May Bulletin 2014 by MSEC

Bulletin

The

EMPLOYMENT LAW

SURVEYS

HUMAN RESOURCES

MAY 2014

TRAINING

HEALTH CARE REFORM COMPLIANCE SERIES Part XX:

Employers Have 90 Days to Provide New Hires with Health Insurance Page 1 Employers Have 90 Days to Provide New Hires with Health Insurance Page 2 President Calls for Overtime Regulations Update Page 3 Public Employers: Court Interpretation of Collective Bargaining in the Colorado Public Sector Page 4 What I Wish I Knew When I Started in HR … Advice from the Trenches Page 5 You Asked: How Do I Review the Exempt Status of an Employee ? Page 6 What’s Your “Secret Sauce”? Hiring for Cultural Fit Page 7 U.S. Supreme Court Expands SOX Coverage to Contractors of Public Companies Page 8 EEOC Challenges Standard Severance Agreement Provisions Page 9 Survey News

Peg McHugh, Human Resource Consultant, MA, SPHR, CEBS

On February 24, 2014, the Internal Revenue Service, Employee Benefits Security Administration, and the U.S. Dept. of Health and Human Services published a final rule requiring employers to provide health insurance to new full-time employees within their first 90 days of employment. The 90-day waiting period limitation applies to all group health plans (fully insured and self-insured) and group health insurers, regardless of size of the employer/plan sponsor beginning on or after January 1, 2015. The waiting period is the period that must pass before an eligible individual can enroll under the terms of the group health plan. Employers are not required to have waiting periods and may have shorter waiting periods, but not longer. All calendar days including weekends and holidays are counted in the 90-day period, and the enrollment date counts as one day of the waiting period. If an individual enrolls as a late enrollee or special enrollee, any period before enrollment is not considered part of the waiting period. What effect does this limitation have on a plan’s eligibility criteria? Employers can still require new hires to complete 1,200 hours of work before becoming eligible for health insurance. The plan’s waiting period must begin on the first day after the employee satisfies the hour-of-service requirement, and not exceed 90 days. The waiting period is a one-time eligibility requirement and may not be re-applied to the same individual each year. Other plan eligibility conditions, such as being in an eligible job classification, achieving job-related licensure requirements, or satisfying an employment-based orientation period (one month) are acceptable. Eligibility conditions based solely on the lapse of time are not permissible for more than 90 days. How does this waiting period limitation apply to variable-hour employees? If benefit eligibility is based on a specified number of hours worked, the plan make take a reasonable period of time, which may include a measurement period no more than 12 months, to determine whether the employee meets the plan’s eligibility conditions. The measurement period may begin on any date between the employee’s start date and the first day of the first calendar month following the start date. A former employee who is rehired can be treated as newly eligible for coverage and a plan or issuer may require that individual to meet the plan’s eligibility criteria and satisfy the plan’s waiting period again. However, a termination or rehire may not be used to avoid compliance with the 90-day waiting period. Employer plans making employees eligible for coverage on the first day of the month after 90 days (or longer) exceed the 90-day limit and do not comply with the guidance. These employers will need to change their waiting period to the first of the month after 60 days or another shorter period that does not exceed 90 days to avoid penalties. Employers should consult with legal counsel and tax advisors to ensure their policies and their business comply with this requirement. £

Denver 303.839.5177 Scottsdale 602.955.7558 Colorado Springs 719.667.0677 Fort Collins 970.223.4107 Toll Free 800.884.1328

President Calls for Overtime Regulations Update Jennifer England, Attorney

On March 13, 2014, President Obama issued a memorandum directing Secretary of Labor Thomas Perez to update the overtime regulations of the Fair Labor Standards Act (FLSA). The intent of the update is to narrow the “white-collar” exemptions (i.e., executive, administrative, and professional), making overtime available to “millions” more workers. The U.S. Department of Labor (DOL) has posted a fact sheet and started a blog on the topic, both of which are accessible here. Although there are currently only a few posts on the blog, the majority favor or support changes to the FLSA, and some contain complaints about inappropriate FLSA pay practices. Much buzz and speculation has taken place since the announcement and release of the memorandum. The FLSA presumes employees are nonexempt and entitled to overtime pay unless their employers can show the employees meet three tests for exempt status: salary level, salary basis, and duties. The President made specific mention of the salary level currently required for exempt employees—$455/week or $23,660/year—as being too low. The proposed changes are expected to raise the salary basis requirement and to revise the duties test, possibly reinstating requirements that exempt employees spend a specific percentage of their time performing exempt duties in place of the “primarily engaged” requirement. On March 18, 2014, Secretary Perez addressed the memorandum in a speech to the International Association of Fire Fighters legislative conference stating that the $455/week salary basis has not increased since the 2004 revisions and that he hopes to close a major “loophole” concerning who would qualify as a manager under the executive exemption. These comments may indicate at least part of the focus of the revised regulations.

