We are excited to continue our video series – Tips from the Table. In these monthly videos, members of LCW’s Labor Relations and Negotiations Services practice group will provide various tips that can be implemented at your bargaining tables. We hope that you will find these clips informative and helpful in your negotiations.
Last week, the United States Court of Appeals for the Ninth Circuit upheld a Santa Monica City ordinance which prohibited unattended exhibits in Palisades Park, among them displays of the Nativity Scene, erected annually by the Santa Monica Nativity Scenes Committee. The Court found that the City’s ordinance was a valid content-neutral time, place, and manner regulation.
Residents of Santa Monica began erecting the Nativity Scene in Palisades Park as early as the 1950s. In 2003, the City passed an ordinance precluding unattended dioramas at the Park. The City, however, provided for a “Winter Display” exception, which allowed for unattended installations or unattended displays in Palisades Park during the month of December.
All Santa Monica residents were entitled to apply for a “Winter Display” space in the park. Spots were limited and offered on a first-come lottery basis.
The Winter Display system functioned without incident in its first few years of existence, during which time the only applicant who requested substantial display space was the Santa Monica Nativity Scene Committee. But in 2011, a group of atheists were able to secure most of the Winter Display spots. The Committee and the atheists, now in direct competition for the spots, both vowed to flood the display-space lottery with even more applications in 2012.
In early 2012, the Santa Monica City Attorney recommended that the Council eliminate the Winter Display exception for two reasons. First, Santa Monica residents wanted to preserve the aesthetic qualities of the Park and retain the ability to “look at the ocean vista,” rather than the Winter Displays. Second, the lottery system for display space was “time consuming and costly” to operate and required the investment of hundreds of hours of staff time – a problem that was likely to intensify because both groups planned to “flood” the lottery process.
The City Council agreed with the City Attorney and, on June 26, 2012, unanimously adopted Ordinance 2401, w
hich repealed the Winter Display exception. In response, the Nativity Scene Committee sued the City Council in the Central District of California, alleging violations under the U.S Constitution of First Amendment right to free speech and the Establishment Clause.
In ruling that the City did not violate the Committee’s First Amendment rights, the Court first determined that Ordinance 2401 was content-neutral as it was an “evenhanded regulation,” which did not single out the Committee’s speech (e.g., Nativity Scene display), but rather treated “all potential displays equally.”
Second, the Court found that the Ordinance was narrowly tailored to serve two significant governmental interests – preservation of aesthetic qualities of Palisades Park (prevention of obstruction of view of the ocean) and conserving the City’s resources that would be necessary to administer the Winter Display’s lottery system.
Lastly, the Court found that the Committee had at its disposal “many alternative avenues” to communicate its religious message, including, erecting its unattended nativity scenes on private property, erecting one-day, attended displays, leafleting, preaching, holding signs, and caroling.
The Court summarily dismissed the Committee’s allegation that the City violated the Establishment Clause. The Court found that the Committee could not demonstrate that the City was motivated by an impermissible purpose.
The recent decision illustrates the factors a public municipality must consider before restricting speech at a public forum. Although a number of other restrictions exist, where a public entity intends to effectuate a place, time, and manner restriction, it must ensure that the restriction is content neutral, tailored to serve a significant government interest, and allows for an alternative avenue of communication.
This blog post was authored by James Oldendorph.
In a case handled by LCW attorneys, Steve Berliner, Frances Rogers and Stefanie Vaudreuil, a California Court of Appeal affirmed a judgment by the Los Angeles County Superior Court that the City of South Pasadena did not impair constitutionally-protected vested rights when it modified City contributions to retiree medical insurance for existing employees once the memoranda of understanding between the City and its labor associations expired.
Since 1972, the City provided medical insurance for active and retired employees pursuant to the Public Employees’ Medical and Hospital Care Act (PEMHCA), also known as “CalPERS Medical.” Prior to 2000, the MOUs for City employees were silent as to City contributions to retiree medical insurance. From 2000 to 2008, MOUs for two of the City’s labor associations stated that the City shall “continue to pay” 100 percent of the medical premium for retirees. All three of the City’s labor associations entered into MOUs effective July 1, 2008 to June 30, 2011 which stated that for employees hired prior to adoption of the MOUs, the “City shall pay 100% of the premium for all retired employees.” Employees hired after the MOU adoption would receive the same benefit after seven years of continuous City service. When the associations and the City failed to agree on new MOUs in 2011, the City passed resolutions wherein the City would pay 100 percent of the medical insurance premium for employees who became retired annuitants prior to July 1, 2012. All employees who retired on or after July 1, 2012 would receive a City retiree medical contribution in compliance with Government Code section 22892, that is, what the City contributed for active employees it would contribute for retired employees.
