The Employer's Legal Resource - August 2010

COBRA

COBRA Subsidy Not Extended

Each of you has surely heard the news that legislation has been passed retroactively reinstating unemployment benefits for many out of work persons. In each of the past such extensions, the legislation also included the COBRA premium subsidy. Not this time.

The COBRA premium subsidy that expired on May 31, 2010, remains expired.

By Kristen L. Brightmire, kbrightmire@dsda.com

Wage and Hour

Yet Another Change in the Law of Donning and Doffing...And Not in the Employer's Favor

The Department of Labor Wage and Hour Division has recently provided a new interpretation of the Fair Labor Standards Act (FLSA) regarding compensability of time spent "changing clothes," including donning and doffing protective gear. Section 3(o) of the FLSA states that when "determining...the hours for which an employee is employed, there shall be excluded any time spent in changing clothes or washing at the beginning or end of each workday which was excluded from measured working time during the week involved by the express terms of or by custom or practice under a bona fide collective-bargaining agreement applicable to the particular employee." 29 U.S.C. § 203(o). The issue is often litigated. The focus of the inquiry is whether protective equipment is "clothing" within the meaning of the statute.

In 1997, the Department of Labor Wage and Hour Administrator issued an opinion letter indicating that protective equipment was not "clothing," and that employers must pay wages for any time spent donning or doffing protective equipment. However, in 2002 and 2007, the Administrator issued opinion letters indicating that protective equipment is "clothing" under the FLSA. As a result, time spent donning or doffing mesh aprons, plastic belly guards, mesh sleeves or plastic arm guards, wrist wraps, mesh gloves, rubber gloves, polar sleeves, rubber boots, shin guards, weight belts, etcetera, was not compensable time.

As a result of these inconsistent rulings, courts have struggled to interpret Section 203(o). Their decisions vary widely. For instance, within the Tenth Circuit (the federal appellate court encompassing Oklahoma) the determination is based upon whether time and effort spent donning protective gear constitutes "work." If the action "takes all of a few seconds and requires little or no concentration," it is not "work" at all, and employers need not compensate employees for it. Many courts distinguish between unique or "special protective gear," i.e., items that "are heavy and cumbersome, and require physical exertion, time and a modicum of concentration to put them on securely and properly," and non-unique protective gear. In short, it has been increasingly difficult for employers to determine whether to compensate their employees for time spent donning and doffing gear.

The new June 16, 2010 opinion letter provides the latest interpretation of "changing clothes." The Wage and Hour Administrator noted that when Congress adopted the statute in 1949, the sponsor of the legislation referenced, as a specific example, time spent by bakery workers "to change clothes and to take off clothes at the end of the day...." The Wage and Hour Administrator likened this statement to the ordinary, plain meaning definition of the term "clothes." The Administrator's interpretation makes clear that Section 203(o) "does not extend to protective equipment worn by employees that is required by law, by the employer, or due to the nature of the job." As a result, time spent donning and doffing protective gear is compensable time.

The Administrator expressly instructed employers to no longer rely on the 2002 and 2007 opinion letters.

The Administrator also addressed whether donning and doffing can be a "principal activity" under the Portal to Portal Act, which generally requires compensation for time spent traveling to and from the "actual place of performance of the principal activity or activities" as well as the performance of activities which are "preliminary or postliminary" to principal activities. Again rejecting the 2007 opinion letter, the Administrator stated that "clothes changing covered by § 203(o) may be a principal activity. Where that is the case, subsequent activities, including walking and waiting, are compensable."

Employers are strongly advised to adhere to the June 16, 2010 opinion letter to claim the protection of the "good faith reliance," which shields an employer from liability if the employer can demonstrate conformity with any written interpretation from the Administrator.

For more information, you can read the Administrator's letter by clicking here or contact an attorney knowledgeable in FLSA matters.

