Tag: Department of Labor

Employers & COVID-19: New Legal Requirements under the Families First Coronavirus Response Act

These are unprecedented times and ensuring health and safety of the world’s population is certainly on everyone’s mind. For those running and operating businesses, a whole separate challenge exists. 

Due to the various orders and advisories to self-quarantine, school closings, and far-reaching spread of the COVID-19 pandemic, employers are faced with a rapidly changing workforce. They are grappling with how to continue business while dealing with the safety of their workers. It is a moral and financial dilemma. As employers of all sizes must consider how to manage this ever changing situation, new laws, requirements, and relief are being released just as quickly.

Given the economic downturn spurred by the recent turn of events, additional legal requirements are undoubtedly daunting for employers who face uncertainty or are weighing difficult decisions regarding their workforce. To help provide some clarity on these new obligations, this Client Alert discusses the emerging laws affecting employers and their health plans, including expanded benefits under FMLA, as well as additional required paid sick days.

 

Families First Coronavirus Response Act (“FFCRA”)

This past Wednesday, March 18, 2020, the Families First Coronavirus Response Act (“FFCRA”) was signed into law. The FFCRA applies numerous requirements and obligations to employers. In addition to expanding unemployment benefits, lessening financial obstacles for COVID-19 testing, and setting forth funding to assist with domestic nutrition programs, the FFCRA’s affects employers by amending the Family and Medical Leave Act (FMLA) to provide a new type of leave relating to the COVID-19 pandemic and separately requiring that employers provide paid sick days to employees for COVID-19 related matters.

The FFCRA becomes effective on April 1, 2020. Therefore, employers must understand its provisions and act quickly.

Emergency Family and Medical Leave Expansion Act

The FFCRA modifies FMLA under the Emergency Family and Medical Leave Expansion Act (“FMLA Expansion Act”). While the FMLA, in general terms, applies to employers with 50 or more employees and protects employees who have worked at least 12 months with that employer, the FFCRA now changes that with respect to COVID-19 related issues and adds a new section titled “Public Health Emergency Leave.”

In summary, FMLA leave now also applies to employees who have been employed at least 30 days by employers who employ fewer than 500 employees (and public agencies) if those employees are unable to work (or telework) because they need to care for their under age 18 children due to the closure of schools or unavailability of day care due to a government declared COVID-19 public health emergency. The first 10 days of the 12-week job-protected leave is unpaid; however, subsequent days must be paid leave in an amount of not less than two-thirds of regular pay, capped at $200 per day with a maximum cap of $10,000 per employee.

Effective Dates:

The FMLA Expansion Act is applicable from April 1, 2020 to December 31, 2020.

Qualifying Leave:

Specifically, the FMLA Expansion Act applies to qualifying needs related to a public health emergency, as set forth below:

  • “Qualifying need related to a public health emergency” is when an employee is “unable to work (or telework) due to a need for leave to care for the son or daughter under 18 years of age of such employee if the school or place of care has been closed, or the child care provider … is unavailable, due to a public health emergency.”  The terms “child care provider” and “school” are also defined.
  • “Public health emergency” is an emergency with respect to COVID-19 declared by a Federal, State, or local authority.
 
Affected Employers:
The leave requirements apply to employers with fewer than 500 employees, as well as public agencies. 

Exemptions may apply for employers with less than 50 employees if complying would jeopardize the viability of the business as a going concern and if regulations are so issued. See: https://www.irs.gov/newsroom/treasury-irs-and-labor-announce-plan-to-implement-coronavirus-related-paid-leave-for-workers-and-tax-credits-for-small-and-midsize-businesses-to-swiftly-recover-the-cost-of-providing-coronavirus. We expect such regulations to be issued in April of 2020.

Special rules apply in cases of employment under multi-employer bargaining agreements.

Eligible Employees:

Employees who have been employed for at least 30 calendar days by the employer are eligible for the leave if they have a qualifying need related to a public health emergency. Certain health care providers and emergency responders may be excluded from this additional protection, if regulations are so issued. Additionally, an employer of an employee who is a health care provider or an emergency responder may elect to exclude such employee.

Employees must provide the employer with notice of leave as practicable.

Special rules apply in cases of employment under multi-employer bargaining agreements.

Unpaid and Paid Leave Components:

The 12-week FMLA leave has both unpaid and paid components.

Unpaid leave applies for the first 10 days; however an employee may substitute accrued vacation, personal, medical or sick leave time.

Paid leave must be provided by the employer for days in excess of 10 days, calculated based on at least two-third’s of an employee’s regular rate of pay and the number of hours the employee would otherwise be scheduled to work.

The amount shall not exceed $200 per day and $10,000 in the aggregate. However, for an employee whose schedule varies from week to week and an employer is unable to determine with certainty the number of hours the employee would have worked, the employer must instead average the number of hours the employee was scheduled per day over the 6-month period ending on the date the employee took such leave (or if the employee did not work, the employer must use a reasonable expectation the employee’s average hours at the time of hiring).

