Tag Archives: Supreme Court

Another Supreme Court Challenge to Health Care Reform? Why It May Matter to an Employer…

By Rebecca Dobbs Bush

I know, I know.  You may have seen the headlines indicating that the Supreme Court is going to be reviewing another case challenging the Affordable Care Act and not even bothered to read the articles this time.  After all, who hasn’t become a little tired of hearing about challenges and changes to the Affordable Care Act with constant updates occurring over the now almost five years since the act was signed into law by President Obama? Or perhaps it isn’t that you are tired of hearing about the ACA; you were just distracted when Kim Kardashian broke the internet.  In any event, the Supreme Court has recently decided to hear King v. Burwell, and their somewhat surprising decision to do so could affect employer ACA compliance strategies in as many as 36 states.

What is the case about?  Well, at the surface it appears to be a case that wouldn’t interest employers at all.  Specifically, King v. Burwell is about the ability of the federal government to provide tax subsidies for health insurance coverage purchased through federally-facilitated health insurance marketplaces.  The crux of the issue is that the ACA states that subsidies are to be provided to qualifying taxpayers and their dependents when they purchase coverage “through an Exchange established by the State.”  The question is whether Congress intended for a federally-facilitated marketplace to be included in the phrase “an Exchange established by the State.”

Why does this matter to employers in as many as 36 states?  Currently, there are 27 states that declined the opportunity to establish their own marketplace and elected to only make the federally-facilitated marketplace available to their residents.  In addition to those 27 states, other states currently partake in what is referred to as a “partnership” with the federally-facilitated marketplace.  Those states have also not technically established their own Exchange.  King v. Burwell could implicate employers in as many as 36 states as the shared responsibility penalties under the ACA are only triggered when a qualified individual purchases coverage and receives a subsidy.  If none of the individuals in a state are able to access the subsidies, employers would not have the potential risk for penalty exposure from employees residing in those states.

While no employer should use the Supreme Court’s pending review as a reason to procrastinate their ACA compliance planning, King v. Burwell will be a Supreme Court opinion that all employers should be watching and waiting for.

Supreme Court Rejects the Presumption of Prudence in Employer “Stock Drop” Claims Under ERISA

Contributed by Kelly Haab-Tallitsch

In Fifth Third Bancorp v. Dudenhoeffer, No. 12-751 (June 25, 2014), the Supreme Court overhauled the legal landscape of ERISA “stock drop” litigation. The case was brought by 401(k) plan participants after Fifth Third’s employer matching contributions, made in company stock to an ESOP component of the plan, dropped 74% over a two-year period. Plaintiffs argued that plan fiduciaries breached their duties under ERISA by investing in and maintaining investments in Fifth Third stock in light of the risks associated with the employer’s subprime lending practices.

In a substantial departure from the presumption widely accepted by appellate courts, the Supreme Court held that ESOP fiduciaries are not entitled to a special “presumption of prudence” in lawsuits challenging their decision to invest plan assets in company stock.  Instead, ESOP fiduciaries are subject to the same duty of prudence that applies to ERISA fiduciaries in general, minus the diversification requirements.

ERISA imposes a “prudent person” standard of care on retirement plan fiduciaries, and courts prior to Dudenhoeffer applied that standard using a presumption that an ESOP fiduciaries’ decision to remain invested in employer stock was reasonable. But the Court rejected the argument that an ESOP’s explicit requirement to invest primarily in company stock should trump the duty of prudence, ruling that ESOP fiduciaries should be held to the same standards as other retirement plan fiduciaries. Thus, the Court made clear that ESOP fiduciaries must be vigilant in making investment decisions, and do not have a free pass to invest in company stock when doing so is not prudent.

However, the Court also recognized the importance of weeding out “meritless claims” and rejected the plaintiffs’ arguments that the fiduciaries should have recognized the market was overvaluing the employer stock and should have acted on any inside information they possessed. The Court held that fiduciaries need not second-guess whether the market price of a publicly traded stock accurately reflects its value, nor do they have an obligation to trade based on material insider information.

The Supreme Court’s ruling could result in an uptick in ERISA stock drop suits initially, but the high pleading standards set forth by the Court make it more difficult for plaintiffs to survive a motion to dismiss.  Thus, on balance, Dudenhoeffer is unlikely to create significant additional liability for employers.

