©2015 davis brown koehn shors & roberts p.c. corporate responsibility & compliance update...

©2015 DAVIS BROWN KOEHN SHORS & ROBERTS P.C.

Corporate Responsibility &

Compliance Update

John Pietila

Susan Freed

Davis Brown Law Firm


Corporate Responsibility & Affordable Care Act

• ERISA Section 510 prohibits employer from discriminating against participants for exercising their rights under ERISA or interfering with an employee’s attainment of any right to an employee benefit.

• Capping hours and other tactics to prevent employee from averaging full time and becoming eligible for health benefits could give rise to a claim an ERISA 510 claim.


ERISA Section 510

• Protects “participants” in employee benefit plans• Defines “participant” as any employee or former

employee of an employer or any member or former member of an employee organization who is or may become eligible to receive a benefit of any type from an employee benefit plan.”

• Supreme Court has interpreted “may become eligible” as one who (i) has a colorable claim that he/she will prevail in a suit for benefits or (ii) eligibility requirements will be fulfilled in the future.


ERISA 510

• DOL has declined to issue guidance on whether ERISA 510 is violated by an employer who seeks to minimize penalties under ACA by reducing or capping hours or taking other measures to prevent an employee from being considered a “full time” employee under the ACA.


ERISA 510

• Case Law Interpretations of “participant” protected by ERISA 510:– Includes individual who was hired as a part time

employee but employer intended that she would become full time when a position opened up

– Potentially includes part time employee who was not promoted because employer didn’t want him to be eligible for health insurance• Employer encouraged application to full time position.

– Does not require employer to make a part time employee who is ineligible for benefits a full time employee eligible


ERISA 510

• Employer must be motivated, at least in part, by the intent to interfere with the participant’s right to the employee benefit

• 8th Circuit has held plaintiff must show the employer’s desire to avoid the employee benefit liability was a determining factor in the adverse employment decision


ERISA 510

• Biggest risk is likely employees who prior to ACA employer mandate enforcement were working an average of 30 hours per week and whose hours are then reduced or capped at below 30


Reducing ERISA 510 Risk

• Define eligibility in terms of job classifications rather than simply based on hours worked– But, be careful you are offering coverage to at least

95% of your full time employees in 2016– More feasible to couple job classification with full

time determination

• Document business justifications unrelated to ACA


ACA’s Whistleblower Protections

• Employer may not discharge or discriminate against any employee with respect to his/her compensation, terms, conditions or other privileges of employment because the employee has received a credit or subsidy provided by the ACA, has reported a violation of the ACA or is assisting or participating in the investigation of an ACA violation.– Reducing hours of individuals who qualify or receive

subsidy


What Not to Do

• Don’t ask employees to waive their right to claim a subsidy/tax credit.

• Don’t ask employees whether they are applying for or are eligible to receive a subsidy/tax credit.

• Don’t reduce an employee’s hours because they qualify for a subsidy.

• Don’t retaliate against employees who raise ACA compliance issues.


Common ACA Problems

• Negotiating health insurance benefits in change of control, severance, employment and other agreements with employees– Non-discrimination rules• Currently applies to self funded employers

– Discriminatory benefit taxable to employee

• ACA extends to fully-insured employers– Currently moratorium on enforcement– When it is enforced, hefty penalty for violating


Common ACA Problems

• No policy and documented process for determining eligibility for health benefits– When implementing the look back measurement

method to determine full time status, many companies are only tracking those employees whose hours are uncertain or who may not be full time BUT law requires you to use this method for every employee in the category. Can distinguish only based on 3 categories• Hourly v. salary• State where located• Union v Non Union

– Becomes an issue when there’s change in status


Common ACA Problems

• Considering a “variable” hour employee as ineligible upon hire because uncertain what hours he/she will have when there’s reasonable belief he/she will likely average full time– Required by ACA to offer coverage even if variable

hour employee if its reasonable to believe he/she will work full time

– Facts/circumstances test– Decision should be made by person who

understands the job, not necessarily your benefits staff.


Common ACA Problems

• Big penalty for missing the mark on whether an employee is full time or not– Failure to offer coverage to 95% of your full

time employees (70% for 2015) results in a penalty equal to $2000 x the number of full time employees you have over 30 (80 for 2015), including full time employees who were offered minimum essential coverage

– If you have 500 full time employees in 2016 and fail to offer coverage to 26 of them, your penalty is $940,000

– If you have 2000 full time employees in 2016 and fail to offer coverage to 101 of them, your penalty is $3,540,000


Common ACA Problems

• Cash in lieu of benefits may make your health insurance unaffordable in the eyes of the IRS– Based on regulations defining affordability for purposes of

subsidy/tax credit eligibility, employer contributions toward health insurance that can be taken in after tax cash or allocated to a non-health benefit are considered to be the employee’s contribution not the employer’s contribution

– If this analysis is extended to employer mandate, it means the employer doesn’t get any credit for the contribution and would need to report coverage as unaffordable. If the employee qualifies and receives a subsidy, employer would be penalized $3000 for the year for the employee

– Consider limiting use of employer contributions to health benefits, such as major medical, dental, vision, health FSA

– Assess union agreements


Corporate Responsibility and Compliance

• Caremark Duties“[A] director’s obligation includes a duty to attempt in good faith to assure that a corporate information and reporting system, which the Board concludes is adequate, exists, and that failure to do so under some circumstances, may, in theory at least, render a director liable for losses caused by non-compliance with applicable legal standards.”


Corporate Responsibility and Compliance

• High profile regulatory attention and enforcement

• Growing awareness and impact on edges of regulated industries

• Increased expectations of consumers and regulators


Evolving Risks

• Cyber Security and Data Breach• Reputational Risks• Financial Risks• Litigation Risks– Consumers– Third Parties– Investors


Developing Trends

• Focus on compliance as an enterprise responsibility

• Investor focus on impact of compliance on risk and profitability

• Increased pressure on companies and regulators to address compliance issues


Developing Trends

• Increased breadth of areas requiring compliance oversight

• Internal focus on industry-specific or issue specific regulations

• Compliance reporting to CEO, General Counsel or Board or Board Committee

• Compliance certification


Cyber Security and Data Breach

• Reputational risk and financial damage • Governmental investigation– FTC– State A.G.– Industry-specific regulator

• Lawsuits, including shareholder derivative suits and securities class actions


Data Breach Lawsuits

• Corporate directors and officers named as defendants

• Pre-breach activities• Post-breach investigation, remediation and

disclosure


Corporate Responsibility Takeaways

• Caremark duties in the context of data security• Consider how to provide oversight– Board or Board Committee involvement

• Enterprise-wide approach, calibrated to company’s specific risk profile and circumstances



• Ask (and answer) the 6 key questions– What laws/rules/policies are you covered by?– What types/uses of information are covered?– What exactly is required or prohibited?– Who enforces the law/rule/policy?– What happens if you fail to comply?– Why does the law/rule/policy exist?



• Maintain written cyber security standards and practices, but don’t forget other risks and vulnerabilities

• Stay updated on best industry practices and cyber security recommendations

• Make data privacy and data security a more regular topic of board discussion

©2015 davis brown koehn shors & roberts p.c. corporate responsibility & compliance update...

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