According to this article from Politico, the cost of operating the health insurance exchanges, including the costs of providing subsidies to lower-income purchasers of coverage, will increase dramatically over prior estimates.  In part, this is because of the failure of some states to embrace the expansion of Medicaid.  The cost of Medicaid coverage is $3000 less than the cost of providing subsidies for private insurance on the exchanges, according to current estimates. If insurers then raise premium rates beyond current projections, the difference will grow, and the cost of running exchanges will accelerate. By 2021, the subsidies are now estimated to consume $606 Billion.

Each of the serious immigration reform proposals now being discussed in Washington relies to a great extent on the federal E-Verify system.  The notion is that employers will be required to go onto the system, enter personal information about prospective hires and find out from the system whether the employee is entitled to work in the U.S. or not.  Employers who do not use the system and hire an individual who is not legally entitled to U.S. employment would face fines and jail time. The employer penalties would reduce the incentive for employers to employ illegals, thereby reducing the incentive for illegal immigration. That all sounds simple and logical, but there are problems.

One problem is that E-Verify is not reliable enough to place prospective employees’ livelihoods at stake or to jeopardize the very existence of small businesses.  While the “official” error rate is 0.7%, in a recent informal test, twenty U.S. citizens checked themselves on the system and two came up as not eligible (the response is called a “Temporary Non-Confirmation” or TNC).  That is a 10% Type 1 error rate.  (A Type 1 error is where a person in the “good” category is erroneously categorized as in the “bad” category.  A Type 2 error is where a person in the “bad” category is treated as being in the “good” category.) There would be additional errors of Type 2.  While a 10% error rate may not sound like much, that equates to a million people out of every ten million perfectly legal job applicants who would be excluded from further consideration for a job, or would be placed in limbo while the E-Verify system performs further checks.  Even the 0.7% error rate would exclude over half a million legal job applicants a year.  This is simply unacceptable.

That brings up the second big issue–correcting errors.  It now takes an average of 100 days to resolve database problems, which often result from marriage-related name changes or misspellings on federal forms.  If E-Verify becomes mandatory, the task of resolving millions of problems is likely to drastically increase the time needed to correct system errors.  Employers and employees alike will be effectively left in limbo during this period.  Even 100 days (more than three full months) is too long.

Third, these problems with E-Verify, coupled with the draconian fines and penalties contained in some of the proposals (Title X of the White House proposal has fines of up to $75,000 and TEN YEARS in prison!) will discourage employers from hiring in the U.S. except as a last resort.  Robots do not require employment verifications, and off shore operations do not need E-Verify checks. 

These problems are not insoluble.  Phased implementation of E-Verify requirements, based upon independent performance metrics of the system’s accuracy and time to resolve discrepancies, would be one measure.  Adequate “safe-harbor” provisions for employers who use E-Verify would help.  Resonable allowances for employers and employees to be productive while E-Verify TNC’s are resolved would avoid unnecessary hardship. The essential requirement for any of these measures to be adopted, though, is for Congress and the White House to recognize the reality of the current shortcomings of E-Verify.  Assuming, as they are apparently doing, that it is some magic formula for solving all the issues of employee identity is folly and will lead to serious economic consequences.

Individuals can click here to access the E-Verify system in order to perform a self-check.

Much attention has been given to the looming “Fiscal Cliff” and the perils of across the board sequestration.  Most commentators feel that the fiscal cliff will be avoided in some way.  The possibility of new regulations from the second-term Obama Administration that will impact small business success, profitability and growth has not been sufficiently covered.  I wrote an opinion piece for the Washington Post that was published earlier today on that issue.

The NLRB, in a 2-1 decision Iron Tiger Logistics NLRB 10-23-12.pdf, extended the duty to respond to union requests for information to cover requests for information that is found to be irrelevant to legitimate bargaining concerns.  Prior cases had found employers who delayed in turning over relevant information to have violated the Act by delaying their responses.  In Iron Tiger, the Board majority (Chairman Pearce and Member Block) found that even if the information requested turns out to be irrelevant, the employer has a duty to respond in a timely fashion on pain of violating its duty to bargain in good faith.  The policy justification for the rule is that the employer can avoid a dispute and resulting Board charges if it states its position right away and allows the union to withdraw or modify its request.  They observed that, had the employer done so in the case before them, “an unnecessary dispute could have been avoided.”

