Employee Benefits Blog : Employee Benefits & Executive Compensation Lawyers & Attorneys: McDermott Will & Emery Law Firm

by Joseph S. Adams and Jeffrey M. Holdvogt

In a corporate spin-off, both the existing company and the new company (spinco) must consider the implications for employees, employee benefit plans and executive compensation arrangements.  Benefit plans and compensation arrangements can represent significant liabilities and responsibilities, and typically are expressly allocated in an employee matters agreement (EMA).  This article provides a brief summary of some of the key employee benefit plans issues to consider in a spin-off.

To read the full article, click here. 

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by Katie Clark and Richard Cook

On October 8, 2012, George Osborne announced that the UK Government was proposing a new type of employment contract, dubbed the “employee-shareholder” contract.

The proposals were designed to allow employers to offer their employees shares in the business, at a minimum value of £2,000.  In exchange, the employee would forgo certain statutory rights including, most pertinently, unfair dismissal and the right to a redundancy payment.  The employees would receive favourable tax treatment on the disposal of the shares, up to a value of £50,000.

During the consultation process, the Government received little positive feedback on the approach, but confirmed in its consultation response that it intended to implement the proposals in any event.

On 24 April 2013, having twice rejected the Government’s proposals, the UK House of Lords accepted concessions made by the Government and voted to accept employee-shareholder status. The proposals are expected to become law in the autumn of 2013.

Details of The New Regime

Employers will now effectively be able to buy certain of their employees’ statutory rights for as little as £2,000. 

For the rights to be effectively waived, however, a number of criteria must be met:

• Each individual must be given a written statement of the particulars of their employee-shareholder status.  This must specify the employment rights that he/she will forgo and detail the rights, restrictions and other conditions attached to the shares.
• The individual must be given independent legal advice as to the terms and effect of entering into the scheme.  Unless independent advice is received, and the individual has been given seven days to consider the advice, the employee’s employment rights will not have been waived.
• The employer will need to meet the reasonable cost of the legal advice, even if the offer is not taken up.

The right to claim discrimination and claims of automatically unfair dismissal, including whistleblowing, are excluded from the waiver.

What Does This Mean for Employers?

In theory, employee-shareholder status will provide more flexibility for employers in recruitment, and the potential to mitigate legal risk, by offering an up-front payment, in the form of shares, of as little as £2,000.

In practice, however, the intricacies of the offer-acceptance process are likely to mean that employees will be very well informed, making them less likely to “sell” their valuable employment rights for as little as £2,000. There is also scope for technical errors to be made in the new, more complex, process that may result in the employee receiving £2,000 but still retaining his or her statutory rights.

Nonetheless, if implemented properly, employee-shareholder contracts could be a valuable tool for employers who are looking to build flexibility into their workforce.  The question is whether employees, given the inherent value of the rights they are being asked to give up, and the risk of a fall in the value of their shares, will find the proposition an attractive one.

For further information, or for assistance in setting up an employee-shareholder arrangement, please contact Katie Clark or your regular McDermott lawyer. 

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by Stephen D. Erf, Heather Egan Sussman and Sabrina E. Dunlap

The U.S. Department of Labor recently issued a final rule implementing new expanded rights for families of military members and veterans, and greater access to Family and Medical Leave Act (FMLA) leave for airline flight crews.  Companies should review and update their FMLA policies to account for this new rule.

To read the full article, click here.

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by Katie Clark and Paul McGrath

The compensation limits on Tribunal awards will increase as of 1 February 2013.  The key changes are set out below.

Statutory Redundancy Pay

The maximum amount permitted for calculation of a week’s pay will rise from £430 to £450; the maximum entitlement to Statutory Redundancy Pay will therefore rise from £12,900 to £13,500.

Basic Award

The current maximum amount for a week’s pay will rise from £430 to £450; the maximum Basic Award will therefore rise from £12,900 to £13,500 (which would be awarded to an employee aged 61+ with 20+ years service).

Minimum Basic Award for Defined Dismissals

The minimum Basic Award a Tribunal can award for certain dismissals, i.e., those relating to certain employee representative, health and safety and working time cases, will rise from £5,300 to £5,500.

Maximum Compensatory Award

The maximum Compensatory Award a Tribunal can award in most cases of unfair dismissal will rise from £72,300 to £74,200.

The maximum total award for unfair dismissal (i.e. maximum unfair dismissal compensation plus maximum basic award) will therefore rise from £85,200 to £87,700.

What Does This Mean for Employers?

The changes will take effect on 1 February 2013 and will be applicable to dismissals taking effect on or after that date.

It is important for employers to note that:

• If an employee is given notice prior to 1 February 2013, but the notice period will expire on or after 1 February 2013, the new limits set out above will apply to that dismissal.
• If an employee is paid in lieu of notice, the effective date of termination (EDT) is the actual date, plus the amount of statutory notice applicable to the employee, i.e., one week per year of employment, up to a maximum of 12 weeks.  If the statutory notice would take the EDT to or beyond 1 February 2013, the new limits will apply (but see also our most recent employment alert How to Terminate Employment and Exercise a Payment in Lieu of Notice Clause).

Employers’ exposure in the event of an unfair dismissal claim will rise and should be factored into decision making regarding litigation or settlement strategies.

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by Hugh Nineham and Tara Walsh

The UK Department for Business, Innovation and Skills (BIS) published on 4 July 2012 the final report from the Nuttall Review of Employee Ownership (the Nuttall Review).  It identifies a number of barriers to the creation and uptake of employee ownership arrangements.  The Nuttall Review identified significant economic and social benefits in employee ownership, which the UK Government has endorsed.

As a result, the UK Government has published new regulations to deregulate the current share buyback regime, which are to take effect later this year and intend to simplify the current overly burdensome rules.

To read the full article, click here.

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by Jeffrey M. Holdvogt, Ruth Wimer and David Diaz

On February 27, 2013, the Internal Revenue Service (IRS) issued News Release IR-2013-23 to provide additional favorable guidance regarding modifications to the Voluntary Classification Settlement Program (VCSP) issued in Announcements 2012-45 and 2012-46 addressing worker classification issues.  The VCSP allows eligible employers to voluntarily reclassify their workers for federal employment tax purposes and obtain considerable "forgiveness" for previous non-employee treatment.  The IRS describes the program as a "low-cost option" for achieving certainty under the law by reclassifying workers as employees for future tax periods.

To read the full article, click here.

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by Anne S. Becker, Natalie M. Nathanson and Brian A. Benko

The Internal Revenue Service (IRS) recently released a draft revised Form 5300 and its instructions.  Form 5300, the Application for Determination for Employee Benefit Plan, is generally used to request an IRS determination that an individually designed retirement plan meets the requirements for tax qualification under Sections 401(a) and 501(a) of the Internal Revenue Code.  Because the draft revised Form 5300 contains numerous changes, plan sponsors and their advisors will need to carefully review the revised instructions, once they are finalized, in anticipation of submitting a Form 5300.  Although the IRS did not propose an effective date for the revised Form 5300, it could replace the current version effective for determination letter submissions filed as early as February 1, 2013 (i.e., effective for Cycle C filers).

To read the full article, click here.

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by Sharon Tan and Paul McGrath

The UK Supreme Court has provided guidance about two issues of importance for employers wishing to dismiss a UK employee: 

What happens when an employer dismisses an employee in a manner that breaches the terms of the employee’s employment contract?  Is the employment relationship immediately brought to an end despite the employer’s breach, or does it continue?

If an employer wishes to rely on a payment in lieu of notice (PILON) clause, is it enough simply to make the payment of money required by the PILON clause, or is something more required?

To read the full article, click here.

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by Maureen O'Brien and Ruth Wimer

On January 11, 2013, the Internal Revenue Service published Notice 2013-8 providing a special administrative procedure for employers with respect to 2012 transit pass benefits. The American Taxpayer Relief Act retroactively increased the monthly transit benefit exclusion under Section 132(f)(2)(A) of the Internal Revenue Code for commuter highway vehicles or transit passes from $125 per participating employee to $240 per participating employee for the 2012 calendar year (the monthly transit benefit exclusion for parking remains at $240). The notice addresses employers’ questions regarding the retroactive application of the increased exclusion, which can result in both decreased FICA and federal income tax liability. Employers acting promptly, in many cases by January 31, may have less administrative burden in obtaining a benefit for themselves and their employees with respect to the retroactive increase for employer-provided transit benefits.

To read the full article, click here.

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by Robin Greenhouse, Andrew Liazos and Ruth Wimer

Severance pay due to an involuntary separation from employment resulting from a reduction in force, plant shutdown or similar condition may be exempt from FICA taxes.  As we reported in September 2012, the U.S. Court of Appeals for the Sixth Circuit found in Quality Stores that severance pay is not required to be tied to continued eligibility for unemployment benefits in order to be exempt from FICA.  (Click here for more details regarding the Quality Stores decision.)  Shortly after this decision the Internal Revenue Service (IRS) requested that the Sixth Circuit reconsider its decision in an en banc review (i.e., a hearing before all judges on the circuit court).  Earlier this month, the Sixth Circuit denied this request.

