May 2010 Archives

May 27, 2010

ERISA-Sixth Circuit Upholds An Action For Pension Benefits Based On Equitable Estoppel

In Bloemaker v. Laborers' Local 265 Pension Fund, No. 09-3536 (6th Circuit 2010), an employee became entitled to receive early retirement benefits under his employer's ERISA-covered defined benefit pension plan. As part of the process of applying for these benefits, the plan had provided him with a benefit election form, stamped by the plan's administrator, and certifying that he is entitled to receive $2,339.47 per month for his life (the "Certified Benefits Calculation"). After receiving benefit payments from the plan for nearly two years, the plan's administrator notified the employee that the Certified Benefits Calculation was incorrect and his monthly payments should be $1,829.71 per month, that his future payments would be decreased to reflect the appropriate amount, and that he would be required to repay the excess amounts he had received. The employee filed suit, alleging in his complaint that the plan and the administrator had breached a contractual agreement with him, that he had detrimentally relied on the their misrepresentations, and that they breached their fiduciary duties under the plan.

Of particular interest is how the Court applied the doctrine of equitable estoppel to the case. The Court indicated that the employee's complaint may be construed as stating a claim under ERISA for a pension benefit based on the federal common law rule of equitable estoppel ("equitable estoppel"). The Court began by noting it (the Sixth Circuit Court of Appeals) has recognized that equitable estoppel may be a viable theory in ERISA cases, although it had not yet applied this theory to a claim for a pension benefit, as opposed to a welfare benefit. However, the Court said that it-as have other circuits- would apply equitable estoppel when the representation as to the pension benefit was made in writing (so that an oral statement cannot vary plan terms) and the plaintiff can demonstrate extraordinary circumstances.

The Court further said that (at least in the Sixth Circuit) the elements of an equitable estoppel claim, when asserted by an employee against a plan and its administrator, are: (1) conduct or language amounting to a representation of material fact; (2) awareness of the true facts by the plan and its administrator; (3) an intention on the part of the plan and its administrator that the representation be acted on; (4) unawareness of the true facts by the employee; and (5) detrimental and justifiable reliance by the employee on the representation (this apparently being the extraordinary circumstances).

The Court went on to find that each of these elements was present in the instant case, so that the employee had established a claim for pension benefits based on equitable estoppel. The employee alleged that he received a document stating that he could receive a pension benefit of $2,339.40 per month, certified by the plan's administrator, meeting element (1). Elements (2), (3), (4) and (5). are met, since the employee alleges that the plan and its administrator were aware of the true facts, that they intended for the employee to rely upon their representations, and the employee was unaware of the true facts, but relied on the misrepresentations when deciding to retire.

May 26, 2010

ERISA-Supreme Court Announces New "Some Degree of Success" Standard For Award Of Attorney's Fees Under ERISA

Hardt v. Reliance Standard Life Insurance Co., No. 09-448 (Supreme Court 2010) involved a claim by the plaintiff against an insurance company, defendant Reliance, for long-term disability benefits. Reliance had denied the plaintiff's claim for the benefits. The District Court had ruled against the plaintiff's motion for summary judgment on her claim for the benefits. The District Court had found compelling evidence that the plaintiff is totally disabled, and stated that it was inclined to rule in her favor. However, to give Reliance a chance to reconsider its denial, the District Court remanded the case back to Reliance for another review of the plaintiff's claim. Reliance conducted the court-ordered review, reversed its denial of the benefit claim, and awarded the plaintiff the benefits she sought. The District Court then awarded attorney's fees to the plaintiff, under section 502(g)(1) of ERISA.

One matter addressed by the Court was whether the District Court's award of attorney's fees was correct. Here is what the Court said on this matter. Section 502(g)(1) is a fee shifting provision, which applies in most ERISA lawsuits. It states that the court in its discretion may allow a reasonable attorney's fee and costs to either party. A person need not be a prevailing party to be eligible for an award of attorney's fees and costs under section 502(g)(1). A court may award attorney's fees and costs to either party under that section, as long as the party asking for the fees and costs has achieved some degree of success on the merits. A party does not satisfy this requirement by achieving trivial success on the merits or a purely procedural victory. This requirement is satisfied if the court can fairly call the outcome of the litigation some success on the merits, without conducting a lengthy inquiry into the question of whether a particular party's success was substantial or came on a central issue. Further, the Court found that, in this particular case, the plaintiff showed the requisite success in order to be eligible for the award, so that the District Court properly exercised its discretion to attorney's fees to the plaintiff.

