Eric Athey

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McNees Wallace & Nurick LLC is pleased to announce the expansion of its Employee Benefits and Executive Compensation Practice Group with the recent addition of attorney Renee Lieux and specialist Kimberly Weibley.

Renee has focused her practice on executive compensation and employee benefits for nearly 20 years.  She assists both private and publicly traded companies in the formation of executive compensation programs and the negotiation of executive employment agreements.  She designs and assists in the implementation of non-qualified deferred compensation plans, equity compensation plans, and cafeteria plans.   Clients also seek her assistance with the administration, compliance, and termination of defined contribution plans, defined benefit plans, profit sharing plans, 401(k) plans, and employee stock purchase plans.  In addition, Renee advises clients on employee benefits issues arising out of mergers and acquisitions.  Renee has experience counseling clients on ERISA and Section 409A and advising compensation committees of publicly traded companies.

As an Employee Benefits Specialist, Kim assists clients with the design and administration of tax-qualified retirement plans, welfare benefit plans and non-qualified retirement plans. She aids clients with legal compliance issues through the preparation of plan documents, IRS determination letter applications and applications relating to IRS and DOL compliance programs.  Kim has experience in qualified plan design and preparation of plan amendments, SPDs and SMMs.  She also assists clients in the design and drafting of administrative procedures and forms, especially those relating to 401(k) plans, COBRA, QDROs and flexible benefit programs.  Kim has over 15 years of experience working as a benefits professional in private industry and is particularly adept at identifying practical solutions to complex problems.

The McNees Employee Benefits and Executive Compensation Practice Group offers a range of services and leading-edge techniques, with a personalized approach.  Our knowledgeable interdisciplinary group — which includes professionals skilled in tax, labor, general business and litigation — ensures creative, thorough, vigorous and affordable representation.

Perhaps the most significant EEO issue percolating through the federal court system right now is whether Title VII’s prohibition against sex discrimination encompasses discrimination on the basis of sexual orientation and gender identity.  There is now disagreement among federal appellate courts on this issue and the U.S. Supreme Court will likely decide the question at some point.  In the interim, the Equal Employment Opportunity Commission has taken the position that Title VII does prohibit discrimination on the basis of sexual orientation and gender identity.  In addition, several federal courts sitting in Pennsylvania have agreed with the EEOC’s position. See EEOC v. Scott Medical Center (W.D.Pa. 2016).

Amidst all the recent focus on how federal courts are interpreting Title VII, little attention has been paid to whether the Pennsylvania Human Relations Act (PHRA) extends protection to the LGBTQ community.  In guidance issued on August 2, 2018, the Pennsylvania Human Relations Commission (PHRC) made its position on the issue clear.  The PHRC’s “Guidance on Discrimination  on the Basis of Sex Under the Pennsylvania Human Relations Act” states that the “prohibitions contained in the PHRA and related case law against discrimination on the basis of sex…prohibit discrimination on the basis of sex assigned at birth, sexual orientation, transgender identity, gender transition, gender identity, and gender expression.”  The Guidance further states that the Commission will accept sex discrimination complaints based on this expanded definition of the term.  The PHRC does not address some of the more thorny related questions, such as whether employer health plans must cover gender transition surgery as a matter of state law.

Notably, the PHRC Guidance further states that respondents (e.g. employers) who believe the PHRA violates their free exercise of religion “are free to avail themselves of the protections found within the Religious Freedom Protection Act (RFPA).”  The Guidance outlines how a respondent should go about raising an objection under the RFPA.  Some may remember that the RFPA was the statutory basis for the Supreme Court to limit the scope of the Affordable Care Act’s “contraception mandate.”

In light of the PHRC’s recent guidance, employers should carefully consider whether it’s time to revise their policies governing harassment and equal employment opportunity.  In addition, it may be advisable to revamp harassment prevention training programs to specifically address LGBTQ concerns.  If you have any questions regarding the PHRC’s Guidance, please don’t hesitate to contact any member of our Labor and Employment Practice Group.

