This is a major change from prior law. Historically, the exclusive remedy for an employee with any employment-related injury – whether acute or gradual in onset – was to pursue a claim in the workers’ compensation forum. This is a system that clearly benefits employers (as well as third-party workers’ compensation insurers).

There are two types of employers in the workers’ compensation context: those who carry insurance policies issued by third-party insurance companies, and those who self-insure – that is, who create and pay into their own private workers’ compensation insurance policies. In every work-injury case, there are three benefits to which an injured employee is presumptively entitled: medical costs, lost wages, and permanent disability.

Two Scenarios

Consider the difference between the likely cost of a workers’ compensation claim versus the possible cost of a civil lawsuit with regard to: (1) a Missouri business with a workers’ compensation insurance policy issued by a third-party insurance carrier; and (2) a Missouri business that self-insures.

1.      Missouri business with a third-party policy.

Workers’ Compensation Claim

The only substantial cost the employer incurs as a result of a work injury is the increase in monthly premium that results from the “exposure” of the injury. The insurance carrier pays all claim-related costs for medical treatment, lost wages, and permanent disability. The insurance carrier also pays all attorneys’ fees associated with defending the claim, if necessary.

Civil Lawsuit

It is possible, depending on the terms and language contained in the employer’s workers’ compensation insurance policy, that the workers’ compensation insurance will not cover the company’s liability because the injury is not a “workers’ compensation” injury. If this is the case, the employer will be liable for all injury-related costs, including medical treatment, lost wages, permanent disability, and attorneys’ fees.

The good news for employers is that, in the civil realm, the employee will have to prove that the injury was caused by the employer’s negligence. Contrast this with the workers’ compensation system, in which the employer and its insurance company are strictly liable (i.e. liable without evidence of fault) for all injuries as long as the employee proves that the injury was caused by his work activities. Clearly, the evidentiary standard is harder on the employee in a civil lawsuit than in the workers’ compensation forum.

Still, if the employee is able to prove employer negligence, the employer will face costs dramatically higher than the increased insurance premium it would face in the workers’ compensation system. Plus, regardless of whether the employer wins or loses a civil case, it will be responsible for attorneys’ fees with the workers’ compensation insurer out of the picture.

2.     Employer that self-insures.

Workers’ Compensation Claim

The maximum cost to the employer is still relatively low. The maximum number of weeks a claimant can possibly obtain in permanent disability is 400, and the maximum rate per week is currently $811.73 (for permanent total disability). That caps the possible cost to the employer for permanent disability at $324,692. And note that in order to be entitled 400 weeks of disability, the employee essentially has to have died as a result of the injury.

With regard to medical costs, the self-insured employer has the right to direct and control medical treatment. With that right comes substantially depressed medical costs due to state-regulated re-pricing of medical billing.

Civil Lawsuit

Again, the injured employee has to prove employer negligence. This is not a simple task, but assume that the employer accomplishes it. $342,692 may seem like a high cost. However, consider the possible liability in a civil jury trial where, depending on the circumstances, an employer could face a punitive damages award that could reach $500,000.

In addition, in a civil case, the employer no longer is afforded the right to direct medical treatment, as it would in a workers compensation case. The employee can treat wherever he wants. And without directing treatment, the employer loses the benefit of re-priced (i.e. lowered) medical costs and selecting treatment providers with whom it has established client relationships. Under Missouri law, it is possible for injured claimants in a civil trial to obtain more money for medical costs than their insurance provider actually paid for their medical care. As a result, the workers’ compensation forum is unquestionably preferable for the self-insured employer.

What This Means for Missouri Employers

Most “occupational disease” claims involve “repetitive use” injuries, such as carpal tunnel syndrome (wrists/hands) and epicondylitis (elbows). It is yet to be seen whether or not Missouri courts will allow pursuit of these sorts of claims in the civil forum as well. However, it seems clear that KCP & L would permit an injured employee to pursue a repetitive use claim in civil court.

Still, this does not mean that most – or even many – employees will do so. Repetitive use injuries like carpal tunnel syndrome are caused by repetitive use. Plain and simple. It is hard to believe an employee would be able to prove that his employer’s negligence caused this sort of injury. To prove negligence, an employee must prove that the employer knew or should have known that a harmful condition existed and that its employees were at risk as a result. If the employee cannot prove negligence, it would be foolish for his attorney to file a civil lawsuit rather than a workers’ compensation claim.

“Injuries” such as mesothelioma, which results from years of exposure to asbestos, are do not commonly result from employment. However, Missouri employers need to ensure that they are not subjecting their employees to hazards – like asbestos – that can cause disease. Employers should also ensure that there is no way an employee can show that the employer’s negligence caused him to develop a repetitive use injury. How can employers do this? Ensure that:

• Machines work as they should. This includes making sure that machines are routinely maintained.
• Employees are educated and trained in the proper manner of using machines, tools, and other devices used in the course and scope of their job activities.
• Employees use safe/proper techniques in performing their job activities, and employees who do not are reprimanded.
• Employees are instructed to immediately report any acute injury. (This will help prevent acute injuries from becoming, arguably, repetitive-use/occupational disease injuries.)
• At least one administrative employee has the job function of monitoring employee activities and machine performance.

The more employers use their imaginations with regard to how they could possibly be viewed as negligent with regard to employee safety, the better they will be insulated against civil claims for “occupational disease” claims.

Employers should act accordingly to reduce “occupational disease” risk to their employees and protect their business from civil claims beyond the scope of workers’ compensation.

Posted by Attorney Christopher D. Vanderbeek. Vanderbeek is involved in the evaluation and defense of workers’ compensation and other insurance claims, protecting the interests of employers and insurers. 

The Act amends the definition of a creditor to mean any creditor that (i) in the ordinary course of business obtains or uses credit reports in connection with a credit transaction, (ii) furnishes information to a credit reporting agency in connection with a credit transaction, or (iii) advances funds to a person on the obligation of repayment. Under this new definition, typically physicians and attorneys will not be considered creditors for purposes of the Red Flags Rule.

Certain healthcare providers, however, that use or obtain consumer reports routinely in connection with credit transactions or that furnish information to consumer reporting agencies may still meet the definition and thus be subject to the Red Flags Rule. This potentially means that hospitals or physician groups that routinely submit information about non-paying patients to collection agencies, which in turn submit such information to credit reporting agencies, will need to be in compliance with the Red Flags Rule.

In the end, the underlying reason for implementing an identity theft program, such as the one required under the Red Flags Rule, is to help prevent identity theft. Therefore, whether or not a health care provider is directly affected by the Red Flags Rule by falling within the definition of creditor, providers should still be encouraged to implement an Identity Theft Prevention Program to detect warning signs, or “red flags”, that could indicate identity theft.

Identity theft is rampant in today’s society. As many as ten million individuals per year become victims of identity theft and the number of medical identity theft cases are on the rise. In response to this growing problem, several federal agencies jointly promulgated regulations that require certain entities to implement a plan to detect, prevent, and correct identity theft. The “Red Flags Rule” applies to various types of entities, including most healthcare providers. Thus, entities ranging from a small doctor’s office to a hospital must be in compliance with the new Red Flags Rule by the date on which the Federal Trade Commission (“FTC”) will begin enforcing the Rule.   After that date, an entity may be penalized up to $3,500 per violation. Thus, healthcare providers need to take steps to comply, including creating an Identity Theft Prevention Program.

