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Increased Government Scrutiny of Employee Misclassification

The Department of Labor (DOL), Internal Revenue Service (IRS)?áand seven states (Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah, and Washington) have entered into agreements coordinating their efforts to end the practice of misclassifying employees as independent contractors.?á Hawaii, Illinois, Montana, and New Yorkare soon to follow. Under these agreements, the DOL will be able to share information regarding misclassified workers with the IRS and participating states, which could lead to more audits by the agencies and states involved ?á The DOL News Release about these agreements is available here. In addition, the IRS announced a new program, entitled the “Voluntary Classification Settlement Program” (VCSP), which permits employers to voluntarily reclassify independent contractors as employees for federal employment tax purposes on a prospective basis.?á If an employer?áparticipates in the VCSP, the employer will only have to pay 10% of the resulting employment taxes that are due for the most recent tax year,… Continue Reading

California Law Prohibits Discrimination Based on Genetic Information

  California recently enacted legislation that prohibits employment discrimination based on “genetic information” of the employee and the employee’s family members. The law is derived from the federal law, the Genetic Information Nondiscrimination Act of 2008 (GINA), and uses similar terms, but more broadly applies to the prohibition of discrimination in employment, housing, insurance, and other services. With regard to employment, the new law covers California employers who regularly employ five or more workers. The new law is to become effective on January 1, 2012. A copy of the law can be found here.

Department of Labor Withdrawing Proposed Fiduciary Rule

The Department of Labor has announced that it intends to withdraw its controversial?áproposed changes to the definition of “fiduciary” under ERISA.?á The DOL expects to have a new proposal in 2012.

IRS Issues Guidance on Taxing Employer-Issued Cell phones

In IRS Notice 2011-72, the IRS provides that?áwhen an?áemployer provides an employee with a cell phone primarily for?ábusiness purposes (e.g., to be able to speak with clients when away from the office)?áand not as compensation,?áthe cell phone will be treated as a non-taxable fringe benefit.?á The IRS will treat the employee?ÇÖs?áwork-related use of the cell phone as a working condition fringe benefit that automatically satisfies the substantiation requirements?áof Code Section?á132(d), and the?áemployee’s personal use of the cell phone?áto be?áa non-taxable de minimis fringe benefit. ?áIn a related internal memorandum, the IRS advises its field agents that where an employer reimburses employees for the business use of their personal cell phones, the principles of Notice 2011-72 should also be applied. These rules apply to cell phones provided by the employer and reimbursements made after December 31, 2009.

Seventh Circuit Denies Breach of Fiduciary Duty Claim Against Plan Offering Retail Funds

In keeping with its previous decision in Hecker v Deere & Co., 556 F.3d 575 (7th Cir. 2009) and a recent Third Circuit decision, the U.S. Court of Appeals for the Seventh Circuit held that the plan administrator did not violate its fiduciary duty by allowing the plan to offer retail-share class mutual funds instead of investor-share class mutual funds. The court considered that there was a sufficient mix of funds, and that the retail funds that were offered each had an expense ratio between 0.03 percent and 0.96 percent, which is less than the 1.09 percent average expense ratio for institutional-share classes in 2009. The court also considered that participants were educated regarding the various investment funds risk and return characteristics and operating expenses. Finally, the court noted that participants would benefit from increased liquidity in retail funds rather than the potentially lower cost of institutional funds. The court… Continue Reading

Fourth Circuit Dismisses Healthcare Reform Lawsuits

The U.S. Court of Appeals for the Fourth Circuit has rejected two challenges to the constitutionality of the Patient Protection and Affordable Care Act for lack of standing.?á The court dismissed a challenge by the commonwealth of Virginia without reaching the merits, because it concluded that Virginia lacked standing to challenge the personal coverage mandate.?á Next, the Court dismissed a challenge by Liberty University for lack of jurisdiction, holding that the suit?áconstitutea a pre-enforcement action seeking to restrain the assessment of a tax barred by the Anti-Injunction Act.?á Commonwealth of Virginia v. Sebelius (11-1057); Liberty University v. Geithner (10-2347). Two other U.S. Courts of Appeal have split on the constitutionality of the individual mandate.

Seventh Circuit Rules that Benefit Denial Did Not Comply with ERISA Notice Requirements

The Seventh Circuit ruled that a pension plan?ÇÖs denial of disability retirement benefits failed to comply with the notice requirements of ERISA. The denial letter merely asserted that the plaintiff was not permanently disabled, and failed to (i) provide the specific reason for the adverse determination, (ii) reference the specific plan provision on which it was based, (iii) provide a description of any additional material required, (iv) provide reference to the criteria relied upon in making the adverse decision, and (v) include a statement of the plaintiff?ÇÖs right to bring a civil action. Due to this failure to comply with ERISA?ÇÖs notice requirements, the court remanded the case back to the plan to determine, de novo, whether the plaintiff was entitled to disability benefits. The case illustrates the importance of carefully following ERISA?ÇÖs procedures in drafting claim denial letters. Kough v. Teamsters?ÇÖ Local 301 Pension Plan, No. 1:06-cv-05235 (7th Cir.… Continue Reading

Seventh Circuit Affirms No Penalties for COBRA Failures Discovered and Corrected Internally

The U.S. Court of Appeals for the Seventh Circuit affirmed a district court?ÇÖs denial of statutory penalties for an employer?ÇÖs failure to provide timely COBRA election notices. During an annual internal audit, the employer discovered that it failed to provide COBRA election notices to two employees. To correct this failure, the employer sent the notices to each employee along with an offer to retroactively elect COBRA. The employees did not take the offer and instead sued for statutory penalties. In affirming the district court?ÇÖs denial of statutory penalties, the Seventh Circuit found that there was no evidence of bad faith or gross negligence on the part of the employer. In addition, the court rejected the employees?ÇÖ argument that the employer was, as a matter of law, required to have an oversight system in place to ensure that COBRA notices reach all qualified beneficiaries on time. Although this decision was ultimately… Continue Reading

September 2011