Subcontracting Work Out to Third Parties Could Still Lead to Joint Employer Liability for Companies

August 11, 2014

By Stephanie P. Berntsen, Attorney

On August 7, 2014, the Washington Supreme Court unanimously adopted the “economic reality” test to determine whether a joint employment relationship exists under Washington’s minimum wage state (”MWA”), chapter 49.46 RCW in Becerra et al. v. Expert Janitorial LLC and Fred Meyer Stores, Inc. (Case No. 89534-1).

In Becerra, the plaintiffs worked as independent contractors (the validity of that classification was not at issue on appeal) for subcontractors who provided janitorial services to Expert Janitorial LLC. Expert then had a contract with Fred Meyer to provide janitorial services in Fred Meyer stores in the Puget Sound while those stores were closed and locked at night. None of the plaintiffs were formally employed by Expert or Fred Meyer. The plaintiffs were regularly required to work more than eight hours per day because they were locked in the store and could not leave until the Fred Meyer employees reviewed their work and signed them out the next morning. The subcontractors paid the plaintiffs less than the minimum wage and did not pay them overtime.

The plaintiffs sued the subcontractors, Fred Meyer and Expert for violation of the MWA among other things. Fred Meyer and Expert moved for summary judgment on the grounds that they were not the plaintiffs’ employers. The trial court applied the joint employment test set forth in Bonnette v. California Health and Welfare Agency, 704 F.2d 1465, 1469 (9th Cir. 1983) and granted summary judgment as to both, primarily on the ground that they were not involved in the hiring and firing of the plaintiffs.

The plaintiffs’ appealed the trial court’s summary judgment orders. The Court of Appeals reversed. Expert and Fred Meyer petitioned for review.

The Washington Supreme Court confirmed that the MWA is “remedial in nature and is liberally construed.” *8. Washington courts “look to FLSA jurisprudence in interpreting our act.” *8. In reviewing that jurisprudence, the court adopted the “economic reality” test as set forth in Torres-Lopez v. Robert May, 111 F.3d 633 (9th Cir. 1997). In Torres-Lopez, the Ninth Circuit articulated 13 nonexclusive factors to determine whether a joint employment relationship exists. These factors include, but are not limited to: (1) the nature and degree of control of the workers; (2) the degree of direct or indirect supervision of the work; (3) the power to determine rates of pay; (4) the right to directly or indirectly hire, fire, or modify employment conditions; (5) the preparation of payroll. In addition, the court articulated eight additional “functional factors.” The court further cautioned that these factors “are not exclusive and are not to be applied mechanically or in a particular order.” In concluding that the trial court did not apply these factors, it remanded to the trial court.

Becerra instructs that a company may be held jointly responsible for compliance with federal and state minimum wage requirements under a “joint employer” theory even if those functions have been subcontracted out. Companies that subcontract work at their facilities, such as janitorial work or other services, should carefully review those contracts and ensure that the subcontractor is responsible for complying with federal and state wage laws and that appropriate indemnification provisions are in place. Simply accepting the lowest bid from a subcontractor without regard to whether those who would be actually performing the job could or would be receiving appropriate pay under federal and state wage laws could lead to joint employer liability if those wages were not paid properly.

Doing Business in Eugene? Mandatory Sick Leave May Soon Be a Reality.

May 28, 2014

By Leora Coleman-Fire, attorney

Less than a few months after Portland’s Sick Leave Ordinance was enacted to cover the broader City of Portland area, the City of Eugene appears to be gearing up to follow in Portland’s footsteps with its own mandatory sick time law. Keep reading to learn what we know now, where things are going next, and how you can get involved in this important process of shaping what Eugene’s mandatory sick leave law, if passed, will look like.


1. What has happened and next steps

The City of Portland passed a mandatory sick leave law, which began on January 1, 2014, that requires all employers with workers within the greater geographic area of the City of Portland to provide those workers with sick leave. Employers with six or more workers are required to provide paid leave to eligible workers, while employers with fewer than six workers are required to provide unpaid leave. In addition, employers are required to make various administrative changes in order to be in compliance with the Portland ordinance, as discussed in more detail here. Employers’ reactions to the Portland ordinance have been varied, but many expressed concern about not being included earlier in the process of formulating the new law.

In Eugene, on February 24, 2014, a coalition of advocacy groups that organized a sick leave campaign called “Everybody Benefits Eugene” proposed to the Eugene City Council that Eugene enact a mandatory sick leave ordinance. The City Council then met again on April 9, for a work session to discuss the timeline and process for developing a draft sick leave ordinance to consider for adoption.

Next, a task force was assembled to create a draft sick leave ordinance. Members of that task force include the following: United ‎Food and Commercial Workers Staff Director Kevin Billman; Painters Local 1277 Business ‎Representative Pat Smith, who is also Secretary-Treasurer of the Lane, Coos, Curry, Douglas ‎Building Trades Council; Eugene Mayor Kitty Piercy; and Eugene City Council members Claire ‎Syrett and Alan Zelenka. The task force first met on May 20th and plans to meet again on May 29th. The City Council plans to have a draft ordinance for public review sometime between mid-June and the first week of July, followed by a public hearing approximately two weeks later, and then the City Council will meet to decide whether to adopt the draft ordinance.

2. What you can do to get involved

While the members of the task force have already been chosen, you can still be involved in the process and provide feedback. Feedback can be provided to the above members of the task force or directly to us, if you would like us to provide feedback on your behalf or anonymously.

Moreover, when the draft ordinance is published to the public, that is the time to make your voice heard. We have seen the challenges of the Seattle and Portland mandatory sick leave laws for employers and it is important that Eugene’s City Council recognizes these challenges before adopting the same issues. In addition, we encourage you to attend the public hearing to participate in the discussion and voice your concerns then as well.

3. Questions?

We are closely monitoring developments related to mandatory sick leave laws in Oregon and Washington, including these latest efforts in Eugene. These issues are complicated and raise numerous legal concerns. We are here to help guide you through these issues as they are developing and once any new law is enacted. If you have questions, please do not hesitate to contact us.

