Monthly Archives: October 2011

EEOC and AT&T Settle Age Discrimination Suit

While not particularly noteworthy in the fact that they settled the suit, the EEOC had alleged AT&T violated the law in its practice of refusing to consider for employment former AT&T employees who had opted to receive a voluntary early retirement package.

Some employees voluntarily retired about ten years ago–and were barred by AT&T from working there again. The EEOC sued, arguing AT&T’s practice of rejecting former employees simply because they previously opted for early retirement violated the Age Discrimination in Employment Act.

This is important for employers to keep in mind when structuring a reduction in force that could impact older workers.


IRS Clarifies Taxation of Employer-Provided Cell Phones

Clarifying a somewhat confusing issue, the IRS recently issued guidance on the taxation of employer-provided cell phones. The guidance applies to cell phones provided for “noncompensatory” purposes–that is, the cell phone is not just an added perk to attract or retain employees. The provision of an employer-provided cell phone must, in other words, be business related.

The good news, though, is the IRS will not include the value of the cell phone as taxable income to the employee. This includes the employee’s use of the cell phone for personal reasons, as long as the overall purpose of the employer’s provision of the cell phone is noncompensatory.

EEOC Issues Informal Guidance on Arrest and Conviction Records

In an informal (and nonbinding) advisory opinion letter, the EEOC has shed some light on its views of employers using arrest and conviction records in making initial hiring decisions.

Although it does not set forth any strict standards, and is not binding, it does contain some helpful guidance:

  • When using automatic exclusions for criminal convictions, employers must ensure the conviction is both recent enough and sufficiently job-related to be predictive in determining whether it will impact the applicant’s performance
  • Arrest records that don’t result in convictions should be examined more closely and treated differently that conviction records

The basic thrust of the EEOC’s position is that applicants’ arrest and conviction records should be job-related and their use indiscriminately applied.

Sexual Harassment Not Just Limited to Employees

The EEOC announced that it has settled a sexual harassment case it filed against an employer in California. However, as opposed to the typical supervisor or coworker harasser, the harasser in this case was the employer’s landlord.

Various female employees complained about the landlord’s harassment, but the employer made only a “superficial” investigation. The harassment continued and a week and a half later the female employee who complained was fired.

The EEOC sued–the case settled for $125,000. Employers must keep in mind that sexual harassment is not just limited to employees and they must keep an eye on their contractors–and landlords.

IRS Announces 2012 COLA Increases

The IRS released today the 2012 annual cost-of-living increases for various tax and employee benefit programs.

In addition to addressing compensation limits for IRA contributions and pension plans, the IRS increased by $500 the annual elective deferral maximum for 401(k) plans from $16,500 to $17,000 and increased the total annual deferrals across all defined contribution plans from $49,000 to $50,000.

For employers using high-deductible health plans, the IRS also adjusted the out-of-pocket deductible requirements.

Copies of Revenue Procedure 2011-52 (various topics) and IR-2011-103 (employee retirement plans) set out all the newly adjusted amounts.

What Is Deferred Compensation and Why Does It Matter?

Nonqualified deferred compensation plans (as opposed to tax-favored “qualified” retirement plans) have become a popular option for employers to attract and retain management employees, often providing the so-called “golden handcuffs” to encourage key employees to stay for a certain number of years or until certain performance targets are reached. But planning for nonqualified deferred compensation has become much more complicated in recent years.

After the spectacular corporate implosions in the early 2000s, section 409A was added to the tax code. It drastically limited the flexibility of nonqualified deferred compensation plans and imposed some of the most severe penalties on employees for noncompliance. In doing so, it not only imposed regulations on standard deferred compensation plans–it also swept up a wide range of benefits and compensation arrangements that employers may not even think twice about.

Section 409A, with some specific exceptions, governs any compensation that is earned in one year but payable in a later year. It strictly regulates the details of the plan structure, acceptable times and forms of payment, and limits when, how, and under what circumstances the employee may be paid promised deferred compensation.

But while the definition is simplistic, it masks the complexity that arises in figuring out the precise details. For example, unless structured to fit into 409A’s narrow exception, severance packages could be included. Individual employment contracts are subject to 409A. Post-retirement benefits could be included. Even independent contractors may be roped in if they perform significant services for the employer. Perhaps even more dangerous is unwittingly triggering 409A–which requires a fully compliant written plan document–by casual or informal promises to employees. And to make matters worse, it’s not just limited to top executives, key employees, or publicly traded companies–everyone is subject to 409A.

And why does it all matter? Section 409A imposes, on top of the normal income and employment taxes, a 20% penalty and interest on the employee receiving the compensation, meaning the employee’s hard-earned deferred compensation could be reduced to almost zero if the employer fails to comply with 409A.

U.S. Supreme Court to Rule on Ministerial Exception to Discrimination Laws

The Supreme Court heard oral arguments last week in an important case for religious organizations: how far the First Amendment-based “ministerial exception” extends to preempt federal employment discrimination laws.

In its simplest form, the ministerial exception holds that the federal discrimination laws don’t apply to religious organizations in their employment decisions regarding religious positions. The essence is that the government cannot dictate who a church can or cannot hire or fire to perform the church’s religious functions, even if those decisions violate the federal employment discrimination laws.

The Supreme Court is now deciding the issue occupying more of a gray area: does this exception extend to a religious school that fired a teacher who not only taught religion classes and led prayer, but who also taught a full secular curriculum? In other words, does the exception extend not only to religious leaders, but also to other employees further removed from spiritual leadership?

A ruling will probably not be handed down for several months. However, in the meantime, it’s important to differentiate this First Amendment-based exception exempting the decision from all federal discrimination laws from Title VII’s statutory exception that allows “religious organizations” to discriminate based on religion, but not any other protected factor.