Before understanding the Rule, a healthcare provider must determine whether it is subject to the Rule in the first place. Under the Red Flags Rule, any “creditor” that offers or maintains one or more “covered accounts” is required to develop and implement a written Identity Theft Prevention Program. A “creditor” is defined as any person who regularly extends, renews, or continues credit. Healthcare providers will be considered a “creditor” if they regularly bill patients after the completion of services, allow payment plans after services have been rendered, or aid patients in obtaining credit from other sources (see note).

Under the Rule, a “covered account” is defined as (1) an account a creditor offers or maintains that involves or is designed to permit multiple payments or transactions, and (2) any other account the creditor offers or maintains for which there is a reasonably foreseeable risk of identity theft. The second portion of the definition is very broad and may include records that an entity may not recognize as a “covered account.” For healthcare providers, this definition of “covered account” generally encompasses patient and employee records. Thus, the vast majority of healthcare providers are subject to the Red Flags Rule and must comply.

Development of Identity Theft Prevention Program

With proper guidance, a healthcare provider can establish an Identity Theft Prevention Program that will comply with the Red Flags Rule. The Red Flags Rule does not require any specific practices or procedures, because it provides flexibility to tailor a Program to the nature of the business and the risks its faces. In other words, the Program is scalable to the size and complexity of the entity and the nature and scope of its activities. In the case of a company at high risk for identity theft, such as a large hospital system, the Program may need more robust procedures, including strict verification procedures for each and every patient’s identity. However, such extensive procedures would be inappropriate for a low-risk company, such as a solo practitioner, who can identify and verify each patient. Thus, there are no set procedures for a Program, but it is a discretionary decision that should be made by someone knowledgeable about the business and its day-to-day operations.

Although the Red Flags Rule does not establish specific procedures, it does require that any Program include “reasonable” policies and procedures to:

• Identify relevant patterns, practices, and specific kinds of activity that may be “red flags” signaling possible identity theft;
• Detect red flags;
• Respond to those detected red flags to prevent and mitigate identity theft; and 
• Update the Program periodically to reflect changes in identity theft risks.

For red flag identification, a healthcare provider should review its own experiences with identity theft and incorporate that knowledge into the Program. Red flags should include concerns raised by patients — both internally and externally. Some examples of such red flags could be suspicious account activity, inconsistent personally identifying information, inconsistent medical histories, and possibly altered identification documents. For red flag detection, a healthcare provider should state what procedures will be in place in the day-to-day operations to detect red flags, which may include procedures to authenticate a new patient and verify the validity of any changed information. For prevention and mitigation of identity theft, a healthcare provider should take necessary steps such as notifying the real patient or law enforcement, monitoring an account and correcting the medical record. Lastly, a healthcare provider must periodically review and reflect on its experience with identity theft and update its Program to verify the effectiveness of the Program.

Even if the Red Flags Rule does not apply to your practice, it may still be advisable to develop an Identity Theft Prevention Program. In the event of a medical identity theft, the federal government and health insurance companies may require a healthcare provider to pay reimbursement for claims made. Furthermore, if a healthcare provider files a claim and later learns that medical identity theft has occurred without taking corrective measures, the provider may be subject to criminal and civil penalties based upon fraud. Importantly, medical identity theft also puts the life of the victim at risk, which plainly could lead to potential civil liability for a healthcare provider. False entries in a medical history can lead to improper medical treatment, denial or exhaustion of health insurance, or an individual’s uninsurability for life or health insurance. An Identity Theft Prevention Programis an important tool for a healthcare provider to minimize its liability and risks, and risks to its patients, even if it is not subject to the new Red Flags Rule.

The task of developing an Identity Theft Prevention Programmay seem daunting, but a provider should not feel overwhelmed. A successful Program for a healthcare provider will build on existing efforts already in use to combat fraud and protect patient privacy. A healthcare provider should review and adapt its current tools used to comply with HIPAA and state privacy, security, and breach notification laws to satisfy the new Red Flags Rule. Thus, with its current tools and available resources, a healthcare provider is already on the way to developing a compliant Identity Theft Prevention Program.

Implementation and Administration

Healthcare providers must be mindful of key issues regarding the implementation and administration of an Identity Theft Prevention Program. Staff training and delegation of duties may generate issues for a healthcare provider attempting to implement and administer such a Program. Internal staff must be trained as necessary. If a healthcare provider outsources or subcontracts portions of its operations that would be covered by the Red Flags Rule, then the Program must address how the provider will monitor the contractor’s compliance. Furthermore, periodic supervision and review after any incident of identity theft will be invaluable to the proper functioning of a Program.

Management and the board of directors of a healthcare provider are required by the Red Flags Rule to play a central role in the creation, implementation and continued administration of the Program. According to the regulations, either the board of directors, or an appropriate committee thereof, must approve the initial written Program. Other responsibilities include assigning specific responsibility for the Program’s implementation, reviewing staff reports about how the practice is complying with the Rule, and approving important changes to the Program. The board of directors should also receive at least annual reports regarding the administration of the Program. Thus, it is critical that a board of directors or management remain active in the administration of the Program to ensure compliance with the Rule. Mere creation of a Program will not shield a healthcare provider from civil fines under the Red Flags Rule.

Conclusion

When the FTC begins enforcing the Red Flags Rule, it will require any entity that regularly extends, renews, or continues credit concerning a “covered account” to develop and implement an Identity Theft Prevention Program. The Rule does not set specific procedures, but the Program must identify how the entity will:

• Identify red flags; 
• Detect red flags; 
• Prevent and mitigate identity theft; and 
• Update its Program.

As long as a healthcare provider begins with its current tools and available resources, it can develop a Program that complies with the Rule. In the implementation and administration, a healthcare provider must be mindful of certain issues, such as delegation of operations, and its board of directors and management must maintain periodic supervision. Although the task may seem daunting, a healthcare provider can successfully comply with the requirements of the new Red Flags Rule, if it takes the proper steps now.

This article was co-authored by Laura Gerdes Long & David Binder.

Note updated 1/24/2011.

In a struggling economy, employers have to make difficult decisions pertaining to their businesses and employees. Faced with “hopefully” temporary losses in business, many employers are forced to terminate employees losing their experience and knowledge. On the other hand, if the employer elects to reduce hours, the employees receive lesser pay and are ineligible to collect unemployment benefits.

Fortunately, employers do have a unique alternative under the Missouri Employment Security Law whereby they can retain their hourly workforce and reduce hours while at the same time allowing their employees to receive a proportional supplement of unemployment benefits. This article applies only to such programs that involve hourly-paid employees.

Shared Work Program-Unemployment

Under Missouri law, employers can develop a shared work program with the Division of Employment Security of the Missouri Department of Labor and Industrial Relations. The program allows an employer to decrease the working hours of a specific group of employees, which includes a specified department, shift, or other unit of three or more employees.

