The Office of Fraud Detection and National Security (“FDNS”) is part of the United States Citizenship and Immigration Services. FDNS’s mission is to detect, deter, and combat immigration benefit fraud. FDNS consists of approximately 650 Immigration Officers, Intelligence Research Specialists, and Analysts located in field offices throughout the United States. In addition, FDNS has contracted with multiple private investigation firms to conduct site visits on its behalf. In 2010, FDNS intends to increase its H-1B site audits to 25,000 – a fivefold increase. If you are unlucky enough to be chosen for one of those 25,000 site audits, what should you do? The American Immigration Lawyers Association has provided suggestions.  This post contains some of those site audit basics and recommendations for preparation.

What Happens During an H-1B Site Audit?

H-1B site audits are usually unannounced, and take place at either the employer’s principal place of business or the foreign national’s physical work-site location. During the site visit the investigator will often ask to speak with the employer representative who signed the H-1B Petition. If this person is unavailable, the investigator usually requests, as an alternative, to speak with a Human Resources representative. During the audit, the investigator will typically ask specific questions to verify the representations made by the employer in the H-1B Petition, and may also request a tour of the facility. In addition, the investigator may ask to interview the H-1B employee about his/her job title, duties, responsibilities, employment dates, position locations, academic background and previous employment experience. Finally, the investigator may request the opportunity to speak with colleagues and/or managers of the H-1B employee.

How Should an Employer Respond to the Audit?

If an employer is subject to an unannounced H-1B site visit, the employer should immediately request that its immigration attorney be present. Even though the investigator will not reschedule a site visit so that an attorney may be present, the investigator will allow counsel to be present by phone. The employer should also have procedures in place to ensure that the investigator is directed to a designated company official. That designated official should request the name, title, and contact information for the site investigator. If the investigator introduces himself/herself as a contractor of FDNS, the employer’s representative should request a business card and confirm the investigator’s identity before permitting the individual to enter the employer’s premises, and before providing any detailed information about the employer’s business.

The employer should have at least two employer representatives accompany the investigator during the site visit. One representative should be the primary spokesperson on behalf of the employer. The second representative should take detailed notes of all information requested by and provided to the investigator, the locations visited, pictures taken, and/or any other relevant information from the site visit.

If the employer has strict policies regarding audio recording, photography, or video recording, the employer should advise the investigator accordingly. If the investigator requests information from the employer and the employer cannot provide accurate information without further research, the employer should so inform the investigator, and offer to contact the investigator as soon as the requested information is obtained. Under no circumstances should the employer “guess” about any information requested during the site visit.

Prepare for Site Visits Before They Occur.

An adverse assessment by the FDNS could be used to deny a petition, if the site visit occurs during re-adjudication, could result in a revocation of a previously approved petition in the post-adjudication process, and/or could be referred to U.S. Immigration and Customs Enforcement (“ICE”) for further investigation. A referral to ICE could lead to civil or criminal penalties and prosecution. Given the potential consequences of an adverse audit, and because most H-1B site visits are unannounced, employers must be prepared for such visits well in advance.

Ensuring that required documentation is up-to-date and is easily accessible is the best way to prepare for a site visit. Specifically, employers should retain complete copies of all submitted I-129 petitions and supporting documents in confidential files, and be familiar with and ensure the accuracy of the representations made in the I-129 petitions. With respect to each filed H-1B Petition, the employer must maintain a public access file. Employers should also ensure they are in compliance with any mandatory employment posting obligations to prepare for the possibility the investigator will request a tour of the facility.

To better prepare the designated official for possible questioning by the investigator, consider staging a mock visit under the supervision and direction of counsel and subject to the attorney-client privilege. To prepare the beneficiary for potential questioning, employers can consider providing a redacted copy of the I-129 Petition and supporting documents to the beneficiary, including information on the nature of the job opportunity, the terms and conditions of employment, and the beneficiary’s education and prior work history. A mock interview of the beneficiary, with counsel present, can also be helpful.
 

The percentage of employers conducting background checks as part of the hiring process has steadily increased. Background checks can be useful tools to uncover any misconduct or dishonest behavior at previous jobs or outside of work, and to determine whether the applicant possesses the positive traits desired in an employee. They can also be useful to avoid later claims of negligent hiring if things go wrong with a new hire. However, the decision to use background checks should be carefully considered and implemented. More than one employment law applies to use of this tool in the hiring process.

