The U.S. Department of Labor ("DOL") has proposed regulations that more broadly define the circumstances under which a person or entity will be considered to be a plan "fiduciary" by reason of giving investment advice to an employee benefit plan or to a plan's participants or beneficiaries. If the proposed regulations are made final in their current form, the number of plan service providers that will be considered plan "fiduciaries" will increase significantly. Plan sponsors need not take any current action with respect to the proposed regulations, but should be aware that agreements with service providers may need to be reviewed and modified to conform to the regulations.

Background

Under the Employee Retirement Income Security Act ("ERISA"), a person is a fiduciary with respect to an employee benefit plan to the extent that the person: (i) exercises any discretionary authority or discretionary control respecting the management or disposition of the plan's assets; (ii) renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of the plan, or has any authority or responsibility to do so; or (iii) has any discretionary authority or discretionary responsibility in the administration of the plan.
Individuals and entities, including plan service providers, who are considered plan "fiduciaries" are subject to a number of strict duties and responsibilities and are prohibited from engaging in a number of specific acts with respect to the applicable plan. Among other consequences, fiduciaries who fail to satisfy their plan-related duties, or who engage in plan-related prohibited transactions, can be subject to personal liability for losses suffered by the plan.
 

The Proposed Regulations

The DOL's proposed regulation addresses the circumstances under which a person or entity is considered to be a plan "fiduciary" by reason of (ii) above; that is, by giving investment advice for a fee or other compensation to an ERISA-covered plan, to a plan fiduciary, or to the plan's participants or beneficiaries. Two of the key elements of the proposed regulations are the scope of the terms "investment advice" and "fee or other compensation".

"Investment Advice"

The proposed regulations generally provide that a person renders "investment advice" if the person:

• Provides advice, or an appraisal or fairness opinion, concerning the value of securities or other property;
• Makes recommendations as to the advisability of investing in, purchasing, holding, or selling securities or other property; or
• Provides advice or makes recommendations as to the management of securities or other property.

In addition to one or more of the activities noted above, a person renders "investment advice" only if the person also: 

• Represents or acknowledges fiduciary status within the meaning of ERISA with respect to giving advice or making recommendations;
• Has or exercises discretionary authority or control with respect to the purchase or sale of investments for a plan, with respect to management of the plan, or with respect to the administration of the plan;
• Is an "investment adviser" under the Investment Advisers Act of 1940 (which generally includes any person who, for compensation, engages in the business of advising others as to the value of securities or the advisability of investing in, purchasing, or selling securities, or who promulgates analyses or reports concerning securities); or
• Provides advice pursuant to an agreement, arrangement or understanding, oral or written, between such person(s) and the plan, a plan fiduciary, or a plan participant or beneficiary, that such advice may be considered in connection with making investment or management decisions with respect to plan assets, and will be individualized to the needs of the plan, a plan fiduciary, or a participant or beneficiary.

This part of the proposed regulations modifies current law in a number of ways, including the addition of appraisals and fairness opinions in the definition of advice. The DOL believes this change will align the duties of those who provide these opinions with those of plan fiduciaries who rely on them. Among other things, this brings valuations of closely held employer securities for purchase by an employee stock ownership plan, and appraisals of real property considered for purchase by a plan, into the realm of "investment advice." The proposal also specifically includes advice and recommendations as to the management of securities or other property. This could include, for example, advice in connection with the exercise of stock rights (e.g., voting proxies), and advice in the selection of plan investment managers. Another significant change from current law would be that the "advice" need not be provided on a "regular basis."

Limitations

Even if the person's activities with respect to a plan may suggest that the person is a fiduciary, a person will not be considered a fiduciary under the following circumstances:

• Where it can be demonstrated that the recipient of the advice knows, or reasonably should know, that person is, or represents, a person whose interests are adverse to the interests of the plan or its participants or beneficiaries, and that the person is not undertaking to provide impartial investment advice;
• The person provides only investment education information and materials, pursuant to other DOL regulations;
• The person provides general financial information and data to assist a plan fiduciary in the selection or monitoring of securities or other property as plan investment alternatives, if the provider discloses in writing to the plan fiduciary that the person is not undertaking to provide impartial investment advice; and
• The person prepares a general report or statement that merely reflects the value of an investment of a plan, unless such report involves assets for which there is not a generally recognized market and serves as a basis on which a plan may make distributions to plan participants and beneficiaries.

Fee Requirement

In order to be a fiduciary, the provider must provide investment advice "for a fee or other compensation, direct or indirect." The proposal defines this fee requirement to include fees or compensation for advice received by the person from any source and any fee or compensation incident to the transaction in which the investment advice has been, or will be, rendered.

Effective Date and What's Next?

