Kullman Firm Newsletter

ICE ANNOUNCES WORKSITE ENFORCEMENT STRATEGY

On January 10, 2018, U.S. Immigration and Customs Enforcement (ICE) announced that it had developed a comprehensive worksite enforcement strategy to target employers who violate employment laws and to facilitate the enforcement of the country’s immigration laws.  The newly developed strategy uses a three-pronged approach to worksite enforcement which will focus on the following:  I-9 inspections with civil fines for noncompliance, the arrest of employers who knowingly employ undocumented workers, and the arrest of unauthorized workers for working without authorization.

On the same date, ICE implemented this policy by serving notices of I-9 inspections on almost 100 7-Eleven stores in 17 states and the District of Columbia.  While serving the Notices of Inspection, the agency arrested 21 foreign nationals who were working at the 7-Eleven stores on suspicion of being in the United States illegally.

This strategy is a follow up to ICE’s announcement on October 17, 2017 that it would increase I-9 inspections by five times during the current fiscal year.  Administration officials argue that workplace inspections and raids will decrease illegal immigration by placing pressure on employers with fines and possible criminal charges.

As I-9 inspections continue to increase, and ICE shows little inclination to negotiate fines or work with employers whose I-9s contain errors, employers should carefully evaluate their Form I-9 compliance.  Good risk management necessitates auditing a business’s current Form I-9s, making appropriate corrections, conducting I-9 training where necessary, and preparing or updating Form I-9 and/or E-Verify Policies and Procedures.

TO CLAIM, OR NOT TO CLAIM (THE DEDUCTION): THAT IS THE QUESTION!

The Tax Cuts and Jobs Act (“Act”), signed by President Trump in late December 2017, received substantial publicity for the changes it made to the tax brackets and rates. But the law will undoubtedly affect employers in other ways. Under the Act, employers are precluded from deducting as a business expense any settlement, payout, or attorney’s fees, related to sexual harassment or sexual abuse, if the payments are subject to a nondisclosure agreement. This applies to any payments made after December 22, 2017, even if the settlement was reached prior to that date.

While it is clear that this revision was passed in response to the recent wave of sexual misconduct allegations, there remains a great deal of uncertainty surrounding the change. What effect will it actually have?  Will employers disregard the deduction, finding that any benefits of a nondisclosure agreement outweigh the benefits of the deduction? How will the phrases “sexual harassment” and “sexual abuse,” neither of which is defined in the Act, be interpreted?  What if multiple claims, only one of which relates to sexual harassment, are settled in a single settlement?  Can the non-disclosure provision prohibit discussion of claims other than those related to sexual harassment and abuse? Does the revision apply only to proven instances of sexual harassment and abuse, or are allegations of such actions sufficient? As the old saying goes, “only time will tell.”

EMPLOYEE OR INTERN? DOL ABANDONS STRICT SIX-FACTOR TEST IN FAVOR OF “PRIMARY BENEFICIARY” ANALYSIS

Early this year the Department of Labor announced that it has abandoned the rigid-six factor test previously used to determine whether someone qualified as an intern for FLSA exemption purposes. Under the DOL’s prior guidance, all six factors—including that the employer not gain an immediate advantage from the intern’s activities—had to be satisfied in order for a worker to be exempt from the FLSA’s wage and overtime provisions as an unpaid intern.

With its recent announcement, the DOL joins the Second,  Seventh,  Ninth  and Eleventh  Circuits in adopting the “primary beneficiary” test, which it describes as a more flexible analysis of the intern-employer relationship.  Under the DOL’s new guidance, courts should consider the following seven factors in determining which party is the primary beneficiary of the employment relationship:

1.    The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee.
2.    The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
3.    The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
4.    The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
5.    The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
6.    The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
7.    The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

For more information, see the DOL’s Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act.

COURT EXPANDS INTERPRETATION OF COVERED CLAIMS UNDER EPL POLICY

Insurance companies may be on the hook for defense costs in any lawsuit implicating discrimination or harassment, even if such claims are not actually causes of action in the complaint.  The Ninth Circuit Court of Appeals ruled last month that the duty to defend doesn’t rely on whether the relevant allegations “predominate or generate the claim.”

