Hot Topics in Labor &
Employment Law 2010
The material provided herein is for informational purposes
only and is not intended as legal advice or counsel.
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Hot Topics in Labor &
Employment Law Legal Updates
and Changes in the Law on Age
Discrimination
Pat Collins
Hiring Incentives to Restore
Employment (HIRE) Act
• Grants employers an exemption for their 6.2% Social
Security payroll contribution for every new “qualified
employee” hired after February 3, 2010 and before
January 1, 2011
• Allows an additional income tax credit that is equal to
6.2% of paid wages for every new qualified employee
retained for 52 consecutive weeks – up to $1000 – to be
taken on the employer’s 2011 income tax
“Qualified Employee”
Under the HIRE Act
• Has not been employed for more than 40 hours
during the preceding 60-day period
• Is not being employed to replace another
employee except one who quit voluntarily or
was fired for cause (including downsizing)
• Is not “related” to the employer under the rules
set forth in the U.S. Tax Code
Form W-11
Nursing Mother’s Amendment
to the Fair Labor Standards Act
• Section 4207 of the Patient Protection and
Affordable Care Act of 2010
• Employers must provide a “reasonable break
time” for an employee to express breast milk
for her nursing child
• Employer must provide a place other than a
bathroom that is “shielded from view and free
from intrusion from coworkers and the public”
Nursing Mother’s Amendment
to the Fair Labor Standards Act
• Employers with fewer than 50 employees
are exempt if providing the break or the
place to express breast milk would impose
an “undue hardship” on the employer
• Does not preempt state laws relating to
breastfeeding in the workplace if the state
law is more protective of its employees
Department of Labor Opinion
Letters
• The Wage and Hour Division of the Department
of Labor will be eliminating the issuance of
Opinion Letters
• The Wage and Hour Division will now
apparently issue an “Administrator’s
Interpretation” which relies upon the Wage and
Hour Division’s generalized understanding of
the duties that commonly accompany a position
in an industry, and lacks any fact-specific
inquiry
Emergency Responders
Employment Protection Act
• Any member of a volunteer fire company, duly
incorporated first aid, rescue or ambulance squad,
or any member of any county or municipal
volunteer office of emergency management may
not be terminated or suspended for failing to
report to work due to their service as a volunteer
during a state of emergency declared by the
president or governor, or their response to an
emergency alarm
Emergency Responders
Employment Protection Act
• The employee must provide to the employer:
– Notice that the employee is performing emergency
services at least one hour before he/she was to report
to work
– A copy of the incident report and a certification by
the incident commander, affirming that the responder
was actively engaged in and necessary for the
emergency services, upon returning to work
Emergency Responders
Employment Protection Act
• Employers are not expected to pay
employees who are absent from work
while responding to these emergency
situations, but the employees may charge
this time as vacation or sick time
• The law does not apply to employees who
are deemed “essential employees”
Age Discrimination –
Changes on the Horizon
Disparate Impact
The adverse effect of a facially neutral
employment practice that nonetheless
discriminates against persons because of
their race, sex, national origin, age,
disability, etc. and that is not justified by
business necessity.
Smith v. City of Jackson
• Police officers alleged that the City of Jackson
violated the Age Discrimination in Employment
Act (ADEA) by giving older officers less
generous salary increases than the increases
given to younger officers
• In its defense, the City offered a reasonable basis
for its pay plan – the city was trying to make its
police department more competitive by
matching the salaries of surrounding
communities
Smith v. City of Jackson
• U.S. Supreme Court held:
– Plaintiffs failed to identify a specific test,
requirement, or practice within the pay plan
that has an adverse impact on older workers
– An employer can use “reasonable factors
other than age” (RFOA) as a defense to a
disparate impact claim
• A practice having a disparate impact on older
workers need only be justified by reasonable nonage factors
EEOC Proposed Rule
• To invoke RFOA defense,
employment practice must be:
1) Be reasonably designed to achieve a
legitimate business purpose
2) Be administered in a manner that
reasonably achieves goal
EEOC PROPOSED RULE
• Practice must be objectively
reasonable when viewed by a
“prudent employer”
• Employers must:
– Measure impact
– Consider alternatives with less
significant impact
Disparate Treatment
The employment practice of
intentionally dealing with persons
differently because of their race, sex,
national origin, age, disability, etc.
