Supreme Court Upholds UT?s Affirmative Action Program

The Supreme Court today decided that the measures taken by the University of Texas to achieve some measure of diversity among its student body meet the highest standards of ?strict scrutiny? and may continue to be used.  Fisher v. University of Texas, No. 14-981 (June 23, 2016).  In a closely divided 4-3 decision (Justice Kagan not participating), the Court again held that the goals of enrolling a diverse student body to promote ?cross-racial understanding and enable students to better understand persons of different races? were sufficient to survive Constitutional review.

Although the decision is quite narrow and tailored to the UT program, it is likely that other public universities may try to rely on the Court?s ruling as a road map for how they may constitutionally consider race in their admissions programs moving forward.  Because of the unique elements of the UT program ? along with the strongly stated dissent ? (?a State?s use of race in higher education admissions decisions is categorically prohibited by the Equal Protection Clause,? Thomas, J., dissenting), it is not likely that this decision will end debate in the country or the courts on the issue of affirmative action in college selections.

The Court?s decision can be accessed here .

Washington’s Mounting Interest in the High-Tech Industry’s Diversity Efforts

Over the last few months, federal
policy-makers have engaged in what appears to be a highly-orchestrated campaign
aimed directly at clamping down high-tech industry.  The two agencies
responsible for enforcing federal Equal Employment Opportunity (EEO) laws have
intensified their focus on the technology sector’s diversity, inclusion and
affirmative action efforts in recent weeks, while members of Congress have
begun demanding change.

In addition, the White House has
coordinated two summits where the
lack of diversity in the booming tech sector may further escalate federal
policy makers’ interest.  These recent and upcoming activities, which we
have detailed below, appear to be laying the ground work for additional federal
action.   

  • OFCCP – The U.S. Department of Labor?s Office of Federal Contract Compliance Programs (OFCCP) has been targeting the technology industry.  Over the last year, a number of industry stalwarts have experienced far more extensive and burdensome OFCCP evaluations than in the past.

  • EEOC – On May 18, the Equal Employment Opportunity Commission (EEOC) held a public meeting focused on diversity and inclusion in the technology industry.  Following the meeting the agency released a report, ?Diversity in High Tech.? 

  • Congressional Black Caucus Letter – On May 25, 2016, the Congressional Black Caucus sent a letter to the U.S. Secretary of Labor Tom Perez calling for increased diversity in the technology industry and demanding greater scrutiny of industry government contractors? employment of African Americans. 

  • Tri Caucus Resolution – On June 2, 2016, the Tri-Caucus, the Congressional Black Caucus, Hispanic Caucus and Asia Pacific Caucus, introduced a non-binding resolution declaring Congress?s support of efforts to increase diversity and inclusion and to eliminate barriers faced by people of color and other underrepresented groups in the technology sector.

  • GAO Study – Although not publicly reported, we are also aware that Congress? investigative arm, the U.S. Government Accountability Office (GAO), is currently working on a report focusing on technology industry EEO matters.

  • United State of Women Summit – On June 14-15, 2016, The White House Council on Women and Girls, the State Department, the U.S. Department of Labor, the Aspen Institute and Civic Nation hosted the ?United State of Women Summit.?  The summit has been described as ?a large-scale effort aimed at rallying together advocates of gender equality to highlight what has been achieved, to identify the challenges that remain, and to chart the course for addressing them.?  It focuses on a number of topics that are highly relevant to the industry?s diversity and inclusion efforts, including equal pay, pay transparency, labor force participation, STEM education, and enhancing investing for female entrepreneurs. 

  • Prior to summit, the White House reached out to employers with an ?Equal Pay Pledge.?  Employers who sign to the pledge agree to conduct an annual company-wide gender pay analysis, review promotion processes and hiring to reduce unconscious bias, and embed equal pay efforts into broader equity.  At the start of the summit, 28 companies including the followingemployers in the high tech industry had signed the pledge: AirBnB, Amazon, Care.com Cisco, Expedia, Glass Door and GoDaddy Salesforce, Slack, Spotify and Pinterest.

