It might read: “Is everyone OK with Bob’s carpet cleaning bid? We can get a really good deal if we sign with him today. Let me know ASAP.” You get a quick response and business is accomplished right from your desk, or your smartphone. There’s just one problem. It’s illegal. No, I don’t mean you’ll get arrested. I mean that voting by e-mail isn’t enforceable. Let’s say you are the President (or committee chair) of a local charity, chamber or foundation, and you send out that carpet cleaning e-mail. A majority of your board (committee) members approve without comment. You sign the contract.

Your regular meeting comes up the next week, and a couple of the members (who were on vacation when the e-mail went out) arrive with information about Bob the carpet cleaner. While he’s inexpensive, he’s also a convicted felon and he’s been known to say some pretty unflattering things about your organization. More importantly, a board member’s uncle is in the business and made a major contribution last year. Let’s give the contract to uncle Vinnie, they say; and before you know it, Vinnie is hired. But you already signed the contract in reliance on that e-mail.

What you now discover is that voting by e-mail is not enforceable, i.e. it doesn’t count. Result: you are personally on the hook for that contract you signed. Missouri statutes simply don’t permit a board or committee to vote by e-mail. People think I’m crazy when I tell them this. But the reality is that boards and committees cannot act by correspondence (e.g. e-mail); they can only act by meeting or by unanimous written consent. A meeting is defined by law as an event where everyone can be heard “simultaneously.” You need not see everyone, but everyone must be “present” so you can all hear the debate and everyone’s comments can be heard by everyone in attendance. It’s hard to believe that meeting at a coffee shop or patching in people by telephone works and a simple e-mail doesn’t; but it’s true.

Why, you say? First, remember that e-mail is, well, just mail. It’s correspondence. Very speedy correspondence, but still just a letter. Second, let’s remember that meetings were the only efficient way to accomplish business before the electronic age; so it’s partly historical (how would we feel if the founding fathers wrote and voted on the constitution by correspondence?). But, most importantly it’s about requiring everyone to be present for the debate. My example above shows what can happen when the open debate is missed. Comment alone is not debate. “Reply all” may seem like open debate, but it’s not. Bodies (boards and committees) are established to give a group of people responsibility and groups have always been required to meet and discuss as a critical part of making decisions.

In short, you need to know three things:

1. Meetings are unnecessary if all who are entitled to vote agree by (i.e. sign) a “written consent”, so the e-mail may be enforceable if everyone agrees, i.e. it’s a unanimous vote (and every e-mail is copied and kept with your meeting minutes).
2. If it’s not unanimous, make very sure that it is approved at the next board/committee meeting (and included in meeting minutes).
3. If it’s a major decision, skip the e-mail (or make sure your house needs a lot of carpet cleaning).

In your business (i.e. other than non-profit organizations) there may be instances when decision by e-mail is permissible, but only if the governing documents clearly spell it out, so check with your attorney first.

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.

This HHS publication triggers two key deadlines, one commencing September 23, 2009, when employers and health care providers (“covered entities”) will be required to comply with the Act’s security breach notification requirements; and, the other, is February 22, 2010, the 180 day enforcement grace period announced by HHS. Accordingly, during this 180 day grace period, covered entities need to digest the new requirements, revise existing HIPAA policies and procedures and develop new ones, put in place a security incident response plan, train employees, confer with business associates about security breach response and negotiate modifications to existing business associate agreements. Employers and health care providers who discover a security breach after that date and fail to provide the required notices may be targeted for an enforcement action.

A security breach notification will only apply to “unsecured PHI”. PHI that is not encrypted or completely destroyed is considered “unsecured” by HHS. The only way, generally, that HHS has said that PHI would be considered “secured” is if it encrypted or completely destroyed. If that is the case, then the covered entity does not need to develop internal procedures for notification of security breaches. In any event, those practices should review their existing Notice of Privacy Practices to update it with respect to the new notification rule.

WHAT IS A “BREACH” REQUIRING NOTIFICATION UNDER THE RULE?

HHS has defined “breach” to mean a use or disclosure of unsecured PHI in violation of the HIPAA Privacy Rule. As we learned when the Privacy Rule was implemented, PHI generally cannot be used or disclosed without the individual’s prior, written authorization. However, the Privacy Rule also contains a laundry list of exceptions to the general rule. Consequently, covered entities may often have to scrutinize the Privacy Rule to determine whether a breach, indeed, even occurred. Hence, a breach will only occur if the following requirements are met:

• the information is “unsecure” PHI;
• the information was used or disclosed in an unauthorized manner (see, HIPAA Privacy Rule); and
• the use or disclosure poses a “significant risk of financial, reputational, or other harm to the individual”. To determine if such a harm has occurred, the covered entity must review factors such as:

(a) to whom the information was disclosed;
(b) the type of information disclosed;
(c) what steps were taken that mitigate the potential harm to the individual; and
(d) whether the use or disclosure falls under an exception listed in the statute. The exceptions are:

(i) Unintentional access by a covered entity’s or business associate’s employee. Such access must be in good faith, within the employee’s course and scope of employment and not result in further use or disclosure. HHS provided an example of a nurse mistakenly sending an e-mail with PHI to a hospital billing employee, who opened it in the normal course of business; however, the billing employee deletes the e-mail and notifies the nurse.
(ii) Inadvertent disclosure from one covered entity or business associate employee to another similarly situated employee. HHS explains that the information should not be further used and that “similarly situated” means both employees must be authorized to access the information. For example, a doctor and billing employee may be similarly situated, because they are both authorized to view PHI, but a doctor and a receptionist may not be or, for example, when a doctor inadvertently gives a patient chart to a nurse who is not responsible for the doctor’s patients.
(iii)The recipient would not reasonably have been able to retain the information. For example, a nurse gives out incorrect discharge papers, but immediately discovers the error and takes them back.

NOTIFICATION OF BREACHES

If a breach occurs, then the covered entity must notify the individual “without unreasonable delay”, but no later than 60 days after discovery of the breach. HHS notes that, if a business associate is an “agent” of the covered entity, the business associate’s discovery of the breach will be imputed to the covered entity.

If the breach involves 500 or more individuals, the covered entity must notify HHS at the same time it notifies the affected individuals. Breaches involving fewer than 500 individuals must be logged, and a log must be submitted to HHS by March 1st of the following calendar year.

There are also provisions for what needs to be done if a breach involves 500 or more individuals from an entire state or jurisdiction. Since business associates are impacted by the discovery and breach notification, covered entities should address those matters in their business associates agreements or vendor agreements, by rewriting or amending those agreements.

WHAT MUST THE NOTICE SAY?

The Notice must be written in plain language and contain five (5) subject areas:

1. a brief description of what happened, including the date of the breach and the date the breach was discovered, if known
2. the types of unsecured PHI involved in the breach (e.g., Social Security number, full name, date of birth, home address, account number, diagnosis)
3. steps that affected individuals can take to reduce the risk of harm from the breach
4. a brief description of the covered entity’s investigation, efforts to mitigate harm to affected individuals and steps taken to prevent a recurrence of breaches
5. contact information for people to ask questions and obtain information, including a toll-free telephone number, e-mail address, website or postal address.

HHS has devised electronic notification forms on its website for submitting notice of breach to the Secretary. These requirements are in accord with the Privacy Rule that requires each covered entity to take reasonable steps to mitigate the harmful effects of an unauthorized use or disclosure of PHI.

There are also provisions for substitute notice under the HHS rules.

THE EFFECT ON STATE SECURITY BREACH NOTIFICATION LAWS

HHS has said that the HIPAA requirements do not pre-empt state notice law and that covered entities will be required to comply with both sets of laws when both are applicable. For example, where a state law requires notification within five days, HHS says notice within this period also would satisfy the new HIPAA requirements, so the two laws do not conflict. Similarly, if a state law requires additional elements be included in a notice, HHS says there would be no conflict because a covered entity could develop a notice that satisfies both laws.

STEPS FOR COVERED ENTITIES

• Establish notice procedures for a security breach response plan
• Implement systems for detecting a security breach
• Maintain a breach log
• Train workforce members on their role in responding to a security breach
• Revise business associate agreements to address security breaches
• Revise HIPAA policies and procedures regarding training, complaints, and sanctions, as applicable
• Update address lists for patients and/or plan participants to reduce the number of return notices in the event of a breach.

This is only a short review of considerations. Consultation with an attorney is advised to ensure that all matters specific to your practice have been covered. If you have further questions or if you would like to set up an appointment to discuss your practice’s protected health information needs, please contact Laura Gerdes Long, Esq.

Social Security provides a necessary financial supplement to any individual with a disability as defined under federal law. There are three types of social security available to an individual with a disability. Social Security Disability Insurance is available to those individuals who have worked at least 10 years and do not currently earn more than $980.00 a month from employment. For those individuals whose disability began before the age of 22, the work history is based upon the individual’s parent. Supplemental Security Income is available to any disabled individual who meets the “limited income and resources” test. The third benefit available under Social Security is Medicare. Medicare is a government health insurance program.

Social Security Disability Insurance

Individuals whose disability began before the age of 22 may be eligible to receive Social Security Disability Insurance (SSDI), or what people commonly refer to as “Social Security.” Typically, an individual receives SSDI based upon his or her work history and amount of prior earnings. However, an adult disabled before the age of 22 may have little or no prior earnings and would not typically qualify for SSDI.

