Risky Business

Don't Sweep the Breach Under the Rug! Notification Under the HITECH Act

The Human Equation, Inc.

As more and more personal information ends up being maintained in some form of electronic medium, the concern surrounding data security breaches has never been higher. Since the consequences of a breach can be devastating to those whose information has been compromised, proactive measures must be taken to limit the damage. One such measure involves providing prompt notice to those affected individuals that their sensitive information may have fallen into the wrong hands.

Many states have legislatively adopted this approach in the context of data security breaches involving financial information, such as credit card and social security numbers. Under these laws, organizations are required to promptly notify affected individuals that their financial information has been compromised. Upon receiving such notice, those individuals can then take appropriate measures to prevent the harm that typically flows from a data breach, such as fraudulent charges against credit or identity theft.

The concept of requiring early notice of a data security breach has now found its way into the health care arena. The Health Information Technology for Economic and Clinical Health Act, or the HITECH Act, which was included in the American Recovery and Reinvestment Act of 2009, requires covered entities under the Health Insurance Portability and Accountability Act (HIPAA) to provide notification in the event of a data security breach involving unsecured protected health information. As in the case of breaches involving financial information, the goal of the HITECH Act is to give those individuals whose unsecured protected health information was compromised as much notice as possible so they can take appropriate preventative steps to limit the damage.

The HITECH Act provides that a covered entity, as defined in HIPAA, that “accesses, maintains, retains, modifies, records, stores, destroys, or otherwise holds, uses, or discloses unsecured protected health information shall, in the case of a breach of such information…notify each individual whose unsecured protected health information has been, or is reasonably believed by the covered entity to have been accessed, acquired, or disclosed as a result of such breach.” Unsecured protected health information is information that is not rendered unusable, unreadable, or indecipherable to unauthorized individuals through the use of technologies or methodologies specified by the Secretary of the Department of Health and Human Services (HHS).

Satisfaction of the duty to notify of such a breach, which also applies to a business associate of the covered entity, must be accomplished within a reasonable time. Specifically, the required notification must be made “without unreasonable delay and in no case later than 60 calendar days after the discovery of the breach by the covered entity or the business associate.” Pursuant to the Act, a breach is treated as discovered as of the first day on which it is know to the covered entity or business associate or should reasonably have been known. Knowledge of the breach is imputed to the entity once any person that is an employee, officer, or other agent of the covered entity or business associate, other than the individual committing the breach, knows of the breach. This is the point in which the clock for notification begins to run.

According to the regulations interpreting the HITECH Act, the following elements, written in plain language, must be included in the notification:

• A brief description of what happened, including the date of the breach and the date of the discovery of the breach, if known;
• A brief description of the types of unsecured protected health information that were involved in the breach, such as whether full name, social security number, date of birth, home address, account number, diagnosis, disability code, or other types of information were involved;
• Any steps individuals should take to protect themselves from potential harm;
• A brief description of what the involved covered entity is doing to investigate the breach, to mitigate harm, and to protect against further breaches; and
• Contact procedures for individuals to ask questions or to learn additional information, which shall include a toll-free telephone number, an email address, website, or postal address.

The HITECH Act details the different methods for providing notification of a breach. The first method is written notification by first-class mail to the individual at the last known address of the individual. If the individual in question currently agrees to electronic notice, then the notification may be accomplished by electronic mail.

The second method applies in cases in which there is insufficient or out-of-date contact information that precludes written notification. In such cases, substitute notification in a manner that is reasonably calculated to reach the affected individuals may be undertaken by the covered entity. If the breach involves fewer than ten individuals, then the substitute notice may be provided by an alternative form of written notice, telephone, or other means. If the breach involves ten or more individuals, then the substitute notice shall be in the form of either a conspicuous posting for a period of 90 days on the home page of the covered entity’s website, or a conspicuous notice in a major print or broadcast media in geographic areas where the individuals affected by the breach likely reside. These postings must include a toll-free telephone number where individuals can learn whether their unsecured protected health information was included in the breach. The toll-free telephone number must remain active for at least 90 days.

The final method of notification under the HITECH Act applies in cases deemed by the covered entity to require urgency because of possible imminent misuse of the unsecured protected health information. In such cases, the covered entity may provide information to affected individuals by telephone or other means, as appropriate, in addition to providing the required written notification.

In cases involving a breach of more than 500 residents of a state or jurisdiction, a covered entity must notify prominent media outlets serving such state or jurisdiction. Such notification must be accomplished without unreasonable delay and in no case later than 60 calendar days after discovery of the breach. In such cases, the covered entity must also notify the Secretary of the HHS. In the case of breaches involving less than 500 individuals, a covered entity is required to maintain a log or other documentation of such breaches, and, not later than 60 days after the end of each calendar year, the covered entity must provide such information to the Secretary.

While the HITECH Act provides several timelines for providing notification of the breach, a covered entity may be relieved of the strict time requirements if a law enforcement official believes that providing notification of a breach would impede a criminal investigation or cause damage to national security. In such cases, the covered entity may delay providing notification in the manner requested by the law enforcement official.

The regulations interpreting the HITECH Act apply with respect to breaches of unsecured protected health information occurring on or after September 23, 2009. However, the HHS has indicated that it will not begin imposing sanctions for failure to provide the required notice until after February 22, 2010. Thus, covered entities and their business associates have a grace period to update their internal policies and procedures in order to comply with the HITECH Act’s provisions. However, despite this grace period, the implementation of the HITECH Act’s data breach notification provisions should serve to reinforce the principal that hiding the existence of a data breach is often considered the bigger misdeed than the breach itself.