Gross v. FBL Financial Services,
Inc.
• Gross began working at FBL in 1987 and was
promoted to the position of Claims
Administration Director
• In 2003, when Gross was 54, FBL reassigned him
to a lower position and gave most of his
previous job responsibilities to another
employee who was then in her early forties
• Gross sued FBL claiming that FBL demoted him
due to his age in violation of the ADEA
Gross v. FBL Financial Services,
Inc.
• U.S. Supreme Court held:
– A plaintiff bringing an ADEA disparate treatment
claim must prove that age was the “but-for” cause of
the challenged adverse employment action
– An employer does not carry the burden of proving
that it would have made the same decision regardless
of age, even if the employee were to produce some
evidence of age discrimination in the decision making
process
Gross v. FBL Financial Services,
Inc.
• Congressional Fallout
– Protecting Older Workers Against
Discrimination Act
•Would require that when a victim shows
that age discrimination was a “motivating
factor” behind a decision, the burden is on
the employer to demonstrate that it
complied with the law
Nini v. Mercer County
Community College
“Nothing herein contained shall be
construed to bar an employer from
refusing to accept for employment or to
promote any person over seventy years
of age . . . .”
NJ Law Against Discrimination
N.J.S.A. 10:5-12(a)
Nini v. Mercer County
Community College
FACTS
• Rose Nini worked for College for 26 years
• In 2004, College informed her that it was not
going to renew her 3 year contract
• Prior to this notice, Nini claims there were
numerous comments made about her age,
being employed too long, “getting rid of dead
wood”
• Contract expired in 2005; Nini terminated
• Nini sued for age discrimination under LAD
Nini v. Mercer County
Community College
COURT DECISIONS
Trial Court: Sided with the College
• When contract expired, Nini was not terminated, she
was not rehired
• LAD permits employers to refuse to hire individuals
over 70
Appellate Division: Sided with Nini
• A contract non-renewal is the same as a termination
• The over-seventy exception does not apply to
terminations
Nini v. Mercer County
Community College
Supreme Court: Agreed with the Appellate Division
and sided with Nini
• LAD is liberally construed to afford as much
protection as possible
• If LAD did not protect contract renewals, loophole
would allow employers to place aging employees
under contract, not renew contract and fire older
workers
• Over-seventy exception has purpose of protecting
employers from hiring and training employees with
limited long term prospects
• Long term employees already on the job require no
training. Purpose of exception is not present
Interns, Trainees and Volunteers:
Do Your Unpaid Employees Satisfy Wage &
Hour Requirements?
Chris Elko
“I definitely say my choice in grad school is
definitely heightened by the economy. The
idea that I can still continue my education
provides me with a nice security blanket.”