First, be sure to know and observe the requirements of both the federal Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681, and the New York Fair Credit Reporting Act, General Business Law Article 25. These state and federal statutes largely mirror each other, and both contain technical requirements regarding the collection and use of background check information. However, in certain areas, state law contains more restrictive requirements. For that reason, it is a mistake to assume a background check vendor has all the technical requirements covered, especially if it is an out of state vendor. Another common mistake is assuming the FCRA and the state equivalent only apply when an employer is seeking credit information. Even though the titles of both laws contain the term “Fair Credit Reporting,” they cover a much broader set of reports. For example, if a criminal background check is performed by an outside agency instead of by the employer, it is a “consumer report” and is covered by both laws. A third common mistake is relying solely on an employment application to inform applicants they will be subject to a background check. The FCRA requires employers to provide applicants with a stand alone authorization form. 15 U.S.C. § 1681b(b)(2)(A). These are just a few examples of the mistakes employers make when conducting background checks.  There are many more potential state and federal FCRA pitfalls. The bottom line: if you are running background checks, be sure you are fully versed on the details of the state and federal FCRAs.

Second, be aware of Article 23-A of the New York Correction Law. Most employers understand that it is unlawful to refuse to hire an applicant simply because of a prior conviction, except in certain circumstances. However, many employers may not yet recognize that pursuant to an amendment to the New York Fair Credit Reporting Act (General Business Law Section 380-c and 380-g) which took effect in February 2009, employers must provide applicants with a copy of Article 23-A whenever they obtain an investigative consumer report (a narrow subset of background investigations) or a criminal background check. (This same amendment includes a new posting requirement: Labor Law Section 201-f now requires all employers--not just those conducting background checks--to post a copy of Article 23-A in the workplace.)

Finally, be sure to apply any background check policy consistently. Cherry picking certain applicants for a background check, and/or skipping the process altogether for others, can expose an employer to claims of discrimination or negligent hiring.
 

Under guidelines recently issued by the Federal Trade Commission (“FTC”)—Guides Concerning the Use of Endorsements and Testimonials in Advertising, 16 CFR Part 255—an employer may now face liability for employee endorsements of its products and services, if the employment relationship is not disclosed. The guidelines, which took effect on December 1, 2009, require that employees who endorse their employer’s products or services, must “clearly disclose” the employment relationship within the endorsement.

Although the new guidelines are primarily concerned with celebrity endorsements, they also apply to more routine comments ordinary employees may make on social media outlets such as personal blogs, Facebook and Twitter. The FTC has stated, for example, that where an on-line blogger discusses a product manufactured by her employer, she “should clearly disclose her relationship to the manufacturer to members and readers of the message board” because knowledge of that relationship “likely would affect the weight of credibility of her endorsement” in the eyes of the public. If the employment relationship is not disclosed, both the employer and employee may face liability under Section 5 of the Federal Trade Commission Act (15 USC § 45 et seq.), which prohibits unfair or deceptive acts or practices in the marketplace. This is so even if the employee’s endorsement was not authorized or sponsored by the employer, and even where the actual endorsing statement is not misleading.
 

While the FTC has indicated that it is not necessarily going to take enforcement action against an employer for the statements of a single “rogue” employee, employers should nonetheless take proactive steps to help protect against potential liability by ensuring that their technology usage policies cover all electronic communications, employee blogging and use of social networking sites (e.g., Facebook, Twitter, MySpace, LinkedIn). The policy should also clearly inform employees whether they are permitted to discuss the employer’s products and/or services online. There are advantages and disadvantages to authorizing such discussions. Permitting employees to do so may well serve the interests of the employer by providing increased exposure through positive word-of-mouth. However, it could also yield negative statements about the employer or its products which are seemingly authorized by the policy. Where an employer elects to allow employees to discuss its products/services, the policy should state that employees who engage in such discussions are required to clearly and conspicuously disclose their relationship with the employer. The policy should also require employees to include a disclaimer within any online discussion of the employer’s products/services, such as, “any opinion stated is that of the employee, and is not authorized by the employer.”

Employers often assume that because an employee performs “professional” work she must be an exempt professional under the Fair Labor Standards Act (“FLSA”). Late last year, the United States Court of Appeals for the Second Circuit issued a decision which serves as a valuable warning to employers who make that assumption, Young v. Cooper Cameron Corp. For those of you who may not know or recall what the professional exemption is all about, here is a quick primer. The FLSA’s overtime provisions do not apply to exempt professionals. An exempt professional is one who, among other things, is “employed in a bona fide professional capacity.” The FLSA does not define that term any further. But the U.S. Department of Labor (“DOL”) has issued extensive regulations on the subject. In the Young case, the Second Circuit’s interpretation and application of these regulations revealed a common employer mistake: Just because the position seems like a “professional” position does not mean it falls within the professional exemption. In this case, the plaintiff was performing a type of engineering design work on a pretty sophisticated piece of equipment used on oil drilling rigs. While he had 20 years of engineering-type experience, he had only a high school degree. Nevertheless, based on the amount of his engineering experience and the type of work he was performing, the employer classified him as exempt.