Your Summary Plan Description Must be Updated Every Five Years

April 4, 2014

By Wally Miller, Attorney

From an employee’s point of view, the most important document relating to an employee benefit plan (and in many cases, the only plan document of which the employee is aware) is the Summary Plan Description (“SPD”).  The SPD is the basic document informing employees of the terms of the plan under which they are covered.  It gives them an understanding of how the plan works, what benefits it provides, and how to receive such benefits.  To guard against misunderstandings associated with lack of such knowledge, the Employee Retirement Income Security Act (“ERISA”) imposes upon employers the duty to provide each plan participant with a current SPD that addresses the participant’s rights and obligations under the plan.

By reason of the importance of the SPD, the Department of Labor regulations expressly hold that an SPD must be restated and redistributed to plan participants no less frequently than every five years.  The restated SPD must address amendments that have been made to the plan during the interim period, even if participants have been previously provided Summaries of Material Modifications advising of changes to the plan.  The updated SPD must also include any changes to information required to be disclosed in the SPD.  These other changes could include:

  • A change in a member of the Plan’s Board of Trustees; or
  • New plan expenses charged to the accounts of participants (such as for loan applications or other purposes), which the Department of Labor now requires to be disclosed in an SPD.

Time passes quickly.  Therefore, employers should review the date of the most recent SPD for each of its employee benefit plans to ascertain if it is time to prepare and distribute an updated version.

For further information or questions regarding the required updating of SPDs, please contact the Schwabe attorney with whom you work or Wally Miller at 541-686-3299 or

IRS rules of practice require us to inform you that any federal tax advice contained in this correspondence is not intended or written to be used, and cannot be used, by the recipient or any taxpayer for the purpose of avoiding tax penalties under the Internal Revenue Code.

IRS Issues New Guidance on Affordable Care Act Employer “Play-or-Pay” Mandate

March 18, 2014

By Wally Miller, Attorney

A core provision of the Affordable Care Act (”ACA”) is its employer-shared responsibility mandate (also known as “play-or-pay”). This component of the ACA requires an employer having 50 or more full-time equivalent employees to offer its full-time employees health care coverage that is both affordable and provides minimum value. Failure to do so exposes the employer to an assessment of substantial excise tax penalties. The play-or-pay mandate was scheduled to become effective for 2014; its effective date was later deferred until 2015.

The ACA provides for two forms of the play-or-pay penalty.

  • “No Coverage” Penalty. If an applicable large employer fails to offer coverage to substantially all of its full-time employees, and if even one full-time employee who is not offered coverage receives premium assistance for a policy purchased through a health insurance exchange, the employer will be subject to a non-deductible penalty of $2,000 per year, multiplied by the total number of its full-time employees (including full-time employees actually covered under the employer’s group health plan). When performing the penalty calculation, the number of full-time employees otherwise taken into account is reduced by 30.
  • “Inadequate Coverage” Penalty. If the employer offers health coverage, but that coverage is either “unaffordable” with respect to a full-time employee, or does not provide “minimum value,” and if by reason of such the employee receives premium assistance for a policy purchased under the insurance exchange, the employer will be liable for an annual penalty of $3,000 for each employee so receiving premium assistance.

In January of 2013, the IRS issued proposed regulations addressing various aspects of the play-or-pay rules. The IRS recently released its long-awaited final regulations implementing the play-or-pay mandate. These regulations provide guidance on a number of key issues that had been left unanswered by the proposed regulations. Moreover, the new regulations provide for various forms of transition relief for 2015 that will allow for a smoother glide path toward compliance for many employers.

A summary of the more significant provisions of the final regulations is below.

2015 Transition Relief Rules

Postponement of Effective Date for Mid-Size Employers

Under the statutory rules, an employer is an “applicable large employer” for a calendar year, and thus will be governed by the employer play-or-pay mandate for that year, if it employed on average at least 50 full-time equivalent employees during the preceding calendar year. The final regulations offer temporary relief to mid-size employers. Employers that employed on average between 50 to 99 full-time equivalent employees during 2014 will be exempt from the play-or-pay rules for 2015, and, in the case of a non-calendar year plan, for the calendar months during the portion of the 2015 plan year that occur in 2016. However, in order to qualify for this one-year postponement, the employer must satisfy all of the conditions prescribed below.

  1. The employer must not reduce its work force during the period of February 9, 2014, to December 31, 2014, for the purpose of qualifying for the transition relief. Reductions in work force for “bona fide” business reasons are permissible.
  2. The employer must not eliminate or materially reduce any health coverage offered as of February 9, 2014, prior to the end of the employer’s 2015 plan year (i.e., the plan year beginning in 2015).
  3. The employer must certify that it satisfies the above conditions. This certification is to be made on a form to be prescribed by the IRS, and will be filed as part of the new annual ACA reporting required of employers.

Relaxation of 95% Minimum Coverage Standard

Under the general play-or-pay rules, an employer is subject to the “no coverage” penalty if it does not make health coverage available to at least 95% of its full-time employees. For 2015 (and in the case of a fiscal year plan, for each month in 2016 that is part of the 2015 plan year), the no-coverage will not be assessed if the employer offers coverage to at least 70% of its full-time employees.

As is the case with regard to the 95% standard, an employer may still be liable for the “inadequate coverage” play-or-pay penalty if it offers health coverage to at least 70% of its full-time employees (thereby avoiding the no coverage penalty), but at least one full-time employee who is not offered coverage receives a premium tax credit to help pay for coverage purchased on an insurance exchange.

Calculation of “No Coverage” Penalty

When calculating the $2,000 per year ($166.67 per month) per full-time employee “no coverage” penalty calculation, the number of full-time employees otherwise taken into account is reduced by 30. Solely for 2015, and for the calendar months of a fiscal year plan falling in 2016, the number of full-time employees taken into account for penalty calculation purposes is reduced by 80.