Questions/Points: The new standard makes it easier for a plaintiff bringing suit for benefits under ERISA to collect attorney's fees and costs. However, if the defendant, typically the insurance company denying the benefits, has "some degree of success on the merits", can it collect attorney's fees from the plaintiff, even if the plaintiff wins the case? Doesn't that possibility make it more risky for a plaintiff to pursue a claim for benefits, contrary to the intention behind ERISA? Also, the standard of "some success on the merits" would seem to invite a lot of

May 25, 2010

Employee Benefits-IRS Says That 2011 Limits/Thresholds For HSAs Are The Same As For 2010

In Rev. Proc. 2010-22, the IRS has announced the deduction limits and high deductible health plan thresholds for health savings accounts ("HSAs") for 2011. And guess what? They are the same as for 2010 (since there wasn't enough of a change in the Consumer Price Index to make any adjustment).

As such, for calendar year 2011, the annual limit on deductions for contributions to an HSA under section 223(b)(2)(A) of the Internal Revenue Code (the "Code")) is:

--$3,050 for an individual with self-only coverage under a high deductible health plan; and

--$6,150 for an individual with family coverage under a high deductible health plan.

Also for calendar year 2011, a "high deductible health plan" is defined, under section 223(c)(2)(A) of the Code, as a health plan with an annual deductible that is not less than $1,200 for self-only coverage or $2,400 for family coverage, and for which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $5,950 for self-only coverage or $11,900 for family coverage.

May 24, 2010

Employment-Eleventh Circuit Upholds Non-Competition And Non-Solicitation Covenant

These days, it seems that it is becoming increasingly difficult to create an enforceable non-competition or non-solicitation covenant. But that is what the plaintiff did in H & R Block Eastern Enterprises, Inc. v. Morris, No. 09-11184 (11th Circuit 2010). In this case, defendant Vicki D. Morris ("Morris"), a tax professional, had entered into an employment agreement (the "Agreement") with her employer, plaintiff H&R Block Eastern Enterprises, Inc. ("Block"). The Agreement included a non-competition covenant and a non-solicitation covenant. After Block terminated her, Morris started Dreams Tax Service, Inc. and personally prepared tax returns for 47 former Block clients. Block filed suit against Morris, claiming she violated the terms of the Agreement by soliciting Block's clients, providing tax-preparation services to Block's former clients, and soliciting and hiring Block's employees.

The non-competition covenant stated that : (1) for a period of two years following the expiration of the Agreement (or the resignation or termination of Morris), Morris could not, directly or indirectly, provide any tax (or tax-related) services to any of Block's clients with whom Morris had contact while working at Block, and (2) this restriction is limited to Morris's district of employment, and a 25 mile radius from the office at which Morris worked. The non-solicitation covenant stated that, for the same 2-year period, Morris could not, directly or indirectly, solicit any of Block's clients, with whom she had contact while working at Block, for the purpose of providing tax (or tax-related) services.

The Court applied Georgia law to the question of whether the non-competition and non-solicitation covenants were enforceable. As to the non-competition covenant, the Court applied the three-element test of duration, territorial coverage, and scope of the covenant. The Court ruled that the non-competition covenant is enforceable, because it is reasonable, considering the nature and extent of the business, the situation of the parties, and other relevant circumstances. Similarly, the Court ruled that the non-solicitation covenant is enforceable, because it is reasonable with respect to duration and activity covered, and it does not prohibit Morris from accepting unsolicited business.