Over the past fifteen years, wellness programs have generated more than their fair share of litigation and regulatory scrutiny – primarily over the issue of whether they comply with the Americans with Disabilities Act.  A related compliance issue that has attracted relatively little attention from courts and regulators is whether, under the Fair Labor Standards Act (FLSA), employees must be paid for time spent participating in wellness-related activities.  This question was addressed in an Opinion Letter (FLSA2018-20) issued by the U.S. Department of Labor’s Wage and Hour Division on August 28, 2018.

Opinion Letter 2018-20 specifically addresses whether an employer must pay employees for time spent in the following activities:

  1. biometric screenings (blood pressure, cholesterol levels, nicotine usage) both during and outside of their regular work hours;
  2. wellness activities such as nutrition classes, employer-facilitated gym classes, telephonic health coaching, participation in Weight Watchers and Fitbit challenges;
  3. attendance at benefits fairs to learn about employer-provided benefits, financial planning and college attendance opportunities.

The Opinion Letter concludes that employees need not be compensated for participating in the above activities if: a) their participation is purely voluntary;  b) they perform no job-related duties while participating; and c) the activities predominantly benefit the employee and not the employer.   In concluding that the activities were predominantly for the employees’ benefit, the DOL noted that participating employees may enjoy lower health insurance deductibles while also learning how to make “more informed decisions” about non-job related health issues.  Moreover, since employees were relieved of all job duties while participating, they were “off duty” as that term is defined in DOL regulations.

This Opinion Letter is helpful assurance for employers who are considering implementation of wellness programs.  If employee participation is strictly voluntary and no work is performed during the course of participating, the time will likely be deemed non-compensable under the FLSA.  However, as many employers have learned, it can be difficult to generate strong employee participation in wellness programs.  Although paying employees for their participation may not be required by the FLSA, some employers choose to do so as an incentive for participation.

If you have any questions regarding wellness programs or the Fair Labor Standards Act, please contact any member of our Labor and Employment Practice Group.

With increasing frequency, when employees sue their employer or former employer, they also name individual managers or the company’s owners as defendants in their suit.  Under federal EEO laws (e.g. Title VII, ADA, ADEA), individuals generally cannot be held liable for acts of discrimination.  However, employment laws such as the FMLA, FLSA and the Pennsylvania Human Relations Act do allow for individual liability under some circumstances.  In Abdellmassih v. Mitra OSR (February 28, 2018), the U.S. District Court for the Eastern District of Pennsylvania addressed whether individuals may be held liable under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) for failing to issue required COBRA notices.

Mr. Abdellmassih was terminated from his position at a KFC restaurant and sued his employer under a variety of laws.  He named the co-owners of the company as individual defendants with respect to his claims under several laws, including COBRA.  The basis for his COBRA claim was that he was allegedly never issued a COBRA notice after he lost his health coverage due to the termination of his employment.

COBRA provides that a plan administrator who fails to comply with COBRA’s notice requirements may, at a court’s discretion, be held personally liable for up to $100 per day that the required notice is not provided.  Mr. Abdelmassih argued that his former employer’s co-owners served as the health plan’s administrators and, therefore, should be individually liable for the plan’s failure to issue required COBRA notices.  However, upon reviewing the company’s health insurance brochure, the court noted that the owners were not named anywhere in the document – as plan administrators or otherwise.  Indeed, the brochure merely directed employees to contact a human resources representative if they had questions regarding their COBRA rights.  Since the co-owners were not named in the document, the court found there was no basis to impose individual liability upon them under COBRA.  However, Mr. Abdelmassih’s COBRA claim against the corporate entity remained intact.

The lesson of the Abdelmassih case is simple.  When identifying the “plan administrator” in a plan document or summary plan description, avoid naming individuals.  A general reference to the employer (or third party administrator firm) – or the department with responsibility for plan administration (e.g. human resources) –  is the best way to avoid individual liability situations under COBRA.  A quick check of your company’s plan language on this point may save you (or someone in your company) from significant liability!