To learn more about HIPAA, please click here.

Insuring Against Claims Brought Under the Fair Labor Standards Act

Setnor Byer Insurance & RIsk

 

Employers face numerous federal laws that govern the employment relationship. These laws, such as Title VII of the Civil Rights Act, the Family and Medical Leave Act, and the Americans with Disabilities Act, impose requirements on employers regarding the manner in which they interact with their employees. If these requirements are overlooked, employers can expect to be called upon to pay a potentially substantial damage award to the aggrieved employee. While avoiding a violation of all applicable employment laws is the goal of every organization, there is one law which employers should be concerned about above the others—the Fair Labor Standards Act.

 

The Fair Labor Standards Act (FLSA) is the federal law that establishes the minimum wage and that governs the payment of overtime compensation. Its broad applicability, the manner in which it was drafted, and its complex and highly technical requirements, make it one of the most feared federal employment laws. The significance of potential FLSA violations has only increased since the economy began taking a turn for the worse because the ever-increasing number of laid-off employees has served to increase the number of potential plaintiffs.

 

The FLSA has been described as the perfect plaintiff’s law. Consider that in most cases, the FLSA’s attorney’s fee provision operates to only benefit the employee. Under the FLSA, an employer who successfully defends an employee’s claim is typically not entitled to an award of attorney’s fees. The FLSA also allows a single employee to file a lawsuit on behalf of all similarly situated employees. Under the FLSA’s collective action provision, the burden a plaintiff must satisfy before being authorized to notify all potential class members is relatively low. This means that an employer may be faced with the prospect of defending a collective action involving dozens, or even hundreds, of current and former employees.

 

In addition to the procedural benefits afforded employees under the FLSA, the complexity of the law itself serves to increase the level of concern faced by employers. Unlike laws that prohibit discrimination or harassment, which are relatively easy to understand, the FLSA is replete with complex and technical provisions which, in many cases, are counterintuitive. For example, when does the amount of time an employee spends on a break constitute hours worked? If an employee is compensated at two or more different rates, how is the overtime calculated? When can an employer make salary deductions without jeopardizing the employee’s exempt status? If an employee violates company policy and works overtime without permission, does the employer have to pay the employee overtime? In many cases, the answers to these questions cannot be obtained by relying on common sense. So, in addition to being relatively plaintiff-friendly from a procedural standpoint, the FLSA’s complex and highly technical nature increases the likelihood of a violation.

 

Given the confluence of these factors, it should not be surprising to discover that literally thousands of lawyers and law firms have developed a niche practice involving nothing more than filing lawsuits under the FLSA. These firms seek out recently laid-off employees for the purpose of putting their former employer’s compensation practices under a microscope. And in most cases, the employer’s attorney will likely recommend settling the lawsuit as soon as possible.

 

Electing to settle the lawsuit early is virtually predetermined by the FLSA itself. In most cases, the employee will be entitled to a relatively small amount of unpaid wages. The real evil lurking behind the lawsuit is the attorney’s fees. Almost immediately after filing the lawsuit, the amount of attorney’s fees that the employee will be entitled to receive from the defendant-employer likely dwarfs the amount that may have been due the employee under the FLSA. This amount does not include the amount the employer will have to pay its own attorney. From a purely economic standpoint, it makes more sense to settle the case early for $10,000 and be done with it, than it does to litigate the case by paying at least twice that amount for the employer’s own attorney, and still face the prospect of having to pay the employee's damages plus the employee’s attorney’s fees. Thus, the most common course of action is to settle the lawsuit, even if the employer has a valid defense to the employee’s allegations.

 

These reasons, coupled with the surge in lawsuits brought under the FLSA, compelled many insurance companies to exclude claims brought under the FLSA from standard employment practices liability insurance (EPLI) policies. Since the numbers simply did not support insuring against FLSA claims, FLSA exclusions found their way into virtually every EPLI policy.

 

However, some insurance companies are beginning to offer defense coverage for FLSA claims in their EPLI policies once again. Although the coverage may be subject to a sub-limit, some coverage is being provided nonetheless, oftentimes at very reasonable premium rates. By purchasing this coverage, employers no longer need to be held hostage by the plaintiff-friendly FLSA. The existence of such coverage gives employers, through their insurance company, the option of actually defending against such claims rather than being forced by the economies to settle. In the current economy, no amount of money is considered disposable, and by obtaining an EPLI policy that offers coverage for FLSA claims, employers no longer have to feel compelled to buy their way out of a lawsuit brought under the FLSA.

 

If you would like to learn more about obtaining an employment practices liability insurance policy to insure against FLSA claims, contact us.

Cold & Flu Season with a Twist: Is Your Workplace Ready for the Swine Flu?

By Martin Salcedo
The Human Equation

As summer turns into fall, the normal din of the workplace will slowly but surely be supplemented with coughs, sniffles, and sneezes. Those workers who are not calling in sick will be busy wiping their noses and stifling their coughs. Though employers have nimbly handled cold and flu seasons of years past, the 2009 version holds the promise of something much different, and possibly much worse, courtesy of the H1N1 influenza virus—a.k.a., the swine flu.