The associations alleged that fully paid retiree health insurance was a vested benefit protected by the Contracts Clause of the United States and California Constitutions. The City did not dispute that the MOUs are enforceable contracts during the term of those MOUs. However, the City argued that once the MOUs expired, so did any expectation of retiree medical benefits for employees who had not retired during the term of the MOUs. In an unpublished opinion, the Court of Appeal agreed, affirming a superior court judgment in favor of the City.
“[C]ontractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement.” (Litton Financial Printing Div. v. NLRB (1991) 501 U.S. 190, 207; International Brotherhood of Electrical Workers, Local 1245 v. City of Redding (2012) 210 Cal.App.4th 1114, 1119.) When a contract is silent as to the duration of retiree benefits, a court may not infer that the parties intended those benefits to vest for life. (M&G Polymers USA, LLC v. Tackett (2015) 190 L.Ed.2d 809, 820.) An employer’s agreement to vest benefits in perpetuity cannot be presumed: there must be clear and express language in the contract, or convincing extrinsic evidence of an implied term, that benefits will continue after the agreement’s expiration. (Retired Employees Association of Orange County v. County of Orange (2011) 52 Cal.4th 1171, 1191.)
The Court held that the MOUs did not contain clear and express language that the City’s level of contribution to retiree medical would remain the same after MOUs expired for employees who had not retired during the term of the MOU. The Court further found a lack of convincing extrinsic evidence that the City’s contribution level was impliedly vested. The fact that the City had provided 100% fully paid retiree health for many years did not alone create a vested benefit. Further, no City administrator was shown to have promised employees fully paid retiree benefits forever. No job flyers, postings or handbooks were presented in evidence guaranteeing the benefits in perpetuity. In fact, the evidence showed that the parties treated the City’s contribution to be a negotiable subject with each MOU. Finally, the Court held that public employee benefits may be modified or reduced under statutory authority. As a participant in PEMHCA, the City could fix the amount of its contribution to health care premiums by resolution, so long as it met the minimum set by statute.
The Court’s decision was a victory for the City and a reminder to all public agencies to take care in the drafting of contract language, employee handbooks, job flyers and the like to prevent an unintentional creation of vested benefits. Employers should always seek legal counsel before modifying retiree benefits whether by agreement with a labor organization, or by unilateral action.
South Pasadena Police Officers Assn., et. al. v. City of South Pasadena (2015) 2015 WL 1094691 [unpublished].
This is an unpublished decision of the Court of Appeal and is therefore not binding precedent on any court. A request for publication was denied by the Court of Appeal.
Last year, we reported on the Equal Employment Opportunity Commission v. Ford Motor Company case, a U.S. Court of Appeals case from Ohio. In that case, the Sixth Circuit Court of Appeals reversed a grant of summary judgment to Ford in a disability discrimination lawsuit. In a 2-1 split decision, the Court held that allowing Jane Harris, a resale steel buyer for Ford who suffered from irritable bowel syndrome, to telecommute from home on an as-needed basis for up to 4 days a week could be a reasonable accommodation. Relying on technological advances that allow the “workplace” to be anywhere that an employee can perform job duties, on Ford’s allowing other resale buyers to telecommute on a limited basis, and on Harris’ testimony that she could perform her essential job functions from home, the Court rejected Ford’s contention that Harris’s regular in-person attendance was an essential job function.
That decision, however, was subsequently vacated by the Sixth Circuit when it decided to rehear the case en banc (i.e., to have a larger panel of judges entirely rehear the appeal given its importance). The new decision is in favor of Ford, and substantially limits working from home as a reasonable accommodation.
On April 10, 2015, after the rehearing en banc, the full Sixth Circuit panel held, in another split decision (8-5), that the district court’s initial grant of summary judgment to Ford regarding the reasonable accommodation question was correct. The Court expressly held that “regular and predictable on-site job attendance [is] an essential function (and a prerequisite to perform other essential functions) of Harris’s resale-buyer job.” The Sixth Circuit determined that, therefore, it follows that Harris’s proposal that she telecommute for up to 4 days a week was unreasonable as it removed that essential function of her job.