The Quality Stores decision creates a clear split with the U.S. Court of Appeals for the Federal Circuit.  In light of the Sixth Circuit’s denial, the IRS will likely file a writ of certiorari with the Supreme Court of the United States seeking a reversal of the Quality Stores decision.  For now, the IRS is refusing refund claims outside of the Sixth Circuit and taking no action with respect to refund claims within the Federal Circuit (states within the Sixth Circuit are Kentucky, Ohio, Michigan and Tennessee).  For now, employers should continue withholding FICA taxes on severance pay that is not tied to unemployment benefits.

Employers that have made severance payments due to reductions in force, plant shutdowns or similar conditions should consider filing protective FICA tax refund claims.  Only a limited period of time is available to file.  In general, the statute of limitations for tax refund claims is three years.  As a result, April 15, 2013, is the due date for taxpayers for filing a refund claim with respect to the 2009 calendar year.  A refund claim cannot be filed with respect to severance payments made before 2009.

Filing a protective claim is relatively simple to do.  It is not necessary that the protective claim include exact calculations and employee consents for the refund filing.  This information and the required employee consents can be provided at a later time in a supplemental filing.  It is recommended that all employers file protective claims, particularly with respect to severance payments made to employees located in the Sixth Circuit.

If a FICA tax refund has been filed and the IRS has issued a notice of claim disallowance, the taxpayer must either (i) bring suit to contest the disallowance within two years after the issuance of this notice or (ii) 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.

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Focused on companies doing business in Germany, we are please to share McDermott has launched, The McDermott Blog ArbeitsRecht* (McDermott Employment Law Blog).  The blog provides insights and important updates on individual as well as collective German labor law issues.  It gives practical advice on how to deal with works councils and updates on legislative and court developments with regard to review of clauses in employment contracts, bonus and company car arrangements, rights and obligations of works councils and unions, specially protected employees, part time and fixed term employment, non-compete obligations, anti-discrimination and employee's protection against dismissal. 

Visitors can follow this blog at http://www.mwe-blogar.de/.  *Please note all content is in German.

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by Diane M. Morgenthaler, Ruth Wimer and David Diaz

One year ago the Internal Revenue Service (IRS) published Announcement 2011-64, which provided a Voluntary Classification Settlement Program (VCSP) for employers to treat their workers as common law employees rather than independent contractors only on a prospective basis.  Now the IRS has issued two new announcements that favorably modify and expand the VCSP.  Because certain favorable tax relief is available only for applications filed before June 30, 2013, employers should review quickly their worker classification issues in light of this new guidance.

To read the full article, click here.

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by Volker Teigelkötter and  Bettina Holzberger

In 2009, the German public was shaken by several scandals that revealed a number of international companies systematically, continuously and comprehensively monitored their employees' personal data.  This included spying on employees' private bank accounts and secretly observing employees in their offices via hidden video surveillance.

Even though the general Federal Data Protection Act (the BDSG) was effective at the time, the German Government came to the welcome conclusion that it was necessary to implement a data protection act dedicated to the particularly sensitive relationship between employers and employees, with the primary objective of protecting employees and their right to privacy.

To read the full article, click here.

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by Katie Clark and Paul McGrath

The European Court of Human Rights (ECtHR), in Redfearn v United Kingdom [2012] ECHR 1878, has held that employment law in the United Kingdom does not adequately protect individuals from dismissal as a result of their political beliefs or affiliations.  The UK has been given two options to address this failing. 

To read the full article, click here.

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by Diane M. Morgenthaler, Ruth Wimer and Jacob Mattinson

With the fiscal cliff approaching in 2013, several favorable tax provisions affecting individuals and businesses are set to expire.  Given this uncertainty, employers must prepare for changing payroll taxes and new limits on flexible spending account contributions, adoption assistance benefits and educational benefits.

To read the full article, click here.

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by Jonathan J. Boyles, Robert C. Louthian, III and Ruth Wimer

Section 139 of the Internal Revenue Code (Code) allows an employer to provide tax-free disaster relief to its employees, and the employer may take a tax deduction for these payments, if the payments constitute qualified disaster relief payments.  Given the benefits of tax-free status for qualified disaster relief payments, employers that choose to provide such payments should consider adopting an administrative system that validates such payments meet Code Section 139 requirements.

To read the full article, click here.

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Thursday, October 4, 2012
8:45 a.m.: Registration and breakfast 
9.00 – 10.30 a.m.: Employment Seminar

McDermott Will & Emery UK LLP
Heron Tower
110 Bishopsgate
London EC2N 4AY
View map

To register to join the seminar, please click here.

We are pleased to invite you to attend the London Employment Group's third breakfast seminar of 2012, at which we will consider and dispel some commonly held myths and misconceptions about UK employment law.

If you would like to attend this seminar, please click on the link above or if you have any queries, please email rsvptomcdermott@mwe.com.

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by Ira B. Mirsky, David E. Rogers and Ruth Wimer

The U.S. Court of Appeals for the Sixth Circuit recently held that certain dismissal payments were Supplemental Unemployment Compensation Benefits (SUB) exempt from FICA taxes—a clear split with the U.S. Court of Appeals for the Federal Circuit’s decision in line with an Internal Revenue Service (IRS) Revenue Ruling that significantly narrowed the criteria for determining whether certain separation payments qualify as SUB pay.  For employers that have made significant reductions in force payments in open years, the Quality Stores decision could lead to significant refunds of FICA tax.

To read the full article, click here.

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by Jonathan J. Boyles

Agreements that require a release or other signed document from an employee before payment should be reviewed to ensure compliance with Code Section 409A guidance.  Transition relief ends on December 31, 2012, and the penalties for noncompliance can be harsh.  Employers that conducted a fulsome Code Section 409A review in 2007 and 2008 should ensure their arrangements are in compliance with new guidance.

To read the full article, click here.

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by Katie Clark, David Dalgarno and Sharon Tan 

The holiday rights of workers who fall ill while on holiday, or are absent on long-term sick leave, have been extended further by two recent rulings.

To read the full article, click here.
 

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by Lawrence Hu and May Lu

Stock option plans, stock appreciation rights plans, performance shares, phantom and restricted shares and other equity incentive plans may apply for registration under China's State Administration of Foreign Exchange (SAFE).  In February 2012, SAFE issued a Notice on Administration of Foreign Exchange Used for Domestic Individuals' Participation in Equity Incentive Plans for Companies Listed Overseas (known as Circular 7), which replaces the previous Circular 78.  Because there are tax advantages to employees if an equity incentive plan is registered through SAFE, Chinese employers considering or currently sponsoring equity programs should consider SAFE registration under this new guidance. 

To read the full article, click here. 

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by Christopher M. Jedrey, Joel L. Michaels, Susan M. Nash, Paul W. Radensky and Eric Zimmerman

While the Supreme Court of the United States has in large part resolved questions regarding the constitutionality of the Patient Protection and Affordable Care Act, participants in the health care industry should prepare for ongoing uncertainty in the manner and degree to which states will participate in the expansion of Medicaid.

To read the full article, click here. 

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by Alison Wetherfield

Employees are often the greatest assets of a business. Their departure to work for competitors (including their own fledgling businesses) can pose one of the greatest risks to the success of the business. These risks have been emphasized in two recent cases in which employers discovered the hard way (by losing) the need for careful drafting of employment contracts and practical management of the employment relationship from beginning to end.

To read the full article, click here. 

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by Sébastien Le Coeur and Jilali Maazouz

If a French employer wants to prohibit an employee from working for a competitor in both the European Union and Switzerland, then the employer should specifically list both jurisdictions in the non-compete portions of an employment agreement.  In employment agreements, France and many other jurisdictions limit enforcement of non-compete provisions to territories specifically named in the agreement.  Some jurisdictions allow non-compete territories to include several countries, or even entire regions, provided it is necessary for the protection of the employer’s interests.  Given these restrictions, because Switzerland is not part of the European Union, a French employer must specifically name Switzerland, and not just the European Union, as a region covered by the non-compete provisions in an employment agreement. 

Unless the non-compete clauses specifically list Switzerland, the non-compete provisions will be virtually ineffective should the executive relocate there.  In addition, if an employment agreement provides for post-termination compensation, an executive could receive severance from a prior employer while working for a competitor in Switzerland.  Thus, all French employers should consider specifically listing Switzerland as a covered region in non-compete provisions in any new employment agreements and should also consider reviewing existing employment agreements to ensure Switzerland is specifically named as an included region in non-compete clauses. 

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by Stephen D. Erf, Chris C. Scheithauer and Heather Egan Sussman. 

The Equal Employment Opportunity Commission (EEOC) recently amended its regulations under the Age Discrimination in Employment Act (ADEA) concerning disparate impact claims.  The final rule, which became effective on April 30, 2012, is likely to impose significant administrative burdens on employers as well as increase potential litigation exposure and costs of ADEA claims.

