On June 13, 2019, the U.S. Department of the Treasury, Department of Labor, and Department of Health and Human Services issued final regulations which expand the options for employers to fund health insurance for employees.  Previously, employers were not permitted to establish heath reimbursement accounts (“HRAs”) for employees to purchase individual health insurance coverage unless the employer had less than 50 full-time employees and did not maintain a group health plan.  That will change on January 1, 2020.

Under the new final regulations, beginning January 1, 2020, any employer may establish an individual coverage HRA to provide unlimited employer funding for an employee to purchase individual health insurance coverage on or off an Exchange.  By using the Individual Coverage HRA to purchase health insurance, the reimbursements are not included in the employee’s taxable wages just as being covered under group health insurance is not included in an employee’s taxable wages.

An employer who offers an Individual Coverage HRA need not offer it to all of its employees but must offer it on the same terms to all individuals within a class of employees.  However, an employer is permitted to increase its contribution amount for older workers or workers with more dependents.  An employer may not offer a choice between an Individual Coverage HRA and a traditional group health plan to the same class of employees.  However, it may offer a traditional group health plan to one class of employees and an Individual Coverage HRA to another class of employees.   Likewise, an employer may permit an employee covered by an Individual Coverage HRA who purchases individual health insurance coverage outside of an Exchange to pay the balance of the premium for the coverage through a cafeteria plan.  Additionally, an offer of an Individual Coverage HRA is considered an offer of coverage under the Affordable Care Act’s employer mandate provided certain requirements are met.

The final rules also permit employers to establish Excepted Benefit HRAs which may be offered in addition to a traditional group health plan to cover the costs of non-covered medical expenses and dental and vision insurance.  Excepted Benefit HRAs must be available to all similarly situated employees and may allow the rollover of unused contributions from year to year.

Employers may take advantage of the new Individual Coverage and Excepted Benefit HRA regulatory provisions effective January 1, 2020; however, to meet an effective January 1st date, pre-planning must occur.  Contact any member of our Employee Benefits Group to learn more about the benefits and requirements of both HRAs and to start the planning process.

The issue of independent contractors and employment status continues to vex employers and present substantial liability risks.  The employment laws generally cover only employees, not independent contractors.  Properly classified independent contractors cannot have viable claims under the discrimination laws, wage and hour laws, leave laws, workers’ compensation laws, etc., because they are not covered by these laws.

Misclassification of an independent contractor, however, can result in liability under many laws for the unwary employer.  Independent contractor status can be a high risk/high reward proposition, and employers should ensure that they feel comfortable that those individuals they treat as independent contractors are properly classified under the relevant employment and tax laws.

The FLSA is a ripe source of potential risk for employers who utilize the services of independent contractors, consultants, and other service providers who are not treated as employees.  The vast majority of independent contractors do not receive overtime compensation in compliance with the requirements of the FLSA.  If the independent contractor is misclassified and actually qualifies as a covered employee under the FLSA, liability for unpaid overtime may exist if the individual has worked more than 40 hours in any work week.

On April 29, 2019, the U.S. Department of Labor issued an opinion letter on whether service providers for a “virtual marketplace company” (VMC) qualify as employees or independent contractors under the Fair Labor Standards Act.

The DOL defined a VMC as “an online and/or smartphone-based referral service that connects service providers to end-market consumers to provide a wide variety of services, such as transportation, delivery, shopping, moving, cleaning, plumbing, painting, and household services.”

To analyze the issue, the DOL applied the same six-factor test created by the U.S. Supreme Court in the 1940s to determine employment status under the FLSA:

  1. The nature and degree of the potential employer’s control;
  2. The permanency of the worker’s relationship with the potential employer;
  3. The amount of the worker’s investment in facilities, equipment or helpers;
  4. The amount of skill, initiative, judgment or foresight required for the worker’s services;
  5. The worker’s opportunity for profit or loss; and
  6. The extent of integration of the worker’s services into the potential employer’s business.

Applying these six factors, the DOL concluded that the workers at issue were independent contractors and not covered employees of the VMC under the FLSA.  The DOL essentially determined that the VMC was a referral platform, and not an employer of the service providers it paired with customers.