By its holding, the Court affirmed the general rule that regular and predictable on-site work attendance is essential to most jobs, especially interactive jobs (i.e., jobs that require interaction with others such as co-workers or clients). This general rule is consistent with the Americans with Disabilities Act (ADA) and EEOC regulations. And importantly, as the Court stated, the rule is supported by common sense. As the Court explained, non-lawyers readily understand that regular on-site attendance is required for most interactive jobs and perhaps is the basic and most fundamental activity of these jobs.
This decision does not mean that telecommuting can never be a reasonable accommodation for a disability. Nor does the decision require blind deference to the employer’s judgment of what constitutes an essential job function. Rather, as the Court stated, the decision “does require granting summary judgment where an employer’s judgment as to essential job functions – evidenced by the employer’s words, policies and practices and taking into account all relevant factors – is ‘job related, uniformly-enforced and consistent with business necessity.’” The Court found that Ford met that test with respect to its requirement for regular on-site attendance for its resale buyers.
Although the Ford case has now been decided in the employer’s favor, this does not mean that employers should assume telecommuting can be rejected out of hand as a reasonable accommodation for a disability. On the contrary, whether telecommuting is a reasonable accommodation remains an intensive, fact specific, case-by-case inquiry. In addition, an Ohio case from the Sixth Circuit like Ford is persuasive authority for California courts but not binding on them.
As we advised after the original Sixth Circuit Ford decision, the important lesson for employers remains that they should not automatically reject an employee’s request to telecommute as a reasonable accommodation. Instead, during the interactive process, employers should carefully and objectively examine the job duties of the position in question to determine if attendance is truly required for the position. Factors that should be considered include how interactive the job actually is, available technology, and how employees in similar positions perform their jobs and work from home.
This blog post was authored by Liara Silva
On February 26, 2015, Assembly Member Susan Bonilla introduced Assembly Bill 963. The bill addresses concerns regarding membership in the California State Teachers’ Retirement System (“STRS”) that originally arose out of STRS’ audit of the San Francisco Community College District (SFCCD) in August 2012. In its audit, STRS found that positions SFCCD had designated as Educational Administrators were not eligible for STRS membership. These positions included the Director of Human Resources, Chief Financial Officer, and Chief Information Technology Officer, among others. STRS found that the administrators did not perform “creditable service” as defined in Education Code section 22119.5. As we have previously reported, STRS removed SFCCD employees and retirees from the system that it determined were not eligible for membership. In addition, these administrators had to be retroactively enrolled in membership with the California Public Employees’ Retirement System (“CalPERS”).
STRS issued a Circular Letter in August 2012 regarding positions that are not eligible for STRS membership. STRS wrote that in order for a position to be creditable to STRS, the primary functions of the position must be that of an academic or certificated employee as defined under the Education Code, including instruction, curriculum or material development, school health professionals, counselors, or librarians. Additionally, positions responsible for supervising the positions listed above are academic positions eligible for STRS membership (e.g. dean of instruction). An employee of a community college or K-12 school district who does not perform STRS-creditable service, should instead be a member of CalPERS.
In November 2013, STRS created a one-time 180-day window for employees performing duties not creditable to STRS, but who had previously been a member of STRS from prior academic or certificated employment, to exercise an option to have his or her otherwise CalPERS-creditable service credited to STRS. However, this did not address concerns regarding employees and retirees that did not perform STRS creditable service in a prior position.
In addition to clarifying the definition of creditable service, Assembly Bill 963 addresses these concerns by proposing the addition of Education Code section 22119.6. Section 22119.6 would provide that creditable service includes activities that do not meet the definition of creditable service under Section 22119.5, but were performed by an employee of a community college or K-12 school district on or before December 31, 2015, and were reported as creditable service to STRS. This amendment would allow employees whose membership in STRS is now uncertain to remain in STRS. Employees hired on or after January 1, 2016 would remain subject to the definition of creditable service set out in Section 22119.5.
We will keep you updated on any developments regarding Assembly Bill 963.
