Employer Law Report : Employment and Labor Relations Lawyer & Attorney : Porter Wright's Employer Law Report : Employment Litigation, Non-Compete, Trade Secrets

Ohio employers will want to pay close attention to H.B. 434, which was proposed by House Representative Kenny Yuko, D-Richmond Heights, last week. The Bill is similar in nature to the Worker Adjustment and Retraining Notification Act ( “WARN”), but goes further than the federal law in several respects. For example, the Bill would require an employer in Ohio laying off 25 or more employees in any 30-day period to give at least 90-days’ advance written notice of the layoff to affected employees, local workforce policy boards, and certain state departments and local elected officials. The notice period would be expanded to 120 days for employers planning to lay off 250 or more employees. Also, the penalties for violations include double back pay for all affected employees, as well as the full value of their employee benefits.

The Bill does contain exceptions similar to those found in WARN, including exceptions for temporary facilities, layoffs arising from “circumstances that were not reasonably foreseeable,” caused by “physical calamity, natural disaster, or act of war,” or where the employer can show that "notice would have blocked incoming capital which might have prevented the layoff.” 

H.B. 434 is still in the very early stages of the legislative process. However, because it would expand employer advance notice obligations in several respects beyond WARN’s requirements, it bears watching – and perhaps warrants a call to your State representative.  We will continue to keep you updated.

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On Monday, February 1, 2010, the U.S. Department of Labor (DOL) released its budget for the 2011 fiscal year. In a 95-page summary of the new budget, the DOL elaborated upon its plans for the approximately $14 billion it seeks in discretionary budget authority. According to the summary, the DOL will focus its efforts in 2011 on supporting reform of the Workforce Investment Act, rebuilding Worker Protection Programs, initiating a multi-agency legislative proposal to establish automatic workplace pensions, and boosting funds for unemployment insurance integrity efforts. From our perspective, however, the two most notable aspects of the 2011 budget are its provisions concerning employer misclassification of workers and paid family leave. 

The DOL proposes to devote $25 million to a joint Labor-Treasury Misclassification Initiative that will enable the agency to better detect, investigate, and prosecute employers who misclassify their workers, and to offer competitive grants to boost states’ incentives to address the problem. In addition, the DOL proposes to further limit the possibility of employer misclassification by:

1. requiring employers to demonstrate that their employees are classified correctly,
2. closing the safe harbor created by Section 530 of the Revenue Act of 1978, and
3. making misclassification of employees an explicit violation of the FLSA.  

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As you will recall from my earlier post, Congress and the President extended the COBRA subsidy, originally a part of the American Recovery and Reinvestment Act of 2009 (ARRA) (the stimulus bill), to individuals involuntary terminated through February 28, 2010 (from December 31, 2009) and the length of the subsidy to 15 months (from 9 months). 

This COBRA subsidy extension will require new notices be sent to individuals involuntarily terminated (and otherwise qualifying under ARRA as an “assistance eligible individual” (AEI)). These model notices were released yesterday, and, in many cases, AEIs must be notified by February 17, 2010. The Department of Labor revised its General Notice to reflect the COBRA subsidy extension. This notice is to be used for all AEIs who have not already received a general COBRA notice. The Department of Labor also issued a model Premium Assistance Extension Notice to be provided to:

1. Individuals qualifying as AEIs as of October 31, 2009 and individuals who experienced a termination of employment on or after October 31, 2009 and lost health insurance coverage (unless they were already provided a timely, updated General Notice). This notice must be provided by February 17, 2010.
2. a) Individuals whose original 9 months of COBRA subsidy ended prior to December 19, 2009 and who are still eligible for some portion of the extended 15 months of COBRA subsidy and (b) individuals whose 9 months of COBRA subsidy ends or ended after December 19, 2009. These individuals must be notified within 60 days of the termination of the 9 month COBRA subsidy period or, for individuals whose COBRA subsidy ended prior to December 19, 2009, prior to February 17, 2010. 

Both model notices are available at: http://www.dol.gov/ebsa/COBRAmodelnotice.html. In addition, the Department of Labor has updated its fact sheets, posters, and frequently asked questions available at: www.dol.gov/COBRA.

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As concerns about the potential scope of the H1N1 flu continue to grow, one question we keep hearing from clients is whether employees who believe they have contracted H1N1 in the workplace may have compensable workers' compensation claims. In the vast majority of cases, we believe the answer will be a resounding "No."

Ohio defines an occupational disease as:

"a disease contracted in the course of employment, which by its causes and the characteristics of its manifestation or the condition of the employment results in a hazard which distinguishes the employment in character from employment generally, and the employment creates a risk of contracting the disease in greater degree and in a different manner from the public in general."

Therefore, for instance, the office worker who contracts H1N1 because somebody in the next cubicle had it does not have a compensable claim. The situation is no different than the seasonal flu from year to year.

One likely exception to my general proposition come to mind:  healthcare workers, who by the nature of their work may be exposed to H1N1 in a greater and different manner than members of the general public. Childcare workers also may have an outside chance at establishing a viable claim. Even then, however, most healthcare and childcare workers will still have a difficult time proving actual causation; that is, that they actually contracted H1N1 as a result of their work rather than from a sick family member, at a restaurant or some other public place.

The H1N1 vaccine may also pose a potential risk if it ever becomes widely available. Workers who experience side effects from getting an H1N1 vaccine may claim they are entitled to workers' compensation benefits. In the absence of evidence that the employer actually required its employees to get vaccinated and demonstrated illness based on any known side effects, these claims should be rejected.

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Sports fans, you can breath easier about your fantasy football lineups -- Michael Vick is out of the doghouse with the U.S. Department of Labor, presuming he complies with a consent judgment. We had cautioned in an earlier post that Vick’s release from prison did not necessarily mark the end of his government obligations, given DOL allegations of ERISA violations. As explained in the DOL’s press release, the DOL’s complaint alleged that Vick and others improperly removed $1.35 million of pension plan assets to help pay the criminal restitution imposed on Vick after his conviction for unlawful dog fighting, and to help pay his attorney in his bankruptcy cases. Vick and his company, MV7 LLC, agreed to repay at least $416,461.10, pay a fiduciary to manage the plan until its termination, and pay a monetary penalty. The $933,539 difference between the amount alleged in the complaint and the repayment amount is not explained in the press release, though perhaps that is because Vick agreed to forfeit his share of the pension benefits. Vick can play football, but he is permanently barred from being an ERISA plan fiduciary.

