September 8, 2009 New Deadline For Government Contractors, Subcontractors Deadline To Use E-Verify

June 9, 2009

September 8 now is the deadline for federal government contractors and subcontractors to begin using U.S. Citizenship and Immigration Services’ (USCIS) E-Verify system to verify the eligibility of employees to work in the United States. 

The Obama Administration recently delayed implementation of the final rule requiring federal contractors and subcontractors to use E-Verify to confirm the eligibility of employees to work in the U.S. The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (collectively known as the Federal Acquisitions Regulatory Councils) published an amendment in the Federal Register on June 5, 2009, postponing the applicability of the final rule until Sept. 8, 2009. 

As originally published November 14, 2008, the final rule requiring that federal government contractors and subcontractors agree to electronically verify the employment eligibility of their employees went into effect January 19, 2009.  However, the compliance deadline was delayed in January and again in April, 2009 by the Obama Administration.  Prior to the delay granted this month, the deadline to begin using U.S. Citizenship and Immigration Services’ (USCIS) E-Verify system was delayed to June 30, 2009.

Curran Tomko Tarski LLP Labor & Employment Practice Group Chair Cynthia Marcotte Stamer and other members of Curran Tomko and Tarski LLP are experienced with advising and assisting employers and others to respond to proposed legislation and regulations and addressing other leave and other labor and employment, employee benefit, compensation, and internal controls concerns. If your organization needs assistance with assessing or responding to H.R. 2450 or assistance with leave and absence management or other labor and employment, compensation or benefit concerns or regulations, please contact Ms. Stamer at cstamer@cttlegal.com, (214) 270-2402; or your favorite Curran Tomko Tarski, LLP attorney.  For additional information about the experience and services of Ms. Stamer and other members of the Curran Tomko Tarksi, LLP team, see here.

Other Information & Resources

You can review other recent human resources, employee benefits and internal controls publications and resources and additional information about the employment, employee benefits and other experience of the Curran Tomko Tarski LLP attorneys at here. If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information – including your preferred e-mail – by creating or updating your profile here or e-mailing this information to Cstamer@CTTLegal.com or registering to participate in the distribution of these and other updates on our HR & Employee Benefits Update distributions here. Also stay abreast of emerging internal controls and compliance challenges by registering for our Corporate Compliance, Risk Management & Internal Controls distributions. For important information concerning this communication click here.    If you do not wish to receive these updates in the future, send an e-mail with the word “Remove” in the Subject to support@SolutionsLawyer.net. 

©2009 Cynthia Marcotte Stamer. All rights reserved.


Registration Open For June 23 Dallas HR 2009 Health Plan Eligibility Update Program

June 9, 2009

Amid soaring health care costs and tightening corporate budgets, employers and other group health plan sponsors, fiduciaries and administrations now also must update their group health plan eligibility and enrollment practices to comply with the American Recovery and Reinvestment Act of 2009 (the “Stimulus Bill”), COBRA subsidy mandates, HIPAA special enrollment rule amendments and a host of other changes to federal eligibility mandates that already have or will take effect this year.  Meanwhile, employers must keep a careful watch on Congress as it considers enacting sweeping health care reforms that are likely to place more obligations on employers.

Health plan eligibility design and administration plays a critical role in controlling health benefit costs and is a leading and growing source of health plan legal risk for employers, fiduciaries and administrators.  Understanding and properly managing these concerns is imperative for employers and others sponsoring or administering these programs.

Stamer Discusses Health Plan Eligibility Rules June 23

Cynthia Marcotte Stamer will explain newly effective COBRA Subsidy Rules, genetic information nondiscrimination rules and other recent and impending changes to federal health plan eligibility mandates will be explained on June 23, 2009 during a 2009 Health Plan Eligibility Update briefing hosted by the Dallas Human Resources Management Association including:

Cynthia Stamer will explain to attendees what they need to know and do about:

  • New Stimulus Bill COBRA Subsidy Rules and other special COBRA rules that took effect on February 17
  • New GINA group health plan information scheduled to take place in 2009
  • Changes to HIPAA special enrollment and nondiscrimination rules
  • Implications for group health plans based on recent changes to FMLA and USERRA regulations
  • Medicare, Medicaid and CHIP nondiscrimination rules
  • Impending college student continuation mandates
  • And more….

Get  details or register on line here or by telephoning Dallas Human Resources Management Association at 214-631-8775.

Stamer’s Health Plan Experience Extensive

The immediate past Chair of the American Bar Association’s Managed Care & Insurance Section, Cynthia Marcotte Stamer is a highly regarded legal advisor, author and speaker recognized both nationally and internationally for her expertise in the areas of health benefits and other human resource compliance matters. Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization, “Cindy” recently joined Curran Tomko Tarski, LLP as the Chair of its Labor & Employment and Health Care Practices April 1, 2009.

The Managing Editor of Solutions Law Press and an Editorial Advisory Board Member and author for Employee Benefit News and other publications, Ms. Stamer is a widely published author and popular speaker. In addition to hundreds of publications on health plan and other human resources, employee benefit and internal controls issues, Ms. Stamer is the author of the “Health Plan Eligibility Toolkit.” Her work has been featured and published by the American Bar Association, BNA, SHRM, World At Work, Employee Benefit News and the American Health Lawyers Association. Her insights on human resources risk management matters have been quoted in The Wall Street Journal, the Dallas Business Journal, Managed Care Executive, HealthLeaders, Business Insurance, Employee Benefit News and the Dallas Morning News.

Ms. Stamer also serves in a number of professional leadership roles including the leadership council of the ABA Joint Committee on Employee Benefits, Vice Chair of the ABA Real Property, Probate & Trust Section and Employee Benefits & Compensation Group.

Cynthia Marcotte Stamer and other members of Curran Tomko and Tarski LLP are experienced with advising and assisting employers with these and other health plan and other employee benefit,  labor and employment, compensation, and internal controls matters. If your organization needs assistance with assessing, managing or defending its wage and hour or other labor and employment, compensation or benefit practices, please contact Ms. Stamer via e-mail here, or by calling (214) 270-2402.  For additional information about the experience, services, publications and involvements of Ms. Stamer specifically or to access some of her many publications, see here,   For more information and other members of the Curran Tomko Tarksi, LLP team, see the Curran Tomko Tarski Website.

We hope that this information is useful to you. For additional information about the experience, services, publications and involvements of Ms. Stamer specifically or to access some of her many publications, see here,   For more information and other members of the Curran Tomko Tarksi, LLP team, see the Curran Tomko Tarski Website.

