Sponsors of health plans have long known that the only constant in life is change. In 2020, that is surely to remain true.

Ding-Dong! The Cadillac Tax Is Dead!

On December 20, 2019, as part of the year-end appropriations bill, the Affordable Care Act’s (ACA) so-called 40% “Cadillac Tax” on high-cost health plans was finally, after much lobbying and other efforts by sponsors and health care payers, put to an end with a full repeal. The “Cadillac Tax” was currently scheduled to take effect in 2022 (after two delays), and would have taxed employer-sponsored plans worth more than $10,200 for “self-only” coverage and $27,500 for other coverage (in 2018 and would have been indexed for inflation in future years). The tax was initially intended to help reduce health care costs and pay for the ACA.

Compliance Note:  Plan sponsors should note, however, that the reporting of the value of employer-provided coverage on the Form W-2 in Box 12, using Code DD, did not change. As a result, employers should continue to report the value on Form W-2.

As part of the same bill, two other ACA taxes were also repealed: (i) the health insurance tax, and (ii) the 2.3% tax on medical devices. While the repeal of the medical device tax is effective beginning in 2020, the repeal of the health insurance tax is not effective until 2021, so sponsors of fully-insured health plans will need to wait another year for any premium savings passed on from insurers due to the repeal of the tax.

It’s Alive! The PCORI Fee Is Extended for 10 Years

The ACA imposes a fee on insurers of specified health insurance policies and plan sponsors of self-insured health plans to help fund the Patient-Centered Outcomes Research Institute (PCORI). 2019 was supposed to be the last year that most sponsors paid the PCORI fee. The fee has now been extended for 10 years, through plan and policy years ending before October 1, 2029.

The fee is required to be reported once a year on the second quarter IRS Form 720 (Quarterly Federal Excise Tax Return) and paid by its due date, July 31. The fee is based on the average number of lives covered under the policy or plan. For plan years ending from October 1, 2018 through September 30, 2019, the dollar amount was $2.45 per covered life.

Compliance Note:  Sponsors of self-insured health plans should continue to add payment of the PCORI fee to their compliance calendars, monitor applicate rates, and budget for the payments for the next 10 years. Insurers of fully-insured health plans are responsible for reporting and paying the PCORI fee.

Where We’re Going We Don’t Need Roads! Health Coverage Opportunities and Uncertainty

 2020 ushers in two new health reimbursement arrangements (HRAs). Proposed regulations were issued in 2018 as reported here and final regulations were issued in June 2019. The final rules allow HRAs and other account-based group health plans to be integrated with individual health insurance coverage or Medicare, if certain conditions are satisfied (an Individual Coverage HRA). The final rules also set forth conditions under which certain HRAs and other account-based group health plans will be recognized as limited excepted benefits (an Excepted Benefit HRA).

While 2020 brings these new health coverage options, it remains to be seen if there will be significant uptake from employers to disrupt the traditional group health plan coverage model. With the demise of the Cadillac Tax, plan sponsors are still likely to continue to grapple with the rising costs of health coverage and the ever-changing legal landscape. Questions remain:

  • Will the ACA survive? As reported previously, the decision in Texas v. U.S. declaring that the ACA is unconstitutional in its entirety because of the individual mandate continues to make its way through the courts to determine the issue of severability and will ultimately be decided by the U.S. Supreme Court
  • Will proposed legislative “fixes” and enhancements to expand access to Health Savings Accounts (HSAs) pass this year? Will HSAs dominate in a post-ACA world?
  • Will new Association Health Plan regulations be upheld, giving smaller companies more options to pool together to offer group health plan coverage?
  • How will the results of the Presidential election affect health coverage options in future years?

Answers to these and other questions could have a significant impact on plan sponsors (and their employees’) health care options and choices in the coming months and years. However, one answer remains clear: there will certainly be more change.

