Business & Employment Law Newsletter
Winter 2009
STATISTICS SHOW THAT REQUIRING THE ACCEPTANCE OF CARD CHECKS WOULD INCREASE UNIONIZATION
The Employee Free Choice Act (EFCA), also known as the "card check bill," is a piece of federal legislation that seeks to amend the National Labor Relations Act (NLRA) to make it easier for employees to unionize. The Act proposes giving workers the right to unionize as soon as a majority of the employees in a workplace sign cards saying they are in favor of forming a union, thereby eliminating the right of an employer to order a secret- ballot election to determine whether workers favor unionization.
Union organizing campaigns in recent years that featured an employer neutrality agreement without providing for a card check process resulted in recognition of the union 46% of the time. By contrast, organizing campaigns in which the parties agreed to both employer neutrality and card check authorizations ended with union recognition 78% of the time.
The Union win rate in NLRB representation elections was about 58% in recent years, according to an analysis study by Professor James J. Brudney of the Ohio State University Moritz College of Law. This ranged from a union win rate of nearly 60% in representation elections that involved units of fewer than 50 employees, but a mere 37% of elections in which units of more than 500 workers were at stake.
Last session, the EFCA passed in the U.S. House of Representative, but stalled in the Senate, lacking the 60 votes of support that it needed to avoid filibuster. The EFCA islikely to be reintroduced in the 111th Congress this year and now has a greater chance of passing through both the House and the Senate given the results of the recent election. Further bolstering the Act's chances of success is the fact that President Obama has publicly supported the EFCA and has promised to sign the bill if passed by Congress.
The Act itself proposes that an employee or group of employees, or any individual or labor organization acting on their behalf, may file a petition with the National Labor Relations Board to seek unionization. The petition must allege that a majority of employees in a unit wish to be represented by a particular labor organization for collective bargaining purposes.
After receiving the petition, the Board will investigate. If the Board is satisfied that a majority of the employees in that unit have signed valid authorizations designating the labor organization identified in the petition as their bargaining representative, the Board will certify that labor organization as the unit's representative without directing an election.
The EFCA further requires companies and newly certified unions to submit to binding arbitration if they cannot reach agreement on an initial contract after 90 days of negotiations. The arbitrator’s decision would be binding for a two-year contract.
The system proposed by the EFCA for unionization has been met with both praise and criticism. Proponents of the Act argue that facilitating the ease of formation of unions has the effect of increasing the purchasing power and financial stability of workers through better pay and benefits.
Opponents of the Act argue that eliminating the secret-ballot election process invites intimidation and coercion on the part of those organizing the unionization effort. Workers may be more inclined to sign the card while under pressure from organizers, fearing backlash from their fellow workers if they refuse to sign.
In addition, the card-check process may actually deprive some workers of the ability to voice their opinion on the matter entirely. This is because under the card-check system, workers who have not been contacted by union organizers to sign a card essentially have no say in whether their workplace organizes. Opponents also point out that the Act would dramatically increase unfair labor practice penalties for employers, but not unions, during an organizing drive.
If successful, the EFCA may effectively increase the number of union workers in this country, a number which has fallen to 7.5% of the private workforce, or 16 million members, in recent years.
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MORE EMPLOYER FRIENDLY FAMILY AND MEDICAL LEAVE ACT REGULATIONS TAKE EFFECT
The Department of Labor recently made several key changes to the Family and Medical Leave Act regulations, which took effect on January 19, 2009. Some of the most important of these changes include:
- Employers' ability to contact doctors regarding FMLA certifications - Employers may now contact the employee's health care provider directly to clarify or authenticate FMLA certification forms, after giving the employee the opportunity to cure any deficiency. The employer must use a health care provider, a human resources professional, a leave administrator or a management officer to make the inquiry. Under no circumstances may the employee's direct supervisor contact the employee's health care provider. Authentication involves the employer providing a copy of the certification to the health care provider to request verification that the form was completed and/or authorized by the provider. Clarification involves the employer contacting the employee's health care provider to understand handwriting on the certification or to understand the meaning of a response. The employer may not request any other medical information pertaining to the employee. The privacy provisions of HIPAA must be satisfied when clarification is sought, which means that in most cases an employer would still need to obtain authorization from the employee. However, if an employee does not provide authorization or otherwise clarify the certification, the employer may deny the leave.
