Is There an Employer Mandate Loophole in Obamacare?

pillsIn the last few weeks, a number of articles have been published on a possible way for employers to game Obamacare. (The most influential one was Employers Eye Bare-Bones Health Plans Under New Law, in the WSJ.) Here’s the basic strategy: Offer a minimal health benefit plan (called a “skinny” plan), which doesn’t meet the essential benefits requirements. Then, pay the secondary penalty under the employer mandate if any employee wants more comprehensive coverage, gets it through a state exchange, and is eligible for a tax subsidy based on income.

Surprised? Me too, although not that employers are trying to avoid costs. What surprised me was that, based on reporting so far, it sounds like the Obama administration isn’t coming out loudly to say this won’t work. (Much more information is still needed here before anyone can say definitively whether employers can get away with this.)

The first step is to get a plan that offers “minimal essential coverage.” If you think that means it has to cover the ten categories of “essential benefits” we keep hearing about, like mental health services, prescription drugs, and hospitalization, you are not alone. But you are wrong. Those rules apply to individuals and small businesses, but not to the larger businesses that are subject to the employer mandate. For these employers, nearly any plan will do, as long as it covers certain preventive services without an annual or a lifetime limit (according to the WSJ article). It doesn’t have to provide coverage for surgery or hospitalization. As long as the plan offered meets this very low bar, the employer can avoid the primary penalty under the employer mandate: $2,000 per employee, not counting the first 30 employees.

The second step is to be ready to pay the secondary penalty under the mandate, for having inadequate coverage. Employers must pay $3,000 per employee for this penalty, which is imposed on employers whose plans don’t offer minimum value or are not affordable to their employees. If you’re wondering why an employer would want to pay a $3,000 penalty to avoid a $2,000 penalty, the answer is that this penalty is imposed only per employee who buys insurance through a state exchange and is eligible for a tax subsidy. Some employers are clearly betting that this won’t add up to many employees. For example, low-wage workers might not be able to afford comprehensive coverage, even with subsidies. High-income workers likely won’t be eligible for a tax subsidy if they want more comprehensive coverage. And, there are places to buy insurance outside of the exchanges, which eliminates the penalty.

Is this going to work? It’s unclear: Because it so obviously skirts the intent of the law, this strategy comes with plenty of legal risk. And who came up with the idea of letting the larger employers who provide so much health coverage in this country somehow skirt the “ten essential benefits” requirements? The WSJ article quoted a former White House adviser saying, “Our expectation was that employers would offer high quality insurance.” Which kind of makes it sound like this was a surprise to them, too.

EEOC Settles Its First GINA Case

Last month, the EEOC announced that it had settled the first lawsuit it had ever filed alleging violation of the Genetic Information Nondiscrimination Act (GINA). The employer in the case (Fabricut, a distributor of decorative fabrics) agreed to pay $50,000, post a notice regarding discrimination, and provide anti-discrimination policies and training. Not a lot of clams, but it’s still important: Not only was this the agency’s first GINA case, but it also involved employer conduct that seemed inadvertent, at least as regards GINA. The employee might have had a nice little ADA claim, on the other hand.

The employee, Rhonda Jones, had a temporary job as a memo clerk. When that job ended, she applied for a regular position in the same job. As part of its usual hiring practices, the company sent her to its contract medical examiner for a post-offer physical exam. That’s when the GINA violation happened: The examiner asked her to fill out a health questionnaire, which asked a bunch of questions about her family medical history. That alone violates the law. Employers (or their contract medical examiners) may not request or require genetic information from applicants or employees. That the employer apparently never acted on the basis of this information doesn’t matter. Requesting it violated GINA. This part of the case is a good reminder to employers that all of this information is now off-limits, period.

But back to the ADA claim: The medical examiner’s actual exam revealed that further evaluation was necessary to find out whether Jones had carpal tunnel syndrome. The examiner told Fabricut of this finding, and Fabricut told Jones to go to her personal physician for testing. Her physician gave her a number of tests and concluded that she didn’t have carpal tunnel. She provided this result to Fabricut, but it didn’t hire her anyway, on the basis of the examiner’s original finding. And it ignored Jones’s request for reconsideration of the decision.

