COBRA (the Consolidated Omnibus Budget Reconciliation Act of 1986) gives employees and their families the right to continue group health insurance benefits under certain circumstances which would otherwise terminate benefits. These events include voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events. Employees qualifying for COBRA insurance continuation benefits may be (and usually are) required to pay all of the benefit premiums.

The American Recovery and Reinvestment Act of 2009 authorized a COBRA subsidy for those employees involuntarily terminated during the period September 1, 2008 through December 30, 2009. Qualified employees terminated during this period were required to pay only 35 percent of the insurance premiums for up to 9 months. The remaining 65 percent of the premium was paid by employers, then taken as a credit against employment taxes.

On December 19, President Obama signed legislation that extended the COBRA premium reduction subsidies. The subsidies, which were set to expire on December 30, are now available to qualified employees involuntarily terminated through February 28, 2010. In addition, the subsidy period was extended from 9 months to 15 months.

Plan administrators must provide information about the premium subsidy to all employees who are terminated during the period September 1, 2008 through February 28, 2010, and must give notice of the premium subsidy extension by February 17, 2010 to all those who had received notice prior to the extension. Those employees in a transition period must receive notice within 60 days of the first day of the transition period. A transition period is a period that begins at the end of the original 9 month premium subsidy period if those 9 months ended before December 19, 2009 .

By Rebecca M. Fowler, rfowler@dsda.com

The United States Supreme Court will soon consider whether employees have reasonable expectations of privacy in text messages sent from employer-owned pagers, and whether employment policies can eliminate that expectation. In June, the U.S. Court of Appeals for the Ninth Circuit announced its decision in Quon v. Arch Wireless Operating Company, Incorporated and held that employees may have a reasonable expectation of privacy in these types of messages. More importantly, however, the Ninth Circuit also explained that proper policies and practices may eliminate this expectation.

The City of Ontario purchased pagers, paid for services and gave the pagers to its employees. The City was charged overages for each character in excess of 25,000 per month. Employees were told they were responsible for overages. Employees paid for overages on several occasions, without having the content of their messages reviewed.

Although the City did not have a written policy specifically addressing pagers, it did have a general “Computer Usage, Internet and E-mail Policy.” That Policy stated that “use of City-owned computers and all associated equipment, software, programs, networks, Internet, e-mail and other systems” was limited to City business. It also stated that employees “should have no expectation of privacy or confidentiality when using these resources” and gave notice that “inappropriate, derogatory, obscene, suggesting, defamatory, or harassing language in the e-mail system will not be tolerated.” Employees signed acknowledgments indicating they read and understood the Policy. The City later held an employee meeting and informed employees that the pagers would be considered e-mail subject to this Policy.

Because many employees continued to assess overage charges, the City later informed its employees their messages would be “audited” to determine if overages were work-related. The City eventually requested, and received, transcripts of messages from the service provider. Some messages were sexually explicit.

The Ninth Circuit first held that the provision of transcripts of text messages to the City by the service provider was a violation of the Electronic Communications Privacy Act, which prohibits service providers from disclosing contents of stored electronic communications.

The Court then found that City employees had a reasonable expectation of privacy under the Fourth Amendment to the U.S. Constitution, which prohibits unlawful searches and seizures. This finding was based upon the City’s written employment policies as well as the City’s practice of deviating from these policies.

The Court found that the City’s general ‘Computer Usage, Internet and E-mail Policy,” coupled with the meeting during which the City gave notice that messages would be treated as e-mail, would have eliminated any expectation of privacy in the messages. However, the Court found that the City’s informal practices trumped its written policies. First, on numerous occasions the City had its employees pay for overages, without reviewing the content of messages. Second, on at least one occasion the City stated to its employees that the City would not review the content of their messages as long as they paid for overages. The Ninth Circuit found that under these circumstances, employees reasonably believed that their messages were private.

The Ninth Circuit then held the scope of the search was not reasonable because the City could have determined whether the messages were work-related merely by reviewing the numbers of the senders and recipients, without reviewing the content of the messages.

The decision in Quon undermines the need to (1) specifically address all types of electronic communications in employment policies and (2) adhere to written policies in every related instance. We will follow the case and will provide an update as to whether and to what extent employers may eliminate privacy interests in electronic communications transmitted over employer-owed devices.

By Courtney Bru, cbru@dsda.com

An employer that maintains a group health benefit plan for its employees may be subject to excise taxes if the plan fails to meet certain Internal Revenue Code requirements.

Historically, these excise taxes have received little attention and been subject to few enforcement efforts. However, recently issued final regulations under the Internal Revenue Code aim to change that.

Beginning January 1, 2010, plan sponsors (plan administrators for multiemployer plans) are required to self-report excise tax liabilities for failure to meet certain health plan requirements, including requirements under:

• COBRA
• HIPAA's portability and nondiscrimination rules
• Newborns' and Mothers' Health Protection Act (minimal hospital stays for mothers and newborns)
• Mental Health Parity and Addiction Equity Act
• Medical savings account (“MSA”) and Health savings account (“HSA”) comparability provisions
• Michelle’s Law (coverage of dependent students on medically necessary leaves of absence)
• Genetic Information Nondiscrimination Act (GINA)

For example, if a group health plan offers participants a discount for completing a health risk assessment that inappropriately requests information about a participant’s family medical history (in violation of the GINA privacy requirements), the plan will be subject to an excise tax. Effective January 1, 2010, the plan sponsor will be required to report that excise tax on IRS Form 8928 and to pay that tax at the time it is reported. The amount of the excise tax varies depending on which law the employer or plan has failed to comply with. For failures relating to COBRA and group health plan requirements (HIPAA portability, HIPAA nondiscrimination, GINA, Mental Health Parity, Newborns' and Mothers' Health Protection Act, and Michelle's Law), generally the excise tax is $100 per individual to whom the failure relates per day for each day of noncompliance. For failures relating to the MSA and HSA comparable employer contributions requirements, generally the excise tax is 35% of the amount contributed by the employer to the MSAs or the HSAs of all employees within the calendar year. A failure to meet these reporting and payment requirements may result in the assessment of penalties and interest.

To satisfy these new requirements, plan sponsors will need to establish administrative processes and systems for identifying violations and tracking their resolution. Plan sponsors who have outsourced functions that might subject the sponsor to excise taxes should review applicable vendor contracts and, as appropriate, evaluate a vendor's processes for compliance.

Self-reporting and payment of an excise tax will not be required when an exception to the excise tax rules applies. For example, a failure to comply with COBRA, GINA, and a number of other requirements will be excused if discovery of the failure was delayed (despite the exercise of reasonable diligence) and prompt and appropriate correction is made upon discovery.

In addition, excise tax reporting is required if comparable employer contribution rules are not satisfied for MSAs and HSAs. The regulations provide final rules relating to (i) contributions to MSAs and HSAs of nonhighly compensated employees, (ii) contributions to and MSAs and HSAs of highly compensated employees, and (iii) contributions to MSAs and HSAs for employees who become eligible individuals mid-year.

By Jeff Rambach, jrambach@dsda.com

If your company is required to perform random drug and alcohol testing of employees, you should be aware that random rates for 2010 have been established by the Federal Aviation Administration, the Federal Motor Carrier Safety Administration (applicable to CDL drivers), the Federal Railroad Administration, the Federal Transit Administration, the Pipeline & Hazardous Materials Safety Administration, and the United States Coast Guard.

You can find the new random testing rates here.

As many of you use outside vendors for this testing, you should verify that these vendors are testing according to these new rates.

By Kristen L. Brightmire, kbrightmire@dsda.com

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January 1, 2010

Happy New Year!

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