April 16, 2015
By Rebecca Boyette, attorney
Many employers have policies that reserve light duty work assignments for employees who would otherwise be on time loss because of a work-related injury. On March 25, 2015, the Supreme Court released a ruling under the Pregnancy Discrimination Act (PDA) that limits an employer’s right to reserve light duty work for on-the-job injuries. The name of the case is Young v. United Parcel Service.
Plaintiff Peggy Young requested a light duty assignment after she became pregnant and her doctor recommended that she not lift packages heavier than 20 pounds. UPS required employees in Young’s position to be able to lift up to 70 pounds. UPS denied Young’s request for light duty work, citing an internal policy that reserved light duty for employees who had been injured on the job, had a condition that qualified as a disability under the ADA, or had lost their license to drive a commercial vehicle.
Young sued UPS in federal court, arguing that UPS’s policy violated the PDA, which prohibits employers from discriminating against employees who become pregnant and are unable to perform some or all of their job duties. The specific section of the PDA that was at issue in Young provides that it is a form of pregnancy discrimination for an employer to treat pregnant employees differently from other employees with similar limitations on their ability to perform job duties. The lower courts dismissed Young’s claim. But on March 25, the Supreme Court announced a new standard for proving PDA claims and decided to give Young another opportunity to prove her claim against UPS under that new standard.
The Supreme Court’s decision in Young requires a PDA plaintiff to show that (1) she sought a modification to her job duties when she became unable to perform all or part of her normal job due to pregnancy, (2) the employer refused to provide the requested modification, and (3) non-pregnant workers with a similar inability to perform their normal jobs were treated more favorably. Once a female employee makes this preliminary showing, the burden shifts to the employer to demonstrate that it did not intentionally discriminate against the employee based on her pregnancy but was instead motivated by a neutral, business-related policy. The female employee then has an opportunity to show that the policy, though neutral, places a significant and unjustified burden on female workers.
Since Peggy Young filed her pregnancy discrimination claim, UPS modified its policy to allow for light duty assignments to pregnant employees. In light of the Supreme Court’s decision, employers across the country should revisit their light duty policies to assess whether they are at risk for pregnancy discrimination claims. In particular, employers should be aware that policies reserving light duty assignments for workers with on-the-job injuries will likely not pass muster under the new standard for PDA claims.
March 19, 2015
By Amanda Gamblin, employment attorney
Oregon’s Measure 91 will go into effect July 1, 2015, allowing personal non-public use and possession of small amounts of marijuana. What does this mean for employers? Not much. An employer can prohibit an employee from coming to work high, just like it can prohibit an employee from coming to work drunk. Impairment is impairment. However, employers will want to make a few policy changes to ensure it maintains maximum flexibility and protection with respect to drug testing. And employers will need to keep apprised of possible changes in the law with respect to whether an employer may have to reasonably accommodate a disabled employee’s medical marijuana use.
1. Employers Do Not Have to Accommodate a Disabled Employee’s Marijuana Use Despite Measure 91
Measure 91 expressly states that it does not affect state or federal employment laws or the Oregon Medical Marijuana Act. Under Oregon’s Medical Marijuana Act, some disabled employees have attempted to persuade courts that an employer should accommodate their off-duty use of marijuana by allowing them to continue working (or to escape discipline) if they test positive for marijuana in violation of the employer’s drug and alcohol policy.
The Oregon Supreme Court has held that employers have no such obligation to make exceptions to their policies or otherwise accommodate a disabled employee’s marijuana use. This is true, in part, because marijuana is illegal under federal law. The law makes sense because the sophistication of marijuana testing makes it difficult to identify if an employee is currently impaired. An employee could say he or she smoked marijuana the night before, and the employer has no way of verifying. Because Measure 91 expressly does not affect state or federal employment laws, the law should remain that an employer has no obligation to allow a disabled employee to fail its drug test.
2. Over Time, the Law May Change if Social Attitudes Change
This law could change, but it is unlikely to do so in the short term. Measure 91 does contain some language that appears to be intended to get around the Oregon Supreme Court’s ruling. And although marijuana is illegal under federal law, the federal government is currently refraining from enforcing that law in states with recreational marijuana laws. If recreational use results in a shift of public opinion about marijuana and testing improves such that employers can more accurately test for current impairment, a future court could hold that an employer must accommodate a disabled employee’s off-hours marijuana use. Even if a change does occur, it will not be immediate.