You can register to receive future updates and information about upcoming programs, access other publications by Ms. Stamer and access other helpful resources here.  If you or someone else you know would like to receive updates about developments on these and other human resources and employee benefits concerns, please be sure that we have your current contact information – including your preferred e-mail- by creating or updating your profile at here.  If you would prefer not to receive these updates, please send a reply e-mail with “Remove” in the subject line to support@SolutionsLawyer.net. You also can register to participate in the distribution of these updates by registering to participate in the Solutions Law Press HR & Benefits Update Blog here.

 ©2009 Cynthia Marcotte Stamer. All rights reserved.


Labor Department Gears Up To Enforce COBRA Premium Subsidy Rules

May 29, 2009

Pressure is mounting for group health plans and their employer and other sponsors and administrators to complete the details required to comply with special medical coverage continuation rules (COBRA Subsidy Rules) added to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (COBRA) by the American Recovery and Reinvestment Act of 2009 (Stimulus Bill). 

The U.S. Department of Labor Employee Benefits Security Administration (EBSA) recently (May 21, 2009) announced its appeal process for assistance eligible individuals to use to complain to the EBSA when they believe they wrongfully have been denied a premium subsidy for their group health plan continuation coverage in violation of the temporary modifications (COBRA Subsidy Rules) to the group health plan medical coverage continuation requirements of the COBRA Stimulus Rules.  These are the expedited complaint and appeals procedures mandated under the Stimulus Bill.

The COBRA Subsidy Rules, new genetic information nondiscrimination rules and other recent and impending changes to federal health plan eligibility mandates will be explained on June 23, 2009 during a 2009 Health Plan Eligibility Update briefing hosted by the Dallas Human Resources Management Association.  Get  details or register here.

The Stimulus Bill allows individuals denied the premium subsidy to get expedited review by the EBSA. Under the appeals procedures announced May 21, individuals begin this review process by completing an appeals application available on line at http://www.dol.gov/ebsa/COBRA/main.

Employers and group health plans and their plan administrators and plan insurers have been required to provide notifications and COBRA premium subsidies for certain former employees and their dependents that qualify as assistance eligible individuals and take other actions to comply with the COBRA Subsidy Rules since the COBRA Subsidy Rules took effective on February 17, 2009.  While many employers and plan administrators undertaken some efforts to comply with these new COBRA mandates,  many still have not fully completed all of the compliance arrangements.

With procedures to receive and administer appeals, the EBSA now is prepared to investigate possible violations of the Stimulus Bill COBRA rules.  Accordingly, employers, plan administrators and insurers sponsoring or administering group health plan should prepare to respond to investigations that may be initiated by the filing of a request for EBSA review.

You can read details about the COBRA Subsidy Rules here.

 

Stimulus COBRA Rules In A Nutshell

Congress enacted the COBRA Subsidy Rules that took effect February 17, 2009 to help certain involuntarily terminated former employees and their dependents maintain COBRA coverage by requiring COBRA-covered group health plans temporarily to extend certain special COBRA treatment for “assistance eligible individuals.”

The Stimulus Bill temporarily limits the COBRA premium that a COBRA-covered group health plan can require an “assistance eligible individual” to pay for COBRA Coverage to 35% of the otherwise applicable COBRA premium (the “Reduced Premium”) for a period of up to 9 months (the “Subsidy Period”) beginning with the individual’s first period of COBRA Coverage beginning after February 17, 2009.  The employer or insurer that collects this Reduced Premium must pay the remaining 65% of the COBRA premium (the “COBRA Subsidy”) for the assistance eligible individual during the Subsidy Period.  However, the Stimulus Bill provides for that employer or insurer to claim a payroll tax credit equal to the amount of these COBRA Subsidy payments by complying with applicable IRS procedures. 

The Stimulus COBRA Rules also requires group health plans to offer a second COBRA enrollment period to each assistance eligible individual not enrolled in COBRA Coverage on February 17, 2009.  These second electors must be allowed to elect prospectively to enroll in COBRA coverage until the date that their COBRA Coverage eligibility otherwise would have ended if they had maintained COBRA Coverage since their termination.

Additionally, COBRA-covered group health plans that offer employees different plan options allow assistance eligible individuals the option to change their coverage choice from a higher cost option to a lesser cost option.  Group health plan administrators also must provide certain notifications to assistance eligible individuals concerning these changes.

 

“Assistance Eligible Individuals”

The Stimulus COBRA Rules only apply to qualified beneficiaries whose loss of coverage resulted from the “involuntary termination of employment” of a covered employee. The Stimulus Bill definition of “assistance eligible individual” generally includes any COBRA “qualified beneficiary” who meets all of the following requirements:

ü       Has a loss of coverage within the meaning of COBRA (“qualifying event”) as a result of the “involuntary termination of employment” of a covered employee from September 1, 2008 to December 31, 2009;

ü       Is eligible for COBRA Coverage at any time during the period beginning September 1, 2008 and ending December 31, 2009; and

ü       Elects COBRA coverage when first offered or as during the additional second election period required for assistance eligible individuals not enrolled in COBRA Coverage on February 17, 2009.

IRS Notice 2009-27 defines an “involuntary termination” as “a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services” based on all the facts and circumstances. 

For COBRA Premium Assistance purposes, the facts and circumstances determine whether a termination is involuntary. Thus, IRS Notice 2009-27 states that a termination designated as voluntary or as a resignation nevertheless will be considered involuntary where the facts and circumstances indicate that the employer would have terminated the employee’s services, and that the employee had knowledge that the employee would be terminated.

Notice 2009-27 identifies as examples of terminations that fall within this definition of “involuntary termination” as including the following facts and circumstances:

ü       The employer’s failure to renew a contract at the time the contract expires, if the employee was willing and able to execute a new contract providing terms and conditions similar to those in the expiring contract and to continue providing the services;

ü       An employee-initiated termination from employment if the termination from employment constitutes a termination for good reason due to employer action that causes a material negative change in the employment relationship for the employee;

ü       An involuntary reduction of hours of employment to zero hours, such as a lay-off, furlough, or other suspension of employment, resulting in a loss of health coverage;

ü       An employee’s voluntary termination of employment in response to an employer imposed reduction of hours of employment where the reduction in hours is a material negative change in the employment relationship for the employee;

ü       An employer’s action to end an individual’s employment while the individual is absent from work due to illness or disability (but not mere absence from work due to illness or disability before the employer has taken action to end the individual’s employment);

ü       A termination designated on account of “retirement” if the facts and circumstances indicate that, absent retirement, the employer would have terminated the employee’s services, and the employee had knowledge that the employee would be terminated;

ü       The covered employee resigned as the result of a material change in the geographic location of employment for the employee;

ü       A lockout initiated by an employer but not a work stoppage as the result of a strike initiated by employees or their representatives; and

