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Apr 2007
01
April 01, 2007

Human Resources Alert - Spring 2007

Topics included in this issue:

 

FINAL WELLNESS REGULATIONS ALLOW REWARDS FOR HEALTHY BEHAVIOR: BUT NOT-SO-HEALTHY EMPLOYEES MUST BE ACCOMMODATED

by Sue O. Conway

There were no real surprises in the final HIPAA wellness regulations issued in December--only minor changes to the 2001 proposed rules. One notable change was dropping the term "bona fide wellness program" in order to clarify that not all wellness programs have to meet the HIPAA wellness rules on nondiscrimination to be legal or "bona fide"--only those where there is a health plan reward based on meeting a health-related standard.

For example, if the wellness program reward is a health insurance premium discount based on completing a health risk assessment but not dependent on achieving any particular result, it does not have to satisfy the new wellness rules. Likewise, if the reward is completely outside the health plan, such as a $100 cash bonus for meeting certain fitness requirements, it is not subject to the HIPAA wellness rules.

Under the final regulations, if a wellness program offers a health plan reward (such as a lower health insurance premium or co-payment) and the reward is based on meeting a health-related standard (such as being tobacco-free, meeting a certain body mass index or achieving a low cholesterol number), the program must meet 5 conditions:

  1. Total Reward Limited. The total reward cannot exceed 20% of the full cost of employee-only coverage (if dependents can participate in the wellness program, the reward can be 20% of the coverage level in which the employee and dependents are enrolled).

     
  2. Designed to Promote Good Health. The reward program must be reasonably designed to promote health or prevent disease (this is intended to be easy to satisfy and to prohibit only bizarre, extreme or illegal requirements).

     
  3. Annual Qualification. Individuals must have an opportunity to qualify for the reward at least once a year.

     
  4. Reasonable Alternatives Available. The reward must be available to all similarly situated individuals. This is the most widely discussed requirement and means making available a reasonable alternative if it is unreasonably difficult for an individual to satisfy the health standard because of a medical condition (for example, unreasonably difficult to be tobacco-free because of a nicotine addiction) or if it is medically inadvisable for an individual to attempt to satisfy the standard (such as an individual with a serious heart condition attempting to walk a mile each day). The regulations permit the employer to require a physician's report or other verification of the need for a reasonable alternative, and the employer does not have to decide what the alternatives are in advance. This can be done on a case-by-case basis as the need arises.

     
  5. Disclose Availability. All plan materials that describe how the wellness program works must also describe the availability of the reasonable alternative standard. It is not necessary to say exactly what the alternative is. Model language for this disclosure is contained on the Department of Labor Web site as follows:

"If it is unreasonably difficult due to a medical condition for you to achieve the standards for the reward under this program, or if it is medically inadvisable for you to attempt to achieve the standards for the reward under this program, call us at [insert tel. no.] and we will work with you to develop another way to qualify for the reward."

The final regulations, developed jointly by the Department of Labor, Department of Treasury and Department of Health & Human Services, apply on the first day of the first plan year that begins on or after July 1, 2007. For calendar year plans, this means January 1, 2008, but most plan sponsors will comply immediately since the regulations are clear and provide a helpful road map for a non-discriminatory wellness program. What they do not do is assure compliance with the Americans with Disabilities Act and, unfortunately the EEOC has not yet issued any helpful guidance on the subject.


 

EXTRATERRITORIAL APPLICATION OF TITLE VII ~
WHAT IT MEANS FOR U.S. EMPLOYERS

by Gregory M. Kilby

Frankfurt, Germany ~ An African-American sales manager in charge of the entire Western European sales force of an American automobile parts supplier walks into his office and is greeted by a swastika spray painted on his wall. One week later, the same sales manager finds a white pointed hood with eye holes sitting on his chair. The sales manager complains to his supervisor abroad and the company’s Vice President of Human Resources in America. The company fails to address any of the sales manager’s complaints. Several months later, the Vice President of Human Resources for the automobile supplier is served with a lawsuit by the sales manager alleging that he was subjected to racial harassment under Title VII. Can the employer be liable for harassment perpetrated outside of the United States by non-U.S. citizens? Does it matter whether the Complainant is a U.S. citizen?