Small Employer Partial Exception:

FMLA’s restoration to work provisions will not apply to employers with fewer than 25 employees if:

  • The employee takes leave pursuant to a public health emergency;
  • The position held by the employee no longer exists due to economic conditions or operation changes that affect employment and are caused by a public health emergency during the leave;
  • The employer makes reasonable efforts to restore the employee to an equivalent position (with equivalent benefits, pay, and other terms and conditions of employment); and
  • If the above efforts of the employer to restore the employee fail, the employer makes reasonable efforts to contact the employee if an equivalent position becomes available for a period of 1 year beginning on the day the qualifying need related to the public health emergency concludes (or the date that is 12 weeks after the date the employee’s public health emergency leave starts).
Significantly, small employers who are not accustomed to FMLA must now comply with the FMLA Expansion Act for COVID-19 related leaves.  However, in a joint news release issued late in the day of Friday, March 20, 2020, the U.S. Treasury Department, Internal Revenue Service, and the U.S. Department of Labor stated that small businesses with fewer than 50 employees will be eligible for an exemption in cases where the viability of the business in threatened. See: https://www.irs.gov/newsroom/treasury-irs-and-labor-announce-plan-to-implement-coronavirus-related-paid-leave-for-workers-and-tax-credits-for-small-and-midsize-businesses-to-swiftly-recover-the-cost-of-providing-coronavirus.
Additionally, unless otherwise specified, all covered employers must apply FMLA’s typical protections for these public health emergency leaves, including job-protection and restoration, and the continuation of group health plan coverage with employer contributions during such leaves. 

Emergency Paid Sick Leave Act

The FFCRA also requires employers to provide up to 80 hours of paid sick time for COVID-19 related issues under the Emergency Paid Sick Leave Act (“EPSLA”).

Effective Dates:

The EPSLA is effective from April 1, 2020 to December 31, 2020.

Affected Employers:

The EPSLA applies to virtually all private employers with fewer than 500 employees and to virtually all public agencies employing 1 or more employees. Exemptions may apply for employers with less than 50 employees if complying would jeopardize the viability of the business as a going concern and if regulations are so issued.  Additionally, future regulations may allow an employer of an employee who is a health care provider or an emergency responder to opt out.

Eligible Employees:

The EPSLA requires no hour or service requirement to receive paid leave, which may be immediately used. However, employers of employees who are health care providers or emergency responders may elect to exclude these employees from the above.

Special rules apply for multi-employer bargaining agreements.

Reason for Paid Sick Leave:

Under EPSLA, employers shall provide employees with paid sick time if they are unable to work (or telework) due to a need for leave because:

  1. The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
  2. The employee has been advised by a health care provider to self-quarantine due to concerns relating to COVID-19;
  3. The employee has COVID-19 symptoms and is seeking a medical diagnosis;
  4. The employee is caring for an individual subject to quarantine or isolation or advised to self-quarantine as described in paragraphs (1) or (2) above;
  5. The employee is caring for his/her child if the school or place of care has been closed or the child care provider is unavailable due to COVID-19 precautions; and
  6. The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services.
 
Amount of Paid Sick Time:
Paid sick time is calculated based on the employee’s required compensation and the number of hours the employee would otherwise be scheduled to work capped at:
  • $511 per day and $5,110 in the aggregate for reasons (1)-(3) under Reason for Paid Sick Leave above; and
    • For Reasons (1)-(3), compensation shall not be less than the greater of the employee’s regular rate of pay under the Fair Labor Standards Act (“FLSA”), minimum wage rate under the FLSA, or the minimum wage rate in the applicable State or locality (whichever is greater) in which the employee is employed.
  • $200 per day and $2,000 in the aggregate for reasons (4)-(6) under Reason for Paid Sick Leave above
    • For Reasons (4)-(6), compensation shall be two-thirds of that described for Reasons (1)-(3).
However, for any part-time employee whose schedule varies from week to week and an employer is unable to determine with certainty the number of hours the employee would have worked, the employer must instead average the number of hours the employee was scheduled per day over the 6-month period ending on the date the employee took such leave (or if the employee did not work, the employer must use a reasonable expectation the employee’s average hours at the time of hiring). The Department of Labor is expected to issue additional information and guidelines regarding calculation of this paid sick time.
 
Duration of Paid Sick Leave:
For full-time employees, 80 hours of paid sick time must be provided.  For part-time employees, paid sick time will be the number of hours that the employee works, on overage, over a two-week period. There will not be a carryover from one year to the next.  Paid sick time is terminated with the employee’s next scheduled work shift immediately following the point when leave is no longer needed as defined under EPSLA. 

Notice Requirement:

Employers must post, in conspicuous places where employer notices are customarily posted, an approved notice describing the requirements of the EPSLA. The Secretary of Labor will make a model notice availability no later than March 25, 2020.  It must be posted by April 1, 2020.

Prohibited Acts:

Employers cannot discharge, discipline, or otherwise discriminate against employees who take leave under the EPSLA or have filed a complaint, instituted (or caused to be instituted) any proceeding or has testified or is about to testify in any proceeding related to the EPSLA.

Additionally, the EPSLA states that employers cannot require that an employee be involved in a search or find a replacement to coverage his/her hours during the leave.

Employers also cannot require that an employee use other employer provided paid leave prior to using leave under the EPSLA.

Enforcement:

Employers who fail to comply will be subject to stiff penalties under the Fair Labor Standards Act.

Tax Credits for Paid Sick and Paid Family and Medical Leave

While the FFCRA requires employers to comply with additional paid FMLA and sick leave relating to the COVD-19 pandemic, it also provides some relief for employers in the form of tax credits.