According to the World Health Organization, the swine flu has entered the pandemic phase. A pandemic, or global disease outbreak, typically involves the emergence of a new virus for which there is little or no immunity in the human population, which is capable of causing serious illness, and which spreads easily from person to person on a global scale. Since the swine flu satisfies these criteria, it must be considered a threat capable of causing significant disruption and harm.

Given the potential consequences of a swine flu outbreak, the need to protect one’s home and family is obvious. However, what should not be overlooked is preparation and protection in the workplace, since the amount of time spent in the workplace often exceeds the amount of time spent elsewhere. Thus, in the event of a swine flu outbreak, employers will play a key role in protecting their employees’ health and safety, as well as limiting the impact on the business itself. Accordingly, employers must have a contingency plan in place for dealing with a swine flue outbreak.

The measures that must be taken to protect the workplace and the workforce must be consistent with the risk of occupational exposure in a particular work environment. The level of risk depends, in part, on whether jobs require close proximity to potentially infected people, or whether they are required to have either repeated or extended contact with known or suspected sources of the swine flu. The significance of proximity to infected people stems from the manner in which the flu virus spreads among people.

Influenza is thought to be primarily spread through large droplets that directly contact the nose, mouth, or eyes. These droplets are produced when infected people cough, sneeze, or talk, thereby sending relatively large infectious droplets and very small sprays into the nearby air. To a lesser degree, human influenza is spread by touching objects contaminated with the virus and then transferring the infected material from the hands to the nose, mouth, or eyes.

Relying on the manner in which the flu virus may be transmitted from person to person, the Occupational Safety& Health Administration (OSHA) classified the risk of occupational exposure in the following manner:

• Very High Exposure Risk occupations are those with high potential exposure to high concentrations of known or suspected sources of pandemic influenza during specific medical or laboratory procedures. Health care and medical laboratory personnel performing procedures on infected individuals or handling infected specimens typically fall into this category.

• High Exposure Risk occupations are those with high potential for exposure to known or suspected sources of pandemic influenza. Health care professionals and medical transport personnel required to remain in close proximity with infected individuals typically fall into this category.
• Medium Exposure Risk occupations include jobs that require frequent, close contact (within 6 feet) to other people such as coworkers and the general public. Teachers and those working in high-density work environments typically fall into this category.
• Low Exposure Risk occupations are those that do not require contact with people known to be infected nor require close contact with the public, such as typical office employees.

Determining the level of risk exposure should be the first step to devising a plan for the prevention of spreading the swine flu virus in the workplace. For example, those working in a very high risk exposure occupation may consider requiring the use of personal protective equipment, such as gloves, respirators, or facemasks. Employers operating a workplace with a low exposure risk would likely implement a more subtle approach to preventing the spread of swine flu in the workplace.

However, regardless of the level of exposure risk, there are steps every employer should take to reduce the risk of spreading the swine flu in the workplace. These steps include:

• Avoiding crowded settings, such as meetings, as much as possible. This can be accomplished by keeping necessary meetings as short as possible, and by using teleconferences, virtual meetings, etc. in lieu of physical meetings.

• Encouraging sick employees to stay at home by letting them know that they will not suffer any adverse consequences by missing work due to illness.
• Encouraging employees to wash their hands frequently with soap and water or with a hand sanitizer. Employers should consider providing adequate cleaning materials to their workforce.
• Encouraging employees to avoid touching their noses, eyes, and mouths.
•  Encouraging employees to cover their coughs and sneezes with a tissue and disposing of tissues in no-touch trash receptacles. Employees should wash their hands immediately after coughing, sneezing, or blowing their nose.
• Encouraging employees to avoid close contact (within 6 feet) with coworkers and customers and to avoid shaking hands.
• Keeping frequently touched common surfaces, such as telephones, computer equipment, and door handles, clean.
• Encouraging employees from using other workers’ phones, desks, offices, or equipment.
• Limiting unnecessary visitors in the workplace.

Implementing these preventative steps can go a long way towards reducing the likelihood of an outbreak in the workplace. Additionally, employers should engage their state and local health departments to stay current on any new developments involving the swine flu. Since constant change is characteristic of a pandemic, employers must ensure they are operating with the most current information.

As with any other threat to the workplace and the workforce, such as a natural disaster, the only way to successfully mitigate the damage is to plan ahead. Without exception, employers should anticipate the possibility of a swine flu outbreak affecting their workforce, and should have a contingency plan in effect to handle the event, because any business operation that fails to plan ahead may find the 2009 version of the cold and flu season to be its last.

 

Did You Know...Employee Dishonesty

By: Tiffany Luongo, Esq.
Risk Management Group, Setnor Byer Insurance & Risk

Did you know that eight out of ten crimes against businesses are carried out by employees? Workplace fraud and employee theft are more prevalent than ever: It is estimated that the average American business loses six percent of its total annual revenues due to some form of employee fraud. Small businesses are particularly vulnerable to occupational fraud and abuse because they usually cannot afford extensive safeguards against these risks, nor can small firms easily absorb the large losses to which employee fraud and theft can lead.

Most business owners prefer to think of their employees as loyal, trustworthy and honest, and are unwilling to accept the reality that those whom they regard as “family” might be stealing from them. But there are many reasons why an employee may be tempted to defraud an employer, not the least of which is financial pressure on the employee. Also, a dishonest employee may attempt to rationalize a crime with such excuses as “The company will never miss this money” or “This isn’t really stealing because I’m not being compensated as I deserve.” 