Lauren Apter – UC Berkley College Senior, as
reported in the New York Times
Intern vs. Employee
• Almost EVERYONE is an Employee
– Employee = anyone “suffered or
permitted” to work
• DOL presumes all workers to be “employees”
– Employees must be compensated
• Minimum Wage
• Overtime
• These rules apply to private sector “forprofit” companies only
Intern vs. Employee
• Unpaid Interns are a narrowly defined
class
– Title VII and NJLAD still applies
• Trainees – Internship rules apply
Volunteers
• Private “for-profit” – impermissible under
any circumstances
– Employees must be compensated for all time
spent on the job
• Private “non-profit” - permissible for public
service, religious or humanitarian objectives
• Public Sector – permissible
– Employees may not “volunteer” to perform jobrelated tasks
DOs and DON’Ts
Authorities
• United States Supreme Court Guidance
• Department of Labor Opinion Letters
– 2004
– 2006
• Department of Labor Fact Sheet #71
Portland Terminal
Requirements
• The training is similar to what would be given in a vocational
school or academic educational instruction
• The training is for the benefit of the trainees or students
• The trainees or students do not displace regular employees, but
work under their close observation
• The employer that provides the training derives no immediate
advantage from the activities of the trainees or students, and on
occasion the employer’s operations may actually be impeded
• The trainees or students are not necessarily entitled to a job at
the conclusion of the training period
• The employer and the trainees or students understand that the
trainees or students are not entitled to wages for the time spent
in training
Rule #1
• The training is similar to what would be
given in a vocational school or
academic educational instruction
Compliance Tip
• “Real world” skills count
Rule #2
• The training is for the benefit of the
trainees or students
Compliance Tip
• College credits presumptively pass the
test
Rule #3
• The trainees or students do not displace
regular employees, but work under
their close observation
Compliance Tip
• Hours worked may resolve this
requirement
Rule #4
• The employer that provides the training
derives no immediate advantage from the
activities of the trainees or students, and on
occasion the employer’s operations may
actually be impeded
Compliance Tip
• Supervision!
Rule #5
• The trainees or students are not necessarily
entitled to a job at the conclusion of the
training period
Compliance Tip
• Disclose up front that interns are not entitled
to future employment
Rule #6
• The employer and the trainees or students
understand that the trainees or students are
not entitled to wages for the time spent in
training
Compliance Tip
• Wages include goods, room and board, etc.
Achieving Compliance
• Documentation
–
–
–
–
–
Identify Position
Identify Pay/Future Hiring Expectations
Identify Tasks
Identify Supervision
Identify Hours
Wage & Hour Updates
David Cassidy
NO MORE ADVICE
FROM USDOL
Enforcement, Enforcement,
Enforcement
• USDOL to increase enforcement efforts
• Will no longer answer requests for
advisory opinions – specific advice
• Will issue “Administrator’s
Interpretation” periodically – generic
advice
• Employers will need to make hard
judgment calls with advice of counsel
Advisory Opinion
• Employers could set forth specific facts
and policies
• USDOL provided specific analysis and
approval/disapproval – See C-2
• Provided clarity and a legal defense for
employers
Administrator’s Interpretation
• USDOL sets forth generic facts – may
not be directly on point – See C-3
• Requires legal analysis to determine if it
applies
• Judge could see it otherwise – limited
use depending on the facts
RECENT
ADMINISTRATOR’S
INTERPRETATION
March 24, 2010
• The USDOL issued an “Administrator’s
Interpretation” stating that mortgage loan
officers generally do NOT qualify for the
administrative exemption under the federal
Fair Labor Standards Act (FLSA)
• USDOL reversed its position withdrawing a
2006 Wage/Hour Opinion letter
• Why is this important?
Prior Interpretation
• In the past, mortgage loan officers were
classified within the administrative
exemption
– Mortgage loan officer’s primary duty
related to "the management or general
business operations" of the employer’s
customers
Administrative Exemption Three Tests
1. Salary
2. Primary duty related to general business of
employer or employer’s customers
3. Discretion and independent judgment
Job Duties
Mortgage loan officers:
• Receive internal leads and contact potential
customers
• Collect required financial information from
customers they contact or who contact them
• Enter the collected financial information into a
computer program
• Assess the loan products identified and discuss
with the customers the terms and conditions of
particular loans
• Compile customer documents for forwarding to an
underwriter or loan processor, and may finalize
documents for closings
Primary Duty –
Administrative Exemption
• To fall within the meaning of an “employee
employed in a bona fide administrative
capacity” an employee’s primary duty must
be:
– “the performance of office or non-manual work
directly related to the management or general
business operations of the employer or the
employer’s customers.” 29 C.F.R. § 541.200(a)(2).
USDOL Now Says…
Primary duty of loan officers is sales,
which is not related to the
"management or general business
operations” of either the employer or
the employer's customers.
USDOL Says…
Mortgage loan officers' primary duty is
making sales and, therefore, mortgage
loan officers perform the production
work of their employers.
Why Important/
What to Do?
