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Hot Topics in Labor & Employment Law 2010 The material provided herein is for informational purposes only and is not intended as legal advice or counsel.
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Hot Topics in Labor & Employment Law Legal Updates and Changes in the Law on Age Discrimination Pat Collins
Hiring Incentives to Restore Employment (HIRE) Act • Grants employers an exemption for their 6. 2% Social Security payroll contribution for every new “qualified employee” hired after February 3, 2010 and before January 1, 2011 • Allows an additional income tax credit that is equal to 6. 2% of paid wages for every new qualified employee retained for 52 consecutive weeks – up to $1000 – to be taken on the employer’s 2011 income tax
“Qualified Employee” Under the HIRE Act • Has not been employed for more than 40 hours during the preceding 60 -day period • Is not being employed to replace another employee except one who quit voluntarily or was fired for cause (including downsizing) • Is not “related” to the employer under the rules set forth in the U. S. Tax Code
Nursing Mother’s Amendment to the Fair Labor Standards Act • Section 4207 of the Patient Protection and Affordable Care Act of 2010 • Employers must provide a “reasonable break time” for an employee to express breast milk for her nursing child • Employer must provide a place other than a bathroom that is “shielded from view and free from intrusion from coworkers and the public”
Nursing Mother’s Amendment to the Fair Labor Standards Act • Employers with fewer than 50 employees are exempt if providing the break or the place to express breast milk would impose an “undue hardship” on the employer • Does not preempt state laws relating to breastfeeding in the workplace if the state law is more protective of its employees
Department of Labor Opinion Letters • The Wage and Hour Division of the Department of Labor will be eliminating the issuance of Opinion Letters • The Wage and Hour Division will now apparently issue an “Administrator’s Interpretation” which relies upon the Wage and Hour Division’s generalized understanding of the duties that commonly accompany a position in an industry, and lacks any fact-specific inquiry
Emergency Responders Employment Protection Act • Any member of a volunteer fire company, duly incorporated first aid, rescue or ambulance squad, or any member of any county or municipal volunteer office of emergency management may not be terminated or suspended for failing to report to work due to their service as a volunteer during a state of emergency declared by the president or governor, or their response to an emergency alarm
Emergency Responders Employment Protection Act • The employee must provide to the employer: – Notice that the employee is performing emergency services at least one hour before he/she was to report to work – A copy of the incident report and a certification by the incident commander, affirming that the responder was actively engaged in and necessary for the emergency services, upon returning to work
Emergency Responders Employment Protection Act • Employers are not expected to pay employees who are absent from work while responding to these emergency situations, but the employees may charge this time as vacation or sick time • The law does not apply to employees who are deemed “essential employees”
Age Discrimination – Changes on the Horizon
Disparate Impact The adverse effect of a facially neutral employment practice that nonetheless discriminates against persons because of their race, sex, national origin, age, disability, etc. and that is not justified by business necessity.
Smith v. City of Jackson • Police officers alleged that the City of Jackson violated the Age Discrimination in Employment Act (ADEA) by giving older officers less generous salary increases than the increases given to younger officers • In its defense, the City offered a reasonable basis for its pay plan – the city was trying to make its police department more competitive by matching the salaries of surrounding communities
Smith v. City of Jackson • U. S. Supreme Court held: – Plaintiffs failed to identify a specific test, requirement, or practice within the pay plan that has an adverse impact on older workers – An employer can use “reasonable factors other than age” (RFOA) as a defense to a disparate impact claim • A practice having a disparate impact on older workers need only be justified by reasonable nonage factors
EEOC Proposed Rule • To invoke RFOA defense, employment practice must be: 1) Be reasonably designed to achieve a legitimate business purpose 2) Be administered in a manner that reasonably achieves goal
EEOC PROPOSED RULE • Practice must be objectively reasonable when viewed by a “prudent employer” • Employers must: – Measure impact – Consider alternatives with less significant impact
Disparate Treatment The employment practice of intentionally dealing with persons differently because of their race, sex, national origin, age, disability, etc.
