IRS GIVES SOME CLUES AS TO EMPLOYER PENALTIES
On August 12, 2011, the Internal Revenue Service issued proposed regulations implementing health insurance premium tax credits. Additionally, the proposed regulations provide guidance regarding the affordability of employer-sponsored coverage. The preamble to the proposed regulations gives some clues as to future guidance relating to the mandate that employers offer affordable coverage or pay penalties. The penalties will be effective in 2014.
Under health care reform, even if an employer offers coverage to all full-time employees, penalties will still be assessed if any full-time employee with a household income below 400% of the federal poverty level elects to obtain coverage through an exchange, if the employer-sponsored plan coverage is unaffordable. Under the terms of the statute, employer group health plan coverage is considered unaffordable if it requires an employee premium contribution that exceeds 9.5% of the employee’s household income or provides coverage where the group health plan’s share of the total cost of benefits is less than 60 percent. The penalty in this situation would be $3,000 per year for each full-time employee, but not more than the penalty that would have applied if the employer had not provided any group health plan coverage. The penalty for employers with more than 50 employees that fail to offer coverage is $2,000 per employee, except the penalty does not apply to the first 30 employees.
The proposed regulations clarify that an employee who has the opportunity to enroll in minimum essential coverage through an affordable employer-sponsored group health plan that meets the minimum value requirements for coverage will not be eligible for the premium tax credit, regardless of whether the individual actually enrolls in such employer-sponsored group health coverage. An employee is only considered eligible for minimum essential coverage under COBRA if he or she actually enrolls in COBRA coverage. The proposed regulations also provide that employer-sponsored coverage will be treated as affordable if an individual actually enrolls in such coverage, even if the coverage does not meet affordability and minimum value requirements.
Employer-sponsored group health plans will be evaluated as to affordability at the time an employee enrolls and a plan that is determined to be unaffordable is treated as unaffordable for the whole plan year, even if the employee’s income changes. The preamble to the proposed regulations says that future guidance will probably provide that employers will not be subject to a penalty if the employer in fact provides affordable coverage but, based on an estimate of household income, the exchange determined that the employer’s group health plan coverage was unaffordable.
Although the statute says the availability of the credit is based on household income, under an anticipated safe harbor, an employer will be permitted to assume that an employee’s household income is the same as the employee’s W-2 wages from the employer.
The preamble also says that future guidance relating to the individual mandate requirement will clarify that a self-insured employer group health plan can be considered minimum essential coverage. The statute currently defines minimum essential coverage to include an employer-sponsored plan only if it is a government plan or an insured plan (including a grandfathered plan offered in the group market).
VAGUE NEW TEXAS PRIVACY LAW GOES INTO EFFECT
A broad privacy law with many uncertain aspects has now gone into effect in Texas. The law imposes substantial new requirements on any entity that handles health information. The way the law is written, it is extra territorial in nature and purports to apply to every part of an entity doing business in Texas.
Under this new Texas law, the definition of a covered entity is broader than under HIPAA. The Texas definition includes any person who assembles, collects, analyzes, uses, evaluates, stores, transmits or comes into possession of protected health information. Protected health information is also defined more broadly than under HIPAA and includes any information that reflects that an individual received health care. An employer’s return-to-work efforts are not subject to HIPAA, but now they will be subject to the Texas privacy law, if the employer does business in Texas.
The new law also requires that all new employees must receive HIPAA training within 60 days of the date of hire and that all employees must be re-trained on HIPAA every two years. The way the law is written, the training requirement applies to all employees, not just those who handle protected health information.
The combination of the law’s extraterritoriality, the broad definitions of covered entity and protected health information and the training requirement, will have a significant impact on many employers. For example, if an employer with 20,000 employees has one employee in Texas and has one employee who handles health information in conjunction with return-to-work activities, all 20,000 employees will need to receive HIPAA training.
