On July 23, 2024, US District Court for the Eastern District of Pennsylvania declined to stay the September 4, 2024, effective date of the Federal Trade Commission’s (FTC) Final Rule that bans all new noncompete agreements nationwide and renders existing noncompete agreements binding most workers unenforceable. This ruling comes 20 days after a federal court in Texas – presented with the same legal arguments – preliminarily enjoined the FTC from enforcing the Final Rule against the parties in that case.
From ERISA to CAA: How Have Employers’ Fiduciary Responsibilities Changed Over Time?
Health plan fiduciary issues have taken on increased urgency following a new wave of Employee Retirement Income Security Act class action lawsuits filed by plaintiffs’ firms. Sarah Raaii and Alden Bianchi recently joined the Moving to Value Alliance, a healthcare nonprofit, for a podcast episode focused on how group health plan sponsors and third-party service providers to group health plans can comply with the new fiduciary requirements enacted under the Consolidated Appropriations Act of 2021 (CAA). They also discussed what health plan fiduciaries can do to ensure they fulfill their responsibilities to beneficiaries.
Telehealth: Regulatory Questions Amid Legislative Uncertainty
One year on from the end of the COVID-19 public health emergency, the Medicare restrictions on telehealth that Congress waived to allow for and expand the use of telehealth and other forms of virtual care are set to expire. Congress has already acted twice to extend the waivers, most recently in the Consolidated Appropriations Act, 2023, which extended them until the end of this calendar year. Thus, starting on January 1, 2025, these waivers will disappear without further Congressional action. The uncertainty about whether Congress will again extend the telehealth waivers (and for how long) will create numerous questions and cause confusion for health plans, patients and providers.
Protecting Employees’ Tax Position After a Spin-Off
Spin-offs have become increasingly popular with innovative companies as a method of unlocking shareholder value, but the transaction is not always tax-free, particularly for international employees holding equity awards or shares.
The ability to obtain tax-free treatment in the United States for both the company and shareholders in a spin-off is often attractive. However, the transaction is not always tax-free for shareholders located outside the US. When local country criteria are not met, the distribution of spin-co shares is taxable for shareholders.
Significantly, employees holding equity awards and company shares can be negatively affected by a spin-off, which can have a significant impact on morale at a very sensitive time in a spin-co’s evolution.
Companies generally take one of two approaches when adjusting equity awards in a spin-off: either a basket approach, where employees hold equity awards from both companies; or a concentration approach, where employees only retain equity awards from their post-spin employer. The basket approach raises more local tax and securities compliance issues than the concentration approach as the employee is holding awards from a company that is not their employer.
“Long” shares held by employees in an employer’s plan raise additional issues. The applicable tax analysis mirrors the analysis applicable to shareholders generally, which may or may not be taxable upon distribution, depending on the country. However, the tax result may differ when the shares are held in a trust or where the employee does not yet have full ownership of the shares. In certain cases, a local tax ruling should be submitted, potentially providing the employees with more favorable tax treatment than regular shareholders.
Tax-qualified equity awards also require consideration as the tax-advantaged treatment may be lost for the employees in many countries. For example, in the United Kingdom, Share Incentive Plans (SIPs) and Company Share Option Plans (CSOPs) are common equity awards and a spin-off impacts them differently.
When an employee holds shares in a SIP for five years, the employee may sell the shares without paying income tax or national insurance contributions. However, when a spin-off transaction does not meet the UK “demerger” rules for a tax-free spin-off, the SIP participants will be subject to taxation on the value of the distributed spin-co shares when they are distributed.
If an employee exercises CSOP options three or more years after grant, that employee doesn’t pay income tax at exercise for the difference between the exercise price and the current fair market value of the shares. Any adjustment of the CSOP awards results in the loss of tax-qualified treatment, subjecting the employee to income taxation when the options are exercised. Employees who have already met the three year requirement may therefore prefer to exercise the awards prior to the spin-off.
In most cases, particularly if the communication occurs shortly before the spin-off, employees do not fully understand the ramifications until it is too late to mitigate the tax impact. To avoid this, companies should communicate the tax implications to employees well before the spin-off, taking into [...]
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FTC Final Noncompete Rule: Game Plan Checklist
With the Federal Trade Commission’s Final Rule that would ban noncompetes nationwide set to go into effect on September 4, 2024, assuming pending litigation doesn’t cause any delays, employers should begin planning now to address any potential compliance concerns. Legal and human resources teams will need to consider the impact of the Final Rule on current noncompete agreements, requirements for providing notice to impacted employees under the rule, and strategies for implementing pending and future agreements if the rule is upheld.