Gross v. FBL Financial Services, Inc. • Gross began working at FBL in 1987 and was promoted to the position of Claims Administration Director • In 2003, when Gross was 54, FBL reassigned him to a lower position and gave most of his previous job responsibilities to another employee who was then in her early forties • Gross sued FBL claiming that FBL demoted him due to his age in violation of the ADEA
Gross v. FBL Financial Services, Inc. • U. S. Supreme Court held: – A plaintiff bringing an ADEA disparate treatment claim must prove that age was the “but-for” cause of the challenged adverse employment action – An employer does not carry the burden of proving that it would have made the same decision regardless of age, even if the employee were to produce some evidence of age discrimination in the decision making process
Gross v. FBL Financial Services, Inc. • Congressional Fallout – Protecting Older Workers Against Discrimination Act • Would require that when a victim shows that age discrimination was a “motivating factor” behind a decision, the burden is on the employer to demonstrate that it complied with the law
Nini v. Mercer County Community College “Nothing herein contained shall be construed to bar an employer from refusing to accept for employment or to promote any person over seventy years of age. . ” NJ Law Against Discrimination N. J. S. A. 10: 5 -12(a)
Nini v. Mercer County Community College FACTS • Rose Nini worked for College for 26 years • In 2004, College informed her that it was not going to renew her 3 year contract • Prior to this notice, Nini claims there were numerous comments made about her age, being employed too long, “getting rid of dead wood” • Contract expired in 2005; Nini terminated • Nini sued for age discrimination under LAD
Nini v. Mercer County Community College COURT DECISIONS Trial Court: Sided with the College • When contract expired, Nini was not terminated, she was not rehired • LAD permits employers to refuse to hire individuals over 70 Appellate Division: Sided with Nini • A contract non-renewal is the same as a termination • The over-seventy exception does not apply to terminations
Nini v. Mercer County Community College Supreme Court: Agreed with the Appellate Division and sided with Nini • LAD is liberally construed to afford as much protection as possible • If LAD did not protect contract renewals, loophole would allow employers to place aging employees under contract, not renew contract and fire older workers • Over-seventy exception has purpose of protecting employers from hiring and training employees with limited long term prospects • Long term employees already on the job require no training. Purpose of exception is not present
Interns, Trainees and Volunteers: Do Your Unpaid Employees Satisfy Wage & Hour Requirements? Chris Elko
“I definitely say my choice in grad school is definitely heightened by the economy. The idea that I can still continue my education provides me with a nice security blanket. ” Lauren Apter – UC Berkley College Senior, as reported in the New York Times
Intern vs. Employee • Almost EVERYONE is an Employee – Employee = anyone “suffered or permitted” to work • DOL presumes all workers to be “employees” – Employees must be compensated • Minimum Wage • Overtime • These rules apply to private sector “forprofit” companies only
Intern vs. Employee • Unpaid Interns are a narrowly defined class – Title VII and NJLAD still applies • Trainees – Internship rules apply
Volunteers • Private “for-profit” – impermissible under any circumstances – Employees must be compensated for all time spent on the job • Private “non-profit” - permissible for public service, religious or humanitarian objectives • Public Sector – permissible – Employees may not “volunteer” to perform jobrelated tasks
DOs and DON’Ts
Authorities • United States Supreme Court Guidance • Department of Labor Opinion Letters – 2004 – 2006 • Department of Labor Fact Sheet #71
Portland Terminal Requirements • The training is similar to what would be given in a vocational school or academic educational instruction • The training is for the benefit of the trainees or students • The trainees or students do not displace regular employees, but work under their close observation • The employer that provides the training derives no immediate advantage from the activities of the trainees or students, and on occasion the employer’s operations may actually be impeded • The trainees or students are not necessarily entitled to a job at the conclusion of the training period • The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training
Rule #1 • The training is similar to what would be given in a vocational school or academic educational instruction Compliance Tip • “Real world” skills count
Rule #2 • The training is for the benefit of the trainees or students Compliance Tip • College credits presumptively pass the test
Rule #3 • The trainees or students do not displace regular employees, but work under their close observation Compliance Tip • Hours worked may resolve this requirement
Rule #4 • The employer that provides the training derives no immediate advantage from the activities of the trainees or students, and on occasion the employer’s operations may actually be impeded Compliance Tip • Supervision!