Fortunately, an individual over the age of 18 whose disability began before the age of 22 can receive Social Security benefits based upon his or her parents’ eligibility for Social Security. Instead of basing eligibility and the amount of benefits on the disabled individual’s work history, these items are based upon the parent’s work history and prior earnings. Thus, a disabled individual may be eligible to receive Social Security even though he or she has never been able to work.

There are also restrictions on the individual’s earned income. If the individual is employed, he or she cannot earn more than $980 per month from employment or the individual will be disqualified from receiving SSDI benefits.

Supplemental Security Income

An individual may be eligible to receive Supplemental Security Income (SSI) if he or she is disabled and receives under $1,433 from wages or under $694 in income not from wages. SSI is also available to minors who have been diagnosed with a disability; however, the income and financial resources of the child’s parents or guardians will be taken into account when determining eligibility. Resources available to the family must not be over $2,000.00 with certain exclusions for the family home and vehicle.

In addition to the asset limitations, the child must satisfy the following requirements: (1) he or she has a physical or mental condition (or combination thereof) which results in “marked and severe functional limitations;” and (2) these debilitative conditions must be expected to continue for at least 12 months, or to result in death.

The Social Security Administration will review all of the information regarding the child’s disability and may ask for further medical and school records, if such records are available. Determinations of disability may take between three to five months. However, there are 50 medical conditions which will warrant immediate approval for SSI, including but not limited to: cerebral palsy, down syndrome, muscular dystrophy and severe mental retardation.

When a child turns 18, the criteria the Social Security Administration (SSA) uses in determining if that child is eligible for SSI changes. The parent or guardians’ financial status is no longer taken into account, and only the individual’s income and resources will be used in determining eligibility. Further, the SSA utilizes the adult criteria, instead of the child criteria, in determining if the individual is disabled so as to allow for SSI.

Medicare

Adults who receive SSDI benefits for more than 24 months, are automatically eligible for Medicare. An individual who is receiving the benefits will receive his or her card in the mail in the 25th month of the individual’s approval for disability benefits.

To apply for Social Security benefits, call 1-800-772-1213 or visit your local Security Office. When applying, make sure to have available the applicant’s social security number card, as well as birth certificate. If a third party is applying for social security for the disabled individual, that third party must have the individual’s social security information available as well. A parent or other family member may also apply to become the representative payee in order to receive the funds from the SSA.

Belleville East High School Hosts Inaugural Special Needs Prom

On May 16, 2009, special education students at Belleville East High School had an experience which, although common to most high school students, was a first for many of these students—Prom.

The event took six months of planning and, with the help of numerous area vendors, more than $1,400 worth of goods and services were donated. For only $20 a ticket, students were able to dine on cuisine from an area restaurant and dance the night away at the Hilton Hotel in Shiloh, Illinois.

The event was sensory-friendly for its patrons, keeping the music volume to a lower level and cutting back on the bright lights and fanfare typically found at high school proms.

Ashley Creek, a special education teacher at Belleville East, organized the prom after a step-mom of one of her students called her to suggest the idea.

Although Creek noted the hard work it took to put on the event, she believed that it will most likely become an annual event. “Every person, no matter their abilities,” said Creek, “should be able to have a Junior/Senior prom.” She has already began planning for Spring 2010.

Illinois Extends Dependent Coverage for Adult Children to Age Twenty-Six

Beginning June 1, 2009, Illinois law 215 Ill. Comp. Stat. 5/356z.12 requires all individual and group health insurance and HMO contracts to give parent policyholders the right to elect coverage for qualifying dependents up to age 26 and up to age 30 for military veteran dependents. Health coverage that is provided to state, county, and municipal employees must also meet these requirements. Enrollment in higher education is not a prerequisite for this extended coverage.

Dependents may be enrolled during the mandated 90-day enrollment period which insurance companies must provide to eligible parents. For policies that begin after June 1, 2009, the 90-day enrollment period must begin simultaneously with the start of the coverage. For existing insurance policies, the 90-day period will begin on the date the policy is amended or renewed.

It should be noted this law does not apply to insurance policies or HMO contracts which do not include dependent coverage, self-insured non-public employers, self-insured health and welfare plans and insurance policies or trusts issued in other states.

More information can be found on the State of Illinois Department of Insurance web site.

Guardianship

A guardian is an individual who is granted, by a court, the care and custody of a minor or person declared disabled or incapacitated. A conservator, on the other hand, is an individual appointed by a court to have care and control over a minor or a disabled person’s property. Although these phrases are sometimes used interchangeably, a guardian has care of an individual whereas a conservator has care of that individual’s property– a distinction with great legal importance. Therefore, it is necessary to petition a court for both guardianship and conservatorship. A conservatorship is only necessary in the event that a minor or a person declared incapacitated by the court has assets in his or her own name.

