On Thursday, President Obama delivered his much-anticipated speech on job creation, urging Congress to pass the American Jobs Act, (pdf) a $447 billion plan to jump-start the economy. According to the President, “there should be nothing controversial about this legislation,” as all of the proposals set forth in the bill have allegedly been supported by both parties in the past. Beginning his remarks, Obama stated:

The purpose of the American Jobs Act is simple: to put more people back to work and more money in the pockets of those who are working. It will create more jobs for construction workers, more jobs for teachers, more jobs for veterans, and more jobs for the long-term unemployed. It will provide a tax break for companies who hire new workers, and it will cut payroll taxes in half for every working American and every small business. It will provide a jolt to an economy that has stalled, and give companies confidence that if they invest and hire, there will be customers for their products and services. You should pass this jobs plan right away.

Among other proposals, the bill would give most employers a 50% payroll tax cut for the first $5 million in wages; temporarily eliminate employer payroll taxes for businesses that create jobs or give raises above the prior year (this benefit would be capped at the first $50 million in payroll increases); allow businesses to immediately expense 100% of their investments in machinery and equipment; provide tax credits of up to $4,000 for businesses that hire individuals who have been unemployed for at least 6 months; provide tax credits of up to $9,600 for employers that hire veterans; and extend unemployment insurance for another year. In addition, the bill would prohibit discrimination against the unemployed. According to a fact sheet on the proposal, (pdf) the measure would also provide unemployment insurance benefits to individuals whose employers implement work sharing programs in lieu of layoffs.

Many of these suggestions have been set forth in previously-introduced bills. Moreover, the day of the President’s address, lawmakers introduced the Small Business Expansion and Hiring Act of 2011 (H.R. 2873) and the Unemployed Workers Hiring Act of 2011 (H.R. 2868), bills that would provide employers with a tax credit for hiring and retaining new workers and grant employers a payroll tax cut for hiring the unemployed, respectively.

In addition, the President is proposing the creation of an independent fund for infrastructure projects that would attract private firms. In order to pay for the bill, Obama stated that a week from Monday he will introduce a more ambitious deficit plan that will contain additional spending cuts. The President claimed that his plan would include higher taxes for large corporations, a revision of the corporate tax code, and changes to Medicare and Medicaid to make it more sustainable.

Obama acknowledged that many Republican members of Congress have favored a greater reduction in spending and eliminating more burdensome regulations to encourage economic growth. While agreeing that that onerous regulations should be rescinded, Obama claimed that he would not use the current economic crisis “as an excuse to wipe out basic protections.” He also rejected the idea that collective bargaining rights should be “striped away” to make the country more competitive.

The President is expected to formally unveil the complete bill the week of September 12.

by Ilyse Schuman

The Occupational Safety and Health Administration has issued a new a compliance directive: Enforcement Procedures for Investigating or Inspecting Incidents of Workplace Violence. The purpose of the directive is to establish uniform procedures for OSHA field officers when responding to incidents and complaints of workplace violence. The directive also provides guidelines for conducting inspections in industries the agency deems particularly vulnerable to workplace violence, including healthcare, social service settings and late-night retail establishments. Specifically, the directive “highlights the steps that should be taken in reviewing incidents of workplace violence when considering whether to initiate an inspection in industries that OSHA has identified as susceptible to this hazard.” In conjunction with the directive, OSHA has launched a web pageto assist employers in preventing incidents of workplace violence.

The directive explicitly states that it does not require an OSHA response to every complaint or fatality related to workplace violence “or require that citations or notices be issued for every incident inspected or investigated. Instead, it provides general enforcement guidance to be applied in determining whether to make an initial response and/or cite an employer.” Employers that fail to reduce or eliminate “serious recognized hazards” which may include workplace violence may be found in violation of the general duty clause. To that end, OSHA directs field inspectors to “gather evidence to demonstrate whether an employer recognized, either individually or through its industry, the existence of a potential workplace violence hazard affecting his or her employees.” The directive also encourages OSHA investigators to “focus on the availability to employers of feasible means of preventing or minimizing such hazards.”

In workplaces where a potential for violence against employees has been identified, the directive states that employers should be encouraged to develop and implement a workplace violence prevention program. Although OSHA Compliance Safety and Health Officers should discuss with the employer potential controls for these types of hazards, the directive provides that it is the employer’s responsibility to employ the most effective feasible controls available to protect its employees from acts of workplace violence. The selection of abatement methods should be based on specific hazards identified in a workplace analysis of the facility/place of employment, temporary duty locations and workers’ travel routes while on duty.

Among other documents contained in the directive’s appendix is a list of potential abatement methods for employers in all industries and those with primarily administrative workplaces. The appendix also sets forth more specific recommendations for those employers in the retail industry and those with healthcare and social services facilities. OSHA has previously published guidance documents on workplace violence aimed at late-night retail establishments?(pdf) and healthcare and social services industries. (pdf)

by Ilyse Schuman

The Department of Labor’s Employee Benefits Security Administration (EBSA) has issued an interim policy (Technical Release 2011-03) (pdf) setting forth the conditions that a plan administrator must meet in order to provide electronic disclosures of information required under the EBSA’s final participant-level fee disclosure rule. Generally, this rule requires retirement plan sponsors and fiduciaries to disclose certain plan and investment-related information, including that related to fees and expenses, to participants and beneficiaries in participant-directed individual account plans, such as 401(k)s. The rule allows for the electronic disclosures – including the use of continuous access websites – under certain circumstances. According to the Technical Release, plan administrators will not be subject to an enforcement action based on their electronic disclosures if they comply with the conditions established by the interim policy.

Generally, a plan administrator may provide electronic disclosures only to employees that ordinarily have access to computers – i.e., using computers is an integral part of their duties – and/or if the employee, retiree or beneficiary has provided consent to receive such disclosures electronically. However, as outlined in the Technical Release, disclosures that are not included in a pension benefit statement can only be furnished electronically if the following six conditions are met:

1. Recipients must voluntarily provide plan sponsors, administrators, or their employers with an email address;


2. Along with a request for an email address, participants and beneficiaries must be provided with a clear and conspicuous Initial Notice that contains:
   
   
   
   • A statement explaining that providing an email address for disclosure purposes is voluntary, and that as the result of providing the email address, the required disclosures will be made electronically;
   
   
   • Identification or a brief description of the information that will be furnished electronically and how it can be accessed by participants and beneficiaries;
   
   
   • A statement that the participant or beneficiary has the right to request and obtain, free of charge, a paper copy of any of the information provided electronically and an explanation of how to exercise that right;
   
   
   • A statement that the participant or beneficiary has the right, at any time, to opt out of receiving the section disclosure information electronically and an explanation of how to exercise that right; and
   
   
   • An explanation of the procedure for updating the participant’s or beneficiary’s e-mail address.
   
   
   
   


3. The plan administrator must provide an Annual Notice to each such participant or beneficiary that contains much of the information provided in the Initial Notice;


4. The plan administrator must take “appropriate and necessary measures reasonably calculated to ensure” that the individuals receive the information;


5. The plan administrator must take “appropriate and necessary measures reasonably calculated to ensure that the electronic delivery system protects the confidentiality of personal information”; and


6. The electronic notices must be “written in a manner calculated to be understood by the average plan participant.”

The guidance also contains a special transition provision aimed at employers/plan sponsors who already have participants’ email addresses on file. In this instance, steps one and two will be deemed to have been satisfied, provided a special “Transition Group Initial Notice” is sent containing information specified in the Technical Release.