The VMC at issue did not interview or train the affiliated service providers or oversee or evaluate their work.  Nor did the VMC provide the service providers with equipment, materials, or working space.  The VMC’s platform provided the contractors with basic information about the customer’s service request (e.g., the kind of service needed, location, and date and time) and permitted the service providers to communicate directly with customers.  The VMC established default prices for the work based on the region and scope, but the customers, and not the VMC, paid the service providers, and service providers could negotiate the price of their jobs.

The DOL also noted that the workers were free to accept or reject work at their discretion, could work simultaneously for competitors of the VMC, performed work on a project-by-project basis without permanency, and provided services not to the platform company itself but instead to the consumer of the service.

The DOL’s opinion letter is helpful for businesses operating in the on-demand marketplace, a relatively new phenomenon in the so-called gig economy.  Beyond that, the opinion letter reaffirms that the decidedly 20th century six-factor test remains the applicable standard when determining employment status under the FLSA in the 21st century.

Like any non-exhaustive multi-factor test, there usually will exist ambiguity and gray areas when determining the independent contractor vs. employee question under the FLSA.  However, the DOL’s recent opinion letter is a welcome one for employers and demonstrates the agency’s current willingness to look closely at gig economy arrangements and not reflexively label any such arrangement covered employment under the FLSA.

By now, you are no doubt aware that the long-debated pay data component (“Component 2”) to the EEO1 Report is a requirement for this year’s reporting.  The requirement first surfaced in 2016 but was the subject of repeated litigation that kept it from being implemented.  Now, the EEOC has stated that it will open a portal for reporting by July 15th, and employers will have until September 30, 2019, to file their EEO1 Report, including Component 2 data based on their employees’ 2018 W-2 wages.

The original reporting requirement mandated that all employers affecting interstate commerce with 100 or more employees report W-2 wages for employees by race and gender within specific pay bands.  While the EEOC has said that it will change the format for Component 2 Data, the agency has not yet explained what the format will be.  Guidance on formatting may be forthcoming within the next few weeks.

So what’s the purpose of all this data collection anyway? Once the data has been collected, it will be shipped off to the University of Chicago’s National Opinion’s Research Center (“NORC”) for review.  EEOC has sought to definitively demonstrate a statistically significant pay gap between men and women, and majority and minority employees, for decades.  This tool is another in the agency’s chest to attempt to show that difference.  Ultimately, EEOC could use this data to raise claims of pay discrimination based on gender and ethnicity.

So what should you do now?  First, be ready to file your report if you are required to do so.  In addition, you should consider an audit of your wage data now to get out in front of any issues that might surface.

Employers concerned about their own pay practices can undertake a wage analysis by race and gender.  This will give the employer insight into how its pay practices may be viewed based on the data submitted.  We do note that EEOC is unlikely to be able to take any action based on the data submitted in the near term.  There is little doubt about the agency’s long-term goals, however.  If you wish to undertake a pay analysis for your company, contact me or any member of the McNees Labor and Employment Group for assistance.

In Revenue Procedure 2019-19 effective April 19, 2019, the IRS expanded a plan sponsor’s ability to Self-Correct certain retirement plan failures. This expansion makes it easier for plan sponsors to fix retirement plan mistakes without paying the fee assessed for corrections and, more importantly, without contacting the IRS. The changes expand the Self-Correction Program in three categories: plan loans, operational errors, and document failures.

Plan sponsors may now self-correct certain failures with respect to plan loans, including:

  • Providing participants new options to cure defaults on loan payments;
  • Correcting failures occurring when the plan allowed participants to have multiple loans even though it was not permitted under the plan;
  • Correcting a failure occurring when the plan provided a loan to a participant when the plan does not permit loans; and
  • Correcting failures occurring when the plan failed to obtain a required spousal consent.

Plan sponsors may also self-correct certain plan operational errors, such as administering a plan differently than the plan documents provide and failing to timely adopt a discretionary amendment, if certain criteria are met.

The new expanded Self-Correction Program also allows the correction of plan document failures such as a failure to timely amend the plan document or fixing a plan which is simply missing required language. Self-Correction of plan document failures must occur before the end of the second plan year of the failure.