To read the full article, click here. 

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Thursday, June 21, 2012
8:45 am: Registration and breakfast
9:00 – 10:30 am: Employment Seminar
 
McDermott Will & Emery
Heron Tower
110 Bishopsgate
London EC2N 4AY
View map

We are pleased to invite you to the London Employment Group’s second breakfast seminar of 2012, at which we will be considering what Harvard Business School and Princeton University can teach you about subconscious discrimination, stereotyping and common tricks every human mind plays on its owner.  The session will include practical tips and analysis on how to use, or foil, the tricks played by the mind in training your employees and the impact these tricks can have on workplace discrimination.

McDermott Speakers

Alison Wetherfield
Katie L. Clark
Sharon Tan

To register for this event, please e-mail rsvptomcdermottevents@mwe.com.

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by Katie L. Clark

In Europe, many employers are currently caught in the middle of a conflict between older and younger employees.  Many older employees want to work longer (whether by choice or necessity), while younger employees feel that an aging workforce is hampering their career progression.  Both feel that that their age is being used against them.  In the United Kingdom, the repeal of default retirement ages in April 2011 has only aggravated the problem.

UK employers may lawfully use age directly or indirectly in decision-making if “justified.”  But where is the line drawn?

Two recent English Supreme Court cases provide some much-needed clarification for employers, particularly with regard to possible justifications for direct age discrimination.

To read the full article, click here. 

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by Paul J. Compernolle, Michael T. Graham and Maggie McTigue

The U.S. Court of Appeals for the Fifth Circuit recently held that a paragraph in an asset purchase agreement qualified as an amendment to an employee benefit plan, highlighting a split between circuits of the U.S. Courts of Appeal.

Click here to read the full article.

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by Heather Egan Sussman, Stephen D. Erf and Sabrina Dunlap

On April 25, 2012, the U.S. Equal Employment Opportunity Commission (EEOC) issued new guidance for employers on using arrest and conviction records when making employment decisions.  The guidance, which is available here, passed by a 4-1 vote of EEOC commissioners, and consolidates and supersedes the EEOC’s prior policies on this topic.
 
The agency decided to re-evaluate its policy on the use of criminal background checks in employment decisions after the U.S. Court of Appeals for the Third Circuit suggested to the EEOC in a 2007 case that the agency provide analysis and updated research on the use of background checks in employment.  Since 2007 the EEOC has examined social science and criminological research, as well as court decisions and state and federal laws, to assess the effect of the use of criminal records and background checks in employment decisions.  Of particular concern to the EEOC are the arrest and incarceration rates for certain minority groups, and the potential that the use of criminal records and background checks in employment decisions could have a disparate impact on people in those groups.

While the new guidance does not change the EEOC’s fundamental position on applying principles of Title VII of the Civil Rights Act (the federal law prohibiting employment discrimination based on race, color, religion, sex, national origin, etc.) to an employer’s use of criminal records in the workplace, it does offer more in-depth analysis of disparate treatment and disparate impact, and provides employers with clearer rules on the proper use of criminal records and background checks.  In particular, the guidance explains in detail how employers can establish a defense to claims of disparate impact by showing that employment decisions based on criminal records or background checks are job-related and consistent with business necessity.
 
In addition to the guidance, the EEOC issued a Q&A, available here.  (Note that certain states have further restrictions regarding how such information is gathered and used.)  Please stay tuned for a more detailed discussion of the guidance and its implications for employers.

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by Sébastien Le Coeur, Jilali Maazouz and Todd A. Solomon. 

Multinational companies with employees in France should be aware that terminated employees subject to a non-compete restriction must be compensated during the non-compete period after termination of employment.  Given this legal requirement, non-compete and severance agreements for employees in France must provide for financial compensation after employment termination during any non-compete period.  If compensation is not provided during the non-compete period, the non-compete agreement is null and void, and the terminated employee is free to work for competitors.  In the event an employer becomes aware that a former employee is breaching his or her non-compete agreement, the employer should still pay the financial consideration until it has strong written evidence of the breach.  If the employee stops receiving financial consideration, the former employee could argue that the employer is breaching the severance or non-compete agreement and that the non-compete provision thus is no longer binding.  Alternatively, non-compete agreements in France should provide that the employer can waive the non-compete restriction within a certain number of days following the employee's termination of employment.  This type of provision allows an employer to voluntarily choose to waive non-compete restrictions and avoid paying the former employee further financial consideration following employment termination.

In light of these requirements, multinational companies should make sure local management in France establish non-compete and severance agreements with French employees that allow a waiver of non-compete provisions within the prescribed time periods or that provide adequate financial consideration for any non-compete agreement provisions they want to enforce.
 

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by Paul Melot de Beauregard and Todd Solomon

As large companies increase their global presence, their workers are becoming increasingly mobile between jurisdictions.  Such companies need to be aware of a number of international benefits issues that can have an impact on companies and their mobile employees.

To read the full article, please click here. 

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by May Lu

As a result of discussions around China’s pending Draft Salary Regulation, collective salary negotiation has once again become a hot topic.

There have been several well-known, recent cases relating to collective salary negotiation.  In 2010 one Japanese-invested car company raised its Chinese employees’ salaries by 35 percent after experiencing a strike that lasted more than two weeks and interrupted almost all of its manufacturing in China.  In 2011 it was reported that French supermarket Carrefour had not raised employees’ salaries for 12 consecutive years.  This drew considerable attention from the local government in Shanghai and Carrefour was forced to raise wages by 8 percent after a Government-led collective negotiation with the employees.

In addition, trade unions at different levels have been very active in urging employers to sign collectively bargained contracts that include salary increase as the main content.  Furthermore, additional rules relating to the collective negotiation process have been issued to provide guidelines regarding collective negotiation for enterprises that do not have trade unions.  The future for collective salary negotiation looks bright, but is that really the case?

To read the full article, click here. 

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by Katie L. Clark

What is changing?

From April 6, 2012, the length of continuous service needed by an employee in the UK to qualify:

• To bring a standard unfair dismissal claim; and
• To request a written statement setting out the reasons for his/her dismissal will increase from one year to two years. 

Will this affect existing employees?

The new two year qualifying period will apply to an employee who commences work on or after April 6, 2012.

Employees who are already in employment on April 5, 2012, will not be affected by this change.  They will still be able to bring a claim of standard unfair dismissal if they have at least one year’s continuous service.

Employees who transfer to a new employer under TUPE after April 6, 2012, but who were employed by the transferor prior to April 6, 2012, will also be covered by the one year service threshold for standard unfair dismissal.

What about employees who are currently being recruited?

An employee’s period of continuous employment “begins with the day on which the employee starts work.”  This means that the increased qualifying period will only apply to employees who start work on or after April 6, 2012.

The date on which an employee commences a recruitment process, or is offered a job, is not relevant when it comes to calculating continuous employment.

What does this mean for employers?

If commercially possible, employers in the UK may wish to push new joiner start dates back to April 6, 2012 or beyond. 

Ensure that your internal recruitment team, who may be making offers to candidates to start with you in early April 2012, know about the change.

Going forward, the date on which an employee started work will be as important as the date on which their employment ended for the purposes of determining if they are eligible to bring a standard unfair dismissal claim. 

To make the position as certain as possible, ideally both the start date in the employment contract, and the date on which an employee commences work, should fall on or after April 6, 2012.

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by Amy M. Gordon, Joanna C. Kerpen and Susan M. Nash

Recently issued final regulations and related guidance clarify the requirement under the Patient Protection and Affordable Care Act that group health plans and health insurance issuers provide a summary of benefits and coverage and a uniform glossary.  The guidance includes final regulations and sample summaries and instructions.

To read the full article, click here.

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A lot has happened in the area of UK employment law in 2011, and there are many issues to consider as we plan for 2012.  We are pleased to provide a resource of information following a recent webinar, which reflects on key learning points from 2011, and discusses what to look forward to as an employer in the UK in 2012.  Topics include:

• "Holiday and sick pay"
• "Abolition of Default Retirement Age"
• "Recessionary Times"
• "Did the Bribery Act Mean the End of the “Jolly” in 2011?"
• "UK Disability Discrimination"
• "What Does 2012 Hold in Store?"

Click here to view the slides.

Click here to view the full webinar (in audio).

Click here to view the overview brochure.

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by Amy Gordon and Susan Nash

The Patient Protection and Affordable Care Act (PPACA) requires non-grandfathered group health plans to provide coverage for certain preventive services on a first dollar basis (i.e. without deductibles, co-payments, co-insurance or other cost-sharing).  Interim final regulations provide an exemption for a very narrow subset of religious employers with respect to coverage of contraceptive services.  To qualify for the exemption the entity must be a nonprofit religious employer that offers insurance to its employees.  Many entities affiliated with religious institutions, such as hospitals and universities, do not meet this narrow exception.

