Two events in the past week should remind New York employers of their legal obligation under section 11(c) of the Occupational Safety and Health Act not to discipline or terminate employees for reporting a safety hazard, or for filing a complaint with OSHA. On October 14, OSHA announced that it had obtained a consent judgment in a case brought against the John Galt Corporation and two managers, which orders them to pay a terminated employee $55,000 in back wages and to expunge all disciplinary records from the employee's personnel file related to his reporting of health and safety issues at the former Deutsche Bank Building in New York City. Earlier this week, OSHA filed suit against Promesa Systems Inc., a New York City nonprofit organization providing care to individuals with developmental disabilities, for allegedly firing an employee for voicing workplace safety and health concerns and for filing a complaint with OSHA. (The suit also names the organization's wholly owned subsidiary, East Harlem Council for Community Improvement Inc., as well as three managers.) The complaint alleges that a few days after the employee advised the defendants that she would consult OSHA regarding a work assignment, the defendants suspended her, and ultimately fired her under the pretext of poor performance. OSHA is seeking reinstatement, backpay with interest, and compensatory damages.

The Internal Revenue Service ("IRS") recently issued guidance on the new requirements for over-the-counter medicines and drugs ("OTC Drugs") that will apply generally to employer-provided health plans and certain health accounts on January 1, 2011. Those requirements are summarized below.

• To comply with the new requirements on OTC Drugs, employers should:make sure that any employee who administers the applicable health plan or account is familiar with the new requirements;
• inform participants in the applicable health plans and accounts in 2010 about the new requirements, so they can (1) consider the new requirements for OTC Drugs when making health coverage elections for 2011, and (2) properly administer any tax-favored health accounts they have in 2010 with respect to expenditures for OTC Drugs;
• review whether any amendments are needed to their health plan(s), health accounts, and cafeteria plan(s) to comply with the new requirements; and
• make any necessary changes to applicable summary plan descriptions, web pages, and other materials regarding the new requirements.
   

What Restriction is Imposed on the Coverage of OTC Drugs?

The Patient Protection and Affordable Care Act that was enacted on March 23, 2010 provides that a medicine or drug expense may only be paid or reimbursed by an employer-provided health plan, including a health flexible spending arrangement ("Health FSA") and a health reimbursement arrangement ("HRA"), if it is: for a medicine or drug that requires a prescription; for an OTC Drug, and the covered individual has obtained a prescription for that OTC Drug; or for insulin.

This restriction on the coverage of an OTC Drug without a prescription ("OTC Drug Restriction") also applies in the same general manner to a distribution from a health savings account ("HSA") or an Archer Medical Savings Account ("Archer MSA") for an OTC Drug.

For purposes of the OTC Drug Restriction, the new IRS guidance defines a prescription as "a written or electronic order for a medicine or drug that meets the legal requirements of a prescription in the state in which the medical expense is incurred and that is issued by an individual who is legally authorized to issue a prescription in that state."

Does the OTC Drug Restriction Apply to Over-the-Counter Medical Equipment, Supplies, and Diagnostic Devices?

The new IRS guidance provides that the OTC Drug Restriction does not apply to medical care items that are not medicines or drugs, and therefore does not cover (among other things): equipment, such as crutches; supplies, such as bandages; and diagnostic devices, such as blood sugar test kits.

If each piece of equipment, supply or diagnostic device satisfies the general tax requirements for medical care expenses (i.e., it generally must be an expense for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body), it is still eligible for payment or reimbursement on a tax-favored basis as long as the terms of the applicable health plan or account permit such payment or reimbursement.

What is the Effective Date of the OTC Drug Restriction?

The OTC Drug Restriction generally applies to OTC Drug expenses incurred after December 31, 2010. The December 31, 2010 effective date applies even if an employer's cafeteria plan provides for reimbursement of qualifying expenses incurred in a 2½ month grace period after the end of a calendar year.

If an expense for an OTC Drug without a prescription is incurred in 2010, but is paid or reimbursed in 2011 in accordance with the terms of the applicable plan or account and pursuant to the applicable tax requirements, such payment or reimbursement will still be allowed. However, if an expense for an OTC Drug without a prescription is incurred after December 31, 2010, it generally may no longer be paid or reimbursed on a tax-favored basis. However, the new guidance states that the IRS will not challenge the use of Health FSA or HRA debit cards for OTC Drug expenses incurred through January 15, 2011, if the use of the debit cards otherwise satisfies the applicable tax requirements.