Employers will be allowed a quarterly tax credit equal to 100 percent of the qualified sick leave wages paid under the EPSLA and equal to 100 percent of the qualified family leave wages paid under the FMLA Expansion Act, subject to limitations and requirements. For example, the sick leave wages taken into account shall not exceed $200 per day (or $511 per day for leaves associated government order quarantine or isolation due to COVID-19, self-quarantine as advised by a health care provider due to COVID-19 concerns, or if an employee has COVID-19 symptoms and is seeking a diagnosis) up to a limited number of days. The family leave wages taken into account shall not exceed $200 per day or up to $10,000 in the aggregate and is limited to certain employment taxes.

The credits also include a portion of the health plan cost allocable to the paid leave.

Tax credits are also available for eligible self-employed individuals.

However, these tax credits are subject to additional restrictions and requirements. As the law continues to evolve and new guidance is to be issued this week, an in-depth discussion is beyond the scope of this Client Alert.

Concluding Thoughts:

While aspects of the FFCRA are not completely clear, we certainly hope to see more guidance from the Department of Labor prior to the law’s April 1st effective date.

Current actions for employers include analyzing the interplay between the FFCRA’s new leave and paid sick time requirements, their own policies, as well as other federal, state, and local laws. Questions to ask include whether the employer’s leave of absence provisions should be amended and whether paid time off polices need to be rewritten.

Benefits are also a key component in this analysis. Depending on potential layoffs or leaves of absence, even if unaffected by the FFCRA, will benefits be continued? What do the applicable employee benefit plans, insurance policies, and/or other governing documents provide? How will monthly payments by the employee continue?  Is there a risk of insurers denying continued benefits? Does COBRA apply? What are the Affordable Care Act or Pay or Play consequences if coverage is terminated, or if coverage is continued but the employer contribution ceases for non-FMLA leaves?  Do benefit documents require amendments to comply?

A plethora of questions are mounting and the rapid nature of legal changes is not helping. However, as always, careful consideration of options and benefits is paramount.

Of some relief, good faith efforts toward compliance will be considered.  In a subsequent IRS News Release issued on Friday, March 20, 2020, the Department of Labor stated that it will be issuing a temporary non-enforcement policy in order for employers to come into compliance with the Act. “Under this policy, Labor will not bring an enforcement action against any employer for violations of the Act so long as the employer has acted reasonably and in good faith to comply with the Act. Labor will instead focus on compliance assistance during the 30-day period.” See https://www.irs.gov/newsroom/treasury-irs-and-labor-announce-plan-to-implement-coronavirus-related-paid-leave-for-workers-and-tax-credits-for-small-and-midsize-businesses-to-swiftly-recover-the-cost-of-providing-coronavirus.

Again, the law and guidance are rapidly evolving in this area. Please check with your Fraser Trebilcock attorney for the most recent updates.

This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.

Elizabeth H. Latchana, Attorney Fraser TrebilcockElizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.

The “New” IRS Independent Contractor Test – The More Things Change the More They Stay the Same

OVERVIEW

Proper characterization of workers as independent contractors or employees is a question that crosses many areas of substantive state and federal law, prominently federal tax law.

IRS Publication 15-A, Employer’s Supplemental Tax Guide (2020) (Dec 23, 2019), https://www.irs.gov/pub/irs-pdf/p15a.pdf (“Pub. 15-A”) announces relevant new or changed standards to be used by the Internal Revenue Service in making these determinations for tax year 2020. Pub. 15-A announces a policy of the IRS to focus on three “areas” of criteria in applying the preexisting “control test.” Significantly, the fundamental “control test” and its prior explication set out by the Service in the so-called “20 Factor” test remain valid.

Pub. 15-A also announced a new reporting form for mandatory employer use in reporting of workers determined to be independent contractors.

For completeness, I note that Pub. 15-A also discusses the threshold determination of “Who Are Employees?” and outlines the four types of business relations between the employer and persons performing services, which are:

  • Independent contractor;
  • Common-law employee;
  • Statutory employee; or,
  • Statutory non-employee.

See, Pub. 15-A pages 5-7, including examples of each.

Additional resources and comments are included in the last section below.

1. CONTROL TEST, REDUX

It is of course an understatement to say that there are multiple tests and lists of criteria for characterization of a worker as an employee or independent contractor, developed under the Internal Revenue Code for revenue purposes, under other federal laws for other regulatory purposes, and under state law for purposes arising otherwise. (The scope of Michigan or other state law is beyond this Note).

The thrust of Pub. 15-A appears to bring some additional order or guidance to preexisting criteria, and not to change those criteria or tests.

Under Pub. 15-A, the overarching issue in determining whether a worker is an employee or independent contractor remains the level of authority the employer retains to direct and control the worker’s activities. “In any employee-independent contractor determination, all information that provides evidence of the degree of control and the degree of independence must be considered.” Pub. 15-A p. 7 “Common-Law Rules” section. See generally, Pub. 15-A pp. 7-10.

The 20-Factor Test Remains Valid. The longstanding “20 factor” test to distinguish an independent contractor from an employee, set forth in Rev. Rul. 87-41, remains valid.

“Grouping” of Factors. Effective January 1, 2020, the IRS will “group” factors and focus on three areas of the control test:

  • Behavior Control;
  • Financial Control; and,
  • The type of relationship of the parties.

