Category Archives: Employee Benefits

For Minnesota Employers: All Quiet on the 2017 Capitol Front

The 2017 Regular and Special Sessions ended with an almost record lack of impact for Minnesota employers. There were no changes to Minn. Stat. § 181.01 et seq the state general employment statute or Minn. Stat. § 363.01, the State Human Rights Act. Stability is a good thing.

The one potential change – a law that would have restricted municipalities from setting their own workplace standards (such as regarding sick leave) was vetoed by Governor Dayton as promised.

Takeaway: Minnesota Employers do not need to update policies or handbooks due to any changes in state law coming out of this legislative session. Now, that’s good news!

“Pre-emption”: On a One-Way Ticket to Nowhere?

A “Pre-emption” or a uniform labor standards bill is a reaction in the Minnesota Legislature to the passage of sick time ordinances in Minneapolis and St. Paul. The idea is that Minnesota Employers’ obligations to employees regarding time-off and other similar obligations should be the same state-wide out of principles of fairness in competition and conformity. Also, the burden to metro-area employers in the current ordinances could well be altered or at least reduced if pre-emption bill passed by which state law pre-empts local ordinances and state-wide views pre-empt metro views of good public policy regarding private employer sick leave obligations.

A pre-emption bill is working its way through the legislature in these final session days, but the report “from the front” is that Governor Dayton will veto any pre-emption bill that makes it to his desk.

Takeaway: Minnesota Employers should prepare for the continued existence of different paid time-off standards throughout the State.

The Next Wave: Minnesota Metro and the $15 Minimum Wage

Moving beyond earned sick leave and safe time ordinances, it is very likely that this year the Minneapolis and St. Paul City Councils will take on the possibility of a $15 minimum wage ordinance. Such a municipal minimum wage exceeds state ($7.75 for small employers and $9.50 for large employers) and federal ($7.25) minimum wage, of course. The municipal earned sick leave and safe time ordinances passed by both cities in 2016 were the first wave in a national movement for employee rights that began in other major cities (such as San Francisco and Seattle) where the $15 minimum wage was then the next wave. Indeed, a task force on the $15 minimum wage ordinance has just formed in Minneapolis. State minimum wage initiatives stalled out in the last legislature sessions, so the major municipalities are taking the initiatives.

Arguments in favor of the $15 an hour minimum wage ordinances sound in quality of life and attraction of entry level employees in a high employment rate economy. And although $15 an hour may not be a realistic living wage, especially for a family, it reduces the need of low wage employees to work several jobs, creating a very human reason for metropolitan areas to have a higher minimum wage. Indeed, many Twin Cities metropolitan area employers already pay a minimum of $12 plus an hour, so the change is not extreme.

And the possibility of such ordinances passing as a second wave of employee rights municipal legislation has likely increased with the employer community’s inability to hold back the first wave sick leave and safe time ordinances in 2016. Having spent a lot of effort unsuccessfully in 2016 in broad opposition to the first wave, it is a strong possibility that employers opposing the second wave of the $15 minimum wage in 2017 will need to focus their efforts on exemptions and credits. Tip credits, student work study, training wages, gradual phase-in periods are examples of such possible exemptions in the ordinances that reduce the impact of this next wave.

Takeaway: Minneapolis and St. Paul employers are wise to anticipate in their business models, budgets for payroll and benefits and staff planning the passage of a $15 municipal minimum wage ordinance and follow closely the passage and specific provisions of this next wave of employee-protection ordinances. You don’t want to wind up like the old story of King Canute who tried to order the waves to hold back (unsuccessfully). Minnesota Employer will keep you updated.

Look Out St. Paul Employers: Here Comes the ESST!

Minnesota Employers operating in the East Metro need to be aware of the impending deadlines in the St. Paul Earned Sick and Safe Time Ordinance (“ESST”) which requires employers with St. Paul-based employees to provide paid sick leave and safe time to those employees. For employers with 24 or more full or part-time St. Paul area-based employees, the ESST is effective July 1, 2017 and for smaller employers the effective date is Jan. 1, 2018. A good summary of the ordinance and its impact on St. Paul employers is available at the St. Paul Chamber of Commerce website.

While there is currently litigation contesting the legality of the similar Minneapolis ordinance, that litigation does not directly affect the St. Paul ESST. St. Paul area employers should assume it will come into being. The Minneapolis ordinance has similar effective dates and there is no current injunction (more about the Minneapolis ordinance in an upcoming Minnesota Employer Blog post).

The implementation of the St. Paul ESST raises corollary questions about uniformity of company-wide PTO policies for employers with employees inside and outside St. Paul proper. It may be easier to administer a uniform rather than a fractured PTO policy for such employers.