Keeping up with compliance requirements under Pennsylvania and federal laws can be challenging enough; however, for Pennsylvania employers that do business in multiple states, the compliance burden can grow exponentially.  It is expected that we will see little new federal employment legislation over the next few years.  However, the lack of legislative activity in Washington may prompt some state legislatures to place a greater emphasis on employment issues than usual.  It already appears that 2018 will yield a bumper crop of new state employment laws across the nation.  California, as usual, leads the league in new employment laws with a dozen new state employment laws taking effect on January 1, 2018.  Pennsylvania has no new notable employment laws scheduled to take effect; however, as we previously reported, Governor Wolf is aiming to revise overtime regulations under the Pennsylvania Minimum Wage Act.  Several of our neighboring states (New Jersey and West Virginia) have no new employment laws taking effect in 2018 – while New York has a number of new laws on the books.  Here is a very quick look at new state employment laws taking effect in 2018 among the states that border Pennsylvania.

New York

Paid Family Leave – This law is perhaps the most likely to trip up unwary Pennsylvania employers.  Any employer that employs at least one employee in New York for at least 30 days during the calendar year is covered; however, employees are not eligible for benefits until they have worked 26 consecutive weeks (or 175 days of employment for employees who average fewer than 20 hours per week).  Eligible employees will be eligible for 8 weeks of paid family leave in 2018 and this entitlement gradually increases to 12 weeks by 2021.  Pay during leave is based on a fraction of the state’s average weekly wage.  Employers may purchase coverage or self-insure.  Employees may be charged to cover all or part of the premium via payroll deduction.

Workplace Safety (Smoking) – Effective November 22, 2017, employees are now prohibited from vaping in workplaces (and other public places).

Salary History (New York City Ordinance) – Following suit with the City of Philadelphia, the Big Apple now prohibits covered employers from asking applicants about their salary history and from relying on that history unless the information is offered by the applicant voluntarily.  Note: Philadelphia’s Ordinance is currently being challenged in federal court and enforcement of the Ordinance has been stayed pending outcome of this litigation.

Delaware

Salary History – On December 14, 2017, Delaware’s law prohibiting employers from seeking an applicant’s pay history from current or former employers took effect.  Delaware is the third state to pass such legislation, joining California and Massachusetts.  As noted above, several cities (including Philadelphia) have passed ordinances with similar requirements.

Data Breach Notifications – Delaware was one of several states to update its laws governing notifications in the event of data breaches (i.e. identity theft prevention).  The new requirements take effect April 4, 2018.

Maryland

Data Breach Notifications – Like Delaware, Maryland has updated its law governing notifications in the event of data breaches.  The amendments took effect January 1, 2018.

Paid Sick Leave – Maryland’s “Healthy Working Families Act” is scheduled to take effect February 11, 2018; however, recent legislative efforts have been made to delay the effective date until July 2018.  Under the law, employees who have completed 106 days of employment and who work at least 12 hours per week are entitled to accrue sick leave at a rate of 1 hour per 30 hours worked – subject to a 40 hour annual cap.  For employers with 15 or more employees, the sick leave must be paid.  Smaller employers may provide the leave on an unpaid basis.  Covered employers are required to maintain records of accrual and usage for at least three years.

Ohio

Unemployment Insurance – Ohio’s law governing unemployment insurance has been amended effective January 1, 2018 to require employers to submit quarterly wage and contribution reports electronically.

We hope that this quick summary is helpful.  If you have questions, please contact any member of our Labor and Employment Law Practice Group.

Under the Fair Labor Standards Act (“FLSA”), employers are permitted to pay non-exempt employees a fixed salary to cover straight-time earnings for all hours worked in a week, provided several conditions are met: a) the employee’s hours must fluctuate week to week; b) the employee must be paid the fixed salary in weeks where employee works less than 40 hours; c) there must be a clear understanding that the salary is intended as straight-time compensation for all hours worked; d) the employee’s “regular rate” of pay (calculated by dividing the salary amount by the total weekly hours worked) must be at least the federal minimum wage; and e) for each hour worked in excess of 40 in a week, the employee must be paid an overtime premium of at least ½ the employee’s regular rate for that week.  This pay plan, commonly referred to as the “fluctuating work week” method (“FWW”), was long thought to be lawful in Pennsylvania.  However, in two federal court decisions issued in 2012 and 2014, FWW pay plans were found to violate the Pennsylvania Minimum Wage Act (“PMWA”).  Put another way, a pay practice that is permitted under federal FLSA regulations was found to violate Pennsylvania’s state law governing wages and overtime.