  • The 2016 Global Entrepreneurship Summit (GES) –  On June 22-24, President Obama will host the 7th Annual Global Entrepreneurship Summit (GES) at Stanford University.  In announcing the location of the 2016 Summit, President Obama renewed his previous call to action for inclusive entrepreneurship: ?I?m calling on the private sector, foundations, investors, and universities to help us increase opportunities for all entrepreneurs, no matter who they are, where they?re from, or what they look like.?

FortneyScott will continue to track this issue.  For more information, please contact  Leslie Silverman, or the FortneyScott attorney with whom you work. 

Supreme Court Decides False Claims Act Case: Universal Health Services, Inc. v. Escobar

On June 16, 2016, the Supreme Court issued its unanimous decision in Universal Health Services, Inc. v. Escobar (No. 15-7).  The decision, authored by Justice Clarence Thomas, is significant for federal contractors because it affirms False Claims Act (?FCA? or the Act) liability under the theory of ?implied false certification.?  In addition, the opinion addresses the contours of the ?materiality? standard of the FCA and defines when implied false certification breaches or violations are actionable under the Act.

What is Implied False Certification?

Under the theory of implied false certification, when a defendant submits a claim, it tacitly certifies compliance with all of the Government?s conditions of payment.  Thus, the Court has now held that if a defendant fails to disclose a violation of a ?material? statutory, regulatory, or contractual requirement, the defendant may be found to have made a misrepresentation that renders the claim ?false or fraudulent.?  Violations of the FCA can lead to potential civil penalties of up to $10,000 per false claim and the assessment of treble damages.  (See FortneyScott?s alert dated June 17, 2016 about FCA.)

The decision in Universal Health resolves a split among the Federal Circuit courts over the validity and scope of the implied false certification theory of FCA liability.

Factual Background

Universal Health owned and operated a mental health facility in Lawrence, Massachusetts.  After a patient died from an adverse drug reaction, the state?s investigation revealed that few of the facility?s employees were actually licensed to provide mental health counseling and received minimal supervision.  The state ultimately issued a report detailing over a dozen Massachusetts Medicaid violations governing the qualifications and supervision required for staff at a mental health facility.  Invoices submitted by the facility identified treatments upon which the federally-funded payments were to be made.

In 2011, the parents of the deceased patient filed a qui tam suit in federal court alleging that Universal Health violated the FCA under the theory that the invoices were conditioned on the implied certification that the services were performed by qualified medical personnel when they were not, in fact, qualified.

Key Holdings

1.    Implied false certification can be a basis for FCA liability

The Court concluded that implied false certification can be a basis for FCA liability when two conditions are met: (1) the claim does not merely request payment, but also makes specific representations about the goods or services provided, and (2) the defendant?s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations ?misleading half-truths.?

In this case, Universal Health submitted claims to Medicare using payment codes for the patient?s medical care.  In doing so, it represented that certain types of medical professionals had provided specific kinds of treatment.  ?By conveying this information without disclosing [Universal Health?s] many violations of basic staff and licensing requirements for mental health facilities,? the Supreme Court held that Universal Health?s claims constituted material ?misrepresentations.?

2.    FCA liability is not limited to misrepresentations about express conditions of payment

The Court further held that a contractor?s liability is not limited to where it fails to disclose the violation of a contractual, statutory, or regulatory provision that the government expressly designated as a condition of payment.  The Court held that these and other provisions that were not expressly designated also might be material conditions to payment and, therefore, a contractor?s failure to disclose a noncompliance with those provisions might constitute an implied misrepresentation.  As the Court explained, a ?statement that omits critical facts is a misrepresentation irrespective of whether the other party has expressly signaled the importance of the qualifying information.?

3. A defendant?s misrepresentation about compliance must be ?material? to the Government?s payment decision in order to be actionable

The Escobar decision also addresses the FCA?s materiality requirement.  The Court states that the materiality standard is a ?demanding? one and that the FCA is not intended to be used as ?an all-purpose antifraud statute? to remedy trifling breaches or noncompliance.