Takeaway: The impending ESST Ordinance effective dates require employer action and, perhaps, a broader review of PTO policies with legal counsel. ESST is going to happen so affected employers should prepare!

Department of Labor Appeals Overtime Injunction

The new Department of Labor (DOL) overtime regulations increasing the minimum salary threshold for white collar exemptions to an annualized $47,476 were set to become effective December 1, 2016. However, on November 22, 2016, a Texas Federal District Court issued a nationwide preliminary injunction blocking the new rules from becoming effective.

The DOL has now appealed the Court’s injunction decision to the Fifth Circuit Court of Appeals. The timing for such an appeal typically stretches over several months. The DOL does have the option, however, of requesting that its appeal be considered on an expedited basis, but such requests are not automatically granted. The DOL may also file a motion requesting that the injunction be stayed while its appeal is pending. Granting a stay would reinstate the new overtime regulations. Doing so would of course create a potentially cumbersome scenario of implementing significant overtime changes which might only be reversed once the 5th Circuit rules on the DOL appeal.

Takeaway: At least for now, and unless a motion to stay is made and granted, the DOL new overtime regulations remain without effect. Accordingly, employers are not at this time obligated to adjust employee salaries to maintain their exempt status.

Minnesota Supreme Court Affirms Wage Claim Penalties

Employees who believe they have been improperly denied payment of wages or commissions owed when separated from employment may make a claim against their employer seeking full payment. Particular statutory provisions apply depending on whether the employee was terminated or voluntarily resigned.

In either situation, the employee may be entitled to a penalty payment, in addition to full payment of the owed wages or commissions. That penalty is “equal to the amount of the employee’s average daily earnings at the employee’s regular rate of pay or the rate required by law, whichever rate is greater, for every day, not exceeding 15 days in all” until such payment is made. An employee is not entitled to the penalty payment unless the claim results in the employee obtaining an amount greater than the amount of wages or commissions already paid by the employer in good faith.  Minn. Stat. § 181.14, subd. 3.

The Minnesota Supreme Court recently decided whether non-wage related amounts owed by the employee to the employer can be offset against the wages or commissions recovered in determining whether the employee is entitled to the penalty payment.

In Toyota Lift of Minnesota, Inc. v.  American Warehouse Systems, LLC, a lawsuit resulted in the employee being awarded more than $100,000 in disputed commissions. However, the employer’s counterclaim resulted in a more than $800,000 unrelated judgment against the employee. The Minnesota Supreme Court held that the unrelated counterclaim judgment could not be offset against the employee’s wage claim recovery. While the statute is silent as to whether such an offset is expressly permissible or not, the Court concluded that, when each part of the statute is read in context, such an offset was not authorized by the Minnesota Legislature.

Takeaway: Unrelated amounts owed to the employer cannot be offset against wages or commissions owing to the employee to avoid the statutory penalty payment. Employers should be aware that the possibility of such a penalty remains regardless of the merits of their counterclaims against the employee.

2017 Cost-of-Living Adjusted Amounts for Employee Benefit Plans

On October 27, 2016, the Internal Revenue Service announced the 2017 cost-of-living adjusted amounts for certain retirement plan and fringe benefit limitations. Earlier in 2016, the Internal Revenue Service announced the 2017 cost-of-living adjustments affecting health savings accounts and high deductible health plans, and on October 18, 2016, the Social Security Administration announced the 2017 cost-of-living adjustments related to Social Security benefits.

A list of the cost-of-living adjusted amounts that most commonly affect employer-sponsored benefit plans is available here.

No Employee Defections on the Day of Elections

All Minnesota Employers are statutorily obligated to provide employees, “the right to be absent from work for the time necessary to appear at the employee’s polling place, cast a ballot and return to work” without a pay or PTO deduction or any direct or indirect interference.  Minn. Stat. §204C.04. This applies to any time of day and to exempt and non-exempt employees scheduled to work during the time the polls are open. Violation is a misdemeanor.

Is this potentially a citizen’s “senior skip day?” No. The statute rests on a rule of reasonableness regarding the scheduling of time off, and the amount of time off. The employer has the right to be told when the employee will be gone and ask that absences be coordinated (but can’t so require). An employee who just doesn’t show up for work on November 7th can’t count on a statutory free pass.

How can an employer handle a suspected abuse? Preemptive, pro-active measures are likely not the best path to follow since warning and rules could well look to be prohibited indirect attempts to thwart the statutory time-off requirement. But after-the-fact, carefully handled individual investigations of suspected abuse can be consistent with the statute and its rule of reasonableness. The previous version of the statute allowed for the morning off and that may be a reasonable rule of thumb.