Rule #5 • The trainees or students are not necessarily entitled to a job at the conclusion of the training period Compliance Tip • Disclose up front that interns are not entitled to future employment
Rule #6 • The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training Compliance Tip • Wages include goods, room and board, etc.
Achieving Compliance • Documentation – Identify Position – Identify Pay/Future Hiring Expectations – Identify Tasks – Identify Supervision – Identify Hours
Wage & Hour Updates David Cassidy
NO MORE ADVICE FROM USDOL
Enforcement, Enforcement • USDOL to increase enforcement efforts • Will no longer answer requests for advisory opinions – specific advice • Will issue “Administrator’s Interpretation” periodically – generic advice • Employers will need to make hard judgment calls with advice of counsel
Advisory Opinion • Employers could set forth specific facts and policies • USDOL provided specific analysis and approval/disapproval – See C-2 • Provided clarity and a legal defense for employers
Administrator’s Interpretation • USDOL sets forth generic facts – may not be directly on point – See C-3 • Requires legal analysis to determine if it applies • Judge could see it otherwise – limited use depending on the facts
RECENT ADMINISTRATOR’S INTERPRETATION
March 24, 2010 • The USDOL issued an “Administrator’s Interpretation” stating that mortgage loan officers generally do NOT qualify for the administrative exemption under the federal Fair Labor Standards Act (FLSA) • USDOL reversed its position withdrawing a 2006 Wage/Hour Opinion letter • Why is this important?
Prior Interpretation • In the past, mortgage loan officers were classified within the administrative exemption – Mortgage loan officer’s primary duty related to "the management or general business operations" of the employer’s customers
Administrative Exemption Three Tests 1. Salary 2. Primary duty related to general business of employer or employer’s customers 3. Discretion and independent judgment
Job Duties Mortgage loan officers: • Receive internal leads and contact potential customers • Collect required financial information from customers they contact or who contact them • Enter the collected financial information into a computer program • Assess the loan products identified and discuss with the customers the terms and conditions of particular loans • Compile customer documents forwarding to an underwriter or loan processor, and may finalize documents for closings
Primary Duty – Administrative Exemption • To fall within the meaning of an “employee employed in a bona fide administrative capacity” an employee’s primary duty must be: – “the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers. ” 29 C. F. R. § 541. 200(a)(2).
USDOL Now Says… Primary duty of loan officers is sales, which is not related to the "management or general business operations” of either the employer or the employer's customers.
USDOL Says… Mortgage loan officers' primary duty is making sales and, therefore, mortgage loan officers perform the production work of their employers.
Why Important/ What to Do? • Has broader implications than just loan officers • Perform an assessment of anyone classified as administratively exempt for the purpose of legal advice under the guidance of legal counsel, making it subject to the attorney-client privilege • Ensure primary duty relates to the management of the business or customer’s business – not production work • Consider adjusting employees’ responsibilities so they can qualify for the administrative or OTHER exemptions
NEW JERSEY DEPARTMENT OF LABOR ENFORCEMENT POLICY ON ROUNDING EMPLOYEES’ TIME
Differences Between Clock Records and Actual Hours Worked • Employees must be paid for hours worked • Problems arise over how to treat small amounts of unscheduled/scheduled time worked or missed by employees • FLSA established two rules: – de minimis – Rounding Off
Rounding to the Nearest Quarter Hour Examples: – Employee leaves work at 4: 55 p. m. Time rounded up to 5: 00 p. m. – Employee leaves work at 5: 07 p. m. Time rounded down to 5: 00 p. m. – Employee clocks in at 8: 55 a. m. Time rounded up to 9: 00 a. m. – Employee clocks in at 8: 50 a. m. Time rounded down to 8: 45 a. m. You can round forward when clocking in, and round backwards when clocking out.
Fair Labor Standards Act 29 C. F. R. 785. 48(a) (Use of Time Clocks) Minor differences between the clock records and the actual hours worked cannot ordinarily be avoided, but major discrepancies should be discouraged since they raise a doubt as to the accuracy of the records of the hours actually worked.
New Jersey Law • Previously NJDOL accepted rounding practices that complied with Federal Regulations (since 1965) • NJDOL issued an opinion letter accepting the practice of rounding • But, a recent letter from the NJDOL states: “We now have an enforcement policy that requires employers who round off time worked in any increment to round it off in favor of the employee. ”
But, Not So Fast… The Deputy Commissioner of the NJDOL directed his staff to prepare a notice of proposal for new rules within the New Jersey Administrative Code which would adopt the federal rounding standard. Of course, change takes time.