In recent months, partially in reaction to several investigations initiated by the U.S. Department of Education’s (“DOE”) Office for Civil Rights (“OCR”), the news media has drawn attention to the prevalence of sexual violence on college campuses and scrutinized administrative responses to claims of such violence. The height of this attention arguably came in November 2014 when Rolling Stone published ‘A Rape on Campus,’* a story largely centered on an alleged gang rape at a fraternity house on the University of Virginia’s (“UVA”) campus. Almost immediately following the story’s publication, however, other news outlets began to question the accuracy of the Rolling Stone narrative. The Washington Post brought attention to the author’s failure to interview the alleged perpetrators. Slate called attention to the fact that the author did not interview at least one of the alleged victim’s friends, in whom she had claimed she had confided immediately following the attack. In response to the skepticism surrounding the accuracy of the reporting, as well as to the author’s own concerns following publication that she may have gotten it wrong, Rolling Stone commissioned faculty at the Columbia University Graduate School of Journalism to conduct an independent review into the narrative’s accuracy.
The Columbia University Graduate School of Journalism Report (the “Columbia Report” or “Report”) was published on April 5, 2015. The Columbia Report characterizes ‘A Rape on Campus’ as a “journalistic failure,” finding significant gaps in the reporting, editing, supervision and fact-checking processes, which had they been examined should have caused Rolling Stone to reconsider publishing the story at all. The Report also notes that a four-month independent investigation by the Charlottesville, Virginia police department found that there was “no substantive basis to support the account alleged in the Rolling Stone article.” Rolling Stone published the report in its April 5, 2015 issue, retracting the November narrative and removing it from its website.
While the Columbia Report calls attention to Rolling Stone’s journalistic faux pas – condemning the author and magazine’s failures to adequately balance the sensitivity of victims with the demand for verification, fact checking, and understanding of legal guidelines – it more subtly serves as a commentary on the “do’s and don’ts” for educational institutions when they are confronted with claims of sexual harassment and violence (hereinafter “sexual misconduct”). Importantly, it also serves as a reminder that an allegation of sexual misconduct affects both alleged victims and perpetrators, and that the law requires that educational institutions establish impartial and equitable procedures to protect the rights of both the parties involved.
The OCR investigations mentioned above were initiated pursuant to the DOE’s jurisdiction under Title IX of the Education Amendments of 1972 (“Title IX”) (20 U.S.C. section 1681 et seq.; 34 CFR Part 106). Title IX promotes freedom from discrimination on the basis of sex in educational programs or activities receiving federal finance assistance. While OCR has focused its compliance efforts on institutions of higher education, Title IX also applies to preschools, local education agencies (“LEAs”), and elementary and secondary schools.
Title IX prohibits discrimination on the basis of sex, which includes sexual harassment, defined in part as “unwelcome conduct of a sexual nature,” and sexual violence, defined as “physical sexual acts perpetrated against a person’s will or when a person is incapable of giving consent,” whether the harassment is perpetrated by employees, peers, or third parties. (Office for Civil Rights, U.S. Dept. of Education, Revised Sexual Harassment Guidance: Harassment of Students by School Employees, Other Students, or Third parties (2001) (“2001 Guidance”); Office for Civil Rights, U.S. Dept. of Education, Dear Colleague Letter (2011) (“2011 DCL”); Office for Civil Rights, U.S. Dept. of Education, Questions and Answers on Title IX and Sexual Violence (2014) (“2014 Q&As”)). Upon notice of “sufficiently serious” sexual harassment or misconduct, educational institutions are required to take prompt and effective action to (1) end the misconduct and (2) prevent its reoccurrence. (2001 Guidance). The OCR has described that under Title IX, educational institutions must abide by the following procedures:
- Establish policies and procedures, including:
- A Nondiscrimination Policy & Notice, which must be distributed to employees and students;
- Designating an employee as the “Title IX Coordinator” to comply with and carry out the institution’s responsibilities under Title IX, including receiving and initiating investigations of all complaints of sexual misconduct; and
- Written grievance procedures which provide a prompt and equitable resolution of student and employee complaints.
- Require all “responsible employees” (defined as a person who is authorized to take action to redress sexual misconduct, who has a duty to report such misconduct or as a person a student reasonably believes has such authority) to report sexual misconduct to the Title IX Coordinator;
- Engage in a fact-finding investigation to determine whether the misconduct occurred. Investigations must be prompt, adequate, reliable, and impartial;
- Train and educate employees and students about their rights and obligations under Title IX; and
- Take remedial actions to address claims of sexual misconduct, including investigating complaints, implementing interim protective measures, and disciplinary action, as well as affirmative steps to prevent future reoccurrence.
(2014 Q&A, section C).