What is the Amendment Deadline for a Cafeteria Plan?

The new IRS guidance has a special transition rule for any necessary amendment to a cafeteria plan. Although cafeteria plan amendments generally must be effective only prospectively, the new IRS guidance allows a cafeteria plan to be amended for the OTC Drug Restriction by June 30, 2011, as long as that amendment is made effective retroactively for expenses incurred after December 31, 2010 (or January 15, 2011, for qualifying Health FSA and HRA debit card purchases).

May Health FSA and HRA Debit Cards be Used for OTC Drug Purchases Made After January 15, 2011?

The new IRS guidance generally provides that Health FSAs and HRA debit cards may not be used for OTC Drug purchases made after January 15, 2011, with a limited exception for "90 percent pharmacies" (a pharmacy will be a "90 percent pharmacy" if at least 90 percent of its gross receipts during the prior taxable year consists of items which qualify as expenses for medical care under the applicable tax requirements or as expenses for OTC Drugs) and where certain substantiation requirements are satisfied.

What Substantiation Requirements Will Apply?

Before a prescribed OTC Drug purchased after the applicable effective date may be paid or reimbursed, it must be properly substantiated. Such substantiation includes submission of a copy of a prescription (or other appropriate documentation evidencing the prescription), and information from an independent third party that satisfies the applicable tax requirements (e.g., a customer receipt issued by a pharmacy that identifies the buyer, the date, the amount of the purchase, and the applicable Rx number).

 

Earlier this year, Governor David Paterson signed into law Chapter 103 of the Laws of 2010 which, among other things, drastically alters the way classroom teachers and building principals are evaluated and the procedures for disciplining tenured teachers. These changes will take effect over the course of the next several years. Many key provisions were effective on July 1, 2010. The changes have significant implications for collective bargaining between school districts and the unions representing teachers and principals.

The impetus for these far reaching changes was New York State’s application for Phase II of the Federal Government’s Race to the Top Program (“RTT”). RTT was created as part of the American Recovery and Reinvestment Act of 2009 (“ARRA”), and authorizes the United States Department of Education to award up to $4.3 billion in grant money to encourage and reward States that create conditions for education innovation and reform. New York was one of several states to win Phase II of RTT. As a result, New York will receive approximately $700 million to help implement changes RTT was designed to foster, including how the performance of teachers and principals is measured.
 

The most widely publicized aspect of the new legislation is Section 3012 c of the Education Law (“3012-c”), which contains the new comprehensive Annual Professional Performance Review (“APPR”) system for teachers and principals. For the 2011-2012 school year, the new APPR system applies only to evaluations of teachers in the common branch subjects or English Language Arts, and Math in grades four through eight, as well as building principals. The new APPR system will apply to all teachers and principals effective in the 2012-2013 school year. The APPR system requires teacher and principal evaluations to result in a single composite score made up of the following components.

• Forty percent of the composite score must be based on student achievement measures; with 20 percent based on student improvement on state exams (or other comparable local exams), and the other 20 percent based on local measures of student achievement which must be established through the collective bargaining process.
• The remaining 60 percent of the APPR score must be based on evidence of overall teacher effectiveness, as determined through locally developed measures (established through the collective bargaining process), and in accordance with standards determined by the Commissioner of Education. As of the date of this post, those standards have not been promulgated.

The composite score must be a significant factor in employment decisions, including, but not limited to, promotion, retention, tenure, termination, and supplemental compensation. The APPR composite score will result in teachers and principals receiving a rating of either: (1) Highly Effective; (2) Effective; (3) Developing; or (4) Ineffective. In connection with this rating system, Districts are required to create Teacher Improvement Plans (“TIP”) and Principal Improvement Plans (“PIP”) for those teachers and principals who receive ratings of either Developing or Ineffective. Two consecutive annual ratings of “Ineffective,” will be deemed to establish a “pattern of ineffective teaching or performance” which may be a basis for just cause removal of a teacher or principal.