Now, the U.S. Department of Health and Human Services (HHS) has provided additional guidance for nonprofit employers that do not cover contraceptive services under their current plans because of religious beliefs and that do not fit within the previous exemption.  These employers will have an additional year, until August 1, 2013, to comply with the new law.  Employers wishing to take advantage of the additional year will have to certify that they are eligible for this delayed implementation.  The announcement also indicates that employers that do not offer coverage of contraceptive services will be required to provide notice to employees stating that such services are available with income-based support at sites such as community health centers, public clinics and hospitals.

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by Amy Gordon, Susan Nash and Ashley McCarthy

The Internal Revenue Service (IRS) has issued revised guidance, Notice 2011-28, regarding the requirement under the Patient Protection and Affordable Care Act (PPACA) that employers report to employees the cost of their employer-sponsored group health plan coverage on Forms W-2.  This requirement applies to calendar year 2012 W-2s, which employees will receive from their employer in 2013.

The guidance provided assistance on calculating aggregate reportable cost.  Aggregate cost may be calculated in accordance with one of several methods including the “COBRA applicable premium” method, the “premium charged” method (for fully-insured coverage), or a “modified COBRA premium” method.

In addition to medical coverage, employers must include in the cost of employer-sponsored group health plan coverage, coverage under an Employee Assistance Program, wellness program coverage, on-site medical clinic coverage (but only aggregate reportable cost to the extent that the coverage is provided under a group health plan and the employer charges a premium for such coverage to beneficiaries of federal continuation coverage [e.g., COBRA]), Health Flexible Spending Account coverage (FSA), but only where the employer itself contributes to the FSA or otherwise provides flex credits through a Internal Revenue Code Section 125 cafeteria plan, and coverage under a dental plan or vision plan if such plans are not excepted from the Health Insurance Portability and Accountability Act (HIPAA).  Employers do not need to include in the cost of employer-sponsored group coverage the cost of coverage under a dental plan or vision plan if such plans are excepted from HIPAA, amounts contributed to an Archer medical savings account (MSA) or a Health Savings Account, amounts of any salary reduction election to an FSA, the cost of coverage under a multiemployer plan, cost of coverage under a Health Reimbursement Arrangement not included in aggregate reportable income, and the cost of coverage provided under a self-insured group health plan that is not subject to federal continuation coverage requirements (i.e., a church plan).

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by Heather Egan Sussman, Linda Doyle and Sabrina Dunlap

On Wednesday, January 25, 2012, National Labor Relations Board (NLRB) acting General Counsel Lafe Solomon released a second report describing social media cases reviewed by his office. The report (Operations Management Memo) addresses 14 cases related to social media and employer social media policies. 

Many of the cases reviewed involved employees who had been discharged after they posted comments on Facebook. The general counsel found that a number of the terminations were improper because employees had engaged in protected activity and their terminations arose from unlawful employer policies. However, the general counsel upheld several terminations - despite overly broad employer policies - where the employees involved were not engaged in protected activity and had merely posted general complaints or individual gripes unrelated to working conditions or wages.

The report emphasizes two key points made in an earlier report in August 2011: 1) Employer policies should not be so broad that they prohibit activity protected by federal labor law, such as the discussion of wages or working conditions; and 2) an employee’s comments on social media sites will generally not be protected if they are simply complaints unrelated to working conditions or wages that impact a group of employees.

There are three cases involving social media questions currently pending before the NLRB and those decisions will likely give further guidance on acceptable employer social media policies. 

In addition, McDermott partner Heather Egan Sussman will be speaking with Lafe Solomon, and Edward Loughlin (EEOC) on this topic at the International Association of Privacy Professionals (IAPP) Global Privacy Summit, Wednesday, March 7, 2012.

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by Heather Egan Sussman, Arthur G. Sapper and Bethany K. Hatef

During the holiday season, stress can run high.  Holidays can bring less sleep, increased pressures and even family tension.  This can affect the workplace and increase the risk of confrontation or even violence.  The Occupational Safety and Health Administration (OSHA) recently issued its first guidance directive regarding how OSHA will enforce the Occupational Safety and Health Act against workplace violence hazards. 

Over the past 15 years, OSHA notes, workplace violence has remained among the top four causes of occupational death.  According to the Bureau of Labor Statistics, workplace homicide was responsible for more than 3,000 occupational deaths between 2006-2010.

The directive defines “workplace violence” as “violent acts (including physical assaults and threats of assaults) directed toward persons at work or on duty.”  OSHA states that it will inspect workplaces based on whether there are known risk factors for workplace violence.  OSHA will focus on industries with high rates of workplace violence, particularly the healthcare and social services industries and late-night retail establishments.

Although OSHA has no regulations on workplace violence, OSHA may cite employers for workplace violence hazards under the general duty clause [Section 5(a)(1) of the Occupational Safety and Health Act], and will require employers to consider workplace violence when complying with OSHA regulations governing the availability of medical services and first aid, and in writing emergency action plans.

As a result, employers, particularly those in high-risk industries, should ensure that they have a strong written workplace violence prevention program that includes training on violence prevention, and periodic auditing of measures designed to detect and prevent workplace violence.

To mitigate the risk of violence in your workplace, consider these tips:

• Find ways to help employees manage stress during the holiday season.
• Remind employees of Employee Assistance Program (EAP) benefits.
• Have procedures in place to quickly respond to and defuse incidents. 
• Ensure employees feel comfortable reporting workplace violence incidents.

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by Linda M. Doyle, Monica Quinn Halloran and Nathaniel L. Whalen

A recent Illinois Supreme Court opinion clarifies and broadens the scope of enforceable noncompete agreements for Illinois employers.  For a summary of the court's opinion and the resulting changes regarding the enforceability of noncompete agreements, click here.

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by Ira B. Mirsky and Ralph DeJong

Millions of people across the United States will experience a significant increase in the cost of their daily commute to work, and many employers will suffer a corresponding increase in payroll taxes for 2012 and beyond, unless U.S. Congress acts before the end of 2011.  The reduction will also restore a significant gap between the exclusion limit for employer-provided transit pass or vanpool benefits and qualified parking benefits, and creates an unintended economic subsidy that may influence some commuters’ choice to drive themselves to work over using mass transit. 

To read the full article, click here.

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Friday, November 18, 2011
10:00 – 11:00 am CST

As the year draws to a close, please join us for a focused and concise update on the most important employee benefit issues. 

Mark your calendars
McDermott Will & Emery will present a 60-minute complimentary webcast, hosted by the leaders of our employee benefits and compensation practice, that will highlight key year-end considerations for:

• Health and welfare benefits
• Qualified and non-qualified retirement plan
• Plan fiduciary and investment management
• Executive compensation
• Fringe benefits
• Domestic partner benefits

Who should attend
All vice presidents of human resources, in-house counsel, compensation and benefits directors, chief financial officers and others responsible for overseeing corporate or executive benefits and/or retirement plans.

To register, please click here. 

For more information, please contact McDermott Events.

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by Andrew Liazos, Heather Egan Sussman and Sabrina Dunlap

Massachusetts Wage Act May Extend to Employees Living and Working Elsewhere -- Out-of-State Employees May Sue Officers Personally for Mandatory Triple Damages, Attorneys Fees and Costs

A Massachusetts Superior Court judge recently extended the reach of the Massachusetts Wage Act – including its provisions for officer liability, mandatory triple damages, attorneys fees and costs – to an employee who lives and works in Florida. The judge found that the employee had “sufficient contacts” with Massachusetts during his employment, and was thus entitled to protection of its Wage Act. 

In Dow v. Casale, a former sales employee of a small, failed Massachusetts company sued three former executives personally in Massachusetts, alleging they owed him more than $100,000 in commissions he earned prior to the company’s failure. The executives argued that Massachusetts law did not apply because the employee lived and worked in Florida. The court disagreed and held that the Wage Act “was designed to regulate the actions of Massachusetts employers, regardless of where their employees work.” 

The judge found the following activities established “more than sufficient contacts” with the Commonwealth to afford the employee the protection of the its Wage Act:

• The salesman conducted his business largely via the internet, which was paid for by the Massachusetts employer
• His business cards listed the company’s Massachusetts address, phone number and fax number
• He had customers in Massachusetts and visited them about 20 times over two years
• He was in daily contact with his supervisor in Massachusetts
• All sales paperwork was generated in Massachusetts
• All customer purchase orders were sent to Massachusetts, invoices were then sent to customers from Massachusetts and customers sent their payments to Massachusetts 

In light of this decision, out of state employers may want to consider taking steps to avoid the type of “sufficient contacts” with Massachusetts that might expose them and their officers to unfavorable liabilities and penalties under the Massachusetts Wage Act.

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by Stephen D. Erf, Heather Egan Sussman and Sabrina E. Dunlap

Two weeks ago, we wrote about a decision from an Administrative Law Judge (ALJ) (available here) finding that the National Labor Relations Act (NLRA) protected an employee’s Facebook comments made about his employer.  Last week, an ALJ issued another decision involving social media and the NLRA, finding that an employee had engaged in some protected activity, but that he was ultimately fired for other, unprotected activity.  In Karl Knauz Motors, a former salesperson claimed that he was fired after he posted pictures and comments on Facebook criticizing his employer’s choice of serving hot dogs at a sales event introducing the new BMW 5-series.  The National Labor Relations Board (NLRB) recently issued a report related to social media (found here), in which it noted the employee’s posts in the BMW case were protected activity because they related to the terms and conditions of employment.

