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

On March 2, 2010, President Obama signed into law the Temporary Extension Act of 2010 (the "Act"), which extends COBRA subsidy eligibility through March 31, 2010. As we wrote in our January 10, 2010 post, the COBRA subsidy provides that assistance eligible individuals are responsible for only 35% of their COBRA premiums during the subsidy period and employers are responsible for the remaining 65% of the premium, but receive a payroll tax credit for the cost. The COBRA subsidy was originally set to expire on December 31, 2009, but was extended to February 28, 2010. The Act is a stop gap measure while Congress considers legislation that could further extend the COBRA subsidy through December 31, 2010.

Under the Act, employees who are involuntarily terminated between March 1, 2010 and March 31, 2010, are eligible for the COBRA subsidy. Additionally, the Act expands eligibility to cover individuals who were subjected to a reduction of hours between September 1, 2008 and March 31, 2010, followed by an involuntary termination occurring between March 2, 2010 and March 31, 2010. Such individuals are eligible for the COBRA subsidy regardless of whether they elected COBRA coverage at the time of their reduction in hours. The Act also provides further guidance to employers regarding their determination as to whether an employee's termination was involuntary.

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On December 21, 2009, President Obama signed into law the Department of Defense Appropriations Act of 2010 (the “Act”). Among other things, the Act extends the COBRA premium subsidy previously enacted by the American Recovery and Reinvestment Act (“ARRA”), from December 31, 2009 until February 28, 2010. As most employers are aware, and as discussed in our March 6, 2009 post, under ARRA, assistance eligible individuals are responsible for 35% of the premiums during the subsidy period and employers are responsible for 65% of the premium, but receive a payroll tax credit for the cost.

The Act makes clear that the qualifying event (involuntarily termination other than for gross misconduct or reduction in hours, which causes a loss of coverage) must occur before February 28, 2010. The individual need not actually lose coverage before February 28, 2010 to be eligible for the extended subsidy. This provision differs from ARRA, which required both the qualifying termination and the loss of coverage to occur before the end of the subsidy period. The Act also extends the subsidy period from nine (9) months to fifteen (15) months.

In addition, employers should be aware that the Act imposes upon them additional notice requirements. By February 17, 2010, employers must provide additional notice to assistance eligible individuals informing them of the changes made by the Act. In the event of a qualifying event occurring after December 19, 2009, the employer must give notice to assistance eligible individuals of their COBRA subsidy rights, consistent with the requirements of the ARRA.
 

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As employers who have experienced employee terminations within the past fifteen (15) months are aware, the American Recovery & Reinvestment Act of 2009 (“ARRA”) provides a COBRA premium subsidy of 65% for qualified beneficiaries who suffer an “involuntary termination” between September 1, 2008 and December 31, 2009 and who are eligible for COBRA within the same time period and elect such continuation coverage.  The question has arisen whether employees who are terminated in December 2009 and are set to begin COBRA on January 1, 2010 are eligible for this subsidy.

Pursuant to IRS and DOL guidance, the answer is no. In fact, “both the involuntary termination and eligibility for COBRA continuation coverage must occur during September 1, 2008 through December 31, 2009.” See IRS Notice 2009-27,Q/A 13114.  Because COBRA eligibility only begins after an individual ceases to be an active employee, an employee who ceases to be an employee in December 2009 and is first eligible to begin COBRA coverage on January 1, 2010 will not be entitled to the subsidy. See Id.  Accordingly, if the employee and his/her dependents are covered through December 31, 2009, they will not technically become eligible for COBRA until January 2010 and, therefore, will fall outside the ARRA subsidy program.  Employers should be clear on this guidance so that they may properly advise employees and not inadvertently promise anyone a subsidy in 2010.

Employers should also note that Congress is considering certain bills that might extend the COBRA premium subsidy to June 30, 2010.  We intend to keep readers updated on the status of such proposed legislation in future blog posts.

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New York employers should be aware that New York State recently amended both the New York Labor Law, which governs wage and hour issues, as well as the State’s Human Rights Law.

Changes to the Labor Law 

On July 28, 2009, the New York Labor Law was amended and now requires employers to provide all employees who are hired on or after October 26, 2009 with written notice of their rate of pay and the employer’s regular pay dates. In addition, employers will now be required to notify new non-exempt employees who are eligible for overtime of their regular hourly rate and their overtime rate of pay. Employers will also be required to obtain acknowledgments from each new employee evidencing their receipt of this notice.