Now is the perfect time to contact any member of our Employee Benefits Group to have your retirement plan document and procedures reviewed to find and fix potential problems.

Last legislative session, the Pennsylvania House of Representatives introduced H.B. 2664, which sought to add a new subsection to the Workers’ Compensation Act addressing post-traumatic stress disorders in certain first responders.  That Bill never made it out of committee, but that’s not the end of the story.

Last month, H.B. 432 was introduced.  Like it’s unsuccessful predecessor, this Bill seeks to add a new provision to the Workers’ Compensation Act adding post-traumatic stress disorders to the list of occupational diseases that the Act enumerates for certain first responders.

This Bill reflects a trend among other states, to extend workers’ compensation benefits to police officers, fire fighters and emergency medical service providers, who experience post-traumatic stress injuries due to traumatic events arising in the course and scope of their employment, or due to the cumulative effect of psychological stress in the course and scope of their job duties.

In particular, H.B. 2664 would allow a presumption of compensability in two situations:

  1. Where a police officer, fire fighter or emergency medical services provider experiences post-traumatic stress disorder, following exposure to a traumatic event or incident while working; or
  2. Where a police officer, fire fighter or emergency medical services provider, with 4 or more years of service, develops a post-traumatic stress disorder related to the cumulative effect of psychological stress at work.

Significantly, H.B. 2664 would amend Section 301(g) of the Act to allow workers’ compensation coverage of police officers, firefighters and emergency service providers in purely “mental-mental” cases, so long as there is a “substantial evidence” establishing a causal connection between a post-traumatic stress diagnosis, and a work exposure.  This is essentially a legislative elimination of the “abnormal working condition” standard, which had required proof of an event or incident highly unusual or abnormal, considering the type of work performed by the employee.

For example, under existing law, a police officer exposed to discovery of a rotting corpse might be ineligible for workers’ compensation, since this may not be an abnormal event for a busy city patrol officer (although it could be sufficient to establish a Heart & Lung Act claim for temporary benefits).  Should H.B. 2665 be enacted, the same officer would likely have a strong case for coverage of a related PTSD diagnosis.

This proposed legislation will be of most interest to municipal and public sector clients but could potentially impact providers of emergency medical services (i.e. hospitals or physician practice groups), ambulance crews and possibly even private sector employers who provide medical services through trained safety response teams.

We will continue to monitor this proposed legislation and will keep you informed.

On March 7, the Department of Labor released its Notice of Proposed Rulemaking seeking public comment on proposed changes to the minimum salary requirements in the Fair Labor Standards Act’s “white-collar” overtime exemption regulations.  If that sounds familiar, the DOL went through this same process back in 2015, only to have that new rule blocked by a federal court in 2016, days before it was set to take effect.

Key provisions in the DOL’s 2019 proposed rule (and how they compare to the 2016 final rule) include the following:

  • Raise the minimum salary requirement from $455 per week ($23,660 annually) to $679 per week ($35,308 annually). While this increase is significant, it is far less than that contained in the 2016 final rule, which would have more than doubled the minimum salary requirement to $913 per week ($47,476 annually).
  • Raise the total annual compensation requirement for the FLSA’s highly compensated employee exemption from $100,000 to $147,414. Interestingly, this increase is actually greater than the 2016 final rule, which would have increased this annual compensation requirement only to $134,004.
  • Review the minimum salary thresholds every four years, with any changes taking effect only after an opportunity for public comment. The 2016 final rule provided for automatic updates (i.e., increases) every three years, so the elimination of the automatic update language is another win for employers.
  • Allow employer to use non-discretionary bonuses and incentive payments (including commissions) that are paid annually or more frequently to satisfy up to 10% of the minimum salary requirement. This language is similar to language that appeared in the 2016 final rule.
  • Like the 2016 final rule, the 2019 proposed rule contains no changes to the white-collar exemptions’ duties tests or any other overtime exemptions.

The DOL estimates that the changes in the 2019 proposed rule would make more than a million currently exempt workers now eligible for overtime compensation.  By comparison, the DOL previously estimated that its 2016 final rule would make 4.2 million exempt workers eligible for overtime pay.  The DOL clearly is attempting to make more modest changes to the existing requirements for the white-collar exemptions.