From a labor relations perspective, one of the more controversial aspects of 3012-c is the requirement of a locally developed (negotiated) appeals process under which the teacher or principal has the right to challenge the substance of the evaluation, adherence to standards and procedures for reviews, and implementation of a TIP/PIP. In fact, evaluations conducted pursuant to 3012-c cannot even be introduced during a disciplinary proceeding under Section 3020-a of the Education Law prior the expiration of the appeals process.

The legislation also establishes an expedited Section 3020-a disciplinary process for teachers and principals charged with demonstrating a “pattern of ineffective teaching or performance.” The expedited process requires completion of the hearing before a single hearing officer within sixty (60) days of the pre-hearing conference. When a tenured teacher is charged with a “pattern of ineffective teaching or performance” the District must establish that it has negotiated and agreed to a TIP/PIP applicable to that individual.

All collective bargaining agreements covering teachers and building principals entered into after July 1, 2010 must be consistent with 3012-c. Those provisions of collective bargaining agreements that were entered into prior to July 1, 2010 and conflict with 3012-c remain in effect until a successor agreement is entered into, at which time the parties must negotiate over the issues implicated by 3012-c.
 

The United States Court of Appeals for the Seventh Circuit’s recent decision in United States v. Szymuszkiewicz is yet another reminder that the law governing monitoring of electronic communications in the workplace is a rapidly evolving, and requires employers to regularly revisit their technology use policies. Szymuszkiewicz was an IRS agent in Wisconsin who was convicted under the federal Wiretap Act for intentionally intercepting an electronic communication. A jury found that he secretly activated the auto-forward “rule” on his supervisor’s Microsoft Outlook e-mail account. As a result, a copy of every e-mail the supervisor received was also sent to the agent. The Wiretap Act makes it unlawful for any person to intercept an oral, wire or electronic communication without authority or the consent of at least one party to the communication.

In challenging the conviction, the agent argued that a communication is only “intercepted” under the Act if it is caught “in flight” (before it reaches its destination). Because he merely forwarded e-mails that had already arrived at his supervisor’s computer, he argued, no “interception” occurred. The only crime he could have been charged with, he contended, was a violation of the Stored Communications Act. Noting the risk in “defend[ing] against one crime by admitting another,” the Seventh Circuit rejected the agent’s argument.

First, the Court found that the Wiretap Act does not require contemporaneous or “in flight” interception at all. Any acquisition of information using a device, including conduct which would violate the Stored Communications Act, can violate the Wiretap Act. The Court noted that the “in flight” analogy really does not work for e-mail messages, which are broken up into packets (segments of message) when sent, transmitted over different routes, at different times, and reassembled at the server. So there is no way to intercept the entire message “in flight.” In rejecting the requirement of contemporaneous interception, the Court declined to follow several other Circuit Courts which have held that the interception had to be “contemporaneous” with the communication.

Finally, the Court concluded that even if the statute imposed a contemporaneous interception requirement, it was met in the case before it because Microsoft Outlook’s default provides for automatic forwarding to occur at the server, not at the recipient’s computer. Because each e-mail to the supervisor was received in packets at, reassembled and sent from the IRS’s regional server in Kansas City almost simultaneously to both the supervisor and agent, the agent’s ‘copying at the server was the unlawful interception, catching the message “in flight”… .

Although Szymuszkiewicz involved the clandestine actions of an employee, its holding has applicability to employer monitoring of employee e-mails. Employers that routinely make copies of employee e-mails as part of their regular business activities (for example, by copying e-mails for archival purposes or auto-forwarding the e-mails of a departed employee so others may respond) can no longer assume that because they are acting on an already-received message they are not “intercepting” it. As noted above, as long as one party to the communication consents to the “interception,” the statute is not violated. For that reason, potential violations of the Wiretap Act can most easily be avoided by taking steps to obtain implied or actual consent. Technology use policies should, at a minimum, put employees on explicit notice that electronic communications created, sent or received using company equipment or via its network are company property and subject to monitoring, access, duplication, review and disclosure by the employer at any time. Employers should also obtain implied consent from employees to take such actions through a statement in the policy and/or log in screen that use of the technology constitutes consent to monitor. A signed acknowledgment from the employee is even better.
 