Educational institutions’ carrying out responsibilities under Title IX, however, do not negate their responsibilities to protect other legal rights of the alleged victims or perpetrators. Specifically, OCR has emphasized that “the rights established under Title IX must be interpreted consistently with any federally guaranteed due process rights,” meaning that such rights of both the complainant and alleged perpetrator must be considered and protected throughout the investigation and disciplinary processes. (2014 Q&A, section C). Furthermore, privacy rights are often implicated in the course of Title IX investigations. For example, the Family Educational Rights and Privacy Act (“FERPA”) (20 U.S.C. section 1232g; 34 CFR Part 99) protects the privacy of student education records.
Under FERPA, institutions cannot release the contents of a student’s education records without consent of the student or a minor’s parent or guardian. (34 CFR section 99.31). Thus, an alleged victim or news outlet like Rolling Stone cannot request to see the disciplinary records of the alleged victim or perpetrator. In fact, the Columbia Report notes that the author of ‘A Rape on Campus’ requested an interview with UVA’s Associate Dean of Students. While the Dean agreed to speak with her in hypothetical terms, she told the Rolling Stone journalist that she would not discuss specific cases. ‘A Rape on Campus’ criticized the administration’s secrecy. But as the Columbia Report notes, administrators are bound by other legal requirements as well, and as such, the Rolling Stone journalist should have gained a deeper “understanding of the tangle of rules and guidelines on campus sexual assault” before she sought to hold UVA accountable. Like other media criticism, the Columbia Report recognizes that some institutions’ Title IX procedures are flawed; but, one should not rush to judgment without a more holistic understanding of how Title IX interacts with other legal requirements. Indeed, another implicit and significant message of the Rolling Stone narrative is that all institutions should regularly review their Title IX policies and procedures and stay up-to-date with changes in both federal and state laws to ensure compliance with all applicable standards.
Note: While this post serves as a reminder to educational institutions about their obligations under Title IX, educational institutions’ obligations do not end here. Educational institutions must comply with other state and federal laws addressing harassment and violence. For example, institutions of higher education receiving federal funding must comply with The Clery Act and institutions of higher education receiving state funding must comply with California’s new ‘Yes Means Yes’ law (Educ. Code section 67386). Community College Districts must comply with Title 5 of the California Code of Regulations (Ca. Code Regs., tit. 5, section 59300 et seq.). Mandated reporting laws may apply to all institutions, whether public or private. California’s Penal and Education Codes promulgate other requirements. Educational institutions must ensure compliance with all applicable, and sometimes conflicting, laws and regulations. For these reasons, we recommend institutions consult with legal counsel to ensure proper compliance.
This blog post was authored by Michael Youril.
With labor negotiations beginning, many public agencies need to take a fresh look at how they are defining their overtime obligations in their labor agreements. Simple changes in language can clarify the intent of the parties, avoid costly interpretive disputes and lawsuits, and assist the agency in paying employees their correct wages.
When reviewing overtime definitions, the first thing to keep in mind is the difference between overtime required under the Fair Labor Standards Act (“FLSA”) and overtime required under a labor agreement or agency policies, but not required under the FLSA. The FLSA sets the irreducible floor for when overtime must be paid. The FLSA also requires that agencies pay overtime required under the FLSA at one and one-half times the employee’s “regular rate of pay.” The “regular rate of pay” must include “all remuneration for employment paid to, or on behalf of, the employee,” except payments that are specifically excluded. Most of the premium pays public employers pay employees must be included in the regular rate of pay calculation, such as standby pay, education pay, and special assignment pay.
For FLSA overtime worked, employers must pay employees based on the FLSA regular rate of pay for that specific workweek. And the regular rate of pay for an employee may vary from one workweek to another if, for example, the employee receives shift differential pay or standby pay in one workweek, but not the other. It’s important, however, to note that employers are not permitted to average the work hours or the regular rate of pay in a 14-day pay period. An “overpayment” in one work period cannot offset the liability resulting from an underpayment in a different work period. Under the FLSA, each workweek stands alone.
Overtime that is not required under the FLSA, but that is agreed to through labor agreements or provided by agency policy, sometimes referred to as “contract overtime,” does not have to be paid at the FLSA “regular rate of pay.” In other words, the agreement or policy creates an overtime entitlement that is more generous than what the FLSA requires. A common example of “contract overtime” is overtime paid on hours worked beyond 40 hours paid (which may not be 40 hours actually worked). Overtime that is not required under the FLSA can be paid at any premium rate the parties agree upon.