The affected employees can continue to work for the employer at a reduced number of hours and also receive unemployment benefits in proportion to the reduction in hours and pay. For example, if the employer reduces work hours by 20% to 32 hours per week, the employee will receive 20% of her weekly benefit amount under unemployment insurance. Thus, an employee who earns $2,500 per month and is entitled to a $300 weekly benefit amount would receive 80% of her pre-plan wages and $60 in benefits each week under the plan. This program allows the employer to retain the knowledge and experience of the employees without having to drain the cash reserves of the company due to unneeded work hours.

Requirements to File – Missouri Law

A shared work plan under this program must satisfy the following requirements:

1. The plan applies to an affected unit of not less than three employees; 
2. The plan applies to at least 10% of the employees in the affected unit; 
3. The plan reduces the normal weekly hours of work of the employees by not less than 20% and not more than 40%; 
4. The plan describes the manner in which the employer treats the fringe benefits of each employee in the affected unit; 
5. The employer certifies that the implementation of a shared work plan is in lieu of temporary layoffs that would affect at least 10% of the employees in the affected unit and that would result in an equivalent reduction in work hours; and 
6. The plan must be approved by the collective bargaining agent if any of the employees in the plan are covered by a collective bargaining agreement.

Submission to Division of Unemployment

When an employer has drafted a shared work plan, it must submit the plan to the Division of Employment Security. The Division will accept or deny the plan within 30 days of receipt. If the plan is denied, the employer may either elect to exhaust its administrative remedies or file a new plan with the Division within 45 days. Any accepted plan remains in effect for only 12 full months.

The employer has the right to modify the plan to meet changed circumstances, but the modification cannot affect the expiration date originally set by the plan. The employer can always freely suspend the plan in order to return the employees to full-time employment. Given the restriction on plan modifications, it is critical for an employer to properly plan before implementing or modifying a shared work program.

Requirements to Maintain Plan

Once the plan is accepted by the Division, the employees affected still must satisfy the following requirements to receive unemployment benefits:

1. The individual is able to work, is available for work and works all available hours with the employer; 
2. The individual does not work more than the reduced hours specified in the plan; and 
3. The individual’s normal weekly hours of work have been reduced by at least 20% but not more than 40%, with a corresponding reduction in wages.

Under the shared work plan, the employee is under no obligation to seek other employment and will not be denied benefits on this ground. However, the employee may not receive shared work benefits for more than 26 calendar weeks during the 12-month plan.

Ramifications of Plan on Employer Tax Rates

Although the shared work program can aid the employer in reducing the number of employees who are terminated, the program will still affect the employer’s unemployment taxes in the same manner and to the same extent as other chargebacks of benefits. Thus, all benefits paid under the plan will be charged to the account of the participating employer for use in computing general tax rates. Although this will increase the employer’s tax rate, it may cause more or less of an economic impact than a termination depending upon the structure of the shared work plan. Therefore, an employer must carefully set the terms of the plan so it remains advantageous despite the increased unemployment tax rate.

With the shared work program, Missouri law provides employers with an opportunity to retain their full workforce through a reduction in hours and a proportional supplement of unemployment benefits. However, there are some drawbacks to the program such as the employer’s increase in unemployment tax rates. Depending upon the circumstances, the program may be a less attractive solution than an outright termination of employees. Despite these issues, the shared work program may provide Missouri employers and their employees a unique reduced hour program.

This article was co-authored by Ruth Binger & David Binder.

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In the agrarian and manufacturing-oriented economy of the 1930′s and 1940′s, white collar workers had clearly defined decision-making responsibilities, were closer to management and were paid better than today. In such an economy, white collar workers were middle class in income, outlook, attitude and life.

In contrast, in a service-oriented economy, white collar workers are no longer middle class managers, but more likely to share traits associated with blue collar jobs such as repetitive, mechanical duties, rather than intellectual, creative responsibilities. Moreover, most white collar workers earn less than unionized blue collar workers and skilled craftsmen.

Summary. The Fair Labor Standards Act, as amended (“Act”), Section 13 (1)(1), provides an exemption from its minimum wage and overtime requirements for any employee employed in a bona fide executive, administrative or professional capacity (including any employee employed in the capacity of academic administrative, personnel or teacher in elementary or secondary schools or in the capacity of an outside sales employee).

Further, Section 13 (a)(17) of the Act provides an exemption from the minimum wage and overtime requirements for computer systems analysts, computer programmers, software engineers, and other similarly skilled computer engineers. The Act does not define terms, but charges the United States Department of Labor (“DOL”) with the duty to delineate and define white collar exemptions from “time to time.”

Test. Job titles are insufficient to establish exempt status. Whether an employee meets the exempt test is determined by whether the employees meet the (1) salary level test, (2) salary basis test, and (3) duties test under the Code of Federal Regulations (“CFR”). 29 CFR §541.2.

State Wage and Hour Laws. Employers in 18 states must check their workers’ status using both the new federal regulations and their own state law. States with laws governing overtime are Alaska, Arkansas, California, Colorado, Connecticut, Hawaii, Illinois, Kentucky, Maryland, Minnesota, Montana, New Jersey, North Dakota, Oregon, Pennsylvania, Washington, West Virginia and Wisconsin.

Salary Level Test

Automatic Exemption for Highly Compensated Employees

Rule. Highly compensated employees who earn a total of at least $100,000 per year will not be entitled to overtime pay if “the employee customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, professional or administrative employee” and is paid at least $455 per week on a salary basis. 29 CFR §541.601(a)-(b).

The primary duty must consist of performing office, non-manual work. Manual workers, no matter how highly paid, are not eligible for this exemption. 29 CFR §541.601(d). The total annual compensation of $100,000 or more may consist of commissions, nondiscretionary bonuses and other nondiscretionary compensation earned during a 52 week period.

This compensation does not include credit for board or lodging, payments for medical or life insurance, or contributions to retirement plans or other fringe benefits. Employer may use any 52 week period as a year. If employer does not identify the 52 week year period in advance, a calendar year will provide. 29 CFR §541.601(b)(4).

For example, the employer pays the employee $80,000 as a base and $20,000 in commissions. If the employee does not earn the commission amount under the plan, the employer, in all events, must pay at least the remaining $20,000 within one month of year end for the prior year.

For example, the employers must pay employees, who fail to work a full year, a pro rata portion of the minimum amount based upon the number of weeks that employee has been employed. 29 CFR §541.601(b)(3).

Salary Basis Test

Docking. An employee must regularly receive a predetermined amount of salary on a weekly or less frequent basis that is not subject to reductions because of quality or quantity of work performed. Within the salary basis test, the  no-docking rule has always caused considerable consternation. 29 CFR §541.602.

Docking Rule. Employers can make deductions from guaranteed pay only under narrow circumstances, including: (i) when an employee was absent from work for a full day for personal reasons, other than sickness or disability; (ii) for absences of a full day or more due to sickness or disability, (iii) if taken in accordance with a bonafide plan, policy or practice providing wage replacement benefits; or (iv) for FMLA leave, jury duty, or for infractions of safety rules of major significance.

Now, one can also dock employees for unpaid disciplinary suspensions for a full day or more imposed in good faith for infractions of workplace conduct rules (that are in writing) such as sexual harassment policies or workplace violence.