Changes to exempt status that narrow the number of workers who are eligible for an exemption from overtime will have a substantial impact on employers by expanding the pool of workers entitled to overtime pay. The DOL last revised these regulations in 2004, triggering a wave of litigation against employers. Thankfully, these changes will not happen overnight. Before final regulations can be enacted, federal agencies such as the DOL are required to solicit participation from affected parties, create proposed rules, allow public comment on the proposed rules, and draft final regulations. Then, a waiting period is observed between publication of final regulations and their effective date to allow regulated parties time to comply. This process often takes months or years. We recommend that you use this lag time to review your exempt classifications under the current regulations. Employers have the burden of establishing that an employee is exempt, as these are exceptions to the general requirement for minimum wage and overtime. Be aware that an employee paid a salary is not necessarily exempt, and that job titles do not determine exempt status. Instead, you must determine if the employee is performing exempt level duties for the appropriate exemption. Contact MSEC for assistance with exempt and nonexempt classifications. £

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Court Interpretation of Collective Bargaining in the Colorado Public Sector Lorrie Ray, Attorney, SPHR

In a case of first impression, the Colorado Supreme Court considered whether a change to the City and County of Denver Fire Department’s disciplinary process was a subject of collective bargaining. To make this decision, the court reviewed the City’s charter that outlined the collective bargaining process in the fire department. The court ruled that charter granted the City the authority to unilaterally implement disciplinary rules. City and County of Denver v. Denver Firefighters Local No. 858, IAFF (Colo. 2014) In 1971, Denver entered into a collective bargaining agreement with its firefighters and amended its charter that year to reflect this. In 2010, the City unilaterally changed the charter’s existing disciplinary system to add a discipline matrix, providing for greater sanctions for more severe and frequent misconduct. The firefighters asked that this be a subject of bargaining, but the City refused, and this lawsuit ensued. The court explained that a city charter “confers only the powers expressed or necessarily implied,” and strictly construed Denver’s charter. The language of the charter clearly stated that the fire chief had authority to “set forth written rules and regulations” relating to discipline, subject to review by the manager of safety. The only prohibition in the charter was against rules that contain “political or religious qualifications or disqualifications.” The court could find nothing to curb this authority in the charter, including nothing in the language about the firefighters’ right to bargain collectively, where discipline was not mentioned. Finally, the court looked to the specific terms of the collective bargaining agreement itself and found no provisions on firefighter discipline. Instead, the court found that discipline was explicitly excluded from the grievance procedure. This case is interesting in light of the collective bargaining law passed last year in Colorado. That law contained a provision indicating that those with a charter concerning bargaining already in place would follow the charter, and indeed, this ruling adds substance to that language. £

The Colorado Firefighter Safety Act was signed into law on June 5, 2013. Colorado fire departments are required to follow this law, unless the department already has a collective bargaining agreement in its charter, which was the case for Denver.

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What I Wish I Knew When I Started in HR … Advice from the Trenches Kate Bartlett, Human Resource Consultant, MA, SPHR-CA

MSEC’s human resources professionals have over 150 years of combined experience. Their experience ranges from large organizations to small and from private companies to non-profit and public sector organizations. Here is a list of things these folks wish they had known at the beginning of their HR careers. I wish I would have known …

• I am an advisor to the leadership team—not the decision maker. I do not have to worry or become ego-involved in the decision that is made as long as I have presented the options and the risks arising from each option.

• Organizations have unique cultures that are a blend of their values, beliefs, taboos, symbols, rituals, and myths. Understanding the corporate culture is critical to my success.

• Meetings never start on time. • It is normal to be confused at first. That means I am learning. Stay flexible. • I deal with processes and people. There is no clear point when the task is completed. As an HR professional, I need to be an attorney, accountant, and administrator all in one.

• How difficult it is to overcome resistance to change from the organization, employees, and myself. I need to love learning and want to keep learning to be successful.

• Dealing with people can be difficult. The more I understand human behavior, the easier it is for me to be credible and have an impact.

• How important it is to understand the general business conditions (e.g., social, technological, economic, political, environmental, and demographic trends) that affect my industry. Dave Ulrich’s book “HR from the Outside In,” provides more advice, including describing these six competencies:

• Strategic Positioner - HR professionals think and act from the outside/in. They are aware of and able to translate external business trends into internal organization actions.