May 20, 2010

Employee Benefits-IRS Issues Final Regulations On Diversification Requirements For Defined Contribution Plans Holding Publicly Traded Employer Stock

Internal Revenue Code Section 401(a)(35) imposes diversification requirements for qualified defined contribution plans which hold publicly traded employer stock. Under these requirements, a participant with at least 3 years of service (or a beneficiary of a deceased participant) must be allowed to direct the plan to divest the employer stock which is held in his or her plan account, and which was acquired with elective deferrals or employee contributions, and to reinvest an equivalent amount in other investment options. For this purpose, the plan must offer at least 3 investment options, other than employer stock, each of which is diversified and has materially different risk and return characteristics. A participant (or beneficiary) must be permitted to divest the employer stock at reasonable, periodic times occurring at least quarterly, and the plan may not impose restrictions or conditions on the divestment of employer stock that is not imposed on other plan assets.

The IRS has now issued final regulations on these Section 401(a)(35) diversification requirements. Feel free to contact me with any questions you have.

May 19, 2010

Employment/Tax-IRS Issues Revised Payroll Tax Form That Employers May Use To Claim Payroll Tax Exemption For New Hires

In Information Release 2010-64, the Internal Revenue Service ("IRS") announces that it has issued a newly revised payroll tax form that most eligible employers can use to claim the special payroll tax exemption that applies to many new workers hired during 2010. The Information Release provides the following information pertaining to this revised tax form.

Employers who hire unemployed workers this year (after Feb. 3, 2010, and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from the employer's share of Social Security tax on wages paid to these workers after March 18. In addition, for each qualified employee retained for at least a year whose wages did not significantly decrease in the second half of the year, businesses may claim a new hire retention credit of up to $1,000 per worker on their income tax return.

The payroll tax exemption is claimed as follows. Form 941, Employer's Quarterly Federal Tax Return, now revised for use beginning with the second calendar quarter of 2010, will be filed by most employers claiming the payroll tax exemption for wages paid to qualified employees. The exemption may not be claimed for wages paid in the first quarter. The Form's instructions explain how the exemption for wages paid from March 19 through March 31 can be claimed on the second quarter return.

The Information Release also reminds us that, to claim both the payroll tax exemption and the new hire retention credit, an employer is required to obtain a signed statement from each eligible new hire. In this statement, the new hire certifies, under penalties of perjury, that he or she was not employed for more than 40 hours during the 60 days before beginning employment with that employer. An employer may use new Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, released last month, to meet this requirement.

May 19, 2010

Employment-Seventh Circuit Rules That Plaintiff May Proceed With Interference and Retaliation Claim Under the FMLA

In Goelzer v. Sheboygan County, Wisconsin, No. 07 C 451 (7th Circuit 2010), plaintiff Dorothy Goelzer was fired from her job with the county government. Her supervisor had informed her of the termination two weeks before she was scheduled to begin two months of leave under the Family and Medical Leave Act ("FMLA"). She had taken FMLA leave a number of times before. After being fired, Goelzer brought this suit, alleging that her employer had violated the FMLA by interfering with her right to reinstatement under the FMLA and retaliating against her for taking FMLA leave.

The District Court granted summary judgment against Goelzer. However, the Seventh Circuit Court concluded that Goelzer had furnished enough evidence for her case to reach a trier of fact, and therefore reversed the summary judgment. The Court based its decision on comments suggesting Goelzer's supervisor's dissatisfaction with her prior use of FMLA leave, her positive performance reviews, and the timing of her termination, just two weeks before the FMLA leave was to begin. This evidence could allow a jury to find that Goelzer's employer had violated the FMLA, as Goelzer had alleged.

May 18, 2010

Employee Benefits-IRS Provides Guidance On New Tax Credit For Health Insurance Contributions

Section 45R of the Internal Revenue Code, which was added by the recently enacted Patient Protection and Affordable Care Act, offers a tax credit to certain small employers that provide health insurance coverage to their employees. It is effective for taxable years beginning in 2010. Both taxable and tax-exempt employers and employers may be eligible for the new tax credit.

The Internal Revenue Service ("IRS") has issued Notice 2010-44 to provide guidance on the new tax credit. The Notice provides information, including helpful examples, on employer eligibility to take the tax credit, how to calculate and claim the tax credit, and transitional relief for qualifying for the tax credit in 2010.