Window of Correction. Under 29 CFR §541.603(c), “improper deductions that are isolated or inadvertent will not result in loss of the exemption for any employees subject to such improper deductions if the employer reimburses the employees for such improper deductions.” Reimbursement can be made at any time, even five days before trial. Employers can preserve the exemption by taking advantage of the safe harbor provision.

Safe Harbor. Employers must issue a clearly communicated policy prohibiting improper deductions, which includes a mechanism for employee complaints and immediate reimbursement of monies if the complaint is found valid. The policy, either oral or written, must be issued before the violation. This protects the employer from both inadvertent and/or deliberate deductions. “Clearly communicated” is met, for example, by “providing a copy of the policy to employees at the time of hire, publishing the policy in an employee handbook or publishing the policy on the employer’s Intranet.” 29 CFR §541.603(d).

If the employer fails to reimburse the employees for improper deductions after receiving employee complaints, final subsection (d) clarifies that the “exemption is lost during the time period in which the improper deductions were made for employees in the same job classification working for the same managers responsible for the actual improper deductions.” Id.

Minimum Guarantee PLUS Extras. Under §541.604 an exempt employee may receive additional compensation for hours worked beyond a normal workweek so long as a reasonable relationship exists between guaranteed amount and the actual amount earned. Interestingly, in contrast, an employer may also prospectively make adjustments to salary with a like adjustment to scheduled hours to accommodate its business needs.

If, however, the salary changes are so frequent as to make the salary the functional equivalent of an hourly wage, the court will treat “salary” as a sham. Wal-Mart Stores, Inc., Fair Labor Standards Act Litigation, 2005 WL 226227 (10^th Cir. (Col.)).

Always Non-Exempt. Laborers or other blue collar workers who perform repetitive work using their hands, physical skills, and energy, are not exempt. Such non-exempt “blue collar” employees gain skills and knowledge through apprenticeship and on the job training and not through a prolonged course of specialized instruction. 29 CFR §541.3(a).

Thus non-management production-line employees and non-management employees in maintenance, construction and similar occupations, such as carpenters, electricians, mechanics, plumbers, ironworkers, craftsmen, longshoremen, construction workers, laborers, and similar workers must be paid overtime.

Further, first responders (police officers, sheriffs, state troopers, police investigators or detectives, park rangers, firefighters, paramedics and other public safety or emergency personnel) who perform work such as preventing, controlling, or extinguishing fires; rescuing fire, accident, or crime victims, preventing or detecting crimes, conducting investigations or inspections for law violations, and pursuing, restraining, and apprehending suspects are eligible for overtime regardless of rank or whether they also have some supervisory duties. 29 CFR §541.3(b)(i).

Duties Test

Bona Fide Executive Exempt Classifications.
29 CFR §541.100. Includes titles such as chief executive officer, controller, vice president, director.

Test.

Salary Basis Test. 29 CFR §541.000(a)(1). Is paid at least $23,660 annually ($455 weekly) salary and regularly receives a predetermined amount constituting all or part of the employee’s salary, which is not subject to reduction because of variations in the quality or quantity of work performed.

Duties Test. 29 CFR §541.100(a)(2).

• Primary duty consists of managing the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof. Note, a customarily recognized department or subdivision must have a permanent status and a continuing function. 29 CFR §541.103.

• Customarily and regularly directs the work of two or more full-time employees or their equivalents (for example, one full-time employee and two half-time employees or four half-time employees).

• Has the authority to hire or fire other employees OR makes recommendations that carry particular weight as to the hiring, firing, advancement, promotion or any other change in status of other employees. (This is a new test.)

Examples of Management. 29 CFR §541.102. Management includes activities such as interviewing, selecting and training, setting and adjusting employees’ rate of pay and hours of work, directing the work of employees and maintaining production or sales records for use in supervision or control, etc.

Exemption of Business Owners. 29 CFR §541.101. Employees who own at least a bona fide 20% equity in the enterprise in which the employee is employed and who are actively involved in management. Employee does not have to meet the salary basis test nor supervise two or more
employees.

Supervision of Two Employees Test. 29 CFR §541.104.  Supervision can be distributed among two, three or more
employees. Each such employee, however, must customarily and regularly direct the work of two or more other employees or their equivalent. Further, with respect to a “shared employee,” hours worked by an employee cannot be credited more than once for different executives.

However, an employee who merely assists the manager of a particular department and supervises two or more employees only in the actual manager’s absence does not meet the requirement.

Particular Weight Test. 29 CFR §541.105. In determining “particular weight” factors to be considered include, but are not limited to, whether it is part of the employee’s job duties to make such suggestion and recommendation, the frequency with which such suggestions and recommendations are made or requested, and the frequency with which the employee’s suggestions and recommendations are relied upon.

Concurrent Duties. 29 CFR §541.106. A relief supervisor or working supervisor whose primary duty is performing nonexempt work on the production line in a manufacturing plant does not become exempt merely because the nonexempt production line employee occasionally has some responsibility for directing the work of other exempt employees when supervisor is not available. The analysis should be qualitative (i.e., the most important duty) rather than quantitative (i.e., the percentage of time spent performing management functions).

Administrative Exemption. Section 541.200 et seq.

Title Examples. Administrative employees assist with the running or servicing of the business. This category includes, but is not limited to, work in functional areas such as: tax, finance, accounting and budgeting, auditing, insurance, quality control, purchasing, procurement, safety and health, quality control, government relations, internet and database administration, legal, advertising and marketing, personnel management, human resources, employee benefits, public relations, and similar activities. 29 C.F.R. §541.201(b).

This would include an executive/administrative assistant to a business owner or senior executive, of a large business if such employee, without specific instructions or prescribed procedures, has been delegated authority regarding matters of significance. 29 CFR §541.203(d).

Salary. 29 CFR §541.200(a)(1). Is paid at least $23,660 annually ($455 weekly) and regularly receives a predetermined amount constituting all or part of the employee’s salary, which is not subject to reduction because of variations in the quality or quantity of work performed.

Duty. 20 CFR §541.200(a)(2)-(3).

• Primary duty consists of performing office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and whose primary dutyincludes the exercise of discretion and independent judgment with respect to matters of significance.

Administrative Tips.

Factors. Work must include the exercise of discretion and independent judgment with respect to matters of significance. 29 C.F.R. §541.202(b) lists some factors to consider:

(i) whether the employee has authority to formulate, affect, interpret, or implement management policies or operating procedures;

(ii) whether the employee carries out major assignments in conducting the operations of the business;

(iii) whether the employee performs work that affects business operations to a substantial degree, even if the employee’s assignments are related to operation of a particular segment of the business;

(iv) whether the employee has authority to commit the employer in matters that have significant financial impact;

(v) whether the employee has authority to waive or deviate from established policies and procedures without prior approval;

(vi) whether the employee has authority to negotiate and bind the company on significant matters;

(vii) whether the employee provides consultation or expert advice to management;

(viii) whether the employee is involved in planning long or short term business objectives;

(ix) whether the employee investigates and resolves matters of significance on behalf of management;

(x) whether the employee represents the company in handling complaints, arbitrating disputes or
resolving grievances.