• HR Innovator and Integrator - Effective HR professionals integrate innovative HR practices into unified solutions to business problems.

• Change Champion - HR professionals need to make an organization’s internal capacity for change match the external pace of change.

• Technology Proponent - At a basic level, HR professionals need to use technology to administer benefits, payroll processing, healthcare costs, and other services efficiently.

• Capability Builder - Effective HR professionals create strong organizations. Organization is not structure or process; it is a distinct set of capabilities. Capability represents what the organization is good at and known for. Whether you are just starting your career in HR or you are an experienced HR professional, there is always something changing and something new to learn. £

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How Do I Review the Exempt Status of an Employee? Tina Harkness, Attorney, SPHR

Jennifer England’s article in this issue discusses President Obama’s recent call for an update to federal overtime regulations. Although the details of this “update” may not be known for some time, it is expected to reduce the number of employees who will fit into the three main exempt categories (i.e., executive, administrative, and professional). Jennifer recommends that employers review whether their exempt classifications are proper under the current regulations in anticipation of changes to come. How can you accomplish this? Start by reviewing the three tests for exempt status.

The Salary Level Test is the easiest to meet, but it may not stay that way. Currently, exempt executive, administrative, and professional employees must be paid at least $455/week, which annualizes to $23,660/year. This amount cannot be prorated for part-time work. The update is expected to raise this amount, perhaps even doubling it.

The Salary Basis Test seems easy, but is sometimes difficult. With limited exceptions, the test requires exempt executive, administrative, and professional employees to be paid a predetermined weekly salary that is not affected by the quantity or the quality of their work. Because exempt employees are not eligible for overtime pay, the test limits deductions that can be made from exempt employee pay. Deductions may be made for full-day absences for the exempt employee’s own personal reasons, sickness, and for certain infractions of written workplace conduct rules. The test prohibits private employers from making partial-day salary deductions with the exception of intermittent FMLA leave; however, partial-day salary deductions are permitted for public employers. Deductions from exempt salary may not be made for jury or witness duty, temporary military leave, or other absences caused by the employer or the operating requirements of the business. Such absences include furloughs and shutdowns due to weather or other business reasons. However, the test does not require employers to pay exempt employees who perform no work for an entire workweek. Finally, employers are not required to pay an exempt employee’s full weekly salary for the initial or terminal week of employment. To avoid Salary Basis Test violations, employers can require exempt employees to use accrued paid time off to substitute for their salaries. Where this time is not sufficient, the employer must fill in the remainder. Consult our FYI, Wage and Hour: Exemptions – Salary Basis Test for more information.

The Duties Test is the toughest of the three to meet. The duties are different for exempt executive, professional, and administrative employees. Common among them is the requirement that employees must be “primarily engaged” in exempt duties. This is measured workweek-to-workweek rather than over the course of a year. For exempt status to be proper, employees must spend more of their time each week performing exempt duties than nonexempt duties. This is another of the items that may change with the update. Some speculate that “primarily engaged” could become a “50 percent or more” requirement. While that might seem similar to the current requirement, California employers under a similar requirement have had difficulty showing that the precise percentage is met. In our next three issues, we will cover the duties considered exempt for executive, professional, and administrative employees. For a preview, review our FYI, Wage and Hour: Exemptions – Duties Test. £

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What’s Your “Secret Sauce”? Hiring for Cultural Fit Susan Meader, Human Resource Consultant, MBA, SPHR

A study by the Center for Creative Leadership found that two of the top five reasons executives fail in their jobs within the first 18 months were lack of cultural fit and the absence of an onboarding period of adjustment. So much is lost when organizations make poor hires. Besides an actual dollar cost of three-quarters to one and onehalf times the position’s annual salary, reduction in performance and productivity, interruption in service to customers and clients, potential customer dissatisfaction, and a decline in customer retention may also occur. Additionally and importantly, there is a loss of credibility in the organization’s hiring process and leadership. It is especially “expensive” in small- to medium-sized companies, who have multi-functioning roles, integrated work projects, and matrix reporting relationships. In the article “Secret Recipes: The Power of Culture in an Experience Economy,” author Sohrab Vossoughi defines culture as “the things that people in an organization do without thinking.” The premise of the article is the belief that culture is a very powerful competitive advantage for an organization because it is almost impossible to replicate. So, how do you interview for a “fit” with your culture? Start by identifying what your culture is. That requires asking questions and observing behaviors. You want to find out what the common behaviors are of everyone in the company. For example:

• • •

How does the organization communicate information? What happened the last time you disagreed with or challenged your co-worker, your manager, or an HR representative? What did you tell your friends and family about your first day of work in the organization?