Hopefully we don’t need to caution our readers to refrain from participating in unlawful dog fighting, and from “improperly removing” pension plan assets to buy their way out of trouble. But there is one sentence in both this press release and another press release about an Ohio mortgage broker that hits closer to home: “In fiscal year 2008, [DOL] achieved monetary results of $1.2 billion related to pension, 401(k), health and other benefits for millions of American workers and their families.” If someone out there is essentially stealing well over $1.2 billion per year of employee money (since this is just the amount recovered), shouldn’t we be appalled at the systemic flaw that allows this to happen? But is that really what is happening, or do employers need to be more worried about how DOL is getting to this $1.2 billion per year figure? A significant portion of this large dollar figure is related to participant contributions that EBSA argues “were not timely contributed” to a benefit plan.

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"The most important thing you can do to prepare your business is to have a written plan."

The federal Department of Homeland Security, in conjunction with the Center for Disease Control (CDC) and the Small Business Administration (SBA), provides this advice to small businesses in its recently released, Planning for H1N1 Influenza: A Preparedness Guide for Small Business. The Guide suggests a seven step process for developing your written plan:

1. Identify a workplace coordinator
2. Examine policies for leave, telework, and employee compensation
3. Determine who will be responsible for assisting workers who become sick at the workplace
4. Identify essential employees, essential business functions, and other critical inputs required to maintain business operations should there be disruptions during the 2009 H1N1 flu outbreak
5. Share your pandemic plans with employees and clearly communicate expectations.
6. Prepare business continuity plans in case the H1N1 flu outbreak causes widespread absenteeism or other operations changes
7. Establish an emergency communications plan.

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You may have noticed a spate of recent articles and announcements indicating that “all federal contractors” will be required to begin using the federal government’s E-Verify system beginning September 8, 2009. Originally set to take effect on January 15, 2009, there have been three prior delays in implementing mandatory use of E-Verify for federal contractors. On August 26, however, a federal district judge rejected a request for further delay, so it appears the E-Verify regulations will actually go into effect on September 8. (See our recent blog post.) In light of this, current contractors should start thinking about how E-Verify will affect them – if at all.  

Even though many of the articles on this topic indicate that “all federal contractors” are required to start using the system on September 8, the reality is that not all contractors will be covered and that even covered contractors have time after September 8 to enroll and start using E-Verify. 

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When the Ohio Supreme Court agreed to hear the appeal in Allen v. Totes/Isotoner, it was widely expected that the Court would address the question of whether Ohio's pregnancy discrimination laws required employers to allow a woman who is breastfeeding to take unscheduled lactation breaks. Instead, a fractured court rendering five separate opinions (as well as the conclusion of Justice Lanzinger that she would have dismissed the appeal as having been improvidently accepted) dodged the question. 

The per curium opinion, which was joined in only by Justices Lundberg Stratton, O'Donnell and Cupp, upheld summary judgment in favor of Isotoner on the ground that Isotoner terminated Ms. Allen for what she agreed were unauthorized breaks from her work station. As a result, the per curium decision stated that it was unnecessary for the Court to address the issue of whether discrimination due to lactation was prohibited by Ohio's discrimination laws.

Justice O'Donnell then wrote separately in an opinion joined by Justices Lundberg Stratton and Cupp to emphasize his view that in light of the facts in the Allen case, any opinion of the Court on the question of whether "discrimination due to lactation" would have been an improper advisory opinion.

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Concerns about H1N1 Influenza are beginning to creep back into everyone's consciousness as summer is drawing to a close. The U.S. Department of Health and Human Services has issued updated guidance for businesses and employers, which can be found at:

CDC Guidance for Businesses, Employers, and Workplaces to Plan and Respond to 2009 H1N1 Influenza

Preparing for the Flu: A Communication Toolkit for Businesses and Employers

Employers should be ready to implement strategies to protect their workforces while ensuring continuity of operations. Most of the recommendations boil down to simple common sense:

1. Encourage workers who are sick to stay home (or go home if they've reported to work);
    
2. Encourage good hygiene in the workplace;
    
3. Prepare for increased numbers of employee absences due to illness in employees and their family members, and plan ways for essential business functions to continue;
    
4. Prepare for the possibility of school and daycare dismissal and closure; and
    
5. Encourage workers to get vaccinated.

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EFCA, as introduced in Congress in February 2009, includes sweeping changes to the rules for union organizing. (Please read our earlier blogs for further discussions on EFCA.)  The two most controversial original EFCA provisions are: (1) card-check recognition, which would allow unions to demand recognition rights based solely on union cards that they can pressure employees to sign through face-to-face interaction; and (2) mandatory binding arbitration to resolve impasse in first labor contract negotiations. The card-check provision has been especially controversial because it would result in unions obtaining bargaining rights without a secret ballot election. No doubt sensing that the general public favors secret-ballot elections, a number of moderate Democratic senators have begun to pull back support for card-check recognition as EFCA nears debate in the Senate.

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On July 15, 2009, the EEOC published “Understanding Waivers of Discrimination Claims in Employee Severance Agreements,” a document directed to employees facing layoffs. The publication is not apparently intended to change existing regulations, but rather to summarize the legal requirements for severance agreements under the ADA, Title VII, the Equal Pay Act, and, separately, the Age Discrimination in Employment Act.

As noted by the EEOC’s summary, in order to minimize the risk of potential litigation, many employers provide laid-off employees with optional severance agreements, by which employees may obtain certain compensation or benefits in exchange for releasing the employer from liability. The EEOC document specifically addresses the validity of such releases, and it is therefore useful reading for employers as well.

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Back in December 2007, we wrote about the NLRB's decision in The Guard Publishing Company, d/b/a The Register-Guard, 351 NLRB No. 70, which held that employees do not have a protected right to use employer email systems for solicitations or communications regarding union-related topics. In addition, the Board applied a new standard for determining when employers discriminatorily enforce email policies and, thus, violate Section 8(a)(3) of the NLRA. Specifically, as to the 8(a)(3) standard, the Board held that, in determining whether a policy had been discriminatorily enforced against the union, it looked to whether there had been "unequal treatment of equals."  Then, the Board upheld Register-Guard's enforcement of its email policy against an employee who was soliciting support for the union because there was no evidence that the company had permitted solicitation on behalf of other non-union groups (even though it had permitted various other personal uses of the email system, including personal solicitations for sports tickets and the like.) 