3. Federal Contractors and Federal Grant Recipients Must Continue to Comply with Federal Laws
Measure 91 expressly does not require anyone to break federal law, exempt a person from federal law, and change a federal contractor’s obligations under a federal contract or a federal grant recipient’s obligations under a grant. Therefore, companies that are required to comply with federal drug-free workplace laws must continue to do so.
4. Review Your Drug and Alcohol Testing Policies
Federal contractors, federal grant recipients, maritime industry employers, the manufacturing industry, drivers regulated by DOT, and employers with other safety-sensitive positions may need to maintain a zero tolerance drug and alcohol policy. If your company employs a zero-tolerance policy, review it for the following areas:
- Do not use an “under the influence” standard. Rather, use a “no detectable amount” standard. Therefore, any positive urine test could result in discipline up to and including termination.
- Use random testing in addition to post-accident and reasonable suspicion testing.
Other employers may wish to have more tolerance. If so, consider the following:
- Consider an “under the influence” standard or a mixture of an “under the influence” and a “no detectable amount” standard. For certain drugs, any detectable amount could result in termination, but for others the employer could have the discretion to reasonably discern impairment.
- Consider blood tests. Blood tests allow the employer to more accurately test for impairment. If a company decides to include the option of blood tests, be sure to include a notice that the employer may use a blood test. Otherwise, a blood test could be considered an invasion of an employee’s privacy.
- Even with a tolerance policy, prohibit possession, distribution, and use at the workplace. Marijuana is still illegal under federal law.
- Ensure no safety risks and no federal contracts or grants.
- Consider limiting testing to only post-accident or reasonable suspicion.
For all drug and alcohol policies, consider the following in light of Measure 91:
- Call it a “Drug and Alcohol Policy,” or similar name. Avoid calling it an “abuse” policy.
- Clearly state that it covers drugs illegal under local, state, or federal law.
- Explicitly include marijuana. Employees are confused given Measure 91. Make it clear.
- Include a prescription drug policy to avoid an employee arguing that he or she has a “prescription” for marijuana. Employees may not use prescription drugs that may cause impairment, or use (or test positive for) drugs for which they do not have a prescription.
5. Update Your Driving Policy
Measure 91 includes a specific provision prohibiting marijuana use while driving. Revise your policy to prohibit marijuana use in company vehicles or while driving on company time.
February 18, 2015
By Leora Coleman-Fire and Nathan Sramek, Attorneys at Law
On February 16, 2015, the Oregon Senate Workforce Committee and the House Business and Labor Committee held a joint public hearing on the proposed statewide mandated paid sick leave legislation, HB 2005 and SB 454. Over the course of two and a half hours, the committees heard extensive testimony in support of and in opposition to the legislation. In addition to those who testified, hundreds of people—many wearing stickers in support of paid sick leave—attended the hearing, filling three legislative hearing rooms and spilling out into the capitol’s halls.
Among those who testified, many employers voiced concerns that the added cost of providing paid sick leave would result in increased costs to consumers, reduced pay and benefits to employees, and decreased staffing levels. Some, opposing the legislation outright, urged the committees to recognize the unique position of an individual employer to craft benefits packages tailored to their employees’ needs. They contended that a statewide, one-size-fits-all paid sick leave requirement would eliminate their ability to offer employees alternative benefits, pay raises, or bonuses. Others emphasized that the legislation would be particularly onerous on small businesses, and they urged the committees to adopt a definition of “employer” in line with the Oregon Family Leave Act, which applies only to employers with twenty-five or more employees. Still other employers that already offer paid sick leave testified in support of the bill, arguing that it increases employee morale and retention. They urged the legislature to level the business playing field so that employers that offer paid sick leave cannot be undercut by competitors that do not.
One common theme between many witnesses in support and in opposition of the legislation was the need for statewide preemption. Business owners cited the increased cost of complying with multiple regulations, and county representatives described the tension and division that currently exist between Portland, Lane County, Eugene, and their neighboring cities.
In addition, agricultural employers were particularly well represented at the hearing. They voiced concerns over the difficulty of administering the paid sick leave requirements in the context of a small farming operation, with predominately seasonal and transient employees, an unyielding harvest timeline, and a general lack of human resources or other administrative support. In addition, to the extent that the legislation will increase their operating costs, farm and orchard operators emphasized they operate on very tight margins with little or no control over the prices that they can charge for their produce, which is overwhelmingly purchased by five national retailers. Given those unique hardships, many of them asked the committees to consider adding an agricultural exemption to the legislation. However, the Oregon Farmworkers Union opposed an agricultural exemption, citing the low wages and frequent illnesses and injuries that stem from farm work.