Over the past two years, the Occupational Safety and Health Administration (“OSHA”) has sought to expand significantly the reach of the General Duty Clause by issuing citations to employers for workplace violence and ergonomics issues. This expansion will soon reach another area: distracted driving. The agency plans to issue General Duty Clause citations to companies whose employees text while driving. This promise comes directly from the Assistant Secretary of Labor for OSHA David Michaels: "When OSHA receives a credible complaint that an employer requires texting while driving or who organizes work so that texting is a practical necessity, we will investigate and where necessary issue citations and penalties to end this practice." If you have employees who respond to hundreds of e-mails a day, with rapid response times required, and who frequently or occasionally travel during work time as part of their duties, you may receive a visit or an inquiry from OSHA. The impact on employers could be significant. According to a recent Pew Research Poll, 27% percent of all adults admit to texting while driving. Most troubling is the assertion that the agency will cite employers that "create incentives that encourage or condone" texting while driving. Employers that do not "condone" the practice may still receive citations if the agency concludes that an employer that expects fast responses to calls or e-mails thereby "encourages" employees who are driving to respond to texts or e-mails, instead of using a hands-free device or pulling off the road.

Employers can most effectively protect themselves from this enforcement effort by implementing and enforcing strong policies against the practice of texting while driving. Employees should be required to sign a policy explicitly stating they agree not to text while driving during work time, either as part of an employee handbook or when they receive any company-issued cell phone or texting device. Further, any employees found to be texting while driving during work time should be disciplined, up to and including termination.

 

Most employers that engage in a reduction in force are aware of their obligations under the federal WARN Act, the New York WARN Act, the federal Consolidated Omnibus Budget Reconciliation Act (COBRA) and New York’s mini-COBRA statute, and we have posted several times on these topics. Employers should not, however, ignore some of the less popularized obligations to terminated employees created by state law.

For example, Section 195 of the New York Labor Law requires an employer to give an employee written notice of the “exact date” of his or her termination, as well as written notice of the “exact date” of the cancellation of the employee’s benefits. Notice must be provided within five “working” days of the date of the termination.
 

The Section 195 notice should also include information about employee conversion rights under the employer’s group life insurance plan. In New York, every group life insurance contract must include a conversion right for employees in the event that group coverage is terminated. As a result, when group life insurance coverage will end because an employee is terminated, the employer should provide written notice to that employee that he or she may have the option of converting the group coverage to individual coverage. An employer should advise the employee to contact the insurance provider for more information regarding any conversion rights under the policy.

New York employers must also provide written notice of an employee’s right to file a claim for unemployment insurance benefits. The notice must include the employer’s name, address, and registration number. In addition, employers must advise an employee to present the notice to the New York State Unemployment Insurance Division when he or she files a claim for benefits.
 

“In one of the first cases of its kind to make it to the summary judgment phase,” a federal district court in Indiana found last month that under the recent amendments to the Americans with Disabilities Act (“ADAAA”), cancer even while in remission is a disability, Hoffman v. Carefirst of Fort Wayne Inc. The case is significant because it is one of the first cases to interpret broadly the ADAAA’s expanded definition of disability and to rely on Equal Employment Opportunity Commission (“EEOC”) guidance in doing so. It is also significant because it imposes a reasonable accommodation obligation for an impairment that did not substantially limit a major life activity at the time the accommodation was requested.

According to the Court’s opinion, the plaintiff, Stephen Hoffman was employed as a mobile service technician. In November 2007, Hoffman was diagnosed with stage III renal cancer. In January 2008, two months after undergoing surgery to remove a kidney, Hoffman returned to work. Although Hoffman sometimes suffered from fatigue, pain, and discomfort, particularly when sitting or driving, Hoffman continued working his routine schedule without any medical restrictions.

One year later, in January 2009, Advanced Healthcare informed Hoffman that due to a new contract it had acquired, he would have to work significant overtime, travel to a different location for a night shift once a week, and be on call on weekends. Hoffman objected, claiming that the additional hours would put him “in the grave” because of his recent bout with cancer, and provided a note from his doctor stating that Hoffman could not work more than eight hours per day and no more than five days per week. Ultimately, Advanced Healthcare would not agree to provide Hoffman with the accommodation he requested. Hoffman subsequently filed a disability discrimination suit alleging that Advanced Healthcare unlawfully terminated his employment and failed to offer him a reasonable accommodation.

