Employment Law Monitor : Employment Lawyer & Attorney : Cole Schotz Meisel Forman & Leonard Law Firm : NJ, Mid-Atlantic Wage & Hour, Wrongful Termination

On January 29, 2009, President Obama signed the Lilly Ledbetter Fair Pay Act of 2009 (the “Act”) into law.  The Act overrules a 2007 United States Supreme Court decision (Ledbetter v. Goodyear Tire & Rubber Co., Inc., 550 U.S. 618 2007)), which held an employee must file a claim alleging wage discrimination within 180 days of the employer’s initial decision regarding wages or lose the right to file the claim forever.  Essentially the Ledbetter Court had held that a new cause of action does not occur with each allegedly discriminatory payment of wages.

Under the Act, however, a discriminatory compensation decision occurs with each paycheck and permits an employee to recover back pay for up to two years from his/her filing of the charge or complaint of discrimination.

Significantly important to employers is that the Act is retroactive to May 28, 2007.  Accordingly, employers should immediately review their pay policies through 2007 to ensure that no protected class is paid disproportionately to another for the same or comparable work.

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On February 17, 2009, President Obama signed into law a $787 billion economic stimulus package entitled the American Recovery and Reinvestment Act of 2009 (the “ARRA”). The ARRA made some significant changes to COBRA. The ARRA provides for a sixty-five percent (65%) government subsidy of COBRA premiums for up to nine months for certain employees (and their dependents) involuntarily terminated during the period from September 1, 2008 to December 31, 2009. The 65% premium subsidy initially must be paid by employers who thereafter will be reimbursed by the government.

The COBRA Premium Subsidy

Under COBRA, terminated employees and their qualified beneficiaries may continue their health insurance at the group rate plus a two percent (2%) administrative fee. Under ARRA, the federal government for up to nine months will pay 65% of the cost of a qualified beneficiary’s COBRA premium if the qualified beneficiary (1) experiences a qualifying event that is an “involuntary termination” during the period September 1, 2008 to December 31, 2009; (2) elects COBRA coverage; and (3) pays 35% of the COBRA premium. The employer must initially pay the 65% of the COBRA premium and receive a credit for such amount against its federal payroll tax liabilities. Involuntary termination is not defined. However, it is clear that layoffs qualify but terminations for gross misconduct do not.

Employers agreeing to pay a portion of their employees’ COBRA premiums as part of a severance package should take note: employees are only obligated to pay 35% of their premium obligation. Moreover, employers will only be reimbursed by the federal government for 65% of their employees’ contributions. In other words, if as part of a severance package the employer agrees to pay all of a former employee’s COBRA contributions, the employer will not be reimbursed at all by the federal government. If an employer agrees to pay forty percent (40%) of the employee’s COBRA contributions, the employee only needs to pay 35% of his or her 60% obligation and the employer is only entitled to obtain reimbursement for 65% of the employee’s 60%. Stated differently, the employer will not be entitled to a payroll tax credit for the 40% of the premium the employer agreed to pay pursuant to a severance agreement.

There is an income threshold. If the individual’s modified adjusted gross income exceeds $145,000, or $290,000 for joint filers, the government’s premium subsidy must be repaid by the employee. The repayment is reduced proportionately for income between $125,000 and $145,000. Individuals can elect to waive the premium subsidy if they are above the income threshold to avoid being subject to a recapture tax.

Period of COBRA Premium Subsidy

The subsidy applies to periods of COBRA coverage that begin after February 17, 2009. If a company’s period of coverage under its plan is a calendar month, the employer will have to start providing the subsidy beginning March 1, 2009.

The subsidy is available for up to nine months so long as the individual remains eligible to continue COBRA coverage, but will end earlier if the individual becomes eligible for any other group health coverage or Medicare. Under COBRA, an individual eligible for Medicare does not need to terminate COBRA coverage. However, under ARRA, the subsidy will end.

There is a grace period under ARRA. For employers who charge qualified beneficiaries for the full COBRA premium for up to two billing periods after February 17, 2009, the employer must then either reimburse the qualified beneficiary for the amount of the premium subsidy or credit that amount toward future COBRA premium payments.

New Election Opportunity

Those who were terminated on or after September 1, 2008, who originally did not elect COBRA will have an additional opportunity to elect. They have sixty (60) days to make the election after notice is provided. The notice must be sent by April 18, 2009 to all qualified beneficiaries (not just to individuals who were involuntarily terminated). Coverage begins on February 17, 2009 (or March 1, 2009) but ends no later than the date that the original maximum COBRA continuation coverage period would have expired.