ü       A termination elected by the employee in return for a severance package (a “buy-out”) where the employer indicates that after the offer period for the severance package, a certain number of remaining employees in the employee’s group will be terminated

Notice 2009-27 also clarifies that the termination of employment giving rise to the loss of group health plan coverage and the loss of the group health plan coverage both must occur between September 1, 2008 and December 31, 2009 in order for an individual to qualify as an assistance eligible individual. Consequently, if the involuntary termination occurs before September 1, 2008, but the loss of coverage resulting in eligibility for COBRA Coverage occurs after September 1, 2008 (but no later than December 31, 2009), Notice 2009-28 states that the individual will not qualify as an assistance eligible individual.  Likewise, where an individual’s involuntary termination occurs by December 31, 2009, but the loss of coverage resulting in eligibility for COBRA Coverage occurs after December 31, 2009, the qualified beneficiary will not qualify as an assistance eligible individual for purposes of the Subsidy COBRA Rules.  According to Notice 2009-27, where the involuntary termination of employment and loss of coverage as a covered employee or dependent occur between September 1, 2008 and December 31, 2009, the election of COBRA Coverage need not occur by December 31, 2009.

Many group health plans are drafted to provide that the date that employee or dependent coverage ends or changes as a result of an employment loss is the last day of the month or some other date after the actual date of the employment termination.  Under group health plans where the loss of coverage due to the qualifying event is delayed, Notice 2009-27 also reminds employers and plan administrators of the need to focus on how group health plan provisions, separation agreements and other related documents define when the loss of coverage occurs under a group health plan when applying these rules.

For purposes of COBRA, Notice 2009-27 states that when a loss of coverage under a group health plan occurs under these circumstances depends on how the group health plan treats the provision of health coverage between the date of the employment loss and the date of the resulting loss of employee and/or dependent coverage. If the plan treats the provision of health coverage as deferring the loss of coverage, Notice 2009-27 indicates the loss of coverage generally occurs when the individual ceases to be entitled to employee or dependent coverage on the same terms and conditions as would have applied had he not experienced the qualifying event.  However, if the plan treats the continued provision of health coverage from the termination date until employee or dependent coverage later ends as a result as reducing the period of required COBRA Coverage, then the loss of coverage occurs on the termination date or other later date.  Appropriate drafting is important to support the desired characterization.

 

Calculation of 35% of COBRA Premium

Based on the guidance in Notice 2009-27, many employers will want to terminate severance or other arrangements under which former employees are allowed to pay less than the maximum COBRA premium for some period of time.  According to Notice 2009-29,.the premium used to determine the 35% share that must be paid by (or on behalf of) an assistance eligible individual is the cost that would be charged to the assistance eligible individual for COBRA Coverage if the individual were not an assistance eligible individual. If absent the Stimulus COBRA Rules, the group health plan would require the assistance eligible individual to pay 102% of the “applicable premium” for continuation coverage, i.e., generally the maximum permitted, the Reduced Premium equals 35% of the 102% of the applicable premium. As no good deed goes unpunished, however, if the premium the group health plan would charge the assistance eligible individual is less than the maximum allowable COBRA premium, the Reduced Premium will be 35% of that lesser amount.  In determining whether an assistance eligible individual has paid 35% of the premium, payments on behalf of the individual by another person (other than the employer with respect to which the involuntary termination occurred) are taken into account.

 

Coverage Eligible For Premium Reduction

Notice 2009-27 also provides guidance about what types of group health plan coverage qualifies for premium reduction.  According to the Notice, the premium reduction is available for COBRA Coverage of any group health plan, except a health flexible spending arrangement (FSA) under section 106(c) offered under a section 125 cafeteria plan. This includes vision-only or dental-only plans, “mini-med plans” and certain health reimbursement accounts (HRAs). 

The Notice 2009-27 distinguishes exempted FSAs from covered health reimbursement arrangements (HRAs) for purposes of these rules.  According to Notice 2009-27, while an HRA may qualify as an FSA under section 106(c), the exclusion of FSAs from the premium reduction is limited to FSAs provided through a section 125 cafeteria plan, which would not include an HRA. 

Notice 2009-27 also indicates that retiree coverage can qualify for the premium reduction where the retiree coverage does not differ from the coverage made available to similarly situated active employees.

 

Premium Reduction Period Duration

Notice 2009-27 also provides guidance about when periods of coverage and the Premium Reduction Period begin and end.  Under the Stimulus COBRA Rules, the premium reduction applies as of the first period of coverage beginning on or after February 17, 2009 (February 17, 2009)  for which the assistance eligible individual is eligible to pay only 35% of the premium  and be treated as having made full payment.   For this purpose, a period of coverage is a monthly or shorter period with respect to which premiums are charged by the plan with respect to such coverage.  

According to Notice 2009-27, when the Premium Reduction Period begins for an assistance eligible individual depends on the period the plan charges COBRA premiums.  Where a group health plan requires an individual who loses coverage other than on the last day of the month who wishes to enroll in COBRA Coverage to pay a pro-rata portion of the monthly premium, Notice 2009-27 states the first period of coverage to which the premium reduction applies for an assistance eligible individual who loses coverage after February 17, 2009 generally is the individual’s first partial month of coverage.  A different rule applies when the assistance eligible individual elects COBRA Coverage under the second election period required by the Stimulus Bill Rules, however.  Whether a plan requires COBRA Coverage be paid for based on a calendar month or pro rata basis, March 1, 2009 is the beginning of the first period of coverage within the Premium Reduction Period for any assistance eligible individual enrolling during the second enrollment period and the Reduced Premium only applies to that individual for COBRA Coverage from March 1, 2009 through the end of his otherwise applicable Premium Reduction Period.

 

End Of Premium Reduction Period

An assistance eligible individual ceases to qualify for the premium reduction on the earliest of:

ü       The first date the assistance eligible individual becomes eligible for other group health plan coverage (with certain exceptions) or Medicare coverage,

ü       The date that is nine months after the first day of the first month for which the Stimulus Bill premium reduction provisions apply to the individual, or

ü       The date the individual ceases to be eligible for COBRA Coverage.

Notice 2009-27 confirms that the Premium Reduction Period of an assistance eligible individual ends on the first date he becomes eligible for other group health plan coverage or Medicare effect even if the assistance eligible individual does not enroll in the other group health plan coverage.  

According to Notice 2009-27, whether an offer of retiree coverage that is not COBRA Coverage simultaneously with the offering of COBRA Coverage ends the Premium Reduction Period depends on whether the retiree coverage is offered under the same group health plan as the COBRA Coverage or under a different group health plan.  If offered under the same group health plan, the offer of the retiree coverage has no effect on the Premium Reduction Period.  If offered under a different group health plan, the offer of retiree coverage that is not COBRA coverage ends the Premium Reduction Period.  However Notice 2009-27, however, If offered to someone whose eligibility for COBRA coverage arose between September 1, 2008 and February 17, 2009, the offer render the individual ineligible for the premium reduction only if the period the individual is given for enrolling in the retiree coverage extends to at least February 17, 2009.