A bill to amend the New Jersey Millville Dallas Airmotive Plant Loss Job Notification Act, also commonly referred to as the New Jersey WARN Act (“NJ WARN Act”), which the New Jersey Senate passed on December 16, 2019, if enacted, will create significant financial liability for covered New Jersey employers that undergo a mass layoff, or a transfer or termination of operations, by requiring the employer pay severance to both full-time and part-time employees.

The NJ Warn Act, enacted in 2007, requires New Jersey private employers with 100 or more full-time workers to provide 60-day notice to affected full-time employees in the event of a mass layoff or a transfer or termination of operations and applies to establishments with a single location or in a group of contiguous locations (e.g., group of buildings in an office park). It mandates payment of severance only when a covered employer fails to provide the employees with the required amount of notice of termination or lay-off.

Under the proposed legislation, New Jersey employers would be required to pay affected employees one week severance for every full year of employment, irrespective of whether the employer provided the required amount of WARN Act notice to employees. The severance amount would be enhanced by an additional four weeks’ per affected employee, where the employer failed to give the required amount of notice.

The bill, drafted in response to recent corporate bankruptcies, most notably that of Toys R Us, which resulted in job loss for thousands of New Jersey employees, does not limit the liability for paying the severance to the employer entity alone. Significantly, the bill imposes the obligation to pay severance to the decision makers directly or indirectly responsible for the lay-off or termination decision by defining the term “employer,” for the purposes of severance, to include:

any individual, partnership, association, corporation, or any persons or group of persons acting directly or indirectly in the interest of an employer in relation to an employee, and includes any person who, directly or indirectly owns and operates the nominal employer or makes the decision responsible for the employment action that gives rise to a mass layoff subject to notification.

In addition, the bill among other things:

  • Removes the distinction between part-time and full-time employees. Thus, part-time employees would be:
    • Counted in determining whether an employer meets the 100 employee threshold for being a covered employer;
    • Counted in determining whether a termination, transfer or layoff meets the threshold for required notice, e.g., 50 or more employees representing at least 1/3 of the employer’s total workforce; and
    • Entitled to notice and to severance.
  • Broadens the definition of “Establishment” to include all of an employer’s New Jersey locations (not just those that are contiguous); and
  • Counts employees who “report to an establishment” in determining whether a mass layoff meets the threshold for required notice.

If enacted, the legislations would become effective 180 days after signing.

Our colleague Steven M. Swirsky .

Following is an excerpt:

The National Labor Relations Board, in its December 17th decision in Apogee Retail LLC d/b/a Unique Thrift Store, has reversed its prior rule and held that employer requirements that employees treat workplace investigations as confidential are “presumptively lawful.”  The Apogee decision overturns the Board’s 2015 Banner Estrella decision, which had required that an employer seeking to impose confidentiality in connection with a workplace investigation was required to prove, on a case by case basis, that the integrity of an investigation would be compromised without confidentiality.

The Board concluded that the framework set forth in Banner Estrella improperly placed the burden of proving that confidentiality was necessary on the employer and was inconsistent with the Board’s test developed in The Boeing Company for determining whether a facially neutral rule unlawfully interfered with employees’ rights under Section 7 of the National Labor Relations Act. …

Read the full article here.

On December 19, 2019, New Jersey enacted legislation amending the New Jersey Law Against Discrimination (“NJLAD”) to add a definition for “Race” – which has always been a protected category under the NJLAD – and for the term “Protective hairstyle.”  The Amendment, referred to as the “CROWN Act” (short for “Create a Respectful and Open Workspace for Natural Hair Act”), amends the NJLAD to add the following to the statute’s list of definitions:

“Race” is inclusive of traits historically associated with race, including, but not limited to, hair texture, hair type, and protective hairstyles.

“Protective hair styles” includes, but is not limited to, such hairstyles as braids, locks, and twists.

