people across their shared border, it is possible that overstaying your 6 month entry to the US by even a few days could cause issues with US immigration next time you try to reenter the US. Additionally, for those who wish to avoid the hassle of US income tax filings, special care and attention should be given to the IRS’ “substantial presence” test.

What about those Canadians whose American Dream is not just passing October to April in the US, but rather relocating permanently?

While the US has various visa options available for those looking to work or start a business in the US, it does not have any retiree visa options, unless, perhaps, the applicant is closely related to a US citizen.

Those without a US citizen as a close relative who wish to immigrate to the US without the responsibility of working or starting a company may wish to consider the EB-5 Investor Visa.

The EB-5 Investor Visa was created by the Immigration Act of 1990, and it is a direct pathway to US permanent residency (also known as a US green card). Permanent residency allows you to live and work, or not work, in the US for as long as you would like. It also gives access to potential eligibility for programs such as US Social Security Insurance and Medicare.

To qualify for an EB-5 Investor Visa, the applicant is generally required to invest $1 Million USD in a business entity that creates or preserves at least 10 full-time jobs for US workers within 2 years. In exchange, the investor receives conditional permanent residency for the first two years, and full permanent residency at 2 years once he or she proves fulfillment of the visa requirements. It also allows the spouse and unmarried children under age 21 of the applicant to receive permanent residency.

For those who do not want or are not able to make a $1 Million USD investment, the US government will issue an EB-5 Investor Visa for investments of $500,000 USD in an approved “regional center” project, or if the passive investment is made in either a targeted low employment or rural area. Additionally, those who invest in regional centers receive the added benefit of being able to look to “indirect job creation” to fulfill the 10 full-time US jobs requirement.

Entrepreneurs starting an enterprise in the US may use the EB-5 visa, but it is equally accessible to passive investors looking for a way to make a permanent move to the US, especially when dealing with an approved regional center.

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EEOC Files Two Genetic Information Nondiscrimination Act Lawsuits in Two Weeks

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The EEOC recently filed its first-ever lawsuit alleging a violation of the Genetic Information Nondiscrimination Act (GINA) – and subsequently filed its second GINA lawsuit one week later.

The first lawsuit settled, with a fabrics distributor paying $50,000 and agreeing to take other specified actions (i.e. posting an anti-discrimination notice, among other things) after the EEOC alleged a violation of GINA and the Americans with Disabilities Act (ADA). Specifically, with respect to GINA, the EEOC charged that the distributor violated the Act when it asked the woman for her family medical history in a post-offer medical examination, including questions relating to the existence of heart disease, hypertension, cancer, tuberculosis, diabetes, arthritis, and “mental disorders” in her family.

The second lawsuit remains pending and was filed against a nursing and rehabilitation center. The EEOC similarly charged that the center violated GINA when it requested family medical history in a post-offer, pre-employment medical examination. The second lawsuit also alleges violations of the ADA and Title VII of the Civil Rights Act.

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According to the EEOC, GINA “makes it illegal to discriminate against employees or applicants because of genetic information, which includes family medical history; and also restricts employers from requesting, requiring or purchasing such information.”

As noted in both press releases, one of the six national priorities identified by the EEOC’s Strategic Enforcement Plan is for the agency to address emerging and developing issues in equal employment law, which includes genetic discrimination. As this recent EEOC action signals a focus on GINA issues, employers are encouraged to ensure their policies related to employee medical information and examination comply with the Act.