The earlier court decisions striking down FWW pay plans were both authored by federal judges who were interpreting state law.  Some employers have held out hope that the Supreme Court of Pennsylvania might disagree with their interpretation of the PMWA and resurrect FWW pay plans in Pennsylvania.  This issue has not yet reached Pennsylvania’s highest state court.  However, in Chevalier v. General Nutrition Centers, Inc. the Superior Court of Pennsylvania (an intermediate appellate court) considered the status of FWW plans under the PMWA.

In Chevalier, GNC’s store managers and assistant managers were treated as “salaried non-exempt” employees.  That is, they were paid a fixed salary regardless of how many hours they worked.  GNC also paid its managers an overtime premium consistent with the FWW method; i.e., a “regular rate” was calculated for each week (salary divided by total hours worked) and managers were paid ½ of the regular rate as a premium for each overtime hour worked.

Citing the prior federal court decisions referenced above, the plaintiffs argued that GNC’s FWW plan violated the PMWA.  From the plaintiff’s perspective, GNC was required to calculate each manager’s regular rate by dividing his or her weekly salary by 40 hours – and then pay 1 ½ times this rate for each hour worked in excess of 40.

Interestingly, the Superior Court did not side entirely with either party.  The Court found that GNC properly calculated each manager’s regular rate by dividing his or her weekly salary by the total number of hours worked by the manager in the week (and not by 40, as argued by the plaintiffs).  This holding results in a lower regular rate in weeks during which overtime is worked.

However, upon reviewing Section 231.43(b) of PMWA regulations, the Court agreed with the plaintiffs that overtime hours must be paid at a rate of 1 ½ times the regular rate for all hours worked in excess of 40 – or three times more than the ½ time premium that was being paid by GNC to its salaried non-exempt managers.  By way of example, if a non-exempt manager is paid a fixed salary of $1,000 each week, regardless of hours worked – then his or her “regular rate” is $20/hour in a week during which the manager works 50 hours.  Applying the Superior Court’s reasoning, this manager must then be paid $30/hour (1 ½ X $20) for each of the 10 overtime hours worked that week.

Notably, while the Chevalier case was pending, the Superior Court invited the Pennsylvania Department of Labor and Industry (“L&I”) to state its position as to whether the FWW method of calculating overtime pay is permitted under PMWA.  L&I declined to do so, explaining that, by taking a formal position on the issue, the Department would arguably be taking regulatory action without following the required regulatory review process.

In sum, the Chevalier decision makes it clear that employers may realize some wage savings by treating certain employees as “salaried non-exempt.”  However, the PMWA applies a stricter standard for calculating overtime pay than is permitted under FLSA regulations for FWW pay programs.   While Pennsylvania employers may calculate a salaried non-exempt employee’s “regular rate” in the same manner as they would under an FWW, the PMWA requires payment of 1 ½ times that rate for each overtime hour – and not merely payment of a ½ time premium.

Until the Supreme Court of Pennsylvania says otherwise (or the PMWA is amended), employers who employ salaried non-exempt employees in Pennsylvania should be careful to ensure that their overtime pay practices are consistent with the Chevalier decision.  If you have any questions regarding the Chevalier case or any other wage and hour compliance issue, please contact any member of our Labor and Employment Practice Group.

Every year, Pennsylvania’s appellate courts seem to issue a handful of decisions addressing the enforceability of non-compete agreements. However, there are relatively few court decisions addressing non-solicitation agreements. A non-solicitation agreement is the less restrictive cousin of the non-compete. Under a non-solicitation agreement, a former employee is permitted to work anywhere, including competitors of his or her former employer. A non-solicitation agreement merely prohibits a former employee from soliciting (or perhaps even contacting) the former employer’s customers, prospective customers and/or employees. In Metalico Pittsburgh, Inc. v. Newman, the Superior Court of Pennsylvania recently addressed some fundamental points regarding enforcement of these less restrictive agreements.