The Escobar decision explains the mere fact that the Government labels a requirement as a condition of payment is not enough to establish materiality, although it may be relevant to the inquiry.  Proof of materiality can include evidence that the defendant knows the government ?consistently refuses to pay claims? based on particular noncompliance.  On the other hand, knowledge that the government pays particular claims despite its knowledge of violations suggests that a requirement, even one that is expressly identified, may not be material.

Finally, the Court explicitly rejected the First Circuit?s view of materiality?that any statutory, regulatory, or contractual violation is material if the defendant knows that the government would be entitled to refuse payment if it knew of the violation.

Effect on Federal Contractors

Given the Court?s holding that implied false certification will support FCA claims, plaintiffs now can allege that regulatory or statutory violations support FCA claims and seek significant monetary damages.

While federal contractors may take solace in the Court?s repeated emphasis that the FCA is not an all-purpose fraud statute and that materiality cannot arise from garden-variety breaches or violations, new regulations, and those on the horizon, pose expanded risks for contractors.  For example, proposed regulations implementing the Executive Order on Fair Pay and Safe Workplaces will require contractor certifications of compliance with a host of Federal and State employment and labor laws.  The Supreme Court?s ruling in Escobar may facilitate greater FCA claims based on the new certification requirements.

Finally, it remains to be seen how the Court?s new guidance on materiality will affect litigation in FCA cases?particularly with regard to the early dismissal of claims.  The assessment of the implied false certification claims and likely materiality defenses are certain to raise disputed issues of material fact that may result in more protracted discovery and motion practice and trials.

Best Practices for Federal Contractors

To help mitigate these new FCA liability risks, whether submitting a proposal for a federal contract or seeking government action, inaction or payment under a government prime or subcontract, a federal contractor should ask itself: (1) whether it is making any type of express or implied representation in its submission, and (2) whether there are any material facts that are not disclosed, or that are stated in such a way that reasonably could be considered misleading.  If so, the contractor needs to consider whether it must revise or more fulsomely disclose in its submission to reduce the risk of an implied false certification.

Should you wish to discuss these matters further, or if you have questions, please contact your FortneyScott attorney.

OFCCP Announces New Sex Discrimination Rules

The OFCCP will be publishing its new “Discrimination on the Basis of Sex” rule in the Federal Register on June 15, 2016.  The rule will become effective on August 15, 2016 and updates the current Sex Discrimination Guidelines which have not changed since 1970.

 Check back for updates, or if you have any questions, please contact your FortneyScott attorney.

EEOC Releases Draft Guidance on National Origin Discrimination, and Requests Public Comment

The U.S. Equal Employment Opportunity Commission (“EEOC”) issued proposed enforcement guidance on national origin discrimination on June 2, 2016.

Key Takeaways:        The EEOC guidance incorporates a
wide array of topics related to national origin discrimination including
intersectional discrimination, human trafficking, harassment, accent and
fluency, national security requirements, and citizenship issues.  In addition, the guidance also includes a
“promising practices” section highlighting actions or programs to help
employers reduce the risk of Title VII violations based on national origin.  Although the EEOC has not included sweeping
changes in re-interpreting Title VII, there are a number of areas where the agency
is pushing the envelope to expand the scope of national origin coverage.

Additional Details:    When finalized, the guidance will
replace Section 13 of the EEOC’s Compliance Manual, which was issued 14 years
ago, in December 2002.  It is somewhat
surprising that the agency chose to update its guidance on national origin at
this time, because there have been very few significant changes in this area of
the law since the prior guidance issued. 
Additionally, the number of charges alleging national origin
discrimination has remained steady during the 14-year-period.  In 2002, 10.6 percent of EEOC charges alleged
national origin discrimination.  As of
last year, that number rose a mere 0.1 percent to 10.7 percent.