While the ALJ agreed that the employee had engaged in protected activity in discussing the sales event, the Judge held that the employer actually terminated the employee for his other Facebook posts, which mocked a co-worker for allowing a teenager to test drive a Land Rover, who ultimately drove the car into a nearby pond.  The Judge found that the NLRA did not protect such a posting because it had no connection to the terms and conditions of employment, and was posted solely by the employee, not as part of a discussion with other employees.  Therefore the employer did not violate the NLRA when it fired the employee.

In addition to the Facebook postings, the Judge also considered whether four provisions of the employer’s handbook violated Section 7 of the NLRA.  The Judge dismissed the complaint regarding a provision that encouraged employees to have a good attitude at work, because it could be read to protect the relationship between the dealer and its customers, rather than to restrict employees’ Section 7 rights.  However, the Judge held that the three remaining provisions, which each limited employees’ right to speak about employment, violated the NLRA because they all could be read as curtailing employees’ Section 7 rights, and if employees complied with these restrictions, they would not be able to discuss working conditions with union representatives or lawyers.

Based on this ALJ decision, employers should continue to exercise caution when making employment decisions based on social media comments.  There continues to be a fine line between protected activity and unprotected activity when it comes to employees’ social media comments about their employers.  In addition, employers should review and possibly revise their handbooks to ensure they cannot be read as restricting employees’ Section 7 rights.
 

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Tuesday, October 25, 2011 (7:30am breakfast and networking, 8:00am program)

Since June 1, 2011, Illinois has recognizee civil unions, and insured employee benefits plans in Illinois must offer a civil union partner the same benefits as offered to an opposite-sex married partner. Other states, like New York, have recently gone further, and offer full recognition of same-sex marriages. Although federal law defines marriage as between only a man and a woman under the Defense of Marriage Act, the federal government now has refused to defend this law, and efforts are underway to repeal this legislation. In the midst of all these changes, what is the status of these developments? What are the market trends and best benefit practices for same-sex partners and domestic partners? Come hear the answers from Todd Solomon, the expert who literally wrote the book on this topic, and from a national employer who has implemented a comprehensive domestic partner benefits strategy and domestic partner tax gross ups.

Speakers:

• Todd Solomon - Partner, McDermott, Will & Emery, and author Domestic Partner Benefits: An Employer's Guide.
• Cathy van Heukelum - Senior Manager, North America HR Operations, Bain & Company, Inc.

Cost Members: $30 Non-members: $50

Contact: Lynne McEvoy
Email: lynne.mcevoy@mcgladrey.com
Phone: 312.634.4490
Website: www.webnetwork.org
UBS Tower
One North Wacker Drive
2nd floor, Mighigan II ballroom
Chicago, IL 60606

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by Stephen D. Erf, Heather Egan Sussman and Sabrina E. Dunlap

In a first of its kind ruling, a National Labor Relations Board (NLRB) Administrative Law Judge (ALJ) found that an employer unlawfully terminated five employees because they posted comments on Facebook related to working conditions.  This is a landmark decision because, up to this point, employers have only been able to rely on the prosecution trends of the General Counsel’s office, including a recently issued report on the topic, and not actual decisions by the adjudicative body of the NLRB. 

This landmark case involved an employee of Hispanics United of Buffalo (HUB) (a nonunionized organization), who posted a message on Facebook sharing critical comments made by a coworker concerning employees’ poor job performance and asking for the employees’ reactions.  Five employees commented on the post, defending their job performance and criticizing the critical employee and their working conditions, including work load and staffing problems.  HUB later discharged the Facebook poster and the employees who responded to the post, stating that their comments constituted harassment of the critical coworker.

Based on an unfair labor practice charge filed by one of the employees, the NLRB’s Buffalo Regional Director issued a complaint in May 2011. The ALJ heard the case in July and, on September 2, issued a written decision finding that the employees’ Facebook posts were protected concerted activity under Section 7 of the National Labor Relations Act (NLRA) because they concerned a conversation among coworkers about the terms and conditions of employment and the employees’ conduct was not sufficiently inappropriate as to lose the protection of the NLRA.  The ALJ awarded the employees back pay and ordered HUB to reinstate the five employees.  The ALJ also ordered HUB to post a notice at its Buffalo facility explaining to employees their rights under the NLRA and committing not to violate those rights in the future. 

While NLRB complaints related to social media have been on the rise, this is the first ALJ decision specifically addressing employees' use of Facebook.  As a result, employers are wise to consider the ALJ’s decision when disciplining employees based on social media activity. 

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by Sabrina E. Dunlap, Stephen D. Erf and Heather Egan Sussman

In April 2011, we issued a blog post outlining some of the National Labor Relations Board’s (NLRB) decisions regarding employee use of social media (the post can be accessed here). In an effort to provide guidance on the issue, the Acting General Counsel of the NLRB (General Counsel) recently issued a report (found here) addressing cases from the past year arising in the context of social media use. The report uses 14 cases to illustrate how the General Counsel’s office determines that use of social media qualifies as protected concerted activity, and when the mere contents of an employer’s social media policy can give rise to liability under the National Labor Relations Act (NLRA), even when an employer’s employees are not represented by a union.

While the distinction between protected and unprotected activity on social media sites is not always obvious, several trends emerge from the illustrative cases, providing guidance on when the General Counsel’s office (the prosecution arm of the NLRB) will conclude that activity is protected. For example, in cases where the employee discussed his or her social media posts with other employees, or had discussions with coworkers and subsequently drafted a post based on such discussions, the General Counsel’s office tended to deem this “protected concerted activity” such that an employee could not be disciplined for the conduct. By contrast, when employees did not discuss posts with coworkers, or where an employee’s posts were merely “individual gripes” containing no language suggesting an attempt to engage other employees into group action, the General Counsel’s office generally concluded there was not protected activity, and the resulting disciplinary action did not violate the law. One case involving inappropriate and offensive “tweets” by an employee about his employer did not involve protected concerted activity because the tweets did not relate to the terms and conditions of employment, and again, did not seek to involve other coworkers in issues related to employment. 

As for the content of workplace social media policies, the key takeaway from the report is that employers should avoid using overbroad terms that could be construed to prohibit protected concerted activity. For example, the General Counsel’s office has taken issue with policies barring comments compromising the “privacy or confidentiality” of a coworker or that could “damage the reputation” of the employer, or that could “put your job in jeopardy,” because the terms were not defined in the policies. As a result, the General Counsel’s office concluded that the undefined terms could “reasonably be interpreted as prohibiting protected employee discussion” of the terms and conditions of employment, which would be unlawful.

However, the General Counsel’s office declined to prosecute an employer based on its policy that prohibited employees from “pressuring” coworkers  to connect or communicate via social media, finding that this restriction could not be reasonably read to restrict protected activity.  Similarly, the General Counsel’s office concluded that policies limiting employee contact with the media in an effort to ensure a “consistent, controlled” company message to the media (such as limiting media contact to a designated spokesperson, for example), could be permissible, so long as the policies do not limit an employee’s right to discuss working conditions with the media.

The bottom line from the report seems to be that if employers are considering terminating an employee based on an employee’s post on a social media site, they should consult with counsel to determine whether the employee’s activity could qualify as protected concerted activity.  Similarly, employers are wise to review social media policies in light of this report, to determine whether any policy terms could be reasonably construed as prohibiting protected activity because merely maintaining an overly broad policy can violate the NLRA, even if the employer never actually disciplines an employee based on the policy. 

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by Ralph DeJong, Ira Mirsky and Michael Fine

On Wednesday, September 14, 2011, the IRS issued Notice 2011-72, which provides long-awaited relief concerning the tax treatment for the employee use of employer-provided cellular telephones or other similar telecommunications equipment (e.g., PDAs and Blackberries):

1. The IRS will generally treat an employee’s business use of an employer-provided cell phone as a nontaxable working condition fringe benefit, without the need to meet onerous substantiation requirements.
2. The IRS will generally treat the value of any personal use of an employer-provided cell phone as a nontaxable de minimis fringe benefit.

The IRS guidance specifies that the business and personal use of an employer-provided cell phone provided by the employer will generally be treated as nontaxable to the employee, if the employer has provided the cell phone primarily for noncompensatory business reasons.  Because it applies for taxable years beginning after December 31, 2009, the tax relief provided under the IRS Notice takes effect immediately.

To read the full article, click here.

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by Heather Egan Sussman, Sabrina E. Dunlap and Stephen D. Erf

As an update to our previous blog entry, the National Labor Relations Board (NLRB) has released the private employer notice of rights under the National Labor Relations Act (NLRA).  As of November 14, 2011, covered employers must post the 11-by-17-inch notice in a conspicuous place, where other notifications of workplace rights and employer rules and policies are posted.  The NLRB states that employers also should publish the notice on an internal or external website if other personnel policies or workplace notices are posted there.