Unfortunately, many labor agreements and policies use a catch-all definition of overtime that is not compliant with the FLSA, or use a several inconsistent definitions of overtime throughout the labor agreement or policy that lead to confusion. Labor agreements or policies often define overtime as one and one-half times the “base rate,” “hourly rate,” “base hourly rate,” “regular rate of pay,” “regular rate,” or “normal rate.” These definitions often have no clear meaning, violate the FLSA, or result in unintended overpayments. We highly recommend that employers review their policies and labor agreements to ensure consistent and clear use of pay-related terms.
We are excited to continue our video series – Tips from the Table. In these monthly videos, members of LCW’s Labor Relations and Negotiations Services practice group will provide various tips that can be implemented at your bargaining tables. We hope that you will find these clips informative and helpful in your negotiations.
Keeping track of monikers for the generations since World War II can be puzzling. You have Baby Boomers, Generation X, and Millennials, but the Millennials are also known as Generation Y. Just who are these Millennials? They were born in the 80s—enough said. The Millennials have been creating some interesting challenges for the Baby Boomers and Gen Xers in the workplace, namely due to the Millennials’ penchant for tattoos and piercings. According to the Pew Research Center, forty percent of Millennials have at least one tattoo and usually more than one. Tattoos are no longer taboo. In fact, the number of tattoo artists increased in the United States from 500 in 1960 to more than 10,000 in 1995.
With forty percent of the current and upcoming workforce having one or more tattoos, it is becoming increasingly difficult for employers to take a wholesale anti-tattoo position. Since the Baby Boomers and Gen Xers are still greatly responsible for hiring and promoting employees, they have no choice but to adapt and change their perceptions of tattoos in the workplace. In a Careerbuilder.com survey, thirty-one percent of the employers responded that they would be less likely to promote an employee with a visible tattoo and thirty-seven percent said they were less likely to promote an employee with piercings. In that particular study, these two categories represent the highest percentage reasons not to promote an employee. How long, though, can these attitudes persist when the workforce is increasingly filled with Millennials? (And as the cases discussed below indicate, the issue is important for Human Resources because in many circumstances, treating employees differently because of their tattoos can be illegal.)
Some, but not all, employers have tattoo policies, which usually do not completely forbid tattoos but require that visible tattoos are covered at work. Is this a practical approach for Millennial employees? Probably not. Millennials are far more likely not only to have visible tattoos but also a greater number of tattoos than previous generations. Unfortunately for the Millennials, the legal and practical realities have not yet met to form a solid agreement. Legally, in California tattoos are generally considered protected speech subject to the First Amendment; yet, it is still for the most part lawful for employers, including public employers, to have reasonable policies regulating tattoos in the workplace. What those policies look like and whether they are Millennial-friendly is an unpredictable variable.
Some employers attempt to create a balance between allowing visible tattoos while also restricting them. Whether this is a reasonable solution remains to be seen. In 2012, a candidate for Liquor Enforcement Officer with the Pennsylvania State Police (PSP) was rejected for the position due to a visible tattoo. The PSP’s policy was that visible tattoos were reviewed by a committee, which determined whether a candidate’s tattoo had to be removed or covered. In this case, Scavone v. Pennsylvania State Police, the PSP informed the candidate one of his tattoos had to be removed to qualify for the position. The candidate refused and was not hired. He then filed a lawsuit in federal court, alleging claims for violation of due process and equal protection. The Third Circuit Court of Appeals, in an unpublished decision, rejected his claims, noting that it is not a fundamental constitutional right to have a tattoo. The Court further held that his “class of one” theory (he was treated differently than other similarly situated individuals without a rational basis) failed because it is not applicable in the public employment context.
What about the employee who asserts his tattoos are associated with his religion? “Don’t tread on me” says the employee who displays visible tattoos depicting readily identifiable Ku Klux Klan symbols. The court in Swartzentruber v. Gunite Corp. dealt with this very issue. When Swartzentruber’s co-workers complained about his tattoo of a hooded figure standing in front of a burning cross, his employer required him to cover it but he neglected to follow those instructions, which led to further complaints. Eventually, he was monitored by supervisors to keep the tattoo covered at work, and this conduct by his employer led him to file a religious discrimination lawsuit.
Without making a specific finding the tattoo was an actual religious symbol entitled to protection, the court determined “Gunite accommodated his tattoo depiction of his religious belief that many would view as a racist and violent symbol by allowing him to work with the tattoo covered” and the law requires nothing more.