Takeaway:  An employer suspecting employee abuse, especially wide-spread abuse, of the paid time off to vote statute can, after the fact, determine if the employee(s) actually complied with the statutory rule of reasonableness. But proceed cautiously given the statute’s prohibition against indirect interference. Advice of legal counsel would be particularly helpful when the employer seeks to make sure election day doesn’t become defection day.

2016 Cost-of-Living Adjusted Amounts for Employee Benefit Plans

On October 21, 2015, the Internal Revenue Service announced the 2016 cost-of-living adjusted amounts for certain retirement plan and fringe benefit limitations. Earlier in 2015, the Internal Revenue Service announced the 2016 cost-of-living adjustments affecting health savings accounts and high deductible health plans, and on October 15, 2015, the Social Security Administration announced the 2016 cost-of-living adjustments related to Social Security benefits.

A list of the cost-of-living adjusted amounts that most commonly affect employer-sponsored benefit plans is available here.

The Eighth Circuit Pushes the Supreme Court’s Hobby Lobby Decision One Step Further

The Eighth Circuit Court of Appeals recently published a decision holding that the accommodation process for religious organizations regarding the contraceptive mandate of the Affordable Care Act (ACA) may itself violate religious freedom. The decision contributes to a growing split among federal courts, which will likely end up before the U.S. Supreme Court.

In Sharpe Holdings, Inc. et al. v. U.S. Department of Health and Human Services, a number of nonprofit religious organizations argued that the accommodation process for the ACA’s contraceptive mandate violated their First Amendment religious freedoms as well as the Religious Freedom Restoration Act (RFRA). No. 14-1507 (8th Cir. Sep. 17, 2015). Under the ACA, covered employers are generally required to provide health insurance to their employees, including insurance for approved contraceptive methods. However, the ACA also creates an accommodation process, which allows religious organizations to notify the third-party administrators of their health insurance plans of their religious objections. The third-party administrator is then obligated to provide the contraceptive coverage for employees instead of the religious organization.

The intended purpose of the ACA’s contraceptive-mandate accommodation was to allow religious organizations to avoid providing contraceptive coverage in violation of their religious beliefs. But the Plaintiffs in Sharpe Holdings, Inc. argued that even the accommodation process made them complicit in providing contraception and, therefore, violated their religious beliefs.

A number of circuit courts – including the Second, Fifth, Tenth, and D.C. Circuits – have rejected the argument that complying with the ACA’s accommodation process makes a religious employer complicit in providing contraception. These courts primarily reasoned that it was federal law, rather than the accommodation process, that triggered the third-party administrator’s duty to provide contraception. These courts also determined that it was the courts’ role to determine whether the asserted burden on religious liberty was sufficiently substantial to trigger the protections of RFRA and that the challenger’s assertions were too attenuated to meet that standard.

The Eighth Circuit disagreed. Relying heavily on the U.S. Supreme Court’s decision in Burwell v. Hobby Lobby Stores, Inc., the Eighth Circuit reasoned that it was required to accept the sincerity of the Plaintiffs’ contention that the accommodation process would substantially violate their religious beliefs. The court explained that:

The question here is not whether CNS and HCC have correctly interpreted the law, but whether they have a sincere religious belief that their participation in the accommodation process makes them morally and spiritually complicit in providing abortifacient coverage. Their affirmative answer is not for us to dispute.

Concluding that the court had no authority to question the Plaintiffs’ conclusion that the accommodation process substantially burdened their religious beliefs, the Eighth Circuit then proceeded to analyze whether there were less restrictive alternatives to accomplishing the government’s objectives in providing contraceptive care. The Eight Circuit held that the Plaintiffs were likely to prevail on their argument that less restrictive alternatives existed.

Specifically, the Eighth Circuit agreed with the Plaintiffs’ arguments that the government could accomplish the same objectives by assuming the costs of providing contraceptive coverage itself, by providing subsidies, reimbursements, or tax credits to employees for contraceptive care, or by paying for the distribution of contraceptives at community health centers, public clinics, or hospitals with income-based support. Because less restrictive alternatives were likely available, the court held that the Plaintiffs were likely to prevail on their claims. As a result, the Eighth Circuit affirmed the lower court’s entry of an injunction prohibiting the government from imposing monetary penalties against the Plaintiffs for refusing to either provide contraceptive coverage or participate in the ACA’s accommodation process.

Takeaway: Given the split among federal circuit courts, the issue of whether the ACA’s accommodation process for the contraceptive mandate violates religious freedom is likely headed to the U.S. Supreme Court.