The proposal will be effective 180 days after publication of the final regulations in the Federal Register. Thus, the expansion of the fiduciary definition will not apply for some time. The DOL has reportedly received many comments, some favorable, some not; these rules may change prior to being finalized. Stay tuned.
 

After more than five years of litigation, a defendant school board member was recently awarded over $136,500 in attorneys’ fees and costs from the plaintiff’s counsel in an employment discrimination case. An employer’s recovery of its attorney’s fees in an employment discrimination case is a fairly rare event. Under the federal anti-discrimination laws, when an employee sues his/her employer for discrimination and wins, the employee is considered to be the “prevailing party” and is therefore entitled to recover the reasonable amount of attorneys’ fees incurred in proving that he/she was unlawfully discriminated against. When the sued employer wins, the employer is likewise the prevailing party. However, the employer is generally not able to recoup the attorneys’ fees that were incurred in defending the claims. The policy behind this rule is a belief that an individual who has meritorious discrimination claims may nonetheless chose not to sue to enforce his or her rights out of fear that the individual may lose and have to pay the former employer’s attorneys’ fees. For that reason, the law builds in extra hurdles which victorious employers must overcome. For a prevailing defendant employer to be awarded fees, the employer must typically show that the claim was frivolous and should never have been brought in the first place. In other words, it must show that the employee’s claim had no foundation in either law or fact.

In Capone v. Patchogue-Medford Union Free School District, one of the defendants made that showing. The case arose when an employee terminated by a school district for misconduct sued the district and individual Board of Education members claiming that his termination violated the anti-discrimination laws. One of the Board members sued was Tina Marie Weeks, who had actually voted against terminating the employee. Throughout the litigation, Ms. Weeks argued that the discrimination claims brought against her were frivolous. Ms. Weeks’ attorneys repeatedly put the plaintiff’s attorney on notice of that position, citing binding caselaw, and further advised the attorney that if the frivolous claims were not withdrawn, Ms. Weeks would seek a full fee shift against the plaintiff and his counsel. The frivolous claims were not withdrawn and Ms. Weeks moved for an award of the full amount of attorneys’ fees incurred by her during the litigation. The District Court granted the motion, and ordered plaintiff’s counsel to pay Ms. Weeks over $116,000 in attorneys’ fees and $20,500 in litigation costs.

Hopefully, the Capone decision will serve as a deterrent to future frivolous litigation. When defendant employers are faced with frivolous claims, plaintiff’s counsel should be put on notice, in writing, early on in the litigation and frequently thereafter that their case is frivolous in fact and law. Plaintiffs’ counsel should further be advised that both counsel and the client may be subject to a full fee shift if the frivolous case is not withdrawn. If they do so, defendant employers may be spared the cost of litigating claims which should never have been brought.
 

As reported in the Daily Labor Report, Equal Employment Opportunity Commission officials have disclosed that the White House’s Office of Management and Budget has completed its review of the long awaited regulations implementing the 2008 Americans with Disabilities Amendments Act. The next step is publication of the regulations in the Federal Register. At that time, we will know what the final regulations contain. The Commission was not able to say exactly when that will occur. When it does, we will provide an update.

Last month, New York’s Appellate Division, Second Department determined that offering health insurance coverage to employees’ same-sex domestic partners, but not to opposite-sex domestic partners, does not necessarily constitute sexual orientation discrimination. Putnam/Northern Westchester BOCES v. Westchester County Human Rights Commission.

The case arose when the Joint Governance Board of the Putnam/Northern Westchester Board of Cooperative Educational Services, which provides health care benefits to employees of school districts in Putnam and Northern Westchester counties, extended health care benefits to same-sex domestic partners. Thereafter, a teacher in the Croton Harmon Union Free School District sought coverage for her opposite-sex domestic partner. The Board denied the request, and the teacher brought a claim before the Westchester County Human Rights Commission, alleging discrimination based on marital status and sexual orientation. The teacher prevailed in a hearing before a Human Rights Commission Administrative Law Judge, and the Board commenced a proceeding to overturn the Commission’s determination. The Appellate Division, Second Department did so. The Court concluded that the Board decided to offer the benefit only to same-sex partners because same-sex partners could not lawfully marry in the State of New York, and so could not obtain the benefits offered to employee spouses. Because that was the reason for the Board’s action, the Court concluded the action was not the result of sexual orientation discrimination. The Court also overturned the Commission’s finding of marital status discrimination, because the benefits sought by the teacher did not turn on marital status. In fact, the benefits she was seeking were made available to unmarried couples.
 

As challenging as 2010 was, 2011 promises to be even more challenging for employers trying to remain in compliance in an ever-changing legal and regulatory environment. While coming into full compliance may seem daunting, addressing the ten concerns discussed below will be a meaningful step in that direction.