In a statement, EBSA?Assistant Secretary of Labor Phyllis C. Borzi said: “This technical release responds to requests by some plan sponsors and service providers to expand the ability of ERISA plans to use modern electronic disclosure technologies to communicate with plan participants while ensuring that all workers will benefit from the increased transparency provided by our fee disclosure rule.”

This interim policy will be in force until the EBSA issues further guidance on this topic.

by Ilyse Schuman

Marking the end of Chairman Wilma Liebman's term, the National Labor Relations Board issued three significant decisions at the end of August that overturn long-standing Board precedent. In what may be the most significant of the three, a decision involving the healthcare industry, the Board paved the way for the proliferation of bargaining units by overruling its 1991 decision in Park Manor Care Center, 305 NLRB?872 (1991), and determining that certified nursing assistants ("CNAs") comprise an appropriate stand-alone bargaining unit. Although it involved a nursing home, the Board's decision is not limited to the healthcare industry and fundamentally changes the standard for determining appropriate bargaining units applicable to all employers.

In 1989, the Board used its rulemaking?authority to define eight bargaining units for acute care hospitals. Pursuant to the rule, which was adopted to prevent fragmentation and proliferation of bargaining units in healthcare settings, any other unit is inappropriate absent extraordinary circumstances. CNAs?fall within the unit that includes all nonprofessional service and maintenance employees.

In Park Manor, the Board declined to strictly apply the 1989 rule in a non-acute healthcare setting, such as a long-term care facility. Instead, the Board adopted a pragmatic or empirical approach to examining the appropriateness of bargaining units. Besides the traditional "community of interest" factors, the Board also considered the unique structure and organization of the work performed at such facilities, noting that "there is less diversity in nursing homes among professional, technical and service employees, and the staff is more functionally integrated." In adopting this approach, the Board sought to strike a balance between bargaining units that are too large, making union organizing difficult, and units that are too small, creating the risk of repetitious bargaining and frequent strikes. Since Park Manor, the Board generally has found that the eight units applicable to hospitals are appropriate in non-acute facilities and has almost universally combined CNAs and other service and maintenance employees in a single bargaining unit.

The Board made clear its intention to revisit Park Manor last December. In an unprecedented move, it issued a Notice and Invitation to File Briefs in Specialty Healthcare, 356 NLRB?No. 56 (2010), a case before it on an employer's request for review from a NLRB?regional director's decision certifying a petitioned-for unit of CNAs at a nursing home. In its request for review, the employer contended that, under Park Manor, the only appropriate unit was one that included CNAs?and nonprofessional service and maintenance employees. The Board invited interested parties to file briefs addressing their experiences under Park Manor and whether the Board should reconsider the Park Manor test. In a lengthy dissent, Board Member Brian Hayes criticized the Board's approach to what he considered a simple case and warned that the Board's invitation constituted a preliminary step in revising a well-established test for determining bargaining unit composition in all industries.

As expected, in Specialty Healthcare, 357 NLRB No. 83 (2011), the Board in a 3-1 decision overruled Park Manor?and adopted a new standard for determining appropriate bargaining units. Under the new standard, so long as a union's petitioned-for unit consists of a clearly identifiable group of employees, the Board will presume the unit is appropriate. If an employer argues that the unit should include additional employees, the employer must demonstrate that employees in a larger unit share an "overwhelming" community of interest with those in the petitioned-for unit. Applying this standard, the Board found that the union's petitioned-for unit consisting solely of CNAs was an appropriate unit.

Before the decision issued, it was well known where Member Craig Becker stood on the issue the case raised, and assumed that his Democratic colleagues would follow the approach he advocated. Member Becker, in his dissenting opinion in Wheeling Island Gaming, Inc., 355 NLRB?No. 127 (2010), expressed a belief that unions should be able to organize smaller units, such as a single department. He advocated a "same job, same place" unit determination standard, noting that if employees in the petitioned-for unit are performing the same job, "[a]bsent compelling evidence that such a unit is inappropriate, the Board should hold that it is an appropriate unit. "

In his dissenting opinion in Specialty Healthcare, Member Hayes noted that the Board's new test encourages unions to organize the smallest units possible, resulting in a fragmentation of the workforce in non-acute healthcare facilities. Member Hayes also recognized that the heightened burden on employers makes it "virtually impossible" for an employer to prove that excluded employees should be included in a petitioned-for unit.

In light of the new standard for determining whether a petitioned-for unit is appropriate, non-acute healthcare facilities face even greater risk of unionization, particularly with respect to CNAs. In the case of a long-term care facility, the likely result of Specialty Healthcare?will be that employers may need to deal with three or more separate nonprofessional?bargaining units where they traditionally have had only one. For example, CNAs, laundry workers, dietary workers and recreation aides could be in four distinct units.

Significantly, the Board did not, as it could have done, limit the new standard to non-acute healthcare facilities. The practical effect of this decision is that, in the not uncommon situation where a union is unable to garner widespread support, unions in all industries will be encouraged to organize the smallest units of employees possible. Employers, meanwhile, will be forced either to accede to the appropriateness of a mini-unit or take on the difficult and costly task of proving that other employees belong in the unit. Suffice it to say that it is easier for a union to organize a small unit of employees and, once it gains a toehold, a domino effect may ensue, as one narrow unit after another is organized. As a result, employers may be forced into negotiations with multiple bargaining units.

Employers should consult with experienced labor counsel to discuss the more complex ramifications of unionization among fragmented bargaining units and to devise strategies to minimize this risk.

Authors: Anita Polli?and Carie Torrence

Must an employer pay millions in wages and penalties to employees who choose to skip unpaid meal periods? For one California company, the answer is no. After a 14-day bench trial, Santa Clara County Superior Court Judge James P. Kleinberg?issued a 26-page tentative statement of decision ruling that concrete supplier Granite Rock Company ("Graniterock") did not violate California wage and hour law by allowing its concrete mixer drivers to voluntarily waive their 30-minute off-duty meal periods. This decision could influence the California Supreme Court as it decides the issue in Brinker v. Superior Court¹ whether employers are obligated to "ensure" workers take meal breaks, or merely make meal periods available. The court in Driscoll v. Granite Rock Co., Case No. 01-08-cv-10342, opined that "litigation is not a game" and that it "declines to adopt a 'gotcha' theory of litigation that imposes liability when the facts and real-world concerns dictate no liability."