The Amendment, which became effective immediately upon signing, essentially codifies portions of enforcement guidance (“Guidance”) issued earlier this year by the state’s Division on Civil Rights, about which we previously wrote. The Guidance, which reflects the DCR’s interpretation of the NJLAD, but is not statutory, provides directives to employers that are not in the Amendment, but which will now carry more weight because of it.  Of note, although the Amendment specifically includes hairstyles associated with Black persons in the definition of “protective hair styles,” the Guidance also includes, hairstyles associated with particular religions such as payot (sidelocks) worn by Orthodox Jewish men and Sikh persons who wear uncut hair.

With the Amendment, New Jersey becomes the third state (following California and New York) to ban discrimination based on hair and hairstyles.  Some cities, including New York City and Cincinnati, have also enacted laws prohibiting hair-based discrimination. Other states are also considering similar legislation. Given this trend, all employers – not just those in New Jersey and other locales with such laws on the books – should consider reviewing their workplace grooming and appearance policies and, in particular, their enforcement of such policies, to confirm that they are applied in a nondiscriminatory manner.

With 2019 nearly rolled up, it is time to exhale and recap the latest dose of marijuana laws affecting the workplace.  In the last twelve months, Illinois became the eleventh state to legalize recreational marijuana use by adults[1] and several other jurisdictions passed or modified their existing laws governing marijuana and the workplace.  Below is a summary of this year’s developments and some thoughts about what 2020 might bring.

Illinois Legalizes Recreational Marijuana Use

On June 25, 2019, Governor Pritzker signed the Illinois’ Cannabis Regulation and Tax Act into law, legalizing the use and possession of marijuana for adults age 21 or older starting January 1, 2020.  The law, since modified, includes extensive workplace protections for employers, permitting employers to enforce drug free workplace policies—including random drug testing—and discipline or terminate employees who violate those policies, so long as those policies are applied in a nondiscriminatory manner.  Employers are also shielded from liability for taking adverse actions against an employee based on the employer’s good faith belief that the employee is impaired or under the influence of marijuana while at work.

After enactment, questions arose as to whether Illinois employers who drug test their employees risked running afoul of the state’s Right to Privacy in the Workplace Act, which prohibits workplace discrimination based on an employee’s off-site and off-duty use of a “lawful product.”  Fortunately, the Illinois legislature subsequently passed an amendment to clarify that employers may take adverse action against employees or rescind offers to applicants who fail a drug test conducted pursuant to an employer’s reasonable policy.

Despite the amended law’s added protections for employers, employees nonetheless may have a private right of action for a bad faith termination of employment.  In addition, the amendments do not expressly address the question of whether an employer has a duty to accommodate an employee who provides a medical marijuana card or note from a doctor.

Expanded Workplace Protections for Marijuana Use

Employers should also be aware of the states and cities that provided new protections for marijuana users in 2019.  New Mexico and Oklahoma each passed legislation that prohibits employers from discriminating against employees because of their status as registered medical marijuana users; however, the Oklahoma law does provide an exception for safety-sensitive jobs and for situations which the employee possesses, consumes or is under the influence of marijuana at work.

In Nevada, a new law taking effect on January 1, 2020, prevents employers from failing or refusing to hire an applicant because the applicant tests positive for marijuana. Perhaps not surprisingly, New York City went one step further when it passed an Int. 1445-A, barring most employers from conducting any pre-employment testing for marijuana or THC.  The ordinance provides several exceptions to allow drug testing of applicants for safety-related positions, transport-related positions, caregivers, and certain federal contractors.

Similarly, New Jersey now prohibits employers from disciplining or terminating an employee solely based on that individual’s status as a registered medical marijuana user.  While the law does not prevent employers from prohibiting or disciplining employees from using marijuana during work hours or on workplace premises, Garden State employers with a drug testing policy are required to offer employees and applicants who test positive the opportunity to explain the positive result.