Notice 2009-27 also addresses when eligibility for coverage under an HRA ends eligibility for the premium reduction.  It states that becoming eligible for HRA coverage ends the Premium Reduction Period unless the HRA qualifies as an FSA under section 106(c).   Under section 106(c), an FSA is health coverage under which the maximum amount of reimbursement which is reasonably available to a participant of the coverage is less than 500% of the value of the coverage. For this purpose, the maximum amount of reimbursement which is reasonably available is generally the balance of the HRA and the value of the HRA coverage would generally be the applicable premium for COBRA continuation of the HRA coverage.

Notice 2009-27 also clarifies that the Premium Reduction Period of an eligible individual may extend beyond December 31, 2009 for individuals who qualify as assistance eligible individuals on or before December 31, 2009.  For example, the Premium Reduction Period of an assistance eligible individual whose Premium Reduction Period begins on December 1, 2009 could extent until August 31, 2010, assuming the individual does not become eligible for other group health plan coverage or Medicare or lose eligibility for COBRA Coverage before that date.

With regard to the effect of Medicare eligibility on an assistance eligible individual’s Premium reduction Period, Notice 2009-27 indicates that an individual currently enrolled in Medicare when the involuntary termination of employment occurs is ineligible for premium reduction, even though they may be eligible to elect COBRA continuation coverage by paying the otherwise applicable unreduced COBRA premium.

 

Dealing With Assistance Eligible Individuals Not Eligible For Premium Subsidy Based On Eligibility For Other Group Coverage

Under the Stimulus Bill, assistance eligible individuals are required to provide notification and resume paying the unreduced usual COBRA premium when they become eligible for Medicare or other group health coverage.  Where an assistance eligible individual fails to provide the required notice and continues to take advantage of the premium reduction after his Premium Reduction Period terminates due to his becoming eligible for other coverage or Medicare, Notice 2009-27 states the employer is not responsible for recovering the additional premium or otherwise recouping the COBRA premium. 

 

Dealing With Assistance Eligible Individuals Subject to Phase Out of Premium Subsidy Eligibility Based On Income

The Stimulus COBRA Rules include tax provisions designed phase out the COBRA Subsidy for certain highly compensated employees by taxing a portion of those amounts.  Notice 2009-7 discusses the mechanics through which highly compensated employees can avoid this tax liability by electing to waive the Premium Reduction and Premium Subsidy. 

An assistance eligible individual who wants to make a permanent election to waive the right to the premium reduction makes the election by providing a signed and dated notification (including a reference to “permanent waiver”) to the employer or other person who is reimbursed for the premium reduction under the COBRA Premium Subsidy provisions of Code § 6432. No separate additional notification to any government agency. If an assistance eligible individual makes the permanent election to waive the right to the premium reduction, the individual may not later reverse the election and may not receive the premium reduction for any future period of COBRA Coverage in 2009 or 2010, regardless of modified adjusted gross income in those years.

Notice 2009-27 makes clear that these rules don’t allow employers to deny the Reduced Premium to these assistance eligible individuals.  According to Notice 2009-27, “Even if an assistance eligible individual’s income is high enough that the recapture of the premium reduction would apply, COBRA Coverage must be provided upon payment of 35% of the premium unless the individual has notified the plan that the individual has elected the permanent waiver of the premium reduction (or the period for the premium reduction has ended).

 

Second COBRA Election Period

The Stimulus Bill also requires group health plans to offer a second election period to assistance eligible individuals not enrolled in COBRA Coverage on February 17, 2009 whose employment terminated between September 1, 2008 and February 16, 2009.  Notice 2009-27 confirms that any individual (including a dependent) who did not have an election of COBRA Coverage in effect on February 17, 2009, but who would have been an assistance eligible individual if the election were in effect must be offered this second election period. For those electing COBRA Coverage during this second election period, the resulting coverage begins with the first period of COBRA continuation coverage beginning on or after February 17, 2009.   Notice 2009-27 confirms that this extended election period is available for all individuals who are qualified beneficiaries as the result of an involuntary termination during the period from September 1, 2008, through February 17, 2009, even if they still have an open COBRA election period as of February 17, 2009. If these individuals elect COBRA under their original COBRA election period, COBRA coverage is retroactive to their loss of coverage and the premium reduction does not apply to the periods of coverage prior to the first period of coverage beginning on or after February 17, 2009 (generally, periods of coverage before March 2009 for plans with monthly coverage periods).

If, as a result of the extended election period, an assistance eligible individual becomes eligible for COBRA Coverage under a group health plan that requires payment of COBRA premiums on a calendar month basis, the individual’s first period of coverage will begin on March 1 and the Reduced Premium only applies prospectively from that date. According to Notice 2009-27, this does not change even if the plan otherwise requires individuals who lose coverage before the last day of the month and who wish to enroll in COBRA continuation coverage to pay a pro-rata portion of the monthly premium for the first partial month of coverage.

In contrast, where a group health plan determines the required COBRA premiums based on the loss of coverage, Notice 2009-27 states that the first period of coverage begins on the first day after the loss of coverage and ends on the day of the following month corresponding to the day of the loss of coverage. For example, if the last day of coverage was October 3, 2008, the period of coverage runs from the fourth of the month to the third of the following month, and thus the first period of coverage on or after February 17, 2009, is the period March 4, 2009, through April 3, 2009.

Notice 2009-27 also discusses the operation of these rules as applied to certain HRAs

 

Who Pays The Premium Subsidy & Claims The Payroll Tax Credit

In previously issued guidance, the IRS indicated that between the sponsoring employer or union and a group insurer, the party that collects the Reduced Premium bears responsibility to pay the 65% Premium Subsidy then claiming the payroll tax credit under the Stimulus COBRA Rules.  According to Notice 2009-27, if the insurer and the employer of insured, single employer group health plan have agreed that the insurer will collect the premiums directly from the qualified beneficiaries, the insurer must treat an assistance eligible individual paying 35 of the premium as having paid the full premium, even before the employer pays the insurer the remaining 65%. If the insurer fails to treat a 35% payment by an assistance eligible individual as a payment of the full premium, the insurer may be liable for the excise tax under Code § 4980B(e)(1)(B), which applies to persons responsible for administering or providing benefits under the plan and whose act or failure to act caused (in whole or in part) the failure, if the person assumed responsibility for the performance of the act to which the failure relates.