On July 7, 2009, however, the Court of Appeals for the D.C. Circuit refused to uphold the Board's conclusion as to whether the employer discriminatorily enforced its email policy but did not explicitly overrule the standard announced by the Board in December.   (On appeal, the union did not challenge the lawfulness of the email policy itself).   In short, the court held that the the company's discipline of an employee for using the email system to solicit employees to wear green in support of the union and to seek volunteers to help with the union's entry in a city parade violated 8(a)(3). Calling the distinction between organizational and personal solicitation a "post-hoc invention" that did not actually exist in the company's email policy, the court found that the company policy prohibiting non-work-related solicitations "made no distinction between solicitations for groups and for individuals."  Equally significant, the court noted that the company’s disciplinary warning" did not invoke the organization-versus-individual line drawn by the Board. To the contrary, the company told the employee in question to “refrain from using the Company’s systems for union/personal business.”

Because it is so fact-specific, the court's decision should not cause employers much concern.   In fact, the email policy at issue, which prohibited use of the company's communications systems “to solicit or proselytize for commercial ventures, religious or political causes, outside organizations, or other non-job-related solicitations,” would seem to be equally applicable to personal solicitations of a non-work nature as it is to organizational solicitations.   The good news here is that the court's decision does not disturb the underlying premise that employers may prohibit union access to its email system so long as it does so in a nondiscriminatory manner.  

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It's hard to believe that fewer than 10 years ago, there was widespread concern that our computers were all going to blow up and there would be anarchy in the streets. Since the clock struck midnight on January 1, 2000, we have seen an unprecedented technology boom that has had a widespread impact on the workplace. Remember the anxiety caused by cameras on our cell phones due to their impact on protecting trade secrets and our privacy in the locker rooms? Since then, we have grown comfortable with workers using laptops offsite though we still need to concentrate better on keeping track of them and what is on them!

Now, the social media craze -- Facebook, Linked-In, Twitter, etc. -- seems to be causing employers the most recent concern. As editor of employerlawreport.com, I have come to achieve a certain comfort level with social media, but I think that what primarily is keeping many employers up at night is fear of the unknown. That is why I'm going to summer camp! Starting this past Tuesday and running through the second Tuesday in August, I will be attending Social Media Summer Camp, a Columbus Business First initiative. The first session, "Social Media 101," provided a nice overview of everything that is out there and how businesses have been and could be using social media to market their services and products. The attractiveness of social media from a marketing perspective is often easy to see and hopefully we will be able to use some of what we learn at camp to improve our blog and to otherwise better communicate with our clients and friends.

In addition, I'm keeping my employment lawyer hat on to identify potential issues for employers that are encouraging their employees to "friend" others or to "tweet" or are attempting to regulate how and when they do it. This past Tuesday's session left me with one particular impression: Whether or not companies choose to use social media to foster their business, they would be wise to monitor the various social media outlets to make sure that others, including disgruntled and former employees, are not messing with their messages or creating unwanted ones.

So that's why I'm going to summer camp. I'm taking my laptop with me, but fortunately for all involved, I'm leaving my bathing suit at home.

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On June 29, 2009, the Supreme Court addressed a provocative question about the current state of workplace diversity in the United States. In the controversial Ricci v. DeStefano decision, the Court determined by a vote of 5-4 that only in very narrow circumstances can public employers engage in disparate-treatment discrimination to avoid violating the disparate impact provision of Title VII of the Civil Rights Act. In order to make a race-conscious preventative decision, an employer must have a strong basis in evidence that a given selection method was deficient and that discarding that method’s results is necessary to avoid creating a disparate racial impact.

Title VII protects employees from two types of discrimination based upon race, color, religion, sex, and national origin: intentional acts of discrimination (disparate treatment), and facially neutral policies and practices that have a disproportionate adverse effect on minorities (disparate impact).   If an employee makes a prima facie showing of disparate impact discrimination, the burden then shifts to the employer to prove that the practice in question is job related and consistent with business necessity. Even if the employer meets this burden, a plaintiff may still succeed by showing that the employer refuses to adopt an available alternative employment practice that has a lesser disparate impact and serves the employer’s legitimate needs. Ricci posed the question of under what circumstances an employer may take race-conscious action to avoid disparate-impact liability given this statutory scheme.

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Ever wonder if you can require an employee to split the costs of mandatory arbitration? The Sixth Circuit reinforced its 2003 en banc decision that allows for cost-splitting provisions in arbitration awards in the decision it issued Tuesday in the case of Mazera v. Varsity Ford Services, LLC et al. Of course, the court’s decision is not simply an affirmation that cost-splitting provisions are okay—rather, it is an affirmation that the validity of these provisions must be assessed on a case-by-case basis.

In this case, Omari Mazera was fired from his job as a car porter at Varsity Ford Services, LLC (“Varsity”). Mazera filed a lawsuit alleging that Varsity had discriminated against him on the basis of his race and disability; he also moved the district court to declare that the arbitration provision in Varsity’s employee handbook was unenforceable. 

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In a decision released May 15, 2009, the U.S. Court of Appeals for the District of Columbia upheld a Department of Transportation (DOT) regulation that requires employees who are returning to safety-sensitive duties after having completed a drug treatment program due to failing or refusing to take a drug test, to submit to return to duty and follow up testing under "direct observation" conditions. This decision and the regulation it upholds applies to employers in the aviation, rail, motor carrier, mass transit, maritime and pipeline industries that are subject to the DOT drug-testing regime. Under the regulation’s "direct observation" procedures, the employer must require a same-gender observer to “watch the urine go from the employee’s body into the collection container.” To comply, employees must raise their shirts above the waist and lower their clothing so as to expose their genitals and allow the observers to verify the absence of any devices that would permit the employee to cheat the test. 

Previously, the employer had the option to require direct observation, but this was not mandatory under the former regulation. Concerned that employers were reticent to require direct observation and in light of the rise in commercially available devices, such as the "Whizzinator," that enable people to cheat on their drug tests, the DOT promulgated this new regulation requiring direct observation for all return to work and follow up tests conducted under the DOT's auspices as of November 1, 2008.

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On May 18, 2009, Representative Rosa L. DeLauro, a Democrat from Connecticut, introduced the Healthy Families Act of 2009 (H.R. 2460) in the U.S. House of Representatives. The bill, which is largely the same as bills issued in prior sessions of Congress, would require employers with more than 15 employees to provide workers with up to 56 hours of paid sick leave each year. Under the bill, workers would accrue paid sick leave at the rate of one hour for every 30 hours worked, could begin using the paid sick leave after 60 days of employment, and could roll over unused sick leave into the next calendar year. Similar to the proposed Ohio legislation that was withdrawn before the 2008 November elections, employers would not be permitted to ask for written documentation of the need for leave until after the employee has missed three consecutive days.