It is not even necessary that a company have any employees in Texas to be subject to the law. For example, an insurance agency in California that is also licensed in Texas, must follow the law (assuming the law’s extraterritorial aspects are upheld in court–but who wants to be the test case?)
The law calls for the state Attorney General to adopt a standard authorization form. No deadline is set for the Attorney General to do so.
The penalty is $5,000 for each negligent violation, $25,000 for each intentional violation and $250,000 for each violation for financial gain. If certain criteria are met, penalties can be capped at $250,000 per year. One of the possible ways to fall under the $250,000 maximum is if, at the time of the disclosure, the covered entity had developed, implemented and maintained security procedures, including the education and training of employees responsible for the security of protected health information. The law also says that in determining the amount of a penalty, a court shall consider a number of factors, including the covered entity’s compliance history, the covered entity’s efforts to correct the violation and whether the covered entity was certified at the time of the violation, under a certification process that is yet to be established.
Employers with any activity in Texas now have an extra incentive to develop and maintain compliant policies and procedures and conduct training.
SEATTLE REQUIRES PAID SICK LEAVE
The Seattle City Council has approved Council Bill 117216, requiring businesses in Seattle to provide paid leave to employees when they or their family members fall ill or victim to domestic violence.
The new legislation establishes minimum standards for paid sick and safe time based on company size. Workers in companies with 5 to 249 employees must accrue a minimum of one hour of paid sick and safe time for every 40 hours worked. Workers in companies with 250 or more employees must accrue a minimum of one hour for every 30 hours worked.
Employers may satisfy the requirements of the ordinance with a combined leave program that pools vacation and sick leave together. The new requirement will take effect on September 1, 2012.
The legislation exempts companies in their first two years of operation and companies with four or fewer employees.
The bill also requires an independent and objective analysis of the impacts of the policy to be presented to the Council eighteen months after the ordinance takes effect.
SOME GUIDANCE ON INCENTIVES FOR WORKPLACE WELLNESS PROGRAMS
Recently the Equal Employment Opportunity Commission (EEOC) published an informal letter in which it discussed incentives for workplace wellness programs under the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA). Unfortunately, the EEOC has not taken a position on whether the ADA permits an employer to offer financial incentives for employees to participate in wellness programs that include disability-related inquires (such as questions about current health status) or medical examinations (such as screenings).
GINA prohibits employers from requesting, requiring or purchasing genetic information, with certain exceptions. One exception allows an employer to acquire genetic information about an employee or his or her family members when it offers health or genetic services, including a wellness program, on a voluntary basis. The individual receiving the services must give prior, voluntary, knowing, written authorization. While individualized genetic information may be provided to the individual receiving the services and to his or her health care providers, genetic information may only be provided to the employer in aggregate form. Employers may not offer financial inducements for individuals to provide genetic information as part of a wellness program.
Employers may use the genetic information voluntarily provided by an individual to guide that individual into an appropriate disease management program; however, if that program offers financial incentives for participation and/or for achieving certain health outcomes, the program must also be open to other employees with current health conditions and/or to individuals whose lifestyle choices put them at risk of developing a condition.
NLRB REQUIRES POSTING OF NOTICE
The National Labor Relations Board (NLRB) has issued a Final Rule that will require employers to notify employees of their rights under the National Labor Relations Act as of November 14, 2011.
The posting requirement applies to all private-sector employers (including labor unions) subject to the National Labor Relations Act (NLRA), which excludes agricultural, railroad and airline employers. The requirement applies to both unionized and nonunionized employers. Federal contractors are already subject to a similar requirement and will be deemed to comply if they comply with the Department of Labor’s requirements for federal contractors. Small employers not engaged in interstate commerce are not subject to the NLRA. Employers will be required to post the employee rights notice where other workplace notices are typically posted. Also, employers who customarily post notices to employees regarding personnel rules or policies on an internet or intranet site will be required to post the Board’s notice on those sites. Copies of the notice will be available from the Agency’s regional offices, and it may also be downloaded from the NLRB website. The notice must be posted in English and in another language if at least 20% of employees are not proficient in English and speak the other language. The Board will provide translations of the notice, and of the required link to the Board’s website, in the appropriate languages.
