Monthly Archives: April 2014

Is it Retaliation to Cut Employee Hours to Avoid Obamacare Mandate?

pillsAfter a couple of delays, the employer mandate portion of Obamacare is now scheduled to take effect at the beginning of 2015. At least, a partial mandate is scheduled to start then for some employers. Companies with at least 100 employees will have to cover at least 70% of their full-time employees by then. At the beginning of 2016, the mandate will kick in for companies with 50 to 99 employees. And larger employers will have to cover at least 95% of their full-time workforce.

Because a full-time employee is one who works at least 30 hours a week, there has been a lot of speculation that employers will cut employees hours to avoid having to provide health insurance. In fact, it has gone beyond speculation: A number of major employers, both public and private, have announced that they will change employee schedules to avoid having to comply with the mandate. Many more have quietly made the same decision, perhaps not advertised in public pronouncements, but made clear to their managers and employees in workplace memos, job descriptions, and policy changes. (Check out a list, along with links to supporting documents, in ObamaCare Employer Mandate: A List of Cuts to Work Hours, Jobs, from Investor’s Business Daily.)

A couple of weeks ago, the lawyers started speaking up. According to an article in the San Francisco Daily Journal (available only by subscription — sorry!), management lawyers said they would be concerned if a client came to them proposing to cut hours to avoid the mandate. The reason? The law includes a retaliation provision, prohibiting employers from taking adverse action against employees because they have health insurance.

Some open questions were identified in the article, including whether the retaliation prohibition protects employees whose hours are cut now, well in advance of the mandate, and whether it offers any protection to new employees who are hired at less than 30 hours a week. Like much else about Obamacare, these issues will have to be resolved in the courts.

EEOC Issues Q&A on Religious Accommodation

The Equal Employment Opportunity Commission (EEOC) recently issued the latest in its question-and-answer series, Religious Garb and Grooming Requirements in the Workplace: Rights and Responsibilities. I am a big fan of the EEOC’s Q&As on various discrimination topics, particularly the detailed examples it uses to explain what the law requires and how employees and employers can work together to come up with sensible solutions. That said, although this recent installment is similarly helpful and informative, it doesn’t break new policy ground.

As the EEOC and courts have long held, employers may be required to accommodate an employee’s religious clothing, jewelry, decorative items, and grooming requirements. The EEOC’s Q&A gives examples and details about how this requirement works, with particular focus on head coverings (such as yarmulkes, turbans, and hijab), long hair, and beards. A few things the agency emphasized:

  • Whether the underlying belief requiring accommodation is “religious” and “sincerely held” will very rarely be in question. As the EEOC points out, its definition of “religious” is so broad as to rule out most employer challenges. And, beliefs may be sincerely held even if they change over time or deviate from the tenets of the religion the employee claims to practice.
  • Customer preference and related justifications — such as the company’s “image” or “brand” — just do not cut it as employer defenses. There are a number of examples in the Q&A making this point in various ways. Customers don’t like turbans? Image requires employees to be clean-shaven? Brand requires employees to wear the latest fashions, without head scarves? These are all non-starters as defenses to a failure to accommodate claim.
  • Like accommodations for disabilities, religious accommodations must be considered on a case-by-case basis. Even if there is a legitimate safety justification for a particular requirement, the employer should look at whether the employer’s concerns can be met for that employee in other ways. The EEOC gives an example of a security guard who wears a head scarf. Even if the employer’s policy prohibits any clothing that covers the face or head, the employer might have to allow an exception if it can meet its security needs in other ways for this employee (by, for example, requiring the employee to temporarily remove the covering for identification purposes).

Supreme Court: Severance Pay is Subject to FICA Tax

supctLast week, the Supreme Court decided a case about how severance pay must be treated for tax purposes. The employer in the case (United States v. Quality Stores) had declared Chapter 11 bankruptcy. The employer provided severance pay in two programs: One paid employees who were terminated immediately, and the other paid employees who stayed with the company through its bankruptcy reorganization, until an agreed-upon termination date. Like most severance plans, the company’s program was based on length of employment and job grade.

The employer and the IRS agreed that the severance pay should be treated as income for purposes of income tax withholding. What they disagreed about was FICA taxes: the payroll taxes, split between employer and employee, that fund Social Security and Medicare. Although the employer initially paid it share of these taxes and withheld the employees’ share from their severance, it later asked the IRS for this money back, to the tune of more than a million dollars. The employer’s claim was that the severance payments didn’t count as “wages” under IRS rules.

The Supreme Court disagreed. In a unanimous decision, the Court found that severance pay is subject not only to income tax withholding, but to FICA tax withholding as well. (And, employers must pay their half of these taxes on severance.) The Court found that severance pay falls squarely within the definition of wages as “remuneration for employment,” especially where, as here, they are based on the employee’s tenure and role at the company. Not a big surprise, but at least employers can now blame the Supreme Court when terminated employees complain that their severance pay is less than they thought it would be.