Most of you will recall that last year's Ohio legislative proposal was withdrawn following political negotiations with Governor Strickland's office due to concern that the bill would devastate Ohio's business climate. While H.R. 2460 would not appear to disproportionately impact Ohio, it would impact more Ohio employers than the proposed Ohio legislation would have impacted since the Ohio law would not have required employers with 25 or fewer employees to provide paid sick leave. At a time when American businesses, particularly small businesses, are still reeling from the economic downturn, federally mandated paid sick leave -- while perhaps laudable in its intent -- looks like it will create more problems than it cures. The change in Presidential administrations and the make up of Congress, together with the concerns over the H1N1 flu virus, suggest that this might be the year that mandated paid sick leave passes. 

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If you missed our recent Employment Relations Seminar:  The Changing Landscape of Labor and Employment Law, that was held on Monday, May 4, 2009 in Columbus, we invite you to download a copy of our materials from the program here.

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We have been receiving more and more questions from human resources professionals asking how the ADA might impact their preparation for a potential pandemic flu. Now the EEOC has issued technical guidance on the topic, focused primarily on employers’ rights to make medical inquiries and require medical examinations of applicants and employees.  With respect to applicants, the EEOC notes that the ADA operates normally to preclude all disability-related questions and medical exams until after a conditional offer has been made.  With respect to current employees, who can be required to respond to medical inquiries or undergo medical exams only if they are job-related and consistent with business necessity, however, the EEOC recommended a model survey of employees that could be issued to all employees in preparation for a pandemic. The model survey is reprinted below:

ADA-Compliant Pre-Pandemic Employee Survey:

Directions:   Answer “yes” to the whole question without specifying the reason or reasons that apply to you.  Simply check “yes” or “no” at the bottom.

In the event of a pandemic, would you be unable to come to work because of any of the following reasons:
 

    If schools or day-care centers were closed, you would need to care for a child; 

    If other services were unavailable, you would need to care for other dependents;

    If public transport were sporadic or unavailable, you would be unable to travel to work,  and/or:

      If you or a member of your household fall into one of the categories identified by CDC as being at high risk for serious complications from the pandemic influenza virus, you would be advised by public health authorities not to come to work (e.g., pregnant women; persons with compromised immune systems due to cancer, HIV, history of organ transplant or other medical conditions; persons less than 65 years of age with underlying chronic conditions; or persons over 65).

Answer:   YES __________   NO __________
 

The EEOC’s guidance also clarifies its position that employers may enforce rules requiring employees to behave in a hygienically appropriate manner to avoid the spread of the flu, to wear personal protective gear such as face masks, and to require employees to work from home.
 

In a separate release cryptically titled “Employment Discrimination and the 2009 H1N1 Flu Virus (Swine Flu),” the EEOC reminds us that Title VII “prohibits employment discrimination on the basis of national origin, for example, discrimination against Mexicans.” The “guidance” states nothing else as it relates to Title VII. Presumably, the EEOC wants to remind employers not to direct any employment actions at workers of Mexican descent out of a fear or concern that they may be more likely to carry the H1N1 flu virus.

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More and more federal non-employment statutes, regulations and programs are coming with strings attached for human resources professionals to grapple with. For instance, who would have expected that the federal plan for rescuing troubled financial institutions would have anything to do with immigration, that the federal stimulus statute would include whistleblower provisions and changes to COBRA benefits laws, or that consumer protection laws would contain whistleblower provisions? Now comes the Customs and Border Protection's (CBP's) Customs Trade Partnership Against Terrorism (CTPAT) program, which grew out of September 11 to help improve supply-chain security, and its employment-related provisions. CTPAT is a voluntary partnership program between the private sector and CBP to secure the supply chain for products entering commerce in the United States. Many view CTPAT certification as the equivalent of an ISO certification, and it can be a significant marketing tool. Companies that want to obtain CTPAT certification, in addition to implementing various security measures, must meet certain minimum criteria for personnel security including background checks, reference checks, exit interviews, procedures for providing employee ID, keys and fobs etc. If you are a human resources professional in the transportation and logistics industry, you should check with the business or operations side of your organization to find out whether your company is planning to participate in the CTPAT program so that you can get a jump on aligning your employee security procedures with the program's requirements.

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Now that we have the first confirmed case of swine flu here in Ohio, it makes sense to dust off the guidance we received from the U.S. Department of Labor and the Center for Disease Control when the avian flu was prompting concerns about a pandemic flu in the United States. Thus far, the confirmed cases of swine flu in the United States appear to have been relatively mild, but employers nevertheless should prepare to do their part to reduce the threat of pandemic flu and to respond should their workplaces be hard hit.

Those employers who want to be ahead of the game if the outbreak becomes more widespread should review the attached handbook entitled Guidance for Preparing Workplaces for an Influenza Pandemic, which was prepared by OSHA back in 2007. The handbook contains common sense advice for all employers to help reduce the risk of spreading the disease. For most employers, the recommendations are not rocket science nor difficult to implement. They mostly involve encouraging sick employees to stay home, encouraging basic hygiene practices in the workplace, and encouraging "social distancing" (i.e. avoiding close contact and crowds of people). The handbook also sets forth more extreme recommendations for employers with a medium exposure risk because of frequent close employee contact with the general public and for employers with high exposure risk due to frequent close employee contact with infected individuals. For healthcare workers and employees, OSHA also issued a handbook in 2007, which can be accessed here.  If the CDC and/or OSHA issue any further guidance in light of this most recent flu outbreak, we will let you know.

Though, the risks of pandemic flu still are being downplayed at this point, employers may also want to revisit their disaster plans for continuing operations in case of widespread employee absences.

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Many executive compensation arrangements, including nonqualified deferred compensation plans, employment agreements, and equity compensation plans, are subject to strict deferral election and payment timing rules under Internal Revenue Code Section 409A. Failure to comply with these rules results in an employee incurring immediate income inclusion of amounts deferred, an additional 20% penalty tax on these amounts, and interest. The IRS and Treasury Department required all plans subject to Code Section 409A to be amended no later than December 31, 2008. More recently, the Department of Treasury and the IRS have issued proposed regulations that explain how to calculate amounts includible in income when Code Section 409A is violated and the resulting penalties and interest. The IRS also issued additional guidance that offers relief from these penalties in many circumstances if employers take corrective action by December 31, 2009.