On August 27, 2009, Governor Paterson signed a bill into law that will increase the penalties for employers who retaliate against employees exercising their rights under the Labor Law. The minimum penalties will increase from $200 to $1,000 and the maximum penalties will increase from $2,000 to $10,000. In addition, the new law will make the State law consistent with the Federal Fair Labor Standards Act by permitting employees to automatically recover “liquidated damages” from their employers, unless the employer provides a “good faith basis” to show that it believed its wage underpayment was in compliance with the law.  Considering the Labor Law’s six (6) year statute of limitations, liquidated damages at the New York statutory rate of 25% of the unpaid wages could be significant. The law will now impose liability on officers and agents of limited liability companies where such individuals retaliate against employees who exercise their rights. Finally, the law gives the Commissioner of Labor the power to bring an administrative action, in addition to a court action, where the Commissioner finds violations of wage payment laws.

The bill also expanded the Labor Law §215(1) to expand the statute’s whistleblower protections to include those who have complained to their supervisor as opposed to filing a formal complaint. This way, New York law will be consistent with New Jersey’s Conscientious Employee Protection Act.

Changes to the Human Rights Law

On July 7, 2009, the State Legislature also amended the State Human Rights Law to include victims of domestic of violence as a protected category. As with other protected categories, employers may not refuse to hire or otherwise discriminate against an individual, in any aspect of employment, because the individual is a domestic violence victim. Pursuant to the statute, “domestic violence victim” is defined as, “an individual who is a victim of a family offense under New York’s Family Court Act, including disorderly conduct, harassment, stalking, reckless endangerment or assault between spouses or former spouses, or between parent and child or between members of the same family or household.” The New York State Human Rights Law was further amended to now provide for civil fines and penalties of up to $50,000.00 for unlawful discriminatory acts that occur on or after July 6, 2009. In addition, the Act provides for penalties and fines of up to $100,000.00 where the discrimination is willful, wanton or malicious.

Changes to New York’s “Mini-COBRA” Law

On July 28, 2009, Governor Paterson also signed into law a bill that will extend an employee’s right to continue his/her health insurance under New York’s “Mini-COBRA” law. New York’s “Mini-COBRA” applies to employers with less than twenty (20) employees while employers with more than twenty (20) employees are subject to federal COBRA. Prior to this bill, those subject to Mini-COBRA were entitled to continuation coverage for eighteen (18) months from their separation in the event of termination, reduction in hours of employment, or loss of eligibility. Now, however, an employee may continue coverage for up to thirty-six (36) months. If the employee has exhausted his/her continuation coverage under COBRA, he/she is also permitted to maintain coverage for up to thirty-six (36) months. 

Employers conducting business in New York should make note of these important changes to the State’s employment laws.

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The American Recovery and Re-Investment Act of 2009 (“ARRA”), enacted on February 17, 2009, made significant changes to federal COBRA, as previously reported on this blog. New Jersey employers with less than twenty (20) employees, who are subject to New Jersey’s mini-COBRA statute (“NJ COBRA”), should also be aware that the ARRA makes significant changes to NJ COBRA.

“Assistance eligible individuals” who elect COBRA (or NJ COBRA) may receive a government subsidy equal to 65% of their health insurance premium for up to nine (9) months and remain obligated to pay 35% of the premium. Under NJ COBRA, “an assistance eligible individual” is an individual who loses group health coverage because of an employee’s involuntary termination between September 1, 2008 and December 31, 2009 and who is otherwise eligible for New Jersey continuation coverage. Under New Jersey law, employees who are terminated for “cause” are not eligible for continuation coverage. The NJ COBRA premium subsidy is also not available if the individual’s income that year exceeds $125,000.00 for an individual filer and $250,000.00 for a joint filer. Finally, the NJ COBRA premium subsidy is not available if the employee is otherwise eligible for other insurance coverage, such as through a spouse’s plan or Medicare.

New Jersey’s small employers with less than 20 employees should be aware of their obligations to provide NJ COBRA notices to eligible employees. Employees who are involuntarily terminated between September 1, 2008 and February 16, 2009 must elect the subsidy no later than April 18, 2009. Those who are involuntarily terminated between February 17, 2009 and December 31, 2009 must elect New Jersey continuation coverage within thirty (30) days after their coverage ended due to an involuntary termination of employment. These individuals must also sign up for the subsidy within that same thirty (30) day period. This thirty (30) day period is different than the election period applicable to COBRA. 

Employers should also be aware that individuals who initially declined to elect group continuation coverage or initially elected coverage and then lost it due to their failure to pay premiums will have an additional opportunity to elect group continuation coverage and receive the subsidy. In this situation as well, individuals will have until April 18, 2009 to enroll. Coverage for eligible individuals who enroll will end on the date coverage would have ended had they initially elected continuation coverage following their termination. 

Unlike COBRA, under NJ COBRA only the person who is involuntarily terminated may make a continuation election, and not the employee’s dependents. 

Small employers should make note of those “take away” items referenced in the Firm’s March 6, 2009 posting on the ARRA and its impact on COBRA. Employers should also note that the Department of Labor has issued model forms for employers to use when notifying individuals of their rights under COBRA and NJ COBRA. These forms can be found at http://www.dol.gov\ebfa\COBRA.html.

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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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