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

Concerning the DOL announcement of the Ohio action, DOL has sued the former president of a Twinsburg company, alleging that he was a fiduciary, and that he failed to timely forward participant elective deferrals to a 401(k) plan on a timely. Who is a fiduciary and what is timely? Therein lies the risk for other plan sponsors and administrators. The DOL regulations set forth “facts-and-circumstances” definitions for both of these determinations. Our experience is that DOL is being very aggressive in applying these vague standards in an effort to force “voluntary” compliance and corrective contributions from plan sponsors and administrators.

Under the regulations, participant contributions become plan assets “as of the earliest date on which such contributions can reasonably be segregated from the employer’s general assets” but in no event later the fifteenth business day of the following month for 401(k) plans (or 90 days for welfare plans). In our experience, DOL believes that, ideally, participant contributions would be deposited in trust the same day as the payroll withholding. Reasonable is somewhere between ideal and maximum, but where? The regulations recognize that circumstances can vary significantly from employer to employer, and common sense suggests that circumstances can vary from payroll period to payroll period. Our experience is that DOL is typically not so flexible or understanding during an investigation. 

What does all of this mean? DOL plays an important role in protecting retirement benefit assets, but you should know that it is not just criminals and embezzlers who need to be concerned about DOL enforcement. Every employer that sponsors or administers a benefit plan with participant contributions should be concerned about this grey area. If you are responsible for remitting participant contributions to ERISA plans, we encourage you to review your practices with legal counsel. If you are notified of a DOL investigation, legal counsel is especially important to help you defend against a DOL assertion that the contributions are untimely. Finally, it is much better to identify and correct any delinquent contributions through an internal review before DOL shows up at your door.

Here is a summary of how the model notices are to be used:

Model General Notice (Full Version)

This is a comprehensive COBRA notice covering all the basic requirements of a COBRA notice as well as explaining the COBRA premium subsidy and other related aspects of ARRA. The notice includes election forms, general information, and a form to be used by COBRA-qualified beneficiaries to ask to be treated as an Assistance-Eligible Individual (AEI) and to receive the COBRA premium subsidy.

The Model General Notice (full version) is to be used for all COBRA-qualifying events – not just involuntary terminations – occurring from now until December 31, 2009. This same notice is to be issued to all persons who had a qualifying event on or after September 1, 2008 but have not yet received an election notice or received an election notice that did not include information about ARRA. While there is conflicting information, the safest course of action is to treat April 18, 2009 as the deadline to distribute the Full General Notice.

Model General Notice (Abbreviated Version)

The Model General Notice (abbreviated version) is to be given to persons who had COBRA-qualifying events on or after September 1, 2008 and are currently enrolled in COBRA. This notice includes an abbreviated general description of COBRA rights, apparently with the idea that persons who are already enrolled in COBRA do not need as full an explanation as those who have not enrolled. The Model General Notice (abbreviated version) includes a summary of the COBRA subsidy provisions under ARRA and a form for request by the qualified beneficiary to be treated as an AEI and to receive the subsidy. Again, the safest course of action is to treat April 18, 2009 as the deadline to distribute the Abbreviated General Notice.

Model Notice in Connection With Extended Election Periods

This notice is to be issued by April 18, 2009 to persons with qualifying events that occurred on or after September 1, 2008 through February 16, 2009 (the effective date of ARRA) who did not elect COBRA or elected COBRA but suffered a discontinuation of coverage because, for example, they failed to pay premiums. This notice gives those persons a new opportunity to elect COBRA and receive the premium subsidy. If elected, the COBRA coverage will take effect retroactive to February 17 for those with a qualifying event date before then. However, for persons with a qualifying event date before February 17, 2009, the 18-month total period of COBRA eligibility dates back to the original qualifying event date.

Model Alternative Notice

The Model Alternative Notice is for use by employers and plans not covered by federal COBRA but covered by state “mini-COBRA” laws. Because the rights and requirements under various state mini-COBRA laws differ, the Model Alternative Notice requires substantial revision consistent with the specific state law. The notice includes an election form and an application for treatment as an AEI.