1.  Meal Periods. New York State requires employers to provide employees who work shifts in excess of six hours a meal period of not less than 30 minutes. Penalties for noncompliance start at $1,000 per offense and increase with each offense. In addition, if an employer automatically deducts meal periods from working time and such deductions do not accurately reflect the meal periods taken, the employer may not be paying employees for all time worked – resulting in far greater legal exposure.

What To Do: Employers should develop and enforce a meal period policy, requiring employees to take their meal periods (which cannot be waived). Employers should also require employees to leave their work area and prohibit employees from performing any work during meal periods. If employees’ meal periods are frequently interrupted, they should be paid for the entire meal period. Employers should also maintain accurate records demonstrating that they are complying with meal period obligations. Employers who automatically deduct for meal periods should have a policy notifying employees of this practice, a mechanism for employees to report when they have worked during a meal period, and should require employees and their supervisors to certify the accuracy of time records. Employers should also train supervisors on the legal obligations associated with meal periods.
 

2.  Exempt Status. With Fair Labor Standards Act litigation outpacing discrimination suits, and New York’s recently enacted Wage Theft Prevention Act taking effect in April 2011, overtime compliance is essential.

What To Do: Before classifying a position as exempt, employers must insure the duties test, salary basis test and salary level test are satisfied. Because many employers give little thought to exempt classifications, employers should review all positions currently classified as exempt and insure these tests are satisfied. If an employer discovers it has misclassified a position as exempt, legal counsel should be sought.

3.  Other Wage and Hour Concerns. Employers must also be mindful of limits on deductions from wages (e.g., overpayment of wages, debts to the employer), the need to pay nonexempt employees for all hours worked, including those worked remotely (e.g., via Blackberry or other mobile device), and the proper way to calculate regular rate of pay for overtime purposes.

What To Do: Employers should review their wage and hour practices and work with legal counsel to develop appropriate guidance on each of these subjects.

4.  Misclassification of Workers. The United States Department of Labor has identified combating employee misclassification as a priority in 2011 and with a recent study finding 1 in 10 private sector New York employers having not properly classified workers, the potential exposure is clear. Misclassification of an employee as an independent contractor carries with it a broad range of liability, including: unemployment insurance, workers’ compensation, social security, tax withholding, temporary disability, and minimum wage and overtime.

What To Do: Employers should review their relationship with any worker identified as an independent contractor. In doing so, particular attention should be paid to whether the individual is in the business of providing these services, the duties performed, the control exercised over the work performed, the method of payment, and how payments are reported. These relationships should be memorialized in a written agreement (while understanding that labeling an individual an independent contractor does not end the analysis) that has been reviewed by counsel and accurately reflects the relationship between the parties.

5.  Reasonable Accommodations/Leaves. With the recently adopted Americans with Disabilities Act Amendment Act (ADAAA) and employers still working toward complying with the last round of regulatory changes to the Family Medical Leave Act (FMLA), reasonable accommodations and leaves will remain a focal point in 2011.

What To Do: Covered employers should review their FMLA policy and forms and, if necessary, update them. Employers should also adopt a policy detailing the reasonable accommodation obligation and the procedure for requesting accommodation, and insure supervisors can identify accommodation requests. Finally, employers must be aware that an employee requiring leave for a medical condition may not be limited to the 12-week FMLA entitlement given the availability of leave as a reasonable accommodation under the ADA and New York Human Rights Law.

6.  Caregiver Discrimination. As women now outnumber men in the U.S. workforce and mothers of young children are twice as likely to be employed as their counterparts 30 years ago, caregiver discrimination has gained greater attention and, in 2010, was described as an issue that would be “front and center” for the EEOC.

What To Do: Employers should educate supervisory personnel on what constitutes caregiver discrimination and insure those involved in the hiring process know what can and cannot be asked about caregiving responsibilities. In addition, parental/caregiving leave policies should be reviewed to ensure they do not discriminate on the basis of gender.

7.  Harassment. While harassment has been a long standing concern for employers, recent statistics demonstrate that workplace harassment is evolving - with more than 50% of harassment claims based on a protected status other than gender (e.g., disability, race, national origin) and sexual harassment charges filed by men increasing significantly.

What To Do: Employers should review their harassment policy to ensure it covers to all forms of harassment, describes/provides examples of what constitutes harassment, references conduct outside the work environment (including on social media), provides multiple avenues of complaint (directing victim to someone other than the harasser), presents an overview of the complaint procedure, and insures that the parties will be notified of the outcome of investigations. Employers should also train all those identified as avenues of complaint, as well as supervisors and managers, and should consider training all personnel.