Looking Ahead to 2020

Given the recent trends, employers should expect another wave of marijuana legislation in the coming year.  Indeed, several states, such as Florida, Indiana, and Massachusetts are already considering bills that would prohibit discrimination against medical marijuana users and potentially eliminate most workplace drug testing for marijuana and THC.  After coming close to passing legal recreational marijuana in the prior legislative sessions, New York and New Jersey will likely see another push in the coming year.  New Jersey is slated to consider a ballot-initiative in a push to let voters decide whether to legalize adult-use recreational marijuana.

Employers should also be aware of potential federal action relating to marijuana.  In June, the U.S. House of Representatives approved an amendment prohibiting the Department of Justice from using appropriated funds to interfere with state-legal marijuana programs.  The House passed a second major marijuana bill in September, the Secure and Fair Enforcement (SAFE) Banking Act, which would protect banks and credit unions that serve cannabis businesses from being penalized under federal anti-money laundering and illicit finance laws.  Finally, in November, the House Judiciary Committee approved the Marijuana Opportunity Reinvestment and Expungement (MORE) Act, which removes marijuana from Schedule I of the Controlled Substances Act and requires federal courts to expunge prior convictions for marijuana offenses.  Although significant marijuana legislation is unlikely to pass the U.S. Senate in an election year, Congress’s rumblings underscore a shift in public opinion that has already and likely will continue to drive states to legislate further in this area.

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[1] While still illegal under federal law, adult recreational use of marijuana is permitted in the District of Columbia and the following states: Alaska, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont and Washington.

Our colleague Steven M. Swirsky 

Following is an excerpt:

The National Labor Relations Board (“Board” or “NLRB”) has announced that it is publishing proposed changes to its Rules and Regulations that will begin to reverse the Board’s 2014 changes, which took effect in 2015, to its representation election rules and procedures commonly referred to as the “ambush election rules.”  The proposed final rule is expected to be published in the Federal Register on December 18, 2019 and to become effective 120 days after publication.

Board Chairman John F.  Ring described the rule changes as “common sense changes to ensure expeditious elections that are fair and efficient. The new procedures will allow workers to be informed of their rights and will simplify the representation process to the benefit of all parties.” In December 2017, the Board had announced that it was seeking comments concerning parties’ experiences under the 2015 rule changes, to determine what, if any changes, would be beneficial.

The new final rule, which is over 300 pages in length, will, when it takes effect, change many of the most troublesome aspects of the 2014 rules. …

Read the full article here.

Our colleague Sharon L. Lippett

Following is an excerpt:

Fiduciaries of employee benefit plans subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) that appoint investment managers (“Appointing Fiduciaries”) will be interested in the opinion of the U.S. District Court for the Western District of Pennsylvania in Scalia v. WPN Corporation, et al (“WPN”) regarding their duty to monitor investment fiduciaries.  Given the potential risk related to a breach this fiduciary duty, the WPN opinion is likely to be an important one for Appointing Fiduciaries.

In WPN, the Department of Labor alleged that the Retirement Committee for two plans sponsored by Wheeling Corrugating Company and its affiliates (the “Retirement Committee”) breached its fiduciary duty by failing to monitor the investment fiduciary appointed to manage plan assets (the “Investment Manager”) and failing to remove the Investment Manager when it did not follow instructions from the Retirement Committee to diversify plan investments.  The Retirement Committee took the position that it fulfilled its duty to monitor by implementing a routine monitoring procedure, adhering to it, reviewing reports from an investment adviser, identifying the actions of the Investment Manager that were not consistent with Retirement Committee directions, and taking corrective action with the assistance of counsel.  The court agreed with the Retirement Committee and granted its motion for summary judgment. …

Read the full post here.