Ohio has a mini-COBRA statute that applies to most employers that are not covered by federal COBRA. The Ohio Department of Insurance has published guidelines specific to Ohio’s mini-COBRA on its web site at:

http://www.ohioinsurance.gov/ConsumServ/COBRAStimulusSmallEmployers.pdf.

The Ohio Department of Insurance has adapted the DOL model notices for use under Ohio’s insurance continuation statute: http://ohioinsurance.gov/ConsumServ/COBRAContinuationCoverageElectionNotice.pdf. For employers in Ohio, the Model Alternative Notice is to be sent to persons who are eligible for Ohio insurance continuation coverage and were terminated after February 17, 2009. The notice is also to be sent to former employees terminated on or after September 1, 2008 who either elected and are still receiving continuation coverage or who are still eligible to elect continuation coverage. Ohio law does not require offering an extended election opportunity to persons who were given a COBRA notice before February 17, 2009 and failed to elect coverage during the election period. Insurance continuation under Ohio law is for a maximum of six months currently. However, there is legislation pending in Ohio that would change the maximum continuation period to 12 months in order to coincide with the available premium subsidy under ARRA.

It’s crucial to look at the actual workweek in this case. Because the employer’s workweek starts and ends mid-day on Friday and employees begin their workday that morning, the work performed on a Friday is technically split between two workweeks. Four hours fall into the first workweek, four hours into the second. Therefore, the employee is actually working only 40 hours each workweek. 

While it’s important that employers and attorneys not read this opinion letter too broadly, the good news is that the DOL did approve a workweek that was skillfully created to avoid overtime. Employers who regularly deal with substantial overtime may want to consider a similar arrangement. 

Opinion Letter FLSA2009-2 is potentially less exciting but just as relevant in today’s economy. In the opinion letter, the DOL approved an employer’s plan to require exempt employees to use accrued vacation time during a plant shutdown of less than a workweek without violating the salary basis test and jeopardizing their exempt status. 

Reiterating the position set forth in a 2004 Opinion Letter, the DOL explained that “since employers are not required under the FLSA to provide any vacation time to employees….it is our opinion that the employer may require exempt employees to use accrued vacation time for any absence, including one resulting from a plant shutdown, without affecting their exempt status, provided that employees receive a payment in an amount equal to their guaranteed salary.” (emphasis added). 

Employers considering a facility shut-down should keep in mind the general rule that exempt employees must be paid for any employer-occasioned absence of less than one full workweek. Employers who, for economic reasons, need to implement unpaid shutdowns should make sure that exempt employees are on furlough for a full workweek. 

In addition to these two opinion letters, the DOL also released 33 others. All of the opinion letters were signed by the Acting Administrator before President Obama’s inauguration. Eighteen of the letters, but neither of the letters discussed above, were given only a conditional release, with the DOL explaining that the while agency is “making these letters available to the requestor and to the public, the agency has decided to simultaneously withdraw these letters for future consideration.” While employers (and attorneys) may understandably be confused by this development, the best course of action is to avoid relying on any of the conditional letters until the DOL either issues final approval or completely withdraws the letters.

We’ll keep you updated on the status of these opinion letters. 

The military family leave amendment took effect immediately, but left some key issues arising from the new leave categories unresolved. For example, rather than defining what constitutes a “qualifying exigency,” the Congress directed the Department of Labor to define the term in regulations. The DOL is also expected to develop new forms that employees, employers and medical providers can use in reference to the new leave categories. As of today, the DOL has not yet issued even proposed regulations for the military family leave amendment, and the final regulations and military leave forms may still be months away. At the same time, employers also are waiting to see what the DOL will do with respect to the proposed changes to the original FMLA regulations that were released for public comment in February of this year.

Many employers may be waiting for the DOL to issue the new FMLA regulations before revising their policies to include the new military family leave categories. This seems reasonable, but has not been expressly endorsed by the DOL as an acceptable approach. Thus, employers may be acting at their own peril if they wait too long to amend their FMLA policies to incorporate the new leave categories and to address additional issues related to the FMLA amendment. One thing that all employers covered by the FMLA should do immediately if they have not already done so is to post the Notice that the DOL did issue that advises employees of their new rights to military family leave. A copy of that posting is attached hereto, and the Notice can be obtained directly from the DOL's website. Posting of the DOL’s Military Family Leave Notice on employee bulletin boards where other employment law notices are posted is required by the FMLA. Moreover, by complying with this posting requirement, employers can say that they have informed employees of their new rights, albeit not as comprehensively as they will when they revise their employee handbook policies.