This information gives you the answers to the questions you will ask candidates to assess their cultural fit to your organization. The corresponding questions that you may want to ask the candidate include:

• • •

How did your former employer communicate information to you about the company? When you disagreed with a co-worker, what did it look like? What did you say, what did your co-worker say? What was the impact on the department and your supervisor? What have you found to be most important to you on your first day of work?

The greater similarity of the candidate’s answer to your company’s answer, the better the fit. There is no bad answer or a good answer to these questions. It is about the alignment of the candidate’s answer with the organization’s culture. However, for cultural fit questions to help in the interview process, the interviewer or leader must be able to see and accept the organization as it is—not as he or she would like it to be or believes it could be. £

6 | The Bulletin | May 2014 | MSEC.org

U.S. Supreme Court Expands SOX Coverage to Contractors of Public Companies Lorrie Ray, Attorney, SPHR

The U.S. Supreme Court recently issued a decision expanding the coverage of the Sarbanes-Oxley Act of 2002 (SOX), as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). Lawson v. FMR LLC (U.S. 2014). On March 4, 2014, the Court held that SOX “extends whistleblower protection to employees of privately held contractors who perform work for public companies.” SOX states that “No [public] company . . . or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment “ due to whistleblowing or other protected activity. Before this decision, federal district courts held that employees of private companies, including subsidiaries of public companies, were not covered by SOX. There had been no court of appeals decision on this issue. In Lawson, the district court held that SOX’s whistleblower provision protected employees of any related entity of a public company, but the First Circuit Court of Appeals held that this protection was limited to employees of publicly traded companies. The Supreme Court disagreed, and held that the SOX whistleblower provision applied to employees of privately held contractors who perform work for public companies. This decision will likely increase the number of whistleblower claims. Justice Sotomayor, in fact, believes that the SOX whistleblower provision now has a “stunning reach” to “any household employee of the millions of people who work for a public company and any employee of the hundreds of thousands of private businesses that contract to perform work for a public company.” Analysts advise employers to do the following:

Institute an internal compliance program for employees to follow when reporting suspected violations of federal laws and suspected fraud,

Create an expectation that employees comply with all applicable laws and report any suspected violations of law to management,

Ensure employees that reports will be investigated and retaliation for making a report will not be tolerated, and

Train managers to ensure that whistleblowers do not suffer retaliation.

If you have concerns or questions about the impact of this decision, MSEC can help. Please give us a call. £

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EEOC Challenges Standard Severance Agreement Provisions David A. Dixon, Attorney

The Equal Employment Opportunity Commission (EEOC) has launched yet another surprising battle in pursuit of the bold agenda outlined in its current Strategic Enforcement Plan (SEP). This time, the EEOC attacked provisions of a severance agreement that are seen as “standard” and are consistent with previous guidance from the agency. On February 7, 2014, the EEOC filed suit against CVS Pharmacy, Inc., alleging that CVS has “engaged in a pattern or practice of resistance to the full enjoyment of the rights secured by Title VII” due to terms in its standard severance agreement. The EEOC asserts that the following terms constitute unlawful “pattern or practice” discrimination:

• • • • • •

A cooperation clause requiring the employee to notify the employer of any subpoena, deposition notice, interview request, or other inquiry relating to an administrative investigation of any of the claims released by the agreement; A basic non-disparagement clause; A basic non-disclosure of confidential information clause; A general release of claims that includes “any claim of unlawful discrimination of any kind”; A covenant not-to-sue clause including an agreement not to initiate “any action, lawsuit, complaint, or proceeding asserting any of the Released Claims …”; and A clause requiring the employee to pay the employer’s legal fees incurred as a result of a breach of the covenant not to sue.

CVS ‘s covenant-not-to-sue clause contains an express limit that “[n]othing in this paragraph is intended to or shall interfere with Employee’s right to participate in a proceeding with any appropriate federal, state, or local government agency enforcing discrimination laws, nor shall this Agreement prohibit Employee from cooperating with any such agency in its investigation.” Although this mirrors text the EEOC approved in a 2006 consent decree and has been widely mimicked by employers as a result, the lawsuit criticizes it as “a single qualifying sentence that is not repeated anywhere else in the Agreement.” Despite alleging the failure to repeat the above limiting text contributes to the discriminatory effect of the agreement, the lawsuit simultaneously criticizes the CVS agreement as being too long, placing emphasis on its “five-page single spaced” format. The CVS lawsuit does not expressly attack a severance provision stating the employee agrees he or she shall not receive any “relief, recovery, or monies,” through cooperating with any government investigation. Such provisions are consistent with the 2006 consent decree and common. Yet, the EEOC obtained a consent decree in mid-2013 requiring an employer’s agreement to include a clause expressly stating the employee could “recover any appropriate relief” in an agency action. Whatever EEOC’s reasons for not immediately raising that issue in the CVS case, concerns persist about how the EEOC now views similar provisions. A number of actions the EEOC has pursued under its current SEP have met with resistance from courts. The court may reject EEOC’s arguments in the CVS case. Prudent employers will nonetheless perceive the aggressive change in the EEOC’s enforcement position, and should seek immediate review of their existing severance agreements to assess their own risks and preferences. £