Typically, losses attributable to employee fraud can range from relatively small, one-time thefts to long-term schemes that go undetected for years. Statistics indicate that the average length of time that an employee fraud goes undetected is eighteen months, during which time an employer can lose enormous sums of money. That’s why early detection of employee fraud is vital. To protect against this ever-present risk, companies would be wise to establish loss prevention programs that include training in fraud prevention and detection for all managers.
Additionally, sound controls must be in place to prevent employee fraud, with thorough reviews of these loss control practices occurring regularly. 

But no loss prevention program is foolproof, which is why all companies ought to obtain separate employee dishonesty insurance coverage.  Under virtually all commercial property policies, employee dishonesty coverage, also known as employee theft coverage, is a standard exclusion. But employee dishonesty insurance is specifically designed to protect an employer from financial loss due to the fraudulent activities of an employee or group of employees, including such employee-driven crimes as embezzlement and internal theft. No business owner wants to believe that employee dishonesty insurance is necessary, yet without such coverage, a business is severely exposed to potentially devastating losses. That’s why no business insurance program is complete without appropriate employee theft coverage. 

To learn more about how you can protect your business from employee dishonesty, contact us.

The Downside and Economic Risk of Email, Web and Other Digital Communications

The ease with which a brick and mortar business can transform into an e-commerce operation, at least to some degree, can be startling. What was once accomplished face-to-face is now done virtually. What was once kept in a filing cabinet is now stored on electronic databases. Pens and stamps have been replaced by PIN’s and clicks. In the blink of an eye, even those who swore they would never do business in the cyber-world are now making considerable efforts to expand their business by establishing a virtual presence.

Even those who do not consider their business to be a typical online operation are finding that more and more of their processes are being done electronically. Those who would readily dismiss the suggestion that their operation is technology-based routinely rely on the Internet, email, computers, networks, databases, online storefronts, and even their own websites to conduct and expand their business.

Since such a transformation in business practices often leads to new liability and damage exposures that were previously nonexistent, it is not uncommon for businesses to find that they have outgrown their insurance coverage. This is understandable since those charged with managing risk typically focus on the traditional exposures ordinarily covered by an organization’s general property and liability insurance policies. Unfortunately, in the context of risks associated with the use of technology in commerce, these policies do not offer the protection required to keep pace with developing business practices.

The risks associated with the use of technology in commerce can be significant, and if they are not properly mitigated and insured against, the consequences may be devastating. Thus, it is important for every business to conduct an audit of potential risk exposures stemming from the use of technology.

A business may be exposed to unique risks if it:

• generates revenue online;
• advertises online; 
• maintains a website;
• deals with clients, customers, suppliers, partners, etc, online;
• relies on computers and networks to conduct business;
• stores and uses valuable or confidential personal information on internal or external networks or servers;
• outfits its sales or support staff with portable devices, such as laptops or PDA’s; or
• uses a computer network to control production, inventory, delivery, etc.

Perhaps the most surprising part of this list is that an operation does not need to conform to the stereotypical dot.com image in order to be exposed to traditional dot.com-like risks. The nearly universal integration of technology into the business world means that virtually every organization faces at least some technology-based exposures.

These exposures can be broadly categorized as first-party and third-party risks. First-party risks include liabilities involving data recovery, business income, denial of service, virus or hacker sabotage, and theft of system resources. Third-party risks include liabilities involving theft or disclosure of data, damage or loss to someone else’s data, media liability for website content, privacy liability, network security, malicious sabotage, malicious virus, and administrative errors.

If one of these risks comes to pass, it can be an extremely expensive. For example, many states, including Florida, New York, and California have enacted laws requiring businesses to notify their customers in the event of a breach of security involving computerized personal information, such as names, social security numbers, driver’s license numbers, and account or credit card numbers. A business that stores such information electronically is at risk of having to comply with these statutes even if the business has absolutely no online retail components. The loss of a salesperson’s laptop computer containing such information may require a business to initiate the required notice protocols, the expense of which may be debilitating.

While businesses can take steps to minimize exposures, it is unlikely that any efforts will operate to completely insulate an organization from the possibility of loss. Therefore, businesses should obtain insurance that is specially designed to meet specific operations and risks. There are many insurance products which can be tailored to match exposures to coverages. Given the scope of the risk exposure, good business judgment demands that an organization look into updating their insurance coverage to cover all of their risks, not just the traditional ones.

If you would like to learn more about how we can help you obtain the necessary insurance to cover your business, please contact us.

Qualifying Exigency Leave: A New Type of FMLA Leave that Employers Need to Understand

By: Carol Incarnacao

What happens when an employee’s family member has been called to active military duty? Is the employee eligible for time off under the Family and Medical Leave Act (FMLA)? Last year, an employer might have directed the employee to deal with any issues on his or her own time. Now, however, with the passing of the National Defense Authorization Act (NDAA) in 2008 and the issuance of the Department of Labor’s FMLA regulations in 2009, an employer might have to respond, “How long will you be out?”