The most significant aspects of
the EEOC’s proposed guidance:

  • Overlap
    and Intersectional Discrimination
    – The EEOC expects claims of national
    origin discrimination to be more likely to overlap with allegations of race,
    color or religious discrimination, resulting in charges alleging multiple bases
    of discrimination. The EEOC considers
    adverse treatment because an individual is a combination of two or more
    protected bases, i.e. an Asian woman
    to be ?intersectional discrimination” that should result in claims of national
    origin, race and sex discrimination. 
  • Human Trafficking
    – Title VII can apply to human trafficking cases if the employer’s conduct
    is directed at an individual or a group of individuals based upon national
    origin. The EEOC also indicates that
    egregious employer conduct that is typical in human trafficking cases will
    likely constitute unlawful harassment. 
  • Recruitment
    – If an employer’s current staff is ethnically or racially homogenous, the
    EEOC is more likely to view word of mouth recruitment and sending job posting
    only to ethnically or racially homogenous areas or audiences as having the
    purpose effect of excluding applicants based on national origin. 
  • Joint Employer
    – When a staffing firm and an employer have the right to control the means
    and manner of a worker’s employment they may be considered joint employers
    under Title VII regardless of whether they actually exercise that right to
    control the worker’s employment or have the statutory number of employees. 
  • Screening
    Based on Social Security Number
    – The practice of screening out
    new hires or candidates who
    cannot provide a Social Security number could run afoul of Title VII’s
    disparate impact theory if it disproportionately screens
    out work-authorized but newly-arrived immigrants and
    new lawful permanent residents of a certain ethnicity
    or national origin. 
  • Harassment
    Policies in Employees’ Native Spoken Language
    – In evaluating the
    effectiveness of the employer harassment policy for a Farragher-Ellerth
    affirmative defense, the EEOC will consider whether the complaint mechanism was
    accessible in the native languages spoken by employees if the employer knew of,
    or should have known of, the employees’ limited language capabilities. 
  • The
    Impact of the Guidance
    – Although EEOC Enforcement Guidance does not carry
    the same force of law that regulations establish, many courts are willing to
    provide deference to EEOC guidance and rulings based on the agency’s knowledge
    and expertise. The EEOC relies upon its
    Enforcement Guidance to direct its employees in charge investigations and
    related processing such as making cause determinations and considering
    litigation.

 
Follow Up Actions for Employers: 
The public has until July 1, 2016 to
provide input on the proposed guidance.  The
EEOC will consider the public’s comments before finalizing and releasing the
guidance.

Employers should review the EEOC’s proposed guidance on national origin
and consider whether their current policies and practices are in
compliance. 

Please contact FortneyScott if you have questions about the proposed
National Origin Enforcement Guidance and how it may affect your business.  For more information, contact Leslie
Silverman, Esq.
, Shareholder at FortneyScott and former Vice Chair of the
EEOC, or by telephone, 202-689-1204. 

?Cost of Living Adjustment? of Civil False Claims and False Statement Penalties

Overview

The financial
penalties for violating federal contracting obligations are going up beginning July 1, 2016.  Thereafter, there will be annual COLA
increases for such penalties.  Adjusted
penalty levels may increase to as much as 250 percent of the level(s) in effect
in 2015, and each agency is authorized to increase the penalty itself by as much
as 150 percent.  Accordingly, contractors
may face a significant range of penalties depending on the penalty increases
assessed by the individual agencies that they contract with.  The bottom line is that the risks related to
potential false claims and false statements are increasing for federal
contractors.  The details are provided
below.

The
New Civil Penalties

The Federal Civil
Penalties Inflation Adjustment Act of 1990, as further amended by the Federal
Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (“FCPIAA”),
provides for adjustments for inflation to the civil monetary penalties that Executive
Agencies can assess for violations of applicable statutes and regulations,
including those relating to False Statements and False Claims.  The amendment also provides for FCPIAA
escalation of Occupational Health and Safety Act violations.   

The Office of
Management and Budget’s (“OMB’s”) implementing memorandum states that “[i]n
accordance with the 2015 Act, however, agencies shall not increase penalty
levels by more than 150 percent of the corresponding levels in effect on
November 2, 2015.  Note: The 150 percent
limitation is on the amount of the increase; therefore, the adjusted penalty
level(s) will be up to 250 percent of the level(s) in effect on November 2, 2015.”
 Agencies have until July 1, 2016 to
issue their specific interim final rules to adjust civil monetary
penalties. 