Questions & Answers Session Part 1
Updates on Technology, Discrimination & Military Family Leave Annmarie Simeone
Technology in the Workplace Update Stengart v. Loving Care Agency, 201 N. J. 300 (2010) • Employee e-mails with her attorney, even if exchanged on a company-issued laptop, will remain private and confidential • Monitoring policies still permitted, but limits are recognized
The Issue: The extent to which an employee can expect privacy and confidentiality in personal e-mails with her attorney which she accessed through her personal, password protected e-mail account on a company-issued laptop.
A Reminder on the Facts of this Case • Stengart made hostile work environment claim • Used company-issued laptop to communicate with her employment lawyer • E-mails stored and accessible on company’s server • Loving Care retrieved e-mails and used in litigation
Loving Care’s Policy Loving Care had a written electronic communication policy but: • It did not address use of personal, web-based e-mail accounts on those computers • In fact, it did not address personal accounts at all • It did not warn employees that the content of e-mails sent via personal accounts were being stored on the Company hard drive and could be retrieved and read by the company • It did say that occasional personal use was permitted
The Answer • Stengart had a reasonable expectation of privacy in the e-mails exchanged with her lawyer through her personal e-mail account • Sending and receiving them via a company-issued laptop did not eliminate the attorney-client privilege that protected them • Lawyers for Loving Care violated the Rules of Professional Conduct by failing to notify Stengart promptly of the privileged documents
Why This Holding? • Stengart took steps to protect the communications • The Company’s policy was ambiguous • It was not clear whether the use of personal, password protected, web-based e-mails accounts via company equipment fell within the policy that made the e-mails “Company property” • The Company’s policy failed to warn employees that e-mails were copied and captured on Company hard drive and could be retrieved and read • The e-mails were not illegal or inappropriate • Strong public policy concerns weigh in favor of enforcing the attorney-client privilege • Company policies cannot unilaterally eliminate the attorney-client privilege
Impact on Business • Companies can adopt lawful policies relating to computer use BUT • “Employers have no need or basis to read the specific contents of personal, privileged, attorney-client protected communications in order to enforce the company policy. Thus, even a more clearly written company policy that banned all personal computer use and provided unambiguous notice that an employer could retrieve and read an employee’s personal attorney-client communications, if accessed on a personal, password protected e-mail account using the company’s computer system, would not be enforceable. ”
Pointers Your company policy should: • Be tailored • Address legitimate business needs • Be clear and unambiguous • Address use of personal websites • Warn employees if e-mails on personal accounts are saved on company server
Harassment in the Workplace Updates 2 Unique Cases • Case 1 - Involves business to business discrimination (not the typical discrimination against an employee), but also a claim under the NJLAD • Case 2 – Involves a hostile work environment claim by an employee based on employer’s comments about the race of her family
Companies Face Potential Risk for Discriminatory Refusal to do Business A recent case expanded the potential bases for liability between two businesses. J. T. ’s Tire Service v. United Rentals North America, Inc. , 411 N. J. Super. 236 (App. Div. 2010).
Background Facts • Plaintiff alleged that defendant’s branch manager violated the LAD by subjecting plaintiff’s sole owner, Eileen Totorello, to quid quo pro sexual harassment • J. T. ’s claimed that United ceased doing business with J. T. ’s because Ms. Totorello had refused the sexual advances of United’s branch manager. Ms. Totorello also asserted that the branch manager “kissed and groped her” against her will, and when she refused his advances, that he told her she was “making a very poor business decision. ” • Business dropped off-down to zero
Applying the Unique Legal Provision • Court says: Plaintiff’s case can continue and denied SJ to Defendant • The LAD makes it unlawful: “For any person to refuse to buy from, sell to, lease from or to, license, contract with, or trade with, provide goods, services or information to, or otherwise do business with any other person on the basis of …sex, ” as well as other protected characteristics such as race, religion and age • Court observed: if the sexual harassment alleged by the plaintiff was “legally permitted, [it] would stand as a barrier to women’s ability to do business on an equal footing with men” • The court concluded that to prohibit [the alleged] opprobrious conduct is consistent with the Legislature’s intent to eliminate sex discrimination in contracting
Question: Why is the J. T. ’s Tire Service Case Important? Answer: The Hidden Danger How can employers address problems that might occur in the field?