The dissenting Board member (Member Hayes) agreed that it would be preferable for an employer to respond quickly, but he could not find a duty under the Act to respond to requests for irrelevant information.  He stated, “Ultimately, requested information is either legally relevant to a union’s representative duties, or it is not. If it is not, then the statutory duty to bargain in good faith is not implicated by the request or the employer’s failure to respond timely to the request.”  Member Hayes also observed that the Board majority’s decision gives unions yet another tool “to hector employers with information requests for tactical purposes that obstruct, rather than further, good faith bargaining relationships.”

Employers who are confronted with demands for information that they believe seek irrelevant information should therefore say so without undue delay.  The alternative is to risk an unfair labor practice finding.  In connection with some other activity (such as a strike) a finding of a failure to bargain by refusing to give a timely response to an improper union information request could be enough to turn an economic strike into an unfair labor practice strike.  The consequence for an employer who responds to the strike by hiring replacements could be significant.

In 2010, OSHA began a program to identify certain employers as severe violators. Placement in the Severe Violator Enforcement Program (“SVEP”) resulted in adverse publicity, multiple inspections, inspections of other facilities and higher-than-normal penalties.  Not surprisingly, there were a number of criticisms of the program.  One of them was that the program had no established way to get off it.  OSHA has now issued formal guidance on this issue that can be found here.  OSHA’s Directorate of Enforcement Programs (“DEP”) has determined that employers can get out of the program after three years from the final disposition of the inspection items that resulted in placement in the SVEP.  Final disposition includes failures to contest the citation, settlements, unappealed Review Commission decisions, and Court of Appeals decisions.  To escape the SVEP, the employer must have fully abated all SVEP-related citations at any of its establishments.  All penalties must have been fully paid.  For cases with national corporate-wide settlements, the DEP will handle requests for removal, and will consider all terms of the settlement (which usually would include safety programs and outside consultancies. See the Guidelines for Administering Corporate-Wide Settlement Agreements, here)  For more local situations, the Regional Administrator or designee will have discretion to remove employers from the list.

The Supreme Court earlier today issued its long-awaited decision on the constitutionality of two aspects of the Patient Protection and Affordable Care Act, often referred to as the ACA or Obamacare. In a majority decision written by Chief Justice Roberts, the Court found that the provision in the ACA requiring individuals to purchase insurance or pay a penalty could be justified under the Constitution as tax.  A majority of the Court found that the mandate could not be justified as a legitimate exercise of Congressional power under the Commerce Clause. 

Seven members of the Court also found that the expansion of Medicaid to many new categories of beneficiaries, coupled with the threat of loss of all existing federal subsidies for current Medicaid benefits, was beyond Congress’ power, and hence unconstitutional. Three of those justices joined with the two justices who found the Medicaid expansion terms to be constitutional to find that simply eliminating the threat of loss of existing Medicare subsidies would correct the problem.  These five justices thus wrote out the ability of the administration to impose the penalty upon states who choose not to participate in the expansion.

The Court’s decision means that the ACA will take effect as scheduled, with the individual mandate, the employer mandate, community rating and Medicare cuts all intact.  In those states that elect not to participate in the Medicaid expansion, there will be potential problems.  The ACA has no backup mechanism for providing coverage for those who are eliglible by income for Medicaid, but who cannot get coverage due to a refusal of their state to participate.  This will leave them uninsured (and ineligible to participate in the Exchanges at subsidized premium rates.)  That means that providers may continue to have higher than expected uncompensated care, at the same time that their federal assistance to pay for uncompensated care is being cut.