The purchasing agents in this case were responsible for ensuring the timely order and delivery of materials; negotiating prices; maintaining records and handling returned goods; and selecting vendors.  DOL properly gave great weight to the fact that the purchasing agents were authorized to make purchases up to $25,000 without managerial review or authorization. This fact was truly significant because 99 percent of purchasing orders fell below $25,000 – indicating that the purchasing agents consistently made significant financial decisions with little supervision. These facts met the test for the administrative exemption. As with previous guidance from DOL, this opinion letter underscores how heavily the agency considers an employee’s decision-making authority in determining exempt status.

Opinion Letter FLSA2008-2 deals with the substitution provision available to public sector employers. Public sector employees may agree, with the approval of the employer, to substitute during scheduled work hours for another employee in the same classification/position. 29 U.S.C. § 207(p)(3). (This situation may occur, for instance, when one employee agrees to cover another employee’s shift.) Under the FLSA, the employer may exclude “substitution hours” from the calculation of overtime. Id. 

The specific issue addressed in the opinion letter was whether the substituting employee must receive any additional compensation for those hours. According to DOL, the public sector employer does not have to compensate the employee for those extra hours except where the employee has worked so many substitute hours that his wages for all hours worked fall below the minimum wage. In that case, the employer must be sure that the employee is paid at least minimum wage but still is not required to pay additional overtime. Conversely, the employer can remain in compliance with the minimum wage provision without paying any additional wages by denying any shift substitution requests that might drop the substitute employee’s hourly wages below the minimum wage.

Joint Employer Definition –

Both the old and new regulations recognize that some employees may have “joint employers,” both of whom have responsibilities under the FMLA. The new regulations clarify that a joint employer relationship generally does not arise from “Professional Employment Organizations” or “HR Outsourcing Vendor” contracts, where the PEO or vendor “merely performs … administrative duties.” However, in the rare circumstance where a PEO or vendor actually has the right to hire, fire, and assign work, a joint employer relationship is still likely to exist.

Employee Eligibility –

To be eligible for FMLA protection, an employee must have worked with an employer for at least 12 months and for at least 1,250 hours in the last 12 months. According to the new regulations, when measuring the 12-month requirement, employers are no longer required to count work performed before a break in service of 5 years or more. An exception is made for breaks in service that were required by military service or pursuant to a written agreement.

The 1,250-hour requirement is similarly changed so that credit is given for military service, time away from the job that would otherwise prevent employees from meeting this requirement.

The new regulations clarify that employees who become eligible for FMLA protection while in the middle of non-FMLA leave may acquire FMLA protection. Leave that begins before FMLA eligibility may start out as “non-FMLA” qualifying leave. However, if an employee becomes eligible for FMLA leave in the midst of the absence, FMLA protections are triggered from that point forward.

Serious Health Condition –

The DOL has provided very little help to employers attempting to determine whether an employee has a “serious health condition” subject to FMLA protection. Two small clarifications have been added in the new regulations. 

One form of serious health condition involves an incapacity of more than three days and either (a) two doctor visits or (b) one doctor visit with a regimen of continuing treatment. The new regulations clarify that the first option only contemplates two or more doctor visits “within a 30-day period.”

Another form of serious health condition involves “chronic conditions.” The new regulations specify that, to qualify as a serious health condition, a chronic condition must require at least two periodic visits per year to a health care provider for treatment.

Placement of Adopted Child –

FMLA leave is available for the placement of adopted children. The new regulations specify that FMLA leave may include time to “travel to another country to complete an adoption.” FMLA eligibility is not affected by the “source of the adopted child.”

Health Care Provider –

The long list of health care providers already eligible to prepare FMLA medical certifications and treat employees has been expanded to include “physician’s assistants.”