 

For More Information or Assistance

If your organization needs help responding to the COBRA Subsidy Rules or other group health plan or other employee benefit or human resources matters, please contact Cynthia Marcotte Stamer.  Ms. Stamer and other members of Curran Tomko and Tarski LLP are experienced with advising and assisting employers with these and other labor and employment, employee benefit, compensation, and internal controls matters. If your organization needs assistance with assessing, managing or defending its wage and hour or other labor and employment, compensation or benefit practices, please contact Ms. Stamer at e-mail, (214) 270-2402; or your favorite Curran Tomko Tarski, LLP attorney.  For additional information about the experience and services of Ms. Stamer and other members of the Curran Tomko Tarksi, LLP team, see the Curran Tomko Tarski Website or Cynthia Marcotte Stamer, P.C. Website.

We hope that this information is useful to you. You can register to receive future updates and information about upcoming programs, access other publications by Ms. Stamer and access other helpful resources at CynthiaStamer.com For additional information about Ms. Stamer and her experience, see here or contact Ms. Stamer directly. If you or someone else you know would like to receive updates about developments on these and other human resources and employee benefits concerns, please be sure that we have your Currant contact information – including your preferred e-mail- by creating or updating your profile at CynthiaStamer.com.  If you would prefer not to receive these updates, please send a reply e-mail with “Remove” in the subject line to support@SolutionsLawyer.net. You also can register to participate in the distribution of these updates by registering to participate in the Solutions Law Press HR & Benefits Update Blog here.  For important information concerning this communication click here.


Mitigating Workplace Fallout of Pandemic Response

May 5, 2009

As the U.S. rushes to try to contain the spread of the swine influenza A (H1N1) virus infection (swine flu), businesses increasingly are facing employee leave requests and other employment and operational disruptions plans caused by school, day care or other closures and other business disruptions resulting from efforts to contain the disease while also working to take appropriate steps to prevent the spread of the disease within their own organizations.

Regardless of how deadly it ultimately proves to be, the pandemic proportion of the swine flu outbreak now ensures that most U.S. businesses will experience some disruption in operations as a result of the epidemic and efforts to contain it.

According to officials from the Centers for Disease Control and Prevention (CDC), as of 11:00 a.m. Eastern Time, 36 states had reported a total of 236 confirmed cases of swine flu and more cases are expected. That number includes the first U.S. swine flu fatality: a 22-month-old child from Mexico who died of the illness at a Houston, Texas hospital while visiting the United States last week. States currently hardest hit include New York (73 cases), Texas (41 cases), California (30 cases), Delaware (20 cases) and Arizona (17 cases). In the near future, however, CDC officials anticipate confirmed cases in all 50 states.

CDC officials and other experts continue to emphasize that the success of efforts to prevent the unnecessary spread of the disease depends largely on good health habits, limiting exposure to the virus and prompt diagnosis and treatment of afflicted persons. Employers can help reduce the risk that members of their workforce and their families will catch the virus by promoting good health habits and encouraging workers and their families to stay home and seek prompt treatment in the event of an illness. Simultaneously planning for and dealing with absences and other staffing challenges result from school, day care and other closings prevents a greater challenge for many employers, however.

Easy Preventive Safeguards

While the CDC says getting employees and their families to get a flu shot remains the best defense against a flu outbreak, it also says getting employees and family members to consistently practice good health habits like covering a cough and washing hands also is another important key to prevent the spread of germs and prevent the spread of respiratory illnesses like the flu. To help promote health habits within their workforce, many businesses may want to download and circulate to employees and families the free resources published by the CDC at http://www.cdc.gov/flu/protect/habits.htm. These and other resources make clear that Employers should encourage employees and their families to practice good health habits by telling employees and their families to take the following steps:

  • Avoid close contact with people who are sick. When you are sick, keep your distance from others to protect them from getting sick too.
  • Stay home when you are sick to help prevent others from catching your illness. Cover your mouth and nose.
  • Cover your mouth and nose with a tissue when coughing or sneezing. It may prevent those around you from getting sick.
  • Clean your hands to protect yourself from germs.
  • Avoid touching your eyes, nose or mouth.
  • Germs are often spread when a person touches something that is contaminated with germs and then touches his or her eyes, nose, or mouth.
  • Practice other good health habits. Get plenty of sleep, be physically active, manage your stress, drink plenty of fluids, and eat nutritious food.

Many businesses are promoting these and other conducts that help prevent the spread of disease by sharing educational materials such as the growing range of free materials provided by the CDC and others available at the government sponsored website, http://www.pandemicflu.gov. For instance, business can access and download free copies of the following publications at http://www.cdc.gov/flu/protect/habits.htm:

  • Cover Your Cough
  • Be a Germ Stopper: Healthy Habits Keep You Well
  • Flu Prevention Toolkit: Real People. Real Solutions
  • Stopping the Spread of Germs at Home, Work & School

Dealing With Lost Time & Productivity Challenges

Businesses also should begin preparing backup staffing and production strategies to prepare for disruptions likely to result if a significant outbreak occurs. Whether or not the disease afflicts any of its workers, businesses can anticipate the swine flu outbreak will impact their operations -either as a result of occurrences affecting their own or other businesses or from workflow disruptions resulting from safeguards that the business or other businesses implement to minimize swine flu risks for its workforce or its customers.

For many employers, however, planning for and dealing with requests for time off or other workplace disruptions resulting from pandemic containment efforts presents special challenges. While most employers have well established policies and procedures for providing medical leave to employees during periods of their own or a family member’s illness under the Family & Medical Leave Act (FMLA) or otherwise, many employers are experiencing difficulty in responding to leave requests of healthy employees necessitated by school or day care closings, suspected exposures, or other pandemic response disruptions.

Certainly, whether or not legally mandated, the CDC and other official advisories make clear that sick employees should not be in the workplace. Employers of course must provide medical leave as required by the FMLA or other similar state laws as well as any contractually agreed to leave. To better insulate their workforce against potential exposure to the virus, however, many employers also may wish consider temporarily modifying existing leave or other work policies with an eye to better defending their workforce against a major outbreak. In this respect, employers need to consider both how to respond to the present wave of the virus and to plan for the possible need to respond to another potentially stronger outbreak of the swine flu virus that the CDC and other experts caution likely may arise in the Fall or Winter.

As part of their efforts to insulate their workplaces against exposure to the virus, employers generally should discourage workers from coming to work if they or a family member are experiencing symptoms or have been exposed to the virus. For this reason, businesses generally evaluate workplace policies or practices that may pressure or encourage employees with swine flu or any other contagious disease to report to work. Employers should consider whether the potential risks make advisable adjustments to their current attendance, telecommuting, leave and paid time off and other policies.

