Panel 2
Employment and Employee Benefit
Law Update for 2008
Thomas Petrides – K&L Gates
Christopher Kondon – K&L Gates
Michelle Lancaster – Computer Sciences Corp.
Eileen Lyon – Far East National Bank
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Employment Law Update for 2008
Significant New California Employment Laws for
2008 and Recent Case Law Developments
Moving Forward with Employee Wellness
Programs:
The IRS and DOL requirements for wellness programs
under HIPAA
The EEOC enforcement guidance on wellness
programs
Wellness program features that raise red flags
Part I: Employment Law Update
New Employment Laws for 2008
What Else to Look for in 2008
Significant Employment Cases from 2007
Pending California Supreme Court Cases
Military Spouse Leave Law (AB 392)
AB 392 became law on 10/09/07 as an
urgency statute (California Military and
Veterans Code §395.10)
Employers with 25 or more employees are
required to provide up to ten (10) days of
unpaid leave to a qualified employee spouse
of a member of the Armed Forces, National
Guard or Reserves, while member spouse is
home on leave from military deployment
during a period of military conflict
Military Spouse Leave Law (Cont.)
A “Qualified Member” means a member of
the US Armed Forces who has been deployed
during a period of military conflict to an area
designated as a combat theater or combat
zone by the President, or a member of the
National Guard or Reserves who has been
deployed during a period of military conflict
Military Spouse Leave Law (Cont.)
“Period of Military Conflict” means either (i)
a period of war declared by congress or (ii) a
period of deployment for which a member of
a reserve component is ordered to active duty
pursuant to law
“Qualified Leave Period” means the period
that the qualified member is on leave from
deployment during a period of military
conflict
Military Spouse Leave Law (Cont.)
To be a “Qualified Employee”, the employee
must:
be the spouse of a qualified member;
work for an employer on average at least 20 hours
per week;
But excludes independent contractors
notify employer of intention to take this leave within
2 business days of receiving official notice that
member spouse will be on military leave; and
submit written documentation certifying that member
spouse will be on leave from deployment during the
period the leave is requested by the employee
Military Spouse Leave Law (Cont.)
Retaliation for requesting or using leave
under this law is prohibited
Leave under this statute shall not affect
or prevent any other leave or benefits
that employee may be entitled
Military Spouse Leave Law (Cont.)
What Employers Should Do
Make sure HR personnel are aware and are
familiar with this new leave requirement
Update internal leave policies and procedures
May want to update Employee Handbooks or
employee leave policies to include this new
protected leave
See Sample Leave Policy
Adjustments to State Minimum Wage
State minimum wage increased from $7.50 to $8.00
per hour effective 1/1/08 per IWC Wage Orders
Minimum annual salary required to qualify for state
law “white collar” exemptions (executive,
professional and administrative) increases to
$33,280.00 (Two times state minimum wage on
annual basis)
Computer Professional minimum wage to qualify
for exempt status decreased to $36.00 per hour from
previous $49.77 (per SB 929)
Approx. $75,000 annually compared to $103,521
Hourly rate will still adjust for inflation on annual basis
Protecting Employee Information
Labor Code § 226 requires Employers to
provide an itemized wage statement with
each paycheck that lists certain information,
including the employee’s name and Social
Security number
However, effective 1/1/08, per SB 101
passed in 2005, only the last four digits of
the employee’s Social Security number shall
now be listed on the wage statement
Protecting Employee Information (Cont.)
Existing law (Civil Code § 1798.82) requires
any business in California that owns or
licenses computerized data that includes
personal information, to disclose any breach
of the security of the system following
discovery or notification of the security
breach, to any resident of California whose
unencrypted personal information was, or is
reasonably believed to have been, acquired
by an unauthorized person.
Protecting Employee Information (Cont.)
“Personal information," for the purposes of
these provisions, means an individual's name
in combination with specified data elements,
including Social Security number, driver’s
license number, or bank account number and
access code, when either the name or the
data elements are not encrypted.
Protecting Employee Information (Cont.)
Per AB 1298, medical information and
health insurance information, as defined,
are now added to the list of data elements
that, when combined with the individual's
name, would constitute personal information
that would require disclosure when acquired,
or believed to be acquired, by an
unauthorized person due to a security breach
Protecting Employee Information (Cont.)