Regulating tattoos is now and will continue to be a particular challenge for employers. Some things to keep in mind when creating and enforcing policies are that employers still have a right to generally regulate employee appearance at work and make employment decisions based upon certain aspects of appearance. For example, in Riggs v. City of Fort Worth, the court agreed with the police chief’s decision that an officer’s tattoos created an unprofessional appearance and that this adequately supported his being removed from a bike patrol assignment.
As always, common sense should prevail when making decisions about employment policies and actions concerning tattoos and piercings. Millennials and their tattoos are here to stay—at least until the next generation takes over.
This blog post was authored by Stephanie J. Lowe
Beginning in 2018, the Internal Revenue Service (“IRS”) will subject plan sponsors to an excise tax if they provide overly generous levels of health benefits to employees above a certain threshold. The IRS recently released Notice 2015-16 to introduce the future excise tax on high cost employer-sponsored health coverage, also known as the Cadillac Tax. The Cadillac Tax will impose a 40% excise tax on any excess benefit an employer provides to an employee through its applicable employer-sponsored health coverage. The IRS will tax plans where the aggregate cost of the applicable employer-sponsored health coverage exceeds a statutory dollar limit ($10,200 for self-only coverage and $27,500 for self and spouse or dependent coverage), subject to various adjustments.
Employers will be responsible for calculating whether the health plans employees enroll in provide an excess benefit. The calculations are based on the health coverage the employee actually enrolls in, not just what is offered to the employee. ALL employer plans, not just large employers, are potentially subject to the Cadillac Tax.
Since the Department of Treasury (“Treasury”) and IRS are still working on developing final regulations for the Cadillac Tax, the Treasury and the IRS have invited comments on issues related to the Cadillac Tax. Here is what employers need to know about the upcoming Cadillac Tax:
What law governs the Cadillac Tax?
The Cadillac Tax was added as part of the Affordable Care Act by Section 49801 of the Internal Revenue Code (Code). IRS Code section 4980I(a) imposes a 40% excise tax on any “excess benefit” provided to an employee, and section 4980I(b) provides that an excess benefit is the excess, if any, of the aggregate cost of the applicable coverage of the employee for the month over the applicable dollar limit for the employee for the month.
When does the Cadillac Tax go into effect?
The IRS will begin to enforce the Cadillac Tax for taxable years beginning after December 31, 2017. This means that the Cadillac Tax will first apply in 2018.
What is “applicable employer-sponsored coverage”?
The Cadillac Tax applies to applicable employer-sponsored coverage. Applicable employer-sponsored coverage (“applicable coverage”) is coverage under any group health plan that an employer makes available to an employee and that is excludable from the employee’s gross income or would be excludable if it were employer-provided coverage. A “group health plan” means a plan (including a self-insured plan) that provides health care to employees, former employees, the employer, other people associated or formerly associated with the employer in a business relationship, or their families.
The types of coverage included in applicable coverage are:
- Health Flexible Spending Accounts (FSAs);
- Archer Medical Savings Accounts (MSAs);
- Heath Savings Accounts (HSAs) (including employer contributions and employee pre-tax salary reduction contributions);
- Governmental plans, which is defined as coverage under any group health plan established and maintained primarily for its civilian employees of the federal government, state government, political subdivision, or an agency of the government;
- Coverage for on-site medical clinics, but excludes on-site medical clinics that only provide de minimis medical care;
- Retiree coverage;
- Multiemployer plans;
- Certain excepted benefits offered as independent, non-coordinated benefits (including coverage only for a specified disease or illness and hospital indemnity or other fixed indemnity insurance) if the payment for the coverage is excluded from gross income or a deduction is allowed; and
- Coverage provided through an on-site medical clinic (more guidance needed).
Note: The IRS anticipates that future guidance will provide that an HRA is applicable coverage.
Types of coverage excluded from applicable coverage are:
- Coverage for accident or disability income insurance only;
- Coverage issued as a supplement to liability insurance;
- Liability insurance (including general and automobile liability insurance);
- Workers’ Compensation insurance;
- Automobile medical payment insurance;
- Credit-only insurance;
- Other insurance under which medical care is secondary to other insurance benefits;
- Long-term care coverage;
- Stand-alone dental or vision coverage;
- Certain excepted benefits offered as independent, non-coordinated benefits (including coverage only for a specified disease or illness and hospital indemnity or other fixed indemnity insurance) if the payment for the coverage is not excluded from gross income, which includes coverage only for a specified disease or illness and hospital indemnity.
