On July 10, 2019, the Sixth Circuit considered vexing questions of statutory interpretation in an ERISA case. A dispute over whether a transaction bonus plan was an ERISA employee pension benefit plan hinged on the meaning of two terms common in federal statutes: “results in” and “extending to.” While the meaning of the statute was plain to the entire panel, Judges Stranch and Thapar quarreled over the evidence that a court might rightly consider when interpreting a statute—in this case, ERISA. Judge Thapar argues that “[c]ourts should consider adding [corpus linguistics] to their tool belts.”
On August 20, 2019, the Ninth Circuit held in Dorman v. Charles Schwab Corp. that a 401(k) plan’s mandatory arbitration clause was enforceable in relation to a breach of fiduciary duty claim brought under ERISA § 502(a)(2). No. 18-15281 (9th Cir. Aug. 20, 2019). This is the first case in which the Ninth Circuit concluded that such fiduciary breach claims could be arbitrated.
Our own Richard Shea and Jack Lund recently contributed a post to the RetireSecure Blog maintained by the Pension Research Council of the Wharton School at the University of Pennsylvania. The post discusses the competing rhetoric surrounding the impact of proposed financial transaction taxes on the American retirement system.
Recently enacted California Assembly Bill 5 (“AB-5”) is a game changer for businesses that use independent contractors in California — and a warning shot for employers nationwide. Subject to exemptions for certain occupations and professions, AB-5 imposes a strict “ABC” test that appears to put a thumb on the scale of classifying workers as employees rather than independent contractors.
The ABC test was adopted last year by the California Supreme Court in its Dynamex decision to determine classification of workers for purposes of the state’s Industrial Welfare Commission Wage Orders. For 20 years before Dynamex, worker classification was governed by the more relaxed “Borello” multi-factor test, which focuses on the hirer’s right to control an individual’s work and other secondary factors. AB-5 now makes the ABC test the default standard for determining worker classification — not just under the Wage Orders, but also for all California Labor Code, unemployment insurance, and workers’ compensation claims.
As a result of the passage of AB-5, companies that hire consultants or contractors based in California should take a hard look at those relationships and determine whether they need to reclassify any such individuals as employees. For other companies, this legislation should be monitored as the potential tip of an iceberg of a trend in many states, and potentially nationwide, toward imposing additional hurdles in classifying workers as independent contractors.
The U.S. Department of Labor (DOL) has announced a final rule that will increase access to overtime pay under the Fair Labor Standards Act (FLSA) for approximately 1.3 million workers. The final rule, which comes six months after DOL published a proposed rule in March, is the latest development in a years-long process by DOL, spanning the Obama Administration and the Trump Administration, to modify FLSA overtime regulations. The new rule takes effect on January 1, 2020, giving employers just a narrow window to assess the rule’s impact on their operations. The final rule is available here. DOL has also published a fact sheet that provides an overview of the final rule, available here.
In May, the IRS issued a private letter ruling to an individual taxpayer regarding the deductibility of 23andMe’s at-home DNA test kits under section 213(d) of the Code, which permits the deduction of medical expenses. In the ruling, the IRS determined that an allocable portion of the purchase price may be treated as a deductible medical expense and the taxpayer may use a medical flexible spending account to purchase the kit.
23andMe provides a DNA collection kit that is used to collect a DNA sample from an individual and to send the sample to 23andMe for genetic testing. The sample is then tested by a third-party laboratory. The genetic information from the test is then analyzed by 23andMe and a report is provided to the individual with results from the laboratory and general information regarding genetic health risks, carrier status, wellness, and traits. The individual may then provide the information to a healthcare provider for additional testing, diagnosis, or treatment.
The IRS determined that the health services provided by 23andMe may be deductible medical expenses based on three revenue rulings, Revenue Ruling 54-457, Revenue Ruling 71-282, and Revenue Ruling 2007-72. Revenue Ruling 54-457 determined that an allocable share of a lump-sum fee charged by a university for medical care and other expenses is eligible for deduction under section 213(d). Revenue Ruling 71-282 holds that the fee paid for storage of medical information in a computer data bank is deductible under section 213(d). Revenue Ruling 2007-72 determined that full-body scans performed without a doctor’s recommendation and for an individual experiencing no symptoms falls within the broad definition of “diagnosis,” which encompasses determinations that a disease may or may not be present, and includes testing of changes to the function of the body that are unrelated to disease.