Although a guardian and conservator are frequently the same person, it is still necessary to petition a court for both guardianship and conservatorship. The appointment of guardianship and conservatorship is governed by Missouri law and is a legal process by which a probate court designates a guardian and/or conservator upon issuance of letters of guardianship or conservatorship. Because of the close relationship between guardianship and conservatorship, it is common to petition a court for conservatorship and guardianship at the same time.

Parents will be the natural guardians of their minor children if one or both of the parents are still living unless the court finds them to be unfit as guardians. Individuals, non-profit organizations or social service agencies may be appointed guardian.

The court shall make its appointment of a guardian and/or conservator in accordance with the incapacitated or disabled person’s most recent valid nomination of an eligible person qualified to serve as guardian. If there has been no such appointment, the court will appoint a family member or friend in order of statutory preference.

St. Louis Area Organizations Supporting Persons with Disabilities and Their Families

United Cerebral Palsy of Greater St. Louis

United Cerebral Palsy is a national organization serving more than 176,000 individuals with disabilities. The organization is facilitated by ambassadors who help to fulfill the organization’s mission to advance the independence, productivity and full citizenship of people with disabilities.

UCP supports the My Child Without Limits Program, which offers resources and information for families who have special needs children. Mychildwithoutlimits.org offers information regarding the understanding of Cerebral Palsy, traveling tips for families, speech therapy for those children afflicted with Cerebral Palsy and news updates.

The United Cerebral Palsy of Greater St. Louis office is located at 8645 Old Bonhomme Road, St. Louis, MO 63132-3999. They also may be reached by phone at (314) 994-1600. 

Gateway Chapter of the Autism Society of America

The Autism Society of America (ASA) is one of the nation’s largest volunteer organizations dedicated to those afflicted with Autism. The ASA provides resources and information to individuals across the entire diagnostic Autism spectrum.

While the ASA is partnered with many corporate sponsors, a partnership with AMC Theaters offers families in the St. Louis are an opportunity to watch newly released movies in an environment comfortable for autistic individuals. The Sensory Friendly Films programs shows movies with the auditorium lights turned up and the volume of the movie lowered. No previews or advertisements will be shown before the movie. Families are able to bring in their own gluten-free, casein-free snacks. While the safety of the audience is of primary consideration, audience members may also move around, dance, walk, shout or sing. Families can attend these Sensory Friendly Films locally at AMC West Olive 16, 12657 Olive St, Creve Coeur, MO 63141.

Supreme Court of the United States Decides Case in Favor of Special Needs Families

Forest Grove School District v. T.A.: a vital step towards ensuring all special needs children get the education they deserve

In June 2009, the Supreme Court decided a pivotal case for those families with special needs children in a case entitled Forest Grove School District v. T.A. The case involved the Individuals with Disabilities Education Act (IDEA), which requires States that receive federal funding to provide a “free and appropriate public education” (FAPE) for all children with disabilities.

For those children who are diagnosed to have disabilities, this FAPE will often include an “individualized education program,” (IEP) a program which brings together those individuals within the child’s educational circle—teachers, parents, assistants—and specifically targets the disabilities the student may encounter. The IEP will offer alternatives to overcome any disabilities the child may have that are hindering her ability to excel in the classroom. Actions taken as part of the child’s IEP can include extended test taking time, alternative test taking atmospheres and even a change in the test format.

In Forest Grove, the parents of T.A. sought reimbursement from the school district for tuition for the private school T.A. needed to attend so he could receive proper assistance with his disability at school. The district found T.A. to be without any disabilities, thereby claiming the IDEA was inapplicable. However, upon further examination by a private physician, T.A. was diagnosed with attention-deficit/hyperactivity disorder and other learning and memory disabilities. With this diagnosis, T.A.’s parents made the decision to place T.A. in a private school where his needs could be better met.

The school district argued that the 1997 amendments to IDEA did not require reimbursement for private school tuition when there had been no previous special-education services through the public school system. The school district claimed there were safe harbor provisions in the 1997 Amendments to IDEA which precluded the school district from being financially liable. However, the Court found that such a provision was only applicable to those schools who had correctly identified a disability and offered that child a FAPE—which the district had failed to do.

Ruling upon the case, the Supreme Court found in favor of T.A. stating that “having mandated that participating states provide a FAPE for every student, Congress could not have intended to require parents to either accept an inadequate public-school education pending adjudication of their claim or bear the cost of a private education if the court ultimately determined that the private placement was proper under the Act.”