Pointers • Expanded risk to business owners • Potential liability to customers (not only employees under LAD) • Manage and train sales staff • Manage and train anyone who deals with third parties – customers, vendors • Please read attached Labor & Employment Law Alert
Unique Case #2: Harassment Based on Race of Employee’s Family • New Jersey Division of Civil Rights issued a probable cause finding against an employer and its owner • Owner admittedly used the “N” word in the presence of an Asian employee who has a biracial child and black fiancé. Employee’s complaints were ignored.
Pointers • Employers are on notice – a probable cause finding can be issued regardless of whether or not the conduct related to the EMPLOYEE’s protected status
Military Family Leave Updates • January 2008 – initial amendments to FMLA • October 2009 – leave provisions are expanded as part of the National Defense Authorization Act for FY 2010 • The two types of leave are: 1. 2. Qualifying Exigency Leave and Military Caregiver Leave
Basic Eligibility This remains the same as for other FMLA leave: • Must work for a covered employer • Must have worked for the employer for a total of 12 months • Must have worked at least 1250 hours over the previous 12 months • Must work at a location where at least 50 employees are employed by the employer within 75 miles
Caregiver Leave January 2008 Applied only to: • Family members caring for current members of Armed Forces, Guard, Reserves • Serious injury or illness incurred in line of duty while on active duty After October 2009 Amendments Now also applies to: • Family members caring for veterans undergoing treatment, recuperation or therapy and were members of Armed Forces, Guard, Reserves in preceding 5 years • Aggravation of existing or preexisting injuries incurred in line of duty
Qualifying Exigency Leave January 2008 Applied only to: • Family members of a service member of National Guard or Reserves After October 2009 Amendment Now also applies to: • Family member of active duty Armed Forces (“Regular Armed Forces”) deployed to foreign country Note re: Deployment: Thus, the spouse of a regular Army soldier deployed to Iraq would be entitled to take FMLA leave while that soldier has rest and recuperation in the U. S. However, the spouse of a regular Army soldier assigned in the U. S. would not be entitled to FMLA leave during the soldier’s rest and recuperation unless another FMLA reason applies.
New Jersey's Medical Marijuana Law – An Overview for Employers Keya Denner
The New Law – Quick Facts • Passed January 2010 by the Legislature and Governor Corzine • What it allows: Registered patients may purchase up to 2 ounces of marijuana a month. Patients may not grow their own. • Who is eligible: – State residents diagnosed with a “debilitating medical condition” • Seizure disorder (epilepsy), glaucoma • HIV/AIDS or cancer, if severe or chronic pain, severe nausea or vomiting…or wasting syndrome results • Terminal cancer, multiple sclerosis, Lou Gehrig’s disease, Crohn’s disease, or muscular dystrophy • Terminal illness and given less than a year to live • Any other medical condition or its treatment that is approved by the Department of Health and Senior Services
The New Law – Quick Facts • How does a patient sign up? – A physician must recommend a patient. The Department of Health and Senior Services will then issue an identification card • The holder of the I. D. card cannot be prosecuted for possessing marijuana • Where will it be dispensed? – “Alternative treatment centers” – First six will be non-profit, but for-profit centers will be allowed eventually
The New Law – Quick Facts • Where can it be used? – Cannot “operate, navigate or be in actual physical control of any vehicle, aircraft, railroad train, stationary heavy equipment or vessel while under the influence…” – Cannot smoke in “a school bus or other form of public transportation, in a private vehicle [unless not in operation], on any school grounds, in any correctional facility, at any public park or beach, at any recreation center, or in any place where smoking is prohibited”
The New Law – Current Status • Medical marijuana not yet available in the State – • Law calls for Department of Health and Senior Services to first develop a process to register qualified patients, caregivers, and alternative treatment centers Governor Christie has asked Legislature for a January or July 2011 start date. – On June 4 th, advocates threatened lawsuit if implementation is delayed