So to review: The employer regarded her as having a disability, although her own physician said she did not. She had already been performing the job for which she applied, and one presumes she was doing fine, as they offered her the position. And, at least based on the facts in the EEOC’s release, the employer made the decision based solely on her disability, without any consideration of reasonable accommodation. Of course, if she had no disability, she wouldn’t be entitled to accommodation. But Fabricut thought she did have a disability — and rejected her on that basis — so it had an obligation to consider possible accommodations. All in all, a pretty strong argument that the employer violated the ADA.

Wage and Hour Lawsuits: Tips, Overtime, and Hours Worked Top the List

This month’s issue of Corporate Counsel includes an interesting article on wage and hour lawsuits brought under the Fair Labor Standards Act. The article includes a graph showing that the number of FLSA cases filed in federal court has risen steadily over the last five years. More than 7,700 cases were filed in the 12 months that ended on March 31, 2013, a new record.

According to Noah Finkel, a partner at Seyfarth Shaw who was interviewed for the article, the cases fall into three categories:

  • overtime exemptions, particularly employees who are paid a salary but believe they are entitled to overtime. 
  • hours worked cases, in which employees claim that they were not paid for all of their work time, and
  • disputes about the tip credit.

Finkel said he’s seen an increase in tip credit cases recently. Not all states allow a tip credit. In states that allow it, a tip credit lets employers pay less than the minimum hourly wage, as long as the tipped employee earns enough in tips to make up the difference. (The credit is the amount the employer doesn’t have to pay. For example, if a state’s minimum wage is $7.25, and the state allows employers to pay tipped employees a minimum wage of $4.25, the tip credit is $3.)

In 2011, the Department of Labor issued revised regulations on tip credits. Among other things, these regulations clarify the rules for tip pooling and require employers to give employees notice if they will be subject to a tip credit. Often, new regulations lead to more lawsuits, as employees and their attorneys test how the new rules will play out in practice. So, I guess the increase in tip credit cases isn’t much of a surprise. (For more on the rules, see our update Labor Department’s Final Regulations Clarify Tip Credit Rules.)

Bad Credit Could Cost You a Job

Over the weekend, the New York Times published a chilling article about employer reliance on credit reports, The Long Shadow of Bad Credit in a Job Search. The main character was a poor guy who couldn’t find work as a shoe salesman after he couldn’t pay medical bills incurred for an injury he suffered after getting laid off (and losing his insurance).

The article points out that employers are actually a bit less likely to check credit reports on applicants than they have been in the past. While previous surveys (conducted by our friends at SHRM) have found that about 60% of employers check credit reports on applicants, that number is now down to about 50%. At the same time, however, many people have seen their good credit ratings go down the tubes in the last five years. So fewer employers are checking, but they may be dinging a higher percentage of candidates for poor credit.

Why do employers check credit reports, anyway? For certain positions, a credit report might reveal pertinent information. You may not want an employee who never pays bills on time to manage a department budget, prepare economic forecasts, or have free access to a company credit card. In many situations, however, poor credit reveals no more than bad luck: high medical bills, divorce, and job loss account for many financial woes. Although there are certainly some people who run up huge debts on luxury items, never planning to pay for them, there are many whose debts are based on sadder — and more mundane –circumstances.

Rejecting these applicants for jobs puts them in a Catch-22: They lost a job, which hurt their credit, which will prevent them from getting a job, and so on. In recognition of this, states are starting to step in and prohibit employers from using credit reports in making hiring and other job decisions. Nine states have passed these laws so far, and more are considering similar legislation. You can find our articles on these laws in State Laws on Employer Use of Credit Reports; for more information on the rules for using applicant credit reports in hiring, including notice and consent requirements, see Can Prospective Employers Check Your Credit Report?

