Due to this change in the law, sponsors of these plans should review their formal documents, plan descriptions and claims forms in order to comply with the new reimbursement limitations. In addition, enrollment documents and the content of oral communications should be reviewed as well. Plan amendments covering the new limitations should be adopted by December 31, 2010 and made effective on January 1, 2011.

Employers should also go one step further. It is common for plan enrollment meetings to
occur in the fall of the year before January 1 open enrollment. Employees should be informed of these changes in the law before they make their annual flex spending elections, to assure they do not contribute too much – because any excess contribution must be forfeited at year end. Time is short, particularly in light of any scheduled fall enrollment meetings. Plan sponsors should contact their attorneys and benefit advisors now to assure that the appropriate amendments and other supporting documents are in place before December 31, 2010.

Thomas M. White

Most employers recognize that their self-insured health plans must not discriminate in favor of highly compensated employees if those benefits are to be provided on a tax free basis. However, these non-discrimination rules have not previously been applied to insured health care programs. Consequently, many employers have purchased health care policies only for key executives and some employers provide “preferential” insured health care benefits to former employees after their COBRA continuation period expires. Under new health care legislation, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, significant tax penalties may be imposed on many employers that provide “discriminatory” insured health benefits. These rules will apply, for example, to individual health care policies, certain COBRA continuation arrangements and to some longterm care contracts. The tax rules regarding discriminatory non-insured programs continue in effect.

Except as explained below, effective for plan years beginning after September 23, 2010, nondiscrimination rules apply to many insured group health plans. In general, employers with fewer than 50 employees are not subject to the new standards. For example, it would be discriminatory for an insured plan to provide benefits only to the president of the plan’s sponsor, to provide better (or less expensive) benefits to executives or other highly compensated employees, or to extend cost-free COBRA continuation coverage only to a handful of the most highly compensated employees.

Consistent with prior law, there are no adverse tax consequences to the highly compensated employee who benefits under a discriminatory insured health plan. Instead, the new law provides for a $100 per day per participant penalty on employers that establish discriminatory insured health plans. This penalty is draconian and in almost all cases will exceed the cost of the insurance premium.

For purposes of compliance, the group that may not receive discriminatory (i.e., preferential) benefits are (i) the employer’s five highest paid officers; (ii) individuals who are 10% or more shareholders of the employer; and (iii) the highest paid 25% of all employees.

There are different effective dates for complying with the new law.

• Employers that have provided benefits under insurance policies in effect on March 23, 2010 may continue to provide discriminatory benefits if these programs do not lose their “grandfathered” status. However, under recently issued guidance, grandfather status ends, for example, when the benefit is provided under a new insurance policy. Because many employers adopt new insurance contracts each year, the grandfather exemption might be of limited utility.

• Policies that are purchased after March 23, 2010 and before September 23, 2010 will be subject to the non-discrimination requirements beginning with the first “plan year” (typically, the contract year) commencing after September 23, 2010.

• Policies purchased on or after September 23, 2010 will be immediately subject to the new rules.

Employers should proceed now to determine whether they will be covered by the new nondiscrimination standards. Any new insurance and employment related contracts should
comply with the new rules. In the case of existing arrangements, if the new rules will apply, employers should identify the affected employment agreements and then notify those individuals who receive discriminatory benefits of the consequences of the new tax regime. Because in many cases, these agreements are still legally binding between the employer and employee, they may not be amended or terminated without the consent of each party. This means that negotiations will be necessary and employees may request an increase in the payments due them because the new bargained for consideration will be subject to income tax and, therefore, less valuable to the individual, while the old benefit was non-taxable to the employee.

There are aspects of the new health care tax rules which have yet to be clarified by
appropriate regulations. Of course, in a very complex and technical area such as this, legal
counsel and the employer’s insurance broker should be contacted as soon as possible in
order to identify the scope of any problems and possible solutions.

Illinois Credit Privacy Act

While the use of pre-employment credit checks has increased over the past few years, on August 10, 2010, Illinois Governor Pat Quinn signed into law the Illinois Credit Privacy Act (“ICPA”).  The ICPA significantly limits Illinois employers’ ability to obtain any credit history information for employment applicants, as well as for current employees.  The ICPA applies to virtually all Illinois employers, only excluding banks and financial institutions, insurance companies, state law enforcement units, state and local government agencies and debt collection agencies.

Under the law, covered employers are prohibited from inquiring about an applicant or employee’s credit history or obtaining a copy of their credit report.  Employers may, however, still inquire about an employee or applicant’s credit history for a position in which a credit history is a “bona fide occupational qualification.”  These limited circumstances include positions that involve: (1) bonding or security per state or federal law; (2) unsupervised access to $2,500 in cash or equitable assets; (3) signatory power over business assets of more than $100; (4) management and control of the business; or (5) access to personal, financial or confidential information, trade secrets, or state or natural security information.  A credit history is also permitted where the employee or applicant’s credit history is otherwise required by, or allowed under, state or federal law.

The ICPA prohibits retaliation against any person who files a complaint, participates in an investigation or proceeding, or opposes a violation of the ICPA.  The Act also prohibits employers from requiring applicants or employees to waive any rights that they have under the ICPA.  Any employer that violates the law can be subject to civil liability for damages (including attorneys’ fees and costs), as well as injunctive relief.