Other Examples of Administrative Employees. 29 CFR §541.203. Insurance claims adjusters, certain employees in the financial services industry, executive or administrative assistants to business owners or senior executives of large businesses, persons leading teams to complete the employer’s major projects (project manager), purchasing agents with authority to bind the company and human resource managers are examples listed in the regulations of employees who commonly qualify under the administrative employee exemption.

Administrative duties also include working directly with the management or business operations of an employer’s customers. Thus, employees acting as consultants to clients or customers may be exempt.

Not Covered. Employees performing examining work, grading, or those working as comparison shoppers do not commonly qualify under the administrative employee exemption. 29 CFR §541.203(h). The exercise of discretion and independent judgment must be more than the use of skill in applying well established techniques, procedures or specific standards described in manuals.

Therefore, clerical or secretarial work, recording or tabulating data or performing repetitive recurrent or routine work is not considered exempt work. Further, the fact that the employer may suffer financial losses if employee fails to perform does not meet the test (operating expensive equipment, manager entrusted with large sums of money).

Professional: Learned and Creative. 29 CFR §541.300. Includes titles such as accountant, nurse, engineer, composer, singer, graphic designer.

Test. 29 CFR §541.300(a)(1).

Salary. Is paid at least $23,660 annually ($455 weekly). Regularly receives a predetermined amount constituting all or part of the employee’s salary, which is not subject to reduction because of variations in the quality or quantity of work performed.

Note: For teachers, licensed or certified practitioners of law and medicine, medical interns and residents covered under this exemption, the salary basis and salary requirements do NOT apply.

Duties for Learned Professional.

Learned Professional. 29 CFR §541.301. To qualify for the learned professional exemption, an employee’s primary duty must be the performance of work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction. This primary duty test includes three
elements:

• The employee must perform work requiring advanced knowledge (generally not obtained at high school level);

• The advanced knowledge must be in a field of science or learning (mechanical act classifications areexcluded); and

• The advanced knowledge must be customarily acquired course of specialized intellectual instruction.

Administrative Tips for Learned Professional.

• Work Requiring Advanced Knowledge. 29 CFR §541.301(b). The phrase “work requiring advanced knowledge” means work which is predominately intellectual in character, and which includes work requiring the consistent exercise of discretion and judgment, as distinguished from performance of routine menial, manual, mechanical or physical work. Advanced knowledge cannot be obtained at the high school level.

• “Science or Learning”. 29 CFR §541.301(c). The phrase “field of science or learning” includes the traditional professions of law, medicine, theology, accounting, actuarial computation, engineering, architecture, teaching, various types of physical, chemical, and biological sciences, pharmacy and other similar occupations that have a recognized professional status as distinguished from the mechanical arts or skilled trades where in some instances the knowledge is of a fairly advanced type, but is not in a field of science or learning.

• “Customarily Acquired by Prolonged Study”. 29 CFR §541.301(d). The phrase “customarily acquired by a prolonged course of specialized intellectual instruction” restricts the exemption to professions where specialized academic training is a standard prerequisite for entrance into the profession. The best prima facie evidence that an employee meets this requirement is possession of the appropriate academic degree.

However, the word “customarily” means that the exemption is also available to employees in such professions who have substantially the same knowledge level and perform substantially the same work as the degreed employees but who attained the advanced knowledge through a combination of work experience and intellectual instruction.

Thus, for example, the learned professional exemption is available to the occasional lawyer who has not gone to law school, or the occasional chemist who does not possess a degree in chemistry. However, the learned professional exemption is not available for occupations that customarily may be performed with only the general knowledge acquired by an academic degree in any field, with knowledge acquired through an apprenticeship or with training in the performance of routine mental, manual, mechanical or physical processes.

The learned professional exemption also does not apply to occupation in which most employees have acquired their skill by experience rather than by advanced specialized intellectual instruction.

Duties for Creative Professional Exemptions. 29 CFR §541.302.

Creative Professional Examples. Includes titles such as actors, musicians, composers, painters, cartoonists, or persons holding more responsible writing positions in advertising agencies.

Test for Creative Professional.

• Primary duty consists of the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor as opposed to routine mental, manual, mechanical or physical work. 29 CFR §541.302(a).

• “Recognized field of artistic or creative “endeavor” includes writing, acting and the graphic arts. Inventive work is distinguishable from work that primarily depends on intelligence, diligence and accuracy. Determination must be on a case by case basis.29 CFR §541.302.

Computer-Related Exemptions. 29 CFR §541.400.

Job Titles. Employees who qualify for this exemption are highly-skilled and have achieved a level of proficiency in the theoretical and practical application of a body of highly specialized knowledge in computer systems analysis, programming or related work in software functions.

Although job titles alone are not determinative of the exemption applicability, the DOL lists the following as common job titles for this exemption: computer programmer, systems analyst, computer systems analyst, computer programmer analyst, applications programmer, application systems analyst, application systems analyst/programmer, software engineer, software specialist, systems engineer and systems specialist.

Test.

Salary. 29 CFR §541.400(b). Is paid at least $23,660 annually ($455 weekly) OR $27.63 per hour. That is, this exemption does NOT have to meet the salary basis requirement to regularly receive a predetermined amount constituting all or part of the employee’s salary, which is not subject to reduction because of variations in the quality or quantity of work performed IF paid at least $27.63 on an hourly basis.

Primary Duty consists of:

• The application of system-analyst techniques and procedures, including consulting with users to determine hardware, software or systems functional specifications;

• The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on andrelated to user or system design specifications;

• The design, development, testing, creation or modification of computer programs related to machine operating systems; or

• A combination of the aforementioned duties, the performance of which provides the same level of skills. 29 CFR §541.400(b)(1)-(4).

Administrative Tips.

Trainees. 29 CFR §541.705. Does not include trainees learning to become proficient in such areas or employees in these computer-related occupations who have not attained a level of skill and expertise which allows them to work independently and generally without close
supervision.

Computer Manufacture/Repair. 29 CFR §541.401. Does not include employees engaged in the operation of computers or in the manufacture, repair, or maintenance of computer hardware and related equipment. Employees whose work is highly dependent upon, or facilitated by, the use of computers and computer software programs, e.g. engineers, drafters and others skilled in computer-aided design software like CAD/CAM but who are not in computer systems analysis and programming occupations are excluded from the exception.

No Degree Required. Level of expertise and skill required is generally attained through a combination of education and experience in the field. Although employees commonly have a bachelor degree, no particular degree is
required.

Cases.

Data Process Manager – Not Covered. A data process manager was held not to be a bonafide executive where his primary duty was operating relatively simple data processing equipment and he supervised only one full-time and one part-time employee. Brennan v. Carl Roessler, Inc., 361 F.Supp. 229 (D. Conn. 1973).

Information Support Specialist – Not Covered. An information support specialist who installed and upgraded hardware and software on workstations, configured desktops, checked cables, replaced parts and “troubleshooted” Windows problems, all pursuant to predetermined specifications in the system design created by others, was not exempt. Maintaining computer systems within predetermined parameters does not rise of the level of “theoretical and practical application of highly-specialized knowledge. Martin v. Indiana Michigan Power Company, 381 F.3d 574, 581 (6^th Cir. 2004).