The answer to both questions is "yes." Because Title VII applies to American citizens employed outside the United States by American companies or by operations "controlled" by American companies, U.S. companies are liable for violations of Title VII that occur abroad. Title VII does not apply to non-U.S. citizens working for U.S. companies abroad.

As U.S. employers increasingly move operations and/or subsidiaries abroad, the extraterritorial application of Title VII is becoming more of a focal point for companies and courts alike. As recently as last month, one federal court decided that four U.S. citizens working in Italy could pursue their claims of national origin discrimination and retaliation against the American subsidiaries of a Dutch company. Fordham v. Agusta Westland N.V., et al., No. 06-CV-3915, 2007 WL 136329 (E.D. Pa. Jan. 11, 2007). In Fordham, four American citizens were hired by Agusta Westland's U.S. subsidiary in Philadelphia and sent to Italy for training. While undergoing job training, the four trainees alleged that they were subject to anti-American bias by, among other things, being denied shift differential pay, being forced to work less favorable hours, being treated in a demeaning manner, and being assigned to the production floor rather than being trained. Upon voicing their complaints of mistreatment, they alleged they were forced to resign.

The Fordham case is not the only recent one of its kind. Less than two years ago, the federal district court for the District of Maryland recognized that Title VII protections applied to a U.S. citizen working for a defense contractor on a U.S. military base in Kuwait. Watson v. CSA, Ltd., 376 F.Supp. 588 (D. Md. 2005). Watson alleged that he was denied promotions based upon his African-American heritage. The Watson court noted that Title VII protected U.S. citizens working abroad for foreign companies controlled by American firms.

Fordham and Watson make clear that U.S. citizens are entitled to the protections of Title VII when working abroad for a U.S. company or entities "controlled" by U.S. companies. But not every foreign subsidiary of a U.S. company is covered; control is determined by a four-part test set forth in Title VII which focuses on: (1) the interrelation of operations, (2) common management, (3) centralized control of labor relations, and (4) common ownership or financial control. The most important of the four factors is whether the foreign entity and its U.S. affiliate have centralized control of labor relations. Foreign operations that are "controlled" by U.S. companies under the four-part test are subject to Title VII liability unless compliance with Title VII would be unlawful under the law of the foreign country in which the workplace is located.

So what should U.S. companies do to protect themselves from liability? First, companies need to evaluate whether Title VII applies to their extraterritorial operations. If so, employers need to proactively implement measures to ensure that employees and management outside of the United States are complying with Title VII. This includes, among other things, drafting and disseminating an employee handbook that includes an antiharassment policy, responding to employee complaints in a timely fashion, and posting federally required posters in your foreign workplace. If you would like assistance determining whether Title VII applies to your company's extraterritorial operations or taking proactive steps to reduce your potential for Title VII liability either within the U.S. or abroad, please contact any member of our Labor and Employment Law Practice Group.

 

RETIREMENT PLAN DISTRIBUTION FORMS MAY NEED UPDATING

On August 17, 2006, President Bush signed the Pension Protection Act of 2006 ("Act"). The Act contains changes that impact distributions from your retirement plan and require changes to the forms you use to process distributions. For example, plan sponsors of all plans are now required to include in distribution notices a description of the consequences to a participant of electing an immediate distribution (as opposed to deferring receipt of the distribution to a later date). Almost certainly, your current forms will need updating to meet this new requirement.

In addition, the Act makes a few changes that you, as plan sponsor, can choose to adopt for your plan:

  1. If your plan is subject to the surviving spouse annuity rules (i.e., participants must waive the surviving spouse annuity--with spousal consent-- to elect an optional form of payment), the time period for providing distribution notices can be extended from 30 to 90 days before the distribution to 30 to 180 days before the distribution.

     
  2. Money purchase and defined benefit plans can now be amended to allow in-service distributions at age 62 (or later).

     
  3. If your plan includes a lump-sum distribution option, it can be amended to permit non-spouse beneficiaries to roll over death benefit distributions to inherited IRAs.