Driscoll?was filed in the Superior Court of California, County of Santa Clara in January 2008 by a group of former Graniterock?mixer drivers seeking compensation for missed meal periods, waiting time penalties based on Labor Code section 203, penalties based on Labor Code section 226.7 for inaccurate pay stubs, and penalties based on Labor Code section 2699, the Private Attorneys' General Act (PAGA), as well as restitution and injunctive relief based on California Business and Professions Code section 17200. Altogether, the plaintiffs sought more than $6 million in restitution and penalties, in addition to attorneys' fees and costs. The class, which was certified in July 2009, included approximately 200 mixer drivers.²

In reaching its decision, the court found that, due to the extremely perishable nature of concrete, Graniterock's?mixer drivers were often unable to take regularly scheduled 30 minute off-duty meal periods. Nonetheless, according to the court, drivers had substantial opportunities, while waiting to unload, to have an on-duty lunch. For this reason, Graniterock?and its drivers entered into on-duty meal period agreements whereby the drivers voluntarily agreed to eat their meals "on duty" during the ample downtime they had during the day in exchange for premium pay and a shorter day. Judge Kleinberg found that the drivers overwhelmingly favored this arrangement because they earned more money, were able to finish their day earlier, and did not have to spend time "sitting twiddling their thumbs." The voluntary on-duty meal period agreement could have been revoked at any time, upon one day's notice. The judge also found that only three drivers withdrew their on-duty meal period agreements in a ten-year period, and that they all received off-duty meal periods at the next possible occasion.

Court Adopts the "Make Available" and "Do Not Frustrate" Standard

The law requires employers to "provide" meal periods, but the definition of "provide" has generated substantial litigation and controversy. Judge Kleinberg?held that Graniterock needed only to "make available" off-duty meal periods to its employees, and not "ensure" that the drivers actually took them. In this regard, the California Supreme Court's delay in deciding Brinker and its related appeals has resulted in much uncertainty in the wage and hour arena. While many federal court decisions and some state appellate decisions have applied the "make available" standard, many of the recent state appellate court decisions have been granted review in light of Brinker. The Driscoll decision could provide the California Supreme Court added perspective when it ultimately rules in Brinker.

Court Holds the Plaintiffs Failed to Meet Their Burden to Show that Graniterock Did Not Make Meal Periods Available

Graniterock argued that it provided meals because drivers knew they were entitled to off-duty meal periods as communicated through the company's policies, postings and other written and oral communications with management. Drivers could get off-duty meals by either revoking their on-duty meal period agreements, or?by asking a dispatcher on any given day for a meal period that same day. The evidence showed that these requests were overwhelmingly granted, but rarely made because drivers did not want off-duty meals. Approximately 25 current Graniterock drivers testified for the company and explained that if asked by their dispatcher at the beginning of the day if they wanted an off-duty meal they would truthfully say no. Even the named plaintiffs did not testify that they wanted off-duty meal periods.

Court Denies the Plaintiffs' Penalty Claims

Judge Kleinberg?also disposed of the plaintiffs' penalty claims one by one, adopting the arguments made by Graniterock. Many of these rulings may be very useful to companies that are facing meal period class actions, which include the "usual" often astronomical penalty claims.

First, Judge Kleinberg?held that the plaintiffs could not collect "waiting time" penalties under Labor Code section 203 for former employees because these penalties are not assessed when the employer has a good faith dispute regarding whether meal periods were provided to drivers. The court held that Graniterock's?CEO had a good faith belief that the nature of the work justified on-duty meal periods and that its meal period agreement was valid, relying in part upon the result of an action brought by the concrete mixing trade association in 2005, which held that such agreements were appropriate for the industry. Further, the fact that Graniterock had a process in place to pay an extra one hour's wage to those drivers who had not signed an on-duty meal period agreement "demonstrates its good faith attempt to comply with the law."

Second, the plaintiffs were not entitled to recover penalties pursuant to Labor Code section 226(e) for alleged inaccurate pay stubs. The plaintiffs did not contend that Graniterock's pay stubs excluded any of the nine categories of information required by Labor Code section 226(a), but rather that the pay stubs failed to state that the plaintiffs had earned one additional hour of pay for meal periods not provided, the amounts being contested in the lawsuit. The court found that the legislative history behind section 226 showed that it was enacted to provide "transparency," i.e., to allow an employee to determine whether he or she has been paid for all hours worked, not to allow double recovery for disputed compensation. As the pay stubs accurately reported what was paid in the check?and because Graniterock?specified when it did pay a meal period penalty, Graniterock?had complied with this statute. Finally, the court held that the plaintiffs had not proven "injury," which is a statutory requirement of this cause of action. The plaintiffs' claim that they were unable to tell by looking at their paystubs which meal periods they had missed was not the type of injury contemplated, as wage statements are not required to provide this information. The court also refuted the plaintiffs' experts' penalty calculations on the basis that they assumed a "random" distribution of violations across drivers, locations and time, even though the evidence showed that in fact the number of missed meals was not the same from driver to driver over time or by location. The court held that this methodology biased the calculations upwards.

Finally, the court denied penalties under PAGA?for numerous reasons. First, the plaintiffs failed to show that meal periods were not provided, nor did they establish a valid rate for violations. Second, it held that should PAGA?penalties be appropriate, the lower "initial" violation rate of $100 per pay period would apply because no court or commissioner had notified Graniterock?of a violation before this suit was filed, such that the "subsequent" violation rate of $200 per pay period would apply. Third, the court found that Dr. Drogin's?penalty calculations were biased upwards because they were based on a random distribution of violations that maximized the number of weeks in which there would be violations and thus penalties. In addition, Judge Kleinberg?held that evidence which is extrapolated to a class cannot be used to prove PAGA?violations because PAGA?requires that the plaintiffs offer evidence of injury as to "each aggrieved employee," and show "in which pay periods those injuries occurred." The court ruled that the plaintiffs' statistical evidence was "irrelevant" to their PAGA?claims and should be excluded. Finally, the court exercised its discretion under Labor Code section 2699(e)(2) to eliminate PAGA penalties in this instance as "unjust, arbitrary and improper. . . ."

The Court Denied Injunctive Relief Because the Lawsuit Lacked Support from Current Employees

No current driver testified in support of the plaintiffs. As a result, the court refused to grant injunctive relief to the named plaintiffs because they were all former drivers "with no stake in what happens at Graniterock?after judgment." Further, the court found that Graniterock's CEO had instructed dispatchers not to enforce the one-day notice provision in the on-duty meal period agreement.

In closing, Judge Kleinberg stated: "This is not a case where class members toil in ignorance and it is only when a lawsuit is brought do they become aware of their possible recovery. . . . This court declines to adopt a 'gotcha' theory of litigation that imposes liability when the facts and real world concerns dictate no liability."

Conclusion

This common sense ruling is encouraging for companies who face wage and hour meal period actions – in which plaintiffs frequently seek to recover astronomical amounts in damages and penalties. While it is still uncertain which way Brinker?will come out, should the California Supreme Court read this decision they will gain new perspective on the pressures facing California employers and perhaps be inclined to strike a balance between what types of business practices are supported under the law and common sense. Aside from adopting the "make available" standard, Judge Kleinberg's well-reasoned opinion is valuable to employers facing class actions because it shows that California's Labor Code should not be used to get millions of dollars from employers when employees choose not to take meal periods. Finally, it provides substantial guidance when defending against expensive (and usually disproportionate) penalty claims, which accompany most meal period actions.

Authors: Laura Hayward

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¹ See Littler ASAP, California Supreme Court Grants Review to Brinker – Employers Await Answer on Meal Period Obligations (Oct. 2008).

²?Graniterock was represented by Garry Mathiason, Alan Levins, Laura Hayward and Alison Hightower of Littler Mendelson P.C.