The employer got it wrong. As the Court observed, DOL’s regulations are quite clear: one of the requirements for the exemption is that the work must be in a field of science or learning customarily acquired by a prolonged course of specialized study, and the best evidence of this is a specialized academic degree. The crux of the dispute then centered around the term “customarily,” the employer arguing that use of that term showed an academic degree was not required in all circumstances and that the plaintiff’s engineering experience was an adequate substitute. Under the employer’s view, the lack of a degree requirement for the position did not matter, because the duties of the position required knowledge of an advanced type. The Second Circuit disagreed, noting that the regulations dealt with that issue as well. The Court concluded that “customarily” means a specialized degree is required in the vast majority of cases. In the Court’s view, this means that a rare individual could still be exempt without having a degree, but only in a situation where other individuals performing the work typically held such a specialized degree. As the Court observed, the term “customarily” does not mean that the degree requirement can simply be ignored in favor of focusing solely on the type of work being performed. In the case before it, the plaintiff was not the only employee holding the engineering position and no one who held it had anything more than a high school degree. As a result, it could not be said that advanced education in a specialized field was customarily required for the position.

The lesson for employers is clear: in order for the professional exemption to apply, the duties performed must require use of knowledge of an advanced type in a field of science or learning and the position must typically require an advanced degree in that specialized field of science or learning. Having the right duties alone is not sufficient.

On a side note, the plaintiff apparently did not complain about being treated as exempt until he lost his job in a reduction in force after holding the position for three years. This in itself is a small lesson in how exemption issues can pop up unanticipated.
 

The Equal Employment Opportunity Commission (“EEOC”) recently released statistics on its charge processing and litigation which include data from 1997 through 2009. As others, including the New York Times , have reported, the data shows overall charge filing down about two percent from 2008.  However, the continued high number of charges is the real story, because 2008 was a record year for charges. Thus, although there was a slight decrease in age discrimination charges in 2009, even those stayed close to the record levels of 2008. In fact, age charges for 2009 are up more than 42 percent over the last ten years. Harassment charges of all types also decreased significantly (5.8%), but again from the record 2008 levels. The subgroup of sexual harassment charges decreased at a greater rate, 8.4%. Interestingly, the percentage of sexual harassment charges filed by males stayed about the same, 16%.

Some types of charges did increase. Charges filed based on disability (up 10% from 2008), religion (up 3.5%) and national origin (up 5%) are at record levels. Charges alleging race discrimination and sex discrimination stayed very close to their record levels of 2008, and make up about 36% and 30% respectively of all charges filed. Overall, Commission charges have increased almost 16.8 percent from fiscal year 2000.

Paradoxically, the increase in number of charges over the last decade has not caused a corresponding increase in suits filed by the Commission. The number of lawsuits filed by the Commission in 2009 (314) represents a 32.5% decrease from the record setting year of 1999 (465).
 

While there has been significant press coverage of the health care reform bills being considered by Congress, there has not been as much attention given to the impact that this legislation could have on employers. As widely publicized, both the House and Senate passed their own versions of a health care reform bill. The House passed the Affordable Health Care for America Act (H.R. 3962) on November 7, and the Senate passed the Patient Protection and Affordable Care Act (H.R. 3590) on December 24. Both houses promise to act quickly to reconcile these two bills, with the goal of presenting President Obama with a bill for signing early in the year.

The bills differ in many ways, and it is too early to predict which provisions of the bills will survive the conference process, but at this stage, there are a few core concepts employers should understand:
 

Employer Mandate: Commonly referred to as “pay or play,” both bills contain provisions designed to force employers to offer health care coverage to employees. In the House bill, any employer that fails to offer an acceptable health plan must pay a tax of 8% of payroll. (The tax is phased out for smaller employers.) Under the Senate bill, employers are not technically required to provide coverage, but a “free rider penalty” penalizes employers with over 50 employees in certain circumstances. Generally, if an employer does not provide coverage or offers a plan that is considered “unaffordable,” and at least one employee enrolls in an exchange plan instead (explained below) and receives a government subsidy, the employer would pay a penalty of as much as $750 per year for every full-time employee it employs (not just the number of employees who purchase coverage through an exchange and receive a subsidy.)