Non-Calendar Year Plans

Temporary relief is available to an employer that maintains a plan on a fiscal (non-calendar) year basis. Subject to prescribed conditions, a play-or-pay penalty will not be assessed for any calendar month in 2015, or for any calendar month that falls within the plan year beginning in 2015, with respect to employees who are offered coverage as of the first day of the 2015 plan year.

Comment: The transition play-or-pay relief applies with respect to plans that were maintained on a non-calendar year basis as of December 27, 2012. Consequently, this transition relief will not be available to a calendar year plan that last year had shifted to a plan year beginning December 1, 2013 (for example) so as to defer the timing of the application of certain ACA rules.

Shorter Look-Back Calculation Period

The determination of applicable large employer status is made by calculating the average number of full-time equivalent employees for the entire preceding calendar year. For purposes of calculating whether an employer is an applicable large employer in 2015, the average number of full-time equivalent employees may be calculated using any six-month consecutive period in the 2014 calendar year. For subsequent calendar years, the look-back must be the entire preceding calendar year.

Example: An employer may use hours worked in the six-month period from April 1, 2014, through September 30, 2014, to determine its status as an applicable large employer for 2015.

Optional Measurement Periods

Monthly Measurement Period

The proposed regulations implied that employers were effectively required to use the look-back measurement period method for determining whether an employee had full-time status.

The final requirements make clear that the look-back approach is an optional safe harbor, and that the statutory “monthly measurement period” is also available. This monthly measurement method requires employers to treat an employee as being full-time for coverage purposes for any month in which the employee works 130 hours.

Comment: The monthly measurement period approach may be suitable for application to salary employees who are often presumed to be full-time employees.

Application to Different Classes of Employees

In general, an employer must use the same measurement period approach (i.e., either the look-back or monthly measurement period approach) for all employees. An exception allows an employer to elect to use a different measurement approach for the following categories of employees:

  • Salaried employees versus hourly employees;
  • Collectively-bargained employees versus non-collectively-bargained employees;
  • Groups of bargaining unit employees covered under separate labor agreements; and
  • Employees whose primary places of employment are in different states.

Only the above categories are permitted. As such, an employer cannot use the look-back measurement method for variable hour employees and the monthly measurement method for hourly employees with more predictable periods of service.

Employee Designations

Factors to Establish Full-Time Employee

A new employee must be treated as a full-time employee from the start if it is reasonable to assume that the employee will work on average at least 30 hours per week. The final regulations clarify that the reasonableness of any ‎determination will be based on the facts and circumstances present as of the employee’s start date. ‎The regulations further state that the reasonableness standards to be considered must include the following:

  • Whether the employee is replacing an employee who was (or was ‎not) full-time;
  • The extent to which weekly hours of service of employees in the same or ‎comparable positions have varied above and below 30 hours during recent measurement periods; and ‎
  • Whether the job was documented or communicated to the new hire as requiring hours of ‎service that would average 30 (or more) per week.

‎Variable Hour Employees

A variable hour employee is an individual for whom the employer cannot determine, as of the employee’s start date, as to whether the employee is ‎reasonably expected to average at least 30 hours of service per week because the employee’s hours are variable or otherwise ‎uncertain. This determination is based on the facts and circumstances existing as of an employee’s start ‎date (taking into consideration the same factors as applicable to a full-time employee determination described above). ‎

The regulations permit an employer to use the wait-and-see approach (via the look-back measurement period method) to establish whether the employee will in fact average over 30 hours per week during the applicable measurement period. However, the final regulations confirm that for purposes of determining whether an employee is a ‎variable hour employee, the employer may not take into account the likelihood that the ‎employee may terminate employment with the employer before the ‎end of an initial measurement period.‎

Comment: See exception for “seasonal employees” below.

‎Part-Time Employees

The proposed regulations did not expressly address the treatment of part-time employees who were not variable employees (i.e., employees who clearly will not work on average at least 30 hours per week). The final regulations close this hole by essentially holding that part-time employees are to be treated and tested for full-time status on the same basis as variable employees.

Comment: An employer will not be able to merely assume that a part-time employee will never earn full-time status based on hours. As a result, part-time employees will need to be included with variable employees for testing purposes.

Seasonal Employees

Under the ACA rules, an employee who regularly works at least 30 hours per week may nevertheless be treated the same as variable employees (meaning the employer can apply the look-back, wait-and-see approach to test for full-time status) if the worker qualifies as a “seasonal employee.” This is an exception to the general rule that prohibits an employer from considering the likelihood of the employee not remaining in employment in establishing full-time employee status.

The final regulations provide that a seasonal employee means an employee in a position for which the customary annual employment is six months or less. In turn, “customary” means that by the nature of the position, an employee in this position typically works for a period of six months or less, and that period should begin each calendar year in approximately the same part of the year, such as summer or winter.

In certain unusual instances, the employee can still be considered a seasonal employee even if the seasonal employment is extended in a particular year beyond its customary duration. An example provided by the final regulations is a ski instructor whose customary period of annual employment is six months, but is asked in a particular year to work an additional month because of an unusually long or heavy snow season. In that situation, the employee would still be considered a seasonal employee.

Comment: This new seasonal employee status rule may be of particular interest to employers. The key will be to identify the positions for which customary annual employment is less than six months.

‎On-Call Employees

For purposes of determining whether an “on-call employee” is full-time, an employer must use a reasonable method for determining the hours ‎of service performed during on-call duty. In all cases, the on-call employee must be credited service for hours for which:

  • Payment is made ‎by the employer;
  • The employee must remain on the employer’s premises; and
  • The employee’s ‎activities while on call are so restricted that the employee is prevented from using the time ‎effectively for his or her own purposes.‎

Change from Full-Time to Part-Time Employee Status

One of the most interesting features of the final regulations is the new provision that will allow an employer to immediately apply the monthly measurement period method to a part-time employee who moves from a full-time position, with the result that the employee need not be treated as a full-time employee for the subsequent “stability periods.”