Following up on the
FCPIAA and OMB guidance, on May 26, 2016, the Department of Defense (“DOD”)
issued its interim final rule to adjust the civil monetary penalties that it
may access for violations of designated provisions, including notably
violations involving False Claims and False Statements.  Under the interim final rule, the maximum
per-claim penalty for such violations will increase to $10,781 from $5,500.  81 Fed. Reg. 33391.  The stated purpose of the adjustment is to
“improve the deterrent effect of civil monetary penalties and to promote
compliance with the law.”  Id. 
As noted by the interim final rule, the DOD is authorized to issue a “cost-of-living
adjustment” to escalate this amount each year. 

Significantly, the
interim final rule provides that the escalated penalty “must apply only to
civil monetary penalties, including those whose associated violation predated
such increase, which are assessed after the date the increase takes effect
(i.e., July 1, 2016).” [Emphasis added.] 

Take-Away:

  • As
    noted above, these new penalties can be assessed against violations predating
    the escalation.
  • Make
    sure that you have a working compliance program and training to ensure your
    personnel understand the importance of compliance with applicable laws and
    regulations.
  • Federal
    Acquisition Regulation (“FAR”) Mandatory Disclosure rules require reporting of
    credible evidence of actual or suspect violations. Early identification will
    help you to timely report and address such matters. If you become aware of a possible violation of
    covered laws or regulations, take appropriate steps to promptly investigate.

If you have any questions with regard to these matters, please contact Susan Warshaw Ebner, or the FortneyScott attorney with whom you work.  

FAR Final Cybersecurity Rule Sets Basic Level of Safeguarding

The Federal Acquisition Regulation (FAR) Council has
issued a final rule, effective June 15th, requiring government contractors to
implement a basic level of safeguards on their contractor information
systems.  The final rule includes 15 requirements for
the safeguarding of contractor systems that “process, store or transmit Federal
contract information.” “Federal contract information”  is broadly defined to include information
that is not public and that is “provided by or generated for the Government
under a contract to develop or deliver a product or services to the
Government.”

The final FAR rule is in addition to other cybersecurity
safeguarding rules and requirements specified by Federal agencies.  Unlike the Defense FAR Supplement rule that
we previously reported on, which requires compliance
with NIST 800-171 but provides a mechanism for contractor deferment of final
implementation until December 31, 2017, the new FAR rule will apply immediately
in all contracts and procurements in which it is included.  The rule applies to all procurements,
including procurements of commercial items (CI) other than commercially
available off-the-shelf (COTS) items. 
Contractors will be required to flowdown the new rule to their
subcontracts for the acquisition of supplies or services, including CI other
than COTS items, if the subcontractor may have Federal contract information
“residing in or transiting through its information system”.

Stay alert for the inclusion of the new rule, 52.204-21
Basic Safeguarding of Covered Contractor Information Systems (JUN 2016), in
your procurements, and in requests for bilateral modifications of your existing
contracts.   Compliance with the new rule
may increase your costs and risks of performance.  If you would like more information on the new
rule and how it may affect you, please contact Susan Warshaw Ebner.

EEOC Holds Public Meeting on Diversity in Tech Industry

On May 18, 2016, the Equal Employment Opportunity Commission (EEOC)
held a public meeting on the topic of diversity in the tech industry, entitled “Innovation
Opportunity: Examining Strategies to Promote Diverse and Inclusive Workplaces
in the Tech Industry.”

At the meeting, EEOC staff presented findings from a new report, “Diversity in High Tech,” which the agency released
following the hearing.  The EEOC report
analyzes demographic data and other trends in the tech industry.  EEOC Commissioners also heard remarks from a
panel of experts across various fields who shared strategies and insights into
the state of diversity in the tech sector and offered solutions for promoting
equal employment in the high tech community.

