Supreme Court upholds Obamacare again … but why?

Once again the Supreme Court has ruled in favor of the Affordable Care Act (ACA) — and upheld a component that’s become an essential part of the law. So now HR pros can start worrying about the upcoming Obamacare compliance challenges without any major distractions.

The Supreme Court case, King v. Burwell, is an appeal of a July ruling from the 4th Circuit Court of Appeals, which upheld the law’s subsidies.

Had the subsidies been struck down by the High Court, millions of Americans could’ve lost the tax subsidies that allowed them purchase affordable coverage under the health reform law.

In fact,  USA TODAY reported that more than 5 million Americans would be affected if the subsidies are struck down.

How affected? Those subsidies have reduced monthly insurance premiums by 76% (the average monthly premium dropped from $346 to just $82) for those who qualify, according to federal officials.

How we got here

The entire case essentially hinged on one phrase in the health reform law, which says that subsidies — in the form of tax credits — would be offered in health insurance exchanges “established by the state.”

But more than 30 states passed on setting up their own exchanges, so the feds stepped in to do so.

Four Virginia residents — the original plaintiffs in the case — claim that the subsidies are illegal in the states where only federal exchanges have been established.

‘Inartful drafting’

With its ruling, the Supreme Court essentially said that the subsidies should be available to all eligible Americans regardless of whether they live in states that have set up their own health insurance exchanges.

In the ruling, Chief Justice John G. Roberts, Jr. did acknowledge that the specific language in the Affordable Care Act was confusing and problematic. As Roberts put it, the law:

“contains more than a few examples of inartful drafting … Congress wrote key parts of the act behind closed doors, rather than through the traditional legislative process.”

Despite the language, Roberts said the intent of law was clear and that:

“Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible we must interpret the Act in a way that is consistent with the former, and avoids the latter.”

Maintains status quo

So where does this leave employers. According to Buck Consultants global practice leader Tami Simon:

“The ruling will not have a significant impact on employers and the human resources department. It maintains the status quo for time being.”

And for employers, the status quo is finding ways to comply with the many complex Obamacare regs, such as:

  • The reporting requirement (2016), and
  • The Cadillac Tax (2018).

‘You can’t fire me, I’m on FMLA’: Was mistake-prone worker correct?

As you know, taking FMLA leave can’t completely shield an employee from termination, especially when the person’s performance warrants him or her being fired. But the FMLA very much complicates the matter. So what do you need to be able to safely let under-performing FMLA-takers go? 

Answer: Documented evidence that the employee isn’t meeting performance standards.

A recent lawsuit in which the employer’s decision to terminate an employee on intermittent FMLA leave was upheld by a federal appeals court provides a good example of when it’s permissible — and what it takes — to safely let these kinds of workers go.

Multiple stints of FMLA

Elizabeth Burciaga sued her employer, Ravago Americas LLC for FMLA retaliation after she was terminated following several FMLA-related absences.

Burciaga was a customer service representative, who was responsible for contacting sales representatives and customers, receiving and processing orders, scheduling shipments, and resolving customer issues.

She’d been at Ravago for five years, and was considered one of Ravago’s more experienced customer service representatives.

Earlier on in her employment with Ravago, Burciaga had taken FMLA leave on two separate occasions for the birth of her children.

Then, about year after her last leave, she requested intermittent FMLA leave to help care for her son. Her request was granted, and she took several days off on a somewhat sporadic basis to care for her son.

Ravago never expressed any concerns about Burciaga taking leave.

Mistakes crept in

During the time she was approved for intermittent leave, Burciaga began making mistakes.

Examples:

  • Burciaga entered an order for 15,000 pounds of material when the customer ordered 22,500 pounds of material
  • She submitted and shipped material under the wrong customer number
  • She shipped the wrong material to a customer, and
  • She shipped the wrong material to a customer again.

A logistics coordinator was able to catch and correct some of these mistakes before customers or the company was affected. But, after being approached by Burciaga’s manager, the logistic coordinator informed him that Burciaga “habitually made shipping errors.”

Her manager then took the matter to upper management, explaining that someone with Burciaga’s experience shouldn’t be making those kinds of mistakes.

Burciaga was terminated. She was told the company couldn’t tolerate continued shipping errors because they could hurt the company’s reputation.

She then sued for FMLA retaliation.

Retaliation a form of discrimination

The court in this case said FMLA retaliation essentially amounts to discrimination — in which an employer takes an adverse action against an employee for exercising a right.

So the employer had to prove it had a nondiscriminatory reason for firing Burciaga.

After reviewing the company’s documentation, which clearly outlined the mistakes she’d made, the court sided with Ravago and dismissed Burciaga’s lawsuit.

When she balked, the court said Burciaga failed to create a “causal connection” between her FMLA leave and her firing.