Click here for complete alert.

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Back in February, Ohio Attorney General Richard Cordray announced a collaboration between his office and the Ohio Department of Job and Family Services, Ohio Department of Taxation, and Ohio Bureau of Workers’ Compensation to release and exchange confidential information to reduce the number of employers that are misclassifying workers as independent contractors. A report issued at the same time by the Attorney General's office estimated that the extent of annual costs to the state from worker misclassification totals $100 million in payments for unemployment compensation, more than $510 million in BWC premiums and almost $180 million in forgone state income tax revenues.

With the Ohio Attorney General's enforcement eye now focused on the costs of misclassification, it is important for Ohio employers to understand the potential consequences if they are found to have misclassified workers as independent contractors. First and foremost, they risk potential federal, state, and local taxes, fines, and penalties and workers compensation premiums and penalties. In addition, several multi-million dollar lawsuits have been brought against employers for failing to pay proper wages, including overtime, under the FLSA. Finally, employers with ERISA retirement and welfare benefit plans that do not contain "fail safe" provisions run the risk that misclassified workers will be found to be employees who are retroactively entitled to benefits under those plans. Alternatively, as to plans that do contain fail safe provisions, employers may need to redo the non-discrimination testing to make sure that each plan's tax-qualified status is not jeopardized by the omission of those employees. 

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Webinar Recording: 
COBRA Premium Subsidy: Action Steps Required to Avoid Problems

Under the recent economic stimulus act, virtually every employer that maintains a health plan, including small employers that are not subject to federal COBRA rules but are subject to a state law continuation of medical coverage requirement, must comply with new COBRA premium subsidy rules. Potentially eligible individuals must be identified and notices must be distributed by April 18, 2009.

It is critical that employers understand the requirements and steps that are needed given the following:

• the immediate cash flow demand on many employers;
• the discretion that has been granted to the Department of Labor to hear appeals;
• the ongoing and extensive documentation requirements and risk of audit; and
• the substantial penalties for failure to comply.

Ann Caresani, Mike Underwood and Jim Prior from Porter Wright, along with Sean Kelley from BGS Associates discussed the impact of the stimulus on COBRA on April 1, 2009. 

If you were unable to participate in the webinar, we invite you to listen to the recording by clicking on the link below.  We hope you find it helpful.

Webinar Recording: 
COBRA Premium Subsidy: Action Steps Required to Avoid Problems

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On Tuesday, March 31, 2009, the IRS issued its Notice 2009-27 providing additional guidance under the American Recovery & Reinvestment Act of 2009 (“ARRA”) relating to premium subsidies for COBRA coverage. The Notice addresses a number of issues, including the question of who is eligible for the subsidy, the method for calculating the premium reduction, and the length of the entitlement to the subsidy. [View the notice here.]

Of particular interest to employers is the guidance concerning what will be considered an “involuntary termination” entitling persons to the premium subsidy. The IRS gives this broad definition: “An involuntary termination means a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.” Although it is a mouthful, that sounds simple enough. But, further language in the guidance and some of the specific examples show that there is plenty of room for disagreement about what is an involuntary termination. Of particular interest is language saying that the government will consider a resignation to be an involuntary termination if the resignation is “due to employer action that causes a material negative change in the employment relationship for the employee.”

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The U.S. Department of Labor (DOL) has released four model notices for use by employers in connection with requirements of the American Recovery and Reinvestment Act (ARRA) (see Employment Law Alert – “Broad COBRA Changes in 2009 Stimulus Bill – What Should You Be Doing Now?” – March, 2009). The model notices are available on the DOL web site: http://www.dol.gov/ebsa/COBRAmodelnotice.html. Employers and plan administrators should use the model notices as a guide, but those notices will require customization to meet the circumstances of particular employers and plans. Also, in the Model election forms there is a technical error in the way the election period is described. The Model election forms state that an election must be made within 60 days of notice. In fact, COBRA regulations allow for elections within 60 days of the date of notice or the date that coverage will end due to the qualifying event, whichever is later. Employers and plans using the Model Notices as a guide should correct that error.

The DOL and Internal Revenue Service have posted on their websites answers to common questions regarding the COBRA changes: http://www.dol.gov/ebsa/faqs/faq-cobra-premiumreductionER.html and http://www.irs.gov/newsroom/article/0,,id=204708,00.html.

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The Employee Free Choice Act, or EFCA, was introduced in Congress on March 10, 2009. The bill, introduced as H.R. 1409 and S. 560, is identical to last year’s bill. On February 26, we discussed the Secret Ballot Protection Act (see post here), which was proposed by Republicans as a preemptive strike against EFCA and which would prohibit employers from recognizing or bargaining with a union that had not won a secret-ballot election of employees. Democrat Joe Sestak, Congressman from Pennsylvania, has also introduced legislation targeting the relationship between unions, employees, and employers. Rep. Sestak introduced the National Labor Relations Modernization Act (NLRMA) (H.R. 1355) on March 5, 2009. 

The NLRMA mirrors many of the provisions of EFCA but does not include one key provision: the NLRMA does not contain the card-check provision that would eliminate employees' right to choose a union through a secret-ballot election. The NLRMA does, however, contain EFCA’s increase of damages for employers who commit unfair labor practices, a provision similar to EFCA’s regulating the timeline for negotiating the terms of an initial collective bargaining agreement, and a requirement that the parties submit to binding arbitration if they are unable to reach agreement. The NLRMA also contains a novel section—not included or addressed in EFCA or SBPA—which requires employers, following the setting of an election date, to notify unions of any campaign activity they intend to undertake and to allow unions equal access to employees.

Although EFCA is currently in the nation’s spotlight, there is considerable discourse among the public and Congress about the appropriateness of its card-check provision. If Congress becomes convinced that a card-check provision is not the right way to go, NLRMA or some other compromise bill might provide the consensus necessary to pass some sort of labor reform legislation. One thing seems clear. In order for any compromise to get the support or organized labor, it will have to include some means to make it easier for unions to organize workers and some provision for binding dispute resolution when bargaining a first labor contract. These are the things considered by unions to be key to their goal of increased union representation, a goal supported by the White House, by union supporters in Congress, and by the newly appointed Secretary of Labor. Employers should begin now to plan and take steps to prepare for what is certain to be a very concerted increase in union organizing activity.

