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Some Closely Held For-Profits Exempt From ACA Contraceptive Mandate

[July 23, 2014]  On June 30, 2014, the Supreme Court held, 5-4, that closely held for-profit corporations whose owners have sincerely held religious beliefs opposing contraception need not comply with the contraception mandate of the Patient Protection and Affordable Care Act (“ACA”), which requires employers to provide coverage for all FDA-approved contraceptive methods.  Specifically, the Court ruled that the Religious Freedom Restoration Act of 1993 (“RFRA”) shields such for-profits from providing coverage for contraception methods they find objectionable.

The case was brought by family-owned Hobby Lobby Stores Inc. and another closely held corporation.  Hobby Lobby is controlled exclusively by a married couple and their adult children; each family member has signed a pledge to run the businesses in accordance with the family’s religious beliefs and to use the family assets to support Christian ministries.

Hobby Lobby filed suit under RFRA, which prohibits the federal government from taking any action that substantially burdens the exercise of religion unless that action constitutes the least restrictive means of serving a compelling government interest.  Hobby Lobby sought to enjoin application of the ACA’s contraceptive mandate with respect to four contraceptives:  two forms of “morning after” pills and two types of intrauterine devices.  (Hobby Lobby did not object to the other sixteen contraceptives required by the ACA’s contraceptive mandate, including birth control pills.)

The Supreme Court held that for-profit corporations are “persons” within the meaning of RFRA’s free exercise protections and that the challenged regulations substantially burden Hobby Lobby’s exercise of religion. (In support of finding substantial burden, the Court noted that the penalty on Hobby Lobby for providing a non-compliant health plan would equal about $475 million per year, and the penalty for failing to provide health coverage would equal about $26 million per year.)

The Court further concluded that the ACA contraceptive mandate was not the “least restrictive means” of furthering a compelling governmental interest.  The Court explained that the most straightforward way of ensuring coverage for all women “would be for the Government to assume the cost of providing the four contraceptives at issue to any women who are unable to obtain them under their health-insurance policies due to their employers’ religious objections.”  Concurring with the majority opinion, Justice Kennedy noted that the government is already doing this for nonprofit religious organizations.  (However, that system has also been challenged in a separate pending litigation.)

The Court indicated that its decision should be read narrowly:  the ruling only extends to closely held companies whose owners have sincerely held religious beliefs opposing contraception, and does not apply to vaccinations, blood transfusions, etc.  However, Justice Ginsburg, dissenting, argued that corporations will inevitably use the decision to opt out of other laws with which they disagree.

In light of this decision, closely-held employers may wish to consider whether to object to the ACA’s contraception mandate, if their owners have sincerely held religious beliefs opposing contraception.  Publicly-traded companies could seek to expand the Supreme Court’s decision.

Updated COBRA Notices Provide Information About Obamacare Options

[June 9, 2014]  On May 2, 2014, the Department of Labor (“DOL”) released proposed regulations containing new model notices pursuant to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”).  The new notices inform workers that they may purchase coverage through the health insurance exchanges established pursuant to the Affordable Care Act (“ACA”) and that such coverage may be less expensive than COBRA continuation coverage.

In general, administrators for group health plans must issue two types of notices pursuant to COBRA:  1) a “general” notice when a participant initially becomes covered under the plan; and 2) an “election” notice when a participant experiences a COBRA qualifying event.  The new regulations revise both the model general notice and the model election notice by including information about the ACA.

The model general notice instructs employees that health coverage may be more affordable when purchased through an ACA exchange, and it directs them to the ACA health exchange website.  The model election notice contains detailed information, through a question and answer format, about the ACA, including where and when to enroll in coverage, whether an employee can switch between COBRA and ACA coverage, and factors to consider when choosing coverage, including severance provisions, access to current providers, and prescription coverage.

Even though the open enrollment period for ACA coverage has closed, people with COBRA insurance have a special enrollment period to obtain coverage through the federal ACA exchange:  they may enroll by July 1, 2014.  The Department of Health and Human Services established the special enrollment period because the former model COBRA notices did not sufficiently address ACA options.

Although plan administrators are not required to use the model notices, such use is considered good faith compliance with the notice requirements of COBRA.  Thus, we advise using the updated models immediately.

NLRB Is Emphatic: Employers Can’t Ban Negativity!

[April 14, 2014] Employers often think, quite reasonably, that they may lawfully require employees to be positive at work.  Indeed, why shouldn’t employees be required to be positive with colleagues and represent the company in a professional manner?  Unfortunately, the National Labor Relations Board (“NLRB”) disagrees.  Repeatedly, the NLRB has concluded that such “no negativity” policies violate workers’ rights, whether union or non-union.

For example, on April 1, 2014, the NLRB held that a Michigan hospital’s work rules banning negativity and gossip violated the National Labor Relations Act (“NLRA”).  (This was not an April fool’s joke.)  The work rules contained in the hospital’s Values and Standards of Behavior Policy required employees to:

  • avoid “negative comments about … fellow team members,” including managers;
  • “represent [the hospital] in the community in a positive and professional manner in every opportunity”; and
  • “not engage in or listen to negativity or gossip.”