Three things the employer had in its favor:

  • It had already allowed Burciaga take FMLA leave in the past with no problems
  • Not once was her FMLA leave brought up in the discussions around her work performance or termination, and
  • It had undisputed evidence that Burciaga was making mistakes that could damage the company’s reputation.

All three factors weighed heavily in the court’s ruling that no connection existed between her FMLA leave and her termination.

DOL issues new OT rules: What you need to know, what they’ll cost

The wait is finally over. The DOL just released its proposed revisions to the FLSA overtime exemption rules. Now you can start prepping for the fallout, which will be dramatic. 

For months, the DOL’s been teasing us with promises that the proposed rule changes would be revealed soon. Labor Secretary Thomas Perez even joked the agency was “working overtime” to get the revisions on the table.

Well, all the speculation came to a screeching halt on Monday, when a President Obama-bylined column was published by The Huffington Post, providing a sneak peek at the rules. Hours later, the official Notice of Proposed Rulemaking was available on the DOL’s website.

We’ve gathered the pertinent facts from the 295-page long notice here for you.

Here’s what you need to know:

  • The new pay threshold is much higher than anticipated. As you know, the current minimum salary a worker has to be paid to be exempt from overtime is $455 per week or $23,660 per year. Well, under the proposed rules, it would jump to $970 a week or $50,440 per year. That’s significantly higher than the $42,000 mark those on Capitol Hill had been teasing. The DOL calculated that $50,440 would equal the 40% percentile of weekly earnings for full-time salaried workers.
  • The highly compensated employee threshold will also climb. The total annual compensation requirement needed to exempt highly compensated employees would climb to $122,148 from 100,000 — or the 90th percentile of salaried workers’ weekly earnings.
  • The salary thresholds will automatically increase. For the first time ever the salary thresholds will be tied to an automatic-escalator. The DOL is proposing using one of two different methodologies to do this — either keeping the levels chained to the 40th and 90th percentiles of earnings, or adjusting the amounts based on changes in inflation by tying them to the Consumer Price Index.
  • No changes to the duties tests have been proposed. The DOL hasn’t suggested changing the executive, administrative, professional, computer or outside sales duties tests (see them here) as of yet. However, the agency is seeking comments on whether they should be changed and whether they’re working to screen out employees who are not bona fide white collar exempt employees. Early indicators were that the DOL would look to adopt a California-style rule in which employees would be required to spend more than 50% of their time performing exempt duties to be classified as exempt.
  • Bonuses aren’t part of the salary calculation. As of now, the DOL says discretionary bonuses won’t count toward a person’s salary — but that could change depending on the comments the agency receives. Currently, such bonuses are only included in calculating total compensation under the highly compensated employee test. That’s not set to change. But the DOL said some stakeholders are asking for broader inclusion of bonuses in salary calculations.
  • The rules will — most likely — take effect in 2016. We don’t have a definitive timeline for implementation of the rule changes, but it’s a safe bet they won’t kick in until at least 2016. The proposed rules haven’t been published in the Federal Register yet. But once they are, an official public comment period will be set. The DOL will then review the comments and make changes to the proposed rules if it’s deemed necessary. At that point, the rules will be re-released in their final form, and an effective date will be announced.

How many people will be affected?

Based on the Obama Administration’s calculations, only about 8% of workers currently earn less than the existing $23,660 salary threshold. And as the numbers above indicate, cranking the threshold up to $50,440 would put about 40% of workers under the line. According to the DOL, that would extend overtime eligibility to about 4.6 million workers, assuming employers did nothing in reaction to the rule changes.

The White House has also provided a chart of just how many workers in each state would be affected by the rule changes — again, assuming employers stood pat.

How much will it cost?

Now for the cost to employers: The DOL is estimating that the average annualized direct employer costs will total between $239.6 million and $255.3 million per year, depending on the salary threshold auto-escalation method.

In addition to direct costs, the DOL says the rules would transfer between $1.18 billion and $1.27 billion out of employers’ coffers into employees’ paychecks annually — again assuming employers do nothing to adjust to the rules.

As we reported previously, Oxford Economics, a global analytics, forecasting and advisory firm, is predicting that transfer of funds won’t take place. Its researchers believe businesses are likely to make “significant adjustments in the structure of their workplaces to compensate for the billions of dollars of added wages the new regulations would impose.”

Oxford Economics predicts employers will “adjust compensation schemes to ensure they do not absorb additional labor costs.”

To do this, the firm estimates employers would:

  • lower hourly rates of pay
  • cut employee bonuses and benefits so they can increase base salaries above the new threshold, and
  • reduce some workers’ hours to fewer than 40 per week in order to avoid paying overtime.

All of these actions would leave total pay largely unchanged.

But taking these actions would result in exorbitant administrative costs — far outweighing the DOL’s estimates, according to Oxford Economics.

In its report, commissioned by the National Retail Federation, Oxford Economics estimated that raising the salary threshold to $51,000 would cost businesses $874 million in administrative expenditures alone.