Employers and other members of the public will be able to submit comments to the DOL regarding the proposed regulations for a 60-day period after the proposals are formally published in the Federal Register.  The DOL currently anticipates that the final rule will be issued in time to take effect in January 2020.

Of course, we in Pennsylvania still are waiting for the Pennsylvania Department of Labor and Industry to issue final regulations that likely will increase the minimum salary requirements for the white-collar overtime exemptions under the Pennsylvania Minimum Wage Act.

We anticipate that the requirements established under the federal and state regulations that we except to see in 2019 will not be the same, complicating compliance efforts for Pennsylvania employers.  While we do not yet know what the minimum salary requirements will be for the white-collar exemptions under both the FLSA and PMWA come 2020, employers should begin considering the impact that the proposed changes would have on the status of their exempt workforce.

We expect more news in the world of overtime exemptions in 2019.  Stay tuned.

In a key decision for many franchisors and franchisees, and others who rely on independent contractors, the National Labor Relations Board recently reinstated its test for examining contractor status.  In 2014, the Obama-era NLRB, in a case involving Fed Ex delivery drivers, “refined” its test for examining contractor status. The refinement was really a fundamental shift in how the NLRB reviewed these questions, and not surprisingly led to many more findings of employer-employee status.

The “refinement” diminished the importance of the workers’ entrepreneurial opportunities, holding that this question was really a minor part of the overall analysis, thus diminishing its importance greatly.  This question, which often supports a finding of independent contractor status, became much less of a focus for the NLRB.

In SuperShuttle DFW, the Board announced that it was overruling the Obama-era “refinement” and returning to the standard that had been in place for many years.  The NLRB cited years of case law, which held that the entrepreneurial opportunity was actually a key question in the analysis.

The NLRB made clear that it will continue to apply the common law agency test to analyze whether a worker is an independent contractor or an employee.  That test requires examination of a number of factors, including:

  • The extent of control exercised over the worker;
  • Whether the worker is engaged in a distinct occupation or business;
  • The kind of occupation, and whether it is typically performed under supervision;
  • The skill required;
  • Who supplies the tools and equipment necessary to do the work;
  • The length of time the worker is engaged;
  • The method of payment;
  • The intention of the parties with respect to their relationship; and
  • Whether the principal is a business.

The courts and the NLRB have long made clear that all of these factors must be considered and no single factor is controlling.  In addition, the analysis is not quantitative, but is qualitative.  In other words, one cannot simply count up the factors favoring one classification and make a determination. In SuperShuttle, the NLRB confirmed that all of the factors are important and no single factor will end the analysis.

The NLRB then clarified that entrepreneurial opportunity was indeed a key question, and not a sub-factor.  Just like the question regarding the right of control, the opportunity for profit and loss is really an issue that is at the heart of several of the factors.  Many of the factors may or may not demonstrate that the worker has an opportunity to make more money.  The NLRB stated that moving forward, while analyzing each factor, it will continue to ask whether the workers at issue do or do not possess entrepreneurial opportunity.

Where the common law factors demonstrate that the workers in question are afforded significant entrepreneurial opportunity, the NLRB will likely find independent contractor status.

We expect that this holding will return the balance back to the NLRB’s independent contractor analysis, and may help correct some of the more aggressive employer-employee decisions issued under the Obama-era standard.  If you have any questions regarding the status of any worker, please contact any member of our Labor and Employment Group.

At the end of 2018, the Superior Court of Delaware held that a terminated employee could proceed with his lawsuit, alleging that his employer terminated him for being a medical marijuana cardholder.  Chance v. Kraft Heinz Foods Co.  In allowing the suit to move forward, the Delaware Court found that the anti-discrimination language in the Delaware Medical Marijuana Act (“DMMA”) created an implied cause of action for employees to sue their employers.  Pennsylvania employers should pay attention to the Chance decision for several reasons: (1) the anti-discrimination language in the Delaware Medical Marijuana Act is similar to language contained in the Pennsylvania Medical Marijuana Act; (2) the Delaware decision continues the recent trend of employee-sided decisions by courts in Connecticut and Rhode Island; and (3) the Delaware case dealt with a post-accident drug test, thus further expanding protections for employees who use medical marijuana outside of work.