“Medical information" means any information
regarding an individual's medical history, mental or
physical condition, or medical treatment or
diagnosis by a health care professional.
“Health insurance information" means an
individual's health insurance policy number or
subscriber identification number, any unique
identifier used by a health insurer to identify the
individual, or any information in an individual's
application and claims history, including any
appeals records.
Protecting Employee Information (Cont.)
What Employers Should Do
Make sure itemized wage statements shall only
disclose last four digits of Social Security #
Check applicable methods and procedures for
storing employee medical information and health
insurance information – establish methods for
using encrypted data only if possible
If not, and in the event of a security breach and
disclosure, be sure to comply with employee
notification requirements
Hands Free Devices While Driving
SB 1613 (enacted in 2006) adds a new law in
California applicable to all persons and effective
July 1, 2008 that prohibits the use of cell phones
while driving unless a hands free listening and
talking device is used. (Vehicle Code § 23123)
Violations will be an infraction punishable by a
base fine of twenty dollars ($20) for a first offense
and fifty dollars ($50) for each subsequent offense
Hands Free Devices While Driving (Cont.)
What Employers Should Do
If the Employer requires its employees to use a
cell phone while driving, then it should make
sure all employees have the proper hands free
devices – Note: the Employer may have to pay
for this cost per Labor Code § 2802
Better practice from a potential liability
standpoint would be to prohibit the use of cell
phones while driving on Company business
Federal Laws of Interest Effective 2008
New I-9 Form must be used for all new hires
effective 12/26/07
Despite much “hoopla” about the issuance of a
new form, there is not much difference between
to old form and new form (a handful of
authorization documents were dropped, one was
added, and some instructions were clarified)
New IRS mileage rate increased to 50.5
cents per mile effective 1/1/08 (from 48.5¢)
What To Look For In 2008 -- State
Proposed Universal Health Insurance coverage
initiated by Governor Schwarzenegger
$14-billion healthcare plan would be built on new employer
and hospital taxes, extra money from the federal
government, selling off management of the state lottery, and
requiring that all Californians obtain health insurance
Proposed Regulations issued by the DLSE in 2007 on
employee expense reimbursement requirements
Would require specific rules and procedures regarding
methods and timing for Employers to reimburse employees
in connection with business related travel expenses
What To Look For in 2008 – Federal
New Rules for “No Match” letters regarding Social
Security numbers and Employer’s obligation to have
employee correct problem
Currently stayed per court action and rules may be
revised and re-issued in early to mid-2008
IRS Proposed Cafeteria Plan and Flexible Spending
Account (FSA) Regulations
Scheduled to become effective 1/1/2009
Employers should act now to make sure their benefit
plans comply with these new regulations
What To Look For in 2008 – Federal (Cont.)
Military Leave under the FMLA
Passed by Congress in December but vetoed by
President Bush as part of a military spending bill,
but may be reintroduced as a new bill
Would provide for 12 weeks of FMLA leave to
immediate family members (spouse, child or
parent) of any reservist or member of the National
Guard who is called to active duty, and also up to
26 weeks of unpaid leave during 12 month period
to employees who are providing care to a family
member who is wounded while serving in the
military
Significant Employment Cases from 2007
Murphy v. Kenneth Cole Productions (Cal. Supr. Ct.)
Meal and rest period violations are "premium
pay" statutes and not "penalties"; therefore 3
year statute of limitations applies (rather than 1
year) and "waiting time" penalties under Labor
Code § 203 are also available.
Employers Should: Further ensure that all nonexempt employees are taking proper meal and
rest breaks and recording time for meal periods
Significant Employment Cases (Cont.)
Prachasaisoradev v. Ralphs Grocery Company (Cal. Supr. Ct)
Bonus plans that supplement fixed salary/wage
compensation and that are based on profits which
include factors such as workers' compensation costs
and losses due to theft/breakage are permissible and do
not constitute an impermissible deduction from an
employees wages. Prior cases holding to the contrary
are reversed.
Employers Should: Review bonus plans to determine
compliance and consider adding profit based criteria
Significant Employment Cases (Cont.)
Gentry v. Superior Court (Circuit City Stores)
Arbitration agreements in employment that
prohibit class action lawsuits are likely
unenforceable even if the employee is allowed to
“opt out” of the arbitration agreement at the
beginning of employment, such that the agreement
was not "procedurally unconscionable"
Employers Should: Carefully review their
employee arbitration agreements to determine
whether any modifications are necessary in light
of this decision by the California Supreme Court
Significant Employment Cases (Cont.)