The notice states that employees have the right to act together to improve wages and working conditions, to form, join and assist a union, to bargain collectively with their employer, and to refrain from any of these activities. It provides examples of unlawful employer and union conduct and instructs employees how to contact the NLRB with questions or complaints.
If an employer knowingly and willfully fails to post the notice, the failure may be considered evidence of unlawful motive in an unfair labor practice case involving other alleged violations of the NLRA.
A number of organizations have filed suits challenging the Board’s authority to require notices.
The rule was published in the Federal Register on August 30, and will take effect on November 14. A fact sheet with further information about the rule is available here.
UNREASONABLE DELAY MAY BE FAILURE TO REASONABLY ACCOMMODATE
The United States Court of Appeals, First Circuit overturned a Puerto Rico case involving the Americans with Disabilities Act (ADA), ordering a new jury trial. Some of the First Circuit’s findings are instructive, specifically that “attendance is an essential function of any job”, “requesting an accommodation is protected conduct for purposes of the ADA’s retaliation provision” and “unreasonable delay may amount to a failure to provide reasonable accommodations”.
The case is Maritza Valle Arce v. Puerto Rico Ports Authority.
Plaintiff Maritza Valle-Arce claimed that her employer, the Puerto Rico Ports Authority, violated the ADA, when it failed to provide her with reasonable accommodations for her disabilities and retaliated against her, including by terminating her employment, for engaging in protected activities. A jury spent seven days hearing the plaintiff’s evidence, including hearing testimony from the plaintiff, a co-worker, and an expert witness, a psychiatrist. But the jury never had the opportunity to decide Valle’s claims. In a short oral ruling, based on an oral motion, the district court granted the Ports Authority’s motion for judgment as a matter of law at the close of Valle’s case. Valle appealed. The First Circuit vacated the judgment of the district court and remanded the case for a new trial.
Valle worked at the Puerto Rico Ports Authority from June 1990 until her termination on July 24, 2007. Valle was first diagnosed with Chronic Fatigue Syndrome (CFS) in 2000, and first requested workplace accommodations that year. She submitted a report from her physician that described her symptoms as typical of CFS, including insomnia that usually kept her from sleeping more than four hours a night, joint and muscle pain and weakness, and headaches, varying in severity over time. Valle’s supervisors accommodated her request for a flexible schedule, but a new supervisor (Sara Gregory) did not do so. Ultimately, Valle was granted a flexible schedule, shortly before being terminated.
At the close of Valle’s case at trial, the district court granted the Ports Authority’s motion for judgment on all of Valle’s claims. The court held that Valle was not a “qualified individual” under the ADA, because work attendance is an “essential function” of any job, and so Valle’s extensive absences from work prevented her from fulfilling the essential functions of her job. The court also held that since the accommodation Valle requested was eventually granted, and “[t]here’s nothing in the statute that says the accommodation has to be granted within a particular time period,” there was no violation of the ADA’s reasonable accommodation requirement. Finally, the court also held that Gregory’s questioning of Valle’s time cards and memoranda to Valle stating agency policy did not constitute “harassment.”
On appeal, Valle argued that the district court erred in holding as a matter of law that she had not met her burden of proving that she was qualified to perform her essential job functions with or without reasonable accommodation. Valle also argued that the district court erred in concluding that (1) the agency had granted her reasonable accommodations, (2) Gregory’s treatment of Valle did not constitute “harassment,” in the district court’s usage, and (3) there was no retaliation.
The First Circuit agreed with Valle that the district court erred in granting judgment as a matter of law to the Ports Authority at the close of Valle’s case. Valle presented evidence that would allow a reasonable jury to find each element of her claims in her favor, and so she was entitled to submit her case to the jury.