The facts of the case are straightforward, but important to note:

Chance was a seven-year employee at Kraft’s Dover, Delaware facility. In 2016, he obtained a Delaware medical marijuana card and used medical marijuana to treat a variety of medical conditions.  In late 2016, Kraft sent Chance for a post-accident drug test, after his “shuttle wagon” derailed. The Medical Review Officer contacted Chance and advised that he tested positive for medical marijuana. Chance explained to the MRO that he had a valid medical marijuana card and, indeed, produced a copy of the card.  Nonetheless, the test was verified positive and Chance was terminated in accordance with Kraft’s drug testing policy.

Notably, there were no allegations that Kraft believed Chance was under the influence or that the derailment was related to his use of medical marijuana.

Chance subsequently filed suit, alleging violations of, among other things, the anti-discrimination clause contained in the DMMA.  Kraft filed a motion to dismiss the suit, arguing that Federal Law, specifically the Controlled Substances Act, preempted the DMMA and that the DMMA did not create a private right of action.  The Delaware Court disagreed with Kraft and ruled for Chance.

On the preemption argument, the Delaware court noted that the Controlled Substances Act “does not make it illegal to employ someone who uses marijuana, nor does it purport to regulate employment matters.”  Rather, the CSA prohibits the unauthorized manufacture, dissemination, dispensing and possession of marijuana.  Accordingly, said the Court, the CSA was not in conflict with the DMMA, which provides that an “employer may not discriminate against a person in hiring, termination, or any term or condition of employment . . . if the discrimination is based upon either of the following: a) The person’s status as a cardholder; or b) A registered qualifying patient’s positive drug test for marijuana . . . unless the patient used, possessed, or was impaired by marijuana on the premises of the place of employment or during the hours of employment.”  In support of its finding that the two acts were not in conflict, the Delaware court cited to the 2017 decision of the Rhode Island Superior Court and the 2018 decision of the U.S. District Court for the District of Connecticut (Noffsinger v. SSC Niantic Operating Co, LLC).

Regarding the right of action argument, the Delaware Court made a common-sense ruling.  According to the court, the legislature would not have included anti-discrimination language in the DMMA if there was no mechanism for enforcing it:

The purpose of Section 4905A is to prohibit employment-related discrimination based upon either status as a medical marijuana cardholder or a qualifying patient’s positive drug test . . . In the DMMA, no agency or commission has been tasked with enforcement of the anti-discrimination provision . . . no remedy other than a private right of action is available to cardholders . . . The fact that an anti-discrimination provision was included in the DMMA demonstrates legislative intent to remedy the problem of discrimination based upon one’s cardholder status . . . Absent a finding of an implied right of action, Section 4905A would be devoid of any purpose within the broader context of the statute.

Again, in finding a private right of action, the Delaware Court found support in the prior decisions of the Rhode Island and Connecticut courts.

So . . . why should a Delaware decision matter to Pennsylvania employers?  Because the Pennsylvania Medical Marijuana Act (the “PA Act”) includes an anti-discrimination provision similar to the one in the DMMA.  By way of reminder, the PA Act states that “No employer may discharge, threaten, refuse to hire or otherwise discriminate or retaliate against any employee regarding an employee’s compensation, terms, conditions, location or privileges solely on the basis of such employee’s status as an individual who is certified to use medical marijuana.”  MMA section 2103(b)(1).  Because the two provisions are similar, it is reasonable to expect that a Pennsylvania Court, when confronted with the issue for the first time, will look to the decision of its neighboring state for guidance.

As Delaware joins the ranks of Connecticut, Rhode Island and Massachusetts in issuing employee friendly decisions and expanding protections for off-duty use of medical marijuana, Pennsylvania employers should take heed!

  • Conduct a careful review of your drug use and testing policies. A policy that mandates termination for a positive test, with no exception for legal off-duty medical marijuana use, could be discriminatory.  Relying on the traditional argument that a positive test for marijuana can result in termination because marijuana remains illegal under federal law, is not recommended.  Based on the decision in Kraft, such an argument likely will be rejected,
  • Proceed with caution when an employee, who is certified to use medical marijuana, tests positive, even if the test was administered post-accident. Rushing straight to termination based solely on a positive test may violate the PA Act.