By Courtney Bru, cbru@dsda.com

Immigration

DEPARTMENT OF HOMELAND SECURITY ISSUES FINAL RULE ON ELECTRONIC SIGNATURE AND STORAGE OF I-9S

On July 22, 2010, the Department of Homeland Security (DHS) issued a final rule amending the requirements for electronic I-9s. The final rule makes minor changes to an interim rule issued in 2006. These changes include the following:

• Clarification that employers must complete a Form I-9 within three business (not calendar) days. DHS explains that the word "business" had been inadvertently omitted from the interim rule;
• Employers may use paper, electronic systems, or a combination of paper and electronic systems for retention of I-9s;
• Employers may change electronic storage systems as long as the systems meet the performance requirements of the regulations;
• Employers need not retain audit trails of each time a Form I-9 is electronically viewed, but only when the Form I-9 is created, completed, updated, modified, altered, or corrected; and
• If an employee requests a printed record of the audit trail or transaction record of an electronic I-9, employers must provide one. However, they are not required to do so unless the employee requests it.

The final rule is effective August 21, 2010.

By Hilary L. Velandia, mailto:hvelandia@dsa.com

Nursing Mothers

DOL ISSUES A FACT SHEET ON REQUIRED BREAKS FOR NURSING MOTHERS

In our June 2010 ELR, we discussed the provision of the Patient Protection and Affordable Care Act requiring employers to provide nursing mothers the space and time to express milk in the workplace.

The Wage and Hour Division of the Department of Labor has issued Fact Sheet #73 related to that law. It provides some of the more specific requirements related to the employer's responsibility to provide the space and time required under the Act. Additional guidance in the fact sheet reiterates that while employers do not have to compensate employees for these breaks, if the employer has compensated break time, an employee who uses that time to express milk must be compensated in the same way that other employees are compensated for break time. Further, the FLSA's general requirement that the employee must be completely relieved from duty or else the time must be compensated as work time applies to these breaks as well. You can read the Fact Sheet #73.

By McLaine DeWitt Herndon, mherndon@dsda.com

ERISA

CHANGES TO FORM 5500S REQUIRE IMMEDIATE ATTENTION OF PLAN SPONSORS

Substantial changes to the Form 5500 return and the filing method become effective for the 2009 plan year. These changes will require plan sponsors to update data collection methods and implement new procedures for electronic filing. Calendar year plans have an August 2 deadline to submit their 2009 Form 5500, with its revised and expanded Schedule C (discussed below in detail), unless those plans have received a October 15 deadline extension.

Electronic Filing Is Now Required for all Form 5500s

All Form 5500s will have to be filed electronically under a new Department of Labor (DOL) electronic filing system called EFAST2. Even if your Form 5500s were previously filed electronically, you must switch to the new EFAST2 system. Form 5500 returns submitted through EFAST2 will appear on a new public disclosure website within approximately 24 hours of your submission.

In addition, all amended returns (including amended returns for years prior to 2009) will have to be filed electronically under the new system. There is a very limited exception for amended 2008 returns originally filed on paper. Unlike prior years, the entire Form 5500 must be resubmitted electronically with an amended return.

The EFAST2 process requires that electronic credentials be obtained for plan sponsor and plan administrator signers and, depending on the method you use to prepare and file the Form 5500, you may have to get preparer and transmitter credentials also. The DOL requires that each signer must have electronic credentials that may not be shared as they were under the prior EFAST system.

Even though all Form 5500s will be filed electronically now, plan sponsors are still required to maintain on file a fully executed paper copy.

Changes to Form 5500 and Schedules

Numerous changes have been made to the Form 5500 and related schedules. The most significant changes have been made to a greatly revised and expanded Schedule C.

Schedule C has undergone extensive changes to provide more detailed information about plan expenses-both direct and indirect-which is intended to result in greater transparency and disclosure. 2009 is the first plan year for expanded reporting of direct and indirect compensation. In the past, only the top 40 service providers receiving $5,000 or more in total compensation were reported on Schedule C. The 2009 Schedule C requires that all service providers receiving $5,000 or more be reported. Fiduciaries and "Enumerated Service Providers" receiving more than $1,000 in indirect fees (including gifts, awards, trips, etc.) must also be listed on the Schedule C. In order to capture all reportable compensation, the 2009 Schedule C has a new and larger list of service codes, disclosing the relationship of the service provider to the plan. Note: Small plans (less than 100 participants) are not required to file Schedule C.

The biggest challenge may be understanding how plan expenses are defined. The 2009 Schedule C defines fees and compensation as either "direct" or "indirect," which are further broken down between "monetary" or "non-monetary" fees. Some fees may be difficult to identify, especially if they are lumped into a "bundling" arrangement and need to be broken out. See below for a discussion of direct and indirect compensation that must be reported.