Among the essential steps are manager training, designed to make managers especially aware of the likely changes in the law, but more important to make them aware of the specific arguments that are used by union organizers to get cards signed and the sort of manager behavior that will make it more likely those union arguments fail. Employers should also undertake a concerted review of policies and practices to be sure that they have in place those rules that make it more difficult for union organizing to succeed and more important, those policies that demonstrate to employees a commitment to effective communication, fundamental fairness, and genuine worker involvement.

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A termination within three months of an employee’s EEOC charge, combined with a claim that the employer increased its scrutiny of that employee after his charge was filed was enough to prevent summary judgment--even where the employer had refrained from terminating the employee at its first opportunity following his charge. Hamilton v. GE.

Jarrett Hamilton sued GE alleging that he was terminated in retaliation for filing an age-discrimination charge with the EEOC approximately three months earlier. He claimed that after he filed the charge, the company intensified its scrutiny of his work.  Of course, he filed the charge while on a 30-day suspension that had been agreed to after he had been terminated while under a Last Chance Agreement (LCA). The Company did not fire him when the first opportunity to do so arose after he filed the charge but later terminated him for what it said was unacceptable conduct, including refusing work directions from a supervisor and using “unacceptable foul and abusive language.”

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In a press release issued yesterday, the Equal Employment Opportunity Commission (EEOC) reports that, in its fiscal year 2008 (October 1, 2007 – September 30, 2008), there was a 15 percent increase in the number of employment discrimination charges filed against employers. The 95,402 charges filed are more than the number of charges filed in any other one-year period in the history of the agency. The greatest percentage increase was in age discrimination charges, up 28.7 percent from the previous year. Sex discrimination charges were up 14 percent, and race charges were up 11.2 percent. There was a smaller percentage increase in disability charges (9.7 percent), but with the recently-passed amendments to the Americans with Disabilities Act, employers will likely see a significant increase in disability charges in fiscal year 2009. 

The steep increase in discrimination charges was no doubt fueled, in part, by job losses in the beginning stages of the economic recession. The continued down-turn of the economy in the last quarter of 2008 and early months of 2009 makes it almost certain that the number of discrimination charges will continue to increase.

So what does all of this mean for you as an employer? To begin, it is far more likely that employers will be sued or will face discrimination charges as employees are laid off or face other adverse employment actions. An economic reduction-in-force will, very possibly, generate charges or lawsuits. All too often, employers do not exercise the care needed with the decision-making leading up to a reduction-in-force. Careful attention to the process and documentation in the early stages, however, can make legal challenges less likely to occur and can make those that are filed more easy to defend. 

As we’ve discussed before, employers should develop and document a sequential approach from the very earliest stages of the decision-making leading up to a reduction-in-force. Key steps in that approach include:

• Reorganizing or eliminating job duties; 
• Selecting the employees best-qualified to perform remaining job duties;
• Establishing criteria for termination or lay-off decisions that are based on legitimate business reasons;
• Documenting the selection criteria, procedure, and decisions;
• Conducting a statistical review to identify any disproportionate impact on protected class employees and, if a disproportionate impact is shown, carefully reviewing decisions to assure that they are supported by legitimate business considerations.

After these steps have been taken, the company should consider payment of severance to and securing signed release agreements from those who are terminated. It is a mistake, though, to presume that all terminated employees offered severance will sign release agreements and therefore give short shrift to the initial decision-making and documentation steps. All it takes is one terminated employee who refuses to sign a release and, instead, files a charge or a lawsuit to negate the savings of the reduction-in-force through the cost of defense, settlement, or an adverse judgment.

Even if your company is not currently in a reduction-in-force mode, careful attention to all employment decisions is essential to reduce the risk of discrimination charges. Things like frank and candid communication in performance reviews and active involvement by human resource personnel in all adverse employment actions can make it far easier to defend later decisions to terminate in a reduction-in-force. 

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The American Recovery and Reinvestment Act of 2009 (the “Act”) was signed by President Obama on February 17, 2009. This Act includes several significant changes to COBRA that employers will quickly need to address. 

The most immediate and notable impact will be a significant reduction in the COBRA premiums paid by certain employees whose employment is involuntarily terminated (and their spouses and dependents who are COBRA-entitled). These individuals can get a 65 percent government-paid subsidy toward their COBRA premiums. Employers are required to “front” the subsidy by paying the full premium and obtaining a reimbursement via a later payroll tax offset. The subsidy takes effect for COBRA coverage periods beginning after the February 17, 2009 enactment date (March 1, 2009 for most plans). 

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On January 29, the Lilly Ledbetter Fair Pay Restoration Act was the first bill signed into law by President Obama. As discussed in prior blog entries, the new law gives a employee or former employee the right to file a charge of discrimination within 180 days (or 300 days in some states, including Ohio) of their most recent paycheck. The Act overturns a U.S. Supreme Court decision holding that the statute of limitations started to run as soon as an employee received his or her first unfair paycheck. Under the new law, each new paycheck alleged to be discriminatory extends the statute of limitations for an additional 180 (or 300) days. 

The new law will significantly impair the ability of companies to defend claims about old pay decisions in federal court, especially for those employers who have forgotten or have not retained documentation as to why a given pay decision was made in the first place.

To read our client alert on this new law, click here.

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In December, we hosted a series of briefing sessions for our clients and friends on the dramatic changes in store for employers.  We discussed the Employee Free Choice Act (EFCA) and what steps employers should take now to protect themselves from the different playing field that this new law would offer unions.  We discussed other expected changes from President Obama and his administration, including federally mandated paid sick time.  We also discussed the difficult decisions that employers are facing how to effectively manage a reduction-in-force in these difficult economic times.

If you were unable to attend one of these sessions, we invite you to listen to the webinar recording.  We hope you find it helpful.

Webinar Recording: 
Workplace Impact of 2008 Presidential and Congressional Elections:  Dramatic Changes Ahead 

presented by Mike Underwood and Jenni Edwards on December 16, 2008.

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With the FMLA Final Regulations going into effect on Friday, January 16, 2009, we thought it would be a good idea to provide our readers with a single easy place to locate all of the new and revised forms provided by the Department of Labor.