Should you need assistance in revising your drug use and testing policies or wish to discuss the impact of medicinal marijuana legalization on your workplace, please contact Denise E. Elliott, Esq. or another member of our Labor and Employment Group.

Last year, the Supreme Court of the United States issued a significant decision upholding the use of individual arbitration agreements that include class action waivers. The Epic Systems’ Decision provided clarity to employers considering the use of arbitration agreements and class action waivers in the employment context. However, for employers with workers in the transportation industry, the Supreme Court has now taken a significant step back from the recent trend of opinions favoring arbitration agreements in the employment context.

In New Prime, Inc. v. Olivera, the Supreme Court held that the Federal Arbitration Act does not apply to workers (including independent contractors) engaged in transportation in interstate commerce. The Supreme Court has consistently noted that the Federal Arbitration Act (FAA) establishes “a liberal federal policy favoring arbitration agreements.” However, the FAA also contains a specific exclusion for transportation workers engaged in interstate commerce. The Supreme Court held in New Prime that this exclusion applies to all such transportation workers, regardless of whether they are classified as employees or independent contractors.

After New Prime, employers who enter into arbitration agreements with employees or independent contractors who transport goods in interstate commerce will not be able to rely upon the FAA when seeking to enforce those agreements.  The decision does not necessarily mean that all arbitration agreements with transportation workers are invalid, since Pennsylvania and most other states have laws relating to the enforcement of private arbitration agreements.  However, Epic Systems and other U.S. Supreme Court decisions which had strongly favored enforcement of arbitration agreements will not apply to arbitration agreements with transportation workers engaged in interstate commerce.  As such, employers should carefully evaluate any arbitration agreements with employees or independent contractors engaged in transportation in interstate commerce and the result may differ from state to state.

While the New Prime decision represents a step backwards with respect to enforcement of arbitration agreements with workers engaged in transportation in interstate commerce, most obstacles to enforcement have been cleared by the Supreme Court with respect to other workers.  As such, most employers have a green light to consider mandatory employment arbitration agreements and class action waivers, while employers in the transportation industry should now proceed with caution.

If you are considering using individual arbitration agreements with your employees and independent contractors, please contact any member of our Labor and Employment Practice Group.

 

In 2016 the Occupational Safety and Health Administration issued a Rule intended to improve the tracking of workplace injuries and illnesses, known as the Electronic Recordkeeping Rule.  The Rule would have required covered employers – those with 250 or more employees that are otherwise required to maintain OSHA injury and illness records, and those with 20-249 employees in designated “high-risk industries” (including manufacturing, construction, and many healthcare establishments) – to electronically submit Form 300A Summary of Work-Related Injuries and Illnesses data to OSHA on an annual basis.  The Rule also imposed an additional requirement on larger employers (those with 250 or more employees).  The Rule would have required those larger employers to electronically submit to OSHA much more detailed information from their OSHA Form 300 Logs and OSHA Form 301 Illness and Injury Incident Reports.

July 1, 2018 was the initial deadline for electronic submissions required by the new Rule.  However, OSHA suspended the implementation of the proposed Rule with respect to Form 300 and Form 301 data.  July 1, 2018 remained the date by which covered employers were required to electronically submit Form 300A summary data.

In welcomed news for larger employers, and apparently due to its new-found desire to protect worker privacy, OSHA has rescinded that part of the 2016 Rule requiring employers with 250 or more employees to electronically submit to OSHA the more detailed Form 300 Log and OSHA Form 301 data.  The OSHA note regarding the Rule, dated January 24, 2019, is available here.  As a result, electronic submission of OSHA Form 300 and OSHA Form 301 data is no longer required.

It is important to note that the remaining electronic recordkeeping requirements imposed by the 2016 Rule, as stated above, continue in effect.  Accordingly, all covered employers (250 or more employees and those with over 20 employees in designated high-risk industries) must electronically submit to OSHA Form 300A summary information, annually, by March 2 of the following calendar year.

If you have any questions regarding your OSHA reporting requirements, please contact any member of our Labor and Employment Group.