     
  4. If your plan allows distributions for hardship but limits them to the IRS "safe harbor" reasons (i.e., to purchase principal residence; to pay post-secondary tuition; to pay medical expenses; to avoid eviction from, or foreclosure on the mortgage of, principal residence), the hardship provision can be amended to allow hardship distributions to a participant for the medical, tuition or funeral expenses of the participant's designated primary beneficiary under the plan (even if not a dependent of the participant).

The IRS will be issuing formal guidance in connection with some of these changes. If you intend to amend your plan for any of the changes, we can assist you once the guidance is issued. In the meantime, you are required to make reasonable efforts to comply with the applicable rules. As part of that effort, your distribution forms must be revised to reflect any of the changes that affect your plan.

The updated forms should be used in plan years beginning after December 31, 2006. If you would like our assistance in reviewing and revising your distribution forms (whether or not the forms you are using were prepared by WN&J), please give us a call.
 

BETTER PERFORMANCE APPRAISALS -
5 NOT-SO-EASY STEPS

by Steven A. Palazzolo

If you do a search for the term "performance appraisal" on Google, you will get 1,300,000 hits. Now I'll be the first to admit that I'm no expert when it comes to computers or the Internet and my 10-year-old knows more about them than I do, but that seemed like a lot to me. So I did a little experiment and searched "Paris Hilton"--the person, not the hotel. I got 56,000,000 hits. Then I searched the "Beatles"--the band, not the bugs, who were around before any former presidential candidate even thought about inventing the Internet, and I got 56,000,000 hits. Shows you what I know about pop culture. It also really messed up my planned introduction for this article.

Well, 1,300,000 is still a lot to me. What really struck me, though (he wrote, changing the subject), wasn't the number of hits, but the incredible divergence of opinion (about performance appraisals, not the Beatles) among the so-called experts. Some people want you to scrap the whole process and replace it with something else. Others sing the praises of the performance appraisal process. Almost everyone agrees on a few things: Just about every company in the country does some sort of annual performance appraisal. I found performance appraisal processes for a church, what seemed like every major university in the country and the U.S. Department of the Interior. The Department of the Interior, by the way, has a "Performance Appraisal Handbook" with 8 appendixes that totals 67 pages. That seems like a bit much to me, even for the federal government.

The commentators also agree that everyone who does performance appraisals does them wrong. One consultant went so far as to say performance appraisals don't really motivate people at all; in fact, they tend to de-motivate people and cause them to quit their jobs. One consultant I found said the problem with performance appraisals was that companies tended to measure things that don't matter when it comes to things like "customer service," like number of rings to answer the phone or calls taken in a day. Another consultant said the problem with performance appraisals is that companies make them too complicated and should instead measure things that are easy to count like number of rings to answer the phone or calls taken in a day.

Finally, the folks shilling something on the Internet agree that if you buy their particular book, or video or consulting service, you will have the magic bullet that will transform your obviously flawed performance appraisal system into a model of HR policy on the cutting edge of progress, vault you into the forefront of the industry and guarantee a cover story in Forbes (OK, I made up that last part, but you get the idea).

Before you spend your money on a new book, let's talk about some things you can do to make the performance review process more effective for your employees and your organization and more helpful if you should ever need it in court. The things I'm about to suggest are not necessarily going to be easy to implement, but they just might help in the long run.

NUMBER ONE: WHY ARE WE DOING THIS?

I'd be willing to bet that your supervisors, who are the ones filling out endless reviews, ask this question every year. The answer is not as obvious as it may seem. Most of you will answer that you do them because annual raises or bonuses are tied to performance review scores. That is a fine answer. But if they are not, rethink the whole process. I'm not kidding. Unless pay or some other important goal is tied to performance at your organization, you are probably not helping yourself by doing annual reviews. The reality is your supervisors won't put the effort into the reviews that they deserve and they will end up being of very little help if you need them when you get sued. In fact, in my experience this will probably hurt you in litigation.

Let's say, for example, the performance review process at your company is not tied to pay or some other thing important to employees. Supervisors go through the motions without giving each review the attention it deserves. Now you want to fire Bill. You can almost guarantee that Bill has been rated as an average employee on his performance reviews. Now we have to explain to the jury why Bill, this average employee, is being fired for performance as we claim and not because of his race or age or disability or some other protected category as he claims.