8.  Retaliation. With EEOC charges alleging retaliation increasing 45% from 2006 to 2009 and retaliation now tied with race as the most common form of discrimination alleged, concerns related to retaliation are self-evident.

What To Do: Employers should develop or review their policy on retaliation and insure it accurately reflects recent legal developments and provides a complaint mechanism. Employers should educate supervisors on what constitutes retaliation and, when a complaint of harassment or discrimination or other violation of law is received, employers should address retaliation concerns with the source of the complaint, the person about whom the complaint was made, and any witnesses. Employers should also show sensitivity to the timing of adverse actions in relation to employee complaints and involve human resources and/or legal counsel in decisions impacting employees who recently engaged in protected activity.

9.  Employee Relations. While the Employee Free Choice Act (“EFCA”) appears to be dead, the underlying goal of EFCA – to increase unionization of the private sector workforce - will be advanced through National Labor Relations Board decisions and regulatory action. These potential changes -- commonly referred to as “EFCA 2.0” -- include narrowing the National Labor Relation Act’s definition of supervisor, expanding the protection of employee use of employer provided e-mail to solicit support for unionization, accelerating the speed of union elections, expand union access to employer property, and banning “captive audience” employee meetings.

What To Do: Given the likelihood at least some of these changes will be implemented, employers should pro-actively take steps to assess and, if necessary, improve employee relations. Employers should confirm that their supervisors satisfy the NLRA’s definition of supervisor (and are therefore excluded from NLRA protection and cannot unionize), educate supervisory personnel on the importance of open communication and positive employee relations and give supervisors the tools to succeed in this area. Employers should also take steps to address employee concerns that might otherwise lead to widespread employee dissatisfaction.

10.  Technology-Related Issues. With technology evolving at an unprecedented pace and social media use expanding rapidly, technology-related concerns are vast and problematic. While not every technology-related concern can be anticipated, let alone avoided, there are common sense steps employers can take to limit potential exposure.

What To Do: Employers should adopt, and distribute a policy concerning the use of the employer’s technological resources, and obtain employee consent to accessing, intercepting and monitoring of their use thereof. Employers should also adopting a policy addressing social media use, both at and outside work, and ensure that social media concerns are addressed in other non-technology policies (e.g., workplace harassment, references). Finally, employers should determine if and how they will use social media in the hiring process and put policies and procedures in place to ensure hiring managers do not inadvertently gain access to applicants’ protected status (e.g. age, national origin) in the process.

A version of this post was previously published in the Saratoga Business Journal.

We have posted previously on the amendments to New York Labor Law Section 195, the so-called Wage Theft Prevention Act, which creates certain employer obligations to notify employees of their wage rates and other information. As the April 9, effective date approaches, employers should be preparing to provide the following notifications and information.

Notification at Time of Hire

Whenever a new employee is hired, Section 195 now requires employers to provide the following information to each new hire before the new hire begins work:

• Rate or rates of pay
• Basis of pay (e.g. hourly, shift, day, week, salary, piece, commission, or other)
• Allowances, if any, claimed against the minimum wage (e.g., tips, meals, lodging)
• Identification of the regular pay day.
• Name of employer (including any doing business as name)
• Address and phone of employer
   

Acknowledgement of Receipt by Employee

In addition, the statute requires employers to obtain an employee acknowledgement of receipt of the information. That acknowledgement must be in English and the employee’s primary language. The acknowledgement must include an affirmation by the employee that the employee accurately identified to the employer his/her primary language, and that the notice was in the language so identified. In order to comply with this requirement, the employer will have to ask each employee what his/her primary language is before the notice is provided. Due to non-discrimination concerns, employers should not obtain this information before an offer of employment is made.

Commissioner’s Templates

The statute requires the Commissioner of Labor to prepare dual language templates for the notice and acknowledgement. The statute does not state that employers must use them, but if they do, they will not have any liability for mistakes made in the primary language. As of this date, the templates are not available.

Electronic Notices

According to a 2010 New York Department of Labor opinion letter on the pre-amendment Section 195, notice and acknowledgement may be electronic if:

1. the employee can access a computer and print a copy of the notice at any time and at no cost;
2. affirmative steps are required by the employee to acknowledge receipt of the notice (i.e., an employer cannot rely on passive receipt of an e-mail); and
3. the acknowledgement includes statements ensuring that the employee has received and reviewed the notice and that the employee is aware that his/her actions have legally significant consequences.

Annual Notices

The statute also requires employers to provide notices to all employees on or before February 1 of each subsequent year of employment. The annual notice content and acknowledgement requirements are identical to the requirements for a new hire notice.

Wage Statement Requirements

The amendments to Section 195 also mandate the inclusion of certain information in all employee wage statements. Nothing in the statute prohibits an electronic statement. There are no acknowledgement or primary language requirements.