With respect to an employee who had very similar duties to the Martin employee above, a Court held that the administrative exemption was also not applicable because the duties were not directly related to management policies or general business operations of the employer. Jackson v. McKesson Health Solutions, LLC, 2004 WL 2453000 (D. Mass.) See also Turner v. Human Genome Sciences, Inc., 292 F.Supp. 2d 738 (D. Md. 2003); Burke v. County of Monroe, 225 F.Supp. 2d 306 (W.D. N.Y. 2002); and Koppinger v. American Interiors, Inc., 295 F. Supp. 2d 797 (N.D. Ohio 2003).

Senior Network Administrator – Not Covered. Senior network administrator/project manager who assists the User Support Manager with projects, assumes responsibility for network activities and oversees other information technology department personnel, performs operation system installations, troubleshoots, system integrates, and schedules work pertaining to network problems and software upgrades is not exempt either as an administrative or professional exemption according to the Department of Labor. Opinion Letter, Wage and Hour Division. May 11, 2001.

Outside Sales Person. 29 CFR §541.500 Includes titles such as salespersons, contract negotiators.

Test.

Salary. The salary basis and salary requirements do NOT apply for this exemption. That is, this exemption does NOT have the salary basis requirement to regularly receive a predetermined amount constituting all or part of the employee’s salary, which is not subject to reduction because of variations in the quality or quantity of work performed, AND this exemption does NOT require payment of $23,660 annually ($455 weekly).

Duties. 29 CFR §541.500(a).

Primary duty consists of making sales or obtaining orders for contracts for services or for the use of facilities for which consideration will be paid by the client or customer. Customarily and regularly is engaged away from the employer’s place or places of business.

Administrative Tips.

Outside Sales – Away from Employer’s Business. 29 CFR §541.502. The DOL eliminated the percentage limitation for time spent on outside sales work. An outside sales person typically makes sales at the customer’s place of business or home. “Outside sales” do not include sales made by mail, telephone, or over the Internet unless such contact is used together with personal sales calls.

Promotional Work. 29 CFR §541.503(a). Promotional work may or may not be exempt, depending on the situation. If the promotion activities are directed toward consummation of the employee’s own sales, it is exempt. If promotional activities (manufacturer’s representative) are designed to stimulate sales that will be made by someone else, activities are not exempt sales work.

Replenishing Stock. 29 CFR §541.503(c). Arrangement of merchandise on shelves or replenishing of stock is not exempt work unless it is incidental to and in conjunction with the employee’s own outside sales.

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Wounded Service Members

Under the FMLA amendments, an eligible employee who is the spouse, child, parent or next of kin of a service man or woman is entitled to a total of up to 26 weeks of unpaid leave to care for the servicemember if he or she is receiving medical care for, or recuperating from, a serious injury or illness suffered while serving in the military. The term “next of kin” has not previously been used in FMLA and is undefined by the statute. Exactly who qualifies as a “next of kin” is likely to be defined under new regulations to be issued by the Department of Labor (“DOL”). A serious injury or illness is one that renders a servicemember medically unfit to perform his or her military duties. The 26 weeks of leave can only be taken during a single 12-month period (i.e., can not be taken in successive years due to the same injury or illness). Leave may be taken intermittently. The employer must allow the employee to take leave in increments as small as the shortest period of time that the employer regularly tracks in its payroll system (e.g., if a time clock is utilized by an employer, the increment can be measured in minutes). If a husband and wife are employed by the same employer, they may be limited to taking a total of 26 weeks of unpaid leave between them.

Reservists Called to Active Duty

Family members of reservists called to active duty due to a “qualifying exigency” will be entitled to take up to 12 weeks of unpaid FMLA leave when the servicemember is called up or while he is serving on active military duty. It appears that this leave can be used either to help prepare the servicemember for call up, or to deal with the kind of challenges faced by family of active duty reservists due to their absence from home. Again, the term “qualifying exigency” will have to be defined by DOL regulation.

Are My Employees Covered Under the New Provisions?

Generally, if you are an employer subject to FMLA, the new provisions will apply to your employees. An employee has the right to take unpaid leave under FMLA if he/she works at a site where his/her employer employs 50 or more persons, or if the employer employs 50 or more persons within a 75-mile radius of the employee’s work site.

Proactive Steps for Employers

If you are an employer subject to FMLA, it is important that you update your FMLA policies and your employee handbook to reflect these recent amendments to FMLA. You should also take action to immediately inform employees of the additional rights granted to them by these amendments. Danna McKitrick, P.C. would be pleased to assist your company with these tasks.

The fact is that employee costs, and curbing those costs, are the “bottom line” for most employers. For years, employers have been struggling to control and minimize the rising costs of health care for their employees. Employers are increasingly forced to transfer health care costs to their employees through higher premiums, copayments and deductibles. Only in the past few years have employers realized that they can assist their employees in improving their overall wellness, while at the same time potentially reducing the employers’ health care costs. The methods that employers have begun experimenting with include implementing wellness programs, offering health risk assessments, and education.

Hard, Cruel Facts

Since 2000 U.S. healthcare cost increases have exceeded the overall inflation rate by a factor of two to five times. (National Coalition on Healthcare, Economic Cost Fact Sheets.)

At the same time, employees’ contributions to employer-provided health insurance have increased an average of 143%, with their out-of-pocket costs, including co-payments and deductibles, also increasing an average of 115%. Id.

Countless studies have shown that certain conditions impact employers’ costs, overall, and not only for health care.

• For example, survey findings recently reported in the Archives of Internal Medicine found that obese employee medical claim costs were seven times higher than average and those employees missed 13 times more work days. (Ostbye T., et al., Obesity and Workers’ Compensation, 167 Arch Intern. Med. 766-773 April 23, 2007).

• A study conducted by the Centers for Disease Control found that the cost increase for obese employees, combining medical costs and absenteeism,range from an additional $460.00 to $2,500.00 per employee. (Forbes, 10/05/2006, U.S. Companies Embrace Wellness Programs).

• Some estimates put the annual medical costs of smoking and the illnesses that link to it, such as cancer and heart disease, at $150 billion or more. (September 2007, HR Magazine, 115).

How wellness programs can help employers

With all of this bad news, what is an employer to do? Final federal regulations have been released for wellness programs and may provide one approach for improving employee health and potentially reducing health care costs. (71 Fed. Reg. 75014 (Dec. 13, 2006); 45 C.F.R. Part 146). These new, final rules and guidelines are detailed in the Health Insurance Portability and Accountability Act’s (HIPAA) non-discrimination and wellness program rules. These HIPAA regulations were issued, and will be enforced, by the Internal Revenue Service, the Department of  Labor, and the Department of Health and Human Services.

What is a wellness program?

A wellness program is defined as “any program designed to promote health or prevent disease.” (71 Fed. Reg. at 75035; 45 C.F.R. at § 146.121(f)). The wellness plan must make participation in the program available to all similarly situated individuals, and cannot condition a reward on an individual satisfying a standard based on a health factor. Id. For example, an employer can provide a waiver of co-payments for preventive care; reimbursement for participation in a smoking cessation program, without regard to success; rewards for attendance at monthly health education seminars; a diagnostic testing program that provides a reward for participation and does not base any part of the reward on outcomes; and reimbursement of fitness center memberships. Id.