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Notice requirements for an employee taking intermittent leave - While the changes to the FMLA regulations do not change the increments in which employees may take intermittent leave, the new regulations do require that employees taking intermittent leave follow the employer's normal call-in procedures to report their absence, except in emergencies. An employee may take intermittent leave under the FMLA, taking leave in separate blocks of time for a single qualifying reason or on a reduced work schedule. The new FMLA regulations seek to ensure that employees taking intermittent leave follow the employer's customary call-in procedures for reporting an absence from work, absent any unusual circumstances, so that the employer has adequate notice of the employee's absence.
- Clarification of the time period for requesting the recertification of the employee's own or a family member's "serious health condition"- Under the former regulations, employers generally could request a recertification no more often than every 30 days and only in conjunction with an FMLA absence unless a minimum duration of incapacity was specified in the certification, in which case recertification generally could not be required until the specified duration had passed. However, the regulations were ambiguous regarding the permissible time frames for requiring recertification when the duration of the condition was described as "years", "lifetime" or "unknown" by a health care provider. The new regulations allow en employer to request recertification of an ongoing condition every six months in conjunction with an absence. They further clarify that an employer may request recertification in less than 30 days if the circumstances described by the previous certification have changed significantly, such as an increase in the duration or frequency of absences or if an employee has a pattern of using unscheduled FMLA leave in conjunction with his or her scheduled days off. The employer also may request recertification if it receives information that casts doubt upon the employee's stated reason for the absence or the continuing validity of the certification, such as if an employee is on FMLA leave due to knee surgery, and the employee is observed participating in a softball league game during the period of FMLA leave.
- Employers may now consider FMLA leave when awarding bonuses - Under the new FMLA regulations, employers may disqualify employees from bonuses or other payments based on the achievement of a specified goal, such as perfect attendance, where the employee has not met the requirements of the goal due to FMLA leave. Employers may do this so long as employees taking both FMLA and non-FMLA leave are treated in the same manner when determining eligibility for bonuses. This means that if an employee taking non-FMLA leave received an attendance bonus despite his or her absence from work, an employee taking FMLA leave must also receive the bonus.
In addition to the recent changes to the FMLA, there may be further action by the government in the next several years aimed at promoting a number of family and medical leave programs. President Obama has expressed his desire to extend protections under the FMLA to employees of businesses with 25 or more workers, as the current version of the FMLA only applies to workers in businesses with 50 or more employees.
Further, some members of Congress, with the backing of President Obama, have sponsored the Healthy Families Act, which would require employers with 15 or more employees to provide workers with 7 days of paid leave for their own illness or the illness of a member of their family. Finally, President Obama has suggested providing $1.5 billion in incentives to prompt the development of paid family leave programs in every state.
With all of these proposed changes earning the support of the new President, family and medical leave programs may continue to expand over the course of the next four years. Workers and employers alike should be on the look out for these program expansions to ensure that they know their rights and remain in compliance with the law.
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MENTAL HEALTH PARITY ACT TO LESSEN DISPARITY WITH MEDICAL BENEFITS IN LARGE GROUP HEALTH PLANS
More than a decade after the original Mental Health Parity Act (MHPA) was passed in 1996, the Act was amended last October to provide for more uniformity between health insurance benefits for mental health/substance abuse disorders and more traditional medical/surgical treatments. The law will apply to most affected health plans beginning January 1, 2010.
