Murtha Means More

June 2014 - Labor and Employment News

May 1, 2014

IRS ISSUES GUIDANCE CONCERNING IMPACT OF WINDSOR CASE ON RETIREMENT PLANS

On June 26, 2013, the U. S. Supreme Court struck down the Defense of Marriage Act (DOMA), in the case of United States v. Windsor. DOMA prevented the recognition of same sex marriage under Federal laws, including laws impacting benefit plans.

While the IRS provided guidance concerning Windsor's impact on cafeteria plans and flexible spending arrangements last December (Click here to see our newsletter of December 31, 2013 discussing that guidance), it had not issued detailed guidance on the applicability of the Windsor decision to pension, 401(k) and similar retirement plans. (Click here to see our newsletter of July 17, 2013 which discusses many specific areas of retirement plans that are impacted by the Windsor decision.)

At long last, the IRS has provided such guidance in Notice 2014-19, and supplemental questions and answers. The Notice addresses whether the Windsor decision has a retroactive effect; and whether and when plans need to be amended to comply with that decision.

Plan sponsors will be pleased to learn that for IRS plan qualification purposes, the Windsor decision does not apply to periods before the decision's date; plans need to comply with the case prospectively i.e., from June 26, 2013. (In a sense, it is retroactive for IRS purposes, but only to the June 26, 2013 decision date.) The IRS stated that a retirement plan will not be treated as failing Internal Revenue Code Section 401(a) (which governs qualified plans) because it did not recognize a same-sex spouse of a participant as a spouse before June 26, 2013.

In IRS Notice 2013-17, issued September 16, 2013, the IRS adopted the "state of celebration" rule, indicating that a same-sex spouse will be recognized for Federal purposes if the marriage was valid in the state in which it was entered, even if the participant and spouse are domiciled in a state that does not recognize same-sex marriages. Notice 2014-19 provides that a plan does not have to apply the "state of celebration" rule retroactively to periods before September 16, 2013. However, this nuance should have limited impact upon employers in Connecticut and Massachusetts since both jurisdictions recognized same-sex marriages long before the Windsor decision.

The IRS also stated that a plan may recognize same-sex marriages to reflect Windsor for some or all purposes as of a date prior to June 26, 2013 if the amendment complies with applicable plan qualification requirements. The IRS cautioned that recognizing same-sex marriages prior to June 26, 2013 may trigger requirements difficult to apply retroactively.

Turning to plan amendments, the IRS stated that only some plans must be amended to comply with Windsor. For example, a plan sponsor must amend a plan if it defines "marriage" or "spouse" by referencing DOMA or limits recognition to opposite-sex spouses. Plan sponsors will need to review their plans to see how "spouse" is defined and to determine if an amendment is required. An amendment is required in all cases where the effective date of the amendment is to be prior to June 26, 2013, or where the "spouse" definition explicitly refers to an individual of the opposite sex. In virtually all cases, the amendment, if required, must be adopted and executed by December 31, 2014. Even though it does not have to be adopted and executed until that time, it must be effective no later than June 26, 2013, and as a matter of plan qualification, the plan must be administered in accordance with the provision from that date forward.

Please contact Rachel Faye Smith at 617.457.4023, rfsmith@murthalaw.com or Bill Keenan at 860.240.6028, wkeenan@murthalaw.com if you have any questions concerning the impact of Notice 2014-19 upon your plan or plans, or if you would like assistance in preparing any plan amendments in advance of the December 31, 2014 deadline.

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PRESIDENT OBAMA'S PROPOSED CHANGES TO THE FLSA REGULATIONS—MORE OVERTIME FOR MORE EMPLOYEES—WHITE COLLAR EXEMPTION LIMITED

In March, President Obama issued a Memorandum directing the Secretary of Labor to review FLSA overtime regulations to "modernize and streamline" them. The Memorandum requests the DOL to examine "white collar" overtime exemptions. The Secretary will likely propose new regulations which raise the wage level triggering the applicability of the overtime exemption. Now employees who earn a minimum salary of $455/week are exempt. That base will increase. More significantly, regulations that currently exempt certain employees with supervisory duties from overtime pay will likely be tightened. It seems probable that only employees with significant supervisory responsibilities will continue to be exempt from overtime pay.

Any regulatory changes will have to go through the normal process of comments and review. We do not expect anything new for at least a year to eighteen months.

Please contact Hugh F. Murray, III at 860.240.6077, hmurray@murthalaw.com or Susan J. Baronoff at 617.457.4031, sbaronoff@murthalaw.com if you have any questions concerning these changes.

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REMINDER TO EMPLOYERS ON RIGHTS AND RESPONSIBILITIES WITH RESPECT TO RELIGIOUS GARB AND GROOMING IN THE WORKPLACE

The U.S. Equal Employment Opportunity Commission ("EEOC") issued a reminder that employers subject to Title VII of the Civil Rights Act of 1964 (15 or more employees) have an obligation to allow applicants and employees to follow their religious grooming and dress practices. Title VII prohibits an employer from discriminating against an employee in hiring, promotion, termination or any other aspect of employment based on an employee’s religious preferences or lack of religious beliefs. Title VII protects all aspects of religious practices and beliefs which include practices and beliefs that are only followed by a small number of people or that are not linked to a formal religious organization. The definition is so broad that whether a belief or practice is "religious" is rarely challenged.