For all employees the following information is required with every payment of wages

• Name of employee
• Name of employer
• Employer’s address and phone
• Rate or rates of pay
• Basis of rate of pay (hourly, shift, day, week, salary, piece, commission or other)
• Gross wages
• Deductions
• Allowances, if any are claimed as part of the minimum wage (tips, meals, lodging)
• Net wages

For non-exempt employees, the following additional information must be provided.

• Regular hourly rate or rates
• Overtime rate or rates
• Number of regular hours worked
• Number of overtime hours worked

Notification of Changes

Finally, whenever any of the information provided in either the new hire notice or the annual notice is changed, the employer must notify the employee in writing at least 7 calendar days before the change. This notification is not necessary if the changed information is reflected in the employee wage statement described above. Nothing in the statute prohibits electronic notification of changes, and there is no primary language requirement.
 

On December 21, 2010, New Jersey Governor Chris Christie signed legislation establishing a 2% cap on the aggregate increase in base salary per year that can be provided in an interest arbitration award. The New Jersey law may serve as a model for a similar effort in New York. Since he has taken office, New York Governor Andrew Cuomo has vowed to introduce changes to reduce the cost of State and Local government. He has stated that “New York is at a crossroads, and we must seize this opportunity, make hard choices and set our state on a new path toward prosperity…We simply cannot afford to keep spending at our current rate. Just like New York's families and businesses have had to do, New York State must face economic reality.” In order to achieve his cost saving measures, Governor Cuomo has introduced legislation calling for a 2% cap on property taxes. In addition, he has established by Executive Order a Mandate Relief Redesign Team as well as theSpending And Government Efficiency (Sage) Commission which will conduct a rigorous and comprehensive review of mandates imposed on local taxing districts and government spending “with the goal of saving taxpayer money, increasing accountability and improving the delivery of government services.”

With Governor Cuomo calling for such wide-reaching changes, and groups such as the New York Conference of Mayors (NYCOM) calling for the Governor to implement changes to Interest Arbitration (e.g., redefining “ability to pay”, prohibiting the consideration of non-economic items, limiting the number of times that a union can consecutively go to interest arbitration), it is possible that legislation similar to that signed by Governor Christie in New Jersey will be introduced in New York. In fact, former Gubernatorial candidate and Suffolk County Executive Steve Levy has already publicly embraced New Jersey’s 2% interest arbitration cap, and has indicated that he plans to call on the New York State Legislature to enact similar legislation. According to Mr. Levy, such a cap would, “save the county of Suffolk between $7 million and $10 million per year for the police force alone, considering the police union received a 3.5 percent increase in the most recent round of mandatory arbitration.”
 

What Does the New Jersey Legislation Provide?

The 2% cap – which mirrors New Jersey’s 2% cap on property tax increases – provides that an arbitrator shall not render an award which, on an annual basis, increases base salary items by more than 2% of the aggregate amount expended by the public employer on base salary items. The legislation provides that the aggregate monetary value of the interest arbitration award does not have to be distributed in equal annual percentages over the life of the agreement. Therefore, the monetary value of an award may exceed 2% in an individual contract year, provided that the monetary value of the award in the other contract year(s) is adjusted so that the aggregate monetary value of the award over the term of the agreement does not exceed the maximum 2% increase.

As defined by the new legislation, “base salary” means “the salary provided pursuant to a salary guide or table and any amount provided pursuant to a salary increment, including any amount provided for longevity or length of service.” Also included in an employee’s “base salary”, and therefore subject to the 2% cap, are “any other item agreed to by the parties, or any other item that was included in the base salary as understood by the parties in the prior contract.” The legislation specifically excludes from “base salary non-salary economic issues such as pension, health and medical insurance costs.” Non-salary economic issues are defined by the legislation as any economic issue that is not included within the definition of base salary. The legislation also prohibits an arbitrator from awarding “base salary items and non-salary economic issues which were not included in the prior collective negotiations agreement.”

In addition to the 2% cap, the legislation makes several other changes to the overall interest arbitration process: capping the fees that an arbitrator can receive; randomizing the arbitrator selection procedure if the parties cannot agree to an arbitrator; requiring that arbitrators receive yearly ethics training; allowing a party to file a petition with the Public Employment Relations Commission (PERC) alleging that the other side is not negotiating in good faith; and vesting PERC with the ability to assess the non-prevailing party the cost of all legal and administrative costs associated with the filing and resolution of the petition.

The entirety of the legislation, not just the 2% base salary cap, sunsets after 39 months. The legislation also establishes an eight-member task force designed to study the effect and impact of the changes made by the legislation. This task force will presumably make a recommendation as to whether the changes to the interest arbitration process should be continued once the legislation sunsets.
 

