spring 2009 - drinker biddle & reath trends spring.pdf · trends ® spring 2009 1 client...

CLIENT PROFILE Norwest Equity Partners

LITIGATION As English Motorcycle Trademark Infringement Case

Illustrates, Honesty Is the Best Policy Page 4

HEALTH CARE Recovery Audit Contractors:

A New Breed of Medicare Auditors Page 7

Firm News Page 12

LABOR AND EMPLOYMENT Obama Administration Says to Organized Labor:

“Welcome Back to the White House” Page 16

Employer Strategies for Addressing Tough Economic Times: Reductions in Force and Other Options

Page 18

EMPLOYEE BENEFITS Practical Pointers for Plan Fiduciaries in

Uncertain Economic Times Page 23

W W W . F A E G R E . C O M

U N I T E D S TA T E S | E N G L A N D | G E R M A N Y | C H I N A

SPRING 2009

TRENDS® is published quarterly by the law firm of Faegre & Benson llp. Further details are necessary for a complete understanding of the subjects covered by this magazine. For that reason, the specific advice of legal counsel is recommended before acting on any matter discussed on these pages.

For the latest legal news, or copies of any article in this magazine, visit Faegre & Benson online at www.faegre.com. For address and other changes, contact [email protected].

© 2009 Faegre & Benson llp. All rights reserved.

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TRENDS® Spring 2009

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client profile

Timothy DeVries is a managing general partner of Norwest Equity Partners (NEP), a leading middle market private equity firm that manages $4.6 billion of capital through a series of equity and mezzanine funds.

As the largest and oldest private equity firm in the Upper Midwest , NEP ’s investment ph i losophy is focused on partnering with business owners and ma nagement t ea ms t o build their companies into industry leaders. NEP seeks

equity investment opportunities ranging from $30 million to $150 million through management buyouts, recapitalizations and growth financings. The firm is regarded as a value investor that takes a long-term view of the companies in which it invests.

In addition to managing day-to-day operations of the fund, DeVries stays highly involved with the firm’s investment process—working to develop deal sourcing opportunities and guiding marketing strategies for the firm. He also helps manage NEP’s relationship with Wells Fargo, the firm’s primary limited partner. DeVries was instrumental in the 2000 formation of Norwest Mezzanine Partners, the firm’s affiliated investment vehicle that provides junior capital solutions. He continues to oversee activities of this fund along with his other duties.

Faegre & Benson has provided legal services to NEP for more than 40 years and has assisted the f irm with numerous key investments, such as Lifetime Fitness, Jacobson Companies, Becker Underwood, Imperial Supplies, and Wealth Enhancement Group.

In this interview for TRENDS, DeVries shares his perspective on the short- and long-term future of private equity. Bruce Engler, chair of the Faegre & Benson mergers and acquisitions practice, joins the discussion

with his thoughts on the firm’s longstanding relationship with NEP—and why law firms must be f lexible in working with valued clients.

TRENDS: The deal market is admittedly quiet these days. What will it take for private equity to make a comeback?

DeVries: Time is what it will take—we all just need to wait it out. We need to wait for the change of the cycle and for the economy as a whole to recover. And sellers, of course, need to want to sell.

TRENDS: How has NEP refocused its business in response to the tightening of credit?

DeVries: We are being patient, and we are working harder than ever to look for opportunities. They are few and far between out there right now, but we are diligently looking. We are also well capitalized with our new fund (NEP IX, $1.2 billion) and prepared to take advantage of investment opportunities as they present themselves.

Client Profile: Norwest Equity Partners

• BasedinMinneapolis

• Foundedin1961

• Currentcapitalundermanagementtotals $4.6 billion; now investing NEP IX, a $1.2 billion fund

• $30–$150millionequityinvestments

• $50–$500milliontransactionsize

• EBITDA>$10millionforstand-alone investments and add-ons of any size

• Employsteamof22partnersandinvestment professionals, operating partners, senior advisors, and business development professionals

Timothy DeVries

Norwest Equity Partners


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TRENDS: What trends will have the greatest impact on private equity funds in the next 18 months?

Engler: The credit markets and the economy both need to improve substantially. I also think the private equity fundraising environment is going to continue to be chal leng ing. However, private equity firms with substantial committed capital, like NEP, should have an advantage when things turn around.

TRENDS: Given the scarcity of debt financing, what changes have you made in transaction structures?

DeVries: We have had to structure our last few deals as all-equity investments; these types of investments are for growth-oriented companies with opportunity to grow substantially. Typically we prefer to structure our deals with a mix of debt and equity, but we have had to be flexible with our transaction structures based on the state of the market.

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TRENDS: What should be the role of legal advisors during this period?

Engler: Deal structures and terms will evolve in response to market conditions. We need to be aggressive in finding approaches that reflect this changing and uncertain deal environment—that is what keeps our job interesting.

TRENDS: What will be some indicators that credit markets are returning to normal levels of activity?

DeVries: I don’t think that there will be a single event per se. It will be a slow evolution with a slow return of credit, starting with the very best companies, and volume of deals will also slowly return.

TRENDS: What are your needs from a law firm when you acquire and sell portfolio companies?

DeVries: Speed, thoroughness and good ideas. We need a legal adviser to be a strong advocate for us as well as have the means to balance legal theory and practical risk.

Timeline of NEP milestones:

Northwest Growth Fund founded

Norwest Bank acquires Northwest Growth Fund

Name changes to Norwest Growth Fund, then to Norwest Venture Capital

Norwest Venture Capital enters private equity business

1960 1980s 1990s Now

Bruce Engler


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TRENDS: What is an objective that NEP and Faegre & Benson share?

Engler: Adding value. NEP works very hard to add value for its portfolio companies. Faegre & Benson needs to work just as hard to add value in representing NEP and in understanding how we can help them accomplish their objectives.

TRENDS: What industries are you most interested in now?

DeVries : NEP considers itself to be a generalist in terms of the types of industries from which our deals come, but we have a few areas of focus and expertise, including consumer services and products, distribution, financial services, health care, manufacturing, and technology and business services.

TRENDS: In addition to looking for companies to acquire, NEP looks for operating partners. Why is that part of your business model?

DeVries: The private equity world is very competitive, and we need to bring every resource available to bear to partner with our portfolio companies and make them better. Operating partners bring years of experience and industry expertise to

our firm, and we leverage them as tools to help us and our management teams work toward the goal of creating better, stronger, and more efficient companies.

TRENDS: What does being a “value investor” mean to you?

DeVries: Having the ability to understand risk and being able to price accordingly are essential.

TRENDS: How does working with Faegre & Benson support the success of NEP?

DeVries: We’ve had a relationship with Faegre & Benson for over 40 years, and we have a strong confidence that they know us and know what’s important in the M&A world.

TRENDS : What characteristics make NEP a great client for the Faeg re & Benson mergers and acquisitions practice?

Engler: NEP is a national player in private equity M&A and a marquee client for our M&A practice. They are always looking at imaginative and sophisticated ways to structure deals. And, as a bonus, we enjoy working with the NEP investment professionals—they are great clients.