Gattuso v. Harte Hanks (Cal. Supr. Ct.)
Employers must reimburse employees for costs and
expenses incurred by the employee in the performance of
his or her duties as required by Labor Code § 2802.
However, Employer may satisfy this obligation by paying
additional compensation rather than separate expense
reimbursements, provided that the Employer can
demonstrate that the extra compensation satisfies its
expense reimbursement obligations
Employers may wish to review expense reimbursement
policies to consider revising per case
Pending California Supreme Court Cases
Edwards v. Arthur Anderson -- Whether limited
prohibition on former employee performing services
for former clients is a permissible "narrow restraint"
or instead an unlawful restraint of trade in violation
of B&P Code § 16600
Williams v. Genetech -- Whether it is permissible to
replace an employee in their position while on
extended disability leave and what reasonable
accommodations must be provided after the
employee is released to return to work
Pending Supreme Court Cases (Cont.)
Jones v. Lodge at Torrey Pines -- Whether an
individual supervisor can be held personally liable
for retaliation under the state FEHA
Harris v. Superior Court -- Whether the
administrative exemption under state wage and
hour law can apply to employees who perform
regular day to day activities or whether it is
limited to only those administrative employees
who "formulate and set policies"
Part II: Wellness Programs
The IRS and DOL requirements for
wellness programs under HIPAA
The EEOC enforcement guidance on
wellness programs
Wellness program features that raise red
flags
Nondiscrimination and Wellness Programs
In December 2006, DOL, IRS and HHS
jointly issued final regulations on group
health plan nondiscrimination provisions
and wellness programs
New rules effective for plan years beginning
on or after July 1, 2007 (for calendar year
plans, the new rules are effective January 1,
2008)
General Nondiscrimination Rules
Individuals cannot be denied eligibility for benefits
or charged more for coverage because of any
“health factor,” including:
Health status
Medical condition (both physical and mental)
Claims experience
Receipt of health care
Medical history
Genetic information
Evidence of insurability
Disability
Uniform Application
Plans can exclude/limit benefits as long as applied
on a uniform basis for all “similarly situated
individuals” and not directed at individual
participants based on a health factor
Plan amendments that apply to all individuals in a
group of similarly situated individuals and that are
effective no earlier than the first day of the next
plan year after the amendment is adopted is not
considered to be directed at individual participants
Similarly Situated Individual Determinations
Distinctions among groups must be based on bona fide
employment-based classifications consistent with
employer’s usual practice – NOT health factors:
Part-time and full time
Geographical location
Dates of hire and length of service
Different groups can have different eligibility, benefits and
cost provisions
Participants and their beneficiaries may be in different
groups
Permitted Reverse Discrimination
Nothing prevents a plan from establishing more
favorable rules for eligibility for benefits for
individuals with adverse health factors
A plan may charge higher premiums for
individuals with adverse health factors IF AND
ONLY IF such individuals would not otherwise be
eligible for coverage were it not for the adverse
health factor
Other Rules Relating to New Regulations
Final Regulations also addressed rules
relating to:
Nonconfinement Provisions
Actively-At-Work Provisions
Source of Injury Rules
And other provisions not directly related to
Wellness Programs
Wellness Programs
Program designed to promote health and
prevent disease
Exception to HIPAA’s nondiscrimination rules
Examples include:
Smoking cessation programs
Cholesterol lowering programs
Weight loss programs
Team competitions for above
Wellness Programs (Cont.)
Employers are beginning to now provide on
a regular basis as a way to help reduce
overall costs of medical insurance and as an
added “employee benefit” that is desired by
employees and relatively inexpensive to
implement
Wellness Programs (Cont.)
Qualified programs that are NOT subject to any additional
HIPAA requirements:
Program that reimburses costs of fitness center
membership
Diagnostic testing program that provides reward for
participation, not outcome
Program that encourages preventative care through
waiver of co-payment/deductible for certain activities
(e.g., pre-natal or well-baby visits)
Program that reimburses employees for the costs of
smoking cessation programs without regard to whether
employees quit
Program that provides reward for attending a monthly
health education seminar
Wellness Programs (Cont.)