Congress passed the FMLA in 1993 to help employers and employees balance professional and personal demands. The FMLA entitles employees to take leave in order to address health and family issues without jeopardizing their job security. Eligible employees can take a leave of up to 12 workweeks during a 12-month period for a variety of reasons relating to family demands, such as the birth or adoption of a son or daughter; the need to care for a spouse, child, or parent; or the need to deal with an employee’s own serious health condition. 

In response to the country’s current military involvements, Congress passed the NDAA to amend the FMLA to include two additional types of leave that specifically address the needs of employees whose family members are part of the U.S. Armed Forces. Although the NDAA essentially created two additional types of leave, military caregiver leave and qualifying exigency leave, this article will focus on the general requirements of the qualifying exigency leave entitlement.

Pursuant to the FMLA’s qualifying exigency leave provision, a covered employee is entitled to a total of 12 workweeks of unpaid leave in a given 12-month period for qualifying exigencies arising out of the fact that the employee’s spouse, son, daughter, or parent is on active duty, or has been notified of an impending call or order to active duty, in support of a contingency operation. A contingency operation is generally a military operation in which members of the armed forces are or may become involved in military actions, operations, or hostilities against an enemy or opposing military force.

According to the regulations, “qualifying exigencies” include:

• Up to seven days of leave to deal with issues arising from a covered military member’s short notice deployment, which is a deployment on seven or fewer days of notice;
• Military events and related activities, such as official ceremonies, programs, or events sponsored by the military, or family support or assistance programs and informational briefings sponsored or promoted by the military, military service organizations, or the American Red Cross that are related to the active duty or call to active duty status of a covered military member;
• Qualifying childcare and school activities arising from the active duty or call to active duty status of a covered military member, such as arranging for alternative childcare, providing childcare on a non-routine, urgent, immediate need basis; enrolling or transferring a child to a new school; and attending certain school and daycare meetings if they are necessary due to circumstances arising from the active duty or call to active duty of the covered military member;
• Making or updating financial and legal arrangements to address a covered military member’s absence, such as preparing powers of attorney, transferring bank account signature authority, or preparing a will or living trust;
• Attending counseling provided by someone other than a health care provider for oneself, the covered military member, or a child of the covered military member, the need for which arises from the active duty or call to active duty status of the covered military member;
• Rest and recuperation leave of up to five days to spend time with a covered military member who is on short-term, temporary, rest and recuperation leave during the period of deployment;
• Attending certain post-deployment activities within 90 days of the termination of the covered military member’s duty, such as arrival ceremonies, reintegration briefings, and any other official ceremony or program sponsored by the military, as well as addressing issues arising from the death of a covered military member; and
• Any other additional activities that the employer and employee agree is a qualifying exigency which arose out of the covered military member’s active duty or call to active duty status.

It is important to note that the family member whose military service qualifies the employee for this type of leave must be a covered servicemember of the reserve components of the Armed Forces who is either on active duty or who has been called to active duty status. Thus, for purposes of this type of leave, members of the regular Armed Forces are excluded. Moreover, a call to active duty for purposes of leave taken because of a qualifying exigency refers to a Federal call to active duty. State calls to active duty are not covered under the FMLA unless the order came from the President of the United States.

When calculating the applicable 12-month leave period, an employer may use one of the following four methods:

• use the calendar year;

• use any fixed 12-month “leave year,” such as a fiscal year or the employee’s anniversary date;
• use the 12-month period measured forward from the date of the employee’s first FMLA leave; or
• use the “rolling” 12-month period measured backward from the date an employee uses any FMLA leave.

While the first three methods require no explaining, the rolling method is more complicated. Under the rolling method, each time an employee takes FMLA leave, the remaining leave entitlement would be any balance of the 12 weeks which has not been used during the immediately preceding 12 months. For example, assume that Employee A took four weeks of FMLA leave for a qualifying exigency beginning August 10, 2008; then four more weeks beginning December 15, 2008; and four more weeks beginning March 5, 2009.  If this individual’s  employer has adopted the rolling method of calculating the 12-month leave period, then Employee A would recoup each day of FMLA leave starting on August 10, 2009, then again on December 15, 2009, and again on March 5, 2010.

Qualifying exigency leave may be taken intermittently or on a reduced leave schedule. Employees have a general duty to make a reasonable effort to avoid unduly disrupting the employer’s operation. Moreover, an eligible employee may elect, or an employer may require the employee to substitute, any accrued paid vacation leave, personal leave, or family leave the employee has accumulated for some or all of any type of FMLA leave, including qualifying exigency leaves.

The FMLA requires that an employee seeking leave because of a qualifying exigency must notify his or her employer as soon as is practicable by the employee if the leave is foreseeable. As soon as practicable means as soon as both possible and practical, taking into account all of the facts and circumstances. In some cases, such notice must be given to the employer either the same day or the next business day after the employee becomes aware of the need for FMLA leave. And it is important to note that an employee does not need to mention “FMLA” in order to be protected by its provisions.

When faced with an employee requesting leave because of a qualifying exigency, an employer may require the employee to provide a copy of the covered military member’s active duty orders or other documentation issued by the military. The employee only needs to provide this information once.

An employer may also require that the leave be supported by a certification from the employee. In most cases, the employer should request the certification at the time the employee gives notice of the need for leave, or within five business days thereafter, if the leave was foreseeable. If the leave was unforeseeable, then the employer should request certification within five business days after the leave commences. The employee has 15 calendar days to comply with the request unless it is not practical for the employee to do so.