Individual Mandate: Subject to certain exceptions, individuals will be required to obtain health insurance coverage through their employer or on their own through an exchange, or pay a penalty. Certain low income individuals would receive subsidies to help pay for the costs of premiums and cost-sharing. The amount of the penalty differs between the two bills, with the House bill imposing a potentially larger penalty.

New Rules for Insurance Policies: Both bills specify categories of benefits that must be covered under “qualified” health plans, and impose specific cost-sharing limits, out-of-pocket spending limits, and rules regarding annual and lifetime limits. The House bill would subject all plans, including all employer-sponsored plans, to these requirements, although plans currently offered by employers would be grandfathered for five years. Under the Senate bill, only plans offered through the exchange (explained below) or in the individual or small group market would be subject to most of these requirements. Since the exchange would be open only to individuals and small businesses, plans offered by larger employers would be exempt from most of these rules.

Small Business Tax Credits: Both bills provide tax credits to small businesses that offer health insurance. Businesses with 10 or fewer employees and average taxable wages of $20,000 or less would be eligible for the credits. The credits would be phased out as average compensation increases to $40,000 (House bill) or $50,000 (Senate bill) and the number of employees increases to 25. The amount of the credit differs between the bills.

Health Insurance Exchange: Both bills set up health insurance exchanges to facilitate the purchase of insurance by individuals and small businesses. The exchange would not be an insurer, but would provide access to insurers’ plans. Exchange plans would be required to contain specified features and cover specified benefits. Individuals eligible for employer plans would not be allowed to apply their employer’s contribution toward an exchange plan (i.e., the employee would be responsible for the entire exchange premium), thus deterring individuals from dropping employer coverage for an exchange plan (although the Senate bill would require employers who provide coverage to offer “free choice vouchers” to a small segment of low-income employees to purchase insurance through the exchange.) Certain small businesses would be “exchange-eligible,” meaning the employer could make exchange plans available to employees.

Excise Tax on Certain Employer-Sponsored Plans: This controversial tax on so-called “Cadillac plans” is included only in the Senate bill and would place a 40% tax on employer-provided health insurance plans with an aggregate value of more than $8,500 for individuals and $23,000 for families (with some exceptions), and would be adjusted for inflation. Note that these amounts apply to the full value of the plan, not just the premium. This includes not only the premium of the health plan, but also any dental, vision or supplemental plan, as well as employer contributions to HSA or FSA accounts. Only the value of the plan in excess of the limit would be taxed. The tax would be imposed on the insurer, which in the case of some self-insured plans would be the employer. Opponents of this provision see it as an unfair tax on the middle-class that would drive employers to reduce coverage for their employees. Supporters see it as a tool to reduce the use of excessive health insurance plans that do not improve heath outcomes, but encourage unnecessary health care spending.

Flexible Savings Accounts: Under both bills, FSA contributions would be capped at $2,500 per year. Currently, employers have the discretion to set FSA contribution limits. In addition, employees would no longer be able to use tax-free FSA or HSA funds for non-prescription drugs and medical supplies.

These are just a few highlights of two lengthy, complex bills. All of these provisions are subject to change in the conference process.
 

On December 10, 2009, Governor Patterson signed into law the Tier V Pension Act  which adds Article 22 to the Retirement and Social Security Law. The legislation creates a new Tier V pension classification for public employees who first join the New York State and Local Retirement/Police and Fire Retirement System (PFRS), the New York State and Local Retirement Systems/Employees Retirement System (ERS) and the New York State Teachers’ Retirement System (TRS) on or after January 1, 2010. Governor Paterson announced that this Legislation will provide more than $35 billion in long-term savings to New York taxpayers over the next thirty years.  However, as reported by the Albany Times Union, others such as E.J. McMahon, Director of the Empire Center for New York State Policy, have challenged such claims.

Below are some of the highlights of the new legislation:
 

Employee Contributions

Most ERS and PFRS Tier V members will contribute 3% of their salary for all their years of public service. The legislation requires members of TRS to contribute 3.5% of their annual wages to the TRS for the duration of their employment. Presently, Tier IV members of ERS and TRS contribute 3% of their salary for their first 10 years of creditable service; members of PFRS are not presently required to contribute at all.

Vesting

No Tier V members will be eligible for service retirement benefits until they have completed a minimum of 10 years of credited service. Currently, employees participating in Tier IV ERS, PFRS and TRS become fully vested after only five years of credited service.