May 12, 2010

Employee Benefits-Government Issues Interim Regulations Relating To Coverage Of Children Up To Age 26

The Department of the Treasury, Department of Labor and Department of Health and Human Services have jointly issued Interim Regulations on the requirement in the recently enacted health care legislation that a health care plan, which offers dependent coverage, must make the coverage available for children until they reach age 26. This requirement becomes effective at the start of the first plan year beginning after September 23, 2010. Here are some of the points made in the Interim Regulations:

--A plan may not condition the eligibility of an employee's child-of any age- for dependent health care coverage on any factor, such as marital status, student status, residency, and financial support, other than the child being under age 26.

--A plan cannot charge a higher premium for an adult child than for a younger child.

--The benefits available, and the terms and conditions of health care coverage, under the plan cannot vary based on the age of a child, so long as the child is under age 26.

--A plan cannot exclude a child under age 26 from health care coverage, even if that child previously lost coverage under that plan or had never been enrolled in the plan. A child who earlier lost or was denied health care coverage must now be given an opportunity to enroll in the plan (including being provided with a written explanation of this opportunity ), over a 30-day period. The enrollment period must start (and the written explanation must be provided) by no later than the start of the first plan year beginning after September 23, 2010.

--The child of an employee's child need not receive dependent coverage.

May 11, 2010

Employment-DOL Provides Guidance On New Rule Requiring A Health Plan To Cover Children To Age 26

The recently enacted health care legislation requires health care plans, which offer dependent coverage, to make the coverage available to an employee's child, until the child reaches age 26. The Department of Labor (the "DOL") has now provided guidance on this rule, in the form of regulations, a fact sheet and frequently asked questions ("FAQs").

Highlights from the FAQs include the following information:

--The extension of dependent coverage for adult children is effective for plan years beginning on or after September 23, 2010. However, the Administration has urged insurance companies and employers to prevent a gap in coverage for young adults aging off of their parents' plan or policy prior to this effective date. Individuals should check with their insurance company or employer to see if they are offering this coverage.

--For plan years beginning on or after September 23, 2010, health care plans must give children who qualify an opportunity to enroll that continues for at least 30 days (regardless of whether the plan normally offers an open enrollment period). This enrollment opportunity, and a written explanation of the opportunity, must be provided not later than by the first day of the first plan beginning on or after September 23, 2010. Some plans may provide the opportunity at an earlier time. A child who previously lost coverage under his or her parent's plan due to age, but who is eligible to enroll under the new rule, may enroll during this open enrollment period.

--The new rule extending health care coverage applies to any adult child under age 26, unless the child has another offer of employer-based health care coverage (such as through his or her job). Beginning in 2014, children up to age 26 can stay on their parent's employer health care plan even, if they have another offer of coverage through an employer. No limitation may be imposed on an adult child's enrollment in a plan based on his or her financial dependency, marital status, enrollment in school, residency or other similar factor.

May 10, 2010

Employment-New York Court Of Appeals Rules That The Faragher-Ellerth Defense Does Not Apply Under New York City Law

In Zakrzewska v. The New School, Decision No. 62 (May 6, 2010),the plaintiff, Dominika Zakrzewska, had brought a lawsuit in federal court against defendants, Kwang-Wen Pan and The New School, for sexual harassment and retaliation under the New York City Human Rights Law (the "NYCHRL"). As part of the proceeding, the Second Circuit Court of Appeals asked the New York Court of Appeals whether the affirmative defense to employer liability, articulated in Faragher v City of Boca Raton, 524 US 775 (1998) and Burlington Industries, Inc. v Ellerth, 524 US 742 (1998)(the "Faragher/Ellerth Defense"), applies to sexual harassment and retaliation claims under the NYCHRL.