Finally, numerous employees testified about the hardships they face when they must either go to work while they or a family member are sick, forego their own wages to stay home, or find someone else to care for their sick family members. Several home-care providers testified that, because of the lack of available paid sick leave, they are often forced to care for their elderly and medically fragile patients while ill. And several education professionals testified that frequently children will attend school while ill, exposing teachers, administrators, and other children, because their parents cannot afford to miss work in order to care for them at home.
If you have any concerns of your own, the committees are still accepting written testimony until this Friday, February 20. To submit your written testimony, e-mail both firstname.lastname@example.org and email@example.com.
February 13, 2015
As published, Portland Business Journal, Feb. 13, 2015
Statewide paid sick leave may soon be a reality in Oregon. This Monday, February 16, at 6 p.m., the legislature will hold a public hearing on the pending statewide sick leave bills (House Bill 2005 and Senate Bill 454).
This is an opportunity for businesses to send in comments or appear in person to voice their feedback, including how mandatory paid leave will affect their business, whether they support the bills, and any proposed changes.
Don’t have time to read the bills? Below is a cheat sheet of ten important points that every business should be aware of.
1. The draft bills will require all employers to provide at least 56 hours of paid leave to each employee per year.
2. “Employees” include home care workers, temporary workers, and seasonal workers.
3. Employers must give employees at least 1 hour of protected paid sick leave for every 30 hours of work.
4. After 89 days of employment, employees can use their accrued sick leave in increments as small as 1 hour.
5. Employees can use their paid leave for everything from feeling sick to taking care of a family member dealing with mental health issues or needing a ride to the dentist and more.
6. The definition of who qualifies as a “family member” is broader than other Oregon laws and includes someone who is “related by blood or affinity” to the employee.
7. The statewide bills do not preempt, limit, or otherwise affect any other law, policy, or standard that provides for greater use of paid or unpaid sick time. This means that the City of Portland’s current Protected Sick Time Ordinance, as well as the City of Eugene’s Sick Leave Ordinance, which will be effective on July 1, 2015, will still apply. Employers with employees in or around these cities will need to be aware of what specific sections of each law provide a greater benefit to these employees and then meet the higher requirements.
8. Not all employers are required to comply with these statewide sick leave bills. For example, employees in the building and construction industry, longshoremen, or stage hands whose terms and conditions of employment are covered by a collective bargaining agreement do not have to comply.
9. Employers can require notice for an employee’s need for leave. However, the draft bills permit an employer to require only up to 10 days’ advanced notice “or as soon as otherwise practicable” if an employee’s need for paid leave is foreseeable. If the employee’s need for leave is not foreseeable (injured in a car accident, domestic violence situation, sudden sickness, etc.), then the employer can only require notice as soon as is practicable for the employee.
10. If an employee takes more than 24 consecutive hours of paid sick time, the employer may require medical verification or certification of the employee’s need for leave.
The draft bills are lengthy and complex, but the above ten points should help you assess what a statewide paid sick leave law will mean for your business.
Then, head to the Oregon State Capitol (900 Court Street NE, Hearing Room F) in Salem on Monday, February 16th at 6 p.m. for the public hearing to voice your thoughts.
If you are unable to attend but want the legislature to hear your thoughts on the statewide mandatory sick leave bills, email me, Leora Coleman-Fire, at firstname.lastname@example.org, and I will make sure your comments are heard.
Leora Coleman-Fire is an Employment Law Attorney at Schwabe, Williamson & Wyatt.
January 22, 2015
By Leora Coleman-Fire
But It’s Not Identical to Other Mandatory Sick Time Ordinances
The 2015 Oregon legislative session is set to include debate over state-wide mandatory sick time. In the 2013 legislative session, legislators discussed mandatory sick leave, but ultimately did not enact any sick leave law. Now, Senator Elizabeth Steiner Hayward (D-Beaverton) and Representative Jessica Vega Pederson (D-Portland) have proposed a new draft bill to provide all Oregon workers with paid sick time.
This new state-wide mandatory sick leave draft bill differs from Portland’s, Eugene’s, and Seattle’s respective mandatory sick time ordinances in several ways, including the following:
- Waivers: Workers in the building and construction industry, longshoremen, or stage hands whose terms and conditions of employment are covered by a collective bargaining agreement are not required to comply. While the Seattle ordinance permits employers and employees who are part of a bona fide collective bargaining agreement to enter into a written waiver, the Portland Protected Sick Time Ordinance does not provide this exemption, nor does the Eugene Sick Leave Ordinance provide such a broad exemption.
