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View From McDermott: Fifth Circuit Focuses on Process in ESOP Valuations

Though the Supreme Court’s 2014 unanimous ruling in Fifth Third Bank v. Dudenhoeffer announced the Employee Retirement Income Security Act (ERISA) standards for stock valuation in the context of a large public employee stock ownership plan (ESOP), the vast majority of ESOPs are still grappling with valuation issues. ESOPs that hold stock of closely-held corporations—approximately 90% of all ESOPs— remain almost unaffected by Dudenhoeffer’s valuation discussions, and face continued scrutiny by the Department of Labor (DOL). Appraisal of closely-held stock is an inexact science that involves an inherent level of uncertainty in assessing a variety of potential fact patterns.

This article summarizes valuation issues in acquisitions of closely-held corporation stock by ESOPs in the context of Perez v. Bruister, a recently decided Fifth Circuit case. The case stressed the importance of ‘‘process’’ in valuation determinations being utilized for acquisitions of a corporation’s stock by an ESOP. In reviewing the case, this article provides a detail of the process that should be followed to ensure consideration of the appropriate factors by fiduciaries in reviewing valuations for ESOP transactions. The article concludes with a discussion of guidance provided by the court in Bruister that may be instructive as to best practices for ESOP fiduciaries charged with establishing the value to be used by an ESOP holding shares of stock of a private company.

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Brexit Update: UK Employment Law Implications

Don’t panic. The United Kingdom will continue to be an EU Member State until procedures are completed for exiting the European Union, which is likely to be at least two years. Until a withdrawal agreement is reached, EU laws and treaties will still apply, including the right for EU nationals to work in the United Kingdom. This means that all current EU-derived employment laws should remain in place for at least two years.

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German Statutory Minimum Wage May Include Vacation and Christmas Bonuses

On May 25, 2016, the German Federal Labor Court confirmed a decision of the State Labor Court Berlin-Brandenburg (reference number: 5 AZR 135/16) regarding the statutory minimum wage in Germany.  The German Federal Labor court confirmed that, under certain conditions, vacation and Christmas bonuses may also be considered when determining if an employer pays his employees the statutory minimum wage in Germany.  This was the first time that the German Federal Labor Court had considered this issue.  (more…)




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New Mental Health Parity and Addiction Equity Act Guidance from the DOL

The US Department of Labor (DOL) has provided guidance on health plan provisions that could trigger a violation of the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), as amended by the Affordable Care Act. The DOL provided particular examples broken down by categories of plan provisions relating to coverage of mental health (MH)/substance use disorder (SUD) benefits which should trigger careful analysis of coverage for medical (med)/surgical med/surg) benefits to ensure compliance with the MHPAEA’s provisions regarding parity of non-quantitative treatment.

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New Policies and Practices for Hiring Expatriates in China

With more and more expatriates working in China, and some even applying for long-term residence permits, complicated applications procedures have been deemed an impediment to attracting more talented expatriates. In later 2015, for the purpose of facilitating the establishment of the “technology innovation center,” Shanghai issued several local policies encouraging more senior level expatriates to work in Shanghai. In March 2016, a similar set of local policies were issued in Beijing after those policies were successfully implemented in Shanghai. The following provides a brief overview of the new policies and practices for expatriates working in China.

Easier Procedures for Senior Level Expatriates to Apply for Working Permits

Generally, an expatriate must meet the following requirements to successfully acquire a working permit in China: (1) be between at 18 and 60 years old (60 years old is the general retirement age in China); (2) have working experience (in practice, at least two years of full time working experience is required); (3) have no criminal record; and (4) have received a job offer from a Chinese entity.

According to new local policies, if an expatriate is a “senior level expatriate,” the expatriate may apply for a work permit in China even if the expatriate is older than 60 years of age. Moreover, he or she may be issued a special “R visa” instead of a normal “Z visa” for working in China. Finally, the corresponding procedures for applying for a long-term residence permit in China will also be simplified for expatriates falling in this category.

As for the definition of “senior level expatriate,” the two policies provide several examples: (1) one who has received famous international awards or received national level awards from China; (2) a famous professor or scholar; (3) an individual who holds a senior level management position in headquarters of foreign-invested companies.

In addition, the “working experience” requirement has changed. Previously, newly graduated foreign students had no chance of acquiring a work permit in China. According to these two policies, those foreign students who received master’s degrees or above in China can now apply for a work permit in designated areas, such as the free trade zone of Shanghai and Zhong Guan Cun, a technology hub in Beijing that is known as the “China’s Silicon Valley”.

No Work Permit Is Required for Short-Term Work in China

Under the new policies, another change is that an expatriate may not be required to apply for a working permit in China if the total working period is within three months and the short-term work is in the following areas: (1) visiting a Chinese partner to complete certain technical, scientific research, management or guidance work; (2) conducting training in a sports agency in China; (3) shooting films and fashion shows; (4) engaging in foreign-related commercial performance; and (5) other circumstances identified by the department of human resources and social security.

Previously, an expatriate would go through “4-step” procedures for working in China legally: (1) (the employer) applies for a [...]

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Webinar: New DOL Guidance on Joint Employment: Navigating Heightened Scrutiny and Minimizing FLSA Liability

Wednesday, June 1, 2016
1:00-2:30 pm EDT

Join McDermott partner Kristin E. Michaels at this CLE webinar, which will review the far-reaching impact of the Department of Labor’s (DOL) recent guidelines greatly expanding joint-employer status.

The discussion will include the agency’s analysis of horizontal and vertical joint employment and the factors that point to joint-employer liability for wage and hour violations, as well as offer practical and strategic approaches for structuring agreements with subcontractors, independent contractors and contingent workers to minimize the risk of employer or joint-employer liability for FLSA violations.

To register, please click here.




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Second Circuit Applies Stricter Rules for a Plan Administrator’s Noncompliance with Benefit Claims Regulations

The US Court of Appeals for the Second Circuit’s recent ruling addresses various issues that could arise during a plan administrator’s review of a participant’s benefit claim and appeal and any ensuing litigation, including the deference to be granted upon review in a federal court, civil penalties and the possibility of introducing additional evidence outside the administrative record. This decision demonstrates the need for employers to review their benefit plans’ claims procedures to ensure they comply with applicable law and best practices.

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