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client profile

Venture operations spun off and relocated to Palo Alto; named Norwest Venture Partners

Norwest Mezzanine Partners formed ($250 MM) in 2000; currently investing NMP III ($500 MM); $1 billion under management

Private equity operations remain in Minneapolis; named Norwest Equity Partners

Norwest Equity Partners currently investing NEP IX ($1.2 B); $4.6 billion under management

Norwest Corp acquires Wells Fargo

1960 1980s 1990s Now


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A recent decision in the England and Wales Court of Appeal, the second highest court of that jurisdiction, has considered the criteria to be taken into account when deciding whether or not to grant permission for contempt proceedings. While the case, KJM Superbikes Ltd. v. Hinton, arose from a trademark infringement suit that itself was noteworthy—it highlights the degree to which companies can imply consent for parallel importing of products, potentially weakening their ability to later enforce trademarks—the appellate court focused on the role of private contempt-of-court proceedings in the English legal system. Even when brought by a private party, the appellate court said, contempt proceedings are public in nature, and serve a public purpose: to hold witnesses accountable.

As the case involved a resident of Australia, it’s noteworthy for those who do business from abroad in the UK. “The international business community conducts a large amount of litigation in this country,” the court noted, “and it is common for statements to be provided by witnesses from abroad for use in procedural hearings. . . . The integrity of the system as a whole would be undermined if it were thought that foreign witnesses were not subject to the same discipline as witnesses from this country.”

Background of the CaseIn August 2005, Honda Motor Co. Ltd. of Japan and its English subsidiary, Honda Motor Europe Ltd. (together, Honda), brought a claim against a British motorcycle dealer, KJM Superbikes Ltd. (KJM), for infringement of Honda’s trademarks. The case concerned the parallel importing of Honda motorcycles into the UK, which was alleged to arise out of the sale by KJM, in the UK, of Honda motorcycles imported from abroad from an Australian company, Lime Exports.

Honda applied to the High Court for summary judgment, which KJM opposed, relying on a witness statement made by Keith Mason. In his statement, Mr. Mason described how KJM had obtained motorcycles from Lime Exports in Australia, having been put in touch with that dealer by a representative of an Australian subsidiary of Honda (Honda Australia). In reply, Honda filed three further statements, one of which was made by Anthony Hinton, general manager for motorcycles at Honda Australia.

In his statement (verified by a statement of truth in the usual way), Mr. Hinton described Honda Australia’s relationship with Lime Exports as one “without having any continuous contact” and which fulfilled

As English Motorcycle Trademark Infringement Case Illustrates,

Honesty Is the Best PolicyBy Stephen Llewellyn and Sherry Sheibani

S p e c i a l C o u n s e l S t e p h e n L l e w e l l y n ([email protected]) is a member of the litigation practice in Faegre & Benson’s London office. His main area of practice is the resolution of commercial disputes, both before and outside the courts (e.g. mediations and arbitrations). Sherry Sheibani ([email protected]) is a trainee solicitor who also works in the London office.


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litigation

a “useful role in servicing the Pacific Islands (e.g. Fiji, New Caledonia and Vanuatu) which Honda Australia does not have the capacity or desire to service.” He further explained that, apart from that limited class of business, neither Lime Exports nor any of Honda’s other distributors in Australia was authorized to sell its products for export.

Although the trial judge gave summary judgment for Honda against KJM in respect of motorcycles that had been imported from dealers in other jurisdictions which were also in dispute, he dismissed the application in respect of the motorcycles purchased from Lime Exports, which he felt warranted further investigation. During the course of preparations for trial—and during disclosure in particular—it became clear that much of what Mr. Hinton had said in his original witness statement was untrue. There had, in fact, been almost continuous contact between Honda Australia and Lime Exports over a prolonged period of time. Documents made available through disclosure showed that Lime Exports had been supplying motorcycles to dealers in many different countries (including the Far East and Europe) with the full knowledge of Honda Australia.

In response to a letter from KJM’s solicitors warning Mr. Hinton of the potential implications of his actions, namely, contempt of court, Mr. Hinton made a second statement in which he admitted he had said several things in his first statement that were to his knowledge at the time untrue. He explained that his aim had not been to mislead the court but to protect the reputation of Honda Australia within the Honda group.

Immediately after Mr. Hinton had given evidence at trial, counsel for KJM applied for permission to bring proceedings against him for contempt of court pursuant to Civil Procedure Rule 32.14 (which sets out the consequences of making false statements). Although the judge accepted that Mr. Hinton’s behavior amounted to a contempt, he dismissed the application as he considered that, in all the circumstances, it would be disproportionate for proceedings to be taken against Mr. Hinton. At the

end of the trial, the judge also dismissed Honda’s claim against KJM in respect of the motorcycles that it had obtained from Lime Exports on the grounds that Honda Australia had authorized Lime Exports to sell its products for export markets outside Australia, including in the European Economic Area.

KJM subsequently appealed the judge’s decision to refuse it permission to bring proceedings for contempt against Mr. Hinton and this was considered by the Court of Appeal.

DecisionGiving the leading judgment, Lord Justice Sir Martin Moore-Bick held that the trial judge had erred in the exercise of his discretion. Although the judge had recognized the contempt as serious, Moore-Bick LJ considered that he had not given it the weight it deserved and had not thought proceedings were likely to result in a severe punishment or that they would do much to promote the integrity of, or respect for, the legal process in the future. The trial judge had also been unduly influenced by Mr. Hinton’s “ordeal” in cross-examination.

Moore-Bick LJ made the following further observations:

Public interest. Although it is recognized that contempt proceedings may be brought by a private person, they are, in fact, public law proceedings in which the court must have regard to the public interest alone, as was observed by Vice Chancellor Sir Richard Scott in Malgar Ltd. v. R E Leach (Engineering) Ltd.

No immunity. There is no practical distinction to the principles that apply to evidence given under oath (for instance, in an affidavit) and that given by way of witness statements verified by statements of truth. The general immunity of a witness from proceedings in respect of things said in the course of giving evidence does not extend to immunity from punishment in respect of statements made under oath which are known to be false. The distinction

As English Motorcycle Trademark Infringement Case Illustrates,

Honesty Is the Best Policy


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to be drawn is not between civil and criminal proceedings but between private and public accountability. Proceedings for contempt are public in nature and by committing an act which is liable to interfere with the course of justice, a witness exposes himself to the risk of punishment by the court.

Each case to be determined on its own facts. Although there is a desire to achieve a consistent approach to contempt proceedings, this broad goal does not mean that it is accordingly necessary that all cases be referred to the Attorney General under paragraph 28.1(2)(c) of the Practice Direction supporting Part 32 of the Civil Procedure Rules. Pursuant to paragraph 28.1(2) of this Practice Direction (which sets out the three alternative courses that can be adopted by a court when a possible contempt is brought to its attention), a court is free to take whichever course appears most appropriate in the circumstances. Although, in practice, complete consistency is unlikely to be attainable, through individual decisions, the courts will establish and develop a body of principles which (building on Malgar v. Leach) will provide guidance to judges.

Factors to be Considered. W hen answering the question as to whether it is in the public interest for contempt proceedings to be brought, the court will need to consider many factors, among the foremost being:

•Strengthoftheevidencetendingtoshowthat the statement in question was false and that it was known at the time to be false.

•Circumstances in which the statementwas made.

•Significance of the statement havingregard to the nature of the proceedings in which it was made.

•Such evidence as there may be of themaker’s state of mind (including his understanding of the likely effect of the statement and the use to which it was actually put in the proceedings).

•Whethertheproceedingswouldbelikelyto justify the resources that would have to be devoted to them.

Factors such as these are likely to indicate whether the alleged contempt, if proved, is of sufficient gravity for there to be a public interest in taking proceedings in relation to it. The fact that, at the earliest opportunity, KJM warned Mr. Hinton that he might be in contempt of court as a result of his actions seems also to have been taken into account by the Court of Appeal, and any failure to provide such warning may also be considered by a court.