On August 22, 2011, the Department of Health and Human Services (HHS) along with the Departments of Labor and Treasury published a proposed rule (Proposed Rule) setting forth the requirements of the Summary of Benefits and Coverage (SBC) disclosure that health insurers and group health plans must provide to consumers under the Patient Protection and Affordable Care Act (PPACA). To help consumers understand and evaluate their health insurance choices, consumers will also receive a uniform glossary of terms commonly used in health insurance coverage.

Employers should take note of this rule which will soon require them to make yet another disclosure under the PPACA to their employees.

Background

The PPACA mandates that group health plans and health insurance issuers offering group or individual health insurance coverage provide to enrollees a summary of benefits and coverage explanation that accurately describes a plan's benefits and coverage. The SBC requirement applies to both grandfathered and non-grandfathered health plans.

The law mandated that the Departments develop standards governing the summary by March 23, 2011, 12 months after the PPACA's?enactment, and directed HHS to consult with the National Association of Insurance Commissioners (NAIC) regarding the content of the summary. The statute provides that plans and issuers must comply with the disclosure requirement 24 months after enactment, or March 23, 2012. Comments on the Proposed Rule are due October 21, 2011.

The Proposed Rule

The Proposed Rule outlines the standards that will govern who provides an SBC, who receives an SBC, when the SBC will be provided, and how it will be provided. In conjunction with the proposal, the agencies are issuing a proposed template for the SBC, instructions, sample language, a guide for coverage examples calculations to be used in completing the template, and a uniform glossary that would satisfy the law's disclosure requirements.

Delivery of the SBC by a Group Health Plan and Group Health Insurance Issuer to Participants and Beneficiaries

The plan or issuer must provide an SBC free of charge to participants and beneficiaries with respect to each benefit package for which the participant and beneficiary is eligible. In the case of a self-insured group health plan, the Proposed Rule would make the plan administrator responsible for providing the SBC to participants and beneficiaries. For insured group health plans, either the group health plan or the issuer can deliver the SBC to enrollees. To avoid unnecessary duplication with respect to group health plans, the Proposed Rule states that the plan's obligation to deliver the SBC will be satisfied if the issuer properly delivers the SBC to the plan's participants and beneficiaries. Specifically, the rules permit the plan or issuer to send a single SBC to the same address where participants and beneficiaries are known to reside. However, the plan or issuer must send a separate SBC to a beneficiary if their last known address is different from that of the participant.

• Enrollment: The plan or issuer must include the SBC with any written application materials the plan distributes for enrollment. If the plan does not distribute written application materials for enrollment, the SBC must be distributed no later that the first date the participant is eligible to enroll in coverage. The plan or issuer must update and provide a current SBC no later than the first day of coverage if there is any change to the SBC. The plan or issuer must also provide the SBC to a Health Insurance Portability and Accountability Act (HIPAA) special enrollee within seven days of a request for enrollment.


• Renewal: In addition, if a written application is required for renewal, the plan or issuer must provide the SBC to participants and beneficiaries no later than the date renewal materials are distributed. If renewal is automatic, the plan or issuer must provide the SBC no later than 30 days prior to the first day of coverage in the new plan year. The plan and issuer only need to automatically provide a new SBC for the benefit package in which a participant or beneficiary is enrolled. However, the plan or issuer must provide the SBC of another benefit package for which the participant or beneficiary is eligible but not enrolled upon request.


• Upon Request: The plan or issuer must also provide the SBC within seven days of a request by a participant or beneficiary for the summary.

Therefore, if enrollment is on a calendar year basis, employers may first need to make this disclosure to new enrollees who join the plan on or after Mach 23, 2012, and to those who request the SBC on or after this date. With respect to all other participants, it is likely the first disclosure with enrollment materials will be made for the 2013 plan year.

Delivery of the SBC by a Group Health Insurance Issuer to a Group Health Plan

The Proposed Rule describes group health insurance issuer's obligation to provide an SBC to the group health plan.

• Enrollment: The issuer must provide the SBC to the plan, or its sponsor, upon application or request for information about health coverage within seven days following the request. If the plan subsequently applies for for health coverage, the issuer must send a second SBC only if there has been a change. The issuer must update and provide a current SBC to the plan no later than the date of the offer or first day of coverage if there is any change to the SBC.


• Renewal: The issuer must also provide a new SBC to the plan upon renewal or reissuance of the policy. If a written application is required for renewal, the issuer must provide the SBC to the plan no later than the date materials are distributed. If renewal is automatic, the issuer must provide the SBC no later than 30 days prior to the first day of coverage in the new plan year.


• Upon Request: The issuer must provide the SBC to the plan within seven days of a request.

Prior Notice of Mid-Year Material Modifications

Plan modifications may result in a requirement for an employer to issue an off-cycle SBC. The rules provide that if a plan or issuer makes any material modification in any of the terms or conditions of coverage that would affect the content of the SBC other than in connection with renewal, the plan or issuer must provide notice of the modification to enrollees at least 60 days before the modification becomes effective. A material modification is defined under the Employee Retirement Income Security Act (ERISA) section 102, and the Departments note that the term includes any modification to the coverage offered under a plan or policy that, independently, or in conjunction with other contemporaneous modifications or changes, would be considered by an average plan participant to be an important change in covered benefits or other terms of coverage under the plan or policy. The preamble to the Proposed Rule states that this notice could be satisfied either by a separate notice describing the material modification or by providing an updated SBC.

Significantly, for ERISA-covered group health plans, this notice is in advance of the timing required for the provision of a summary of material modification (SMM), which is generally not later than 210 days after the close of the plan year in which the modification or change was adopted, or, in the case of a material reduction in covered services or benefits, not later than 60 days after the date of adoption of the modification or change. In situations where a complete notice is provided in a timely manner under the new PPACA?notice requirement, the preamble to the Proposed Rule states that an ERISA-covered plan will also satisfy the requirement to provide an SMM under Part 1 of ERISA. The Departments invite comments on this expedited notice requirement, including whether there are any circumstances where 60-day advance notice might be difficult.

Content

Generally, under the Proposed Rule, the SBC will summarize the key features of the plan or coverage, including the covered benefits, cost-sharing provisions, and coverage limitations and exceptions. In order to help consumers compare plans, the SBC will also include Coverage Examples, a standardized health plan comparison tool akin to nutrition label information. The Coverage Examples would illustrate what proportion of care expenses a health insurance policy or plan would cover for three common benefits scenarios—having a baby, treating breast cancer, and managing diabetes. Plans and issuers would also have to illustrate how claims would be processed under each scenario. The proposed template document includes specific instructions and details about an HHS?website that can assist with this simulation. According to the HHS, additional scenarios – but no more than six in total – may be required in future SBCs.

Overall, the Proposed Rule follows the requirements set forth in the statute, which states that an SBC must include:

• Uniform definitions of standard insurance terms and medical terms so that consumers may compare health coverage and understand the terms of (or exceptions to) their coverage;


• A description of the coverage, including cost sharing, for each category of benefits identified by the Departments;


• The exceptions, reductions, and limitations on coverage;


• The cost-sharing provisions of the coverage, including deductible, coinsurance, and co-payment obligations;


• The renewability and continuation of coverage provisions;


• A coverage facts label that includes examples to illustrate common benefits scenarios (including pregnancy and serious or chronic medical conditions) and related cost sharing based on recognized clinical practice guidelines;


• For coverage beginning on or after January 1, 2014, a statement about whether the plan provides minimum essential coverage (as defined under section 5000A(f) of the Internal Revenue Code), and whether the plan's or coverage's share of the total allowed costs of benefits provided under the plan or coverage meets applicable requirements;


• A statement that the SBC is only a summary and that the plan document, policy, or certificate of insurance should be consulted to determine the governing contractual provisions of the coverage; and


• A contact number to call with questions and an Internet web address where a copy of the actual individual coverage policy or group certificate of coverage can be reviewed and obtained.

