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Inside Compensation

Developments in Employee Benefits & Executive Compensation

DOL Issues Guidance on Its Broad View of Joint Employment

Posted in Employment

On January 20, the Department of Labor’s Wage and Hour Division (WHD) issued new guidance on joint employment under the Fair Labor Standards Act (FLSA).  The guidance marks the third time in recent years that WHD has stressed the broad definition of “employment” under the FLSA, following June 2014 guidance on joint employment in the home health care industry and July 2015 guidance on misclassification of employees as independent contractors.  WHD’s consistent focus reiterates that the agency believes that many workers are classified incorrectly and will focus its enforcement activity on these areas.

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Supreme Court Reiterates High Pleading Bar for Stock Drop Cases

Posted in Defined Contributions Plans

As noted in our earlier blog post, the U.S. Supreme Court’s 2014 decision Fifth Third Bancorp v. Dudenhoeffer made clear that participants bringing stock-drop cases are subject to heightened pleading standards to help “divide the plausible sheep from the meritless goats.”

In its first substantive ruling in a post-Dudenhoeffer stock-drop case, the U.S. Supreme Court yesterday held that the Ninth Circuit had failed to hold the plaintiffs in Amgen Inc. v. Harris to these high standards.  In the Supreme Court’s view, the Ninth Circuit in Harris failed to assess a factor that the Dudenhoeffer decision specifically instructed lower courts to consider: whether the complaint “plausibly alleged” that a prudent fiduciary in the same position “could not have concluded” that removing the company stock fund from the plan’s investment lineup “would do more harm than good.”  The court remanded the case for the district court to determine whether to allow the plaintiffs to amend their complaint.

The Harris decision reinforces the requirement that a stock-drop complaint should be dismissed unless the complaint alleges specific facts addressing each factor laid out in the Dudenhoeffer decision.  As a result, it will continue to be difficult for plaintiffs to bring stock-drop suits that can survive a motion to dismiss.

Covington & Burling LLP and Keating Muething & Klekamp PLL represented the employer, Fifth Third Bancorp, in the U.S. Supreme Court.

Employees in France and Germany May No Longer Have to Respond to Work-Related Emails Out of Working Hours

Posted in International

As people head off on their summer breaks, regulators in Europe, particularly Germany, are increasingly focused on the breakdown of the division between home and work life and how this division is changing as mobile devices become used for work-related emails. Regulators are considering new rules that would limit an employer’s ability to require employees to respond to work-related requests outside of office hours.  For a breakdown and analysis of the proposals, please click here.

Bruno Standaert is a trainee in the Brussels office of Covington & Burling LLP.  He received his law degree from the University of Leuven.

Legal Developments Affect Open Enrollment for 2016

Posted in Health Plans

Several legal developments affect the designs of group health plans in 2016. This brief refresher of those developments may be helpful to employers whose open enrollment is just around the corner.

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SEC’s New Pay Ratio Disclosure Rule Explained

Posted in Executive Compensation (US)

On August 5, 2015, the Securities and Exchange Commission adopted, by a three-to-two vote, a rule that will require most public companies to disclose, annually, the ratio of the median of the annual total compensation of the company’s employees to the annual total compensation of the company’s principal executive officer. Companies must comply with the pay ratio rule for the first fiscal year beginning on or after January 1, 2017. As a result, companies with December 31 fiscal years will first be required to provide pay ratio disclosure, for the 2017 fiscal year, in their proxy statements for their 2018 annual meeting of shareholders.

Our colleagues in Covington’s Securities practice group have prepared a nice overview of the new rule, which you can view here.

Will Cybersecurity Best Practices Morph into Cyber Mandates?

Posted in Employee Trade Secret Theft

The federal government has been encouraging employers to adopt best practices to address both external and internal threats to critical business information and infrastructure. These best practices have included an important human resources element, including policies and programs covering current and former employees.

For example, the Obama Administration opened its initiative to combat trade secret theft with a report that listed human resources policies as one of four areas in which employers need to adopt best practices. Similarly, the Framework for Improving Critical Infrastructure Cybersecurity developed by the National Institute of Standards and Technology and the recently published Best Practices for Victim Response and Reporting of Cyber Incidents developed by the U.S. Department of Justice include multiple recommendations regarding human resources policies needed to manage cybersecurity risks. As we have noted before, employees can be among the best protectors of employers’ critical information, or its worst threat.

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Closing the Backdoor on Roth Conversions of After-Tax Amounts?

Posted in Defined Contributions Plans

White House budget proposal released earlier this year would eliminate several methods used by certain taxpayers to convert after-tax contributions into Roth amounts.  Although such a change would likely require congressional action, taxpayers who use or are considering these methods should be mindful of the proposed change.

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Time to Focus on Directors’ Pay?

Posted in Executive Compensation (US)

Although executive compensation has been under significant scrutiny for many years, directors’ compensation has flown somewhat under the radar. That may be about to change: in Calma v. Templeton, a Delaware court recently held that the level of compensation granted to non-employee directors should be reviewed under the “entire fairness” standard rather than under the more lenient “business judgment” standard. The court concluded that the stricter standard was appropriate because:

  • the directors had a conflict of interest when they were deciding whether to award themselves any equity compensation; and
  • the company’s shareholders did not “ratify” the directors’ equity awards when they approved the plan under which the awards were granted, since the plan did not include “meaningful limits” on the potential awards.

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Labor Department Addresses Worker Misclassification

Posted in Employment

The classification of workers as employees or independent contractors is an ongoing headache for employers.  Different government agencies use different tests to determine a worker’s status.  The one thing the tests have in common is that they are subjective: two people applying the same test to the same worker will often reach different conclusions about the worker’s status.  Employers face substantial liabilities under tax provisions, employee benefit plans, workplace rules, overtime requirements, and other laws if they misclassify an employee as an independent contractor.

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Changes to IRS Determination Letter Program Raise Practical Questions

Posted in Defined Benefit Plans, Defined Contributions Plans

On July 21, the IRS announced that it is eliminating its current determination letter program for tax-qualified retirement plans. (IRS officials had been sending signals that this was coming for several months. It is now official.) Starting in 2017, the IRS will accept determination letter applications in only three circumstances:

  1. Initial qualification for a new plan. The IRS will still review any plan that has not previously received a determination letter.
  2. Plan termination. The IRS will still accept applications for a determination upon termination of a plan.
  3. Other limited circumstances to be determined by the Treasury Department and IRS. The Announcement says that Treasury and the IRS intend periodically to request public comments on what circumstances should be included in this category.

For plan sponsors, favorable IRS determination letters provide protection against disqualification for a “plan document failure”–for example, if the IRS later determines that a plan provision does not comply with the tax-qualification requirements or the IRS determines that a required provision is missing. Given the significant potential costs of a plan being disqualified, third parties often rely on determination letters to confirm that a plan is qualified. For example, buyers in corporate transactions, plans and IRAs accepting rollovers, and lenders often request to see copies of a plan’s favorable determination letter.

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