Pub. 15-A provides:

“Behavior Control. Facts that show whether the business has a right to direct and control how the worker does the task for which the worker is hired include the type and degree of:”

  • Exercise of direction over time and place and sequence or means of work;
  • Whose instrumentalities (tools or equipment) are used;
  • Engagement of other workers;
  • Whether specific duties are assigned to a specific worker;
  • Instructions that the business gives to the worker;
  • Training that the business gives to the worker.

“Financial control. Facts that show whether the business has a right to control the business aspects of the worker’s job include:”

  • Who pays unreimbursed business expenses;
  • The extent of the worker’s investment in facilities or tools used;
  • The extent to which the worker makes the services available to the relevant market;
  • How the business pays the worker (salary or wage vs. fee-based);
  • The extent to which the worker realizes profit or loss.

“Type of relationship. Facts that show the parties’ type of relationship include:”

  • Existence and terms of a written contract;
  • Provision of benefits to worker;
  • Permanency of relationship;
  • Whether the services involved are a regular business activity of the employer.

2. NEW REPORTING REQUIREMENT

The 1099-MISC form previously used for reporting of independent contractor compensation has been a confusing “collection bin” for various characterization and reporting issues beyond that status. For tax year 2020, Employers are required to use a new reporting form, 1099-NEC Nonemployee Compensation, replacing the prior 1099-MISC to report compensation payments to persons the employer elects to characterize as independent contractors. See, About Form 1099 NEC, Nonemployee Compensation, https://www.irs.gov/forms-pubs/about-form-1099-nec, and form 1099-NEC, available at https://www.irs.gov/pub/irs-pdf/f1099nec.pdf.

3. FURTHER CONSIDERATIONS

Workers Misclassified? What to Do? The IRS Voluntary Classification Settlement Program provides guidelines to be followed by employers wishing to reclassify workers for future tax periods. See, Pub. 15-A p. 7 and Voluntary Classification Settlement Program. https://www.irs.gov/businesses/small-businesses-self-employed/voluntary-classification-settlement-program.

Relief from Liability for Mischaracterization. Unchanged by Pub. 15-A, the IRS provides potential “safe harbor” relief from liability arising from mis-characterization and mis-reporting under Section 530 of the Revenue Act of 1978, P.L. 95-600. The reporting business must meet all of the following:

  • Reporting consistency;
  • Substantive (fact) consistency; and,
  • Reasonable basis for the characterization.

See, Publication 1976, Do You Qualify for Relief Under Section 530? At https://www.irs.gov/pub/irs-pdf/p1976.pdf.

Department of Labor Test For FLSA. The Fair Labor Standards Act (FLSA) overtime and minimum wage requirements do not apply to independent contractors. The DOL website comments that a worker may be properly characterized as an independent contractor under other statutory schemes, but not for FLSA enforcement purposes. See, Get the Facts on Misclassification Under the Fair Labor Standards Act, https://www.dol.gov/whd/workers/Misclassification/misclassification-facts.pdf. The DOL notes that proper classification depends on the totality of the circumstances of the activity or situation, not a specific rule or test. See, DOL Fact Sheet 13, Employment Relationship Under the Fair Labor Standards Act (July 2008), https://www.dol.gov/agencies/whd/fact-sheets/13-flsa-employment-relationship.

If you have any questions on these changes, please contact Dave Houston at 517.377.0855 or dhouston@fraserlawfirm.com.

Fraser Trebilcock Shareholder Dave Houston has nearly 40 years of experience representing employers in planning, counseling, and litigating virtually all employment claims and disputes including labor relations (NLRB and MERC), wage and overtime, and employment discrimination, and negotiation of union contracts. He has authored numerous publications regarding employment issues. You can reach him at 517.377.0855 or dhouston@fraserlawfirm.com.

Department of Labor Releases Proposed Regulations Expanding Employer’s Ability to Provide ERISA Disclosures Electronically

Pursuant to a 2018 Executive Order, the Department of Labor released proposed regulations this week which would expand an employer’s ability to provide ERISA disclosures electronically. These rules do not replace existing guidance, but instead add an additional safe harbor option for employers to comply.

The proposed regulations essentially adopt a “notice and access” regime under which employers may post required disclosures on a website and provide participants with notification of their availability and instructions for access. Critically—after providing a one-time initial notice on paper—this notification may be delivered electronically as a default, as long as the participant either:

  1. Provides a personal email address to the employer, plan sponsor, or plan administrator, as a condition of his or her employment, OR
  2. Is assigned an email address by the employer.

For former employees, the employer must take reasonable steps to ensure that it continues to have an accurate email address for the terminated participant. Participants who desire to receive the disclosures on paper are permitted to opt out of electronic delivery.

The content of the notice of internet availability is fairly standard, as far as ERISA disclosures go, and the proposed regulations place a strong emphasis on the use of ordinary language, indicating that the notice should use “short sentences without double negatives, everyday words rather than technical and legal terminology, active voice, and language that results in a Flesch Reading Ease test score of at least 60.” Generally, a separate notice is required for each document, but there are opportunities for combining these notices and providing them on an annual basis.

While these proposed rules are generally a positive development, we expect that employers will be disappointed to learn that—at least at this point—these rules are limited to retirement plans (although the proposed regulations do reserve consideration for the possibility of expansion to health and welfare plans). It is also important to note that these rules are merely proposed and that plan sponsors should continue following the existing ERISA disclosure rules unless and until the regulations are adopted as final.

