Labor and Employment Update - Spring 2013

EMPLOYER-SPONSORED WELLNESS PROGRAMS — A LEGAL SIDE EFFECT OF THE AFFORDABLE CARE ACT?

With the implementation of the Affordable Care Act (ACA), employers are faced with a significant increase in healthcare premiums – and are taking drastic steps to cut costs. For example, some employers are attempting to reduce such costs through the use of “wellness programs” for their workforce. 

Recently, CVS came under fire for its new health screening and wellness review program that requires employees to disclose personal health information such as height, weight, body fat, blood pressure, glucose, and body lipids in order to avoid an increase in their share of health insurance premiums. CVS will pay for the health screening in exchange for employees signing an agreement stating that the screening is “voluntary” and agreeing to release their medical information to a third party administrator that will provide health management and benefit support to CVS. Employees who choose not to participate in the wellness plan are subject to a $600 penalty in the form of increased contributions to their health insurance coverage. While privacy rights activists have voiced concerns over the disclosure of such information, noting that the Health Insurance Portability and Accountability Act (HIPAA) makes it illegal for employers to know an employee’s weight or other personal health information, CVS is adamant that its program is lawful, as it will not have access to the results of each employee’s screening. Rather, it will only be advised of whether the employee participated in the screening.

Studies have shown that employers spend an average of over $12,000 per employee on healthcare costs, and most spending is a result of chronic conditions, many of which are the result of obesity or smoking. Common sense tells us that healthier employees use less healthcare services and miss less work. Accordingly, employers are now looking to institute programs whereby employees are encouraged to make lifestyle changes to become healthier and prevent increased costs related to risk factors such as obesity or smoking.   As part of such a program, employees are typically required to complete surveys or undergo physical screening to determine if they have any such risk factors. Additionally, many wellness programs, like that of CVS, “penalize” employees who refuse to participate in the program by requiring them to pay higher premiums. 

Current law enables employers to allocate incentives up to 20% of the individual employee’s health care premium. Next year, this percentage is expected to increase up to 30%. While the EEOC has not established a formal position on the implementation of wellness programs, it has issued several informal discussion letters wherein it indicates that it supports wellness programs so long as the employer neither requires employee participation nor penalizes employees who do not participate. Thus, employers who wish to implement a wellness program should focus on using incentives to induce employees into making healthier lifestyle choices rather than penalties for failure to participate.  

In addition to the concerns presented by the EEOC’s possible position on the use of required wellness programs that penalize employees for non-participation, many employers have also been reluctant to implement wellness plans due to the concerns and challenges posed by the ADA. The ADA prohibits employers from making disability-related inquiries or requiring medical examinations of prospective or current employees unless they are reasonably job-related or pursuant to a business necessity. However, these inquiries are allowed under the ADA if they are completely voluntary or if the questions are not disability related. So, employers may avoid liability under the ADA if employees are voluntarily providing such information.

By Carianne P. Torrissi
ctorrissi@klehr.com

IMPORTANT CHANGES THAT WILL IMPACT EMPLOYERS’ DAILY PRACTICE AND POLICIES NEW FMLA REGULATIONS ALREADY IN EFFECT

On February 6, 2013, the Department of Labor issued FMLA regulations that took effect on March 8, 2013, which expand Qualified Exigency Leave and clarify existing regulations concerning calculating intermittent leave and reduced schedule leave. A helpful “side-by-side” comparison of the 2008 and 2013 Regulationscan be found at the following link:

http://www.dol.gov/whd/fmla/2013rule/comparison.htm#.URQTloDzU6o.twitter. 

In short, the 2013 Regulations require employers to replace their FMLA poster with a new one and likely mean that employers’ FMLA policies must be revised.   

Specifically, regarding Qualified Exigency Leave, among other things, the regulations:

1)       increase the amount of leave from five to 15 days that an eligible employee is permitted to take to bond with a covered family member who is on Rest and Recuperation leave;
2)       expand leave to include pre-existing injuries or illnesses that are aggravated by the service member’s active duty;
3)       permit exigency leave to care for or arrange for the care of a military member’s parent (or a person who stood in loco parentis) if the parent is unable to care for himself/herself and the need for leave arises from the military member’s active duty or call to active duty;
4)       now include a health care provider as defined by the regulations in §825.125 as someone from whom an employee may obtain a certification of the service member’s serious injury or illness;
5)       apply military caregiver leave to veterans; and
6)       provide leave to eligible employees whose family members serve in not just the National Guard and Reserves but in the Regular Armed Forces as well. 

Concerning intermittent leave, the new regulations remind employers that, subject to the physical impossibility exception, they are not permitted to require an employee to take more FMLA leave than is necessary and cannot count as leave time that an employee actually performed work for the employer. In addition, while maintaining the physical impossibility exception, the DOL stressed that the exception is limited and pertains only to those “unique workplaces” in which it is, in fact, physically impossible to allow an employee to leave a shift early and no equivalent position is available. Further, only the time when an employer cannot physically permit the employee to return to work can be counted as leave and it is the employer’s burden to restore the employee to the same or equivalent position as soon as possible. 

As far as tracking the amount intermittent or reduced schedule leave taken, the DOL “emphasize[d]” that employers are not required to count FMLA leave “using the smallest increment possible under their payroll timekeeping system.” Instead, employers should calculate the leave taken by “using an increment no greater than the shortest period of time that the employer uses to account for use of other forms of leave provided that it is not greater than one hour” and provided that the “leave entitlement [is] not reduced by more than the amount of leave actually taken.” 