Plus, if pay is not tied to performance in your organization you can pretty much guarantee that while you are talking to your employee in the annual review meeting, he is fishing or golfing or boating or going to whatever other happy place he goes to when he doesn't want to listen to what you have to say and he starts tuning you out.

NUMBER TWO: WHAT DO WE USE TO RATE EMPLOYEES?

Most of you use a form of some sort or another. I told you this was not going to be easy. A form is fine. However, you should not have the same evaluating criteria for every job. Break up your reviews into categories or job families. The more categories, the better the end product. Let's face it, if you review your line employees and your office staff and your sales people and your upper management with the same criteria, call them competencies or anything else you want to, no one is likely getting a beneficial review. At the best, take your job description for each job and use that as the basis for your review form for each job. Why? Because if you do this you will know that your employee is being rated on what is important for his or her job. Of course there will, and should, be some overlap. You may want to rate all employees on a set of shared values like honesty or integrity that are reflected in your vision statement or some other set of principles that are particularly important for your company. But somewhere in the review form you really need to rate people on what their day-to-day jobs are. If you don't do this, you might find that the consultants are right and the reviews really are de-motivating. Plus, you might find your reviews much less useful if you ever get sued.

NUMBER THREE: DO THE PEOPLE DOING THE REVIEWS KNOW WHAT THEY ARE DOING?

Do they? Most companies spend a lot of time teaching supervisors how to use the brand new and very expensive online performance review tool. By the time they are done, supervisors are experts on how to cut and paste objectives or override the grading system to give half grades. Of course they still don't know how to review an employee or give constructive feedback. So ask yourself, would you go out and spend a bunch of your hard-earned money on a new car for your teenager and then give it to her without teaching her to drive? Of course not, but that is exactly what you are doing here. So spend your money wisely; spend it on teaching your supervisors how to manage and rate performance. Spend it on teaching your supervisors how to give constructive feedback. If you do this, you can give them a blank piece of paper and get a really good review out of it. And it will make your really expensive performance review system do what it was supposed to do:  review your employee's actual performance.

That brings us to another subject. When your management staff gets reviewed, it will help if one of the things they are reviewed on is how well they do their subordinates' reviews. Nothing hits home like hitting someone in the pocketbook. Rating your supervisors on how well they review their people will let them know just how seriously you take this process and improve the quality of your review system.

NUMBER FOUR: WHEN DO WE DO REVIEWS?

This is easy, right? We do it once a year either on the employee's anniversary or at the end of the calendar year, whether we need to or not? Wrong. You do need a formal review meeting and it should take place at least once a year, but you should be doing reviews every day. Not sitting down and writing them, but actually evaluating your employee's performance on a daily basis. At the end of the year, when you do sit down to write the review, you want to be able to include facts and data. Not impressions. Give examples of good performance and examples of bad performance. Now unless your memory is a lot better than mine, the only way you are going to be able to do that is to actually observe your employees doing their jobs and jot down what you saw. This is really the easiest thing for supervisors to do to make the annual review process easier for them and more effective for the employees. It will take time for the supervisors to get into this habit and they may resist at first, but it will make writing the review much easier. You won't have to sit at your desk and try to remember what the employee did all year; it will be all over a bunch of little yellow sticky notes in a file in front of you. It will also make the review process much more valuable for the employee.

By the way, don't wait to give the employee the feedback. Collecting the data for the annual review is only part of the reason for actually watching your employees work. Everyone knows that feedback, good or bad, is more effective when it is timely. So don't wait for the end-of-the-year review to praise a good deed or correct a bad one. When you see something that deserves comment, comment.

NUMBER FIVE: WHO DOES THEM?