In its motion for summary judgment, Advanced Healthcare argued that Hoffman was not disabled because he did not have a disability which substantially limited a major life activity at the time of the relevant events. The Court disagreed, holding that it was “bound by the clear language of the ADAAA. Because it clearly provides that an ‘impairment that is episodic or in remission is a disability if it would substantially limit a major life activity when active . . ..’” With respect to the question of whether Hoffman’s cancer would have substantially limited a major life activity when it was active, the Court looked to the EEOC’s guidance, which lists cancer as a condition which substantially limits a major life activity. The Court logically concluded that “under the ADAAA, because Hoffman had cancer in remission (and that cancer would have substantially limited a major life activity when it was active), Hoffman did not need to show that he was substantially limited in a major life activity at the time of the alleged adverse employment action. As a result, his employer had an obligation to engage in the interactive process to provide him with a reasonable accommodation. The reasonable accommodation holding is, of course, simply the logical outgrowth of the Court’s determination that Hoffman had a covered disability under the ADAAA. Once that exists, the reasonable accommodation obligation follows.
 

As all employers know, the Immigration and Nationality Act (“INA”) makes it unlawful for an employer to employ an individual who is not authorized to work in the United States. However, the non-discrimination provisions of the INA prohibit an employer from discriminating against certain individuals based on national origin or citizenship status with respect to, among other things, hiring and termination. As a result, employers are often faced with a dilemma: how far can an employer go to obtain information regarding an applicant’s immigration status during the hiring process without violating the INA. This dilemma may appear to be particularly difficult when making an employment decision based on an individual’s need for visa sponsorship. But, as explained below, that problem can be solved relatively simply.

Only certain “protected individuals” are protected from citizenship status discrimination under the INA. The term “protected individuals” has been defined to include: United States citizens, United States nationals, temporary residents, recent lawful permanent residents, refugees and asylees. The Department of Justice Office of Special Counsel for Immigration Related Unfair Employment Practices (“OSC”), the entity responsible for enforcing the employment discrimination provisions of the INA, has specifically opined that an employer has no obligation to sponsor an individual’s visa application.

Further, the OSC has advised that temporary visa holders are not “protected individuals” under the statute, and therefore, not protected from citizenship status discrimination. This includes, but is not limited to, any non-immigrant visa holders such as H-1Bs, TNs or F-1 visas with Optional Practical Training (“OPT”) work authorization. Therefore, the OSC has stated that employment decisions based solely on an applicant’s need for visa sponsorship, either currently or in the future, would generally not be actionable under the INA.

Because temporary visa holders are not subject to INA’s citizenship status discrimination provisions, OSC has stated that an employer may ask about an applicant’s need for visa sponsorship during the hiring process and has approved the use of the following questions on employment applications or in employment interviews:

1. Are you legally authorized to work in the United States? ____ Yes ____ No

2. Will you now or in the future require sponsorship for employment visa status (e.g., H-1B, TN, etc.)? ____ Yes ____ No

Despite OSC’s approval of such questions, it is important to note that the New York State Division of Human Rights has not expressly indicated whether this type of question would be a lawful or unlawful interview question.

If an employer does decide to include a question regarding visa sponsorship on its employment application or to ask a corresponding question during the employment interview, it is advisable to develop an internal policy that describes the circumstances, if any, under which the employer will consider potential visa sponsorship for an individual applicant and/or employee. Further, if there are specific job titles or categories for which the Company does not intend to sponsor any individual, either now or in the future, this fact should also be made clear during the hiring process (for example, by including visa sponsorship guidelines in the advertising materials, and informing all applicants about visa sponsorship guidelines at the beginning of the interview process, etc.).
 

Effective for plan years that begin on or after September 23, 2010, annual plan limits are being phased out. The minimum annual limit is $750,000 in the upcoming plan year. The Department of Health and Human Services is taking the position that the restriction on annual limitations applies to Health Reimbursement Arrangements, other than Retiree-only HRAs and HRAs that are integrally tied to another group health plan (e.g., that reimburse only for a deductible, co-payment or other cost sharing in the group health plan, have no carry-over from one year to the next, and do not reimburse for any other, more general, medical expenses).