Take Aways

• Identify those individuals who have been involuntarily terminated since September 1, 2008.
   
• Those involuntarily terminated individuals who elected COBRA must be given a subsidy starting with the next COBRA payment period (February 17, 2009 or March 1, 2009).
   
• Those involuntarily terminated employees who did not elect COBRA coverage (and the qualifying dependents of those individuals) must be notified of their special election rights by April 18, 2009.
   
• Revise premium notices for those qualifying for the subsidy to reflect the 35% premium amount.
   
• Determine how you will allow high-income employees to waive the COBRA subsidy.
   
• Revise your COBRA election notice or prepare an attachment to use with your existing notice. These revisions should be used until December 31, 2009.
   
• Should anyone overpay their COBRA premiums beginning March 1, 2009, decide whether you will refund the overpayment or apply it as a credit towards future COBRA premiums.
   
• Review employee manuals, summary plan descriptions, etc. to reflect the ARRA changes.

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After much news coverage of the salaries and bonuses being received by top executives at financial institutions requiring bailout by the Federal Government, through taxpayer money, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (“ARRA”). ARRA was signed into law on February 17, 2009 and places strict limits on executive compensation for financial institutions receiving federal assistance under the Troubled Assets Relief Program (“TARP”). 

The restrictions, the major ones of which are outlined below, apply to all institutions that have already received or will receive governmental financial assistance under TARP (“TARP Recipients”). The executive compensation restrictions apply to TARP Recipients for as long as the Treasury holds preferred stock in the institution. ARRA allows TARP Recipients to avoid the executive compensation restrictions by repaying any government assistance.

Severance Payments

TARP Recipients are prohibited from making severance payments (i.e., a “golden parachute”) to a top five senior executives officers (“SEOs”) or any of the next five most highly-compensated employees.

Salaries

ARRA does not contain a cap on salaries, however, the original TARP tax deductibility cap of $500,000 remains in place for the SEOs.

ARRA prohibits the payment of bonuses by TARP Recipients depending on the amount of government assistance the institution received.

• For institutions receiving $500 million or more, the prohibition applies to the SEOs and the next 20 most highly compensated employees.
   
• For institutions receiving between $250 million and $500 million, the prohibition applies to the SEOs and the next ten most highly compensated employees.
   
• For institutions receiving between $25 million and $250 million, the prohibition applies to the SEOs.
   
• For institutions receiving under $25 million, the prohibition applies only to the most highly compensated employee.

The prohibition does not apply to grants of restricted stock under certain situations. Also, the Treasury is authorized to increase the scope of the bonus prohibition to cover more individuals.

Bonus Clawback

TARP Recipients must recover any bonus, retention award or incentive compensation paid to the SEOs and the next 20 most highly compensated employees based on statements of earnings, revenues, gains or other criteria that are later found to be materially inaccurate.

Luxury Expenditures

TARP Recipients must establish company wide policies regarding excessive or luxury expenditures (as identified by the Treasury), which may include (i) entertainment or events; (ii) office and facility renovations; (iii) aviation or transportation services; and (iv) other activities or events that are not reasonable expenditures for staff development or performance.

Say on Pay

Public companies must permit nonbinding shareholder votes on executive compensation (i.e., “say on pay”). ARRA directs the Securities and Exchange Commission (“SEC”) to promulgate proxy rules for “say on pay” within one year.

Review of Prior Payments

ARRA authorizes the Treasury to review bonuses, retention awards and other pre-ARRA compensation paid to SEOs and the next 20 most highly compensated employees of TARP Recipients to determine whether any payments were excessive or inconsistent with the purposes of ARRA or otherwise contrary to the public interest. If the Treasury determines any payments to be improper, the Treasury will enter into negotiations for appropriate reimbursement to the Federal Government.

Compensation Committees

TARP Recipients are required to establish independent compensation committees to review compensation plans semi-annually in relation to any risk posed to the company as a result of its compensation plans.