Review – Employer Drug Testing Under NJ Law • No random drug testing of public sector employees unless they hold a safety sensitive position – Random testing of public sector employees holding safety sensitive position permissible as part of annual physical • No random drug testing of private sector employees unless they hold a safety sensitive position
Review – Employer Drug Testing • Drug testing based upon reasonable suspicion of drug impairment permitted – Must take appropriate safeguards to protect employee’s privacy – Must adopt appropriate drug testing policy
Employer Drug Testing - ADA • ADA does not regulate testing for illegal drugs – Employer may test for illegal drugs either before or after an offer of employment • However, tests may reveal presence of prescription drugs – EEOC regulations prohibit pre-offer inquiries regarding prescription drugs • Using v. non-using drug addicts – ADA considers non-using drug addicts and alcoholics to be individuals with a disability entitled to reasonable accommodation
Employer Drug Testing - ADA • At pre-offer stage, employers may: – Ask if applicant can perform job’s requirements – Ask if applicant can comply with drug use rules – Ask whether applicant is currently using illegal drugs – Not ask whether applicant is a drug addict or whether applicant has ever been in rehab program – Not ask an applicant about prescription drug use – Not test for prescription drug use • After extension of conditional offer, Employer may ask about prescription drug use
Employer Drug Testing - NJLAD • NJLAD does not specifically address drug testing • However, the Appellate Division has held that drug addiction is a handicap under the NJLAD and, where, feasible, and employer should allow chance for rehabilitation
Accommodation? • Ross v. Raging. Wire (2008): California Supreme Court held that California law does not require employers to accommodate the use of medical marijuana, which is otherwise permitted under California’s Compassionate Use Act • Roe v. Tele. Tech Customer Care Management (2009): Washington Court of Appeals found no implied cause of action arising from the Washington State Medical Use of Marijuana Act against an employer who refused to hire a prospective employee who failed a preemployment drug test
Accommodation? • Emerald Steel Fabricators v. Bureau of Labor and Industries: Oregon Supreme Court ruled that Oregon law does not require employers to accommodate the use of medical marijuana – Reversed state administrative ruling that employer violated Oregon disability laws when it terminated employee who disclosed he was using medical marijuana – Court noted that marijuana was categorically prohibited by federal law, and, therefore, Oregon disability law does not protect an applicant or employee who engages in illegal use of drugs
The Future – A Long Strange Trip Ahead? • Can an employee use medical marijuana in the workplace? • Can a company fire someone who tests positive for medical marijuana, even if used outside of work? • Can an employee then claim discrimination? • How can an employee who uses medical marijuana avoid termination? • What about medical confidentiality?
Patient Protection and Affordable Care Act of 2010 - Dependent Coverage Under Age 27 – Issues & Guidance Charles Bruder
Patient Protection and Affordable Care Act of 2010 • Patient Protection and Affordable Care Act (PPACA) – Will result in significant changes to the structure and administration of group health plans (GHPs) – Implementation of the law is scheduled to occur fully in 2018 • Certain provisions will be implemented in 2010 • Augmented by the Health Care and Education Reconciliation Act of 2010 • Many open issues and questions remain as administrative guidance has not yet been issued: – Costs – How to estimate? – Administrative Issues – Will my company’s group health plan be required to be amended? – How much flexibility do I have in structuring my company’s group health plan?
Patient Protection and Affordable Care Act of 2010 • The current level of uncertainty regarding the future application of PPACA makes it impossible for GHP sponsors to currently plan for future years • Sponsors need to have a practical, incremental approach to the implementation of PPACA – Focus on the applicable provisions of each approaching calendar year • Provisions which will become effective in future years may not stay as currently enacted • Is repeal possible?