The supervisor does reviews, of course. But if you want a really good review process, this is only half right. Involve the employee being reviewed. I don't mean at the end of the year when you are having a meeting and sitting down to discuss the review with the employee; I mean all year long. Sit down at the beginning of the year and discuss job duties with your employees. Find out what works for them and what doesn't. Ask them what they need to do a good job and ask them what they view as excellent performance. You might be surprised what you will learn. Ask the employee to participate in formulating next year's review. A lot of you already ask employees to give you goals for next year. That's not what I mean here. Really ask the employee to give you input on rating the job--the whole job, not just a couple of "objectives." Revisit these things periodically over the year and don't be afraid to make adjustments when the employee brings up something that makes sense. You will get a much better product in the end and a lot less resistance from the majority of your employees to the whole review process.

Let's be honest. Go ask 100 employees what they think of the annual review process at their jobs. 95% of them will tell you they don’t like it or some other more colorful description of their disdain for the process. Try a couple of these things and that may change.

If you have any questions regarding performance reviews or any other question we might be able to help you with, please feel free to call me or any member of the WNJ HR Practice Group.


 

RECENT DEVELOPMENTS ON THE LEGISLATIVE FRONT

by Troy Cumings

The newly formed Government Affairs Group at Warner Norcross & Judd is committed to providing our clients with the most up-to-date information regarding legislative news that may affect how our clients do business. The first days of the 110th Congress have presented several issues with respect to how employers interact with their employees.

First, as most of you already know, Congress passed legislation raising the federal minimum wage. Currently, the two houses are wrangling over bills that would provide tax relief for small businesses in connection with the federal minimum wage hike.

Second, on March 1, 2007, the House passed HR 800--the so-called Employee Free Choice Act --by a vote of 241 to 185. The Employee Free Choice Act would allow a union to be certified as the representative of an appropriate unit of employees if the union receives signed authorization cards from more than half of the employees in that unit. The bill would effectively do away with secret ballot elections to determine union representation. In addition, the bill provides for mediation if a first contract cannot be reached within 90 days of a request for bargaining and arbitration if mediation fails. Finally, HR 800 authorizes double damages for unfair labor practices committed by the employer in the time between certification of the union and adoption of the first contract.

Third, on March 6 Senator Clinton (D-N.Y.) introduced S 766, and Representative DeLauro (D-Conn) introduced HR 1338. These bills are known as the "Paycheck Fairness Act." This legislation would amend the Fair Labor Standards Act to give "more effective remedies" to employees facing wage discrimination because of sex. In addition, the legislation creates a training program for "girls and women" to enhance their negotiating skills, provides for enforcement of equal pay laws for federal contractors, requires the Department of Labor to provide outreach and training programs aimed at eliminating sex-based pay disparities, and makes it illegal to retaliate against employees who discuss wage information with coworkers. Finally, the measure authorizes both compensatory and punitive damages for women who sue and win.

Lastly, on March 13 Senator Kennedy (D-Mass) and Representative DeLauro (D-Conn) sponsored a rally on Capitol Hill in support of the "Healthy Families Act." This legislation, which was introduced in both houses on March 15, will guarantee seven paid sick days a year to employees who work for employers with 15 or more employees to care for their own or a family member's medical condition. This legislation was previously introduced in 2004 and 2005, but no action was taken.

If you would like any further information about these bills or any other activity in the United States or Michigan legislatures, please contact me at tcumings@wnj.com / (616) 752-2731 or any member of the Labor Practice Group.



 

HIPAA NOTIFICATION MAY BE DUE SOON

by Norbert F. Kugele

Under the HIPAA privacy rules, employers who sponsor self-insured health benefits (such as medical plans, flexible spending accounts, health reimbursement accounts, etc.) have an obligation at least once every three years to remind participants in the plan that a Notice of Privacy Practices is available. Depending upon your first compliance date, you may now be coming up on this deadline.

If your company sponsors a small health plan (one with annual claims and/or premiums of less than $5 million), you had an initial compliance deadline of April 14, 2004. As part of your compliance obligation, you delivered to each participant a Notice of Privacy Practices. If you have not sent this notice to your participants since then, you must now remind them that the Notice is available.

According to guidance issued by the Department of Health and Human Services, you can fulfill this notice requirement in a number of ways, such as:

  • sending a copy of your Notice of Privacy Practices to each of your participants;
  • mailing a reminder that the Notice is available with information on how to obtain a copy; or
  • including a reminder and details of how to obtain a copy in your health plan's newsletter or other publication.