The Proposed Rule also includes four additional elements for the SBC consistent with NAIC's recommendations: (1) for plans and issuers that maintain one or more networks of providers, an Internet address (or similar contact information) for obtaining a list of the network providers; (2) for plans and issuers that maintain a prescription drug formulary, an Internet address where an individual may find more information about the prescription drug coverage under the plan or coverage; (3) an Internet address where an individual may review and obtain the uniform glossary; and (4) premiums (or cost of coverage for self-insured group health plans).

The proposal notes that the insurance exchanges are set to be operational in 2014. Therefore, because the statutory SBC elements include the information in the minimum essential coverage statement, the Departments invite comments on how employers might provide this information to employees and the Exchanges in a manner that minimizes duplication and burden. The agencies also acknowledge that some of the plan level information that is required to be provided in the SBC is already required to be provided under the Internal Revenue Code, and therefore, government agencies are coordinating their efforts to determine how and whether the same data can be used for multiple purposes.

The agencies also request comment as to whether it would be feasible or desirable to permit plans and issuers to input plan- or policy-specific information into a central Internet portal, such as the federal health care reform website (www.healthcare.gov), that would use the information to generate the coverage examples for each plan or policy.

Appearance and Format

The SBC must be presented in a uniform format, use terminology understandable by the average plan enrollee, not exceed four double-sided pages in length, and not include print smaller than 12-point font.

Under the Proposed Rule, a group health plan or a health insurance issuer will provide the SBC as a stand-alone document. The agencies acknowledged concerns about the potential redundancies and additional costs of the new SBC requirement for those plans and issuers that already provide a Summary Plan Description. The agencies have invited comments on whether and how the SBC might best be coordinated with the Summary Plan Description and other group health plan disclosure materials. For example, the agencies ask whether they should allow the SBC to be provided immediately after the cover page and table of contents of the Summary Plan Description.

To facilitate faster and less burdensome disclosure of the SBC, the proposed regulations set forth rules to facilitate electronic transmittal of the SBC, where appropriate. Specifically, an SBC provided by a plan or issuer to a participant or beneficiary may be provided in paper form. Alternatively, for plans and issuers subject to ERISA or the Internal Revenue Code, the SBC may be provided electronically if the requirements of the Department of Labor's electronic disclosure safe harbor are met. An issuer may provide the SBC to the group health plan in paper or electronically if: (1) the format is readily accessible by the plan; (2) the SBC is provided in paper form free of charge upon request; and (3) for internet postings, the plan is notified by paper or e-mail that the documents are available on the web if the web address is given.

Language

The SBC must be presented in a "culturally and linguistically appropriate manner." The Proposed Rule explains that a plan or issuer is considered to satisfy this requirement if the SBC meets the thresholds and standards for a "culturally and linguistically appropriate manner" that apply to the PPACA internal appeals process.

Template and Uniform Glossary of Terms

Group health plans and issuers must make the uniform glossary of health coverage related terms available to participants and beneficiaries upon request within seven days either in paper form or electronically. As to the definitions to be included in the uniform glossary, the new section to the Public Health Service (PHS) Act added by the PPACA?directs agencies to develop standards and definitions for a number of insurance-?and medical-related terms. In addition to the ones listed in the statute, the Proposed Rule includes standards and definitions for the following terms: allowed amount; balance billing; complications of pregnancy; emergency medical condition; emergency services; habilitation services; health insurance; in-network co-insurance; in-network co-payment; medically necessary; network; out-of-network coinsurance; plan; preauthorization; prescription drugs; primary care physician; primary care provider; provider; reconstructive surgery; specialist; and urgent care.

The agencies are seeking comments on the uniform glossary, including the content of the definitions and whether there are additional terms that are important to include in the uniform glossary so that individuals and employers may understand and compare the terms of coverage and the extent of medical benefits (or exceptions to those benefits).

With respect to the sample template, the agencies seek comment on the following issues:

• The SBC template is intended to be used by all types of plan or coverage designs. The agencies seek input on issues that may arise from the use of this template for different types of plan or coverage designs.


• Comments are sought regarding any modifications needed for use by group health plans.


• The agencies ask whether the content of the SBC should require inclusion of additional information that might be important for individuals to know about their coverage.


• The fourth page of the SBC template includes a list of services that plans and issuers must indicate as either excluded or covered in the "Excluded Services & Other Covered Services" chart. The agencies are asking whether services should be added or removed from this list, as well as whether the disclosure stating that the list is not complete is adequate.


• The SBC template includes a disclosure on the first page indicating to consumers that the SBC is not the actual policy and does not include all of the coverage details found in the actual policy. The agencies seek comment on the sufficiency of this disclosure.

Penalties

A group health plan or health insurance issuer that willfully fails to provide the SBC to a participant or beneficiary as required is subject to a fine of not more than $1,000 for each failure. A separate fine may be imposed for each participant and beneficiary to whom the failure relates.

Effective Date

Although the rule has not been finalized, plans and issuers should begin preparing now for its implementation. The Proposed Rule comes five months after the statutory deadline for the Departments to issue standards has passed, leaving plans and issuers with little time to familiarize themselves with the new standards and draft the necessary documents before the SBC requirement is slated to become effective on March 23, 2012. The agencies have delayed the effective dates for several other PPACA provisions. However, the effective date for the SBC provision has not been changed even though the Departments missed the deadline for issuing standards. The agencies have invited comment on the feasibility of the March 23, 2012 deadline.

Authors: Ilyse Schuman and Steven Friedman

This is the twenty-fifth issue in our health care reform series of alerts for employers on selected topics in health care reform. (Our general summary of health care reform and other issues in this series can be accessed by clicking here.) This series of Health Care Reform Management Alerts is designed to provide a more in-depth analysis of certain aspects of health care reform and how it will impact your employer-sponsored plans.

This supplements Issue 10 of our Health Care Reform Management Alert Series, which addressed the new Patient Protection and Affordable Care Act (PPACA) requirement that non-grandfathered plans offer in-network preventive care with no cost-sharing for participants.

[ ] Applies to grandfathered plans[v] Applies to new health plans and plans that lose grandfathered status

New Preventive Care Coverage Requirements

PPACA?requires preventive care and screening for women in accordance with guidelines to be adopted by the Health Resources and Services Administration (HRSA). Accordingly, the HRSA has issued new guidelines for women's preventive care. These new preventive services include:

• Annual well-woman preventive care visits, including preconception and prenatal care;


• Screening for gestational diabetes;


• HPV testing for women over 30, no more than once every three years;


• Annual counseling on sexually transmitted infections for all sexually active women;


• Annual counseling and screening for HIV;


• Breastfeeding support and counseling, including the cost of renting breastfeeding equipment;


• Annual screening and counseling for interpersonal and domestic violence; and
  All FDA-approved contraceptive methods, sterilization procedures, and patient education and counseling for all women with reproductive capacity, as prescribed.

