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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.

On June 6, 2018, Governor Wolf signed Executive Order 2018-18-03, which is designed to combat the gender pay gap in Pennsylvania. The Executive Order directs all state agencies under the governor’s jurisdiction to:

  • no longer inquire about a job applicant’s current compensation or compensation history at any stage during the hiring process;
  • base salaries on job responsibilities, position pay range, and the applicant’s knowledge, skills, competencies, experience, compensation requests, or other bona fide factor other than sex, except where compensation is based on:
      • a collective bargaining agreement;
      • a seniority system;
      • a system of merit pay increases;
      • a system which measures earnings by quantity or quality of production, sales goals, and incentives
  • clearly identify the appropriate pay range on job postings.

The Executive Order does expressly state that applicants are not prohibited from volunteering information about their current compensation level or salary history in negotiating a salary. However, no agency can request that an applicant disclose current salary or salary history information.

So why the need for the Executive Order? Some argue that by asking an applicant to reveal their current salary or salary history, employers are perpetuating pay inequality between men and women. The reasoning is that because women have been paid less than men historically, asking applicants their salary history and then basing salary determinations on prior pay information further continues the cycle of pay inequality.

While the Executive Order is only applicable to Commonwealth agencies under the Governor’s jurisdiction, it may signal a push to address the gender pay gap throughout Pennsylvania.

Please feel free to contact any member of the McNees Wallace & Nurick Labor and Employment Practice if you have any questions regarding this article.

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!

An ever-increasing number of employers are sponsoring wellness incentives as a means of encouraging employees to developing healthy habits. In turn, employers gain healthier, more productive work forces.  Wellness incentive programs aren’t without their risks, however.  In this podcast, Denise Elliott discusses whether employees are covered by workers’ compensation benefits for injuries sustained while participating in an employer-sponsored wellness program.

The federal Fair Labor Standards Act (FLSA) establishes requirements for minimum wages and overtime pay.  The FLSA’s requirements can be complex, and employers can face significant liability for unpaid wages and liquidated damages by failing to ensure compliance with its myriad requirements.

The FLSA contains a somewhat unique quirk regarding its statute of limitations.  The statute of limitations for FLSA violations is two years.  However, if the plaintiff(s) can show that the violation was willful, the statute of limitations is extended to three years.  In other words, employers who commit willful violations face a potential additional year of damages (if the unpaid wages date back at least three years before the filing of the lawsuit).

In an FLSA case filed against Lackawanna County, the Third Circuit recently clarified what constitutes a willful violation to trigger the third year of liability under the FLSA.  In Souryavong v. Lackawanna County , the County failed to aggregate the hours worked by part-time employees who worked multiple jobs for the County.  For overtime pay purposes, all hours worked by a non-exempt employee for an employer must be recorded and counted.  If the total hours worked in any workweek exceeds 40, the employee is entitled to overtime pay, regardless of whether the hours were worked in one or multiple positions for the same employer.

Thus, it was undisputed that the County violated the FLSA by failing to aggregate weekly the hours worked for these part-time employees.  It also was undisputed that the County was liable for unpaid overtime pay and liquidated damages dating back two years from the date the lawsuit was filed.  What was in dispute was whether the County’s violation was willful, which would trigger a third year of damages.

The plaintiffs claimed that the violation was willful and pointed to testimony by the County’s chief financial officer and HR director that the County had been generally aware of its FLSA obligations since 2007.  The plaintiffs also identified an e-mail from the HR director to two other County officials regarding “wage and hour issues.”

The Third Circuit rejected the plaintiff’s willfulness argument.  Specifically, the Third Circuit found that the evidence did not establish that the County was aware of the specific overtime pay issue (i.e., aggregating hours worked by part-time employees who worked multiple jobs for the County) before or at the time that the FLSA violations occurred.  General awareness of the FLSA’s existence and its general requirements is not enough to prove a willful (i.e., intentional) violation of one of its specific requirements.

There are two important takeaways from the Third Circuit’s Souryavong decision:

  • To prove a willful FLSA violation and get that third year of potential damages, employees will need to prove that the employer actually knew of the specific FLSA requirement at issue at the time of the violation and intentionally did not comply with it. General FLSA awareness is not sufficient to prove a willful violation of a specific requirements.
  • Employers should keep this decision in perspective and understand what it means and what it does not.  Even with the Third Circuit’s favorable decision, the County still was liable for two years of unpaid wages for multiple employees, an equal amount in liquidated damages, an additional $56,000 for the plaintiffs’ attorneys’ fees, and an additional undisclosed amount for its own attorneys’ fees.  FLSA violations present significant potential liability for employers, and it is in every employer’s interest to audit its pay practices and ensure compliance before a lawsuit is filed or a Department of Labor investigation begins.  While this decision confirms that it can be hard to establish a willful violation, employees need to prove only a violation of the FLSA (regardless of whether the violation was intentional) to get two years of damages plus their attorneys’ fees paid by the employer.