What are some employers doing?

Wellness programs take a myriad of forms. Some wellness programs include employers providing educational materials about health choices, health risk assessments or free gym memberships. Other plans integrate a variety of elements, including nutritional counseling, screenings, use of health data to target high cost diseases, and incentives to motivate physical activity.

Recently, Guardian Insurance, in conjunction with Healthways’ Whole Health Networks, started offering programs, including complimentary nutrition coaches, tai chi, yoga and pilates, and membership fees at gyms such as Bally’s Total Fitness, in addition to discounts for weight loss programs, Jenny Craig and Weight Watchers (Forbes/2007/05/29/pilates-yoga-taichi-leadmanage-ex).

Some of the nitty gritty (the regulations, a/k/a, “boring lawyer stuff”)

Under the HIPAA prohibition against discrimination on the basis of health status, there exist eight health factors:

• health status,
• medical condition (both physical and mental),
• claims experience,
• receipt of health care,
• medical history,
• genetic information,
• evidence of insurability, and
• disability.

What this means is that employees cannot be denied eligibility or charged a higher premium based on one or more of those health factors. It is essential that the employer be aware that the HIPAA non-discrimination rules generally prohibit group health plans from discriminating against individuals based on certain health factors. In other words, a plan cannot penalize an employee who is unsuccessful in ending their nicotine habit after attending a smoking cessation program. Similarly, an employee cannot charge greater premiums to employees with a body mass index over 25.

Thus, if a wellness program conditions a reward on satisfying some standard, based on such health factors, then the
regulations require the program to meet five criteria:

• the value of the reward must not exceed 20% of the cost of employee-only coverage (or 20% of the cost of the coverage in which any employee and any dependents are enrolled);
• the program must be reasonably designed to promote health or prevent disease;
• the program must give individuals an opportunity to qualify for the reward under the program at least once per year;
• the reward must be available to all similarly situated individuals, including a reasonable alternative which must be offered to those individuals for whom it is unreasonably difficult or medically unadvisable to participate; and
• the health plan must disclose the availability of the alternative standard in any plan materials describing the terms of the wellness program.

(71 Fed. Reg. at 75036; 45 C.F.R. § 146.121(f)(2).)

As for the fifth criteria, a wellness program must include some sort of alternative standard for employees who cannot reach a particular target. Sometimes employers have to fashion alternative standards on a case-by-case basis. For example, a premium discount may be offered to employees who walk five miles per week, but there must be an alternative, such as teaching a class about cardio fitness, instead, or offering swimming opportunities.Employers may also pay for employees’ gym memberships or nutritionist services, or give policy discounts to employees who lower their cholesterol. But if an individual is genetically predisposed to having high cholesterol, and provides verification from a doctor, that individual cannot be penalized.

This “alternative method” is a common sense approach, which HIPAA requires by using a “reasonably designed” standard to balance the needs of employers to experiment with various programs to provide employees incentive to participate, while at the same time, protecting employees from plans that are mere subterfuge for discrimination. Many examples of such alternatives and the kind of language that may be used to satisfy these requirements are  included in the comments to the Federal Rules at 71 Fed. Reg. at 75036-75038.

A summary:

Thus, Wellness Programs allow for a lot of experimentation by employers while, at the same time, providing employees an opportunity to receive an offered reward for their efforts at maintaining a healthy lifestyle. Of course, other laws may intersect with various provisions of the regulations, such as the Americans With Disabilities Act (ADA). Generally, to comply with the ADA, the incentives should be voluntary, and any medical information gathered in connection with the incentive should be kept confidential and separate from the employees’ personnel records.

In summary, by following a few simple rules and sometimes thinking “outside the box” in terms of developing a program to assist your employees with creating and maintaining a healthy lifestyle, employers may gain a group of employees who are healthier, less likely to become sick, and who are, hopefully, happier. Definitely, a win-win situation for both employees and employers.

Caveat: As usual, these rules can be complicated stuff. They are not all inclusive or applicable in all contexts and, although the author is a lawyer, she is not your lawyer. So, enjoy the article, but if you are ready to jump onto the wellness parade, please consult a lawyer qualified to advise you on these matters relative to your specific situation.

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For the small employer, however, these kinds of decisions must be addressed by management, who may not always be experienced in the nuances of human resource law. In essence, three files should be maintained for each employee:

1. The personnel file contains new hire and termination information, change forms, performance documentation and miscellaneous information such as requests to inspect employee files, underemployment claims, training courses, and achievements.

2. The confidential file contains information such as references, background investigations, financial obligations, settlement agreements, and EEO data. Information not specifically related to employee wage and hour status or job performance should be scrutinized to determine whether it reveals any private facts about an individual. If it does, it should be placed in this file rather than the Personnel File. This could include:

• health-related documentation (not related to the health plan), e.g., injury reports, requests for reasonable accommodation, FMLA forms, fitness for duty, post-offer medical information, workers’ compensation injury forms and reports, disability leave documentation, and self-identification of disability;
• financial information, including W-4’s (federal and state), direct deposit authorization, payroll corrections, requests for verification of employment, wage attachments, credit reports, and retiree insurance premium agreements; and
• miscellaneous information, including settlement, arbitration and dispute agreements and decisions; EEO complaints or other information; investigation interview notes; grievances; affirmative action; reference and background check forms; interview evaluation, skills or personality tests, funeral and jury duty notices.

3. The Confidential Protected Health Information (“PHI”) file, includes all the information pertaining to the health plan(s) offered by the employer, including, self-insured health plans, flexible spending accounts (for medical and prescription) and cafeteria plans:

• benefits enrollment forms;
• benefits change forms;
• benefits claim forms;
• dependent and beneficiary designations;
• insurance waivers;
• open enrollment forms;
• COBRA documentation;
• health care provider certification;
• voluntary medical information; and
• authorization to release information (preemployment).

Drug and alcohol tests should be filed in a separate binder, not with any other information, segregated by current and separated status. Form I-9′s should also be filed in a separate binder, segregated by current and separated status.

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Physician practices typically understand they are “Covered Entities” under HIPAA due to their status as medical providers but many are unaware they may carry the title of Covered Entity” by way of their employer status.

Though employers are not Covered Entities under HIPAA, many employers offer fully or partially self-funded health plans to their employees and those health plans are Covered Entities under HIPAA. Indeed, even flexible spending accounts or 125 plans are considered health plans and thereby must comply with HIPAA.

Last April, the final installment in the series of three HIPAA regulations went into effect. The first installment was the Electronic Health Care Transaction and Code Sets (October 2002). The second installment was the Privacy Rule (April 2003 or April 2004 for small group health plans). Finally, as of April 20, 2005, all covered entities (as defined by HIPAA) were required to implement the Security Rule. Small health plans, defined as those that spend $5 million or less in claims, were given until April 20, 2006, to comply.

The Security Rule, a series of standards, provides administrative, physical and technical safeguards to protect the security of electronic health information. It may be found at Title 45, Code of Federal Regulations, Part 164, Sections 302-318 (45 CFR 164.302).