In light of the current situation, many businesses may want to consider temporarily adjust their leave, telecommuting and other policies in light of the impending health risk. For instance, recognizing that the decision to close a school or child care facility in response to a known or suspected infection seeks to minimize the spread of the disease through exposure to other then undiagnosed cases, businesses generally should think twice about allowing employees to bring these potentially exposed children into the workplace. Instead, employers may wish to consider being more flexible in allowing employees to work from home or take leave to care for children whose schools or child care facilities are closed due to concerns about possible exposure to reduce the risk of creating unnecessary exposure in their workplace.

To help minimize financial pressures on workers to report to work when they may be ill or exposed to the virus, many employers also may want to consider providing or offering short-term disability insurance, expanding the availability of paid or unpaid leave or both.

Regardless of the specific choices a particular business makes, businesses need to take appropriate steps to document, implement, and communicate their decisions. If considering allowing or requiring employees to work from home, employers need to implement appropriate safeguards to monitor and manage employee performance, and to protect the employer’s ability to comply with applicable wage and hour, worker’s compensation, safety, privacy and other legal and operational requirements. They also should review and update family and medical leave act and other sick leave policies, group health plan medical coverage continuation rules and notices and other associated policies and plans for compliance with existing regulatory requirements, which have been subject to a range of statutory and regulatory amendments in recent years.

If considering allowing or requiring employees to work from home, for instance, employers need to implement appropriate safeguards to monitor and manage employee performance, and to protect the employer’s ability to comply with applicable wage and hour, worker’s compensation, safety, privacy and other legal and operational requirements. They also should review and update family and medical leave act and other sick leave policies, group health plan medical coverage continuation rules and notices and other associated policies and plans for compliance with existing regulatory requirements, which have been subject to a range of statutory and regulatory amendments in recent years.

In light of the growing responsibilities and exposures of business to medical privacy and disability liabilities associated with knowledge, collection, protection and use of information about the health and medical conditions of workers and their families, businesses also should review and update their procedures regarding the use, collection, disclosure, and protection of this and other sensitive information. Businesses, health care providers, schools, government agencies and others concerned about preparing to cope with pandemic or other infectious disease challenges also may want to review the publication “Planning for the Pandemic” authored by Curran Tomko Tarski LLP partner Cynthia Marcotte Stamer available at http://www.cynthiastamer.com/documents/speeches/20070530%20Pan%20Flu%20Workplace%20Privacy%20Issues%20Final%20Merged.pdf. Schools, health care organizations, restaurants and other businesses whose operations involve significant interaction with the public also may need to take special precautions. These and other businesses may want to consult the special resources posted at http://www.pandemicflu.gov/health/index.html.

Cynthia Marcotte Stamer and other members of Curran Tomko and Tarski LLP are experienced with advising and assisting employers with these and other labor and employment, employee benefit, compensation, and internal controls matters. Ms. Stamer in particular has worked extensively with health care providers, government officials, and businesses to plan for and deal with pandemic and other absence, disease management and disaster preparedness concerns. If your organization needs assistance with assessing, managing or defending its wage and hour or other labor and employment, compensation or benefit practices, please contact Ms. Stamer at cstamer@cttlegal.com, (214) 270-2402, or your favorite Curran Tomko Tarski, LLP attorney. For additional information about the experience and services of Ms. Stamer and other members of the Curran Tomko Tarksi, LLP team, see the http://www.cttlegal.com.


DOJ Antitrust Enforcement Actions Signal Need to Audit Adequacy of Employment, Ethics & Internal Controls Policies & Practices To Minimize Rising DOJ & Other Antitrust Exposures

April 23, 2009

U.S. businesses should review the adequacy of their existing antitrust Federal Sentencing Guidance Compliance policies and internal controls in light of a series of recently announced antitrust enforcement actions recently announced by the Department of Justice (“DOJ”).  U.S. and other businesses and their employees and agents who engage in prohibited antitrust activities face substantial criminal and civil penalties in actions brought by the DOJ, civil judgments brought by private plaintiffs, or both.  To effectively manage these exposures, businesses and leadership must ensure that their organization has in place appropriate employment, corporate ethics and internal controls and procedures for preventing, investigating and redressing potential violations.  The management and discipline of employees and other service providers that violate these and other compliance policies is an increasingly important responsibility of human resources and other management leaders.

 

On Monday (April 20, 2009), DOJ announced that two subsidiaries of the Swedish company Trelleborg AB, one based in Virginia and the other in France, have agreed to plead guilty and pay a total of $11 million in criminal fines for participating in separate conspiracies affecting the sales of marine products sold in the United States and elsewhere.  The plea agreements are among at least 9 major antitrust enforcement actions announced by the DOJ since the first of the year, including the longest sentence yet imposed for an antitrust criminal conviction.

 

Trelleborg Engineered Products Inc. &

Trelleborg Industries S.A.S. Plea Agreements

The plea agreement resolves a two-count felony charge filed in U.S. District Court in Norfolk, Va., against Virginia Harbor Services Inc., formerly known as Trelleborg Engineered Products Inc. (VHS/TEPI), a manufacturer of foam-filled marine fenders, buoys and plastic marine pilings headquartered in Clearbrook, Va.  Foam-filled marine fenders are used as a cushion between ships and either fixed structures, such as docks or piers, or floating structures, such as other ships. Foam-filled buoys are used in a variety of applications, including as channel markers and navigational aids. Plastic marine pilings are substitutes for traditional wood timber pilings and are often used in port and pier construction projects in conjunction with foam-filled fenders. According to the charges, VHS/TEPI participated in a conspiracy between December 2002 and August 2005 to allocate customers and rig bids for contracts to sell foam-filled marine fenders and buoys, and also participated in a separate conspiracy between December 2002 and May 2003 to allocate customers and rig bids for contracts to sell plastic marine pilings. Under the terms of the plea agreement, which is subject to court approval, VHS/TEPI has agreed to pay a $7.5 million criminal fine and to cooperate fully in the Department’s ongoing antitrust investigation. To date, six individuals and two corporations have pleaded guilty or agreed to plead guilty in the Antitrust Division’s ongoing investigation of fraud and collusion in the marine fenders and pilings industries.

 

In addition, a one-count felony charge was filed today in U.S. District Court in Fort Lauderdale, Fla., against Trelleborg Industries S.A.S. (TISAS), a manufacturer of marine hose headquartered in Clermont-Ferrand, France. TISAS is charged with participating in a conspiracy from at least as early as 1999 and continuing until as late as May 2, 2007, to allocate market shares, fix prices and rig bids for contracts to sell marine hose to purchasers in the United States and elsewhere. Marine hose is a flexible rubber hose used to transfer oil between tankers and storage facilities. Under the terms of the plea agreement, which is subject to court approval, TISAS has agreed to pay a $3.5 million criminal fine and to cooperate fully in the Department’s ongoing antitrust investigation. To date, three corporations have pleaded guilty or agreed to plead guilty in the Antitrust Division’s ongoing investigation in the marine hose industry. Twelve individuals have also been charged to date, nine of whom have pleaded guilty.