Overtime Earnings Restriction

Overtime earnings are generally included in the employee’s final average salary calculation used to determine a retiree’s pension allowance. In an attempt to prevent “salary spiking” in an employee’s final years of service, the legislation creates an “overtime ceiling” which limits the amount of overtime earnings that may be included in the definition of wages when calculating an employee’s final average salary. The "overtime ceiling" is $15,000 per year effective January 1, 2010. The “overtime ceiling” increases by 3 % each year thereafter.

Early Retirement Eligibility

The legislation also raises the minimum age for retirement without penalty for members of the TRS from age 55 with 30 years of service to age 57 with 30 years of service. While the legislation does not increase the age at which ERS members can retire without penalty (it is still 55), it does, however, increase the amount of the “penalty” that these members incur for retiring prior to reaching age 55.

Other Significant Changes

In addition to creating Tier V, several other issues which significantly impact public employers are addressed by the legislation. First, the legislation makes permanent the prohibition on reductions to retiree health insurance benefits or increases in retiree contribution rates by school districts, unless the same reduction in benefits or increase in contribution rates is made for the corresponding group of active employees.

Finally, the Legislature expressed an intent to enact an early retirement incentive for members of New York State United Teachers ("NYSUT") during a three-month window in calendar year 2010.  If the Legislature follows through and enacts the incentive, NYSUT members in TRS and ERS who have reached age 55 and have accumulated 25 years of service will be permitted to elect to retire early during that window without penalty.

The ERS/PFRS  as well as the TRS have created summaries for their members which outline the above-referenced changes implemented by the legislation as well as some additional changes not specifically cited here.

 Howard M. Wexler contributed to this post.

The New York State Department of Labor (“NYSDOL”) recently posted guidelines and instructions on its website addressing employer obligations under New York Labor Law § 195(1). This recently amended statute requires employers to notify newly-hired employees in writing of their pay rates, pay dates, and, if applicable, overtime rates. The statute also requires employers to obtain written acknowledgments from new employees confirming receipt of this information.

NYSDOL also posted several new “model” forms for employers to use when complying with Section 195(1). The new forms supplement the problematic, one-size-fits-all form published by the agency last year. These new forms are intended to cover several different employee groups, including non-exempt employees who are paid either: (a) an hourly rate; (b) multiple hourly rates; (c) a weekly rate or salary for a fixed number of hours (40 or fewer in a week); (d) a salary for varying hours, day rate, piece rate, flat rate, or other non-hourly pay; or (e) a prevailing rate on a public work project. There is also a new model form for exempt employees.  

Consistent with its earlier reversal of position, NYSDOL’s guidelines and instructions state that use of the new model forms is not mandatory at this time. Rather, according to the guidelines, employers may create their own forms, or use or adapt the model agency forms, as long as: (a) the required information is given at the time of hiring, before any work is performed; (b) the employee is given a copy; and (c) the employee signs an acknowledgment of receipt, which the employer must retain for six years.

Several additional aspects of the new materials are also noteworthy. First, NYSDOL takes the position that notices to exempt employees —which apparently include employer-created notices—“must state the specific exemption that applies.” This requirement does not appear in Section 195(1). Second, the new model forms do not require the preparer to certify that the contents are true and accurate under penalty of perjury, which represents a change from the original one-size-fits-all form previously published by the agency. Third, the NYSDOL guidelines discuss how employers can craft written notices for commissioned salespersons, which will satisfy both Section 195(1) and Section 191(1)(c) of the New York Labor Law. Section 191(1)(c) requires that the terms of employment for commissioned salespersons (how wages, salaries, drawing accounts, and commissions are calculated) be reduced to a writing.

 

Starting January 1, 2010, employers and certain other entities that administer group health plans will be required, for the first time, to report on an Internal Revenue Service ("IRS") form certain types of group health plan violations and pay the applicable excise taxes. Violations that must be reported include a failure to satisfy health coverage continuation requirements under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), certain requirements under the Health Insurance Portability and Accountability Act ("HIPAA"), certain mental health benefit parity requirements, childbirth hospital stay requirements, and certain health coverage continuation requirements for seriously ill higher education students. Administrators of group health plans were not required to self-report such violations when they were discovered, and the lack of such self-reporting often resulted in any applicable excise taxes not being paid. The IRS has issued regulations that will require such violations to be self-reported, and will require any applicable excise taxes to be paid in a timely manner.