The NLRB has also posted Frequently Asked Questions on the posting requirement, which covers topics such as when employers are covered by the NLRA, and what to do if a substantial share of the workplace speaks a language other than English.

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by Stephen Erf and Heather Egan Sussman

The National Labor Relations Board (NLRB) issued a final rule requiring private sector employers to notify employees of their rights under the National Labor Relations Act.  The Rule requires private sector employers who fall under the National Labor Relations Act to post the employee rights notice in conspicuous places at where other workplace rights notices are usually posted. The new notice states that employees have the right to act together to improve working conditions and wages, to form, join and assist unions, to collective bargaining, or to refrain from any of these activities. The notice also provides examples of illegal conduct and tells employees how to contact the NLRB with questions or complaints.

NLRB regional offices will provide the notice of rights at no charge, or the notice can be downloaded from the Board website and printed in color or black and white.  Translated versions, which will also be available, must be posted at workplaces where at least 20 percent of employees are not proficient in English.  Employers must also post the notice on intranet or an internet sites if other rules and policies are typically posted there.

Failure to post the notice will be treated as an unfair labor practice and, if an unfair labor practice charge is filed by a person or union, will trigger an investigation and adjudication by the National Labor Relations Board that could lead to the investigation of other issues, as well.  Additionally, the failure to post the notice may have the effect of extending the time for the filing of an unfair labor practice charge on unrelated issues (i.e. permit the prosecution of an otherwise time-barred unfair labor practice charge) and permit the NLRB to infer that a knowing and willful refusal to post the notice is evidence of an unlawful motive in cases in which motive is an issue.

The Rule is scheduled to be posted in the Federal Register by August 30, 2011, and will take effect 75 days after that, on November 14, 2011.

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by Heather Egan Sussman and Alison Wetherfield

Companies listed on U.S. stock exchanges are required under the Sarbanes-Oxley Act to establish a system for employees to internally report concerns over questionable auditing or accounting matters. These systems are often referred to as “whistleblowing hotlines”. When setting up hotlines around the globe, however, employers must be mindful of the European Union (EU) privacy regime. Previously, some EU regulatory authorities intimated that such hotlines could never be acceptable in their jurisdictions. Public company employers were left, therefore, with the unfortunate choice of foregoing the hotline and potentially violating Sarbanes-Oxley, or implementing the hotline and potentially violating EU privacy laws.  

Over the past few years, however, a framework has developed, at both the EU level and among the member states, that provides guidance on how employers may lawfully implement such a hotline throughout most of the European continent. McDermott just released an article outlining a checklist of basic principles for public company employers to follow so they can stay within this framework. As explained in more detail in the article found here, these principles include: 

1.       Encourage “confidential” rather than “anonymous” reporting

2.       Set up a filtration system

3.       Ensure confidentiality and data security

4.       Limit the nature and scope of the processed data

5.       Ensure compliant transfers of data outside of the EEA

6.       Retain and destroy data according to local requirements

7.       Give employees the right of correction

8.       Inform employees about the program  

9.       Follow authorization procedures

By observing these basic principles when setting up a whistleblowing hotline in the EU, and by following the other best practices detailed in the full article, public companies can best position themselves to mitigate the risk of an enforcement action on both sides of the pond. 

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by Heather Egan Sussman, Stephen D. Erf and Sabrina E. Dunlap

Adding to the growing number of states limiting employers’ use of credit reports, including Hawaii, Washington, Oregon, Illinois, and Maryland), Connecticut recently passed Public Act No. 11-223 restricting employer use of credit reports and credit history for employees or job applicants.  The Connecticut law goes into effect October 1, 2011, and prohibits employers from requiring an employee or job applicant to consent to a request for a credit report “as a condition of employment.”  This includes reports that contain information about credit score, credit account balances, payment history, savings or checking account balances or savings or checking account numbers.

The law has four exceptions.  Paraphrasing from the law, employers may request credit data if:

1. The employer is a financial institution;
2. A report is required by law;
3. The employer reasonably believes that the employee has engaged in specific activity that constitutes a violation of the law related to employment; or
4. Either (a) a report is substantially related to the job or (b) the employer requests the credit report for a bona fide purpose that is “substantially job-related” and discloses this purpose in writing to the employee or applicant.

Regarding the last exception, the law broadly defines “substantially related to the job” to mean that the information contained in the credit report is related to the following: a managerial position that involves setting direction and control of the business; a position that involves access to customers, employees or the employer’s personal or financial information (other than retail transaction information); involves a fiduciary responsibility to the employer; provides an expense account or corporate debit or credit card; provides access to confidential or proprietary business information; or involves access to the employer’s nonfinancial assets valued at $2,005 or more, including but not limited to, museum and library collections and to prescription drugs and other pharmaceuticals.

Job applicants and employees may lodge complaints alleging violations of the law with the Connecticut Labor Department.  Employers will be liable to the Labor Department for a civil penalty of $300 for each improper request for a credit check.  The Connecticut Attorney General can bring civil actions to recover penalties brought by the Labor Department. 

As a result of these new restrictions, Connecticut employers should review hiring policies, and other policies that require employee credit information, and prepare to comply with the law by October 1, 2011.

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by Joseph S. Adams, Todd A. Solomon and Brian J. Tiemann

Now that same-sex marriage has been legalized in the state of New York, employers should expect to begin seeing an increase in requests for spousal benefit coverage from employees who have legally married their same-sex partners.  The new law takes effect on July 24, 2011.

To read the full article, click here.

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by Jilali Maazouz and Sébastien Le Coeur

As of 26 January 2011, the French Supreme Court ruled that the change of control clauses in French executive-level employment contracts are valid, a consideration which international companies contemplating the acquisition of a company in the country need to consider.  The control clause is also valid for both public and private companies.

In July 2005, further to the termination of several of Havas’s officers, one of the top managers decided to leave the company by claiming constructive dismissal under her change of control clause.  A McDermott employment lawyer in Paris advised on the drafting of this landmark control clause upheld by the French Supreme Court.

This change of control clause within the Havas executive’s contract was as follows:

• The identities of the top managers were key reasons as to why the employee entered into her/his employment contract.
• Should one or several of these top managers be terminated by the company, the employee would be entitled to claim constructive dismissal, within a certain period of time.
• The claim for constructive dismissal would trigger the payment of a golden parachute.
• The French Supreme Court upheld the clause and justified this decision by the seniority of the employee’s position.

As a result of this landmark Supreme Court decision, companies in France can now apply the change of control clause as a deterrent to hostile takeovers through the entrenchment of its top management executives.

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by Jilali Maazouz and Sébastien Le Coeur

Under French law, an employee can only be dismissed on economic grounds when all efforts have been well documented to redeploy him or her in an alternative position within a company.

On 7 April 2004, the French Supreme Court concluded that an employee facing economic dismissal has priority over an external candidate to fill a position available in the company. 

On 23 March 2011, the French Supreme Court went even further and ruled that an internal vacancy within a company in France should be offered as a priority to the in-house employee who is at risk of redundancy.

This recent Supreme Court ruling extends the obligations of French entities or international entities operating in France contemplating redundancies.  As a result, should an employer decide to offer a position to an employee who is not at risk of redundancy, he or she will be liable to pay damages to the employees who are eventually made redundant.

In the internal recruitment/redeployment process, the employee within the company facing economic dismissal has priority over an employee within the company whose economic dismissal is not contemplated and over an outside candidate.  If priority is not given to him/her, the company’s redeployment obligation is not fulfilled and the dismissal is held unfair.  That is why we recommend not having external or internal recruitment ads of the shortlisted positions.

Clients contemplating employees redundancies in France should consider the following steps to fulfil its redeployment obligation:

1. Collect information on the employees whose dismissals are contemplated (current and past positions, skills, current compensation, languages spoken, CV’s, recent training, annual reviews, etc).
2. List all the positions available in the company worldwide during the period of when the redundancies in France are planned (e.g. 3 to 6 months).
3. Shortlist all the available positions that match the employee's current professional qualifications or are compatible with the employee's skills. Even positions which require employees to have a short period of training or roles viewed as less of a position than the employee’s current status need to be listed.  Avoid shortlisting employees for roles that: a) require knowledge of a foreign language not mastered or b) require relocation in countries where immigration laws would prevent the employee from working. Also be sure not to externally or internally advertise the shortlisted positions.
4. If one or several available shortlisted positions are located outside of France, the French entity must ask the employee in writing whether or not he/she would accept a position abroad.  The letter must make a list of all the company’s geographic locations and require the employee to indicate any restrictions regarding redeployment, particularly in relation to the offices proposed and compensation given.  Within six days of receiving this letter, the employee must provide a response. If the employee fails to reply within the allocated time than the employer can justify termination on the grounds of refusal to be redeployed abroad. The available positions shortlisted can then be reviewed and the freeze on external or internal recruitment may be totally or partially lifted.
5. Send the employee a letter explaining the redeployment process.  The letter must be as precise as possible, with all the necessary details regarding: the position; the location; the compensation; the start date; the recruitment process; the deadline to accept an offer; the relocation package, which might involve a visit to the site before the employee accepts his/her new position.  Although the employee has not yet accepted the new position, the letter must be as precise as a job offer in order to comply with French law.
6. If the internal recruitment/redeployment process leads to the employee accepting one of the available positions, his/her employment contract with the French entity is terminated by mutual agreement and a new contract is established with the other group company.  If the employee does not accept one of the available positions, he/she is dismissed on economic grounds. Clients can then start advertising again either externally or internally for the recruitment of the shortlisted positions.