In any case, the bottom line of the health insurance/health care market is that it was too expensive for consumers and employers before the ACA; the ACA did not do anywhere near enough to reduce the costs, or even to slow the increase in costs; and this decision does nothing to control costs, and may contribute to increasing them.  Just because the Supreme Court upheld most of the ACA, it does not mean that system is fixed.  Our nation still has much to do to create a sensible, affordable health care financing system, and it is long past time for our representatives to get busy on that project.

This post was authored by Inna Shelley.

On June 21, the Occupational Safety and Health Administration (OSHA) and the National Institute of Occupational Safety and Health (NIOSH) issued a Hazard Alert addressing the health risks of exposure to airborne silica for workers employed on hydraulic fracturing, or “fracking” sites, in a process used to extract oil and gas. Sand used in fracking contains up to 99% silica.

Recent NIOSH field studies revealed that many fracking workers were overexposed to silica dust. Exposure often occurs during the transportation, on-site moving, and loading of sand into containers, belts, and blender hoppers. Although employees directly involved in these operations and those working downwind had the highest silica exposures, even upwind workers outside of the immediate areas had exposures above NIOSH-recommended levels.

Silica exposure poses many serious health risks including lung cancer and silicosis, a lung disease where lung tissue around trapped silica causes inflammation and scarring, hindering proper oxygen intake. Other diseases linked to silica exposure include tuberculosis, chronic obstructive pulmonary disease, and kidney and autoimmune diseases.

The Alert advocates that employers implement a combination of engineering controls, work practices, protective equipment, product substitution, and worker training to reduce exposure and protect workers. To this end, the Alert recommends a series of specific process and equipment changes, including several short-term solutions susceptible to quick implementation. Monitoring of occupational exposure to silica and medical monitoring of exposed workers is also suggested.

Smaller employers with 250 employees at a given site, and no more than 500 employees nationwide, are invited to take advantage of OSHA’s free On-Site Consultation Program. This program helps small businesses to identify and correct worksite hazards and provides free, confidential advice without the risk of triggering enforcement, penalties, or citations.

Fracking is an increasingly common and growing practice in the oil and gas industry. As a result, the issuance of this Hazard Alert focusing on medical hazards and solutions specific to fracking suggests that OSHA and NIOSH may target the fracking industry in future enforcement efforts, as well as focus on other industries where silica exposure is likely. Employers whose workers face occupational silica exposure should stay ahead of these developments by carefully reviewing the exposure risk, evaluating the feasibility of specific safety measures suggested in the Alert, and implementing measures to protect workers from silica exposure as part of their health and safety practices.

Amid the ObamaCare Supreme Court decision watch, the Department of Health and Human Services announced the initial calculations of medical loss ratios (MLR) for the nation’s insurance companies.  Under the Patient Protection and Affordable Care Act, insurers must spend at least 85% of their premium income on paying benefits (80% in the individual and small group markets.)  If they spend a lower percentage, they must provide rebates to their customers.  For employer plans, the rebates are split between the employers and employees based on the percentage of premiums paid by each.  For individuals, the rebate goes to the policyholder.  The rebates are to be paid prior to August 1, 2012, based on the 2011 results (of course subject to what the Supreme Court decides about the law as a whole.)  The HHS announcement provides a state-by-state summary of the rebate amounts, for individual, small group and large employer plans.

The HHS announcement states that insurers who failed to meet the MLR standards will rebate more than $1.1 billion to 12.8 million policyholders, with an average return of $151 per household.  HHS thus gives the total number of individuals affected, but calculates the average payment on a “per household” basis, so care must be taken to gain a clear understanding of the numbers.  In addition, the numbers are not for all policyholders, but only for those in plans where the insurer failed the MLR test.  Consumers Union, the parent of Consumer Reports, has a list of insurers by state and the amounts by which they exceeded the MLR limits.  The list for Ohio is as follows:

Ohio
Individual Market

  • John Alden Life Ins Co: $380,135.00
  • Time Ins Co: $409,486.00
  • Humana Ins Co: $8,900.00
  • Companion Life Ins Co: $1,062.00
  • Mega Life & Hlth Ins Co The: $381,269.00
  • Community Ins Co: $6,633,894.00
  • Total: $7,814,746.00