Steps that should be implemented by employers to comply with these new requirements include:

making sure that employees or other persons who are involved in the administration of each applicable group health plan are informed about these new requirements;

implementing procedures that will help ensure the timely discovery of applicable group health plan violations, the timely submission of the IRS form reporting such violations, and the timely payment of all applicable excise taxes; and

to the extent an employer's group health plan is administered by another entity (e.g., a third party administrator, an insurance company or a health maintenance organization), reviewing any agreement with such entity to see if any changes are needed to help ensure compliance with these new requirements.

 

Taxpayers Required To Comply With These New Requirements

The new self-reporting and excise tax payment requirements for certain group health plan violations generally apply to: (1) employers who sponsor a group health plan that is subject to the requirements described in the following paragraph ("Covered Health Plan"); (2) unions and other employee organizations who sponsor a Covered Health Plan; (3) third party administrators of Covered Health Plans (e.g., a third party administrator of a self-insured Covered Health Plan); and (4) certain other third parties who are responsible for providing benefits under a Covered Health Plan (e.g., insurance companies or health maintenance organizations).

Types of Violations That Are Covered By These New Requirements

Violations that must be reported include a failure to comply with the following requirements:

COBRA Health Coverage Continuation Requirements -- Group health plans that are subject to COBRA are required to comply with certain coverage continuation requirements.

HIPAA Preexisting Condition, Creditable Coverage and Special Enrollment Requirements -- Group health plans that are subject to HIPAA are required to, among other things, comply with limitations on preexisting exclusions, certification of creditable coverage requirements, and special enrollment requirements.

HIPAA Nondiscrimination Requirements Based on Health Status Factors -- Group health plans that are subject to HIPAA are not allowed to discriminate based on a health status factor.

Genetic Information Nondiscrimination Requirement -- The Genetic Information Nondiscrimination Act ("GINA") prohibits, among other things, discrimination based on genetic information.

Mental Health Parity Requirements -- The Mental Health Parity and Addiction Equity Act imposes certain parity requirements between mental health benefits and medical/surgical benefits.

Childbirth Hospital Stay Requirements -- The Newborns' and Mothers' Health Protection Act imposes requirements regarding minimum hospital lengths of stay in connection with childbirth.

Health Coverage Continuation Requirements for Seriously Ill Higher Education Students -- Michelle's Law imposes certain health coverage continuation requirements for dependent university and college students with serious medical conditions.

Comparable Contribution Requirements for Health Savings Accounts and Medical Savings Accounts -- Health savings accounts ("HSAs") and Archer medical savings accounts ("MSAs") are subject to requirements that help ensure that comparable contributions are made for nonhighly compensated employees.

Excise Taxes That Apply To Such Violations

The applicable excise taxes vary depending upon the type of violation involved. An excise tax of $100 a day per affected beneficiary generally applies to a violation of the COBRA health coverage continuation requirements. An excise tax of $100 a day per affected individual generally applies to violations of: (1) HIPAA's preexisting condition, creditable coverage, and special enrollment requirements; (2) HIPAA's nondiscrimination requirements based on health status factors; (3) GINA's genetic information nondiscrimination requirement; (4) the mental health parity requirements; (5) the childbirth hospital stay requirements; and (6) the health coverage continuation requirements for seriously ill higher education students. A violation of the comparable contribution requirements for HSAs and MSAs generally will be subject to an excise tax of 35 percent of the aggregate amount contributed to the HSAs or MSAs for all employees within the applicable calendar year.

IRS Form That Must be Filed If a Violation Occurs

If a violation of one of the requirements described above occurs, the applicable employer generally will be required to report that violation on IRS Form 8928 and will be required to pay the applicable excise taxes. If a COBRA health coverage continuation requirement is involved, the applicable third party administrator or insurer could be responsible for filing Form 8928 and paying the applicable excise taxes. If a violation occurs with respect to a multiemployer plan, the plan will be responsible for filing Form 8928 and paying the applicable excise taxes.

Deadline For Filing the Required IRS Form and Paying the Applicable Excise Taxes

For all violations described above other than a violation of the comparable contribution requirements for HSAs and MSAs, a Form 8928 generally must be filed and the applicable excise tax generally must be paid by the due date for filing the federal income tax return for the applicable taxpayer. If a violation of the comparable contribution requirements for HSAs and MSAs occurs, a Form 8928 generally must be filed and the applicable excise tax generally must be paid by April 15th of the calendar year that follows the calendar year in which the violation occurred. Special requirements apply with respect to extensions, multiemployer plans, and multiple employer plans.