Hobby Lobby May Have Caught our Attention, but Halbig and King are the ACA Cases to Watch

Contributed by Kelly Haab-Tallitsch

In contrast to the Supreme Court’s ruling in the recent Hobby Lobby case, which directly affected only a handful of employers, two cases with the potential to derail the Affordable Care Act (“ACA”) were decided last Tuesday – with conflicting results. Less than two hours after a panel of the D.C. Circuit Court of Appeals ruled in Halbig v. Burwell that the insurance subsidies that help millions of Americans pay for health insurance are illegal in 36 states, the 4th Circuit Court of Appeals issued a contradictory ruling in King v. Burwell, affirming the exact opposite.

The contradictory rulings stem from different interpretations of the language establishing tax credits and subsidies for low- and middle-income individuals. The ACA states that tax credits would be available for insurance purchased through an “exchange established by the state.”  But currently, only 14 states run their own exchanges. In 36 states, including Illinois, Indiana, Wisconsin and Missouri, the exchange is run by the federal government. Plaintiffs in Halbig and King argued that an “exchange established by the state” does not include the federal exchange – an interpretation that makes the subsidies in those 36 states illegal.

ACA supporters argue that such a narrow interpretation is at odds with the law’s goal of providing all Americans with health insurance they can afford. Almost 5 million Americans bought subsidized policies through the federal exchange this year, often reducing their costs by hundreds of dollars a month. The Internal Revenue Service (IRS) is charged with administering ACA tax credits and has interpreted the law to mean that tax credits are available for insurance purchased through any government-run exchange, state or federal.

The Effect on ACA Employer Penalties

Aside from denying tax credits to millions of Americans, why are the Halbig and King cases such a big deal?  If individual tax credits disappear in 36 states, so do the employer penalties. The penalties imposed on large employers for failing to offer health coverage are the backbone of the legislation and the only enforcement mechanism available to encourage employers to comply. But an employer that doesn’t offer the mandated coverage is only subject to a penalty if one or more of its employees receive a tax credit to purchase individual coverage on the exchange.  If none of its employees receive a tax credit, an employer cannot be subject to a penalty.  This result would effectively nullify the ACA in over two-thirds of the country.

What Does This Mean for Employers?

The Halbig and King appellate court rulings have no immediate impact on individuals or employers. Both sides are likely to request review or appeal of last week’s decisions and the Obama administration will almost certainly request a stay of the D.C. court’s decision in the meantime.  But keep watching – the fight is far from over!

The Seventh Circuit Blessed the EEOC’s “Sue First, Negotiate Later” Approach—But Will the Supreme Court Do the Same?

Contributed by Steven Jados

In what was disappointing news to employers in Illinois, Wisconsin, and Indiana, the Seventh Circuit Court of Appeals ruled in December 2013 that the Equal Employment Opportunity Commission’s (“EEOC”) failure to engage in good-faith conciliation efforts with an employer prior to filing a lawsuit alleging the employer engaged in unlawful discrimination or harassment is not a viable affirmative defense requiring the dismissal of such a lawsuit.

According to the employer’s petition to the Supreme Court, the Mach Mining case began with a single EEOC charge from one individual alleging sex discrimination.  In the EEOC’s hands, that charge grew to a claim of discrimination affecting “a class of female applicants.”  Exactly how the individual charge grew to a “class” claim is a mystery.  Prior to filing suit, the EEOC gave Mach Mining no specifics in terms of the evidence underlying the class allegations, the identities of the purported class members (other than the charging party, herself), or even the actual number of purported class members.  Employers that have never been sued by the EEOC should realize that the EEOC’s conduct in Mach Mining is not unusual.

Title VII expressly requires the EEOC, prior to filing a lawsuit against a targeted employer, to engage in conciliation efforts with the employer.  According to Mach Mining, the EEOC’s conciliation efforts included, in total, one vague verbal demand and a subsequent notice that conciliation had failed and further discussions would be futile.

Understandably, Mach Mining’s position is that the EEOC ignored its statutory conciliation duty, and the employer asked the court to dismiss the EEOC’s lawsuit for that reason. The Seventh Circuit ruled against Mach Mining and, in deciding that the failure to conciliate cannot be the basis for dismissing an EEOC-filed lawsuit, the court acknowledged its departure from decisions by other federal circuits that had addressed the issue.

Mach Mining asked the Supreme Court to review the decision and—interestingly—the EEOC joined Mach Mining’s request so that the Court could resolve the conflicts among the nation’s lower courts, and thereby allow the EEOC to implement a uniform, nationwide conciliation policy.