In a closely watched case for employers, the Third Circuit Court of Appeals, which has jurisdiction in Pennsylvania, New Jersey, Delaware and the U.S. Virgin Islands, recently held that retiree healthcare benefits provided in a collective bargaining agreement (“CBA”) may be subject to modification following the expiration of the CBA.

Grove v. Johnson Controls, Inc. was a class action suit brought on behalf of a group of retirees, who were all former bargaining unit members.  Generally, the retirees alleged that they were entitled to healthcare benefits “for life” pursuant to the terms of the CBAs in place at the time of retirement.  When the employer placed a cap of $50,000 on the amount of benefits to be paid to the retirees, they brought suit.  The retirees argued that their entitlement to healthcare benefits had vested, and that the employer’s decision to cap their benefits was a violation of the Labor Management Relations Act and/or the Employee Retirement Income Security Act.

The appellate court affirmed the lower court’s decision and rejected these arguments.  The court held that the employer was not required to provide retirees healthcare benefits for life, and instead was only required to provide those benefits for the duration of the relevant CBA.  Essentially the court held that when the CBA expired, so did the employer’s obligation to continue to provide retiree healthcare benefits.  In reaching its decision, the court applied ordinary principles of contract interpretation, and noted that those principles provide that all contractual obligations cease upon the expiration of the CBA.

The court’s holding does leave open the possibility that other retirees could establish a vested entitlement to lifetime retiree healthcare benefits if the CBA language supported such a right.

As noted, this is an important decision for employers.  Many employers face significant legacy costs related to retiree healthcare, pension benefits and other post-employment benefits.  In light of Grove, many employers may begin to evaluate their post-employment benefit obligations.  However, these employers must carefully evaluate any such contractual obligations, because as Grove makes clear, whether retiree healthcare benefits are vested for life will be determined on a case-by-case basis with reference to the specific CBA language.

The Secretary of Labor, John Acosta, announced recently that no further delays will apply to the Department of Labor’s new Fiduciary Rule on investment advice conflicts of interest and related prohibited transaction exemptions.  The effective date of the Rule is June 9, 2017, with an enforcement date of January 1, 2018.  The final Fiduciary Rule significantly expands the circumstances in which broker-dealers, investment advisers, insurance agents, plan consultants and other intermediaries are treated as fiduciaries to ERISA plans and individual retirement accounts (IRAs).  When treated as fiduciaries, these individuals are precluded from receiving compensation that varies with the investment choices made or from recommending proprietary investment products, absent an applicable exemption.

Generally, the Fiduciary Rule provides that individuals providing fiduciary investment advice may not receive payments that pose a conflict of interest, unless a prohibited transaction exemption (PTE) applies.  The Rule recognizes several new PTEs, including

1)  “Best Interest Contract Exemption” (BIC Exemption):  Under the BIC Exemption, an advisor and firm may receive commissions and revenue sharing so long as the adviser and firm enters into a contract with its clients that:

  • Commits the firm and adviser to providing advice in the client’s best interest.
  • Warrants that the firm has adopted policies and procedures designed to mitigate conflicts of interest.
  • Clearly and prominently discloses any conflicts of interest that may prevent the adviser from providing advice in the client’s best interests.

2)  Principal Transactions Exemption:  Under this new PTE, an adviser may recommend fixed income securities and sell them from the adviser’s own inventory as long as the adviser adheres to the exemption’s consumer-protection conditions ensuring adherence to fiduciary norms and basic standards of fair dealing.

Financial institutions are advised to adopt policies and procedures ensuring that advisers comply with the Rule’s impartial conduct standards. However, during the transition period (until January 1, 2018), there is no requirement to give investors any warranty of their adoption, and those standards will not necessarily be violated if certain conflicts of interest exist.  Sponsors of ERISA-governed plans, as plan fiduciaries, are advised to clearly identify circumstances where their plan’s record keepers and advisors are acting as fiduciaries, and which services or actions are permitted under the rule’s carve-outs.

Finally, while we recommend complying with the Fiduciary Rule as soon as possible following the June 9th effective date, we note that there exists some uncertainty with the Fiduciary Rule as the DOL (i) continues to evaluate public comments, and (ii) under direction of the Trump Administration, is charged with reexamining the Fiduciary Rule to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice.

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Back in 2015, Pittsburgh enacted a paid sick leave ordinance, following a trend among cities throughout the country. Pittsburgh’s paid sick leave ordinance required employers with fifteen employees or more to provide up to forty hours of paid sick leave per calendar year. Employers with less than fifteen employees were not spared. The ordinance required that those employers provide up to twenty-four hours per calendar year. The impact: 50,000 workers would receive paid sick leave.

But, what authority did Pittsburgh have to impose such a requirement?

The Pennsylvania Restaurant and Lodging Association, among others, challenged whether Pittsburgh actually had authority to enact the ordinance. Initially, the trial court found that the Steel City had no such authority. Pittsburgh appealed, arguing that because it had adopted a Home Rule Charter, it had authority to exercise broad powers and authority.