While the Privacy Rule includes a mini-security rule, the regulations of the Security Rule are far more detailed and include comprehensive ways in which a covered entity may perform a risk analysis to determine the measures required to comply with the Rule. The Security Rule applies to the same covered entities as the Privacy Rule and similarly applies to the covered entities’ business associates. If you offer a health plan to your employees, that plan must meet both the Privacy Rule and Security Rule requirements. By extension, the employer must ensure that the plan has met those requirements.

For small plans, compliance may be simple, especially when most employers outsource their health care operations to third party administrators and have very little interaction with electronic protected health information, or PHI.

Like the Privacy Rule, the Security Rule requires health plans to limit disclosures of PHI to the plan sponsor employers unless certain conditions are met. Consequently, non-covered entity employers who are health plan sponsors are affected by HIPAA’s Security Rule including having to amend employer health plan documents to incorporate provisions requiring such employers who receive PHI from the health plan to implement security safeguards.

These safeguards include three standards which fall under the categories of administrative, physical and technical, and numerous implementation specifications.

The good news is that the Security Rule permits flexibility in your entity’s approach based upon organizational size, complexity, staff capabilities, the likelihood of potential risks, costs, and your computer hardware and software capability.

It’s also a good time to be reminded that every three years, covered entities should revisit their adherence to the Privacy Rule requirements by evaluating actions taken and determining whether it is appropriate to modify compliance processes and procedures. HIPAA compliance does not have a completion date, rather it is an ongoing process.

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Non-Compete Agreements as Assets

Non-compete agreements for these and other employees provide valuable protection not only to the employer, but can also be an attractive protection for a company’s potential purchasers. In the eyes of a purchaser, employees and the terms of their employment represent assets. Certainly, following the purchase or acquisition of a business, a major source of concern for new ownership is a smooth transition and continuation of the business. The use of non-compete agreements provides extra incentive for employees to stay, and keeps them from competing with new ownership if they go.

Roeder v. Ferrell-Duncan Clinic, Inc.

A recent decision from the Missouri Court of Appeals for the Southern District greatly limits an employer’s ability to transfer or assign an employee’s non-compete agreement to a third party. The Court, in the case of Roeder v. Ferrell-Duncan Clinic, Inc., 155 S.W.3d 76 (Mo. App. S.D. 2004) ruled that a physician in a group practice was no longer bound by his non-compete agreement after the practice assigned his employment contract to a hospital. The Missouri Supreme Court denied a request for review of this case in March 2005.

In Roeder, the physician, Dr. Roeder, entered into an employment contract with a private group medical practice in Springfield, Missouri. The contract included a non-compete clause. In 2002, the practice entered into an agreement with a local hospital, providing for a joint employment agreement that would make the group’s physicians employees of the hospital for purposes of medical malpractice coverage, essentially assigning the group physicians’ employment contracts to the hospital. Dr. Roeder voted against the agreement.

The Court ruled that the group could not assign Dr. Roeder’s employment contract to the hospital without his consent. It based its ruling in part on public policy prohibiting the assignment of contracts for personal services without the consent of both parties to the contract. Thus, because Dr. Roeder did not consent to the assignment of his contract to the hospital, he could leave the group and compete against it.

The Impact

This Missouri decision is consistent with the law of other states that also prohibits the transfer, sale or assignment of a non-compete agreement under certain conditions. Any attempted assignment of an employment contract to a third party, as part of a sale, for benefit purposes, or otherwise, and without the employee’s consent, is void and constitutes a breach of the employment contract. The third party will have no ability to enforce the employment contract against the employee, including any non-compete or other valuable provisions found in it. The original employer will have no ability to enforce the employment contract because it caused the breach.

It is important to recognize that a non-compete agreement will survive a change in business structure, such as statutory merger between two companies. The company surviving the merger can enforce an employment agreement against an employee because the merger does not cause an assignment to a third party, it is merely a change in the way in which the employer conducts business.

What Should Employers Do?

Employers desiring the protection afforded by noncompete agreements and seeking to negotiate a sale or transfer of the business should obtain appropriate consent from employees to ensure that these valuable protections also serve as assets that will make the business more attractive to potential purchasers.

Proper consent for the assignment of a non-compete agreement is also vital for employers not planning to sell, in order to avoid a situation like that in the Roeder case, where there was no sale, but merely an assignment of the employment contract for other strategic purposes, such as insurance benefits.

The employer should obtain the employee’s consent to transfer or assign the non-compete agreement when the employee signs it. If the non-compete agreement is a provision of a larger employment contract, the employer would be wise to have the employee consent not only to the assignment or transfer of the employment agreement as a whole, but specifically consent to the assignment or transfer of the non-compete provision. Taking these steps provides the employer with the utmost protection in the event its future business strategies force a transfer or assignment of its employment contracts to a third party.

Of course, employers should not forget that noncompete agreements are generally not enforceable unless they are reasonable in terms of duration and geographic scope.

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In March, 2005, the U.S. Supreme Court resolved the issue. In Smith v. City of Jackson, Mississippi, the Court held that the text of the ADEA, its “reasonable factors other than age” provision, and the EEOC’s regulations all support the conclusion that a disparateimpact theory is cognizable under the ADEA. As a result, disparate-impact claims are allowed under both Title VII of the Civil Rights Act of 1964 and under the ADEA. The only difference is that, under the ADEA, the scope of liability is narrower, because it permits an employer to cite “reasonable factors other than age” (the RFRA defense) to justify a practice that penalizes older workers.

In Smith v. City of Jackson, the City adopted a pay plan designed to bring starting salaries of police officers up to the regional average. The pay plan granted raises to all police officers and police dispatchers. Those with less than 5 years of tenure received proportionately greater raises when compared to their former pay than those with more seniority. Although some officers over the age of 40 had less than 5 years of service, most of the older officers had more. A group of older officers filed suit under the ADEA, claiming both that the City deliberately discriminated against them because of their age (a “disparate-treatment” claim) and that they were “adversely affected” by the plan because of their age (a “disparate-impact” claim). The City’s defense was that the plan was based on reasonable factors other than age; specifically, that the differential between older and younger workers was based on the need to make junior officers’ salaries competitive with comparable positions in the market. The district court granted summary judgment for the City on both claims. The Court of Appeals for the Fifth Circuit held that the ruling on the disparate-treatment claim was premature and concluded that disparate-impact claims were categorically unavailable under the ADEA. The plaintiffs appealed the denial of their disparate-impact claim to the U.S. Supreme Court.

The Supreme Court reversed, holding that suits for age discrimination based on disparate impact are permissible under the ADEA. However, it ruled against the officers holding that the disparate impact of the City’s pay plan was attributable to its decision to give raises based on seniority and position and that its reliance on those factors was unquestionably reasonable, given the City’s goals.

The law is now clear. Under the ADEA, employers are subject to liability for unintentional age discrimination based on facially neutral policies that have a disparate impact on older workers. However, the employer may defend a challenged policy by demonstrating that it is based on reasonable factors other than age. This has been the law in the states covered by the Second, Eighth (which includes Missouri) and Ninth Circuits. It is now the law in all eleven circuits.

Employers should consult employment counsel before implementing a policy that, although neutral or nondiscriminatory on its face, might adversely affect older employees.