Intermittent Leave –

The new regulations provide no useful guidance or changes regarding intermittent leave, despite widespread confusion and requests for clarification from employers. 

Attendance Bonus –

The old regulations specifically required that employee bonuses based solely on attendance not be denied employees solely because of absences related to FMLA leave. The new regulations clarify that bonuses can be properly “based on the achievement of a specified goal such as hours worked, products sold or perfect attendance” and therefore can be denied employees taking FMLA leave. However, FMLA leave and similar non-FMLA leaves must be treated the same for purposes of such bonuses.

Overtime –

The preamble to the regulations attempts to clarify how the FMLA applies when employees do not work scheduled overtime due to a qualifying leave. Specifically, if the employee would otherwise be required to work overtime hours, the hours the employee would have been required to (but did not) work may be counted against the employee’s 12-week FMLA entitlement. When the employee works a part-time or reduced schedule, the employee’s leave usage in any given week is proportionate to the employee’s scheduled hours in the week in which the leave is used.

Light Duty –

The FMLA permits an employer and employee to agree to a “light duty” schedule that allows the employee to continue working rather than take unpaid FMLA leave. Under the old regulations, such light duty time could be counted against the employee’s 12-week FMLA allowance, even though it technically was “working time” for the employee. This provision has been deleted from the new regulations so that employees who accept light duty work need not exhaust their FMLA leave to do so.

Waiver of Rights –

The FMLA prohibits employees from waiving their rights under the statute. The old regulations were ambiguous as to whether this prohibition applied retrospectively or only prospectively. The new regulations clarify that employers cannot induce employees to waive their FMLA rights prospectively, but employees can lawfully waive their FMLA rights after the fact, even without court or DOL approval. Importantly, the new regulations expressly permit employees to waive any hypothetical FMLA violations in settlement agreements without special oversight.

Employer Notice Regarding Eligibility –

Under the old regulations, an employer was required to designate FMLA leave “within two business days absent extenuating circumstances.” The new regulations require employers to notify employees of their intention to provide FMLA leave within five business days after learning of the employee’s FMLA-qualifying condition. 

The employer’s notice must provide employees with eligibility information, must detail the employee’s responsibilities, and must identify consequences for failure to comply. If the employee is not eligible for FMLA leave, the employer’s notice must so state and identify why. The DOL has created a “prototype eligibility notice” for this purpose that differs somewhat from the form provided with the old regulations. The new form includes language for additional inquiries regarding “incomplete” or “insufficient” medical certifications following the initial FMLA designation.

The new regulations clarify that employers may provide the FMLA designation notice immediately after receiving sufficient information to designate the leave as FMLA-qualifying. This appears to resolve a question under the old regulations as to whether employers are prohibited from unilaterally designating absences as FMLA leave where the employee refuses to submit necessary paperwork.

The new regulations codify the Supreme Court’s Ragsdale holding by specifying that employers may retroactively designate leave as FMLA-qualifying, so long as such designation does not “cause harm or injury to the employee.”

Employee Notice of FMLA-Qualifying Absence –

The new regulations retain the standing rule that an employee need not mention the FMLA by name to trigger its protection for a given absence. However, the new regulations do require employees to provide specific information to trigger the employer’s responsibilities. An employee’s notice of his or her need for leave should include: (a) an indication that a condition renders the employee (or family member) unable to work; (b) an anticipated duration of the absence; and (c) whether the employee (or family member) intends to visit a health care provider. This is a higher standard than was required by some courts under the old regulations. The new regulations expressly clarify that an employee cannot merely call in “sick” and thereby trigger a duty for the employer to inquire further about whether the absence is FMLA-qualifying.

The new regulations specify that employees must respond to an employer’s questions to determine whether an absence is FMLA-qualifying. Failure to do so may properly result in denial of FMLA leave.

Employer’s Usual and Customary Procedures –

The new regulations permit employers, absent unusual circumstances, to require employees to follow established call-in procedures (except ones that impose more stringent timing requirements than the regulations provide), and provide that failure to properly notify employers of absences may cause a delay or denial of FMLA protections. Specifically, employers may require employees seeking FMLA leave to call a “designated number or a specific individual to request leave.” Under the old regulations, an employer could not delay or deny FMLA leave if an employee failed to follow such procedures.