This decision marks the continual trend in the courts towards providing individuals with disabilities the ability to thrive in their educational atmosphere.

Setback For Medicaid Payback Trusts

A Medicaid Payback Trust is a Special Needs Trust that is setup whenever a person is considered disabled under the Medicaid or Social Security Act. 42 USC § 1382c(a)(1). Often funds are received from a personal injury or other type of settlement and paid directly into the Medicaid Payback Trust. The federal government specifically allows for this type of Special Needs Trust (also known as a Supplemental Support Trust) under 42 USC 1396p(d)(4)(A), so long as all the requirements of the statute are met. The requirements include that upon the death of the beneficiary any funds remaining in the Medicaid Payback Trust are paid to reimburse Medicaid first. Any remaining funds are then paid to the beneficiaries. This Medicaid Payback Trust allows for a Medicaid recipient to have the necessary funds for purchase of necessities during the recipient’s life and allows the state to receive payment for the services it renders upon the recipient’s death.

A recent decision from the US District Court for the District of New Mexico, Hobbs ex rel. Hobbs v. Zenderman,  2009 WL 2750707 (C.A.10 (N.M.),2009), is a severe setback for the Special Needs Community . Steffan Hobbs had sued for injuries obtained in an automobile accident when he was six years old. Hobbs and his parents settled the case and agreed that $1.1 million dollars was to be put aside in “The Steffan Hobbs Medicaid Payback Trust”. The Trust purchased a one-half interest in the family’s home and paid Steffan Hobbs’ mother a monthly stipend for her care of Steffan. The family then applied for Medicaid through the State of New Mexico which found the Supplemental Support Trust to be a countable resource. The State of New Mexico found that the use of the Special Needs Trust funds for purchase of land and a family home was specifically prohibited under the state’s Medicaid policy. After exhausting his administrative appeals, Hobbs’ parents filed suit in the US District Court for the District of New Mexico alleging that the Medicaid Payback Trust had complied with the requirements of the federal law (1396p(d)(4)) and therefore could not be counted as a resource. The District Court found in favor of the State and the Hobbs’ family appealed.

The appellate court in Hobbs found that the “Medicaid statute exempting special needs trusts from requirement that state count certain trust assets as resources available to an individual when determining Medicaid eligibility did not unambiguously impose a binding obligation on the states to exempt such trusts when making eligibility determinations, but rather, left such a decision within the discretion of the states, and as such, statute could not support Medicaid claimant’s § 1983 claim against New Mexico authorities for violation of that provision. Social Security Act, § 1917(d)(4), 42 U.S.C.A. § 1396p(d)(4); 42 U.S.C.A. § 1983.”

This finding by the appellate court allows individual states to determine whether they will develop their own eligibility determinations for a Medicaid Payback Trust or even allow the Medicaid Payback Trust to be a countable resource for Medicaid purposes. The State of Missouri currently recognizes the elements set forth under the federal statute and allows for Medicaid Payback Trusts to be utilized and not count as a resource for the Medicaid Recipient. However, this could be changed by the legislature if the New Mexico decision stands.

To access the latest news and law regarding Special Needs Families please feel free to visit our blog, Beyond The Fine Print.

Planning Considerations for Children with Special Needs

Special Needs Families often need to convey more information to their other family members and friends about how to care for their child in the event that they would be unable to continue to do so. Next month, Danna McKitrick P.C. will be releasing checklists and other helpful forms that you can complete on our website and keep with your estate plan documents.

Information on the forms will include doctors, specialists, medications, daily routines, and other important information that someone would need to know about your child. This is especially helpful for non-verbal children who are unable to communicate their daily needs. The forms will be available for you to download and complete at your convenience. If you are a current client, I am happy to also keep this information in my file. You may fax, email, or mail me your completed forms.

I welcome your input on what information you would like to see included on the website. Also, if you have ideas for future topics, please do not hesitate to call or email me.

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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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Secondly, the EFCA forces companies to reach an agreement with the union within 90 days of the National Labor Relations Board certification of the union or either party can demand mediation. If an agreement is not reached at the mediation table within 30 days, the contract is referred to binding arbitration and the arbitration results will then be binding on both parties for two years.

Finally, the EFCA grants the Board the power to award liquidated damages at twice the amount of back pay and to impose civil penalties of up to $20,000 per violation.

These changes may seem overwhelming, unreasonable, and highly skewed in the union’s favor, yet the company is still in control. The company has the opportunity to create a culture now that encourages informed, engaged, and productive workers that have little incentive to organize.

Create your own competitive advantage in your industry by taking the actions below so the union walks away from your workforce and shows up at a competitor’s door instead. Wage your election campaign now by thinking and acting proactively!