Dogs at Work, Part II


Temporary Office Dog: Richmond

A few years ago, I posted about some of the benefits of bringing dogs to work, including higher productivity, lower stress, better social cohesion, and better teamwork. A recent article in USA Today cites even more research to prove what dog owners instinctively know: Pets decrease stress in a tangible way, by lowering cholesterol and blood pressure levels. They increase our opportunities to socialize and exercise.

In fact, the article cites a 2012 study conducted at a single workplace in North Carolina, which revealed that workplace stress levels of employees who brought their dogs to work decreased by 11% as the day progressed. Employees who didn’t bring their dogs (or didn’t have dogs to bring) saw stress levels rise a whopping 70% in the same timeframe.

All of these benefits help explain the continuing office trend to allow dogs at work. Surveys show that about one in five employers allow employees to bring dogs to work, including the Daily Show and Google. (Those who consider themselves “dog people ” rather than “animal people” have to love their gentle rebuff of the feline: “we like cats, but we’re a dog company.” Me too, The Google; me too.)


Former Office Visitor: Flora

And those are just the human benefits: For the dogs, the benefits might be even greater. Dogs get to enjoy the company of their human companions for more of the day. They get to scrounge scraps from coworkers. They get treats, belly rubs, and head scratches from office dog lovers. And, for some dogs, the opportunity to go to work lowers their stress as much as it lowers ours; it may even save their lives.

Pet ownership is at an all-time high, according to the American Pet Products Association. Almost half of all households in this country have a dog. But it can be hard to take care of a dog when you’re a working stiff. Dogs need to use the facilities, exercise, socialize, and get their mental stimulation, just like we do. If a family member, friend, or paid helper isn’t available to meet these needs, dogs will figure out other ways — ways less friendly to furniture, carpets, and possibly neighbors — to get things done. Older dogs may be fine on their own all day, with the help of some chew toys and a doggie door. But for younger dogs and recently acquired dogs, more supervision is better.


No alarm clock today

That’s my personal angle on the dogs at work issue: It’s a great way to help more dogs get adopted and stay that way. My employer has been dog-friendly for its entire 40+ year history. Once a week, one of my dogs comes to work. Every once in a while, I stop by the office while walking a dog from our municipal shelter, Berkeley Animal Care Services, like red-headed beauty Flora. And recently, I was able to help a friend and her newly adopted dog get over the “home alone” hump by bringing teenage heartthrob Richmond to work with me for a few days. This allowed Richmond to socialize with lots of new people, get used to behaving calmly in a new environment, and have some time to settle in with his new family; now, he’s a successful stay-at-home companion to canine siblings (including little Bimo, pictured above) and human grandparents. (And my own dogs didn’t seem too sad about the opportunity to sleep in.)

Looking for your own dog to bring to work? Visit your local shelter! If you’re in one of the counties that participates in Maddie’s Fund Pet Adoption Days (San Francisco and Alameda County are), you can adopt your pet free on the first weekend in June — and be all set for Take Your Dog to Work Day on June 21.


NLRB Poster Rule Struck Down, Again

The National Labor Relations Board (NLRB) just can’t win for losing these days. First, the Supreme Court decided that a two-member “rump” (of the usual five-member Board) was not authorized to conduct NLRB business. This threw about 600 decisions into doubt, as they were issued after the terms of the other three members had expired. Next, federal courts held up the NLRB’s efforts to make rules that would require employers to post a notice of union rights and would speed up union elections. Then, the D.C. Circuit Court of Appeals decided that President Obama’s effort to solve that two-member problem by making three recess appointments to the Board had failed, and that the Board still lacked the necessary quorum (at least three members) required to do any business.

The Obama administration recently appealed that last decision to the Supreme Court, but the D.C. Circuit wasn’t finished yet: Yesterday, that Court struck down the NLRB’s posting requirement as a violation of employer free speech rights. This requirement had been on hold while the Court heard arguments and made its decision, so the opinion hasn’t changed the status quo. It will take a Supreme Court opinion (in favor of the NLRB, quite unlikely) to get these posters up in the workplace.