Caution in granting permission. The wider public interest would not be served if courts were to exercise discretion too freely in favor of allowing contempt proceedings to be pursued by private persons. There is a need to guard against the risk of vindictive litigants to use such proceedings to harass persons against whom they have a grievance, and a court should exercise great caution before granting permission. Although the Civil Procedure Rules do not prescribe categories of people that may bring contempt proceedings (only mentioning that they may be brought with permission of the court or by the Attorney General), those who are allowed to bring proceedings for contempt should usually have been directly affected by the statement.

Overriding objective. Paragraph 28.4 of the Practice Direction supporting Part 32 of the Civil Procedure Rules directs applicants to consider whether proceedings for contempt would further the overriding objective, and a court must also have this in mind.

Integrity of the legal system. There are cases where matters such as the cost of proceedings, or the domicile of the person who made the false statement might “tip the balance” (for instance, the fact that Mr. Hinton lived in Australia). However, given the significant volume of international litigation, the integrity of the legal system would be undermined if there


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health care

Recovery Audit Contractors: A New Breed of Medicare Auditors

By Steve Lokensgard

Special counsel Steve Lokensgard ([email protected]) is a member of Faegre & Benson’s health care and nonprofit organization practice. A former assistant attorney general and former chief compliance officer for a large regional health care system, he works in the Minneapolis office.

With the gradual rollout of Medicare’s Recovery Audit Contractor (RAC) program, hospitals, physicians and other health care providers across the United States are being introduced this year to a new breed of auditors, who seek to identify under- and overpayments to providers in return for a portion of the money they recover. RACs will earn a contingency fee of between 9and 12.5 percent for identifying improper Medicare payments. To nobody’s surprise, the vast majority of improper payments will be overpayments recouped from providers.

To mitigate audit-related risk, providers need to examine their processes and make changes now.

RAC Demonstration Offers Insights Providers should consider the RAC audits an open-book test. Looking at the results of the three-year demonstration of the RAC program, which ended in March 2008, offers insights into the questions they will face.

Medicare’s national payment error rate in 2003 was 9.8 percent. Given thisrelatively high error rate, Congress gave the Centers for Medicare & Medicaid Services (CMS) authority to conduct a three-year demonstration using contractors to detect and correct improper payments in

was a perception that foreign witnesses are not subject to the same discipline as other witnesses. Matters such as cost and domicile must therefore be considered and weighed up carefully by a court in light of public interest considerations and other relevant issues.

The appeal was therefore allowed.

SummaryIndividuals who sign a statement of truth knowing their evidence is untrue are potentially laying themselves open to the

full repercussions of contempt proceedings. The decision by the Court of Appeal in KJM Superbikes Ltd. v Hinton reiterates the importance of honesty in witness statements and the significance placed on the statement of truth. The judgment also usefully sets out in detail the factors to be taken into consideration by the English courts when an application for contempt proceedings comes before them.


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Medicare’s fee-for-service program. And to give contractors an incentive to find errors, Congress authorized CMS to pay them on a contingency-fee basis.

Working in just a handful of states from March of 2005 to March 2008, RACs identif ied more than $1.03 billion in improper payments and earned contingency fees of $187 million. The RACs f irst reviewed claims in New York, California and Florida. They expanded the audits in 2007 to Massachusetts, South Carolina and Arizona.

Approx i mat ely 9 6 perc ent o f t heimproper payments identified by auditors were overpayments. Of that amount, approximately89percentofoverpaymentswere recovered from hospitals. About half of the roughly 500,000 claims containing improper payments were Part A claims, and half were Part B claims. Nearly $20 million in overpayments was recovered from physicians.

RACs conducted complex reviews on nearly490,000medicalrecordsduringthedemonstration, identifying overpayments on approximately 33 percent of all the records they reviewed. The average value of an overpayment varied among contractors, from $4,000 per claim to $12,000 per claim.

As CMS noted in its June 2008 report on the demonstration, because RACs are incentivized by a contingency fee, they start with the highest dollar claims. During the demonstration, RACs established strategies to focus on high-dollar improper payments, such as inpatient hospital claims, which gave them the highest return compared to the expense of reviewing the claim and/or medical record. CMS anticipates that permanent RACs will adopt a similar strategy at first.

Reviews Flag Both Clear and Likely Errors

RACs perform two types of reviews: automated and complex.

Automated reviews, which are conducted through data mining, use proprietary techniques to detect clear errors. During the demonstration, automated reviews identified, for example, entities billing for multiple units of Neulasta, a drug used in conjunction with chemotherapy to boost white blood cell production. Providers used to bill Medicare for one unit for each milligram of Neulasta, but several years ago CMS changed the definition of unit and directed providers to bill one unit for each vial of drug delivered. More than half of all errors associated with physician claims related to excessive/multiple units of Neulasta.

This type of review also found multiple colonoscopies being billed for the same patient in the same day. CMS says it would never be medically necessary to perform two colonoscopies on one patient the same day.

A complex review is undertaken if an error is likely, but a review of the medical record is required in order to identify the problem. The contractor for New York, Connolly Consulting Inc., collected $88 million in overpayments for surgical procedures performed in an inpatient setting—claiming they should have been performed in an outpatient setting.

Permanent Program Will Limit Record RequestsAfter a year of the demonstration, Congress required CMS to expand the RAC program to all states by January 1, 2010. Contractors were announced in October 2008, and an ensuing bid protest, which temporarily put the national rollout on hold, was resolved in February of this year. RAC contractors have begun conducting outreach sessions with providers, and record requests should be sent in the near future.


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Meanwhile, CMS has made some changes to the permanent program to address criticisms of the demonstration. Most significantly, it announced a limit to the number of records RACs could request to perform complex reviews.

For inpatient hospitals, RACs cannot, within a 45-day period, request more than 10 percent of the hospital’s average monthly Medicare claims, with the total number requested not to exceed 200. For outpatient hospitals, RACs cannot, within a 45-day period, request more than 1 percent of the average monthly Medicare services, again with the total requests not to exceed 200. The American Hospital Association (AHA) understands that the intent of the record request limit is that no more than 200 records will be requested from a hospital every 45 days, whether the records relate to inpatients or outpatients. What is not clear is whether the 200-record limit will apply to hospitals with multiple national provider identifier (NPI) numbers, since the limits are per NPI. The AHA continues to work with CMS to clarify the limits, particularly for hospitals with multiple NPIs.

RAC Appeals Process Involves Multiple LevelsAccording to the most recent data from the RAC demonstration, providers appealed roughly 22.5 percent of all RAC-initiated claims of overpayment and were successful on 34 percent of all appeals. This relatively high number shows that, at least in the demonstration, it paid to closely scrutinize RAC-initiated overpayments and adopt a vigorous appeals strategy.

In the permanent program, providers can avoid recoupment by filing timely appeals to the first and second level. RACs will be required to refund any contingency fees related to a recoupment that is overturned at any level of appeal.

The American Hospital Association is encouraging providers to closely track appeal information and associated costs so

it can report the impact of the RAC program on providers. Clearly, it is in a provider’s best interest to carefully manage and track appeals, particularly at the outset, since RACs will be targeting the highest dollar claims first.

The structure of the appeals process is similar to the normal appeals process for denied Medicare claims, although CMS has added a “discussion period” to the normal levels of appeal.

Rebuttal and Discussion Periods

Providers have 15 days from the date of a notification letter to submit matters in rebuttal to the RAC. This process is no different from the one found in Chapter 3 of the Medicare Program Integrity Manual. Its intent is to identify errors in the calculation of an overpayment, not to address substantive errors with the determination.