Title VII also prohibits an employer from engaging in workplace or job segregation based on religious preference. For instance, an employer cannot reassign employees if they wear a turban, beard or headscarf because of religious beliefs. Customer preference provides no defense to "discriminatory" actions.

Title VII prohibits workplace harassment based on religion, as it does based on sex or race. An individual compelled to abandon, alter or adapt a religious practice to keep a job or particular position, or who becomes the victim of offensive remarks or conduct may suffer discrimination under Title VII (as well as the state equal employment laws). If an employer knew or should have known about the harassment and fails to take prompt corrective action, then the employer can be held liable for the harassment. Further, an employer is always liable for harassment committed by a supervisor if it results in an employee's financial loss or other significant employment losses.

Title VII prohibits employers from retaliating against an employee who engages in a protected activity - including requesting a religious accommodation. If an employee requests an accommodation such as to wear a long beard, which is typically against workplace policy, and the employer makes the accommodation but then demotes the employee, the employer could be liable under the law.

Importantly, Title VII requires that an employer make exceptions to workplace policies or preferences regarding grooming and dress once the employer learns that an employee needs a religious accommodation unless the exception would pose an undue hardship on the employer. Even if an employee’s beliefs or practices do not follow commonly held religious beliefs or if their religious practices or adherence to religious practices change over time, this does not mean that the employee’s beliefs or practices are not "sincerely held." Much like the religious nature of the belief, the requirement that the belief be "sincerely held" is also rarely challenged.

Further, an exception must be made unless it poses an "undue hardship" on the employer. The employee has an obligation to inform the employer that their non-compliance with the dress/grooming code results from religious reasons. Employers are not deemed to be omniscient. However, if the employer believes the individual’s practice may be religious, such as a woman wearing a headscarf, then the employer must ask the necessary questions to determine if it is a religious practice and an accommodation must be made.

In terms of accommodation, an employer can ask an employee to cover up a religious item or symbol while at work as long as it would not violate an employee’s religious belief or practice. Employers do not have to accommodate practices which pose a risk to workplace safety, security or health and cause an undue hardship to the operation of the business. Employees must accept reasonable accommodations. For instance, a surgical instrument company can require employees to be clean shaven and wear a mask to ensure a sterile environment. The employer accommodates an employee who does not trim his facial hair because of his religious beliefs by allowing him to keep his facial hair but requiring that he wear two face masks to ensure the environment stays sterile. The EEOC would find the employer’s accommodation reasonable in this situation.

The EEOC has published questions and answers and a fact sheet regarding how federal employment discrimination laws apply to religious dress and grooming which can both be found by clicking the following two links: 

Religious Garb and Grooming in the Workplace: Rights and Responsibilities

Fact Sheet on Religious Garb and Grooming in the Workplace: Rights and Responsibilities

Please contact Lissa J. Paris at 860.240.6032, lparis@murthalaw.com or Michael Colgan Harrington at 860.240.6049, mharrington@murthalaw.com if you have any questions concerning the issues discussed in this article.

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SUPREME COURT CLARIFIES TREATMENT OF SEVERANCE PAYMENTS UNDER FICA

In United States v. Quality Stores, No. 12-1408, (March 25, 2014), the U.S. Supreme Court held that certain severance payments are taxable wages under the Federal Insurance Contribution Act ("FICA"), dashing the hopes of companies that have requested a tax refund for such payments.

Quality Stores had made severance payments to employees who were involuntarily terminated as part of its Chapter 11 bankruptcy. These payments varied and were based on job seniority and time worked at the company. They were not tied to receipt of state unemployment insurance. Quality Stores argued that these payments should not have been taxed as wages under FICA and sought a refund on its behalf and on behalf of several of its former employees.

In holding that the severance payments at issue were taxable wages for FICA purposes, the Supreme Court found that FICA defined "wages" broadly, and that the severance payments fit into the definition because they were payments made to employees in consideration for employment. The Supreme Court rejected the argument that the Internal Revenue Code section governing income tax withholding, Section 3402(o), could be interpreted to remove severance payments from the definition of wages for income tax withholding purposes and therefore were not covered by FICA’s definition.

Please contact Rachel Faye Smith at 617.457.4023 or rfsmith@murthalaw.com or Bill Keenan at 860.240.6028 or wkeenan@murthalaw.com if you have any questions regarding the issues addressed in this article.

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CONNECTICUT MINIMUM WAGE TO RISE

On March 27, Governor Malloy signed into law a bill which will increase Connecticut’s minimum wage over the next several years. Currently at $8.70 per hour, it increases to $9.15/hour as of January 1, 2015; to $9.60/hour as of January 1, 2016; and finally to $10.10/hour as of January 1, 2017. If the federal minimum wage increases (an unlikely occurrence at this point in time) the Connecticut increase could be even higher: it will either be $10.10/hour, or ½ percent higher than the highest federal minimum wage, whichever is greater.

This new law does not change the treatment of tipped workers. The base wage remains at $5.69/hour for waitpersons and $7.34/hour for bartenders, with a gratuity allowance of 34.6% of the minimum wage for waitstaff and 15.6% for bartenders. The combined amount of the base wage and the amount derived from tips must equal at least the minimum wage. Since the Connecticut minimum wage exceeds the federal minimum wage, the Connecticut minimum wage applies to tipped service employees.

Please contact Hugh F. Murray, III at 860.240.6077 or hmurray@murthalaw.com if you have any questions concerning the Connecticut minimum wage.

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