The employee’s certification in support of the qualifying exigency leave should set forth the following information:

• a statement or description, signed by the employee, of the appropriate facts regarding the qualifying exigency, including the type of qualifying exigency and any available supporting documentation;
• approximate dates;
• the estimated frequency and duration of the leave, if intermittent; and
• the appropriate contact information if the exigency leave involved meeting with a third party.

Since it is unlawful for an employer to interfere with, restrain, or deny the exercise of any rights granted by the FMLA, employers must remain diligent in their efforts to ensure compliance. And, while losing a valued employee for a protracted length of time can be disruptive to an employer, Congress, in extending FMLA protections to servicemembers’ families, has deemed this a sacrifice that an employer must make. 

To learn more about preventing employment-related liabilities, click here.

Did You Know...

By: Tiffany Luongo, Esq.
Risk Management Group, Setnor Byer Insurance & Risk

Business owners commonly agree to accept the liability of another party, in a practice known as "risk transfer.”  Contractual risk transfer is a non-insurance contract between two parties whereby one agrees to indemnify and hold another party harmless for specified actions, inactions, injuries, or damages. The ideal use and true purpose of contractual risk transfer is to place the financial burden of a loss on the party best able to control or prevent the incident leading to injury or damage.  However, in practice, some parties attempt to contractually absolve themselves of responsibility for injury or damages they are solely liable for. 

When entering into a contract with another company or a government entity, business owners often find themselves agreeing to insurance terms that may not be supported by their current insurance program.  In business contract situations, it is common for the parties with the most bargaining power, such as large general contractors, corporations, and government entities, to demand onerous insurance requirements from the other party to the contract. A few examples:

• requiring outdated additional insured endorsement language in the contract;
• demanding that the commercial general liability policy continue in force, with no specific termination date, even after all work has been completed;
• forbidding any exclusionary language for risks such as pollution, mold, or earth movement;
• asking for omnibus wording that essentially requires anyone and everyone be listed as additional insureds; and
• requiring that language in the standard certificate of insurance form be modified or deleted.

Typically, most insureds expect their commercial general liability policies to support all of the risk transfers outlined in a contract, but this is not always the case.  In fact, the coverages sought for those risks may be unavailable from the current insurance carrier or generally unavailable in the insurance marketplace as a whole. The result is that the risk is ineffectively transferred or not transferred at all, contrary to the expectations of all parties.  So, if one party to the contract does not fulfill its obligations by failing to provide additional insured status or to obtain proper coverage, litigation may result in the form of a breach of contract action. That’s why it’s essential for business owners to understand insurance requirements before agreeing to meet them. Be sure to consult your insurance agent to assist you with this analysis. 

For more information about properly insuring against contractual risk transfers, contact us.

 

Never Trust Anyone Over Forty: Supreme Court Rules in ADEA Mixed-Motive Case

By Martin Salcedo, Esq.
The Human Equation, Inc.

In one of the last cases handed down before the end of the term, the United States Supreme Court significantly changed the landscape for cases brought under the Age Discrimination in Employment Act (ADEA). As a result, those employees who are 40 years old or older are probably sleeping a little less soundly than they were before the Court issued its opinion in Gross v. FBL Financial Services, Inc.

At 54, Jack Gross, the claims administration director for FBL Financial Services, was reassigned to the position of claims project coordinator. Although his employer considered the reassignment a consequence of corporate restructuring, Mr. Gross considered it a demotion. Consequently, Mr. Gross brought a lawsuit against his employer under the ADEA, which makes it unlawful for an employer to take adverse action against an employee “because of such individual’s age.”

At trial, Mr. Gross introduced evidence suggesting that his reassignment was based, at least in part, on his age, which made this a mixed-motive case because there was evidence that the reassignment was made for a legal reason (restructuring) and an illegal reason (age). The jury believed the defendant violated the ADEA and awarded Mr. Gross $46,945 in lost compensation. His employer appealed the verdict and the case ultimately made its way to the United States Supreme Court.

The parties asked the Court to determine whether a plaintiff must present direct evidence of discrimination to obtain a mixed-motive jury instruction in a non-Title VII case. This question is significant because of the manner in which parties prove their respective cases under the burden-shifting structure.

Unlike a Hollywood courtroom drama, discrimination cases rarely involve a smoking gun. Inadequately deleted e-mails or surreptitiously recorded conversations do not typically save the day for an aggrieved employee. More often, discrimination must be proven through circumstance and inference.

To facilitate the process, the Supreme Court outlined a burden-shifting model wherein once the employee establishes the basic elements of his or her case, the burden shifts to the employer to articulate a legitimate, non-discriminatory reason for the allegedly illegal employment action. Thereafter, the employee has the burden of disproving the employer’s reason. This structure allows the jury to focus on the employer’s stated reason for taking an adverse employment action rather than considering all possible justifications under the sun. Once all of the evidence has been submitted, the jury will essentially be instructed to reach a verdict for whichever party they found more convincing.

In cases involving mixed-motives, like this one, the proof structure is a bit more complicated. Under established law, rather than making a preliminary showing, a plaintiff must submit evidence that discrimination was a motivating factor for the adverse employment action. Upon providing such evidence, the burden shifts to the employer to show that it would have taken the same action even without the illegal consideration.