In the case before it, the plaintiff employer (PHP Insurance Service, Inc.) had sued its insurance carrier (Greenwich Insurance Co.), alleging that the insurance carrier was responsible for defense costs in a wage and hour lawsuit that had been filed by PHP’s former employees.  Those employees, who were predominately Vietnamese-speaking individuals, had sued PHP for unpaid overtime and various other alleged wage and hour violations.  Notably, the employees’ complaint did not assert causes of action for discrimination or harassment, though it alleged that PHP had intentionally hired “recent immigrant workers to improperly take advantage of their lack of knowledge regarding labor and employment rights.”

While PHP’s insurance agreement with Greenwich provided coverage for discrimination and harassment claims, it expressly excluded claims of federal and state overtime law violations.  Nonetheless, PHP argued that Greenwich was obligated to cover its defense costs given that the facts supported discrimination and harassment claims.  The district court agreed with PHP, and the Ninth Circuit affirmed on appeal.

The Ninth Circuit’s unpublished opinion can be found at Case No. 16-15083, PHP Insurance Service Inc. v. Greenwich Insurance Co.,

NEW TAX CREDIT FOR PAID FAMILY AND MEDICAL LEAVE

The Tax Cuts and Jobs Act of 2017 (TCJA) introduces a new, general business tax credit, i.e. a dollar-for-dollar reduction in income tax liability, for employers who offer at least two weeks of paid family and medical leave to their employees.  This credit for paid leave is on a sliding scale, starting at 12.5% for employees who are paid 50% of their usual wages, and increasing to a maximum of 25% for employees who are paid 100% of their usual wages.

But, as always, the devil is in the details. To qualify for the credit, the following criteria must be satisfied:

  • The type of leave must be limited to “family and medical leave,” which is defined as leave taken for one or more of the same reasons that someone would take leave under the Family and Medical Leave Act (FMLA), such as for the birth or adoption of a child or for their own serious health condition, regardless of whether the leave is required by FMLA or provided through company policy (Notably, the new law specifically excludes other types of paid leave offered by employers, such as vacation leave, personal leave, and other forms of medical or sick leave.  The new law also excludes any leave that is paid by the State or local government or that is required by State or local government); 
  • The employees receiving paid leave must have been employed for at least one year, and must not have earned more than $48,000 in 2017 (This figure is subject to change for 2018; also, please note that a December 15, 2017 Conference Report by the House of Representatives on the TCJA shows this figure to be $72,000.  However, the bill that was signed into law shows it as $48,000);
  • The employer must have a written policy in place that offers qualifying employees at least two (2) weeks of paid leave if they work full-time, and a proportionate amount of paid leave if they work part-time; and
  • The written policy must also include provisions that protect qualifying employees from employer interference with their right to paid leave under the policy, and that prohibits employer retaliation against employees asserting their right to paid leave under the policy (This provision is required only when an employer, whether or not covered by the FMLA, offers paid leave to an employee not covered by the FMLA, such as an employee who has not worked at least 1250 hours in the last year). 

The credit is available to employers only for 2018 and 2019, and the maximum amount of leave that can be applied towards the credit is twelve (12) weeks per year. Fortunately, the new law provides that the consequence for non-compliance is limited to the loss of the tax credit, which presumably limits the impact of any employer violation of the new policies protecting employees’ rights to paid leave.  Nevertheless, employers should always be mindful to apply their policies, including any paid leave policy, fairly and equally so as to avoid running afoul of other anti-discrimination laws.

Predictably, the new law provides that the IRS will determine whether an employer can take advantage of the credit.  Unfortunately, neither the IRS or the Treasury Department has issued any guidance on how the credit works, so employers and their tax advisors are left with the statutory language, which can be found at 26 U.S.C. §45S.  The IRS has indicated that updates on future guidance about the TCJA in general can be found here: https://www.irs.gov/newsroom/resources-for-tax-law-changes.

Ultimately, whether the new tax credit is worth it for your organization boils down to a cost-benefit analysis, weighing the costs of offering a standalone paid family and medical leave policy (in addition to what you may already be offering), combined with the administrative burden necessary to reach compliance (implementing a new policy and the systems necessary to track who may qualify), versus the economic benefit offered by the credit.  Given the many compliance hurdles, and potentially limited economic benefit, taking advantage of the new credit may not benefit some employers.  However, if your organization seems like a good fit, it may be worth a conversation with your HR team and tax professional to determine if the result would be a net positive.