An appellate court in California recently held that an employee’s email exchanges with an attorney via the employee’s work email account were not protected by the attorney-client privilege, Holmes v. Petrovich Development Co. According to the Court’s opinion, when Gina Holmes began working for Petrovich Development Co., she read and signed the company’s employee handbook, which contained a policy regarding use of the company’s technology resources. The policy advised employees that: (1) the company’s technology resources, such as computers and email accounts, were for business purposes only; (2) employees had no expectation of privacy in the information or messages “created or maintained” on the company’s technology resources, including any emails sent or received on a company email account; and (3) the company could “inspect all files or messages … at any time for any reason at its discretion” and would periodically monitor files and messages. When Holmes got into an argument with the CEO about becoming pregnant a month after being hired, she exchanged two emails with an attorney via her company email account in which she explained her situation and asked about her rights. The next day, and after meeting with the attorney, Holmes quit her job claiming a hostile work environment and constructive discharge.

Holmes subsequently brought suit against the company. The trial court granted summary judgment dismissing some of her claims, and a jury found for Petrovich on the remaining claims, including invasion of privacy.  On appeal, Holmes argued, among other things, that the trial court erred in permitting the e-mails to her attorney to be entered in evidence, contending they were protected by the attorney-client privilege. Such communications between an attorney and client can be privileged. For example, in Stengart v. Loving Care Agency, Inc., emails sent by an employee at work via her personal email account were held to be privileged where the employer’s policy permitted employees to use company computers for “occasional personal use.” In Holmes, however, the Court held that because Holmes had been advised of the company’s technology resources policy before the emails were exchanged, but nonetheless chose to engage in an email exchange via her company email account, Holmes’ emails with the attorney were not privileged. As the Court held: “… the e-mails sent via company computer under the circumstances of this case were akin to consulting her lawyer in her employer’s conference room, in a loud voice, with the door open, so that any reasonable person would expect that their discussion of her complaints about her employer would be overheard by [her employer]. By using the company’s computer to communicate with her lawyer, knowing the communications violated company computer policy and could be discovered by her employer due to company monitoring of e-mail usage,” the emails lost any protection they otherwise would have had.

While the question of whether attorney-client communications over an employer’s computer network are protected is not a settled issue, and turns on the facts of the case, the lesson to employers from the Holmes case is clear. Employers should institute and disseminate to employees an appropriate technology resources policy that makes clear employees have no right to privacy in the emails they send or receive via an employer email account and that such emails can be monitored by the employer at any time.
 

The United States Department of Labor announced recently that its Office of Labor-Management Standards will begin collecting data on employers and their representatives who are involved in representation cases before the National Labor Relations Board. The initiative, termed the Persuader Reporting Orientation Program or “PROP,” may be part of the Department of Labor’s efforts to stem the tide of union losses in organizing campaigns. We reported previously on the Agency’s plan to revise the longstanding interpretation of the “advice exception” to reporting obligations under the Labor-Management Reporting and Disclosure Act (“LMRDA”) 29 U.S.C. § 433.

Pursuant to PROP, the Office of Labor-Management Standards will review certain petitions filed with the National Labor Relations Board. It will then send what the Agency calls an “orientation letter” to the employer and its representative, “informing them of their potential reporting obligations under the LMRDA.” Under the LMRDA, an employer is required to file an annual report with the federal government in which it discloses agreements (and associated payments), where a purpose of the agreement is to persuade employees with respect to their right to organize. A willful failure to file such reports can result in criminal liability.
 

An employer may be less likely to spend money on third party advisors in connection with an organizing campaign if it is required to disclose those expenditures. The Agency’s efforts to increase disclosure thus appear to be designed to provide a disincentive for employers to use third parties to assist in opposing an organizing campaign.

Coincidentally, the day after the Department of Labor announced the PROP initiative, the United States Bureau of Labor Statistics issued a press release indicating that the percentage of unionized private sector workers in the United States had dropped to 6.9% in 2010, the lowest level since records have been kept. New York, however, is the most heavily unionized state in the nation, with 24.2% of public and private sector employees represented by unions. North Carolina has the lowest percentage, 3.2%.
 

On December 15, 2010, we reported that former New York Governor David Patterson signed the Wage Theft Prevention Act (the “Act”) into law on December 13, 2010. Because the Act states that it shall take effect 120 days after it is signed into law, we reported the effective date as Tuesday, April 12, 2011. However, it appears that Governor Patterson signed the Act twice – first on December 10, 2010 and then again during a public ceremony on December 13. Because the Act was first signed into law on December 10, 2010, the effective date is actually Saturday, April 9, 2011. As a result, employers must implement the Act’s new notice, employee acknowledgment and record retention requirements by April 9, 2011. Because implementation may require significant changes in current policies and procedures, employers should begin a review of payroll and wage notification practices now.