New and Revised Forms:

WH-380-E Certification of Health Care Provider for Employee’s Serious Health Condition (PDF)

WH-380-F Certification of Health Care Provider for Family Member’s Serious Health Condition (PDF)

WH-381 Notice of Eligibility and Rights & Responsibilities (PDF)

WH-382 Designation Notice (PDF)

WH-384 Certification of Qualifying Exigency For Military Family Leave (PDF)

WH-385 Certification for Serious Injury or Illness of Covered Servicemember -- for Military Family Leave (PDF)

 These forms are also available at http://www.dol.gov/esa/whd/fmla/finalrule.htm

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Today the U.S. House of Representatives is expected to vote on and pass two controversial bills affecting employers. Both bills have the strong support of Democrats in Congress and the incoming Obama administration.

The “Lily Ledbetter Fair Pay Act,” which was defeated in 2007 due to a Republican filibuster in the Senate, would effectively and drastically extend the statute of limitations for discrimination claims related to disparate pay practices. Currently, employees are required to sue within 180 days (or, in certain circumstances, 300 days) after alleged discrimination takes place under federal law.   The Act would permit employees to sue for an unlimited number of past pay periods, however long ago they took place, so long as suit is initiated within 180 days of the most recent paycheck claimed to be discriminatory. The Act would overturn a 2007 decision by the United States Supreme Court based on existing law.

The “Paycheck Fairness Act” would amend the existing Fair Pay Act by requiring that employers allow their employees to share salary information with each other for purposes of rooting out gender discrimination. The Act would expressly prohibit employers from retaliating against employees who share such information, and it would make punitive damages available for the first time under the Fair Pay Act.

As both bills are expected to pass the House, it again falls on the Senate to protect employers from these attempts to placate unions and plaintiffs’ lawyers by curtailing employers' rights. The current makeup of the Senate, however, makes another filibuster unlikely, and both bills may be conveniently teed up for President Obama’s signature soon after his January 20 inauguration.

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On Monday, December 15, 2008, the City of Columbus modified its ordinances related to discrimination (Chapter 2331 of the Columbus City Codes). The modifications add five new protected classes to the employment discrimination ordinance: age, disability, gender identity or expression, familial status, and military status. 

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Numerous news reports suggest that President-Elect Obama will name California Congresswoman Hilda Solis (D. Cal.), who was a co-sponsor of the Employee Free Choice Act, as his administration’s Secretary of Labor. Both the SEIU and the AFL-CIO have issued press releases enthusiastically responding to this news. Those of you who are curious or wary about this selection may wish to visit her website at http://solis.house.gov

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As the economy takes a hit and the federal government considers bailouts, unions are chomping at the bit to get the organizing started. An SEIU (Service Employees International Union) internal email was leaked on CNN.com on Monday. In the email, SEIU employees disclose a specific plan to organize employees in the banking industry. The reason for targeting the banking industry? Because “the banking industry is now being infused with billions of dollars.” The email lists specific potential targets for future organizing efforts, including Fannie Mae, Freddie Mac, Chevy Chase/ B.F. Saul, BB&T, SunTrust, Bank of America/ Countrywide, Wachovia/ Wells Fargo, PNC Bank/ National City, and Citigroup. This list does not mean that SEIU will only target these banks. It is understandable that SEIU would target the biggest banks first—but other banks are surely to follow, especially if the union is welcomed by employees who are nervous about the future of their employment. 

As unions anticipate unprecedented changes to federal labor law that will make it far easier for them to organize workers (see EFCA post), economic uncertainty and federal bailouts are providing unions with precisely the talking points they need to convince employees that they are on uncertain ground without a union. As we have been discussing in our EFCA briefing sessions, it is important that employers in all industries develop a proactive strategy now that will protect them against union organizing campaigns in the future.

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The U.S. Department of Transportation’s (DOT’s) previously announced mandatory direct observation of specimen collection for return-to-duty and follow-up controlled substances test (see my October 28th post) has been stayed. The United States Court of Appeals for the District of Columbia Circuit has issued an administrative stay, which temporarily delays implementation of DOT’s direct observation requirement. As a result of the court-ordered stay, DOT has announced that direct observation by DOT-regulated employers for these two types of tests will remain optional and at the employer’s discretion. We will keep you posted on further developments.

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National banks may be missing out on a defense available to them against certain state-law employment claims brought by terminated bank officers. In particular, the National Bank Act (NBA) allows national banks to dismiss officers “at pleasure, and appoint others to fill their places.” This provision has been interpreted to mean that state-law tort and contract wrongful discharge claims by terminated bank officers are preempted and, thus, subject to dismissal. See, e.g., Boesch v. Champaign National Bank, Case No. 24014 at 6 (9th App. Summit Cty., June 30, 2008); Schweikert v. Bank of America, Case No. 06-2137 (4th Cir. April 1, 2008).

The NBA preemption defense applies, however, only when a bank’s board of directors makes the termination decision or delegates the authority to do so and then ratifies the decision. The board’s ratification need not occur before or on the termination date, but it needs to occur as promptly afterward as possible.

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Of course, no one can be certain of the exact workplace effects of Tuesday’s Presidential election results. But, at least one major change in employment law is pretty certain – and it is a change that all employers, large and small, in all industries, should be planning for now.

President-Elect Obama has stated clearly his support for the proposed Employee Free Choice Act (EFCA). His election, together with additional Democratic seats picked up in the Senate and Congress, make the passage of EFCA in 2009 a very strong likelihood. That will mean the most dramatic change in labor law in this country in decades.

As a reminder, there are two significant provisions of the EFCA: First, unions will be able to demand bargaining rights based solely on cards that they can pressure employees to sign face-to-face. The protection of a secret-ballot election will be taken away. Second, if labor negotiations between a union and employer for a first contract reach impasse, an outside arbitrator will dictate the terms of that key first contract.

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Beginning November 1, 2008, employers covered by the United States Department of Transportation’s controlled-substance testing regulations must conduct direct observation collection for “return to duty” and “follow-up” controlled substance tests. These regulations apply to employers governed by the Federal Highway Administration (such as private motor carriers), the Federal Railroad Administration (which regulates railroad operators), the Federal Aviation Administration (which regulates airlines and related industries), the Federal Transit Authority (which regulates companies doing business with mass transit providers), and the Research and Special Programs Administration (which regulates pipeline industries).

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News confirming that the engineer of the Los Angeles commuter train that crashed last week, killing more than 20 people, engaged in text messaging while on the job underscores the need for employers to consider policies banning employee use of cell phones while driving on company business. Though it remains to be seen whether the engineer was texting at the time of the crash, the proliferation of electronic devices, such as Blackberries, and their potentially addictive use is helping to make "distracted driving" an increasing problem on the road. Simply put, distracted drivers are becoming more dangerous to themselves, their passengers and other motorists. Although distracted driving is a public problem that is not unique to employers, employers must recognize that they likely will be the "deep pockets" should a distracted employee cause a car accident. In fact, if the distracted employee also is injured in the accident, a workers’ compensation claim is also a strong possibility.