The new version of the MHPA requires that health plans of more than 50 employees providing coverage for both physical and mental illnesses do so without imposing financial requirements and treatment limitations on mental health and substance use disorder benefits that are more restrictive than those imposed on medical and surgical benefits. Financial requirements include deductibles, copayments, coinsurance, and out-of-pocket expenses, while treatment limitations include frequency of treatment, number of visits, days of coverage, or other similar limits.
Additionally, the revised MHPA requires that a group health plan providing for out of network medical or surgical benefits must also provide for out of network mental health or substance use disorder benefits. The MHPA does not prevent individual States from enacting stronger State parity laws and ultimately seeks to eliminate the disparities that previously existed between mental health insurance coverage, and coverage for the more traditional physical or surgical illnesses.
The passage of the MHPA indicates the growing acceptance of the idea that mental illnesses are akin to physical illnesses and should be treated in the same manner for insurance purposes. The MHPA does not completely equalize mental health illnesses, however, as it does have some limitations.
The MHPA only applies to insurance companies that already provide mental health or substance abuse disorder coverage. There is no requirement that an insurance company implement benefits for mental health or substance abuse treatments if the company does not already provide that type of coverage. In addition, the MHPA provides for no equality in benefits for those who are part of a small group health plan, those who are individually insured, or those who are uninsured. Small group health plans are those sponsored by employers with fewer than 51 employees. This includes a large segment of the population who will not be afforded any additional mental health benefits due to the MHPA.
Despite the limitations of the Mental Health Parity Act, it is a large step in the direction of creating equality between mental health and other medical treatment benefits. The law takes effect in plan years beginning one year after its enactment on October 3, 2008. For most affected group health plans with plan years coinciding with the calendar year, the effective date will therefore be January 1, 2010. Special effective date rules apply to plans under collective bargaining agreements.
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TAX NOTES
Employer-Owned Life Insurance Must Now be Reported:
Often used to fund company stock purchases required under shareholder agreements, employer-owned life insurance (EOLI) contracts must now be reported to the Internal Revenue Service under new IRS regulations. The reporting will help the IRS apply restrictions and exceptions related to the taxation of EOLI contracts required by the Pension Protection Act of 2006. The Pension Protection Act created new rules limiting the exclusion from income for life insurance proceeds from EOLI contracts unless certain requirements are satisfied. Previously, all proceeds from an employer-owned life insurance policy could be excluded from the income of the employer, however under the new rules, only the premiums and other amounts actually paid by the employer will be excluded from income unless the following conditions are met:
- The insured was an employee within 12 months of death
- The insured was a director or a highly-compensated employee or individual
- The proceeds are paid to a family member, trust or estate of the insured employee
- Notice to and consent from the insured employee is obtained before purchasing the contract
To comply with the new regulations, employers must report the following information regarding EOLI contracts on IRS Form 8925 each year:
- Employer's name, address, business and taxpayer identification number
- Total number of employees at the end of the year
- Number of employees insured by EOLI contracts at the end of the year
- Total amount of insurance under all EOLI contracts at the end of the year
- Information regarding consents received and/or consents not received
Personal Exemptions and Standard Deductions Increase in 2009:
For 2009, personal exemptions and standard deductions will rise and tax brackets will widen because of inflation adjustments announced by the Internal Revenue Service. By law, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being adjusted for 2009. Key changes affecting 2009 returns, filed by most taxpayers in early 2010, include the following:
- The value of each personal and dependency exemption, available to most taxpayers, is $3,650, up $150 from 2008.
- The new standard deduction is $11,400 for married couples filing a joint return (up $500), $5,700 for singles and married individuals filing separately (up $250) and $8,350 for heads of household (up $350). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
- Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $67,900, up from $65,100 in 2008.
- The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $5,028, up from $4,824. The income limit for the credit for joint return filers with two or more children is $43,415, up from $41,646.
- The annual gift exclusion rises to $13,000, up from $12,000 in 2008.