As many employers are aware, under the Federal Worker Adjustment and Retraining Notification (“WARN”) Act, employers must provide affected employees with 60 days’ written notice of a plant closing.  In Collins v. Gee West Seattle, the Ninth Circuit Court of Appeals had the opportunity to decide whether employees who left their employment after learning that their company was closing “voluntary departed” under WARN, thereby excusing the employer from sending out WARN notices.

In that case, Gee West, a car dealership that employed approximately 150 employees, experienced severe financial losses in July 2007, and decided to sell the company. Despite its efforts, the business was not sold, and on September 26, Gee West announced that it was closing 11 days later, on October 7. After the announcement, employees stopped going to work, and only 30 employees were present the day the plant closed.
 

The employer argued that it was not required to give WARN notice because at the time of the closing there were only 30 employees who suffered an employment loss -- not 50 as required by WARN. (The statute's 60-day notice requirement applies where the shutdown of a plant results in “an employment loss at the single site of employment during any 30-day period for 50 or more employees”). According to the employer, the other 120 employees had “voluntarily departed” prior to the closing and therefore had not suffered an employment loss.  WARN defines an employment loss as a termination of employment for reasons other than, among other things, a voluntary departure.

The Ninth Circuit rejected the employer's  argument, finding that “[e]mployees’ departure because of a business closing … is generally not voluntary, but a consequence of the shutdown and must be considered a loss of employment when determining whether a plant closure has occurred.” Therefore, Gee West was required to give 60-day notice to all 150 affected employees who the company reasonably expected would lose their jobs as a result of the closing on October 7.

In light of this case, employers should be aware that even if an employee’s departure after the announcement of a plant closing seems “voluntary,” a court may view it differently, and determine whether WARN applies based on the number of employees at the time of the announcement, not the actual closing.
 

On December 22, 2010, the Departments of Labor, Health and Human Services, and Treasury (collectively, the "Departments") issued their fifth set of answers to several frequently asked questions ("FAQs") about the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act ("PPACA"). The FAQs also address the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 ("MHPAEA") and the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") nondiscrimination rules for wellness programs. The FAQs are described below.

The Patient Protection and Affordable Care Act

The PPACA encompasses many different approaches to reducing the number of Americans with little or no health insurance coverage. The legislation includes mandates on employers, individuals, and providers, amendments to the Internal Revenue Code, and many other changes.

Cost Control for Preventive Care Benefits

The PPACA generally requires that group health plans cover recommended, in-network preventive services without any employee cost sharing. The Departments issued interim final regulations on July 14, 2010 addressing the requirement, but there have been lingering issues about a plan's ability to control costs. The FAQs confirm that the PPACA allows plans to steer enrollees toward more cost-efficient service providers through value-based insurance designs ("VBID"). The FAQs provide an example of a permissible VBID. The PPACA would allow a group health plan to have no copayment for preventive services performed at an in-network ambulatory surgery center, but have a $250 copayment for the same services performed at an in-network outpatient hospital, because the outpatient hospital is a higher-value setting. The Departments add that further guidance is forthcoming.
 

Automatic Enrollment for New Employees

The PPACA requires employers with more than 200 full-time employees to automatically enroll new full-time employees in the employer's health plan. However, the FAQs clarify that employers are not required to comply with this mandate until the Employee Benefits Security Administration promulgates regulations, which will be sometime before 2014.

Notice of Plan Modifications

The PPACA requires group health plans to provide 60 days notice to enrollees before making material modifications to the plan's terms or coverage if they were not reflected in the most recent summary of benefits and coverage. However, the FAQs explain that employers are not required to comply with this mandate until the Departments issue standards for plans to follow for compiling and providing a summary of benefits and coverage.

Varying Coverage Based on Age

The PPACA provides that group health plans providing dependent coverage for children cannot vary such coverage based on age (except if they are 26 or older). The FAQs point out, however, that the PPACA permits varying coverage based on age that applies to all enrollees, including employees, spouses, and dependent children. An example in the FAQs suggests that a plan could charge a copayment for non-preventive care to all enrollees age 19 and over, but waive it for those under 19. However, it could not charge a copayment to dependent children age 19 and over, but waive it for those under 19.

Grandfathered Health Plans

The PPACA provides that group health plans existing as of March 23, 2010, called "grandfathered plans," are not subject to certain PPACA provisions as long as they do not make specific plan changes outlined in PPACA regulations. A plan that makes such changes would lose its grandfather status. The FAQs address the scenario where a grandfathered plan has a fixed cost-sharing requirement other than a copayment, such as a deductible or out-of-pocket spending limit, which is calculated based on a formula that includes a fixed percentage of an employee's compensation. The FAQs conclude that, if the formula remains the same as it was on March 23, 2010, a compensation increase that causes a cost-sharing increase under the formula would not cause the plan to lose grandfather status, even where the cost-sharing increase exceeds the PPACA regulatory threshold.