As frequent readers of the Labor & Employment Law Update know, it is impossible to predict how the Supreme Court will rule.  It is also impossible to predict exactly when the ruling will come, and it is possible that the ruling may be a full year away.

In the meantime, and regardless of the ultimate disposition of this lawsuit, employers that have received a reasonable cause determination from the EEOC (or a charge filed by the Commissioner of the EEOC, as opposed to an aggrieved individual) should press the EEOC, through documented, written correspondence, for the specific facts at issue in the EEOC’s claims—including facts that will allow the employer to identify potential class members and calculate the employer’s potential exposure to damages.  Until the Supreme Court rules, employers nationwide will be waiting and watching—hoping for a decision that puts reasonable restrictions on the EEOC’s litigation tactics.

Retirement Plans Must be Amended to Recognize Same-Sex Marriages by December 31, 2014

Contributed by Kelly Haab-Tallitsch

The IRS released Notice 2014-19 earlier this month, answering many of the open questions on the application of the Supreme Court’s decision in U.S. v. Windsor to qualified retirement plans.  Although the IRS provided initial guidance on the impact on employee benefit plans shortly after the Court found the Defense of Marriage Act’s (DOMA) ban on same-sex marriage unconstitutional, many details specific to retirement plans were still outstanding.

Effective Date and Retroactivity

The recent release reaffirms that qualified retirement plans are required to recognize same-sex marriages as of the date of the Windsor decision (June 26, 2013), and confirms that plans will not be penalized for not recognizing them earlier. Plans are required to recognize same-sex marriages using the “state of celebration rule” beginning on September 16, 2013, the date of the prior IRS Notice 2013-17. Under this rule, a plan must recognize a same-sex marriage if the individuals were legally married in a state that recognizes such marriages, even if they are currently living in a state that does not. Plans that were relying on the laws of the state of residency, instead of the state of celebration of the marriage, prior to the September 16, 2013 notice will not be penalized.

Plans may choose to recognize same-sex marriages retroactively prior to June 26, 2013, and may choose to recognize them for some or all purposes, provided the plan is amended to specify the effective date and the specific rules that will be applied. For example, a plan may choose to apply Windsor to its joint and survivor annuity requirements and only with respect to participants with benefit commencement dates as of a certain date.

Plan Amendments

Retirement plans only need to be amended to comply with Windsor if the current plan terms are inconsistent with the decision or the IRS guidance. For example, a plan that specifies that a marriage is between two individuals of the opposite sex will need to be amended, but a plan that uses the term “spouse” or “legally married spouse” may not require an amendment. A clarifying amendment is permissible, however, and may be helpful to plan administrators.

The deadline to adopt a required Windsor plan amendment is December 31, 2014 for most plans. The notice provides that a plan amendment must be adopted to bring a plan into compliance with Windsor by the later of December 31, 2014 or the otherwise applicable deadline for plan amendments (i.e. the later of the end of the plan year in which the change is first effective or the due date of the employer’s tax return for the tax year that includes the date the change is first effective).

To ensure your retirement plan remains compliant, plan language should be reviewed in the next few months to determine if a December 31, 2014 amendment is needed.

Supreme Court Upholds Michigan Ban on Affirmative Action

Contributed by Suzanne Newcomb

Yesterday the Supreme Court upheld Michigan’s ban on affirmative action programs overturning a 6th Circuit Court of Appeals decision which had ruled the ban an unconstitutional violation of the U.S. Constitution’s Equal Protection Clause. The text of the opinion is found at http://www.supremecourt.gov/opinions/13pdf/12-682_j4ek.pdf

Michigan’s ban on affirmative action was enacted as Article I, Section 26 of its State Constitution and, in relevant part, prohibits governmental entities, including public colleges and universities, from granting preferential treatment on the basis of race, sex, color, ethnicity, or national origin. Michigan voters passed the ban in response to a pair of 2003 U.S. Supreme Court decisions. Gratz v. Bollinger struck down the University of Michigan’s undergraduate affirmative action program as unconstitutional while Grutter v. Bollinger upheld the more limited affirmative action program used at the University of Michigan’s law school.

Although the decision was 6-2 in favor of upholding the ban, the Justices splintered on how they arrived at that decision. Justice Kennedy delivered the plurality opinion and was joined by Justice Alito and Chief Justice Roberts (who also wrote his own concurring opinion). Justice Scalia wrote a concurring opinion which Justice Thomas joined and Justice Breyer also wrote a concurring opinion. Justice Sotomayor wrote an impassioned dissent which Justice Ginsburg joined. Justice Kagan recused herself.