The Court of Appeals opinion focused mainly on the Board’s methods of enforcing the posting requirement. The Court found that the Board didn’t have the authority to penalize the employer for failing or refusing to put up the poster (by, for example, making failure to post an unfair labor practice, creating a legal presumption that failure to post showed an anti-union bias, or extending the statute of limitations for employees to file a charge with the NLRB if their workplace had no poster informing them of their rights). The basis for this holding was employer free speech. The NLRB is not allowed to penalize employers for saying what they wish about unions, as long as no coercion or threats are involved. By the same token, the Court reasoned, the NLRB can’t force employers to “speak” by punishing them for failing to hang the poster.

It’s interesting to me how much firepower has been levied against the NLRB lately, especially about something so basic as a workplace rights poster. Employers are already required to hang posters about health and safety, discrimination laws, the minimum wage, and more, so I would have thought this type of requirement wouldn’t raise much employer ire. Because they are such a routine feature of the workplace landscape, most employees ignore them, in my experience. So why all the uproar about adding one more poster to the bulletin board?

Based on all of the recent activity against the NLRB, as well as the fights in the past couple of years over public employee unions, right to work laws, collective bargaining rights, and so on, it seems clear that the opposition to the NLRB is about more than posters. These lawsuits haven’t been brought by individual employers, but by large employer advocacy groups, such as the National Association of Manufacturers and the Chamber of Commerce. This agency — and the rights it enforces — are under sustained attack by business groups. The Board has been prevented from issuing regulations, issuing opinions, or stepping in to resolve disputes over elections. The recess appointments and two-member rump strategy were efforts to continue doing business despite Congress’s continued failure to confirm new Board members. President Obama has responded by nominating a bipartisan package of five members (the Board is bipartisan by design), but Congress still hasn’t taken action. With insufficient members and such fierce opposition, it’s unclear at this point what the Board can do to get back on its feet.

Do You Really Want to Contest Unemployment Benefits?

The unemployment rate is gradually declining, but my own personal barometer — based on the admittedly unscientific measurement of questions people ask me because they know I’m an employment lawyer — shows that interest in unemployment remains high. Employers and employees want to know the same thing: What reasons for leaving a job disqualify someone from getting benefits?

Here in California, the rules about eligibility for unemployment are among the most generous in the country. An employee who quits a job for good cause can still get benefits. Good cause includes not only job-related reasons (such as dangerous working conditions or harassment) but also circumstances wholly apart from work. For example, if you quit your job because you need to relocate with your spouse, escape domestic violence, or care for an ailing family member, you will likely be eligible for unemployment benefits.

Employees who are fired can get benefits unless the termination was based on misconduct. If that sounds like a low standard, that’s only because you haven’t heard how California defines the term. An employee has committed misconduct only if all of the following are true:

  • The employee owed a material duty to the employer, such as showing up for work.
  • The employee substantially breached that duty: A minor or one-time transgression isn’t enough to meet this requirement.
  • The employee showed a wanton or willful disregard for that duty. In other words, the employee wasn’t just careless or thoughtless but, instead, intentionally violated the duty or showed a reckless disregard for the consequences of your breach of the duty. Inefficiency, inability to perform the job, or good faith errors in judgment don’t meet this standard and won’t render someone ineligible for benefits.
  • The employee’s breach tends to materially harm the employer’s business interests.

That third factor is the key that unlocks benefits for many fired employees. Poor performance, mistakes, and even incompetence are not supposed to be enough to deny benefits: The intention requirement in the standard means the employee must have been making a choice, either to engage in wrongdoing or to perform poorly. An employee who really can’t do the job is supposed to get benefits. (For comprehensive — and comprehensible — information on unemployment in California, check out the Unemployment Insurance page at the website of the always awesome Employment Law Center.)

Some of the questions I’ve been asked lately (on the employer side) kind of remind me of that old Mad Magazine cartoon, “Unclear on the Concept.” Here are a couple of examples:

Can we ask employees to waive the right to collect unemployment in a severance agreement? Only if you don’t mind breaking the law. In California, unemployment benefits may not be waived. A contractual agreement by an employee to give up the right to apply for or collect unemployment is void and invalid. What’s more, severance pay ordinarily doesn’t count as “wages,” and so doesn’t reduce the amount of benefits a former employee can collect. (If severance is paid out over time as if it were wages, the employee may have to delay collecting benefits.)