General Rule

By way of background, the proposed regulations (and now the final regulations) are clear in regard to a part-time employee who moves to a full-time position. In that event, the employee must be offered coverage by the first day of the fourth calendar month following the change of position. However, the proposed regulations did not address the opposite situation—a full-time employee who moves to a part-time position. The final regulations add guidance in this regard.

Under the general look-back measurement period rules, if an employee is deemed to be a full-time employee for a “stability period,” the employee must continue to be treated as a full-time employee even if the employee voluntarily or involuntarily moves to a part-time position.

New Rule

As an exception to this general rule, the final regulations permit an employer to apply the monthly measurement method to that employee if the employee ‎experiences a change in employment status such that, if the employee had begun employment ‎in the new position or status, the employee would have reasonably been expected not to be ‎employed on average at least 30 hours of service per week (for example, the employee transfers to a part-time position of only 20 hours of service per week). Any change to the monthly measurement method that is made so as to allow the employer to treat the employee as being part-time may not be effective prior to the first ‎day of the fourth full calendar month in which the calendar month following the change in employment status occurs.

Conditions to Special Rule

This special change in status rule only applies if:

  • The employee at issue was offered ‎minimum value coverage for the entire period beginning on the first day of the calendar month following the employee’s initial ‎three full calendar months of employment through the calendar month in which the change in ‎employment event occurred; and
  • The employee actually ‎averages fewer than 30 hours of service per week for each of the three full calendar months ‎following the change in employment event. 

Scope of Change

Under this special rule, an employer may apply the ‎monthly measurement method to an employee even if it does not apply the ‎monthly measurement method to other employees in the same category of employees. For example, an employer could apply the monthly measurement method to an hourly employee who moves to a part-time position, even if the employer uses the look-back measurement method to determine the full-time employee status of ‎all other hourly employees.

If an employer elects this option, it may continue to apply the monthly measurement ‎method for the employee (i.e., it may continue to treat the employee as part-time) through the end of the first full measurement period that would have applied had the employee remained under the ‎applicable look-back measurement method.‎


The following is based on an example set forth in the regulations.

Assume that an employer uses the look-back measurement method to determine the full-time employee status for all of its employees. On May 10, 2015, the employer hires Sara as a full-time employee. The employer offers Sara‎ coverage that provides minimum value. For its ongoing employees, the employer ‎uses the look-back measurement period method, and has chosen to use a 12-month standard measurement period starting October 15 and a 12-month stability period associated with that standard measurement period starting January 1.

Sara continues in employment with the employer and averages more than 30 hours of service per week for all measurement periods through the measurement period ending October 14, 2016. On February 12, 2017, Sara experiences a change in position of employment with the employer to a position under which the employer‎ reasonably expects Sara to average fewer than 30 hours of service per week. For the calendar months after February 2017, Sara averages fewer than 30 hours of service per week. The employer ‎offers Sara coverage that provides minimum value continuously from September 1, 2015, through May 31, 2017 (i.e., through the three full calendar months following the change in position).

Based on the above facts, effective June 1, 2017, the employer ‎may elect to apply the monthly measurement method to Sara. As such, it may treat Sara as a part-time employee for the remainder of the stability period ending December 31, 2017, and for the entire 2018 calendar year (which is through the end of the first full measurement period following the change in employment status, plus the associated administrative period).

Other Coverage Standards

Rehired Employees‎

The proposed regulations stated that an employer could treat a rehired employee as a new employee for play-or-pay purposes if the ‎employee did not have an hour of service for at least 26 consecutive ‎weeks before the employee returned to work. The final regulations reduce the period to 13 weeks (other than for educational institutions).

The final regulations also continue to allow for the optional rule of parity. This rule permits an employer to elect to treat a rehired employee whose break in service is less than 13 weeks as a new employee if the number of consecutive weeks during which the employee was separated from service exceeds the greater of:

(i) Four consecutive weeks; or

(ii) The number of consecutive weeks of the employee’s period of employment immediately preceding the separation from service.

If the separation from service is less than four consecutive weeks, the employee will not be treated as a new employee, pursuant to this rule of parity.

Coverage of Dependents

The ACA exposes a large employer to the no-coverage play-or-pay penalty if the employer fails to offer substantially all of its full-time employees “and their dependents” the opportunity to enroll in the plan and any full-time employee receives premium assistance for insurance exchange coverage.

  • The final regulations (as did the proposed regulations) provide that the term “dependent” does not include an employee’s spouse. Consequently, offering coverage to an employee’s spouse is not required.
  • The proposed regulations defined a “dependent” for play-or-pay purposes as an employee’s biological child, stepchild, adopted child, or foster child who is under 26 years of age. The final regulations exclude stepchildren and foster children from the list of recognized dependents for these penalty purposes. The stated rationale for excluding these children is that stepchildren are often eligible for coverage under the biological parent’s plan, and foster children often have coverage under a state program.
  • A child is a dependent for the entire calendar month in which he or she attains age 26.

For further information or questions regarding the actions required of employers to comply with the employer play-or-pay mandates of the Affordable Care Act, please contact the Schwabe attorney with whom you work or Wally Miller at 541-686-3299 or

IRS rules of practice require us to inform you that any federal tax advice contained in this correspondence is not intended or written to be used, and cannot be used, by the recipient or any taxpayer for the purpose of avoiding tax penalties under the Internal Revenue Code.

Upcoming OSHA Hazard Communication Standard Training

October 29, 2013

By Brian King, Attorney

In May 2012, federal OSHA enacted significant changes to the OSHA Hazard Communication Standard( HCS) program . The applicable regulations are found at 29 CFR 1910.1200 and require chemical manufacturers and employers to comply with the modified provisions of the new rules by June 1, 2015. The rules are designed to align the HCS program with the Globally Harmonized System of Classification and Labeling of Chemicals. The major changes to the HCS are as follows:

• The health and physical hazards associated with hazardous chemicals must be classified pursuant to specific criteria.