• Has broader implications than just loan officers
• Perform an assessment of anyone classified as
administratively exempt for the purpose of legal
advice under the guidance of legal counsel, making
it subject to the attorney-client privilege
• Ensure primary duty relates to the management of
the business or customer’s business – not
production work
• Consider adjusting employees’ responsibilities so
they can qualify for the administrative or OTHER
exemptions
NEW JERSEY
DEPARTMENT OF LABOR
ENFORCEMENT POLICY
ON ROUNDING
EMPLOYEES’ TIME
Differences Between Clock
Records and Actual Hours
Worked
• Employees must be paid for hours worked
• Problems arise over how to treat small
amounts of unscheduled/scheduled time
worked or missed by employees
• FLSA established two rules:
– de minimis
– Rounding Off
Rounding to the Nearest
Quarter Hour
Examples:
– Employee leaves work at 4:55 p.m. Time rounded
up to 5:00 p.m.
– Employee leaves work at 5:07 p.m. Time rounded
down to 5:00 p.m.
– Employee clocks in at 8:55 a.m. Time rounded up
to 9:00 a.m.
– Employee clocks in at 8:50 a.m. Time rounded
down to 8:45 a.m.
You can round forward when clocking in, and
round backwards when clocking out.
Fair Labor Standards Act
29 C.F.R. 785.48(a)
(Use of Time Clocks)
Minor differences between the clock records
and the actual hours worked cannot
ordinarily be avoided, but major
discrepancies should be discouraged since
they raise a doubt as to the accuracy of the
records of the hours actually worked.
New Jersey Law
• Previously NJDOL accepted rounding
practices that complied with Federal
Regulations (since 1965)
• NJDOL issued an opinion letter accepting the
practice of rounding
• But, a recent letter from the NJDOL states:
“We now have an enforcement policy that
requires employers who round off time worked in
any increment to round it off in favor of the
employee.”
But, Not So Fast…
The Deputy Commissioner of the
NJDOL directed his staff to prepare a
notice of proposal for new rules within
the New Jersey Administrative Code
which would adopt the federal
rounding standard. Of course, change
takes time.
Questions & Answers
Session Part 1
Seminar Intermission
Updates on Technology,
Discrimination & Military
Family Leave
Annmarie Simeone
Technology in the Workplace
Update
Stengart v. Loving Care Agency,
201 N.J. 300 (2010)
• Employee e-mails with her attorney,
even if exchanged on a company-issued
laptop, will remain private and
confidential
• Monitoring policies still permitted, but
limits are recognized
The Issue:
The extent to which an employee can
expect privacy and confidentiality in
personal e-mails with her attorney which
she accessed through her personal,
password protected e-mail account on a
company-issued laptop.
A Reminder on the Facts of
this Case
• Stengart made hostile work environment
claim
• Used company-issued laptop to communicate
with her employment lawyer
• E-mails stored and accessible on company’s
server
• Loving Care retrieved e-mails and used in
litigation
Loving Care’s Policy
Loving Care had a written electronic communication policy but:
• It did not address use of personal, web-based e-mail accounts
on those computers
• In fact, it did not address personal accounts at all
• It did not warn employees that the content of e-mails sent via
personal accounts were being stored on the Company hard
drive and could be retrieved and read by the company
• It did say that occasional personal use was permitted
The Answer
• Stengart had a reasonable expectation of privacy in
the e-mails exchanged with her lawyer through her
personal e-mail account
• Sending and receiving them via a company-issued
laptop did not eliminate the attorney-client privilege
that protected them
• Lawyers for Loving Care violated the Rules of
Professional Conduct by failing to notify Stengart
promptly of the privileged documents
Why This Holding?