1. Competitive Wages & Benefits—Outside & Inside

Companies should evaluate wages of similarly situated employees of other companies to determine if their workers are being paid a competitive wage. Similarly, companies should analyze their internal compensation system (salary/wage ranges and rates) to determine if compensation is set for “position” rather than individual and whether a uniform approach is used for length of service and experience. If there are disparities that cannot be justified, they should be evaluated.

2. Communication with Employees—What are the Wants?

Companies should allow employees to communicate with management regarding complaints and concerns. Methods of communication include having open door policies when appropriate, surveys, suggestion boxes, bulletin boards, job orientation, forms which communicate to the employee various hidden employee benefits, and company events such as picnics and holiday parties.

3. Education of Employees

Employees should be educated about what changes will occur should they unionize. Companies should point out that unionization brings changes to the company environment such as lack of ability to communicate directly with management, dues and fees which may go to international union efforts and political causes, fines for crossing picket lines, and employees being replaced if the union strikes.

4. Identification/Training of Supervisors

True supervisors may not vote in a union election. Thus, it is critical to identify who the supervisors are within the organization and define their job responsibility. Passage of the Re-Employment of Skilled Professional Employees and Construction Trade Workers Act (“Respect”) would cause workers who do not spend more than 50 percent of their time directly supervising others to lose their classification as a supervisor (currently only 10 to 15 percent) and thus be part of the proposed employee unit.

Analyze the duties of your employees to determine who is tasked with supervisory jobs and define their titles as such. Once identified, training, attitude and ownership mentality is crucial. Taking ownership of policies and decisions of management and not blaming unpopular decisions on management is essential to leadership.

Finally, train supervisors on the “do” and the “don’t do” of a union campaign—what to say and not to say, what management acts are prohibited and the importance of enforcing policies consistently.

5. Education of Management

Management should be educated as to the company’s position and strategy for dealing with union activity. Being familiar with whether competitors are facing unionization, having an ability to identify the major unions in your area, researching their organizing tendencies, strengths and tactics, and recognizing union advertising are critical.

Management should be able to respond to employees’ questions about union activity taking place within the company.

6. Obtain Legal Counsel

Legal counsel can help you review employment agreements, the company’s bulletin board announcements, confidentiality policies, and assist with the education of management about labor laws. Legal counsel can also help you train your management on how to wage a legal campaign. Legal counsel can also assist with terminating employees with a history of poor work performance.

7. Hiring & Promotion Policies—Who are the Agitators?

Companies should regularly review their hiring and promotion policies. Processes should include centralized final review by a human resource manager to ensure supervisors are consistent and use appropriate documentation. Poor and marginal employees almost always vote for a union; therefore, such employees should be terminated as soon as poor work performance is discovered.

Consistent and regular review processes that use objective determination to the extent possible and require specific examples and documentation in subjective cases will assist in indentifying both employees with stellar work performance and those with marginal work performance. Ensure that disciplinary action is reflected on employee’s performance evaluations.

8. Quality Working Conditions

Working conditions should be clean and safe. Companies should work to identify areas that could use improvement and maintain general safety standards.

9. Resolve Complaints Efficiently & Effectively

Companies should make sure the right people are placed in supervisory positions. Complaints by employees should be immediately and fairly resolved. The process should be viewed as fair and not needing the outside influence of a union. If employees complain about favoritism or disparate treatment by a supervisor, the company should address it immediately. Unions tend to exploit unaddressed employee complaints about supervisors when initially forming.

10. Teamwork

Employees that feel invested in a company as part of a team are less likely to be swayed by union leaders. Holding regular meetings where management communicates with the employees about the company and allowing communication by the employees regarding suggestions for process/ production, etc. improvements can help employees feel invested in the company.

Conclusion

Whether or not the Employee Free Choice Act is enacted, use this threat to improve your culture thus improving your productivity and profit. Study after study shows that when employees feel valued and heard, they don’t look to unions to protect them from the very one who is providing them the job. Likewise, with a 92 percent unorganized private sector, unions won’t throw “good money after bad” but will target work places that are more vulnerable to union representation.

Simply said, a union cannot create a vote of no confidence in management policy unless management gives it the keys.

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A Special Needs Trust (also known as Supplemental Support Trust) is a legal mechanism that allows families to provide funds to relatives with special needs without interfering with their government benefits. The Missouri Division of Family Services (DFS) and the Social Security Administration analyze the special needs person’s assets annually to determine if he or she qualifies for government benefits, such as Medicaid and Supplemental Security Income.

If that person has more than $1,000-2,000 (depending on the program) in assets, he or she will be disqualified and will not receive the benefits. Most families need to maintain government benefits for family members with special needs, but also want to provide additional support.