The new HRSA guidelines do not become mandatory until the first plan year that begins on or after August 1, 2012. For calendar-year, non-grandfathered plans, first dollar coverage of the services listed above will not be mandatory until January 1, 2013.

Limited Exemption for Religious Employers

Before the HRSA?announced the new guidelines, certain faith-based employers raised objections to being required to provide first dollar coverage for birth control services. In direct response to these comments, the Departments of Treasury, Labor, and Health and Human Services issued interim final regulations that give the HRSA?the discretionary authority to release "religious employers" from compliance with preventive care guidelines. Exercising this discretionary authority, the HRSA agreed to exempt religious employers from implementing coverage of contraceptives. (Note, however, that the exemption does not apply to the other women's care recommendations, such as STI and HIV counseling).

To be eligible for the exemption, an organization must be a certain type of religious non-profit organization whose purpose is the "inculcation of religious values." Additionally, the organization must primarily employ and serve persons who share the religious tenets of the organization. In the Preamble to the interim regulations, the Departments explain that this definition conforms to the definitions used in state laws that exempt religious organizations from similar contraceptive care requirements. The Departments have solicited comments, so the definition may change when final regulations are issued.

Employer Action Plan

• Determine whether your plan is grandfathered.


• If your plan is not grandfathered, review the list of new preventive care recommendations and confirm that your plan will be prepared to offer these services as of the first plan year beginning on or after August 1, 2012, with no in-network cost-sharing (such as co-pays, deductibles, or co-insurance).


• As with all preventive services, determine whether to impose cost-sharing on out-of-network preventive services.


• Review formularies and consider adding generic options for contraceptive drugs, if not already offered.


• For faith-based organizations, review the definition of "religious employer" to determine whether the exemption for contraceptive care will apply.

By: Judith Wethall?and Finn Pressly

Earlier this week, in Diaz v. Brewer, the Ninth Circuit Court of Appeals agreed with a federal judge's earlier decision to strike down a state law that was intended to block state employees' domestic partners from being eligible for health care benefits. Following the announcement of the decision, several media reports incorrectly suggested that:

• The Ninth Circuit had recognized a constitutional right to healthcare for gay and lesbian domestic partners;


• Same-sex partners of all workers in Arizona were entitled to healthcare benefits; and


• The Arizona law at the heart of the controversy had been blocked from the books.

However, a closer analysis of the Ninth Circuit opinion demonstrates that the ruling is more narrow in its application than initially reported and, just as importantly, may not survive either an appeal to the U.S. Supreme Court or further proceedings, if any, in the federal district court.

What the Ninth Circuit Really Said

In Diaz v. Brewer, a three-judge panel of the court, with an opinion written by Circuit Judge Mary Schroeder (herself a former State of Arizona employee), determined that the Arizona law at issue discriminated against same-sex domestic partners of state employees on the basis of sexual orientation. The adverse effect recognized by the court was the result that, under Arizona law, different-sex couples retain existing healthcare coverage by marrying, while same-sex couples are prevented from marrying and, therefore, precluded from receiving such benefits.

Judge Schroeder determined that the State of Arizona had failed to provide sufficient support that this differing treatment of same-sex and different-sex couples furthered any legitimate financial or administrative interest of the state. Thus, the court enjoined the offending Arizona law as a violation of the U.S. Constitution's equal protection clause.

The Ninth Circuit did not, however, find that the domestic partners of government workers are constitutionally entitled to health benefits. Instead, as Judge Schroeder wrote, "when a state chooses to provide such benefits, it may not do so in an arbitrary or discriminatory manner that adversely affects particular groups that may be unpopular."

Private Sector Employer Actions in Arizona Not Affected

The equal protection clause only applies to government actions, not to the actions of private citizens or corporations. In other words, although the government is not allowed to treat same-sex domestic partners differently from different-sex domestic partners without a rational basis, private sector employers may make this distinction, regardless of the reason.

Thus, the Ninth Circuit ruling in Diaz v. Brewer narrowly applies to only government employers. Although non-government employers are free to not follow the lead of the State of Arizona and provide healthcare benefits to same-sex partners, neither Arizona law nor the Ninth Circuit's recent decision requires them to do so.

Round One: Diaz 1, Brewer 0

Although the Ninth Circuit's decision went against Arizona Governor Jan Brewer, it remains to be seen whether she appeals to the U.S. Supreme Court which, as other pundits point out, overturns decisions from the Ninth Circuit on a regular basis.

In addition, the Ninth Circuit's ruling upheld the trial court's preliminary injunction in this matter, and did so because the State of Arizona failed to provide sufficient support for the cost savings and administrative reductions that it claimed justified the statute in the first place. If a further hearing is held to decide whether a permanent injunction is appropriate, and Governor Brewer is able to provide additional evidence of the state's economic interests, then the State of Arizona may be able to justify its differing treatment of same-sex and different-sex domestic partners without offending the Constitution's equal protection clause.

Whether any of these procedural processes will occur, or Governor Brewer simply leaves the Ninth Circuit ruling undisturbed, is yet to be determined.

Regardless of the next step taken in the Diaz v. Brewer case, the battle over same-sex partner healthcare benefits is far from over. Similarly, the media attention that same-sex partner issues receive is only going to increase.

By: Neil Alexander and Wade Swanson

Can an Indiana employer with reasonable suspicion ask an employee if he has a gun in his briefcase? Not without opening itself up for liability under Indiana's new Disclosure of Firearm or Ammunition Information as a Condition of Employment Law.

What Does the New Law Prohibit?

Effective July 1, 2011, no "public or private employer doing business in Indiana" may "require an applicant . . . or an employee to disclose information about whether the applicant or employee owns, possesses, uses, or transports a firearm or ammunition, unless the disclosure concerns the possession, use, or transportation of a firearm or ammunition that is used in fulfilling the duties of the employment of the individual." Ind. Code ? 34-28-8-6(1).

Employers are also forbidden from conditioning employment "or any rights, benefits, privileges, or opportunities offered by the employment" on an employee's or applicant's agreement to forgo lawfully owning, possessing, storing, transporting, or using a firearm or ammunition. Ind. Code ? 34-28-8-6(2).

While it remains lawful for Indiana employers to have a policy prohibiting the possession and use of firearms and ammunition on company property (except in locked vehicles), this new law prohibits employers from taking any action to enforce that policy that might be construed as a requirement to disclose information about employees' or applicants' firearms and use thereof.

Why Should Employers Be Concerned About This Law?

One word: Damages. Individuals who believe an employer has harmed them by violating this law may sue for actual damages, punitive damages, injunctive relief, costs, and attorneys' fees.

Which Employers Does the Law Cover?

This law covers all public and private employers "doing business" in Indiana. The definition of "private employer" is particularly broad. A private employer need not have an Indiana employee to be within this law's reach. If a private employer does business in Indiana and "offers to employ one (1) or more individuals in Indiana," the employer is covered. In other words, an employer could do business in Indiana solely through independent agents or distributors. If the employer later interviews candidates for a job it intends to create in Indiana, offers a job to an applicant who turns it down, violates the new law during the process, and ultimately decides not to fill the position, the business could still be liable under this law solely because it made the offer of the Indiana job.