Medical Certification –

The new regulations add guidance as to what constitutes sufficient medical facts to support the existence of a serious health condition. Specifically, to streamline the certification form, the DOL proposes that such medical facts may include information about symptoms, hospitalization, doctors’ visits, prescription medication, referrals for evaluation or treatment (physical therapy, for example), or any other regimen of continuing treatment. In addition, the new regulations state that the health care provider may provide information on the diagnosis of the patient’s health condition but clarify that a diagnosis is not a required element of the certification form.

Employer Contacts with Physician –

The old regulations prohibited direct contact between employers and health care providers in most instances. The new regulations carve out an exception, allowing employers to contact physicians directly “[i]f an employee’s serious health condition may also be a disability within the meaning of the Americans with Disabilities Act,” so long as the more liberal restrictions of the ADA are observed. Under the old and new regulations, employers may also contact employees in accordance with state workers’ compensation laws.

The new regulations also permit an employer to make direct contact with the employee’s physician to seek “clarification and authentication” of medical certifications. Previously, only another physician hired by the employer could make such inquiries.

Fitness for Duty Certification –

The new regulations replace the requirement that a fitness-for-duty certification must only be a “simple statement” with the original statutory language that the employee must obtain a certification from his or her health care provider that the employee is able to resume work.  Under the new regulations, the employer may provide the employee with a list of the employee’s essential job duties together with the eligibility notice, in which the employer advises the employee of the necessity for a fitness-for-duty certification. If the employer provides such a list of essential functions, it may require the employee’s health care provider to certify that the employee can perform them.  When providing a fitness-for-duty certification, the health care provider therefore must assess the employee’s ability to return to work against the identified essential functions.

Family Leave in Connection with Injured Members of the Armed Forces and Qualifying Exigencies Related to Active Duty –

In the preamble to the new regulations, the DOL addresses the need to adopt regulations to implement the military family leave provisions of H.R. 4986, the National Defense Authorization Act for FY 2008, and seeks comments before issuing final regulations. Among several questions raised by the DOL are the following:

The DOL’s request for comments on the proposed regulations by April 11, 2008 leaves open the slim hope that additional and necessary revisions will be added to the final version. The new regulations do little or nothing to alleviate concerns about the ambiguous definition for “serious health condition,” and they provide no new insight or relief for calculating and tracking intermittent FMLA leave. Porter Wright will continue to monitor and report on the DOL’s communications concerning the new regulations.

Despite the agreement, Taylor sued in federal court, claiming retaliation for exercising her FMLA rights.  The district court found that her suit was barred by the waiver in the severance agreement, but the Fourth Circuit reversed.  In the Fourth Circuit’s view, the FMLA’s enforcement provisions were designed by both Congress and the DOL to mirror those of the Fair Labor Standards Act (FLSA).  For its part, the FLSA requires that both retrospective and prospective waivers have court or DOL approval.

Ironically, when the case was before the Fourth Circuit, the DOL filed an amicus (or friend-of-the-court) brief that sided with the employer.  In that brief, the DOL argued that only prospective waivers require court or DOL approval and that the applicable regulations permit settling disputed FMLA claims retrospectively or after the fact.  The DOL further asserted that its interpretation of the FMLA regulations should be given deference. I n interpreting the regulations in this way, the DOL argued that the FLSA is not similar to the FMLA because the FLSA, dealing with minimum wage and overtime issues, is designed to protect workers with the least bargaining power at the bottom of the pay scale.  The FMLA, in contrast, protects all workers and is similar to other employment statutes that allow retrospective settlements.

In light of the DOL’s position before the Fourth Circuit, the Supreme Court’s request for input from the department gives employers a reason to be optimistic that the Court will accept the appeal and issue an employer-friendly ruling.  Should the Supreme Court refuse to hear the case, as Taylor’s attorney has urged, the enforceability of FMLA releases in Ohio will be open to question – at least until the Sixth Circuit weighs in.    With any luck, the Supreme Court will make Sixth Circuit review unnecessary.