The Supreme Court put to rest years of uncertainty regarding the enforceability of class action waivers for employees when it decided Epic Systems Corp. v. Lewis, 582 U.S. ___ (2018) on May 21. In a 5-4 decision, the majority held that employers do not violate the National Labor Relations Act (NLRA) or the Federal Arbitration Act (FAA) by requiring employees to sign arbitration agreements that waive their rights to bring class action suits. While the Supreme Court’s decision focused on class action waivers in the context of arbitration agreements, its holding could be extrapolated to uphold employee class action waivers included in any agreement between an employer and employee.
[This article was originally published in Law360.]
As U.S. companies expand internationally, they often wish to compensate their non-U.S. employees with stock options, restricted stock, phantom stock and other forms of equity compensation. But offering equity compensation to non-U.S. employees is not as straightforward as it may sound, and is often more complicated than it is at home. U.S. companies venturing into the world of global equity compensation confront a complex, cross-border web of rules and regulations, which can vary markedly from country to country.
In this article, we highlight five critical questions that can help U.S. companies navigate common legal pitfalls in the global equity space. These questions focus on some of the most rapidly evolving areas of law, including securities, exchange controls, data privacy, tax and foreign account reporting, and labor and employment.
California’s highest court recently pronounced a new worker classification standard in Dynamex v. Lee, a case involving wage and hour requirements under the California Labor Code. Compared with the old rule, the new standard is simpler, arguably more predictable—and will make it more difficult for businesses to classify workers as independent contractors. Dynamex will have immediate consequences for businesses operating in California. Indeed, within days of the ruling, workers sued two prominent “gig economy” companies alleging unlawful worker classifications. For companies in every state, the decision is a reminder that the potential risks of worker misclassification could arise under myriad state and federal laws.
Taxpayers may treat the $6,900 original annual contribution limit for family coverage to health savings accounts (“HSAs”) as the limit for 2018, according to IRS guidance released on April 26, 2018 (press release; IRS Rev. Proc. 2018-27). Employers that took steps to comply with the reduced limit may need to take action.
As discussed in our earlier blog post, the contribution limit for family coverage to HSAs for 2018 was reduced by $50 from $6,900 to $6,850. Bowing to pressure from stakeholders who explained to the Treasury Department and IRS that implementing the reduction would impose administrative and financial burdens, the IRS announced that for 2018, taxpayers with family coverage under a high deductible health plan may treat $6,900 as the maximum deductible HSA contribution.
This is welcome relief for employers that had not yet taken steps to comply with the reduced limit. However, for employers that already informed participants of the change and took steps to modify salary reduction elections or return contributions in excess of the lower limit, this guidance likely triggers additional action.
The Advisory Council on Employee Welfare and Pension Benefit Plans (often called the “ERISA Advisory Council”) has released a report urging the Department of Labor (“DOL”) to streamline retirement plan disclosure requirements. The report reiterates concerns the Council expressed in 2005 and 2009, echoed by the U.S. Government and Accountability Office (the “GAO”) in 2013, that the number and complexity of mandatory disclosures confuses participants and burdens plan administrators. The Council’s latest report goes further than previous reports have done, outlining four recommendations for specific rule changes and proposing new model notices to simplify the current disclosure scheme.
For taxable years starting after December 31, 2017 and before January 1, 2020, the Tax Cuts and Jobs Act of 2017 adds a new Section 45S to the Internal Revenue Code that provides a tax credit for businesses offering paid family and medical leave (“F&M Leave”). The IRS recently issued FAQs that begin to answer questions about F&M Leave and how the tax credit will work, but many open questions remain.
On Wednesday, April 18th, the SEC introduced a much-anticipated package of proposed rules and formal guidance concerning the standards of conduct for financial professionals. The more than 1,000-page proposal, which emerged eight years after Congress required the agency to conduct a study on the topic, addresses whether investment advisers and broker-dealers should have identical or different standards of conduct vis-à-vis their retail customers. Covington recently published this alert, which takes a look at the four key parts of the SEC’s proposal and provides a brief overview of how the proposal interacts with the DOL fiduciary rule.
Part of Our Series on the Tax Cuts and Jobs Act of 2017
When an employee exercises a stock option or receives shares of stock from the settlement of a restricted stock unit (or “RSU”), generally the employee has income based on the value of the stock received. Income tax and Social Security and Medicare (“FICA”) taxes are due, and the employer must withhold and report these taxes.
Employees of publicly traded companies usually can sell shares in the public market to cover the cost of their taxes. However, there is typically no market for shares of privately held companies, such as start-ups. As a result, employees receiving shares of a private company through a stock option exercise or RSU settlement usually must come up with the cash to pay the IRS.
The Tax Cuts and Jobs Act of 2017 (the “Act”) adds a new section 83(i) to the Code that allows certain employees of private corporations that broadly grant stock options or RSUs to elect to defer income tax for up to five years. This is referred to as an “83(i) election”.
Section 83(i) was billed as a way to make it easier for employees of start-ups and other private companies to share in their employers’ success. However, as we explore in this post, the benefits of an 83(i) election may be limited. As discussed in more detail below, private employers face a number of questions about how they can — and whether they will want to — offer an equity program that is eligible under section 83(i).
Changes to cost of living adjustments for health savings accounts (“HSAs”) by the Tax Cuts & Jobs Act of 2017 (the “Act”) caused a $50 decrease in the contribution limit for family coverage to HSAs for 2018. The limit was reduced from $6,900 to $6,850 (original limit here; revised limit here).
This affects only 2018 contributions for employees with family coverage who have exceeded or made elections that will exceed the original HSA contribution limit for 2018.
Part of Our Series on the Tax Cuts and Jobs Act of 2017
Employers generally may deduct reasonable salaries and other compensation paid to their employees. However, section 162(m) of the Internal Revenue Code imposes a $1 million annual limit on the amount of compensation that a publicly held corporation can deduct with respect to each of its “covered employees.”
The Tax Cuts and Jobs Act of 2017 substantially revises section 162(m) in ways that will significantly limit the amount of compensation that many public companies will be able to deduct.