Because HRAs are not generally designed to reimburse $750,000 in medical expenses per participant, if the HRA is to continue it must apply for a waiver of the annual limit. The waiver application must be filed not less than 30 days before the first day of the year or, for plan years beginning after September 22, 2010 and before November 2, 2010, not less than 10 days before the beginning of the plan year. Therefore, a HRA with an October 1 plan year must file TODAY!

Instructions for the waiver are in the following notice.

http://www.hhs.gov/ociio/regulations/patient/ociio_2010-1_20100903_508.pdf
 

A recent decision from the United States Court of Appeals for the Eighth Circuit raises an interesting issue: can an employer be held liable for interference with FMLA rights if it discharges an employee after giving the employee reason to believe FMLA leave has been approved -- even if the employee is not in fact entitled to FMLA leave? In Murphy v. FedEx National LTL, Inc., the Court held that an employer could be liable, if the employee reasonably believes she has been granted FMLA leave and if she has put her employer on notice that she may need FMLA leave.

The following facts are taken from the Court’s opinion. Susan Murphy and her husband worked as truck drivers for FedEx. Ms. Murphy requested FMLA leave to care for her hospitalized husband, which was approved on August 31, 2006. On September 7, 2006, her husband died. Ms. Murphy called to notify her supervisor and to inquire about specific employee and bereavement-related benefits. Her supervisor offered to obtain the information for her because she was upset. Ms. Murphy remained out of work for three days on bereavement leave provided by FedEx.

Ms. Murphy’s supervisor spoke with her again on September 11, 2006, to inform her that her FMLA leave had expired on September 7. He also asked Ms. Murphy when she would return to work. She replied that she needed thirty days to “take care of things.” The supervisor then stated, “okay, cool, not a problem, I’ll let HR know.” The two had no further discussions regarding her leave request, nor did Ms. Murphy contact FedEx to seek any additional approval regarding the leave of absence. At trial, Ms. Murphy testified that following her husband’s death, she experienced difficulty sleeping and functioning, and she cried frequently. She also acknowledged that she did not notify FedEx that she was experiencing these symptoms. On September 12, her supervisor contacted the Human Resources Department and relayed Ms. Murphy’s request for a 30-day leave of absence to “put her affairs in order.” FedEx denied the leave request, and on September 15, the supervisor contacted Ms. Murphy to notify her that FedEx was terminating her employment. Ms. Murphy subsequently sued FedEx, claiming that FedEx interfered with her FMLA rights by denying her leave request and ending the employment relationship.

One of Murphy’s legal theories was equitable estoppel; that FedEx interfered with Murphy’s FMLA rights by representing that it had granted her leave, inducing her reasonable reliance on that representation and later terminating her. On that claim, the District Court rejected FedEx’s proposed jury instruction that would have required the jury to find, among other things, that Murphy had a serious health condition and had put FedEx on notice that she potentially had such a condition. The jury returned a verdict in favor of Ms. Murphy on the equitable estoppel claim.

On appeal, the Eighth Circuit found that the District Court erred when it gave the jury instructions on the equitable estoppel claim. Specifically, the Court of Appeals found that, while an employee need not actually have a serious health condition to prevail on an estoppel theory, the employee still bears the responsibility of adhering to the FMLA’s notice requirements, including providing the employer with information sufficient to indicate the requested leave may be FMLA protected. Simply stated: “[b]efore an employee can claim FMLA protection, whether through estoppel, waiver, or otherwise, the employee must put the statute in play – she must notify her employer that she may need FMLA leave… .”

Finally, the Court noted that on retrial, Murphy has to prove that she “reasonably believed,” FedEx approved her request for thirty days as FMLA leave, rather than “some other type of leave.” The Court noted that while vague representations by the employer are not sufficient, the employer does not have to mention the FMLA to create a reasonable belief. Consequently, employers should be aware that even simple affirmations of a leave request (i.e., okay, cool, not a problem, etc.) may be sufficient to support a claim of equitable estoppel.
 