If you have any questions about the rules that apply to participant disclosures for your retirement plans, please contact Brian Gallagher at (517) 377-0886 or bgallagher@fraserlawfirm.com.

Brian T. Gallagher is an attorney at Fraser Trebilcock specializing in ERISA, Employee Benefits, and Deferred and Executive Compensation. He can be reached at (517) 377-0886 or bgallagher@fraserlawfirm.com.

Client Alert: DOL Announces April 1, 2018 as Final Applicability Date for Revised ERISA Claims Procedures Related to Disability Benefits

Employee Benefits and Healthcare LawDOL Announces April 1, 2018 as Final Applicability Date for Revised ERISA Claims Procedures Related to Disability Benefits

In a news release issued earlier this month, the U.S. Department of Labor (“DOL”) announced its final decision to make significant changes to the ERISA claims procedures related to disability benefits applicable to claims filed after April 1, 2018.  As previously advised, the DOL published final regulations on December 19, 2016 revising the existing claims and appeals procedures regulations under ERISA for employee benefit plans providing disability benefits (“Final Regulations”).  According to the DOL, the intent of the Final Regulations is to strengthen the current procedures by adopting some of the additional procedural safeguards and protections for disability plan claims that are already in place for group health plan benefits pursuant to the Patient Protection and Affordable Care Act.

The Final Regulations were scheduled to apply to all disability benefits claims filed on or after January 1, 2018.  However, on November 29, 2017, the DOL published another final rule delaying the applicability date of the Final Regulations for 90 days (through April 1, 2018).  According to the DOL, the delay was necessary to enable the DOL to consider comments and data as part of its effort, pursuant to one of President Trump’s executive orders, to examine regulatory alternatives that meet its objectives of ensuring the full and fair review of disability benefit claims while not imposing unnecessary costs and adverse consequences and to determine whether the substantive provisions of the Final Regulations should be rescinded, modified, or retained.

The January 2018 news release confirms that the substantive provisions of the Final Regulations will be retained: “The Department received approximately 200 comment letters from the insurance industry, employer groups, consumer advocates, and lawyers representing disability benefit claimants, all of which are posted on the Department’s website. Only a few comments responded substantively to the Department’s request for quantitative data to support assertions that the final rule would drive up disability benefit plan costs by more than the Department had predicted, cause an increase in litigation, and consequently reduce workers’ access to disability insurance protections.  The information provided in the comments did not establish that the final rule imposes unnecessary regulatory burdens or significantly impairs workers’ access to disability insurance benefits.”  Accordingly, the substantive provisions of the Final Regulations will apply to disability benefits for claims filed “after April 1, 2018.”

With the April 1, 2018 applicability date quickly approaching, it is imperative for employers to work with their insurance carriers, third party administrators, and attorneys to ensure that all underlying disability plans/benefits and associated documentation (including any ERISA wrap plans, Code section 125 cafeteria plans, and claims denial forms) are reviewed and updated to ensure legal compliance with the requirements for claims filings beginning after April 1, 2018.

For highlights of the substantive provisions of the Final Regulations, please see our May 11, 2017 alert, http://www.fraserlawfirm.com/blog/2017/05/action-required-before-year-end-disability-plans-claims-and-appeals-procedures, or contact us.

Questions? Email Beth Latchana

Elizabeth H. Latchana, Attorney Fraser TrebilcockElizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2018 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.

The Future of the Patient Protection and Affordable Care Act May be Uncertain… But HIPAA is Here to Stay

While the future of the Patient Protection and Affordable Care Act and any potential replacement legislation is still in question, the Office for Civil Rights (“OCR”) within the U.S. Department of Health and Human Services (“HHS”) has clarified through its recent actions that the HIPAA privacy, security, and breach notification rules contained at 45 C.F.R. Parts 160 and 164 (the “Administrative Simplification Rules”) are here to stay. Audits initiated by OCR and investigations resulting from reported violations reveal that HIPAA compliance continues to be a governmental priority under the new administration. Indeed, nine representative resolution agreements have been released by HHS thus far in 2017 (the latest being released earlier this week) assessing a range of penalties from $31,000 to $5.5 million for a covered entity’s failure to comply with various aspects of HIPAA (including but not limited to failure to conduct a thorough and accurate risk analysis, failure to have a business associate agreement in place, failure to have comprehensive policies and procedures in place and implemented, and failure to protect protected health information (“PHI”) from improper use and disclosure). Thus, it is as important as ever for employer-sponsored group health plans to ensure that they are complying with HIPAA’s encompassing and technical requirements. As the various resolution agreements detail, failure to do so can have dire financial consequences on the group health plan (and correspondingly on the sponsoring employer).

HIPAA’s Administrative Simplification Rules require covered entities and their business associates to protect the confidentiality, integrity, and availability of PHI from improper use and disclosure. A group health plan falls within the definition of “covered entity.” Third parties who create, receive, maintain and/or transmit PHI for or on behalf of a covered entity are generally considered “business associates.” See 45 C.F.R. 160.103. Complying with HIPAA’s Administrative Simplification Rules can be a daunting task for group health plans and the employers sponsoring them. For example, administratively, group health plans are required to create, maintain, implement, and periodically review and update several written documents. The following provides a “checklist” approach of some important documents that group health plans need to have in place in order to comply with the Administrative Simplification Rules. Please keep in mind, however, that merely having the documents in place is insufficient from a HIPAA compliance standpoint; group health plans (and plan sponsors) also need to ensure that they are actually implementing, adhering to, and periodically reviewing the substance of the documents. Thus, it is imperative for employer-sponsored group health plans to continually evaluate their HIPAA compliance position with experienced HIPAA legal counsel. Even minor deficiencies can result in substantial penalties.