8 | The Bulletin | May 2014 | MSEC.org

Survey News 2014 Average Pay Increase Projections for Colorado consistent with September 2013 Forecast MSEC regularly surveys Arizona, Colorado, and Wyoming employers on pay-increase projections. In August/September 2013, 449 employers responded to the question, “What is the total percentage increase in pay (including merit, general, longevity, and cost-of-living) that the ‘average’ or ‘typical’ employee is projected to receive in 2014?” When we recently asked these employers to update their 2014 salary projections, 199 responded. Production/ Maintenance Projections

Office/Clerical/ Technical

Salaried Exempt

Executive

All Employees

CO & WY

September 2013

2.5%

2.6%

2.7%

2.6%

February 2014

2.6%

3.5%

2.7%

3.1%

2.8%

3.4%

2.6%

3.8%

2.7%

3.5%

The mode—the most commonly occurring percent in the sample—for Arizona, Colorado, and Wyoming employers in September 2013 was 3.0 percent. Forty-nine percent of Arizona employers reported 3.0 percent compared to 38 percent of Colorado and Wyoming employers. In February 2014, the mode was also 3.0 percent reported by 68 percent of Arizona organizations and 36 percent of Colorado and Wyoming employers. When collecting these data in September 2013 and February 2014, we also asked employers if these projections were “Already Approved/Firm.” September 2013

February 2014

CO & WY

Already Approved/Firm

17%

10%

Reasonably Firm

18%

20%

15%

Best Guess

73%

63%

75%

100%

Regional Comparison Following are the average projected 2014 pay increases by geographic location collected in September 2013 versus February 2014: September 2013

February 2014

Denver/Boulder

2.8%

Northern Colorado

2.7%

2.8%

Colorado Springs

2.2%

2.4%

Pueblo

1.8%

Western Slope

2.1%

Resort Areas

2.8%

2.6%

All Colorado

2.6%

Wyoming

2.4%

3.9%

Arizona

2.6%

3.5%

MSEC will update 2014 pay increases in the Benchmark Compensation Survey for Arizona, Colorado, and Wyoming employers. These data will be available early June. £

9 | The Bulletin | May 2014 | MSEC.org

Notice of Surveys 2014 Ski Areas Compensation and Benefits Survey This survey provides wage and salary data for 181 positions. The 13 Colorado ski areas participating reported wage and salary increases along with average entry-level hiring rates for the 2013-2014 ski season and salary projections for the 2014-2015 season. Data were also collected for skiing privileges (i.e., complimentary lift tickets, discounts, etc.). These data are displayed in the General Information section.

Special Studies RN Staff Nurse Health Care Organizations 11 organizations. 06A/14

Specialty Hospital Positions 8 organizations. 07A/14

2014 Country Club Compensation Survey

Float Pool RNs

This survey contains data from both country clubs as well as public organizations that have golf positions. The 16 participating country clubs, golf clubs, parks and recreation districts, and public employers reported data for full-time and seasonal employees. A total of 61 positions were surveyed in the areas of Office and Administration, Restaurant and Food Services, Building and Grounds Maintenance, and Recreation Facilities. £

Health Care Organizations 15 organizations. 11A/14

Student/Summer Intern Pay Organizations indicating Internships in Miscellaneous Benefits Survey 36 organizations. 12A/14

Regulatory Affairs Manager Health Care Organizations 11 organizations. 16A/14

MSEC’s 25th ANNUAL

EMPLOYMENT LAW UPDATE CONFERENCE Are you registered? Don’t miss the one conference that covers the most significant employment law developments of the year! FORT COLLINS May 6 DENVER May13

To request copies of the surveys, please contact the MSEC Surveys Department. Copies of these resources are available to authorized personnel of MSEC members. Call 800.884.1328, email surveys@msec.org, or go online to MSEC.org.

COLORADO SPRINGS May 15 GRAND JUNCTION May 20 SCOTTSDALE June 3 For more information and to register call 800.884.1328 or email registration@msec.org or visit MSEC.org

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10 | The Bulletin | May 2014 | MSEC.org