Almost seven years ago, in Zheng v. Liberty Apparel Co., the Second Circuit Court of Appeals created a six factor test for assessing when businesses are liable as "joint employers" under the Fair Labor Standards Act (FLSA) for violations committed by their subcontractors. The Second Circuit held that, depending on the case, the following factors should be reviewed in determining joint employer status: (1) whether the workers work exclusively or predominantly for the purported joint employer; (2) the permanence or duration of the working relationship; (3) whether the purported employer’s premises and equipment are used by the workers; (4) the extent of control the putative joint employer exercises over the workers; (5) whether the outsourced workers can be considered an integral part of the business; and (6) whether the workers have a business organization that could shift as a unit from one putative joint employer to another. The Court also found that industry custom and historical practice could be considered to differentiate between legitimate subcontracting relationships and subterfuges intended to evade the FLSA.

The Second Circuit sent the case back to the District Court and, eventually, the case went to trial before a jury. At trial, the primary issue was whether the Liberty Defendants were plaintiffs' "joint employer" for purposes of the FLSA and analogous state law claims. The jury returned a verdict in favor of plaintiffs, and, following resolution of various post-trial motions, the District Court entered judgment accordingly. Liberty appealed that judgment, contending that the District Court, rather than the jury, should have determined whether it was the plaintiffs' joint employer. Recently, the Second Circuit affirmed, holding that the trial judge did not err in allowing a jury to decide the mixed question of law and fact as to whether Liberty was the plaintiffs' joint employer. Although Liberty argued that the lower court should have used a special verdict form allowing the judge to apply the six-factor test to the jury's factual findings, the Second Circuit said “such a rule would distort the jury's proper role” of applying law to fact.

The Second Circuit’s recent decision serves as a healthy reminder to employers who subcontract or outsource a portion of their business that they should carefully review such relationships to minimize the risk of potential FLSA liability.

A version of this post appeared previously on the Wage and Hour Defense Institute blog.
 

Pursuant to the Patient Protection and Affordable Care Act ("PPACA"), the Internal Revenue Service, the Department of Labor, and the Department of Health and Human Services (the “agencies") recently issued interim final rules for health plans and insurance issuers relating to: (1) preexisting condition exclusions, lifetime and annual limits, rescissions, and patient protections; and (2) claims, appeals, and review procedures.

Preexisting Condition Exclusions. Under the new rules, no group plan or issuer (except grandfathered plans that are individual insurance coverage) may impose a preexisting condition exclusion (including any exclusionary waiting period) for any enrollee under age 19 in plan years beginning on or after September 23, 2010, and any enrollee (regardless of age) in plan years beginning on or after January 1, 2014. The definition of "preexisting condition" includes any denial of coverage based on a preexisting condition (i.e., not just benefits related to the condition). As of the applicable effective date, plans and issuers must provide coverage on a prospective basis for individuals denied coverage based on a preexisting condition, and for benefits related to preexisting conditions that are currently excluded under a health plan. The rules also prohibit any limitation or exclusion based on information related to an individual's health status (e.g., such as a condition identified as result of a pre-enrollment questionnaire or physical examination).

Lifetime and Annual Limits. Effective for plan years beginning on or after September 23, 2010, all group plans and issuers (with the exception of certain account-based health plans and grandfathered plans that are individual insurance coverage) are prohibited from imposing lifetime or annual limits on the dollar value of "essential health benefits" (including at a minimum those benefits listed in PPACA Section 1302(b)). Until further guidance is issued, the agencies will take into account the consistent application of good faith reasonable interpretations of the term "essential health benefits" as applicable to the lifetime and annual limit prohibitions.

In an effort to provide transitional relief, the rules do permit plans and issuers to impose the following "restricted annual limits" ("RALs") in plan years beginning before January 1, 2014:

For plan years beginning on or after --                                Restricted Annual Limit

September 23, 2010 but before September 23, 2011         $ 750,000
September 23, 2011 but before September 23, 2012         $ 1.25 million
September 23, 2012 but before January 1, 2014                 $ 2 million

The rules clarify that the RALs are minimums for plan years beginning before January 1, 2014, so plans or issuers may impose higher limits or no limits. Generally, grandfathered plans that impose new limits or reduce the amount of an annual limit (in existence as of March 23, 2010) will lose grandfather status. Note, a grandfathered plan with an existing lifetime limit (as of March 23, 2010) and no existing annual limit, may impose a new annual limit (subject to the applicable RAL minimum) and retain grandfather status by eliminating the existing lifetime limit.
 