More important, unlike Indiana's 2010 Possession of Firearms and Ammunition in Locked Vehicles Act, no employers are excluded from this new statute. Schools, penal facilities, facilities that care for endangered children, colleges and universities, domestic violence shelters, employers subject to the U.S. Department of Homeland Security's Chemical Facility Anti-Terrorism Standards, and public utilities are restricted in the same way as all other employers. None of these entities may require an employee or applicant to disclose firearm and ammunition information or condition employment upon an agreement to forgo activities connected to firearms and ammunition.

Even more disconcerting, the new law reaches beyond the legal possession and use of firearms and ammunition. The law clearly protects all applicants and employees without exception. In other words, if an employer requires an employee to disclose that he is carrying a gun, the employee may sue the employer for damages – even if the employee possesses the gun illegally.

Is There Any Good News?

The very last section of the new law states that "despite" the requirements prohibiting required disclosure, the law does not prevent an employer from "regulating or prohibiting the possession or carrying of a firearm by an employee during and in the course of the duties of employee on behalf of the employer or while on the property of the employer." It also does not prohibit an employer from "enforcing" such a regulation or prohibition so long as the regulation or prohibition does not reach to firearms or ammunition locked in the glove compartment or trunk, or otherwise out of sight in an employee's locked vehicle.

What Can Employers Do?

Employers may not ask questions about owning, possessing, using or transporting firearms during a job interview. An employer also may not require its current employees to answer questions such as: "Do you own a gun?" "Are you carrying a gun?" "Do you have a gun in your car?" "Do you have a gun in your briefcase, purse, or desk?" An employer cannot deny, suspend, or terminate employment or discipline any applicant or employee who refuses to provide information concerning his or her possession or ownership of a firearm.

What else does "require to disclose" mean? Unfortunately, the implications of the new law are not fully clear, but below are some scenarios for consideration.

• Does an employer "require" disclosure if it sets up a metal detector at the door without prior notice to employees? Does the answer change if the employer provides prior notice of the metal detector?

If an employee with a gun in his pocket arrives at work and finds a metal detector at the door, he must make a choice: (1) he can return to his car and lock his gun up there, which may make him late to work and will, at a minimum, arouse suspicion that he had something he should not have had; (2) he can take the gun out of his pocket before going through, which is clearly "disclosing" the gun; (3) he can walk through the metal detector with the gun on him, which will also be "disclosing" the gun; or (4) he can refuse to go through the metal detector, which will make it crystal clear that he possesses something he should not.

If the employee makes the second or third choice, the employer arguably will have violated the new law. If the employer disciplines the employee for being late after the first choice, or fires him for job abandonment after he makes the fourth choice, has the employer also violated the law? Did the employer "require" disclosure? It is not clear.

If the employer gives prior notice of the metal detector, then the employee has a fifth choice. He can leave his gun at home or locked in his vehicle. If he walks up to the metal detector with the gun on him, he has arguably given his implied consent to the disclosure. It seems less likely the employer has required the disclosure in this circumstance. But if an employee asserts he forgot he had the gun on him and had no choice but to pull it out after the detector went off, can he not also argue that the employer "required" disclosure? Again, it is not clear.

• Does an employer "require" disclosure if it randomly searches desks, lockers, or other employer-owned property? What if the employer searches such property in the employee's presence or with the employee's consent? What if the employer asks an employee if it can search a backpack, briefcase, or purse?

There are multiple forms a search in the private sector might take. Indeed, a search might occur for multiple reasons besides firearms and ammunition – drugs, alcohol, stolen property, etc. If a private sector employer has a policy in place that makes it clear employees have no reasonable expectation of privacy in desks, lockers, and other employer-owned property, then the employer may comfortably conduct a search of these areas outside an employee's presence and without an employee's consent. While an employee might argue that simply by conducting the search, the employer "required" the employee to disclose information about his or her ownership/possession of a firearm, that argument seems quite weak. The argument grows stronger if the employer informs the employee of the search before it occurs. If the employer needs to search a purse, briefcase, backpack, or an employee's person, it is almost always going to obtain consent and, as a result, possibly look even more like it is "requiring" disclosure.

Public sector employers, who must meet the constitutional burden of "reasonable suspicion" before a search, are arguably even more likely to announce their intention to search and thus come closer to "requiring" disclosure.

Simply put, the new law leaves searches of all types in a very grey area.

• Does an employer "require" disclosure if it asks employees to disclose voluntarily the presence of firearms on their persons? In their locked vehicles?

If the employer simply wants to know where the firearms and ammunition are in case of a fire or an attack from the outside, it may not be a violation of the new law to send out a memo saying something similar to:

For safety reasons, the Company would like to know where firearms and ammunition are kept on its premises. If you have firearms or ammunition in the facility or in your car, we would appreciate you letting us know. You are under no obligation to disclose this information, but if you choose to do so, please contact Human Resources. You will not be penalized in any way if you choose not to disclose this information.

But what if employees or rogue supervisors put pressure on others to make the "voluntary" disclosure? When does disclosure transform from voluntary to "required?" More important, if the employer has a "no weapons in the workplace" policy, then making a truthful voluntary disclosure would force people to admit that they are violating the policy – an admission no one is likely to make.

How Does an Employer Comply With This Law and Keep Its Workforce Safe?

An employer can have a policy prohibiting the possession and use of firearms/ammunition on company property (except in locked vehicles), but not take any action that can be construed as a requirement to disclose information concerning such firearms. In other words, an employer can enforce its policy only when the employee voluntarily pulls out a gun to show it off, voluntarily tells a co-worker he has a gun, or accidentally drops a gun out of a purse, briefcase, or backpack. Understandably, this may not be the most attractive approach to most employers.

Employers who wish to be more aggressive may:

• Install metal detectors with significant advance notice, understanding that the use of metal detectors may lead to arguable requirements to disclose with respect to employees' objecting to submitting to such a detector, as discussed above.


• Ask employees to disclose voluntarily their intention to possess a firearm/ammunition, attach no discipline to an employee's refusal to disclose, and monitor behavior very closely to ensure that there is no peer or rogue supervisor pressure to disclose. If an employer has a "no weapons in the workplace" policy, such voluntary disclosure would need to be limited to weapons in vehicles (which is the required exception to a lawful "no weapons" policy).


• Choose to conduct random searches of the property for contraband, if a private employer, and both private and public sector employers could consider conducting reasonable suspicion searches outside of the targeted employee's presence.

As described above, however, all of these possibilities clearly carry the risk that the employer may become a "test case" for the new law.

A few other practices may be helpful:

• Listen to your employees. Employees talk about hobbies, weekend activities, etc. If you have a gun enthusiast in your ranks, this information is likely to be shared. In other words, voluntary disclosure may happen if you are listening for it.


• Do more than just distribute a "no guns" policy. Have a comprehensive policy prohibiting all weapons and ammunition on company property (with the carve-out for firearms and ammunition locked in cars) and a comprehensive workplace violence policy. Have employees sign off on both policies. Train employees on both policies. If the company believes it is better off without guns in its building, now may be the right time to explain the basis for that belief to employees.