In this case, the plaintiff had enrolled as a freshman at the New School, and had worked part-time in the schools' computer center. She alleges that defendant Pan was her immediate supervisor and subjected her to sexually harassing emails and conduct. The plaintiff complained to New School officials, and she further alleges that Pan covertly monitored her internet usage at work in retaliation for her accusation. The question arose as to the New School's liability for Pan's conduct, and whether the Faragher-Ellerth Defense could shield the New School from this liability.

The Faragher-Ellerth Defense provides that an employer is not liable under Title VII for sexual harassment committed by a supervisory employee, if it sustains the burden of proving that (1) no tangible employment action such as discharge, demotion, or undesirable reassignment was taken as part of the alleged harassment, (2) the employer exercised reasonable care to prevent and correct promptly any sexually harassing behavior, and (3) the plaintiff employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm otherwise. But does this defense apply under the NYCHRL? The question found its way to the New York Court of Appeals.

In answering this question, the New York Court of Appeals notes that Section 8-107 (1) (a) of the NYCHRL prohibits discrimination on the basis of gender, and section 8-107 (13) (b) states that an employer shall be liable for an employee's violation of the prohibition when: (1) the employee exercised managerial or supervisory responsibility, (2) the employer knew of the employee's discriminatory conduct, and acquiesced in the conduct or failed to take immediate and appropriate corrective action or (3) the employer should have known of the employee's conduct and failed to exercise reasonable diligence to prevent it.

The New York Court of Appeals stated that the plain language of the NYCHRL-which holds the employer liable when the employee in question is a manager or supervisor or the employer knew, or should have known about the employee's discriminatory conduct- is inconsistent with and precludes the Faragher-Ellerth Defense, which is based on anti-discrimination policies and procedures. As such, the Court concluded that the Faragher-Ellerth Defense does not apply under the NYCHRL.

May 8, 2010

Employment-DOL Revises Web Tool To Help Veterans Navigate Web Resources

The Department of Labor ("DOL") has announced that it has revised its e-VETS Advisor. This Advisor is an interactive, online tool, which is designed to help Veterans, Service Members and their families and caregivers to quickly and easily navigate Web-based information on a variety of topics, including education, job training and employment.

The DOL says that the updated e-VETS Advisor offers access to more than 11,000 services and resources at the national, state and local levels. In addition to education, job training and employment, it provides information on benefits and compensation, family and caregiver support, health, housing, homeless assistance and transportation and travel. It integrates with the National Resource Directory (NRD), a Web-based index of services and resources collaboratively managed by the Departments of Defense, Labor and Veterans Affairs.

May 6, 2010

Employment-DOL Provides A New Web Tool TO Help Employers Understand Disability Laws

The Department of Labor ("DOL") has set up a new web tool, called the Disability Nondiscrimination Law Advisor, to help employer understand disability law.

According to the DOL, this interactive, online web page helps employers quickly determine which federal disability nondiscrimination laws apply to their business or organization and their responsibilities under them. To do this, it asks users to answer a few relevant questions and then generates a customized list of federal disability nondiscrimination laws that likely apply, along with easy-to-understand information about employers' responsibilities under each of them.

Take a look!

May 4, 2010

Employee Benefits-IRS Provides Guidance For Determining Average Premiums For Purposes Of The New Small Employer Health Insurance Tax Credit

The recent health care reform legislation includes a new tax credit for eligible small employers that make nonelective contributions towards their employees' health insurance premiums. Prior to 2014, the amount of the credit is based on a percentage of the lesser of: (1) the amount of nonelective health insurance contributions paid by the employer on behalf of its employees and (2) the amount of nonelective health insurance contributions the employer would have paid, if its employees had been enrolled in a plan with a premium equal to the average premium for the small group insurance market in the employer's State (or area within the State) in which the health insurance coverage is offered.

To establish the amount in prong (2), IRS Revenue Ruling 2010-13 contains a chart which sets forth the average premium for the small group insurance market in each State for 2010. The Revenue Ruling also notes that there may be areas in some States with meaningfully higher premium rates. Consequently, for 2010, additional average premium rates may be provided by the Department of Health and Human Services for the small group insurance market in certain areas within the States. In no case will any such additional rate be lower than the rate for the State indicated in the Revenue Ruling.