Continuing New Jersey’s efforts to eliminate and to hold employers accountable for employee misclassification, the state’s Department of Labor and Workforce Development (NJDOL) recently adopted Regulations implementing a 2010 law (“Law”) that empowers the NJDOL Commissioner (“Commissioner”) under certain circumstances to direct the suspension or revocation of one or more licenses held by an employer who has failed to maintain and report required State wage, benefits and tax records or who has failed to pay wages, benefits, taxes or other contributions required by State law.  The Regulations specifically empower the Commissioner to direct the suspension and revocation of State-issued occupational and professional licenses, such as for physicians, dentists and other licensed healthcare professionals, where such individuals have management responsibilities sufficient to be deemed an “employer.”  Incorporating the definition of employer contained in Article 1 of New Jersey’s “Wages” law N.J.S.A. 34:11-4.1(a), the Regulation states,  “the officers of a corporation and any agents having the management of such corporation shall be deemed to be the employers of the employees of the corporation.”

By way  of summary, under the Law, upon the Commissioner’s finding that an employer has failed to maintain and report all required documentation regarding wages, benefits and taxes and has failed to pay the wages, benefits, taxes or other contributions due – for even a single employee –  an employer will face a NJDOL audit within 12 months.  Such taxes and contributions owed to the State include for example, employment taxes, and unemployment and temporary disability contributions.

If the NJDOL audit reveals further violation, the Commissioner may direct other New Jersey agencies to suspend or revoke State-issued licenses held by the offending employer. In addition, the employer will be subject to another audit within 12 months. If the Commissioner finds, after hearing, that the employer has continued in its failure to comply with the Law, the Commissioner is empowered to direct permanent revocation of the employer’s State-issued licenses.

Since taking office in 2018, New Jersey under Gov. Phil Murphy has taken action targeting employee misclassification, including the establishment of a Task Force on Employee Misclassification (“Task Force”) (see Task Force Act Now Advisory) and a sweeping “Wage Theft” law (see Wage Theft Act Now Advisory), which added substantial penalties for failure to pay wages and benefits to employees, including workers who were incorrectly classified as exempt or independent contractors.  The Regulations, further highlight the Murphy Administration’s focus on this issue by adding another potential element of personal liability for such violations for New Jersey’s licensed professionals who are deemed employers.

In September 2019, the New Jersey Division of Rights (“DCR”) issued enforcement guidance (“Guidance”) clarifying and explaining how the DCR applies the state’s Law Against Discrimination (“LAD”) to discrimination based on hairstyles, particularly with respect to those “closely associated with Black people.”  The Guidance states that the LAD’s prohibition on discrimination based on race encompasses discrimination that is ostensibly based on hairstyles that are inextricably intertwined with or closely associated with race and therefore prohibits employers from refusing to hire or otherwise treating “a Black person differently because they wear their hair in a style that is closely associated with being Black.”

Moreover, singling out such a hairstyle will be deemed to constitute direct evidence of disparate treatment and discrimination on the basis of race in violation of the LAD.

The Guidance also applies to “discrimination based on hairstyles that are inextricably intertwined with or closely associated with other protected characteristics, such as hairstyles associated with a particular religion,” e.g., payot (sidelocks) worn by Orthodox Jewish men and Sikh persons who wear uncut hair.

The Guidance directs that employers may not:

  • “enforce grooming or appearance policies that ban, limit, or restrict hair styled into twists, braids, cornrows, Afros, locs, Bantu knots, fades, or other hairstyles closely  associated with Black racial, cultural and ethnic identity;”
  • Selectively enforce facially neutral grooming policies – such as requirements to maintain a “professional” appearance; for example, Black employees with shoulder length hair or braids cannot be told to change their hairstyle, if white employees with long hair are permitted to maintain their hairstyles; or
  • “justify policies that explicitly or in practice, ban, limit, or restrict natural hair or hairstyles associated with Black people based on a desire to project a certain ‘corporate image,” because of concerns about ‘customer preference’ or customer complaints, or because of speculative health or safety concerns.”