In addition to the rebuttal process, CMS has made reference to a “discussion period” ending on the recoupment date (41 days after the date of a notification letter) during which providers can discuss the results of a medical review with the RAC. Having a discussion with an RAC regarding a particular case does not extend the timeline for filing the first-level appeal.

First Level of Appeal

The first level of appeal is to the Medicare contractor (fiscal intermediary, carrier, Medicare Administrative Contractor) that processed the initial claim. It is considered a request for redetermination.

A provider has 120 days to file a first-level appeal. However, unless an appeal is filed within 30 days, the money will be recouped by Medicare. In addition, interest will be charged if an appeal is filed within 30 days (thus avoiding recovery of the overpayment) but is eventually unsuccessful. This rule suggests that a provider shouldn’t adopt a practice of appealing all RAC overpayments without some analysis of the merits.


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Second Level of Appeal

The second level of appeal is to a qualified independent contractor. It is considered a request for reconsideration. Providers have 180 days from resolution of the first-level appeal, but again, recoupment can be avoided if the appeal is filed within 60 days.

Most significantly, this level of appeal is the provider’s last opportunity to submit documents that will eventually be part of the record should it be necessary to appeal to an administrative law judge or beyond. Therefore, providers would be well advised to have an attorney review the documents submitted to the qualified independent contractor, if an attorney has not already been involved. If a provider is unsuccessful at this level, CMS will recoup the identified overpayment with interest.

Third Level of Appeal

The third level of appeal is to the Office of Medicare Hearings and Appeals, where the case will be reviewed by an administrative law judge. Hearings are usually conducted by phone or video teleconference. Providers have 60 days to appeal to this level following receipt of the reconsideration decision. During the RAC demonstration, approximately 5,000 claims were appealed to this level.

Fourth Level of Appeal

The fourth level of appeal is to the Medicare Appeals Council, otherwise referred to as the Departmental Appeals Board, or DAB. Providers have 60 days from the third-level decision to appeal to this level. During the RAC demonstration, approximately 200 claims were appealed to this level.

Fifth Level of Appeal

The final level of appeal is to a federal district court. Providers have 60 days from the date of the Medicare Appeals Council decision to appeal to this level. The amount in controversy must be at least $1,220.

Audit Preparation Must Be Joint EffortWithin hospitals and other health care entities, personnel and management in a number of areas will need to work together in preparation for RAC record requests.

Compliance staff will need to study issues that were identified in the RAC demonstration and implement prevention strateg ies. For example, medically unnecessary hospital admissions were an area of significant recoveries by RACs. In the past, however, this issue has not been an area of major focus of Medicare audits. Compliance officers need to make sure their hospitals have adequate processes in place to review and document the medical necessity of inpatient admissions.

In addition to understanding the issues identified in the RAC demonstration, compliance officers need to continuously review new issues identif ied on an RAC’s Web site, showing exactly what types of claims they will be reviewing. Compliance officers need to ensure that their organization is compliant with any new issues posted by an RAC.

Finance officers will need to determine whether or not to set a reserve for future recoveries by RACs. If finance officers know the average value of an inpatient, outpatient and physician claim, they can take into account the number of medical records that can be requested—and the fact that RACs found overpayments in 33 percent of all records requested. While this method is one way to estimate the future impact of RAC audits, it does not take into account automated reviews. In any event, any actual recovery by an RAC is likely too speculative at this point to justify a reserve. Perhaps by the end of 2009 thepicture will be clearer, and a reserve would be prudent.

Hea lt h i n for m at ion m a n a gement departments need to be prepared to respond in a timely manner to medical record requests from RACs. Each request should be reviewed for completeness before it is produced. All communication with the


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labor and employm

ent

RAC, as well as documents produced, should be scanned and preserved so they can be quickly reviewed if a denial of payment is received. Tracking and preserving RAC-related records may require special software.

Revenue cycle management departments, which routinely receive and respond to denials from all third-party payers, may be the central clearinghouses for RAC denials. What is unique about RAC denials is that they will likely involve medical judgment, and the value of a claim denied by a Recovery Audit Contractor will be much higher than the average claim denied by Medicare. Is your revenue cycle management department able to request a redetermination from the fiscal intermediary, carrier or Medicare Administrative Contractor? Who will review certain types of denials? Will outside experts be necessary? Should your revenue cycle management department obtain legal review on at least second-level appeals and beyond?

ConclusionAlthough some providers are tired of hearing about RACs, for health care providers in much of the United States they are really here. And it’s time to prepare.

If there is a bright side to these audits, it is that their focus and process are no mystery. The three-year demonstration highlights areas where providers would do best to identify and mitigate RAC-related risk before they receive record requests.

To ensure that their businesses do well now that test time is here, providers need to be ready to submit records, review denials and submit appeals in a timely manner. Collaboration among a number of departments will be necessary. If internal resources are not sufficient for some of the required tasks, health care providers may wish to consider adding or developing personnel or engaging outside assistance.

Revenue cycle management departments, which routinely receive and respond to denials from all third-party payers, may be the central

clearinghouses for RAC denials.


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firm news

Faegre & Benson’s London office grew significantly in the first quarter of 2009.

In January, Richard Curtin and Sarah McLennan joined the firm’s finance and restructuring practice from the London-based firm Hextalls llp. Curtin joins in the role of special counsel, while McLennan is an associate.

Prior to joining Faegre & Benson, Curtin was the head of Hextalls’ insolvency practice. He has wide-ranging experience of administrations, restructuring and refinancing, receiverships, liquidations and bankruptcies. He acts for insolvency practitioners, asset-based lenders, banks and other financial institutions. Curtin is a member of the Insolvency Lawyers Association and a fellow of both the Association of Business Recovery Professionals and the Institute of Credit Management.

McLennan was a senior associate in the Hextalls insolvency practice. She is an insolvency specialist with considerable experience in all aspects of contentious insolvency matters, including administrations, restructuring and refinancing, receiverships, liquidations, bankruptcies and litigation on behalf of insolvency practitioners.

John Duffy joined the firm’s real estate practice as special counsel in March. He was previously employed at DLA Piper, where he was a senior associate.

Duffy specializes in all aspects of commercial property investment, development and fund creation. He has significant experience supporting other business functions, including public-private partnership and private finance initiative transactions, banking, and joint ventures—both contractually and through vehicles. His recent transactions include the sale by Burberry’s of its flagship store on Regent Street, advising the London

Development Agency on its involvement in the Olympics legacy, and the sale and leaseback of Sony’s eight head offices across Europe.

Scott Leonard-Morgan joins the firm’s corporate practice as special counsel. He arrives from the London office of recently dissolved U.S. firm Heller Ehrman where he was a corporate partner and head of the European clean technology and energy practice. He has significant experience in the clean technologies sector and is a regular speaker on this emerging industry, which is earmarked for significant investment growth in the future.

Leonard-Morgan also specializes in acting for technology companies and their investors from the venture capital stage through to listings on The London Stock Exchange. He has extensive experience advising companies, their investors and financial advisers at all levels, from start-up seed capital, to venture and debt funding, mergers and acquisitions and IPOs.

Richard Curtin, Sarah McLennan, John Duffy and Scott Leonard-Morgan Join Firm’s London Team

London Partner, Associates Help Edit International Guide

Richard Curtin

Sarah McLennan

John Duffy

Scott Leonard-Morgan


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Will Stute, a partner in the Faegre & Benson llp litigation practice, has been named a recipient of the Minneapolis/St. Paul Business Journal 40 Under Forty Award. The award spotlights 40 of the region’s top young business and civic leaders. To be selected, a candidate must consistently demonstrate outstanding professional achievement and a commitment to community service.