Exceptions To the Excise Tax Requirements

With respect to all violations described above other than a violation of the comparable contribution requirements for HSAs and MSAs, exceptions to the excise taxes apply:

if the responsible party did not know, and would not have known even if reasonable diligence had been exercised, that the violation existed; or

if the violation was due to reasonable cause and not willful neglect, and was corrected within 30 days after the first day the responsible party knew, or exercising due diligence, would have known that the violation had occurred (the violation will be considered corrected if the violation is retroactively undone to the extent reasonably possible and the affected individual is put in a financial position as beneficial as the individual would have been in had the violation not occurred).

If a violation of the comparable contribution requirements for HSAs and MSAs occurs, the IRS can waive the excise tax if it is excessive and the failure is due to reasonable cause and not willful neglect.

Penalties That Apply If These Filing and Excise Tax Requirements Are Not Satisfied

A failure to satisfy these filing and excise tax requirements could result in late penalties of up to 50 percent, and interest charges.

Effective Date of These New Filing and Excise Tax Requirements

These new filing and excise tax requirements apply to any Form 8928 that is due on or after January 1, 2010.

 

Too often employers take for granted that their anti-harassment policies are sufficient to prevent and remedy inappropriate workplace conduct, as well as mitigate legal liability. But failure to regularly update those policies can create significant (and expensive) problems down the road. To limit the risk presented by stale and outdated anti-harassment policies, employers should periodically review them to ensure that they are legally compliant and accurate. When conducting that review, consider in particular three important questions:

     1.     Does My Policy Prohibit All Forms Of Unlawful Harassment?

We occasionally come across policies that prohibit sexual harassment, but are silent as to other types of illegal harassment. This is usually a tell-tale sign that the employer’s policy urgently needs to be updated. Sexual harassment was first recognized by the courts as a form of discrimination in the mid-1980’s. Since that time, the various federal and state anti-discrimination laws have been interpreted to prohibit harassment on the basis of other protected categories, including but not limited to race, religion, national origin, disability, and age. In states such as New York – where the New York Human Rights Law includes no less than fourteen distinct protected categories (and counting) – employers must be sure to amend their policies as necessary to remain current with changes in the law.

     2.     Does My Policy Provide Accessible – And Alternative – Avenues Of Complaint?

Effective anti-harassment policies must provide reasonable methods for employees to bring alleged inappropriate conduct to their employer’s attention. A policy which requires that a complaint be made to a single person, for example the employee’s supervisor, is inadequate because it creates the potential for forcing the employee to complain to the very person accused of wrongdoing. To avoid this obvious chilling effect, employers should make available several avenues of complaint. At the very least, the employee should have the option to present a complaint to someone in his or her immediate chain-of-command, as well as someone outside his or her direct line of authority, such as a human resources manager. Never create the impression (express or implied) that the employee is required to lodge a complaint through a single individual. The more alternatives the better.

Employers should also publish contact information so that employees know exactly how to reach the persons to whom they can complain. Appropriate contact information (e.g., telephone number, e-mail address and/or mailing address) for each avenue of complaint should be included in the written policy and posted prominently in the workplace. That way, an employee has little excuse for not bringing a complaint of harassment to the employer’s attention.

     3.     Does My Policy Provide Reasonable Assurances Against Retaliation?

Just as employers have a legal obligation to implement reasonable measures to prevent and correct workplace harassment, employees have a duty to take reasonable steps to avoid or mitigate the effects of unwelcome conduct. This means generally that an employer can expect an employee to take advantage of an internal complaint procedure provided by the employer. An employee’s failure to lodge an internal complaint may be excused, however, if he or she can show a reasonable fear of retaliation. To minimize this possibility, it is critical that an employer’s policy clearly explain that retaliation against complaining employees will not be tolerated. This message should be reinforced at the time of a complaint. Moreover, the policy statement must also be enforced as necessary.

Of course, these are not the only issues to consider when assessing the effectiveness of your company’s anti-harassment policy and procedures. Keep in mind that the most comprehensive, water-tight, anti-harassment policies are only as good as the manner in which they are implemented and enforced. Courts and administrative agencies are increasingly looking at whether supervisors and employees are given training to reinforce written policies and to otherwise ensure that all employees understand the employer’s internal complaint procedure. While these measures are not technically required by law, it is advisable that such additional steps be taken to enhance the protections afforded by written anti-harassment policies.

 

In recessionary times like these, employers often rely more heavily on independent contractors to avoid the personnel costs associated with hiring regular employees. Doing so, however, creates risks. Now is a good time to make the effort to determine whether your independent contractors are really independent contractors. Just don’t expect the answer to come easily.