1. Business Associate Agreements

A covered entity may permit a business associate to create, receive, maintain or transmit PHI on its behalf only after it obtains satisfactory assurances in the form of a written business associate contract that the business associate will appropriately safeguard the information. See 45 C.F.R. sections 164.502, 164.504, and 164.314. A business associate agreement is a cornerstone HIPAA requirement that is commanding more and more scrutiny by the government.

For example, a resolution agreement released on April 20, 2017, demonstrated that a covered entity’s failure to have a business associate agreement in place with a third party vendor that had access to the covered entity’s PHI was a $31,000 mistake.  Interestingly, the compliance review of the covered entity was initiated by OCR following OCR’s investigation of the business associate. The two-year corrective action plan associated with the $31,000 fine required, among other things, that the covered entity revise its HIPAA policies and procedures to require: (1) the designation of one or more individual(s) who are responsible for ensuring that the covered entity enters into a business associate agreement with each of its business associates prior to disclosing PHI to the applicable business associate; (2) the creation of a standard template business associate agreement; (3) a process for assessing current and future business relationships to determine whether each relationship is with a “business associate;” (4) a process for negotiating and entering into business associate agreements with business associates prior to disclosing PHI to the business associate; (5) a process for maintaining documentation of business associate agreements for at least six years beyond the date of when the business associate relationship is terminated; and (6) a process to limit disclosures of PHI to business associates to the minimum necessary amount of PHI that is reasonably necessary for business associates to perform their duties.

The government’s demand for the creation of a standard template business associate agreement is of particular note for employers sponsoring group health plans for some important reasons. First, HIPAA’s Administrative Simplification Rules contain detailed provisions that must be included in a business associate agreement; variations from these strict regulatory requirements can make the agreement noncompliant. If a group health plan has a template business associate agreement in place prepared by experienced HIPAA legal counsel, it can be assured that the agreement is HIPAA compliant. When the document has been prepared by another party (such as the business associate), the group health plan should have the agreement carefully reviewed to ensure each of the regulatory provisions are correctly stated. Second, like any contract, business associate agreements can be drafted in a one-sided manner. A group health plan will want to have its standard business associate agreement prepared to adequately address, among other items, reporting time limits and indemnification requirements in the group health plan’s favor. While the HIPAA Administrative Simplification Rules set forth minimum requirements, keep in mind that additional information can be included within the agreement. Thus, each contract should be reviewed to ensure that the additional provisions are in fact desirable to be included from the group health plan’s perspective.

2. Security Policies and Procedures

A covered entity is required to implement reasonable and appropriate written policies and procedures to comply with the standards, implementation specifications, and other requirements of the security rules. See 45 C.F.R. 164.316. This requires the covered entity to implement administrative, physical, and technical safeguards to protect the confidentiality and integrity of electronic PHI (“EPHI”). Various resolution agreements highlight the need: (1) for comprehensive security policies and procedures; (2) to train workforce members on the policies and procedures; and (3) periodically evaluate the scope of the policies and procedures.

One of the cornerstones of a covered entity’s security policies and procedures is its security management process. This requires the covered entity to: (1) periodically conduct an accurate and thorough risk analysis of potential risks and vulnerabilities to the confidentiality, integrity, and availability of EPHI held by the covered entity; (2) implement security measures sufficient to reduce the detected risks and vulnerabilities to a reasonable and appropriate level; (3) apply appropriate sanctions against workforce members who fail to comply with the security policies and procedures; and (4) implement procedures to regularly review records of information system activity, such as audit logs, access reports, and security incident tracking reports.

Indeed, two April 2017 resolution agreements demonstrate the need to conduct a thorough and accurate risk analysis to assess the potential risks and vulnerabilities to the confidentiality, integrity, and availability of EPHI and to implement security measures sufficient to reduce those risks and vulnerabilities. In an April 24, 2017 resolution agreement, the covered entity’s HIPAA deficiencies resulted in a $2.5 million settlement. A resolution agreement released April 12, 2017 resulted in a $400,000 settlement. Among other things, the corrective action plan in both cases requires the covered entity to conduct and provide the results of a comprehensive risk analysis to HHS. Thereafter, the covered entity is required to review the risk analysis annually (or more frequently, if appropriate) and promptly update the risk analysis in response to environmental or operational changes affecting the security of EPHI. Thus, through its resolution agreements, HHS is emphasizing the fluid need to ensure that electronic systems adequately safeguard EPHI and that covered entities are appropriately minimizing risk.