A few weeks ago, the Commonwealth Court of Pennsylvania issued its opinion, agreeing with the trial court that Pittsburgh indeed lacked the necessary authority. The court found that the Home Rule Charter Law has an exception with respect to the regulation of businesses. The exception specifically provides that “a municipality which adopts a home rule charter shall not determine duties, responsibilities or requirements placed upon businesses, occupations and employers . . . except as expressly provided by [separate] statutes . . . .” Although Pittsburgh attempted to point to various statutes which it felt provided it with the needed authority, the court was not convinced. Struck down by the court, it was – and remains – the worst of times for Pittsburgh’s paid sick leave ordinance.

But, what about Philadelphia? It is a home rule charter municipality. It has a paid sick leave ordinance. Does the Commonwealth Court’s opinion effectively render its ordinance invalid, too? Nope. Philadelphia’s authority is derived from a different law, which applies only to cities of the first class (oh, and Philly is the only First Class City in Pennsylvania under the law). It includes no such limitation on the regulation of businesses. Yet, while Philadelphia’s statute may be unaffected by the court’s opinion, it may not be best of times for Philadelphia’s ordinance either. The Pennsylvania State Legislature is making efforts to affect Philadelphia and all municipalities. Senator John Eichelberger’s Senate Bill 128 would ban municipalities from passing sick leave and other leave requirements that are stronger than those required by federal and state governments. The bill was voted out of committee and is set for consideration by the Senate.

So, for our blog subscribers with businesses only in the city limits of Pittsburgh, there is no requirement that you establish a paid sick leave program for your employees. However, Philadelphia’s paid sick leave ordinance remains alive and well, and you must abide by its requirements. While some do not expect the General Assembly to move this bill through both chambers before the end of the current session, we will track the bill’s progress and update this blog should it be considered and voted on by the Senate. So, stay tuned for future posts on legislation effecting Philadelphia’s and all municipalities’ authority to impose paid sick leave requirements.

On November 18, 2016, the IRS recently announced limited relief for employer reporting on Forms 1094 and 1095 for the 2016 tax year. The relief extends the deadline for furnishing statements to individuals, but does not extend the deadline for filings with the IRS. The IRS also provided penalty relief for some filers. The relief set forth in Notice 2016-70 provides:

  • Statements to Individuals Extended. The deadline for furnishing Forms 1095-B and 1095-C to individuals is extended by 30 days, from January 31 to March 2, 2017. No further extension may be obtained by application to the IRS.
  • No Extension for Returns Filed With IRS. The Notice does not extend the due date for filing Forms 1094-B and 1094-C (and related Forms 1095) with the IRS. Accordingly the deadline remains February 28, 2017 for paper filings, and March 31, 2017 for electronic filings. However, filers may obtain an automatic 30-day extension by filing Form 8809 on or before the regular due date.
  • Good Faith Penalty Relief. The IRS will again provide penalty relief for entities that can show they have made good faith efforts at compliance. No penalties will be imposed on entities that report incorrect or incomplete information—either on statements furnished to individuals or returns filed with the IRS—if they can show they made good faith efforts to comply with the reporting requirements. Penalty relief is not available to entities that fail to furnish statements or file returns, miss an applicable deadline, or are otherwise not making good faith efforts to comply.

While the Notice indicates that the IRS does not anticipate providing similar relief for the 2017 tax year, much will depend on changes to the Affordable Care Act under the Trump administration.

Now that we have all had some time to absorb the national election results, many are wondering how the Affordable Care Act will change during a Trump presidency.  While there is a great deal of uncertainty surrounding the future of the ACA, our recommendation to those currently covered by the Act is to continue to comply until any changes have been finalized.

Many believe that an immediate and complete repeal of the ACA is unlikely because the Republicans lack a congressional super-majority (e.g., control of the House of Representatives and a filibuster-proof Senate) and without a comprehensive alternative approach in place, 20 million Americans could lose health coverage in the event of a complete repeal.

Even though an immediate and complete repeal is unlikely, we do expect that there will be changes to specific sections of the Act through the budget reconciliation process, which reaches only the revenue components of the Act or by regulatory action, which modifies the official interpretation of certain aspects of the law.  Any modification or repeal of portions of the Act will require congressional action, which will not be filibuster-proof because the Republican-controlled Senate falls short of the 60 votes required to prevent filibuster.  On the other hand, changes brought by regulatory action would not involve Congress, but would require issuance of new regulations by the newly appointed Secretary of Health and Human Services.

While we can easily predict those sections of the Act that are likely to be targeted under the new administration (e.g., individual mandate, Cadillac tax, employer mandate, employer reporting), such changes are unlikely to be immediate.  However, as this election has shown us, anything is possible.  Nonetheless, we recommend that our clients stay the course with respect to ACA compliance and continue preparing for 2017 as though the Act will remain through the end of 2017.  We will continue to monitor developments in Washington in order to keep our clients up-to-date on changes to the Act and its regulations.