 

The plea agreements announced this week are part of a continuing DOJ investigation, which already lead to five former executives of TISAS and VHS/TEPI entering guilty pleas to participating in the conspiracies charged. Former VHS/TEPI president Robert B. Taylor was sentenced in January 2008 to serve 24 months in prison and pay a $300,000 criminal fine. Former VHS/TEPI chief financial officer Donald L. Murray was sentenced in March 2008 to serve 18 months in prison and pay a $75,000 criminal fine. William Alan Potts, a former vice president of VHS/TEPI, was sentenced in June 2008 to serve six months in prison and six months in home detention, and to pay a $60,000 criminal fine. Former TISAS executives Christian Caleca and Jacques Cognard were each sentenced in December 2007 to serve 14 months in prison and to pay criminal fines of $75,000 and $100,000, respectively.

 

Other Recent Antitrust Enforcement Activities

The plea agreements announced this week are the latest in a series of antitrust enforcement actions recently taken by the DOJ.  Since the first of the year alone, DOJ also has announced a series of other major antitrust enforcement actions, including, for instance:

 

On April 9, 2009, DOJ announced that Cargolux Airlines International S.A., Nippon Cargo Airlines Co. Ltd. and Asiana Airlines Inc. plead guilty and agreed to pay a total of $214 million in criminal fines to settle price fixing charges.

  • On March 31, a San Francisco federal grand jury indicted Hitachi Displays Ltd. executive Sakae Someya with conspiring with unnamed co-conspirators to suppress and eliminate competition by fixing the price of Thin Film Transistor-Liquid Crystal Display (TFT-LCD) panels sold to Dell Inc. for use in notebook computers.  With this indictment, four companies and eight individuals have been charged in the Department’s ongoing antitrust investigation into the TFT-LCD industry and more than $585 million in fines have been imposed as a result.
  • On March 10, Somey’s employer, Japanese electronics manufacturer Hitachi Displays Ltd., agreed to plead guilty and pay a $31 million fine for its role in a conspiracy to fix prices in the sale of TFT-LCD panels sold to Dell Inc.
  • On February 10, 2009, a federal grand jury in San Francisco indicted former Chairman and Chief Executive Officer of Chunghwa Picture Tubes Ltd. with conspiring with others to suppress and eliminate competition by fixing prices, reducing output and allocating market shares of color display tubes (CDTs) to be sold in the U.S. and elsewhere.  The indictment also charges C.Y. Lin with conspiring with others to suppress and eliminate competition by fixing prices for color picture tubes (CPTs) to be sold in the U.S. and elsewhere.
  • On February 3, 2009, a San Francisco federal grand jury indicted two former executives from Chunghwa Picture Tubes Ltd. (Chunghwa) and one former executive from LG Display Co. Ltd. (LG) for participation in a global conspiracy to fix prices of Thin Film Transistor-Liquid Crystal Display (TFT-LCD) panels.
  • On January 1, 2009, former high-level shipping executive Peter Baci was sentenced to serve the longest jail sentence ever imposed for a single antitrust charge, 48 months in jail, and to pay a $20,000 criminal fine for his role in an antitrust conspiracy involving the transportation of goods to and from the continental United States and Puerto Rico by ocean vessel by agreeing to allocate customers, agreeing to rig bids submitted to government and commercial buyers, and agreeing to fix the prices of rates, surcharges, and other fees charged to customers. Related antitrust charges remain pending in the U.S. District Court in Jacksonville against three other shipping executives: R. Kevin Gill and Gregory Glova, of Charlotte, N.C. and Gabriel Serra, of San Juan, Puerto Rico. A related obstruction of justice charge is also pending against a fifth shipping executive, Alexander Chisholm, of Jacksonville. 
  • On January 22, 2009, three air cargo carriers, LAN Cargo S.A. (LAN Cargo), Aerolinhas Brasileiras S.A. (ABSA), and EL AL Israel Airlines Ltd. (EL AL), plead guilty and agreed to pay criminal fines totaling $124.7 million for their roles in a conspiracy to fix prices in the air cargo industry, the Department of Justice announced today. Under the plea agreements, LAN Cargo, a Chilean company, and ABSA, a Brazilian company that is substantially owned by LAN Cargo, have agreed to pay a single criminal fine of $109 million. EL AL, an Israeli company, has agreed to pay a criminal fine of $15.7 million. According to the charges against the airlines, each airline engaged in a conspiracy in the United States and elsewhere to eliminate competition by fixing the cargo rates charged to customers for international air shipment.
  • Under a plea agreement announced January 15, 2009, Chang Suk “C.S.” Chung, a Korean LG executive, Chieng-Hon “Frank” Lin, a Taiwanese former executive from Chunghwa, and Chih-Chun “C.C.” Liu and Hsueh-Lung “Brian” Lee, Taiwanese current employees of Chungwha, agreed to serve a term of imprisonment, pay a criminal fine and assist the government in its ongoing TFT-LCD investigation.  

Businesses & Business Leaders Must Have

Effective Internal Controls & Compliance Practices

These DOJ actions and a host of others in recent years document provide examples of DOJ’s willingness to investigate and prosecute price-fixing, bid-rigging and other antitrust violations.  The felony penalties associated with federal antitrust violations bring antitrust sanctions within the purview of the Federal Sentencing Guidelines.  As a result, businesses that fail to take adequate steps to prevent or redress antitrust violations risk vicarious liability for violations committed but their employees or agents.  Furthermore, business leaders investigating suspected violations must exercise caution to appropriately investigate and redress alleged or suspected violations to both protect themselves and their organization against liability based on allegations of endorsement by tolerance, potential cover up or other misconduct in connection with the investigation and redress process. At the same time, timely investigation, oversight and redress can substantially mitigate these liability exposures under the Federal Sentencing Guidelines.  Accordingly, to prevent and position themselves and their organizations to defend against potential antitrust complaints, businesses and businesses leaders should both adopt appropriate policies prohibiting their organizations and its employees and agents from engaging in price-fixing, bid rigging and other anticompetitive practices prohibited by federal or state antitrust laws, as well as establish and administer well-documented training and oversight practices to prevent, detect and redress potential or attempted violations of these policies.