What is Direct and Indirect Compensation That Must be Reported on Schedule C

All service provider compensation of at least $5,000 is reportable on Schedule C if it "includes money and any other thing of value (for example, gifts, awards, trips) received by a person, directly or indirectly, from the plan (including fees charged as a percentage of assets and deducted from investment returns) in connection with services rendered to the plan or the person's position with the plan." Form 5500 preparers will need to change data collection methods to capture the indirect service provider compensation.

Direct compensation is payment made by the plan (via the plan trust or participant accounts) for services rendered by the plan or because of a person's position with the plan. Typically, direct payments of fees and expenses are found on the trust statements. Fees and expenses paid directly by the plan sponsor are not reported on Schedule C.

Indirect compensation is compensation received from sources other than directly from the plan or plan sponsor for services rendered to the plan or because of a person's position. Examples of indirect compensation include:

• fees or expense reimbursements from mutual funds or an insurance company;
• 12b-1 distribution fees;
• sub-transfer agency fees;
• shareholder servicing fees;
• finder's fees;
• float revenue;
• brokerage commissions; or
• non-monetary compensation such as trips, gifts or awards to persons for their role with a plan.

Indirect compensation is then divided into two categories for the Schedule C: eligible indirect compensation and ineligible indirect compensation.

Eligible indirect compensation is substantially easier to report on the Schedule C and includes most types of indirect compensation provided the plan sponsor is given written materials that disclose:

• the existence of indirect compensation;
• the services provided for the indirect compensation;
• an amount or estimate of the indirect compensation or a formula to compute it; and
• the identity of who is paying and who is receiving the indirect compensation.

Indirect compensation that does not meet the requirements for eligible indirect compensation is most likely to be non-monetary gifts, indirect compensation that is not related to the plan's investments, and amounts for which the necessary written disclosures have not been made. The information reported on the Schedule C about ineligible indirect compensation is more extensive and similar to the information that must be disclosed to plan sponsors in order for indirect compensation to be considered eligible indirect compensation.

We are available to provide assistance to you in your efforts to comply with these new reporting requirements.

By Jeffrey C. Rambach, jrambach@dsda.com

OSHA

NEW MINER SAFETY BILL PROVIDES VEHICLE FOR RADICAL CHANGES TO THE OCCUPATIONAL SAFETY AND HEALTH ACT OF 1970

The recently drafted Miner Safety and Health Act of 2010 (MSHA) began as a response to the recent multi-fatality accident at a Massey Energy Co. mine in West Virginia. It has now become a vehicle for passage of a much wider range of reforms to the Occupational Safety and Health Act of 1970.

As proposed, the MSHA includes H.R. 2067, the Protecting America's Workers Act (PAWA). PAWA proposes the most sweeping legislative change to the Occupational Safety and Health Act in its 40 year existence. Though many of the proposed revisions contained in PAWA have been in the works for several years, they have yet to be passed into law and there is some speculation that current attempts to gain passage will likewise be unsuccessful. However, the Department of Labor and OSHA have promised reform and have taken an active involvement in the passage of PAWA.

To read the full article which appears in the July 2010 Construction Law Resource, click here.

By Steven K. Metcalf, smetcalf@dsda.com

What's New

ANNOUNCEMENTS

Elise Dunitz Brennan Named to the Best of the Best 2010 List

DSDA Attorney Elise Dunitz Brennan was named to the Best of the Best 2010 list by Oklahoma Magazine, July 2010 edition. Only six attorneys state-wide were recognized. Elise specializes in healthcare law.

Tulsa Business Journal Interviews DSDA Attorneys

Tom Q. Ferguson was interviewed regarding their "E-discovery expertise" for DSDA in the July 5 edition of the Tulsa Business Journal's article on E-discovery: coping with the legal issues of electronic data. To view the article click here. The discussion will be continued in their next issue, when they address the vendor role in e-discovery.

Dates to Remember

Calendar of notable events

September 29, 2010

Elise Dunitz Brennan will be speaking at a conference titled Drugs, Sex and Rock & Roll at the Hard Rock Hotel & Casino for the Oklahoma Assisted Living Association. The topic is actually about the change in lifestyle of the elders in assisted living centers including legal medical marijuana, alcohol and sexual relationships. Contact Penny by clicking here for more information.

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