Mental Health Parity and Addiction Equity Act of 2008

If plans provide mental health and substance use disorder benefits, the MHPAEA generally requires that financial requirements and treatment limitations for such benefits cannot be more restrictive than for medical and surgical benefits.

Small Employer Exemption

Group health plans subject to ERISA and the Internal Revenue Code are exempt from the MHPAEA as a "small employer" if they have 50 or fewer employees, preempting any State insurance law definition of small employer. The FAQs note, however, that for nonfederal government plans the PPACA applies, and it defines "small employer" as one that has 100 or fewer employees.

Increased Cost Exemption

The Departments explain in detail how the cost exemption works. The MHPAEA provides that if a plan makes changes to comply with the MHPAEA and incurs a 2% or greater cost increase in the first year the MHPAEA applies to it, or a 1% or greater cost increase in any year after the first year, then the plan is exempt from the MHPAEA the following year (that is, the year after the cost increase was incurred). The exemption lasts for one year, and then the plan must comply again. However, the plan could incur another cost increase of 1% or greater due to compliance-related changes and be exempt the following year. When calculating the cost increase percentage, the plan should include increases in the plan's portion of cost sharing as well as non-recurring administrative costs (for example, adjusting computer software), which should be appropriately amortized. Plans must further demonstrate that cost increases are directly attributable to MHPAEA compliance rather than utilization or price trends, random claim experiences, or seasonal variations in claims processing. The FAQs clarify that, until the Departments issue regulatory guidance on how the increased cost exemption will be implemented, plans can follow the procedures outlined in their earlier 1997 regulations to claim the exemption.

HIPAA and Wellness Programs

HIPAA regulations generally prohibit discrimination in eligibility, benefits, or premiums based on employee health. Where wellness programs require employees to meet a certain health standard (such as losing weight) to obtain a reward (such as lower premiums), they must satisfy HIPAA's nondiscrimination requirements. There are five requirements: (1) the total reward cannot exceed 20% of the total cost of coverage; (2) the program must be reasonably designed to promote health or prevent disease; (3) the program must provide employees an opportunity to qualify for the reward at least once per year; (4) the reward must be available to all similarly situated employees, which means there must be a reasonable alternative standard for employees with a health condition that makes it unreasonably difficult for them to satisfy the original standard; and (5) the alternative standard must be published in all plan materials. The PPACA incorporates these nondiscrimination rules, except that it changes the maximum reward from 20% of the total cost of coverage to 30%. The Departments intend to propose regulations before 2014 that implement this percentage change, as well as consider other nondiscrimination rules.

Independent Wellness Programs

The FAQs clarify that the nondiscrimination rules only apply to wellness programs that are part of a group health plan and not those that are operated independently as a separate employment policy. The FAQs list examples of independent programs, which include subsidizing healthier cafeteria food and gym memberships, providing pedometers (to encourage walking and exercise), and banning smoking in the workplace. Note, however, that these independent programs may still be subject to Federal or State nondiscrimination laws.

Meeting Health Standard as Condition of Reward

The FAQs explain that the nondiscrimination rules only apply to wellness programs that require employees to meet a certain health standard to obtain a reward. The FAQs provide two examples of programs that do not contain such a standard and thus are not subject to the nondiscrimination rules. In the first example, a group health plan offers, as part of its wellness program, an annual premium discount of 50% of the cost of coverage to employees that attend a monthly health seminar. The FAQs conclude that, because employees do not have to meet a health standard to obtain the discount, the nondiscrimination rules are inapplicable -- including the rule limiting the reward amount to 20% of the cost of coverage. In the second example, a group health plan offers, as part of its wellness program, to reimburse employees for their monthly gym membership fee. The FAQs conclude that the nondiscrimination rules are inapplicable because the employees are not required to meet a health standard to obtain the reimbursement.
Application of the Nondiscrimination Rules

The FAQs provide an example of how to apply the nondiscrimination rules. The example is a group health plan that offers, as part of its wellness program, a discount of 20% of the cost of coverage to employees that achieve a cholesterol count of 200 or lower. The plan also states that if the employee has a health condition making it unreasonably difficult for them to satisfy the cholesterol count within a 60-day period, then the plan will create a reasonable alternative standard. The FAQs conclude that, although the plan requires employees to meet a health standard and is therefore subject to the nondiscrimination rules, it does not violate them because the total reward does not exceed 20% of the total cost of coverage, and the reward is available to all similarly situated individuals because it includes a reasonable alternative standard.