Justice Kennedy made clear the decision does not outlaw affirmative action. This case, he said “is not about the constitutionality or the merits of race-conscious admissions policies in higher education.” This opinion does “not disturb the principle that the consideration of race in admissions is permissible, provided that certain conditions are met.” The question here, he explained, is “whether, and in what manner, voters in the States may choose to prohibit the consideration of racial preferences in governmental decisions, in particular with respect to school admissions.”

The decision distinguished cases in which voter-approved bans had a “serious risk, if not purpose, of causing specific injuries on account of race” citing cases dealing with voter-approved bans on fair housing measures and busing aimed at desegregating schools. Those bans remain unconstitutional, the Court reasoned, because they encouraged discrimination. The Court viewed the Michigan ban differently, stating the “question is not how to address or prevent injury caused on account of race but whether voters may determine whether a policy of race-based preferences should be continued.” Here, the Court concluded, “there was no infliction of a specific injury” and declined to extend its prior decisions “to restrict the right of Michigan voters to determine that race-based preferences granted by Michigan governmental entities should be ended.”

The Court focused on race-based affirmative action programs in public higher education, but the long term effects of the ruling are likely much broader. As the Court noted, similar bans exist in other states. To date seven other states, California, Florida, Washington, Arizona, Nebraska, Oklahoma and New Hampshire, have bans similar to Michigan’s. The case represents another blow to what remains of affirmative action programs in general and paves the way for other states to enact similar bans.  However, employers with affirmative action obligations based on their status as a federal or state contractor should note that this decision in no way removes those obligations.

Donning and Doffing – So You Think That You Contracted Out of It?

DONNING AND DOFFING – SO YOU THINK THAT YOU CONTRACTED OUT OF IT?

Source: Sandifer, et al. v. U.S. Steel Corporation, 678 F.3d 590, 593 (7th Cir. 2012)

Contributed by Beverly Alfon

Do you have a collective bargaining agreement with a union that excludes pay for time that employees spend donning and doffing protective clothing?  Today, the U.S. Supreme Court heard oral arguments in a case that could determine that you are liable for that time – regardless of what the collective bargaining agreement says. 

Generally, the Fair Labor Standards Act (FLSA) requires employers to pay employees for donning and doffing protective clothing, if they are required by law or the employer to change into their work clothes at work.  However, the law recognizes an exception to the rule for a unionized workforce where the union and employer have bargained over whether or not employees will be paid for time spent in changing clothes or washing at the beginning or end of each work day.  The issue before the Supreme Court is whether or not the protective gear pictured above (flame-retardant pants and jacket, work gloves, steel-toed boots, a hard hat, safety glasses, ear plugs, and a “snood” – a hood that covers the top of the head, the chin, and the neck) is included in the FLSA’s definition of “clothing.” 

Sandifer, et al. v. U.S. Steel Corporation is a case that started as a class action on behalf of 800 former and current hourly workers at U.S. Steel’s steel works in Gary, Indiana. The plaintiffs argued that U.S. Steel violated FLSA by failing to pay them for time that they spent putting on and taking off their work clothes in a locker room at the plant.  The lower court ruled that in light of the collective bargaining agreement that excluded pay for that time, U.S. Steel was not required to pay the employees for that time.  On appeal, the Seventh Circuit agreed and held that the case should be dismissed.  The plaintiffs sought review by the U.S. Supreme Court, which agreed to consider the issue.

There is a split among the courts.  Unlike the Seventh Circuit and others, the Ninth Circuit (Alvarez, et al. v. IBP, Inc., 339 F.3d 894 (9th Cir. 2003)) interprets “clothing” to exclude “safety equipment” from the FLSA exception, characterizing it as “different in kind from typical clothing.”  The Department of Labor has also gone back and forth on its interpretation of “clothing” – but recently did an about-face in this case, broadly interpreting “clothing” in favor of employers. 

BOTTOM LINE:  If the Court determines that this type of protective wear is NOT “clothing,” employers who negotiated an exclusion of payment for donning and doffing of clothing may be liable for significant backpay for time that employees have spent donning and doffing protective gear, regardless of what the union agreed to in writing.  On the other hand, if the Supreme Court determines that the donning and doffing of protective gear falls within the FLSA exception and may be negotiated out between the employer and union, applicable state wage and labor laws may nonetheless require compensation.  We will continue to monitor these developments and keep you informed.