EEOC Report Analyzes Employment Patterns in the Tech Industry

Ronald Edwards, Director of the Program Research and Surveys Division
with the Office of Research, Information and Planning at the EEOC, testified
about the findings from the new EEOC report.  The report, which was based on a literature
overview and analysis of EEO-1 data from tech firms, concluded that the high
tech industry displays overall disparities in the employment of women,
African-Americans, and Hispanics when compared to all industries
nationwide.  Among other things, the
report found that:

  • African-Americans, Asian-Americans, and women
    may face barriers to advancement, as indicated by a pattern where women and
    nonwhite employment decreases as job group increases from technicians up to
    executives;
  • African-Americans and Hispanics had lower
    representation in the high-tech industry by a substantial margin, as compared
    to all private industries; and
  • Among the top 75 high tech firms in Silicon
    Valley, Asian-Americans make up 50% of professional jobs, yet only 36% of
    combined management positions.

 While the report did not inquire into why or how these disparities
arose, at the Commission meeting, the EEOC intends for the study to advance
conversation around issues of diversity and to identify areas for future
research.  Throughout the meeting, Chair
Jenny Yang along with other members of the Commission expressed a desire to dig
deeper into the issues of diversity and inclusion that are impacting the high
tech sector and to use the Commission’s resources to shine a light on and help
the industry resolve these critical issues.

The EEOC Report underscores the significant role that the high-tech
sector plays in fueling the U.S. economy and the industry’s pivotal role in
creating high paying, sustainable jobs with strong growth potential.  The EEOC has highlighted the well-known fact
that the high-tech sector is falling short in diversity and inclusion efforts
as it continues to employ a smaller percentage of women, African Americans and
Hispanics as compared to the overall private sector.

Panel Discussion Provides Insights into Disparities and Explores
Possible Solutions

Five panelists offered further insights into the state of diversity in
the tech industry: Ben Jealous, former head of the NAACP and current partner at
Kapor Capital; Erin Connell, an employment attorney at Orrick, Herrington &
Sutcliffe; Camilla Velasquez, head of product and marketing at JustWorks; Laurie
McCann, an attorney with the AARP Foundation; and Kweilin Ellingrud, a partner
at McKinsey & Company.

In their testimony, the panelists observed that:

  • There is a technology talent shortage and it is
    rapidly increasing. By 2020, there will
    be 1.4 million computing jobs in the United States, but only 400,000
    suitably-skilled workers to fill them-a talent gap that makes it more
    imperative than ever for high-tech companies to focus on diversity and
    inclusion initiatives;
  • Hiring of women and minorities (particularly
    African-Americans and Hispanics) in tech jobs is not getting better and appear
    to be growing worse, largely due to the pipeline problem of those groups being
    discouraged (or not encouraged) from studying computer science, majoring in
    STEM fields or joining the industry; and
  • In addition to race and gender disparities
    exposed in the EEO-1 data and other studies, there are far fewer older workers
    in the tech sector; hiring policies and practices designed to attract and hire
    younger employees are making it even more challenging for older workers to join
    this critical segment of the workforce.

 The panelists discussed strategies and best practices to promote
diversity in the tech field, ranging from more traditional solutions-such as
ensuring pay equity, expanding family-friendly leave and health benefits-to
other innovations, like hidden bias training, incentive payments to recruiters
for diverse candidates, and requiring at least one female or minority candidate
to be considered when hiring for certain open positions.

For more information with regard to this meeting, please contact Leslie
Silverman
.

DOL Issues Long-Awaited Final Rule on Overtime Regulations

On
May 18, 2016, the Department of Labor (DOL) will finalize the rule implementing
revisions to the overtime regulations of the Fair Labor Standards Act. The
release of the rule ends months of intense speculation as to its major features-in
particular, prognostication about the new “white-collar” exemption salary threshold
and whether the final rule would alter the primary duty test.

According
to a May 17, 2016 White House
press release
,
the new rule will “extend overtime protections to 4.2 million more Americans who
are not currently eligible under federal law, and it is expected to boost wages
for workers by $12 billion over the next 10 years.”

As
discussed below, notable provisions in the final rule include:

  • The salary threshold
    is increased from $23,660 per year to $47,476 (or $913 per week);
  • The salary
    threshold will automatically update every three years;
  • The highly
    compensated employee exemption salary threshold is increased to $134,004;
  • The final rule
    does not change the current primary duty test; and
  • The final rule has
    an effective date of December 1, 2016.