•
Stengart took steps to protect the communications
•
The Company’s policy was ambiguous
•
It was not clear whether the use of personal, password protected, web-based e-mails
accounts via company equipment fell within the policy that made the e-mails
“Company property”
•
The Company’s policy failed to warn employees that e-mails were copied and
captured on Company hard drive and could be retrieved and read
•
The e-mails were not illegal or inappropriate
•
Strong public policy concerns weigh in favor of enforcing the attorney-client
privilege
•
Company policies cannot unilaterally eliminate the attorney-client privilege
Impact on Business
• Companies can adopt lawful policies relating to computer use
BUT
• “Employers have no need or basis to read the specific contents
of personal, privileged, attorney-client protected
communications in order to enforce the company policy. Thus,
even a more clearly written company policy that banned all
personal computer use and provided unambiguous notice that
an employer could retrieve and read an employee’s personal
attorney-client communications, if accessed on a personal,
password protected e-mail account using the company’s
computer system, would not be enforceable.”
Pointers
Your company policy should:
• Be tailored
• Address legitimate business needs
• Be clear and unambiguous
• Address use of personal websites
• Warn employees if e-mails on personal accounts are saved on
company server
Harassment in the Workplace
Updates
2 Unique Cases
• Case 1 - Involves business to business
discrimination (not the typical discrimination
against an employee), but also a claim under
the NJLAD
•
Case 2 – Involves a hostile work environment
claim by an employee based on employer’s
comments about the race of her family
Companies Face Potential Risk for
Discriminatory Refusal to do
Business
A recent case expanded the potential bases
for liability between two businesses. J.T.’s
Tire Service v. United Rentals North
America, Inc., 411 N.J. Super. 236 (App. Div.
2010).
Background Facts
• Plaintiff alleged that defendant’s branch manager violated the
LAD by subjecting plaintiff’s sole owner, Eileen Totorello, to
quid quo pro sexual harassment
• J.T.’s claimed that United ceased doing business with J.T.’s
because Ms. Totorello had refused the sexual advances of
United’s branch manager. Ms. Totorello also asserted that the
branch manager “kissed and groped her” against her will, and
when she refused his advances, that he told her she was
“making a very poor business decision.”
• Business dropped off-down to zero
Applying the Unique Legal
Provision
• Court says: Plaintiff’s case can continue and denied SJ to Defendant
• The LAD makes it unlawful: “For any person to refuse to buy from,
sell to, lease from or to, license, contract with, or trade with, provide
goods, services or information to, or otherwise do business with any
other person on the basis of …sex,” as well as other protected
characteristics such as race, religion and age
• Court observed: if the sexual harassment alleged by the plaintiff was
“legally permitted, [it] would stand as a barrier to women’s ability to do
business on an equal footing with men”
• The court concluded that to prohibit [the alleged] opprobrious conduct
is consistent with the Legislature’s intent to eliminate sex
discrimination in contracting
Question: Why is the J.T.’s Tire
Service Case Important?
Answer: The Hidden Danger
How can employers address problems
that might occur in the field?
Pointers
• Expanded risk to business owners
• Potential liability to customers (not only employees
under LAD)
• Manage and train sales staff
• Manage and train anyone who deals with third
parties – customers, vendors
• Please read attached Labor & Employment Law Alert
Unique Case #2: Harassment Based
on Race of Employee’s Family
• New Jersey Division of Civil Rights issued a
probable cause finding against an employer and
its owner
• Owner admittedly used the “N” word in the
presence of an Asian employee who has a
biracial child and black fiancé. Employee’s
complaints were ignored.
Pointers
• Employers are on notice – a probable
cause finding can be issued regardless
of whether or not the conduct related to
the EMPLOYEE’s protected status
Military Family Leave Updates
•
January 2008 – initial amendments to FMLA
•
October 2009 – leave provisions are expanded as part
of the National Defense Authorization Act for FY 2010
•
The two types of leave are:
1.
2.