Stute has a national practice representing parties in complex business litigation, principally in the areas of financial institution litigation and securities litigation/arbitration. A former adjunct professor of law at William Mitchell College of Law, Stute submits several articles on substantive legal issues and developments for publication each year. He is a frequent presenter at legal education seminars, covering topics such as mediating and arbitrating securities disputes and overcoming diversity challenges in the workplace.

Meanwhile, the Denver Business Journal named both Brandee L. Caswell (Partner, Denver) and Nina Y. Wang (Partner, Denver) to its prestigious “Forty Under 40” list, recognizing their business leadership, accomplishments and community involvement.

Caswell is a litigator with a focus on complex real estate and eminent domain issues. Wang’s practice focuses on intellectual property litigation.

Caswell serves as a mentor for the firm’s associates, teaching in-house litigation courses and coordinating the summer associate program. Her philanthropic efforts include fundraising for the Susan M. Duncan YMCA Strong Kids Campaign. She also provides pro bono legal services to combat veterans via the National Veterans Legal Service Program, and to those who were wrongfully convicted through The Innocence Project.

Wang, herself a child of immigrants, dedicates a significant amount of time to pro bono immigration cases. She recently helped a young Mexican girl, who had been abandoned by her parents, to obtain permanent residency. In another recent case, she helped a citizen of Cameroon, who had been tortured for his civil rights work, to obtain asylum in the U.S. Wang also serves as president of the Colorado Asian Pacific American Bar Association.

Will Stute, Brandee Caswell and Nina Wang Named “40 Under Forty” Honorees

The World Law Group, a network of independent law firms on six continents, has published a new book entitled Confidentiality of Communications Between Lawyers and Their Clients: A Country-by-Country Guide. The Guide provides a quick and easy reference to the rules governing the confidentiality of communications between lawyers and their clients in 38 major jurisdictions around the world. Christabel Oh (Associate, London) served as senior editor on the project, while Gerald Hobson (Partner, London) and Kamalprit Lally (Associate, London) were associate editors. All took leading roles in coordinating the submissions from each of the jurisdictions represented by the World Law Group. Faegre & Benson llp is one of 47 member firms in the 21-year-old World Law Group.

London Partner, Associates Help Edit International Guide

Will Stute

Brandee Caswell

Nina Wang


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firm news

Judge James M. Rosenbaum of the U.S. District Court for the District of Minnesota has entered a consent judgment in favor of Faegre & Benson client Shock Doctor, Inc., permanently enjoining competitor XO Athletic from infringing a patent owned by Shock Doctor relating to sports mouthguard technology. XO

Athletic consented to the permanent injunction, agreeing to withdraw the mouthguards in question from the market.

Shock Doctor filed suit in 2007 to prevent XO Athletic from entering the marketwithaprotectivemouthguardasserted to infringea1994ShockDoctor patent covering its Gel Max mouthguard. Shock Doctor claimed that a subsequent redesign by XO Athletic also infringed the patent.

Faegre & Benson represented Shock Doctor in all phases of the lawsuit. William L. Roberts (Partner, Minneapolis) served as lead counsel. The litigation team included intellectual property lawyers John L. Crimmins (Partner, Minneapolis) and Kevin P. Wagner (Associate, Minneapolis).

Faegre & Benson Wins Patent, Infringement Suit for Shock Doctor, Inc.

A federal court judge has issued a sweeping permanent injunction in favor of Faegre & Benson client Global Traffic Technologies LLC. In January, Chief Judge Michael J. Davis of the U.S. District Court for the District of Minnesota enjoined defendant Tomar Electronics Inc. from any future manufacture or sale of products found to infringe U.S. Patent 5,172,113.

Original plaintiffs 3M Company and 3M Innovative Properties Company filed the patent infringement lawsuit against Tomar Electronics on April 13, 2005. Global Traffic acquired the traffic preemption system business and the patent at issue from 3M in June 2007. Global Traffic markets and sells the patented Opticom® optical traffic preemption system.

The injunction was issued three months after a jury awarded Global Traffic Technologies $6.75 million in damages for past infringement by Tomar Electronics.

James W. Poradek (Partner, Minneapolis), who led the Faegre & Benson team, says he was happy with the ruling. “We were seeking a comprehensive injunction to prevent further infringement by Tomar Electronics and are pleased the court granted our request.”

Other members of the Faegre & Benson team included intellectual property lawyers David J. F. Gross (Partner, Minneapolis) and associates Chad Drown, Christopher Burrell, Matt Stump and Alexander E. Zumbulyadis, all of whom work in the Minneapolis office.

Faegre & Benson Wins Comprehensive Permanent Injunction for Client Global Traffic Technologies

Kevin Wagner

William Roberts

John Crimmins

Jim Poradek


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Thomas M. Mayerle, a Minneapolis-based partner in the Faegre & Benson real estate practice, was honored by Best Lawyers at its 25th anniversary eventinApril.Heisamong1,397lawyersnationwidewhohavebeenlistedin every edition of The Best Lawyers in America since it began publishing its ratingsofattorneysin1983.Mayerle,then35,wasoneofonlyafewlawyersunder 40 included in the first edition of Best Lawyers.

Mayerle has been a member of thefirm’s real estate practice since1974and is also a past chair of the practice. He has represented clients across the spectrum of commercial real estate—with particular emphasis on development, purchase, sale, leasing and financing of office building and shopping center projects. He is a member of the American College of Real Estate Lawyers.

Best Lawyers also named Charles S. Ferrell (Partner, Minneapolis) and Philip S. Garon (Partner, Minneapolis) as the Minnesota Lawyers of the Yearinrealestateandcorporatelaw,respectively,for2009.Thisyear,forthe first time, Best Lawyers designated Lawyers of the Year in high-profile legal specialties in large legal communities. Only one lawyer in each specialty was selected.

A member of the firm’s real estate practice since 1977, Ferrell handlesall facets of commercial real estate. Garon, who has been with the corporate finance practicesince1974,focusesongeneralcorporatematters,publicandprivatemergersandacquisitions, private financings, and hostile takeover defense.

Best Lawyers compiles its lists of outstanding attorneys by conducting exhaustive peer-review surveys in which thousands of leading lawyers confidentially evaluate their peers. In all,the2009editionofThe Best Lawyers in Americaincludes97Faegre&Bensonlawyersin Colorado, Iowa and Minnesota—an increase of 14 lawyers over last year.

“Best Lawyers” Recognizes Thomas Mayerle for 25 Years Among “Best,” Names Charlie Ferrell and Phil Garon

Minnesota Lawyers of the Year

Kathleen Smith Ruhland (Partner, Minneapolis), a member of the firm’s corporate practice, was named to the BTI Client Service All-Star Team for Law Firms. This elite recognition is reserved for lawyers who deliver superior service to clients at Fortune 1000 companies and other large organizations. In order to be included, lawyers must be nominated by name—unprompted—by a client.

Ruhland, who focuses primarily on international business matters, is among 176 lawyers nominated for this honor. Members of this year’s BTI

Client Service All-Star Team were singled out for leveraging their knowledge of clients’ businesses and industries to deliver strategic advice, using time and resources efficiently, and providing timely response to pressing needs.