More Regarding New Mileage Rates:
The Internal Revenue Service's optional standard mileage rates are used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. As of January 1, 2009, the standard mileage rates for the use of a car, van, pickup or panel truck are as follows:
- 55 cents per mile for business miles driven
- 24 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations
The new rates for business, medical and moving purposes are slightly lower than rates for the second half of 2008 that were raised by a special adjustment mid-year in response to a spike in gasoline prices. The rate for charitable purposes is set by law and is unchanged from 2008. The mileage rates for 2009 reflect higher transportation costs compared to a year ago, but also factor in the recent decline in gasoline prices. While gasoline is a significant factor in the mileage rate, other fixed and variable costs, such as depreciation, enter the calculation. The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously. Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. Actual costs include gasoline, oil, tires, repairs, tools, parking, insurance, financing interest, taxes, license fees and depreciation.
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SUCCESSION PLANNING FOR THE CLOSELY HELD BUSINESS - PART IV
This fourth article in the series will discuss methods of funding retirement for key owners of a closely held business.
A buy-sell agreement, whether a redemption agreement or a cross-purchase agreement, that provides for installment payments to purchase the shares of a retiring shareholder is a simple way to provide a stream of income for retirement. The value of the installment payments should be based on the current value of the stock plus a reasonable interest component. A note would be executed and the payments would be structured to provide a steady stream of retirement income to the retiring shareholder. Be advised however, that the retiring shareholder would only have the status of an unsecured creditor of the corporation. To provide more security, the corporation may consider financing the stock redemption with an annuity; however this would be subject to the available cash assets of the corporation. Other options for funding shareholder retirement include:
1. Deferred Compensation Plan (non-qualified deferred compensation retirement plan): With this option, the shareholder/employee and the corporation enter into an AEmployment and Deferred Compensation Agreement@ that sets forth the terms of continued employment and also provides for retirement benefits, in a set amount, to be paid upon the shareholder=s retirement from the corporation. The retirement benefits can also provide a death benefit for the shareholder=s spouse and/or a disability benefit. As with the installment purchase of stock discussed above, the retiring shareholder would only have the status of an unsecured creditor of the corporation so that the funds set aside for payment of the retirement benefits may be used to satisfy other creditors of the corporation.
2. Recapitalization: Recapitalization is a process whereby the stock of the corporation is restructured or adjusted as to type, amount, income or priority. The capital structure of the corporation is recast within the framework of the existing corporation. A Class E reorganization under the Internal Revenue Code Section 368(a)(1) is a recapitalization and can be structured to produce favorable tax-deferred results (tax on the built-in gain of appreciated assets will not be due as a result of the reorganization and can be deferred). For a closely held corporation that does not ordinarily pay regular dividends, but rather pays salaries and benefits to the shareholder/employees, a recapitalization and issuance of preferred shares of stock may be the answer to replace the salary of a retiring shareholder/employee. Preferred shares that pay regular dividends would be issued to the retiring shareholder and common shares which do not pay regular dividends would be issued to the other shareholders. The preferred shares can also come with the right to force the corporation to redeem the shares at a specified price, in the event the retiring partner needs to liquidate his ownership. Legislation enacted in 2003 reduced the income tax rate on corporate dividends to 15%, making the dividends less of a tax burden to the retiring shareholder.
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The highly skilled attorneys at Nauman, Smith, Shissler & Hall, LLP are prepared to assist you in whatever your business or employment law needs. Contact the appropriate attorney below and he or she will respond to your inquiry in the following legal areas:
Employment, labor, employee benefits, contracts, general business and corporate law: Benjamin C. Dunlap, Jr., Esquire. E-mail address: bdunlapjr@nssh.com. Phone: (717) 236-3010.
Taxation, business succession planning, corporate formation and governance matters, general business and corporate law: Susan S.Friday, Esquire. E-mail address: ssfriday@nssh.com. Phone: (717) 236-3010.
Real estate, land development, leasing, insurance, general business and corporate law: J. Stephen Feinour, Esquire. E-mail address: sfeinour@nssh.com. Phone: (717) 236-3010
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