Regardless of whether a case involves a mixed-motive, the burden-shifting proof structure, which typically culminates with the use of special jury instructions, is well established in all types of discrimination cases. And, the parties in this case merely sought clarification on when the special jury instructions should be issued to the jury in an ADEA mixed-motive case.

However, rather than answer the question asked, the 5-4 majority undertook the extraordinary, if not extrajudicial, task of answering its own question—does the burden ever shift to the party defending an alleged mixed-motives discrimination claim brought under the ADEA. The Court held that it does not.

The Court supported its ruling by holding that Price Waterhouse v. Hopkins, the 1989 case that originally established the burden-shifting proof structure in Title VII mixed-motive cases, does not apply to cases brought under the ADEA. This alone is monumental because, according to the dissent, every federal appellate court to consider the issue has held the exact opposite.

In addition to holding that the burden-shifting proof structure does not apply in ADEA cases, the Court held that a plaintiff alleging a violation of the ADEA must prove that age was the “but-for” cause of the adverse employment action. In other words, a plaintiff must prove that age was the reason, as opposed to a reason, for the adverse employment action. This is significant because the Court chose to interpret the same two words (“because of”) to mean two significantly different things depending solely on whether the phrase is found in Title VII or the ADEA. Thus, a plaintiff in an ADEA case will have a harder time proving his or her case than a Title VII plaintiff, despite the fact that the Supreme Court has long recognized that interpretations involving Title VII apply with equal force in the context of age discrimination.

So what are the likely practical consequences of Gross? By removing the burden-shifting structure in mixed-motive cases, and by requiring “but-for” causation to establish an ADEA violation, an employee may have no choice but to locate that inadequately deleted e-mail or surreptitiously recorded conversation to prove his or her case. However, since the near impossibility of finding such evidence is what led the Supreme Court to develop the burden-shifting structure in the first place, the practical consequence of Gross is that employees will likely find it considerably more difficult to prove disparate treatment in mixed-motive cases under the ADEA.

Whether or not the Court correctly interpreted the ADEA is debatable. What is not debatable, however, is the fact that the Court implemented a significant shift in the manner ADEA cases are litigated and in the scope of protection ultimately afforded by the ADEA. The last time the Court embarked upon such a course of action, Congress responded by legislatively overruling the Court. Who knows, by this time next year human resources practitioners across the country may be taking a course to learn about the Jack Gross Act.

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To Cut or Not to Cut: Reducing Wages During Difficult Economic Times

By Martin Salcedo, Esq.
The Human Equation, Inc.

As an alternative to laying off employees, we are considering the option of implementing a 4-day workweek, along with a commensurate reduction in pay. Is such a course of action permissible under the Fair Labor Standards Act?

Making the decision to lay off productive employees in an effort to cut costs is never easy. Unfortunately, the protracted economic downturn has forced precisely such a predicament on many employers. Ensuring an organization’s continued viability in the midst of a struggling economy means that the option of cutting payroll expenses can no longer be dismissed outright. However, in an effort to avoid (or at least delay) layoffs, some employers are implementing a compromise of sorts by foregoing the all-or-nothing approach of layoffs in favor of reducing the number of hours worked by employees along with a reduction in pay.

Although the Fair Labor Standards Act (FLSA), the federal wage and hour law, does not directly address the propriety of cutting an employee’s hours or compensation, it must be considered before implementing such a course of action. Otherwise, any cash flow surplus resulting from the reduction of payroll expenses will likely be negated by costly FLSA litigation.

The extent to which the FLSA will be implicated in situations involving a reduction of hours and compensation will depend largely on whether such reductions involve exempt or non-exempt employees. Employees who are considered non-exempt under the FLSA (commonly referred to as “hourly” employees), are generally required to be paid only for the number of hours worked. If non-exempt employees’ hours are reduced, then the amount of pay they receive will consequently be reduced. Moreover, provided the hourly wage is not reduced below the applicable minimum wage, an employer may also decrease the actual hourly rate of non-exempt employees. Thus, as a practical matter, the FLSA does not operate as an obstacle to reducing the hours and pay of non-exempt employees.

Unfortunately, the same cannot be said in cases involving exempt employees. Exempt employees are those individuals who, by virtue of satisfying specific criteria, are considered exempt from the FLSA’s overtime requirements. Since some of the FLSA’s exemptions, including the executive, administrative, and professional exemptions require that the employee be paid on a salary basis, the goal of preserving such employee’s salaried status is necessary to avoid negative consequences under the FLSA.

The need to preserve the salaried status is significant because under the regulations interpreting the FLSA, salaried employees must generally be paid their full salary for any week in which the employee performs any work without regard to the number of days or hours worked. Moreover, an employee paid on a salary basis cannot suffer a salary deduction for absences occasioned by the employer or by the operating requirements of the business. According to the regulations, “if the employee is ready, willing and able to work, deductions may not be made for time when work is not available.”

This express prohibition against salary deductions due to a lack of work appears to forbid employers from reducing an exempt employee’s compensation during difficult economic times. And, since the consequence of improperly reducing an employee’s salary may be the inadvertent loss of the FLSA exemption altogether, many employers are reluctant to initiate such a course of action because of its potentially devastating consequences. However, if done properly, employers may prospectively reduce an exempt employee’s salary to accommodate the employer’s business needs.