For many years, families’ options were limited and the options available were not always beneficial to the needs of their loved ones. Some families elected to leave an inheritance to the special needs person in a lump sum amount that would automatically disqualify the recipient from government programs. Some families elected to disinherit the special needs person and hope that other family members would provide for any of his or her supplemental needs. These options did not fulfill the wishes of the families or supply adequate supplemental support for their loved ones.

In 1985, the Division of Family Services found that Bruce Tidrow, a mentally disabled individual, was not able to benefit from government programs because his parents had left him assets in a discretionary trust that exceeded the maximum allowed by the government programs. Mike McKitrick and Barbara Blee Maille, principals at Danna McKitrick P.C. in St. Louis, were two of the attorneys who appealed this decision to the Appellate Court of the Eastern District of Missouri.

Mike and Barbara argued that Bruce’s interest in the trust was not an “available resource.” Therefore, it was not his money because it was in a discretionary trust which allowed, but did not require the trustee to distribute funds to provide for Bruce’s “reasonable comfort” during the remainder of his life. The Court of Appeals agreed and found that the trust was intended to supplement and not replace Bruce’s government benefits; and because the trustee had complete control over the interest and the principal of the trust, the funds were not “available” to Bruce as to disqualify him for benefits.

In Tidow, the court solidified the legality of the Third-Party Grantor Special Needs Trusts in the state of Missouri. This type of trust can come into being before or after the death of the Grantor, but it cannot contain any assets of the beneficiary with special needs.

Missouri enacted a new Uniform Trust Code in 2005[3] that has a variety of implications on the Special Needs Trust. The new code states that Special Needs Trusts cannot be terminated by agreement by either the Grantor who set it up or by the special needs family member who will benefit from the trust. Special Needs Trusts are irrevocable, which means that once the trust is established (or upon the death of the Grantor), the only way that the money can be spent is determined by the trustee.

After the beneficiary’s death, the funds are then allocated as specified in the estate plan. As with any estate planning mechanism, the best option depends on each family’s unique situation.

Rules of the Legal Road

There are a number of provisions that must be drafted into the trust document in order for it to be considered a true special needs trust that will protect your loved one from losing government benefits. A trustee must be appointed to manage the trust and, upon the trustee’s approval, funds may be distributed to vendors or other third parties for the benefit of the person with special needs. The person with special needs cannot receive any of the funds directly. If this happens, the government benefit programs will consider that money as an asset and may disqualify him or her from receiving benefits.

Additionally, the trust must be drafted as either presently irrevocable or irrevocable upon the death of the Grantor, which prohibits the family member with special needs from selling or cashing in his or her interest in the trust, which will disqualify the beneficiary from government benefits. This list of required provisions is not conclusive and other specific language may be important to secure your financial commitment to your loved one.

Conclusion

In order to protect your family and their financial security in the future, it is important to talk to an attorney with expertise in estate planning for families with special needs members. Setting up a Third-Party Grantor Special Needs Trust greatly increases the chance that the person with special needs will remain eligible for government programs, and that funds not used during the beneficiary’s lifetime will be distributed to surviving family members.

If you have any questions or would like to set up or review your trust, please consult a qualified estate planning attorney when deciding how to provide for your loved ones. The attorneys at Danna McKitrick P.C. are prepared to help you plan for your family’s future.

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Life Skills helps people with disabilities live and work with dignity in our community. Established more than 44 years ago, Life Skills serves more than 1,400 adults and teens each year. Participants in the program are provided with aid, support, and opportunities to live independently, find and keep a job, make friends, and access all that St. Louis offers.

More information about Life Skills, their specific services, and upcoming events can be found on the web or by phone at (314) 567-7705.

St. Louis Arc – Supporting People with Developmental Disabilities and Their Families

The non-profit, United Way agency, St. Louis Arc has been providing support, services, and opportunities to individuals with developmental disabilities and their families since 1950. More than 3,000 adults and children in the St. Louis-area benefit from St. Louis Arc through services and resources such as community integration, early childhood services, employment, family education, and residential and leisure support.

The mission of St. Louis Arc is to provide higher quality services to help people with developmental disabilities, and their families, achieve their goals. To learn more about this organization, contact the staff at (314) 569-2211 or via email.

Down Syndrome Association of Greater St. Louis

At the Down Syndrome Association of Greater St. Louis, the mission is to benefit the lives of people with Down syndrome and their families through individual and family support, information, public awareness, and advocacy. The association thrives on a strong set of core values and the vision to be the most comprehensive resource on Down syndrome. A variety of resources are available such as parent community support groups, a calendar of events, and education seminars and conferences. For more information, visit www.dsagsl.org or by phone at (314) 961-2504, Monday-Friday between 9 a.m. and 5 p.m.

