Top Five Issues Confronting Your Business’s Human Relations Practices May 12, 2010

Wage & Hour: Employee Classifications

Why this Matters Department of Labor: adding 250 new investigators Internet education initiatives will be requiring compliance audits prioritizing misclassifications Mistakes cost big money

Three Issues to Think About Employee vs. Contractor Employee vs. Intern Non-Exempt Employee vs. Exempt Employee

Employee vs. Contractor The Benefits of Using Independent Contractors Reduced Cost Employer taxes No benefits Flexibility in staffing

Employee vs. Contractor (cont.) When Will Workers Be Considered “Employees” Common Law Test (Right To Control) Nationwide Mutual Insurance Co., v. Darden Insurance Agent – US Supreme Court factors – consider all aspects of employment relationship – no single factor controls The IRS 20 Factor Test It is not about the numbers! You do not need to meet all 20 tests All of the relevant facts and circumstances are considered Ultimately, it is about CONTROL

Employee vs. Contractor (cont.) When Will Workers Be Considered “Employees” (cont.) Economic Realities Test As an economic reality, is the worker dependent on the company Considered a broader, more liberal test Often used in FLSA cases Relevant factors Level of skill required Degree of worker’s financial investment in equipment and facilities Degree of control by Company Duration of the relationship Worker’s opportunity for profit and loss

Employee vs. Contractor (cont.) Effects of Misclassification Payroll Tax Liability Safe harbor protections – company had a reasonable basis for not treating workers as employees. past audit court case letter ruling advice of attorney FLSA FLSA does not cover independent contractors Economic realities test If misclassified Overtime minimum wage

Employee vs. Contractor (cont.) Effects of Misclassification (cont.) Employment Discrimination Laws and NLRA If considered an employee, must count towards jurisdictional minimum number of employees (Title VII requires 15 employees, etc.) If considered an employee, entitled to protections of the laws Workers’ Compensation If independent contractor, then exempt from workers’ compensation, and can sue in court for work related injuries Employee Benefits May sue the plan for benefits denied Risk of plan disqualification Plan language is key – the definition of who is eligible for benefits Vizcaino v. Microsoft

Employee vs. Contractor (cont.) Precautions to Reduce Risk of Liability Draft Independent Contractor Agreement Key Terms The definition of work performed Payment – flat rate, or per hour charge, with submission of reports Payment of Expenses Responsibility for Taxes Equipment, materials, supplies No Benefits Insurance – contractor to carry Indemnification – contractor to indemnify company for losses if reclassified as employee In practice, adhere to the agreement’s terms

Employee vs. Intern DOL is cracking down on companies that fail to properly pay interns. Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act Internships in the “for-profit” private sector will most often be viewed as employment, which must be paid.

Employee vs. Intern Six-Factor Test: Is the training similar to what would be given in a vocational school or academic educational instruction? Is the training for the benefit of the trainees or students? Do the trainees or students work under their close observation of regular employees without displacing them? Does the employer derive no immediate advantage from the activities of the trainees or students, and on occasion are the employer’s operations actually impeded? Are the trainees or students not necessarily entitled to a job at the conclusion of the training period? Do the employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training?

Exemptions: Administrative Employees Employee-by-employee analysis based on: Is the employee paid a salary of at least $455 per week? Is the employee’s primary duty 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? Does the employee’s primary duty include the exercise of discretion and independent judgment with respect to matters of significance? The Case of Mortgage Loan Officers Traditionally considered “exempt.” DOL Administrator’s Interpretation No. 2010-1 “Employees who perform the typical job duties of a mortgage loan officer do not qualify” as exempt administrative employees. “A careful examination of the law as applied to the mortgage loan officers’ duties demonstrates that their primary duty is making sales and, therefore, mortgage loan officers perform the production work [as opposed to administrative work] of their employers.”

Patient Protection and Affordable Care Act (PPACA) and Healthcare and Education Reconciliation Act (HCERA) What You Need To Known Now and In the Future

Main Elements Individual Mandate Employer Mandate Health Insurance Market Reform Creation of exchanges Insurance mandates Required coverage elements Tax Changes

Impact on Businesses What Your Insurance Must Have No lifetime amount restrictions Cover up to 26 Preexisting condition coverage No rescissions Preventative health services without cost sharing (with grandfather clause) Early retiree reimbursement Community Living Assistance Services and Support Act Prohibition on salary discrimination

Employer Coverage Issues NOW (2010 and 2011) Tax credits for small businesses Coverage requirements Tax changes HSA changes CLASS Act – Long-term benefit enrollment 2013 Medicare payroll tax increase Cap on salary-reductions for health FSAs Change Medicare Part D retiree drug subsidy (RDS)

Employee Coverage Issues (cont.) 2014 Small Business Exchanges (SHOPs) Penalty for No Coverage Automatic Enrollment (maybe 2014) Tax on Cadillac Plans 2016 Healthcare across state lines 2018 High-value Excise Tax

Healthcare Related Tax Changes W-2 Reporting Tax on subsidies for retiree prescription drug programs Medicare payroll taxes increased for high-wage employees “Tax” for not providing health insurance Excise tax on Cadillac plans Tax credits for small businesses Comparative effectiveness fee

What Your Plan Has to Cover 72.5% - employee plan 65% - family Kids up to 26 No lifetime limits No recissions Limits on waiting periods No preexisting condition restrictions for kids under 19 Automatically enroll – employees opt out

Grandfather Clauses What will cause loss of grandfathered in status is as yet undetermined Group health plans in existence when PPACA was enacted are not required to adhere to some of the plan coverage requirements No cost-sharing for preventive health services Prohibition on salary discrimination Grievance and appeals procedures Certain patient protection provisions Remember: enacted March 23, 2010