In a 1998 opinion letter issued by the Wage and Hour Division, the Department of Labor (DOL) noted that “a bona fide reduction in an employee’s salary does not preclude salary basis payment as long as the reduction is not designed to circumvent the requirement that the employees be paid their full salary in any week in which they perform work…Consistent with this position, we have stated that a fixed reduction in salary effective during a period when a company operates a shortened workweek due to economic conditions would be a bona fide reduction not designed to circumvent the salary basis payment.”

The DOL’s position that a bona fide salary reduction would not serve to negate an employee’s salaried status was recently echoed by the Tenth Circuit Court of Appeals, which held that an employer may prospectively reduce salary to accommodate the employer’s business needs unless it is done with such frequency that the salary is the functional equivalent of an hourly wage, in which case the court will treat “the ‘salary’ as a sham and deny the employer the FLSA exemption.”

These two separate pronouncements of an employer’s ability to prospectively reduce a salaried employee’s wages without jeopardizing their status as being paid on a salary basis contain an implicit qualification: the reduction(s) must be done infrequently enough to avoid the appearance of treating salaried employees as hourly employees. Moreover, according to the DOL, salary reductions due to short-term business needs do not comport with being paid on a salary basis. Thus, employers electing to reduce the salary of exempt employees must do so infrequently and only when the need precipitating such a course of action cannot be considered short-term.

Finally, employers considering the option of reducing exempt employees’ salaries must be aware of any consequences that may otherwise jeopardize their exempt status. For example, exempt employees who have had their hours and salaries cut must still make at least $455 per week to be considered exempt under certain exemptions. Additionally, employers must make sure that the reductions do not otherwise impact the duties of such employees in a way that would no longer make them exempt under the FLSA. Other consequences that are not necessarily related to the FLSA should also be considered, such as benefits eligibility that are tied to the number of hours worked.

Making the decision to cut costs by reducing hours and salaries is not necessarily an easy one to make. However, since the economy has forced many employers’ hands in this regard, the only decision left is to ensure that such reductions are done legally because once fees and expenses associated with an FLSA violation start, they are difficult to control.

For more information about the Fair Labor Standards Act, please click here.

Alternative Group Benefits: Another Option for Employers Coping with Rising Healthcare Costs

By Jessica Morgan, Benefits Consultant

Every American is painfully aware of the impact of skyrocketing health insurance costs. Rising premiums, higher deductibles, larger co-pays, reduced benefits—both employers and employees are feeling the pinch as they look for plans that are affordable for everyone.

That’s why HRAs—Health Reimbursement Arrangements—are a welcome addition to the range of options that employers can offer their workforce. HRAs allow employers to give tax-free dollars to their employees, who then can use the money to purchase their own health insurance as well as pay for other eligible medical expenses. While HRA plans may not be the panacea for all the “ills” of the health insurance dilemma, they represent significant progress from the point where we were even just a few years ago when I first began to tackle this problem.

Then, in January 2002, fresh out of college, I was hired to administer a group health plan for my parents’ company. Though I knew little about health insurance, I learned quickly that the premiums we were paying were too expensive for both the company and our employees. After doing extensive research and reading numerous Internal Revenue Service (IRS) publications relating to health care, I uncovered one solution for the family business: a High Deductible Health Care (HDHC) plan. The high deductible encourages employees to make healthier lifestyle choices and spend their medical dollars more prudently while also allowing them to save for future medical expenses in their Health Savings Account (HSA), funds that they can take with them if they change jobs. The HDHC is good for employers also: Under the plan, our premiums were reduced by about half.

Not stopping there, we also began to offer HRAs as an alternative to our HDHC Group plan. Our hybrid benefits package gave employees a choice: Those who felt more comfortable remaining on the traditional HDHC group plan did so, while employees who wanted greater economy, portability, and freedom of choice opted for the HRA. We structured the packages so that employees choosing either plan received the same amount in benefits. The plans’ common denominator is that both increase employees’ awareness of how they spend their health dollars, thus encouraging them to live a healthier lifestyle because, quite simply, it saves them money to do so.

In 2007 The Wall Street Journal took note of our success and wrote a cover story on our creative benefits packages. Increasingly, employers asked me to assist them in designing an HRA or a hybrid plan for their businesses, even though I was not then an insurance agent. But after years of administering (and participating in) an HRA/Group Plan hybrid, I decided to change my career path and obtained a health insurance license, allowing me to use what I had learned to assist other small businesses.

However, finding an agency that provided both group and individual health insurance and that was sufficiently forward-thinking to consider these newer options was more difficult than I had anticipated. Surprisingly, I found that many agents in the mainstream insurance industry know little about HRAs, particularly those plans in which employees can access a broad range of products from different providers.

After pitching dozens of insurance agencies on employer-based hybrid health care plans, I finally found an agency willing and able to offer these cutting-edge health insurance solutions: Setnor Byer Insurance & Risk, which recognized the advantages of hybrid plans and was excited about offering their clients and prospects an even fuller range of cost-saving options.

Setnor Byer, with almost 30 years of experience in the insurance industry, can help employers expand their benefits offerings, promote wellness in their workforce, and reduce health insurance costs for both the company and its employees. With dozens of plan structures available, Setnor Byer’s insurance professionals will help you choose the right one so that your employees— and your business—remain healthy.

Here’s to wellness.

For more information about these and other types of healthcare insurance policies, contact the professionals at Setnor Byer Insurance & Risk by calling 954.382.4350 or visiting www.setnorbyer.com.