Kathleen Smith Ruhland Recognized as “Client Service All Star”

Kathleen Ruhland

Thomas Mayerle

Charles Ferrell

Philip Garon


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On January 30 and February 6, 2009,President Barack Obama signed a series of executive orders governing the labor relations of federal contractors. Each of these orders reverses policy previously enacted by then-President George W. Bush.

These orders do the following: (1) prohibit federal contractors from passing on to the government the costs of opposing union organizing efforts; (2) require federal service contractors to offer continued employment to workers already on the job as employees of a predecessor; (3) require the conspicuous posting of federal labor laws in federal contractors’ workplaces; and (4) encourage federal agencies to use “project labor agreements” for large-scale, federally funded construction projects.

In his remarks announcing the signing of the first three executive orders at a White House ceremony—where he also announced the formation of a “Middle Class Task Force”—President Obama stressed his view of the importance of the labor movement in strengthening the middle class, thus signaling a potential sea change in federal labor policy. After being introduced as head of the task force, Vice President Joe Biden told the audience, which included a number of labor leaders, “Welcome back to the White House.”

Obama Administration Says to Organized Labor:

“Welcome Back to the White House”By John W. Polley and Anne P. Zorn

John Polley ( [email protected]) is a partner at Faegre & Benson. Based in Minneapolis, he works extensively in labor-management relations, including collective bargaining negotiations, arbitrations, the defense of unfair labor practice charges and opposing union organizing campaigns. Associate Anne Zorn ([email protected]) also works in Minneapolis as a member of the firm’s employment practice.

“Economy in Government Contracting”This executive order prohibits federal contractors from passing on to the government “certain costs not directly related to the contractor’s provision of goods and services.” Contracts shall exclude the costs of any activities undertaken to discourage employees from exercising their right to organize and bargain collectively. If the federal contractor wishes to engage in these activities, the contractor must pay those costs itself.

The following activities, if undertaken for the purpose of discouraging union organizing, are not reimbursable: (1) preparing and distributing materials; (2) hiring or consulting legal counsel or consultants; (3) holding meetings (including paying the wages of persons attending meetings held for this purpose); and (4) planning or conducting activities by managers or supervisors during work hours.

Federal contractors may be reimbursed for costs incurred in “maintaining satisfactory relations” between the contractor and its employees, including costs of labor management committees, employee publications and other related activities.


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The full text of these four executive orders can be found in the Federal Register:

• ExecutiveOrder13494, “Economyin Government Contracting”: http://edocket.access.gpo.gov/2009/pdf/E9-2483.pdf

• E x e c u t i v e O r d e r 1 3 4 9 5 ,“Nondisplacement of Qualif ied Workers Under Service Contracts”: http://edocket.access.gpo.gov/2009/pdf/E9-2484.pdf

• ExecutiveOrder13495,“Notificationof Employee Rights Under Federal Labor Laws”: http://edocket.access.gpo.gov/2009/pdf/E9-2485.pdf

• Executive Order 13502, “Use ofProject Labor Agreements for Federal Construction Projects”: http://edocket.access.gpo.gov/2009/pdf/E9-3113.pdf

Obama Administration Says to Organized Labor:

“Welcome Back to the White House”

This executive order does not prohibit a contractor from engaging in activities to lawfully persuade its employees not to support unionization, provided the contractor does not claim reimbursement for such activities.

The Federal Acquisition Regulatory Council (the FAR Council) is instructed to issue rules and regulations interpreting this ordernolaterthanJune29,2009.

“Nondisplacement of Qualified Workers Under Service Contracts”Under this executive order, a federal contractor taking over a federal service contract covered by the Service Contract Actof1965isrequiredtoofferemployeesof the predecessor contractor continued employment at the same location. Failure to comply may result in termination of the contract and ineligibility for future federal contracts. This requirement applies only to non-managerial and non-supervisory employees who worked for the predecessor contractor for at least three months and who would not otherwise be laid off or discharged. Certain contracts, including those under the simplified acquisition threshold (worth less than $100,000) and those awarded to disabled persons under the Javits-Wagner-O’Day Act, are exempt.

The FAR Council and the Secretary of Labor will jointly issue regulations under this order no later than July 29, 2009.The Secretary of Labor is responsible for administration and enforcement.

“Notification of Employee Rights Under Federal Labor Laws”This executive order requires federal contractors to post notices in the workplace notifying employees of their rights under the National Labor Relations Act. These notices must be posted in conspicuous places in and about the contractor’s plants

and offices, including all places where the contractor customarily posts notices, both physically and electronically. Failure to post these notices may result in termination or suspension of the federal contract. The Secretary of Labor must initiate rulemaking prescribing the size, form and precise content of this notice, as well as any applicableexemptions,byMay30,2009.

This executive order also reverses a Bush administration policy that required federal contractors to post a so-called “Beck” notice (referring to a 1988 U.S. Supreme Courtdecision, Communications Workers v. Beck), which alerted workers that they did not have to join a union to keep their jobs.

“Use of Project Labor Agreements for Federal Construction Projects”In accordance with this executive order, federal executive agencies awarding construction projects that cost at least $25 million may, if appropriate, require that the contractor use a “project labor agreement.”


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In this slow economy, many employers are looking at measures for decreasing labor costs. Such options may include changing employees’ conditions of employment or implementing a reduction in force.

Whatever course a business takes, a variety of legal issues must be properly handled. Measures such as pay cuts, forced vacations and layoffs are all subject to requirements

under various state and federal laws, such as the Fair Labor Standards Act, the Older Workers Benefit Protection Act and the Worker Adjustment and Retraining Notification Act. Before undertaking any labor-cost reduction initiative, employers must identify and mitigate the full range of legal risks.

Employer Strategies for Addressing Tough Economic Times:

Reductions in Force and Other OptionsBy Daniel G. Prokott

A Minneapolis-based associate, Dan Prokott ([email protected]) advises employers about a wide variety of employment issues, including employee discipline and discharge matters, non-competition agreements, executive compensation arrangements and best practices for managing employee restructurings and reductions in force.

A project labor agreement is essentially a pre-hire collective bargaining agreement with one or more labor organizations that establishes the terms and conditions of employment for a specific construction project. Where an agency requires the use of a project labor agreement, the agreement shall: (1) bind all contractors and subcontractors on the project; (2) allow all contractors and subcontractors to compete for contracts and subcontracts without regard to whether they are otherwise parties to collective bargaining agreements; (3) guarantee against strikes, lockouts and other work stoppages; (4) set forth procedures for resolving labor disputes; (5) provide other mechanisms for labor-management cooperation on matters of mutual interest and concern; and (6) fully conform to all statutes, regulations and executive orders.

Federal executive agencies are not required to use project labor agreements, nor are they precluded from using them in situations not covered by this order. Contractors and subcontractors are not required to enter into project labor agreements with any particular labor organization.

This order explicitly revokes two Bush administration executive orders prohibiting federal agencies from requiring project labor agreements on federal construction contracts.

The FAR Council must implement the provisions of this order no later than May 30, 2009. The director of the Office ofManagement and Budget shall recommend, nolaterthanJuly29,2009,whethertheorder should be broadened to include a wider range of federal construction projects.


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Options for Reducing Labor Costs Changing Conditions of Employment

Because employers are generally free to establish terms and conditions of employment, they also have flexibility to reduce salaries, reduce hours, eliminate bonuses, shift to performance-based compensation and take other cost-saving measures. But before implementing such changes, employers should review employee handbooks, of fer letters, employment agreements and, if there are union employees, collective bargaining agreements to ensure these documents do not include language restricting the ability to modify compensation or benefits.