HSAs Limiting its uses Only for prescriptions, no longer for over-the-counter drugs Stiffer penalties

Retiree Only Plans Tax subsidies on retiree benefits starting in 2013 Companies that provides retirees with prescription drugs received a subsidy to do so This will now be taxed Caterpillar write-down - $14 Billion Boeing, Verizon, Conway also claim will suffer losses

CBAs Similar coverage requirements Amendments to CBA solely to comply with new rules is not considered termination of the agreement Certain coverage and reporting mandates not to apply until date last CBA relating to coverage terminates

Additional “Surprises” Nursing Rooms Whistleblower Protection 1099 Requirement Changes

Predicted Impacts Higher Insurance Premiums for Businesses on Current Plans Potential decrease for small businesses if SHOPs work as promised by Congress Penalty for Not Providing Insurance Loss of Certain Tax Breaks

Technology in the Workplace What You Can and Cannot Do

Privacy and Privilege Stengart v. Loving Care Agency, Inc. (N.J. 2009) Employee’s emails to her attorney, sent through Employee’s web based email account, considered privileged Court concluded that Company’s electronic communications policy, which required conversion of emails into company business records, must give way to attorney-client privilege Alamar Ranch LLC v. County of Boise, 2009 WL 3669741 (D. Idaho 2009) Privilege waived for emails sent using company computers Attorney should have been aware that client’s employer would access email sent via company system

Text Messages Quon v. Arch Wireless (9th Cir. 2008) Police officers used department – provided cell phones for work and personal use Department had policy of monitoring email and other communications, but policy did not specifically include text messages Service provider disclosed the text messages to the Department, as the subscriber under the SCA Court concludes that service provider could not disclose contents to Department Employee had reasonable expectation of privacy that messages would not be reviewed without consent U.S. heard oral arguments on April 19, 2010

Personal Email Accounts Employee’s access of personal web-based email accounts (Gmail, Yahoo, and the like) on company computer Can Employer log in to the personal account? Stored Communications Act Violation of SCA to access without authorization and obtain electronic communications Van Alstyne v. Electronic Scriptorium Ltd., 560F. 3d 199 (4th Cir. 2009) (Company found to violate SCA and punitive damages upheld, where former boss logged into employee’s AOL account)

The ADA Amendments Act: Disability Discrimination Redux

ADA Amendments Act Express purpose is to make it easier to meet the definition of “disability.” Response to court rulings that rejected claims of disability discrimination because the party wasn’t sufficiently disabled.

ADAAA: What’s New New definitions of “major life activity” Re-imagines “substantially limits” New provision relating to “regarded as” Refocuses the test of discrimination away from whether a disability exists to whether discrimination exists.

ADAAA: Major Life Activities Non-exclusive statutory list: eating, sleeping, walking, standing, lifting, bending, speaking, breathing, learning, reading, concentrating, thinking, communicating and working; or Major bodily functions, such as functions of the immune system, normal cell growth, digestive, bowel, bladder, neurological, brain, respiratory, circulatory, endocrine and reproductive functions.

ADAAA: Major Life Activities Impairments affecting only internal bodily functions without affecting external activities are to be considered disabilities. Impairment of one from either list is enough.

ADAAA: Substantially Limits Not an exacting test. Does not mean prevent, or significantly or severely restrict. Does not cover temporary, non-chronic impairments of short duration with little or no residual effects.

ADAAA: Substantially Limits Must also consider limiting nature of impairment when it is “active.” “An impairment that is episodic or in remission is a disability if it would substantially limit a major life activity when active.” Must ignore mitigating measures E.g., medications, medical devices, assistive technologies, learned behaviors, and surgical interventions.

ADA: Substantially Limits Examples Yes: deafness, blindness, intellectual disability, partially or completely missing limbs, mobility impairments requiring use of a wheelchair, autism, cancer, cerebral palsy, diabetes, epilepsy, HIV/AIDS, multiple sclerosis, muscular dystrophy, major depression, bipolar disorder, post-traumatic stress disorder, obsessive-compulsive disorder, and schizophrenia. No: the common cold, seasonal or common influenza, a sprained joint, minor and non-chronic gastrointestinal disorders, or a broken bone that is expected to heal completely. Maybe: asthma, back and leg impairments, carpal tunnel syndrome, and learning disabilities.

ADAAA: Regarded As Covers: actual or perceived disability, whether or not it actually limits or is believed to limit a major life activity actions taken on basis of mitigating measures used for an impairment, or symptoms of an impairment Does not cover: apply to transitory and minor impairments require reasonable accommodations.

ADAAA: What Does It All Mean? More ADA claims in federal court Summary judgment more difficult Higher settlement values of cases Disability vs. Accommodation

Rebuilding Your Workforce as the Economy Rebounds Considerations For 2010

Reconsider Your Hiring Practices as You Begin to Rebuild Your Workforce

Objective: Locate and Hire the Best Available Candidate

Re-hire vs. New Hire Look at the “Pros” and “Cons”

Where do you Look for People?

How Broad is Your Applicant Pool?

When Did you Last Read Your Application Form?

Should You Conduct Reference and/or Background Checks?

Do You Use… Social Networking Tools? Online Sources of Information?

Interviews: Are you asking the Right Questions?

Do You Do… Applicant Testing

Do You Require… Physical Examinations? Drug and Alcohol Testing?

Do You Go Through the Same Steps Rehire vs. New Applicant?

Terms and Conditions of Employment Confidentiality Agreement? Non-Compete? Employment Agreement? Review Employee Handbook?

Result: A Productive Workforce!

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