PPACA – Implementation Dates and Timelines – Where Do We Start? • Current concerns – Certain provisions of PPACA become effective for plan years commencing in 2010 (with exceptions for certain collectively bargained plans): • • • New appeals processes Availability of primary physician Coverage of emergency services No prior authorization OB/GYN Dependent coverage through age 26 for covered employee's child lacking access to other employer coverage • No lifetime dollar limits • Restricted annual dollar limits • Pre-existing condition exclusions for dependants under age 19
Dependant Coverage Under Age 27 • Provided for under the applicable provisions of PPACA • Income exclusion – IRC Section 106 • Effective March 30, 2010 – Coordination with the amendments to the Public Service Health Act • Applies to children under age 26 • Requires insurers and group health plans to provide coverage through such age • Effective for the first plan year commencing on or after September 23, 2010 • Changes many of the concepts and rules previously applicable to dependent health coverage
Definition of Dependent – IRC Section 152 • Qualifying child or relative – Maintains the requisite relationship with the taxpayer – Has not attained 19 years of age as of the end of the tax year or who is a student who has not attained 24 years of age – Has the same principal abode as the taxpayer – Has not provided over one-half of his or her support for the calendar year – Has not filed a joint federal income tax return for such year
Definition of Dependent – IRC Section 152 • Requisite relationship? – – – – Child or descendant of such child Brother, sister, stepbrother or stepsister Father or mother or ancestor of either Stepfather or stepmother Son or daughter of a brother or sister of the taxpayer Brother or sister of the father or mother of the taxpayer Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law of the taxpayer – Any member of the taxpayer’s household other than the taxpayer’s spouse
PPACA – Definition of Dependent for Continued Coverage Through Age 26 • IRS Notice 2010 -38 – Child of the taxpayer who has not attained age 27 as of the end of the calendar year • Son, daughter, stepson or stepdaughter, legally adopted child • “Eligible foster child” • May include a child who does not meet the definition of dependent under IRC Section 152 – Age limits, residency requirements, support requirements and marriage prohibition does not apply
IRS Notice 2010 -38 • Applies only for payments for medical care of qualifying individuals – Includes FSA reimbursements • A child attains age 27 on the 27 th anniversary of his or her birth • IRC Section 106 technically does not permit such payments to be excluded from income – IRS and Treasury “intend” to retroactively amend IRC Section 106
IRS Notice 2010 -38 – Change in Status Events • IRC Section 125 only permits a new group health plan election (or revocation) to be made due to a “change in status event” – – – Marriage, death of a spouse, divorce, legal separation, annulment Birth, death or adoption of a dependent Change in employment status Change in dependency status Certain changes in residency • Currently, the Treasury Regulations under IRC Section 125 do not permit a new election to be made due to the enactment of PPACA – IRS and Treasury “intend” to amend these Treasury Regulations too
IRS Notice 2010 -38 – Cafeteria Plan Amendments • Cafeteria plan documents will need to be amended to include this new coverage provision – Retroactive to March 30, 2010 – Under the applicable provisions of the Treasury Regulations, cafeteria plan documents may only be amended prospectively – IRS Notice 2010 -38 provides that elections may be made immediately, even if the cafeteria plan document does not permit such an election – Plan amendments must be made no later than December 31, 2010 – Unclear as to the consequences if such amendments are not made in a timely manner
PPACA and its Effect on New Jersey State Law • Currently, New Jersey State law provides for “dependent child” coverage through age 31 – Can we therefore ignore IRS Notice 2010 -38 and the applicable provisions of PPACA? • NO! • A dependent child who cannot satisfy the requirements of New Jersey State law MAY be eligible to continue coverage under IRS Notice 2010 -38 • A group health plan sponsor needs to review the provisions of both federal and state law before excluding a child from continued health coverage
New Jersey Health Benefit Coverage of Children Until Age 31 • Includes a child by blood or law who: – – – Is under 31 years of age Is not married Has no dependents of his or her own Is a resident of the State of New Jersey or a full-time student Does not otherwise have health coverage • Need to also keep in mind that New Jersey law generally provides for health coverage availability through age 23 for dependent children
PPACA and Dependent Coverage Under Age 27 - What Do We Do Now? • Review IRS Notice 2010 -38 • Employee communication will be key – Goal: Educate and inform your employees • Coordinate your efforts with your broker and insurance carrier • Carefully review the facts and circumstances surrounding any coverage continuation request – Does the child meet the general definition of "dependent"? • If so, coverage under PPACA is likely permissible • If not, does the child meet the broad definition of dependent under PPACA/IRS Notice 2010 -38? – Is the child eligible for continued coverage under New Jersey State law? • If not, does the child meet the broad definition of dependent under PPACA/IRS Notice 2010 -38?
Questions & Answers Session Part 2