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by Stephen D. Erf, Heather Egan Sussman and Sabrina E. Dunlap

Recently, the National Labor Relations Board (NLRB) proposed new rules purportedly intended “to reduce unnecessary litigation” and streamline pre- and post-election procedures. The bottom line is that these new rules, if adopted, will make it easier to unionize American workforces.  One way the new rules “streamline” the unionization process is by requiring the exchange of timely information, including employee contact data and required forms. The proposed rules also aim to defer potential litigation until after an election has been held, so that proceedings related to litigation do not slow down the election process, which will limit the opportunity for the employer to present its views regarding the issues. Given these proposed rules, American businesses may likely step-up union avoidance efforts.

The U.S. Department of Labor (DOL) simultaneously has released a new proposed rule that appears designed to discourage such union avoidance efforts. Under this proposed rule, an existing exemption from certain disclosure requirements for “advice” would be significantly narrowed such that employers would be required to disclose arrangements with consultants that draft communications on behalf of an employer designed to “directly or indirectly persuade workers concerning their rights to organize or bargain collectively,” even when the consultants do not contact employees directly. Under the proposed rule, the DOL said employers should disclose information about “union avoidance” seminars and trainings offered to employers by lawyers or labor consultants, because theses seminars “involve reportable persuader activity.” The DOL is warning employers against classifying such seminars as “advice” to avoid disclosure under the exception. 

The combined NLRB and DOL efforts appear to be a governmental one-two punch aimed at American business – they make it easier for unions to organize workplaces on the one hand, and discourage union avoidance efforts on the other. Fortunately, however, we suspect corporate America will not be so easily discouraged, because it could be far more costly for companies to skip the union avoidance training, now that the NLRB has helped grease the skids toward organizing American workplaces. On balance therefore, we expect companies still will elect to move forward with the training, and just be mindful of their disclosure obligations, assuming these proposed rules go into effect.

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McDermott's Employee Benefits Blog was recently recognized as one of the Top 10 Compensation and Benefits Blogs by HR Daily Advisor.  Thank you to those who follow our blog on a regular basis.  We appreciate your support and please contact our editors if you have suggestions on trending topics you'd like to hear more about.

To read the HR Daily Advisor article, click here.

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by Todd A. Solomon and Brett R. Johnson

The Illinois Religious Freedom Protection and Civil Union Act, which legalizes civil unions for same-sex and opposite-sex partners, takes effect on June 1, 2011.  The law entitles civil union partners to all of the legal rights and obligations that opposite-sex spouses have under Illinois state law by requiring that a party to a civil union be included in any use of the terms “spouse,” “family,” “immediate family,” “dependent,” “next of kin” or other terms that denote a spousal relationship throughout Illinois law.  Illinois will recognize as a civil union any same-sex marriage, civil union or substantially similar legal relationship entered into in other states.

The application of the Illinois law is complicated by the intersection of federal and state law.  The federal Defense of Marriage Act (DOMA) continues to define a “spouse” as a husband or wife of the opposite sex.  A civil union in Illinois will not, therefore, be a “marriage” under DOMA.  As a result of DOMA, parties to an Illinois civil union will not be entitled to federal law benefits applicable to opposite-sex spouses (e.g., qualified joint and survivor annuity (QJSA) and qualified pre-retirement survivor annuity (QPSA) benefits under tax qualified retirement plans, COBRA coverage, etc.).  Note, however, that on March 16, 2011, both the U.S. House and Senate introduced legislation to repeal DOMA (The Respect for Marriage Act of 2011), and to tie federal law marital status to an individual’s marital status in the State where the individual entered into the marriage.  The Respect for Marriage Act bills currently rest with the Judiciary Committees of the House and Senate, and the next step for each (e.g., Committee vote, hearings, Senate and/or House floor vote) is unclear.

Because the new Illinois civil union law may impact areas such as employee benefit plans, employer leave policies (including the Illinois Family Military Leave Act) and any other employer-provided benefits covering spouses, employers should ensure such programs are in compliance with the June 1, 2011 law change.  More information on the employee benefit plan implications of the legalization of civil unions in Illinois can be found here, while the impact on Religious Organizations benefits is discussed here.

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by Susan M. Nash, Amy M. Gordon, Todd A. Solomon, Raymond M. Fernando and Adrienne Walker Porter

On April 7, 2011, Governor Jerry Brown signed into law California Assembly Bill 36 (AB 36).  AB 36 conforms certain California income and employment tax laws to certain changes to the United States Internal Revenue Code (the Code) and Internal Revenue Service (IRS) guidance relating to the favorable tax treatment of health benefits coverage for adult children under age 27.  The favorable state tax treatment afforded under AB 36 applies retroactively as of March 30, 2010, which also conforms to the effective date of the parallel provisions under the Code.  For a more detailed summary of AB 36, see our related On the Subject, "Health Care Reform: California Adopts Favorable Federal Tax Treatment of Health Coverage for Adult Children Under Age 27."

Background
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the Act), generally requires group health plans that provide dependent coverage for children to continue to make such coverage available for adult children until age 26, beginning as of the first plan year commencing on or after September 23, 2010.  Effective as of March 30, 2010, the Act also afforded certain favorable tax treatment under the Code with respect to such coverage.  See our related On the Subject, "Health Care Reform: IRS Guidance on Health Coverage for Children Under Age 27."

Discrepancies Between State and Federal Tax Laws
Some states’ tax laws do not automatically conform to corresponding changes in federal tax laws.  Thus, although the Act made various changes to the Code relating to the tax treatment of health coverage and reimbursements for children under age 27, some states’ tax laws did not automatically conform to those changes.  California recently adopted AB 36 to conform to such changes under the Code.

Next Steps for Employers and Plan Administrators
Employers and plan administrators should take action now in the following ways:

• Employers and plan administrators subject to California state tax should take steps to ensure that their reporting and payroll systems comply with the changes made under AB 36.
• Employers and plan administrators should consider circulating employee communications regarding the impact of AB 36.
• Employers and plan administrators should continue to monitor California and other state laws for further tax reform related to health coverage for adult children under age 27. 

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by Ira B. Mirsky and Robin L Greenhouse

On April 14, 2011, President Obama signed legislation that repeals the expanded Form 1099 reporting requirements under the Patient Protection and Affordable Care Act (PPACA) and the Small Business Jobs Act of 2010.

The new legislation eliminates the requirement to expand tax information reporting, beginning in 2012, for payments in excess of $600.00 either (i) for the purchase of goods or merchandise; or (ii) made to a corporation, on Forms 1099-MISC.  The legislation also eliminates the requirement that recipients of rental income from real estate, but who are not otherwise considered engaged in the trade or business of renting property, be required to issue Forms 1099-MISC reporting payments of $600.00 or more that are made in the course of earning the rental income (for payments to a service provider, such as a painter, plumber, or accountant).  Before the enactment of PPACA, payments under each of these circumstances, or to these categories of recipients, would generally have been exempt from the tax information reporting rules under Section 6041(a) of the Code and the Regulations thereunder.

For more information please contact your regular McDermott attorney.

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by Stephen D. Erf, Heather Egan Sussman, Christopher Scheithauer and Sabrina E. Dunlap

The law is not new – it’s just being applied to our newest forms of communication:  Twitter, Facebook and others.  Even the legal framework is relatively straightforward: Section 7 of the National Labor Relations Act (NLRA) protects “concerted activities,” which include circumstances where employees seek to “initiate or induce” group action for “mutual aid or protection.” In today’s workplace, activities such as blogging, or posting messages on social networking websites, can be considered concerted activity, and unless the activity falls within one of the exceptions to the NLRA’s protections (e.g., confidentiality breaches, extreme disloyalty, etc.), the law limits an employer’s control over what employees may write and post. 

In one recent case, the National Labor Relations Board (Board) accused American Medical Response of Connecticut Inc. (AMR) of violating Section 7 when it terminated an employee for allegedly criticizing her boss on Facebook. In its complaint against AMR, the union argued that the company had been interfering with, restraining and coercing employees in exercising their protected rights under Section 7 of the NLRA. The parties reached a settlement on the eve of trial, which required AMR to clarify and narrow its policy.

Even more recently, the Board’s Manhattan office has announced plans to file a complaint against Thompson Reuters over its Twitter policy. In 2010, an employee reportedly tweeted in response to a management inquiry, “One way to make this the best place to work is to deal honestly with [union] members.” The Board claims the company then improperly disciplined her pursuant to the Twitter policy by chastising her for making the statement. 