 In light of these 2013 FMLA Regulations, employers should:

• Revise their FMLA policies to ensure compliance;
• Post a new FMLA poster that can be found at http://www.dol.gov/whd/regs/compliance/posters/fmlaen.pdf; 
• Download revised FMLA forms that can be found at http://www.dol.gov/whd/fmla/2013rule/militaryForms.htm; and
• Educate HR employees on these changes. 

USCIS Issues New I-9 Form

In addition to the above, also on March 8, 2013, the USCIS revised the Employment Eligibility Verification Form I-9. Effective on that date, the USCIS instructed all employers to begin to use the new form for all new hires and reverifications as soon as possible, but no later than May 7, 2013.   The new form need not be used for current employees whose properly completed I-9 Form already is on file. 

Accordingly, if employers have not already done so, they must use the new I-9 Form available at www.uscis.gov for all employees hired on or after May 7, 2013.  

By Lee D. Moylan
lmoylan@klehr.com 

WHAT’S IN A TITLE?: THE THIRD CIRCUIT ADOPTS A TEST TO DETERMINE IF A SHAREHOLDER IS AN EMPLOYEE UNDER TITLE VII 

In a significant decision for businesses, the Third Circuit ruled on April 29, 2013, that the same test used to determine whether one is an “employee” of a professional corporation under the Americans with Disabilities Act also applies to the same determination for a Title VII claim against a closely held company. In Mariotti v. Mariotti Building Products, the Third Circuit was confronted with the issue of whether the plaintiff, Robert Mariotti, a former officer and director of his family’s business, could maintain a Title VII suit for religious discrimination against the family business as an “employee.” 

In determining whether Mariotti was an “employee” within Title VII’s ambit, the Third Circuit adopted the six factors identified by the Supreme Court in Clackamas Gastroenterology Associates, P.C. v. Wells, a 2003 case construing the definition of an “employee” under the Americans with Disabilities Act. The six Clackamas factors are:

• Whether the organization can hire or fire the individual or set the rules and regulations of the individual’s work;
• Whether, and if so, to what extent the organization supervises the individual’s work;
• Whether the individual reports to someone higher in the organization;
• Whether, and if so, to what extent the individual is able to influence the organization;
• Whether the parties intended that the individual be an employee, as expressed in written agreements or contracts; and
• Whether the individual shares in the profits, losses, and liabilities of the organization.

The Third Circuit refined the fourth factor–the ability to influence the organization–to include an assessment of the source of the individual’s authority, consistent with the Seventh Circuit’s approach to the issue. Notably, the court also found that Clackamas applies to all business entities, and the type of entity is simply something to be considered in determining whether the individual is an employee.  

In concluding that Mariotti was not an employee, the court found that his status as a shareholder, director, and corporate officer gave him substantial authority and the right to control the business. Mariotti was entitled to participate in management and governance, as well as participate in fundamental business decisions. The court also noted that Mariotti appeared to have received draws from the business, as opposed to a salary, weighing against status as an employee. 

The Mariotti decision has significant implications for many businesses. While Mariotti can shield a business from liability under Title VII, it also has the potential to expose a business to Title VII liability in certain instances, such as where an individual has a title connoting authority but in practice has none. 

Prior to taking what could be considered an adverse employment (e.g, transfers, layoffs, promotions/demotions and/or terminations) action against an officer, director, or other high-ranking individual, employers should carefully scrutinize the individual’s role in the organization and assess whether that individual could be considered an “employee” under Mariotti.  

By Diana E. Lipschutz
dlipschutz@klehr.com

A BUYER IN AN ASSET SALE MAY STILL BE LIABLE FOR FLSA VIOLATIONS

Generally, when a company is sold in an asset sale – rather than a stock sale – the buyer acquires the seller’s assets, but not its liabilities. However, the buyer may be liable for certain labor/employment law violations because of “successor liability.” The Seventh Circuit recently addressed whether the federal standard for successor liability applies to the Fair Labor Standards Act (“FLSA”).

In Teed v. Thomas & Betts Power Solutions, LLC, the Seventh Circuit determined that the federal standard of successor liability extends to the FLSA. The Circuit Court, however, in reaching its decision, modified the multi-factor test typically used in determining successor liability. The Court “suggests[ed] that successor liability is appropriate in suits to enforce federal labor or employment laws—even when the successor disclaimed liability when it acquired the assets in question—unless there is good reasons to withhold such liability.”

For example, the Court noted that a successor company’s lack of notice of a pending suit could be a good reason to withhold liability. Thus, the factors typically considered in examining successor liability still appear to have a place in the Court’s successor liability analysis:

• whether the successor company has notice of a pending suit;
• whether the predecessor would have been able to provide the relief sought in the suit before the sale;
• whether the predecessor could have provided relief after the sale;
• whether the successor can provide the relief sought in the suit; and
• whether there is a continuity between the operations and work force of the predecessor and the successor

In adopting this employee-friendly standard in the context of the FLSA, the Court reasoned that the federal labor and employment statutes exist for public policy reasons and to protect workers’ rights. Citing the Ninth Circuit, the Court explained that the federal standard logically extends to the FLSA, because ‘[t]he FLSA was passed to protect workers’ standards of living through regulation of working conditions . . . That fundamental purpose is as fully deserving of protection as the labor peace, anti-discrimination, and worker security policies underlying the NLRA, Title VII, 41 U.S.C. § 1981, ERISA, and MPPAA.’

The opinion itself recognized that imposing successor liability could increase costs for buyers. The Court observed that in the deal marketplace, buyers will likely be compensated for the potential imposition of such liabilities by paying less for assets. Lastly, the Court noted that in the Teed case, the seller was a profitable company, and it would have doubtlessly found a buyer, even if the buyer was on notice of potential successor liability.

By Vanessa M. McGrath
vmcgrath@klehr.com