Chad Estes – Evaluation Through Movement

Drawing on recent developments in neuroscience and training in the Anat Baniel Method, Chad Estes ABM, GCFP works with the capacity of the human brain in order to enhance the lives of those with special needs. Movement and awareness of self are the main tools utilized to communicate with the brain, providing information the brain needs to form missing neural patterns. Whether in a child with developmental difficulties, or an adult dealing with chronic pain or recovering from a stroke, the human brain has the capacity to work around those limitations – under the proper conditions.

Evolution Through Movement is the private practice of Estes, and provides a specialty focus on facilitating the development of children with special needs, however, he works with anyone who would benefit from the services. The practice is based upon the culmination of 18 years of study and practice in the fields of education, biology, physiology, kinesiology, movement science, and neurophysiology. In addition to his experience in physical education and his 12 years in the health care arena, Estes also apprenticed under Anat Baniel over the last four years. He is a certified practitioner of the Anat Baniel Method. This method, based on the work of Dr. Moshe Feldenkrais, is scientifically based and medical doctors and specialists have validated its benefits.

The Anat Baniel Method facilitates the child’s ability to develop to a much greater extent than previously thought possible. It is effective at any age, but results are more dramatic and easily achieved if the child begins on this method during the early years when the neurological pathways are still developing.

Sessions are one-on-one and normally take place initially in clusters of 5-10 over a week’s time. The work is very gentle, non-invasive and easily tolerated by even the most physically challenged person.  For more information, contact Estes at 314-249-3367.

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There are three different types of Special Needs Trusts. The first two are known as Third-Party Grantor Trusts. A Grantor is the person who initially sets up the trust. These trusts are structured to benefit a person with special needs, but are set up by another party and funded with monies that are not in the name of the person with special needs. A Third-Party Grantor Trust can be set up in two different ways.

The first type of special needs trust is more commonly set up by parents of the child with special needs. In this trust, the funds are initially controlled by the Grantor. Upon the Grantor’s death, the funds are utilized for the benefit of the person with special needs. Even then, the trust must be carefully worded in order to restrict distributions that might disqualify the beneficiary from government programs.

The second type of trust is more commonly set up by grandparents, but can also be set up by parents who wish to have something in place for family members to gift money or stock to their child. This type of Third-Party Grantor Trust establishes a present trust for the benefit of the person with special needs. A present trust is one that is currently funded and available for the use of the family member with special needs. The trust must be irrevocable and cannot be funded with any property belonging to the beneficiary. These trusts are often utilized by grandparents who wish to start gifting to their grandchild, but do not want to disqualify the grandchild from government programs.

The third type of trust occurs when a person with special needs receives funds in his or her own name. This may occur with proceeds of a lawsuit or an inheritance. In this case, the recipient must comply with numerous laws. One of the most frustrating provisions for this type of trust is that the state is the beneficiary of any proceeds still available upon the death of the person with special needs. After the state has been completely reimbursed for the services provided, the remaining amounts are distributed to family members after payments to other creditors.

For each of these trusts, the person setting them up needs to speak with a qualified attorney who is not only familiar with special needs trusts, but can also explain the intricate tax consequences of each trust option.

What is the difference between guardianship & conservatorship?

In Missouri, a guardian handles all medical and personal care decisions. A conservator handles all money and property decisions. If a special needs child has any assets in his or her name, the court will require a conservatorship to be established.

When should I contact an attorney regarding guardianship for my child?

Children with special needs often require someone to be a legal guardian after they have turned 18. Without guardianship proceedings, these children are considered adults with full legal rights to make their own medical and financial decisions.

We recommend contacting an attorney about three months before your child turns 18. In order for your child to be declared in need of a guardian, a doctor needs to certify that he or she is incapable of making independent medical and financial decisions. There needs also to be a court hearing in order for you to be appointed as the legal guardian.

What should I tell family members that wish to leave my special needs child part of their inheritance?

Family members should contact an attorney familiar with Special Needs Trusts. If a family member leaves money outright to your child, the child could be disqualified from government programs. Family members may either set up an immediate Special Needs Trust if they wish to start gifting right away, or incorporate a Special Needs Trust in their estate planning documents if they wish to leave money to a special needs family member upon their death. You can also set up a present Trust for family members to leave money to a child with special needs.

What should I do with money that I receive in my child’s name?

Whether your child is a minor or an adult who is incapable of handling his or her finances, the court will require a conservatorship to be set up in order to handle any money that child receives. You should contact an attorney immediately if your child receives funds in his or her name. The one exception to this rule is social security. Social security funds can be paid to a representative payee and a conservatorship is not necessary if these are the only funds a person with special needs is receiving.

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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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