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Employment Law Monitor

Insights on Recent Developments in Federal and State Labor & Employment Matters

Employers Should be Aware of Updated I-9 Form

By Randi W. Kochman on Posted in Employment Policies and Practices

As most employers are aware, the Immigration Reform and Control Act of 1986 (the “Act”) requires employers to verify that their employees are legally authorized to work in the United States.  The Department of Homeland Security recently issued a revised Form I-9, which must be completed by all employers to verify the identity and employment authorization of every new employee hired after November 6, 1986 to work in this country.  Links to the new Form I-9 can be found here. 

Employers must be aware that every new employee must sign Section 1 of the Form I-9 no later than the employee’s first day of employment.  It is important that all employers complete the Form I-9 and properly verify the identity and employment authorization of each person hired as well as retain the completed Form I-9 in each employee’s personnel file.

Employers who violate the Act may be liable for civil fines, criminal penalties (where there has been a pattern or practice of violations), debarment from government contracts, back pay and an order that an employer rehire an employee who was subject to discrimination.

Preparing for the Employer Mandate

By Michael N. Morea on Posted in Employment Policies and Practices

Cole Schotz Employment Law Attorneys Michael Morea and Lauren Manduke recently had an article published in the New Jersey Law Journal entitled Preparing for the Employer Mandate. This article details what employers need to know about the implementation and requirements of the Patient Protection and Affordable Care Act (ObamaCare). Specifically, the article explains the significance of the employer mandate, how applicable large employer status is determined, the various employer obligations under the act and penalties for noncompliance.

Click here to read the article in its entirety.

Who is a Large Employer Under Obamacare?

By Steven M. Saraisky on Posted in Employment Policies and Practices

Among other things, the Patient Protection and Affordable Care Act (the “Act”), commonly referred to as Obamacare, requires “large employers” to provide qualified health coverage for all of their full-time employees, or pay an annual penalty.  A large employer is generally an employer with 50 or more full-time employees. 

In order to prevent employers from dividing businesses into several smaller businesses to avoid the “50 full-time employees” rule, the Act also contains rules that require businesses with common ownership to be treated as a single employer. 

These rules refer to two Code sections – Code §1563 which deals with groups of corporations that qualify to file consolidated tax returns, and Code §414 which deals with commonly controlled businesses under ERISA.  These rules are quite complicated though also somewhat mechanical.  For groups of family-owned businesses with 50 or more employees in total, the ownership structure must be evaluated against the tests detailed in the statute and regulations to determine if the businesses are aggregated.  Below is a brief summary of the rules and a discussion of potential planning opportunities.

Under the statutory tests, a controlled group can be either (1) a parent-subsidiary controlled group, (2) a brother-sister controlled group, or (3) a combination of parent-subsidiary and brother-sister controlled groups.  There are also rules for attribution of ownership between related individuals, trusts and non-corporate entities. 

A “parent-subsidiary controlled group” exists when a common parent corporation owns 80% or more of the stock of subsidiary corporations.  This does not apply to most family businesses because they typically are not owned in parent-subsidiary ownership structures.

A brother-sister controlled group is a group of two or more corporations, in which five or fewer common owners (a common owner must be an individual, a trust or an estate) own directly or indirectly a “controlling interest” of each group and have “effective control.”  “Controlling interest” is defined in Regs §1.414(c)-2(b)(2) and generally means 80% or more of the stock of each corporation (but only if such common owners own stock in each corporation).  “Effective control” is defined in Regs §1.414(c)-2(c)(2) and generally means more than 50% of the stock of each corporation, but only to the extent that such stock ownership is identical with respect to such corporation.

Under Code §414(m), there also can be aggregation for entities that are considered to be part of an “affiliated service group,” which applies to companies whose principal business is the performance of services. 

For most closely held businesses, the key analysis will be whether the entities constitute brother-sister corporations.  Also, in most cases, the first prong of the brother-sister test – the “controlling interest test” – will be satisfied because five or fewer shareholders together frequently own 80% or more of the ownership interest in each company.  (On the other hand, it is worth noting that if two family members whose interests are not attributed to each other, such as father and son-in-law, each own a separate business, the businesses may fail this prong of the test.) 

The second prong of the brother-sister test – the “effective control” test – looks at the common ownership in both entities and deems them to be effectively controlled by  an owner group that owns more than 50%.  One must first calculate the ownership interest that each owner has in both entities, and then determine if they exceed 50%.