According to the Guidance, any health and safety justification must “be rooted in objective, factual evidence – not generalized assumptions – that the hairstyle in question would actually present a materially enhanced risk of harm to the wearer or to others.”  Moreover, the guidance requires employers to consider whether a legitimate health or safety risk can be eliminated or reduced by reasonable alternatives, such as hair ties, hairnets, or other head covering, to banning or restricting a hairstyle.

The Guidance largely tracks enforcement guidance issued earlier this year by the New York City Human Rights Commission and follows the enactment of legislation in California and New York State amending their civil rights and education laws to add “traits historically associated with race, including but not limited to hair texture and protective hairstyles” to the statutory definitions of race.  Similar legislation has been proposed in the New Jersey legislature, but has not been enacted.

Although the Guidance is not statutory and reflects only the DCR’s interpretation of the LAD, given recent trends and the deference afforded to administrative pronouncements, New Jersey employers should review their workplace grooming and appearance policies to ensure compliance with the newly issued legal enforcement guidance.

As discussed in our March 28, 2019 blog post, New Jersey adopted its own individual health insurance mandate, the   New Jersey Health Insurance Market Preservation Act (“NJHIMPA”).  The NJHIMPA requires, with certain qualifying exemptions, New Jersey residents to have minimum essential health coverage. New Jersey employers must verify health coverage information provided by individuals. To assist with employer reporting, New Jersey launched an official website with guidance on the filing requirements.

Recent updates to the official website, which was lasted updated on July 25, 2019, are summarized below.

Use of Forms 1094 and 1095 Are Expected to Satisfy Employer Reporting in New Jersey

The State requires that employers provide New Jersey taxpayers and the State with the same Forms 1094 and 1095 health-care coverage information they send to the IRS. Employers will file health coverage forms through New Jersey’s system for filing of W-2 forms. Since March 28, 2019, the State has provided additional guidance encouraging companies to send data pertaining only to New Jersey full-year and part-year residents. However, for ease of filing, New Jersey will accept the same 1094/1095 data files sent to the IRS, even if they include data about individuals who are not residents of New Jersey. In other words, the State will accept “bulk” files.

Bulk Files May Raise Privacy and Other Laws

The State cautions out-of-state companies who provide information on non-residents of New Jersey that they should consult privacy and other laws pertaining to residents of other states before sending any sensitive or personal data to New Jersey.

Electronic Filing is Required

Updated guidance from the State provides that there is no paper filing option available.

Insurers or employers can submit the required health insurance coverage returns using their Division of Revenue and Enterprise Services (DORES) MFT SecureTransport service user credentials. For those without MFT SecureTransport, user credentials and/or technical specifications may be obtained by emailing e-GovServices@treas.nj.gov. Files for multiple companies can be submitted via a single file (that must not be in a zipped file format) from a single MFT SecureTransport account.

New Jersey strongly encourages filers to participate during their testing period, which will run from July 1, 2019 through September 1, 2019.

Filing Deadline for the 2019 Tax Year is March 31, 2020

The deadline to electronically file 2019 coverage information for the 2019 tax year is March 31, 2020. This deadline tracks the deadline to file Forms 1094 and 1095 electronically with the IRS. Under preliminary guidance, the deadline was earlier, by February 15, 2020.

Employer Takeaways

Employers in New Jersey and out-of-state employers with New Jersey residents should work with legal counsel and their vendors to assess their obligations and prepare for the 2019 tax year reporting obligations. They should consider participating in the State’s testing period and continue to monitor the State’s website for further updates on their reporting obligations.

California, Massachusetts, Rhode Island, Vermont, and the District of Columbia also have adopted individual health insurance mandates, and several other states including Connecticut, Hawaii, Maryland, Minnesota, and Washington are considering their own individual health insurance mandates.

As more states adopt mandates, employers operating in multiple states should monitor their obligations in the various jurisdictions where their employees reside and expect reporting obligations to become more complex than they are under the ACA.