Bolstering the state’s reputation for progressive employment legislation, California has become the first state to ban discrimination based on natural hair and protective hairstyles. On July 3, 2019, California Governor Gavin Newsom signed into law SB 188, which amends the California Fair Employment and Housing Act (FEHA), specifying that “hair discrimination targeting hairstyles associated with race is racial discrimination.” The Creating a Respectful and Open Workplace for Natural Hair (CROWN) Act, takes effect on January 1, 2020, and applies to California employers with five or more employees.
The new law amends the FEHA definition of “race” to include “traits historically associated with race, including, but not limited to, hair texture and protective hairstyles.” Protective hairstyles include, for example, “braids, locks, and twists.” As a result, California employers will be barred from maintaining dress code or grooming policies that prohibit natural hair or protective hairstyles, as these policies are more likely to deter Black applicants, and to burden or punish Black employees, than any other group. The bill explains that “[p]rofessionalism was, and still is, closely linked to European features and mannerisms, which entails that those who do not naturally fall into Eurocentric norms must alter their appearances, sometimes drastically and permanently, in order to be deemed professional.” The legislation also updates the California Education Code to prohibit similar discrimination in public education.
Although California is the first state to prohibit natural hairstyle discrimination, it trails New York City, which issued guidance in February 2019 explaining that policies banning natural hairstyles or hairstyles most closely associated with black people generally violate the New York City Human Rights Law. The New York City guidance also explicitly prohibits grooming policies that require employees to change their hairstyle to conform to the company’s appearance standards, including having to straighten or relax hair.
Similar legislation, sponsored by the CROWN Coalition (Creating a Respectful and Open World for Natural Hair), is pending in New Jersey and was recently passed in New York state and is now awaiting the governor’s signature.
In light of these developments, employers should proactively review their grooming and appearance policies, even those that appear facially neutral, to ensure that they comply with the new prohibitions, are inclusive of all cultures and legally protected categories, and backed by legitimate, objective business needs. Employers should also take measures to ensure that such policies are applied in a nondiscriminatory manner, including providing training to managers and others involved in the hiring process regarding the new law.
On April 29, 2019, the U.S. Department of Labor’s (DOL) Wage and Hour Division issued an opinion letter finding that “virtual marketplace company” workers (of an unnamed business) were independent contractors rather than employees. While not binding, the opinion signals that DOL is taking a less aggressive approach than in recent years to the hot-button issue of worker classification in the online “gig economy.” Companies with similar business models that link workers with consumers through technology platforms or “virtual marketplaces” — such as for transportation, delivery, moving, cleaning and household services — may be able to rely on the new opinion to establish a good-faith defense under the Fair Labor Standards Act (FLSA) of their classification of workers as independent contractors.
Following two years of anticipation, after a similar but more aggressive rule was proposed by President Obama’s administration and then squashed by federal courts in Texas, the Department of Labor (DOL) has issued the long-awaited Notice of Proposed Rulemaking that, if enacted, would expand access to overtime pay for certain employees under the Fair Labor Standards Act (FLSA). DOL estimates that this change could expand overtime eligibility for over one million American workers, about 3.7 million fewer than would have been impacted under the Obama proposal. The proposed rule is available here.
Over three decades ago, in Loral Corp. v. Moyes, a California Court of Appeal held that employee non-solicitation agreements, which bar former employees from soliciting the employer’s existing employees, could be enforceable. In 2008, the California Supreme Court in Edwards v. Arthur Andersen LLP held that non-competition agreements are unlawful restraints on trade and void under California Business & Professions Code section 16600 (with limited statutory exceptions), but left open whether employee non-solicitation provisions amounted to unlawful restraints on trade. But recently, in a span of just months, two different courts in California have ruled that employee non-solicitation provisions are invalid under section 16600.