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| Employment: Recent Developments |
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Client Alert: Ledbetter Fair Pay Act and New COBRA Provisions
March 2009 |
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3/2/2009
Authors: Gallagher Employment Lawyers
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Lilly Ledbetter Fair Pay Act and COBRA Provisions of American Recovery and Reinvestment Act
Employers should be aware of two new pieces of federal legislation. The first, the Lilly Ledbetter Fair Pay Act of 2009 (the Fair Pay Act), increases the amount of time available for filing discrimination charges based on wages, benefits, and other types of compensation. The second, commonly known as the stimulus package, is the American Recovery and Reinvestment Act of 2009 (the Stimulus Act), which includes important changes regarding benefits available under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). Both the Fair Pay Act and COBRA provisions of the Stimulus Act are described below.
Fair Pay Act
The Fair Pay Act was passed in response to a 2007 United States Supreme Court decision in Ledbetter v. Goodyear Tire & Rubber Co. In that case, the Supreme Court rejected plaintiff Lilly Ledbetter's argument that the deadline to file her charge of sex discrimination began anew with each paycheck she received that was based on an allegedly discriminatory pay decision. Instead, the Court held that the time limit to file a charge (which is 300 days in most states, including Maryland) began when Ms. Ledbetter's employer made the allegedly discriminatory decision.
The Fair Pay Act changes the rule established by Ledbetter for claims under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act, and the Rehabilitation Act of 1973. Under the Fair Pay Act, violations occur when an employer makes a discriminatory compensation decision or adopts a discriminatory practice, when an individual becomes subject to the discriminatory decision or practice, or when an individual is affected by application of the discriminatory decision or practice (including each time wages, benefits, or other types of compensation are paid). The Fair Pay Act applies retroactively to all claims pending or arising on or after May 28, 2007, one day before the Supreme Court issued the Ledbetter decision. In addition to existing remedies under the affected laws, the Fair Pay Act authorizes back pay damages for up to two years preceding the charge filing date under certain circumstances.
As a result of the Fair Pay Act's passage, employers may see an increased number of charges based on claims of compensation inequities. To prevent and assist in the defense of these types of claims, employers should examine their practices and policies to ensure that promotion, compensation, and benefits decisions are based on objective factors and supported by adequate documentation. Because of the increased filing time limits, employers should maintain such documentation (including performance reviews on which pay raises were based) indefinitely. Supervisors and managers who make compensation or benefits decisions or have input into such decisions should be trained on the employer's promotion, compensation, and benefits practices and policies. Human Resources or other compliance personnel should monitor these decisions and ensure that managers and supervisors apply relevant policies and practices consistently. Finally, employers should perform periodic assessments of compensation to determine whether there are differences in pay for the same or similar jobs that appear to correspond to differences in employees' race, gender, age, or disability status. If such differences exist, they must be justified by non-discriminatory factors (which should be well-documented) or eliminated.
COBRA Provisions of the Stimulus Act
The Stimulus Act, enacted February 17, 2009, includes a federal subsidy for a portion of COBRA health insurance continuation premiums for certain terminated employees. The subsidy also applies to continuation premiums for coverage provided in connection with state laws.
The Stimulus Act provides that eligible employees may receive 65 percent of the premium amount for any COBRA continuation coverage for up to nine months. The remaining 35 percent of the premium amount must be paid by the employee. While the funding for the subsidy is provided by the federal government, the program is administered by employers, and employers are required to advance the 65 percent premium assistance amounts. For the first two periods of coverage following enactment of the Stimulus Act (generally, March and April for coverage provided on a monthly basis), employers may reimburse or credit employees who have already paid their full premiums. Thereafter, employers must begin to pay 65 percent of the premiums. Employers recover the advanced premium amounts either through a credit applied to their payroll taxes or, to the extent the premium payments exceed payroll taxes, by seeking a credit or refund of these amounts from the Secretary of the Treasury.
Employees are eligible for premium assistance if they are or were involuntarily terminated between September 1, 2008 and December 31, 2009. The Act does not define the term "involuntary termination." Employees are no longer eligible for the subsidy if they become eligible for other coverage (e.g., employer-provided or Medicare) and face a penalty of 110% of any premium assistance for failure to give notice of such a change. Employees whose modified adjusted gross income is more than $125,000 ($250,000 for joint filers) but less than $145,000 ($290,000 for joint filers) will be subject to partial "recapture" of the premium assistance through an increase in their income tax liability. For employees with a modified adjusted gross income in excess of $145,000 ($290,000 for joint filers), the government will recapture the full amount of any premium assistance provided. Employees may avoid recapture by notifying their employers (or the entities that provide the premium assistance), in the form and manner to be prescribed by the Secretary of the Treasury, that they waive their rights to such assistance.
The new rules require several immediate actions by employers. Although premium assistance is not retroactive, employees who were terminated after September 1, 2008 have a second chance to elect COBRA continuation coverage. Employers must notify these employees by April 18, 2009 that they have 60 days in which to elect continuation coverage for the period beginning after enactment of the Stimulus Act and ending when coverage would have ended had they initially elected COBRA continuation.
In addition, employers must update their form of COBRA notice or create a separate notice that includes information about the right to premium assistance, the extended election period for employees terminated prior to the Stimulus Act's enactment, and the obligation to provide notice of eligibility for other coverage (including the penalty for failure to do so). The Secretary of Labor is required to develop a model notification; however, employers may not wait for this model form before they change their COBRA notices.
For questions about the Fair Pay Act or the Stimulus Act or for compliance assistance, please contact one of the following Gallagher Employment attorneys:
This Client Alert is for general informational purposes only and does not intend to offer legal advice or counseling. You should not act upon information contained in this Alert without the advice and counseling of a lawyer familiar with your particular factual situation.
Copyright © 2009 by Gallagher Evelius & Jones LLP
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