For example, if A, B, C and D are each 25% owners of two companies, they each own 25% of both companies and together they effectively control 100%, so the companies would be brother-sister companies.

But, for example, assume that the ownership of the two companies is as follows: 

Owner

Company 1

Company 2

A

80%

20%

B

10%

50%

C

5%

15%

D

5%

15%

Total

100%

100%

In this example, A, B, C and D together own 100% of the stock of both companies, but they do not have “effective control” because the sum of each stockholder’s common ownership in both companies does not exceed 50% (A = 20%, B = 10%, C = 5% and D = 5%, and the sum is 40%).  See Larry Lawson and Jeff Nelson, Controlled and Affiliated Service Groups, IRS Tax-Exempt and Government Entities, pp. 7-7 – 7-8 (available here). 

The effective control test raises some interesting possibilities, as stock ownership can be arranged to flunk the test and therefore avoid aggregation as a large employer.  The following charts show ownership percentages for corporations with two and three shareholders that will not pass the effective control test. 

            Example for two owners (no attribution):

Owner

Company 1

Company 2

A

76%

24%

B

24%

76%

Total

100%

100%

 In this case, A has 24% common ownership in both companies, and B has 24% common ownership in both companies.  The total is 48%, which is below 50%, and the companies should not be a brother-sister controlled group.

            Example for three owners (no attribution):

Owner

Company 1

Company 2

Company 3

A

68%

16%

16%

B

16%

68%

16%

C

16%

16%

68%

Total

100%

100%

100%

 In this case, A, B and C together will not have more than 48% common ownership in any two companies.  The total is 48%, which is below 50%, and none of the companies should be considered a brother-sister controlled group.

While the controlled group rules will effectively cause many family-owned businesses to be aggregated for purposes of Obamacare’s large employer test, for some businesses there may be planning opportunities to avoid these rules.

In addition, for more information on the Act, see Michael Morea and Lauren Manduke’s recent article, “Preparing for the Employer Mandate,” New Jersey Law Journal, April 29, 2013. 

Tags:  Applicable large employer, single employer, controlled group, parent-subsidiary controlled group, brother-sister controlled group, Code §1563, Code §414, Obamacare, Patient Protection Act.

Bill Introduced in NJ Assembly to Limit Enforcement of Non-Compete and Non-Solicitation Agreements

By Wendy Klein on Posted in Employment Policies and Practices

A bill introduced in the New Jersey Legislature on April 4, 2013, Assembly Bill 3970, seeks to prohibit enforcement of agreements restricting departing employees from competing, disclosing confidential information, or soliciting employees or customers if those employees are found eligible to receive unemployment compensation benefits.

The legislation is intended to remove barriers for those seeking new employment, but the language of the proposed statute is broad and provides that an unemployed individual found eligible to receive unemployment benefits “shall not be bound by any covenant, contract, or agreement . . . not to compete, not to disclose, or not to solicit.”  A copy of the bill can be found here.   Thus, even agreements allowing a terminated employee to work for a competing firm, but prohibiting the employee from soliciting customers or employees or disclosing trade secrets could be invalidated.

The proposed law, which would not apply to any agreement or covenant in effect before the law is enacted, raises a number of issues for employers and employees.  If enacted, employers may be reluctant to terminate underperforming workers because of fears the employer will not be able to adequately prevent such terminated employees from competing and soliciting their clients and employees.  The proposed legislation may also cause more employers to put such agreements in place before enactment of the statute, thereby increasing the number of employees currently subject to non-compete and non-solicitation agreements.

Under the proposed legislation, the enforceability of non-disclosure, non-competition, and non-solicitation agreements would turn on whether the terminated employee is found eligible for unemployment benefits.  The legislation, therefore, also could lead to more unemployment compensation disputes regarding the circumstances surrounding an employee’s departure, as employers seek to maintain contractual post-employment restrictions and employees seek to eliminate them.

Whether the proposed statute will be enacted is uncertain, but even given the prospect of such a significant change in the law, employers should look at their existing workforce, employment agreements, and workplace policies and procedures to evaluate whether the investments they have made in their business and employees are being adequately protected.

New York City Prohibits Discrimination Against The Unemployed

By Michael N. Morea on Posted in Employment Policies and Practices, Harassment, Discrimination and Retaliation, Wage and Hour and Executive Compensation

On March 13, 2013, the New York City Council overrode Mayor Bloomberg’s veto of legislation prohibiting New York City employers from discriminating against unemployed job applicants.  In so doing, New York City joins New Jersey and other jurisdictions that have recently prohibited employers from basing employment decisions on an applicant’s unemployment status.

