What’s New in Employment Law?
What's New in Employment Law? USCIS Issues New I-9 Form National Defense Authorization Act Significantly Expands FMLA ERISA Preemption and State Law Mandates Changes in Performance-Based Compensation of Public Companies
USCIS Issues New I-9 Form
On November 7, 2007, U.S. Citizenship and Immigration Services (USCIS) announced the release of a revised Form I-9, Employment Eligibility Verification. An official notice about the new form was published in the Federal Register on November 26, 2007. The revised form contains changes to the list of acceptable documents for employment eligibility verification. As of December 26, 2007, use of the new form is mandatory, and employers who fail to use the new form may be subject to fines and other
penalties. The new Form I-9 can be identified by the revision date printed on the lower right corner of the form that reads “(Rev. 06/05/07)N.” The new form can be downloaded from the USCIS Web site at http://uscis.gov/files/form/i-9.pdf. A revised set of instructions, the M-274 “Handbook for Employers, Instructions for Completing the Form I-9,” can be downloaded at http://uscis.gov/files/nativedocuments/m-274.pdf.
— Anton Mertens
National Defense Authorization Act Significantly Expands FMLA
The first major revision to the Family and Medical Leave Act (FMLA) was signed into law January 28, 2008, effective immediately. The 2008 National Defense Authorization Act (NDAA) extends FMLA coverage to family members of those in the armed forces by providing two new categories of protected leave.
1. Up to 12 Weeks to Attend to a “Qualifying Exigency”: The NDAA allows eligible employees up to 12 weeks of FMLA leave per year “because of any qualifying exigency arising out of the fact that the spouse, or a son, daughter, or parent of the employee” is on or has been called to active duty in the armed forces in support of a “contingency operation.” Significantly, while the NDAA defines “contingency operation” (generally defined as a war, national emergency or other combat operation), it has not defined “qualifying exigency.” Rather, the NDAA calls on the Secretary of Labor to create regulations that define “qualifying exigency,” thereby leaving employers in the untenable position of
determining what circumstances satisfy this condition to ensure their compliance with the Act.
2. U p to 26 Weeks to Care for an Injured Service Member: The NDAA permits up to 26 weeks of protected leave to an eligible employee who is the spouse, son, daughter, parent or next of
kin of a covered service member, to care for an injured or ill service member. The NDAA defines a covered service member as one who “is undergoing medical treatment, recuperation, or therapy, is otherwise in outpatient status, or is otherwise on the temporary disability retired list, for a serious injury or illness.” Notably, this provision expands coverage to include a service member’s “next of kin” (defined as nearest blood relative). Moreover, this provision greatly expands the duration of available leave under the FMLA from 12 to 26 total weeks. An employee’s available leave is capped, however, at 26 weeks in a single year. In other words, an employee cannot take 26 weeks of leave to care for an injured service member and then expect an additional 12 weeks — even if he/she has an otherwise FMLA-qualifying circumstance — in the same year.
Be Aware of Your Responsibilities and Rights. This expansion of the Family and Medical Leave Act will have a considerable impact on employers across the country. The Department of Labor has pledged to issue its regulations in an expeditious manner. Until then, employers are encouraged
to comply with the provisions described in section 1 of this article, and are required to comply in good faith with the provisions described in section 2 of this article. Please also note that, although the Department of Labor issued proposed regulations to the FMLA on February 11, 2008, those proposals do not address the NDAA but simply state that the NDAA will be addressed in the yet-to-be-issued final regulations. If you have any questions regarding your responsibilities and rights under these and other provisions of the FMLA, consult any member of the SGR Employer Services Group.
— Colin Thakkar
ERISA Preemption and State Law Mandates
Many employers sponsor ERISA-governed group health plans. In general, the provisions of these health plans are established by the employer and, through the operation of ERISA, preempt state law mandates. This structure allows employers to maintain uniform, nationwide health plans for their employees in the United States.
However, in the past several months, a new trend has been developing. States such as Vermont and Massachusetts, and municipalities such as San Francisco, have passed health care mandates that threaten the ERISA preemption concept mentioned above. For example, in Vermont, an employer must pay a tax for any employee who is not covered by the employer’s health plan. In Massachusetts,
employers must establish a cafeteria plan, allow employees (even certain part-time employees) to pay pretax for health coverage, and pay a certain amount of the employees’ health care cost either directly, or through the Commonwealth. Beginning in January of 2008, employers with offices in San Francisco must make health care expenditures equal to a percentage of employee’s pay or
be required to pay such amounts to the city. In December 2007, a federal district court ruled that San Francisco’s law was preempted by ERISA and could not be enforced. However, the Ninth Circuit Court of Appeals granted the City of San Francisco’s request for an expedited appeal and allowed the city to begin enforcement of the new law pending the outcome of this appeal.
Employers now have to consider carefully the potential interplay between state and federal law on health plan issues.
— Laura Andrew
Changes in Performance-Based Compensation of Public Companies
Recent rulings issued by the Internal Revenue Service (IRS) could impact the performance-based compensation arrangements sponsored by public companies and their financial reporting. The IRS announced a significant shift in its interpretation of Section 162(m) of the Internal Revenue Code relating to the performance-based compensation exception to the $1 million limitation on compensation paid by publicly held companies in Private Letter Ruling 200804004 (published on January 25, 2008) and Revenue Ruling 2008- 13 (published on February 21, 2008).
Analogizing to death, disability or a change in control, previous private letter rulings determined that performance-based payments made as a result of involuntary terminations by the employer without cause or by the executive for good reason would qualify as 162(m) performance-based compensation. This meant that the performance-based payment was still deductible under 162(m), even though the performance goal had not been met at the time of payment for these types of events (e.g., a bonus that is automatically paid upon termination for good reason, regardless of actual performance).
According to the new guidance, however, this rationale is no longer being used by the IRS in analyzing performance-based compensation. The new guidance states that if performance-based pay could become due under a plan or agreement upon an involuntary termination by the employer without cause or by the executive for good reason, and would be payable regardless of whether performance goals are met, then any pay from such plan or agreement does not qualify as 162(m) performance-based compensation and is not eligible for exclusion from the 162(m) $1 million compensation limit, regardless of whether the pay actually becomes payable as a result of a termination without cause or for good reason.
The IRS has provided a grandfathering provision protecting those arrangements whose performance period begins on or before January 1, 2009, and those employment contracts in effect on February 21, 2008. However, if any such arrangement or employment contract is amended, modified or renewed (even if such renewal is automatic, e.g., an evergreen provision), the grandfathering protection may be lost. In addition, any arrangement adopted after February 21, 2008 will need to comply with the new requirements.
The full effects of this change in IRS position remain to be seen, and we expect that further guidance may be issued. We will promptly provide updates to those clients on our Benefits Alert list if additional IRS guidance is issued. If you would like to receive more information, or be added to our Benefits Alert list, please contact our Employee Benefits Practice Group.
— Laura Andrew