The ICPA becomes effective on January 1, 2011.  Therefore, all employers who routinely obtain credit history reports as part of their hiring process need to examine whether or not they are covered under the Act and, if so, they may need to cease obtaining those reports except in circumstances where it is a bona fide job qualification.  For further information on this new law, please contact your employment labor attorney at Arnstein & Lehr LLP.

Managing Liabilities: The True Pension Objective

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Paul E. Starkman

Chicago Partner Paul Starkman is quoted in the May 17 online issue of Business Insurance on the expected rise in discrimination claims based on alleged violations of the Genetic Information Nondiscrimination Act or GINA.  The article is entitled Discrimination claims rising in the wake of genetic bias law.  Paul also provided his thoughts on GINA claims in an article that appeared in the November 23 issue of the publication.

Click here to read the 5/17/10 article

Click here to read the 11/23/09 article

E. Jason Tremblay

Chicago Partner E. Jason Tremblay recently obtained the dismissal of a series of federal civil rights and public accommodation claims filed against a national seminar group.  The plaintiff was an individual who attended a seminar being presented by the seminar group at a local Chicago hotel.  After the plaintiff became disruptive, she was removed from the seminar and, within days, filed a federal complaint demanding millions in damages.  She alleged that she was discriminated against and denied the full enjoyment of a place of public accommodation based on her race, religion and disability.  Highlighting the deficiencies in her complaint, as well as the complete lack of any facts to illustrate that her removal from the seminar had anything to do with her race, religion or disability, Mr. Tremblay  moved to dismiss the plaintiff’s complaint.  In dismissing plaintiff’s complaint with prejudice and denying her leave to file an amended complaint, the federal district court stated that her allegations were so deficient that any amendment would be futile.  Considering that plaintiffs are generally granted numerous times to replead their complaint, this was a significant and cost-effective victory for the client.

Paul E. Starkman

Chicago Partner Paul Starkman, published an article in Chief Executive Magazine. The article appeared on the May 3 Online Exclusives edition. The article, “What You Need to Know about Monitoring Employees’ Off-Duty Social Networking Activity” examines the effect of social networking on employers, and the risks involved.

Click here to read the full article.

What You Need to Know about Monitoring Employees’ Off-Duty Social Networking Activity

Title VII

Although federal law does not directly prohibit discrimination based upon sexual orientation, a recent decision from the Southern District Court of Florida illustrates how an employee may be able to state a claim under Title VII for discrimination based upon sexual orientation if the alleged discriminatory conduct was based upon the employee’s failure to conform to gender stereotypes.

In Anderson v. Napolitano, Case No. 09-60744 (S.D.Fla. Feb. 8, 2010), the Plaintiff, a former Federal Air Marshal, filed suit against the Secretary of the Department of Homeland Security alleging, among other things, sex discrimination on the basis of gender stereotyping in violation of Title VII of the Civil Rights Act of 1964.  The Plaintiff claimed that shortly after his transfer to the newly established Miami Field Office in late 2001, he began to suffer discrimination and harassment due to his sexual orientation.  In support, Plaintiff provided several examples of alleged harassment, including:

(1) that the acting-Special Agent in Charge publicly referred to him as a “fag” and encouraged coworkers not to associate with him;
(2) that “someone in the Miami Field Office had written the word `Fag’ on a grease board next to Anderson’s office”; and
(3) that on one occasion, the Special Agent in Charge denounced the Plaintiff for bringing to his attention a subordinate employees’ complaints of racial discrimination and then told the Plaintiff “It’s my perception, and I could be wrong — that because you’re gay you’re super sensitive to issues of discrimination.”  When the Plaintiff denied this characterization, he was told “You’re too gay. You’re too flamboyant. You’re too `in your face’ around other [Federal Air Marshals].”

The employer moved for summary judgment, claiming that the Plaintiff failed to state a claim under Title VII because these allegations related to harassment based upon sexual orientation, not harassment based upon sexual stereotyping.  The Court agreed, and granted summary judgment to the employer.  In doing so, the Court distinguished the facts of this case from another case recently decided where a plaintiff was able to successfully state a claim for gender discrimination, because the alleged discrimination was based upon the plaintiff’s “effeminate” mannerisms (including his high voice, he walked in an feminine manner, “did not curse and was very well-groomed,” and crossed his legs like a woman).  In contrast, the discrimination alleged by Plaintiff in this action did not relate to the Plaintiff’s failure to conform to gender stereotypes, but rather, his sexual orientation.  For example, the allegation that the Plaintiff’s supervisor referred to him as a “fag” and told him he was “too flamboyant” was clearly directed to the Plaintiff’s behavior as a gay man, not behavior associated with a woman.

Notwithstanding the Court’s decision, employers must recognize (1) that certain forms of discrimination based upon sexual orientation may also constitute discrimination based upon gender stereotyping.  In this case, slightly different facts or testimony could have resulted in a different result and the employer facing an expensive trial; and (2) although discrimination based upon sexual orientation is not currently prohibited by federal law (although Employment Non-Discrimination Act (“ENDA”) legislation which would prohibit such discrimination has continually been proposed in the U.S. Congress since 1994), state and/or local laws may prohibit such discrimination.  For example, although not prohibited by Florida law, discrimination based upon sexual orientation is prohibited by Illinois law.