Qualifying Exigency Leave
and
Military Caregiver Leave
Basic Eligibility
This remains the same as for other FMLA leave:
•Must work for a covered employer
•Must have worked for the employer for a total of 12
months
•Must have worked at least 1250 hours over the previous
12 months
•Must work at a location where at least 50 employees are
employed by the employer within 75 miles
Caregiver Leave
January 2008
Applied only to:
•Family members caring for current
members of Armed Forces, Guard,
Reserves
•Serious injury or illness incurred in
line of duty while on active duty
After October 2009 Amendments
Now also applies to:
•Family members caring for
veterans undergoing treatment,
recuperation or therapy and were
members of Armed Forces, Guard,
Reserves in preceding 5 years
•Aggravation of existing or
preexisting injuries incurred in line
of duty
Qualifying Exigency Leave
January 2008
Applied only to:
•Family members of a service
member of National Guard or
Reserves
After October 2009
Amendment
Now also applies to:
•Family member of active duty
Armed Forces (“Regular Armed
Forces”) deployed to foreign
country
Note re: Deployment: Thus, the spouse of a regular Army soldier deployed to Iraq would be
entitled to take FMLA leave while that soldier has rest and recuperation in the U.S. However,
the spouse of a regular Army soldier assigned in the U.S. would not be entitled to FMLA leave
during the soldier’s rest and recuperation unless another FMLA reason applies.
New Jersey's
Medical Marijuana Law –
An Overview for Employers
Keya Denner
The New Law – Quick Facts
• Passed January 2010 by the Legislature and Governor
Corzine
• What it allows: Registered patients may purchase up to 2
ounces of marijuana a month. Patients may not grow their
own.
• Who is eligible:
– State residents diagnosed with a “debilitating medical
condition”
• Seizure disorder (epilepsy), glaucoma
• HIV/AIDS or cancer, if severe or chronic pain, severe nausea
or vomiting…or wasting syndrome results
• Terminal cancer, multiple sclerosis, Lou Gehrig’s disease,
Crohn’s disease, or muscular dystrophy
• Terminal illness and given less than a year to live
• Any other medical condition or its treatment that is approved
by the Department of Health and Senior Services
The New Law – Quick Facts
• How does a patient sign up?
– A physician must recommend a patient. The
Department of Health and Senior Services will
then issue an identification card
• The holder of the I.D. card cannot be prosecuted for
possessing marijuana
• Where will it be dispensed?
– “Alternative treatment centers”
– First six will be non-profit, but for-profit centers
will be allowed eventually
The New Law – Quick Facts
• Where can it be used?
– Cannot “operate, navigate or be in actual physical
control of any vehicle, aircraft, railroad train,
stationary heavy equipment or vessel while under
the influence…”
– Cannot smoke in “a school bus or other form of
public transportation, in a private vehicle [unless
not in operation], on any school grounds, in any
correctional facility, at any public park or beach, at
any recreation center, or in any place where
smoking is prohibited”
The New Law – Current Status
•
Medical marijuana not yet available in the
State
–
•
Law calls for Department of Health and Senior
Services to first develop a process to register
qualified patients, caregivers, and alternative
treatment centers
Governor Christie has asked Legislature for
a January or July 2011 start date.
–
On June 4th, advocates threatened lawsuit if
implementation is delayed
Review – Employer Drug
Testing Under NJ Law
• No random drug testing of public sector
employees unless they hold a safety sensitive
position
– Random testing of public sector employees
holding safety sensitive position permissible as
part of annual physical
• No random drug testing of private sector
employees unless they hold a safety sensitive
position
Review – Employer Drug
Testing
• Drug testing based upon reasonable
suspicion of drug impairment
permitted
– Must take appropriate safeguards to
protect employee’s privacy
– Must adopt appropriate drug testing policy
Employer Drug Testing - ADA
• ADA does not regulate testing for illegal
drugs
– Employer may test for illegal drugs either before
or after an offer of employment
• However, tests may reveal presence of
prescription drugs
– EEOC regulations prohibit pre-offer inquiries
regarding prescription drugs
• Using v. non-using drug addicts
– ADA considers non-using drug addicts and
alcoholics to be individuals with a disability
entitled to reasonable accommodation
Employer Drug Testing - ADA
• At pre-offer stage, employers may:
– Ask if applicant can perform job’s requirements
– Ask if applicant can comply with drug use rules
– Ask whether applicant is currently using illegal
drugs
– Not ask whether applicant is a drug addict or
whether applicant has ever been in rehab program
– Not ask an applicant about prescription drug use
– Not test for prescription drug use
• After extension of conditional offer, Employer
may ask about prescription drug use
Employer Drug Testing - NJLAD
• NJLAD does not specifically address drug
testing
• However, the Appellate Division has held
that drug addiction is a handicap under the
NJLAD and, where, feasible, and employer
should allow chance for rehabilitation
Accommodation?