Small Employer Market

  • Trustmark Life Ins Co: $1,027,486.00
  • John Alden Life Ins Co: $1,008,037.00
  • Humana Ins Co: $77,670.00
  • UnitedHealthcare Ins Co of the River: $700,208.00
  • Humana Hlth Plan of OH Inc: $99,427.00
  • Total: $2,912,828.00

The MLR test is one of the more controversial components of the Affordable Care Act, since, while it sounds fine on the surface to keep insurance companies from spending too much of their premiums on administrative costs, there are both unintended consequences and problems with the definitions.  For example, since the MLR is a ratio, there is a significant incentive for carriers to increase rates.  (15% of $1000 is greater than 15% of $500.)  At least some of the increases in rates since the passage of the Affordable Care Act can be attributed to this effect. As another example, anti-fraud investigation and enforcement efforts by insurers are treated as administrative costs.  Since one of the main drivers of cost increases in health care is fraud, treating fraud prevention as an administrative cost discourages prevention.  This also tends to increase the cost of health care.

In any case, insurers who fail the test must provide their rebates through one of the following methods: a lump sum check in the mail; a lump sum credit to the debit or credit card account from which the payments were made; a credit against 2012 premiums; or a payment through the employer using one of those methods.  If the insurer provides the rebates to the employer, the employer must then go through the exercise of calculating the portion due to its employees and providing them with their appropriate shares. 

Last week, the White House announced a new administrative policy deferring deportation of certain undocumented immigrants who had been brought to the United States before reaching adulthood. The announcement also indicated that these individuals could become lawfully employed. This has implications for small business, since many small businesses are hiring and would like to take advantage of potential new sources of legal workers. There are, however, a number of questions yet to be answered. One of the best brief explanations of the issue has been prepared by David Burton, the General Counsel of the National Small Business Association.  NSBA is the nation’s oldest small business advocacy association, and maintains a rigorous non-partisan position. We thank David and NSBA for permission to share this article.

Deferred Action
 
The White House and the Department of Homeland Security (DHS) have announced a new immigration policy called “deferred action.” Under this directive, individuals who demonstrate that they meet the indicated criteria will be eligible for an exercise of prosecutorial discretion, called deferred action, on a case by case basis. To be eligible, a person must apply and must:
 
1. Have come to the United States under the age of sixteen;
2. Have continuously resided in the United States for a least five years preceding June 15, 2012 and have been present in the United States on June 15, 2012;
3. Be currently in school, have graduated from high school, have obtained a general education development certificate, or have been honorably discharged from the Coast Guard or Armed Forces of the United States;
4. Have not been convicted of a felony offense, a significant misdemeanor offense, multiple misdemeanor offenses, or otherwise pose a threat to national security or public safety; and
5. Not be above the age of thirty.
 
The policy does not confer a path to citizenship or lawful permanent resident status.
 
Persons who meet these criteria are sometimes called “dreamers” by proponents of the policy because the proposed DREAM Act would provide lawful status to many of the same people.
 
According to DHS, individuals who receive deferred action may apply for and may obtain employment authorization from U.S. Citizenship and Immigration Services (USCIS) provided they can demonstrate an economic necessity for their employment under existing regulations. There are no additional details.
 
Presumably, DHS is referring to the ability to apply for an “Employment Authorization and Advance Parole Card for Adjustment of Status Applicants,” using Form I-485, which serves as an I-512 Advance Parole and an Employment Authorization Document (EAD).  This costs $1,070 and the person applying must have a basis for becoming a permanent resident.  The proposed policy does not appear to change what constitutes a basis for becoming a permanent resident or otherwise obtaining a work permit.  Thus, it is not clear that the new policy accomplishes anything for undocumented immigrants other than ensuring that they will not be deported for two years (upon application in a form to be determined within 60 days and at a cost to be determined).  If the new policy does not, as has been asserted by DHS, provide a “path to permanent residency,” then the EAD is not available under current law for persons who have entered the country illegally.