While we will have to wait for the complaint to see exactly what the Board takes issue with (and the company denies the allegations), this case involves a union, so it is easier for an employer to see the potential for NLRA landmines in that workplace.  But what many employers do not realize is that Section 7 applies equally to nonunionized workforces. 

In the wake of these NLRB complaints, what does this mean for all U.S. employers?  If you have not already done so, you should be reviewing your social media policy:

• You CAN prohibit employee’s use of social media during work time.
• You CANNOT include a blanket prohibition on critical comments.
• You CAN prohibit disparaging comments about company products or services.
• You CANNOT ominously threaten sanctions or termination for activities that could arguably be protected.
• You CAN take a tone that focuses more on using good judgment and common sense.     

In addition, an overly broad or vague policy alone may violate the NLRA, so you should consider taking steps now to narrow and clarify your policy to avoid becoming the next Board target.

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by Heather Egan Sussman and Stephen Erf

The Equal Employment Opportunity Commission (EEOC) recently released the final regulations intended to simplify implementation of the Americans with Disabilities Act Amendments Act (ADAAA). In the ADAAA, which went into effect on January 1, 2009, Congress directed the EEOC to revise its Americans with Disabilities Act (ADA) regulations to conform them to changes made by the ADAAA. Though the ADAAA and these final regulations do not change the definition of a covered “disability” under the ADA—a physical or mental impairment that substantially limits one or more major life activities—the ADAAA and the final regulations made significant changes to how those terms are to be interpreted. In particular, the regulations set forth a list of principles to guide the determination of whether a person has a disability, and provide that the definition should be construed as broadly as possible under the law. The most significant changes to the ADA are as follows:

• The principles outlined in the final regulations provide that an impairment is a disability if it “substantially limits” the ability of an individual to perform a major life activity as compared to most people in the general population.
• “Mitigating measures” such as medication and assistive devices must not be considered when determining whether someone has a covered disability – so, if an employee’s condition would qualify without medication or assistive devices, then person should be considered to have a covered disability (interestingly, this does not include the ordinary use of contact lenses or eyeglasses).
• Physical and mental impairments that are episodic (such as epilepsy) or in remission (like cancer) are disabilities if they could be “substantially limiting” when active.
• The final regulations explain that the term “major life activities” includes “major bodily functions,” such as the immune system, normal cell growth, and brain and endocrine functions.

The final regulations state that the question of whether an individual meets the definition of disability should not demand “extensive analysis,” and that the focus in cases brought under the ADA should be whether covered entities have complied with their non-discrimination and reasonable accommodation obligations and whether discrimination has occurred, not whether the individual meets the definition of a covered disability. The intended effect of these changes is to make it easier for an individual seeking protection under the ADA to establish that he or she has a disability within the meaning of the ADA, though whether that is true in practice, and how the EEOC chooses to enforce the changes, remains to be seen.

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by Joseph S. Adams, Todd A. Solomon and Brian J. Tiemann

Employers should take action now to prepare for requests for benefit coverage from employees planning to enter into a civil union once a new law legalizing civil unions for same-sex or opposite-sex partners takes effect in Illinois on June 1, 2011. The most common requests for benefits for a civil union partner are likely to be coverage under the employer’s medical, dental and vision plans, and survivor annuity coverage under defined benefit pension plans.

Medical, Dental and Vision Benefits. Employers with medical, dental or vision plans insured with contracts issued in Illinois will be required to extend coverage to an employee’s civil union partner if the plan provides coverage for other employees’ spouses. Employers that are required to or that voluntarily choose to extend such coverage to an employee’s civil union partner will need to ensure that the employee is properly taxed on these benefits. Because civil unions are not recognized under federal law, employers must impute income to the employee for federal income tax purposes, unless the partner qualifies as a “dependent” of the employee pursuant to Section 152 of the Internal Revenue Code. However, because civil union partners in Illinois are entitled to all of the rights and benefits as spouses, the value of employer-provided medical, dental and vision coverage is not taxable for Illinois state income tax purposes.

Retirement Benefits. The Illinois civil union law will not require non-government employers with qualified retirement plans to extend spousal benefits to civil union partners since these plans are regulated solely by federal law. However, employers may want to consider amending their plans if they want to provide full parity in benefits for civil union partners. Employers with defined contribution plans may want to identify civil union partners as default beneficiaries in the event an employee fails to designate a beneficiary or if the beneficiary predeceases the employee. Another option with respect to defined contribution plans is to permit an employee to obtain an optional hardship withdrawal for IRS-recognized expenses related to a civil union partner. Employers with defined benefit pension plans may want to permit an employee’s benefit to be paid over the joint life of the employee and his or her civil union partner and/or to allow a civil union partner to receive a death benefit if the employee dies before retirement.

More information on the employee benefit plan implications of the legalization of civil unions in Illinois can be found here.

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by Joan-Elisse Carpentier, David J. Levine and Raymond Paretzky

On December 22, 2010, U.S. Citizenship & Immigration Services will require all companies and individuals petitioning for certain nonimmigrant status to use a new Nonimmigrant Visa Petition (Form I-129), which requires all petitioners for an H-1B, H-1B1 Chile/Singapore, L-1 or O-1A visa to answer questions regarding release of controlled technology or technical data to the beneficiary of the petition. All such petitioners are required to certify the petitioner has reviewed the Export Administration Regulations and the International Traffic in Arms Regulations, and has determined that either a license is not required to release such technology or data to the foreign beneficiary or that the petitioner will prevent access of such technology or data to the foreign person until any such license or authorization is obtained.

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This is an update to the recent blog post discussing the new criminal offender record information legislation and its impact on hiring in Massachusetts.  The Massachusetts Commission Against Discrimination (MCAD), has now issued a fact sheet to explain how it interprets the "ban the box" provisions of the new law.  While the fact sheet is not formal regulation and it does not carry the force of law, it is important guidance for any employer hiring in Massachusetts.  This is because the MCAD is the agency that investigates alleged violations of the law and that can assess damages against an employer where the MCAD determines – based on its own interpretation of the law – that the employer has violated the “ban the box” requirements. 

The fact sheet appears to expand the new legislation in two key ways.  First, the MCAD interprets the phrase “initial written job application” to mean any written communication with applicants before the interview.  A plain reading of the statute's reference to the “initial written application form,” would seem to allow employers to ask applicants about criminal history at any time other than on the application.  Despite this, the fact sheet explains that the MCAD “will presume that a written application or form requesting criminal background information prior to an interview is part of the ‘initial written application.’” (emphasis added).

Second, the MCAD seems to interpret the law as covering applications received by candidates in Massachusetts even where the position for which they are applying is located elsewhere.  The fact sheet does permit multi-state employers subject to this legislation to use standard application forms with questions about criminal history, but only if the forms contain “explicit instructions” that Massachusetts applicants should not respond and that pre-interview inquiries about criminal history are not permitted under Massachusetts law.  The fact sheet explains that “the employer’s disclaimer must be clear and unambiguous, in boldface type and placed and printed to attract the reader’s attention.”

A court may ultimately decide that the MCAD has overstepped its bounds with its interpretation, but until that happens, employers who are hiring in Massachusetts and who want to avoid an enforcement action by the MCAD should review the fact sheet and conform their hiring procedures. 

For more information on the new fact sheet, click here.

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by Heather Egan Sussman and Sabrina Dunlap

The Massachusetts Governor recently signed into law an act reforming the Commonwealth’s criminal offender record information system.  Under this new law, most Massachusetts employers will now be prohibited from asking about criminal history on an initial written job application.  Massachusetts is among a growing number of states to "ban the box" on job applications.

The most significant provisions directly affecting Massachusetts employers are as follows:

• The ban-the-box provision is effective November 4, 2010.  As of that date, employers are prohibited from asking job applicants about criminal history on the initial written job application with only limited exceptions.
• The law creates new “notice” requirements for employers effective February 6, 2012.  Under these new requirements, an employer in possession of criminal record information about an applicant must provide the information to the applicant prior to questioning the applicant about it.  In addition, similar to the requirements of the federal Fair Credit Reporting Act, if an employer decides not to hire an applicant in whole or in part because of the applicant’s criminal record, the employer must provide the applicant with a copy of the record.
• The “policy” provision of the new law is also effective February 6, 2012.  This provision requires employers that conduct five or more criminal background investigations in a year to implement and maintain a written criminal record information policy. 
• The law imposes penalties (including imprisonment for up to one year or a fine of up to $5,000 for an individual, $50,000 for an entity) for those who request or require a person to provide a copy of his or her criminal record except in situations authorized by law.  In addition, the law prohibits harassment of the subject of a criminal record, punishable by imprisonment of up to one year, or a fine of not more than $5,000.

Employers that plan to hire in Massachusetts should reexamine application forms and employment policies to ensure compliance with the new law.

For more information and analysis on the new law, click here.

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