Employers must also consider the basis for reducing employee compensation or benefits to ensure decisions are objective and do not have an adverse impact on a particular protected class of employees. As with all employment-related decisions, clear communication to employees regarding the timing and purpose of any changes in the terms and conditions of their employment is critical to maintaining morale after decisions are implemented.

Forced Vacation

Whether an employer can force employees to use vacation time typically hinges on the organization’s vacation policy. Although requesting or encouraging employees to use vacation leave at a particular time generally is permissible under federal law and most states’ laws, some states restrict an employer’s ability to require employees to use vacation leave at times specified by the employer.

A forced vacation leave policy should incorporate principles of equity and fairness to the extent possible. For example, employees should be given adequate time to use vacation leave on particular dates. Requiring employees to use vacation leave during a shutdown without adequate notice may unfairly deny them the opportunity to choose when to take their vacation.

There are some unique issues for exempt employees. Requiring such employees to take time off without pay for partial-week periods is inconsistent with payment on a salary basis—and could destroy the employees’ exempt status under the Fair Labor Standards Act (FLSA). In other cases, state law may present a barrier. Although it may be permissible under the FLSA, for example, to force an exempt employee to use paid vacation leave for single-day or even partial-day increments during a workweek (provided the employee receives his or her normal salary), this practice may not be permissible under certain state wage and hour laws.

Senior Executives Forgoing Salary

Salaried employees must be paid a minimum weekly salary (currently, at least $455) to satisfy the “salary basis test” for exempt employees under the FLSA. Therefore, it is typically not an option to allow senior executives—or other exempt employees—to forgo their entire salaries.

If, however, an executive has at least a 20 percent equity ownership interest in the company, such ownership interest may substitute for the minimum salary required under the salary basis test. Under the FLSA, such an employee is considered to be an “employee employed in a bona fide executive capacity” as long as he or she is actively engaged in management of that enterprise.

Managing a Reduction in ForceDeveloping and implementing a reduction in force is a multistep process that, if done in haste, can expose employers to legal risk. While circumstances will vary, employers should consider the following eight steps:

1. Take stock of the organization and determine what is driving the need for reductions. Evaluate which positions are essential to the company’s future success—and which can be eliminated or consolidated. An employer may need

Employer Strategies for Addressing Tough Economic Times:

Reductions in Force and Other Options


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to consider only certain facilities, job functions or departments, rather than the entire company, when reducing its workforce.

2. Decide whether the reduction in force will be voluntary or involuntary. Although a voluntary program has the benefit of giving employees some choice, it may result in the loss of valuable employees and may not generate enough volunteers. As a result, a voluntary program may need to be followed by an involuntary program.

3. Identi fy personnel who wi l l be responsible for managing the reduction in force.

4. Document business reasons driving the reduction in force and decision-making process. Consult with human resources personnel, in-house counsel and/or outside counsel early in the process for guidance and to help ensure compliance with applicable laws.

5. Develop and disseminate objective termination criteria that are consistent w ith operat iona l needs of the organization. Such criteria may include seniority, job function, job criticality, overlap among positions, skill sets, transferability of skills, performance and geographic location. Ensure that decision makers apply selection criteria uniformly and do not consider protected characteristics, e.g., age, race or gender, in the selection process.

6. Prepare and share conf identia l preliminary lists of those selected for termination with the team responsible for managing the reduction in force, including legal counsel. Lists should not be considered final until all selections have been reviewed and statistical data has been analyzed to assess legal risk.

7. Create appropriate documentation regarding termination decisions. Once selections are final, ensure that the decisions are properly documented. Have decision makers complete documents that identify the affected

employee, reasons for the decision and the person(s) responsible for the decision. Once an employer develops a documentation system, it is critical to follow through with it. Bad documentation can be worse than no documentation.

8. Prepare final documents for affected employees, including termination notices, releases and information rega rd ing the cont inuat ion of benefits. If severance is offered in exchange for releases, be mindful of legal requirements, including specific state and federal requirements for valid releases and potential deferred compensation pitfalls. Consider developing talking points for those who will be delivering termination decisions to employees.

In addition to severance decisions, employers must consider whether to pay out unused vacation leave to terminated employees. Decisions should be consistent with the organization’s policies and comply with applicable state laws.

California law, for example, requires employers to pay out all accrued and unused vacation leave upon separation from employment. Under Minnesota law, however, employers are allowed to set the terms under which vacation leave is paid out or not paid out. To the extent vacation leave is treated as wages by the employer, most states require unused vacation leave to be paid out upon or shortly after the termination date.

Reductions in force often leave those who remain feeling uncertain about their future, which can lead to employees looking for new opportunities. Therefore, once decisions have been delivered, it is important to communicate with remaining employees, particularly key contributors to the organization, about their value and importance to the company.


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Ensuring That Releases Are Valid and EnforceableEmployers who offer severance in exchange for a release of claims must take steps to ensure that releases are valid and comply with applicable state and federal requirements. In Minnesota, for example, releases must include language addressing the 15-day rescission period required for a waiver of claims under the Minnesota Human Rights Act. Additional language is required under federal law if the release is requested from an employee age 40 or older. Complying with all specific state and federal release requirements is critical; the worst-case scenario is to pay severance in exchange for a release that is later deemed unenforceable

Release Requirements Under the OWBPA

The Older Workers Benefit Protection Act (OWBPA) imposes specific requirements for requesting releases from employees who are 40 or older. Particularly in group terminations, the OWBPA can present challenges for employers.

To be considered knowing and voluntary under the OWBPA, a release of claims must satisfy several criteria. Among these, it must:

•Bewritteninamannercalculatedtobeunderstood by the average individual eligible to participate in the severance program;

•Specificallyrefertoawaiverofrightsorclaims under the Age Discrimination in Employment Act;

•Specifically advise the employee toconsult with an attorney prior to executing the release; and

•Informtheemployeethatheorshehas21 days to consider whether to sign the release and seven days to rescind the release after signing.

If the release is requested in connection with a group termination program—i.e., any termination program where two or more employees are offered severance in exchange for signing a release—the 21-day consideration period increases to 45 days. In connection with a group termination program, employers must also provide terminated individuals information, in writing, about the class, unit, or group of individuals covered by the program (often referred to as the “decisional unit”), eligibility factors for the program (which may include a brief description of the selection criteria), and job titles and ages for all individuals offered severance and for all individuals who were considered but not offered severance.

While it is not necessary to include information required by the OWBPA in releases for employees under age 40, employers may choose to do so for administrative reasons and to avoid potential concerns regarding different release documents.

Although OWBPA requirements may appear straightforward, federal regulations and several recent court decisions can make compliance difficult. Courts may invalidate releases for reasons such as the failure to correctly disclose the decisional unit (by disclosing too many or too few employees); a failure to identify complete job titles (such as omission of established job levels or grades); or disclosing dates of birth rather than ages as of the date of the disclosure.

In a slow economy, laid-off employees may find it particularly difficult to find another job, making them more likely to consider litigation against a former employer. Employers can prevent such litigation by ensuring that releases comply with all legal requirements, particularly those imposed by the OWBPA.


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WARN Act RequirementsThe federal Worker Adjustment and Retraining Notif ication (WARN) Act requires any “employer”—generally, any business that employs 100 or more employees for an average of 20 hours or more per week—to give at least 60 days’ written notice to each “affected employee” before a “plant closing” or “mass layoff.” About 40 percent of states have similar laws, which must also be considered. These state laws may apply to employers and workforce reductions that do not implicate the federal WARN Act.