• Hazardous chemical labels must be prepared in a manner that includes a harmonized signal word, pictogram and hazard statement for each hazard class and category.

• Material  safety data sheets will now be called “safety data sheets” and must follow a  specified 16 section format.

• Employers are required to train workers by December 1, 2013 on how to read and understand the new labels and safety data sheets.

What  Level Of Employee Training is Required by the December 1, 2013 Deadline

The federal OSHA website includes a section dedicated to the HCS program. The website contains a two page summary of the training that must be conducted before December 1, 2013. The website also provides  useful materials that employers can use to conduct the required training including an OSHA Brief on safety data sheets and OSHA Quick Cards explaining the requirements for labeling and pictograms.

Please feel free to contact your Schwabe attorney if you have any questions regarding how to conduct the required training.

Best Practices For Employers Engaging in an ADA Interactive Process Conversation with Employees‎

October 16, 2013

By Jean Ohman Back, Employment Attorney

­­­The Americans with Disabilities Act (ADA) continues as a significant area of liability for employers.  The EEOC received 26,379 charges in fiscal year 2012 and The Act continues to present complex requirements for employers in working with and managing employees with disabilities.  We will publish a series of blog posts that address employer exposure to the ADA and provide best practices regarding how to engage in an interactive process conversation with employees, evaluate situations where the ADA overlaps with the state Workers’ Compensation Act or other leave laws, and manage those sticky situations where an employer must discipline an employee with a disability based on job performance issues. 

First, we are considering the interactive process.  This is the name given to the process that an employer utilizes in order to determine the appropriate reasonable accommodation that will enable an employee with a disability to perform the essential functions of the position.  The requirement for the interactive process is in the appendix to the administrative rules to the Americans with Disabilities Act.  See, 26 CFR part 1630 Appendix.  In addition, the Ninth Circuit has made it very clear that participating in a good faith interactive process dialogue is an absolute requirement under the ADA.  Employers who fail to do so will be liable for failing to provide a reasonable accommodation.  See, e.g., Barnett v. U.S. Air, Inc. 228 F.3d 1105, 1112 (9th Cir 200), rev’d on other grounds, 535 U.S. 391, 122 S.Ct. 1516, 152 L.Ed. 2d 589(2002).

First, a disclaimer.  This post will provide suggestions for best practices.  This is not legal advice.  If you have specific questions related to an ADA issue, please consider obtaining legal advice specific to the situation.

So, what must an employer do to engage in a good faith interactive process?  By following the best practices outlined in the steps below and training supervisors and managers, employers will demonstrate good faith efforts to engage in the interactive process that will reduce liability in failure to accommodate claims.

Step 1Create a policy.  Don’t hide your interactive process requirement, rather publicize it.  Inform your employees that a requirement of the ADA is that both parties communicate in good faith regarding reasonable accommodations.  A good idea is to include a discussion of the interactive process as part of your ADA policy.  At a minimum, tell employees that if they request an accommodation, you will review their job description with them, determine the difficulties that their disability causes in their performance of the essential job functions, and brainstorm over accommodations that you can provide to assist them.  When you do your next handbook review, include this on the list of updates.

Step 2 Review your job descriptions.  We will cover how to draft a good job description in a future blog post, stay tuned.  For our purposes here, check that you have accurately described the essential job functions in both your job description and any advertisement or job posting for the position.  The ADA regulations provide the following considerations in determining whether a job duty is essential:

  • The reason that the job exists is to perform that duty;
  • A large percentage of work time is spent performing the duty;
  • There are no (or a limited number of) other employees available to perform the duty;
  • The worker is hired for his or her expertise and the work is highly specialized;
  • The employer judges the job duty to be essential to performing the job;
  • Serious consequences would occur if the duty were not performed;
  • The job duty is required by the terms of a collective bargaining agreement; and
  • Individuals in that job in the past performed the duty.

Step 3 – Train your supervisors to recognize an accommodation request.  Accommodation requests are not always obvious.  There is no requirement that an employee request an accommodation in writing.  A statement by an employee that he or she is having a problem performing their job because of a medical condition is likely sufficient to constitute an accommodation request.  It is best practice to train your supervisors to act on this.  The EEOC provides the following examples of accommodation requests:

An employee tells his supervisor, “I’m having trouble getting to work at my regularly scheduled starting time because I am undergoing medical treatments.” 

A new employee, who uses a wheelchair, informs the employer that her wheelchair cannot fit under the desk in her office.

However, a simple request for a new chair, or some other request, without information that the need is related to a medical condition is probably not sufficient to be an accommodation request. 

Also train your supervisors not to ask questions about the medical condition or disability at issue.

            Step 4Arrange a personal meeting with the employee.  This is the heart of the interactive process.  There may not always be the necessity for a lengthy meeting.  If the supervisor who is asked for an accommodation can easily provide one, then he or she should do so as soon as possible.  However, to establish that you have engaged in good faith in the interactive process, best practice is to schedule a meeting with the employee, the employee’s supervisor and someone from HR.  A primary goal of this meeting is to determine what problems the employee is having in performing their job tasks because of a disability.  This entails soliciting ideas from the employee about what you could provide that would enable the employee to perform his or her job duties.  In addition to soliciting ideas, you may also suggest solutions.  The purpose of this brainstorming meeting is to come away with suggestions to enable the employee to continue working.  A couple of suggestions:

  • If the employee has a work-related injury, consider involving your workers’ compensation carrier to determine whether there are any monies from your state workers’ compensation division to assist you in making workplace modifications.  In Oregon, such funds may be available through the employer at injury program.
  • If you are not sure of an accommodation, consider calling in an expert.  This can be accomplished through a phone call to the Job Accommodation Network (JAN), or you can locate a vocational rehabilitation specialist to assist.
  • If you do consult an outside resource, like JAN, be careful about ensuring confidentiality.  Do not disclose the employee’s name and identifying information.
  • Keep an open mind. 
  • In choosing the accommodation, it is a good idea to understand the employee’s preference, but the employee does not get to choose the accommodation – the employer does.  The law requires only that the accommodation be reasonable.  Eliminating the requirement to perform an essential job function is not a reasonable accommodation.  The employee must still be able to perform the essential job function with an accommodation.  Examples of reasonable accommodations include:
    • Job restructuring        
    • Equipment (i.e., sit stand desks, lifting mechanisms, carts, new chairs, modified work stations, etc…)
    • Leave of absence
    • Change in work schedule
    • Job reassignment to an available and suitable job
    • Modified workplace policies

Step 5Consider whether you need information from the employee’s physician.  Depending on the complexity of the issue, you may want to communicate through the employee with their physician to obtain information about the restrictions caused by the medical condition and any suggested accommodations.  In any such communication be sure to include the safe harbor language required by the Genetic Information Nondisclosure Act (GINA), and limit your request to information that is required as a matter of business necessity.  You may consider conferring with counsel regarding the content of the letter.

Step 6 – Continue the dialogue.  The interactive process does not end with the interactive process meeting.  Once you have found and implemented a reasonable accommodation, best practice is to follow up with the employee on a regular basis to ensure that the accommodation is effective.  It is often common that the first accommodation will not be effective and you need to try something else.  Your workplace policy should inform the employee that they must inform their supervisor if the accommodation is not effective. 

Document the process.  Document every step throughout the interactive process.  Even though documenting short conversations between the supervisor and the employee may seem trivial, when it comes to defending a claim that you did not provide a reasonable accommodation this information is crucial.  Document every conversation and the entire process.  Keep the documentation in the employee’s confidential medical file, not the personnel file.

To conclude, the interactive process is an important and often missed obligation within the ADA.  Employers who follow these suggested steps and best practices and who document their process will be in a better position if they are subject to an administrative charge or suit for failure to accommodate.  Please return to our blog for a discussion of how to develop ADA compliant job descriptions.

Health Plans Must Certify Compliance with HIPAA ‎Standard Transaction Rule by Year’s End

September 30, 2013

By Kelly Hagan, Attorney

The Patient Protection and Affordable Care Act (ACA) requires health plans, including self-insured plans with more than 50 members, to certify to the Department of Health and Human Services (DHHS) by December 31, 2013, their compliance with HIPAA Standard Transaction Rule requirements for eligibility inquiries, claims status, and electronic funds transfer and remittance advice. In support of this certification, health plans also must supply examples of compliant transactions with trading partners (such as health care providers).

 Health plans that delegate these transactions to third parties must include with their certification proof that business associates providing such services are complying with applicable standards and operating rules. A Business Associate Agreement provision requiring compliance with transaction standards and rules would seem prudent in such circumstances. Health plans must ensure and document compliance by third parties with these HIPAA requirements.

DHHS has promised rulemaking in this area but none has issued to date. The ACA authorizes enforcement of certification requirements beginning in April 2014. Penalties of $1 per covered life per day may be levied, and doubled in the case of knowing provision of inaccurate or incomplete certification. These penalties are capped at $20 and $40 per life, respectively.

Documentation of compliance by the plan or its business associates with the Standard Transaction Rule, and especially the three standards identified for certification at the end of 2013, is essential to the certification requirement and should be undertaken without delay. Rulemaking by DHHS will hopefully provide more detail concerning the nature of the certification obligation.

For further information or questions regarding the HIPAA Security, Privacy, Enforcement, and Data Breach rules, please contact the Schwabe attorney with whom you work or Kelly Hagan at 503-796-2423 or 

Employers Must Provide New Insurance Exchange Notice by October 1, 2013

September 10, 2013

By Wally Miller, Attorney

Among the many nuances (and nuisances) of the Affordable Care Act is the new obligation of employers to prepare and distribute a notice to employees advising of the health insurance exchanges that will become available to individuals starting on January 1, 2014. The Department of Labor (the “Department”) has redefined the Insurance Exchanges as the “Marketplace,” and the notice as the “Marketplace Notice.”

This notice obligation is not a group health plan responsibility per se. All employers, including those that do not sponsor a group health plan, must provide a form of the notice to their employees. In addition, all employees must be provided the notice, including those who are not eligible for employer-sponsored group health plan coverage.

Key aspects of the Marketplace Notice rules are discussed below.

1. When Must the Marketplace Notice Be Delivered?

  • Current Employees: Current employees must receive the notice by October 1, 2013.
  • New Employees: New employees hired on or after October 1, 2013, must be provided with a copy of the Marketplace Notice within 14 days of the date of hire.

2. Who Must Receive the Marketplace Notice?

  • Employees: All employees must receive the Marketplace Notice, regardless of whether they are eligible to participate in the health plan (for example, part-time employees) and regardless of whether they are enrolled in the plan.
  • Dependents: Separate Marketplace Notices are not required to be sent to spouses or dependent children.
  • Former Employees: Marketplace Notices are not required to be sent to former employees, regardless of whether they are still covered by or eligible for coverage under the plan (e.g., pursuant to COBRA or retiree coverage).

3. How to Deliver the Marketplace Notice

  • Mail: The Marketplace Notice may sent by first-class mail.
  • Electronic Delivery: The Department’s electronic delivery standards will apply to the Marketplace Notices. Therefore, the Marketplace Notices may be delivered by e-mail to those employees whose work-site access to e-mail is an integral part of the employee’s job duties.
  • New Hire Package (Probably): The Department guidance does not expressly state that the Marketplace Notice must be included in a new hire package. But presumably, that would be an acceptable method of delivery for new hires.

4. Required Content of the Marketplace Notice

The Marketplace Notice can be relatively brief. By law, it need only disclose the following:

  • The existence of the Marketplace;
  • A description of services provided by the Marketplace;
  • Contact information for the Marketplace;
  • A statement that the employee may be eligible for a premium tax credit if the employee purchases a qualified health plan through the Marketplace; and
  • A statement that if the employee purchases health coverage through the Marketplace, the employee may lose the contributions made by the employer (if any) toward coverage offered through the employer’s plan, and that all or a portion of the contributions may be excluded from the employee’s income for Federal income tax purposes.