• Ross v. RagingWire (2008): California
Supreme Court held that California law does
not require employers to accommodate the
use of medical marijuana, which is otherwise
permitted under California’s Compassionate
Use Act
• Roe v. TeleTech Customer Care Management
(2009): Washington Court of Appeals found
no implied cause of action arising from the
Washington State Medical Use of Marijuana
Act against an employer who refused to hire
a prospective employee who failed a preemployment drug test
Accommodation?
• Emerald Steel Fabricators v. Bureau of Labor
and Industries: Oregon Supreme Court ruled
that Oregon law does not require employers
to accommodate the use of medical marijuana
– Reversed state administrative ruling that
employer violated Oregon disability laws when it
terminated employee who disclosed he was using
medical marijuana
– Court noted that marijuana was categorically
prohibited by federal law, and, therefore, Oregon
disability law does not protect an applicant or
employee who engages in illegal use of drugs
The Future – A Long Strange
Trip Ahead?
• Can an employee use medical marijuana in
the workplace?
• Can a company fire someone who tests
positive for medical marijuana, even if used
outside of work?
• Can an employee then claim discrimination?
• How can an employee who uses medical
marijuana avoid termination?
• What about medical confidentiality?
Patient Protection and Affordable
Care Act of 2010 - Dependent
Coverage Under Age 27 –
Issues & Guidance
Charles Bruder
Patient Protection and Affordable
Care Act of 2010
• Patient Protection and Affordable Care Act (PPACA)
– Will result in significant changes to the structure and
administration of group health plans (GHPs)
– Implementation of the law is scheduled to occur fully in 2018
• Certain provisions will be implemented in 2010
• Augmented by the Health Care and Education Reconciliation
Act of 2010
• Many open issues and questions remain as administrative
guidance has not yet been issued:
– Costs – How to estimate?
– Administrative Issues – Will my company’s group health plan be
required to be amended?
– How much flexibility do I have in structuring my company’s group
health plan?
Patient Protection and Affordable
Care Act of 2010
• The current level of uncertainty regarding the
future application of PPACA makes it impossible
for GHP sponsors to currently plan for future years
• Sponsors need to have a practical, incremental
approach to the implementation of PPACA
– Focus on the applicable provisions of each approaching
calendar year
• Provisions which will become effective in future years may not
stay as currently enacted
• Is repeal possible?
PPACA – Implementation Dates
and Timelines – Where Do We
Start?
• Current concerns
– Certain provisions of PPACA become effective for plan years
commencing in 2010 (with exceptions for certain collectively bargained
plans):
•
•
•
•
•
New appeals processes
Availability of primary physician
Coverage of emergency services
No prior authorization OB/GYN
Dependent coverage through age 26 for covered employee's child lacking
access to other employer coverage
• No lifetime dollar limits
• Restricted annual dollar limits
• Pre-existing condition exclusions for dependants under age 19
Dependant Coverage Under Age 27
• Provided for under the applicable provisions of
PPACA
• Income exclusion – IRC Section 106
• Effective March 30, 2010
– Coordination with the amendments to the Public Service
Health Act
• Applies to children under age 26
• Requires insurers and group health plans to provide coverage
through such age
• Effective for the first plan year commencing on or after
September 23, 2010
• Changes many of the concepts and rules previously
applicable to dependent health coverage
Definition of Dependent –
IRC Section 152
• Qualifying child or relative
– Maintains the requisite relationship with the
taxpayer
– Has not attained 19 years of age as of the end of
the tax year or who is a student who has not
attained 24 years of age
– Has the same principal abode as the taxpayer
– Has not provided over one-half of his or her
support for the calendar year
– Has not filed a joint federal income tax return for
such year
Definition of Dependent –
IRC Section 152
• Requisite relationship?