The new law will go into effect on June 11, 2013 and amends New York City’s broad anti-discrimination laws to include “unemployment” as a protected characteristic.  The new law will apply to employers with four or more employees.  It makes it an unlawful employment practice for such employers to base employment decisions, such as hiring, compensation, or other terms or conditions of employment, on the unemployment status of an applicant.  The law also prohibits employers, regardless of size, from publishing any advertisement for a job that states or indicates current employment is a requirement or qualification for the position.

Under the new law, employers are still permitted to inquire into the circumstances surrounding an applicant’s separation from his or her prior job.  Additionally, provided that there is a substantially job-related reason for doing so, employers will be able to consider an applicant’s unemployment status in making an employment decision.

Employers who violate the new law will be subject to potentially severe penalties.  Individuals who believe they were discriminated against on the basis of their unemployment status may file complaints in either the New York City Commission on Human Rights (the “Commission”) or in court.  Employers found to have violated the law will be subject to liability for injunctive relief, back pay and front pay, compensatory damages, punitive damages, and attorneys’ fees and costs.  In addition, the Commission can impose civil penalties of up to $250,000, depending on the severity of the employer’s conduct.

New York City employers should review their policies and practices to ensure compliance with the new law.  Additionally,New York Cityemployers should check their job advertisements to make sure those advertisements do not state or imply that current employment is a criteria for a job opening.

Department Of Labor Expands Military Protections Of FMLA

By Michael N. Morea on Posted in Employment Policies and Practices

On February 6, 2013, the Department of Labor announced a final rule that will expand protection for military service members’ families under the Family and Medical Leave Act (“FMLA”).  The final rule, which can be found here, takes effect on March 8, 2013. 

The final rule makes the following major changes to the FMLA:

  • Defining “covered service member” to include certain veterans.
  • Defining a “serious injury or illness” of a covered veteran to constitute any one of four enumerated alternatives, creating a flexible definition of the term.
  • Permitting FMLA eligible employees to obtain certifications from any health care provider authorized to provide certifications under the FMLA, not just Department of Defense affiliated providers as previously required.
  • Replacing the existing definition of “active duty” with two new definitions, “covered active duty” for regular armed forces members and “covered active duty or call to covered active duty” for reserve members, both of which require deployment in a foreign country.
  • Increasing “exigency leave” for rest and recuperation from 5 to 15 calendar days.

In order to ensure compliance with the new rule, employers subject to the FMLA should consult with legal counsel to update their handbooks and FMLA leave policies, as may be necessary

 

Governor Vetoes New Jersey Minimum Wage Bill Tied to Consumer Price Index

By Jason R. Finkelstein on Posted in Wage and Hour and Executive Compensation

This past week, New Jersey’s Governor Christopher Christie vetoed a new minimum wage bill (A2162) that had been previously passed by the State’s Legislature.  This legislation had proposed increasing New Jersey’s minimum wage from $7.25/hour to $8.50/hour, and linking future minimum wage increases to the Consumer Price Index (“CPI”), which measures changes in price levels of consumer goods and services purchased by households.  The Democratic-controlled Legislature believed that tying future increases to the CPI would more accurately reflect the value of the State’s minimum wage and largely eliminate politics from the equation.  Instead, Governor Christie vetoed the bill and proposed an increase to the current minimum wage by $0.25 this year, $0.50 in 2014, and another $0.25 in 2015, in order to lessen the immediate burden on businesses.

Both the New Jersey Senate and General Assembly, however, also passed resolution SCR1.  This resolution, scheduled to be voted on by voters next year, will allow the State’s residents to decide on an amendment to the New Jersey Constitution that would raise the minimum wage to $8.25/hour and provide for future increases based upon the CPI.

OSHA Requires Immediate Action by Certain Employers to Meet the February 1, 2013 Recordkeeping Deadline

By Gerard M. Giordano on Posted in Employment Policies and Practices

OSHA’s injury and illness recordkeeping regulations, 29 C.F.R. 1904, require that on February 1, 2013 certain employers post a summary of all injuries and illnesses that occurred in 2012.  Employers are required to use OSHA’s 300A summary form or an equivalent form.  The summary must remain posted until April 30, 2013.  Even if there were no recordable incidents in 2012, companies are required to post the 300A summary form.