 

To effectively manage these exposures, businesses and leadership must ensure that their organization has in place appropriate procedures for preventing, investigating and redressing potential violations.  Among other things, businesses and their leaders should be certain their organization: 

  • Has up to date policies in place and a process to monitor regulatory and enforcement developments for necessary updates;
  • Can demonstrate that it is appropriately administering well-documented audit, training and enforcement practices to prevent and redress potential violations as part of its corporate ethics and human resources practices;
  • Uses appropriate vendor selection, contracting, audit and oversight processes to promote compliance by business partners, agents and others with which it does business;
  • Has identified experienced counsel and developed a process for engaging counsel to assist in the audit of ongoing compliance efforts as well as the timely conduct of internal investigations of possible infractions within the scope of attorney-client privilege;
  • Designated an ethics or compliance officer, or other appropriate party to receive and investigate suspected compliance concerns and reports;
  • Has effective privacy, investigations, employment and other policies and procedures to enable the business to investigate, discipline and defend employment actions against employees or other workers for improper conduct;
  • Has appropriate processes and procedures for responding to government investigations and private compliance complaints; and
  • Promptly investigates and responds to reports of infractions or other compliance concerns in an appropriate and well documented manner.

 

Curren Tomko and Tarski LLP and its attorneys have significant experience assisting businesses and business leaders to establish, administer, enforce and defend antitrust and other compliance and internal control policies and practices to reduce risk under federal and state antitrust and other laws covered by the Federal Sentencing Guidelines.  If you need assistance with these or other compliance concerns, wish to inquire about arranging for compliance audit or training, or need legal representation on other matters please contact Cynthia Marcotte Stamer, CTT Labor & Employment Section Chair, at cstamer@cttlegal.com, 214.270.2402; Edwin J. Tomko, CTT White Collar Crime Section Chair, at etomko@cttlegal.com, 214 270-1405 or any of the other following members of the Curren Tomko Tarski LLP team experienced in these and other internal controls matters.

 

 

 

For additional information about the experience and services of Ms. Stamer and other members of the Curren Tomko Tarksi, LLP team, see the Curren Tomko Tarski Website or Cynthia Marcotte Stamer, P.C. Website.

More Information

We hope that this information is useful to you. You can register to receive future updates and information about upcoming programs, access other publications by Ms. Stamer and access other helpful resources at CynthiaStamer.com.  For additional information about Ms. Stamer and her experience, see CynthiaStamer.com or contact Ms. Stamer directly. If you or someone else you know would like to receive updates about developments on these and other human resources and employee benefits concerns, please be sure that we have your current contact information – including your preferred e-mail- by creating or updating your profile at CynthiaStamer.com or registering to receive these Solutions Law Press HR & Benefits Update at the above link.

 


Texas Supreme Court Broadens Circumstances Where Texas Non-Competes May Be Enforced But Employers Must Still Exercise Care

April 23, 2009

Many Texas businesses view non-competition agreements as a critical component to their strategy to protect their trade secrets and other intellectual property.  In its April 19, 2009 decision in Frankfort Stein & Lipp Advisors, Inc. v. Fielding (“Frankfort Stein”), the Texas Supreme Court gave a another boost to the ability of Texas employers to enforce non-compete agreements signed by existing at-will employees during their employment under the Texas Covenants Not To Compete Act (the “Act”) Section 15.50, which governs the enforceability of employee agreements not to compete in Texas. Despite this helpful ruling, however, Texas employers still must exercise care to comply with all requirements of the Act if they want to position their non-compete agreements for enforceability in Texas.

 

Building on its prior October 20, 2006 employer-helpful decision in Alex Sheshunoff Management Services, L.P v. Johnson (“Sheshunoff”), the Texas Supreme Court in Frankfort Stein clarified that an employer’s implied covenant to provide confidential information to an at-will may constitute adequate consideration to support enforcement of a non-compete under the Act..  The holding expands the Supreme Court’s prior holding in Sheshunoff to apply to both express or implied employer covenants to provide confidential information.

 In Sheshunoff, the Texas Supreme Court previously ruled that that an employer’s express promise to provide confidential information to an at-will employee in exchange for the employee’s express promise not to disclose or use such information, may create an enforceable non-compete covenant under the Act. However, the Supreme Court made clear that employers that desire enforce non-competition agreements still must fulfill the Act’s requirement to provide access to confidential information, training or other appropriate consideration for the employee’s promise not-to compete and the other requirements of the Act before Texas courts will enforce an at-will employee’s agreement not to compete in Texas.

 

The Frankfort Stein decision further clarifies the Court’s interpretation of the Act in Sheshunoff by holding that an implied promise to provide confidential information to an at-will employee also can constitute the required consideration for the employee’s promise to disclose serve as the provision of confidential information required to support enforcement of a non-compete under Texas law.   

The Frankfort Stein decision may offer an additional opportunity for employers that have provided at-will employees access to confidential information to enforce a less than optimally drafted or implemented written non-competition agreement that otherwise complies with the Act under circumstances where the employer can establish it provided the information subject to an implied promise by the employee not to disclose the information.  To avoid the cost and uncertainty of proving the existence and scope of such an implied promise, however, Texas employers desiring to best position their non-compete agreements for enforceability should consult with experienced employment counsel for assistance in reviewing their existing non-competition agreements and practices.  These (and as appropriate, the employer’s employee handbook) should be written and administered:

ü       To require employees to sign non-competition agreements that expressly and appropriately set forth the employers promise to provide the confidential information conditional upon the employee’s agreement not to compete and to protect the confidential information;

ü        To ensure that the agreement appropriately defines confidential information and expressly requires that the employee protect and maintain the confidentiality of trade secrets and other confidential information;

ü       To ensure that the agreement incorporates other procedural provisions that can help minimize the cost and burden to the employer to enforce its provisions;

ü       To ensure that the agreement between the employer and the employee otherwise clearly fulfills all otherwise applicable conditions of the Act and to maintain the confidentiality of the information the requirements of the Act; and

ü       To position the employer to be able to easily prove that it actually engaged in the sharing of confidential information that the Sheshunoff decision identifies as a necessary step to enforce the non-competition agreement under Texas law.

Employers also should position themselves to best investigate possible breaches of these protections by securing written background check consents in accordance with the Fair Credit Reporting Act and ensuring that their handbooks and employment agreements include appropriate privacy, investigations and other policies.

Cynthia Marcotte Stamer and other members of Curren Tomko and Tarski LLP are experienced with advising and assisting employers with these and other labor and employment, employee benefit, compensation, and internal controls matters. If your organization needs assistance with assessing, managing or defending its wage and hour or other labor and employment, compensation or benefit practices, please contact Ms. Stamer at cstamer@cttlegal.com, (214) 270-2402; or your favorite Curren Tomko Tarski, LLP attorney.  For additional information about the experience and services of Ms. Stamer and other members of the Curren Tomko Tarksi, LLP team, see the www.cttlegal.com.