In Metalico, two executives of a scrap metal broker left their employer (“Metalico”) to join a competitor, Allegheny Raw Materials, Inc. (“ARM”). Upon joining Metalico, they had both signed employment agreements which included non-solicitation provisions that prevented them from soliciting any of Metalico’s suppliers for up to two years after their employment ended. Their employment agreements were each for three year terms and, once these terms expired, the agreements were not renewed. Both executives continued to work for Metalico for a period of time as “at will” employees; i.e. their salaries and bonuses were no longer contractually guaranteed.

After leaving Metalico, both executives began soliciting Metalico’s suppliers for their new employer. Metalico sued to enforce the non-solicitation provisions in the expired employment agreements. The trial court ruled for the executives and refused to enforce the non-solicitation restrictions, holding, once the employment agreements expired, they “were replaced with at-will relationships that did not include non-solicitation provisions.”

On appeal, the Superior Court of Pennsylvania reversed the trial court and enforced the non-solicitation restrictions. The Court began with the basic premise that both executives received adequate consideration for their non-solicitation covenant when they signed [their agreements] “as part of their initial employment relationship.” Citing several earlier decisions, the Court then observed that “it is possible for a non-solicitation covenant to survive the end of a term of an employment contract, when the employee stays on as an at-will employee” if the written agreement provides for this. Looking to the terms of each executive’s employment agreement, the Court then noted that the non-solicitation provision was clearly intended to be in effect during three relevant time periods: (a) during the three-year term of the employment agreement; (b) during any period of continued employment after the employment agreement expired; and (c) up to two years after the executives left Metalico’s employment.

Since the non-solicitation restrictions were supported by adequate consideration (i.e. initial employment) and were never mutually disavowed by the parties, the Superior Court held that the restrictions remained enforceable – notwithstanding the expiration of the agreements in which they appeared.

It is not uncommon for employees to continue working for a company after their written employment agreements expire. The Metalico case serves as a good lesson as to how to draft restrictive covenants that will survive the expiration of the agreement in which they appear. Another approach taken by many employers is to have employees sign two separate agreements – an employment agreement with a fixed term, and a separate restrictive covenant agreement that remains in effect for the duration of employment and for a fixed period afterward. Regardless of which approach is taken, the Metalico case demonstrates that careful drafting is the key to ensure enforceability.

As the cost of providing health coverage increased over the past fifteen years, many employers began to offer employees cash payments if they “opted out” of coverage.  Some expected that the Affordable Care Act (ACA) would put an end to opt-out incentive programs.  The ACA does not prohibit opt-out payments; however, the IRS recently issued proposed regulations that highlight how the ACA impacts these payments.  The IRS’s proposed regulations recognize two types of opt-out arrangements: a) unconditional opt-out payments; and b) eligible opt-out arrangements. 

Unconditional Opt-Outs.  An “unconditional” opt-out payment offered to an employee for having declined health coverage will be viewed by the IRS as increasing the employee’s required contribution for purposes of determining the affordability of the health plan to which the opt-out payment relates.  This is true regardless of whether the employee enrolls in the plan or elects to opt-out and takes the payment.  Put another way, the cost of coverage to employees for purposes of determining affordability under the ACA must include not only monthly employee contributions, but also the amount of any opt-out payment that is offered to them.  If an opt-out payment incentive increases the total employee cost of coverage above applicable affordability thresholds (9.66% for 2016), the employer may face a pay or play penalty.

Eligible Opt-Out Arrangements.  Employers may avoid the potential affordability problem outlined above by offering an “eligible opt-out arrangement.”  An eligible opt-out arrangement conditions the payment of the incentive on  the employee’s declining coverage and providing, at least annually, reasonable evidence that the employee and his or her “tax family” (those for whom the employee expects to claim a personal exemption) will have minimum essential coverage (other than individual market coverage) during the period covered by the opt-out arrangement.  If the opt-out payment covers a full plan year and the employee’s “tax family” includes a spouse and one child, payment must be conditioned upon reasonable evidence that all three individuals will have coverage for the full year.  Requiring such evidence allows employers to exclude opt-out incentives from the cost of coverage they offer for purposes of calculating affordability.