Significant Changes To IRS Determination Letter Program

 On July 21, 2015, the Internal Revenue Service announced significant changes to the determination letter program for qualified retirement plans.  The IRS, in Announcement 2015-19, made it official that it will be ending its long-standing practice of issuing determination letters for individually-designed qualified plans, except in the case of a plan’s initial determination letter, or upon a plan termination.

This change is effective immediately with respect to “off-cycle” determination letter applications, and is effective January 1, 2017 for all other determination letter applications.  In other words, the IRS will still issue determination letters for individually-designed plans that are in “Cycle E” (plans sponsored by employers whose EIN ends in 0 or 5), provided the application is submitted no later than January 31, 2016, and for individually-designed plans that are in “Cycle A” (plans sponsored by employers whose EIN ends in 1 or 6), provided the application is submitted no earlier than February 1, 2016 and no later than December 31, 2016.  In addition, the IRS will continue to issue determination letters for individually-designed plans upon their initial qualification, or upon their termination.

Prior to this announcement, in order to rely on the protections afforded by a favorable determination letter, individually-designed qualified plans generally were required to be restated and submitted to the IRS for a new determination letter every five years, based on changes made to the determination letter program back in 2007.  However, that program of 5-year remedial amendment cycles will be essentially ended as a result of the most recent announcement.  It should be noted, however, that this announcement does not make any direct changes to the determination letter program with respect to qualified plans that are in the form of a pre-approved plan.  Those plans still are subject to the rules under Revenue Procedure 2007-44.  As such, those plans are generally required to be restated according to a 6-year cycle, with the current 6-year cycle running from May 1, 2014 – April 30, 2016.

There are a number of outstanding issues that still need to be addressed by the IRS regarding this announcement.  Chief among them is how to determine the remedial amendment period for individually-designed plans after December 31, 2016, and how these changes affect the rules under other IRS programs, including the Employee Plans Compliance Resolution Program.  The IRS is requesting comments on these issues and will issue further guidance at a later date.

Takeaway:  As a result of the changes announced by the IRS to its determination letter program, plan sponsors should no longer submit an application for a determination letter for an individually-designed plan, unless it is for the plan’s initial qualification, the plan’s termination, or the “on-cycle” submission for a Cycle E or Cycle A plan.  In addition, sponsors of individually-designed plans may want to consider moving the plan to a pre-approved plan, especially since the IRS recently began allowing certain defined benefit pension plans and employee stock ownership plans to be adopted in the form of a pre-approved plan.

EEOC Issues Proposed Rules For Employer Wellness Programs

On April 20, 2015, the EEOC issued a notice of proposed revisions to its regulations under the Americans with Disabilities Act concerning employer wellness programs. The new regulations will not become effective until after the notice period ends on June 19, 2015, and a final rule is published. In the meantime, here’s what employers should know about the EEOC’s proposed rules for wellness programs:

  1. Wellness programs must be reasonably designed to promote health and prevent disease. The proposed regulations explained that a program satisfies this standard “if it has a reasonable chance of improving the health of, or preventing disease in, participating employees, and it is not overly burdensome, is not a subterfuge for violating the ADA or other laws prohibiting employment discrimination, and is not highly suspect in the method chosen to promote health or prevent disease.”
  2. Wellness programs must be voluntary. An employer may not require employees to participate in a wellness program, nor may an employer deny health insurance coverage or other benefits to employees for refusing to participate, except as part of an authorized, limited incentive that complies with the proposed regulations.
  3. Wellness incentives must be limited. The proposed regulations state that an incentive, whether in the form of a reward or a penalty, so long as the “maximum allowable incentive available under the program . . . does not exceed 30 percent of the total cost of employee-only coverage.” For example, if the total cost of coverage paid by both the employer and employee for self-only coverage is $5,000, the maximum incentive for an employee under that plan must be $1,500.
  4. Medical information must be kept confidential. Medical information obtained through a wellness program must be maintained as confidential, except as authorized by the ADA or as may be necessary to administer the health plan.
  5. Employers must offer reasonable accommodations for wellness programs. Absent undue hardship, employers are required to provide reasonable accommodations to enable disabled employees to enjoy equal benefits and privileges of employment, including participation in wellness programs. This includes reasonable accommodations that may be necessary to enable employees with disabilities to earn whatever financial incentive an employer wellness program offers.

Takeaway: Employers who offer wellness programs should review the EEOC’s notice of proposed rulemaking and provide comments on it before June 19, 2015, if they wish to do so. Because the proposed rules will likely be similar, if not identical, to the final rule that eventually will take effect, employers should also review their wellness programs to determine whether any changes may be necessary.