Other wellness programs must satisfy the following:
Reward must not exceed 20% of total cost of
coverage—if dependents may participate, reward
limit is measured as 20% of the cost of the family
coverage
Reasonably designed to promote health or prevent
disease
Opportunity to qualify at least once per year
Reward must be available to all similarly situated
individuals
Wellness Programs (Cont.)
If the reward exceeds the 20% of cost of
coverage limit or otherwise fails to comply
with the HIPAA requirements, then the
benefit would not qualify as a “Wellness
Program” under HIPAA and the benefit
provided to the employee would become
taxable income. (Generally the “reward” is a
reduction in the cost of the medical premium)
Wellness Programs (Cont.)
When is a wellness program “available to all similarly
situated individuals?”
Program must provide for a “reasonable alternative
standard” (or waiver of otherwise applicable
standard) to qualify for the reward
if it is unreasonably difficult for an individual to
satisfy the otherwise applicable standard
because of a medical condition, or
if it is medically inadvisable for an individual to
attempt to satisfy the standard
Wellness Programs (Cont.)
Plan may seek verification, such as a statement
from individual’s physician, that a health factor
makes it unreasonably difficult or medically
inadvisable for the individual to satisfy or attempt
to satisfy the otherwise applicable standard
In all plan materials describing the wellness
program, the availability of the reasonable
alternative standard must be disclosed
Wellness Programs (Cont.)
While not explicitly addressed in the regulations,
the cost of any “reasonable alternative standard”
made available to participants (e.g., participation
in a smoking cessation program in lieu of a
participant’s certification of non-smoker status)
must presumably be paid for by the health plan.
Forcing a participant to bear this cost would deny
the participant access to the full amount of the
wellness program reward.
Health Risk Assessments
OK—as long as not used to deny, restrict or
delay eligibility or determine individual
premiums
Regular testing or education for diabetic
probably is acceptable
Testing or classes for smokers may be
acceptable under HIPAA
ADA Concerns and EEOC Guidance
ADA limits the ability of an employer to
subject any employee to a medical
examination or disability related inquiry
Only permitted where job-related and
consistent with business necessity
ADA allows exception for medical related
inquiries if part of a voluntary wellness
program
Disability-related inquiries under ADA
Health risk assessment questionnaire
distributed as part of a wellness program
only raises issues if it contains disabilityrelated or medical information questions
Asking an employee how many times per day
they smoke as part of a smoking cessation
program is not a disability-related inquiry
Voluntary Participation under the ADA
Because most health risk assessment
questionnaires relating to wellness programs
will likely contain questions that elicit
medical information, Employers must make
completion of such questionnaire by the
employee voluntary to avoid a potential
violation of the ADA
Compliance with HIPAA might not satisfy ADA
Voluntary Participation (Cont.)
Only Wellness Programs that neither require
participation nor penalize employees for
non-participation may be acceptable under
the ADA
EEOC has indicated that the availability of
insurance on an employee’s participation in a
health risk assessment might well render
participation in the assessment as “involuntary”
Voluntary Participation (Cont.)
Employers should carefully review their
Wellness Programs to determine whether
the rewards offered for participation or the
disadvantages associated with nonparticipation would be significant enough
under the ADA to make participation in the
program to be “involuntary” such that the
information sought in the related health
questionnaires would violate the ADA
Common Questions
Good wellness programs automatically charge smokers a higher premium
NO
The best wellness programs have a single-purpose focus
NO
Wellness programs should incent healthy body weight by charging lower
premiums for individuals with a lower body-mass index
NO
It makes sound business sense to charge individuals with chronic health
conditions higher premiums, because they have to go to the doctor more
often
NO
Best practices indicate that Health Risk Assessments can be critically
analyzed to determine premium rates for individuals with more risk
factors
NO
Common Questions (cont.)
Employers may reimburse costs of fitness center membership but only if
employees agree to meet specified targets
NO
Employers may reimburse smokers for smoking cessation classes but can
provide reimbursements only if employees actually quit smoking
NO
Employers are forbidden by law from waiving co-pays or deductibles for
well-baby visits or pre-natal care because this discriminates in favor of
pregnant women
Employers may require their employees to attend a monthly wellness
program
NO
NO
QUESTIONS OR COMMENTS?
Thomas H. Petrides
Christopher J. Kondon
(310) 552-5000
Thomas.petrides@klgates.com
Christopher.kondon@klgates.com