The summary form must be posted in a place where notices to employees are customarily posted or should be provided to employees who may not see the posted summary because they do not report to a fixed location on a regular basis.  The owner or officer of the company is required to certify the information contained in the OSHA 300A form.

OSHA’ recordkeeping requirements apply to all non-exempt employers.  Excluded from these regulations are companies with ten or fewer employees as well as low hazard industries such as retail, service industries, finance etc.  A full listing of exempt employers as well as OSHA’s recordkeeping forms and instructions can be found at its website, OSHA.

New York Considering Amendment to Labor Law § 198 That Would Double Liquidated Damages Penalty for Failure to Pay Employees’ Wages

By Jason A. Hyne on Posted in Employment Policies and Practices, Wage and Hour and Executive Compensation

The New York State Assembly is considering a proposed amendment to Labor Law § 198 that would significantly increase the amount of liquidated damages that an employer must pay for failure to pay employees’ wages under certain situations as required by law.

The current version of Labor Law § 198 requires an employer to pay liquidated damages to an employee who receives less than the full wage to which he or she is entitled.  The amount of the liquidated damages award cannot exceed one hundred percent (100%) of the total amount of wages due to the employee.

On January 15, 2013, Assemblymember Annette Robinson introduced New York Assembly Bill No. 2499, which seeks to double Section 198’s liquidated damages provision under two circumstances.  Under the proposal, if an employer fails to pay an employee’s wages for more than thirty days, or if an employer fails to pay the wages of ten or more employees, the employer may be required to pay liquidated damages equal to twice the amount of wages due to the employee(s).

This marks the second time in less than two years in which the New York State Legislature has sought to increase penalties against employers for failure to pay wages.  On April 9, 2011, Section 198 was amended to quadruple the liquidated damages provision from twenty-five percent (25%) to the current one hundred percent (100%) of the total unpaid wages due to the employee.  Bill No. 2499, which seeks to double that figure to two hundred percent (200%), represents a clear message from the New York State Legislature that employers will pay dearly for their failure to pay employees’ wages.

Bill No. 2499 is presently before the Assembly’s Committee on Labor.  If passed, the proposed amendment will go into effect ninety days after it becomes a law.

Ringing in the New Year With Employment Legislation That Could Affect New Jersey Employers in 2013

By Neoma M. Ayala on Posted in Harassment, Discrimination and Retaliation, Wage and Hour and Executive Compensation

Five important pieces of legislation that could affect your business either will go into effect or may be decided by Governor Christie before we ring in 2013.  These bills range from social networking legislation to minimum wage increases to workplace support for victims of domestic violence. 

On October 15, 2012, the New Jersey Assembly introduced a bill that would require employers with five (5) or more employees to allow their employees to inspect and copy their personnel records up to two (2) times per year within seven (7) days of such a request.  The bill would also allow an employee to submit an explanation of information they disagree with in the file, limit the documents employers can disclose to third-parties, and provide civil penalties for non-compliance.  Governor Christie has not yet signed the bill. 

On November 19, 2012, the New Jersey Assembly reviewed a bill that would prohibit employers from asking new employees, or requiring current employees, to disclose their username names and/or passwords to social networking sites.  The bill should be before Governor Christie in the coming weeks. 

On December 3, 2012, after approval by both the Senate and the Assembly, a bill was sent to Governor Christie that would increase New Jersey’s minimum wage from $7.25 per hour to $8.50 per hour.  The new rate would be effective March 1, 2013.  The bill also calls for automatic increases in the minimum wage that would be tied to the Consumer Price Index.  Governor Christie has not yet signed this bill either. 

Currently, there are also bills before the New Jersey State Assembly and the New Jersey Senate entitled the “New Jersey Security and Financial Employment Act” or the “NJ SAFE Act”, which would require employers with twenty-five (25) or more employees to provide twenty (20) days of unpaid leave to employees who are victims of domestic violence or sexual assault within one year of the domestic violence or sexual assault.

Lastly, on or about January 7, 2013, as we previously posted, a new law requiring employers to post and distribute a notice to employees of their right to be free from gender-based pay discrimination in the workplace, will be published in the New Jersey Register.  The notice will undergo a comment period before being officially adopted by the New Jersey Department of Labor.  Once the notice is officially adopted by the New Jersey Department of Labor, employers’ posting and distribution obligations will be triggered.

Employers should check this blog often for updates on these bills, so as to be fully informed of their obligations in 2013.