The NLRB concluded that the rules were too broad and could be interpreted by employees as prohibiting activity protected by Section 7 of the NLRA, which gives employees the right to engage in concerted activity.  The NLRB also rejected the hospital’s argument that the rules were lawful because employees participated in drafting them.  As a remedy, the NLRB ordered the hospital to immediately cease and desist from maintaining the challenged rules, give all current employees policy inserts reflecting the revisions, and post and distribute a notice to all employees about the ruling.

The next day, on April 2, 2014, the NLRB struck down similar rules in the employee handbook of a nationwide transportation management company.  That company’s rules prohibited employees from:

  • “discourteous or inappropriate attitudes or behaviors to passengers, other employees, or members of the public;”
  • participating in “outside activities that are detrimental to the Company’s image or reputation”; and
  • “conducting oneself during nonworking hours in such a manner that the conduct would be detrimental to the interest or reputation of the Company.”

The NLRB explained that employees could reasonably construe the rules as limiting their communications concerning employment, despite the presence of another provision in the handbook that notified employees of their union rights.  Unfortunately, the NLRB noted that the “savings” clause was not sufficiently “prominent” in the employee handbook or located in close proximity to the challenged rules.  As with the hospital case above, the NLRB ordered the employer to rescind the policies, provide handbook inserts to current employees to replace the policies, and distribute a notice about the ruling to all employees.

Many employers maintain social media and other policies similar to the policies at issue in these cases.  In light of the NLRB’s continuing focus on such policies, employers (whether unionized or not) should consult with experienced counsel to review their policies and consider whether any changes may be appropriate.

EEOC Continues Assault On Severance Agreements

[March 28, 2014] Continuing its crusade against common provisions in severance agreements, the Equal Employment Opportunity Commission (“EEOC”) filed a suit in February against CVS Pharmacy, Inc. (“CVS”) in an Illinois federal district court.  The EEOC claims that a severance agreement used by CVS violates Title VII because it is “overly broad, misleading and unenforceable.”

Specifically, the EEOC claims that CVS’s severance agreement interferes with employees’ rights to file charges with the EEOC and other agencies or to cooperate with an investigation.  The EEOC seeks, among other relief, reformation of the agreement and additional time for employees who signed the agreement to file administrative charges.

The challenged provisions of CVS’s agreement include:  a notification clause (requiring the employee to notify CVS of any investigation by a state or federal agency); a non-disparagement clause (prohibiting the employee from disparaging CVS); a covenant not to sue clause (prohibiting the employee from filing any charge); and a confidentiality clause (prohibiting the employee from disclosing confidential information without CVS’s consent).

The EEOC is challenging the agreement despite language in the covenant not to sue paragraph stating that nothing in the provision shall interfere with an employee’s right to participate in a proceeding with any agency or to cooperate in any investigation.   Noting that the agreement is five pages long and that the reservation of employee rights is only one sentence, the EEOC contends that this language is not sufficient.

This action follows the EEOC’s filing of a lawsuit in May 2013 challenging severance agreements obtained by Baker & Taylor, Inc.  That suit was resolved by a consent decree in which the company agreed to specify, in future release agreements, that the release did not limit the employee’s right to file a charge with the EEOC or state agency, to participate in any such action, or notably, to recover any appropriate relief.  While the consent decree is not binding on other parties, it reveals the broad language the EEOC favors.

In light of the EEOC’s recent litigation activity, we recommend that employers review their severance agreements and consider whether to strengthen language concerning the employee’s right to file administrative charges and participate in agency investigations.  For example, employers may wish to clearly state, in a separate provision of the agreement, perhaps highlighted in bold, that nothing in the agreement interferes with the employee’s right to participate in or cooperate with any proceeding or investigation.

Obamacare Delayed Again: Medium-Sized Employers Not Required To Provide Health Coverage Until 2016

[February 14, 2014]  Employers with 50 to 99 full-time workers now have an additional year to “play or pay” under the Patient Protection and Affordable Care Act (“ACA”), i.e., to offer health insurance to full-time workers or pay a fee.  Newly issued final rules require these mid-size employers to offer coverage by 2016, instead of 2015.  To be eligible, an employer must certify to the U.S. Treasury Department that it has not laid off employees in order to fall below the 100-employee threshold.  Although not required to provide coverage in 2015, mid-sized employers must still comply with reporting requirements in 2015.

Employers with 100 or more full-time equivalent employees are still required to provide coverage no later than January 1, 2015, or the start of their plan year in 2015 (for non-calendar year plans).  However, to avoid paying a penalty, such larger employers must offer coverage only to 70% of their full-time workers in 2015.  Beginning in 2016, employers must offer coverage to at least 95% of full-time workers.

In order to prepare for 2015, larger employers may use a look-back period during 2014 to determine whether an employee is a full-time employee under the ACA, i.e., works 30 hours or more per week.  (While there are bills pending in Congress that would change the ACA’s definition of full-time employee from the current 30-hour per week rule to a 40-hour rule, the bills have little Democratic support.)  Although it may be tempting to wait and see what further delays or changes may come, larger employers should begin now to prepare for 2015.