White Collar Exemption Salary Threshold Increased
to $47,476

The final rule doubles the current salary
threshold for the so-called “white collar exemptions” (i.e., executive, administrative, professional, and computer
employees) from $23,660 a year to $47,476.  The threshold is pegged to the 40th
percentile of full-time salaried workers in the lowest-wage
Census Region, currently, the South.  Even though the final figure is several thousand dollars
below the $50,440 proposed by DOL last July, many employers believe the increase
is far too drastic.  In addition, for the
first time, employers will be able to count certain bonuses and incentive
payments (including commissions) toward as much as 10 percent of the salary
threshold, so long as these payments are made at least quarterly. Examples of
such payments include bonuses for meeting production goals, retention bonuses,
and commission payments based on a fixed formula.

Salary Threshold Will Automatically Update
Every Three Years

The new
rule provides that the salary threshold will update automatically every three
years, with the first update taking place on January 1, 2020.  The administration has projected that the
threshold will increase to $51,000 in 2020.  The DOL will publish all updated rates in the
Federal Register at least 150 days before their effective date, and also post
them on the Wage and Hour Division’s website.  A number of commentators have argued that this
indexing feature may be vulnerable to legal challenges, so stay tuned for
further developments.

Highly Compensated Employee Exemption Threshold
Increased to $134,004

The salary requirement for the highly compensated
employee exemption has increased by 34%, from $100,000 per year to $134,004-a
figure tied to the 90th percentile of full-time salaried workers nationally.  As with the white-collar salary threshold, the
highly compensated employee threshold will increase every three years.

No Change to “Primary Duty” Test

Significantly,
the final rule does not change the requirements of the current “primary duty”
test, which allows an employee to be exempt even if she spends less than 50% of
her time performing exempt duties, so long as her primary duty or duties are exempt duties.  While the DOL’s proposed regulations did not
offer any specific changes to the primary duty test, the Department did invite
comments on whether any adjustments were necessary, fueling speculation about whether
the rule would impose a strict new standard akin to the one currently in place
in California.

The
New Standards Become Effective on December 1, 2016

As
something of a silver lining for employers, the final rule has an effective
date of December 1, 2016, giving employers nearly 200 days to comply after the
rule’s final publication in the Federal Register.
 This far exceeds the 60 days that many
commentators were anticipating and gives employers significantly more time to
come into compliance with the new rule.  The DOL has released three technical guidance documents
designed to help private employers, non-profit employers, and institutions of
higher education come into compliance with the new rule.

In
addition to the above, these new overtime rules will have an effect on
government contracts.  Government
contractors should review their contracts to determine the impact these changes
may have on their contract performance, direct and indirect rates, and pricing.

FortneyScott’s subject matter experts will present a complimentary
webinar to discuss the details of the regulations and modes of response on May 25,
2016.  To register, CLICK
HERE
.

EEOC Issues Final Rules Governing Employee Wellness Programs and Antidiscrimination Laws

On May 17, 2016, the Equal Employment Opportunity
Commission (EEOC) issued two final rules (available here
and here)
that establish the extent to which employers may offer incentives to encourage
employees and their spouses to participate in corporate wellness programs.  The rules offer guidance on the degree to
which employers may, consistent with Title I of the Americans with Disabilities
Act (ADA) and Title II of the Genetic Information Nondiscrimination Act (GINA),
inquire about health and disabilities or conduct medical examinations as a
pre-condition to receiving incentives for wellness programs.  The new regulations allow employer-sponsored
wellness programs to move forward, provided that employers follow EEOC’s roadmap
designed to safeguard against discrimination.

While the final rules track the proposed rules in many
respects, they contain a few significant changes that will limit the incentives
employers may offer employees and their spouses to participate in wellness
programs.  The final rules will go into
effect on January 1, 2017.