Effective Dates and Transition  Relief.  The IRS proposed regulations will apply for plan years beginning on or after January 1, 2017.  Although the regulations are in proposed form, employers and plan administrators may rely on them immediately.  Unconditional opt-out arrangements that were adopted before December 16, 2015 may be exempted from the affordability calculation if certain conditions are met.  Similarly, unconditional opt out arrangements that are included in a current collective bargaining agreement (CBA) are exempt from the affordability calculation until the later of (1) the start of the first full plan year after the CBA expires (excluding any CBA extensions on or after December 16, 2015), or (2) the start of the first plan year beginning on or after January 1, 2017.

What To Do Now?  Employers that wish to continue offering opt-out incentive payments may certainly do so under the proposed regulations.  However, it is now important that opt-out payments be structured as an “eligible opt-out arrangement” which clearly conditions payment on sufficient proof of other coverage (other than individual market coverage).  Employers should also be aware that opt-out payments could impact the calculation of non-exempt employee overtime earnings under the Fair Labor Standards Act (regardless of whether the employee opts out and receives payment), unless properly structured. 

In sum, opt-out incentive programs have survived the ACA.  However, employers must be careful in designing these programs or they may run afoul of affordability requirements.  If you have any questions regarding the IRS regulations or this article, please don’t hesitate to contact any member of our Labor & Employment Practice Group.

 

 

Have you by chance recently received an email from your company’s CEO requesting copies of employee W-2 forms?  If so, don’t respond without first verbally confirming that the request is legitimate.  Several of our clients in Pennsylvania have reported receiving such fraudulent emails.  These emails are part of a broad “spoof” scheme launched by computer fraudsters with the goal of gaining unauthorized access to individual tax records.  The emails are typically sent to HR professionals from a high-ranking company officer and “kindly request” a file containing employee W-2 forms.  The thieves then use the personal information on W-2 forms (i.e. names, addresses, social security numbers, and earnings information) to file false tax returns and commit other forms of identity theft.  This scam is not limited to central Pennsylvania.  On March 1, 2016, the IRS issued a notice alerting employers of the scheme.  The IRS notice contains additional information and can be viewed by clicking here.

If you suspect your company may have released W-2 forms or other personally identifiable information to unauthorized parties, be sure to promptly comply with federal and state laws governing data breach notifications.  Companies with employees in multiple states will need to comply with the varying requirements of each state.  If you have any questions regarding your obligations under data breach notification laws, please contact any member of the McNees Privacy & Data Security Group or the McNees Labor and Employment Practice Group.

Among the many requirements imposed by the Affordable Care Act, none are more controversial than the excise tax to be imposed on expensive health plans. This provision of the law, commonly known as the “Cadillac Tax,” would impose a 40% excise tax on group health plans to the extent their total annual premium costs exceed $10,200 for single coverage and $27,500 for family coverage (cost thresholds are indexed for inflation). In other words, a plan offering single coverage with a total annual premium of $11,200 (i.e. $1000 above the tax threshold) would owe an excise tax of $400 for each participant who elects that coverage option. The Cadillac Tax, originally scheduled to take effect in 2018, was expected to generate much of the funding necessary to finance the tax subsidies that are available to low-earning participants in the ACA health insurance exchanges. The Tax was also intended to motivate employers and carriers to find ways to reduce the cost of employee health coverage. However, carriers, employers, and unions alike have criticized the Cadillac Tax since the ACA was passed in 2010 – and that criticism intensified as the Tax’s 2018 effective date approached.

On December 18, 2015, President Obama approved a spending and tax package that includes a two-year delay of the Cadillac Tax effective date. The excise tax will now not take effect until 2020. The new law also makes the Cadillac Tax deductible for employers.

With a presidential election in 2016, the Cadillac Tax was sure to become a frequent speech topic for candidates pledging to “repeal or replace” the ACA. The two-year delay will likely reduce the degree to which candidates focus on the Cadillac Tax; however, the ACA is sure to draw attention from candidates in both parties. Interestingly, the new effective date also happens to fall in a presidential election year. Assuming the Cadillac Tax remains part of the ACA, it is possible that another delay may be proposed four years from now. In the meantime, it’s not entirely clear how the tax subsidies for participants in the ACA insurance exchange will be financed.