What is the applicable dollar limit?
The Cadillac tax will apply to plans where the aggregate cost of the applicable coverage the employee enrolls in exceeds a statutory dollar limit. There are two annual applicable dollar limits under the Cadillac Tax—one for an employee with self-only coverage and one for an employee with other-than-self-only coverage, which is minimum essential coverage provided to the employee and at least one other beneficiary such as a spouse or dependent or a multiemployer plan. The applicable dollar limits will be redefined each year. For 2018, the applicable dollar limit will be $10,200 per employee for self-only coverage and $27,500 per employee for other-than-self-only coverage. In addition to the limits set each year, various adjustments may increase the applicable dollar limits in certain circumstances. For example, a cost-of-living adjustment will be applied each year to determine the applicable dollar limit. Other adjustments include an age and gender adjustment, a qualified retiree adjustment, and a high-risk profession adjustment.
What is an “excess benefit”?
An excess benefit is the cost of applicable coverage that goes over the applicable dollar limit. Employers who provide an excess benefit to employees will be subject to a 40% excise tax on the amount of the excess benefit. This is determined on a monthly basis. Section 4980I(b) defines an “excess benefit” as the excess of (A) the aggregate cost of the applicable coverage of the employee for the month, divided by (B) the applicable dollar limit for the employee for that month (1/12 of the annual statutory dollar limit).
What determines the cost of applicable coverage?
The excise tax is based on the cost of the applicable coverage the employee is actually enrolled in, not just the coverage offered to the employee. The employer will determine the cost of applicable coverage for the Cadillac Tax according to rules similar to the rules an employer uses to determine the COBRA applicable premium. Similar to the COBRA rules, the Treasury anticipates the cost of applicable coverage for an employee will be based on the average costs of applicable coverage for an employee and all similarly situated employees, rather than based on the characteristics of each individual. Notice 2015-16 goes into further detail about how the Treasury proposes to divide employees into similarly situated groups.
A. Self-Insured Plans
For self-insured plans, there are two methods for self-insured plans to compute the COBRA applicable premium that the Treasury explores as a method to determine the cost of applicable coverage: (1) the actuarial basis method and (2) the past cost method. The actuarial basis method involves an actuarial estimate of the cost of providing coverage for a self-insured plan. The past cost method determines the cost of applicable coverage based on the cost to the plan for similarly situated beneficiaries for the same 12-month determination period. The Treasury is still considering timelines for when the 12-month determination period can take place. The costs taken into account under the past cost method include claims, premiums for stop-loss or reinsurance policies, administrative expenses, and the employer’s reasonable overhead expenses.
B. Health Reimbursement Accounts (HRAs)
The Treasury and IRS expect that the future regulations will provide that an HRA is applicable coverage under the Cadillac Tax. They are still considering various methods for determining the cost of applicable coverage under an HRA. One approach is to base the cost of applicable coverage on the new amounts made available to a participant each year. This approach might provide employers with greater certainty about the cost of applicable coverage under an HRA from year-to-year. Another approach is to add all claims and administrative expenses of an HRA for a particular period and divide that sum by the number of employees covered for that period. The Treasury requests comments on the types of methods for calculating the cost of applicable coverage for an HRA in order narrow down the choices to one method.
How will the Cadillac Tax affect employers with CalPERS plans?
While it is too early to definitively determine whether or which CalPERS plans will provide an excess benefit over the statutory dollar amount, CalPERS plans will likely be subject to the Cadillac Tax if they do not change by 2018. One preliminary estimate conducted by CalPERS showed that one of the out-of-state plans and one of the PPO plans may be impacted. CalPERS states that it has been working aggressively to keep its rates down.
Where can I send comments about the Cadillac Tax?
The Treasury and the IRS invite employers to comment on issues related to the Cadillac Tax. These comments will be considered in the development of the proposed regulations that will be issued in the future and subject to public notice and comment.
Individuals may mail comments to CC:PA:LPD:PR (Notice 2015-16), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington D.C. 20044 between now and May 15, 2015. Comments may also be e-mailed to Notice.email@example.com with “Notice 2015-16” in the subject line by May 15, 2015. The Treasury and IRS plan to issue a second notice inviting more comments on additional Cadillac Tax issues that were not addressed in Notice 2015-16.
More information can be found in the IRS Notice 2015-16.