Some states have enacted laws restricting cell phone use while driving. Ohio is not one of them. As a result, Ohio law enforcement presumably is not obliged to police distracted driving (except in obvious cases of erratic driving). Therefore, to help manage their potential liability from distracted driving, Ohio employers should strongly consider banning the use of cell phones, Blackberries and similar devices while driving on company business as well as from conducting company business on such devices at anytime while driving. Otherwise, whether as a result of employees texting friends while driving on company business or responding to an urgent e-mail from the boss while driving, employers risk potentially significant liability.

For such policies to work, however, employers and employees will need to work together to ensure that the electronic device policy is enforced in a way that respects the fact that the employee may not be able to instantaneously respond to work issues while they are driving.

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At a press conference this morning, the SEIU is announcing that it is withdrawing the paid sick leave mandate (Issue 4 -- the Ohio Healthy Families Act) from the November ballot. We will provide more information here as it becomes available.

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This afternoon, opponents of the Ohio Healthy Families were given a boost when Governor Strickland announced his opposition to the Ohio Healthy Families Act hours after discussions with business leaders and the SEIU failed(see article from today's Columbus Dispatch).

In his statement, Gov. Strickand states:

"While important members of the business community and SEIU participated in good faith discussions, it was, unfortunately, not possible to achieve a compromise acceptable to a sufficient portion of the business community and the proponents to cause its removal from the ballot. We regret that a reasonable compromise was not possible. This reality means that there will be a hard fought campaign centering on this initiative in the coming months. During that campaign, we call upon both sides to avoid portraying Ohio as unfriendly to business and economic development.

We also recognize it is important to make clear our thoughts on important public policy issues and today are announcing that we cannot support the paid sick-day ballot initiative. While we would hope that all Ohio businesses would make paid sick days available to their employees whenever possible, we believe that this initiative is unworkable, unwieldy and would be detrimental to Ohio's economy, and we will be opposing it and asking Ohioans to oppose it as a result."

In the coming months, we can expect an all out media blitz from both sides of this issue. As a result, the Ohio business community needs to understand how to legally and effectively communicate with their workforces so that they understand the detriments of this paid sick leave mandate. Just as important, because employers will not be able to reduce or eliminate other forms of leave in order to comply with the OHFA after enactment, all employers with at least 25 employees in Ohio need to begin the process of planning how they will comply with the OHFA, if it passes.

Check back here for any further developments. In addition, employers that are interested in joining the official statewide campaign against paid sick leave mandates should visit the Ohioans to Protect Jobs & Fair Benefits website.

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The Columbus Dispatch reported this afternoon that the Strickland administration is sending letters to about 500 business leaders in a final attempt to reach a compromise that would keep the Ohio Healthy Families Act off the Nov. 4 ballot.

In the letter, Gov. Ted Strickland and Lt. Gov. Lee Fisher urge the business community to engage in compromise discussions with the proponents of this Act and the legislature. As the letter states, if compromise language can be reached, the compromise bill would need to be crafted, passed by the legislature, and signed into law by September 5 – the last day to get the issue off of the November 4 ballot.

According to The Dispatch, enclosed with the letter are two documents: “Why a Compromise and Why Now?,” which provides further information to business leaders promoting a compromise solution that would remove this issue from the ballot this November, and “Principles of a Paid Sick Leave Act,” which outlines the administration’s position on this controversial topic.

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Mike’s February post described some key steps to keep in mind when faced with downsizing decisions. Here are few more:

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It may seem odd to include a statement in an employment application or offer that limits the time that an employee has to file legal claims that may arise later in the employment relationship. Recent case law, however, suggests that it is something that all employers should consider and decide if it is appropriate for their business and their employees.

In the last three years, a line of case law has developed in Ohio and the Sixth Circuit that allows employers to limit the time period by which employees must bring claims arising from their employment. The cases all involved employers that included in their employment applications a provision stating that, by signing the application and subsequently accepting employment, the employee agreed to bring all claims arising out of the employment relationship within a certain period of time—a time period that is shorter than statutory limits. Some of the applications stated that any claims had to be filed within a period of time as short as six months.

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Here is a brief outline of steps that should be included in any plan for implementation of a reduction-in-force:

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If your business model includes extensive use of independent contractors, you’re going to want to pay attention to the Ninth Circuit's decision in NLRB v. Friendly Cab Company, Inc., Case No. No. 05-73813 (9^th Cir., January 8, 2008). In the latest attack on the independent-contractor business model, the Ninth Circuit upheld an NLRB finding that the taxi drivers who leased cabs from Friendly Cab were not independent contractors but, in fact, were employees. The NLRB reached this conclusion despite the fact that, after making lease payments, the drivers kept all of their fares. Ordinarily, this factor – that the risk of profit or loss falls on the worker -- creates a "strong inference" of independent contractor status because the purported employer would have no incentive to control the means and manner of the drivers' performance. Nevertheless, the court deferred to the NLRB's conclusion that this inference was rebutted by other evidence that Friendly Cab, in fact, exerted significant control over the drivers and, as a result, found that Friendly Cab was obligated to meet and bargain with the drivers’ union.

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 From FedEx Corporation’s most recent 10Q filing comes the following:

“On December 20, 2007, the Internal Revenue Service (“IRS”) informed us that its audit team had concluded an audit for the 2002 calendar year regarding the classification of owner-operators at FedEx Ground. The IRS has tentatively concluded, subject to further discussion with us, that FedEx Ground’s pick-up-and-delivery owner-operators should be reclassified as employees for federal employment tax purposes. The IRS has indicated that it anticipates assessing tax and penalties of $319 million plus interest for 2002. Similar issues are under audit by the IRS for calendar years 2004 through 2006. We believe that we have strong defenses to the IRS’s tentative assessment and will vigorously defend our position, as we continue to believe that FedEx Ground’s owner-operators are independent contractors. Given the preliminary status of this matter, we cannot yet determine the amount or a reasonable range of potential loss. However, we do not believe that any loss is probable.”

With the IRS on its back and multiple class actions to defend, FedEx’s experience demonstrates the need for companies to consider very carefully their independent contractor arrangements to ensure that workers are properly classified. Given the IRS’s recent emphasis on this area, we suspect this is just the tip of a very large iceberg.

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