5. Department of Labor Model Notice

The Department of Labor has issued a model (in the form of a partially-completed template) that may be used by employers to comply with their notice obligations. The Department actually issued two model notices: one for employers that do not offer any group health plan coverage, and a second for employers that do offer coverage to some or all of their employees.

The link to the Department of Labor webpage that provides the notice for employers that offer group health plan coverage is as follows:

The model Marketplace Notice provides for the disclosure of information that goes well beyond that required under the statute. Moreover, it provides for information that may not be uniform to all of the employees covered under a typical plan.

In this regard, employers will wish to review the model notice carefully, and make a decision as to what information should, in fact, be included or omitted.

For further information or questions regarding the new Marketplace Notice mandate, please contact the Schwabe attorney with whom you work or Wally Miller at 541-686-3299 or

IRS rules of practice require us to inform you that any federal tax advice contained in this correspondence is not intended or written to be used, and cannot be used, by the recipient or any taxpayer for the purpose of avoiding tax penalties under the Internal Revenue Code.

HIPAA Deadline Looms: September 23, 2013‎

September 4, 2013

By Kelly Hagan, Attorney

The Omnibus HIPAA rulemaking published January 25, 2013 (”Omnibus Rule”) will become effective for most purposes on September 23, 2013. The Omnibus rule changes compliance obligations for covered entities and directly extends them to business associates. The following highlights 10 key changes:  

  1. Notices of Privacy Practices. The Omnibus Rule creates “material changes” to a covered entity’s policies and procedures. Revised notices therefore must be published. Covered entities with Web sites must prominently display the revised notice on the site, and electronic versions of the revised notice must be made available. Revised notices also must be posted prominently and written copies made available at points of service. At a minimum, revised notices will reflect changes to policies and procedures concerning breach notification, disclosures requiring authorization, the right to opt out of fundraising activities, and the right to restrict disclosures to health plans about care paid for out of pocket.
  2. Breach Notification. Absent existing exceptions, unauthorized use, access to or disclosure of PHI creates a presumption that a data breach has occurred and that notification must be provided to subject individuals. This presumption may be overcome only by a documented determination of a low probability that the PHI at issue has been compromised. Harm to the individual or others is no longer required for a breach to occur or notification obligations to arise.
  3. Business Associates. Business associates are now directly subject to most of the HIPAA privacy rule and all of the operative sections of the security rule. The class of business associates also has grown to include entities that “maintain” PHI, such as storage facilities or cloud service providers. Business associate agreements must now exact a promise to comply with the security rule, to provide notification of a data breach, and to require a written agreement with subcontractors that receive PHI that is at least as demanding as the agreement between business associate and covered entity.
  4. Individual Access. Covered entities must provide access to electronic PHI in digital form either to the subject individual or to a designated third party. The covered entity must make electronic PHI available in the format requested if it is readily producible by the covered entity. If the requested format is not readily producible, then an agreed format must be negotiated. Electronic PHI must be made available within 30 days; an extension of time is not allowed.
  5. Restriction on Disclosure. Unless otherwise required by law, a covered entity must agree to a request not to disclose PHI to a health plan if the PHI concerns care paid for entirely out of pocket by the individual.
  6. Immunizations. Disclosures to schools of student immunization no longer require written authorization, although oral or written parental consent must be obtained.
  7. Sale of PHI. Written authorization to sell PHI must be obtained, absent an exception. A sale results either from direct or indirect remuneration in exchange for PHI, and the authorization must recite the fact of the remuneration to the covered entity.
  8. Marketing. Written authorization is required for marketing activity for which the covered entity receives remuneration. The authorization must recite the fact of the remuneration to the covered entity.
  9. Decedents. PHI may be disclosed as appropriate to friends and family who were involved in the care or payment for care of a deceased individual. Protection of a decedent’s PHI ends after 50 years.
  10. Fundraising. Covered entities may use and disclose individuals’ demographic information and dates of care for fundraising purposes so long as fundraising material includes information about how an individual can opt out of further fundraising communications. The requirements for opting must be simple and easy, like an e-mail or toll-free phone call. Requiring the individual to write a letter is considered too burdensome.

For further information or questions regarding HIPAA deadlines please contact the Schwabe attorney with whom you work or Kelly Hagan at 503-796-2423 or

IRS Issues Guidance on Tax Treatment of Employee Benefits for Same-Sex Spouses

By Wally Miller, Attorney

Since its enactment in 1996, the Defense of Marriage Act (”DOMA”), which forms part of the United States Code, has prohibited the federal government from recognizing same-sex marriages for purposes of federal law, including federal tax laws pertaining to employer-provided benefits. Consequently, the value of health insurance and other benefits provided by an employer on behalf of a same-sex spouse has been required to be included in the employee’s wages as imputed income. Similarly, any premiums paid by an employee under an employer-sponsored plan for the coverage of the same-sex spouse was required to be paid on an after-tax basis. Other examples of disparate treatment in regard to employee benefits include the inability of employees to seek reimbursement under a health care FSA for expenses incurred by the same-sex spouse, and a same-sex spouse not being eligible for survivor benefits under a retirement plan.

On June 26, 2013, the United States Supreme Court issued its historic United States v. Windsor decision, which held that the provision of DOMA which excluded a same-sex partner from the definition of “spouse” as applied under federal law was unconstitutional.

On August 29, 2013, the IRS released eagerly awaited guidance on the effect of the Windsor decision on various tax issues, including the coverage of same-sex spouses under employer-sponsored benefit plans. This guidance is discussed below.

Same-Sex States

Currently, the following 13 states recognize and approve same-sex marriages: California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, and Washington.

Washington D.C. does so as well.