To satisfy the requirement, you need to deliver the reminder to only each employee, retiree, or COBRA participant covered by your plan. You do not need to deliver a separate copy to dependents. You can deliver the notice through an internal mail delivery system or by U.S. mail. If you have permission from the participant, you may deliver the notice by e-mail.

You do not have to send out a reminder if you have sent a Notice of Privacy Practices to your participants more recently than three years ago. For example, if you substantially amended your Notice of Privacy Practices recently, you probably sent the Notice to your participants at the time of amendment, in which case a reminder at this time is unnecessary. If you (or your TPA or insurance issuer) routinely send the Notice of Privacy Practices out on an annual basis, you also do not need to send the reminder.

If you have any questions about this reminder requirement, please contact Norbert Kugele of Warner Norcross & Judd LLP at 616.752.2186.


 

NEW PASSPORT TECHNOLOGY MAY SPEED TRAVELERS

by Kathleen M. Hanenburg

U.S. citizens required to travel frequently may benefit from new technology under consideration which would allow U.S. travelers to obtain passport cards containing vicinity Radio Frequency Identification (RFID). The credit card-sized passport card will allow officers to quickly read the identification of a traveler carrying such a card. In addition, multiple cards can be read at a distance and simultaneously with vicinity RFID technology, allowing an entire carful of people to be processed at one time.

The Department of Homeland Security is taking the following steps to protect the privacy of travelers:

  • No personal information would be transmitted or stored on the vicinity RFID-enabled card. The technology will transmit only a number between the card and the reader which will be matched against a DHS database.
  • Even though no personally identifiable information will be transmitted, DHS is taking steps to ensure that even this number cannot be intercepted during transmission to an authorized reader at a port of entry.
  • All cardholders would be issued a protective sleeve for the card, preventing transmission of the vicinity RFID signal while the card is in the sleeve.

The use of the card would be voluntary, so travelers can elect to continue to use a traditional passport.

 

2007 Human Recources Seminar

May 10, 2007
7:30 am - 4:15 pm
Amway Grand Plaza Hotel
Grand Rapids, Michigan


General Session
Featuring HR Theatre

It is one thing to talk about it; it is another to see it happen. This intriguing session will allow you to view, first-hand, HR do's and don'ts. Actors and attorneys will team up to explore difficult HR issues in the workplace and follow them as they are played out in the courtroom. We will have time to dissect what employers should--and shouldn't--have done in each situation.

Lunch Program
Generational Differences

For the first time in history, four generations are together in the workplace.
The oldest generation grew up with stick shifts, rotary phones, polio outbreaks and World War II. The newest generation grew up with the Internet, text messaging, AIDS and the Gulf War.
This session will explore the widely different workplace values, communication styles and
leadership desires among these generations.

Breakout Sessions

Covering a wide range of employment and employee benefit topics

• Employment Law 101 – The Basics
• HSAs and HRAs – the Perfect Fit for Your Plan
• CSI: The HR Manager in Crisis Management
• The Pension Protection Act
• Immigration and I-9 Compliance
• Strategies to Control Health Care Costs
• FMLA and ADA in the Real World
• Electronic SPDs, Notices and Consents: What you need to know
• Internet, Web Blogging and E-mail Use Policies
• Selecting Your Plan Provider – Minimizing Fiduciary Liability
• Top Ten Things Employers Should Know About Union Organizing
• Whistleblower, Retaliation & Protected Concerted Activity
• Ask the Attorney: Health and Welfare Potpourri
• Electronic Discovery & Document Retention

Registration Fee

$150, which includes parking, continental breakfast, access to all sessions,
handout materials binder, lunch and break refreshments.

A detailed schedule is available online at http://wnj.com/newsevents/events.
Registration is now open and available online or by contacting
Gloria White at 616-752-2718 or gwhite@wnj.com.
 

NOTICE. Although we would like to hear from you, we cannot represent you until we know that doing so will not create a conflict of interest. Also, we cannot treat unsolicited information as confidential. Accordingly, please do not send us any information about any matter that may involve you until you receive a written statement from us that we represent you.

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