Can we ask employees to agree that failing to meet our performance standards constitutes a voluntary quit? Same answer. It really doesn’t matter what you require employees to agree to: Employees are entitled to benefits when they lose their jobs unless they commit misconduct, as defined above, or quit without good cause, also as defined above. The EDD doesn’t care how you redefine these terms in a performance improvement plan or employment contract. If an employee is terminated because of poor performance, that is not a voluntary quit. In fact, employers who try this strategy might be facing more problems than an increase in unemployment claims: Requiring employees to sign a contract that you know you can’t enforce could arguably constitute an unfair business practice, which takes an employer into territory where huge damages can be awarded.

To return to the title of this post, it is almost never in the employer’s interest to try to contest benefits this aggressively. Fighting an employee’s claim on dodgy grounds will turn the employees you still have against you: They will find out about it, and they will not be feeling the love. It will take time and money to appeal employee claims. And you will make a bitter enemy of the employee you fired, one who has every incentive to file a lawsuit against your company. By all means, challenge claims by bad apples who are trying to game the system, who truly committed misconduct, who quit for no good reason, who stopped even trying to do their jobs months before you fired them. But otherwise, it’s generally best to let the system do what it’s supposed to do: provide some help to those who have lost their jobs through no fault of their own, until they can find new work.

Supreme Court’s FLSA Decision on Collective Actions

Last week, the Supreme Court decided a case about collective actions under the Fair Labor Standards Act (FLSA). Collective actions are similar to class actions, in that they give an employee the right to file a lawsuit on behalf of a group of employees who have the same basic claim against the employer. The Court’s decision took a strange turn, resulting in a victory for the employer that skirted a primary issue in the case.

Here’s what happened: Laura Symczyk filed a collective action against her employer, Genesis Healthcare, claiming that it had an unfair policy of docking employees for a 30-minute meal break every shift, whether or not the employee had to work during that time. (If an employee must work through a meal, the employee is entitled to be paid; nobody disputes this basic assertion underlying the employee’s case.) Symczyk was the only named employee in the case, but anticipated that others would join in once the collective action was conditionally certified: that is, once the court found that the group of employees were similarly situated to Symczyk because they were subject to the same policy or practice.

Before Symczyk tried to certify the collective action, Genesis offered to settle her claim. Genesis said it would pay her $7,500, plus fees and costs. Symczyk didn’t respond, and Genesis withdrew the offer.

This settlement offer was made under Rule 68 of the Federal Rules of Civil Procedure. Under Rule 68, if one party doesn’t accept a settlement offer, that party will be responsible for all of its lawsuit costs after the date the offer was made, unless that party gets a judgment that’s better than the settlement offer. The purpose of this Rule is to give both sides a strong incentive to settle: The defendant has good reason to offer a generous settlement, both to get out of the lawsuit and to make it more likely that the plaintiff won’t do better at trial. The plaintiff has a good reason to accept, both because the offer is likely to be generous and because the plaintiff may have to foot a large litigation bill if the judgment isn’t better than the settlement.

With me so far? Because here’s where things get weird. The trial court threw out the lawsuit, finding that Symczyk no longer had an active dispute against the company because she had been offered all of the relief to which she was entitled. Because Symczyk no longer had a claim, she couldn’t represent other employees, and so the whole case got tossed.

The problem is that Symczyk didn’t accept the settlement offer; she turned it down. She didn’t get any money in settlement and, because the court tossed her case, she won’t get any money at trial. This should not be possible: Plaintiffs who turn down a Rule 64 settlement offer have a right to take their chances in court. The plaintiffs may win or they may lose, but they buy the opportunity to take their best shot by forgoing the settlement. It isn’t fair to throw a case out when the plaintiffs have neither settlement nor judgment in hand. Nonetheless, one federal judiciary circuit has interpreted Rule 64 to allow this type of penalty, presumably in an effort to put a stop to unnecessary litigation.