The district court held that Valle “is not a qualified individual” under the ADA because she “was absent six months in a 16–month period” and “[a]n employee who does not come to work cannot perform any function[,] not just the essential functions of her job.” The First Circuit said this is a true statement of law, but also said it is not dispositive here, where the district court failed to consider the evidence Valle had presented that the flexible work schedule she had requested as an accommodation would have enabled her to fulfill this essential function of attendance.
Valle testified that she had never been reprimanded in relation to her attendance during the period from 2003-2005 in which her supervisors had informally granted her a flexible schedule. She also testified that the stress of Gregory’s repeated haranguing about Valle’s attendance contributed to Valle’s acute need to take extended medical leave, which in turn resulted in the long absences on which the district court based its ruling. There was expert testimony to support this contention. Valle’s expert witness, a psychiatrist, testified that it caused Valle a great deal of stress to go to work realizing that she was going to be late, which led to many of her absences. The First Circuit concluded that a reasonable jury crediting this testimony could conclude that Valle had produced sufficient evidence that she was able to attend work regularly when granted the reasonable accommodation of a flexible schedule.
The Ports Authority claimed that Gregory informally allowed Valle to enter work as late as 8:30 a.m., and that this accommodation continued until Valle’s request was formally granted in March 2007, in the form of a 9:00 a.m. start time. This, the Ports Authority argued, means that there was never a time during which Valle was not accommodated, rendering her reasonable accommodations claim moot. However, whether there was any such informal arrangement between Gregory and Valle is a disputed question of fact for the jury, as Valle denied any such informal arrangement on cross-examination. Further, the letter from Gregory to Valle memorializing the purported arrangement was dated April 5, 2007, after the agency had begun efforts to terminate Valle, after Valle filed an administrative complaint against the agency, and seventeen months after Valle’s first formal accommodations request.
The district court also concluded that Valle had failed to prove that the Ports Authority knew of her disability and did not reasonably accommodate it. The district court reasoned that because the Ports Authority eventually granted Valle a flexible schedule, the Ports Authority had not denied Valle reasonable accommodations.
Valle argued unreasonable delay may amount to a failure to provide reasonable accommodations. Valle testified to ways in which the Ports Authority did not follow its normal reasonable accommodations procedure in her case, where the agency delayed months after even the 2006 request, and where the rigid 9:00 a.m. to 5:00 p.m. schedule eventually granted was not what she sought and arguably did not reasonably accommodate Valle’s condition. The First Circuit concluded that Valle was entitled to present to a jury the question of whether the agency failed to grant her a reasonable accommodation.
The district court entered judgment dismissing Valle’s retaliation claim as well. The First Circuit said the events of harassment to which Valle testified could be considered by a reasonable jury to be either discrimination on the basis of Valle’s disability or retaliation for her reasonable accommodations requests. A jury could at least, on the record so far, conclude that the termination of Valle’s employment was an act of retaliation. A jury crediting Valle’s evidence that she was singled out for punishment despite other employees’ use of agency resources for personal matters, and her evidence that she did not violate any agency policy, could reasonably find that the reasons the Ports Authority gave for firing Valle were retaliation against Valle for pursuing her reasonable accommodations requests. The timing of the events also supports such an inference. The First Circuit concluded the district court erred in granting judgment as a matter of law on the retaliation claim.
The ADA Amendments Act of 2008, which broadened the scope and protections of the ADA, did not apply to this case. That act does not apply retroactively to conduct that occurred before its effective date of January 1, 2009, and all of the conduct at issue in this case occurred in 2007 or earlier.
Please contact Garner Consulting for assistance with any of these issues.
Garner Consulting does not practice law. Please seek qualified counsel if you need legal advice. For employee benefits consulting, please call John Garner, Gerti Reagan Garner or Zaven Kazazian at (626) 351-2300. Please visit our web site at www.garnerconsulting.com, where you can find back issues of our Bulletins.