New Mexico is a rogue state. Certain of its counties have begun to issue same-sex marriage licenses, even though not formally allowed under the state. The Attorney General for New Mexico has advised that the state will not challenge the validity of the licenses issued in those counties.

IRS Guidance

1. Key Employee Benefit Implications of IRS Ruling

The more significant employee benefit plan aspects of the IRS ruling are below.

  • The value of employer-provided health coverage for employee’s same-sex spouse no longer is to be included in the employee’s gross income for federal tax purposes.
  • Contributions made by an employee for the coverage of a same-sex spouse are no longer required to be paid on an after-tax basis.
  • A retirement plan must recognize a same-sex spouse for purposes of qualified joint and survivor annuity and spouse death benefits.

2. State of Celebration Standard

A key question was raised in the aftermath of the Windsor decision was whether the IRS would recognize same-sex marriages performed in a state or jurisdiction that allowed such marriages (the “state of celebration”) if the same-sex couple moved and now reside in a state that does not recognize same-sex marriages. For example, if a couple were married in Washington (which recognizes same-sex marriages), but later moved to Oregon (which does not allow for same-sex marriages), will the couple be considered to be married for federal tax purposes?

The question has been answered by the IRS. Its ruling holds that same-sex couples who were legally married in jurisdictions that recognize their marriages will be treated as married for federal tax purposes. This marriage status applies even if the couple lives in a state that does not recognize same-sex marriage. It also applies if the same-sex marriage occurred in a foreign country that recognizes such marriages, such as Canada.

3. Effective Date of Implementation of New Tax Standards

The Windsor ruling does not enact new law; it revokes old law. As such, the implications of the decision are not prospective, but instead generally reach back retroactively for all periods involved. In regard to tax aspects of employee benefits plans, the IRS guidance provides for the following implementation rules.

  • An employer is not required to make any adjustments to employee’s wages for the imputed value of health and welfare benefits provided in prior years (i.e., before 2013).
  • An employer may make adjustments for imputed income for the current year (2013). It is not required to do so.
  • An employee is entitled to file a claim for refund with the IRS for the taxes paid on the imputed income for all open tax years (generally 2010, 2011 and 2012).
  • An employer may file a claim for refund for the FICA taxes that it paid on the imputed income for all open tax years.

4. Required Compliance Date for Retirement Plans

The IRS ruling assumes that employers will begin complying with the new standards in regard to health and welfare benefits as soon as is administrative practicable.

Retirement plans are subject to a hard-and-fast compliance date. Specifically, the IRS requires that these plans comply with the new rules no later than September 16, 2013. Thus, for example, any annuity under a pension plan to be paid to a participant having a same-sex spouse that commences on or after September 16, 2013 must comply with the qualified joint and survivor annuity rules. Similarly, the payment of the benefits of a deceased participant with a surviving same-sex spouse that will be paid on or after the effective date must comply with the surviving spouse rules.

The IRS guidance does not address compliance with the new standard for periods prior to September 16, 2013. For example, it is unclear whether a pension plan that is currently paying a single life annuity to a participant with the same-sex spouse must now allow the participant to elect a qualified joint and survivor annuity. The IRS has indicated that it will provide future guidance with respect to plan operations for prior periods, and to address other issues.

5. Implications to Health Care FSAs

The IRS guidance does not provide any specific rules in regard to health care FSAs. However, the underlying rationale and spirit of the IRS rulings point to recognizing a same-sex marriage for purposes of health care expense reimbursements occurring in the current plan year. As such, employee should be able to request reimbursements for unreimbursed medical expenses incurred by a same-sex spouse during the current plan year. Presumably, an employer will not be required to provide reimbursements of expenses that occurred in prior years.

6. Change in Status Events

The IRS guidance also does not indicate whether the Windsor decision is a Code Section 125 qualified status event that allows an employee to make a mid year election change under a group health plan or health care FSA. Logically, however, it should be recognized as a qualified status event.

This position has in fact been taken by the federal government, which issued a memorandum allowing civilian employees with legally married same-sex spouses to make immediate changes to their elections under the Federal Employee Health Benefit plan. Employees were provided 60 days in which to make the special election.

ERISA Implications

The guidance issued by the IRS pertains only to federal tax law. It does not address ERISA rights. This raises the issue as to whether a same-sex spouse can bring a claim for benefits for prior periods. For example, if a health insurance policy in effect in 2012 expressly provides for the coverage of a “legal spouse,” must the policy pay the expenses incurred by a same-sex spouse during that year?

Presumably, the Department of Labor will provide its view on this ERISA issue.

Required Action

The guidance from the IRS obligates employers to begin treating same-sex spouses as legal spouses for employee benefit purposes. The most urgent steps to be taken or considered are below.

  1. Advise employees of the new tax rules pertaining to same-sex spouses, including the right to file claims for refunds for prior years.
  2. Seek out and retrieve relevant information regarding same-sex spouses.
  3. Implement procedures to ensure compliance under retirement plans by September 16, 2013. This should include a review of the language of beneficiary designation form templates to ensure that they are not inconsistent with the new standards.
  4. Proceed to allow employees to pay for cost of benefits for same-sex spouses on a pre-tax basis, under the same policies that apply to similarly-situated opposite-sex spouses.
  5. Allow employees to be reimbursed under a health care FSA for qualified medical expenses incurred during the current plan year by a same-sex spouse.
  6. Invite employees to now enroll same-sex spouses in a health or other benefit plan on a special enrollment basis.
  7. Consider adjusting the over-withheld taxes for same-sex coverage for the current tax year.
  8. Consider filing a claim for FICA taxes for same-sex coverage for prior, open tax years.

For further information or questions regarding the actions required of the implications of the IRS guidance, please contact the Schwabe attorney with whom you work or Wally Miller at 541-686-3299 or


IRS rules of practice require us to inform you that any federal tax advice contained in this correspondence is not intended or written to be used, and cannot be used, by the recipient or any taxpayer for the purpose of avoiding tax penalties under the Internal Revenue Code.

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