Anticipating the need to close a location or eliminate a large number of employees more than 60 days in advance is not always possible—making compliance with the WARN Act and similar state laws difficult for some employers. Generally, however, employers considering a signif icant reduction of workforce over any 90-day period should consider doing the following:

•Determine who the “employer” is.Parent-subsidiary, joint venture and common ownership issues are often relevant for WARN Act purposes.

•Determinewhethera“plantclosing”or“mass layoff” will occur. A plant closing is the temporary or permanent shutdown of a single site of employment, or one or more operating units within that site, during any 30-day period that results in an “employment loss” for 50 or more employees. A mass layoff is a reduction in force, not due to a plant closing, that results in an employment loss at a single site of employment during any 30-day period for (a) at least 33 percent of the active workforce and (b) 50 or more workers. Where 500 or more employees are affected, the 33 percent requirement does not apply. A series of smaller “employmentslosses”duringany90-dayperiod—depending on the total number of affected employees—can also the trigger WARN Act requirements.

•If50ormoreemployeeswillbeaffected(considering both 30- and 90-dayperiods), determine whether any of the employees (a) may not be protected by the WARN Act or (b) may not need to be counted for WARN Act purposes. For example, strikers, workers assigned for temporary projects and independent contractors are not counted toward the 50-employee threshold.

•Confirmallaffectedemployeeswill,infact, experience an “employment loss” that is (a) an involuntary termination, (b) a layoff expected to exceed six months or (c) an expected reduction of work hours of more than 50 percent during each month of any six-month period.

•Determine whether notice exceptions,such as the “faltering business” and “unforeseeable business circumstances” exceptions, may be available. But be mindful that these notice exceptions are narrowly construed and may be difficult to establish.

ConclusionMany employers are facing diff icult economic decisions. Those who understand their legal obligations under a variety of state and federal laws, as well as the associated risks, will be well-prepared to make these decisions and should be well-protected against any litigation that may result. On the other hand, a failure to prepare adequately may erode some of the very savings the employer had hoped to achieve.


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Practical Pointers for Plan Fiduciaries in Uncertain Economic Times

In early 2009, credit markets are frozen,equity markets are down, and plan participants are looking for assistance and reassurance about their retirement savings. What concrete steps should a plan fiduciary consider to address these unprecedented economic circumstances at a time when participant-directed retirement savings plans are more important than ever?

The plan sponsor or other named fiduciary of a defined contribution plan generally is responsible for selecting and monitoring the investment options available under the plan. Under the Employee Retirement Income Security Act (ERISA), a plan fiduciary is not a guarantor of positive investment performance. However, ERISA does require a plan fiduciary to follow a prudent process in selecting and monitoring investment options.

Although by March 2009 the Dow JonesIndustrial Average had declined more than 50 percent from its record high in October 2007, other indices had performed similarly, and economic fundamentals appeared weak, plan fiduciaries should keep in mind that plan investments generally are designed to be held over the long term. In the meantime, fiduciaries may want to consider some or all of the steps outlined below.

Increase Monitoring on a Temporary BasisStepping up normal monitoring procedures on a temporary basis can help plan fiduciaries assess and mitigate risk. Such measures might include:

Reach out to the plan’s financial advisors. It may be wise to ask for more current updates on the status of existing investment options, especially if reports are currently provided only annually or semi-annually. Ask the advisor to comment specifically on whether the plan’s investments pose any unique concern in the current financial environment.

Review investment policy statements. Review investment policy statements and determine if modifications or temporary exceptions to specif ic standards are appropriate.

Review and assess the advisors’ report and any recommendations received. Evaluate carefully what your financial advisor says. If unique risk factors are identif ied for your investments, take appropriate action, which, depending on the circumstances, may range from putting the investment on a watch list for close and timely monitoring to freezing the investment to new money, or to eliminating the investment altogether.

By Randy L. Gegelman and Peggy D. Lin

M inneap o l i s - b ased p a r tne r R andy G ege lm an ([email protected]) is the team leader of the firm’s benefits and executive compensation practice. An associate based in Minneapolis, Peggy Lin ([email protected]) focuses her practice on employee benefits law, with an emphasis in qualified plans and ERISA fiduciary compliance.


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Establish an interim accelerated ongoing review process. While many plans currently provide for a quarterly or semiannual review process where plan fiduciaries review performance and other metrics regarding the plan’s investments, it may be appropriate to establish a more frequent schedule on a temporary basis.

Document, document, document. ERISA is concerned with fiduciaries following a prudent process, and the best way to demonstrate the existence of such a process is to carefully document your actions and decisions.

Keep Plan Participants InformedGiven uncertainties in the f inancial markets, participants may appreciate an update about their investments and actions being taken by the plan fiduciary. In developing communications, consider the following:

Provide assurance that events are being monitored. Plan fiduciaries cannot promise that plan investments will not lose value, but they can reassure participants that a monitoring process is in place and is being followed, and that experts who are experienced in investment matters are involved.

Reinforce basic investment principles. Remind participants of the value of diversification and the time horizon for retirement investing. If the plan offers company stock as an investment option, this may be an appropriate time to reinforce previous communications regarding diversification.

Remind participants of available resources. If the plan offers investment advice, remind participants of this valuable benefit. Participants may also want to seek their own financial advice.

Notice of unique risk factors. If unique risk factors with respect to any investment option are identified, that may require tailored communications regarding such factors.

ConclusionNow more than ever, the role of the plan fiduciary in prudently selecting and monitoring a plan’s investment options is critical for participants’ long-term retirement savings. The plan fiduciary should also consider its role in the communication of vital information about economic and market developments. A prudent process is essential to risk management—and now is the time to make sure that your process is working appropriately.

Now more than ever, the role of the plan fiduciary in prudently selecting and monitoring a plan’s investment options is critical for

participants’ long-term retirement savings.


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USA INTERNATIONAL Dial 011 before numberMINNEAPOLIS 2200 Wells Fargo Center 90 South Seventh Street Minneapolis, Minnesota 55402-3901 Phone: 612-766-7000 Fax: 612-766-1600

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Last Word: Trusts and EstatesOnJanuary1,2009,theindividualexemptionforfederalestatetaxincreasedfrom$2.0 million to $3.5 million per person. This change will affect many people and presents several issues:

• Thosewithtotalnetassetsof$4.0to$7.0millionmaynolongerfaceafederalestate tax at death. Of course, if you are a Minnesota resident, Minnesota still has a separate estate tax and the individual exemption remains at $1.0 million per person ($2.0 for a married couple) and is not scheduled to increase. With proper planning, it may be possible for a Minnesota resident to defer or limit the Minnesota estate tax. If you have not addressed this issue in your current planning documents, we recommend that you consider doing so.

• Asaresultoftheincreaseinthefederalestatetaxexemption,combinedwiththedecline in value of securities and real estate during the past year, many people may need to revisit their estate planning documents to make certain they meet their current objectives.

• ThereareavarietyofproposalsinCongressdealingwiththedramaticchangesthat are currently scheduled to become effective as of January 1, 2010 (the complete repeal of the estate tax) and January 1, 2011 (the reinstatement of the federal estate tax at the 2001 exemption of $1.0 million per person and a top marginal rate of 55%). Because we do not know what the outcome of the proposed legislation will be, we cannot predict at this time whether additional changes will be needed in 2010 and later. Monitoring developments in this area will be important over the course of the coming year.

Please contact an attorney in our wealth management practice if you would like to discuss your particular situation with regard to any of these matters.

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