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Child or descendant of such child
Brother, sister, stepbrother or stepsister
Father or mother or ancestor of either
Stepfather or stepmother
Son or daughter of a brother or sister of the taxpayer
Brother or sister of the father or mother of the taxpayer
Son-in-law, daughter-in-law, father-in-law, mother-in-law,
brother-in-law, or sister-in-law of the taxpayer
– Any member of the taxpayer’s household other than the
taxpayer’s spouse
PPACA – Definition of Dependent for
Continued Coverage Through Age 26
• IRS Notice 2010-38
– Child of the taxpayer who has not attained
age 27 as of the end of the calendar year
• Son, daughter, stepson or stepdaughter, legally
adopted child
• “Eligible foster child”
• May include a child who does not meet the
definition of dependent under IRC Section 152
– Age limits, residency requirements, support
requirements and marriage prohibition does not apply
IRS Notice 2010-38
• Applies only for payments for medical care
of qualifying individuals
– Includes FSA reimbursements
• A child attains age 27 on the 27th anniversary
of his or her birth
• IRC Section 106 technically does not permit
such payments to be excluded from income
– IRS and Treasury “intend” to retroactively amend
IRC Section 106
IRS Notice 2010-38 – Change in
Status Events
• IRC Section 125 only permits a new group health
plan election (or revocation) to be made due to a
“change in status event”
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Marriage, death of a spouse, divorce, legal separation, annulment
Birth, death or adoption of a dependent
Change in employment status
Change in dependency status
Certain changes in residency
• Currently, the Treasury Regulations under IRC
Section 125 do not permit a new election to be made
due to the enactment of PPACA
– IRS and Treasury “intend” to amend these Treasury
Regulations too
IRS Notice 2010-38 –
Cafeteria Plan Amendments
• Cafeteria plan documents will need to be amended
to include this new coverage provision
– Retroactive to March 30, 2010
– Under the applicable provisions of the Treasury Regulations,
cafeteria plan documents may only be amended
prospectively
– IRS Notice 2010-38 provides that elections may be made
immediately, even if the cafeteria plan document does not
permit such an election
– Plan amendments must be made no later than December 31,
2010
– Unclear as to the consequences if such amendments are not
made in a timely manner
PPACA and its Effect on New
Jersey State Law
• Currently, New Jersey State law provides
for “dependent child” coverage through age
31
– Can we therefore ignore IRS Notice 2010-38 and
the applicable provisions of PPACA?
• NO!
• A dependent child who cannot satisfy the requirements
of New Jersey State law MAY be eligible to continue
coverage under IRS Notice 2010-38
• A group health plan sponsor needs to review the
provisions of both federal and state law before excluding
a child from continued health coverage
New Jersey Health Benefit
Coverage of Children Until Age 31
• Includes a child by blood or law who:
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Is under 31 years of age
Is not married
Has no dependents of his or her own
Is a resident of the State of New Jersey or a full-time student
Does not otherwise have health coverage
• Need to also keep in mind that New Jersey law
generally provides for health coverage availability
through age 23 for dependent children
PPACA and Dependent Coverage
Under Age 27 - What Do We Do Now?
• Review IRS Notice 2010-38
• Employee communication will be key
– Goal: Educate and inform your employees
• Coordinate your efforts with your broker and insurance
carrier
• Carefully review the facts and circumstances surrounding any
coverage continuation request
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Does the child meet the general definition of "dependent"?
• If so, coverage under PPACA is likely permissible
• If not, does the child meet the broad definition of dependent under
PPACA/IRS Notice 2010-38?
– Is the child eligible for continued coverage under New Jersey State
law?
• If not, does the child meet the broad definition of dependent under
PPACA/IRS Notice 2010-38?
Questions & Answers
Session Part 2