Certain limited benefit plans or policies (i.e., "mini-meds") may be eligible for a waiver program, in cases where annual dollar limits fall below the RAL minimums, and compliance would result in a significant decrease in access to benefits or a significant increase in premiums for enrollees or policyholders. HHS Guidance on the waiver application process is expected to be issued in the near future.

Lifetime Limit Notice. Individuals who have lost coverage because of reaching lifetime limits, and who would otherwise be eligible for coverage, must be given notice that the lifetime limit no longer applies. If such individual is no longer enrolled in the plan or policy, he or she must be given notice of the opportunity to enroll (during a special 30-day enrollment period) no later than the first day of the first plan year beginning on or after September 23, 2010. Model language is available at http://www.dol.gov/ebsa/lifetimelimitsmodelnotice.doc .

Rescissions. Effective for plan years beginning on or after September 23, 2010, all group plans are prohibited from rescinding coverage except in the case of fraud or an intentional misrepresentation of material fact. If such rescission is permitted, plans and issuers must provide participants with 30 days notice prior to the date coverage is rescinded. The term "rescission" means any cancellation or discontinuance of coverage that has retroactive effect. Note, retroactive cancellation of coverage due to nonpayment of premiums or contributions does not constitute a "rescission" under the rules.

Patient Protections. For plan years beginning on or after September 23, 2010, all new group plans and issuers that use provider networks must comply with the following rules relating to patient protections:

Choice of Health Care Provider. If an enrollee is required to designate a primary care provider ("PCP") under a plan or policy: (i) the plan or issuer must permit the enrollee to designate any PCP who is available to accept the enrollee; (ii) the plan or issuer must permit a child-enrollee to designate an in-network pediatrician as his or her PCP (if available to accept the child); and (iii) if a plan or issuer covers obstetrics/gynecological care, the plan or issuer must not require preauthorization before an enrollee seeks services from an in-network OB/GYN provider. Notice of changes required by the choice of provider rules must be provided when the plan or issuer provides an enrollee with an SPD or other summary of benefits. Model language is available at http://www.dol.gov/ebsa/patientprotectionmodelnotice.doc.

Coverage of Emergency Services. If a plan or issuer covers emergency care in a hospital, the plan or issuer may not require prior authorization for services even if the health care provider is out of network. In addition, plans must not impose coinsurance rates or copayments for out of network emergency services in excess of the amounts that would have otherwise been required for services provided in network. Out of network providers, however, may bill participants for any remaining balance after the plan or policy pays, provided the plan or policy complies with certain cost-sharing requirements.

Claims, Appeals and Review Procedures. For plan years beginning on or after September 23, 2010, all new plans and issuers must comply with the new rules related to internal claims and appeals and external reviews of adverse benefit determinations, including rescissions of coverage. These new procedural requirements add to the existing claims and appeals procedures currently required under ERISA, and requires that plans or issuers: (1) notify claimants as soon as possible, but no later than 24 hours after receipt of an urgent care claim; (2) provide claimants with any new or additional evidence that arises in connection with the claim; (3) ensure that claims are processed in a manner that avoids any conflict of interest; (4) ensure notices are culturally and linguistically appropriate, and contain certain required information; (5) strictly adhere to the required internal claims and appeals procedural requirements; and (6) continue to provide coverage pending the outcome of an internal appeal. A claimant is deemed to have exhausted administrative remedies if a plan or issuer fails (even if the failure is de minimis) to strictly adhere to the new internal claims and appeals procedural rules, and may immediately pursue external review. All new plans and issuers (applies only to the insurance issuer for insured plans) must comply with either a state or the Federal external review process, whichever is applicable under the rules. In certain cases, claimants may be permitted to simultaneously proceed with both the internal appeals process and expedited external review.

New individual health insurance issuers are subject to all the internal claims and appeals rules that apply to group plans and issuers, and must adhere to three additional standards: (1) decisions on initial eligibility are subject to internal claims and appeals procedures; (2) only one level of review is permitted for determinations of individual health coverage; and (3) all claims and notice records must be maintained and made available upon request for at least 6 years.

Most of the rules discussed above are effective for plan years beginning on or after September 23, 2010. Employers that maintain group health plans, and insurers that maintain group or individual policies, should evaluate and determine the extent to which current plan or policy provisions may need to be updated to comply with the new rules by the applicable effective date.