3. Privacy Policies and Procedures

Pursuant to 45 CFR 164.530, a covered entity is required to implement written policies and procedures with respect to PHI that are designed to comply with the HIPAA privacy rules and breach notification rules. A limited exception to this requirement is available under 45 CFR 164.530(k) for certain fully-insured group health plans that maintain a “hands off” status (i.e., the group health plan does not create or receive PHI except for certain summary health information and/or enrollment/disenrollment information). Among other items, the privacy policies and procedures must address how a covered entity may use and disclose PHI. They also must address an individual’s rights with respect to his or her PHI and which employees will be granted access to PHI. One May 2017 resolution agreement resulted from a covered entity’s improper disclosure of PHI to the media and various public officials without proper authorization. Another May 2017 resolution agreement resulted from a covered entity’s improper disclosure of PHI to his workplace. The corrective action plans associated with the resolution agreements required the covered entity to develop/review, maintain, and revise as necessary written policies and procedures (which relevantly would set forth the permissible uses and disclosure of PHI), to distribute such policies and procedures to the workforce, and to assess, update, and revise, as necessary, the policies and procedures at least annually. Thus, implementation of comprehensive privacy policies and procedures is deemed a necessity by HHS.

4. Notice of Privacy Practices

Pursuant to 45 CFR 164.520, an individual has a right to adequate notice of the uses and disclosures of PHI that may be made by the covered entity and of the individual’s rights and the covered entity’s legal duties with respect to PHI. The notice of privacy practices is essentially a summary of the covered entity’s privacy policies and procedures. The plan sponsor is obligated under the privacy rules to ensure that the notice is prepared and timely and appropriately distributed to plan participants, except in the case of certain fully-insured group health plans that maintain a hands off status, in which case the insurer has the duty. The content and distribution requirements for notices of privacy practices are strict. Thus, it is imperative for plan sponsors to ensure legal compliance.

5. Plan Sponsor Certifications

A group health plan may disclose PHI to the plan sponsor for plan administration functions only after: (1) the plan document has been amended to incorporate various regulatory requirements related to the plan’s use and disclosure of PHI, and (2) the plan sponsor has certified to the plan, in writing, that the plan has been amended and that the plan sponsor agrees to the restrictions contained in the amendment. See 45 C.F.R. 164.504 and 164.314. Plan sponsors must ensure that their plans have been appropriately amended and that proper written certification is in place.

6. Workforce Training

A covered entity is required to provide training to all members of its workforce on its HIPAA policies and procedures, as necessary and appropriate for the members of the workforce to carry out their functions within the covered entity. Various resolution agreements stress the necessity of conducting and documenting comprehensive training. For example, two May 2017 resolution agreements indicate that training must be reviewed at least annually, and, where appropriate, updated to reflect changes in the law, issues discovered during internal or external audits, and other relevant developments. Thus, plan sponsors must continually evaluate the need for workforce training and tailor such training to their internal structure.

These are just some of the written documentation requirements that group health plans must adhere to under HIPAA’s Administrative Simplification Rules. Regulatory provisions must be reviewed in conjunction with the group health plan’s administrative practices when drafting these documents. The resolution agreements released this year reaffirm the notion that employer-sponsored group health plans must evaluate their HIPAA compliance position with experienced HIPAA legal counsel. Deficiencies can result in substantial penalties. Please feel free to contact us with any questions you may have with respect to your HIPAA compliance endeavors.

Copies of the resolution agreements are available by clicking HERE.

This email serves solely as a general summary of complex proposed legislation and government initiatives.  It does not constitute legal guidance.  Please contact us with any questions related to the Proposed Legislation and what impact finalization might have on your employer-sponsored plans.

Questions? Contact us to learn more.

ACTION REQUIRED BEFORE YEAR-END: Disability Plans Claims and Appeals Procedures

Employers who sponsor disability plans have work to do with respect to their claims and appeals procedures prior to year-end. Final regulations were recently released by the Department of Labor (“DOL”) revising the existing claims and appeals procedures regulations under ERISA for employee benefit plans providing disability benefits. According to the DOL, the intent of the final regulations is to strengthen the current procedures by adopting some of the additional procedural safeguards and protections for disability plan claims that are already in place for group health plan benefits pursuant to the Patient Protection and Affordable Care Act.

The newly issued final regulations took effect on January 18, 2017 and will apply to all disability benefits claims filed on or after January 1, 2018. Accordingly, it is imperative for employers to work with their disability plan insurance carriers, third party administrators, and attorneys to ensure that all underlying disability plans and associated documentation (including any ERISA wrap plans, Code section 125 cafeteria plans, and claims denial forms) are reviewed and updated to ensure legal compliance with the requirements for claims filings beginning January 1, 2018.

The final regulations are lengthy, comprehensive, and require detailed review and analysis. Some highlights of the final regulations for employers, plan sponsors, carriers, and administrators to consider, include the following:

  1. Independent and Impartiality to Avoid Conflicts of Interest. Claims and appeals must be adjudicated in a manner designed to ensure independence and impartiality of the persons involved in making the benefit determination. Decisions regarding hiring, compensation, termination, promotion, or similar matters with respect to any individual (such as a claims adjudicator, medical expert, or vocational expert) cannot be made based upon the likelihood that the individual will support the denial of benefits. For example, the preamble to the final regulations notes that a plan cannot provide bonuses based on the number of denials made by a claims adjudicator.
  2. Improvements to Disclosure Requirements.  Benefit denial notices must contain specified information, including but not limited to:
    1. A complete discussion of why the plan denied the claim and the standards applied in reaching such decision. Such discussion must include the basis for disagreeing with or not following: (i) the views of health care professionals and vocational professionals who treated/evaluated the claimant; (ii) the views of medical or vocational experts whose advise was obtained on behalf of the plan in connection with a denial (without regard to whether the advice was relied upon in making the determination); or (iii) a disability benefit determination made by the Social Security Administration. Thus, under this standard, merely stating that the plan or a reviewing physician disagrees with the treating physician is insufficient.
    2. If the denial is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination (applying the terms of the plan to the claimant’s medical circumstances), or a statement that such explanation will be provided free of charge upon request;
    3. Either the specific internal rules, guidelines, protocols, standards or other similar criteria of the plan relied upon in denying the claim, or a statement that such rules, guidelines, protocols, standards or other similar criteria of the plan do not exist; and
    4. A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits.
  3. Right to Review and Respond to Additional Information Prior to Final Determination. A claimant must be given timely notice of his or her right to access his or her entire claim file and other relevant documentation. A claimant must also be guaranteed the right to present evidence and testimony in support of his or her claim during the review process. Further, a claimant must be given notice and a fair opportunity to respond before denials on review are based on new or additional evidence or rationales. More specifically, the claims procedures must require that: (a) plans provide claimants, free of charge, with any new or additional evidence considered, relied upon, or generated by the plan, insurer, or other person making the benefit determination (or at the direction of the plan, insurer or such other person) during the pendency of the appeal in connection with the claim; and (b) before the plan can issue a denial on review based on a new or additional rationale, that the plan provides claimant, free of charge, with the rationale. Any rationale/evidence must be provided as soon as possible and sufficiently in advance of the date on which the notice of denial upon review is required in order to give the claimant a reasonable opportunity to respond prior to that date.
  4. Deemed Exhaustion of Claims and Appeals Processes. Plans cannot prohibit a claimant from seeking court review under ERISA section 502(a) of a denial based upon a failure to exhaust administrative remedies under the plan if the plan failed to comply with the claims procedures requirements, unless the violation was (a) the result of a minor error; (b) non-prejudicial; (c) attributable to good cause or matters beyond the plan’s control; (d) in the context of a good-faith exchange of information; and (e) not reflective of a pattern or practice of non-compliance. Additionally, denial notices on review, among other information, must describe any applicable contractual limitations period that applies to the claimant’s right to bring an action under ERISA section 502(a), including the calendar date on which the contractual limitations period expires for the claim.
  5. Coverage Rescissions. The final regulations clarify that certain rescissions of coverage must be treated as adverse benefit determinations triggering the plan’s appeals procedures.
  6. Culturally and Linguistically Appropriate Notices. Required notices and disclosures issued under the final regulations must be written in a culturally and linguistically appropriate manner. If a claimant’s address is in a county where 10% or more of the county population are literate only in the same non-English language, notices of denials to the claimant must include a statement prominently displayed in the applicable non-English language clearly indicating how to access language services provided by the plan. Additionally, the plan must provide a customer assistance process with oral language services in the non-English language and provide written notices in the non-English language upon request.

This alert serves as a general summary of the lengthy and and comprehensive final regulations, which can be found by clicking HERE. Please feel free to contact us with any questions you may have regarding getting your plans into compliance with the newly issued regulations prior to January 1, 2018.

This email serves solely as a general summary of complex proposed legislation and government initiatives.  It does not constitute legal guidance.  Please contact us with any questions related to the Proposed Legislation and what impact finalization might have on your employer-sponsored plans.

Questions? Contact us to learn more.

Federal Court Enjoins New Overtime Pay Rules

Nine days before the December 1, 2016, effective date, a federal district court in Texas has issued a nationwide injunction against implementation of the United States Department of Labor’s new rules which would dramatically increase the salary thresholds for most workers exempt from the overtime pay requirement of the Federal Fair Labor Standards Act. The injunction is a preliminary injunction, meaning that it is not a permanent injunction. The court did state that the Plaintiffs, numerous state attorneys general, are likely to succeed in a final decision, and, therefore, a preliminary injunction preserving the status quo is warranted.

At this time, there is no news on whether the Department of Labor intends to pursue an emergency appeal of the preliminary injunction.  It is also unknown whether the new administration’s Labor Department and Justice Department will continue to defend the new regulation after the presidential inauguration.

The preliminary injunction does not forbid employers from adopting the new, higher salary thresholds voluntarily; employers have always been permitted to treat exempt employees as nonexempt for overtime purposes.  But for the time being at least, compliance with the new overtime pay thresholds will not be mandatory.

Read the Department of Labor’s overview of the new overtime regulations by clicking HERE.

Is Your Business Ready for Upcoming Changes to Overtime Regulations?

The United States Department of Labor’s changes to the overtime regulations of the Fair Labor Standards Act (“FLSA”) take effect December 1, 2016. Is your business ready? Continue reading Is Your Business Ready for Upcoming Changes to Overtime Regulations?

DOL Issues Electronic Fee Disclosure Guidance

The Department of Labor’s (“DOL”) new fee disclosure regulations applicable to participant-directed defined contribution plans are effective for plan years beginning after October 31, 2011.  For calendar year plans, the first annual disclosures are due by May 31, 2012, and the first quarterly statement of expenses incurred is due by August 14, 2012.  Many plan sponsors have urged the DOL to issue new guidance pertaining to the electronic disclosure of this information, as the DOL’s existing electronic disclosure rules are often criticized as cumbersome and outdated.

Continue reading DOL Issues Electronic Fee Disclosure Guidance