From an employer’s perspective there are many unanswered questions. They include:

1. Can those receiving deferred action be hired and, if so, what documents constitute proof that they are authorized to work?

2. What changes will be made to the I-9 employment verification process?

3. What does an employer do when a person who has received deferred action fails (as is likely) the E-verify verification process?

4. How long does a deferred action employment authorization last?  What must an employer do when it expires?  When are employers subject to civil or criminal penalties for retaining–or failing to retain–someone whose deferred action has expired?        

5. Is “economic necessity” based upon the prospective employee’s perspective, that of the “family” of the prospective employee, or that of the prospective employer?

6. When are employers subject to civil or criminal penalties for hiring someone who is eligible for or has received deferred action?

7. When are employers subject to civil or criminal penalties for failing to hire someone who is eligible for or has received deferred action?

8. Can an employer take into account the “temporary” nature of the work authorization when deciding among candidates?

To read the President’s remarks, click here.
 
To read Secretary of Homeland Security Janet Napolitano’s remarks and DHS’s Frequently Asked Questions, click here.
 
H2-B Visas
 
On January 19, 2011 the Department of Labor, Employment and Training Administration, issued a final rule regarding Wage Methodology for the Temporary Non-agricultural Employment H–2B Program. This rule would substantially increase the prevailing wage for purposes of the H-2B hiring process. To read this rule, click here.
 
Subsequently, Congress withheld funding for the implementation of this rule. Senator Richard Shelby (R-Ala.), Ranking Member of the Appropriations Subcommittee on Labor, Health and Human Services, Education, and Related Agencies (Labor/HHS), during full committee consideration of the FY 2013 Labor/HHS appropriations bill, offered an amendment to again prohibit funding for implementation of this rule. The amendment passed by a vote of 19-11. To read about this development, click here.

The United States Supreme Court held today that pharmaceutical sales representatives are exempt from overtime under the outside sales exemption of the Fair Labor Standards Act.  The significance of the decision for labor lawyers and employers is not necessarily in the result, but in the Court’s sharp criticism of the DOL’s interpretation of its regulations in advancing its position. 

 A copy of the opinion is attached here, Christopher et al v. Smithkline Beecham, 567 U.S. ___ (2012), Slip Opinion No. 11-204.

The DOL took the position in amicus briefs that pharmaceutical sales representatives were not shielded from overtime by the outside sales exemption, because they were not technically making sales.  Rather, pharmaceutical sales representatives, or “detailers,” were promoting drugs to physicians and obtaining a “non-binding commitment” to prescribe a drug.  The DOL argued that this was promotion, not sales. 

In a 5-4 decision, the United States Supreme Court disagreed, holding that a transfer of title need not occur in order for the transaction to constitute a sale.

In order to reach the decision, the Court had to rule that the DOL’s interpretations were not entitled to the deference normally afforded to an agency interpretation.  Instead, the Court held that the DOL’s position was plainly erroneous, inconsistent with the regulations and not reflective of a “fair and considered judgment on the matter.” 

Of even more assistance to labor lawyers and employers is the language used by the Court in cautioning against the “unfair surprise” of imposing liability based on an the application of an interpretation made by an agency after the conduct occurred:

There are strong reasons for withholding Auer deference in this case.  Petitioners invoke the DOL’s interpretation to impose potentially massive liability on respondent for conduct that occurred well before the interpretation was announced.  To defer to the DOL’s interpretation would result in precisely the kind of “unfair surprise” against which the Court has long warned.

Syllabus at p. 3 (citations omitted).

We have recently asserted a similar argument on behalf of a client in an FLSA action involving a late DOL interpretation of the Motor Carrier Act exemption.  This case may prove helpful in reigning in broad interpretations asserted by the DOL in wage and hour matters. 

Ultimately, this decision hinges upon the principles of statutory construction and interpretation.