The issue of who is properly classified as an independent contractor (as opposed to employee) has been giving employers headaches for decades. As the United States Supreme Court noted over 60 years ago: “Few problems in the law have given greater variety of application and conflict in results than the cases arising in the borderland between what is clearly an employer-employee relationship and what is clearly one of independent entrepreneurial dealing.” N.L.R.B. v. Hearst Publication, 322 U.S. 111, 121 (1944). It is little wonder that even the Supreme Court is troubled by this legal issue given the difficulties involved in the analysis. For starters, courts and government agencies (both state and federal) use different legal tests to make this determination. As a result, a single set of facts can produce different legal conclusions. Moreover, none of the tests utilized relies on definitive factors. As the Internal Revenue Service (“IRS”) states on its website, “[T]here is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.”

Although the issue is old, it has continued vitality. There has been a significant increase in litigation, government enforcement and legislation over the misclassification of independent contractors in recent years. It is equally clear that the focus on independent contractor misclassification, far from slowing down, will only continue to pick up steam. The remainder of this blog summarizes some recent developments demonstrating that employers need to be very careful when using independent contractors.
 

New York State’s Joint Enforcement Task Force on Employee Misclassification (“Task Force”), formed in 2007, continues to address, among other things, the problem of employers who inappropriately classify employees as independent contractors.  According to the Task Force’s most recent Annual Report, it has uncovered approximately 12,300 instances of employee misclassification resulting in more than $157 million in unreported wages. Partly in response to the Report, Senate Labor Committee Chairman George Onorato, D-Queens, and Senate Insurance Committee Chairman Neil Breslin, D-Albany, renewed their push for passage of a bill which would, among other things, levy fines of up to $5,000 per employee for any construction company that misclassifies its workers as independent contractors. The bill also creates a presumption of employment status in the construction industry unless certain factors are established.

On August 21, 2009, the Massachusetts Supreme Judicial Court held in Somers v. Converged Access, Inc. that an employee who has been misclassified as an independent contractor is entitled, under Massachusetts law, to recover any wages and benefits he proves he was denied because of his misclassification, including holiday pay, vacation pay, and overtime. In so doing, the Court rejected the employer’s argument that it should not have to pay any damages because had it known the individual was an employee instead of an independent contractor, it would have paid him a lower hourly rate than he received as an independent contractor.

New York Attorney General Andrew M. Cuomo, Montana Attorney General Steve Bullock, and New Jersey Attorney General Anne Milgram have announced their intent to sue FedEx Ground Package Systems, Inc. (“FedEx Ground”) for violations of state labor laws stemming from the Company’s alleged misclassification of its drivers as independent contractors. The Attorneys General claim that such misclassification deprives drivers of workers’ compensation and other labor and employment legal protections received by FedEx Ground’s employees.

In Mohel v. Commissioner of Labor, a decision dated November 17, 2009, the New York Industrial Board of Appeals found that drivers of a limousine service were employees as opposed to independent contractors under the “right to control” test used by the New York State Department of Labor.

Finally, Beginning in early 2010, the IRS will launch an audit initiative that will audit the federal tax returns of 6,000 companies to assess compliance with tax and labor regulations. As part of this audit, the IRS will examine independent contractor misclassification. The initiative was prompted, in part, by advice from the United States Government Accountability Office to the IRS and United States Department of Labor to step up efforts to reduce the misclassification of independent contractors.

 

On December 21, 2009, the President signed H.R. 3326, which includes the COBRA subsidy changes discussed in yesterday's blog entry. The enactment of this law means that by February 19, 2009, administrators of group health plans must issue a notice describing the COBRA changes to individuals who were eligible for the subsidy or who experience(d) a COBRA qualifying event at any time on or after October 31, 2009. This notice should describe:

• The extension of the maximum COBRA subsidy period from 9 months to 15 months;
• The extension to February 28, 2010, of the qualifying date for an involuntary termination entitling the COBRA qualified beneficiary to the COBRA subsidy as an "assistance eligible individual";
• The right of qualified beneficiaries whose COBRA terminated after October 31, 2009 (due to failure to pay the higher COBRA premium) to reinstate coverage retroactively by paying the subsidized premium (the 35% amount) by February 19, 2010, or by 30 days after the notice is provided, whichever is later;
• The right of assistance eligible qualified beneficiaries who paid the unsubsidized premium for COBRA for periods after October 31, 2009, to receive a refund or obtain a credit of the overpaid amount. (The administrator can choose the option it prefers: refund or credit).

Watch the U.S. Department of Labor website, www.dol.gov/cobra, for more information and, possibly, a model notice.