But the Court skipped right past this issue to decide that, if Symczyk’s case was properly dismissed, then she can no longer represent the group. Employee attorneys take issue with this, arguing that employees should have a chance to replace the named plaintiff-employee when this happens and continue with the lawsuit. Otherwise, defendant-employers could “pick off” the named employee (by making a Rule 68 offer) and get any collective action filed against it thrown out of court.

This is an interesting argument, but not the one the Court should have decided. In almost any federal court, Symczyk’s case would not have been dismissed and she would still be capable of representing the group. By leaving this fundamental issue undecided, the Court hasn’t clarified things very much for those on either side of an FLSA collective action.

Hiring and Firing Rates Stay Low

As reported in the New York Times, the Department of Labor recently released its Job Openings and Labor Turnover Survey. The survey asks employers about changes in their workforce over the past month: how many employees they started with, how many employees left or were hired, and how many employees they had at the end of the month.

The statistics show that the rate of involuntary separations — firings and layoffs – has stayed really low. Just over 1% of the total workforce were discharged or laid off in February 2013, the month for which the survey collected data. In fact, more employees quit voluntarily than were fired or laid off. However, the survey also revealed that hiring rates remain low, at 3.3%. With total separations, voluntary and involuntary, at 3.1%, you can see why the monthly job numbers continue to disappoint.

Among other things, these numbers mean that the unemployed are still quite likely to stay that way. There are just too few jobs opening up to absorb everyone who is looking for work. In response to this continuing problem, a few states and local governments — most recently, New York City — have passed laws prohibiting discrimination against the unemployed. Although these laws don’t magically expand the number of available jobs, they at least attempt to level the playing field by prohibiting employers from excluding those who are currently unemployed from consideration when hiring. For more information about these laws, and possible discrimination claims based on unemployed status, check out Discrimination Against the Unemployed.

Employee Theft Blacklist: What Could Possibly Go Wrong?

Last week, the New York Times reported that large retail chains are pooling data on employees accused of theft, so they can avoid hiring those employees in the future (“Retailers Track Employee Theft in Vast Databases.”) That’s right: It’s an industry blacklist. And it’s not just for employees who have been convicted of theft or admitted to it. One employee interviewed for the article reported that she got into the database for failing to report another employee’s theft; another employee was reported for theft after leaving a pair of socks at a cash register.

And now the lawsuits are coming. The Federal Trade Commission is investigating whether these databases comply with the Fair Credit Reporting Act (FCRA), which requires employers who get reports on employees (such as credit reports or criminal background checks) from outside agencies to get the employee’s consent, notify the employee if the employer plans to rely on the report to take adverse action, and give the employee information on how to correct errors in the report. From the Times story and others I’ve read, it sounds like neither the employers nor the agencies gathering the alleged theft information followed these rules. (For more on the rules employers and agencies must follow, see Running Credit Checks on Job Applicants.)

But the potential legal violations go well beyond the FCRA. Many states prohibit blacklisting, for example. And, job applicants might have a claim for defamation against their former employer, if the information reported to the database is false. If there are racial or ethnic disparities in the database — for example, if a disproportionately large number of African American or Latino employees appear in its data — an employee who is turned down for a job might have a discrimination claim.

As a practical matter, the database blacklist might also lead to more claims against the former employer for wrongful termination. An employee might be willing to walk away after being fired for alleged theft, even if the accusation is false. Retail employees are often living paycheck to paycheck, and the imperative to get a new job may well outweigh the desire to clear one’s name at the old one. However, if the former employer takes steps to guarantee that the employee will never work again, the balance obviously shifts. Suddenly, a claim for defamation or false imprisonment might look a lot better if the alternative is waiting for the unemployment to run out.

Spare a thought for the employers caught in this web: Employee theft is a serious problem, accounting for almost half of all theft and $15 billion in lost merchandise in 2011, according to data From the National Retail Federation reported in the Times article. You can see why an employer would want to take any help available to avoid putting a thief on the payroll. But secret databases that report accusations and suspicions aren’t the way to do it.