• Consider requiring all employees to sign a form pledging that they will not bring a firearm or other weapon into the workplace in the future. This is not requiring disclosure of firearm or ammunition information, but a refusal to sign may put the employer on notice of potential future issues.

Authors: Jane Ann Himsel and Brian Mosby

A federal district court in New York recently issued a decision in Hernandez v. Alpine Logistics, LLC, 2011 U.S. Dist. LEXIS 96708, that requires employers to pay overtime compensation to employees who are otherwise exempt from overtime under the Motor Carrier Act for any workweek in which the employee operates a vehicle weighing 10,000 pounds or less. It is important that employers with a mixed fleet of vehicles review their classification decisions to assess any potential exposure the Alpine Logistics decision may present.

Background

The plaintiffs in Hernandez were employed as delivery drivers responsible for picking up and delivering packages in the Rochester, New York area. They filed a class action/collective action against their employer for overtime based on the Fair Labor Standards Act (FLSA) and New York Labor Law. Alpine's permanent fleet consisted of 26 vehicles, two of which weighed more than 10,000 pounds and 24 of which weighed 10,000 pounds or less. All of Alpine's drivers could be called upon to drive any of the vehicles. The plaintiffs claimed they and other drivers were entitled to overtime because of an amendment to the FLSA that became effective on June 7, 2008. The defendant argued that the drivers were exempt from overtime under the Motor Carrier Act.

Background on the Motor Carrier Exemption

The Motor Carrier Act provides an exemption from the maximum hours/overtime provisions of the FLSA. The scope of the exemption is defined by the jurisdiction that the Secretary of Transportation can assert under the Motor Carrier Act. 29 U.S.C. ? 213(b)(1). The Secretary of Transportation has the power to regulate the qualifications and hours of employees of "motor carriers" and "motor private carriers" engaged in activities directly affecting the safety of motor vehicles in interstate commerce. 49 U.S.C. ?? 31501, 31502(b); Baez v. Wells Fargo Armored Serv. Corp., 938 F.2d 180 (11th Cir. 1991).

On August 10, 2005, Congress passed the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU). Pub. L. No. 109-59, 199 Stat. 1144 (2005). Section 4142 of the SAFETEA-LU amended 49 U.S.C. section 13102 so that "motor carrier" and "motor private carrier" were defined as a person providing transportation with a "commercial motor vehicle." In turn, "commercial motor vehicle" was limited to a vehicle with a "gross vehicle weight rating or gross vehicle weight of at least 10,001 pounds, whichever is greater." This amended definition effectively stripped the Secretary of Transportation of the power to regulate qualifications and maximum hours of service for drivers employed by motor carriers operating vehicles weighing less than 10,001 pounds and narrowed the Motor Carrier Exemption accordingly.

On June 6, 2008, Congress passed the SAFETEA-LU Technical Corrections Act (TCA). Pub. L. No. 110-244, 122 Stat. 1572 (2008). The TCA restored the definitions of the terms "motor carrier" and "motor private carrier" to their pre-SAFETEA-LU meanings. As a result, the Secretary of Transportation regained the power to exercise jurisdiction over the qualifications and maximum hours of service of drivers employed by motor carriers or motor private carriers operating vehicles with a weight of 10,000 pounds or less.

At the same time, however, the TCA retained the FLSA overtime protection for any "covered employee." The TCA defined "covered employee" as any individual "employed by a motor carrier or motor private carrier" whose duties, in whole or in part, are defined as a "driver, driver's helper, loader, or mechanic . . . affecting the safety of operation of motor vehicles . . . in interstate or foreign commerce . . . who performs duties on motor vehicles weighing 10,000 pounds or less."

Employees performing duties on vehicles designed or used to transport more than eight passengers for compensation, more than fifteen passengers and not for compensation, or material found by the Secretary of Transportation to be hazardous under 49 U.S.C. section 5103 were excluded from the definition of "covered employee."

The Court's Holding

The primary issue in Alpine Logistics was whether the individuals who drove both larger vehicles (10,001 pounds or more) and smaller vehicles (10,000 pounds or less) were "covered employees" and thereby entitled to overtime under the FLSA. The court pointed to Wage and Hour Division Fact Sheet # 19 issued by the Department of Labor in support of its holding that individuals who drove both larger and smaller vehicles during the same workweek were entitled to overtime compensation. The court held that the Motor Carrier Exemption does not apply to an employee in workweeks where the employee operates a smaller vehicle even if the employee also operates a larger vehicle during the same week. The court rejected the company's argument that Congress could not have intended to subject drivers to dual jurisdiction of the Department of Labor and Department of Transportation. The court held that the company's argument was inconsistent with the language of the TCA.

Implications of the Decision

The decision in Alpine Logistics may create added regulatory and recordkeeping obligations for companies with a mixed fleet of vehicles by subjecting employees to dual jurisdiction of the Department of Transportation and Department of Labor. Further, the decision conflicts with the general principle that the "[Motor Carrier] exemption is to eliminate any conflict between the Department of Labor's jurisdiction over the FLSA and the mutually exclusive jurisdiction exercised by the Department of Transportation over the MCA." Glanville v. Dupar, Inc., 2009 U.S. Dist. LEXIS 88408 (S.D. Tex. 2009). In Collins v. Heritage Wine Cellars, LTD, 589 F.3d 895 (7th Cir. 2009), for example, the court said "[d]ividing jurisdiction over the same drivers, with the result that their employer would be regulated under the Motor Carrier Act when they were driving the big trucks and under the Fair Labor Standards Act when they were driving trucks that might weigh only a pound less, would require burdensome record-keeping, create confusion, and give rise to mistakes and disputes."

The decision may also create additional financial burdens and exposure for companies with a mixed fleet of vehicles and adds further complexity to an already inconsistent approach taken by federal courts. See, e.g., Dalton v. Sabo, Inc., 2010 U.S. Dist. LEXIS 32472, at **11-12 (D. Or. 2010) ("even if each of these plaintiffs occasionally performed duties on vehicles weighing 10,000 pounds or less, 'when mixed activities occur, the Motor Carrier Act favors coverage.'"); Hernandez v. Brink's, Inc., 2009 U.S. Dist. LEXIS 2726, at **15-16 (S.D. Fla. 2009) ("when mixed activities occur, the Motor Carrier Act favors coverage of the employee during the course of employment."); Vidinliev v. Carey Int'l, Inc., 581 F. Supp. 2d 1281, 1293-94 (N.D. Ga. 2008) (exemption generally applies if some drivers operated larger vehicles within four months of the pay period at issue and the plaintiff could have reasonably been expected to drive a larger vehicle); Mayan v. Rydbom Express, Inc., 2009 U.S. Dist. LEXIS 90525, at *31 (E.D. Pa. 2009) ("[a]n employee working on a 10,001 pound vehicle two days a week and a 5000 pound vehicle the remaining days of the week appears [to be entitled to overtime"]). The cases that allow the exemption when mixed activities occur seem to be more consistent with the intent of the Motor Carrier Act.

Given the patchwork of decisions on the applicability of the Motor Carrier Exemption when mixed activities are involved, employers with a mixed fleet of vehicles should review their classification decisions and vehicle assignments to assess any potential exposure the Alpine Logistics decision may present.

Authors: Michael Gregg