- 56 hours of paid sick leave: Workers will be permitted to earn and use at least 56 hours of paid sick leave per year. This follows the Seattle Sick and Safe Time Ordinance’s requirement for “tier two” employers, which are those employers with 50 to 249 full-time equivalents per calendar week during the previous calendar year. However, the Portland and Eugene ordinances require employers to provide eligible workers with up to 40 hours of sick time.
- 1 hour increments: Accrued sick time may be taken in increments as small as 1 hour. This follows the Portland Protected Sick Time Ordinance, but not the Eugene draft administrative rules (which you can read more about here).
- 3-year recordkeeping: Employers will be required to maintain records for 3 years from the date paid sick time accrues.
- More potential for liability: The draft bill provides for numerous revisions to laws governing damages and penalties for employer violations, including compensatory and punitive damages against employers. In addition, employers could face a civil penalty of up to $50,000 for a first violation and up to $100,000 for subsequent violations.
We will keep a close watch on what happens to Oregon’s state-wide mandatory sick leave draft bill. In the meantime, if you have questions or concerns about policy issues or how to implement sick leave (including drafting policies, working with and disciplining workers, etc.), let us know. These are complex laws that we are committed to helping your business navigate while it continues to thrive.
January 15, 2015
By Leora Coleman-Fire
The City Manager of Eugene published the draft Eugene Sick Leave Administrative Rules for review. These rules help explain the Eugene Sick Leave Ordinance, which provides for mandatory paid sick time for workers in the Eugene area. The Eugene City Council passed the Eugene Sick Leave Ordinance on July 28, 2014, and it goes into effect on July 1, 2015.
However, these are draft rules for public comment, which means that the rules may change. Here are some of the most important draft rules to consider commenting on (more details below on how to submit comments) by January 21, 2015:
- Workers who will be eligible to accrue and use paid sick time are those who work in “[t]he City of Eugene, Oregon, or the area within the territorial City limits of the City of Eugene, Oregon, and such territory outside this City over which the City has jurisdiction or control by virtue of ownership or any Constitutional or Charter provisions, or law.” This is a difficult requirement to implement, particularly for employers with workers who perform work in multiple locations.
- But the ordinance does not apply to independent contractors or workers in the building and construction industry whose terms and conditions of employment are covered by a collective bargaining agreement, among others. If you plan to rely on your workers not being covered under the Eugene Sick Leave Ordinance based on these or other exceptions, talk with legal counsel to confirm.
- All workers in the Eugene area will not be eligible to use paid sick time during their first 90 calendar days of employment. In addition, employees based outside of the Eugene area will have to work 240 hours in a year within the Eugene area to become eligible to use sick time.
- Like the Portland Protected Sick Time Ordinance and Administrative Rules, which require employers to provide sick leave to workers in the Portland area (read an earlier published article), the Eugene Sick Leave Ordinance allows workers to accrue 1 hour of sick time for every 30 hours of work, up to 40 hours per year, with the right to carry over up to 40 hours, unless the employer front-loads 40 hours of sick time to the worker at the start of each year. Workers are also permitted to use up to 40 hours of sick time per year.
- Unlike the Portland Protected Sick Time Ordinance, the draft Eugene Sick Leave Administrative Rules provide a different rule for what increments of time a worker may take sick leave. Eugene’s draft rules provide that an employee may take sick time in increments as small as 1 hour to care for a family member. But if an employee wants to take leave because the employee is sick, then she or he may take sick time in increments as small as 2 hours.
- Like other mandatory sick leave ordinances, the Eugene draft administrative rules require employers to create written policies, post notifications, and meet certain recordkeeping requirements. Employers will need to prepare these documents in advance of July 1, 2015, when the Eugene Sick Leave Ordinance takes effect.
- Employers will have a three-month grace period where, from July 1, 2015, through September 30, 2015, there will be no civil penalties. However, the City will require violating employers to compensate their workers.
The above covers only select draft rules. If you would like more information or need assistance in navigating mandatory sick leave requirements, we are here to help. If you would like to provide comments or suggestions on the draft rules, write to Jason Dedrick, 125 E. 8th Avenue, Eugene, Oregon 97401, or via e-mail at email@example.com no later than 5:00 p.m. on January 21, 2015.
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.
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.
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.
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 firstname.lastname@example.org.
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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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.
- 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.
- 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).
- 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.
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.
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.
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.
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.”
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.
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
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 email@example.com.
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.