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The Americans with Disabilities Act (“ADA”) was recently expanded with the enactment of the ADA Amendments Act of 2008 (the “Amendments Act”), which brings the ADA more in line with the already broad New Jersey Law Against Discrimination (“NJLAD”). The Amendments Act modifies the ADA in many significant areas. First, the Amendments Act significantly expands the previous requirement that to qualify as a covered disability, a condition must be an impairment that “substantially limits one or more major life activities.’ By expanding the interpretation of “substantially limits” in favor of finding disability coverage, the Amendments Act will lead to more conditions qualifying as disabilities. Similarly, the Amendments Act expands those “major life activities” that are subject to the disability definition. The Amendments Act also requires that when considering whether or not an individual is disabled, employers and courts may not take account of “the ameliorative effects of remediating measures.” Under previous law, an employer was to consider whether an employee was subject to medication, equipment or other intervention that improved his or her limitation in assessing a disability. The Amendments Act prohibits consideration of such mitigating measures, which again will favor findings of disability coverage.

Along the same lines, the Amendments Act expands the “regarded as” disabled language by providing that an individual will be “regarded as” having a disability if he/she “establishes that [he] has been subject to action prohibited under this act because of an actual physical or mental impairment whether or not the impairment limits or is perceived to limit a major life activity.” Accordingly, it will no longer matter whether an employee who is “regarded as” having an impairment actually has the limitation. Finally, the Amendments Act will expand coverage for impairments that are “episodic or in remission” as they are now covered conditions if they would “substantially limit” a “major life activity.” Although the Amendments Act may have little practical effect on New Jersey employers who were already subject to the NJLAD’s broad interpretation of “disability”, employers should take this opportunity to ensure that their policies and practices are in line with both of these laws and that supervisors and managers are trained to recognize employees who may be protected under these important laws.

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Effective January 16, 2009, the United States Department of Labor promulgated new regulations applicable to the Family and Medical Leave Act (“FMLA”). While the following contains only highlights of the recent rule changes, employers are well advised to make themselves aware of all modifications to the FMLA. 

Perhaps the most significant changes to the FMLA relate to notice obligations. As the notification requirements have changed, employers must be aware that they must provide four different types of notice to employees. These notices include (i) general notice, (ii) eligibility notice, (iii) rights and responsibilities notice, and (iv) designation notice. If the employer’s work force is not literate in English, the notices must be translated into a language in which the work force is literate.

The general notice must provide a general statement of the FMLA’s provisions and must be placed in a prominent location, It should also be distributed in the employer’s handbook. The eligibility notice must notify the employee whether or not he or she is eligible for the FMLA within five (5) business days of the employee’s request for FMLA leave or from when the employer acquires knowledge that the employee’s leave may be covered under the FMLA. The notice should indicate whether the employee has been approved for FMLA and, if not, why the leave request has been denied. The Rights and Responsibilities Notice must advise the employee that the employer may designate and count the leave toward the employee’s FMLA entitlement. The notice is also required to provide additional information including whether the employee must substitute paid leave, and whether a certification will be required during the leave. Finally, the designation notice must be written and inform the employee whether the employer believes the employee is FMLA-qualifying.

Another major area in which the FMLA has been amended is with regard to military-related leave. Specifically, the National Defense Authorization Act extends FMLA leave to certain situations where employees need leave to care for an injured service member or due to a “qualified exigency in support of a contingency operation.” Eligible employees, including a “spouse, son, daughter, parent or next of kin of a covered service member” are eligible for leave of up to 26 work weeks in a single twelve month period to care for a injured service member. Leave can also be taken for a “qualifying exigency,” which includes situations in which an employee must address military-related issues such as short notice deployment, military events and related activities, urgent childcare and school activities, financial and legal tasks, counseling for the employee or a minor child, etc. 

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In Cerdeira v. Martindale-Hubbell, 402 N.J. Super. 486 (App. Div. 2008), decided on September 18, 2008, the Appellate Division held that an employer can be liable for sexual harassment committed by Defendant’s a co-worker, even if the employer did not know that the harassment was occurring. 

It is well established that an employer can be held liable under a negligence theory for the sexual or other harassment committed by a supervisor if the employer does not have an effective anti-harassment policy in place. In Cerdeira, the Appellate Division confirmed that liability under a negligence theory is not limited to harassment committed by supervisors, but also applies to harassment committed by co-workers. Arguably, this is an expansion of an employer’s potential liability under New Jersey law, which had not previously ruled on the issue of employer liability for co-worker harassment.

The Cerdeira decision highlights the importance for employers to implement effective anti-harassment policies and to make employees aware of those policies through publications and training.

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