The EEOC’s final rules are intended to harmonize the Health
Insurance Portability and Accountability Act (HIPAA), the Patient Protection
and Affordable Care Act (ACA) and the joint regulations issued by the
Departments of Labor, Health and Human Services, and Treasury (the “Tricare
regulations”).  Although the ACA permits
employers to offer financial incentives to encourage participation in wellness
programs, there has been a tension between the incentives allowable under the
ACA and Tricare regulations and those permitted under the ADA, which precludes
employers from making medical inquiries or conducting medical examinations on
employees unless they are part of a “voluntary” health program.  There has also been tension with GINA, which
limits employers’ ability to ask questions about an employee’s family medical
history.  In order to address these
inconsistencies, the EEOC proposed rules in April 2015 to carve out a narrow
exception to the ADA in order to allow employers to gather this information as
part of a wellness program.  In October
2015, the EEOC proposed rules addressing the extent to which employers may properly
offer incentives to an employee’s spouse to participate in a wellness program. 

The most important changes from the proposed rules and the
most significant changes from the ACA and Tricare regulations are:  

  • Limits on Financial Incentives ? EEOC declined to revise financial incentive limits to make them consistent with those established in the Tricare regulations.  In addition, employers will no longer be able to offer the same level of financial incentives to employees with family coverage as currently permitted under the ACA.
  • ADA ? Employers may only offer financial incentives of up to 30% of the total cost of ?self-only? coverage premiums.   This is contrary to the ACA, which permits employers to offer financial incentives of up to 30% of the plan premium in which the employee and any family members are enrolled.
  • GINA ? Spousal incentive are limited to up to 30% of the total cost of ?self-only? coverage under the group plan.
  • Tobacco Cessation ? Employers may not offer enhanced incentives for programs aimed at curbing tobacco use if the program tests for the presence of nicotine.  Under the Tricare regulations, employers may offer incentives of up to 50% of the cost of coverage for smoking cessation.
  • New Rule Applies More Broadly ? The proposed rules only applied certain provisions, such as limits on financial inducements to wellness programs that were that were part of a group plan. The EEOC revised the proposed rule so that the entire rule now applies any employer-sponsored wellness program that offers incentives and asks disability-related questions or requires medical examinations, including a program offered outside a group health plan or a program offered by an employer who does not provide group health insurance.  
  • Notice/Confidentiality ? The proposed notice and confidentiality provisions will apply to wellness programs regardless of whether they are offered as part of a group health plan or offered as a benefit by employers that do not offer group health insurance to their employees.
  • ADA ? Employers must provide participating employees with a notice that explains what information will be collected as part of a wellness program, with whom the information will be shared and for what purpose, limits on disclosure, and how personal health information will be kept confidential.
  • GINA ? The new rule includes statutory notice and consent provisions for health and genetic services provided to employees and their family members.  
  • Reasonably Designed Standard ? As in the proposed rule, employee health programs must be ?reasonably designed to promote health and prevent disease.? Employers protested that the requirement, which gives the EEOC the opportunity to determine the worthiness of an employer wellness program, is not only duplicative of the ACA?s existing requirements, but goes well beyond the civil rights agency?s area of expertise and statutory authority.  
  • ADA Safe Harbor ? Despite two court decisions to the contrary, the EEOC reaffirmed its position that the ADA safe harbor would not apply to wellness programs that are part of a group health plan.  

There are a few silver linings for employers:

  • No ?Affordability Standard? ? Although the EEOC did not include an ?affordability standard? in the proposed rule, the Commission requested public input on whether one would help the agency determine whether a wellness program is voluntary under the ADA.
  • No Prior Written Authorization ? The agency declined to include a requirement in the final rule that employees provide prior written and knowing authorization.  Employers argued that such authorization was unnecessary and would only increase administrative and compliance costs.

With the new rules in place, employers should review their
wellness plans to determine if they fall within the limited permissible
exceptions to the ADA and GINA.  While
the intent of rules is to offer clarity, they can also blur some lines on a
plan-by-plan basis-as often happens in the regulatory space.  Employers need to remain vigilant that their
plans are compliant. 

If you have any questions, please contact Leslie Silverman, or your FortneyScott attorney with whom you work.